Washington

20-2954357

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

10500 NE 8th Street, Suite 1300

Bellevue,

98004

(Address of principal executive offices)

(Zip Code)



(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, no par value per share	SMAR	The New York Stock Exchange

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 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). 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:

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As ~~of August 31, 2020,~~of May 28, 2021, there were ~~120,609,808~~125,111,961 shares of the registrant’s Class A common stock outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, market growth and trends, and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends, including, but not limited to, the macroeconomic impact of COVID-19, that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described under Part II, Item 1A, “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or may not occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or will occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

Table of Contents

Part I. Financial Information

Item 1. Financial Statements

SMARTSHEET INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

See notes to condensed consolidated financial statements.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

See notes to condensed consolidated financial statements.

Table of Contents

~~SMARTSHEET INC.~~

~~Condensed Consolidated Statements of Changes in Shareholders’ Equity~~

~~(dollars in thousands)~~

~~(unaudited)~~

~~See notes to condensed consolidated financial statements.~~

~~Table of Contents~~

SMARTSHEET INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(dollars in thousands)

(unaudited)


	Three Months Ended April 30, 2021
	Common Stock (Class A)			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balances at January 31, 2021	123,272,902	$	0	$	898,366	$	(371,437)	$	526,929
Issuance of common stock under employee stock plans	1,337,827	—		12,315		—		12,315
Taxes paid related to net share settlement of equity awards	—	—		(2,763)		—		(2,763)
Share-based compensation expense	—	—		24,101		—		24,101
Net loss and comprehensive loss	—	—		—		(37,072)		(37,072)
Balances at April 30, 2021	124,610,729	$	0	$	932,019	$	(408,509)	$	523,510


	Three Months Ended April 30, 2020
	Common Stock (Class A)			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balances at January 31, 2020	118,194,159	$	0	$	770,518	$	(256,458)	$	514,060
Issuance of common stock under employee stock plans	1,269,951	—		10,300		—		10,300
Taxes paid related to net share settlement of equity awards	—	—		(969)		—		(969)
Share-based compensation expense	—	—		14,756		—		14,756
Net loss and comprehensive loss	—	—		—		(27,784)		(27,784)
Balances at April 30, 2020	119,464,110	$	0	$	794,605	$	(284,242)	$	510,363

Six Months Ended July 31, 2020
Common Stock (Class A) Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Equity
Shares Amount
Balances at January 31, 2020 118,194,159 $ 0 $ 770,518 $ (256,458) $ 514,060
Issuance of common stock under employee stock plans 2,092,181 — 14,082 — 14,082
Taxes paid related to net share settlement of equity awards — — (1,470) — (1,470)
Share-based compensation expense — — 33,396 — 33,396
Comprehensive loss — — — (54,343) (54,343)
Balances at July 31, 2020 120,286,340 $ 0 $ 816,526 $ (310,801) $ 505,725
See notes to condensed consolidated financial statements.

Table of Contents

Six Months Ended July 31, 2019
Common Stock (Class A and B) Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Equity
Shares Amount
Balances at January 31, 2019 104,971,443 $ 0 $ 327,510 $ (160,518) $ 166,992
Issuance of common stock under employee stock plans 2,351,189 — 14,102 — 14,102
Issuance of common stock in connection with initial public offering, net of underwriting discounts, commissions, and issuance costs 9,025,000 — 378,970 — 378,970
Share-based compensation expense — — 15,801 — 15,801
Comprehensive loss — — — (38,924) (38,924)
Balances at July 31, 2019 116,347,632 $ 0 $ 736,383 $ (199,442) $ 536,941
SMARTSHEET INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)


	Three Months Ended April 30,
	2021		2020
Cash flows from operating activities
Net loss	$	(37,072)	$	(27,784)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	23,717		14,362
Depreciation and amortization of property and equipment	2,271		2,988
Amortization of deferred commission costs	9,201		6,719
Unrealized foreign currency (gain) loss	(319)		97
Amortization of intangible assets	2,521		849
Non-cash operating lease costs	3,491		2,736
Changes in operating assets and liabilities:
Accounts receivable	13,357		7,442
Prepaid expenses and other current assets	(3,634)		(2,213)
Other long-term assets	199		(804)
Accounts payable	(1,072)		(1,996)
Other accrued liabilities	(5,480)		(1,853)
Accrued compensation and related benefits	(7,465)		(19,861)
Deferred commissions	(15,341)		(8,321)
Other long-term liabilities	0		1,531
Deferred revenue	15,670		4,405
Operating lease liabilities	(3,005)		(2,582)
Net cash used in operating activities	(2,961)		(24,285)
Cash flows from investing activities
Proceeds from early termination of short-term investments	0		50,532
Purchases of property and equipment	(3,220)		(1,018)
Capitalized internal-use software development costs	(2,017)		(2,244)
Net cash provided by (used in) investing activities	(5,237)		47,270
Cash flows from financing activities
Payments on principal of finance leases	0		(680)
Payments of deferred offerings costs	0		(59)
Proceeds from exercise of stock options	3,403		3,467
Taxes paid related to net share settlement of restricted stock units	(2,763)		(969)
Proceeds from Employee Stock Purchase Plan	4,687		3,614
Net cash provided by financing activities	5,327		5,373
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash	447		(249)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(2,424)		28,109
Beginning of period	442,348		516,789
End of period	$	439,924	$	544,898


Supplemental disclosures
Cash paid for interest	$	0	$	46
Cash paid for income taxes	27		14

Right-of-use assets obtained in exchange for new operating lease liabilities	0		13,076
Accrued purchases of property and equipment (including internal-use software)	1,505		709
Share-based compensation expense capitalized in internal-use software development costs	384		350

See notes to condensed consolidated financial statements.

Table of Contents

SMARTSHEET INC.

~~Condensed Consolidated Statements of Cash Flows~~

~~(in thousands, unaudited)~~

Six Months Ended July 31,
2020 2019
Cash flows from operating activities
Net loss $ (54,343) $ (38,924)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense 32,468 15,383
Depreciation and amortization of property and equipment 5,926 5,022
Amortization of deferred commission costs 14,076 8,423
Unrealized foreign currency (gain) loss (9) 286
Amortization of intangible assets 1,699 1,060
Non-cash operating lease costs 5,613 3,668
Changes in operating assets and liabilities:
Accounts receivable 2,301 (9,310)
Prepaid expenses and other current assets (2,273) (6,324)
Other long-term assets (2,041) (198)
Accounts payable (6,127) (2,099)
Other accrued liabilities (567) 3,970
Accrued compensation and related benefits (14,912) (701)
Deferred commissions (17,557) (15,024)
Other long-term liabilities 4,736 (1,003)
Deferred revenue 10,448 26,704
Operating lease liabilities (5,041) (2,810)
Net cash used in operating activities (25,603) (11,877)
Cash flows from investing activities
Purchases of short-term investments 0 (50,000)
Proceeds from early termination of short-term investments 50,532 0
Purchases of property and equipment (1,989) (3,085)
Capitalized internal-use software development costs (3,711) (3,397)
Payments for business acquisitions, net of cash acquired (956) (26,839)
Net cash provided by (used in) investing activities 43,876 (83,321)
Cash flows from financing activities
Proceeds from follow-on offering of common stock, net of underwriters' discounts and commissions 0 379,828
Payments on principal of finance leases (1,347) (2,042)
Payments of deferred offerings costs (59) (706)
Proceeds from exercise of stock options 7,465 9,738
Shares withheld related to net share settlement of restricted stock units (1,470) 0
Proceeds from Employee Stock Purchase Plan 7,049 4,991
Net cash provided by financing activities 11,638 391,809
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash 45 (216)
Net increase in cash, cash equivalents, and restricted cash 29,956 296,395
Beginning of period 516,789 215,705
End of period $ 546,745 $ 512,100

~~Table of Contents~~

~~SMARTSHEET INC.~~

~~Condensed Consolidated Statements of Cash Flows~~

~~(in thousands, unaudited)~~

Supplemental disclosures
Cash paid for interest $ 84 $ 118
Cash paid for income taxes 71 121
Purchases of fixed assets under finance leases 0 1,682
Right-of-use assets obtained in exchange for new operating lease liabilities 13,069 0
Accrued purchases of property and equipment (including internal-use software) 819 906
Deferred offering costs, accrued but not yet paid 0 164
Share-based compensation expense capitalized in internal-use software development costs 897 421

~~See notes to condensed consolidated financial statements.~~

~~Table of Contents~~

~~SMARTSHEET INC.~~

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Overview and Basis of Presentation

Description of business

Smartsheet Inc. (the “Company,” “we,” “our”) was incorporated in the State of Washington in 2005, and is headquartered in Bellevue, Washington. The Company is a leading cloud-based platform for dynamic work, ~~execution,~~ enabling teams and organizations of all sizes to plan, capture, manage, automate, and report on work at scale. Customers access their accounts online via a web-based interface or a mobile application. Some customers also purchase the Company’s professional services, which primarily consist of consulting and training services.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The condensed consolidated balance sheet as of January 31, ~~2020~~2021 was derived from the audited consolidated financial statements as of that date but does not include all of the information and notes required by GAAP for complete financial statements. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended January 31, ~~2020,~~2021, filed with the SEC on March ~~31, 2020.~~25, 2021.

The condensed consolidated financial statements include the results of Smartsheet Inc. and its wholly owned subsidiaries, which are located in the United States, the United Kingdom, and Australia. All intercompany balances and transactions have been eliminated upon consolidation.

In the opinion of management, the information contained herein reflects all adjustments necessary for a fair presentation of our condensed consolidated financial statements. All such adjustments are of a normal, recurring nature. The results of operations for the three ~~and six~~ months ended ~~July 31, 2020~~April 30, 2021 are not necessarily indicative of results to be expected for the full year ending January 31, ~~2021,~~2022, or for any other interim period, or for any future year.

Use of estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. The Company bases its estimates on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could differ from those estimates. The Company’s most significant estimates and judgments involve revenue recognition with respect to the allocation of transaction consideration for the Company’s offerings; determination of the amortization period for capitalized sales commission costs; capitalization of internal-use software development costs; valuation of assets and liabilities acquired as part of business combinations; and incremental borrowing rate estimates for operating leases, among others.

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

2. Summary of Significant Accounting Policies

Segment information

The Company operates as 1 operating segment. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information for purposes of making operating decisions, assessing financial performance, and allocating resources.

~~Accounts receivable and allowance for doubtful accounts~~

Accounts receivable are primarily comprised of trade receivables that are recorded at the invoice amount, net of an allowance for doubtful accounts. Subscription fees billed in advance of the related subscription term represent contract liabilities and are presented as accounts receivable and deferred revenues upon establishment of the unconditional right to invoice, typically upon signing of the non-cancelable service agreement. Our typical payment terms provide for customer payment within 30 days of the date of the contract.

The allowance for doubtful accounts is based on the Company’s estimated expected credit losses derived upon assessment of various factors including historical trends on collectibility, composition of accounts receivable by aging, current market conditions, reasonable and supportable forecasts of future economic conditions, and other factors. As of ~~July 31, 2020~~, our allowance for doubtful accounts reflects increased collectibility concerns stemming from the macroeconomic conditions resulting from the COVID-19 pandemic and may increase in future periods as we ascertain further impacts to our customers and business.

The estimated credit losses are recorded to the allowance for doubtful accounts in the condensed consolidated balance sheets, with an offsetting decrease in related deferred revenue and a reduction of revenue or charge to general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Restricted cash

Restricted cash as of ~~July 31, 2020~~April 30, 2021 and January 31, ~~2020~~2021 was ~~$0.8~~$0.3 million and ~~$0.9~~$0.1 million, respectively, primarily related to security deposits for the Company’s Bellevue, Boston, London, and Edinburgh leases. Short-term restricted cash amounts are included in prepaid expenses and other current assets and long-term restricted cash amounts are included in restricted cash on the condensed consolidated balance sheets.Australian employee ESPP contributions.

Cash as reported on the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and restricted cash as shown on the condensed consolidated balance sheets. Cash as reported on the condensed consolidated statements of cash flows consisted of the following (in thousands):

July 31,
2020 2019
Cash and cash equivalents $ 545,975 $ 511,214
Restricted cash included in prepaid expenses and other current assets 111 0
Restricted cash 659 886
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows $ 546,745 $ 512,100

~~Table of Contents~~

~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~


	April 30,
	2021		2020
Cash and cash equivalents	$	439,656	$	544,178
Restricted cash included in prepaid expenses and other current assets	250		0
Restricted cash	18		720
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	439,924	$	544,898

Internal-use software development costs

The Company capitalizes certain qualifying costs incurred during the application development stage in connection with the development of internal-use software. Costs related to preliminary project activities and post-implementation activities are expensed in research and development (“R&D”) as incurred. R&D expenses consist primarily of employee-related costs, hardware- and software-related costs, costs of outside services used to supplement our internal staff, and overhead allocations.

Internal-use software costs of ~~$2.2~~$1.8 million were capitalized in each of the ~~three months~~three-month periods ended ~~July 31,~~April 30, 2021 and April 30, 2020, all of which related to costs incurred during the application development stage of software development for the Company’s platform to which subscriptions are sold. Internal-use software costs of $2.2 million were capitalized in the three months ended July 31, 2019, of which $1.4 million related to costs incurred during the application development stage of software development for the Company’s platform to which subscriptions are sold.

Internal-use software costs of $3.9 million were capitalized in the six months ended July 31, 2020, all of which related to the application development stage of software development for the Company’s platform to which subscriptions are sold. Internal-use software costs of $3.8 million were capitalized in the six months ended July 31, 2019, of which $2.4 million related to costs incurred during the application development stage of software development for the Company’s platform to which subscriptions are sold.

Capitalized internal-use software costs are included within property and equipment, net on the condensed consolidated balance sheets, and are amortized over the estimated useful life of the software, which is typically three years. The related amortization expense is recognized in the condensed consolidated statements of operations and comprehensive loss within the function that receives the benefit of the developed software. Amortization expense of capitalized internal-use software costs totaled ~~$0.9~~$1.2 million and ~~$0.5~~$0.8 million for the three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019, respectively, and $1.7 million and $0.9 million for the six months ended July 31, 2020 and 2019,~~ respectively. The Company evaluates the useful lives of these assets and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Concentrations of risk and significant customers

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents, and accounts receivable. The Company maintains its cash accounts with financial institutions where deposits, at times, exceed the Federal Deposit Insurance Corporation limits.

No individual customer represented more than 10% of accounts receivable as of ~~July 31, 2020~~April 30, 2021 or January 31, ~~2020.~~2021. No individual customer represented more than 10% of revenue for the three ~~and six~~ months ended ~~July 31, 2020~~April 30, 2021 or ~~2019.~~

~~Recently adopted accounting pronouncements~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments,~~ and has amended the standard thereafter, which modifies the accounting methodology for most financial instruments. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Additionally, any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. The Company adopted the standard effective February 1, 2020. ~~The adoption did not have a material effect on our condensed consolidated financial statements.~~

~~In August 2018, the FASB issued~~ ~~ASU 2018-15~~, ~~Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs incurred to develop or obtain internal-use software. The Company adopted the standard effective February 1, 2020 on a prospective basis. During the three and six months ended July 31, 2020, a total of $0.9 million and $1.6 million of costs, respectively, related to cloud computing arrangements were capitalized and were included in other long-term assets on the condensed consolidated balance sheet as of July 31, 2020.

~~Table of Contents~~

~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Recent accounting pronouncements not yet adopted~~

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes~~, which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. The Company does not expect adoption of this standard to have a material effect on the Company’s condensed consolidated financial statements.

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Table of Contents

SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

3. Revenue from Contracts with Customers

During the three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019,~~ the Company recognized ~~$68.7~~$87.0 million and ~~$45.3~~$62.0 million of subscription revenue, respectively, and ~~$2.0~~$3.6 million and ~~$1.9 million of professional services revenue, respectively, which were included in the deferred revenue balance as of April 30, 2020 and 2019, respectively.~~

~~During the six months ended July 31, 2020 and 2019, the Company recognized $110.9 million and $68.5 million of subscription revenue, respectively, and $3.2 million and $1.9~~$2.8 million of professional services revenue, respectively, which were included in the deferred revenue balance as of January 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

As of ~~July 31, 2020~~April 30, 2021, approximately ~~$180.1~~$274.9 million of revenue, including amounts already invoiced and amounts contracted but not yet invoiced, was expected to be recognized from remaining performance obligations, of ~~which $176.6~~which $268.6 million related to subscription services a~~nd $3.4~~and $6.3 million r~~elated~~related to professional services. ~~Approximately 96% o~~fApproximately 92% of revenue related to total remaining performance obligations is expected to be recognized in the next 12 months.

4. Deferred Commissions

Deferred commissions were ~~$51.7~~$66.7 million as of ~~July 31, 2020~~April 30, 2021 and ~~$48.3~~$60.5 million as of January 31, ~~2020.~~2021.

Amortization expense for deferred commissions was ~~$7.4~~$9.2 million and ~~$4.6~~$6.7 million for the three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019, respectively, and $14.1 million and $8.4 million for the six months ended July 31, 2020 and 2019,~~ respectively. Deferred commissions are amortized over a period of three years and the amortization expense is recorded in sales and marketing on the Company’s condensed consolidated statements of operations and comprehensive loss.

5. Net Loss Per Share

The following tables present calculations for basic and diluted net loss per share (in thousands, except share and per share data):


	Three Months Ended April 30,
	2021		2020
Numerator:
Net loss	$	(37,072)	$	(27,784)
Denominator:
Weighted-average common shares outstanding	124,110		118,868
Net loss per share, basic and diluted	$	(0.30)	$	(0.23)

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
Numerator:
Net loss $ (26,559) $ (19,114) $ (54,343) $ (38,924)
Denominator:
Weighted-average common shares outstanding 119,921 111,557 119,400 108,626
Net loss per share, basic and diluted $ (0.22) $ (0.17) $ (0.46) $ (0.36)

The following outstanding shares of common stock equivalents (in thousands) as of the periods presented were excluded from the computation of diluted net loss per share attributable to common shareholders for the periods presented because the impact of including them would have been anti-dilutive:

July 31,
2020 2019
Shares subject to outstanding common stock awards 13,103 13,348
Shares issuable pursuant to the 2018 Employee Stock Purchase Plan 145 116
Total potentially dilutive shares 13,248 13,464


	April 30,
	2021	2020
Shares subject to outstanding common stock awards	12,050	13,673
Shares issuable pursuant to the 2018 Employee Stock Purchase Plan	54	50
Total potentially dilutive shares	12,104	13,723

~~Table of Contents~~

~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

6. Fair Value Measurements

Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The lowest level of significant input determines the placement of the fair value measurement within the following hierarchical levels:

•Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

•Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3: Unobservable inputs that are supported by little or no market activity.

Assets and liabilities measured at fair value on a recurring basis

The following tables present information about the Company’s financial assets and liabilities that are measured at fair value and indicate the fair value hierarchy of the valuation inputs used (in thousands):


	April 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	378,284	$	0	$	0	$	378,284
Total assets	$	378,284	$	0	$	0	$	378,284

July 31, 2020
Level 1 Level 2 Level 3 Total
Assets:
Cash equivalents:
Money market funds $ 518,263 $ 0 $ 0 $ 518,263
Total assets $ 518,263 $ 0 $ 0 $ 518,263


		January 31, 2020																					January 31, 2021
				Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
Assets:	Assets:												Assets:
Cash equivalents:	Cash equivalents:												Cash equivalents:
Money market funds	Money market funds	$	279,160		$	0		$	0		$	279,160	Money market funds	$	378,281		$	0		$	0		$	378,281
Certificates of deposit		0			50,585			0			50,585
Short-term investments:
Certificates of deposit		0			50,532			0			50,532
Total assets	Total assets	$	279,160		$	101,117		$	0		$	380,277	Total assets	$	378,281		$	0		$	0		$	378,281

The carrying amounts of certain financial instruments, including cash held in banks, accounts receivable, and accounts payable, approximate fair value due to their short-term maturities and are excluded from the fair value tables above.

It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period. The Company does not transfer out of Level 3 and into Level 2 until observable inputs become available and reliable.There were no transfers between fair value measurement levels during the three months ended April 30, 2021 or 2020.

Assets and liabilities measured at fair value on a non-recurring basis

See Note 7, Business Combinations, and Note 8, Goodwill and Net Intangibles, of these notes to our condensed consolidated financial statements for fair value measurements of certain assets and liabilities recorded at fair value on a non-recurring basis.

7. Business Combinations

Brandfolder

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

~~7. Business Combinations~~

On ~~May 1, 2019,~~September 14, 2020, we acquired 100% of the outstanding equity of ~~Artefact Product Group, LLC~~Brandfolder, Inc. (“~~Artefact Product Group” or “10,000ft”~~Brandfolder”), a ~~Washington limited liability company,~~Delaware corporation, pursuant to an Agreement and Plan of Merger (the ~~“Merger~~“Brandfolder Merger Agreement”). Combining Brandfolder capabilities with Smartsheet creates dynamic solutions that manage workflows around content and collaboration. The Company has included the financial results of Brandfolder in our condensed consolidated financial statements from the acquisition date. We incurred acquisition costs of $1.0 million during the year ended January 31, 2021 and less than $0.1 million during the three months ended April 30, 2021. These costs included legal and accounting fees and other costs directly related to the acquisition of Brandfolder and are recognized within general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The acquisition ~~is complementary to our existing product capabilities and accelerates our time to market~~date fair value of the consideration transferred for ~~a resource planning software solution.~~ Brandfolder was approximately $152.5 million, which consisted of the following (in thousands):


	Fair Value
Cash	$	126,589
Class A Common Stock	25,872
Total	$	152,461

The ~~aggregate~~fair value of the Class A Common Stock issued as part of the consideration paid ~~in exchange~~ for ~~all~~Brandfolder was determined on the basis of the ~~outstanding equity interests~~closing market price of ~~Artefact Product Group was approximately $27.8 million in cash, after a working capital adjustment of $0.2 million.~~Smartsheet’s common shares on the acquisition date.

Of the cash paid at closing, ~~a total of $2.8~~$0.7 million ~~was~~is held in a third-party escrow account for a 12-month period after closing to secure our indemnification rights under the Brandfolder Merger Agreement. ~~The $2.8~~

Additionally, we granted certain continuing employees of Brandfolder restricted stock awards with service conditions, which total 96,620 shares of our Class A common stock with an aggregate grant date fair value of $4.5 million ~~was released from escrow during~~that will be accounted for as post-acquisition share-based compensation expense over the vesting period. In the three months ended ~~July 31, 2020.~~April 30, 2021, we incurred share-based compensation expense related to these awards of $0.5 million.

We accounted for the transaction as a business combination using the acquisition method of accounting. We allocated the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition date. ~~Excess~~Fair values were determined using income and cost approaches. The fair value measurements of the intangible assets were based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in ASC 820. The following table summarizes the preliminary acquisition date fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):


	September 14, 2020
Cash	$	2,530
Accounts receivable	2,649
Contract assets	1,620
Right-of-Use assets	895
Other assets	991
Intangible assets	45,270
Goodwill	109,108
Accounts payable, accrued expenses and other current liabilities	(1,411)
Deferred revenue	(4,655)
Lease liabilities, non-current	(522)
Net deferred tax liability	(4,014)
Total	$	152,461

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The excess purchase price consideration was recorded as goodwill, and is primarily attributable to the acquired assembled workforce and ~~expected growth~~expanded market opportunities. The purchase price allocation was prepared on a preliminary basis and may be subject to further adjustments as additional information becomes available concerning the fair value of the assets acquired and liabilities assumed. The primary areas that remain preliminary as of the date of this Form 10-Q relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, income taxes and residual goodwill. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the ~~expansion of the acquired product offerings and customer base.~~acquisition date. The goodwill recognized upon acquisition is not expected to be deductible for U.S. federal income tax purposes.

We engaged a third-party valuation specialist to aid our analysis of the fair value of the acquired intangibles. All estimates, key assumptions, and forecasts were either provided by or reviewed by us. While we chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of management and not those of any third party.

10,000ft’s results of operations have been included in the Company’s condensed consolidated results of operations since the acquisition date. The major classes of assets and liabilities to which the Company allocated the purchase price, net of the $0.2 million working capital adjustment, were as follows (in thousands):


	~~May 1, 2019~~
~~Cash~~	$	~~1,150~~
~~Current Assets~~	~~801~~
~~Intangible Assets~~	~~16,090~~
~~Goodwill~~	~~11,001~~
~~Current Liabilities~~	~~(180)~~
~~Deferred Revenue~~	~~(1,030)~~
~~Total~~	$	~~27,832~~

The estimated useful lives and fair values of the identifiable intangible assets at acquisition date were as follows (dollars in thousands):


	Fair Value		Expected Useful Life	Discount Rate
Software technology	$	17,400	5 years	10.0	%
Customer relationships	16,590		7 years	11.0	%
Customer relationships - reseller	7,280		7 years	13.0	%
Trade name	4,000		9 years	13.8	%
Total intangible assets	$	45,270


	~~Fair Value~~		~~Expected Useful Life~~
~~Software Technology~~	$	~~8,000~~	~~5 years~~
~~Customer Relationships~~	~~7,990~~		~~8 years~~
~~Trade Name~~	~~100~~		~~32 months~~
~~Total intangible assets~~	$	~~16,090~~

The identifiable intangible assets were valued as follows:

Software technology - we valued the finite-lived software technology using a relief-from-royalty method under the income approach. This method estimates fair value by forecasting avoided royalties, reducing them by maintenance-related research and development expenses and taxes, and discounting the resulting net cash flows to a present value using an appropriate discount rate. We applied judgment which involved the use of significant assumptions with respect to the future revenue forecast, technology life, royalty rate, and the discount rate.

Customer relationships - we valued the finite-lived customer relationships using the multi-period excess earnings method. This method involves forecasting the net earnings expected to be generated by the asset, reducing them by appropriate returns on contributory assets, and then discounting the resulting net cash flows to a present value using an appropriate discount rate. We applied judgment which involved the use of the significant assumptions with respect to the future cash flows forecast, base year annual recurring revenue, customer churn rate, and the discount rate.

Customer relationships - reseller - we valued the finite-lived reseller-related customer relationships using an incremental cash flow approach. This method involves forecasting the incremental revenues expected to be generated by having the existing reseller relationship in place at acquisition, reducing them by appropriate operating expenses, taxes, and returns on contributory assets, and then discounting the resulting net cash flows to a present value using an appropriate discount rate. We applied judgment which involved the use of significant assumptions with respect to the future cash flows forecast and the discount rate.

Trade name - we valued the finite-lived trade name using the relief-from-royalty method under the income approach. This method involves forecasting avoided royalties, reducing them by income taxes, and then discounting the resulting net cash flows to a present value using an appropriate discount rate. We applied judgment which involved the use of significant assumptions with respect to our income forecast.

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The related software technology amortization expense is recognized over its useful life within cost of revenues in the condensed consolidated statements of operations and comprehensive loss. The amortization expense related to customer relationships and trade name intangible assets are recognized over their useful lives within sales and marketing in our condensed consolidated statements of operations and comprehensive loss. The weighted-average amortization period of the acquired intangible assets is 6.4 years.

8. Goodwill and Net Intangible Assets

There were no0 changes in the carrying amount of goodwill or measurement period adjustments during the ~~six~~three months ended ~~July 31, 2020.~~April 30, 2021.

The following table presents the components of net intangible assets (in thousands):


	As of April 30, 2021						As of January 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired software technology	$	25,400	$	(5,385)	$	20,015	$	25,400	$	(4,115)	$	21,285
Acquired customer relationships	32,150		(4,361)		27,789		32,150		(3,235)		28,915
Trade names	4,100		(354)		3,746		4,100		(233)		3,867
Patents	170		(115)		55		170		(111)		59
Domain name	13		0		13		13		0		13
Total	$	61,833	$	(10,215)	$	51,618	$	61,833	$	(7,694)	$	54,139

As of July 31, 2020 As of January 31, 2020
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Acquired software technology $ 9,866 $ (3,436) $ 6,430 $ 9,866 $ (2,325) $ 7,541
Acquired customer relationships 8,350 (1,459) 6,891 8,350 (900) 7,450
Trade names 100 (47) 53 100 (28) 72
Patents 170 (101) 69 170 (91) 79
Domain name 13 0 13 13 0 13
Total $ 18,499 $ (5,043) $ 13,456 $ 18,499 $ (3,344) $ 15,155

The components of acquired intangible assets ~~acquired~~ as of the periods presented were as follows (dollars in thousands):

As of July 31, 2020 As of January 31, 2020
Net Carrying Amount Weighted Average Life (Years) Net Carrying Amount Weighted Average Life (Years)
Acquired software technology $ 6,430 3.6 $ 7,541 4.0
Acquired customer relationships 6,891 6.6 7,450 7.1
Trade names 53 1.4 72 1.9
Total $ 13,374 5.1 $ 15,063 5.5


	As of April 30, 2021			As of January 31, 2021
	Net Carrying Amount		Weighted Average Life (Years)	Net Carrying Amount		Weighted Average Life (Years)
Acquired software technology	$	20,015	4.0	$	21,285	4.3
Acquired customer relationships	27,789		6.3	28,915		6.5
Trade names	3,746		8.3	3,867		8.6
Total	$	51,550	5.6	$	54,067	5.8

Amortization expense related to intangible assets was ~~$0.8~~$2.5 million and ~~$0.9~~$0.8 million for the three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019, respectively, and $1.7 million and $1.1 million for the~~ ~~six months~~ ~~ended~~ ~~July 31, 2020 and 2019,~~ respectively. As of ~~July 31, 2020,~~April 30, 2021, estimated remaining amortization expense for the finite-lived intangible assets by fiscal year is as follows (in thousands):


Remainder of Fiscal ~~2021~~2022				$	~~1,659~~
~~Fiscal 2022~~				~~2,897~~7,553
Fiscal 2023			~~2,608~~9,942
Fiscal 2024			~~2,607~~9,942
Fiscal 2025	8,740
Fiscal 2026	~~1,406~~7,024
Thereafter			~~2,266~~8,404
Total		$	~~13,443~~51,605

9. Share-Based Compensation

The Company has issued incentive and non-qualifying stock options to employees and non-employee directors under the 2005 Stock Option/Restricted Stock Plan (the “2005 Plan”), the 2015 Equity Incentive Plan (the “2015 Plan”), and the 2018 Equity Incentive Plan (the “2018 Plan”).

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company has also issued restricted stock units (“RSUs”) to employees and non-employee directors pursuant to the 2015 Plan and the 2018 Plan.

~~Table~~The Company has issued restricted stock awards (“RSAs”) to certain Brandfolder employees subject to vesting conditions. These shares were issued in a private placement transaction. As vesting of ~~Contents~~

~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

these RSAs is dependent on continuous employment, these were not considered part of the purchase price in accounting for the acquisition.

Employee stock options are granted with exercise prices at the fair value of the underlying common stock on the grant date, in general vest based on continuous employment over four years, and expire 10 years from the date of grant. Employee RSUs are measured based on the grant date fair value of the awards and in general vest based on continuous employment over four years. The RSAs are measured based on the grant date fair value of the awards and vest over a three-year period.

Stock options

The following table includes a summary of the option activity during the ~~six~~three months ended ~~July 31, 2020:~~

Options Outstanding Weighted-Average Exercise Price
Outstanding at January 31, 2020 9,076,671 $ 8.18
Granted 453,288 42.10
Exercised (1,271,126) 5.77
Forfeited or canceled (126,557) 10.98
Outstanding at July 31, 2020 8,132,276 10.40
Exercisable at July 31, 2020 5,026,994 6.19
April 30, 2021:


	Options Outstanding	Weighted-Average Exercise Price
Outstanding at January 31, 2021	6,533,474	$	12.07
Granted	302,603	62.56
Exercised	(503,918)	7.78
Forfeited or canceled	(95,061)	26.77
Outstanding at April 30, 2021	6,237,098	14.64
Exercisable at April 30, 2021	4,467,148	7.99

Restricted stock units

The following table includes a summary of the RSU activity during the ~~six~~three months ended ~~July 31, 2020:~~April 30, 2021:


	Number of Shares Underlying Outstanding RSUs	Weighted-Average Grant-Date Fair Value per RSU
Outstanding at January 31, 2021	4,765,240	$	42.15
Granted	1,959,105	63.58
Vested	(667,329)	37.25
Forfeited or canceled	(243,993)	43.74
Outstanding at April 30, 2021	5,813,023	49.87

Number of Shares Underlying Outstanding RSUs Weighted-Average Grant-Date Fair Value per RSU
Outstanding at January 31, 2020 3,138,330 $ 39.32
Granted 2,663,368 39.96
Vested (613,006) 39.28
Forfeited or canceled (217,655) 39.98
Outstanding at July 31, 2020 4,971,037 39.64
Restricted stock awards

The following table includes a summary of the RSA activity during the three months ended April 30, 2021:


	Number of Shares	Weighted-Average Grant-Date Fair Value per Share
Outstanding at January 31, 2021	92,318	$	46.93
Granted	0	0
Vested	(4,304)	46.93
Forfeited or canceled	0	0
Outstanding at April 30, 2021	88,014	46.93

2018 Employee Stock Purchase Plan

In April 2018, we adopted our 2018 Employee Stock Purchase Plan (“ESPP”). The ESPP became effective on April 26, 2018, with the effective date of our initial public offering.

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Under our ESPP, eligible employees are able to acquire shares of our Class A common stock by accumulating funds through payroll deductions of up to 15% of their compensation, subject to plan limitations. Purchases are accomplished through participation in discrete offering periods. Each offering period is six months (commencing each March 25 and September 25) and consists of 1 six-month purchase period, unless otherwise determined by our board of directors or our compensation committee. The purchase price for shares of our common stock purchased under our ESPP is 85% of the lesser of the fair market value of our common stock on (i) the first trading day of the applicable offering period or (ii) the last trading day of the purchase period in the applicable offering period.

Shares available for issuance

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~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

The following table includes a summary of the activity during the three months ended April 30, 2021 of our shares available for issuance under our 2018 Plan and our ~~ESPP during the six months ended July 31, 2020:~~

2018 Plan 2018 ESPP
Balance at January 31, 2020 10,921,562 2,438,717
Authorized 5,909,708 1,181,942
Granted (3,116,656) (208,049)
Forfeited 344,212 0
Balance at July 31, 2020 14,058,826 3,412,610
ESPP:


	2018 Plan	2018 ESPP
Balance at January 31, 2021	13,654,077	3,234,516
Authorized	6,163,646	1,232,730
Granted	(2,261,708)	(198,183)
Forfeited	339,054	0
Balance at April 30, 2021	17,895,069	4,269,063

The aggregate number of shares ~~available~~reserved for issuance under ~~the 2018 Plan and the~~our ESPP will increase automatically on February 1 of each of the ~~next 8~~first 10 calendar years ~~pursuant~~after the first offering date under the ESPP by the number of shares equal to 1% of the total outstanding shares of our Class A common stock and Class B common stock as of the immediately preceding January 31 (rounded to the ~~terms~~nearest whole share) or such lesser number of shares as may be determined by our board of directors in any particular year. The aggregate number of shares issued over the ~~2018 Plan and the~~term of our ESPP, ~~respectively.~~subject to stock-splits, recapitalizations or similar events, may not exceed 20,400,000 shares of our Class A common stock.

As of ~~July 31, 2020,~~April 30, 2021, ~~$5.3~~$2.7 million has been withheld on behalf of our employees for a future purchase under the ESPP and is recorded in accrued compensation and related benefits in the condensed consolidated balance sheet.

Share-based compensation expense

Share-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):


	Three Months Ended April 30,
	2021		2020
Cost of subscription revenue	$	1,495	$	895
Cost of professional services revenue	673		433
Research and development	8,307		5,128
Sales and marketing	8,656		5,105
General and administrative	4,728		2,856
Total share-based compensation expense*	$	23,859	$	14,417
*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous period

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
Cost of subscription revenue $ 1,113 $ 356 $ 2,008 $ 591
Cost of professional services revenue 566 298 999 515
Research and development 6,199 3,317 11,327 5,589
Sales and marketing 6,738 3,276 11,844 5,385
General and administrative 3,544 1,839 6,400 3,303
Total share-based compensation expense* $ 18,160 $ 9,086 $ 32,578 $ 15,383

*Includes amortization related

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SMARTSHEET INC.

Notes to ~~share-based compensation that was capitalized in internal-use software in previous periods.~~Condensed Consolidated Financial Statements

(unaudited)

10. Income Taxes

The provision for income taxes for interim tax periods is generally determined using an estimate of the Company’s annual effective tax rate, excluding jurisdictions for which no tax benefit can be recognized due to valuation allowances, and adjusted for discrete tax items in the period. Each quarter the Company updates its estimate of the annual effective tax rate and makes a cumulative adjustment if the estimated annual tax rate has changed.

The Company’s effective tax rate generally differs from the U.S. federal statutory tax rate primarily due to a valuation allowance related to the Company’s U.S. federal, state, and certain foreign deferred tax assets partially offset by the windfall from share-based compensation tax deductions.

The Company recorded a provision for income taxes of less than $0.1 million and $0.1 million for the three ~~and six~~ months ended ~~July 31,~~April 30, 2021 and 2020, respectively, primarily attributable to income taxes in foreign jurisdictions and state income taxes. The Company recorded a benefit for income taxes of less than $0.1 million for the three and six months ended July 31, 2019, respectively, primarily attributable to the windfall from share-based compensation tax deductions offset by income taxes in foreign jurisdictions and state income taxes.

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~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

On March 27, 2020, ~~the President of the United States signed into law~~ the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company ~~has~~ elected to defer the employer portion of Social Security taxes and ~~records~~recorded the expense as ~~incurred~~incurred. As of April 30, 2021, these taxes totaled $7.8 million, of which $3.9 million was recorded in accrued compensation and ~~maintained a payable of $4.7~~related benefits and $3.9 million ~~as of July 31, 2020.~~was recorded in other long-term liabilities on our condensed consolidated balance sheet. The deferral of these taxes does not impact the Company’s condensed consolidated statements of ~~operations.~~operations and comprehensive loss.

On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the COVID-19 pandemic. The Company has determined that the American Rescue Plan does not have a material impact on the Company’s condensed consolidated financial statements.

11. ~~Leases~~

Leases

The Company has operating leases primarily related to corporate offices and certain ~~equipment, and finance leases primarily related to data center~~ equipment. Our leases have remaining lease terms of less than 1 year to 98 years, some of which include options to extend the leases for up to 5 years.

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The components of lease expense recorded in the condensed consolidated statements of operations and comprehensive loss were as follows (in thousands):

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
Operating lease cost $ 3,782 $ 2,634 $ 7,402 $ 5,365
Finance lease cost:
Amortization of assets 1,041 1,025 2,117 1,997
Interest on lease liabilities 38 59 84 125
Short-term lease cost 337 142 727 269
Variable lease cost 687 432 1,250 835
Total lease costs $ 5,885 $ 4,292 $ 11,580 $ 8,591

~~Supplemental balance sheet information related to leases was as follows (in thousands):~~

Financial Statement Line Item As of July 31, 2020 As of January 31, 2020
Assets:
Operating lease assets Operating lease right-of-use assets $ 65,046 $ 57,590
Finance lease assets Property and equipment, net 1,821 3,939
Total leased assets $ 66,867 $ 61,529
Liabilities:
Current
Operating Operating lease liabilities, current $ 14,116 $ 13,020
Finance Finance lease liabilities, current 1,916 2,465
Non-current
Operating Operating lease liabilities, non-current 54,982 47,913
Finance Finance lease liabilities, non-current 866 1,664
Total lease liabilities $ 71,880 $ 65,062

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~~SMARTSHEET INC.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~


	Three Months Ended April 30,
	2021		2020
Operating lease cost	$	4,532	$	3,620
Finance lease cost:
Amortization of assets	0		1,076
Interest on lease liabilities	0		46
Short-term lease cost	343		390
Variable lease cost	588		563
Total lease costs	$	5,463	$	5,695

Other information related to leases was as follows (dollars in thousands):

Six Months Ended July 31,
2020 2019
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases* $ 6,778 $ 4,461
Operating cash flows from finance leases 84 118
Financing cash flows from finance leases 1,347 2,042
Right-of-use assets obtained in exchange for lease obligations:
Operating leases 13,069 0
Finance leases 0 1,682
Weighted-average remaining lease term (in years):
Operating leases 6.0 6.3
Finance leases 1.5 1.9
Weighted-average discount rate:
Operating leases 5.5 % 6.4 %
Finance leases 4.6 % 5.3 %


	Three Months Ended April 30,
	2021			2020
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases*	$	4,100		$	3,469
Operating cash flows from finance leases	$	0		$	46
Financing cash flows from finance leases	$	0		$	680
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	0		$	13,076
Finance leases	$	0		$	0

Weighted-average remaining lease term (in years):
Operating leases	6.0			6.2
Finance leases	—			1.6

Weighted-average discount rate:
Operating leases	5.1		%	5.5		%
Finance leases	0		%	4.6		%

*Includes cash paid for lease liability accretion of ~~$1.9~~$1.1 million and ~~$1.6~~$1.0 million for the ~~six~~three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019,~~ respectively.

As of ~~July 31, 2020,~~April 30, 2021, remaining maturities of lease liabilities were as follows (in thousands):

Operating Leases Finance Leases
Remainder of fiscal 2021 $ 7,336 $ 1,171
Fiscal 2022 14,294 1,286
Fiscal 2023 13,351 426
Fiscal 2024 13,640 0
Fiscal 2025 11,953 0
Thereafter 20,379 0
Total lease payments 80,953 2,883
Less: imputed interest (11,855) (101)
Total $ 69,098 $ 2,782

As of July 31, 2020, we had signed leases for additional office space that had not yet commenced. Future non-cancelable lease payments associated with these agreements totaled $26.5 million, payable over lease terms of 8 years.


	Operating Leases
Remainder of Fiscal 2022	$	13,397
Fiscal 2023	17,722
Fiscal 2024	17,755
Fiscal 2025	15,409
Fiscal 2026	13,357
Thereafter	21,565
Total lease payments	99,205
Less: imputed interest	(13,126)
Total	$	86,079

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SMARTSHEET INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

12. Commitments and Contingencies

Purchase Commitments

~~During the three months ended July 31, 2020, the Company entered into a four-year commitment with a cloud-based hosting service provider for $75.0 million. This commitment replaced~~As of April 30, 2021, there were no material changes to our ~~three-year commitment for $15.0 million~~commitments under contractual obligations as disclosed in our audited consolidated financial statements as of and for the year ended January 31, 2020. As of July 31, 2020, the entire commitment amount remained unpaid, of which $7.5 million of upfront payments are to be paid in fiscal 2021, $16.3 million of upfront payments are to be paid in fiscal 2022, $18.8 million of upfront payments are to be paid in fiscal 2023, $21.3 million of upfront payments are to be paid in fiscal 2024, and $11.3 million of upfront payments are to be paid in fiscal 2025. Total payments may exceed upfront payment amounts based on on-demand usage.2021.

Legal matters

An indemnification claim has been made against the Company by a former director, Ryan Hinkle, and Insight Venture Partners VII, L.P. and certain affiliated entities that are former shareholders of the Company (together with Hinkle, the “IVP Parties”), relating to a purported class action litigation in which the IVP Parties are defendants. On January 29, 2021, the IVP Parties filed a complaint against the Company in the Superior Court of Washington, King County, for the advancement of legal fees, costs, and expenses incurred in defending the purported class action claim. At this time, the Company cannot reasonably estimate the probability or magnitude of any alleged indemnification claim and does not believe that any advancement claim settlement would be material.

From time to time in the normal course of business, the Company may be subject to various other legal matters such as threatened or pending claims or proceedings. ~~We are~~Although management currently believes that resolution of such matters, individually and in the aggregate, will not ~~currently a party to any material legal proceedings or claims, nor are we aware of any pending or threatened litigation or claims against the Company that could~~ have a material ~~adverse effect~~impact on our ~~business, operating~~financial position, results of operations, or cash flows, ~~or financial condition should such litigation or claim be resolved unfavorably. An indemnification claim has been made~~these matters are subject to inherent uncertainties, and management’s view of these matters may change in the Company in a litigation in which a former director and shareholder are parties. The Company continues to monitor the case, but at this time the Company cannot reasonably estimate the magnitude of its indemnification obligation, if any.

future.

13. Geographic Information

Revenue by geographic location is determined by the location of the Company’s customers. The following table sets forth revenue (in thousands) by geographic area:

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
United States $ 74,238 $ 50,884 $ 143,224 $ 95,039
EMEA 8,819 7,323 17,524 13,572
Asia Pacific 3,623 3,408 7,043 6,233
Americas other than the United States 4,542 3,029 8,918 5,994
Total $ 91,222 $ 64,644 $ 176,709 $ 120,838


	Three Months Ended April 30,
	2021		2020

United States	$	96,403	$	68,986
EMEA	11,061		8,705
Asia Pacific	4,454		3,420
Americas other than the United States	5,164		4,376
Total	$	117,082	$	85,487

No individual country other than the United States contributed more than 10% of total revenue during any of the periods presented.

~~Property and equipment~~Long-lived assets

Long-lived assets by geographic location is based on the location of the legal entity that owns the asset. ~~As of July 31, 2020 and January 31, 2020, there was 0 significant~~The following table sets forth long-lived assets by geographic area (in thousands):


	April 30, 2021		January 31, 2021
United States	$	85,774	$	85,740
EMEA	4,509		5,007
Asia Pacific	2,181		2,020
Total	$	92,464	$	92,767

The table above includes property and equipment ~~owned by the Company outside of the United States.~~

~~14. Subsequent Events~~

~~On August 23, 2020, the Company entered into an Agreement~~ and Plan of Merger to acquire 100% of the outstanding equity of Brandfolder Inc. (“Brandfolder”). The total purchase consideration for the acquisition of Brandfolder is estimated to be approximately $150.0 million, net of customary purchase price adjustments. The purchase will consist of $124.0 million in cashoperating lease right-of-use assets and ~~the remainder in Company common stock. The acquisition is expected to close during the Company’s fiscal quarter ending October 31, 2020, subject to customary closing conditions.~~excludes capitalized internal-use software costs and intangible assets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended January 31, ~~2020.~~2021. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including but not limited to those discussed in the section titled “Risk Factors” and in other parts of this Quarterly Report on Form 10-Q. Our fiscal year ends January 31.

Overview

Smartsheet is the enterprise platform for dynamic work. We empower ~~everyone~~anyone to ~~improve how they work. We are a~~drive meaningful change. Our leading cloud-based platform ~~for work execution, enabling~~enables teams and organizations to plan, capture, manage, automate, and report on work at scale, resulting in more efficient processes and better business outcomes. We were founded in 2005 with a vision to build a universal application for work management that does not require coding capabilities.

Unstructured or dynamic work is work that has historically been managed using a combination of email, spreadsheets, whiteboards, phone calls, and in-person meetings to communicate with team members and complete projects and processes. It is frequently changing, often ad-hoc, and highly reactive to new information. Our platform helps manage this kind of unstructured work and serves as a single source of truth across work processes, fostering accountability and engagement within teams, leading to more efficient decision-making and better business outcomes.

We generate revenue primarily from the sale of subscriptions to our cloud-based platform. For subscriptions, customers select the plan that meets their needs and can begin using Smartsheet within minutes. We offer four subscription levels: Individual, Business, Enterprise, and Premier, the pricing for which varies by the capabilities provided. Customers can also purchase ~~connectors,~~Connectors, which provide data integration and automation to third-party applications. We also offer Dynamic View, Data Uploader, Control Center and Accelerators, which enable customers to implement solutions for a specific use case or for large scale projects, initiatives, or processes. We acquired 10,000ft in May 2019 which augmented our product portfolio by providing resource allocation and planning. We acquired Brandfolder, Inc. (“Brandfolder”) in September 2020, which provides a centralized platform to organize, discover, control, distribute, and measure all forms of digital content. Combining Brandfolder capabilities with Smartsheet will create dynamic solutions that manage workflows around content and collaboration. Professional services are offered to help customers create and administer solutions for specific use cases and for training purposes.

Customers can begin using our platform by purchasing a subscription directly from our website or through our sales force, starting a free trial, or working as a collaborator on a project.

Impact of COVID-19

In December 2019, a novel coronavirus (“COVID-19”) was first reported. In January 2020, the World Health Organization (“WHO”) declared COVID-19 a Public Health Emergency of International Concern, and in March 2020, the WHO characterized it as a pandemic.

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In response to reports of COVID-19, our executive leadership team and the human resources leadership team began an ongoing monitoring of the COVID-19 situation. Beginning in early February 2020, and aligning with guidance provided by government agencies and international organizations, we took measures to restrict travel, institute a broad work-from-home policy, and limit visitors and office services. By mid-March 2020, and again aligning with guidance provided by government agencies and international organizations, we restricted all travel, mandated a work-from-home policy across our global workforce, fully closed our offices to all visitors and services, and moved all in-person customer-facing events to be virtual.

~~Table~~ As of ~~Contents~~

April 30, 2021, all of our offices remain subject to restrictions which limit levels of allowed in-person contact, with restrictions aligned with guidance relevant to the office’s specific geographic location.

During the ~~six~~three months ended ~~July 31, 2020,~~April 30, 2021, purchasing decisions of certain customers ~~were~~continued to be impacted and sometimes deferred due to uncertainties around COVID-19. ~~We experienced some limitations in our ability to deliver consulting and training services, primarily due to travel restrictions.~~ As long as the global economic environment is influenced by COVID-19, our existing customers may be hesitant to expand their use of Smartsheet and in certain industries may be more likely to churn.

The broader implications of the global emergence of COVID-19 on our business, operating results, and overall financial performance remain uncertain and depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, impact on our partners and employees, and impact on the economic environment and financial markets, all of which are uncertain and cannot be predicted. As we continue to operate in the current environment, modifications to our usual circumstances include modifications to employee travel, employee work locations, and marketing events, among others. We expect that our customers and potential customers ~~will~~may take actions to reduce operating expenses and moderate cash flows, including by delaying some purchase decisions and requesting extended billing and payment terms. We will continue to actively monitor the situation and may take further actions that alter our business operations, as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and shareholders.

Key Business Metrics

We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

As of July 31,
2020 2019
Average annualized contract value per domain-based customer $ 4,156 $ 2,972
Dollar-based net retention rate for all customers (trailing 12 months) 128 % 134 %
Customers with annualized contract values (“ACV”) of $5 thousand or more 10,049 7,673
Customers with ACV of $50 thousand or more 1,131 635
Customers with ACV of $100 thousand or more 433 226


	As of April 30,
	2021			2020
Average annualized contract value per domain-based customer	$	5,461		$	3,866
Dollar-based net retention rate for all customers (trailing 12 months)	125		%	132		%
Customers with annualized contract values (“ACV”) of $5 thousand or more	12,655			9,576
Customers with ACV of $50 thousand or more	1,674			1,040
Customers with ACV of $100 thousand or more	661			391

Average ACV per domain-based customer

We use ACV per domain-based customer to measure customer commitment to our platform and sales force productivity. We define average ACV per domain-based customer as total outstanding ACV for domain-based subscriptions as of the end of the reporting period divided by the number of domain-based customers as of the same date. We define domain-based customers as organizations with a unique email domain name.

Dollar-based net retention rate

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We calculate dollar-based net retention rate as of a period end by starting with the ACV from the cohort of all customers as of the 12 months prior to such period end (“Prior Period ACV”). We then calculate the ACV from these same customers as of the current period end (“Current Period ACV”). Current Period ACV includes any upsells and is net of contraction or attrition over the trailing 12 months, but excludes subscription revenue from new customers in the current period. We then divide the total Current Period ACV by the total Prior Period ACV to arrive at the dollar-based net retention rate. Any ACV obtained through merger and acquisition transactions does not affect the dollar-based net retention rate until one year from the date on which the transaction closed.

The dollar-based net retention rate is used by us to evaluate the long-term value of our customer relationships and is driven by our ability to retain and expand the subscription revenue generated from our existing customers.

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Components of Results of Operations

Revenue

Subscription revenue

Subscription revenue primarily consists of fees from customers for access to our cloud-based platform. We recognize subscription revenue ratably over the term of the subscription period beginning on the date access to our platform is provided, as no implementation work is required, assuming all other revenue recognition criteria have been met.

Professional services revenue

Professional services revenue primarily includes ~~primarily~~ fees for consulting and training services. Our consulting services consist of platform configuration and use case optimization, and are primarily invoiced on a time and materials basis, with some smaller engagements being provided for a fixed fee. We recognize revenue for our consulting services as those services are delivered. Our training services are delivered either remotely or at the customer site. Training services are charged for on a fixed-fee basis and we recognize revenue as the training program is delivered. Our consulting and training services are generally considered to be distinct, for accounting purposes, and we recognize revenue as services are performed or upon completion of work.

Cost of revenue and gross margin

Cost of subscription revenue

Cost of subscription revenue primarily consists of expenses related to hosting our services and providing support, including employee-related costs such as salaries, wages, and related benefits, third-party hosting fees, ~~and payment processing fees, software and maintenance costs, allocated overhead,~~ amortization of acquisition-related intangibles, allocated overhead, software-related costs, ~~of connectors between Smartsheet and third-party applications,~~payment processing fees, costs of outside services to supplement our internal teams, costs of Connectors between Smartsheet and third-party applications, and travel-related expenses.

We intend to continue to invest in our platform infrastructure and our support organization. We currently utilize a combination of third-party co-location data centers and public cloud service providers, and are in the process of moving substantially all of our infrastructure to the public cloud.

Cost of professional services revenue

Cost of professional services revenue consists primarily of employee-related costs for our consulting and training teams, ~~allocated overhead, billable expenses, software-related costs, travel-related costs, and~~ costs of outside services to supplement our internal ~~teams.~~teams, allocated overhead, software-related costs, travel-related expenses, and billable expenses.

Gross margin

Gross margin is calculated as gross profit expressed as a percentage of total revenue. Our gross margin may fluctuate from period to period as our revenue mix fluctuates, and as a result of the timing and amount of investments to expand our hosting capacity, our continued building of application support and professional services teams, and increased share-based compensation ~~expense, as well as the relative proportions of total revenue provided by subscriptions or professional services in a given time period.~~expense. As we continue to invest in technology innovation, we expect our gross margin to moderately decline.

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Operating expenses

Research and development

Research and development expenses consist primarily of employee-related costs, ~~hardware- and~~ software-related costs, allocated overhead, ~~allocations,~~and costs of outside services used to supplement our internal ~~staff, and marketing-related costs.~~staff. We consider continued investment in our development talent and our platform to be important for our growth. We expect our research and development expenses to increase in absolute dollars as our business grows and to gradually decrease over the long-term as a percentage of total revenue due to economies of scale.

Sales and marketing

Sales and marketing expenses consist primarily of employee-related costs, costs of general marketing and promotional activities, allocated overhead, software-related costs, travel-related expenses, ~~software-related expenses,~~amortization of acquisition-related intangibles, and costs of outside services used to supplement our internal ~~staff, and amortization of acquisition-related intangibles.~~staff. Commissions earned by our sales force that are incremental to each customer contract, along with related fringe benefits and taxes, are capitalized and amortized over an estimated useful life of three years. We expect that sales and marketing expenses will increase in absolute dollars as we continue to invest in advertising and marketing initiatives and expect more of our future revenue to come from our inside and direct sales models, rather than through digital self-service sales. We expect sales and marketing costs to gradually decrease over the long-term as a percentage of total revenue due to economies of scale.

General and administrative

General and administrative expenses consist primarily of employee-related costs for accounting, finance, legal, IT, and human resources personnel. In addition, general and administrative expenses include non-personnel costs, such as ~~legal, accounting, and other professional fees,~~ allocated overhead, ~~hardware and software~~software-related costs, costs of outside services to supplement our internal staff, certain tax, license and insurance-related expenses, accounting and legal fees, bad debt expense, bank charges, and travel-related expenses.

We are incurring additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and the Sarbanes-Oxley Act of 2002, and increased expenses for insurance, investor relations, and professional services. We expect our general and administrative expenses to increase in absolute dollars as our business grows, and to gradually decrease over the long term as a percentage of total revenue due to economies of scale.

Interest income

Interest income consists of interest income from our investment holdings. ~~In light of~~Due to the current near-zero interest rate environment, consistent with the three months ended ~~July 31, 2020,~~April 30, 2021, we expect our interest income in the near term to remain insignificant.

Other income (expense), net

Other income (expense), net primarily consists of ~~interest expense associated with our finance leases, and~~ foreign exchange gains and ~~losses.~~losses, interest expense, and other non-operating income and expenses.

Income tax provision ~~(benefit)~~

~~Our~~The income tax provision ~~has not been historically significant to our business as we have incurred operating losses to date.~~consists primarily of income taxes in foreign jurisdictions and state income taxes. We maintain a valuation allowance on our U.S. federal, state and certain foreign deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be realized.

Results of Operations

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~~Results of Operations~~

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods:


	Three Months Ended April 30,
	2021		2020

	(in thousands)
Revenue
Subscription	$	108,013	$	77,163
Professional services	9,069		8,324
Total revenue	117,082		85,487
Cost of revenue
Subscription(1)	18,563		11,781
Professional services(1)	8,009		6,660
Total cost of revenue	26,572		18,441
Gross profit	90,510		67,046
Operating expenses
Research and development(1)	36,474		25,991
Sales and marketing(1)	71,379		54,783
General and administrative(1)	21,018		15,096
Total operating expenses	128,871		95,870
Loss from operations	(38,361)		(28,824)
Interest income	11		1,327
Other income (expense), net	1,327		(214)
Loss before income tax provision	(37,023)		(27,711)
Income tax provision	49		73
Net loss and comprehensive loss	$	(37,072)	$	(27,784)

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(in thousands)
Revenue
Subscription $ 83,622 $ 58,315 $ 160,785 $ 108,636
Professional services 7,600 6,329 15,924 12,202
Total revenue 91,222 64,644 176,709 120,838
Cost of revenue
Subscription⁽¹⁾
12,696 7,982 24,477 14,183
Professional services⁽¹⁾
6,322 4,683 12,982 8,967
Total cost of revenue 19,018 12,665 37,459 23,150
Gross profit 72,204 51,979 139,250 97,688
Operating expenses
Research and development⁽¹⁾
28,089 22,210 54,080 42,448
Sales and marketing⁽¹⁾
53,779 39,260 108,562 74,673
General and administrative⁽¹⁾
17,046 11,457 32,142 22,397
Total operating expenses 98,914 72,927 194,784 139,518
Loss from operations (26,710) (20,948) (55,534) (41,830)
Interest income 92 2,114 1,419 3,263
Other income (expense), net 134 (319) (80) (431)
Loss before income tax provision (benefit) (26,484) (19,153) (54,195) (38,998)
Income tax provision (benefit) 75 (39) 148 (74)
Net loss and comprehensive loss $ (26,559) $ (19,114) $ (54,343) $ (38,924)

(1) Amounts include share-based compensation expense as follows:


	Three Months Ended April 30,
	2021		2020

	(in thousands)
Cost of subscription revenue	$	1,495	$	895
Cost of professional services revenue	673		433
Research and development	8,307		5,128
Sales and marketing	8,656		5,105
General and administrative	4,728		2,856
Total share-based compensation expense*	$	23,859	$	14,417
*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(in thousands)
Cost of subscription revenue $ 1,113 $ 356 $ 2,008 $ 591
Cost of professional services revenue 566 298 999 515
Research and development 6,199 3,317 11,327 5,589
Sales and marketing 6,738 3,276 11,844 5,385
General and administrative 3,544 1,839 6,400 3,303
Total share-based compensation expense* $ 18,160 $ 9,086 $ 32,578 $ 15,383

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

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Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
Revenue
Subscription 92 % 90 % 91 % 90 %
Professional services 8 10 9 10
Total revenue 100 100 100 100
Cost of revenue
Subscription 14 12 14 12
Professional services 7 7 7 7
Total cost of revenue 21 20 21 19
Gross profit 79 80 79 81
Operating expenses
Research and development 31 34 31 35
Sales and marketing 59 61 61 62
General and administrative 19 18 18 19
Total operating expenses 108 113 110 115
Loss from operations (29) (32) (31) (35)
Interest income — 3 1 3
Other income (expense), net — — — —
Loss before income tax provision (benefit) (29) (30) (31) (32)
Income tax provision (benefit) — — — —
Net loss and comprehensive loss (29) % (30) % (31) % (32) %

~~Note: Certain amounts may not sum due to rounding.~~


	Three Months Ended April 30,
	2021		2020
Revenue
Subscription	92	%	90	%
Professional services	8		10
Total revenue	100		100
Cost of revenue
Subscription	16		14
Professional services	7		8
Total cost of revenue	23		22
Gross profit	77		78
Operating expenses
Research and development	31		30
Sales and marketing	61		64
General and administrative	18		18
Total operating expenses	110		112
Loss from operations	(33)		(34)
Interest income	—		2
Other income (expense), net	1		—
Loss before income tax provision	(32)		(32)
Income tax provision	—		—
Net loss and comprehensive loss	(32)	%	(33)	%
Note: Certain amounts may not sum due to rounding

Comparison of the three months ended ~~July 31,~~April 30, 2021 and 2020 ~~and 2019~~

~~Revenue~~

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Revenue
Subscription $ 83,622 $ 58,315 $ 25,307 43 %
Professional services 7,600 6,329 1,271 20 %
Total revenue $ 91,222 $ 64,644 $ 26,578 41 %
Percentage of total revenue
Subscription revenue 92 % 90 %
Professional services revenue 8 % 10 %

Revenue


	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Revenue
Subscription	$	108,013		$	77,163		$	30,850	40	%
Professional services	9,069			8,324			745		9	%
Total revenue	$	117,082		$	85,487		$	31,595	37	%
Percentage of total revenue
Subscription revenue	92		%	90		%
Professional services revenue	8		%	10		%

During the three months ended ~~July 31, 2020,~~April 30, 2021, as compared to the three months ended ~~July 31, 2019,~~April 30, 2020, total subscription revenue increased by ~~$25.3~~$30.9 million, or ~~43%~~40%. The increase in revenue between periods was driven by increased sales of user-based subscription plans, which contributed ~~$19.0~~$18.3 million of the increase, followed by sales of pre-configured capabilities, which contributed ~~$6.3~~$12.6 million of the increase.

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The increase in professional services revenue was primarily driven by increasing demand for our consulting and training services.

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Cost of revenue, gross profit, and gross margin

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Cost of revenue
Subscription $ 12,696 $ 7,982 $ 4,714 59 %
Professional services 6,322 4,683 1,639 35 %
Total cost of revenue $ 19,018 $ 12,665 $ 6,353 50 %
Gross profit $ 72,204 $ 51,979 $ 20,225 39 %
Gross margin
Subscription 85 % 86 %
Professional services 17 % 26 %
Total gross margin 79 % 80 %


	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Cost of revenue
Subscription	$	18,563		$	11,781		$	6,782	58	%
Professional services	8,009			6,660			1,349		20	%
Total cost of revenue	$	26,572		$	18,441		$	8,131	44	%
Gross profit	$	90,510		$	67,046		$	23,464	35	%
Gross margin
Subscription	83		%	85		%
Professional services	12		%	20		%
Total gross margin	77		%	78		%

Cost of subscription revenue increased ~~$4.7~~$6.8 million, or ~~59%~~58%, for the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019.~~April 30, 2020. The increase was primarily due to an increase of ~~$2.7~~$2.3 million in employee-related expenses due to increased headcount, of which ~~$0.7~~$0.5 million was related to share-based compensation expense, an increase of ~~$0.9~~$1.6 million in hosting fees, an increase of ~~$0.4 million in software-related costs, an increase of $0.4 million in allocated overhead, an increase of $0.2~~$0.8 million in costs of outside services to supplement our internal staff, an increase of $0.7 million in amortization of acquisition-related intangibles, an increase of $0.4 million each in software-related costs, allocated overhead, and costs of Connectors with third-party applications, and an increase of ~~$0.1~~$0.3 million in ~~both~~ credit card processing ~~fees and costs of connectors with third-party applications.~~fees. This was partially offset by a decrease of $0.1 million in travel-related costs.

Our gross margin for subscription revenue was ~~85%~~83% and ~~86%~~85% for the three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019,~~ respectively. The decrease in gross margin during the three months ended ~~July 31, 2020,~~April 30, 2021, was driven primarily by ~~migration~~increases in costs related to technical support services, an increase in the amortization of intangible assets due to the Brandfolder acquisition, and costs related to hosting our ~~application from our co-location data centers into the public cloud.~~platform.

Cost of professional services increased ~~$1.6~~$1.3 million, or ~~35%~~20%, for the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019.~~April 30, 2020. The increase was primarily due to an increase of ~~$1.6~~$1.2 million in employee-related expenses, of which ~~$0.3~~$0.2 million was related to share-based compensation expense, and an increase of $0.3 million in costs of outside services to supplement our internal ~~staff, and an increase of $0.1 million in allocated overhead costs.~~staff. This was partially offset by a decrease of ~~$0.2~~$0.1 million in both billable expenses and ~~a decrease of $0.1 million in~~ travel-related costs.

Our gross margin for professional services was ~~17%~~12% and ~~26%~~20% for the three months ended ~~July 31,~~April 30, 2021 and 2020, ~~and 2019,~~ respectively. The decrease in gross margin during the three months ended ~~July 31, 2020~~April 30, 2021 was driven primarily by ~~an increase~~increases in personnel expenses ~~that outpaced the related increase~~and costs of outside personnel to supplement our staff, partially offset by decreases in ~~professional services revenue year over year.~~billable expenses and travel-related costs.

Research and development expenses

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Research and development $ 28,089 $ 22,210 $ 5,879 26 %
Percentage of total revenue 31 % 34 %

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	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Research and development	$	36,474		$	25,991		$	10,483	40	%
Percentage of total revenue	31		%	30		%

Research and development expenses increased ~~$5.9~~$10.5 million, or ~~26%~~40%, for the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019.~~April 30, 2020. The increase was primarily due to an increase of ~~$5.0~~$10.3 million in employee-related expenses due to increased headcount, of which ~~$2.9~~$3.2 million was related to share-based compensation expense, ~~an increase of $0.9 million in software-related costs,~~ and an increase of ~~$0.3~~$1.0 million in ~~allocated overhead.~~software-related costs. This was partially offset by a decrease of ~~$0.3 million in travel-related expenses and a decrease of $0.1~~$0.8 million in costs of outside services to supplement our internal staff.

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Sales and marketing expenses

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Sales and marketing $ 53,779 $ 39,260 $ 14,519 37 %
Percentage of total revenue 59 % 61 %


	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Sales and marketing	$	71,379		$	54,783		$	16,596	30	%
Percentage of total revenue	61		%	64		%

Sales and marketing expenses increased ~~$14.5~~$16.6 million, or ~~37%~~30%, for the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019.~~April 30, 2020. The increase was primarily due to an increase of ~~$15.1~~$16.0 million in employee-related expenses due to increased headcount, of which $3.5 million related to increased share-based compensation expense, an increase of ~~$0.9~~$1.0 million in amortization of acquisition-related intangibles, an increase of $0.4 million in allocated overhead costs, an increase of ~~$0.3~~$0.4 million in software-related costs, and an increase of $0.2 million in costs of outside services used to supplement our internal staff. This was partially offset by a decrease of ~~$1.3~~$1.2 million in travel-related costs and a decrease of ~~$0.7~~$0.2 million in costs related to ~~lead generation.~~general marketing and advertising costs.

General and administrative expenses

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
General and administrative $ 17,046 $ 11,457 $ 5,589 49 %
Percentage of total revenue 19 % 18 %


	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
General and administrative	$	21,018		$	15,096		$	5,922	39	%
Percentage of total revenue	18		%	18		%

General and administrative expenses increased ~~$5.6~~$5.9 million, or ~~49%~~39%, for the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019.~~April 30, 2020. The increase was primarily due to an increase of ~~$3.6~~$5.7 million in employee-related expenses due to increased headcount, of which ~~$1.7~~$1.9 million related to increased share-based compensation expense, an increase of ~~$1.0~~$0.7 million in ~~accounting, internal control,~~taxes, licenses and ~~tax related costs,~~insurance, an increase of ~~$0.4~~$0.5 million in bad debt expense, an increase of $0.3 million in allocated overhead, and an increase of $0.2 million in costs of other outside services used to supplement our internal staff, an increase of $0.3 million in software-related costs, an increase of $0.2 million in legal fees, an increase of $0.2 million in bad debt expense, and an increase of $0.1 million in taxes, licenses, and insurance.staff. This was partially offset by a ~~net~~ decrease of ~~$0.2~~$1.0 million in ~~travel-related costs.~~accounting, internal control, and tax related costs, a decrease of $0.3 million in legal fees, and a decrease of $0.1 million in bank charges.

Interest income


	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Interest income	$	11		$	1,327		$	(1,316)	(99)	%
Percentage of total revenue	—		%	2		%

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Interest income $ 92 $ 2,114 $ (2,022) (96) %
Percentage of total revenue — % 3 %

For the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019,~~April 30, 2020, the decrease in interest income of ~~$2.0~~$1.3 million was driven by ~~the decline~~a lower monetary value of cash and cash equivalents held in ~~interest rates year over year.~~interest-bearing accounts and instruments.

3027

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Other income (expense), net


	Three Months Ended April 30,						Change
	2021			2020			Amount		%

	(dollars in thousands)
Other income (expense), net	$	1,327		$	(214)		$	1,541	*N/M
Percentage of total revenue	1		%	—		%
*N/M = Not meaningful

Three Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Other income (expense), net $ 134 $ (319) $ 453 (142) %
Percentage of total revenue — % — %

For the three months ended ~~July 31, 2020~~April 30, 2021 compared to the three months ended ~~July 31, 2019,~~April 30, 2020, the change in other income (expense), net was driven by an increase in other income of $1.0 million due to an acquisition-related gain contingency that was resolved during the three months ended April 30, 2021. In addition, $0.4 million of the increase was due to a ~~net~~ ~~$0.4 million~~ change from unrealized foreign currency loss recorded during the three months ended ~~July 31, 2019~~April 30, 2020 to unrealized foreign currency gain recorded during the three months ended ~~July 31, 2020.~~

~~Comparison of the six months ended July 31, 2020 and 2019~~

~~Revenue~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Revenue
Subscription $ 160,785 $ 108,636 $ 52,149 48 %
Professional services 15,924 12,202 3,722 31 %
Total revenue $ 176,709 $ 120,838 $ 55,871 46 %
Percentage of total revenue
Subscription revenue 91 % 90 %
Professional services revenue 9 % 10 %

~~During the six months ended July 31, 2020, as compared to the six months ended July 31, 2019, total subscription revenue increased by $52.1 million, or 48%.~~April 30, 2021. The ~~increase in revenue between periods was driven by increased sales of user-based subscription plans, which contributed~~ ~~$40.0~~ ~~million of the increase, followed by sales of pre-configured capabilities, which contributed~~ ~~$12.1~~ ~~million of the increase.~~

~~The increase in professional services revenue was primarily driven by increasing demand for our consulting and training services.~~

~~Table of Contents~~

~~Cost of revenue, gross profit, and gross margin~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Cost of revenue
Subscription $ 24,477 $ 14,183 $ 10,294 73 %
Professional services 12,982 8,967 4,015 45 %
Total cost of revenue $ 37,459 $ 23,150 $ 14,309 62 %
Gross profit $ 139,250 $ 97,688 $ 41,562 43 %
Gross margin
Subscription 85 % 87 %
Professional services 18 % 27 %
Total gross margin 79 % 81 %

Cost of subscription revenue increased $10.3 million, or 73%, for the six months ended July 31, 2020 compared to the six months ended July 31, 2019. The increase was primarily due to an increase of $5.4 million in employee-related expenses due to increased headcount, of which $1.3remaining $0.1 million was related to share-based compensation expense, an increase of $2.4 million in hosting fees, an increase of $0.8 million in software-related costs, an increase of $0.8 million in allocated overhead, an increase of $0.4 million in amortization of acquisition-related intangibles, an increase of $0.2 million in costs of outside services to supplement our internal staff, and an increase of $0.2 million in both credit card processing fees and costs of connectors with third-party applications. This was partially offset by a ~~decrease of $0.1 million in travel-related cost.~~

Our gross margin for subscription revenue was 85% and 87% for the six months ended July 31, 2020 and 2019, respectively. The decrease in gross margin during the six months ended July 31, 2020, was driven primarily by migration of our application from our co-location data centers into the public cloud.

Cost of professional services increased $4.0 million, or 45%, for the six months ended July 31, 2020 compared to the six months ended July 31, 2019. The increase was primarily due to an increase of $3.2 million in employee-related expenses, of which $0.5 million was related to share-based compensation expense, an increase of $1.0 million in costs of outside services to supplement our internal staff, and an increase of $0.2 million in allocated overhead costs. This was partially offset by a decrease of $0.3 million in billable expenses and a decrease of $0.1 million in travel-related costs.

Our gross margin for professional services revenue was 18% and 27% for the six months ended July 31, 2020 and 2019, respectively. The decrease in gross margin during the six months ended July 31, 2020, was driven primarily by an increase in personnel expenses that outpaced the related increase in professional services revenue for the second fiscal quarter and increased utilization of third-party service providers to supplement our internal staff in delivering revenue-generating consulting arrangements in the first fiscal quarter.

~~Research and development expenses~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Research and development $ 54,080 $ 42,448 $ 11,632 27 %
Percentage of total revenue 31 % 35 %

~~Table of Contents~~

Research and development expenses increased $11.6 million, or 27%, for the six months ended July 31, 2020 compared to the six months ended July 31, 2019. The increase was primarily due to an increase of $10.1 million in employee-related expenses due to increased headcount, of which $5.7 million was related to share-based compensation expense, an increase of $1.5 million in software-related costs, and an increase of $0.6 million in allocated overhead. This was partially offset by a decrease of $0.3 million in travel-related costs, and a decrease of $0.2 million in costs of outside services to supplement our internal staff.

~~Sales and marketing expenses~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Sales and marketing $ 108,562 $ 74,673 $ 33,889 45 %
Percentage of total revenue 61 % 62 %

Sales and marketing expenses increased $33.9 million, or 45%, for the six months ended July 31, 2020 compared to the six months ended July 31, 2019. The increase was primarily due to an increase of $29.2 million in employee-related expenses due to increased headcount, of which $6.4 million related to increased share-based compensation expense, an increase of $2.6 million in marketing costs related to our brand advertising campaign and other marketing initiatives, an increase of $1.8 million in allocated overhead costs, an increase of $0.6 million in software-related costs, an increase of $0.4 million in costs of outside services used to supplement our internal staff, and an increase of $0.3 million in amortization of acquisition-related intangibles. This was partially offset by a decrease of $1.0 million in travel-related costs.

~~General and administrative expenses~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
General and administrative $ 32,142 $ 22,397 $ 9,745 44 %
Percentage of total revenue 18 % 19 %

General and administrative expenses increased $9.7 million, or 44%, for the six months ended July 31, 2020 compared to the six months ended July 31, 2019. The increase was primarily due to an increase of $6.3 million in employee-related expenses due to increased headcount, of which $3.1 million related to increased share-based compensation expense, an increase of $2.1 million in accounting, internal control, and tax related costs, an increase of $0.7 million in software-related costs, an increase of $0.5 million in legal fees, an increase of $0.5 million in costs of other outside services used to supplement our internal staff, an increase of $0.4 million in bad debt expense, an increase of $0.1 million in allocated overhead costs, and an increase of $0.1 million in bank charges. This was partially offset by a decrease of $0.5 million in taxes, licenses, and insurance, and a decrease of $0.4 million in travel-related costs.

~~Interest income~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Interest income $ 1,419 $ 3,263 $ (1,844) (57) %
Percentage of total revenue 1 % 3 %

~~For the six months ended July 31, 2020 compared to the six months ended July 31, 2019, the~~ decrease in interest ~~income of $1.8 millionwas driven by the decline in interest rates year over year.~~

~~Table of Contents~~

~~Other income (expense), net~~

Six Months Ended July 31, Change
2020 2019 Amount %
(dollars in thousands)
Other income (expense), net $ (80) $ (431) $ 351 (81) %
Percentage of total revenue — % — %
expense.

~~For the six months ended July 31, 2020 compared to the six months ended July 31, 2019, the change in other income (expense), net was driven by a~~ ~~decrease of $0.3 million~~ ~~in unrealized foreign currency loss.~~

Non-GAAP Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States (“GAAP”), we believe the following non-GAAP financial measures are useful in evaluating our operating performance. We use the below referenced non-GAAP financial measures, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial measures, when taken collectively, may be helpful to investors because they provide consistency and comparability with past financial performance, and assist in comparisons with other companies, some of which use similar non-GAAP financial measures to supplement their GAAP results. The non-GAAP financial measures are presented for supplemental informational purposes only, should not be considered a substitute for financial measures presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. 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.

Limitations of non-GAAP financial measures

Our non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. First, free cash flow and calculated billings are not substitutes for net cash used in operating activities and total revenue, respectively. Similarly, non-GAAP gross profit and non-GAAP operating loss are not substitutes for gross profit and operating loss, respectively. Second, other companies may calculate similar non-GAAP financial measures differently or may use other measures as tools for comparison. Additionally, the utility of free cash flow as a measure of our financial performance and liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. Furthermore, as calculated billings isare affected by a combination of factors, including the timing of sales, the mix of monthly and annual subscriptions sold, and the relative duration of subscriptions sold, and each of these elements has unique characteristics in the relationship between calculated billings and total revenue, our calculated billings activity is not closely correlated to revenue except over longer periods of time.

Non-GAAP gross profit and non-GAAP gross margin

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~~Non-GAAP gross profit and non-GAAP gross margin~~

We define non-GAAP gross profit as gross profit adjusted for share-based compensation expense, amortization of acquisition-related intangible assets, and one-time acquisition costs. Non-GAAP gross margin represents non-GAAP gross profit as a percentage of total revenue.

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(dollars in thousands)
Gross profit $ 72,204 $ 51,979 $ 139,250 $ 97,688
Add:
Share-based compensation expense* 1,679 654 3,007 1,106
Amortization of acquisition-related intangible assets 555 555 1,111 720
One-time acquisition costs — 56 — 69
Non-GAAP gross profit $ 74,438 $ 53,244 $ 143,368 $ 99,583
Gross margin 79 % 80 % 79 % 81 %
Non-GAAP gross margin 82 % 82 % 81 % 82 %

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.


	Three Months Ended April 30,
	2021			2020

	(dollars in thousands)
Gross profit	$	90,510		$	67,046
Add:
Share-based compensation expense*	2,168			1,328
Amortization of acquisition-related intangible assets	1,270			555
Non-GAAP gross profit	$	93,948		$	68,929

Gross margin	77		%	78		%
Non-GAAP gross margin	80		%	81		%
*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Non-GAAP operating loss and non-GAAP operating margin

We define non-GAAP operating loss as loss from operations adjusted for share-based compensation expense, amortization of acquisition-related intangible assets, and one-time acquisition costs. Non-GAAP operating margin represents non-GAAP operating loss as a percentage of total revenue.

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(dollars in thousands)
Loss from operations $ (26,710) $ (20,948) $ (55,534) $ (41,830)
Add:
Share-based compensation expense* 18,160 9,086 32,578 15,383
Amortization of acquisition-related intangible assets 845 845 1,689 1,045
One-time acquisition costs 334 197 342 527
Non-GAAP operating loss $ (7,371) $ (10,820) $ (20,925) $ (24,875)
Operating margin (29) % (32) % (31) % (35) %
Non-GAAP operating margin (8) % (17) % (12) % (21) %

*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.


	Three Months Ended April 30,
	2021			2020

	(dollars in thousands)
Loss from operations	$	(38,361)		$	(28,824)
Add:
Share-based compensation expense*	23,859			14,417
Amortization of acquisition-related intangible assets	2,517			845
One-time acquisition costs	17			8
Non-GAAP operating loss	$	(11,968)		$	(13,554)

Operating margin	(33)		%	(34)		%
Non-GAAP operating margin	(10)		%	(16)		%
*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Non-GAAP net loss

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~~Non-GAAP net loss~~

We define non-GAAP net loss as net loss adjusted for share-based compensation expense, amortization of acquisition-related intangible assets, ~~and~~ one-time acquisition ~~costs.~~

Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(in thousands)
Net loss $ (26,559) $ (19,114) $ (54,343) $ (38,924)
Add:
Share-based compensation expense* 18,160 9,086 32,578 15,383
Amortization of acquisition-related intangible assets 845 845 1,689 1,045
One-time acquisition costs 334 197 342 527
Non-GAAP net loss $ (7,220) $ (8,986) $ (19,734) $ (21,969)

*Includes amortization related to share-based compensation that was capitalized in internal-use softwarecosts, and ~~other assets in previous periods.~~ non-recurring income tax adjustments associated with mergers and acquisitions.


	Three Months Ended April 30,
	2021		2020

	(in thousands)
Net loss	$	(37,072)	$	(27,784)
Add:
Share-based compensation expense*	23,859		14,417
Amortization of acquisition-related intangible assets	2,517		845
One-time acquisition costs	17		8
Non-GAAP net loss	$	(10,679)	$	(12,514)
*Includes amortization related to share-based compensation that was capitalized in internal-use software and other assets in previous periods.

Free cash flow

We define free cash flow as net cash provided by (used in) operating activities less cash used for purchases of property and equipment, capitalized internal-use software, and payments on finance lease obligations. We believe free cash flow facilitates period-to-period comparisons of liquidity. We consider free cash flow to be a key performance metric because it measures the amount of cash we generate from our operations after our capital expenditures and payments on finance lease obligations. We use free cash flow in conjunction with traditional GAAP measures as part of ~~our~~the overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of ~~our~~the Company’s business strategies, and to communicate with our board of directors concerning our liquidity.


		Three Months Ended July 31,						Six Months Ended July 31,							Three Months Ended April 30,
		2020		2019		2020		2019			2021		2020

		(in thousands)														(in thousands)
Net cash used in operating activities	Net cash used in operating activities	$	(1,318)	$	(2,691)	$	(25,603)	$	(11,877)	Net cash used in operating activities	$	(2,961)	$	(24,285)
Less:	Less:									Less:
Purchases of property and equipment	Purchases of property and equipment	(971)		(1,747)		(1,989)		(3,085)		Purchases of property and equipment	(3,220)		(1,018)
Capitalized internal-use software development costs	Capitalized internal-use software development costs	(1,467)		(1,844)		(3,711)		(3,397)		Capitalized internal-use software development costs	(2,017)		(2,244)
Payments on principal of finance leases	Payments on principal of finance leases	(667)		(1,028)		(1,347)		(2,042)		Payments on principal of finance leases	—		(680)
Free cash flow	Free cash flow	$	(4,423)	$	(7,310)	$	(32,650)	$	(20,401)	Free cash flow	$	(8,198)	$	(28,227)

We define calculated billings as total revenue plus the change in deferred revenue in the period. Because we recognize subscription revenue ratably over the subscription term, calculated billings can be used to measure our subscription sales activity for a particular period, to compare subscription sales activity across particular periods, and as an indicator of future subscription revenue.

Because we generate most of our revenue from customers who are invoiced on an annual basis, and because we have a wide range of customers, from those who pay us less than $200 per year to those who pay us more than $2.5 million per year, we experience seasonality and variability that is tied to typical enterprise buying patterns and contract renewal dates of our largest ~~customers. Our calculated billings results for the six months ended July 31, 2020 were negatively affected by economic circumstances caused by COVID-19.~~ customers. We expect that our billings trends will continue to vary in future periods based on the timing and size of new and renewal bookings, changes to the economic environment inclusive of those related to COVID-19, and other factors.

Liquidity and Capital Resources

As of ~~July 31, 2020,~~April 30, 2021, our principal sources of liquidity were cash and cash equivalents totaling ~~$546.0~~$439.7 million, which were held for working capital purposes. Our cash equivalents were comprised primarily of money market funds. We have historically generated significant operating losses and negative cash flows from operations as reflected in our accumulated deficit and condensed consolidated statements of cash flows. We expect to continue to incur operating losses and negative cash flows from operations for the foreseeable future.

We have financed our operations primarily through payments received from customers for subscriptions and professional services, net proceeds received through sales of equity securities, option exercises, contributions from our 2018 Employee Stock Purchase Plan (“ESPP”), ~~capitalized~~finance leases, and interest income.

We believe our existing cash and cash equivalents, and cash provided by sales of our products and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market adoption of our product. We may, in the future, enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us, or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, our ability to compete successfully could be reduced, and this could harm our results of operations.

A significant majority of our customers pay in advance for annual subscriptions. Therefore, a substantial source of our cash is from our deferred revenue, which is included on our balance sheet as a liability. Deferred revenue consists primarily of the unearned portion of billed fees for our subscriptions, which is recognized as revenue in accordance with our revenue recognition policy. As of ~~July 31, 2020,~~April 30, 2021, we had deferred revenue of ~~$169.3~~$239.7 million, of which ~~$168.6~~$238.7 million was recorded as a current liability and was expected to be recognized as revenue in the subsequent 12 months, provided all recognition criteria are met.

The following table summarizes our cash flows for the periods indicated:

Six Months Ended July 31,
2020 2019
Net cash used in operating activities $ (25,603) $ (11,877)
Net cash provided by (used in) investing activities 43,876 (83,321)
Net cash provided by financing activities 11,638 391,809
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash 45 (216)
Net increase in cash, cash equivalents, and restricted cash $ 29,956 $ 296,395


	Three Months Ended April 30,
	2021		2020

Net cash used in operating activities	$	(2,961)	$	(24,285)
Net cash provided by (used in) investing activities	(5,237)		47,270
Net cash provided by financing activities	5,327		5,373
Effects of changes in foreign currency exchange rates on cash, cash equivalents, and restricted cash	447		(249)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(2,424)	$	28,109

Operating activities

Our largest sources of operating cash are cash collections from our customers for sales of subscriptions and professional services. Our primary uses of cash from operating activities are for employee-related expenditures and sales and marketing expenses. Historically, we have generated negative cash flows from operating activities during most fiscal years, and have supplemented working capital requirements through net proceeds from the sale of equity securities.

During the ~~six~~three months ended ~~July 31,~~April 30, 2021, net cash used in operating activities was $3.0 million, driven by our net loss of $37.1 million, adjusted for non-cash charges of $40.9 million, and net cash outflows of $6.8 million due to changes in our operating assets and liabilities. Non-cash charges primarily consisted of share-based compensation, amortization of deferred commission costs, non-cash operating lease costs, amortization of intangible assets, and depreciation of property and equipment. Fluctuations in operating assets and liabilities included an increase in deferred revenue of $15.7 million, an increase in deferred commissions of $15.3 million, a decrease in accounts payable and accrued expenses of $14.0 million, a decrease in accounts receivable of $13.4 million, an increase in prepaid expenses and other current assets of $3.6 million, a decrease in operating lease liabilities of $3.0 million, and a decrease in other long-term assets of $0.2 million.

During the three months ended April 30, 2020, net cash used in operating activities was ~~$25.6~~$24.3 million, driven by our net loss of ~~$54.3~~$27.8 million, adjusted for non-cash charges of ~~$59.8~~$27.8 million, and net cash outflows of ~~$31.0~~$24.3 million due to changes in our operating assets and liabilities. Non-cash charges primarily consisted of share-based compensation, amortization of deferred commission costs, depreciation of property and equipment, non-cash operating lease costs, and amortization of intangible assets. Fluctuations in operating assets and liabilities included a decrease in accounts payable and accrued expenses of ~~$21.6~~$23.7 million, an increase in deferred commissions of ~~$17.6~~$8.3 million, a decrease in accounts receivable of $7.4 million, an increase in deferred revenue of ~~$10.4~~$4.4 million, a decrease in operating lease liabilities of $5.0 million, an increase of $4.7 million in long-term liabilities, an increase in prepaid expenses and other current assets of $2.3 million, a decrease in accounts receivable of $2.3 million, and an increase in other long-term assets of $2.0 million.

During the six months ended July 31, 2019, net cash used in operating activities was $11.9 million, driven by our net loss of $38.9 million, adjusted for non-cash charges of $33.8 million, and net cash outflows of $6.8 million due to changes in our operating assets and liabilities. Non-cash charges primarily consisted of share-based compensation, amortization of deferred commission costs, depreciation of property and equipment, and amortization of operating lease right-of-use assets and intangible assets. Notable fluctuations in operating assets and liabilities included an increase in deferred revenue of $26.7 million, an increase in deferred commissions of $15.0 million, an increase in accounts receivable of $9.3$2.6 million, a net increase in prepaid expenses and other current assets of ~~$6.3 million, a decrease in operating lease liabilities of $2.8~~$2.2 million, an increase ~~in accounts payable and accrued expenses~~ of ~~$1.2 million, and a decrease of $1.0~~$1.5 million in long-term ~~liabilities.~~liabilities, and an increase in other long-term assets of $0.8 million.

Investing activities

Net cash used in investing activities during the three months ended April 30, 2021 of $5.2 million consisted of purchases of property and equipment of $3.2 million and spend on capitalized internal-use software development of $2.0 million.

Net cash provided from investing activities during the ~~six~~three months ended ~~July 31,~~April 30, 2020 of ~~$43.9~~$47.3 million consisted of $50.5 million in proceeds from the early termination of short-term investments, partially offset by spend on capitalized internal-use software development of ~~$3.7 million, purchases of property and equipment of$2.0 million, and the release of $1.0 million of the holdback related to the acquisition of TernPro, Inc. in January 2019.~~

Net cash used in investing activities during the six months ended July 31, 2019 of $83.3 million consisted of spend on short-term investments of $50.0 million, payments for a business acquisition, net of cash acquired, of $26.8 million, spend on capitalized internal-use software development of $3.4$2.2 million, and purchases of property and equipment of ~~$3.1~~$1.0 million.

Financing activities

Net cash provided by financing activities during the ~~six~~three months ended ~~July 31, 2020~~April 30, 2021 of ~~$11.6~~$5.3 million was primarily due to ~~$7.5~~$4.7 million in proceeds from our ESPP and $3.4 million in proceeds from the exercise of stock ~~options and $7.0 million in proceeds from our ESPP.~~options. These proceeds were partially offset by taxes paid related to net share settlement of restricted stock units of ~~$1.5~~$2.8 million.

Net cash provided by financing activities during the three months ended April 30, 2020 of $5.4 million was primarily due to $3.6 million in proceeds from our ESPP, and $3.5 million in proceeds from the exercise of stock options. These proceeds were partially offset by taxes paid related to net share settlement of restricted stock units of $1.0 million, payments of principal on finance leases of ~~$1.3~~$0.7 million, and payments of deferred follow-on offering costs of $0.1 million.

Net cash provided by financing activities during the six months ended July 31, 2019 of $391.8 million was primarily due to $379.8 million of net proceeds from our follow-on offering of common stock, $9.7 million in proceeds from the exercise of stock options and $5.0 million in proceeds from our ESPP. These proceeds were partially offset by finance leases of $2.0 million and payments of deferred follow-on offering costs of $0.7 million.

Obligations and Other Commitments

As of ~~July 31, 2020,~~April 30, 2021, our principal obligations consisted of obligations outstanding under non-cancelable operating leases that expire at various dates through fiscal year 2030. See Note 11, Leases, to the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q for additional information on our operating leases, including changes to our principal lease commitments compared to those discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020.~~2021.

Our non-lease contractual commitments consist of obligations under our commitment with a cloud-based hosting service provider and non-cancelable purchase commitments. ~~See Note 12,~~ ~~Commitments and Contingencies~~,There have been no material changes to ~~the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q for additional information on~~ our non-lease contractual commitments ~~including changes~~compared to those discussed in Note 13 Commitments and Contingencies, of our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2020.~~2021.

Indemnification Agreements

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers, or employees. An indemnification claim has been made to the Company ~~in a~~related to litigation in which a former director and shareholder are parties. ~~The Company continues~~On January 29, 2021, Ryan Hinkle and Insight Venture Partners VII, L.P. and certain affiliates filed a complaint against Smartsheet Inc. in the Superior Court of Washington, King County, for the advancement of legal fees, costs, and expenses incurred related to ~~monitor the case, but at~~this indemnification claim. At this time, the Company cannot reasonably estimate the probability or magnitude of ~~its~~any alleged indemnification obligation, if any. There are no claims that we are aware of at this time that could have a material effect on our condensed consolidated balance sheets, statements of operations and comprehensive loss, or statements of cash flows.claim.

Off-Balance Sheet Arrangements

As of ~~July 31, 2020,~~April 30, 2021, we did not have any relationships with organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates.

The Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended January 31, ~~2020.~~2021. There have been no significant changes to these policies during the ~~six~~three months ended ~~July 31, 2020~~April 30, 2021 except as described in Note 2, Summary of Significant Accounting Policies, in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

For further information on our recently adopted accounting pronouncements, refer to Note 2, Summary of Significant Accounting Policies, in the condensed consolidated financial statements contained within this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We had cash and cash equivalents totaling ~~$546.0~~$439.7 million as of ~~July 31, 2020,~~April 30, 2021, of which ~~$532.8~~ $399.2 million was invested in money market funds. We had cash and cash equivalents totaling ~~$515.9~~$442.2 million as of January 31, ~~2020,~~2021, of which ~~$303.9~~$420.6 million was invested in money market funds. Our cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes.

Our cash equivalents and our investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.

A hypothetical 10% relative change in interest rates would not have had a material impact on the value of our cash equivalents as of ~~July 31,~~April 30, 2021, and 2020, ~~and 2019,~~ respectively.

Foreign currency exchange risk

Due to our international operations, although our sales contracts are primarily denominated in U.S. dollars, we have foreign currency risks related to revenue denominated in other currencies, such as the ~~Euro,~~ British Pound Sterling, Euro, Australian dollar, and Canadian dollar, as well as expenses denominated in the British Pound Sterling and Australian dollar. Changes in the relative value of the U.S. dollar to other currencies may negatively affect revenue and other operating results as expressed in U.S. dollars. We have not engaged in the hedging of foreign currency transactions to date. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar to other currencies would have a material effect on our operating results.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management, with the participation and supervision of our ~~chief executive officer~~Chief Executive Officer and our ~~chief financial officer,~~Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that 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 ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

~~Because of the previously disclosed material weaknesses in~~Based on such evaluation, our ~~internal control over financial reporting discussed below, our chief executive officer~~Chief Executive Officer and ~~chief financial officer~~Chief Financial Officer concluded that ~~as of July 31, 2020,~~ our disclosure controls and procedures, were not effective. In light of this fact, our management, including our chief executive officer and chief financial officer, has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

~~Previously identified material weaknesses~~

As of January 31, 2020, we identified material weaknesses in our internal control over financial reporting, as defined in the standards established by the Sarbanes-Oxley Act of 2002. These material weaknesses related to (i) an ineffective control environment as we did not have a sufficient complement of resources with an appropriate level of controls knowledge and expertise commensurate with our financial reporting requirements, (ii) design and ~~maintenance~~operation, were effective as of effective information technology general controls for certain information systems relevant to the preparation of the financial statements, and (iii) design and maintenance of effective controls related to the completeness, accuracy and occurrence of order entry and pricing during the billing and revenue processes.

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.

Since the identification of the material weaknesses described above, we commenced efforts and made progress towards mitigation of the identified material weaknesses. Specifically, through the date of filing of this Quarterly Report on Form 10-Q, we:

•made significant progress, working with one of the four largest global accounting firms, towards risk assessment and control design evaluation across multiple financially relevant business processes and systems;

•~~made significant progress around the design and implementation of IT general controls for financially relevant systems;~~

•~~continued work to enhance processes and controls in our order entry and revenue recognition cycles;~~

•~~hired a Senior Director of Internal Audit with multiple years of internal control experience, who has led internal audit teams, and who has already onboarded a team of qualified internal auditors.~~

To remediate our existing material weaknesses, we require additional time to complete the design and implementation of mitigating controls and processes, and to demonstrate the effectiveness of our remediation efforts. The material weaknesses cannot be considered remediated until the applicable remediating controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Notwithstanding the material weaknesses noted, our management has concluded that the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America.April 30, 2021.

Changes in internal control over financial reporting

There were no ~~other~~ changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the ~~six~~three months ended ~~July 31, 2020~~April 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating the disclosure controls and procedures, management recognizes that any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Moreover, 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. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

From time to time in the normal course of business, ~~the Company~~we may be subject to various legal matters such as threatened or pending claims or proceedings. ~~We are not currently a party to any material~~For further information on our legal proceedings, ~~or claims, nor are we aware of any pending or threatened litigation or claims against~~see Note 12, Commitments and Contingencies, in the ~~Company that could have a material adverse effect~~notes to our condensed consolidated financial statements included in this Quarterly Report on our business, operating results, cash flows, or financial condition should such litigation or claim be resolved unfavorably. An indemnification claim has been made to the Company in a litigation in which a former director and shareholder are parties. The Company continues to monitor the case, but at this time the Company cannot reasonably estimate the magnitude of its indemnification obligation, if any.Form 10-Q.

Item 1A. Risk Factors

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to invest in our Class A common stock. The occurrence of any of the events or developments described below could materially and adversely affect our business, financial condition, results of operations, and growth prospects. These factors could also cause our actual business and financial results to differ materially from those contained in forward-looking statements made by management from time-to-time. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe are not material may also impair our business, financial condition, results of operations, and growth prospects. In addition to the effects discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the risk factors below, additional or unforeseen effects from COVID-19 and the resulting global economic impacts may give rise to additional risks or amplify ~~many of~~ the risks discussed in this Item 1A.

The following summarizes certain of the most material risks that make an investment in our Class A common stock uncertain, risk laden, or speculative. If any of the following risks occur, our business, financial condition, results of operations, and growth prospects may be impaired, the market price of our Class A common stock could decline, and you may lose all or part of your investment.

Industry, Product, and Infrastructure Risks ~~Related~~

•The market in which we participate is highly competitive, and if we do not compete effectively, our operating results could be harmed.

•Our business depends on a strong brand, and if we are unable to develop, maintain, and enhance our brand, our business and results may be harmed.

•Our ~~Business~~forecasts of market growth may prove to be inaccurate, and ~~Industry~~our business may not grow at a pace similar to market growth.

~~It is difficult to predict our future operating results.~~•Security threats and attacks are common, increasing globally, often disproportionately impact cloud-based solutions providers and data-driven companies, and may result in significant liabilities.

•Our failure to sufficiently secure our platform and services may result in unauthorized access to customer data, negatively impact our customer attraction and retention, and result in significant liabilities.

•We depend on public cloud service providers and computing infrastructure operated by third parties, and any disruptions in these operations could harm our business and results.

•If our platform fails to perform or if we fail to scale our platform to meet the needs of customers, our market share could decline and we could be subject to liability.

•If we fail to manage our services infrastructure, or our platform experiences outages, interruptions, or delays in updates to meet customers’ needs, we may be subject to liabilities and our operating results may be harmed.

•Failure to establish and maintain partnerships with complementary technology offerings and integrations could limit our ability to ~~accurately forecast~~grow our business.

•Our platform and internal business operations use third-party software and services that may be difficult to replace or may cause errors or failures that could lead to a loss of customers or harm our operating results.

Commercial and Financial Risks

•It is difficult to predict future operating results, is limited and subject to a number of uncertainties, including planning for and modeling future growth. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, whichparticularly as we use to plan our business, are incorrect or change due to industry or market developments, or if we do not address these risks successfully, our operating results could differ materially from our expectations and our business could suffer. Specifically, the current outbreak of COVID-19, which has been declared by the World Health Organization to be a global pandemic, has spread across the globe and is significantly impacting worldwide economic activity. COVID-19 could result in one or more of the following conditions that could affect us and our customers: increased risk in collectibility of accounts receivable; reduced staff productivity due to working remotely for extended periods; increased costs and challenges related to retrofitting facilities and changing operating procedures for a return to the workplace; lost staff productivity due to illness, illness in the family, or lack of dependent care; increased customer losses or churn; lengthened customer payment terms; increased challenges in acquiring new customers; extreme currency exchange-rate fluctuations; and challenges with Internet infrastructure due to high loads. The duration and scope of the pandemic is highly uncertain. We continue to monitor the effects of COVID-19, and while it is not possible at this time to estimate the overall impact that COVID-19 could have on our business, the continued spread of COVID-19, and the measures taken by the governments of countries affected, will continue to have an adverse impact on global economic conditions, which could have an adverse effect on our business and financial condition.COVID-19.

•We have a history of cumulative losses and we cannot assure ~~you that we will achieve~~ profitability in the ~~foreseeable~~ future.

•We ~~have incurred losses in each period since we incorporated in 2005.~~ derive substantially all of our revenue from a single offering.

•We incurred net losses attributable to common shareholders of $26.6 million and $19.1 million during the three months ended July 31, 2020 and 2019, respectively, and $54.3 million and $38.9 million during the six months ended July 31, 2020 and 2019, respectively. As of July 31, 2020, we had an accumulated deficit of $310.8 million. These losses and accumulated deficit reflect the substantial investments we made to develop our products and services, acquire new customers, and maintain and expand existing customers. We expect our operating expenses to increase in the future due to anticipated increases in sales and marketing expenses, research and development expenses, operations costs, and general and administrative costs, and we expect our losses to continue for the foreseeable future. Furthermore, to the extent we are successful in increasing our customer base, we will also incur increased losses due to upfront costs associated with acquiring new customers, particularly as a result of the nature of subscriptionrecognize revenue ~~which is generally recognized ratably~~ over the term of the ~~subscription period. You should~~relevant service period, and downgrades, new sales, or renewals may not ~~consider~~be immediately reflected in our ~~recent~~results.

Operational and Other Risks

•We have recently experienced rapid growth and expect our growth to continue; failure to manage our growth effectively may harm our business.

•Our sales cycle may become longer, more complex, and more expensive as we continue to target enterprise and government customers, all of which could harm our business or results.

•Our growth depends on our ability to expand our sales force, and the failure to do so may harm our business and results.

•We may not receive significant revenue growth as indicative of our future performance. Our revenue growth could slow or our revenue could decline for a number of reasons, including slowing demand for our subscription solutions or professional services, reduced conversion from our ~~free trial users~~current development efforts for several years, if at all.

•Contractual disputes or ~~collaborators~~commitments, including indemnity obligations, may be costly, time consuming, and could harm our reputation.

•Catastrophic events, including global pandemics, may disrupt our business.

Risks Related to paid users, increasing competition, or our failure to capitalize on growth opportunities. Accordingly, we cannot assure you that we will achieve profitability in the foreseeable future, nor that, if we do become profitable, we will sustain profitability.Our Industry, Platform, and Infrastructure

The market in which we participate is highly competitive, and if we do not compete effectively, our operating results could be harmed.

The market for collaborative work management platforms is fragmented, increasingly competitive, and subject to rapidly changing technology and evolving standards. Our competitors range in size, from diversified global companies with significant research and development and marketing resources, to smaller startups building on new technology platforms whose narrower offerings may allow them to be more efficient in deploying technical, marketing, and financial resources.

Certain of our features compete with current or potential products and services offered by Airtable, Asana, Atlassian, Monday.com, Planview, ~~Workfront,~~ Wrike, and others. We also face competition from Google and Microsoft, who offer a range of productivity solutions including spreadsheets and email that have traditionally been used for work management. While we currently collaborate with ~~Microsoft~~Adobe, Google, and ~~Google,~~Microsoft, they may develop and introduce, or acquire, products that directly or indirectly compete with our platform. For example, Adobe recently acquired Workfront, a company whose product and service offerings compete with ours. As we ~~look~~continue to sell products and services to potential customers with existing internal solutions, we must convince their stakeholders that our platform is superior to the solutions that their organization has previously adopted and deployed. With the introduction of new technologies and market entrants, and the growth of existing market participants, we expect competition to continue to intensify in the future.

Many of our current and potential competitors, particularly large software companies, have longer operating histories, greater name recognition, more established customer bases, and significantly greater financial, operating, technical, marketing, and other resources than we do. As a result, our competitors may be able to leverage their relationships with distribution partners and customers based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our platform, including by selling at zero or negative margins or by using product bundling. Further, our competitors may respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. We could lose customers if our competitors consolidate, introduce new collaborative work management products, add new features to their current product offerings, acquire competitive products, reduce prices, form strategic alliances with other companies, or are acquired by third parties with greater available resources. We may also face increasing competition if our competitors provide products and services for free. If our competitors’ products or services are more widely adopted than ours, if they are successful in bringing their products or services to market sooner than ours, if their pricing is more competitive, or if their products or services are more technologically capable than ours, then our business, results of operations, and financial condition may be harmed.

If we do not keep pace with technological changes, our platform may become less competitive and our business may suffer.

Our industry is marked by rapid technological developments and innovations, and evolving industry standards. If we are unable to provide enhancements and new features and integrations for our existing platform, develop new products that achieve market acceptance, or innovate quickly enough to keep pace with rapid technological developments, our business could be harmed.

In addition, because our platform is designed to operate on a variety of systems, we will need to continuously modify, enhance, and improve our platform to keep pace with changes in the following: Internet-related hardware; mobile operating systems such as iOS and Android; and other software, communication, browser, and database technologies. We may not be successful in either developing these modifications, enhancements, and improvements or in bringing them to market quickly or cost-effectively in response to market demands. Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development expenses. Any failure of our products or services to keep pace with technological changes or operate effectively with future network platforms and technologies, or to do so in a timely and cost-effective manner, could reduce the demand for our platform, result in customer dissatisfaction, reduce our competitive advantage, and harm our business.

Our business depends on a strong brand, and if we are not able to develop, maintain, and enhance our brand, our business and operating results may be harmed.

We believe that developing, maintaining, and enhancing our brand is critical to achieving widespread acceptance of our platform, attracting new customers, retaining existing customers, persuading existing customers to expand their relationships with us, and hiring and retaining employees. We believe that the importance of our brand will increase as competition in our market further intensifies. Successful promotion of our brand will depend on a number of factors, including the effectiveness of our marketing efforts; our ability to provide a high-quality, reliable, and cost-effective platform; the perceived value of our platform; our ability to provide a quality customer success experience; and our ability to control or influence perception of our brand regardless of customer use cases.

Brand promotion activities require us to make substantial expenditures. We have made and continue to make significant investments in the promotion of our brand, however, our ability to successfully promote our brand is uncertain. The promotion of our brand may not generate customer awareness or increase revenue, and any increase in revenue may not offset the expenses we incur in building and maintaining our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to realize a sufficient return on our brand-building efforts, or fail to achieve the widespread brand awareness that is critical for broad customer adoption of our platform, which could harm our business and operating results.

Our forecasts of market growth may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you that our business will grow at similar rates, if at all.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Our forecasts, including the size and expected growth in the addressable market for collaborative work management platforms, may prove to be inaccurate, or may decline rapidly as a result of unforeseen events and the ongoing effects, including the continuing and uncertain impact, of the COVID-19 pandemic. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties.

Security threats and attacks are common, increasing globally, often disproportionately impact cloud-based solutions providers and data-driven companies, and may result in significant liabilities.

Our platform and our internal corporate information technology systems have in the past been, and will in the future be, subject to cyber-attacks, phishing attacks, ransomware attacks, malicious software programs, and other cyber security threats (“Cyber Threats”). Further, we engage service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal information, and these service providers are also targets of Cyber Threats.

Cyber Threats have been steadily increasing in frequency globally, often disproportionately targeting cloud-based solutions providers, and may be accompanied by demands for payment in exchange for resolution, restoration of functionality, or return of data. Sources of Cyber Threats range from individuals to sophisticated organizations, including state-sponsored organizations, and these attackers use a wide variety of methods in attempts to exploit vulnerabilities in order to gain access to our corporate assets, including our networks, information, individuals, or credentials. The types and methods of Cyber Threats are constantly evolving and becoming more complex; we may not be able to detect, combat, or successfully defend against such Cyber Threats. The attackers initiating Cyber Threats may be more sophisticated than we are and may gain access to our corporate assets. Any vulnerabilities in our infrastructure or the success of any Cyber Threats against us may not be discovered in a timely fashion, or at all, and the impact of vulnerabilities may be exacerbated the longer they persist or remain undetected. While we employ security measures and architecture designed to protect the integrity of our corporate and production assets, our platform and corporate information technology environment are ~~breached~~subject to ongoing and evolving Cyber Threats, and we anticipate that we will need to expend significant resources in an effort to protect against Cyber Threats. We may not be able to deploy, allocate, or retain sufficient resources to keep pace with the persistent and evolving threat landscape.

Further, our ability to monitor our service providers’ data security is limited, and third parties may be able to circumvent our service providers’ security measures, resulting in the unauthorized access to, or misuse, disclosure, loss, or destruction of our and our customers’ data. Any actual or perceived failure by us or our service providers to prevent or defend against Cyber Threats, actual or perceived vulnerabilities in our products or services, or unauthorized access to corporate assets may lead to claims against us and may result in significant data loss, significant costs and liabilities, and could reduce our revenue, harm our reputation, and compromise our competitive position.

Our failure to sufficiently secure our platform and services may result in unauthorized access to customer data, ornegatively impact our ~~data is otherwise obtained, our platform may be perceived as not being secure, customers may reduce or stop using our platform,~~customer attraction and ~~we may incur~~retention, and result in significant liabilities.

Our products and services involve the storage, transmission, and processing of our customers’ sensitive and proprietary information, including business strategies, financial and operational data, personal or identifying information, and other data. As a result, unauthorized use of or access to this data could result in the loss, compromise, corruption, or destruction of our or our customers’ sensitive and proprietary information and lead to litigation, regulatory investigations and claims, indemnity obligations, loss of authorization under the Federal Risk and Authorization Management Program (“FedRAMP”), or other authorizations, and other liabilities. ~~While~~

Our customers, especially our larger enterprise customers, increasingly prioritize security of their digital assets and information when making decisions regarding purchasing Internet-based products and services. Additionally, we ~~have security measures~~serve customers in ~~place designed to protect the integrity of customer information~~regulated industries such as financial services, health care, and ~~prevent data loss, misappropriation,~~education; government customers; and other customers that process large quantities of sensitive information or personal data. These customers often seek platforms that offer enhanced or specialized security ~~breaches~~measures. Any success in attracting new customers in these industries, and ~~incidents,~~retaining and growing such existing customers, may require enhancements to or additional engineering of our platform ~~is subject~~ to ~~ongoing threats,~~meet these requirements. Committing to such changes could be costly and ~~we anticipate being required to expend significant resources in an effort to protect against security breaches~~time consuming, and ~~incidents. We have been subject to phishing attacks in~~could divert the past, and may be subject to cyber-attacks, phishing attacks, malicious software programs, and other attacks in the future. These attacks may come from individual hackers, criminal groups, and state-sponsored organizations. In addition to these threats, the security, integrity, and availabilityattention of our management and ~~our customers’ data could be compromised by employee negligence, error~~key personnel from other business operations; such investments and efforts may not take place in a timely manner, or ~~malfeasance, and product defects.~~at all.

Additionally, we engage service providers to store and otherwise process some of our and our customers’ data, including sensitive and personal information. Our service providers may also be the targets of cyberattacks, malicious software programs, phishing attacks, fraud, and other attacks. Our ability to monitor our 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, or misuse, disclosure, loss, or destruction of our and our customers’ data.

A compromise of our or our service providers’ security measures could result in unauthorized access to, misuse, disclosure, loss or destruction of our customers’ or our data, or other disruption to our or our customers’ business operations, which could lead to litigation, regulatory investigations and proceedings, damage to our reputation and market position, and could cause us to incur significant liabilities, including fines, penalties, and other damages. Even the perception of inadequate security may damage our reputation and negatively impact our ability to win new customers and retain existing customers. ~~Moreover,~~Further, due to the current COVID-19 pandemic and the growing trend of remote work, there is an increased risk that we may be more susceptible to, or more likely to experience, ~~cybersecurity related~~cybersecurity-related incidents as a result of our employees, and the employees of our service providers and other third parties, working ~~remotely on less secure systems during government mandated shelter-in-place orders. Further,~~remotely.

Additionally, we could be required to expend significant capital and other resources to investigate and address any actual or suspected data security incident or breach, or to prevent further or additional security incidents or breaches. ~~In addition, we~~We may find it necessary or desirable to incur costs to provide remediation and incentives to customers or other business partners following a security breach, or other actual or suspected security incident, in an effort to maintain business relationships.

~~Techniques used~~We depend on public cloud service providers and computing infrastructure operated by third parties, and any service outages, delays, or disruptions in these operations could harm our business and operating results.

We host our platform and serve our customers through public cloud service providers. Public cloud service providers run their own platforms that we access, and we are, therefore, vulnerable to service interruptions, delays, and outages. Our public cloud service providers (“Cloud Providers”) may experience events such as natural disasters, fires, power loss, telecommunications failures, or similar events. The systems, infrastructure, and services of our Cloud Providers may also be subject to human or software errors, viruses, security attacks (internal and external), fraud, spikes in customer usage, denial of service issues, break-ins, sabotage, intentional acts of vandalism, malware, phishing attacks, acts of terrorism, and other misconduct. Further, we have experienced in the past, and expect that in the future we may experience, periodic interruptions, delays, and outages in service and availability with our Cloud Providers due to a variety of factors, including Internet connectivity failures, infrastructure changes, human or ~~obtain unauthorized access to systems or networks are constantly evolving~~software errors, website hosting disruptions, and incapacity constraints. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.

We may also be affected by other unanticipated problems experienced by our Cloud Providers, including but not limited to financial difficulties and bankruptcy, the occurrence of which could result in lengthy interruptions, delays, and outages in our service and noncompliance with our contractual obligations or business requirements.

Further, our Cloud Providers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew agreements with our Cloud Providers on commercially reasonable terms, if our agreements with our Cloud Providers are prematurely terminated for any reason, or if our Cloud Providers are acquired or cease business, we may be required to transfer our infrastructure to new public cloud facilities, and we may incur significant costs and possible service interruptions in connection with doing so.

Additionally, there are limited options for public cloud service providers capable of effectively supporting our infrastructure. Consolidation through a single, or select few, service provider(s) may result in a dependency on the selected provider(s). Consolidation may also negatively impact customer acquisition or expansion as customers or potential customers may object to certain providers for a variety of reasons, including that such providers do not meet their hosting requirements or that the providers operate in a competitive space. The foregoing objections could harm our business and operating results.

Any issues with our Cloud Providers may result in errors, defects, disruptions, or other performance problems with our platform, which could harm our reputation and may damage our and our customers’ businesses. Interruptions in our platform’s operation might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potential liability, cause customers to terminate their subscriptions, harm our renewal rates, and affect our reputation. Any of these events could harm our business and operating results.

If our platform fails to perform properly, or if we are unable to scale our platform to meet the needs of our customers, our reputation could be harmed, our market share could decline, and we could be subject to liability claims.

Our platform is inherently complex and may contain material defects or errors. Additionally, we provide regular updates to our platform, which may contain undetected defects when first introduced or released. Any defects in functionality or interruptions in the availability of our platform could result in:

•loss of, or delayed, market acceptance and sales;

•breach of contract or warranty claims;

•issuance of credits or other compensation for downtime;

•termination of subscription agreements, loss of customers, and issuance of refunds for prepaid amounts related to unused subscription fees for our platform;

•diversion of development and customer service resources; and

•harm to our reputation.

The costs incurred in correcting any material defects or errors might be substantial and could harm our operating results.

Because of the large amount of data that we handle, hardware failures, errors in our systems, user errors, or Internet outages could result in data loss or corruption that our customers may regard as significant. Furthermore, the availability and performance of our platform could be diminished or otherwise impacted by a number of factors, which may damage the perception of its reliability and reduce our revenue. These factors include but are not ~~identified until launched against a target. We and~~limited to customers’ inability to access the Internet; the failure of our network or software systems, including backup systems; simultaneous development efforts causing reallocation of resources; computing vulnerabilities; security breaches; capacity issues or service failures experienced by our service ~~providers~~providers; or variability in user traffic for our platform. We monitor vulnerabilities that may impact our business and the availability of our platform. Any such impact, and the costs incurred in addressing or correcting these vulnerabilities, may harm our operating results, may harm our reputation, and may cause us to lose customers.

We may be ~~unable~~required to ~~anticipate~~issue credits or refunds for prepaid amounts related to unused fees, or otherwise be liable to our customers for damages they may incur resulting from certain of these ~~techniques, react in a timely manner, or implement adequate preventative measures.~~

Further, not all of our customer and other agreements contain limitation of liability provisions and we cannot assure that any such limitation of liability provisions in our customer and user agreements or other contracts would be enforceable or adequate, or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security breach or other security-related matter. We also cannot be sure that our existingevents. Our insurance coverage ~~will continue~~may be inadequate to sufficiently cover such potential liabilities, and may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us and defending a lawsuit, regardless of its merit, could be costly and divert management’s attention.

Furthermore, we will need to ensure that our platform can scale to meet the evolving needs of our customers, particularly as we continue to focus on larger enterprise customers. We regularly monitor and update our platform to fix errors, add functionality, and improve scaling. However, our customers have occasionally experienced outages and latency issues, sometimes during peak usage periods. If we are not able to provide our platform at the scale required by our customers and correct any platform functionality defects and capacity limitations, potential customers may not adopt our platform and existing customers may not renew their agreements with us.

If we fail to manage our services infrastructure at the levels expected by our customers, including due to factors such as service outages, interruptions, or delays in updates to our platform to meet customers' needs, then we may be subject to liabilities and our operating results may be harmed.

We have experienced significant growth in the number of users and data that our platform supports, and as a cloud-based platform, we must continually maintain our customers’ trust and business. We seek to maintain sufficient excess service capacity to ensure that our platform is accessible and functioning with an acceptable latency and to meet the needs of existing and new customers and users, the needs required to support customer and user expansion, as well as our own needs. To do this, we must manage our services infrastructure to support software updates and the evolution of our platform capabilities. The provision of any new service infrastructure requires significant cost and management. If we do not accurately predict or manage our service infrastructure requirements, if our existing providers are unable to keep up with our needs for capacity, if they are unwilling or unable to allocate sufficient capacity to us, or if we are unable to contract with additional providers on commercially reasonable terms, our customers may experience service interruptions, delays, or outages that may subject us to financial penalties, cause us to issue credits or other compensation to customers, or result in other liabilities and customer losses. If our services and infrastructure fail to scale, customers may experience delays as we seek to obtain additional capacity or make architectural changes to address newly discovered scalability and performance issues, which could damage our reputation and our business. We may also be required to move or transfer our and our customers’ data. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery and performance of our platform, and may harm our operating results.

Failure to establish and maintain relationships with partners that can provide complementary technology offerings and software integrations could limit our ability to grow our business.

Our growth strategy includes expanding the use of our platform through complementary technology offerings and software integrations, such as third-party application programming interfaces (“APIs”). While we have established relationships with providers of complementary technology offerings and software integrations, we cannot assure you that we will be successful in maintaining relationships with these providers or establishing relationships with new providers. Third-party providers of complementary technology offerings and software integrations may decline to enter into, or may later terminate, relationships with us; change their features or platforms; restrict our access to their applications and platforms; or alter the terms governing use of and access to their applications and APIs in an adverse manner. Such changes could functionally limit or terminate our ability to use these third-party technology offerings and software integrations with our platform, which could negatively impact our offerings and harm our business.

Further, if we fail to integrate our platform with new third-party applications and platforms that our customers use, or to adapt to the data transfer requirements of such third-party applications and platforms, we may not be able to offer the functionality that our customers need, which would negatively impact our offerings and, as a result, could negatively affect our business, results of operations, and financial condition. In addition, we may benefit from these partners’ brand recognition, reputations, referrals, and customer bases. Any losses or shifts in the referrals from, or the market positions of, these partners generally, in relation to one another or to new competitors or technologies, could lead to losses in our relationships or customers, or a need to identify or transition to alternative channels for marketing our platform.

Our platform and internal business operations use third-party software and services that may be difficult to replace or may cause errors or failures that could lead to a loss of customers or harm to our reputation and our operating results.

We license third-party software and depend on services from various third parties to operate our platform. In the future, this software or these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of the software or services could result in ~~sufficient amounts~~decreased functionality of our platform until equivalent technology is either developed by us or, if available from another provider, is identified, obtained, and integrated, which could harm our business. In addition, any errors or defects in or failures of the third-party software or services could result in errors or defects in our platform or cause our platform to ~~cover~~fail, which could harm our business and be costly to correct. Such errors, defects, or failures could also harm our reputation and result in liability to third parties, including customers. Many of these providers attempt to limit their liability for errors, defects, and failures, which could limit our ability to recover from them and increase our operating costs.

We will need to maintain our relationships with third-party software and service providers and obtain software and services from such providers that do not contain errors or defects. Any failure to do so could adversely impact our ability to deliver our platform to our customers and could harm our operating results.

Further, we use technologies and services from third parties to operate critical internal functions of our business, including cloud infrastructure services, customer relationship management services, business management services, and customer support and consulting staffing services. Our business would be disrupted if any of the third-party software or services we utilize were unavailable due to extended outages or interruptions, or if they are no longer available on commercially reasonable terms or at all. Such disruptions may adversely affect our ability to operate websites, process and fulfill transactions, respond to customer inquiries, and generally maintain cost-efficient operations. In the event of disruption, we may be required to seek replacement technologies or services from other parties, or to develop these components ourselves, which could result in increased costs, delays in the release of new product offerings, and reduced efficiencies in the operations of our impacted departments, until such time as suitable technology can be identified and integrated. These disruptions, if they occur, could result in customer dissatisfaction, and harm our results of operations and financial condition. Any issues with the quality of technologies and services provided by third parties could cause harm to our reputation and increased operational costs to rectify those issues.

Our use of open source software could negatively affect our ability to offer and sell our products and subject us to possible litigation.

We use open source software in our platform and expect to continue to use open source software in the future. There are uncertainties regarding the proper interpretation of and compliance with open source licenses, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to use such open source software, and consequently to provide or distribute our platform. Additionally, we may from time to time face claims from third parties alleging ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works, or our proprietary source code that was developed using such software. These claims could also result in litigation and could require us to make our software source code freely available, devote additional research and development resources to change our platform, or incur additional costs and expenses, any of which could result in reputational harm and would have a negative effect on our business and operating results. In addition, if the license terms change for the open source software we utilize, then we may be forced to re-engineer our platform or incur additional costs to comply with the changed license terms or to replace the affected open source software. Further, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Although we have implemented policies to regulate the use and incorporation of open source software into our platform, we cannot be certain that we have not incorporated open source software in our platform in a manner that is inconsistent with such policies.

Risks Related to Our Commercial and Financial Operations

It is difficult to predict our future operating results.

Our ability to accurately forecast our future operating results is limited and subject to a number of uncertainties, including planning for and modeling future growth. We have encountered, and will continue to encounter, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change due to industry or market developments, or if we do not address these risks successfully, our operating results could differ materially from our expectations and our business could suffer.

The current COVID-19 pandemic has continued to significantly impact worldwide economic activity. The COVID-19 pandemic and related restrictions imposed by the government and businesses could continue to result in one or more of the following conditions that could affect us and our customers: increased risk in collectibility of accounts receivable; reduced staff productivity due to working remotely for extended periods; increased costs and challenges related to retrofitting facilities and changing operating procedures for a ~~security incident,~~return to the workplace; lost staff productivity due to illness, illness in the family, or lack of dependent care; increased customer losses or churn; lengthened customer payment terms; increased challenges in acquiring new customers; extreme currency exchange-rate fluctuations; and challenges with Internet infrastructure due to high loads. While vaccines to prevent against COVID-19 are being deployed, there is still uncertainty regarding the duration and scope of the pandemic. We continue to monitor the effects of the COVID-19 pandemic and vaccine deployment, and while it is not possible at this time to estimate the overall impact that the insurer will not deny coverage as to any future claim. The successful assertion of 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,COVID-19 pandemic could have ~~a material~~on our business, the continued spread of COVID-19, and the measures taken by the governments of countries affected, will continue to have an impact on global economic conditions, which could have an adverse effect on our business ~~including our~~and financial ~~condition, operating results,~~condition.

We have a history of cumulative losses and ~~reputation.~~

~~Any systems failure, security breach, or other incident~~we cannot assure you that ~~results~~we will achieve profitability in the ~~release~~foreseeable future.

We have incurred losses in each period since we incorporated in 2005. We incurred net losses of $37.1 million and $27.8 million during the three months ended April 30, 2021 and 2020, respectively. As of April 30, 2021, we had an accumulated deficit of $408.5 million. These losses and accumulated deficit reflect the substantial investments we made to ~~personal information, or any failure or perceived failure by us~~develop our products and services, acquire new customers, and maintain and expand existing customers. We expect our operating expenses to ~~comply with our contractual obligations or any privacy laws, could result in proceedings against us by data regulators or others. Such proceedings could result~~increase in the ~~imposition~~future due to anticipated increases in sales and marketing expenses, research and development expenses, operations costs, and general and administrative costs, and we expect our losses to continue for the foreseeable future. Furthermore, to the extent we are successful in increasing and expanding our customer base, we will also incur increased losses due to associated upfront costs, particularly as a result of ~~sanctions, fines, penalties, liabilities,~~the nature of subscription revenue, which is generally recognized ratably over the term of the subscription period. You should not consider our recent revenue growth as indicative of our future performance. Our revenue growth could slow or ~~governmental orders requiring~~our revenue could decline for a number of reasons, including slowing demand for our subscription solutions or professional services, reduced conversion from our free trial users or collaborators to paid users, increasing competition, or our failure to capitalize on growth opportunities. Accordingly, we cannot assure you that we ~~change our data handling practices, any of which could harm our business, operating results, and financial condition.~~will achieve profitability in the foreseeable future, nor that, if we do become profitable, we will sustain profitability.

If we are unable to attract new customers and maintain and expand sales to existing customers, our growth could be slower than we expect and our business may be harmed.

Our future growth depends in part upon increasing our customer base and expanding sales to, and renewing subscriptions with, our existing customers. Our ability to achieve significant growth in revenue in the future will depend, in large part, upon the effectiveness of our marketing efforts, both domestically and ~~internationally,~~internationally; our ability to predict customer ~~demands,~~demands; our ability to continue to attract new ~~customers,~~customers; and our ability to expand our relationship with existing customers by addressing new use cases, increasing their number of users, or selling additional products and services. These endeavors may be particularly challenging where an organization is reluctant to try, or invest further in, a cloud-based collaborative work management platform, or where an organization has already invested significantly in an existing solution. Additionally, we continue to monitor how COVID-19 may impact the adoption or expansion of cloud-based solutions generally, and our success in engaging with new customers and expanding relationships with existing customers. If we fail to predict customer ~~demands,~~demand, fail to sufficiently account for the impact of COVID-19 on our sales projections, or fail to attract new customers and maintain and expand those and existing customer relationships, our revenue may grow more slowly than expected, may not grow at all, or may decline, and our business may be harmed.


		July 31, 2020		January 31, 2020			April 30, 2021		January 31, 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	545,975	$	515,924	Cash and cash equivalents	$	439,656	$	442,200
Short-term investments		0		50,532
Accounts receivable, net of allowances of $4,114 and $2,989, respectively		54,663		56,863
Accounts receivable, net of allowances of $6,255 and $6,933, respectively						Accounts receivable, net of allowances of $6,255 and $6,933, respectively	89,310		102,648
Prepaid expenses and other current assets	Prepaid expenses and other current assets	9,969		7,643		Prepaid expenses and other current assets	17,454		13,524
Total current assets	Total current assets	610,607		630,962		Total current assets	546,420		558,372
Restricted cash	Restricted cash	659		865		Restricted cash	18		18
Deferred commissions	Deferred commissions	51,736		48,255		Deferred commissions	66,669		60,529
Property and equipment, net	Property and equipment, net	27,220		26,981		Property and equipment, net	32,389		28,613
Operating lease right-of-use assets	Operating lease right-of-use assets	65,046		57,590		Operating lease right-of-use assets	77,590		81,081
Intangible assets, net	Intangible assets, net	13,456		15,155		Intangible assets, net	51,618		54,139
Goodwill	Goodwill	16,497		16,497		Goodwill	125,605		125,605
Other long-term assets	Other long-term assets	3,662		1,409		Other long-term assets	3,167		3,432
Total assets	Total assets	$	788,883	$	797,714	Total assets	$	903,476	$	911,789
Liabilities and shareholders’ equity	Liabilities and shareholders’ equity					Liabilities and shareholders’ equity
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	1,524	$	7,720	Accounts payable	$	2,832	$	2,851
Accrued compensation and related benefits	Accrued compensation and related benefits	24,654		39,635		Accrued compensation and related benefits	35,780		47,861
Other accrued liabilities	Other accrued liabilities	11,106		12,428		Other accrued liabilities	11,704		17,263
Operating lease liabilities, current	Operating lease liabilities, current	14,116		13,020		Operating lease liabilities, current	17,381		17,059
Finance lease liabilities, current		1,916		2,465
Deferred revenue	Deferred revenue	168,566		157,972		Deferred revenue	238,691		222,689
Total current liabilities	Total current liabilities	221,882		233,240		Total current liabilities	306,388		307,723
Operating lease liabilities, non-current	Operating lease liabilities, non-current	54,982		47,913		Operating lease liabilities, non-current	68,698		71,925
Finance lease liabilities, non-current		866		1,664
Deferred revenue, non-current	Deferred revenue, non-current	692		837		Deferred revenue, non-current	976		1,308
Other long-term liabilities	Other long-term liabilities	4,736		0		Other long-term liabilities	3,904		3,904
Total liabilities	Total liabilities	283,158		283,654		Total liabilities	379,966		384,860
Commitments and contingencies (Notes 11, 12)	Commitments and contingencies (Notes 11, 12)					Commitments and contingencies (Notes 11, 12)	0		0
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Preferred stock, no par value; 10,000,000 shares authorized, 0 shares issued or outstanding as of July 31, 2020 and January 31, 2020		0		0
Class A common stock, no par value; 500,000,000 shares authorized, 120,286,340 shares issued and outstanding as of July 31, 2020; 500,000,000 shares authorized, 118,194,159 shares issued and outstanding as of January 31, 2020		0		0
Class B common stock, no par value; 500,000,000 shares authorized, 0 shares issued and outstanding as of July 31, 2020; 500,000,000 shares authorized, 0 shares issued and outstanding as of January 31, 2020		0		0
Preferred stock, no par value; 10,000,000 shares authorized, 0 shares issued or outstanding as of April 30, 2021 and January 31, 2021						Preferred stock, no par value; 10,000,000 shares authorized, 0 shares issued or outstanding as of April 30, 2021 and January 31, 2021	0		0
Class A common stock, no par value; 500,000,000 shares authorized, 124,610,729 shares issued and outstanding as of April 30, 2021; 500,000,000 shares authorized, 123,272,902 shares issued and outstanding as of January 31, 2021						Class A common stock, no par value; 500,000,000 shares authorized, 124,610,729 shares issued and outstanding as of April 30, 2021; 500,000,000 shares authorized, 123,272,902 shares issued and outstanding as of January 31, 2021	0		0
Class B common stock, no par value; 500,000,000 shares authorized, 0 shares issued and outstanding as of April 30, 2021; 500,000,000 shares authorized, 0 shares issued and outstanding as of January 31, 2021						Class B common stock, no par value; 500,000,000 shares authorized, 0 shares issued and outstanding as of April 30, 2021; 500,000,000 shares authorized, 0 shares issued and outstanding as of January 31, 2021	0		0
Additional paid-in capital	Additional paid-in capital	816,526		770,518		Additional paid-in capital	932,019		898,366
Accumulated deficit	Accumulated deficit	(310,801)		(256,458)		Accumulated deficit	(408,509)		(371,437)
Total shareholders’ equity	Total shareholders’ equity	$	505,725	514,060		Total shareholders’ equity	523,510		526,929
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	788,883	797,714		Total liabilities and shareholders’ equity	$	903,476	$	911,789


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


Table of Contents			Page

Part I. Financial Information			4
Item 1. Financial Statements (unaudited)			4
Condensed Consolidated Statements of Operations and Comprehensive Loss			4
Condensed Consolidated Balance Sheets			5
Condensed Consolidated Statements of Changes in Shareholders’ Equity			6
Condensed Consolidated Statements of Cash Flows			87
Notes to Condensed Consolidated Financial Statements (unaudited)			108
1. Overview and Basis of Presentation			108
2. Summary of Significant Accounting Policies			119
3. Revenue from Contracts with Customers			1410
4. Deferred Commissions			1410
5. Net Loss Per Share			1410
6. Fair Value Measurements			1510
7. Business Combinations			1611
8. Goodwill and Net Intangible Assets			1714
9. Share-Based Compensation			1714
10. Income Taxes			1917
11. Leases			2017
12. Commitments and Contingencies			2219
13. Geographic Information			22
~~14. Subsequent Events~~			2219
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2320
Item 3. Quantitative and Qualitative Disclosures about Market Risk			4135
Item 4. Controls and Procedures			4135
Part II. Other Information			4336
Item 1. Legal Proceedings			4336
Item 1A. Risk Factors			4336
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			7165
Item 6. Exhibits			7165
Signatures			7266


	Three Months Ended July 31, 2020
	Common Stock (Class A)					Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balances at April 30, 2020	119,464,110	$	0	$	794,605	$	(284,242)	$	510,363
Issuance of common stock under employee stock plans	822,230	—		3,782		—		3,782
Taxes paid related to net share settlement of equity awards	—	—		(501)		—		(501)
Share-based compensation expense	—	—		18,640		—		18,640
Comprehensive loss	—	—		—		(26,559)		(26,559)
Balances at July 31, 2020	120,286,340	$	0	$	816,526	$	(310,801)	$	505,725


	Three Months Ended July 31, 2019
	Common Stock (Class A and B)					Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balances at April 30, 2019	106,378,403	$	0	$	343,122	$	(180,327)	$	162,795
Issuance of common stock under employee stock plans	944,229	—		4,943		—		4,943
Issuance of common stock in connection with initial public offering, net of underwriting discounts, commissions, and issuance costs	9,025,000	—		378,970		—		378,970
Share-based compensation expense	—	—		9,348		—		9,348
Comprehensive loss	—	—		—		(19,115)		(19,115)
Balances at July 31, 2019	116,347,632	$	0	$	736,383	$	(199,442)	$	536,941


	Six Months Ended July 31, 2020
	Common Stock (Class A)					Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balances at January 31, 2020	118,194,159	$	0	$	770,518	$	(256,458)	$	514,060
Issuance of common stock under employee stock plans	2,092,181	—		14,082		—		14,082
Taxes paid related to net share settlement of equity awards	—	—		(1,470)		—		(1,470)
Share-based compensation expense	—	—		33,396		—		33,396
Comprehensive loss	—	—		—		(54,343)		(54,343)
Balances at July 31, 2020	120,286,340	$	0	$	816,526	$	(310,801)	$	505,725


	Six Months Ended July 31, 2019
	Common Stock (Class A and B)					Additional Paid-in Capital		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balances at January 31, 2019	104,971,443	$	0	$	327,510	$	(160,518)	$	166,992
Issuance of common stock under employee stock plans	2,351,189	—		14,102		—		14,102
Issuance of common stock in connection with initial public offering, net of underwriting discounts, commissions, and issuance costs	9,025,000	—		378,970		—		378,970
Share-based compensation expense	—	—		15,801		—		15,801
Comprehensive loss	—	—		—		(38,924)		(38,924)
Balances at July 31, 2019	116,347,632	$	0	$	736,383	$	(199,442)	$	536,941


	July 31,
	2020		2019
Cash and cash equivalents	$	545,975	$	511,214
Restricted cash included in prepaid expenses and other current assets	111		0
Restricted cash	659		886
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows	$	546,745	$	512,100


	As of July 31, 2020										As of January 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired software technology	$	9,866	$	(3,436)	$	6,430	$	9,866	$	(2,325)	$	7,541
Acquired customer relationships	8,350		(1,459)		6,891		8,350		(900)		7,450
Trade names	100		(47)		53		100		(28)		72
Patents	170		(101)		69		170		(91)		79
Domain name	13		0		13		13		0		13
Total	$	18,499	$	(5,043)	$	13,456	$	18,499	$	(3,344)	$	15,155


	Options Outstanding	Weighted-Average Exercise Price
Outstanding at January 31, 2020	9,076,671	$	8.18
Granted	453,288	42.10
Exercised	(1,271,126)	5.77
Forfeited or canceled	(126,557)	10.98
Outstanding at July 31, 2020	8,132,276	10.40
Exercisable at July 31, 2020	5,026,994	6.19


	2018 Plan	2018 ESPP
Balance at January 31, 2020	10,921,562	2,438,717
Authorized	5,909,708	1,181,942
Granted	(3,116,656)	(208,049)
Forfeited	344,212	0
Balance at July 31, 2020	14,058,826	3,412,610


	Financial Statement Line Item	As of July 31, 2020		As of January 31, 2020
Assets:
Operating lease assets	Operating lease right-of-use assets	$	65,046	$	57,590
Finance lease assets	Property and equipment, net	1,821		3,939
Total leased assets		$	66,867	$	61,529

Liabilities:
Current
Operating	Operating lease liabilities, current	$	14,116	$	13,020
Finance	Finance lease liabilities, current	1,916		2,465
Non-current
Operating	Operating lease liabilities, non-current	54,982		47,913
Finance	Finance lease liabilities, non-current	866		1,664
Total lease liabilities		$	71,880	$	65,062


	Operating Leases		Finance Leases
Remainder of fiscal 2021	$	7,336	$	1,171
Fiscal 2022	14,294		1,286
Fiscal 2023	13,351		426
Fiscal 2024	13,640		0
Fiscal 2025	11,953		0
Thereafter	20,379		0
Total lease payments	80,953		2,883
Less: imputed interest	(11,855)		(101)
Total	$	69,098	$	2,782


	As of July 31,
				2020				2019
Average annualized contract value per domain-based customer	$	4,156			$	2,972
Dollar-based net retention rate for all customers (trailing 12 months)	128		%		134		%
Customers with annualized contract values (“ACV”) of $5 thousand or more	10,049				7,673
Customers with ACV of $50 thousand or more	1,131				635
Customers with ACV of $100 thousand or more	433				226


			SMARTSHEET INC.

		By:	/s/ Mark P. Mader
		Name:	Mark P. Mader
		Title:	President and Chief Executive Officer
			~~(Principal~~(Principal Executive Officer)

Date:	~~September~~June 4, ~~2020~~2021


		By:	/s/ ~~Jennifer E. Ceran~~Pete Godbole
		Name:	~~Jennifer E. Ceran~~Pete Godbole
		Title:	Chief Financial Officer and Treasurer
			~~(Principal~~(Principal Financial and Accounting Officer)

Date:	~~September~~June 4, ~~2020~~2021