Joint Venture and Majority Owned Subsidiary

12 Months Ended

Jan. 31, 2022

Joint Venture and Majority Owned Subsidiary

10. Joint Venture and Majority Owned Subsidiary

In February 2021, the Company along with Sequoia CBC Junyuan (Hubei) Equity Investment Partnership (Limited Partnership) and Suzhou Gaocheng Xinjian Equity Investment Fund Partnership (Limited Partnership) executed an investment agreement (the “Investment Agreement”) to establish GitLab Information Technology (Hubei) Co., LTD (“JiHu”), a legal entity in the People’s Republic of China. This new company offers a dedicated distribution of GitLab’s DevOps platform available as both a self-managed and SaaS offering (GitLab.cn) that is available only in mainland China, Hong Kong and Macau. The Company contributed an intellectual property license in exchange for a 72.25% equity stake in JiHu and the other two unrelated investors contributed cash in exchange for the remaining equity stake, for a combined interest of $80 million. The term of the Investment Agreement is 50 years unless extended by mutual consent or terminated earlier upon certain specified events. While the Company has disproportionately few voting rights in JiHu pursuant to the Investment Agreement given its 72.25% equity interest, the Company has entered into a license agreement and a technical services agreement with JiHu which when evaluated on a collective basis enables the Company to direct the activities that most significantly affect the economic performance of JiHu. Further, the Company has the obligation to absorb losses and the right to receive benefits of JiHu that could potentially be significant to JiHu. Therefore, the Company accounted for JiHu as a variable interest entity and consolidated the entity in accordance with ASC Topic 810, Consolidation. The Company recorded the 27.75% ownership interest of remaining investors as a noncontrolling interest on its consolidated balance sheet. The assets of JiHu can be used only to settle obligations of JiHu and creditors of JiHu do not have recourse against the general credit of the Company. JiHu is primarily financed through equity and has no financial borrowings.

Selected financial information of JiHu, post inter-company eliminations, is as follows (in thousands):


	Fiscal Year Ended January 31,
	2022

Revenue	$	1,237
Cost of revenue	945
Gross profit	292
Operating expenses:
Sales and marketing	3,200
Research and development	2,299
General and administrative	3,589
Total operating expenses	9,088
Loss from operations	(8,796)
Other income, net	67
Net loss before income taxes	(8,729)

Net loss	$	(8,729)

Net loss attributable to noncontrolling interest	$	(2,422)


	January 31, 2022

Cash and cash equivalents	$	14,198
Property and equipment, net	769
Other assets	2,765
Total assets	$	17,732

Total liabilities	$	3,663

In April 2021, the Company reorganized Meltano Inc. (“Meltano”), which started as an internal project within GitLab in July 2018, into a separate legal entity. The entity was funded by GitLab's contribution of intellectual property with the fair value of approximately $0.4 million and a preferred stock financing from third parties of $4.2 million, representing 12% ownership on a fully diluted basis. Even after the preferred stock financing, the Company is the largest shareholder with majority voting rights. Meltano is considered a majority owned subsidiary of the Company and consolidated in accordance with ASC Topic 810, Consolidation. The Company recorded the preferred stock funding and unvested stock options as noncontrolling interest on its consolidated balance sheet.