S-1/A 1 snowflakes-1a2.htm S-1/A Document

As filed with the Securities and Exchange Commission on September 14, 2020.
Registration No. 333-248280
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Snowflake Inc.
(Exact name of Registrant as specified in its charter)
Delaware737246-0636374
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
450 Concar Drive
San Mateo, CA 94402
(844) 766-9355
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
Frank Slootman
Chief Executive Officer
Snowflake Inc.
450 Concar Drive
San Mateo, CA 94402
(844) 766-9355
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
Mark P. Tanoury
Jon C. Avina
Seth J. Gottlieb
Alex K. Kassai
Cooley LLP
3175 Hanover Street
Palo Alto, CA 94304
(650) 843-5000
Derk Lupinek
General Counsel
Snowflake Inc.
450 Concar Drive
San Mateo, CA 94402
(844) 766-9355
Richard A. Kline
Sarah B. Axtell
Goodwin Procter LLP
601 Marshall Street
Redwood City, CA 94063
(650) 752-3100
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
CALCULATION OF REGISTRATION FEE
Title of each Class of
Securities to be Registered
Amount to be Registered(1)
Proposed Maximum Offering Price Per Share(2)
Proposed Maximum Aggregate Offering Price(1)(2)
Amount of Registration Fee
Class A common stock, par value $0.0001 per share32,200,000$110.00$3,542,000,000
$459,752(3)
(1)Includes 4,200,000 shares that the underwriters have an option to purchase.
(2)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended.
(3)The registrant previously paid a registration fee of $355,263 in connection with prior filings of this Registration Statement.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.



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PROSPECTUS (Subject to Completion) Issued September 14, 2020 28,000,000 Shares CLASS A COMMON STOCK This is an initial public offering of shares of Class A common stock of Snowflake Inc. Prior to this offering, there has been no public market for our Class A common stock. It is currently estimated that the initial public offering price will be between $75.00 and $85.00 per share. Our Class A common stock has been approved for listing on the New York Stock Exchange under the symbol “SNOW.” We are an “emerging growth company” as defined under the federal securities laws, and as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. See the section titled “Risk Factors” beginning on page 13 to read about factors you should consider before buying shares of our Class A common stock. We have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting, conversion, and transfer rights. Each share of Class A common stock is entitled to one vote. Each share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately 98.5% of the voting power of our outstanding capital stock immediately following this offering and the concurrent private placements, with our directors, executive officers, and principal stockholders representing approximately 70.2% of such voting power. Each of Salesforce Ventures LLC and Berkshire Hathaway Inc. have entered into an agreement with us pursuant to which they have each agreed to purchase $250 million of our Class A common stock in a private placement at a per share price equal to the initial public offering price. Our agreements with each of Salesforce Ventures LLC and Berkshire Hathaway Inc. are contingent upon, and are scheduled to close immediately subsequent to, the closing of this offering as well as the satisfaction of certain conditions to closing as further described in the section titled “Concurrent Private Placements.” Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Per Share Total Initial public offering price............................................................................... $ $ Underwriting discount(1).................................................................................. $ $ Proceeds, before expenses, to us.................................................................. $ $ ________________ (1) See the section titled “Underwriting” for a description of compensation payable to the underwriters. To the extent that the underwriters sell more than 28,000,000 shares of Class A common stock, the underwriters have the option to purchase up to an additional 4,200,000 shares of Class A common stock at the initial public offering price less the underwriting discount. The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York on , 2020. Goldman Sachs & Co. LLC Morgan Stanley J.P. Morgan Securities LLC Allen & Company LLC Citigroup Credit Suisse Barclays Deutsche Bank Securities Mizuho Securities Truist Securities BTIG Canaccord Genuity Capital One Securities Cowen D.A. Davidson & Co. JMP Securities Oppenheimer & Co. Piper Sandler Stifel Academy Securities Loop Capital Markets Ramirez & Co., Inc. Siebert Williams Shank , 2020 The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek buy these securities in any jurisdiction where the or sale permitted.



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TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission (SEC). Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus filed with the SEC. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.
For investors outside of the United States, neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.
Through and including          , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “Snowflake,” the “company,” “we,” “our,” “us,” or similar terms refer to Snowflake Inc. and its subsidiaries.
SNOWFLAKE INC.
We believe in a data connected world where organizations have seamless access to explore, share, and unlock the value of data. To realize this vision, we are pioneering the Data Cloud, an ecosystem where Snowflake customers, partners, and data providers can break down data silos and derive value from rapidly growing data sets in secure, governed, and compliant ways.
Our Cloud Data Platform is the innovative technology that powers the Data Cloud. Our platform enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. We deliver our platform through a customer-centric, consumption-based business model, only charging customers for the resources they use.
Our platform solves the decades-old problem of data silos and data governance. Leveraging the elasticity and performance of the public cloud, our platform enables customers to unify and query data to support a wide variety of use cases. It also provides frictionless and governed data access so users can securely share data inside and outside of their organizations, generally without copying or moving the underlying data. As a result, customers can blend existing data with new data for broader context, augment data science efforts, or create new monetization streams. Delivered as a service, our platform requires near-zero maintenance, enabling customers to focus on deriving value from their data rather than managing infrastructure.
Our cloud-native architecture consists of three independently scalable layers across storage, compute, and cloud services. The storage layer ingests massive amounts and varieties of structured and semi-structured data to create a unified data record. The compute layer provides dedicated resources to enable users to simultaneously access common data sets for many use cases without latency. The cloud services layer intelligently optimizes each use case’s performance requirements with no administration. This architecture is built on three major public clouds across 22 regional deployments around the world. These deployments are interconnected to create our single Cloud Data Platform, delivering a consistent, global user experience.
Our platform supports a wide range of use cases that enable our customers’ most important business objectives, including data engineering, data lake, data warehousing, data science, data applications, and data sharing. For example, CIOs choose us to help migrate petabytes of raw data to the public cloud and transform it into analytics-ready data. CMOs choose us to create 360-degree customer views. Business leaders choose us to distill insights from their most important business metrics. Data scientists choose us to simplify data transformation to build better machine learning algorithms. Businesses choose us as the analytical engine to power their digital services. CEOs choose us as a strategic partner to accelerate their cloud strategies and deliver new revenue-generating services. From July 1, 2020 to July 31, 2020, we processed an average of 507 million daily queries across all of our customer accounts, up from an average of 254 million daily queries during the corresponding month of the prior fiscal year.
Our business benefits from powerful network effects. The Data Cloud will continue to grow as organizations move their siloed data from cloud-based repositories and on-premises data centers to the Data Cloud. The more customers adopt our platform, the more data can be exchanged with other Snowflake customers, partners, and data providers, enhancing the value of our platform for all users. We believe this network effect will help us drive our vision of the Data Cloud.
Our platform is used globally by organizations of all sizes across a broad range of industries. As of July 31, 2020, we had 3,117 customers, increasing from 1,547 customers as of July 31, 2019. As of July 31, 2020, our customers included seven of the Fortune 10 and 146 of the Fortune 500, based on the
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2020 Fortune 500 list, and those customers contributed approximately 4% and 26% of our revenue for the six months ended July 31, 2020, respectively. As our customers experience the benefits of our platform, they typically expand their usage significantly, as evidenced by our net revenue retention rate, which was 158% as of July 31, 2020. The number of customers that contributed more than $1 million in trailing 12-month product revenue increased from 22 to 56 as of July 31, 2019 and 2020, respectively.
We have achieved significant growth in recent periods. For the fiscal years ended January 31, 2019 and 2020, our revenue was $96.7 million and $264.7 million, respectively, representing year-over-year growth of 174%. For the six months ended July 31, 2019 and 2020, our revenue was $104.0 million and $242.0 million, respectively, representing year-over-year growth of 133%. Our net loss was $178.0 million and $348.5 million for the fiscal years ended January 31, 2019 and 2020, respectively, and $177.2 million and $171.3 million for the six months ended July 31, 2019 and 2020, respectively.
Industry Background
Important technology and industry trends are changing the ways organizations leverage their data, including:
Data is becoming paramount to business success. Data is at the heart of business innovation. Recognizing this trend, organizations everywhere are seeking ways to transform their businesses by capturing, analyzing, and mobilizing data.
The explosion of data is offering richer insights. The proliferation of data provides valuable insights for organizations, including key business and performance metrics, customer attributes and behavior, and product strengths and capabilities.
Cloud adoption is accelerating and diversifying. The public cloud is becoming the new center of gravity for data as organizations migrate from static on-premises IT architectures to global, dynamic, and multi-cloud architectures.
Everyone is becoming a data consumer. The increasing importance of data in the digital economy is empowering every role and function within an organization to become a mainstream data consumer.
Technology consumption is moving from fixed capacity to utility. We believe that business models are evolving from a fixed capacity, where customers often pay for unused software, to a utility model, where customers pay only for the resources they consume.
Limitations of Existing Data Technologies
Many organizations have attempted to capture the value of data using solutions built on on-premises legacy database or big data architectures. Legacy database architectures have inherent scalability and capacity constraints and were not originally designed for the adoption of cloud-based workloads. These shortcomings have resulted in data silos, governance challenges, and limited business insights. Big data architectures have attempted to solve the problem of data silos with large pools of cost-effective storage, but in doing so have often created data integrity and governance challenges. In recent years, cloud-based companies, including certain public cloud providers, have introduced solutions that are derived from legacy database and big data architectures. Despite being deployed in the public cloud, these solutions generally suffer from the same limitations due to weaknesses in the underlying architectures.
These existing solutions have some or all of the following limitations:
Not built for today’s dynamic and diverse data requirements. Legacy database architectures typically fail to capture, manage, organize, and classify semi-structured data. Big data architectures can capture diverse data types, but the data is generally stored in inconsistent formats requiring transformation prior to use, often resulting in errors and duplicates.
Inability to support large data volumes. Legacy database architectures suffer from storage capacity constraints, redundant data storage, and insufficient compute resources to ingest and transform ever-increasing volumes of data. Big data architectures can often take hours or days to query larger data sets, limiting speed and relevancy of data.
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Inability to simultaneously support many use cases and users. Legacy database architectures only allow a subset of users or use cases to be effectively addressed at any given point in time. Big data architectures often lack the ability to guarantee the consistency and integrity of data when accessed and manipulated.
Lack of optimized price-performance. Solutions built on legacy database and big data architectures are often time-consuming and costly to operate and require manual organization of data prior to use.
Difficult to use. Solutions built on big data architectures often result in project failures due to the significant amount of effort required to configure the infrastructure. Because they require different programming languages, the implementation of these architectures regularly requires analysts to learn new skills to query data.
Expensive to manage and maintain. Legacy database and big data architectures often require maintenance of the underlying infrastructure, upgrades and patches, and system configuration.
Inability to support a multi-cloud, cross-region strategy. Solutions built on legacy database architectures by public cloud providers are typically only intended to run on specific infrastructures and in specific regions, limiting the flexibility to distribute and share data across public clouds and regions or select optimal functionality.
Inability to facilitate data sharing. Solutions built on legacy database and big data architectures generally result in data copies, data security concerns, and poor governance when facilitating data sharing.
The Rise of the Data Cloud
Data silos have been an enduring challenge blocking organizations from realizing the full value of their data. To solve this problem, organizations have invested billions of dollars in disparate on-premises systems, infrastructure clouds, and application clouds. Yet, the data silo problem persists.
The Data Cloud is our vision of a world without data silos, allowing organizations to access, share, and derive better insights from their data.
Our Solution
Our Cloud Data Platform is built on a cloud-native architecture that leverages the massive scalability and performance of the public cloud. Key elements of our platform include:
Diverse data types. Our platform integrates and optimizes both structured and semi-structured data as a common data set, without sacrificing performance or flexibility.
Massive scalability of data volumes. Our platform leverages the scalability and performance of the public cloud to support growing data sets without sacrificing performance.
Multiple use cases and users simultaneously. Our platform makes compute resources dynamically available to address the demand of as many users and use cases as needed.
Optimized price-performance. Our platform uses advanced optimizations to efficiently access only the data required to deliver the desired results. It delivers speed without the need for tuning or the expense of manually organizing data prior to use.
Easy to use. Our platform delivers instant time to value with a familiar query language and consumption-based business model, reducing hidden costs.
Delivered as a service with no overhead. Our platform is delivered as a service, eliminating the cost, time, and resources associated with managing underlying infrastructure.
Multi-cloud and multi-region. Our platform is available on three major public clouds across 22 regional deployments around the world. These deployments are interconnected to create our single Cloud Data Platform, delivering a consistent, global user experience.
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Seamless and secure data sharing. Our platform enables governed and secure sharing of live data within an organization and externally across customers and partners, generally without copying or moving the underlying data. When sharing data across regions and public clouds, our platform allows customers to easily replicate data and maintain a single source of truth.
Key Benefits to our Customers
Our platform eliminates data silos, empowers secure and governed access to data, and removes infrastructure complexity freeing organizations to drive holistic insights across their business and address new market opportunities. It enables customers to:
transform into data-driven businesses;
consolidate data into a single, analytics-ready source of truth;
increase agility and augment insights through seamless data sharing;
create new monetization streams and data-driven applications;
benefit from a global multi-cloud strategy;
reduce time spent managing infrastructure; and
enable greater data access through enhanced data governance.
Our Opportunity
Based on our own estimates, we believe the addressable market opportunity for our Cloud Data Platform is approximately $81 billion as of January 31, 2020.
According to IDC, the markets for Analytics Data Management and Integration Platforms and Business Intelligence and Analytics Tools, which we believe we address, will have a combined value of $56 billion by the end of 2020 and $84 billion by the end of 2023.
Our data sharing opportunity has not been defined or quantified by any research institutions. However, we believe that this opportunity is substantial and largely untapped.
Our Growth Strategies
Our strategy is to advance the Data Cloud through the adoption of our platform. We intend to continue making significant investments both domestically and internationally in sales and marketing, research and development, and our partner ecosystem to drive our growth. Key elements of our strategy include:
innovate and advance our platform;
drive growth by acquiring new customers;
drive increased usage within our existing customer base;
expand our global footprint;
expand data sharing across our global ecosystem; and
grow and invest in our partner network.
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Risk Factors
Investing in our Class A common stock involves substantial risk. The risks described in the section titled “Risk Factors” immediately following this summary may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include, but are not limited to, the following:
We have a limited operating history, which makes it difficult to forecast our future results of operations.
We may not have visibility into our financial position and results of operations.
We have a history of operating losses and may not achieve or sustain profitability in the future.
The markets in which we operate are highly competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed.
If we fail to innovate in response to changing customer needs and new technologies and other market requirements, our business, financial condition, and results of operations could be harmed.
If we or our third-party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our data, or our platform, our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may be reduced, and we may incur significant liabilities.
We could suffer disruptions, outages, defects, and other performance and quality problems with our platform or with the public cloud and internet infrastructure on which it relies.
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price could decline.
Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products and platform.
Sales efforts to large customers involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
The COVID-19 pandemic could have an adverse impact on our business, operations, and the markets and communities in which we, our partners, and customers operate.
The dual class structure of our common stock will have the effect of concentrating voting control with our existing stockholders, executive officers, directors, and their affiliates, which will limit your ability to influence the outcome of important transactions and to influence corporate governance matters, such as electing directors, and to approve material mergers, acquisitions, or other business combination transactions that may not be aligned with your interests.
Corporate Information
We were incorporated in Delaware in July 2012 under the name Snowflake Computing, Inc. We changed our name to Snowflake Inc. in April 2019. Our principal executive offices are located at 450 Concar Drive, San Mateo, California 94402, and our telephone number is (844) 766-9355. Our website address is www.snowflake.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
The Snowflake logo, “Snowflake,” and our other registered and common law trade names, trademarks, and service marks are the property of Snowflake Inc. or our subsidiaries. Other trade names, trademarks, and service marks used in this prospectus are the property of their respective owners.
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Implications of Being an Emerging Growth Company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). We may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm under Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions for up to five years or until we are no longer an emerging growth company, whichever is earlier. In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to use the extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
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THE OFFERING
Class A common stock offered
28,000,000 shares
Option to purchase additional shares of Class A common stock
4,200,000 shares
Class A common stock sold in the concurrent private placements and secondary transaction
Immediately subsequent to the closing of this offering, and subject to certain conditions of closing as described in the section titled “Concurrent Private Placements,” each of Salesforce Ventures LLC and Berkshire Hathaway Inc. will purchase $250 million of our Class A common stock from us in a private placement at a price per share equal to the initial public offering price. Based on an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, each of Salesforce Ventures LLC and Berkshire Hathaway Inc. would purchase 2,380,952 shares of our Class A common stock.
We will receive the full proceeds and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placements. The sale of the shares in the private placements are contingent upon the completion of this offering. The sale of these shares to Salesforce Ventures LLC and Berkshire Hathaway Inc. will not be registered in this offering and will be subject to market standoff agreements with us for a period of up to 365 days after the date of this prospectus and lock-up agreements with the underwriters. See the section titled “Shares Eligible for Future Sale—Lock-Up Arrangements” for additional information regarding such restrictions. We refer to these private placements as the concurrent private placements.
In addition, Berkshire Hathaway Inc. has agreed to purchase 4,042,043 shares of our Class A common stock from one of our stockholders in a secondary transaction at a price per share equal to the initial public offering price that will close immediately subsequent to the closing of this offering.
Class A common stock to be outstanding after this offering, the concurrent private placements, and the secondary transaction by one of our stockholders
36,803,947 shares
Class B common stock to be outstanding after this offering, the concurrent private placements, and the secondary transaction by one of our stockholders
240,486,119 shares
Total Class A common stock and Class B common stock to be outstanding after this offering, the concurrent private placements, and the secondary transaction by one of our stockholders
277,290,066 shares
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Use of proceeds
We estimate that our net proceeds from the sale of our Class A common stock in this offering and the concurrent private placements will be approximately $3.3 billion (or approximately $3.8 billion if the underwriters’ option to purchase additional shares of our Class A common stock from us is exercised in full), assuming an initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses.
The principal purposes of this offering and the concurrent private placements are to increase our capitalization and financial flexibility and create a public market for our Class A common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering and the concurrent private placements. However, we currently intend to use the net proceeds we receive from this offering and the concurrent private placements for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, we do not have agreements or commitments to enter into any acquisitions at this time. See the section titled “Use of Proceeds” for additional information.
Voting rightsWe have two classes of common stock: Class A common stock and Class B common stock. Class A common stock is entitled to one vote per share and Class B common stock is entitled to ten votes per share.
Holders of Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation that will be in effect in connection with the closing of this offering. Once this offering, the concurrent private placements, and the secondary transaction are completed, based on the number of shares outstanding as of July 31, 2020, the holders of our outstanding Class B common stock will own approximately 86.7% of our outstanding shares and control approximately 98.5% of the voting power of our outstanding shares, and our executive officers, directors, and stockholders holding more than 5% of our outstanding shares, together with their affiliates, will beneficially own, in the aggregate, approximately 62.4% of our outstanding shares and control approximately 70.2% of the voting power of our outstanding shares.
The holders of our outstanding Class B common stock will have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of our directors and the approval of any change in control transaction. See the sections titled “Principal Stockholders” and “Description of Capital Stock” for additional information.
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Risk factorsSee the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.
Proposed New York Stock Exchange trading symbol
“SNOW”
The number of shares of Class A common stock and Class B common stock that will be outstanding after this offering, the concurrent private placements, and the secondary transaction is based on no shares of Class A common stock and 244,528,162 shares of Class B common stock outstanding as of July 31, 2020, and excludes:
32,336 shares of Class B common stock issuable upon the exercise of a warrant to purchase shares of Class B common stock outstanding as of July 31, 2020, with an exercise price of $0.74 per share;
72,228,820 shares of Class B common stock issuable upon the exercise of stock options outstanding as of July 31, 2020 under our 2012 Equity Incentive Plan (2012 Plan) with a weighted-average exercise price of $6.70 per share;
136,000 shares of Class B common stock issuable upon the exercise of outstanding stock options granted after July 31, 2020 through September 11, 2020 under our 2012 Plan, with a weighted-average exercise price of $71.91 per share;
4,851,121 shares of Class B common stock issuable upon the vesting and settlement of restricted stock units (RSUs) outstanding as of July 31, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering, but for which the service-based vesting condition was not satisfied as of July 31, 2020 and 2,110 shares of Class B common stock issuable upon the vesting and settlement of RSUs outstanding as of July 31, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering and for which the service-based vesting condition was satisfied as of July 31, 2020;
2,841,823 shares of Class B common stock issuable upon the vesting and settlement of outstanding RSUs granted after July 31, 2020 through September 11, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering;
18,299,095 shares of Class B common stock reserved for future issuance under our 2012 Plan as of July 31, 2020, which shares will cease to be available for issuance at the time our 2020 Equity Incentive Plan (2020 Plan) becomes effective;
34,100,000 shares of Class A common stock reserved for future issuance under our 2020 Plan which will become effective in connection with this offering, as well as (i) any annual automatic evergreen increases in the number of shares of Class A common stock reserved for future issuance under our 2020 Plan and (ii) upon the expiration, forfeiture, cancellation, or reacquisition of any shares of Class B common stock underlying outstanding stock awards granted under our 2012 Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 78,816,888; and
5,700,000 shares of Class A common stock reserved for issuance under our 2020 Employee Stock Purchase Plan (ESPP) which will become effective in connection with this offering, as well as any annual automatic evergreen increases in the number of shares of Class A common stock reserved for future issuance under our ESPP.
In addition, unless we specifically state otherwise, the information in this prospectus reflects:
a 2-for-1 forward stock split of our Class B common stock and convertible preferred stock effected on November 28, 2018;
the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, each of which will occur in connection with the closing of this offering;
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the issuance of an aggregate of 4,761,904 shares of our Class A common stock to Salesforce Ventures LLC and Berkshire Hathaway Inc. upon the closing of the concurrent private placements, at an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus;
the conversion of 4,042,043 shares of our Class B common stock into Class A common stock in connection with the sale of such shares at the initial public offering price in a secondary transaction by one of our stockholders immediately subsequent to the closing of this offering;
the automatic conversion of 182,271,099 outstanding shares of convertible preferred stock into an equal number of shares of Class B common stock, which will occur immediately upon the closing of this offering;
no exercise of the underwriters’ option to purchase additional shares of Class A common stock in this offering; and
no exercise of the outstanding stock options or warrants, or the settlement of outstanding RSUs, subsequent to July 31, 2020.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
We have derived the summary consolidated statements of operations data for the fiscal years ended January 31, 2019 and 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the six months ended July 31, 2019 and 2020 and the summary consolidated balance sheet data as of July 31, 2020 from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial data set forth below have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of such data. You should read the consolidated financial and other data set forth below in conjunction with our consolidated financial statements and the accompanying notes and the information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this prospectus. Our historical and interim results are not necessarily indicative of the results to be expected for the full year or any other period in the future.
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenue$96,666 $264,748 $104,044 $241,960 
Cost of revenue(1)
51,753 116,557 52,546 93,003 
Gross profit44,913 148,191 51,498 148,957 
Operating expenses:
Sales and marketing(1)
125,642 293,577 137,465 190,540 
Research and development(1)
68,681 105,160 47,782 69,811 
General and administrative(1)
36,055 107,542 49,095 62,692 
Total operating expenses230,378 506,279 234,342 323,043 
Operating loss(185,465)(358,088)(182,844)(174,086)
Interest income8,759 11,551 6,761 4,137 
Other expense, net(502)(1,005)(779)(1,042)
Loss before income taxes(177,208)(347,542)(176,862)(170,991)
Provision for income taxes820 993 362 287 
Net loss$(178,028)$(348,535)$(177,224)$(171,278)
Net loss per share attributable to common stockholders, basic and diluted(2)
$(4.67)$(7.77)$(4.25)$(3.01)
Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted(2)
38,162,228 44,847,442 41,691,615 56,809,625 
Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)
$(1.63)$(0.72)
Weighted-average shares used to compute pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)(2)
214,327,427 238,369,506 
________________
(1)Includes stock-based compensation expense as follows:
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(in thousands)
Cost of revenue$1,895 $3,650 $1,850 $2,281 
Sales and marketing15,647 20,757 10,626 10,233 
Research and development28,284 15,743 6,411 9,818 
General and administrative6,912 38,249 15,580 16,317 
Total stock-based compensation expense$52,738 $78,399 $34,467 $38,649 

Stock-based compensation expense for the fiscal year ended January 31, 2019 included $30.3 million of compensation expense related to the amount paid in excess of the estimated fair value of common stock at the date of transaction in connection with two issuer tender offers. See Note 11 to our consolidated financial statements included elsewhere in this prospectus for further details.
(2)See Note 2 and Note 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our net loss per share attributable to common stockholders, basic and diluted, pro forma net loss per share attributable to common stockholders, basic and diluted, and the weighted-average shares used to compute these amounts.
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As of July 31, 2020
Actual
Pro Forma(1)
Pro Forma As Adjusted(2)(3)
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and short-term and long-term investments
$886,820 $886,820 $4,228,282 
Total assets1,437,241 1,437,241 4,775,872 
Working capital(4)
315,789 315,789 3,657,746 
Redeemable convertible preferred stock1,415,047   
Additional paid-in capital219,046 1,663,208 5,002,330 
Accumulated deficit(871,597)(900,730)(900,730)
Total stockholders’ (deficit) equity(651,399)763,648 4,102,774 
________________
(1)The pro forma column reflects (i) the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of July 31, 2020 into an aggregate of 182,271,099 shares of Class B common stock, which will occur immediately upon the closing of this offering, (ii) stock-based compensation expense of approximately $29.1 million related to RSUs subject to service-based and performance-based vesting conditions, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus, and (iii) the filing and effectiveness of our amended and restated certificate of incorporation.
(2)The pro forma as adjusted column gives effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of 32,761,904 shares of our Class A common stock offered by us in this offering and the concurrent private placements, based upon an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses.
(3)Each $1.00 increase or decrease in the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and estimated offering expenses, would increase or decrease, as applicable, our cash and cash equivalents, total assets, working capital, and total stockholders’ equity by approximately $27.1 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions. Similarly, each increase or decrease of 1,000,000 shares in the number of shares offered by us would increase or decrease, as applicable, our cash and cash equivalents, total assets, working capital, and total stockholders’ equity by approximately $101.6 million, assuming that the assumed initial public offering price of $105.00, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions.
(4)Working capital is defined as current assets less current liabilities.
Key Business Metrics
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(unaudited)
Product revenue(1) (in millions)
$95.7 $252.2 $100.6 $227.0 
January 31,July 31,
2019202020192020
(unaudited)(unaudited)
Remaining performance obligations(1) (in millions)
$128.0 $426.3 $221.1 $688.2 
January 31,July 31,
2019202020192020
Total customers(1)
948 2,392 1,547 3,117 
Net revenue retention rate(1)
180 %169 %223 %158 %
Customers with trailing 12-month product revenue greater than $1 million(1)
14 41 22 56 
________________
(1)See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” included elsewhere in this prospectus for our definitions of these metrics.
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, or results of operations. In such case, the trading price of our Class A common stock could decline, and you may lose some or all of your original investment.
Risks Related to Our Business and Industry
We have a limited operating history, which makes it difficult to forecast our future results of operations.
We were founded in 2012 and first offered our platform for sale in 2014. Our revenue was $96.7 million and $264.7 million for the fiscal years ended January 31, 2019 and 2020, respectively, and $104.0 million and $242.0 million for the six months ended July 31, 2019 and 2020, respectively. However, you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. As a result of our limited operating history, our ability to accurately forecast our future results of operations is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth should not be considered indicative of our future performance.
Further, in future periods, our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our platform, increased competition, changes to technology, a decrease in the growth of our overall market, or our failure, for any reason, to continue to take advantage of growth opportunities. We have also encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described below. If our assumptions regarding these risks and uncertainties and our future revenue growth are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer.
We may not have visibility into our financial position and results of operations.
Customers consume our platform by using compute, storage, and data transfer resources. Unlike a subscription-based business model, in which revenue is recognized ratably over the term of the subscription, we generally recognize revenue on consumption. Because our customers have flexibility in the timing of their consumption, we do not have the visibility into the timing of revenue recognition that a typical subscription-based software company has. There is a risk that customers will consume our platform more slowly than we expect, and our actual results may differ from our forecasts. Further, investors and securities analysts may not understand how our consumption-based business model differs from a subscription-based business model, and our business model may be compared to subscription-based business models. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class actions.
We have a history of operating losses and may not achieve or sustain profitability in the future.
We have experienced net losses in each period since inception. We generated net losses of $178.0 million and $348.5 million for the fiscal years ended January 31, 2019 and 2020, respectively, and $177.2 million and $171.3 million for the six months ended July 31, 2019 and 2020, respectively. As of January 31, 2020 and July 31, 2020, we had an accumulated deficit of $700.3 million and $871.6 million, respectively. We expect our costs and expenses to increase in future periods. In particular, we intend to continue to invest significant resources to further develop our platform and expand our sales, marketing, and professional services teams. In addition, our platform currently operates on public cloud infrastructure provided by Amazon Web Services (AWS), Microsoft Azure (Azure), and Google Cloud Platform (GCP), and our costs and gross margins are significantly influenced by the prices we are able to negotiate with these public cloud providers, which in certain cases are also our competitors. We will also incur increased general and administrative expenses associated with our growth, including costs related to internal
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systems and operating as a public company. Our efforts to grow our business may be costlier than we expect, or our revenue growth rate may be slower than we expect, and we may not be able to increase our revenue enough to offset the increase in operating expenses resulting from these investments. If we are unable to achieve and sustain profitability, or if we are unable to achieve the revenue growth that we expect from these investments, the value of our business and Class A common stock may significantly decrease.
The markets in which we operate are highly competitive, and if we do not compete effectively, our business, financial condition, and results of operations could be harmed.
The markets in which we operate are rapidly evolving and highly competitive. As these markets continue to mature and new technologies and competitors enter such markets, we expect competition to intensify. Our current competitors include:
large, well-established, public cloud providers that generally compete in all of our markets, including AWS, Azure, and GCP;
less-established public and private cloud companies with products that compete in some of our markets;
other established vendors of legacy database solutions or big data offerings; and
new or emerging entrants seeking to develop competing technologies.
We compete based on various factors, including price, performance, breadth of use cases, multi-cloud availability, brand recognition and reputation, customer support, and differentiated capabilities, including ease of implementation and data migration, ease of administration and use, scalability and reliability, data governance, security, and compatibility with existing standards. Many of our competitors have substantially greater brand recognition, customer relationships, and financial, technical, and other resources than we do, and may be able to respond more effectively than us to new or changing opportunities, technologies, standards, customer requirements, and buying practices.
We currently only offer our platform on the public clouds provided by AWS, Azure, and GCP, which are also some of our primary competitors. Currently, a substantial majority of our business is run on the AWS public cloud. There is risk that one or more of these public cloud providers could use their respective control of their public clouds to embed innovations or privileged interoperating capabilities in competing products, bundle competing products, provide us unfavorable pricing, leverage its public cloud customer relationships to exclude us from opportunities, and treat us and our customers differently with respect to terms and conditions or regulatory requirements than it would treat its similarly situated customers. Further, they have the resources to acquire or partner with existing and emerging providers of competing technology and thereby accelerate adoption of those competing technologies. All of the foregoing could make it difficult or impossible for us to provide products and services that compete favorably with those of the public cloud providers.
For all of these reasons, competition may negatively impact our ability to maintain and grow consumption of our platform or put downward pressure on our prices and gross margins, any of which could materially harm our reputation, business, results of operations, and financial condition.
If we fail to innovate in response to changing customer needs and new technologies and other market requirements, our business, financial condition, and results of operations could be harmed.
We compete in markets that evolve rapidly. We believe that the pace of innovation will continue to accelerate as customers increasingly base their purchases of cloud data platforms on a broad range of factors, including performance and scale, markets addressed, types of data processed, ease of data ingestion, user experience, and data governance and regulatory compliance. We introduced data warehousing on our platform in 2014 as our core use case. In recent years, customers have begun using our platform for additional use cases, including data pipelines, data lakes, data application development, and data sharing and exchange. Our future success depends on our ability to continue to innovate and increase customer adoption of our platform in these and other areas. Further, the value of our platform to customers is increased to the extent they are able to use it for all of their data. We need to continue to invest in technologies, services, and partnerships that increase the types of data processed on our platform and the ease with which customers can ingest data into our platform. We must also continue to
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enhance our data sharing and data exchange capabilities so customers can share their data with internal business units, customers, and other third parties. In addition, our platform requires third-party public cloud infrastructure to operate. Currently, we use public cloud offerings provided by AWS, Azure, and GCP. We will need to continue to innovate to optimize our offerings for these and other public clouds that our customers require, particularly as we expand internationally. Further, the markets in which we compete are subject to evolving industry standards and regulations, resulting in increasing data governance and compliance requirements for us and our customers. To the extent we expand further into the public sector and highly regulated industries, our platform may need to address additional requirements specific to those industries.
If we are unable to enhance our platform to keep pace with these rapidly evolving customer requirements, or if new technologies emerge that are able to deliver competitive products at lower prices, more efficiently, more conveniently, or more securely than our platform, our business, financial condition, and results of operations could be adversely affected.
If we or our third-party service providers experience a security breach or unauthorized parties otherwise obtain access to our customers’ data, our data, or our platform, our platform may be perceived as not being secure, our reputation may be harmed, demand for our platform may be reduced, and we may incur significant liabilities.
Our platform processes, stores, and transmits our customers’ proprietary and sensitive data, including personal information, protected health information, and financial data. Our platform is built to be available on the infrastructure of third-party public cloud providers such as AWS, Azure, and GCP. We also use third-party service providers and sub-processors to help us deliver services to our customers and their end-users. These vendors may store or process personal information, protected health information, or other confidential information of our employees, our partners, our customers, or our customers’ end-users. We collect such information from individuals located both in the United States and abroad and may store or process such information outside the country in which it was collected. While we, our third-party cloud providers, and our third-party processors have implemented security measures designed to protect against security breaches, these measures could fail or may be insufficient, resulting in the unauthorized disclosure, modification, misuse, destruction, or loss of our or our customers’ data or other sensitive information. Any security breach of our platform, our operational systems, physical facilities, or the systems of our third-party processors, or the perception that one has occurred, could result in litigation, indemnity obligations, regulatory enforcement actions, investigations, fines, penalties, mitigation and remediation costs, disputes, reputational harm, diversion of management’s attention, and other liabilities and damage to our business. Even though we do not control the security measures of third parties, we may be responsible for any breach of such measures or suffer reputational harm even where we do not have recourse to the third party that caused the breach. In addition, any failure by our vendors to comply with applicable law or regulations could result in proceedings against us by governmental entities or others.
Cyber-attacks, denial-of-service attacks, ransomware attacks, business email compromises, computer malware, viruses, and social engineering (including phishing) are prevalent in our industry and our customers’ industries. In addition, we may experience attacks, unavailable systems, unauthorized access or disclosure due to employee theft or misuse, denial-of-service attacks, sophisticated nation-state and nation-state supported actors, and advanced persistent threat intrusions. The techniques used to sabotage or to obtain unauthorized access to our platform, systems, networks, or physical facilities in which data is stored or through which data is transmitted change frequently, and we may be unable to implement adequate preventative measures or stop security breaches while they are occurring. We have previously been, and may in the future become, the target of cyber-attacks by third parties seeking unauthorized access to our or our customers’ data or to disrupt our operations or ability to provide our services.
We have contractual and legal obligations to notify relevant stakeholders of security breaches. Most jurisdictions have enacted laws requiring companies to notify individuals, regulatory authorities, and others of security breaches involving certain types of data. In addition, our agreements with certain customers and partners may require us to notify them in the event of a security breach. Such mandatory disclosures are costly, could lead to negative publicity, may cause our customers to lose confidence in the effectiveness of our security measures, and require us to expend significant capital and other resources to respond to or alleviate problems caused by the actual or perceived security breach.
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A security breach may cause us to breach customer contracts. Our agreements with certain customers may require us to use industry-standard or reasonable measures to safeguard sensitive personal information or confidential information. A security breach could lead to claims by our customers, their end-users, or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. As a result, we could be subject to legal action or our customers could end their relationships with us. There can be no assurance that any limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages.
Litigation resulting from security breaches may adversely affect our business. Unauthorized access to our platform, systems, networks, or physical facilities could result in litigation with our customers, our customers’ end-users, or other relevant stakeholders. These proceedings could force us to spend money in defense or settlement, divert management’s time and attention, increase our costs of doing business, or adversely affect our reputation. We could be required to fundamentally change our business activities and practices or modify our platform capabilities in response to such litigation, which could have an adverse effect on our business. If a security breach were to occur, and the confidentiality, integrity or availability of our data or the data of our partners, our customers or our customers’ end-users was disrupted, we could incur significant liability, or our platform, systems, or networks may be perceived as less desirable, which could negatively affect our business and damage our reputation.
If we fail to detect or remediate a security breach in a timely manner, or a breach otherwise affects a large amount of data of one or more customers, or if we suffer a cyber-attack that impacts our ability to operate our platform, we may suffer material damage to our reputation, business, financial condition, and results of operations. Further, our insurance coverage may not be adequate for data security, indemnification obligations, or other liabilities. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim. Our risks are likely to increase as we continue to expand our platform, grow our customer base, and process, store, and transmit increasingly large amounts of proprietary and sensitive data.
We could suffer disruptions, outages, defects, and other performance and quality problems with our platform or with the public cloud and internet infrastructure on which it relies.
Our business depends on our platform to be available without disruption. We have experienced, and may in the future experience, disruptions, outages, defects, and other performance and quality problems with our platform. We have also experienced, and may in the future experience, disruptions, outages, defects, and other performance and quality problems with the public cloud and internet infrastructure on which our platform relies. These problems can be caused by a variety of factors, including introductions of new functionality, vulnerabilities and defects in proprietary and open source software, human error or misconduct, capacity constraints, design limitations, or denial of service attacks or other security-related incidents.
Further, if our contractual and other business relationships with our public cloud providers are terminated, suspended, or suffer a material change to which we are unable to adapt, such as the elimination of services or features on which we depend, we could be unable to provide our platform and could experience significant delays and incur additional expense in transitioning customers to a different public cloud provider.
Any disruptions, outages, defects, and other performance and quality problems with our platform or with the public cloud and internet infrastructure on which it relies, or any material change in our contractual and other business relationships with our public cloud providers, could result in reduced use of our platform, increased expenses, including service credit obligations, and harm to our brand and reputation, any of which could have a material adverse effect on our business, financial condition, and results of operations.
We expect fluctuations in our financial results, making it difficult to project future results, and if we fail to meet the expectations of securities analysts or investors with respect to our results of operations, our stock price could decline.
Our results of operations have fluctuated in the past and are expected to fluctuate in the future due to a variety of factors, many of which are outside of our control. As a result, our past results may not be
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indicative of our future performance. In addition to the other risks described herein, factors that may affect our results of operations include the following:
fluctuations in demand for or pricing of our platform;
fluctuations in usage of our platform;
our ability to attract new customers;
our ability to retain existing customers;
customer expansion rates;
timing, amount, and cost of our investments to expand the capacity of our public cloud providers;
seasonality;
investments in new features and functionality;
fluctuations in customer consumption resulting from our introduction of new features or capabilities to our systems that may impact customer consumption;
the timing of our customers’ purchases;
the speed with which customers are able to migrate data onto our platform after purchasing capacity;
fluctuations or delays in purchasing decisions in anticipation of new products or enhancements by us or our competitors;
changes in customers’ budgets and in the timing of their budget cycles and purchasing decisions;
our ability to control costs, including our operating expenses;
the amount and timing of payment for operating expenses, particularly research and development and sales and marketing expenses, including commissions;
the amount and timing of non-cash expenses, including stock-based compensation, goodwill impairments, and other non-cash charges;
the amount and timing of costs associated with recruiting, training, and integrating new employees and retaining and motivating existing employees;
the effects of acquisitions and their integration;
general economic conditions, both domestically and internationally, as well as economic conditions specifically affecting industries in which our customers participate;
health epidemics or pandemics, such as the coronavirus outbreak (COVID-19);
the impact of new accounting pronouncements;
changes in regulatory or legal environments that may cause us to incur, among other things, expenses associated with compliance;
the overall tax rate for our business, which may be affected by the mix of income we earn in the United States and in jurisdictions with comparatively lower tax rates, the effects of stock-based compensation, and the effects of changes in our business;
the impact of changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period;
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fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in foreign currencies;
fluctuations in the market values of our portfolio investments and in interest rates;
changes in the competitive dynamics of our market, including consolidation among competitors or customers; and
significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our platform.
Any of these and other factors, or the cumulative effect of some of these factors, may cause our results of operations to vary significantly. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock could decline substantially, and we could face costly lawsuits, including securities class actions.
Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our products and platform.
We must expand our sales and marketing organization to increase our sales to new and existing customers. For the fiscal years ended January 31, 2019 and 2020, Capital One Services, LLC (an affiliate of Capital One Securities, Inc, one of the underwriters in this offering) accounted for approximately 17% and 11% of our revenue, respectively, and while we expect our revenue from this customer to account for less than 10% of our revenue during the fiscal year ending January 31, 2021, a significant decrease in revenue from this customer could harm our business and results of operations. We plan to continue expanding our direct sales force, both domestically and internationally, particularly our direct enterprise sales organization focused on sales to the world’s largest organizations. We also plan to dedicate significant resources to sales and marketing programs that are focused on these large organizations. Once a new customer begins using our platform, our sales team will need to continue to focus on expanding consumption with that customer. All of these efforts will require us to invest significant financial and other resources, including in industries and sales channels in which we have limited experience to date. Our business and results of operations will be harmed if our sales and marketing efforts generate increases in revenue that are smaller than anticipated. We may not achieve anticipated revenue growth from expanding our sales force if we are unable to hire, develop, integrate, and retain talented and effective sales personnel, if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective.
Sales efforts to large customers involve risks that may not be present or that are present to a lesser extent with respect to sales to smaller organizations.
Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller organizations, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, large customers may require considerable time to evaluate and test our platform prior to making a purchase decision and placing an order. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our platform, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Moreover, large customers often begin to deploy our products on a limited basis but nevertheless demand implementation services and negotiate pricing discounts, which increase our upfront investment in the sales effort with no guarantee that sales to these customers will justify our substantial upfront investment. If we fail to effectively manage these risks associated with sales cycles and sales to large customers, our business, financial condition, and results of operations may be affected.
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The COVID-19 pandemic could have an adverse impact on our business, operations, and the markets and communities in which we, our partners, and customers operate.
The potential impact and duration of the COVID-19 pandemic on the global economy and our business are difficult to assess or predict. Potential impacts include:
Our customer prospects and our existing customers may experience slowdowns in their businesses, which in turn may result in reduced demand for our platform, lengthening of sales cycles, loss of customers, and difficulties in collections.
Our employees are working from home significantly more frequently than they have historically, which may result in decreased employee productivity and morale with increased unwanted employee attrition.
We continue to incur fixed costs, particularly for real estate, and are deriving reduced or no benefit from those costs.
We may continue to experience disruptions to our growth planning, such as for facilities and international expansion.
We anticipate incurring costs in returning to work from our facilities around the world, including changes to the workplace, such as space planning, food service, and amenities.
Our operating lease right-of-use assets may be impaired due to potential loss of sublease income.
We may be subject to legal liability for safe workplace claims.
Our critical vendors could go out of business.
Our in-person marketing events, including customer user conferences, have been canceled and we may continue to experience prolonged delays in our ability to reschedule or conduct in-person marketing events and other sales and marketing activities.
Our marketing, sales, professional services, and support organizations are accustomed to extensive face-to-face customer and partner interactions, and conducting business virtually is unproven.
Any of the foregoing could adversely affect our business, financial condition, and results of operations.
Complying with evolving privacy and other data related laws and requirements may be expensive and force us to make adverse changes to our business, and failure to comply with such laws and requirements could result in substantial harm to our business.
Laws and regulations governing data privacy and protection, the use of the Internet as a commercial medium, the use of data in artificial intelligence and machine learning, and data sovereignty requirements are rapidly evolving, extensive, complex, and include inconsistencies and uncertainties. Examples of recent and anticipated developments that have or could impact our business include the following:
The General Data Protection Regulation (GDPR) took effect in May 2018 and established requirements applicable to the handling of personal information of residents of the European Union (EU).
The EU has proposed the Regulation on Privacy and Electronic Communications (ePrivacy Regulation), which, if adopted, would impose new obligations on the use of personal information in the context of electronic communications, particularly with respect to online tracking technologies and direct marketing.
In January 2020, Britain formally left the EU. The United Kingdom’s withdrawal from the EU is commonly referred to as “Brexit.”
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We are following developments in 2020 regarding the frameworks that address the transfer of personal information outside of the EU, including the Privacy Shield framework and the standard contractual clauses.
In January 2020, the California Consumer Privacy Act (CCPA) took effect, providing California residents increased privacy rights and protections, including the ability to opt out of sales of their personal information. The CCPA may increase our compliance costs and exposure to liability. Other U.S. states are considering adopting similar laws.
Both U.S. and non-U.S. governments are considering regulating artificial intelligence and machine learning.
The certifications we maintain and standards we comply with, including the U.S. Federal Risk and Authorization Management Program, PCI-DSS, ISO/IEC 27001, among others, are becoming more stringent.
These and other similar legal and regulatory developments could contribute to legal and economic uncertainty, affect how we design, market, sell, and operate our platform, how our customers process and share data, how we process and use data, and how we transfer personal data from one jurisdiction to another, which could negatively impact demand for our platform. We may incur substantial costs to comply with such laws and regulations, to meet the demands of our customers relating to their own compliance with applicable laws and regulations, and to establish and maintain internal policies, self-certifications, and third-party certifications supporting our compliance programs. Our customers may delegate their GDPR compliance or other privacy law obligations to us via contract, and we may otherwise be required to expend resources to assist our customers with such compliance obligations. In addition, any actual or perceived non-compliance with applicable laws, regulations, policies, and certifications could result in proceedings, investigations, or claims against us by regulatory authorities, customers, or others, leading to reputational harm, significant fines, litigation costs, and damages. For example, if regulators assert that we have failed to comply with the GDPR, we may be subject to fines of up to EUR 20 million or 4% of our worldwide annual revenue, whichever is greater, as well as potential data processing restrictions for a violation of certain GDPR requirements. All of these impacts could have a material adverse effect on our business, financial condition, and results of operations.
We publish privacy policies and other documentation regarding our collection, processing, use, and disclosure of personal information, credit card information, or other confidential information. Although we endeavor to comply with our published policies, certifications, and documentation, we may at times fail to do so or may be perceived to have failed to do so. Moreover, despite our efforts, we may not be successful in achieving compliance if our employees or vendors fail to comply with our published policies, certifications, and documentation. Such failures can subject us to potential international, local, state, and federal action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.
If we are unable to successfully manage the growth of our professional services business and improve our profit margin from these services, our operating results will be harmed.
Our professional services business, which performs implementation services for our customers, has grown as our product revenue has grown. We believe our investment in professional services facilitates the adoption of our platform, especially with large enterprises. As a result, our sales efforts have focused on helping our customers realize the value of our platform rather than on the profitability of our professional services business. In the future, we intend to price our professional services based on the anticipated cost of those services and, as a result, expect to improve the gross profit percentage of our professional services business. If we are unable to manage the growth of our professional services business and improve our profit margin from these services, our operating results, including our profit margins, will be harmed.
Our current management team is new, and if we lose key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business and future growth prospects may be harmed.
Many of our executive officers and other members of our management team have been with us for a short period of time, including Frank Slootman, our Chairman and Chief Executive Officer, who joined us in April 2019, and Michael P. Scarpelli, our Chief Financial Officer, who joined us in August 2019. Our
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success depends largely upon the continued services of these and other executive officers, as well as our other key employees in the areas of research and development and sales and marketing.
From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. Our executive officers and other key employees are employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. The loss of one or more of our executive officers, or the failure by our executive team to effectively work with our employees and lead our company, could harm our business.
In addition, to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers experienced in designing and developing cloud-based data platform products, experienced sales professionals, and expert customer support personnel. We also are dependent on the continued service of our existing software engineers because of the sophistication of our platform. While the market for such talented personnel is particularly competitive in the San Francisco Bay Area, where our headquarters is located, it is also competitive in other markets where we maintain operations.
If we are unable to attract such personnel in cities where we are located, we may need to hire in other locations, which may add to the complexity and costs of our business operations. From time to time, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, experiences significant volatility, or increases such that prospective employees believe there is limited upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees. We also believe our culture has been a key contributor to our success to date and that the critical nature of the platform that we provide promotes a sense of greater purpose and fulfillment in our employees. Any failure to preserve our culture could negatively affect our ability to retain and recruit personnel. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.
The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Market opportunity estimates and growth forecasts included in this prospectus, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The variables that go into the calculation of our market opportunity are subject to change over time, and there is no guarantee that any particular number or percentage of addressable users or companies covered by our market opportunity estimates will purchase our platform or generate any particular level of revenue for us. Any expansion in our markets depends on a number of factors, including the cost, performance, and perceived value associated with our platform and the products of our competitors. Even if the markets in which we compete achieve the forecasted growth, our business could fail to grow at similar rates, if at all.
If the availability of our platform does not meet our service-level commitments to our customers, our current and future revenue may be negatively impacted.
We typically commit to our customers that our platform will maintain a minimum service-level of availability. If we are unable to meet these commitments, we may be obligated to provide customers with additional capacity, which could significantly affect our revenue. We rely on public cloud providers, such as AWS, Azure, and GCP, and any availability interruption in the public cloud could result in us not meeting our service-level commitments to our customers. In some cases, we may not have a contractual right with our public cloud providers that compensates us for any losses due to availability interruptions in the public cloud. Further, any failure to meet our service-level commitments could damage our reputation and adoption of our platform, and we could face loss of revenue from reduced future consumption of our platform. Any service-level failures could adversely affect our business, financial condition, and results of operations.
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We agree to indemnify customers and other third parties, which exposes us to substantial potential liability.
Our contracts with customers, investors, and other third parties may include indemnification provisions under which we agree to defend and indemnify them against claims and losses arising from alleged infringement, misappropriation, or other violation of intellectual property rights, data protection violations, breaches of representations and warranties, damage to property or persons, or other liabilities arising from our products or such contracts. Although we attempt to limit our indemnity obligations, an event triggering our indemnity obligations could give rise to multiple claims involving multiple customers or other third parties. We may be liable for up to the full amount of the indemnified claims, which could result in substantial liability or material disruption to our business or could negatively impact our relationships with customers or other third parties, reduce demand for our products, and adversely affect our business, financial condition, and results of operations.
Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our business, financial condition, and results of operations.
We have in the past and may in the future seek to acquire or invest in businesses, joint ventures, and platform technologies that we believe could complement or expand our platform, enhance our technology, or otherwise offer growth opportunities. Further, our anticipated proceeds from this offering increase the likelihood that we will devote resources to exploring larger and more complex acquisitions and investments than we have previously attempted. Any such acquisitions or investments may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of any acquired companies, particularly if the key personnel of an acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise. Any such transactions that we are able to complete may not result in the synergies or other benefits we expect to achieve, which could result in substantial impairment charges. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations.
Seasonality may cause fluctuations in our remaining performance obligations.
Historically, we have received a higher volume of orders from new and existing customers in the fourth fiscal quarter of each year. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our large enterprise customers. This seasonality has an impact on our remaining performance obligations (RPO). We expect this seasonality to become more pronounced as we continue to target large enterprise customers.
We are subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition, and results of operations.
We are subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the FCPA), U.S. domestic bribery laws, the UK Bribery Act 2010, and other anti-corruption and anti-money laundering laws in the countries in which we conduct business. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party intermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector. As we increase our international sales and business and sales to the public sector, we may engage with business partners and third-party intermediaries to market our products and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities.
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While we have policies and procedures to address compliance with such laws, there is a risk that our employees and agents will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. As we expand internationally, our risks under these laws may increase.
Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management. In addition, noncompliance with anti-corruption, anti-bribery, or anti-money laundering laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions, suspension or debarment from contracting with certain persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our business, financial condition, and results of operations could be harmed.
We do business with federal, state, and local governments and agencies, and heavily regulated U.S. and foreign organizations; as a result, we face risks related to the procurement process, budget decisions driven by statutory and regulatory determinations, termination of contracts, and compliance with government contracting requirements.
We provide our platform to the U.S. government, state and local governments, and heavily regulated organizations directly and through our partners. We have made, and may continue to make, significant investments to support future sales opportunities in the federal, state, and local government sectors. This includes obtaining the following additional cloud security certifications: HHS CMS Acceptable Risk Safeguards (ARS) 3.1 and the U.S. Department of Defense Impact Level 2 in the Security Requirements Guide for cloud computing by the Defense Information Systems Agency. However, government certification requirements may change, or we may be unable to achieve or sustain one or more government certifications, including those mentioned above. As a result, our ability to sell into the government sector could be restricted until we obtain such certifications.
A substantial majority of our sales to date to government entities have been made indirectly through our distribution and reseller partners. Doing business with government entities presents a variety of risks. The procurement process for governments and their agencies is highly competitive, time-consuming, and may, in certain circumstances, be subject to political influence. We incur significant up-front time and expense, which subjects us to additional compliance risks and costs, without any assurance that we (or a third-party distributor or reseller) will win a contract. Beyond this, demand for our platform may be adversely impacted by public sector budgetary cycles, and funding availability that in any given fiscal cycle may be reduced or delayed, including in connection with an extended federal government shutdown. Further, if we are or our partners are successful in receiving a bid award, that award could be challenged by one or more competitive bidders. Bid protests may result in an increase in expenses related to obtaining contract awards or an unfavorable modification or loss of an award. In the event a bid protest is unsuccessful, the resulting delay in the startup and funding of the work under these contracts may cause our actual results to differ materially and adversely from those anticipated. As a result of these lengthy and uncertain sales cycles, it is difficult for us to predict the timing of entering into customer agreements with government entities.
In addition, public sector customers may have contractual, statutory, or regulatory rights to terminate current contracts with us or our third-party distributors or resellers for convenience or due to a default, though such risk may be assumed by such third-party distributors or resellers. If a contract is terminated for convenience, we may only be able to collect fees for platform consumption prior to termination and settlement expenses. If a contract is terminated due to a default, we may be liable for excess costs incurred by the customer for procuring alternative products or services or be precluded from doing further business with government entities. Further, entities providing services to governments are required to comply with a variety of complex laws, regulations, and contractual provisions relating to the formation, administration, or performance of government contracts that give public sector customers substantial rights and remedies, many of which are not typically found in commercial contracts. These may include rights with respect to price protection, the accuracy of information provided to the government, contractor compliance with supplier diversity policies, and other terms that are particular to government contracts, such as termination rights. These rules may apply to us or third-party resellers or distributors whose practices we may not control. Such parties’ non-compliance could result in repercussions with respect to contractual and customer satisfaction issues.
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In addition, federal, state, and local governments routinely investigate and audit contractors for compliance with these requirements. If, as a result of an audit, it is determined that we have failed to comply with these requirements, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, costs associated with the triggering of price reduction clauses, fines, and suspensions or debarment from future government business, and we may suffer reputational harm.
Further, we are increasingly doing business in heavily regulated industries, such as the financial services and health care industries. Current and prospective customers, such as those in these industries, may be required to comply with more stringent regulations in connection with subscribing to and implementing our services or particular regulations regarding third-party vendors that may be interpreted differently by different customers. In addition, regulatory agencies may impose requirements toward third-party vendors generally, or our company in particular, that we may not be able to, or may not choose to, meet. In addition, customers in these heavily regulated areas often have a right to conduct audits of our systems, products, and practices. In the event that one or more customers determine that some aspect of our business does not meet regulatory requirements, we may be limited in our ability to continue or expand our business.
Our customers also include a number of non-U.S. governments, to which similar procurement, budgetary, contract, and audit risks of U.S. government contracting also apply, particularly in certain emerging markets where our customer base is less established. In addition, compliance with complex regulations and contracting provisions in a variety of jurisdictions can be expensive and consume significant management resources. In certain jurisdictions, our ability to win business may be constrained by political and other factors unrelated to our competitive position in the market. Each of these difficulties could materially adversely affect our business and results of operations.
Our intellectual property rights may not protect our business or provide us with a competitive advantage.
To be successful, we must protect our technology and brand in the United States and other jurisdictions through trademarks, trade secrets, patents, copyrights, service marks, invention assignments, contractual restrictions, and other intellectual property rights and confidentiality procedures. Despite our efforts to implement these protections, they may not protect our business or provide us with a competitive advantage for a variety of reasons, including:
the failure by us to obtain patents and other intellectual property rights for important innovations or maintain appropriate confidentiality and other protective measures to establish and maintain our trade secrets;
uncertainty in, and evolution of, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights;
potential invalidation of our intellectual property rights through administrative processes or litigation;
any inability by us to detect infringement or other misappropriation of our intellectual property rights by third parties; and
other practical, resource, or business limitations on our ability to enforce our rights.
Further, the laws of certain foreign countries, particularly certain developing countries, do not provide the same level of protection of corporate proprietary information and assets, such as intellectual property, trademarks, trade secrets, know-how, and records, as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property or proprietary rights abroad. Additionally, we may also be exposed to material risks of theft or unauthorized reverse engineering of our proprietary information and other intellectual property, including technical data, data sets, or other sensitive information. Our efforts to enforce our intellectual property rights in such foreign countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, if we are unable to prevent the disclosure of our trade secrets to third
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parties, or if our competitors independently develop any of our trade secrets, we may not be able to establish or maintain a competitive advantage in our market, which could seriously harm our business.
Litigation may be necessary to enforce our intellectual property or proprietary rights, protect our trade secrets, or determine the validity and scope of proprietary rights claimed by others. Any litigation, whether or not resolved in our favor, could result in significant expense to us, divert the efforts of our technical and management personnel, and result in counterclaims with respect to infringement of intellectual property rights by us. If we are unable to prevent third parties from infringing upon or misappropriating our intellectual property or are required to incur substantial expenses defending our intellectual property rights, our business, financial condition, and results of operations may be materially adversely affected.
We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of doing business.
We compete in markets where there are a large number of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights, as well as disputes regarding infringement of these rights. For example, on July 24, 2020, Yeti Data, Inc. (Yeti Data) filed a lawsuit against us in the U.S. District Court for the Central District of California alleging trademark infringement and other ancillary claims. Yeti Data is seeking a permanent injunction against infringement, damages, and attorneys’ fees. While we intend to defend this lawsuit vigorously and believe that we have valid defenses to these claims, there can be no assurance that a favorable outcome will be obtained.
In addition, many of the holders of patents, copyrights, trademarks, trade secrets, and other intellectual and proprietary rights have extensive intellectual property portfolios and greater resources than we do to enforce their rights. As compared to our large competitors, our patent portfolio is relatively undeveloped and may not provide a material deterrent to such assertions or provide us with a strong basis to counterclaim or negotiate settlements. Further, to the extent assertions are made against us by entities that hold patents but are not operating companies, our patent portfolio may not provide deterrence because such entities are not concerned with counterclaims.
Any intellectual property litigation to which we become a party may require us to do one or more of the following:
cease selling, licensing, or using products or features that incorporate the intellectual property rights that we allegedly infringe, misappropriate, or violate;
make substantial payments for legal fees, settlement payments, or other costs or damages, including indemnification of third parties;
obtain a license or enter into a royalty agreement, either of which may not be available on reasonable terms or at all, in order to obtain the right to sell or use the relevant intellectual property; or
redesign the allegedly infringing products to avoid infringement, misappropriation, or violation, which could be costly, time-consuming, or impossible.
Intellectual property litigation is typically complex, time consuming, and expensive to resolve and would divert the time and attention of our management and technical personnel. It may also result in adverse publicity, which could harm our reputation and ability to attract or retain customers. As we grow, we may experience a heightened risk of allegations of intellectual property infringement. An adverse result in any litigation claims against us could have a material adverse effect on our business, financial condition, and results of operations.
Any future litigation against us could be costly and time-consuming to defend.
We may become subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our customers in connection with commercial disputes or employment claims made by our current or former employees. Litigation might result in substantial costs and may divert management’s attention and resources, which might seriously harm our business, financial condition, and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims, and might not continue to be available on terms acceptable to us (including premium increases or the imposition of large deductible
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or co-insurance requirements). A claim brought against us that is uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position, and results of operations. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
If we use open source software inconsistent with our policies and procedures or the license terms applicable to such software, we could be subject to legal expenses, damages, or costly remediation or disruption to our business.
We use open source software in our platform. While we have policies and procedures in place governing the use of open source software, there is a risk that we incorporate open source software with onerous licensing terms, including the obligation to make our source code available for others to use or modify without compensation to us. If we receive an allegation that we have violated an open source license, we may incur significant legal expenses, be subject to damages, be required to redesign our product to remove the open source software, or be required to comply with onerous license restrictions, all of which could have a material impact on our business. Even in the absence of a claim, if we discover the use of open source software inconsistent with our policies, we could expend significant time and resources to replace the open source software or obtain a commercial license, if available. All of these risks are heightened by the fact that the ownership of open source software can be uncertain, leading to litigation, and many of the licenses applicable to open source software have not been interpreted by courts, and these licenses could be construed to impose unanticipated conditions or restrictions on our ability to commercialize our products. Any use of open source software inconsistent with our policies or licensing terms could harm our business and financial position.
We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.
Our platform is subject to U.S. export controls, including the U.S. Export Administration Regulations, and we incorporate encryption technology into our platform. This encryption technology may be exported outside of the United States only with the required export authorizations, including by license, a license exception, or other appropriate government authorizations, including the filing of an encryption classification request or self-classification report.
Obtaining the necessary export license or other authorization for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, our activities are subject to U.S. economic sanctions laws and regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control that prohibit the sale or supply of most products and services to embargoed jurisdictions or sanctioned parties. Violations of U.S. sanctions or export control regulations can result in significant fines or penalties and possible incarceration for responsible employees and managers.
If our channel partners fail to obtain appropriate import, export, or re-export licenses or permits, we may also be adversely affected through reputational harm, as well as other negative consequences, including government investigations and penalties.
Also, various countries, in addition to the United States, regulate the import and export of certain encryption and other technology, including import and export licensing requirements, and have enacted laws that could limit our ability to distribute our platform in those countries. Changes in our platform or future changes in export and import regulations may create delays in the introduction of our platform in international markets, prevent our customers with international operations from using our platform globally or, in some cases, prevent the export or import of our platform to certain countries, governments, or persons altogether. From time to time, various governmental agencies have proposed additional regulation of encryption technology. Any change in export or import regulations, economic sanctions, or related legislation, increased export and import controls, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell our platform to, existing or potential customers with international operations. Any decreased use of our platform or limitation on our ability to export or sell our platform would adversely affect our business, financial condition, and results of operations.
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Unfavorable conditions in our industry or the global economy, or reductions in cloud spending, could limit our ability to grow our business and negatively affect our results of operations.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers and potential customers. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in gross domestic product growth, financial and credit market fluctuations, international trade relations, pandemic (such as the COVID-19 pandemic), political turmoil, natural catastrophes, warfare, and terrorist attacks on the United States, Europe, the Asia Pacific region, Japan, or elsewhere, could cause a decrease in business investments, including spending on cloud technologies, and negatively affect the growth of our business. Competitors, many of whom are larger and have greater financial resources than we do, may respond to challenging market conditions by lowering prices in an attempt to attract our customers. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry.
Our current operations are international in scope, and we plan further geographic expansion, creating a variety of operational challenges.
A component of our growth strategy involves the further expansion of our operations and customer base internationally. Customer accounts outside the United States generated 12% of our revenue for the fiscal year ended January 31, 2020. We are continuing to adapt to and develop strategies to address international markets, but there is no guarantee that such efforts will have the desired effect. For example, we anticipate that we will need to establish relationships with new partners in order to expand into certain countries, and if we fail to identify, establish, and maintain such relationships, we may be unable to execute on our expansion plans. We expect that our international activities will continue to grow for the foreseeable future as we continue to pursue opportunities in existing and new international markets, which will require significant dedication of management attention and financial resources.
Our current and future international business and operations involve a variety of risks, including:
slower than anticipated public cloud adoption by international businesses;
changes in a specific country’s or region’s political, economic, or legal and regulatory environment, including Brexit, pandemics, tariffs, trade wars, or long-term environmental risks;
the need to adapt and localize our platform for specific countries;
greater difficulty collecting accounts receivable and longer payment cycles;
unexpected changes in trade relations, regulations, or laws;
new, evolving, and more stringent regulations relating to privacy and data security and the unauthorized use of, or access to, commercial and personal information, particularly in Europe;
differing and potentially more onerous labor regulations, especially in Europe, where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;
challenges inherent in efficiently managing, and the increased costs associated with, an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs that are specific to each jurisdiction;
difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems;
increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;
currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;
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limitations on our ability to reinvest earnings from operations in one country to fund the capital needs of our operations in other countries;
laws and business practices favoring local competitors or general market preferences for local vendors;
limited or insufficient intellectual property protection or difficulties obtaining, maintaining, protecting, or enforcing our intellectual property rights, including our trademarks and patents;
political instability or terrorist activities;
COVID-19 or any other pandemics or epidemics that could result in decreased economic activity in certain markets, decreased use of our products and services, or in our decreased ability to import, export, or sell our products and services to existing or new customers in international markets;
exposure to liabilities under anti-corruption and anti-money laundering laws, including the FCPA, U.S. bribery laws, the UK Bribery Act, and similar laws and regulations in other jurisdictions;
burdens of complying with laws and regulations related to taxation; and
regulations, adverse tax burdens, and foreign exchange controls that could make it difficult to repatriate earnings and cash.
If we invest substantial time and resources to further expand our international operations and are unable to do so successfully and in a timely manner, our business and results of operations will suffer.
We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
We have funded our operations since inception primarily through equity financings and payments received from our customers. We cannot be certain when or if our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support our business, which may require us to engage in equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, operating results, and financial condition. If we incur debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.
We are exposed to fluctuations in currency exchange rates and interest rates, which could negatively affect our results of operations and our ability to invest and hold our cash.
Our sales are denominated in U.S. dollars, and therefore, our revenue is not subject to foreign currency risk. However, a strengthening of the U.S. dollar could increase the real cost of our platform to our customers outside of the United States, which could adversely affect our results of operations. In addition, an increasing portion of our operating expenses is incurred outside the United States. These operating expenses are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates. In the future, we expect to have sales denominated in currencies other than the U.S. dollar, which will subject our revenue to foreign currency risk. If we are not able to successfully hedge against the risks associated with currency fluctuations, our results of operations could be adversely affected. In addition, we are exposed to fluctuations in interest rates, which may result in a negative interest rate environment, in which interest rates drop below zero. In such a zero interest rate environment, any cash that we may hold with financial institutions, including cash proceeds received from this offering, will yield a storage charge instead of earning interest income, and encourages us to spend
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our cash or make high-risk investments, all of which could adversely affect our financial position, results of operations, and cash flows.
Our international operations may subject us to greater than anticipated tax liabilities.
We are expanding our international operations to better support our growth into international markets. Our corporate structure and associated transfer pricing policies contemplate future growth in international markets, and consider the functions, risks, and assets of the various entities involved in intercompany transactions. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies, and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions pursuant to our intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.
The tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. Changes in tax laws, regulations, or rulings, or changes in interpretations of existing laws and regulations, could materially affect our financial position and results of operations. For example, the 2017 Tax Cuts and Jobs Act (Tax Act) made broad and complex changes to the U.S. tax code, including changes to U.S. federal tax rates, additional limitations on the deductibility of interest, both positive and negative changes to the utilization of future net operating loss (NOL) carryforwards, allowing for the expensing of certain capital expenditures, and putting into effect the migration from a “worldwide” system of taxation to a territorial system. The issuance of additional regulatory or accounting guidance related to the Tax Act could materially affect our tax obligations and effective tax rate in the period issued. In addition, many countries in Europe, as well as a number of other countries and organizations, have recently proposed or recommended changes to existing tax laws or have enacted new laws that could significantly increase our tax obligations in the countries where we do business or require us to change the manner in which we operate our business.
The Organization for Economic Cooperation and Development has been working on a Base Erosion and Profit Shifting Project, and issued a report in 2015, an interim report in 2018, and is expected to continue to issue guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business. Similarly, the European Commission and several countries have issued proposals that would change various aspects of the current tax framework under which we are taxed. These proposals include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income taxes, including taxes based on a percentage of revenue. For example, several countries have proposed or enacted taxes applicable to digital services, which could apply to our business.
Due to the large and expanding scale of our international business activities, these types of changes to the taxation of our activities could increase our worldwide effective tax rate, increase the amount of taxes imposed on our business, and harm our financial position. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our financial statements.
Our ability to use our net operating loss carryforwards may be limited.
We have incurred substantial losses during our history, do not expect to become profitable in the near future, and may never achieve profitability. Unused U.S. federal NOLs for taxable years beginning before January 1, 2018, may be carried forward to offset future taxable income, if any, until such unused NOLs expire. Under legislation enacted in 2017, informally titled the Tax Act, as modified by legislation enacted on March 27, 2020, entitled the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), U.S. federal NOLs incurred in taxable years beginning after December 31, 2017, can be carried forward
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indefinitely, but the deductibility of such U.S. federal NOLs in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform to the Tax Act or the CARES Act. 
As of January 31, 2020, we had U.S. federal and state net operating loss carryforwards of $632.4 million and $385.8 million, respectively. Of the $632.4 million U.S. federal net operating loss carryforwards, $64.0 million may be carried forward indefinitely with no limitation when utilized, and $487.6 million may be carried forward indefinitely with utilization limited to 80% of taxable income. The remaining $80.8 million will begin to expire in 2031. The state net operating loss carryforwards begin to expire in 2029.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards to offset its post-change income or taxes may be limited. We have completed a Section 382 study and have determined that none of the operating losses will expire solely due to Section 382 limitations. However, we may experience ownership changes as a result of our initial public offering or in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. This could limit the amount of NOLs that we can utilize annually to offset future taxable income or tax liabilities. Subsequent ownership changes and changes to the U.S. tax rules in respect of the utilization of NOLs may further affect the limitation in future years. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.
We are subject to income taxes in the United States and various foreign jurisdictions. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. We believe that our provision for income taxes is reasonable, but the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods in which such outcome is determined.
Our effective tax rate could increase due to several factors, including:
changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Act and the CARES Act;
changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies, and the economic and political environments in which we do business;
the outcome of current and future tax audits, examinations, or administrative appeals; and
the effects of acquisitions.
Any of these developments could adversely affect our results of operations.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
U.S. generally accepted accounting principles (GAAP) are subject to interpretation by the Financial Accounting Standards Board (FASB), the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported results of operations and could affect the reporting of transactions already completed before the announcement of a change.
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If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve those related to revenue recognition, internal-use software development costs, deferred commissions, valuation of our stock-based compensation awards, including the determination of fair value of our common stock, accounting for income taxes, the carrying value of operating lease right-of-use assets, and useful lives of long-lived assets, among others. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Our business could be disrupted by catastrophic occurrences and similar events.
Our platform and the public cloud infrastructure on which our platform relies are vulnerable to damage or interruption from catastrophic occurrences, such as earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, criminal acts, sabotage, other intentional acts of vandalism and misconduct, geopolitical events, disease, such as the COVID-19 pandemic, and similar events. Our United States corporate offices and certain of the public cloud data centers in which we operate are located in the San Francisco Bay Area and Pacific Northwest, regions known for seismic activity. Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems at our facilities or the facilities of our public cloud providers could result in disruptions, outages, and other performance and quality problems. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster and to execute successfully on those plans in the event of a disaster or emergency, our business would be seriously harmed.
Risks Related to Ownership of Our Class A Common Stock
Our stock price may be volatile, and the value of our Class A common stock may decline.
The market price of our Class A common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including:
actual or anticipated fluctuations in our financial condition or results of operations;
variance in our financial performance from expectations of securities analysts;
changes in the pricing of our platform;
changes in our projected operating and financial results;
changes in laws or regulations applicable to our platform;
announcements by us or our competitors of significant business developments, acquisitions, or new offerings;
significant data breaches, disruptions to, or other incidents involving our platform;
our involvement in litigation;
future sales of our Class A common stock by us or our stockholders, as well as the anticipation of lock-up releases;
changes in senior management or key personnel;
the trading volume of our Class A common stock;
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changes in the anticipated future size and growth rate of our market; and
general economic and market conditions.
Broad market and industry fluctuations, as well as general economic, political, regulatory, and market conditions, such as recessions, interest rate changes, or international currency fluctuations, may also negatively impact the market price of our Class A common stock. In addition, technology stocks have historically experienced high levels of volatility. In the past, companies that have experienced volatility in the market price of their securities have been subject to securities class action litigation. We may be the target of this type of litigation in the future, which could result in substantial expenses and divert our management’s attention.
The dual class structure of our common stock will have the effect of concentrating voting control with our existing stockholders, executive officers, directors, and their affiliates, which will limit your ability to influence the outcome of important transactions and to influence corporate governance matters, such as electing directors, and to approve material mergers, acquisitions, or other business combination transactions that may not be aligned with your interests.
Our Class B common stock has ten votes per share, whereas our Class A common stock, which is the stock we are offering in this offering, has one vote per share. Our existing stockholders, all of which hold shares of Class B common stock, will collectively own shares representing approximately 98.5% of the voting power of our outstanding capital stock immediately following the closing of this offering, the concurrent private placements, and the secondary transaction by one of our stockholders, based on the number of shares outstanding as of July 31, 2020, and without giving effect to any purchases that these holders may make in this offering. Our directors and executive officers and their affiliates will collectively beneficially own, in the aggregate, shares representing approximately 27.9% of the voting power of our outstanding capital stock immediately following the closing of this offering, the concurrent private placements, and the secondary transaction by one of our stockholders, based on the number of shares outstanding as of July 31, 2020, and without giving effect to any purchases that these holders may make in this offering. As a result, the holders of our Class B common stock will be able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock. This concentration of ownership will limit the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests. This control may adversely affect the market price of our Class A common stock.
Further, future transfers by holders of our Class B common stock will generally result in those shares converting into shares of our Class A common stock, subject to limited exceptions, such as certain transfers effected for tax or estate planning purposes. The conversion of shares of our Class B common stock into shares of our Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term.
We cannot predict the impact our dual class structure may have on the market price of our Class A common stock.
We cannot predict whether our dual class structure, combined with the concentrated control of our stockholders who held our capital stock prior to the completion of our offering, including our executive officers, employees, and directors and their affiliates, will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with multiple class share structures in certain of their indices. In July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Under the announced policies, our dual class capital structure would make us ineligible for inclusion in any of these indices. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.
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No public market for our Class A common stock currently exists, and an active public trading market may not develop or be sustained following this offering.
No public market for our Class A common stock currently exists. An active public trading market for our Class A common stock may not develop following the closing of this offering or, if developed, it may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
We will have broad discretion in the use of the net proceeds to us from this offering and the concurrent private placements and may not use them effectively.
We will have broad discretion in the application of the net proceeds to us from this offering and the concurrent private placements, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variety of factors that will determine our use of the net proceeds from this offering and the concurrent private placements, our ultimate use may vary substantially from our currently intended use. Investors will need to rely upon the judgment of our management with respect to the use of proceeds. Pending use, we may invest the net proceeds from this offering and the concurrent private placements in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government that may not generate a high yield for our stockholders. If we do not use the net proceeds that we receive in this offering and the concurrent private placements effectively, our business, financial condition, results of operations, and prospects could be harmed, and the market price of our Class A common stock could decline.
Future sales of our Class A common stock in the public market could cause the market price of our Class A common stock to decline.
Sales of a substantial number of shares of our Class A common stock in the public market following the closing of this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Many of our existing security holders have substantial unrecognized gains on the value of the equity they hold based upon the price of this offering, and therefore, they may take steps to sell their shares or otherwise secure the unrecognized gains on those shares. We are unable to predict the timing of or the effect that such sales may have on the prevailing market price of our Class A common stock.
All of our directors and officers and the holders of substantially all of our capital stock and securities convertible into our capital stock are or will be subject to lock-up agreements that restrict their ability to transfer shares of our capital stock during specified periods of time after the date of this prospectus, subject to certain exceptions. Subject to compliance with Rule 144, shares of our Class B common stock as well as shares underlying outstanding RSUs and shares subject to outstanding options will be eligible for sale in the public market in the near future as set forth below:
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Date Available for Sale in the Public MarketNumber of Shares of Common Stock
The 91st day after the date of this prospectus (First Release).
All of our current employees with a title below vice president, current contractors, former employees (other than Robert L. Muglia, our former chief executive officer, and his affiliates), and former contractors may sell a number of shares equal to 25% of (i) outstanding vested shares and (ii) shares subject to vested stock options and RSUs, each held by such holder or held by trusts for the benefit of such holder or of an immediate family member of such holder, and calculated as of the date of release (Vested Holdings). As of July 31, 2020, 25% of the outstanding Vested Holdings held by such holders was 11,295,695 shares.
The second trading day immediately following the day that the closing price of our Class A common stock on The New York Stock Exchange exceeds 133% of the initial public offering price as set forth on the cover page of this prospectus, for at least 10 trading days in the 15 trading day period following the 90th day after the date of this prospectus.
All other non-employee stockholders who are not members of our board of directors or our affiliates (including Mr. Muglia) and whose shares were not included in the First Release, may sell a number of shares equal to 25% of their Vested Holdings. As of July 31, 2020, 25% of the outstanding Vested Holdings held by such holders was 37,904,494 shares.
The commencement of trading on the second full trading day following our second public release of quarterly or annual financial results following the date of this prospectus (the Lock-up Release Date).
All remaining shares held by our stockholders not previously eligible for sale and not purchased in the concurrent private placements or the secondary transaction.
The shares of Class A common stock purchased in the concurrent private placements and the shares of Class A common stock purchased in the secondary transaction by one of our stockholders will be subject to a market standoff agreement with us for a period of up to 365 days after the date of this prospectus.
In addition, an aggregate of 2,180 shares will be eligible for sale in the public market in order to satisfy tax withholding obligations in connection with the settlement of RSUs outstanding as of July 31, 2020 that fully vest in connection with this offering, and an aggregate of 10,570 shares will be eligible for sale in the public market in order to satisfy tax withholding obligations in connection with the settlement of additional RSUs outstanding as of July 31, 2020 that vest after this offering and through the Lock-up Release Date.
As of July 31, 2020, there were 4,853,231 RSUs for shares of Class B common stock outstanding and 72,228,820 shares of Class B common stock issuable upon the exercise of options outstanding. We intend to register all of the shares of Class A common stock and Class B common stock issuable upon exercise of outstanding options and RSUs or other equity incentives we may grant in the future, for public resale under the Securities Act of 1933, as amended (the Securities Act). The shares of Class A common stock will become eligible for sale in the public market to the extent such options are exercised and RSUs settle, subject to the lock-up agreements described above and compliance with applicable securities laws.
Further, based on shares outstanding as of July 31, 2020, holders of approximately 190,885,696 shares of Class B common stock, or 68.8% of our capital stock after the closing of this offering and the concurrent private placements, and holders of approximately 8,803,947 shares of our Class A common stock, assuming an initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
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Our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise will dilute all other stockholders.
We expect to issue additional capital stock in the future that will result in dilution to all other stockholders. We expect to grant equity awards to employees, directors, and consultants under our equity incentive plans. We may also raise capital through equity financings in the future. As part of our business strategy, we may acquire or make investments in companies, products, or technologies and issue equity securities to pay for any such acquisition or investment. Any such issuances of additional capital stock may cause stockholders to experience significant dilution of their ownership interests and the per share value of our Class A common stock to decline.
If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the market price and trading volume of our Class A common stock could decline.
The market price and trading volume of our Class A common stock following the closing of this offering will be heavily influenced by the way analysts interpret our financial information and other disclosures. We do not have control over these analysts. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, our stock price would be negatively affected. If securities or industry analysts do not publish research or reports about our business, downgrade our Class A common stock, or publish negative reports about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our Class A common stock could decrease, which might cause our stock price to decline and could decrease the trading volume of our Class A common stock.
You will experience immediate and substantial dilution in the net tangible book value of the shares of Class A common stock you purchase in this offering.
The initial public offering price of our Class A common stock is substantially higher than the pro forma net tangible book value per share of our common stock immediately after this offering. If you purchase shares of our Class A common stock in this offering, you will suffer immediate dilution of $90.64 per share, or $89.34 per share if the underwriters exercise their over-allotment option in full, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to the sale of Class A common stock in this offering and the concurrent private placements at the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus. See the section titled “Dilution.”
We do not intend to pay dividends for the foreseeable future and, as a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Accordingly, you may need to rely on sales of our Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on your investment.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act (Section 404), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to
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public companies, which may make our Class A common stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year following the fifth anniversary of this offering; (2) the last day of the first fiscal year in which our annual gross revenue is $1.07 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates.
We cannot predict if investors will find our Class A common stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future results of operations may not be comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock, and our stock price may be more volatile.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an “emerging growth company.” The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.
As a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.
We will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of January 31, 2022. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company.” We have recently commenced the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404, but we may not be able to complete our evaluation, testing, and any required remediation in a timely fashion once initiated. Our compliance with Section 404 will require that we incur substantial expenses and expend significant management efforts. We have only recently established an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.
During the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or investigations by the
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SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management, and limit the market price of our Class A common stock.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as they will be in effect upon the closing of this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that:
authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our Class A common stock;
require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;
specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, or our Chief Executive Officer;
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;
establish that our board of directors is divided into three classes, with each class serving three-year staggered terms;
prohibit cumulative voting in the election of directors;
provide that our directors may only be removed for cause;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and
require the approval of our board of directors or the holders of at least 66 2/3% of our outstanding shares of voting stock to amend our bylaws and certain provisions of our certificate of incorporation.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any of the foregoing provisions could limit the price that investors might be willing to pay in the future for shares of our Class A common stock, and they could deter potential acquirers of our company, thereby reducing the likelihood that you would receive a premium for your shares of our Class A common stock in an acquisition.
Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States of America as the exclusive forums for certain disputes between us and our stockholders, which will restrict our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation, as will be in effect following the effectiveness of the registration statement of which this prospectus forms a part, will provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: any derivative action or proceeding brought on our behalf, any action
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asserting a breach of a fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our revenue, expenses, and other operating results;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase consumption on our platform;
our ability to achieve or sustain our profitability;
future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts, and our ability to promote our brand;
our growth strategies for our Cloud Data Platform;
the estimated addressable market opportunity for our Cloud Data Platform;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
our ability to effectively manage our growth, including any international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
the effects of COVID-19 or other public health crises;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events, and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this prospectus. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new
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information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments.
40


MARKET AND INDUSTRY DATA
This prospectus contains statistical data, estimates, and forecasts that are based on independent industry publications or other publicly available information, as well as other information based on our internal sources. While we believe the industry and market data included in this prospectus are reliable and are based on reasonable assumptions, these data involve many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. None of the industry publications referred to in this prospectus were prepared on our or on our affiliates’ behalf or at our expense. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors,” that could cause results to differ materially from those expressed in these publications and other publicly available information.
The sources of certain statistical data, estimates, and forecasts contained in this prospectus are the following independent industry publications or reports:
IDC, Business Intelligence End User Survey, February 2020.
IDC, The Digitization of the World - From Edge to Core, November 2018.
IDC, FutureScape: Worldwide Cloud 2019 Prediction, October 2018.
IDC, Worldwide Big Data Analytics Software Forecast 2019-2023, September 2019.
41


USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering and the concurrent private placements of approximately $3.3 billion (or approximately $3.8 billion if the underwriters exercise their option to purchase additional shares of our Class A common stock from us in full) based on an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses.
A $1.00 increase (decrease) in the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering and the concurrent private placements by approximately $27.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering and the concurrent private placements by approximately $101.6 million, assuming the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions.
The principal purposes of this offering and the concurrent private placements are to increase our capitalization and financial flexibility and create a public market for our Class A common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering and the concurrent private placements. However, we currently intend to use the net proceeds we receive from this offering and the concurrent private placements for general corporate purposes, including working capital, operating expenses, and capital expenditures. We may also use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, we do not have agreements or commitments to enter into any acquisitions at this time.
We will have broad discretion over how to use the net proceeds to us from this offering and the concurrent private placements. We may invest the net proceeds to us from the offering that are not used as described above in investment-grade, interest-bearing instruments.
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DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.
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CAPITALIZATION
The following table sets forth our cash, cash equivalents, short-term and long-term investments, and capitalization as of July 31, 2020:
on an actual basis;
on a pro forma basis, giving effect to (i) the automatic conversion of all of our outstanding shares of our convertible preferred stock as of July 31, 2020 into an aggregate of 182,271,099 shares of Class B common stock, which will occur immediately upon the closing of this offering, (ii) stock-based compensation expense of approximately $29.1 million related to RSUs subject to service-based and performance-based vesting conditions, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus, and (iii) the filing and effectiveness of our amended and restated certificate of incorporation; and
on a pro forma as adjusted basis, giving effect to (i) the pro forma adjustments set forth above, (ii) our receipt of estimated net proceeds from the sale of shares of Class A common stock in this offering and the concurrent private placements at an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses related to the offering, and (iii) the conversion of the Class B common stock to Class A common stock in connection with the secondary transaction by one of our stockholders.
You should read this table together with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
As of July 31, 2020
ActualPro FormaPro Forma As Adjusted
(in thousands, except share and per share data)
Cash, cash equivalents, and short-term and long-term investments
$886,820 $886,820 $4,228,282 
Redeemable convertible preferred stock, $0.0001 par value per share, 182,271,099 shares authorized, issued, and outstanding, actual; no shares authorized, issued, and outstanding, pro forma and pro forma as adjusted
$1,415,047 $ $ 
Stockholders’ (deficit) equity:
Preferred stock, $0.0001 par value per share, no shares authorized, issued, and outstanding, actual;  200,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted
   
Class A common stock, $0.0001 par value per share, 2,000 shares authorized, no shares issued and outstanding, actual; 2,500,000,000 shares authorized and no shares issued and outstanding, pro forma; 2,500,000,000 shares authorized and 36,803,947 shares issued and outstanding, pro forma as adjusted
  4 
Class B common stock, $0.0001 par value per share, 354,136,000 shares authorized, 62,257,063 shares issued and outstanding, actual; 355,000,000 shares authorized, 244,528,162 shares issued and outstanding, pro forma; 355,000,000 shares authorized, 240,486,119 shares issued and outstanding, pro forma as adjusted
6 24 24 
Additional paid-in capital
219,046 1,663,208 5,002,330 
Accumulated other comprehensive income
1,146 1,146 1,146 
Accumulated deficit
(871,597)(900,730)(900,730)
Total stockholders’ (deficit) equity
(651,399)763,648 4,102,774 
Total capitalization
$763,648 $763,648 $4,102,774 
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A $1.00 increase (decrease) in the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $27.1 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of Class A common stock offered by us would increase (decrease) each of our pro forma as adjusted cash, additional paid-in capital, total stockholders’ equity, and total capitalization by approximately $101.6 million, assuming the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions.
The number of shares of Class A common stock and Class B common stock that will be outstanding after this offering, the concurrent private placements, and the secondary transaction by one of our stockholders is based on no shares of Class A common stock and 244,528,162 shares of Class B common stock outstanding as of July 31, 2020, and excludes:
32,336 shares of Class B common stock issuable upon the exercise of a warrant to purchase shares of Class B common stock outstanding as of July 31, 2020, with an exercise price of $0.74 per share;
72,228,820 shares of Class B common stock issuable upon the exercise of stock options outstanding as of July 31, 2020 under our 2012 Plan with a weighted-average exercise price of $6.70 per share;
136,000 shares of Class B common stock issuable upon the exercise of outstanding stock options granted after July 31, 2020 through September 11, 2020 under our 2012 Plan, with a weighted-average exercise price of $71.91 per share;
4,851,121 shares of Class B common stock issuable upon the vesting and settlement of RSUs outstanding as of July 31, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering, but for which the service-based vesting condition was not satisfied as of July 31, 2020, and 2,110 shares of Class B common stock issuable upon the vesting and settlement of RSUs outstanding as of July 31, 2020, for which the performance-based vesting will be satisfied in connection with this offering and for which the service-based vesting condition was satisfied as of July 31, 2020;
2,841,823 shares of Class B common stock issuable upon the vesting and settlement of outstanding RSUs granted after July 31, 2020 through September 11, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering;
18,299,095 shares of Class B common stock reserved for future issuance under our 2012 Plan as of July 31, 2020, which shares will cease to be available for issuance at the time our 2020 Plan becomes effective;
34,100,000 shares of Class A common stock reserved for future issuance under our 2020 Plan, which will become effective in connection with this offering, as well as (i) any annual automatic evergreen increases in the number of shares of Class A common stock reserved for future issuance under our 2020 Plan and (ii) upon the expiration, forfeiture, cancellation, or reacquisition of any shares of Class B common stock underlying outstanding stock awards granted under our 2012 Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 78,816,888; and
5,700,000 shares of Class A common stock reserved for issuance under our ESPP, which will become effective in connection with this offering, as well as any annual automatic evergreen increases in the number of shares of Class A common stock reserved for future issuance under our ESPP.
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DILUTION
If you invest in our Class A common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of Class A common stock and the pro forma as adjusted net tangible book value per share immediately after this offering and the concurrent private placements.
Our historical net tangible book value (deficit) as of July 31, 2020 was $(774.4) million, or $(12.44) per share of common stock. Our historical net tangible book value (deficit) per share represents our total tangible assets less our total liabilities and convertible preferred stock (which is not included within stockholders’ deficit), divided by the number of shares of common stock outstanding as of July 31, 2020.
Our pro forma net tangible book value as of July 31, 2020 was $640.6 million, or $2.62 per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of our shares of common stock outstanding as of July 31, 2020, after giving effect to (i) the automatic conversion of all of our outstanding shares of our convertible preferred stock as of July 31, 2020 into an aggregate of 182,271,099 shares of Class B common stock, which will occur immediately upon the closing of this offering, (ii) stock-based compensation expense of approximately $29.1 million related to RSUs subject to service-based and performance-based vesting conditions, as further described in Note 2 to our consolidated financial statements included elsewhere in this prospectus, and (iii) the filing and effectiveness of our amended and restated certificate of incorporation.
After giving effect to the sale by us of 32,761,904 shares of Class A common stock in this offering and the concurrent private placements at an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses related to the offering, our pro forma as adjusted net tangible book value as of July 31, 2020 would have been $4.0 billion, or $14.36 per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $11.74 per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $90.64 per share to new investors purchasing Class A common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share
$105.00 
Historical net tangible book value (deficit) per share as of July 31, 2020
$(12.44)
Increase per share attributable to the pro forma adjustments described above
15.06 
Pro forma net tangible book value per share as of July 31, 2020, before giving effect to this offering and the concurrent private placements
2.62 
Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing shares in this offering and the concurrent private placements
11.74 
Pro forma as adjusted net tangible book value per share after this offering and the concurrent private placements
14.36 
Dilution in pro forma as adjusted net tangible book value per share to new investors in this offering and the concurrent private placements
$90.64 
The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering and the concurrent private placements by $0.10 per share and increase (decrease) the dilution to new investors by $0.90 per share, in each case assuming the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. Each increase of 1,000,000 shares in the number of shares of Class A common stock offered by us would increase our pro forma as adjusted net tangible book value by approximately $0.32 per share and decrease the dilution to new investors by approximately $0.32 per share, in each case assuming the assumed initial public offering price of
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$105.00 per share remains the same, and after deducting underwriting discounts and commissions. Similarly, each decrease of 1,000,000 shares in the number of shares of Class A common stock offered by us would decrease our pro forma as adjusted net tangible book value by approximately $0.31 per share and increase the dilution to new investors by approximately $0.31 per share, in each case assuming the assumed initial public offering price of $105.00 per share remains the same, and after deducting underwriting discounts and commissions.
If the underwriters exercise their option to purchase additional shares of Class A common stock in full, the pro forma net tangible book value per share, as adjusted to give effect to this offering and the concurrent private placements, would be $15.66 per share, the increase in pro forma net tangible book value per share to existing stockholders would be $13.04 per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $89.34 per share.
The following table summarizes, as of July 31, 2020, on a pro forma as adjusted basis as described above, the number of shares of our common stock, the total consideration and the average price per share (1) paid to us by existing stockholders and (2) to be paid by new investors acquiring our Class A common stock in this offering and the concurrent private placements at an assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses.
Shares PurchasedTotal ConsiderationAverage Price
Per Share
NumberPercentAmountPercent
(in thousands)
Existing stockholders244,528,16288.2 %$1,423,150 29.3 %$5.82 
New investors28,000,00010.1 2,940,000 60.4 105.00 
Concurrent private placement investors
4,761,9041.7 500,000 10.3 105.00 
Total277,290,066100.0 %$4,863,150 100.0 %
Each $1.00 increase (decrease) in the assumed initial public offering price of $105.00 per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by approximately $27.1 million, assuming that the number of shares of Class A common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions.
The number of shares of Class A common stock and Class B common stock that will be outstanding after this offering, the concurrent private placements, and the secondary transaction by one of our stockholders is based on no shares of Class A common stock and 244,528,162 shares of Class B common stock outstanding as of July 31, 2020, and excludes:
32,336 shares of Class B common stock issuable upon the exercise of a warrant to purchase shares of Class B common stock outstanding as of July 31, 2020, with an exercise price of $0.74 per share;
72,228,820 shares of Class B common stock issuable upon the exercise of stock options outstanding as of July 31, 2020 under our 2012 Plan with a weighted-average exercise price of $6.70 per share;
136,000 shares of Class B common stock issuable upon the exercise of outstanding stock options granted after July 31, 2020 through September 11, 2020 under our 2012 Plan, with a weighted-average exercise price of $71.91 per share;
4,851,121 shares of Class B common stock issuable upon the vesting and settlement of RSUs outstanding as of July 31, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering, but for which the service-based vesting condition was not satisfied as of July 31, 2020, and 2,110 shares of Class B common stock issuable upon the vesting and settlement of RSUs outstanding as of July 31, 2020, for which the performance-based vesting will be satisfied in connection with this offering and for which the service-based vesting condition was satisfied as of July 31, 2020;
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2,841,823 shares of Class B common stock issuable upon the vesting and settlement of outstanding RSUs granted after July 31, 2020 through September 11, 2020, for which the performance-based vesting condition will be satisfied in connection with this offering;
18,299,095 shares of Class B common stock reserved for future issuance under our 2012 Plan as of July 31, 2020, which shares will cease to be available for issuance at the time our 2020 Plan becomes effective;
34,100,000 shares of Class A common stock reserved for future issuance under our 2020 Plan, which will become effective in connection with this offering, as well as (i) any annual automatic evergreen increases in the number of shares of Class A common stock reserved for future issuance under our 2020 Plan and (ii) upon the expiration, forfeiture, cancellation, or reacquisition of any shares of Class B common stock underlying outstanding stock awards granted under our 2012 Plan, an equal number of shares of Class A common stock, such number of shares not to exceed 78,816,888; and
5,700,000 shares of Class A common stock reserved for issuance under our ESPP, which will become effective in connection with this offering, as well as any annual automatic evergreen increases in the number of shares of Class A common stock reserved for future issuance under our ESPP.
To the extent that any outstanding options or warrants are exercised or new options or RSUs are issued under our stock-based compensation plans, or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options and RSUs under our 2012 Plan as of July 31, 2020 were exercised or settled, holders of our Class B common stock would own 89.6% and holders of our Class A common stock, who are acquiring shares in this offering, the concurrent private placements, and the secondary transaction, would own 10.4% of the total number of shares of our Class A common stock and Class B common stock outstanding on the closing of this offering, the concurrent private placements, and the secondary transaction by one of our stockholders.
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected consolidated statements of operations data for the fiscal years ended January 31, 2019 and 2020 and the consolidated balance sheet data as of January 31, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected consolidated statements of operations data for the six months ended July 31, 2019 and 2020 and the consolidated balance sheet data as of July 31, 2020 from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The unaudited consolidated financial data set forth below have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of such data. Our historical results are not necessarily indicative of the results that may be expected for any other period in the future. You should read this information in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus.
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
Revenue$96,666 $264,748 $104,044 $241,960 
Cost of revenue(1)
51,753 116,557 52,546 93,003 
Gross profit44,913 148,191 51,498 148,957 
Operating expenses:
Sales and marketing(1)
125,642 293,577 137,465 190,540 
Research and development(1)
68,681 105,160 47,782 69,811 
General and administrative(1)
36,055 107,542 49,095 62,692 
Total operating expenses230,378 506,279 234,342 323,043 
Operating loss(185,465)(358,088)(182,844)(174,086)
Interest income8,759 11,551 6,761 4,137 
Other expense, net(502)(1,005)(779)(1,042)
Loss before income taxes(177,208)(347,542)(176,862)(170,991)
Provision for income taxes820 993 362 287 
Net loss$(178,028)$(348,535)$(177,224)$(171,278)
Net loss per share attributable to common stockholders – basic and diluted(2)
$(4.67)$(7.77)$(4.25)$(3.01)
Weighted-average shares used in computing net loss per share attributable to common stockholders – basic and diluted(2)
38,162,228 44,847,442 41,691,615 56,809,625 
Pro forma net loss per share attributable to common stockholders – basic and diluted (unaudited)(2)
$(1.63)$(0.72)
Weighted-average shares used in computing pro forma net loss per share attributable to common stockholders – basic and diluted (unaudited)(2)
214,327,427 238,369,506 
________________
(1)Includes stock-based compensation expense as follows:
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(in thousands)
Cost of revenue$1,895 $3,650 $1,850 $2,281 
Sales and marketing15,647 20,757 10,626 10,233 
Research and development28,284 15,743 6,411 9,818 
General and administrative6,912 38,249 15,580 16,317 
Total stock-based compensation expense$52,738 $78,399 $34,467 $38,649 
Stock-based compensation expense for the fiscal year ended January 31, 2019 included $30.3 million of compensation expense related to the amount paid in excess of the estimated fair value of common stock at the date of transaction in connection with two issuer tender offers. See Note 11 to our consolidated financial statements included elsewhere in this prospectus for further details.
(2)See Note 2 and Note 13 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of our net loss per share attributable to common stockholders, basic and diluted, pro forma net loss per share attributable to common stockholders, basic and diluted, and the weighted-average shares used to compute these amounts.
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As of January 31,
As of July 31,
201920202020
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents, and short-term and long-term investments
$608,798 $457,582 $886,820 
Total assets764,288 1,012,720 1,437,241 
Working capital(1)
554,047 248,739 315,789 
Redeemable convertible preferred stock910,853 936,474 1,415,047 
Additional paid-in capital39,296 155,340 219,046 
Accumulated deficit(351,784)(700,319)(871,597)
Total stockholders’ deficit(312,467)(544,757)(651,399)
________________
(1)Working capital is defined as current assets less current liabilities.
Key Business Metrics
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(unaudited)
Product revenue (in millions)$95.7 $252.2 $100.6 $227.0 
January 31,July 31,
2019202020192020
(unaudited)(unaudited)
Remaining performance obligations (in millions)$128.0 $426.3 $221.1 $688.2 
January 31,July 31,
2019202020192020
Total customers948 2,392 1,547 3,117 
Net revenue retention rate180 %169 %223 %158 %
Customers with trailing 12-month product revenue greater than $1 million14 41 22 56 
Product Revenue
Product revenue is a key metric for us because we recognize revenue based on platform consumption, which is inherently variable at our customers’ discretion, and not based on the amount and duration of contract terms. Product revenue includes compute, storage, and data transfer resources, which are consumed by customers on our platform as a single, integrated offering. Customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal. Our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform. While customer use of our platform in any period is not necessarily indicative of future use, we estimate future revenue using predictive models based on customers’ historical usage to plan and issue financial forecasts. Product revenue excludes our professional services and other revenue, which has been less than 10% of total revenue in each of the fiscal years ended January 31, 2019 and 2020 and the six months ended July 31, 2019 and 2020.
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Remaining Performance Obligations
Remaining performance obligations represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. RPO excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears. RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers’ consumption or their consumption of more than their contracted capacity. Moreover, RPO is influenced by a number of factors, including the timing of renewals, the timing of purchases of additional capacity, average contract terms, seasonality, and the extent to which customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. Due to these factors, it is important to review RPO in conjunction with product revenue and other financial metrics disclosed elsewhere in this prospectus.
Total Customers
We count the total number of customers at the end of each period. For purposes of determining our customer count, we treat each customer account that has a corresponding capacity contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. For purposes of determining our customer count, we do not include customers that consume our platform only under on-demand arrangements. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. We believe that the number of customers is an important indicator of the growth of our business and future revenue trends.
Net Revenue Retention Rate
We believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We monitor our dollar-based net revenue retention rate to measure this growth. To calculate this metric, we first specify a measurement period consisting of the trailing two years from our current period end. Next, we define as our measurement cohort the population of customers under capacity contracts that used our platform at any point in the first month of the first year of the measurement period. We then calculate our net revenue retention rate as the quotient obtained by dividing our product revenue from this cohort in the second year of the measurement period by our product revenue from this cohort in the first year of the measurement period. Any customer in the cohort that did not use our platform in the second year remains in the calculation and contributes zero product revenue in the second year. Our net revenue retention rate is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. Since we will continue to attribute the historical product revenue to the consolidated contract, consolidation of capacity contracts within a customer’s organization typically will not impact our net revenue retention rate unless one of those customers was not a customer at any point in the first month of the first year of the measurement period. We expect our net revenue retention rate to decrease over time as customers that have consumed our platform for an extended period of time become a larger portion of both our overall customer base and our product revenue that we use to calculate net revenue retention rate, and as their consumption growth primarily relates to existing use cases rather than new use cases.
Customers with Trailing 12-Month Product Revenue Greater than $1 Million
Large customer relationships lead to scale and operating leverage in our business model. Compared with smaller customers, large customers present a greater opportunity for us to sell additional capacity because they have larger budgets, a wider range of potential use cases, and greater potential for migrating new workloads to our platform over time. As a measure of our ability to scale with our customers and attract large enterprises to our platform, we count the number of customers under capacity arrangements that contributed more than $1 million in product revenue in the trailing 12 months. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial and Other Data” and the consolidated financial statements and related notes included elsewhere in this prospectus. Some of the information contained in this discussion and analysis, including information with respect to our planned investments in our research and development, sales and marketing, and general and administrative functions, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We believe in a data connected world where organizations have seamless access to explore, share, and unlock the value of data. To realize this vision, we are pioneering the Data Cloud, an ecosystem where Snowflake customers, partners, and data providers can break down data silos and derive value from rapidly growing data sets in secure, governed, and compliant ways.
Our Cloud Data Platform is the innovative technology that powers the Data Cloud. Our platform enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data. We deliver our platform through a customer-centric, consumption-based business model, only charging customers for the resources they use.
Our platform solves the decades-old problem of data silos and data governance. Leveraging the elasticity and performance of the public cloud, our platform enables customers to unify and query data to support a wide variety of use cases. It also provides frictionless and governed data access so users can securely share data inside and outside of their organizations, generally without copying or moving the underlying data. As a result, customers can blend existing data with new data for broader context, augment data science efforts, or create new monetization streams. Delivered as a service, our platform requires near-zero maintenance, enabling customers to focus on deriving value from their data rather than managing infrastructure.
Snowflake was started in 2012 to create a data warehouse built for the cloud. Beginning with our first customers in 2014, the response was beyond our expectations as we addressed major shortcomings of existing solutions and expanded from a data warehouse into an integrated cloud data platform. What began as a journey to the cloud has evolved into a much more powerful vision of the Data Cloud. From July 1, 2020 to July 31, 2020, we processed an average of 507 million daily queries across all of our customer accounts, up from an average of 254 million daily queries during the corresponding month of the prior fiscal year. The number of daily queries does not directly correlate with revenue, as revenue is further dependent upon the duration of such queries, the type of resource used, and the volume of data processed for the queries, among other factors.
Our cloud-native architecture consists of three independently scalable layers across storage, compute, and cloud services. The storage layer ingests massive amounts and varieties of structured and semi-structured data to create a unified data record. The compute layer provides dedicated resources to enable users to simultaneously access common data sets for many use cases without latency. The cloud services layer intelligently optimizes each use case’s performance requirements with no administration. This architecture is built on three major public clouds across 22 regional deployments around the world. These deployments are interconnected to create our single Cloud Data Platform, delivering a consistent, global user experience.
We generate the substantial majority of our revenue from fees charged to our customers based on the storage, compute, and data transfer resources consumed on our platform as a single, integrated offering. For storage resources, consumption fees are based on the average terabytes per month of all of the customer’s data stored in our platform. For compute resources, consumption fees are based on the type of compute resource used and the duration of use or, for some features, the volume of data processed. For data transfer resources, consumption fees are based on terabytes of data transferred, the public cloud provider used, and the region to and from which the transfer is executed.
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Our customers typically enter into capacity arrangements on an annual basis, or consume our platform under on-demand arrangements in which we charge for use of our platform monthly in arrears. Consumption for most customers accelerates from the beginning of their usage to the end of their contract terms and often exceeds their initial capacity commitment amounts. When this occurs, our customers have the option to amend their existing agreement with us to purchase additional capacity or request early renewals. When a customer’s consumption during the contract term does not exceed its capacity commitment amount, it may have the option to roll over any unused capacity to future periods, generally on the purchase of additional capacity. For these reasons, we believe our deferred revenue is not a meaningful indicator of future revenue that will be recognized in any given time period.
Our go-to-market strategy is focused on acquiring new customers and driving continued use of our platform for existing customers. We primarily focus our selling efforts on large organizations and sell our platform through a direct sales force, which targets technical and business leaders who are adopting a cloud strategy and leveraging data to improve their business performance. Our sales organization is comprised of sales development, inside sales, and field sales personnel and is segmented by the size of prospective customers. Once our platform has been adopted, we focus on increasing the migration of additional customer workloads to our platform to drive increased consumption, as evidenced by our net revenue retention rate, which exceeded 150% as of January 31, 2019 and 2020 and July 31, 2020.
Our platform is used globally by organizations of all sizes across a broad range of industries. As of July 31, 2020, we had 3,117 total customers, increasing from 948 and 2,392 as of January 31, 2019 and 2020, respectively. Our platform has been adopted by many of the world’s largest organizations that view Snowflake as a key strategic partner in their cloud and data transformation initiatives. As of July 31, 2020, our customers included seven of the Fortune 10 and 146 of the Fortune 500, based on the 2020 Fortune 500 list, and those customers contributed approximately 4% and 26% of our revenue for the six months ended July 31, 2020, respectively. The number of customers that contributed more than $1 million in trailing 12-month product revenue increased from 22 to 56 as of July 31, 2019 and 2020, respectively.
We have achieved significant growth in recent periods. For the fiscal years ended January 31, 2019 and 2020, our revenue was $96.7 million and $264.7 million, respectively, representing year-over-year growth of 174%. For the six months ended July 31, 2019 and 2020, our revenue was $104.0 million and $242.0 million, respectively, representing year-over-year growth of 133%. Our net loss was $178.0 million and $348.5 million for the fiscal years ended January 31, 2019 and 2020, respectively, and $177.2 million and $171.3 million for the six months ended July 31, 2019 and 2020, respectively.
Key Factors Affecting Our Performance
Adoption of our Cloud Data Platform 
Our future success depends in large part on the market adoption of our Cloud Data Platform. While we see growing demand for our platform, particularly from large enterprises, many of these organizations have invested substantial technical, financial, and personnel resources in their legacy database products or big data offerings, despite their inherent limitations. While this makes it difficult to predict customer adoption rates and future demand, we believe that the benefits of our platform put us in a strong position to capture the significant market opportunity ahead.
Expanding Within our Existing Customer Base
Our large base of customers represents a significant opportunity for further consumption of our platform. As of July 31, 2020, our customers included seven of the Fortune 10 and 146 of the Fortune 500. While we have seen a rapid increase in the number of customers that have contributed more than $1 million in product revenue in the trailing 12 months, we believe that there is a substantial opportunity to continue growing these customers further, as well as continuing to expand the usage of our platform within our other existing customers. We plan to continue investing in our direct sales force to encourage increased consumption and adoption of new use cases among our existing customers.
Once deployed, our customers often expand their use of our platform more broadly within the enterprise and across their ecosystem of customers and partners as they migrate more data to the public cloud, identify new use cases, and realize the benefits of our platform. However, because we generally recognize product revenue on consumption and not ratably over the term of the contract, we do not have visibility into the timing of revenue recognition from any particular customer. In any given period, there is a
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risk that customer consumption of our platform will be slower than we expect, which may cause fluctuations in our revenue and results of operations. New software releases or hardware improvements may make our platform more efficient, enabling customers to consume fewer compute, storage, and data transfer resources to accomplish the same workloads. Our ability to increase usage of our platform by, and sell additional contracted capacity to, existing customers, and, in particular, large enterprise customers, will depend on a number of factors, including our customers’ satisfaction with our platform, competition, pricing, overall changes in our customers’ spending levels, the effectiveness of our efforts to help our customers realize the benefits of our platform, and the extent to which customers migrate new workloads to our platform over time.
Acquiring New Customers
We believe there is a substantial opportunity to further grow our customer base by continuing to make significant investments in sales and marketing and brand awareness. Our ability to attract new customers will depend on a number of factors, including our success in recruiting and scaling our sales and marketing organization and competitive dynamics in our target markets. We intend to expand our direct sales force, with a focus on increasing sales to large organizations. While our platform is built for organizations of all sizes and industries, we have only recently focused our selling efforts on large enterprise customers. We may not achieve anticipated revenue growth from expanding our sales force to focus on large enterprises if we are unable to hire, develop, integrate, and retain talented and effective sales personnel; if our new and existing sales personnel are unable to achieve desired productivity levels in a reasonable period of time; or if our sales and marketing programs are not effective.
Investing in Growth and Scaling our Business
We are focused on our long-term revenue potential. We believe that our market opportunity is large, and we will continue to invest significantly in scaling across all organizational functions in order to grow our operations both domestically and internationally. We have a history of introducing successful new features and capabilities on our platform, and we intend to continue to invest heavily to grow our business to take advantage of our expansive market opportunity rather than optimize for profitability or cash flow in the near future.
Key Business Metrics
We monitor the key business metrics set forth below to help us evaluate our business and growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts, and assess operational efficiencies. The calculation of the key metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(unaudited)
Product revenue (in millions)$95.7 $252.2 $100.6 $227.0 
January 31,July 31,
2019202020192020
(unaudited)(unaudited)
Remaining performance obligations (in millions)
$128.0 $426.3 $221.1 $688.2 
January 31,July 31,
2019202020192020
Total customers948 2,392 1,547 3,117 
Net revenue retention rate180 %169 %223 %158 %
Customers with trailing 12-month product revenue greater than $1 million
14 41 22 56 
Product Revenue
Product revenue is a key metric for us because we recognize revenue based on platform consumption, which is inherently variable at our customers’ discretion, and not based on the amount and
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duration of contract terms. Product revenue includes compute, storage, and data transfer resources, which are consumed by customers on our platform as a single, integrated offering. Customers have the flexibility to consume more than their contracted capacity during the contract term and may have the ability to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal. Our consumption-based business model distinguishes us from subscription-based software companies that generally recognize revenue ratably over the contract term and may not permit rollover. Because customers have flexibility in the timing of their consumption, which can exceed their contracted capacity or extend beyond the original contract term in many cases, the amount of product revenue recognized in a given period is an important indicator of customer satisfaction and the value derived from our platform. While customer use of our platform in any period is not necessarily indicative of future use, we estimate future revenue using predictive models based on customers’ historical usage to plan and issue financial forecasts. Product revenue excludes our professional services and other revenue, which has been less than 10% of total revenue in each of the fiscal years ended January 31, 2019 and 2020 and the six months ended July 31, 2019 and 2020.
Remaining Performance Obligations
Remaining performance obligations represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. RPO excludes performance obligations from on-demand arrangements and certain time and materials contracts that are billed in arrears. RPO is not necessarily indicative of future product revenue growth because it does not account for the timing of customers’ consumption or their consumption of more than their contracted capacity. Moreover, RPO is influenced by a number of factors, including the timing of renewals, the timing of purchases of additional capacity, average contract terms, seasonality, and the extent to which customers are permitted to roll over unused capacity to future periods, generally upon the purchase of additional capacity at renewal. Due to these factors, it is important to review RPO in conjunction with product revenue and other financial metrics disclosed elsewhere in this prospectus.
Total Customers
We count the total number of customers at the end of each period. For purposes of determining our customer count, we treat each customer account that has a corresponding capacity contract as a unique customer, and a single organization with multiple divisions, segments, or subsidiaries may be counted as multiple customers. For purposes of determining our customer count, we do not include customers that consume our platform only under on-demand arrangements. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. We believe that the number of customers is an important indicator of the growth of our business and future revenue trends.
Net Revenue Retention Rate
We believe the growth in use of our platform by our existing customers is an important measure of the health of our business and our future growth prospects. We monitor our dollar-based net revenue retention rate to measure this growth. To calculate this metric, we first specify a measurement period consisting of the trailing two years from our current period end. Next, we define as our measurement cohort the population of customers under capacity contracts that used our platform at any point in the first month of the first year of the measurement period. We then calculate our net revenue retention rate as the quotient obtained by dividing our product revenue from this cohort in the second year of the measurement period by our product revenue from this cohort in the first year of the measurement period. Any customer in the cohort that did not use our platform in the second year remains in the calculation and contributes zero product revenue in the second year. Our net revenue retention rate is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. Since we will continue to attribute the historical product revenue to the consolidated contract, consolidation of capacity contracts within a customer’s organization typically will not impact our net revenue retention rate unless one of those customers was not a customer at any point in the first month of the first year of the measurement period. We expect our net revenue retention rate to decrease over time as customers that have consumed our platform for an extended period of time become a larger portion of both our overall customer base and our product revenue that we use to calculate net revenue retention rate, and as their consumption growth primarily relates to existing use cases rather than new use cases.
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Customers with Trailing 12-Month Product Revenue Greater than $1 Million
Large customer relationships lead to scale and operating leverage in our business model. Compared with smaller customers, large customers present a greater opportunity for us to sell additional capacity because they have larger budgets, a wider range of potential use cases, and greater potential for migrating new workloads to our platform over time. As a measure of our ability to scale with our customers and attract large enterprises to our platform, we count the number of customers under capacity arrangements that contributed more than $1 million in product revenue in the trailing 12 months. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity.
Impact of COVID-19
The COVID-19 pandemic has caused general business disruption worldwide beginning in January 2020. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, cash flows, and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted. We have experienced, and may continue to experience, a modest adverse impact on certain parts of our business following the implementation of shelter-in-place orders to mitigate the outbreak of COVID-19, including a lengthening of the sales cycle for some prospective customers and delays in the delivery of professional services and trainings to our customers. We have also experienced, and may continue to experience, a modest positive impact on other aspects of our business, including an increase in consumption of our platform by existing customers. Moreover, we have seen slower growth in certain operating expenses due to reduced business travel, deferred hiring for some positions, and the virtualization or cancellation of customer and employee events. While a reduction in operating expenses may have an immediate positive impact on our results of operations, we do not yet have visibility into the full impact this will have on our business. We cannot predict how long we will continue to experience these impacts as shelter-in-place orders and other related measures are expected to change over time. Our results of operations, cash flows, and financial condition have not been adversely impacted to date. However, as certain of our customers or partners experience downturns or uncertainty in their own business operations or revenue resulting from the spread of COVID-19, they may continue to decrease or delay their spending, request pricing discounts, or seek renegotiations of their contracts, any of which may result in decreased revenue and cash receipts for us. In addition, we may experience customer losses, including due to bankruptcy or our customers ceasing operations, which may result in an inability to collect accounts receivable from these customers. In addition, in response to the spread of COVID-19, we have required substantially all of our employees to work remotely to minimize the risk of the virus to our employees and the communities in which we operate, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners.
The global impact of COVID-19 continues to rapidly evolve, and we will continue to monitor the situation and the effects on our business and operations closely. We do not yet know the full extent of potential impacts on our business or operations or on the global economy as a whole, particularly if the COVID-19 pandemic continues and persists for an extended period of time. Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows, or financial condition. For additional details, see the section titled “Risk Factors.”
Components of Results of Operations
Revenue
We deliver our platform over the internet as a service. Customers choose to consume our platform under either capacity arrangements, in which they commit to a certain amount of consumption at specified prices, or under on-demand arrangements, in which we charge for use of our platform monthly in arrears. Under capacity arrangements, from which a substantial majority of our revenue is derived, we typically bill our customers annually in advance of their consumption. However, in future periods, we expect to see an increase in capacity contracts providing for quarterly upfront billings and monthly in arrears billings as our customers increasingly want to align consumption and timing of payments. Revenue from on-demand arrangements typically relates to initial consumption as part of customer onboarding and, to a lesser extent, overage consumption beyond a customer’s contracted usage amount or following the expiration of a customer’s contract. Revenue from on-demand arrangements represented less than 10% of our
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revenue for the fiscal years ended January 31, 2019 and 2020 and the six months ended July 31, 2019 and 2020.
We recognize revenue as customers consume compute, storage, and data transfer resources under either of these arrangements. In limited instances, customers pay an annual deployment fee to gain access to a dedicated instance of a virtual private deployment. We recognize the deployment fee ratably over the contract term. Such deployment revenue represented approximately 1% of our revenue for the fiscal years ended January 31, 2019 and 2020.
Our customer contracts for capacity typically have a one-year term. To the extent our customers enter into such contracts and either consume our platform in excess of their capacity commitments or continue to use our platform after expiration of the contract term, they are charged for their incremental consumption. In many cases, our customer contracts permit customers to roll over any unused capacity to a subsequent order, generally on the purchase of additional capacity. For those customers who do not have a capacity arrangement, our on-demand arrangements generally have a monthly stated contract term and can be terminated at any time by either the customer or us.
We generate the substantial majority of our revenue from fees charged to our customers based on the storage, compute, and data transfer resources consumed on our platform as a single, integrated offering. We do not make any one of these resources available for consumption without the others. Instead, each of compute, storage, and data transfer work together to drive consumption on our platform. For storage resources, consumption for a given customer is based on the average terabytes per month of all of such customer’s data stored in our platform. For compute resources, consumption is based on the type of compute resource used and the duration of use or, for some features, the volume of data processed. For data transfer resources, consumption is based on terabytes of data transferred, the public cloud provider used, and the region to and from which the transfer is executed.
Because customers have flexibility in their consumption and we generally recognize revenue on consumption and not ratably over the term of the contract, we do not have the visibility into the timing of revenue recognition from any particular customer contract that typical subscription-based software companies may have. As our customer base grows, we expect our ability to forecast customer consumption in the aggregate will improve. However, in any given period, there is a risk that customers will consume our platform more slowly than we expect, which may cause fluctuations in our revenue and results of operations.
Our revenue also includes professional services and other revenue, which consists of consulting, on-site technical solution services, and training related to our platform. Our professional services revenue is recognized over time based on input measures, including time and materials costs incurred relative to total costs, with consideration given to output measures, such as contract deliverables, when applicable. Other revenue consists of fees from customer training delivered on-site or through publicly available classes.
Allocation of Overhead Costs
Overhead costs that are not substantially dedicated for use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, and IT-related personnel and other expenses, such as software and subscription services.
Cost of Revenue
Cost of revenue consists of cost of product revenue and cost of professional services and other revenue. Cost of revenue also includes allocated overhead costs.
Cost of product revenue. Cost of product revenue consists primarily of third-party cloud infrastructure expenses incurred in connection with our customers’ use of our platform and the deployment and maintenance of our platform on public clouds, including different regional deployments, and personnel-related costs associated with customer support and maintaining service availability, including salaries, benefits, bonuses, and stock-based compensation. Cost of product revenue also includes amortization of internal-use software development costs, amortization of acquired developed technology intangible
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assets, and expenses associated with software and subscription services dedicated for use by our customer support team and our engineering team responsible for maintaining our platform.
Cost of professional services and other revenue. Cost of professional services and other revenue consists primarily of personnel-related costs associated with our professional services and training departments, including salaries, benefits, bonuses, and stock-based compensation, and costs of contracted third-party partners.
We intend to continue to invest additional resources in our platform infrastructure and our customer support and professional services organizations to support the growth of our business. Some of these investments, including certain support costs and costs of expanding our business internationally, are incurred in advance of generating revenue, and either the failure to generate anticipated revenue or fluctuations in the timing of revenue could affect our gross margin from period to period.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, stock-based compensation, and sales commissions. Operating expenses also include allocated overhead costs.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related expenses associated with our sales and marketing staff, including salaries, benefits, bonuses, and stock-based compensation. Sales and marketing expenses also include draws and sales commissions paid to our sales force and referral fees paid to independent third parties, including amortization of deferred commissions. Prior to the six months ended July 31, 2020, we primarily amortized sales commissions over a period of benefit that we determined to be five years as they were earned on new customer or customer expansion contracts. As a result of modifications to our sales compensation plan during the six months ended July 31, 2020, we now expense a portion of these sales commissions in the period earned, as they are earned based on the rate of our customers’ consumption of our platform, which we expect will accelerate our sales and marketing expenses in the near term. The remaining portion of the sales commissions is earned upon origination of the new customer or customer expansion contract and is deferred and amortized over the period of benefit that we determined to be five years. In addition, sales and marketing expenses include expenses from our user conferences and programs, offset by proceeds from such conferences and programs, advertising costs, software and subscription services dedicated for use by our sales and marketing organizations, and outside services contracted for sales and marketing purposes. We expect that our sales and marketing expenses will increase in absolute dollars and continue to be our largest operating expense for the foreseeable future as we grow our business. However, we expect that our sales and marketing expenses will decrease as a percentage of our revenue over time.
Research and Development
Research and development expenses consist primarily of personnel-related expenses associated with our research and development staff, including salaries, benefits, bonuses, and stock-based compensation. Research and development expenses also include contractor or professional services fees, third-party cloud infrastructure expenses incurred in developing our platform, and computer equipment, software, and subscription services dedicated for use by our research and development organization. We expect that our research and development expenses will increase in absolute dollars as our business grows, particularly as we incur additional costs related to continued investments in our platform. However, we expect that our research and development expenses will decrease as a percentage of our revenue over time. In addition, research and development expenses that qualify as internal-use software development costs are capitalized, the amount of which may fluctuate significantly from period to period.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses for our finance, legal, human resources, facilities, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation. General and administrative expenses also include external legal, accounting,
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and other professional services fees, software and subscription services dedicated for use by our general and administrative functions, and other corporate expenses.
Following the closing of this offering, we expect to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. We expect that our general and administrative expenses will increase in absolute dollars as our business grows but will decrease as a percentage of our revenue over time.
Interest Income
Interest income consists primarily of interest income earned on our cash equivalents and short-term and long-term investments.
Other Income (Expense), Net
Other income (expense), net consists primarily of the effect of exchange rates on our foreign currency-denominated asset and liability balances, and interest expense.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists primarily of income taxes in certain foreign and state jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.
Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated:
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(in thousands)
Revenue$96,666 $264,748 $104,044 $241,960 
Cost of revenue(1)
51,753 116,557 52,546 93,003 
Gross profit44,913 148,191 51,498 148,957 
Operating expenses:
Sales and marketing(1)
125,642 293,577 137,465 190,540 
Research and development(1)
68,681 105,160 47,782 69,811 
General and administrative(1)
36,055 107,542 49,095 62,692 
Total operating expenses230,378 506,279 234,342 323,043 
Operating loss(185,465)(358,088)(182,844)(174,086)
Interest income8,759 11,551 6,761 4,137 
Other expense, net(502)(1,005)(779)(1,042)
Loss before income taxes(177,208)(347,542)(176,862)(170,991)
Provision for income taxes820 993 362 287 
Net loss$(178,028)$(348,535)$(177,224)$(171,278)
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________________
(1)Includes stock-based compensation expense as follows:
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(in thousands)
Cost of revenue$1,895 $3,650 $1,850 $2,281 
Sales and marketing15,647 20,757 10,626 10,233 
Research and development28,284 15,743 6,411 9,818 
General and administrative6,912 38,249 15,580 16,317 
Total stock-based compensation expense$52,738 $78,399 $34,467 $38,649 

Stock-based compensation expense for the fiscal year ended January 31, 2019 included $30.3 million of compensation expense related to the amount paid in excess of the estimated fair value of common stock at the date of the transaction in connection with two issuer tender offers. See Note 11 to our consolidated financial statements included elsewhere in this prospectus for further details.
The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for the periods indicated:
Fiscal Year Ended January 31,Six Months Ended July 31,
2019202020192020
(as a percentage of total revenue)
Revenue
100 %100 %100 %100 %
Cost of revenue
54 44 51 38 
Gross profit
46 56 49 62 
Operating expenses:
Sales and marketing130 111 132 79 
Research and development71 40 46 29 
General and administrative37 41 47 26 
Total operating expenses238 192 225 134 
Operating loss(192)(136)(176)(72)
Interest income9 4 7 1 
Other expense, net  (1) 
Loss before income taxes(183)(132)(170)(71)
Provision for income taxes1