Joint Venture and Equity Method Investment

12 Months Ended

Jan. 31, 2024

Joint Venture and Equity Method Investment

12. Joint Venture and Equity Method Investment

Joint Venture

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. The Company accounted for JiHu as a variable interest entity and consolidated the entity in accordance with ASC Topic 810, Consolidation.

During fiscal year 2023, JiHu closed its Series A-1 through A-3 rounds of common stock financings where investors contributed a total of $54.6 million, net of issuance costs. In March 2022, one of the potential investors who could not participate in the Series A-1 financing round provided a $2.9 million loan to JiHu as an advance pending a capital contribution. The loan was repayable within ten business days of receipt of capital contribution from the investor. JiHu received an equity contribution from this investor during the Series A-2 round and repaid the loan in full in July 2022.

Subsequent to the closing of the financing rounds during fiscal year 2023, the Company retained control over JiHu with its equity stake reduced from 72% to 55%. As of January 31, 2024, the Company still retains control over JiHu with its equity stake at approximately 54%.

In April 2022, the board of directors of JiHu approved an employee stock option plan (“JiHu ESOP”) for its employees. As a result of forfeitures triggered by the departure of certain executives during the year ended January 31, 2024, the Company reversed stock-based compensation previously recorded for such executives. The Company recorded a $1.5 million gain and $7.8 million loss for the years ended January 31, 2024 and 2023, respectively.

As of January 31, 2024, approximately $3.6 million of total unrecognized compensation cost was related to the JiHu ESOP that is expected to be recognized over 3.9 years. The Company considers the RSAs and stock option awards granted pursuant to the JiHu ESOP as potentially dilutive equity instruments that will result in dilution of the Company’s stake in JiHu upon vesting of such award (or, in the case of option awards granted pursuant to the JiHu ESOP, upon vesting and subsequent exercise into shares of JiHu common stock). Any such dilution will be accounted for as an equity transaction. Until such awards granted pursuant to the JiHu ESOP are vested (or, in the case of option awards, vested and ultimately exercised into shares of JiHu common stock), the Company will continue to record the recognized stock-compensation expense of JiHu as part of the noncontrolling interest.

Operating Leases

The Company recognized $0.6 million, $0.6 million and $0.2 million of operating lease expense during the years ended January 31, 2024, 2023 and 2022, respectively. JiHu has non-cancelable operating leases maturing during the year ended January 31, 2025 with total lease payments of $0.4 million and total present value of lease liabilities of $0.4 million. Lease expense for the one short-term lease was immaterial during the years ended January 31, 2024, 2023 and 2022.

The table below presents supplemental information related to operating leases for the years ended January 31, 2024 (in thousands, except weighted-average information):



Weighted-average remaining lease term (in years)	0.56
Weighted-average discount rate	3.7		%

Cash paid for amounts included in the measurement of lease liabilities	$	694

Selected Financial Information

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


	Fiscal Year Ended January 31,
		2024		2023		2022

Revenue		$	6,451	$	4,743	$	1,237
Cost of revenue		2,414		1,731		945
Gross profit		4,037		3,012		292
Operating expenses:
Sales and marketing		7,369		7,670		3,200
Research and development		5,338		6,818		2,299
General and administrative		1,864		10,515		3,589
Total operating expenses		14,571		25,003		9,088
Loss from operations		(10,534)		(21,991)		(8,796)
Interest income		1,078		659		—
Other income, net		858		1,633		67
Net loss before income taxes		(8,598)		(19,699)		(8,729)
Benefit from income taxes		(16)		—		—
Net loss		$	(8,614)	$	(19,699)	$	(8,729)

Net loss attributable to noncontrolling interest		$	(3,859)	$	(8,385)	$	(2,422)


	January 31, 2024		January 31, 2023

Cash and cash equivalents	$	43,896	$	56,744
Property and equipment, net	489		1,135
Operating lease right-of-use assets	405		998
Other assets	2,835		3,950
Total assets	$	47,625	$	62,827

Total liabilities	$	6,080	$	8,871

Equity Method Investment

In April 2021, the Company reorganized Meltano Inc. (“Meltano”), now operating as Arch Data, Inc. (“Arch”), which started as an internal project within the Company in July 2018, into a separate legal entity. The entity was funded by the Company’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.

On April 4, 2022, Arch closed its Series Seed-2 round of preferred stock financing and raised $7.2 million. Pursuant to this transaction, the board composition of Arch changed and the Company no longer has the power to appoint the majority of the board of directors of Arch. Consequently, despite having majority voting rights at the stockholder level, the Company no longer has control over Arch.

The loss of control of a majority owned subsidiary resulted in the deconsolidation of net assets of $9.4 million and non-controlling interest of Arch of $11.3 million, recognition of retained interest at fair value of $15.9 million, and a gain of $17.8 million recorded in other income (expense), net in April 2022. The fair value of retained interest was determined using the Option Pricing Model (“OPM”) Backsolve approach based on the most recent funding round of preferred stock. As of the date of the loss of control, the basis difference between the fair value of investment in Arch and the Company’s share in the net assets of Arch was attributed to equity method goodwill. Effective April 4, 2022, the Company accounts for this investment under the equity method.

The Company reviews for impairment whenever factors indicate that the carrying value of the equity method investment may not be recoverable. In Accordance with ASC 820, Fair Value Measurement, the Company calculated that the estimated undiscounted cash flows related to its equity method investment were less than the carrying amount of the equity method investment. As a result, the Company recorded an impairment charge of $8.9 million in other income (expense), net in the consolidated statement of operations during the year ended January 31, 2024 which reduced the investment value to zero as of January 31, 2024.

During the years ended January 31, 2024 and 2023, the Company recorded a loss from equity method investment of $3.8 million and $2.5 million, net of tax on the consolidated statements of operations, respectively.