# Samsara Inc.: Form 10-Q for the period ended Oct 28, 2023

- Company: [Samsara Inc.](/companies/iot.md) (CIK 1642896)
- Form: 10-Q
- Filed: 2023-12-05
- Accepted by EDGAR: Dec 5, 2023, 16:11 ET
- Period: 2023-10-28
- Accession: 0001642896-23-000087
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1642896/000164289623000087/iot-20231028.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1642896/000164289623000087/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-10-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-30 to 2023-10-28 | $237.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-29 to 2023-10-28 | $661.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-30 to 2023-10-28 | $61.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-29 to 2023-10-28 | $178.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-30 to 2023-10-28 | $175.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-29 to 2023-10-28 | $483.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-30 to 2023-10-28 | $60.8m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-29 to 2023-10-28 | $185.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-30 to 2023-10-28 | −$54.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-29 to 2023-10-28 | −$200.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-30 to 2023-10-28 | $142.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-29 to 2023-10-28 | $1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-30 to 2023-10-28 | −$45.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-29 to 2023-10-28 | −$173.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-30 to 2023-10-28 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-29 to 2023-10-28 | −$0.33 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-30 to 2023-10-28 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-29 to 2023-10-28 | −$0.33 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-30 to 2023-10-28 | 537,464,892 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-29 to 2023-10-28 | 531,873,324 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-29 to 2023-10-28 | $30.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-29 to 2023-10-28 | $8.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-10-28 | $208.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-10-28 | $940.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-10-28 | $1.69bn | us-gaap:Assets |
| Current liabilities | at 2023-10-28 | $506.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-10-28 | $735.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-10-28 | $950.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 46,511 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) our audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended January 28, 2023 included in our Annual Report on Form 10-K filed with the SEC on March 21, 2023, and (2) our unaudited condensed consolidated financial statements and the related notes and other financial information included under Part I, Item 1 of this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis, 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. Our fiscal year ends on the Saturday closest to February 1, resulting in a 52-week or 53-week fiscal year. Our two most recent fiscal years ended on January 28, 2023 and January 29, 2022, and each consisted of 52 weeks. Our fiscal year ending on February 3, 2024 is a 53-week fiscal year, with the fourth quarter consisting of 14 weeks.*

### Overview

Samsara is on a mission to increase the safety, efficiency, and sustainability of the operations that power the global economy.

To realize this vision, we pioneered the Connected Operations Cloud, which is a system of record that enables businesses that depend on physical operations to harness IoT data to develop actionable business insights and improve their operations.

Our Connected Operations Cloud consolidates data from our IoT devices and a growing ecosystem of connected assets and third-party systems, and makes it easy for organizations to access, analyze, and act on data insights, using our cloud dashboard, custom alerts and reports, mobile apps, and workflows. Our differentiated, purpose-built suite of solutions enables organizations to embrace and deploy a digital, cloud-connected strategy across their operations. With Samsara, customers have the ability to drive safer operations, increase business efficiency, and achieve their sustainability goals, all to improve the lives of their employees and the customers they serve.

We were founded in 2015 and have achieved significant growth since our inception. For our three months ended October 28, 2023 and October 29, 2022, our revenue was $237.5 million and $169.8 million, respectively, representing year-over-year growth of 40%. Our net loss was $45.5 million and $58.6 million for the three months ended October 28, 2023 and October 29, 2022, respectively. For our nine months ended October 28, 2023 and October 29, 2022, our revenue was $661.1 million and $466.0 million, respectively, representing year-over-year growth of 42%. Our net loss was $173.4 million and $193.8 million for the nine months ended October 28, 2023 and October 29, 2022, respectively. Our business model focuses on maximizing the lifetime value of our customer relationships, and we continue to make significant investments to grow our customer base.

### Key Business Metrics

The following table shows a summary of our key business metrics as of the periods presented (dollars in thousands):

|  | As of October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Annual recurring revenue (“ARR”) | $1,002,729 | $723,667 |
| Customers \> $100,000 ARR | 1,663 | 1,113 |

23

### ARR

We believe that ARR is a key indicator of the trajectory of our business performance, enables measurement of the progress of our business initiatives, and serves as an indicator of future growth. We define ARR as the annualized value of subscription contracts that have commenced revenue recognition as of the measurement date. ARR highlights trends that may be less visible from our financial statements due to ratable revenue recognition. ARR does not have a standardized meaning and is not necessarily comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and is not intended to be combined with or replace it. ARR is not a forecast, and the active contracts at the date used in calculating ARR may or may not be extended or renewed.

### Number of Customers Over $100,000 in ARR

We focus on customers representing over $100,000 in ARR, as this key business metric is indicative of our penetration with larger customers. The number of our customers over $100,000 in ARR has grown over time as we have focused our sales efforts on larger customers, invested in our partner ecosystem, and released more Applications to address the needs of our larger customers.

### Factors Affecting Our Performance

### Acquiring New Customers

We believe that we have a substantial opportunity to continue to grow our customer base. We intend to drive new customer acquisition by continuing to invest significantly in sales and marketing to engage our prospective customers, increase brand awareness, and drive adoption of our Connected Operations Cloud. Our ability to attract new customers depends on a number of factors, including the effectiveness of our sales and marketing efforts, macroeconomic factors and their impact on our customers’ businesses, and the success of our efforts to expand internationally.

### Expanding Within Our Existing Customer Base

We believe that there is a significant opportunity to expand sales to existing customers following their initial adoption of our Connected Operations Cloud. We expand within our customer base by selling more Applications and expanding existing Applications across geographies and divisions. Our ability to expand within our customer base will depend on a number of factors, including our customers’ satisfaction, pricing, competition, macroeconomic factors, and changes in our customers’ spending levels.

### Investments in Innovation and Future Growth

Our performance is driven by continuous innovation on our Connected Operations Cloud and our ability to scale our headcount to grow our business. We continuously invest in adding new data types to our Connected Operations Cloud and innovate with this growing data asset to introduce new Applications over time. Our performance is also impacted by our ability to scale our headcount across our business to support our growth. We remain committed to investing in our sales and marketing capacity and our research and development organization, and to driving revenue growth globally.

### Macroeconomic Trends

Unfavorable conditions in the economy, both in the United States and abroad, may negatively affect the growth of our business and our results of operations. For example, our business and results of operations could be affected by global macroeconomic trends and events such as inflationary pressure, interest rate increases and declines in consumer confidence, widespread disruptions of supply chains and freight and shipping channels, increased prices for many goods and services (including fluctuating fuel costs), labor shortages, delayed or reduced spending on information technology (“IT”) products, and significant volatility and disruption of financial markets, as well as other conditions arising from international conflicts, such as the ongoing conflict between Russia and Ukraine, geopolitical tensions involving China, and the conflict in Israel and Gaza, and the emergence of pandemics and epidemics. We are continuously monitoring these global events and other macroeconomic developments and how they may impact us directly or indirectly as a result of the effects on our customers and suppliers.

Refer to the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K filed on March 21, 2023, as supplemented by our subsequent Quarterly Reports on Form 10-Q, for further discussion of the impacts of macroeconomic trends on our business.

### Components of Results of Operations

### Revenue

We provide access to our Connected Operations Cloud through subscription arrangements, whereby the customer is charged a per-subscription fee for access for a specified term. Subscription agreements contain multiple service elements for one or more of our cloud-based Applications via mobile app(s) or a website that enable data collection and provide access to the cellular network, IoT devices (which we also refer to as connected devices), and support services delivered over the term of the arrangement. Our subscription contracts typically have an initial term of three to five years and are generally non-cancelable and non-refundable, subject to limited exceptions under our standard terms of service and other exceptions for public sector customers, who are often subject to annual budget appropriations cycles. Our Connected Operations Cloud and IoT devices are highly interdependent and interrelated, and represent a combined performance obligation within the context of the contract.

In each of our past two fiscal years, we generated approximately 98% of our revenue from subscriptions to our Connected Operations Cloud. The remaining portion of our revenue not generated from subscriptions to our Connected Operations Cloud is derived from the sale of replacement IoT devices, including gateways, sensors and cameras, related shipping and handling fees, and professional services.

### Allocation of Overhead Costs

Overhead costs that are not substantially dedicated to use by a specific functional group are allocated based on headcount. Such costs include costs associated with office facilities, depreciation of property and equipment, IT and security expenses, and other expenses, such as corporate software, subscription services, and insurance.

### Cost of Revenue

Cost of revenue consists primarily of the amortization of IoT device costs associated with subscription agreements, cellular-related costs, third-party cloud infrastructure expenses, customer support costs, warranty charges, and employee-related costs directly associated with our customer support and operations, including salaries, employee benefits and stock-based compensation, amortization of internal-use software development costs, expenses related to shipping and handling, packaging, fulfillment, warehousing, write-downs of excess and obsolete inventory, and allocated overhead costs.

As our customers expand and increase the use of our Connected Operations Cloud driven by additional IoT devices and Applications, we expect our cost of revenue as a percentage of revenue to remain relatively flat from year to year but may also vary from quarter to quarter as a percentage of our revenue due to the timing and extent of these expenses. We intend to continue to invest additional resources in our Connected Operations Cloud and customer support and operations personnel as we grow our business. The level and timing of investment in these areas will affect our cost of revenue in the future.

### Operating Expenses

#### Research and Development

Research and development expenses consist primarily of employee-related costs, including salaries, employee benefits and stock-based compensation, depreciation and other expenses related to prototyping IoT devices, product initiatives, software subscriptions, hosting used in research and development, and allocated overhead costs. We continue to focus our research and development efforts on adding new features and products and enhancing the utility of our Connected Operations Cloud. We capitalize the portion of our internal-use software development costs that meets the criteria for capitalization.

We expect our research and development expenses to generally increase in absolute dollars for the foreseeable future as we continue to invest in research and development efforts to enhance our Connected Operations Cloud. While we expect our research and development expenses to decrease as a percentage of our revenue over the long term, our research and development expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

#### Sales and Marketing

Sales and marketing expenses consist primarily of employee-related costs directly associated with our sales and marketing activities, including salaries, employee benefits and stock-based compensation, and sales commissions. Sales and marketing expenses also include expenditures related to advertising, media, marketing, promotional costs, free trial expenses, brand awareness activities, business development, corporate partnerships, travel, conferences and events, professional services, and allocated overhead costs.

We plan to continue to invest in sales and marketing to grow our customer base and increase our brand awareness. As a result, we expect our sales and marketing expenses to increase in absolute dollars for the foreseeable future. While we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, our sales and marketing expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

#### General and Administrative

General and administrative expenses consist of employee-related costs for executive, finance, legal, human resources, and facilities personnel, including salaries, employee benefits and stock-based compensation, professional fees for external legal, accounting, recruiting and other consulting services, bad debt, allocated overhead costs, and unallocated lease costs.

We expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future to support our growth and because of additional costs associated with legal, accounting, compliance, insurance, investor relations, and other areas associated with being a public company. While we expect our general and administrative expenses to decrease as a percentage of our revenue over the long term, our general and administrative expenses may fluctuate as a percentage of our revenue from period to period due to the timing and extent of these expenses.

#### Lease Modification, Impairment, and Related Charges

Lease modification, impairment, and related charges consist of impairment charges related to the sublease and abandonment of facilities.

We may incur additional lease modification, impairment, and related charges in subsequent periods.

### Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net, consists primarily of income earned on our money market funds included in cash and cash equivalents, restricted cash, and our short-term and long-term investments, including amortization of premiums and accretion of discounts related to our marketable debt securities, net of associated fees. We also have foreign currency remeasurement gains and losses and foreign currency transaction gains and losses. As we have expanded our global operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.

### Provision for Income Taxes

Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We maintain a full valuation allowance against our U.S. deferred tax assets because we have concluded that it is more likely than not that the deferred tax assets will not be realized.

### Results of Operations

### Comparison of the Three and Nine Months Ended October 28, 2023 and October 29, 2022

### Revenue

Our total revenue is summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $237,534 | $169,800 | $67,734 | 40% | $661,111 | $465,968 | $195,143 | 42% |

Revenue increased by $67.7 million and $195.1 million, or 40% and 42%, for the three and nine months ended October 28, 2023, respectively, compared to the three and nine months ended October 29, 2022, primarily due to an increase in customer count and increased purchases of our subscription offerings, including subscriptions to additional applications, by existing customers.

### Cost of Revenue, Gross Profit, and Gross Margin

Our cost of revenue, gross profit, and gross margin are summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenue | $61,585 | $47,253 | $14,332 | 30% | $178,008 | $131,128 | $46,880 | 36% |
| Gross profit | $175,949 | $122,547 |  |  | $483,103 | $334,840 |  |  |
| Gross margin | 74% | 72% |  |  | 73% | 72% |  |  |

Cost of revenue increased by $14.3 million, or 30%, for the three months ended October 28, 2023 compared to the three months ended October 29, 2022, primarily due to $8.1 million of increased amortization of deferred IoT device costs, $2.3 million of increased employee-related costs primarily due to salaries and benefits and related employer taxes, $1.9 million of increased infrastructure costs associated with our product offerings, $0.9 million of increased warranty costs, and $0.8 million of increased operational costs to support the growth of our subscription offerings. The increases in amortization of deferred IoT device costs and infrastructure costs were driven by increased sales volume year-over-year.

Our gross margin increased to 74% for the three months ended October 28, 2023 compared to 72% for the three months ended October 29, 2022, mainly due to operational efficiencies in infrastructure and direct labor costs.

Cost of revenue increased by $46.9 million, or 36%, for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022, primarily due to $23.2 million of increased amortization of deferred IoT device costs, $10.7 million of increased employee-related costs, which included a $7.7 million increase in salaries and benefits and related employer taxes and a $3.0 million increase in stock-based compensation expense, $5.4 million of increased infrastructure costs associated with our product offerings, $4.4 million of increased warranty costs, and $2.3 million of increased operational costs to support the growth of our subscription offerings. The increases in amortization of deferred IoT device costs and infrastructure costs were driven by increased sales volume year-over-year.

Our gross margin increased to 73% for the nine months ended October 28, 2023 compared to 72% for the nine months ended October 29, 2022, mainly due to operational efficiencies in infrastructure costs.

### Research and Development

Research and development expense is summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $60,820 | $49,970 | $10,850 | 22% | $185,155 | $132,802 | $52,353 | 39% |
| Percentage of revenue | 26% | 29% |  |  | 28% | 29% |  |  |

Research and development expense increased by $10.9 million, or 22%, for the three months ended October 28, 2023 compared to the three months ended October 29, 2022, primarily due to a $9.2 million increase in employee-related costs, which included a $5.6 million increase in salaries and benefits and related employer taxes and a $3.6 million increase in stock-based compensation expense, driven primarily by increased headcount to support our research and development organization. A $1.3 million increase in IT-related charges and software subscriptions also contributed to the increase in research and development expense.

Research and development expense increased by $52.4 million, or 39%, for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022, primarily due to a $44.5 million increase in employee-related costs, which included a $25.5 million increase in salaries and benefits and related employer taxes and a $19.0 million increase in stock-based compensation expense, driven primarily by increased headcount to support our research and development organization. A $5.5 million increase in IT-related charges, rent, and software subscriptions also contributed to the increase in research and development expense.

### Sales and Marketing

Sales and marketing expense is summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing | $116,780 | $94,056 | $22,724 | 24% | $353,643 | $273,347 | $80,296 | 29% |
| Percentage of revenue | 49% | 55% |  |  | 53% | 59% |  |  |

Sales and marketing expense increased by $22.7 million, or 24%, for the three months ended October 28, 2023 compared to the three months ended October 29, 2022, primarily due to a $15.3 million increase in employee-related costs, which included a $9.5 million increase in salaries and benefits and related employer taxes and a $7.0 million increase in stock-based compensation expense, primarily driven by increased headcount to support our sales organization, partially offset by a $1.2 million decrease in sales commissions. Our increase in sales and marketing expense was also due to a $3.2 million increase in IT-related charges and software subscriptions, a $1.9 million increase in expenses relating to professional services, and a $0.9 million increase in travel-related expenses and expenses relating to our customer visits, conferences, and other events.

Sales and marketing expense increased by $80.3 million, or 29%, for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022, primarily due to a $51.2 million increase in employee-related costs, which included a $40.3 million increase in salaries and benefits and related employer taxes and a $10.7 million increase in stock-based compensation expense, primarily driven by increased headcount to support our sales organization. Our increase in sales and marketing expense was also due to a $12.9 million increase in IT-related charges, software subscriptions, and rent, a $6.5 million increase in travel-related expenses and expenses relating to our customer visits, conferences, and other events, a $3.1 million increase in expenses relating to lead generation initiatives, and a $2.2 million increase in expenses relating to professional services.

### General and Administrative

General and administrative expense is summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $48,354 | $41,997 | $6,357 | 15% | $139,888 | $127,098 | $12,790 | 10% |
| Percentage of revenue | 20% | 25% |  |  | 21% | 27% |  |  |

General and administrative expense increased by $6.4 million, or 15%, for the three months ended October 28, 2023 compared to the three months ended October 29, 2022, primarily due to a $7.8 million increase in employee-related costs, which included a $4.5 million increase in salaries and benefits and related employer taxes and a $3.4 million increase in stock-based compensation expense, primarily driven by increased headcount to support the growth of our finance, accounting, human resources, and legal functions. Our increase in general and administrative expense was also due to a $1.6 million increase in bad debt expense and a $1.2 million increase in expenses relating to legal fees and professional services. The increases in general and administrative expense were partially offset by a $4.2 million decrease in IT-related charges.

General and administrative expense increased by $12.8 million, or 10%, for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022, primarily due to a $25.2 million increase in employee-related costs, which included a $17.8 million increase in salaries and benefits and related employer taxes and a $7.4 million increase in stock-based compensation expense, primarily driven by increased headcount to support the growth of our finance, accounting, human resources, and legal functions. Our increase in general and administrative expense was also due to a $3.1 million increase in expenses relating to legal fees and professional services. The increases in general and administrative expense were partially offset by a $15.4 million decrease in IT-related charges and rent.

### Lease Modification, Impairment, and Related Charges

Lease modification, impairment, and related charges are summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | --- | ---: | ---: | ---: | ---: |
| Lease modification, impairment, and related charges | $4,762 | $— | $4,762 | \* | $4,762 | $1,056 | $3,706 | 351% |

\* Not meaningful

Lease modification, impairment, and related charges increased by $4.8 million for the three months ended October 28, 2023 compared to the three months ended October 29, 2022.

Lease modification, impairment, and related charges increased by $3.7 million, or 351%, for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022.

In the third quarter of fiscal year 2024, we executed a sublease for certain office space that resulted in a $4.8 million impairment to the related right-of-use (“ROU”) asset and fixed assets, which we recognized in lease modification, impairment, and related charges for the three and nine months ended October 28, 2023.

In the first quarter of fiscal year 2023, we executed a sublease for certain office space that resulted in a $1.1 million impairment to the related ROU asset, which we recognized in lease modification, impairment, and related charges for the nine months ended October 29, 2022. We did not incur any lease modification, impairment, and related charges in the three months ended October 29, 2022.

### Interest Income and Other Income (Expense), Net

Interest income and other income (expense), net, are summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income and other income (expense), net | $9,378 | $5,613 | $3,765 | 67% | $28,493 | $7,094 | $21,399 | 302% |

Interest income and other income (expense), net, increased by $3.8 million, or 67%, for the three months ended October 28, 2023 compared to the three months ended October 29, 2022. The increase was due to an increase in interest income earned due to higher interest yields, a larger investment base, and increased net accretion of discounts for our managed portfolio of marketable debt securities.

Interest income and other income (expense), net, increased by $21.4 million, or 302%, for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022. $21.2 million of this increase was primarily due to higher net accretion of discounts, higher interest yields on investments and cash, and a larger investment base for our managed portfolio of marketable debt securities.

### Provision for Income Taxes

Provision for income taxes is summarized as follows (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  | Nine Months Ended October 28, 2023 | October 29, 2022 | Change Amount% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Provision for income taxes | $142 | $692 | $(550) | (79%) | $1,503 | $1,455 | $48 | 3% |
| Effective tax rate | (0.3%) | (1.2%) |  |  | (0.9%) | (0.8%) |  |  |

The provision for income taxes decreased by $0.6 million, or 79%, for the three months ended October 28, 2023 compared to the three months ended October 29, 2022, primarily due to stock-based compensation expense windfalls within our foreign entities.

The provision for income taxes increased by 3% for the nine months ended October 28, 2023 compared to the nine months ended October 29, 2022, primarily due to the growth of our international operations.

### Non-GAAP Financial Measures

To supplement our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”), we review the following non-GAAP financial measures to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Non-GAAP gross profit | $179,049 | $125,232 |
| Non-GAAP gross margin | 75% | 74% |
| Non-GAAP income (loss) from operations | $12,707 | $(16,607) |
| Non-GAAP operating margin | 5% | (10)% |
| Non-GAAP net income (loss) | $21,943 | $(11,686) |
|  | **Nine Months Ended** |  |
|  | **October 28, 2023** | **October 29, 2022** |
| Free cash flow | $21,205 | $(125,885) |
| Free cash flow margin | 3% | (27)% |

### Limitations and Reconciliations of Non-GAAP Financial Measures

Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as substitutes for financial information presented under GAAP. There are a number of limitations related to the use of non-GAAP financial measures versus comparable financial measures determined under GAAP. For example, other companies in our industry may calculate these non-GAAP financial measures differently or may use other measures to evaluate their performance. In addition, free cash flow does not reflect our future contractual commitments or the total increase or decrease of our cash balance for a given period. These and other limitations could reduce the usefulness of these non-GAAP financial measures as analytical tools. Investors are encouraged to review the related GAAP financial measures and the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures and to not 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 as gross profit excluding the effect of stock-based compensation expense-related charges, including employer taxes on employee equity transactions, included in cost of revenue. Non-GAAP gross margin is defined as non-GAAP gross profit as a percentage of total revenue. We use non-GAAP gross profit and non-GAAP gross margin in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP gross profit and non-GAAP gross margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP gross profit to our GAAP gross profit for the periods presented (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Gross profit | $175,949 | $122,547 |
| Add: |  |  |
| Stock-based compensation expense-related charges (1) | 3,100 | 2,685 |
| Non-GAAP gross profit | $179,049 | $125,232 |
| GAAP gross margin | 74% | 72% |
| Non-GAAP gross margin | 75% | 74% |

(1) Stock-based compensation expense-related charges included approximately $0.2 million and $0.1 million of employer taxes on employee equity transactions for the three months ended October 28, 2023 and October 29, 2022, respectively.

### Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin

We define non-GAAP income (loss) from operations, or non-GAAP operating income (loss), as income (loss) from operations excluding the effect of stock-based compensation expense-related charges, including employer taxes on employee equity transactions, and lease modification, impairment, and related charges. Non-GAAP operating margin is defined as non-GAAP operating income (loss) as a percentage of total revenue. We use non-GAAP income (loss) from operations and non-GAAP operating margin in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP income (loss) from operations and non-GAAP operating margin provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP income (loss) from operations to our GAAP loss from operations for the periods presented (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Loss from operations | $(54,767) | $(63,476) |
| Add: |  |  |
| Stock-based compensation expense-related charges (1) | 62,712 | 46,869 |
| Lease modification, impairment, and related charges | 4,762 | — |
| Non-GAAP income (loss) from operations | $12,707 | $(16,607) |
| GAAP operating margin | (23)% | (37)% |
| Non-GAAP operating margin | 5% | (10)% |

(1) Stock-based compensation expense-related charges included approximately $2.9 million and $1.3 million of employer taxes on employee equity transactions for the three months ended October 28, 2023 and October 29, 2022, respectively.

### Non-GAAP Net Income (Loss)

We define non-GAAP net income (loss) as net loss excluding the effect of stock-based compensation expense-related charges, including employer taxes on employee equity transactions, and lease modification, impairment, and related charges. We use non-GAAP net income (loss) in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that non-GAAP net income (loss) provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations. The following table presents a reconciliation of our non-GAAP net income (loss) to our GAAP net loss for the periods presented (in thousands, except percentages):

|  | Three Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Net loss | $(45,531) | $(58,555) |
| Add: |  |  |
| Stock-based compensation expense-related charges, net of applicable taxes | 62,712 | 46,869 |
| Lease modification, impairment, and related charges, net of applicable taxes | 4,762 | — |
| Non-GAAP net income (loss) | $21,943 | $(11,686) |

31

### Free Cash Flow and Free Cash Flow Margin

We define free cash flow as net cash provided by (used in) operating activities reduced by cash used for purchases of property and equipment. Free cash flow margin is calculated as free cash flow as a percentage of total revenue. We believe that free cash flow and free cash flow margin, even if negative, are useful in evaluating liquidity and provide information to management and investors about our ability to fund future operating needs and strategic initiatives. The following table presents a reconciliation of free cash flow to net cash provided by (used in) operating activities for the periods presented (in thousands, except percentages):

|  | Nine Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $30,063 | $(98,648) |
| Purchase of property and equipment | (8,858) | (27,237) |
| Free cash flow (1) | $21,205 | $(125,885) |
| Net cash provided by (used in) operating activities margin | 5% | (21)% |
| Free cash flow margin (1) | 3% | (27)% |
| Net cash used in investing activities | $(36,042) | $(382,535) |
| Net cash provided by financing activities | $12,019 | $7,480 |

(1) Includes net cash paid (received) for non-recurring capital expenditures associated with the build-out of our corporate office facilities in San Francisco, California, net of tenant allowances (in thousands):

|  | Nine Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Purchase of property and equipment for build-out of corporate office facilities, net of tenant allowances (2) | $(10,179) | $21,874 |

(2) In April 2023, we settled a lease dispute which was primarily related to lease incentives associated with leasehold improvements in the form of a tenant allowance and received $11.3 million. This claim is unrelated to the claim discussed under the caption “*Lease-Related Litigation”* in Note 9, “Commitments and Contingencies,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

### Liquidity and Capital Resources

Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.

Since our founding, we have financed our operations primarily through the sale of equity securities and payments received from our customers. In December 2021, we completed our initial public offering (“IPO”), which resulted in aggregate net proceeds of $846.7 million, including proceeds from the underwriters’ exercise of their option to purchase additional shares of our Class A common stock in January 2022 and net of underwriting discounts and commissions. We have generated significant operating losses from our operations, as reflected in our accumulated deficit of $1,341.7 million as of October 28, 2023. While we achieved positive free cash flow beginning in the first quarter of fiscal year 2024, we intend to continue making investments in our business, and as a result, we may require additional capital resources to execute on our strategic initiatives to grow our business, particularly if we generate negative cash flows in future quarters. We believe that our existing cash, cash equivalents, and short-term and long-term investments will be sufficient to support working capital, including our non-cancelable arrangements, and capital expenditure requirements for at least the next 12 months.

As of October 28, 2023, our principal sources of liquidity were cash, cash equivalents, and short-term and long-term investments of $849.2 million. Cash and cash equivalents consisted of cash on deposit with banks as well as highly liquid investments with an original maturity of 90 days or less, when purchased. Our investments primarily consisted of U.S. government and agency securities, corporate notes and bonds, and commercial paper. Our primary uses of cash include personnel-related costs, third-party cloud infrastructure expenses, sales and marketing expenses, overhead costs, and funding other working capital requirements, such as inventory and connected device costs to meet our performance obligations related to our Connected Operations Cloud.

Our future capital requirements will depend on many factors, including, but not limited to, our growth, our ability to attract and retain customers, the continued market acceptance of our solution, the timing and extent of spending necessary to support our efforts to develop our Connected Operations Cloud and meet our performance obligations related to our Connected Operations Cloud, the expansion of sales and marketing activities, and the impact of macroeconomic conditions on our and our customers’ and partners’ businesses. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services, and technologies. We may be required to seek additional equity or debt financing. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.

### Cash Flows

The following table shows a summary of our cash flows for the periods presented (in thousands):

|  | Nine Months Ended October 28, 2023 | October 29, 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $30,063 | $(98,648) |
| Net cash used in investing activities | $(36,042) | $(382,535) |
| Net cash provided by financing activities | $12,019 | $7,480 |

#### Operating Activities

Our largest source of operating cash is payments received from our customers. Our primary uses of cash from operating activities are for employee-related expenses, sales and marketing expenses, inventory and connected device costs, third-party cloud and cellular infrastructure expenses, and overhead expenses. We have generated negative cash flows from operations in each of the past two fiscal years, and have supplemented working capital through net proceeds from the sale of equity securities.

Cash provided by (used in) operating activities mainly consists of our net loss adjusted for certain non-cash items, including stock-based compensation, net accretion of discounts on marketable debt securities, depreciation and amortization of property and equipment, lease modification, impairment, and related charges, and non-cash operating lease costs, and changes in operating assets and liabilities during each period.

Cash provided by operating activities was $30.1 million for the nine months ended October 28, 2023. This consisted of a net loss of $173.4 million, adjusted for non-cash charges of $177.3 million, and changes in our operating assets and liabilities of $26.1 million. The non-cash charges were primarily comprised of stock-based compensation expense of $172.4 million, depreciation and amortization of $10.8 million, and lease modification, impairment, and related charges of $4.8 million, partially offset by net accretion of discounts on marketable debt securities of $12.7 million. Changes in our operating assets and liabilities during the nine months ended October 28, 2023 reflect increases in deferred revenue due to the growth of our business, lower inventories due to operating efficiencies in our order fulfillment processes, and lower operating lease ROU assets, partially offset by higher connected device costs, higher deferred commissions, and higher prepaid expenses and other current assets during the nine months ended October 28, 2023.

Cash used in operating activities was $98.6 million for the nine months ended October 29, 2022. This consisted of a net loss of $193.8 million, adjusted for non-cash charges of $146.2 million, and changes in our operating assets and liabilities of $51.1 million. The non-cash charges were primarily comprised of stock-based compensation expense of $133.5 million, depreciation and amortization of $8.4 million, bad debt expense of $4.5 million, and lease modification, impairment, and related charges of $1.1 million.

#### Investing Activities

Cash used in investing activities was $36.0 million for the nine months ended October 28, 2023, which primarily consisted of $541.4 million of purchases of investments and $8.9 million of capital expenditures for internal-use software development costs and our office facilities, partially offset by $508.1 million of proceeds from maturities and redemptions of investments and $6.2 million of proceeds from sales of investments.

Cash used in investing activities was $382.5 million for the nine months ended October 29, 2022, which primarily consisted of $355.7 million of purchases of investments and 27.2 million of capital expenditures for additional office facilities.

#### Financing Activities

Cash provided by financing activities was $12.0 million for the nine months ended October 28, 2023, which primarily consisted of $13.4 million of proceeds from purchases under the 2021 Employee Stock Purchase Plan (the “2021 ESPP”) and exercises of stock options, partially offset by $1.4 million in payments of principal on finance leases.

Cash provided by financing activities was $7.5 million for the nine months ended October 29, 2022, which primarily consisted of $10.9 million of proceeds from purchases under the 2021 ESPP and exercises of stock options, partially offset by $2.5 million in payments of offering costs.

### Contractual Obligations and Commitments

Our estimated future obligations consist of leases and non-cancelable purchase commitments as of October 28, 2023. For additional discussion on our leases and other commitments, refer to Notes 7, “Leases,” and 9, “Commitments and Contingencies,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

### Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP.

The preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

There were no material changes to our critical accounting policies and estimates during the nine months ended October 28, 2023.

### Recent Accounting Pronouncements

For information on recently issued accounting pronouncements, see Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

## Market risk

As filed, 2,682 characters.

We are exposed to market risks in connection with our business, which primarily relate to fluctuations in interest rates and foreign exchange and inflation risks.

### Interest Rate Risk

As of October 28, 2023, we had $849.2 million of cash, cash equivalents, and short-term and long-term investments in a variety of marketable debt securities, including U.S. government and agency securities, corporate notes and bonds, and commercial paper. In addition, we had $21.7 million of restricted cash primarily due to outstanding letters of credit. Our cash, cash equivalents, and short-term and long-term investments are held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our cash equivalents and our portfolio of marketable debt securities are subject to market risk due to changes in interest rates. A hypothetical 100 basis point increase or decrease in interest rates would have resulted in a decrease or an increase of $4.4 million in the market value of our cash equivalents, and short-term and long-term investments as of October 28, 2023.

### Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar. The functional currency of our wholly-owned foreign subsidiaries is the U.S. dollar or the Mexican peso. A substantial majority of our sales are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States and the United Kingdom. Our condensed consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, although we may choose to do so in the future. We do not believe that a hypothetical 10% increase or decrease in the relative value of the U.S. dollar to other currencies during any of the periods presented would have had a material impact on our condensed consolidated financial statements.

### Inflation Risk

We do not believe that inflation has had a material impact on our condensed consolidated financial statements. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could have a material impact on our condensed consolidated financial statements.

## Controls and procedures

As filed, 3,631 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures are designed to, and are effective to, provide reasonable assurance that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

### Changes in Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter. Based on that evaluation, our principal executive officer and principal financial officer concluded that there has not been any material change in our internal control over financial reporting during the fiscal quarter ended October 28, 2023 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

### Limitations on Effectiveness of Controls and Procedures and Internal Control Over Financial Reporting

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of an error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Due to inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

## Risk factors

As filed, 1,391 characters.

Our business, operations, and financial condition are subject to various risks and uncertainties that could materially adversely affect our business, results of operations, financial condition, growth prospects, and the trading price of our Class A common stock. You should carefully consider the risks and uncertainties described under the section “Risk Factors” in (1) Part 1, Item 1A of our Annual Report on Form 10-K filed with the SEC on March 21, 2023, (2) Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on June 6, 2023, and (3) Part II, Item 1A of our Quarterly Report on Form 10-Q filed with the SEC on September 5, 2023, together with all of the other information contained in this Quarterly Report on Form 10-Q, including the sections titled “Special Note Regarding Forward-Looking Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. These factors, among others not currently known by us or that we currently do not believe are material, could cause our actual results to differ materially from historical results and those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors, and oral and other statements.

Filed Dec 5, 2023.
Source: SEC EDGAR, the filing index for accession 0001642896-23-000087. Last ingested by Listed: Nov 4, 2026, 20:10 ET. No prices; not investment advice.