0001643269-22-000007.txt : 20220314 0001643269-22-000007.hdr.sgml : 20220314 20220314161441 ACCESSION NUMBER: 0001643269-22-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 95 CONFORMED PERIOD OF REPORT: 20220131 FILED AS OF DATE: 20220314 DATE AS OF CHANGE: 20220314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Sumo Logic, Inc. CENTRAL INDEX KEY: 0001643269 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 272234444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-39502 FILM NUMBER: 22736737 BUSINESS ADDRESS: STREET 1: 305 MAIN STREET CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 650-810-8700 MAIL ADDRESS: STREET 1: 305 MAIN STREET CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-K 1 sumo-20220131.htm 10-K sumo-20220131
false2022FY0001643269P1Y00016432692021-02-012022-01-3100016432692021-07-31iso4217:USD00016432692022-02-28xbrli:shares00016432692022-01-3100016432692021-01-31iso4217:USDxbrli:shares00016432692020-02-012021-01-3100016432692019-02-012020-01-3100016432692019-01-310001643269us-gaap:CommonStockMember2019-01-310001643269us-gaap:AdditionalPaidInCapitalMember2019-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-310001643269us-gaap:RetainedEarningsMember2019-01-310001643269us-gaap:CommonStockMember2019-02-012020-01-310001643269us-gaap:AdditionalPaidInCapitalMember2019-02-012020-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-02-012020-01-310001643269us-gaap:RetainedEarningsMember2019-02-012020-01-3100016432692020-01-310001643269us-gaap:CommonStockMember2020-01-310001643269us-gaap:AdditionalPaidInCapitalMember2020-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-310001643269us-gaap:RetainedEarningsMember2020-01-310001643269us-gaap:CommonStockMember2020-02-012021-01-310001643269us-gaap:AdditionalPaidInCapitalMember2020-02-012021-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-02-012021-01-310001643269us-gaap:RetainedEarningsMember2020-02-012021-01-310001643269us-gaap:CommonStockMember2021-01-310001643269us-gaap:AdditionalPaidInCapitalMember2021-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-310001643269us-gaap:RetainedEarningsMember2021-01-310001643269us-gaap:CommonStockMember2021-02-012022-01-310001643269us-gaap:AdditionalPaidInCapitalMember2021-02-012022-01-310001643269us-gaap:RestrictedStockUnitsRSUMemberus-gaap:CommonStockMember2021-02-012022-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-02-012022-01-310001643269us-gaap:RetainedEarningsMember2021-02-012022-01-310001643269us-gaap:CommonStockMember2022-01-310001643269us-gaap:AdditionalPaidInCapitalMember2022-01-310001643269us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-310001643269us-gaap:RetainedEarningsMember2022-01-310001643269us-gaap:IPOMember2020-09-212020-09-210001643269us-gaap:IPOMember2020-09-210001643269us-gaap:OverAllotmentOptionMember2020-10-092020-10-090001643269us-gaap:IPOMember2020-10-090001643269us-gaap:IPOMember2020-09-212020-10-090001643269us-gaap:CommonStockMember2020-09-212020-09-2100016432692020-09-210001643269sumo:RedeemableConvertiblePreferredStockWarrantsMember2020-09-21sumo:segment0001643269sumo:COVID19PandemicMember2020-02-012021-01-310001643269srt:MinimumMember2021-02-012022-01-310001643269srt:MaximumMember2021-02-012022-01-310001643269us-gaap:CreditConcentrationRiskMemberus-gaap:AccountsReceivableMember2022-01-31sumo:customer0001643269us-gaap:CreditConcentrationRiskMemberus-gaap:AccountsReceivableMember2021-01-310001643269us-gaap:CustomerConcentrationRiskMemberus-gaap:AccountsReceivableMembersumo:CustomerOneMember2020-02-012021-01-31xbrli:pure0001643269us-gaap:ComputerEquipmentMember2021-02-012022-01-310001643269us-gaap:FurnitureAndFixturesMember2021-02-012022-01-310001643269us-gaap:SoftwareDevelopmentMember2021-02-012022-01-310001643269srt:MinimumMemberus-gaap:BuildingMember2021-02-012022-01-310001643269srt:MaximumMemberus-gaap:BuildingMember2021-02-012022-01-3100016432692021-02-010001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-01-310001643269us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:ForeignGovernmentDebtSecuritiesMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember2022-01-310001643269sumo:SupranationalSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-01-310001643269sumo:SupranationalSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269sumo:SupranationalSecuritiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269sumo:SupranationalSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2022-01-310001643269us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2022-01-310001643269us-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:CertificatesOfDepositMemberus-gaap:FairValueMeasurementsRecurringMember2022-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2021-01-310001643269us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-01-310001643269us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2021-01-310001643269us-gaap:FairValueMeasurementsRecurringMember2021-01-310001643269sumo:RedeemableConvertiblePreferredStockWarrantsMember2021-02-012022-01-310001643269us-gaap:USTreasurySecuritiesMember2022-01-310001643269us-gaap:CorporateDebtSecuritiesMember2022-01-310001643269us-gaap:CommercialPaperMember2022-01-310001643269us-gaap:ForeignGovernmentDebtSecuritiesMember2022-01-310001643269sumo:SupranationalSecuritiesMember2022-01-310001643269us-gaap:CertificatesOfDepositMember2022-01-310001643269us-gaap:ComputerEquipmentMember2022-01-310001643269us-gaap:ComputerEquipmentMember2021-01-310001643269us-gaap:FurnitureAndFixturesMember2022-01-310001643269us-gaap:FurnitureAndFixturesMember2021-01-310001643269us-gaap:LeaseholdImprovementsMember2022-01-310001643269us-gaap:LeaseholdImprovementsMember2021-01-310001643269us-gaap:SoftwareDevelopmentMember2022-01-310001643269us-gaap:SoftwareDevelopmentMember2021-01-310001643269us-gaap:BuildingMember2022-01-310001643269us-gaap:BuildingMember2021-01-310001643269us-gaap:LandMember2022-01-310001643269us-gaap:LandMember2021-01-310001643269us-gaap:ConstructionInProgressMember2022-01-310001643269us-gaap:ConstructionInProgressMember2021-01-310001643269country:US2022-01-310001643269country:US2021-01-310001643269us-gaap:NonUsMember2022-01-310001643269us-gaap:NonUsMember2021-01-310001643269sumo:SensuIncMember2021-06-102021-06-100001643269sumo:SensuIncMemberus-gaap:CommonStockMember2021-06-102021-06-100001643269sumo:SensuIncMemberus-gaap:RestrictedStockMember2021-06-102021-06-100001643269sumo:SensuIncMemberus-gaap:RestrictedStockMember2021-02-012022-01-310001643269sumo:SensuIncMemberus-gaap:RestrictedStockMember2022-01-310001643269sumo:SensuIncMemberus-gaap:EmployeeStockOptionMember2021-06-102021-06-100001643269sumo:SensuIncMember2021-06-100001643269sumo:SensuIncMemberus-gaap:DevelopedTechnologyRightsMember2021-06-102021-06-100001643269sumo:SensuIncMemberus-gaap:CustomerRelationshipsMember2021-06-102021-06-100001643269sumo:DFLabsSpAMember2021-05-242021-05-240001643269sumo:DFLabsSpAMemberus-gaap:CommonStockMember2021-05-242021-05-240001643269sumo:DFLabsSpAMemberus-gaap:RestrictedStockMember2021-05-242021-05-240001643269sumo:DFLabsSpAMemberus-gaap:RestrictedStockMember2021-02-012022-01-310001643269sumo:DFLabsSpAMemberus-gaap:RestrictedStockMember2022-01-310001643269sumo:DFLabsSpAMember2021-05-240001643269sumo:DFLabsSpAMemberus-gaap:DevelopedTechnologyRightsMember2021-05-242021-05-240001643269us-gaap:GeneralAndAdministrativeExpenseMember2021-02-012022-01-310001643269sumo:JaskLabsIncMember2019-10-252019-10-250001643269us-gaap:CommonStockMembersumo:JaskLabsIncMember2019-10-252019-10-250001643269us-gaap:EmployeeStockOptionMembersumo:JaskLabsIncMember2019-10-252019-10-250001643269sumo:JaskLabsIncMember2019-10-250001643269sumo:JaskLabsIncMember2020-02-012021-01-310001643269us-gaap:RestrictedStockMembersumo:JaskLabsIncMember2020-02-012021-01-310001643269us-gaap:RestrictedStockMembersumo:JaskLabsIncMember2021-02-012022-01-310001643269us-gaap:RestrictedStockMembersumo:JaskLabsIncMember2019-02-012020-01-310001643269sumo:JaskLabsIncMember2019-02-012020-01-310001643269us-gaap:AcquisitionRelatedCostsMembersumo:JaskLabsIncMember2019-02-012020-01-310001643269sumo:DeferredTaxAssetsChangeInValuationAllowanceMembersumo:JaskLabsIncMember2019-02-012020-01-310001643269sumo:ShareBasedPaymentArrangementAcceleratedCostMembersumo:JaskLabsIncMember2019-02-012020-01-310001643269us-gaap:DevelopedTechnologyRightsMember2022-01-310001643269us-gaap:DevelopedTechnologyRightsMember2021-02-012022-01-310001643269us-gaap:CustomerRelationshipsMember2022-01-310001643269us-gaap:CustomerRelationshipsMember2021-02-012022-01-310001643269us-gaap:DevelopedTechnologyRightsMember2021-01-310001643269us-gaap:DevelopedTechnologyRightsMember2020-02-012021-01-310001643269us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2021-02-280001643269srt:MinimumMemberus-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:PrimeRateMember2021-02-012021-02-280001643269srt:MaximumMemberus-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:PrimeRateMember2021-02-012021-02-280001643269srt:MaximumMemberus-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2021-02-280001643269srt:MinimumMemberus-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2021-02-280001643269us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2020-02-012021-01-310001643269us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2022-01-310001643269us-gaap:LineOfCreditMemberus-gaap:RevolvingCreditFacilityMember2021-01-310001643269sumo:SAASRevenueArrangementsWithCustomersMemberus-gaap:IndemnificationGuaranteeMember2021-01-310001643269sumo:SAASRevenueArrangementsWithCustomersMemberus-gaap:IndemnificationGuaranteeMember2022-01-310001643269us-gaap:IndemnificationGuaranteeMembersumo:IndemnificationsForDirectorsAndOfficersMember2021-01-310001643269us-gaap:IndemnificationGuaranteeMembersumo:IndemnificationsForDirectorsAndOfficersMember2022-01-310001643269country:US2021-02-012022-01-310001643269country:US2020-02-012021-01-310001643269country:US2019-02-012020-01-310001643269us-gaap:NonUsMember2021-02-012022-01-310001643269us-gaap:NonUsMember2020-02-012021-01-310001643269us-gaap:NonUsMember2019-02-012020-01-3100016432692022-02-012022-01-3100016432692020-09-212020-09-21sumo:vote0001643269us-gaap:WarrantMember2022-01-310001643269us-gaap:WarrantMember2021-01-310001643269us-gaap:EmployeeStockOptionMember2022-01-310001643269us-gaap:EmployeeStockOptionMember2021-01-310001643269us-gaap:RestrictedStockUnitsRSUMember2022-01-310001643269us-gaap:RestrictedStockUnitsRSUMember2021-01-310001643269sumo:ShareBasedPaymentArrangementFutureIssuanceMember2022-01-310001643269sumo:ShareBasedPaymentArrangementFutureIssuanceMember2021-01-310001643269us-gaap:EmployeeStockOptionMember2022-01-310001643269us-gaap:EmployeeStockOptionMember2021-01-310001643269us-gaap:EmployeeStockMember2022-01-310001643269us-gaap:EmployeeStockMember2021-01-31sumo:plan0001643269us-gaap:EmployeeStockOptionMember2021-02-012022-01-310001643269us-gaap:RestrictedStockUnitsRSUMember2021-02-012022-01-310001643269sumo:TwentyTwentyPlanMember2022-01-310001643269sumo:TwentyTwentyPlanMember2020-02-012021-01-310001643269sumo:EquityIncentivePlansMembersrt:MinimumMemberus-gaap:EmployeeStockOptionMember2020-02-012021-01-310001643269sumo:EquityIncentivePlansMembersrt:MaximumMemberus-gaap:EmployeeStockOptionMember2020-02-012021-01-310001643269sumo:EquityIncentivePlansMembersrt:MinimumMemberus-gaap:EmployeeStockOptionMember2019-02-012020-01-310001643269sumo:EquityIncentivePlansMembersrt:MaximumMemberus-gaap:EmployeeStockOptionMember2019-02-012020-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:EmployeeStockOptionMember2020-02-012021-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:EmployeeStockOptionMember2019-02-012020-01-310001643269us-gaap:EmployeeStockOptionMember2020-02-012021-01-310001643269sumo:EquityIncentivePlansMember2021-01-310001643269sumo:EquityIncentivePlansMember2020-02-012021-01-310001643269sumo:EquityIncentivePlansMember2021-02-012022-01-310001643269sumo:EquityIncentivePlansMember2022-01-310001643269sumo:EquityIncentivePlansMember2019-02-012020-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:EmployeeStockOptionMember2021-02-012022-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:RestrictedStockUnitsRSUMember2021-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:RestrictedStockUnitsRSUMember2021-02-012022-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-310001643269sumo:EquityIncentivePlansMembersumo:RestrictedStockUnitsRSUsSubjectToServiceBasedAndPerformanceBasedVestingMember2021-02-012022-01-310001643269sumo:RestrictedStockUnitsRSUsGrantedToEmployeesOfAcquiredCompaniesMembersumo:EquityIncentivePlansMember2021-02-012022-01-310001643269sumo:EquityIncentivePlansMembersumo:RestrictedPerformanceStockUnitsMember2022-01-310001643269sumo:EquityIncentivePlansMembersumo:RestrictedPerformanceStockUnitsMember2021-01-310001643269sumo:EquityIncentivePlansMemberus-gaap:RestrictedStockUnitsRSUMember2020-02-012021-01-310001643269sumo:SensuIncMembersumo:SensuPlansMember2021-06-102021-06-100001643269sumo:SensuIncMembersumo:SensuPlansMember2022-01-310001643269sumo:SensuIncMembersumo:SensuPlansMember2021-02-012022-01-310001643269sumo:JaskPlansMembersumo:JaskLabsIncMember2019-10-252019-10-250001643269sumo:JaskPlansMembersumo:JaskLabsIncMember2022-01-310001643269sumo:JaskPlansMembersumo:JaskLabsIncMember2021-01-310001643269sumo:JaskPlansMembersumo:JaskLabsIncMember2021-02-012022-01-310001643269us-gaap:EmployeeStockMember2020-09-170001643269us-gaap:EmployeeStockMember2020-09-172020-09-17sumo:period0001643269us-gaap:EmployeeStockMember2021-02-012022-01-310001643269us-gaap:EmployeeStockMember2020-02-012021-01-310001643269srt:MinimumMemberus-gaap:EmployeeStockMember2021-02-012022-01-310001643269srt:MaximumMemberus-gaap:EmployeeStockMember2021-02-012022-01-310001643269srt:MinimumMemberus-gaap:EmployeeStockMember2020-02-012021-01-310001643269srt:MaximumMemberus-gaap:EmployeeStockMember2020-02-012021-01-310001643269us-gaap:CostOfSalesMember2021-02-012022-01-310001643269us-gaap:CostOfSalesMember2020-02-012021-01-310001643269us-gaap:CostOfSalesMember2019-02-012020-01-310001643269us-gaap:ResearchAndDevelopmentExpenseMember2021-02-012022-01-310001643269us-gaap:ResearchAndDevelopmentExpenseMember2020-02-012021-01-310001643269us-gaap:ResearchAndDevelopmentExpenseMember2019-02-012020-01-310001643269us-gaap:SellingAndMarketingExpenseMember2021-02-012022-01-310001643269us-gaap:SellingAndMarketingExpenseMember2020-02-012021-01-310001643269us-gaap:SellingAndMarketingExpenseMember2019-02-012020-01-310001643269us-gaap:GeneralAndAdministrativeExpenseMember2020-02-012021-01-310001643269us-gaap:GeneralAndAdministrativeExpenseMember2019-02-012020-01-310001643269sumo:ShareBasedPaymentArrangementOptionPerformanceBasedMembersrt:ExecutiveOfficerMember2021-02-012022-01-310001643269sumo:ShareBasedPaymentArrangementOptionPerformanceBasedMembersrt:ExecutiveOfficerMember2020-02-012021-01-310001643269sumo:ShareBasedPaymentArrangementOptionPerformanceBasedMembersrt:ExecutiveOfficerMember2019-02-012020-01-310001643269sumo:TwentyTenPlanMemberus-gaap:RestrictedStockUnitsRSUMember2020-09-212020-09-210001643269sumo:RestrictedPerformanceStockUnitsMembersumo:TwentyTenPlanMember2020-09-212020-09-210001643269sumo:CommonStockTransfersFormerEmployeesMember2020-02-012021-01-310001643269sumo:CommonStockTransfersFormerEmployeesMember2019-02-012020-01-310001643269sumo:TenderOfferEmployeesAndFormerEmployeesMember2020-01-310001643269sumo:TenderOfferEmployeesAndFormerEmployeesMember2019-02-012020-01-310001643269us-gaap:GeneralAndAdministrativeExpenseMembersumo:TenderOfferEmployeesAndFormerEmployeesMember2019-02-012020-01-310001643269us-gaap:ResearchAndDevelopmentExpenseMembersumo:TenderOfferEmployeesAndFormerEmployeesMember2019-02-012020-01-310001643269sumo:TenderOfferEmployeesAndFormerEmployeesMemberus-gaap:SellingAndMarketingExpenseMember2019-02-012020-01-310001643269us-gaap:CostOfSalesMembersumo:TenderOfferEmployeesAndFormerEmployeesMember2019-02-012020-01-310001643269us-gaap:DomesticCountryMember2022-01-310001643269us-gaap:StateAndLocalJurisdictionMember2022-01-310001643269us-gaap:ResearchMemberus-gaap:DomesticCountryMember2022-01-310001643269us-gaap:ResearchMemberus-gaap:StateAndLocalJurisdictionMember2022-01-310001643269sumo:ShareBasedPaymentArrangementOptionExcludingOptionsFromAcquisitionMember2021-02-012022-01-310001643269sumo:ShareBasedPaymentArrangementOptionExcludingOptionsFromAcquisitionMember2020-02-012021-01-310001643269sumo:ShareBasedPaymentArrangementOptionExcludingOptionsFromAcquisitionMember2019-02-012020-01-310001643269us-gaap:RestrictedStockUnitsRSUMember2021-02-012022-01-310001643269us-gaap:RestrictedStockUnitsRSUMember2020-02-012021-01-310001643269us-gaap:RestrictedStockUnitsRSUMember2019-02-012020-01-310001643269us-gaap:EmployeeStockMember2021-02-012022-01-310001643269us-gaap:EmployeeStockMember2020-02-012021-01-310001643269us-gaap:EmployeeStockMember2019-02-012020-01-310001643269us-gaap:WarrantMember2021-02-012022-01-310001643269us-gaap:WarrantMember2020-02-012021-01-310001643269us-gaap:WarrantMember2019-02-012020-01-310001643269sumo:ShareBasedPaymentArrangementSharesSubjectToRepurchaseMember2021-02-012022-01-310001643269sumo:ShareBasedPaymentArrangementSharesSubjectToRepurchaseMember2020-02-012021-01-310001643269sumo:ShareBasedPaymentArrangementSharesSubjectToRepurchaseMember2019-02-012020-01-310001643269sumo:ShareBasedPaymentArrangementOptionOptionsFromAcquisitionMember2021-02-012022-01-310001643269sumo:ShareBasedPaymentArrangementOptionOptionsFromAcquisitionMember2020-02-012021-01-310001643269sumo:ShareBasedPaymentArrangementOptionOptionsFromAcquisitionMember2019-02-012020-01-310001643269sumo:IssuableSharesFromBusinessAcquisitionMember2021-02-012022-01-310001643269sumo:IssuableSharesFromBusinessAcquisitionMember2020-02-012021-01-310001643269sumo:IssuableSharesFromBusinessAcquisitionMember2019-02-012020-01-310001643269us-gaap:RedeemableConvertiblePreferredStockMember2021-02-012022-01-310001643269us-gaap:RedeemableConvertiblePreferredStockMember2020-02-012021-01-310001643269us-gaap:RedeemableConvertiblePreferredStockMember2019-02-012020-01-31


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to               
Commission File Number 001-39502
Sumo Logic, Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-2234444
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)
305 Main Street
Redwood City, California
94063
(Address of principal executive offices)(Zip Code)
(650) 810-8700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.0001 per shareSUMONasdaq Global Select Market
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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 filer
Accelerated filer
Non-accelerated filer  
Smaller 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 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ☒



The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing price of the registrant’s common stock on July 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, as reported by the Nasdaq Global Select Market, was approximately $1.9 billion. All executive officers and directors of the registrant and all holders of 5% of more of the registrant’s outstanding common stock have been deemed, solely for the purpose of the foregoing calculation, to be affiliates of the registrant.

The registrant had outstanding 114,097,793 shares of common stock as of February 28, 2022.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the 2022 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended January 31, 2022.




Table of Contents
Page
Part III
Part IV
1

Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions.
Forward-looking statements contained in this Form 10-K include, but are not limited to, statements about our expectations regarding:

our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, including changes in sales and marketing, research and development, and general and administrative expenses, and key business metrics, and our ability to achieve and maintain future profitability;
the impact of the COVID-19 pandemic, including the emergence of new variants of the virus and any associated economic downturn on our business and results of operations;
our business model and our ability to effectively manage our growth and associated investments;
our beliefs about and objectives for future operations;
market acceptance of our platform;
our ability to maintain and expand our customer base, including by attracting new customers;
our ability to retain customers and expand their adoption of our platform, particularly our largest customers;
the effects of increased competition in our markets and our ability to compete effectively;
our ability to maintain the security and availability of our platform;
our ability to develop new platform features and functionality, or enhancements to our existing platform features and functionality, and bring them to market in a timely manner;
anticipated trends, growth rates, and challenges in our business and in the markets in which we operate;
our relationships with third parties, including channel and technology partners;
our ability to successfully expand in our existing markets and into new markets, including internationally;
our ability to comply with laws and regulations that currently apply or become applicable to our business both in the United States and internationally, including with respect to privacy and data protection;
our expectations regarding our ability to obtain, maintain, enforce, defend, and enhance our intellectual property rights;
our ability to successfully defend litigation brought against us;
the sufficiency of our cash and cash equivalents to meet our liquidity needs;
our ability to attract and retain employees and key personnel;
future acquisitions or investments; and
economic and industry trends or trend analysis.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Annual Report on Form 10-K. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Annual Report on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Annual Report on Form 10-K. 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 Annual Report on Form 10-K. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Annual Report on Form 10-K 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 Annual Report on Form 10-K to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect new 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 we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should
2

not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Risk Factors Summary
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face, and you should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors,” together with the other information in this Annual Report on Form 10-K. If any of the following risks actually occurs (or if any of those listed elsewhere in this Annual Report on Form 10-K occur), our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.

Our revenue growth rate and financial performance in recent periods may not be indicative of future performance;
We have a history of net losses and we may not be able to achieve or maintain profitability in the future;
We face intense competition and could face pricing pressure from, and lose market share to, our competitors, which would adversely affect our business, financial condition, and results of operations;
The markets for our offerings are evolving, and our future success depends on the growth of these markets and our ability to adapt, keep pace, and respond effectively to evolving markets;
We may fail to cost-effectively acquire new customers or obtain renewals, upgrades, or expansions from our existing customers, which would adversely affect our business, financial condition, and results of operations;
Changes to our packaging and licensing models could adversely affect our ability to attract or retain customers;
Our results of operations vary and are unpredictable from period to period, which could cause the market price of our common stock to decline;
The global COVID-19 pandemic has harmed and could continue to harm our business and results of operations;
Our sales cycle can be long and unpredictable, and our sales efforts require considerable time and expense;
The loss of, or a significant reduction in use of our platform by, our largest customers would result in lower revenue and harm our results of operations;
We depend on our sales force, and we may fail to attract, retain, motivate, or train our sales force, which could adversely affect our business, financial condition, and results of operations;
We utilize free trials and other go-to-market strategies, and we may not be able to realize the benefits of these strategies;
If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business, financial condition, and results of operations could be adversely affected;
We may be unable to build and maintain successful relationships with our channel partners or such channel partners may fail to perform, which could adversely affect our business, financial condition, results of operations, and growth prospects;
Our ability to increase sales depends, in part, on the quality of our customer support, and our failure to offer high quality support would harm our reputation and adversely affect our business and results of operations;
Our international operations and continued international expansion subject us to additional costs and risks, which could adversely affect our business, financial condition, and results of operations;
We may fail to effectively manage our growth, which would adversely affect our business, financial condition, and results of operations;
We depend on our management team and other highly skilled personnel, and we may fail to attract, retain, motivate, or integrate highly skilled personnel, which could adversely affect our business, financial condition, and results of operations;
We may be unable to make acquisitions and investments, successfully integrate acquired companies into our business, or our acquisitions and investments may not meet our expectations, any of which could adversely affect our business, financial condition, and results of operations;
Our reputation and brand are important to our success, and we may not be able to maintain and enhance our reputation and brand, which would adversely affect our business, financial condition, and results of operations;
We provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, financial condition, and results of operations;
A portion of our revenue is generated by sales to government entities, which subject us to a number of challenges and risks;
Our business could be adversely affected by economic downturns;
Our business could be adversely affected by unexpected events such as pandemics, natural disasters, political crises, or social instability;
We use certain third-party services to manage and operate our business, and any failure or interruption in the services provided by these third parties could adversely affect our business, financial condition, and results of operations;
We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our results of operations in the near term;
3

Any actual or perceived security or privacy breach could interrupt our operations, harm our reputation and brand, result in financial exposure, and lead to loss of user confidence in us or decreased use of our platform, any of which could adversely affect our business, financial condition, and results of operations;
Real or perceived defects, errors, or vulnerabilities in our platform could harm our reputation and adversely affect our business, financial condition, and results of operations;
We rely on Amazon Web Services to deliver our platform to our customers, and any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business, financial condition, and results of operations;
Any failure to obtain, maintain, protect, or enforce our intellectual property and proprietary rights could harm our business, financial condition, and results of operations;
Claims by others that we infringed their proprietary technology or other intellectual property rights would harm our business;
Our platform contains third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to deliver our platform or subject us to litigation or other actions;
We license certain editions of our offerings under an open source licensing model, which may limit our ability to monetize certain of our offerings and present other challenges;
The rapidly evolving framework of privacy, data protection, data transfers, or other laws or regulations worldwide may limit the use and adoption of our services and adversely affect our business;
We incorporate technology from third parties into our platform, and our inability to maintain rights to such technology would harm our business and results of operations;
Our platform may not interoperate with our customers’ infrastructure or with third-party offerings, which would adversely affect our business and results of operations;
We may be subject to claims that we have wrongfully hired an employee from a competitor, or that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers;
Remaining performance obligations and calculated billings may not be accurate indicators of business activity within a period;
We recognize substantially all of our revenue ratably over the term of the relevant subscription period, and as a result, downturns or upturns in sales may not be immediately reflected in our results of operations;
Our metrics and estimates used to evaluate our performance are subject to inherent challenges in measurement, and real or perceived inaccuracies in those estimates may harm our reputation and negatively affect our business;
Our loan and security agreement provides our lender with a first-priority lien against substantially all of our assets and contains restrictive covenants which could limit our operational flexibility and otherwise adversely affect our financial condition; and
Our executive officers, directors, and holders of 5% or more of our common stock continue to have substantial control over us, which will limit your ability to influence the outcome of important transactions, including a change in control.
4

PART I
Item 1. Business
Overview
Sumo Logic empowers the people who power modern, digital businesses. Our mission is to be the leading software-as-a-service analytics platform for reliable and secure cloud-native applications. With our platform, we help our customers ensure application reliability, secure and protect against modern security threats, and gain insights into their cloud infrastructure. Our multi-tenant, cloud-native platform – which we refer to as our Continuous Intelligence Platform – provides powerful, real-time, machine data analytics and insights across observability and security solutions.
Nearly every enterprise across every industry is embracing digital transformation. As enterprises seek to transform by building digital services and cloud applications, they often embark upon multiple technology changes. Successful digital businesses adopt modern software development practices to accelerate innovation, use cloud infrastructure for flexibility, and adopt modern architectures like microservices in order to improve reliability and scale. While these changes can deliver agility, speed, and other benefits, they also can create complexity in the form of rapid rate of change, proliferation of technology automation, expanded use of cloud and open source technologies, exponential growth in data, and increased possible points of attack. Challenges managing these complexities can negatively affect application reliability, security, performance, and ultimately customer experience. Thus, enterprises are dependent on machine data analytics for the insights they need to build, manage, and secure their critical cloud applications. By delivering an analytics platform for observability and security for cloud applications, we enable our customers to transform into differentiated, digital businesses and improve digital experiences for their users. Our vision is to make the world’s digital experiences reliable and secure.
Our Platform
Our Continuous Intelligence Platform is a cloud-native, multi-tenant, secure service that our customers leverage to enable reliability and security of their cloud applications and cloud workloads. We built our platform as a modern, cloud-native, microservices application that implements security-first principles. Our platform was originally built to address complex, unstructured log data at massive scale, optimizing data ingestion and processing while providing powerful analytics. Over time, we extended our platform to other types of machine data for full stack observability and security analytics.
Modern Architecture. Our platform runs on Amazon Web Services (“AWS”) using intelligent resource management, auto scaling, and partitioning logic to manage our compute and storage footprint so that we can deliver resiliency and optimal performance while maintaining efficiency. Our platform runs across multiple regions and within each region across multiple AWS data centers, and our microservices are distributed to avoid single points of failure.
Security-first Principles. Our platform was designed from the beginning to protect our customers’ data through encryption, audits, processes, and adherence to compliance regulations. Our platform encrypts data in transit and at rest, uses customer specific encryption keys, encrypts those keys separately, and applies best practices for processes surrounding access to our platform. Our platform is PCI DSS 3.2.1 Service Provider Level 1 certified, SOC 2 Type 2 attested, HIPAA compliance attested, ISO 27001 certified, and has FedRAMP Moderate authorization. Furthermore, our platform is deployed in AWS regions around the world, allowing customers to comply with data sovereignty rules.
Machine Data Analytics. We ingest and analyze machine data generated by applications, infrastructure, and microservices, enabling our customers to derive actionable insights. Our platform is designed to collect and centralize data from a multitude of data sources by integrating seamlessly with other solutions. Our platform leverages our core capabilities to enable reliability and security for cloud applications, including:
Data Collection and Management. We support a wide variety of data collection protocols and can collect data from any digital environment, including on-premise and cloud. Our platform supports structured, semi-structured, and unstructured data types across a variety of data formats. Our platform also collects and analyzes unknown and non-premeditated data sets, including custom application logs, metrics, traces, events, and metadata to understand the internal state, security, and business performance of our customers’ digital services and applications. We collect data through prepackaged collectors, APIs, and other proprietary or open source integrations. Our platform supports ingest time parsing into a schema, as well as on-demand schema inference, in order to enable analytics on unstructured data. We support ingest time data transformation and enrichment to quickly convert between data formats to optimize for ease of analysis, performance, and cost. In addition, our platform offers data tiering and data budgeting capabilities to provide our customers with an effective and cost-efficient way to manage and grow their data volume and usage. Policies can be set that govern the granularity of data management and
5

enable various levels of analytics. Our customers can configure retention policies per data set from days to years to satisfy internal requirements, external regulatory rules, or specific cost and data value requirements.
Analytics. The core power of our Continuous Intelligence Platform is our proprietary, state-of-the-art analytics system that can analyze data, at petabyte scale, in real-time.
Search. Our platform enables high-speed search using keywords, full phrases, patterns, Boolean logic, and metadata across one or multiple data sets. Our search engine supports powerful data manipulation operators and constructs in order to help customers rapidly identify and address outages, performance issues, security threats, trends and behaviors. We are also able to infer and extract schema on demand without requiring ingest time parsing.
Machine learning. We have a variety of proprietary algorithms and machine learning technologies that enhance our analytics system, including LogReduce/LogCompare, LogExplain, TimeCompare, Outlier, and Predict.
Correlation rules. Our Cloud Security Incident and Event Monitoring, or SIEM, technology offers a scalable real-time correlation engine that our customers use to detect threats across multiple sources of data. We provide out-of-the-box correlation rules built around industry standards and best practices.
Threat intelligence. We provide an out-of-the-box threat intelligence data set containing indicators of compromise, which enables customers to analyze their data to assess matches against those indicators and react accordingly.
Global intelligence service. Our multi-tenant platform enables us to analyze data, determine expected behaviors, and create anonymized behavior benchmarks. These benchmarks can be used by our customers to detect and explain unexpected events, threats, and behaviors outside of expected boundaries for our customers’ infrastructure. Our global intelligence service enables our customers to improve their security posture, detect vulnerabilities, optimize provisioning, resolve inefficiencies, and remove risk from their applications and infrastructure.
Visualization and Notifications. Our platform offers powerful data visualization, filtering, and notification/alerting capabilities to empower users with insights and intelligence extracted from their machine data. Our dashboards are used to visualize data in real-time in order to both monitor and troubleshoot conditions affecting reliability and security of our customers’ applications. Our alerts are used to notify users when a specific known or unknown condition is met or detected. Customers can set up alerts themselves or use many out-of-the-box alerts packaged with our solutions. Our alerts can both notify users directly or can trigger workflows, APIs, or orchestration/automation within our own or third party systems. We support a variety of inbound data collection integrations for cloud and traditional systems as well as outbound integrations used to send data and notifications to third party systems. Our integrations also support automated and orchestrated response through our Cloud Security Orchestration, Automated, and Response, or SOAR, technology for many third party technologies.
Configuration. Our platform provides powerful capabilities for configuration and security controls. We offer single sign-on, multi factor authentication, and a robust, enterprise-level role-based access control system, or RBAC.
Our Solutions
We empower practitioners and developers – including software engineers, site reliability engineers, cloud application managers, information technology, or IT, operations managers, security and security operations analysts, and cloud architects – to build, manage, and secure their cloud applications. Our Continuous Intelligence Platform enables organizations to address challenges with their cloud applications, including cloud application reliability, cloud application security, and insights into cloud application infrastructure. We have two primary offerings for customers to leverage our platform: our observability solution and our security solution.
Observability. We offer our customers an out-of-the-box solution for managing their application reliability through our comprehensive observability solution for cloud applications. Our observability solution combines cloud native log analytics, monitoring, application performance management, or APM, and tracing, and real user monitoring, or RUM, capabilities. Our observability solution also offers cloud application infrastructure monitoring and troubleshooting capabilities that help our customers gain insight into their cloud infrastructure operations, including provisioning, performance, latency, availability, outages, and other issues.
Security. Our security solution helps developers, security analysts, and security operation centers detect threats, perform security analysis and forensics, and automate security responses to remediate against those threats for their cloud applications. We offer out-of-the-box packages for compliance with certain industry standards and cloud infrastructure and application security analytics, as well as cloud-native SIEM and cloud-native SOAR solutions.
6

Our Customers
As of January 31, 2022, we had 2,396 customers worldwide. Our customers range from cloud-native organizations to those who are undergoing digital transformation and range from small and medium-sized enterprises to businesses in the Fortune 500. In addition, within our customers, we had over 175,000 users on our platform.
Customer Success
We view our customer success efforts and our community of customers as key to driving adoption of our solution and creating an unparalleled experience for our customers. Our customer support team uses our own platform to gain customer intelligence before we receive support queries, allowing us to leverage a small number of support personnel across our entire customer base. Relying on our own solutions internally also allows us to continue to iterate and improve our platform for all users. Our customer support organization works closely with our research and development function to ensure that customer feedback and community input is promptly incorporated and addressed as we continuously improve our platform. Additionally, through our multi-level certification program, we support a community of over 17,500 Sumo Logic “certified users” who take advantage of our training services in order to qualify for various tiers of expertise in the capabilities of our platform and hold over 32,000 certifications. Our certified users frequently act as informal advocates and drive adoption of our platform for new use cases, increasing our ability to further engage within an organization and with new customers.
Sales and Marketing
Our sales and marketing organizations work together closely to drive market awareness, build a strong sales pipeline, and cultivate customer relationships to drive revenue growth.
We sell subscriptions to our platform and service offerings through our direct and indirect sales organizations. Our direct sales organization is comprised of inside sales and field sales professionals who are segmented by customer size based on either customer headcount or amount of customer spend. These sales teams are dispersed geographically to reach potential customers worldwide. Our direct sales organization also leverages our network of channel partners to expand our reach to additional sectors and industries, especially internationally. Our resellers market and sell our offerings throughout the world and provide a go-to-market channel in regions where we do not have a direct presence. In addition, we generate sales of subscriptions to our platform through our self-service offering, as well as a free version that allows potential customers to use certain functionalities for a limited volume of data and experience the benefits of our platform.
We focus our marketing efforts on building our brand reputation, increasing the awareness of our platform, and driving customer demand through campaigns that leverage our innovation, thought leadership, practitioner use cases, technical resources, and customer success stories. We use various marketing strategies to engage with prospective customers, including account-based, email and event marketing, content marketing, digital advertising, public relations, search engine optimization, social media, and thought leadership in the industry. For example, we host an annual customer conference, Illuminate, which brings together our customers and thought leaders to provide education on observability and security solutions, deliver technical trainings of our platform functionalities, share best practices, and foster a community.
Technology Partners
We develop and maintain partnerships that help us market and deliver our platform and solutions to our customers around the world. Our partner network includes the following:
Cloud providers. We work with many of the major cloud providers to increase awareness of, and make it easy for customers to access, our platform and solutions. Our platform is developed to operate on and integrate with leading cloud provider platforms, such as AWS, Microsoft Azure, (“Azure”), and Google Cloud Platform, (“GCP”). Our customers are also able to subscribe to our platform and solutions through leading cloud service marketplaces.
Solution partners. We partner with leading innovative technology organizations to develop integrations, best practices, and extended capabilities that help our customers achieve enhanced value in modern enterprise cloud environments.
Research and Development
Our research and development team consists of technical engineering, product management, and user experience, and is responsible for the design, architecture, creation, and quality of our platform. We invest substantial resources in research and development to enhance our platform features and functionalities and expand the services we offer. We believe the timely development of new, and the enhancement of our existing services and platform features is essential to maintaining our competitive
7

position, and we continually incorporate suggestions, feedback, and new use cases from our community and customers into our platform. Our research and development team works closely with our technical operations team to ensure the successful deployment and monitoring of our platform to provide a platform that is available, reliable, and stable, as well as with our customer success team to collect user feedback to enhance our development process. We utilize a modern development process to deliver numerous software releases each year and hundreds of minor releases, fixes, and updates. Our research and development organization is distributed across the United States, India, Italy, Poland, and other countries, which we believe is a strategic advantage for us, allowing us to develop our platform capabilities more efficiently.
Competition
The markets in which we compete are competitive and characterized by rapid changes in technology, customer requirements, and industry standards, and frequent introductions of improvements to existing service offerings. Our competitors and potential competitors include providers of tools such as analytics, enterprise and open source search, SIEM, SOAR, observability, monitoring, and other software offerings that customers may perceive as substitutes for our platform. Our primary competitors include Splunk and Elastic. Other competitors include Datadog and New Relic, cloud infrastructure providers such as AWS, Azure, and GCP, and various private companies. We expect competition to increase as other established and emerging companies enter this market, as customer requirements evolve, and as new service offerings and technologies are introduced.
The principal competitive factors for companies in our industry are:
cloud-native, multi-tenant architecture;
ability to ingest and manage a broad variety and large volume of data;
flexible packaging and total cost of ownership;
platform functionality, including speed, scale, and relevance;
ease of deployment and ease of use;
ability to address a variety of evolving customer needs and use cases;
enterprise-grade technology that is secure and reliable;
scale and reach of customer base and level of platform adoption;
quality of training, consulting, and customer support;
strength of sales and marketing efforts; and
brand awareness, reputation, and customer satisfaction.
We believe that we compare favorably on the basis of the factors listed above. Our industry requires constant change and innovation, and we plan to continue to evolve our platform technology to empower our customers to monitor and troubleshoot application and infrastructure performance in real time, act on threats instantly, and make smarter business decisions. However, we could face significant risks to our business, financial condition, and results of operations as a result of competition.1
Intellectual Property
Our success depends in part upon our ability to safeguard our core technology and other intellectual property protection for our technology, inventions, improvements, proprietary rights, and other assets. We seek to accomplish that objective by establishing intellectual property rights in and protecting those assets through a combination of patents, patent applications, registered and unregistered trademarks, copyrights, trade secrets, license agreements, confidentiality procedures, non-disclosure agreements with third parties, and other contractual measures. As of January 31, 2022, we owned 35 issued U.S. patents, eight issued non-U.S. patents, 15 U.S. patent applications, no pending U.S. provisional patent applications, and seven non-U.S. patent applications. Our issued U.S. patents, and any patents that may issue from our pending applications, would be scheduled to expire at dates ranging between June 2031 and September 2040, excluding any additional term for patent term adjustments or extensions. In addition, as of January 31,
1 See the section titled “Risk Factors—We face intense competition and could face pricing pressure from, and lose market share to, our competitors, which would adversely affect our business, financial condition, and results of operations” for additional information.
8

2022, we owned 18 registered trademarks in the United States, two pending trademark applications in the United States, as well as 33 registered trademarks in non-U.S. jurisdictions and 16 pending trademark applications in various non-U.S. jurisdictions. We also license software from third parties for integration into our platform, including open source software and other software available on commercially reasonable terms.
Additionally, we rely upon unpatented trade secrets and confidential know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, by entering into confidentiality agreements with our employees, consultants, vendors, and customers, and generally limiting access to and distribution of our proprietary information. However, we cannot assure you that the steps taken by us will prevent misappropriation of our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our offerings or obtain and use information that we regard as proprietary. Policing unauthorized use of our technology is difficult and time consuming. Third parties may independently develop the same or similar proprietary information or may otherwise gain access to our proprietary information. The laws, procedures, and restrictions on which we rely may provide only limited protection, and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed, or misappropriated. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.
Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. From time to time, third parties may assert claims of infringement, misappropriation, and other violations of intellectual property against us, our customers, or our channel partners, with whom our agreements may obligate us to indemnify against these claims.2
Employees and Human Capital
We believe having a community of passionate, talented individuals committed to creating significant customer impact and value is critical to our long-term success. As of January 31, 2022, we had a total of 943 employees located in 16 countries. In certain countries in which we operate, we are subject to, and comply with, local labor law requirements which may automatically make employees subject to industry-wide collective bargaining agreements. None of our U.S. employees is represented by a labor union or covered by a collective bargaining agreement with respect to their employment with us. We have not experienced any work stoppages and we consider our relations with our employees to be good.
Our objective is to create the organizational conditions and culture for talented individuals to thrive. We focus on identifying, recruiting, retaining, incentivizing, and engaging our new and existing employees and consultants. Our compensation program is designed to advance our technological innovation, business success, and stockholder value by motivating individuals to perform to the best of their abilities and achieve our strategic objectives. We offer competitive pay and benefits, equity grants, including paid family leave, flexible work schedules, and a comprehensive health and wellness program. In addition to medical, dental. and vision plans that also extend to dependents and family, we provide flexible spending accounts, tax-free commuter and parking expenses, 401(k) plans, and access to multiple other platforms. In addition to traditional employee benefits, we have implemented a number of innovative initiatives to support the well-being of our employee base. We encourage continuous learning and professional development, and have invested in diversity, equity, inclusion, and belonging initiatives, including employee resource groups.
We’ve also invested in various environmental, social and governance, or ESG, initiatives. We conducted a full assessment of our carbon, water, and waste footprint at our headquarters in Redwood City, California, assess environmental criteria when evaluating new offices, and consider environmental management strategies based on the Sustainability Accounting Standards Board frameworks. Furthermore, as a cloud-native company, we are not reliant on large data centers and thus we have a significantly reduced environmental footprint, including low Scope 1 and Scope 2 emissions. Additionally, we have implemented a number of innovative initiatives to support the well-being of our employee base. We encourage continuous learning and professional development and have implemented company-wide diversity and inclusion training program and formed several employee resource groups. We also donated time and resources to local organizations supporting COVID-19 relief, women’s education, environmental management, food justice, and more. We have also formalized ESG oversight with our Corporate Governance and Nominating Committee, and developed new policies including a supplier code of conduct and human rights statement.
Additional information regarding our human capital programs and ESG initiatives can be found in the Sumo Logic Environmental, Social, and Governance Overview report on our website, which report is not incorporated by reference into this Annual Report on Form 10-K.
2 See the section titled “Risk Factors—Claims by others that we infringed their proprietary technology or other intellectual property rights would harm our business” for additional information.
9

Corporate Information
We were incorporated in Delaware in March 2010. Our principal executive offices are located at 305 Main Street, Redwood City, California 94063, and our telephone number is (650) 810-8700. Our website address is www.sumologic.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are filed with the SEC. Such reports and other information filed by us with the SEC are available free of charge on our website at www.investor.sumologic.com when such reports are available on the SEC’s website. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The information contained on the websites referenced in this Annual Report on Form 10-K is not incorporated by reference into this filing. Further, our references to website URLs are intended to be inactive textual references only.
We announce material information to the public through filings with the SEC, the investor relations page on our website, press releases, our Twitter account (@SumoLogic), our Facebook page, our LinkedIn page, public conference calls, and webcasts in order to achieve broad, non-exclusionary distribution of information to the public and for complying with our disclosure obligations under Regulation FD. We encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels. Any updates to the list of disclosure channels through which we will announce information will be posted on the investor relations page on our website.
Item 1A. Risk Factors
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Industry and Business
Our revenue growth rate and financial performance in recent periods may not be indicative of future performance.
We have experienced significant revenue growth in recent periods. For example, our revenue was $155.1 million, $202.6 million, and $242.1 million for the years ended January 31, 2020, 2021 and 2022, respectively. You should not rely on our revenue for any previous quarterly or annual period as any indication of our revenue or revenue growth in future periods. As we continue to grow our business, our revenue growth rates may decline due to a number of reasons, which may include more challenging comparisons to prior periods as our revenue grows, slowing demand for our platform, increasing competition, a decrease in our renewal rates, a decrease in the growth of our overall market or market saturation, and our failure to capitalize on growth opportunities. In addition, our growth rates may experience increased volatility due to global societal and economic disruption as a result of the COVID-19 pandemic.
We have a history of net losses and we may not be able to achieve or maintain profitability in the future.
We have incurred net losses since our inception, and we expect to continue to incur net losses in the near future. We incurred net losses of $92.1 million, $80.3 million, and $123.4 million for the years ended January 31, 2020, 2021 and 2022, respectively. As of January 31, 2022, we had an accumulated deficit of $521.2 million. Because the market for our platform is rapidly evolving, it is difficult for us to predict our future results of operations. We expect our operating expenses to increase significantly over the next several years, as we continue to hire additional personnel, particularly in sales and marketing and research and development, expand our operations and infrastructure, both domestically and internationally, and continue to develop our platform features. These efforts may be more costly than we expect and may not result in increased revenue or growth in our business. In addition to the expected costs to grow our business, we have incurred and will continue to incur significant additional legal, accounting, and other expenses as a newly public company. If we fail to increase our revenue to sufficiently offset the increases in our operating expenses, we will not be able to achieve or maintain profitability in the future.
10

We face intense competition and could face pricing pressure from, and lose market share to, our competitors, which would adversely affect our business, financial condition, and results of operations.
The markets in which we operate are competitive and characterized by rapid changes in technology, customer requirements, and industry standards, and frequent introductions of improvements to existing offerings. Our business model of delivering an analytics platform for reliable and secure cloud-native applications through the cloud is still relatively new and has only recently gained market traction. Moreover, many established businesses are aggressively competing against us and have offerings that have functionalities similar to those of our platform. We expect competition to increase as other established and emerging companies enter this market, as customer requirements evolve, and as new offerings and technologies are introduced. If we are unable to anticipate or effectively react to these competitive challenges, our competitive position would weaken, and our business, financial condition, and results of operations would be adversely affected.
Our competitors and potential competitors include providers of tools such as analytics, enterprise and open source search, SIEM, SOAR, observability, monitoring, and other software offerings that customers may perceive as substitutes for our platform. Our primary competitors include Splunk and Elastic. Other competitors include Datadog and New Relic, cloud infrastructure providers such as AWS, Azure, and GCP, and various private companies.
Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages, such as:
greater name recognition, longer operating histories, and larger customer bases;
larger sales and marketing budgets and resources;
broader distribution and established relationships with channel partners and customers;
greater customer support resources;
greater resources to make acquisitions and enter into strategic partnerships;
lower labor and research and development costs;
larger and more mature intellectual property rights portfolios; and
substantially greater financial, technical, and other resources.
Conditions in our market could change rapidly and significantly as a result of technological advancements, the emergence of new entrants into the market, partnering or acquisitions by our competitors, or continuing market consolidation. New start-up companies that innovate and competitors that are making significant investments in research and development may invent similar or superior offerings and technologies that compete with our offerings. Potential customers may also believe that substitute technologies which have similar functionality or features as our platform are sufficient, or they may believe that point solutions that address narrower segments overall are nonetheless adequate for their needs. Some of our current or potential competitors have made or could make acquisitions of businesses or establish cooperative relationships that may allow them to offer more directly competitive and comprehensive offerings than were previously offered and adapt more quickly to new technologies and customer needs.
Additionally, competition continues to increase in the markets in which we operate, and we expect competition to further increase in the future, including from new and emerging companies, which could lead to increased pricing pressures. Our competitors vary in size, and some may have substantially broader and more diverse offerings, which may allow them to leverage their relationships based on other offerings or incorporate functionality into existing offerings to gain business in a manner that discourages users from purchasing access to our platform, including through selling at zero or negative margins, offering concessions, bundling offerings, or maintaining closed technology platforms. In addition, certain customer segments and industries have been more severely impacted by the ongoing effects of the COVID-19 pandemic, such as small and mid-market businesses and certain industries including manufacturing, transportation, travel, and retail, which may lead to increased pricing pressure, increased customer churn, or a reduced ability or willingness to replace a competitor’s offering with our platform. Any decrease in the subscriptions prices for our platform, without a corresponding decrease in costs or increase in volume, would adversely impact our gross profit. Gross profit could also be adversely affected by a shift towards lower-tiered subscription packages. If we are unable to maintain our pricing or market share due to competitive pressures or other factors, our business, financial condition, and results of operations would be adversely affected.
11

The markets for our offerings are evolving, and our future success depends on the growth of these markets and our ability to adapt, keep pace, and respond effectively to evolving markets.
The markets for our offerings are in a relatively early stage of development, and it is uncertain whether these markets will grow, and even if they do grow, how rapidly they will grow, how much they will grow, or whether our platform will be widely adopted. As such, any predictions or forecasts about our future growth, revenue, and expenses may not be as accurate as they would be if we had a longer operating history or operated in more predictable markets. Any expansion in our markets depends on a number of factors, including the cost, performance, and perceived value associated with our platform and the offerings of our competitors.
Our success will depend, in part, on market acceptance and the widespread adoption of our cloud-native platform as an alternative to on-premise offerings, and selection of our platform over competing cloud offerings that may have similar functionality. Cloud technologies are still evolving and we cannot predict marketplace acceptance of our platform or the development of offerings based on entirely new technologies. Many organizations have invested substantial resources into on-premise systems and may be reluctant or unwilling to migrate to our cloud-native platform. Our market is subject to rapid technological change, evolving industry standards, and changing regulations, as well as changing customer needs, requirements, and preferences. Demand for our offering is affected by a number of factors beyond our control, including the timing of development and release of new offerings by our competitors, technological change, and growth or contraction in our market generally.
We expect the proliferation of data to lead to an increase in the data analysis demands of our customers, and our platform may not be able to meet those demands or may not be chosen by users for those needs. We have in the past experienced delays in launching additional platform features or enhanced functionality because of the swiftly changing technological landscape and evolving customer demands. Particularly as a result of the broadly applicable nature of our platform, innovation across the IT infrastructure, architecture, stack components, or IT environment can all impact the adoption rates for our platform. Our success will depend, in part, on our ability to enhance our platform, including timely developing and introducing new platform features that keep pace with technological and competitive developments, expand the use cases for our platform, and respond to changing customer needs, requirements, and preferences. It is difficult to predict customer demand for our platform or for cloud security and observability offerings generally, the size and growth rate of this market, the success of competitive offerings, or shifts in customer preferences. If the market for cloud security and observability does not grow, or if we are unable to adapt, keep pace, and respond effectively to the evolution of these markets, our business, financial condition, and results of operations would be adversely affected.
We may fail to cost-effectively acquire new customers or obtain renewals, upgrades, or expansions from our existing customers, which would adversely affect our business, financial condition, and results of operations.
Our continued growth depends, in part, on our ability to cost-effectively acquire new customers. Numerous factors, however, may impede our ability to add new customers, including our inability to convert new organizations into paying customers, our inability to negotiate terms favorable to us, our failure to attract, effectively train, retain, and motivate sales and marketing personnel, our failure to develop or expand relationships with channel or technology partners, our inability to convert initial adoption into ongoing utilization of our platform, and our failure to successfully deliver our platform and provide quality customer support once delivered.
Our success also depends, in part, on our customers renewing their subscriptions when existing contract terms expire, and our ability to expand our relationships with our existing customers. Our customers have no obligation to renew or upgrade their subscriptions, and in the normal course of business, some customers have elected not to renew. In addition, our customers may decide not to renew their subscriptions with a similar contract period or at the same prices or terms, or may decide to downgrade their subscriptions. For example, the impact of the COVID-19 pandemic on the current economic environment has caused, and may in the future cause, such customers to request concessions including extended payments terms or better pricing. We believe that the COVID-19 pandemic has also caused delays in renewal decisions for some of our existing customers, has reduced effectiveness of our sales and marketing efforts, has lengthened our sales cycle with some of our potential customers, and has reduced the duration of subscriptions. In addition, the COVID-19 pandemic could result in increased customer churn, or reduced contract value with prospective or existing customers. Our customer retention or our customers’ use of our platform may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our platform and our customer support, our packaging and licensing models, the prices, features, or perceived value of competing offerings, changes to our offerings, or general economic conditions. In addition, some customers may not renew in the event such customer is acquired by another entity. We will need to continue to maintain or improve our dollar-based net retention rate to support our growth, and our ability to expand our relationships with customers may require more sophisticated and costly sales efforts. If our customers’ renewals or expansions fall below expectations, and as a result our dollar-based net retention rate decreases, our business, financial condition, and results of operations would be adversely affected.
In addition, our ability to expand our relationship with our customers depends in large part on our ability to enhance and improve our platform, introduce compelling new features, and address additional use cases. The success of any new or enhanced platform features depends on several factors, including market demand for the enhanced features, timely completion and delivery,
12

adequate quality testing, integration of our platform with existing technologies and applications, and competitive pricing. If we are unable to successfully develop new platform features, enhance our existing platform features to meet customer requirements, or otherwise gain market acceptance, our business, financial condition, and results of operations would be adversely affected. If our customers do not renew, upgrade, or expand their subscriptions, renew their subscriptions on less favorable terms, or fail to increase adoption of our platform, including tiered or premium features, our business, financial condition, and results of operations would be adversely affected.
Changes to our packaging and licensing models could adversely affect our ability to attract or retain customers.
We offer flexible, multi-tiered packaging and licensing models for our platform, including subscriptions and premium add-ons. We are continuing to iterate on our packaging and licensing models as we evaluate customer preferences, needs, and use of our platform, and expect that our packaging and licensing models will continue to evolve. Many factors could significantly affect our pricing strategies, including operating costs, our competitors’ pricing and marketing strategies, customer use patterns, and general economic conditions. We may face downward pressure from our customers regarding our pricing and competitors with different pricing models may attract customers that are uncomfortable with our multi-tiered packaging and licensing models, which would cause us to lose business or modify our packaging and licensing models, both of which could adversely affect our business, financial condition, and results of operations. Changes to our packaging and licensing models may also affect our revenue recognition and other accounting policies, which may adversely affect our results of operations in any given fiscal period.
Certain of our competitors or potential competitors offer, or may in the future offer, lower-priced point solutions or a broader range of platform features. Similarly, certain competitors may use marketing strategies that enable them to attract or retain new customers at a lower cost than us. Moreover, our customers may demand substantial price discounts as part of the negotiation of subscription contracts. There can be no assurance that we will not be forced to reduce the pricing for our platform or to increase our sales and marketing and other expenses to attract and retain customers in response to competitive pressures. We have launched, and may in the future launch, new pricing strategies and initiatives, or modify existing packaging and licensing models, any of which may not ultimately be successful in attracting and retaining customers. In addition, if the features on our platform change, then we may need to revise our packaging and licensing methodologies. Any such changes to our packaging and licensing models or our ability to efficiently price our platform could adversely affect our business, financial condition, and results of operations.
Our results of operations vary and are unpredictable from period to period, which could cause the market price of our common stock to decline.
Our results of operations may fluctuate from period to period as a result of a number of factors, many of which are outside of our control and may be difficult to predict. Some of the factors that may cause our results of operations to fluctuate from period to period include:
market acceptance and the level of demand for our platform;
the quality and level of our execution of our business strategy and operating plan;
the effectiveness of our sales and marketing programs;
the length of our sales cycle, including the timing of renewals;
our ability to attract new customers and convert our pipeline into paying customers, particularly large enterprises;
our ability to retain customers and expand their adoption of our platform, particularly our largest customers;
our ability to successfully expand internationally and penetrate key markets;
technological changes and the timing and success of new or enhanced platform features by us or our competitors or any other change in the competitive landscape of our market;
changes in deferred revenue and remaining performance obligations due to seasonality, the timing of renewals, average contract term, or the timing of software revenue recognition, all of which may impact implied growth rates;
changes to our packaging and licensing models, which may impact the timing and amount of revenue recognized;
increases in and the timing of operating expenses that we may incur to grow our operations and to remain competitive;
13

pricing pressure as a result of competition or otherwise;
seasonal buying patterns;
delays in our sales cycle, decreases in sales to new customers, and reductions in upselling and cross-selling to existing customers due to the impact on global business and IT spending as a result of the COVID-19 pandemic;
the implementation of cost-saving activities as a result of the COVID-19 pandemic, including the effect of a hiring pause or headcount reductions;
the impact and costs, including those with respect to integration, related to the acquisition of businesses, talent, technologies, or intellectual property rights;
changes in the legislative or regulatory environment;
adverse litigation judgments, settlements, or other litigation-related costs; and
general economic conditions in either domestic or international markets, including as a result of geopolitical uncertainty and instability such as the recent conflict in Ukraine.
Any one or more of the factors above may result in significant fluctuations in our results of operations. We also intend to continue to invest significantly to grow our business in the near future rather than optimizing for profitability or cash flows. In addition, we generally experience seasonality in terms of when we enter into agreements with customers, and our quarterly results of operations generally fluctuate from quarter to quarter depending on customer buying habits. This seasonality is reflected to a much lesser extent, and sometimes is not immediately apparent, in revenue, due to the fact that we recognize subscription revenue ratably over the term of the subscription, which is generally one to two years, but can be three years or longer. We expect that seasonality will continue to affect our results of operations in the future and may reduce our ability to predict cash flow and optimize the timing of our operating expenses.
The variability of our results of operations or other operating estimates could result in our failure to meet our expectations or those of securities analysts or investors. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could decline, and we could face costly lawsuits, including securities class action suits.
The global COVID-19 pandemic has harmed and could continue to harm our business and results of operations.
The COVID-19 pandemic and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide, including in the geographic areas in which we conduct our business operations and from which we generate our revenue. It has also caused extreme societal, economic, and financial market volatility, resulting in business shutdowns and potentially leading to a global economic downturn. The magnitude and duration of the resulting decline in business activity cannot currently be estimated with any degree of certainty and has had several effects on our business and results of operations, including, among other things:
negatively impacting global IT spending, which has adversely affected demand and may continue to adversely affect demand for our platform, caused potential customers to delay or forgo purchases of subscriptions to our platform, lengthening our sales cycle, and caused some existing customers to fail to renew subscriptions, reduce their usage, or fail to expand their usage of our platform within their organizations; and
restricting our sales operations and marketing efforts, including limiting the ability of our sales force to travel to existing customers and potential customers, and reducing the effectiveness of such efforts in some cases.
The COVID-19 pandemic may cause us to continue to experience the foregoing challenges in our business in the future and could have other effects on our business, including increasing customer churn, delaying collections or resulting in an inability to collect accounts receivable as a result of extended payment terms, concessions, or customer inability to pay, causing some of our customers to go out of business, and disrupting our ability to develop new offerings and enhance existing offerings, market and sell our platform, and conduct business activities generally.
In light of the uncertain and rapidly evolving situation relating to the spread of COVID-19, we have taken precautionary measures intended to reduce the risk of the virus spreading to our employees, our customers, and the communities in which we operate, and we may take further actions as required by government entities or that we determine are in the best interests of our employees, customers, partners, and suppliers. In particular, governmental authorities have in the past instituted shelter-in-place
14

policies or other restrictions in many jurisdictions in which we operate, including in the San Francisco Bay Area where our headquarters are located. Even once shelter-in-place policies or other governmental restrictions have been lifted, we have taken a measured and careful approach to have employees returning to offices and travel for business. These precautionary measures and policies could negatively impact employee recruiting, productivity, training and development, and collaboration, or otherwise disrupt our business operations. The extent and duration of working remotely may also affect our ability to attract and retain employees, manage employee expectations regarding returning to offices, and expose us to increased risks of security breaches or incidents. We may need to enhance the security of our platform, our data, and our internal IT infrastructure, which may require additional resources and may not be successful. Furthermore, in the first half of fiscal 2021, we took a number of proactive actions to manage our operating expenses in light of the uncertainty caused by the COVID-19 pandemic, including effecting a hiring pause, implementing a reduction in executive salaries, and implementing headcount reductions across our company, and we may be required to take similar actions in the future.
In addition, COVID-19 has disrupted and may continue to disrupt the operations of our customers and channel partners. Other disruptions or potential disruptions include restrictions on our personnel and the personnel of our partners to travel and access customers for training, delays in product development efforts, and additional government requirements or other incremental mitigation efforts that may further impact our business and results of operations. The extent to which the COVID-19 pandemic continues to impact our business and results of operations will also depend on future developments that are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the disease, the duration and spread of the outbreak, the emergence of variants of the virus, the scope of travel restrictions imposed in geographic areas in which we operate, mandatory or voluntary business closures, the impact on businesses and financial and capital markets, and the extent and effectiveness of actions taken throughout the world to contain the virus or treat its impact. An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, and financial condition, though the full extent and duration is uncertain. In the fourth quarter of fiscal 2022, the Omicron variant of COVID-19 became the dominant strain in numerous countries around the world, including the United States, and it is more contagious than other previously identified COVID-19 strains. To the extent the COVID-19 pandemic continues to adversely affect our business and financial results, it is likely to also have the effect of heightening many of the other risks described in this “Risk Factors” section.
Our sales cycle can be long and unpredictable, and our sales efforts require considerable time and expense.
Our quarterly results of operations fluctuate, in part, because of the resource intensive nature of our sales efforts and the length and variability of our sales cycle. The length of our sales cycle, from initial contact with our sales team to a contractual commitment from a customer, can vary substantially from customer to customer based on customer size, deal complexity, as well as whether a sale is made directly by us or through a channel partner. We recently expanded our packaging and licensing model. Our limited experience marketing and selling under this packaging and licensing model may affect the length of our sales cycle and our ability to predict the length of our sales cycle or the anticipated size of potential subscriptions. Our sales cycle can vary considerably, and may be lengthened and made more uncertain by regional or global events, such as the COVID-19 pandemic. Such events have resulted in and may continue to cause a general reduction in IT spending by our customers, which will further affect our ability to estimate not only the length of the sales cycle, but also the anticipated size of potential subscriptions. Further, our sales cycle has lengthened as we continue to focus our sales efforts on large enterprises. In addition, our results of operations depend, in part, on subscription renewals from customers and increasing sales to our existing customers, which may also be reduced as a result of regional or global events. If a customer does not renew on time or as expected, it can negatively affect our revenue for a given period. It is difficult to predict exactly whether or when we will make a sale to a potential customer or if we can increase sales to our existing customers. As a result, initial sales or renewals have, in some cases, occurred in quarters subsequent to what we anticipated, or have not occurred at all. The loss or delay of one or more transactions in a quarter could impact our results of operations for that quarter and any future quarters for which revenue from that transaction is delayed.
The loss of, or a significant reduction in use of our platform by, our largest customers would result in lower revenue and harm our results of operations.
Our future success depends, in part, on establishing and maintaining successful relationships with a diverse set of customers. Our largest customers come from a variety of industries, including industries that are subject to significant fluctuations in their business, which may result in fluctuations in their use of our platform and the revenue we generate from them. Certain larger customers can also have greater variability in the revenue we generate from them because of the nature of their specific contractual arrangements or use cases with us, which could impact our results of operations, as well as ARR, dollar-based net retention rate, and other business metrics. For example, our current largest revenue customer is in the digital entertainment industry, which is characterized by significant revenue volatility and intense competition, and its business is affected by the timing of its feature releases, consumer preferences and actions by and disputes with other parties in its ecosystem. As a result, we have in the past and may in the future experience revenue variability and unpredictability from this customer from period to period as its business fluctuates. Further, certain customer industries have been more severely impacted by the ongoing effects of the COVID-19 pandemic, such as manufacturing, transportation, travel, and retail, leading to increased fluctuations in their business and their adoption of our platform.
15

The loss of one or more large customers or a reduction in usage by any such customers would reduce our revenue and negatively impact forecasts of future growth, ARR, dollar-based net retention rate, and other business metrics. The portion of our revenue attributable to individual customers may increase in the future, which would increase our dependency on a limited number of customers for a larger portion of our revenue. If we fail to maintain relationships with existing large customers or develop relationships with new customers that generate significant revenue for us, our business, financial condition, and results of operations would be harmed.
We depend on our sales force, and we may fail to attract, retain, motivate, or train our sales force, which could adversely affect our business, financial condition, and results of operations.
We depend on our sales force to obtain new customers and to drive additional sales to existing customers by selling them new subscriptions and expanding the value of their existing subscriptions. We believe that there is significant competition for sales personnel, including sales representatives, sales managers, and sales engineers, with the skills and technical knowledge that we require. Our ability to achieve revenue growth will depend, in part, on our decision to hire and success in recruiting, training, and retaining sufficient numbers of sales personnel to support our growth. Our hiring, training, and retention efforts have been, and may further be, hindered by the constraints placed on our business as a result of the COVID-19 pandemic, including measures that we take proactively and those that are imposed upon us by government authorities. New hires require significant training and may take significant time before they achieve full productivity, and our remote and online onboarding and training processes may be less effective and take longer. Further, hiring sales personnel in new countries requires additional set up and upfront costs that we may not recover if the sales personnel fail to achieve full productivity. If we are unable to attract, retain, motivate, and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant levels of productivity in a timely manner, or our sales personnel are not successful in bringing potential customers into the pipeline, converting them into new customers, or increasing sales to our existing customer base, our business, financial condition, and results of operations would be adversely affected.
We utilize free trials and other go-to-market strategies, and we may not be able to realize the benefits of these strategies.
We utilize lead generation and other go-to-market strategies, including offering free trials of our platform, to encourage awareness, usage, familiarity with, and adoption of our platform. We spend a substantial amount of time and resources on our sales efforts without any assurance that our efforts will produce a sale. We also rely on our sales and marketing teams to promote and market our platform. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users of free trials of our platform never become paying customers. To the extent that users do not become, or we are unable to successfully attract, paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.
If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business, financial condition, and results of operations could be adversely affected.
Our success depends, in part, on our ability to attract users through unpaid Internet search results. The number of potential customers that we attract to our website from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies, or design layouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not know how or otherwise be in a position to influence the results. Any reduction in the number of users directed to our website could negatively impact our ability to attract new customers or require us to increase our customer acquisition expenditures, which could adversely affect our business, financial condition, and results of operations.
We may be unable to build and maintain successful relationships with our channel partners or such channel partners may fail to perform, which could adversely affect our business, financial condition, results of operations, and growth prospects.
We employ a go-to-market business model whereby a portion of our revenue is generated by sales through our channel partners, such as independent software vendors, resellers, managed service providers, managed security service providers, and cloud infrastructure providers, that further expand the reach of our direct sales force into additional geographies, sectors, and industries. In particular, we have entered, and intend to continue to enter, into strategic sales distributor and reseller relationships in certain international markets where we do not have a local presence. We provide certain of our channel partners with specific training and programs to assist them in selling access to our platform, but there can be no assurance that these steps will be effective, and restrictions on travel and other limitations as a result of the COVID-19 pandemic undermine our efforts to provide training and build relationships. In addition, if our channel partners are unsuccessful in marketing and selling access to our platform, it would limit our expansion into certain geographies, sectors, and industries. If we are unable to develop and maintain effective sales incentive programs for our channel partners, we may not be able to incentivize these partners to sell access to our platform to customers.
16

Some of these partners may also market, sell, and support offerings that are competitive with ours, may devote more resources to the marketing, sales, and support of such competitive offerings, may have incentives to promote our competitors’ offerings to the detriment of our own, or may cease selling access to our platform altogether. Our channel partners could subject us to lawsuits, potential liability, and reputational harm if, for example, any of our channel partners misrepresents the functionality of our platform to customers or violates laws or our or their corporate policies. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our channel partners, identifying additional channel partners, and training our channel partners to independently sell access to our platform. If our channel partners are unsuccessful in selling access to our platform, or if we are unable to enter into arrangements with or retain a sufficient number of high quality channel partners in each of the regions in which we sell access to our platform and keep them motivated to sell access to our platform, our business, financial condition, results of operations, and growth prospects could be adversely affected.
Our ability to increase sales depends, in part, on the quality of our customer support, and our failure to offer high quality support would harm our reputation and adversely affect our business and results of operations.
Our customers sometimes depend on our technical support services to resolve issues relating to our platform. If we do not succeed in helping our customers quickly resolve issues or provide effective ongoing education related to our platform, our reputation could be harmed and our existing customers may not renew or upgrade their subscriptions. To the extent that we are unsuccessful in hiring, training, and retaining adequate customer support resources, our ability to provide adequate and timely support to our customers, and our customers’ satisfaction with our platform, will be adversely affected. Our failure to provide and maintain high quality customer support would harm our reputation and brand and adversely affect our business, financial condition, and results of operations.
Our international operations and continued international expansion subject us to additional costs and risks, which could adversely affect our business, financial condition, and results of operations.
We have a limited history of marketing, selling, and supporting our platform internationally. We generated 16% of our revenue outside the United States in each of fiscal 2020 and 2021, respectively, and 18% in fiscal 2022. Our growth strategy depends, in part, on our continued international expansion. We are continuing to adapt to and develop strategies to address international markets, but there is no guarantee that such efforts will be successful.
Additionally, our international sales and operations are subject to a number of risks, including the following:
greater difficulty in enforcing contracts and managing collections in countries where our recourse may be more limited, as well as longer collection periods;
higher costs of doing business internationally, including costs incurred in establishing and maintaining office space and equipment for our international operations;
differing labor regulations, especially in the European Union, or EU, where labor laws may be more favorable to employees;
challenges inherent to efficiently recruiting and retaining talented and capable employees in foreign countries and maintaining our company culture and employee programs across all of our offices;
fluctuations in exchange rates between the U.S. dollar and foreign currencies in markets where we do business;
management communication and integration problems resulting from language and cultural differences and geographic dispersion;
costs associated with language localization of our platform;
risks associated with trade restrictions and foreign legal requirements, including any importation, certification, and localization of our platform that may be required in foreign countries;
greater risk of unexpected changes in regulatory requirements, tariffs and tax laws, trade laws, export quotas, customs duties, treaties, and other trade restrictions;
costs of compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws and regulations, including, but not limited to data privacy, data protection, and data security regulations, particularly in the EU;
17

compliance with anti-bribery laws, including, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. Travel Act, and the UK Bribery Act 2010, violations of which could lead to significant fines, penalties, and collateral consequences for our company;
risks relating to the implementation of exchange controls, including restrictions promulgated by the OFAC, and other similar trade protection regulations and measures;
heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact our financial condition and result in restatements of, or irregularities in, financial statements;
the uncertainty of protection for intellectual property rights in some countries;
exposure to regional or global public health issues, such as the outbreak of the COVID-19 pandemic, and to travel restrictions and other measures undertaken by governments in response to such issues;
challenges caused by the conflict in Ukraine on countries in the region in which we have operations, such as Poland and Macedonia;
general economic and political conditions in these foreign markets, including political and economic instability in some countries;
foreign exchange controls or tax regulations that might prevent us from repatriating cash earned outside the United States; and
double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate.
These and other factors could harm our ability to generate revenue outside of the United States and, consequently, adversely affect our business, financial condition, and results of operations.
We may fail to effectively manage our growth, which would adversely affect our business, financial condition, and results of operations.
We are a rapidly growing company, and our future growth depends, in part, on our ability to continue to meet the expanding needs of our customers and to attract new customers. Our customer count increased from 2,137 as of January 31, 2020, to 2,164 as of January 31, 2021, and 2,396 as of January 31, 2022, respectively. As existing customers gain more experience with our platform, they may broaden their reliance on our platform, which may require that we expand our operations infrastructure as well as our dependence on third parties to support that infrastructure. To manage this growth effectively, we will need to continue to improve and expand our internal IT systems, technological operations infrastructure, financial infrastructure, and operating and administrative systems and controls, which we may not be able to do efficiently in a timely manner, or at all. To do so, we may seek to deploy offerings from third-party providers, which may not be available on commercially reasonable terms, or at all, and may not perform to our expectations. Any future growth would add complexity to our organization and require effective coordination across our organization, and failure to manage such future growth effectively could result in increased costs. If we do not accurately predict our architecture requirements, our existing customers may experience delays, interruptions, or service outages that may subject us to financial liabilities or customer losses. If we are unable to effectively manage our growth, our business, financial condition, and results of operations would be adversely affected.
We depend on our management team and other highly skilled personnel, and we may fail to attract, retain, motivate, or integrate highly skilled personnel, which could adversely affect our business, financial condition, and results of operations.
We depend on the continued contributions of our management team, key employees, and other highly skilled personnel. Our management team and key employees are at-will employees, which means they may terminate their relationship with us at any time. The loss of the services of any of our key personnel or delays in hiring required personnel, particularly within our research and development and engineering teams, could adversely affect our business, financial condition, and results of operations.
Our future success also depends, in part, on our ability to continue to attract and retain highly skilled personnel. Competition for these personnel in the San Francisco Bay Area, where our headquarters is located, and in other locations where we maintain offices, is intense, and the industry in which we operate is generally characterized by significant competition for skilled personnel as well as high employee attrition. We may not be successful in attracting, retaining, training, or motivating qualified personnel to fulfill our current
18

or future needs. Furthermore, our ability to attract and retain employees may be affected by the COVID-19 pandemic and its effects on global workforce patterns and employee expectations regarding returning to offices, and may result in a more geographically distributed workforce than we anticipate. Additionally, the former employers of our new employees may attempt to assert that our new employees or we have breached their legal obligations, which may be time-consuming, distracting to management, and may divert our resources. Current and potential personnel also often consider the value of equity awards they receive in connection with their employment, and to the extent the perceived value of our equity awards declines relative to our competitors, our ability to attract and retain highly skilled personnel may be harmed. If we fail to attract and integrate new personnel or retain and motivate our current personnel, our business, financial condition, and results of operations could be adversely affected.
We may be unable to make acquisitions and investments, successfully integrate acquired companies into our business, or our acquisitions and investments may not meet our expectations, any of which could adversely affect our business, financial condition, and results of operations.
We have in the past acquired, and we may in the future acquire or invest in, businesses, offerings, technologies, or talent that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. We may not be able to fully realize the anticipated benefits of such acquisitions or investments. For example, we acquired DFLabs and Sensu, in the second quarter of fiscal 2022. We may not successfully integrate DFLabs’ or Sensu’s people or solutions with ours, or achieve market acceptance of our combined solutions. The pursuit of potential acquisitions may divert the attention of management and cause us to incur significant expenses related to identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
There are inherent risks in integrating and managing acquisitions. If we acquire additional businesses, we may not be able to assimilate or integrate the acquired personnel, operations, solutions, and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits or synergies from the acquired business due to a number of factors, including, without limitation:
unanticipated costs or liabilities associated with the acquisition, including the failure to adequately identify or assess significant problems, liabilities or other issues, including issues with the acquired company’s technology or intellectual property, product quality, data security, privacy practices, accounting practices, employees, customers or partners, regulatory compliance, or legal or financial contingencies, particularly when the acquired company operates in international jurisdictions;
incurrence of acquisition-related expenses, which would be recognized as a current period expense;
inability to generate sufficient revenue to offset acquisition or investment costs, including addressing issues related to the availability of offerings on multiple platforms and from cross-selling and up-selling our products to the acquired company’s installed customer base or the acquired company’s products to our installed customer base;
inability to maintain relationships with customers and partners of the acquired business;
challenges with incorporating acquired products, technologies, and rights into our platform and maintaining quality and security standards consistent with our brand;
challenges and costs associated with successfully integrating or incorporating the acquired company's services, employees, customers, partners, business operations and administrative systems with ours, particularly when the acquired company operates in international jurisdictions;
inability to identify security vulnerabilities in acquired technology prior to integration with our technology and platform;
inability to achieve anticipated synergies or unanticipated difficulty with integration into our corporate culture;
failure to accurately predict how the acquired company's pipeline will convert into sales or revenues following the acquisition, as conversion rates post-acquisition may be quite different from the acquired company's historical conversion rates and can be affected by changes in business practices that we implement;
delays in customer purchases due to uncertainty related to any acquisition;
the need to integrate or implement additional controls, procedures, and policies;
19

any difficulties in consolidating the acquired company's financial results with ours, in particular as a result of different accounting principles or financial reporting standards, and the adverse consequences to us of any delay in obtaining the necessary financial information for such consolidation, any unanticipated change in financial information previously reported to us, or the impact the acquired company's financial performance has on our financial performance as a result of such consolidation;
challenges caused by distance, language, and cultural differences;
harm to our existing business relationships with business partners and customers as a result of the acquisition;
potential loss of key employees;
use of resources that are needed in other parts of our business and diversion of management and employee resources;
inability to recognize acquired deferred revenue in accordance with our revenue recognition policies;
the disruption of our ongoing business and the diversion of management's attention by transition or integration issues; and
use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition.
Acquisitions also increase the risk of unforeseen legal liability, including for potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses that are not discovered by due diligence during the acquisition process. We may have to pay cash, incur debt, or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our common stock. The sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. Any of the foregoing could adversely affect our business, financial condition, and results of operations.
Our reputation and brand are important to our success, and we may not be able to maintain and enhance our reputation and brand, which would adversely affect our business, financial condition, and results of operations.
We believe that maintaining and enhancing our reputation as a leader in security and reliability for cloud applications is critical to our relationship with our existing customers, users, and channel partners and our ability to attract new customers and channel partners. The successful promotion of our brand will depend on a number of factors, including our marketing efforts, our ability to continue to develop high-quality features for our platform, our ability to successfully differentiate our platform from those of our competitors, our ability to maintain the reputation of our platform for data security, and our ability to obtain, maintain, protect and enforce our intellectual property and proprietary rights. Our brand promotion activities may not be successful or yield increased revenue. In addition, independent industry analysts often provide reports of our platform, as well as the offerings of our competitors, and perception of our platform in the marketplace may be significantly influenced by these reports. If these reports are negative, or less positive as compared to those of our competitors, our reputation and brand may be adversely affected. Additionally, the performance of our channel partners may affect our reputation and brand if customers do not have a positive experience with our platform as implemented by our channel partners or with the implementation generally. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. Additionally, our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks, or if we are otherwise unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new geographies and markets and as more sales are generated through our channel partners. Any increase in revenue from such brand promotion initiatives may not offset the increased expenses we incur. If we do not successfully maintain and enhance our reputation and brand, our business, financial condition, and results of operations would be adversely affected.
We provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, financial condition, and results of operations.
Our customer contracts contain service level commitments, which contain specifications regarding the availability and performance of our platform. Any failure of or disruption to our infrastructure could impact the performance of our platform and the
20

availability of services to customers. If we are unable to meet our stated service level commitments or if we suffer extended periods of poor performance or unavailability of our platform, we may be contractually obligated to provide affected customers with service credits for future subscriptions, and, in certain cases, face contract termination with refunds of prepaid amounts related to unused subscriptions. If we suffer performance issues or downtime that exceeds the service level commitments under our contracts with our customers, our business, financial condition, and results of operations would be adversely affected.
A portion of our revenue is generated by sales to government entities, which subject us to a number of challenges and risks.
We have historically derived a small portion of our revenue from contracts with federal, state, local, and foreign governments, and we believe that the future success and growth of our business will depend in part on our ability to continue to procure government contracts. Sales to public sector customers include additional challenges that affect our ability to enter into agreements, including:
changes in fiscal or contracting policies;
decreases in available government funding;
changes in government programs or applicable requirements;
changes in government sanctions programs and related policies;
the adoption of new laws or regulations or changes to existing laws or regulations;
noncompliance with contract provisions or government procurement or other applicable regulations;
an extended government shutdown or other potential delays or changes in the government appropriations or other funding authorization processes; and
delays in the payment of our invoices by government payment offices.
Additionally, although we have achieved FedRAMP Moderate Authorization, any change in our FedRAMP certification would impede our ability to enter into contracts with government entities. If we do not successfully manage our FedRAMP certification, our sales to governments and governmental agencies could be delayed or limited, and as a result, our business, financial condition, and results of operations would be adversely affected.
Our business could be adversely affected by economic downturns.
Prolonged economic uncertainties or downturns could adversely affect our business, financial condition, and results of operations. Negative conditions in the general economy in either the United States or abroad, including conditions resulting from financial and credit market fluctuations, changes in economic policy, trade uncertainty, including changes in tariffs, sanctions, international treaties, and other trade restrictions, the occurrence of a natural disaster or global public health crisis, such as the COVID-19 pandemic, or armed conflicts, could continue to cause a decrease in corporate spending on IT offerings in general and negatively affect the growth of our business.
These conditions could make it extremely difficult for our customers and us to forecast and plan future business activities accurately and could cause our customers to reevaluate their decision to purchase access to our platform, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. For example, the impact of the COVID-19 pandemic on the current economic environment has caused and may in the future cause our customers to reduce their spending on, or duration of, their contracts with us, or request concessions including extended payment terms or better pricing. Further, during challenging economic times our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us, if at all. If that were to occur, we may be required to increase our allowance for doubtful accounts, which would adversely affect our results of operations.
A substantial downturn in any of the industries in which our customers operate may cause firms to react to worsening conditions by reducing their capital expenditures in general or by specifically reducing their spending on IT offerings. Customers in these industries may delay or cancel projects or seek to lower their costs by renegotiating vendor contracts. To the extent purchases of access to our platform are perceived by customers and potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general information technology spending.
We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry or geography. Any economic downturns of the general economy or industries in which we operate would adversely
21

affect our business, financial condition, and results of operations. For example, the full impact of the COVID-19 pandemic is unknown at this time, but could result in adverse changes in our results of operations for an unknown period of time as the virus and its related social and economic impacts spread.
Our business could be adversely affected by unexpected events such as pandemics, natural disasters, political crises, or social instability.
A significant natural disaster, such as an earthquake, fire, hurricane, tornado, flood, or significant power outage, could disrupt our operations, mobile networks, the Internet, or the operations of our third-party technology providers. In particular, our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. In addition, any unforeseen public health crises, such as the ongoing COVID-19 pandemic, political crises, such as terrorist attacks, war, and other political instability, or other catastrophic events, whether in the United States or abroad, can continue to adversely affect our operations or the economy as a whole. For example, the impact of the ongoing conflict in Ukraine on global economic conditions and our business are unknown at this time. The impact of any natural disaster, act of terrorism, or other disruption to us or our third-party providers’ abilities could result in decreased demand for our platform or a delay in the provision of our platform, which would adversely affect our business, financial condition, and results of operations. All of the aforementioned risks would be further increased if our disaster recovery plans prove to be inadequate.
We use certain third-party services to manage and operate our business, and any failure or interruption in the services provided by these third parties could adversely affect our business, financial condition, and results of operations.
We use a number of third-party services to manage and operate our business, including pricing software to assist our sales and marketing teams and our finance and accounting teams. These services are critical to our ability to increase our sales to customers, operate, and maintain our platform, and accurately maintain books and records. Any disruption in these services could impair our ability to execute on our operating plan and disrupt our business. Further, if these services cease to be available to us on commercially reasonable terms, or at all, we may be required to use additional or alternative services, or to develop additional capabilities within our business, any of which could require significant resources and adversely affect our business, financial condition, and results of operations.
We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our results of operations in the near term.
We believe our long-term value as a company will be greater if we focus on growth over short-term results. As a result, our results of operations may be negatively impacted in the near term compared to if our strategy were to maximize short-term profitability. Significant expenditures on sales and marketing efforts, developing and enhancing our platform, and expanding our research and development efforts may not ultimately grow our business or lead to expected long-term results. If our strategy does not lead to expected growth or if we are ultimately unable to achieve results of operations at the levels expected by securities analysts and investors, the market price of our common stock could decline.
Risks Related to Privacy, Cybersecurity, Intellectual Property, and Technical Infrastructure
Any actual or perceived security or privacy breach could interrupt our operations, harm our reputation and brand, result in financial exposure, and lead to loss of user confidence in us or decreased use of our platform, any of which could adversely affect our business, financial condition, and results of operations.
The use of our platform involves the collection, storage, processing, and transmission of customers’ data. In addition, we collect, process, store, and transmit our own data as part of our business operations. Our data or our customers’ data may include personal data, or confidential or proprietary information. Increasingly, threats from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse, and general hacking have become more prevalent in our industry, particularly against cloud-native services and vendors of security solutions. Any of these security incidents could result in unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of our data or our customers’ data, or disrupt our ability to provide our platform. Any actual or perceived security breach or incident could interrupt our operations, harm our reputation and brand, result in remediation and cybersecurity protection costs, result in lost revenue, lead to litigation and legal risks, increase our insurance premiums, result in any other financial exposure, lead to loss of user confidence in us or decreased use of our platform, and otherwise damage our competitiveness, business, financial condition, and results of operations.
We engage third-party vendors and service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal information. There have been and may continue to be significant supply chain cyber attacks generally, and our third-party vendors and service providers may be targeted or impacted by such attacks. We cannot guarantee that our or our
22

third-party vendors and service providers’ systems and networks have not been breached or impacted by security incidents or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our services. Our ability to monitor our third-party vendors and service providers’ data security is limited, and, in any event, third parties may be able to circumvent those security measures, resulting in the unauthorized access to, misuse, disclosure, loss or destruction of our and our customers’ data, including sensitive and personal information.
We have taken steps to protect the data that we have access to, but our security measures or those of our third-party service providers could be insufficient and breached as a result of third-party action, employee errors, technological limitations, defects or vulnerabilities in our offerings or those of our third-party service providers, malfeasance, or otherwise. Additionally, with a majority of our employees currently working remotely due to the COVID-19 pandemic, we may be exposed to increased risks of security breaches or incidents. We may need to enhance the security of our platform, our data, and our internal IT infrastructure, which may require additional resources and may not be successful. Furthermore, because we do not control our third-party service providers and our ability to monitor their data security is limited, we cannot ensure the security measures they take will be sufficient to protect our and our customers’ data. There can be no assurance that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. We have developed systems and processes to protect the integrity, confidentiality, and security of our data and our customers’ data, but our security measures or those of our third-party service providers could fail and result in unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of such data. Further, because there are many different security breach techniques and such techniques continue to evolve and are generally not detected until after an incident has occurred, we may be unable to implement adequate preventative measures, anticipate attempted security breaches or other security incidents, or react in a timely manner. In addition, we have recently seen an increase in phishing attempts and spam emails in connection with the COVID-19 pandemic.
Any security breach or other security incident that we or our third-party service providers experience, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform, harm our reputation and brand, reduce the demand for our platform, disrupt normal business operations, require us to spend material resources to investigate or correct the breach and to prevent future security breaches and incidents, expose us to legal liabilities, including litigation, regulatory enforcement and orders, disputes, investigations, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and significant costs for remediation, any of which could adversely affect our results of operations. In addition, our remediation efforts may not be successful. We cannot ensure that any limitation of liability provisions in our customer and user agreements, contracts with third-party vendors and service providers, and other contracts for a security lapse or breach or other security incident would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim. These risks may increase as we continue to grow and collect, process, store, and transmit increasingly large amounts of data.
Many governments have enacted laws requiring companies to notify individuals of data security incidents or unauthorized transfers involving certain types of personal data. Accordingly, security incidents experienced by our competitors, by our customers or by us may lead to negative publicity. Further, if a security breach occurs with respect to another SaaS provider, our customers and potential customers may lose trust in the security of software delivered through the cloud generally, which could adversely impact our ability to retain existing customers or attract new ones, which could adversely affect our business, financial condition, and results of operations.
Moreover, our insurance coverage may not be adequate for liabilities incurred or cover any indemnification claims against us relating to any security incident or breach or an insurer may deny coverage of claims. In the future, we may not be able to secure insurance for such matters on commercially reasonable terms, or at all. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business, financial condition, and results of operations.
23

Real or perceived defects, errors, or vulnerabilities in our platform could harm our reputation and adversely affect our business, financial condition, and results of operations.
Our platform is complex and, despite extensive testing and quality control, has in the past and may in the future contain defects, errors, or vulnerabilities, or may not perform as contemplated. These defects, errors, or vulnerabilities could result in exposure of data, data loss, data leakage, unanticipated downtime, or other events that would result in harm to our reputation, loss of customers or revenue, refunds, order cancellations, service terminations, or lack of market acceptance of our platform. Cloud-based services often contain undetected defects, errors, or vulnerabilities when first introduced or when new versions or enhancements are released. As the use of our platform, including features that were recently developed, expands to more sensitive, secure, or mission critical uses by our customers, we may be subject to increased scrutiny, reputational risk, or liability should our platform fail to perform as contemplated in such deployments. In addition, the wide availability of open source software used in our solutions could expose us to security vulnerabilities. In addition, we make the source code of some of our proprietary platform features available to facilitate collaboration, but this may also enable others to compete more effectively. Public availability of such software may make it easier for others to compromise our platform. We have in the past and may in the future identify defects, errors, or vulnerabilities, which inadvertently permit access to or exposure of customer data. Any such defects, errors, or vulnerabilities would require us to make corrections to our platform, which could require us to allocate significant research and development and customer support resources to address any such problems. Further, as we make acquisitions, we may encounter difficulties in integrating acquired technologies into our services and in augmenting those technologies to meet the quality standards that are consistent with our brand and reputation.
Our agreements with customers, channel partners, and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred in connection with any such defects or errors on our platform, or other liabilities relating to or arising from our platform. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, financial condition, and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to such claims. In addition, although we carry general liability insurance, our insurance against this liability may not be adequate to cover a potential claim, and such coverage may not be available to us on acceptable terms, or at all. Any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with such customer or other third party, our reputation, or demand for our platform. Any of the foregoing could adversely affect our business, financial condition, and results of operations.
We rely on Amazon Web Services to deliver our platform to our customers, and any disruption of, or interference with, our use of Amazon Web Services could adversely affect our business, financial condition, and results of operations.
AWS is a third-party provider of cloud infrastructure services. We outsource substantially all of the infrastructure relating to our cloud-native platform to AWS. Our customers need to be able to access our platform at any time, without interruption or degradation of performance. Our platform depends, in part, on the virtual cloud infrastructure hosted in AWS. Although we have disaster recovery plans that utilize multiple AWS locations, any incident affecting their infrastructure that may be caused by fire, flood, severe storm, earthquake or other natural disasters, power loss, telecommunications failures, cyber-attacks, terrorist or other attacks, and other similar events beyond our control, could adversely affect our cloud-native platform. Additionally, AWS may experience threats or attacks from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse and general hacking have become more prevalent in our industry, particularly against cloud-native services and vendors of security solutions. Any of these security incidents could result in unauthorized access to, damage to, disablement or encryption of, use or misuse of, disclosure of, modification of, destruction of, or loss of our data or our customers’ data or disrupt our ability to provide our platform or service. A prolonged AWS service disruption affecting our cloud-native platform for any of the foregoing reasons would adversely impact our ability to serve our customers and could damage our reputation with current and potential customers, expose us to liability, result in substantial costs for remediation, cause us to lose customers, or otherwise harm our business, financial condition, or results of operations. We may also incur significant costs for using alternative hosting sources or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use.
Our commercial agreement with AWS will remain in effect until the completion of its term or if terminated by AWS or us for cause upon a breach of the agreement. Termination upon a material breach is subject to providing the breaching party prior notice and a 30-day cure period. In the event that our AWS service agreements are terminated, or there is a lapse of service, elimination of AWS services or features that we utilize, or damage to such facilities, we could experience interruptions in access to our platform as well as significant delays and additional expense in arranging for or creating new facilities or re-architecting our platform for deployment on a different cloud infrastructure service provider, which would adversely affect our business, financial condition, and results of operations.
24

Any failure to obtain, maintain, protect, or enforce our intellectual property and proprietary rights could harm our business, financial condition, and results of operations.
Our success depends, in part, upon our ability to obtain, maintain, protect, and enforce our intellectual property rights, including our proprietary technology, know-how, and our brand. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to obtain, maintain, protect, and enforce our intellectual property rights may be inadequate, and if we fail to protect or enforce our intellectual property rights adequately, our competitors might gain access to our proprietary technology and develop and commercialize similar services or technologies, and our business, financial condition, results of operations, or prospects could be adversely affected. While we have been issued patents in the United States and have additional patent applications pending, there can be no assurance that our patent applications will result in issued patents. Even if we continue to seek patent protection in the future, we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Any of our patents, trademarks, or other intellectual property rights may be challenged or circumvented by others or invalidated or held unenforceable through administrative process or litigation in the United States, or in foreign jurisdictions. There can be no guarantee that others will not infringe on our trademarks or patents, independently develop similar offerings, duplicate any of our offerings, or design around our patents or other intellectual property rights. Further, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating, or otherwise violating our intellectual property rights.
We rely, in part, on trade secrets, proprietary know-how, and other confidential information to maintain our competitive position. While we generally enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances and other third parties, we cannot assure you that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering, or disclosure of our proprietary information, know-how, and trade secrets. Further, these agreements do not prevent our competitors or partners from independently developing offerings that are substantially equivalent or superior to ours. These agreements may be breached, and we may not have adequate remedies for any such breach. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret or know-how is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets and know-how.
We may be required to spend significant resources in order to monitor and protect our intellectual property rights, and some violations may be difficult or impossible to detect. Litigation may be necessary in the future to enforce our intellectual property rights, and such litigation could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, and, if such defenses, counterclaims, and countersuits are successful, we could lose valuable intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could impair the functionality of our platform, delay introductions of enhancements to our platform, result in our substituting inferior or more costly technologies into our platform, or harm our reputation and brand. In addition, we may be required to license additional technology from third parties to develop and market new platform features, which may not be on commercially reasonable terms, or at all, and would adversely affect our ability to compete.
Claims by others that we infringed their proprietary technology or other intellectual property rights would harm our business.
We may become subject to intellectual property disputes. Our success depends, in part, on our ability to develop and commercialize our platform and services without infringing, misappropriating, or otherwise violating the intellectual property rights of third parties. However, we may not be aware if our platform is infringing, misappropriating, or otherwise violating third-party intellectual property rights, and such third parties may bring claims alleging such infringement, misappropriation, or violation. Companies in the software and technology industries, including some of our current and potential competitors, are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. In addition, certain companies and rights holders seek to enforce and monetize patents or other intellectual property rights they own, have purchased, or otherwise obtained. Many potential litigants, including some of our competitors and patent-holding companies, have the ability to dedicate substantial resources to assert their intellectual property rights and to defend claims that may be brought against them.
Any claim of infringement by a third party, even those without merit, against us or for which we are required to provide indemnification could cause us to incur substantial costs defending against the claim, could distract our management from our
25

business, and could require us to cease use of such intellectual property. Further, because of the substantial amount of discovery required in connection with intellectual property litigation, we risk compromising our confidential information during this type of litigation. We may be required to make substantial payments for legal fees, settlement fees, damages, royalties, or other fees in connection with a claimant securing a judgment against us, we may be subject to an injunction or other restrictions that cause us to cease selling subscriptions to our platform, we may be required to redesign any allegedly infringing portion of our platform or we may agree to a settlement that prevents us from distributing our platform or a portion thereof, any of which could adversely affect our business, financial condition, and results of operations.
With respect to any intellectual property rights claim, we may have to seek out a license to continue operations found to be in violation of such rights, which may not be available on favorable or commercially reasonable terms and may significantly increase our operating expenses. Some licenses may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. If a third party does not offer us a license to its intellectual property on commercially reasonable terms, or at all, we may be required to develop alternative, non-infringing technology, which could require significant time (during which we would be unable to continue to offer our affected platform features), effort, and expense, and may ultimately not be successful. Any of these events would adversely affect our business, financial condition, and results of operations.
Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and results of operations. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it would have a substantial adverse effect on our business, results of operations, or the market price of our common stock.
Our platform contains third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to deliver our platform or subject us to litigation or other actions.
Our platform contains software modules licensed to us by third-party authors under “open source” licenses, and we expect to continue to incorporate such open source software in our platform in the future. We also contribute to the open source developer community and encourage integration and development around our platform. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification, or other contractual protections regarding infringement claims or the quality of the code.
Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use, or grant other licenses to our intellectual property. We seek to ensure that our proprietary software is not combined with, and does not incorporate, open source software in ways that would require the release of the source code of our proprietary software to the public. However, if we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software. Our platform incorporates software that is licensed under an open source license which would require release of proprietary code if such platform was distributed to third parties. We take steps to ensure that our platform is not distributed, but business conditions could arise that make such distribution necessary or advisable. Additionally, some open source projects have known vulnerabilities and architectural instabilities and are provided on an “as-is” basis, which, if not properly addressed, could negatively affect the performance of our platform.
Although we monitor our use of open source software to avoid subjecting our platform to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our platform. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their platform, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. As a result, we and our customers could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Moreover, we cannot assure you that our processes for controlling our use of open source software in our platform will be effective. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, or if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations, could be subject to significant damages, enjoined from the sale of subscriptions to our platform or other liability, or be required to seek costly licenses from third parties to continue providing our platform on terms that are not economically feasible, to re-engineer our platform, to discontinue or delay the provision of our platform if re-engineering could not be accomplished on a timely basis, or to make generally available, in source code form, our proprietary code, any of which would adversely affect our business, financial condition, and results of operations.
26

We license certain editions of our offerings under an open source licensing model, which may limit our ability to monetize certain of our offerings and present other challenges.
With the acquisition of Sensu, an edition of one of our offerings, Sensu Go, will have been made freely available under a permissive open source software license, the MIT license. That version will be complemented by paid versions of Sensu under proprietary or other limited license terms, employing a business strategy called open-core licensing model, which is intended to spur adoption of paid offerings with additional features or commercial benefits. We may in the future have additional open source editions of our paid offerings. However, open source editions typically have very low conversion rates to paid editions, and we may not be able to convert users to customers at a rate high enough to offset the expense of maintaining the open source edition. While open source offerings can enjoy the benefit of community contributions and support, we may not be able to engage the community sufficiently to take advantage of this potential benefit. Moreover, open source offerings under a permissive license can be freely used by competitors without any consideration. Competitors can, for example, easily copy the project and create a competing one that may divert potential customers from our open source or paid offerings. This may result in our expending significant effort and expense maintaining an offering that will benefit our competitors. In addition, managing trademark and branding rights for open source offerings can be difficult, because the law regarding the interaction of trademark rights and open source licensing is evolving and uncertain. It may therefore be risky or difficult to enforce our trademark and branding rights for open source offerings. Finally, in the event we later wish to cease support of an open source edition in favor of paid editions, that decision may draw criticism, result in negative public relations, and reduce the popularity of the paid offerings.
The rapidly evolving framework of privacy, data protection, data transfers, or other laws or regulations worldwide may limit the use and adoption of our services and adversely affect our business.
We are subject to a variety of federal, state, local, and international laws, directives, and regulations, as well as contractual obligations, relating to the collection, use, retention, security, disclosure, transfer, and other processing of personal information and other data. The regulatory framework for privacy, data protection, and data transfers worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. For example, the European Court of Justice in 2020 struck down the EU-US Privacy Shield framework, which provided companies with a mechanism to comply with data protection requirements when transferring personal data from the EU to the United States. In some cases, data privacy laws and regulations, such as the EU’s General Data Protection Regulation, or GDPR, which took effect in May 2018, impose additional obligations directly on us as both a data controller and a data processor, as well as on many of our customers. The European Commission recently approved new standard contractual clauses for the transfer of personal data outside the European Economic Area, or EEA, in June 2021 which impose a range of new requirements on organizations exporting or importing personal data subject to the GDPR and which are required to be implemented. The United Kingdom enacted a Data Protection Act in May 2018 that substantially implemented the GDPR, and has implemented legislation referred to as the “UK GDPR” that generally provides for implementation of the GDPR in the United Kingdom. On June 28, 2021, the European Commission announced a decision that the United Kingdom is an “adequate country” to which personal data could be exported from the EEA, but this decision must be renewed and may face challenges in the future, creating uncertainty regarding transfers of personal data to the United Kingdom from the EEA. Additionally, we cannot fully predict how the Data Protection Act, the UK GDPR, and other United Kingdom data protection laws or regulations may develop in the medium to longer term nor the effects of divergent laws and guidance regarding how data transfers to and from the United Kingdom will be regulated in the future. In addition, domestic data privacy laws continue to evolve and could expose us to further regulatory or operational burdens. For example, the California Consumer Privacy Act, or CCPA, which took effect in January 2020, and the California Privacy Rights Act, or CPRA, which was approved by voters in November 2020, and similar legislation recently enacted or proposed in other states, require new disclosures, afford consumers new abilities, or otherwise create new obligations. Some countries also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of delivering our platform. Complying with the GDPR, CCPA, CPRA, or other laws, regulations, amendments to or re-interpretations of existing laws and regulations, and contractual or other obligations relating to privacy, data protection, data transfers, data localization, or information security may require us to make changes to our services to enable us or our customers to meet new legal requirements, incur substantial operational costs, modify our data practices and policies, and restrict our business operations. Any actual or perceived failure by us to comply with these laws, regulations, or other obligations may lead to significant fines, penalties, regulatory investigations, lawsuits, significant costs for remediation, damage to our reputation, or other liabilities.
In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on our ability to provide our services globally. Our customers expect us to meet certain voluntary certification and other standards established by third parties. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our services to certain customers and could harm our business. Furthermore, the uncertain and shifting regulatory environment may cause concerns regarding data privacy and may cause our customers or our customers’ customers to resist providing the data necessary to allow our customers to use our services effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our services and limit adoption of our platform. Additionally, some statutory requirements, both in the United States and abroad, such as the Health Insurance Portability and Accountability Act of 1996, or HIPAA, include obligations for
27

companies to notify individuals of security breaches involving particular personal information, which could result from breaches experienced by us or our service providers. Although we may have contractual protections with our service providers, any actual or perceived security breach or incident could harm our reputation and brand, expose us to potential liability, or require us to expend significant resources on data security and in responding to any such actual or perceived breach or incident.
These laws, regulations, standards, or other obligations relating to privacy, data protection, data transfers, data localization, or information security could require us to take on more onerous obligations in our contracts, restrict our ability to store, transfer, and process data or, in some cases, impact our ability to offer our services in certain locations, to deploy our solutions, to reach current and prospective customers, or to derive insights from customer data globally. If we are obligated to fundamentally change our business activities and practices or modify our platform, we may be unable to make such changes and modifications in a commercially reasonable manner, or at all, and our ability to develop new platform features could be limited. The costs of compliance with, and other burdens imposed by, these laws, regulations, standards, and obligations, or any inability to adequately address privacy, data protection, or information security-related concerns, even if unfounded, may limit the use and adoption of our services, reduce overall demand for our services, make it more difficult to meet expectations from or commitments to customers, impact our reputation, or slow the pace at which we close sales transactions, any of which could harm our business, financial condition, and results of operations.
We incorporate technology from third parties into our platform, and our inability to maintain rights to such technology would harm our business and results of operations.
We license software and other technology from third parties that we incorporate into or integrate with our platform. We cannot be certain that our licensors are not infringing the intellectual property rights of third parties or that our licensors have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell access to our platform. In addition, many licenses are non-exclusive, and therefore our competitors may have access to the same technology licensed to us. Some of our agreements with our licensors may be terminated for convenience by them, or otherwise provide for a limited term. If we are unable to continue to license any of this technology for any reason, our ability to develop and sell access to our platform containing such technology could be harmed. Similarly, if we are unable to license necessary technology from third parties now, or in the future, on commercially reasonable terms or at all, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner, or at all, and we may be required to use alternative technology of lower quality or performance standards, which would adversely affect our business, financial condition, and results of operations.
Our platform may not interoperate with our customers’ infrastructure or with third-party offerings, which would adversely affect our business and results of operations.
Our platform is often operated in large scale, complex technology environments. Our platform must interoperate with our customers’ existing network and security infrastructure. These complex systems are developed, delivered, and maintained by our customers, myriad vendors, and service providers. As a result, the components of our customers’ infrastructure have different specifications, rapidly evolve, utilize multiple protocol standards, include multiple versions and generations of offerings, and may be highly customized. We must be able to interoperate and provide our platform to customers with highly complex and customized networks, which requires careful planning and execution. Our customers and some channel partners require training and experience in the proper use of and the benefits that can be derived from our platform to maximize their potential. Further, when new or updated elements of our customers’ infrastructure or new industry standards or protocols are introduced, we may have to update or enhance our platform to continue to effectively serve our customers. We offer prebuilt integrations with a variety of third-party cloud and software providers to allow customers to consolidate data across their infrastructure onto our platform, and we will need to continue to maintain existing integrations as other providers upgrade their offerings and develop new integrations with emerging technologies. Our competitors or other vendors may refuse to work with us to allow their offerings to interoperate with our platform, which could make it difficult for our platform to function properly in customer networks that include these third-party offerings.
We may not deliver or maintain interoperability quickly or cost-effectively, or at all. These efforts require capital investment and engineering resources. If we fail to maintain the compatibility of our platform with our customers’ network and security infrastructures, our customers may not be able to fully adopt our platform, and we may, among other consequences, experience reduced demand for our platform, which could adversely affect our business, financial condition, and results of operations. Further, the incorrect or improper implementation or use of our software, our failure to train customers on how to benefit from full utilization of our platform, or our failure to provide support services to our customers may result in errors or loss of data and as a result, dissatisfied customers, negative publicity, and harm to our reputation and brand, or legal claims against us. All of the foregoing would result in lost opportunities for additional sales to these customers, any of which would adversely affect our business, financial condition, results of operations, and growth prospects.
28

Risks Related to Legal and Regulatory Matters
We may be subject to claims that we have wrongfully hired an employee from a competitor, or that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees, consultants, and advisors, or individuals that may in the future serve as our employees, consultants, and advisors, are currently or were previously employed at companies including our competitors or potential competitors. Although we try to ensure that our employees, consultants, independent contractors, and advisors do not use the confidential or proprietary information, trade secrets, or know-how of others in their work for us, we have in the past received notices from former employers and we may be subject to claims that we or have inadvertently or otherwise used or disclosed confidential or proprietary information, trade secrets, or know-how of these third parties, or that our employees, consultants, independent contractors, or advisors have inadvertently or otherwise used or disclosed confidential information, trade secrets, or know-how of such individual’s current or former employer. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and employees. Claims that we, our employees, consultants, or advisors have misappropriated the confidential or proprietary information, trade secrets, or know-how of third parties could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Our business is subject to a wide range of laws and regulations, many of which are evolving, and failure to comply with such laws and regulations could harm our business, financial condition, and results of operations.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing privacy and data protection laws and regulations, employment and labor laws, workplace safety, product safety, environmental laws, consumer protection laws, anti-bribery laws, import and export controls, federal securities laws, and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than in the United States. These laws and regulations impose added costs on our business. Noncompliance with applicable regulations or requirements could subject us to:
investigations, enforcement actions, orders, and sanctions;
mandatory changes to our Continuous Intelligence Platform;
disgorgement of profits, fines, and damages;
civil and criminal penalties or injunctions;
claims for damages by our customers or channel partners;
termination of contracts;
loss of intellectual property rights; and
temporary or permanent debarment from sales to government organizations.
If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition, and results of operations could be adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could materially harm our business, financial condition, and results of operations.
We endeavor to comply with all applicable employment laws. However, the scope and interpretation of these laws are often uncertain and may be conflicting, including varying standards and interpretations between state and federal law, between individual states, and even at the city and municipality level. As a result, their application in practice may change or develop over time through judicial decisions or as new guidance or interpretations are provided by regulatory and governing bodies, such as federal, state, and local administrative agencies. From time to time, we may be subject to litigation or threats of litigation regarding such varying rules and standards. For example, in September 2019, attorneys representing a purported class of current and former employees in various sales roles alleged potential claims of employee misclassification and related federal and state law claims, which we disputed. In response, we mediated the dispute, and in August 2020, we entered into a settlement agreement with the purported class counsel to resolve the dispute, which was handled in arbitration and resulted in us paying approximately $4.5 million in the first quarter of fiscal 2022 to resolve the class-wide claims, which included claims for employee misclassification and related federal and state claims, civil
29

penalties under California’s Private Attorneys General Act of 2004, as well as claims for failure to pay overtime, provide meal and rest breaks, pay timely wages, and provide accurate wage statements, and claims for alleged unlawful business practices.
In addition, we must comply with laws and regulations relating to the formation, administration, and performance of contracts with the public sector, including U.S. federal, state, and local governmental organizations, which affect how we and our channel partners do business with governmental agencies. Selling access to our platform to the U.S. government, whether directly or through channel partners, also subjects us to certain regulatory and contractual requirements. Failure to comply with these requirements by either us or our channel partners could subject us to investigations, fines, and other penalties, which would have an adverse effect on our business, financial condition, results of operations, and prospects. Violations of certain regulatory and contractual requirements, or failure to maintain required certifications, could also result in us being suspended or debarred from future government contracting. Any of these outcomes would adversely affect our business, financial condition, results of operations, and growth prospects.
We are subject to governmental export and import controls that would impair our ability to compete in international markets or subject us to liability if we are not in compliance with applicable laws.
Our software may be subject to U.S. export control laws and regulations including the Export Administration Regulations and trade and economic sanctions maintained by the Office of Foreign Assets Control, or the OFAC. As such, an export license may be required to export or re-export our platform to certain countries, end-users, and end-uses. Because we incorporate encryption functionality into our platform, we also are subject to certain U.S. export control laws that apply to encryption items. If we were to fail to comply with such U.S. export controls laws and regulations, U.S. economic sanctions, or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations, and the possible loss of our export or import privileges. Obtaining the necessary export license for a particular sale or offering may not be possible and may be time-consuming and may result in the delay or loss of sales opportunities. Further, U.S. export control laws and economic sanctions prohibit the export of offerings to certain U.S. embargoed or sanctioned countries, governments, and persons, as well as for prohibited end-uses. Even though we take precautions to ensure that we and our channel partners comply with all relevant export control laws and regulations, any failure by us or our channel partners to comply with such laws and regulations could have negative consequences for us, including reputational harm, government investigations, and penalties.
In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our platform or could limit our customers’ ability to implement our platform in those countries. Changes in our platform or changes in export and import regulations in such countries may create delays in the introduction of our platform into international markets, prevent our customers with international operations from deploying our platform globally or, in some cases, prevent or delay the export or import of our platform to certain countries, governments, or persons altogether. Any change in export or import laws or regulations, economic sanctions, or related legislation, shift in the enforcement or scope of existing export, import, or sanctions laws or regulations, or change in the countries, governments, persons, or technologies targeted by such export, import, or sanctions laws or regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell access to our platform to, existing or potential end-customers with international operations. Any decreased use of our platform or limitation on our ability to export to or sell access to our platform in international markets would adversely affect our business, financial condition, and results of operations.
We are subject to anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines, harm our reputation, and adversely affect our business, financial condition, results of operations, and growth prospects.
We are subject to the FCPA, the U.K. Bribery Act 2010, and other anti-corruption, anti-bribery, and anti-money laundering laws in various jurisdictions both domestic and abroad. We leverage third parties, including channel partners, to sell access to our platform and conduct our business abroad. We and our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. While we have policies and procedures to address compliance with such laws, we cannot assure you that all of our employees and agents will not take actions in violation of our policies and applicable law, for which we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-bribery, anti-corruption laws, and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, or suspension or debarment from U.S. government contracts, any of which could harm our reputation and adversely affect our business, financial condition, results of operations, and growth prospects.
30

Changes in U.S. tax laws and regulations and those which we are subject to in various tax jurisdictions could adversely affect our business, financial condition, and results of operations.
In December 2017, the legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act, was enacted, which contains significant changes to U.S. tax law, including a reduction in the corporate tax rate and a transition to a new territorial system of taxation. The primary impact of the new legislation on our provision (benefit) for income taxes was a reduction of the future tax benefits of our deferred tax assets as a result of the reduction in the corporate tax rate. However, since we have recorded a full valuation allowance against our deferred tax assets, these changes did not have a material impact on our consolidated financial statements. The impact of the Tax Act will likely be subject to ongoing technical guidance and accounting interpretation, which we will continue to monitor and assess. As we expand the scale of our international business activities, any changes in the U.S. or foreign taxation of such activities may increase our worldwide effective tax rate and harm our business, financial condition, and results of operations.
Our international operations subject us to potentially adverse tax consequences.
We generally conduct our international operations through subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the value of assets sold or acquired or income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were 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.
There is also a high level of uncertainty in today’s tax environment stemming from both global initiatives put forth by the Organisation for Economic Co-operation and Development, or the OECD, and unilateral measures being implemented by various countries due to a lack of consensus on these global initiatives. As an example, the OECD has put forth two proposals—Pillar One and Pillar Two—that revise the existing profit allocation and nexus rules (profit allocation based on location of sales versus physical presence) and ensure a minimal level of taxation, respectively. Further, unilateral measures such as digital services tax and corresponding tariffs in response to such measures are creating additional uncertainty. If these proposals are passed, it is likely that we will have to pay higher taxes in countries where such rules are applicable.
We are subject to tax examinations by the Internal Revenue Service, or the IRS, and other domestic and foreign tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our financial condition and results of operations.
We are, and expect to continue to be, subject to review and audit by the IRS and other tax authorities in various domestic and foreign jurisdictions. As a result, we may receive assessments in multiple jurisdictions on various tax-related assertions. Taxing authorities may challenge our tax positions and methodologies on various matters, including our positions regarding the collection of sales and use taxes and the jurisdictions in which we are subject to taxes, which could expose us to additional taxes. We assess the likelihood of adverse outcomes resulting from any ongoing tax examinations to determine the adequacy of our provision (benefit) for income taxes. These assessments can require considerable judgments and estimates. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. There can be no assurance that our tax positions and methodologies or calculation of our tax liabilities are accurate or that the outcomes from tax examinations will not have an adverse effect on our financial condition and results of operations. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could have an adverse effect on our financial condition and results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of January 31, 2022, we had $506.1 million of federal and $325.5 million of state net operating loss carryforwards, or NOLs, available to reduce future taxable income, which will begin to expire in 2030 for federal and California purposes. It is possible that we will not generate taxable income in time to use NOLs before their expiration, or at all. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. We may have had an ownership change as a result of our IPO in September 2020 which could result in Section 382 limitation through January 31, 2021. However, we do not expect any resulting limitations on our ability to utilize NOLs or other tax attributes.
31

The Tax Act, as amended by the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, among other things, includes changes to U.S. federal tax rates and the rules governing NOLs. For NOLs arising in tax years beginning after December 31, 2017, the Tax Act, as modified by the CARES Act, limits a taxpayer’s ability to utilize NOLs to 80% of taxable income (as calculated before taking the NOLs, and certain other tax attributes, into account) for taxable years beginning after December 31, 2020. In addition, NOLs arising in tax years ending after December 31, 2017 and before January 1, 2021 may be carried back to each of the five taxable years preceding the tax year of such loss, but NOLs arising in taxable years beginning after December 31, 2020 may not be carried back. NOLs arising in tax years beginning after December 31, 2017 can be carried forward indefinitely. NOLs generated in tax years beginning before January 1, 2018 will not be subject to the taxable income limitation and will continue to have a two-year carryback and twenty-year carryforward period. As we maintain a full valuation allowance against our U.S. NOLs, these changes did not impact our consolidated balance sheet as of January 31, 2021 or 2022. However, in future years, if and when a net deferred tax asset is recognized related to our NOLs, the changes in the carryforward/carryback periods as well as the new limitation on the use of NOLs may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2017.
There is also a risk that due to federal or state regulatory changes, such as suspensions on the use of NOLs, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added, or similar taxes, and any such assessments could adversely affect our business, financial condition, and results of operations.
We do not collect sales and use, value added, and similar taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Sales and use, value added, and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties, interest, or future requirements would adversely affect our financial condition and results of operations. Further, in June 2018, the Supreme Court held in South Dakota v. Wayfair, Inc. that states could impose sales tax collection obligations on out-of-state sellers even if those sellers lack any physical presence within the states imposing the sales taxes. Under Wayfair, a person requires only a “substantial nexus” with the taxing state before the state may subject the person to sales tax collection obligations therein. An increasing number of states (both before and after the publication of Wayfair) have considered or adopted laws that attempt to impose sales tax collection obligations on out-of-state sellers. The Supreme Court’s Wayfair decision has removed a significant impediment to the enactment and enforcement of these laws, and it is possible that states may seek to tax out-of-state sellers on sales that occurred in prior tax years, which could create additional administrative burdens for us, put us at a competitive disadvantage if such states do not impose similar obligations on our competitors, and decrease our future sales, which would adversely impact our business, financial condition, and results of operations.
We may become involved in claims, lawsuits, government investigations, and other proceedings that could adversely affect our business, financial condition, and results of operations.
From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including intellectual property, commercial, product liability, employment, class action, whistleblower, and other litigation and claims, and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liability, or require us to change our business practices. In addition, the expense of litigation and the timing of this expense from period to period are difficult to estimate, subject to change, and could adversely affect our financial condition and results of operations. Because of the potential risks, expenses, and uncertainties of litigation, we may, from time to time, settle disputes, even where we have meritorious claims or defenses, by agreeing to settlement agreements. Any of the foregoing could adversely affect our business, financial condition, and results of operations.
Risks Relating to Financial and Accounting Matters
Remaining performance obligations and calculated billings may not be accurate indicators of business activity within a period.
Investors or analysts may look to both remaining performance obligations and the sum of revenue and changes in deferred revenue, sometimes referred to as “calculated billings,” as indicators of business activity in a period for businesses such as ours. However, these measures may significantly differ from underlying business activity for a number of reasons including:
a relatively large number of transactions occur at the end of the quarter. Invoicing of those transactions may or may not occur before the end of the quarter based on various factors including receipt of information from the customer and volume of transactions. A shift of a few days has little economic impact on our business, but will shift deferred revenue from one period into the next;
multi-year contracts and multi-year upfront billings may distort trends;
32

some subscriptions may have deferred start dates; and
some services may only be invoiced upon delivery.
Accordingly, we do not believe that remaining performance obligations or calculated billings are necessarily accurate indicators of future performance for any given period. Analysts or investors may view these measures as important as many subscription-based companies report these as key metrics. Thus, any changes in our remaining performance obligations or calculated billings could be different from the expectations of investors or analysts, and thus may adversely affect the market price of our common stock.
We recognize substantially all of our revenue ratably over the term of the relevant subscription period, and as a result, downturns or upturns in sales may not be immediately reflected in our results of operations.
We recognize substantially all of our revenue ratably over the term of our subscription agreements with our customers, which is generally one to two years, but can be three years or longer. As a result, a substantial portion of the revenue that we report in each period will be derived from the recognition of deferred revenue relating to agreements entered into in prior periods. Consequently, a decline in new sales or renewals in any one period may not be immediately reflected in our results of operations for such period. Any such decline, however, would be reflected in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of and demand for our platform and changes in our rate of renewals, or customer churn, which have occurred due to the COVID-19 pandemic, may not be fully reflected in our results of operations until future periods. Our subscription-based model also makes it difficult to rapidly increase our revenue through additional sales in any period, as revenue from new customers generally will be recognized over the term of the applicable agreement.
We also intend to increase our investment in research and development, sales and marketing, and general and administrative functions, and other areas to grow our business. These costs are generally expensed as incurred (with the exception of sales commissions), as compared to our revenue, substantially all of which is recognized ratably in future periods. We may recognize the costs associated with such increased investments earlier than some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect, which could adversely affect our financial condition and results of operations.
Our metrics and estimates used to evaluate our performance are subject to inherent challenges in measurement, and real or perceived inaccuracies in those estimates may harm our reputation and negatively affect our business.
We regularly review and may adjust our processes for calculating our metrics used to evaluate our growth, measure our performance, and make strategic decisions. These metrics are calculated using internal company data and have not been evaluated by a third party. Our metrics and estimates may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology or the assumptions on which we rely. Additionally, the metrics and forecasts we disclose relating to the size and expected growth of our addressable market may prove to be inaccurate. Even if the markets in which we compete meet the size estimates and growth we have forecasted, our business could fail to grow at similar rates, if at all. If securities analysts or investors do not consider our metrics to be accurate representations of our business, or if we discover material inaccuracies in our estimates, then the market price of our common stock could decline, our reputation and brand could be harmed, and our business, financial condition, and results of operations could be adversely affected.
Our loan and security agreement provides our lender with a first-priority lien against substantially all of our assets and contains restrictive covenants which could limit our operational flexibility and otherwise adversely affect our financial condition.
Our loan and security agreement contains a number of covenants that limit our ability to incur debt, grant liens, make acquisitions, undergo a change in control, make investments, make certain dividends or distributions, repurchase or redeem stock, dispose of or transfer assets, and enter into transactions with affiliates. Our loan and security agreement is secured by substantially all of our assets. The terms of our loan and security agreement may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs or to execute preferred business strategies. In addition, complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies who are not subject to such restrictions. Additionally, our obligations to repay principal and interest on our indebtedness make us vulnerable to economic or market downturns. As of January 31, 2022, we had no outstanding loan balance under this facility.
Our failure to comply with the covenants or payment requirements, or other events specified in our loan and security agreement, could result in an event of default and our lender may accelerate our obligations under our loan and security agreement and foreclose upon the collateral, or we may be forced to sell assets, restructure our indebtedness, or seek additional equity capital, which would dilute our stockholders’ interests. Our failure to comply with any covenant could result in an event of default under the agreement and the lender could make the entire debt immediately due and payable. If this occurs, we might not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us. Any of the foregoing could adversely affect our business, financial condition, or results of operations.
33

We may require additional capital, which may not be available on terms acceptable to us, or at all.
Historically, we have funded our operations and capital expenditures primarily through equity issuances and cash generated from our operations. To support our growing business, we must have sufficient capital to continue to make significant investments in our platform. If we raise additional funds through the issuance of equity, equity-linked, or debt securities, those securities may have rights, preferences, or privileges senior to those of common stock, and our existing stockholders may experience dilution. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.
We evaluate financing opportunities from time to time, and our ability to obtain financing will depend on, among other things, our development efforts, business plans, and operating performance, and the condition of the capital markets at the time we seek financing. We cannot be certain that additional financing will be available to us on favorable terms, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited, and our business, financial condition, and results of operations would be adversely affected.
Our results of operations may be adversely affected by changes in accounting principles applicable to us.
Generally accepted accounting principles in the United States, or GAAP, are subject to interpretation by the Financial Accounting Standards Board, or the FASB, the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. Changes in accounting principles applicable to us, or varying interpretations of current accounting principles, in particular, with respect to revenue recognition of our packaging and licensing model, could have a significant effect on our reported results of operations. Further, any difficulties in the implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.
Our estimates or judgments relating to our critical accounting policies may be based on assumptions that change or prove to be incorrect, which could cause our results of operations to fall below expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the recognition and measurement of certain assets and liabilities and revenue and expenses that is not readily apparent from other sources. Our accounting policies that involve judgment include those related to revenue recognition, the period of benefit for deferred sales commissions, assumptions used for estimating the fair value of common stock to calculate stock-based compensation (prior to the closing of the IPO), capitalization of internal-use software costs, valuation of goodwill and intangible assets, allowance for doubtful accounts, and valuation allowances associated with income taxes. If our assumptions change or if actual circumstances differ from those in our assumptions, our results of operations could be adversely affected, 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 common stock.
We may fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations.
In connection with the audit of our consolidated financial statements as of and for the fiscal year ended January 31, 2020, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness that we identified occurred because we had not designed and maintained effective controls over certain aspects of our information technology systems. More specifically, we did not design and maintain effective user access controls to adequately restrict user and privileged access to financial enterprise resource planning applications, including ensuring appropriate segregation of duties as it relates to the preparation and review of journal entries and the monitoring of system changes. This material weakness did not result in any errors to the consolidated financial statements as of and for the fiscal year ended January 31, 2020, nor did we find any evidence of management override of entries in our financial reporting process. To address this material weakness, we took actions to improve our control environment related to certain aspects of our information technology systems. As of the year ended January 31, 2021, we concluded that our remediation efforts have been successful, and that the previously-identified material weakness in our internal control over financial reporting has been remediated. However, while the material weakness has been
34

remediated, we continue to seek improvements to enhance our control environment and to strengthen our internal controls to provide reasonable assurance that our financial statements continue to be fairly stated in all material respects.
We can give no assurance that additional material weaknesses will not be identified in the future. Our failure to implement and maintain effective internal control over financial reporting could result in errors in our consolidated financial statements that could result in a restatement of our financial statements, and could cause us to fail to meet our reporting obligations, any of which could diminish investor confidence in us and cause a decline in the price of our common stock.
We may fail to maintain an effective system of disclosure controls and internal control over financial reporting, which could impair our ability to produce timely and accurate financial statements or comply with applicable regulations.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the listing standards of the Nasdaq Global Select Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
Our current controls and any new controls that we develop may become inadequate because of changes in the conditions in our business, including increased complexity resulting from any international expansion, the expanded work-from-home practices of our employees in response to COVID-19, new product offerings or from strategic transactions. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely adversely affect the market price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Global Select Market.
Our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business, financial condition, and results of operations, and could cause a decline in the market price of our common stock.
We may face fluctuations in currency exchange rates, which could adversely affect our financial condition and results of operations.
As we continue to expand internationally, we will become more exposed to fluctuations in currency exchange rates. A portion of our operating expenses are incurred outside of the United States and denominated in foreign currencies. The strengthening of the U.S. dollar relative to foreign currencies increases the real cost of our platform for our customers outside of the United States, which could lead to the lengthening of our sales cycle or reduced demand for our platform. As we continue our international expansion, increased international sales may result in foreign currency denominated sales, increasing our foreign currency risk. Moreover, this continued expansion will increase operating expenses incurred outside the United States and denominated in foreign currencies. If we are not able to successfully hedge against the risks associated with currency fluctuations, our financial condition and results of operations would be adversely affected. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which would adversely affect our financial condition and results of operations.
35

Risks Relating to Ownership of our Common Stock and Governance Matters
Our executive officers, directors, and holders of 5% or more of our common stock continue to have substantial control over us, which will limit your ability to influence the outcome of important transactions, including a change in control.
Our executive officers, directors, and our stockholders who own 5% or more of our outstanding common stock and their affiliates, in the aggregate, beneficially own a substantial portion of the outstanding shares of our common stock. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions, or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing, or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and might ultimately affect the market price of our common stock.
The market price of our common stock may be volatile, and you could lose all or part of your investment.
The market price of our common stock may be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include the following:
price and volume fluctuations in the overall stock market from time to time;
volatility in the market prices and trading volumes of technology stocks;
changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
sales of shares of our common stock by us or our stockholders;
failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;
the financial projections we may provide to the public, any changes in those projections, or our failure to meet those projections;
announcements by us or our competitors of new offerings or platform features;
the public’s reaction to our press releases, other public announcements, and filings with the SEC;
rumors and market speculation involving us or other companies in our industry;
short selling of our common stock or related derivative securities;
actual or anticipated changes in our results of operations or fluctuations in our results of operations;
actual or anticipated developments in our business, our competitors’ businesses, or the competitive landscape generally;
announced or completed acquisitions of businesses, offerings, or technologies by us or our competitors;
developments or disputes concerning our intellectual property or other proprietary rights;
litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;
new laws or regulations, or new interpretations of existing laws or regulations applicable to our business;
changes in accounting standards, policies, guidelines, interpretations, or principles;
any significant change in our management; and
36

general economic conditions and slow or negative growth of our markets.
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, would result in substantial costs and a diversion of our management’s attention and resources.
Sales of substantial amounts of our common stock in the public market, or the perception that such sales might occur, could cause our stock price to decline and impair our ability to raise capital through the sale of additional equity securities.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our stockholders sell, or the market perceives that our stockholders intend to sell, a substantial amount of our common stock in the public market, the market price of our common stock could decline and our ability to raise capital through the sale of additional equity securities could be impaired. Many of our existing equity holders have substantial unrecognized gains on the value of the equity they hold, and may take, or attempt to take, steps to sell, directly or indirectly, their shares or otherwise secure, or limit the risk to, the value of their unrecognized gains on those shares.
In addition, certain of our stockholders are entitled, under our investors’ rights agreement, to require us to register shares owned by them for public sale in the United States. Sales of our common stock pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our common stock to fall and make it more difficult for you to sell shares of our common stock.
The issuance of additional stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise will dilute all other stockholders.
Our amended and restated certificate of incorporation authorizes us to issue up to 1,000,000,000 shares of common stock and up to 100,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, our equity incentive plans, or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our common stock to decline.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the market price of our common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
our board of directors is classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause;
certain amendments to our amended and restated certificate of incorporation require the approval of at least 66 23% of our then-outstanding common stock;
our stockholders are only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter;
our amended and restated certificate of incorporation does not provide for cumulative voting;
vacancies on our board of directors are able to be filled only by our board of directors and not by stockholders;
a special meeting of our stockholders may only be called by the chairperson of our board of directors, our Chief Executive Officer, or a majority of our board of directors;
certain litigation against us can only be brought in Delaware;
37

our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and
advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
These provisions, alone or together, could discourage, delay, or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware and the federal district courts of the United States as the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants. Our amended and restated bylaws further provide that the federal district courts of the United States will be the exclusive forum for resolving any complaints asserting a cause of action arising under the Securities Act of 1933, as amended, or the Securities Act.
Any person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented to this provision. This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. This exclusive forum provision will not apply to any causes of action arising under the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. If a court were to find either exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us, our business, or our market, or if they change their recommendations regarding our common stock adversely, the market price and trading volume of our common stock could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us, our business, our market, or our competitors. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If any of the analysts who cover us change their recommendation regarding our common stock adversely, provide more favorable relative recommendations about our competitors, or publish inaccurate or unfavorable research about our business, the price of our securities would likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and demand for our securities could decrease, which could cause the price and trading volume of our common stock to decline.
We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. Additionally, our ability to pay cash dividends on our common stock is limited by restrictions under the terms of our credit facility with Silicon Valley Bank. As a result, stockholders must rely on sales of their common stock after price appreciation as the only way to realize any future gains on their investment.
38

General Risk Factors
Operating as a public company requires us to incur substantial costs and will require substantial management attention.
As a public company, we incur substantial legal, accounting, and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules and regulations of the SEC, and the listing standards of the Nasdaq Global Select Market. The Exchange Act requires, among other things, we file annual, quarterly, and current reports with respect to our business, financial condition, and results of operations. In addition, as a public company, we may be subject to stockholder activism, which can lead to additional substantial costs, distract management, and impact the manner in which we operate our business in ways we cannot currently anticipate. As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors.
Certain members of our management team have limited experience managing a publicly traded company, and certain members joined us more recently. As such, our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition, and results of operations.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our corporate headquarters is in Redwood City, California, where we currently lease approximately 56,000 square feet under a lease agreement that expires in 2023. As of January 31, 2022, we also lease and license facilities in the United States in Austin; Denver; Raleigh; and New York; and internationally in Sydney, Australia; Noida, India; Milan, Italy; Tokyo, Japan; Skopje, Macedonia; Warsaw and Krakow, Poland; Seoul, South Korea; and London, United Kingdom.
We believe that our facilities are suitable to meet our current needs. However, we may expand our facilities or add new facilities as we add employees and enter new geographic markets, and we believe that suitable additional or alternative space will be available as needed to accommodate any such growth. We may incur additional expenses in connection with such new or expanded facilities.
Item 3. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of business, as well as governmental and other regulatory investigations and proceedings. In addition, third parties may from time to time assert claims against us in the form of letters and other communications. For example, in September 2019, attorneys representing a purported class of current and former employees in various sales roles alleged potential claims of employee misclassification and related federal and state law claims, which we disputed. In response, we mediated the dispute, and in August 2020, we entered into a settlement agreement with the purported class counsel to resolve the dispute, which was handled in arbitration and resulted in us paying approximately $4.5 million in the first quarter of fiscal 2022 to resolve the class-wide claims, which included claims for employee misclassification and related federal and state claims, civil penalties under California’s Private Attorneys General Act of 2004, as well as claims for failure to pay overtime, provide meal and rest breaks, pay timely wages, and provide accurate wage statements, and claims for alleged unlawful business practices.
We are not currently a party to any legal proceedings that, if determined adversely to us, would, in our opinion, have a material adverse effect on our business, results of operations, financial condition or cash flows. Future litigation may be necessary to defend ourselves, our partners, and our customers by determining the scope, enforceability, and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
39

PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock began trading on The Nasdaq Global Select Market under the symbol “SUMO” on September 17, 2020. Prior to that date, there was no public market for our common stock.
Holders of Record
As of January 31, 2022, there were approximately 150 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Dividend Policy
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future.
Sales of Unregistered Securities
We did not sell any equity securities which were not registered under the Securities Act during the fiscal year ended January 31, 2022 that were not otherwise disclosed in our Quarterly Reports on Form 10-Q or our Current Reports on Form 8-K.
Issuer Purchases of Equity Securities
We did not purchase any shares of our common stock or other securities during the fourth quarter of our fiscal year ended January 31, 2022.

40

Stock Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Act.
The following graph compares (i) the cumulative total stockholder return on our common stock from September 17, 2020 (the date our common stock commenced trading on the NASDAQ) through January 31, 2022 with (ii) the cumulative total return of the S&P 500 Index and S&P 500 Software & Services Select Industry Index over the same period, assuming the investment of $100 in our common stock and in both of the other indices on September 17, 2020 and the reinvestment of dividends. The graph uses the closing market price on September 17, 2020 of $26.88 per share as the initial value of our common stock. As discussed above, we have never declared or paid a cash dividend on our common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future.
sumo-20220131_g1.jpg



Item 6. [Reserved]
41

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, 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. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ended January 31, 2022 and 2021 are referred to herein as fiscal 2022 and fiscal 2021, respectively. This section of our Annual Report on Form 10-K discusses our financial condition and results of operations and year-to-year comparisons for our fiscal years ended January 31, 2022 and 2021, respectively. A discussion of our financial condition and results of operations and year-to-year comparisons for our fiscal years ended January 31, 2021 and 2020 that is not included in this Annual Report on Form 10-K can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021 filed with the SEC on March 12, 2021, and is incorporated by reference herein.
Overview
Sumo Logic empowers the people who power modern, digital businesses. Our mission is to be the leading software-as-a-service analytics platform for reliable and secure cloud-native applications. With our platform, we help our customers ensure application reliability, secure and protect against modern security threats, and gain insights into their cloud infrastructure. Our multi-tenant, cloud-native platform – which we refer to as our Continuous Intelligence Platform – provides powerful, real-time, machine data analytics and insights across observability and security solutions.
We generate revenue through the sale of subscriptions to customers that enable them to access our cloud-native platform. We recognize subscription revenue ratably over the term of the subscription, which is generally one to two years, but can be three years or longer. We offer multi-tiered paid subscription packages for access to our platform, the pricing for which differs based on a variety of factors, including volume of data to be ingested, duration of data retention, and breadth of access to platform features and functionalities. Our subscription packages encourage customers to expand their adoption of our platform by providing them with the flexibility to ingest and analyze large volumes of data and the ability to access a broad suite of platform features and functionalities without incurring overage fees, as well as insights into their usage patterns. We also deliver basic customer support with each of our paid subscription packages, and customers have the ability to purchase subscriptions to our premium support service. We recognize revenue from premium support service ratably over the term of the subscription.
Our go-to-market strategy consists of self-service adoption through our website, an inside sales team, a field sales team, and a partner channel. We offer free trials that enable potential customers to experience the benefits of our platform, and we see significant conversion from our trial users to paid customers, with approximately one-third of our new customers in fiscal 2022 having been free trial users who converted into paying customers. We leverage our user community to proactively identify trends, gather global insights, and create new use cases, thereby empowering us to deliver out-of-the-box value to our customers. We employ a land-and-expand business model centered around our platform offerings, which have a rapid time to value for our customers and are easily extensible to multiple use cases across a business. We utilize the analytical capabilities of our platform and our customer success team to understand how our customers use, and how they would benefit from expanding their use of our platform. This understanding helps us successfully upsell and cross sell to our existing customers.
The power of our platform, and the benefits that it delivers to customers, has driven rapid growth in our revenue. For fiscal 2022 and 2021, our revenue was $242.1 million and $202.6 million, respectively, representing a year-over-year growth rate of 19%. For fiscal 2022 and 2021, our ARR was $258.9 million and $208.3 million, respectively, representing a year-over-year growth rate of 24%. We generated GAAP operating losses of $121.3 million and $77.7 million for fiscal 2022 and 2021, respectively. We define non-GAAP operating loss as loss from operations excluding stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related expenses. We generated non-GAAP operating losses of $48.2 million and $29.9 million for fiscal 2022 and 2021, respectively. See “Key Factors Affecting Our Performance” for a definition of ARR. See “Non-GAAP Financial Measures” for the reconciliation of GAAP operating loss to non-GAAP operating loss.
Impact of COVID-19
As a result of the COVID-19 pandemic, we have temporarily closed or reduced capacity at our offices, continue to require many of our employees and contractors to work remotely, and have reduced business travel, all of which represent a significant disruption in how we operate our business. Additionally, in May 2020, as part of our efforts to respond to the COVID-19 pandemic
42

and ensure longer-term financial stability, we initiated cost reduction measures, including a headcount reduction. The operations of our partners and customers have likewise been disrupted, and we believe this has caused delays in renewal decisions for some of our existing customers, caused customers to request concessions such as extended payment terms or better pricing, and affected contraction or churn rates for our customers. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the duration and spread of the outbreak, the emergence of variants of the virus, the extent and effectiveness of containment actions, and the effectiveness of vaccination efforts, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In the fourth quarter of fiscal 2022, the Omicron variant of COVID-19 became the dominant strain in numerous countries around the world, including the United States, and it is more contagious than other previously identified COVID-19 strains. However, we believe that the COVID-19 pandemic will continue to accelerate customer transformation into digital businesses, which we anticipate could generate additional opportunities for us in the future. Due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our revenue until future periods. See “Risk Factors — The global COVID-19 pandemic has harmed and could continue to harm our business and results of operations” for further discussion of the challenges and risks we have encountered and could encounter related to the COVID-19 pandemic.
Key Factors Affecting Our Performance
New Customer Acquisition
Our business depends, in part, on our ability to add new customers. We believe the continued trend of digital transformation and increase in digital services and cloud applications across all organizations will continue to drive demand for our platform and broaden our customer base. Since our platform has offerings for organizations of all sizes and across industries, including organizations of all stages of cloud maturity, we believe these market changes present a significant opportunity for growth. As of January 31, 2022, we had 2,396 customers worldwide, spanning organizations of a broad range of sizes and industries. However, we anticipate that continued economic uncertainty around the COVID-19 pandemic may adversely affect our ability to add new customers in the future. We will continue to focus on new customer acquisition by investing in sales and marketing to build brand awareness, expanding our community, and driving adoption of our platform as we further capture the opportunity in our addressable market.
We define a customer as a separate legal entity, such as a company or an educational or government institution, that is under a paid contract with us or with which we are negotiating a renewal contract at the end of a given period. Given our historical experience of customer renewals, if we are in active discussions for a renewal or upgrade, we continue to include customers with expired contracts in our customer count until the customer either renews its contract or negotiations terminate without renewal. In situations where an organization has multiple subsidiaries or divisions that separately contract with us, we typically treat only the parent entity as the customer instead of treating each subsidiary or division as a separate customer. However, we count each purchaser of our self-service offering as a unique customer, regardless of other subscriptions such organization may have.
Expanding within our Existing Customer Base
Our business depends, in part, on the degree to which our land-and-expand strategy is successful. Our customers often initially adopt our platform for a specific use case and subsequently increase their adoption as they realize the benefits and flexibility of our platform. We have been successful in expanding our existing customers’ adoption of our platform as demonstrated by our dollar-based net retention rate, which we consider an indicator of our ability to retain and expand revenue from existing customers over time. In fiscal 2022 our dollar-based net retention rate declined a few percentage points below 110%. The decline was driven by the combination of slower than historic expansion in the install base and higher than historic churn. In addition, because historically our dollar-based net retention rate in a particular quarter was obtained by averaging the result from that particular quarter with the corresponding results from each of the prior three quarters, any changes within a particular quarter are less visible due to the four-quarter average. To provide transparency into the current period dollar-based net retention rate and to provide increased visibility into current trends in our business, we are revising our methodology to calculate dollar-based net retention rate using a simple trailing four quarter methodology. Going forward, our dollar-based net retention rate will now be calculated as of a period end by starting with the ARR from all subscription customers as of 12 months prior to such period end, or Prior Period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or Current Period ARR. Current Period ARR includes any expansion and is net of contraction or churn over the trailing 12 months but excludes ARR from new subscription customers in the current period. We then divide the Current Period ARR by the Prior Period ARR to arrive at our dollar-based net retention rate. Our dollar-based net retention rate as of January 31, 2022, was 112%, and we anticipate it may stay relatively stable over the next year due to the realignment of our sales force, which will likely result in a relatively higher focus on new customer acquisition in the next fiscal year. Therefore, we expect it will take several quarters before we start to see sustained improvement in our dollar-based net retention rate.
Our efficient land-and-expand model has helped us accelerate adoption within our largest customers, as evidenced by our customers with over $100,000 of ARR, which was 456 and 358 as of January 31, 2022 and 2021, respectively. In addition, we saw growth in customers with greater than $1 million of ARR, which was 44 and 31 as of January 31, 2022 and 2021, respectively.
43

We define ARR as the annualized recurring revenue run-rate from all customers that are under contract with us at the end of the period or with which we are negotiating a renewal contract. Given our historical experience of customer renewals, if we are in active discussions for a renewal, we continue to include customers with expired contracts in our ARR until the customer either renews its contract or negotiations terminate without renewal. For certain customers whose revenue may fluctuate from month to month based upon their specific contractual arrangements, we calculate ARR using the annualized monthly recurring revenue, or MRR, run-rate (MRR multiplied by 12). This enables us to calculate our anticipated recurring revenue for all customers based on our packaging and licensing models, which we believe provides a more accurate view of our anticipated recurring revenue.
Continued Investment in Technology Leadership and Innovation
We intend to extend our leadership position by continuing to innovate, bringing new technologies to market, honing best practices, and driving thought leadership. Our success depends, in part, on our ability to sustain innovation and technology leadership in order to maintain a competitive advantage. We expect to continue to invest in research and development to increase our revenue and achieve long-term profitability, and we intend to continue extending the applicability of our platform as well as improving the value of our offerings for our customers. We believe that our platform is highly differentiated and has broad applicability to a wide variety of observability and security use cases, and we will continue to invest in developing and enhancing platform features and functionality to further extend the adoption of our platform. Additionally, we will continue to evaluate opportunities to acquire or invest in businesses, offerings, technologies, or talent that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities. Once we complete acquisitions, we must successfully integrate and manage these acquisitions to realize their benefits.
International Expansion
We intend to continue to invest in our international operations to grow our business outside of the United States. We generated 18% and 16% of our revenue outside the United States during fiscal 2022 and 2021, respectively. We believe that global demand for observability and security analytics will continue to increase as international businesses undergo digital transformations and adopt cloud-based technologies. We currently have a sales presence throughout Asia-Pacific-Japan, or APJ, and Europe, with sales offices in Sydney, Australia, Tokyo, Japan, and London, United Kingdom, and we further increase our global reach with our international channel partners. International expansion over the long term represents a significant opportunity and we plan to continue to invest in growing our presence internationally, both through expanding our sales and marketing efforts and leveraging channel and other ecosystem partners.
Acquisition of Sensu, Inc.
On June 10, 2021, we completed the acquisition of Sensu, Inc. (“Sensu”), a privately-held software company that is a leader in open source monitoring. The addition of Sensu is expected to accelerate our observability strategy by providing customers with an affordable and scalable end-to-end solution for infrastructure and application monitoring. The aggregate amount recorded as purchase consideration was $32.7 million, of which $8.6 million was paid or to be paid in cash, and $24.1 million was comprised of 1,123,697 shares of common stock. Additionally, 71,644 shares of common stock were issued and will be recorded as stock-based compensation over the requisite service period, and we assumed 33,267 options to purchase shares of common stock granted under Sensu’s equity plan. See Note 5 to our consolidated financial statements.
Acquisition of DF Labs S.p.A.
On May 24, 2021, we completed the acquisition of DF Labs S.p.A. (“DFLabs”), a privately-held Italian corporation and a leader in security orchestration, automation and response (“SOAR”) technology. The combination of our Cloud SIEM and DFLabs' solution will provide customers with comprehensive cloud-native security intelligence solutions. The aggregate amount recorded as purchase consideration was $41.7 million, of which $35.3 million was paid in cash, and $6.4 million was comprised of 334,815 shares of common stock. Additionally, 143,492 shares of common stock were issued and will be recorded as stock-based compensation over the requisite service period. See Note 5 to our consolidated financial statements.
Components of Results of Operations
Revenue
We generate subscription revenue through the sale of subscriptions to customers that enable them to access our cloud-native platform. Subscription terms are generally one to two years, but can be three years or longer, and a substantial majority of our contracts are non-cancelable. Subscription revenue is driven by sales of our multi-tiered paid subscriptions, the pricing for which differs based on a variety of factors, including volume of data expected to be ingested, duration of data retention, and breadth of access to our platform features and functionalities. We deliver basic customer support with each of our paid subscription packages, and
44

customers have the ability to purchase subscriptions to our premium support service. Due to the ease of using our platform, professional services revenue from configuration, implementation, and training services constituted approximately 1% of our total revenue for fiscal 2022 and less than 1% of our total revenue for fiscal 2021.
Cost of Revenue
Cost of revenue includes all direct costs to deliver and support our platform, including personnel and related costs, third-party hosting fees related to our cloud platform, amortization of internal-use software and acquired developed technology, as well as allocated facilities and IT costs.
As new customers purchase access to our platform and our existing customer base expands their utilization of our platform, we will incur greater cloud hosting costs related to the increased volume of data being hosted. We will continue to invest additional resources in our platform infrastructure and customer support organizations to expand the capabilities of our platform features and ensure that our customers are realizing the full benefit of our platform. The level and timing of investment in these areas could affect our cost of revenue in the future.
Gross Profit and Gross Margin
Gross profit represents revenue less cost of revenue, and gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates, and has been and will continue to be affected by various factors, including the timing and amount of investments to maintain or expand our cloud hosting capability, the continued growth of our platform and customer support teams, increased compensation expenses, as well as amortization of costs associated with capitalized internal-use software and acquired intangible assets. We expect our gross profit to increase and our gross margin to remain consistent over the near term due to the continued growth in the use of our platform, but increase modestly over the long term with cost efficiencies related to our cloud hosting services, although our gross margins could fluctuate from period to period depending on the interplay between the factors described above.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel and related expenses are the most significant component of operating expenses and consist of salaries, employee benefit costs, payroll taxes, bonuses, sales commissions, travel-related expenses, and stock-based compensation expense, as well as the allocated portion of overhead costs for facilities and IT. Operating expenses also include cloud infrastructure fees and other services related to staging and development efforts for our platform.
Research and Development
Research and development expenses consist primarily of costs related to research, design, maintenance, and minor enhancements of our platform that are expensed as incurred. These costs consist primarily of personnel and related expenses, including allocated overhead costs, contractor and consulting fees related to the design, development, testing, and enhancement of our platform, and software, hardware, and cloud infrastructure fees for staging and development related to research and development activities necessary to support growth in our employee base and in the adoption of our platform. We expect that our research and development expenses will increase in dollar value as we continue to increase our investments in our platform. However, we anticipate research and development expenses will decrease as a percentage of our revenue over the long term, although they may fluctuate as a percentage of our revenue from period to period depending on the timing of expenses.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel and related expenses including allocated overhead costs and commissions, costs of general marketing and promotional activities, including free trials of our platform, fees for professional services related to marketing, and software and hardware to support growth in our employee base. Sales commissions earned by our sales force that are considered incremental costs of obtaining a subscription with a customer are deferred and amortized on a straight-line basis over the expected period of benefit, which we have determined to be five years. We expect that our sales and marketing expenses will increase in dollar value over the long term, though the dollar value of such expenses may fluctuate in the near term. We believe that sales and marketing expenses will continue to be our largest operating expense for the foreseeable future as we expand our sales and marketing efforts. We expect that our sales and marketing expenses will increase as a percentage of our revenue over the near term, but decrease over the long term, although they may fluctuate as a percentage of revenue from period to period depending on the timing of expenses.
45

General and Administrative
General and administrative expenses consist primarily of personnel and related expenses associated with our executive, finance, legal, human resources, information technology and security, and other administrative personnel. In addition, general and administrative expenses include non-personnel costs, such as fees for professional services such as external legal, accounting, and other consulting services, hardware and software costs, certain taxes other than income taxes, and overhead costs not allocated to other departments.
We have incurred and will continue to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the Nasdaq Global Select Market, and increased expenses for insurance, investor relations, and fees for professional services. We expect that our general and administrative expenses will increase in dollar value as our business grows. However, we expect that our general and administrative expenses will decrease as a percentage of our revenue as our revenue grows over the long term, although they may fluctuate as a percentage of revenue from period to period depending on the timing of expenses.
Interest and Other Income (Expense), Net
Interest and other income (expense), net primarily consists of interest earned from our cash, cash equivalents, and marketable securities, and foreign currency transaction gains (losses).
Interest Expense
Interest expense primarily consists of interest incurred in connection with our previous borrowings under our revolving line of credit facility.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.
Results of Operations
The following table sets forth our consolidated statements of operations data for the periods indicated:
Year Ended January 31,
20222021
(in thousands)
Revenue$242,125 $202,637 
Cost of revenue(1)(2)(4)
78,308 56,492 
Gross profit163,817 146,145 
Operating expenses:
Research and development(1)(4)
94,652 70,206 
Sales and marketing(1)(2)(3)(4)
131,311 109,190 
General and administrative(1)(4)
59,129 44,408 
Total operating expenses285,092 223,804 
Loss from operations(121,275)(77,659)
Interest and other income (expense), net10 (419)
Interest expense(174)(703)
Loss before provision for income taxes(121,439)(78,781)
Provision (benefit) for income taxes1,926 1,516 
Net loss$(123,365)$(80,297)
____________
(1)Includes stock-based compensation expense and related employer payroll taxes as follows:
46

Year Ended January 31,
20222021
(in thousands)
Cost of revenue$854 $510 
Research and development(a)
24,363 13,728 
Sales and marketing16,397 11,532 
General and administrative14,279 15,181 
Total stock-based compensation expense and related employer payroll taxes$55,893 $40,951 
(a)See Note 10 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for the capitalized stock-based compensation expense related to internal-use software development costs.
(2)Includes amortization of acquired intangible assets as follows:
Year Ended January 31,
20222021
(in thousands)
Cost of revenue$11,753 $6,759 
Sales and marketing383 — 
Total amortization of acquired intangible assets$12,136 $6,759 
(3)We recorded sales and marketing expenses for additional compensation and other costs related to the employment status of certain current and former employees of $1.5 million during the year ended January 31, 2021. As of January 31, 2021, we had recorded $4.5 million related to these claims, which were paid as part of a signed settlement agreement during the first quarter of fiscal 2022. For more information, see the section titled “Legal Proceedings.”
(4)Includes acquisition-related expenses as follows:
Year Ended January 31,
20222021
(in thousands)
Cost of revenue$230 $— 
Research and development777 — 
Sales and marketing278 — 
General and administrative3,756 — 
Total acquisition-related expenses$5,041 $— 
47

The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue:
Year Ended January 31,
20222021
Revenue100 %100 %
Cost of revenue32 28 
Gross profit68 %72 %
Operating expenses:
Research and development39 35 
Sales and marketing54 54 
General and administrative24 21 
Total operating expenses118 %110 %
Loss from operations(50)(38)
Interest and other income (expense), net— — 
Interest expense— (1)
Loss before provision for income taxes(50)(39)
Provision (benefit) for income taxes
Net loss(51)%(40)%
____________
Note: Certain figures may not sum due to rounding.
Comparison of Fiscal 2022 and Fiscal 2021
Revenue
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
Revenue$242,125 $202,637 $39,488 19 %
Revenue increased by $39.5 million, or 19%, for fiscal 2022 compared to fiscal 2021 primarily due to customer growth from both existing and new customers. Approximately 90% of the increase in revenue was attributable to growth from existing customers, and the remaining approximately 10% was attributable to new customers. In particular, the number of customers with greater than $100,000 of ARR increased to 456 as of January 31, 2022 from 358 as of January 31, 2021.
Cost of Revenue, Gross Profit, and Gross Margin
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
Cost of revenue$78,308 $56,492 $21,816 39 %
Gross profit163,817 146,145 17,672 12 %
Gross margin68 %72 %
Cost of revenue increased by $21.8 million, or 39%, for fiscal 2022 compared to fiscal 2021. The increase in cost of revenue was primarily due to a $16.8 million increase in third-party hosting fees and personnel costs related to providing access to and supporting our platform and an increase in amortization of acquired developed technology of $5.0 million as a result of our acquisitions of Sensu and DFLabs in the second quarter of fiscal 2022. Gross profit increased $17.7 million while gross margin decreased 4% primarily as a result of increased third-party hosting fees and increased amortization of acquired developed technology.
48

Research and Development
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
Research and development$94,652 $70,206 $24,446 35 %
Percentage of revenue39 %35 %
Research and development expenses increased by $24.4 million, or 35%, for fiscal 2022 compared to fiscal 2021. The increase in research and development expenses was primarily driven by a $24.3 million increase in personnel and related expenses directly associated with an increase in average cost per head and as well as an increase in average headcount, as we continued to hire and increase resources to develop and expand the functionality of our software offerings, of which $10.6 million was related to stock-based compensation expense and related employer payroll taxes. This increase in personnel and related costs also included a $1.0 million decrease in capitalized internal-use software.
Sales and Marketing
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
Sales and marketing$131,311 $109,190 $22,121 20 %
Percentage of revenue54 %54 %
Sales and marketing expenses increased by $22.1 million, or 20%, for fiscal 2022 compared to fiscal 2021. The increase in sales and marketing expenses was primarily driven by a $19.0 million increase in personnel and related expenses due to higher average headcount as we continue to investment in our go-to-market coverage, capacity, and expansions into new markets, of which $4.9 million was related to stock-based compensation expense and related employer payroll taxes. This increase in personnel and related costs was partially offset by a $1.5 million non-recurring expense related to compensation and other costs related to the employment status of certain current and former employees recorded during the first quarter of fiscal 2021. In addition, we had a $3.2 million increase in recruiting fees and third-party public relations and marketing services and a $1.1 million increase in software and cloud hosting fees for our customer free trials and customer proofs of value.
General and Administrative
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
General and administrative$59,129 $44,408 $14,721 33 %
Percentage of revenue24 %21 %
General and administrative expenses increased by $14.7 million, or 33%, for fiscal 2022 compared to fiscal 2021. The increase in general and administrative expenses was primarily driven by a $7.1 million increase in professional services, of which $3.8 million related to the acquisition-related expenses for our acquisitions of Sensu and DFLabs, a $4.0 million increase in insurance related costs, and a $3.3 million increase in personnel and related expenses associated with an increase in average headcount.
Interest and Other Income (Expense), Net
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
Interest and other income (expense), net$10 $(419)$429 (102)%
Interest and other income (expense), net increased by $0.4 million, or 102%, for fiscal 2022 compared to fiscal 2021. The increase in interest and other income (expense), net was primarily driven by an increase in interest income.
49

Interest Expense
Year Ended January 31,
20222021Change% Change
(dollars in thousands)
Interest expense$(174)$(703)$529 (75)%
Interest expense decreased by $0.5 million for fiscal 2022 compared to fiscal 2021. The decrease in interest expense was primarily driven by interest incurred on borrowings under our revolving line of credit facility in fiscal 2021.
Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP and the key business metrics presented above, we believe the following non-GAAP financial measures are useful to investors in evaluating our operating performance. We use the following non-GAAP financial measures, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. We believe that non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, may be helpful to investors because they provide consistency and comparability with past financial performance and meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. The non-GAAP financial measures are presented for supplemental informational purposes only, have limitations as analytical tools, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP and may be different from similarly-titled non-GAAP financial measures used by other companies. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, excluding stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related expenses.
Year Ended January 31,
20222021
(dollars in thousands)
Gross profit$163,817 $146,145 
Add: Stock-based compensation expense and related employer payroll taxes854 510 
Add: Amortization of acquired intangible assets11,753 6,759 
Add: Acquisition-related expenses230 — 
Non-GAAP gross profit$176,654 $153,414 
Gross margin68 %72 %
Non-GAAP gross margin73 %76 %
50

Non-GAAP Operating Loss and Non-GAAP Operating Margin
We define non-GAAP operating loss and non-GAAP operating margin as loss from operations and operating margin, respectively, excluding stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related expenses.
Year Ended January 31,
20222021
(dollars in thousands)
Loss from operations$(121,275)$(77,659)
Add: Stock-based compensation expense and related employer payroll taxes55,893 40,951 
Add: Amortization of acquired intangible assets12,136 6,759 
Add: Acquisition-related expenses5,041 — 
Non-GAAP operating loss$(48,205)$(29,949)
Operating margin(50)%(38)%
Non-GAAP operating margin(20)%(15)%
Non-GAAP Net Loss
We define non-GAAP net loss as loss from operations, excluding stock-based compensation expense and related employer payroll taxes, amortization of acquired intangible assets, and acquisition-related expenses.
Year Ended January 31,
20222021
(dollars in thousands)
Net loss$(123,365)$(80,297)
Add: Stock-based compensation expense and related employer payroll taxes55,893 40,951 
Add: Amortization of acquired intangible assets12,136 6,759 
Add: Acquisition-related expenses5,041 — 
Non-GAAP net loss$(50,295)$(32,587)
Free Cash Flow
We define free cash flow as cash used in operating activities less purchases of property and equipment and capitalized internal-use software costs. We believe free cash flow is a useful indicator of liquidity that provides our management, board of directors, and investors with information about our future ability to generate or use cash to enhance the strength of our balance sheet and further invest in our business and pursue potential strategic initiatives.
Year Ended January 31,
20222021
(dollars in thousands)
Cash used in operating activities$(30,491)$(47,179)
Less: Purchases of property and equipment(2,258)(1,138)
Less: Capitalized internal-use software(182)(1,205)
Free cash flow$(32,931)$(49,522)
Cash used in investing activities$(323,265)$(2,343)
Cash provided by financing activities$30,210 $351,986 
51

Liquidity and Capital Resources
Since inception, we have financed our operations primarily through subscription revenue from customers accessing our cloud-native platform and the net proceeds of issuances of equity securities. We have incurred losses and generated negative cash flows from operations, as reflected in our accumulated deficit of $521.2 million as of January 31, 2022. In the third quarter of fiscal 2021 we completed our IPO and received net proceeds of $342.7 million, after deducting underwriters’ discounts and commissions and offering costs of $31.8 million, including the exercise of the underwriters’ option to purchase additional shares. As of January 31, 2022, we had $80.0 million in cash and cash equivalents and $276.5 million in marketable securities.
We believe our existing cash and cash equivalents, marketable securities, and cash provided by sales of access to our platform will be sufficient to meet our projected operating requirements for at least the next 12 months, despite the uncertainty in the changing market and economic conditions as a result of the COVID-19 pandemic, which may have an impact on our available cash due to customer requests for extended payment terms or better pricing. As a result of our revenue growth plans, both domestically and internationally, we expect that losses and negative cash flows from operations may continue in the foreseeable future. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewals, billing timing and frequency, pricing changes, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced platform features and functionality, the continued market adoption of our platform, and the impact of the COVID-19 pandemic on our business and results of operations, the business of our customers, and the economy. We may in the future pursue acquisitions of businesses, technologies, assets, and talent.
In February 2021, we entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank, or the SVB Agreement, which provides for a revolving line of credit. The SVB Agreement amends and restates the Loan and Security Agreement dated as of January 31, 2016. Under the SVB Agreement, we can borrow up to $50 million. Interest on any drawdown accrues at the prime rate minus a spread rate ranging from 0.25% to 0.75%, as determined by our adjusted quick ratio, subject to either a 3.00% or 2.50% floor depending on the adjusted quick ratio. The SVB agreement is secured by substantially all of our assets and includes restrictive covenants, in each case subject to certain exceptions, that limit our ability to, among other things: incur debt, grant liens, make acquisitions, undergo a change in control, make investments, make certain dividends or distributions, repurchase or redeem stock, dispose of or transfer assets, and enter into transactions with affiliates. Pursuant to the SVB Agreement, we are also required to maintain a minimum adjusted quick ratio of 1.25 to 1.00. The SVB Agreement also contains customary events of default, upon which Silicon Valley Bank may declare all or a portion of our outstanding obligations payable to be immediately due and payable. As of January 31, 2022, we did not have any debt outstanding.
We typically invoice our subscription customers annually in advance, and in certain cases, we invoice upfront for multi-year contracts. Therefore, a substantial source of our cash is from such prepayments, which are included on our consolidated balance sheets as deferred revenue. Deferred revenue consists of billed fees for our subscriptions and to a lesser extent, premium support services, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of January 31, 2022, future estimated revenue related to performance obligations from non-cancelable contracts that were unsatisfied or partially unsatisfied was $328.3 million, of which we expect to recognize approximately 89% as revenue over the next 24 months, with the remaining balance recognized thereafter. As of January 31, 2022, we had deferred revenue of $137.3 million, of which $131.3 million was recorded as a current liability and is expected to be recognized as revenue within the next 12 months, subject to applicable revenue recognition criteria.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:
Year Ended January 31,
20222021
(in thousands)
Net cash provided by (used in):
Operating activities
$(30,491)$(47,179)
Investing activities
(323,265)(2,343)
Financing activities
30,210 351,986 
Operating Activities
Our largest source of operating cash is cash collections from sales of subscriptions to our customers. Our primary uses of cash from operating activities are for personnel and related expenses, marketing expenses, and third-party hosting and software costs. In the
52

last several years, we have generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from equity financings up to fiscal 2021.
Cash used in operating activities for fiscal 2022 of $30.5 million consisted of our net loss of $123.4 million, adjusted for non-cash charges of $91.9 million and net cash inflows of $1.0 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $54.1 million, amortization of deferred sales commissions of $15.8 million, and depreciation and amortization of $14.2 million. Net cash inflows from changes in our operating assets and liabilities were primarily the result of a $29.5 million increase in deferred revenue resulting from increased billings for subscriptions, and a $4.4 million increase in accounts payable and accrued expenses due to timing of payments to vendors. Net cash inflows were partially offset by cash outflows resulting from a $25.0 million increase in deferred sales commissions due to commissions paid on new bookings, a $4.5 million decrease in lease liabilities due to monthly rental payments for our operating leases, and a $4.2 million increase in accounts receivable due to new billings being greater than collections during the period.
Cash used in operating activities for fiscal 2021 of $47.2 million consisted of our net loss of $80.3 million, adjusted for non-cash charges of $61.4 million and net cash outflows of $28.2 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation of $41.0 million, amortization of deferred sales commissions of $11.5 million, and depreciation and amortization of $8.3 million. Changes in operating assets and liabilities primarily reflected a $25.8 million increase in deferred sales commissions due to commissions paid on new bookings, a $17.8 million increase in accounts receivable due to new billings outpacing collections during the period and a $6.8 million increase in prepaid expenses and other assets related to the timing of payments to vendors and amortization of prior amounts paid. These amounts were partially offset by a $18.0 million increase in deferred revenue resulting from increased billings for subscriptions, a $2.8 million increase in accounts payable and accrued expenses due to timing of payments to vendors, and a $1.3 million increase in other liabilities for payroll taxes, which were deferred under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.
Investing Activities
Cash used in investing activities for fiscal 2022 of $323.3 million consisted of purchases of marketable securities of $424.7 million, cash paid for acquisitions, net of cash and restricted cash acquired of $40.3 million, and $2.3 million in purchases of property and equipment primarily related to leasehold improvements and purchases of furniture for our expanded office space and computers for new employees, partially offset by $144.2 million of maturities and sales of marketable securities.
Cash used in investing activities for fiscal 2021 of $2.3 million consisted of $1.2 million of capitalized internal-use software costs and $1.1 million in purchases of property and equipment related to leasehold improvements and purchases of furniture for our expanded office space and computers for new employees.
Financing Activities
Cash provided by financing activities for fiscal 2022 of $30.2 million primarily consisted of proceeds from common stock option exercises of $22.3 million and proceeds from employee stock purchase plan of $8.0 million.
Cash provided by financing activities for fiscal 2021 of $352.0 million primarily consisted of proceeds from the completion of our IPO of $349.2 million, net of underwriting discounts, and proceeds from common stock option exercises of $7.3 million, partially offset by $4.4 million in payments of deferred offering costs associated with our IPO. We also borrowed and repaid the outstanding balance under the SVB Agreement.
Contractual Obligations and Commitments
The Company enters into contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum, or variable price provisions, and the approximate timing of the actions under the contracts. The Company’s material contractual obligations include the following:
In July 2020, the Company entered into an amended hosting agreement effective August 2020. Under the amended agreement, the Company has committed to spend $220.0 million between August 2020 and January 2024 for its hosting agreement ($90.0 million between August 2020 and January 2022, $60.0 million between February 2022 and January 2023, and $70.0 million between February 2023 and January 2024).
The Company has lease arrangements associated with its corporate facilities. Refer to Note 6 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
53

As of January 31, 2022, our unrecognized tax benefits were $5.6 million, of which $0.2 million are classified as other liabilities and $5.4 million are netted against deferred tax assets. At this time, we are unable to make a reasonably reliable estimate of the timing of payments, if any, in individual years due to uncertainties in the timing or outcomes of either actual or anticipated tax audits. Refer to Note 12 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
Critical Accounting Policies and Estimates
We prepared our consolidated financial statements and the related notes thereto, included elsewhere in this Annual Report on Form 10-K, in accordance with GAAP. In preparation of these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the financial statements, and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements and may involve subjective or significant judgment by management; therefore, actual results could differ from the estimates made by management. We refer to accounting estimates of this type as critical accounting policies and estimates, which are disclosed below.
Revenue Recognition
We recognize revenue from contracts with customers using the five-step method described in Note 2 in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We generate revenue through the sale of subscriptions to customers that enable them to access our cloud-native platform. Our subscription arrangements with customers do not provide the customer with the right to take possession of our cloud-native platform at any time and as a result are accounted for as service arrangements. Revenue is recognized when control of these services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Subscription terms are generally one to two years, but can be three years or longer, and the substantial majority of our contracts are non-cancelable. Revenue is recognized ratably over the subscription generally beginning on the date that our platform is made available to a customer. We typically bill for subscriptions annually in advance for subscriptions with terms of one year or more.
We allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on a range of actual prices charged to customers. In general, we satisfy the majority of our performance obligations over time as we transfer the promised services to our customers. We review the contract terms and conditions to evaluate the timing and amount of revenue recognition, the related contract balances, and our remaining performance obligations. These evaluations require judgment that could affect the timing and amount of revenue recognized.
Deferred Sales Commissions
Deferred contract costs include sales commissions which are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit, determined to be five years. The period of benefit is estimated by considering factors such as the expected life of our subscription contracts, historical customer attrition rates, technological life of our platform, the impact of competition in our industry, as well as other factors. Amounts anticipated to be recognized within 12 months of the balance sheet date are recorded as deferred sales commissions, current, with the remaining portion recorded as deferred sales commissions, noncurrent, on the consolidated balance sheets. Amortization of deferred contract costs is recorded as sales and marketing expense in the consolidated statements of operations included elsewhere in this Annual Report on Form 10-K.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based payment awards granted to employees, directors, and non-employees based on the estimated fair values on the date of the grant.
The fair value of options granted and purchase rights granted under the Employee Stock Purchase Plan, or ESPP, is estimated on the grant date using the Black-Scholes option pricing model. The fair value of restricted stock units, or RSUs, is estimated on the date of grant based on the fair value of our underlying common stock. Prior to our IPO, the fair value of our common stock for financial reporting purposes was determined considering objective and subjective factors, including valuations from third-party valuation experts, and required judgment to determine the fair value of common stock for financial reporting purposes as of the date of each equity grant or modification.
54

These assumptions are estimated as follows:
Fair Value. Prior to our IPO, the fair value of common stock underlying the stock options had historically been determined by our Board of Directors, with input from our management. Our Board of Directors previously determined the fair value of the common stock at the time of grant by considering a number of objective and subjective factors. Subsequent to our IPO, the fair value of the underlying common stock is determined by the closing price, on the date of grant, of our common stock, as reported by the Nasdaq.
Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term assumptions were based on the vesting terms, exercise terms, and contractual lives of these awards. For non-employee awards, the expected term would equal the contractual term.
Volatility. Since we do not have a trading history of our common stock, the expected volatility is based on a calculation using the historical stock information of companies deemed comparable to us, over a period equal to the expected term. We intend to apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be used in the calculation.
Risk-Free Rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant corresponding to the expected life of the award.
Dividend Yield. We have not and do not expect to pay cash dividends on our common stock.
We recognize stock-based compensation expense for service-based stock-based awards and our ESPP purchase rights on a straight-line basis over the service period, net of actual forfeitures. We also have certain options and RSUs that have performance-based vesting conditions; stock-based compensation expense for such awards is recognized using an accelerated attribution method from the time the vesting condition is probable through the time the vesting condition has been achieved.
Prior to our IPO, we recognized stock-based compensation expense for RSUs on an accelerated attribution method as the RSUs were subject to service-based and performance-based vesting conditions, which included a liquidity event condition, and in certain cases, the achievement of certain other performance metrics. None of the RSUs would vest unless the liquidity event condition was satisfied. Upon the completion of the IPO, the liquidity event condition was considered probable and we recognized cumulative stock-based compensation expense using the accelerated attribution method related to RSUs that had vested as of the IPO. The remaining unrecognized stock-based compensation expense related to the RSUs will be recognized over the remaining requisite service period. All service-based RSUs granted after after the IPO, under the 2020 stock plan, will not be subject to a liquidity event condition and will be recognized on a straight-line basis over the service period.
We adopted ASU No. 2018-07 effective February 1, 2020, which aligns the accounting for employee and non-employee awards except for inputs to the option pricing model and the attribution of cost. Assumptions used in valuing non-employee stock options are generally consistent with those used for employee stock options with the exception that the expected term is over the contractual life, or 10 years for non-employee stock options. The adoption of this standard did not have a material impact on our consolidated financial statements. As of February 1, 2020, the awards issued to non-employees are no longer subject to periodic adjustments as such awards vest at the end of each reporting period.
We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.
Business Combinations
We allocate the fair value of purchase consideration to the tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, reproduction costs, expected long-term market growth, future expected operating expenses, cost build-up to support obligations, and appropriate discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which may be up to one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations.
55

Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, for more information about the impact of certain recent accounting pronouncements on our consolidated financial statements.
JOBS Act Accounting Election
On the last business day of our second quarter in fiscal 2022, the aggregate market value of our shares held by non-affiliate stockholders exceeded $700 million. As a result, as of January 31, 2022, we are considered a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we ceased to be an emerging growth company as defined in the JOBS Act.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
As of January 31, 2022, we had $70.7 million of cash equivalents invested in money market funds and $0.3 million was restricted cash primarily related to outstanding letters of credit established in connection with lease agreements for our facilities. In addition, we had $276.5 million in marketable securities, which consisted of U.S. Treasury securities, corporate debt securities, commercial paper, foreign government obligations, supranational securities, and certificates of deposits. Our cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes.
A hypothetical 10% relative change in interest rates during any of the periods presented would not have had a material impact on our results of operations.
Foreign Currency Exchange Risk
Our reporting currency is the U.S. dollar, and the functional currency of our foreign subsidiaries is the respective local currency. The assets and liabilities of each of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component on the consolidated statements of comprehensive loss. Equity transactions are translated using historical exchange rates. Expenses are translated using the average exchange rate during the year. Gains or losses due to transactions in foreign currencies are included in interest and other income (expense), net in our consolidated statements of operations.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in foreign exchange gains and losses related to changes in foreign currency exchange rates. In the event our foreign currency denominated assets, liabilities, revenue, or expenses increase, our results of operations may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.
A hypothetical 10% change in the relative value of the U.S. dollar to other currencies during any of the periods presented would not have had a material effect on our results of operations.
56


Item 8. Financial Statements and Supplementary Data
Sumo Logic, Inc.
Index to Consolidated Financial Statements
57

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Sumo Logic, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Sumo Logic, Inc. and its subsidiaries (the “Company”) as of January 31, 2022 and 2021, and the related consolidated statements of operations, of comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended January 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2022.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

58

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As described in Note 2 to the consolidated financial statements, the Company generates revenue from subscriptions to customers that enable them to access the Company’s cloud-based platform. Revenue is recognized at the time the related performance obligation is satisfied by transferring the control of the promised service to a customer. Subscription arrangements with customers do not provide the customer with the right to take possession of the Company’s software at any time. Instead, customers are granted continuous access to the platform over the contractual period. A time-elapsed method is used to measure progress as control is transferred evenly over the contractual period. Accordingly, the fixed consideration related to subscription fees is generally recognized on a straight-line basis over the contract term, commencing on the date the service is made available to the customer and all other revenue recognition criteria have been met. The Company recorded total revenue of $242 million for the year ended January 31, 2022.
The principal considerations for our determination that performing procedures relating to revenue recognition is a critical audit matter are the high degree of auditor effort in performing procedures and evaluating audit evidence related to the Company’s revenue recognition.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process. These procedures also included, among others, evaluating the recognition of revenue on a test basis by obtaining and inspecting customer contracts, testing whether access to the Company’s platform had been provided to the customer, recalculating revenue recognized, and where applicable, vouching to cash receipts from customers.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 14, 2022

We have served as the Company's auditor since 2015.
59

Sumo Logic, Inc.
Consolidated Balance Sheets
(in thousands, except for per share data)
January 31,
2022
January 31,
2021
Assets
Current assets:
Cash and cash equivalents$79,986 $404,140 
Marketable securities, current210,645  
Accounts receivable, net49,451 44,761 
Prepaid expenses9,792 10,509 
Deferred sales commissions, current17,110 12,790 
Other current assets2,865 3,110 
Total current assets369,849 475,310 
Marketable securities, noncurrent65,866  
Property and equipment, net4,960 4,156 
Operating lease right-of-use assets6,110 — 
Goodwill94,967 50,672 
Acquired intangible assets, net26,221 10,656 
Deferred sales commissions, noncurrent32,689 27,857 
Other assets1,469 1,856 
Total assets$602,131 $570,507 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$7,755 $4,832 
Accrued expenses and other current liabilities25,425 23,316 
Operating lease liabilities, current4,619 — 
Deferred revenue, current131,329 102,625 
Total current liabilities169,128 130,773 
Operating lease liabilities, noncurrent2,346 — 
Deferred revenue, noncurrent5,944 4,076 
Other liabilities5,744 4,246 
Total liabilities183,162 139,095 
Commitments and contingencies (Note 8)
Stockholders’ equity:
 Common stock $0.0001 par value— 1,000,000 shares authorized as of January 31, 2022 and 2021; 113,813 and 102,484 shares issued and outstanding as of January 31, 2022 and 2021, respectively
11 10 
Additional paid-in-capital944,447 829,238 
Accumulated other comprehensive loss(4,333)(45)
Accumulated deficit(521,156)(397,791)
Total stockholders’ equity418,969 431,412 
Total liabilities and stockholders’ equity$602,131 $570,507 
See Notes to Consolidated Financial Statements
60

Sumo Logic, Inc.
Consolidated Statements of Operations
(in thousands, except for per share data)

Year Ended January 31,
202220212020
Revenue$242,125 $202,637 $155,056 
Cost of revenue78,308 56,492 44,498 
Gross profit163,817 146,145 110,558 
Operating expenses:
Research and development94,652 70,206 52,462 
Sales and marketing131,311 109,190 107,239 
General and administrative59,129 44,408 37,263 
Impairment of capitalized internal-use software  6,689 
Total operating expenses285,092 223,804 203,653 
Loss from operations(121,275)(77,659)(93,095)
Interest and other income (expense), net10 (419)1,982 
Interest expense(174)(703)(123)
Loss before provision for income taxes(121,439)(78,781)(91,236)
Provision (benefit) for income taxes1,926 1,516 901 
Net loss$(123,365)$(80,297)$(92,137)
Net loss per share, basic and diluted$(1.13)$(1.65)$(6.18)
Weighted-average shares used to compute net loss per share, basic and diluted108,695 48,805 14,907 
See Notes to Consolidated Financial Statements
61

Sumo Logic, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)

Year Ended January 31,
202220212020
Net loss$(123,365)$(80,297)$(92,137)
Other comprehensive (loss) income:
Foreign currency translation adjustments(3,402)168 (116)
Unrealized (loss) gain on available-for-sale marketable securities(886)  
Total comprehensive loss$(127,653)$(80,129)$(92,253)
See Notes to Consolidated Financial Statements
62

Sumo Logic, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands)