Joint Venture and Equity Method Investment

9 Months Ended

Oct. 31, 2024

Joint Venture and Equity Method Investment

11. Joint Venture and Equity Method Investment

Joint Venture

In February 2021, the Company along with Sequoia CBC Junyuan (Hubei) Equity Investment Partnership (Limited Partnership) and Suzhou Gaocheng Xinjian Equity Investment Fund Partnership (Limited Partnership) executed an investment agreement (the “Investment Agreement”) to establish GitLab Information Technology (Hubei) Co., LTD (“JiHu”), a legal entity in the People’s Republic of China. The Company accounted for JiHu as a variable interest entity and consolidated the entity in accordance with ASC Topic 810, Consolidation. As of October 31, 2024, the Company retains control over JiHu with its equity stake at approximately 54%.

Since fiscal year 2023, JiHu has maintained an employee stock option plan (“JiHu 2022 ESOP”) for its employees. In June 2024, the board of directors of JiHu approved a new employee stock option plan (“JiHu 2024 ESOP”) for its employees in order to grant additional shares. The fair value of restricted stock awards (“RSAs”) and stock option awards is measured on the date of grant and compensation costs related to these awards are recognized on a graded attribution method; as the grants include a performance condition for both the JiHu 2022 ESOP and JiHu 2024 ESOP (“JiHu ESOPs”).

As a result of forfeitures triggered by the departure of key executives from JiHu, during the three and nine months ended October 31, 2024, the Company reversed stock-based compensation previously recorded which resulted in a $1.0 million stock-based compensation net expense and a $0.8 million stock-based compensation net expense, respectively. As a result of forfeitures triggered by the departure of certain executives during the three and nine months ended October 31, 2023, the Company reversed stock-based compensation previously recorded for such executives. The Company recorded a $0.6 million stock-based compensation net expense and a $2.1 million net gain for the three and nine months ended October 31, 2023, respectively.

As of October 31, 2024, approximately $8.5 million of total unrecognized compensation cost was related to the JiHu ESOPs that is expected to be recognized over 3.9 years.

Operating Leases

JiHu entered into three new operating leases during the nine months ended October 31, 2024 and has various non-cancelable long-term operating leases maturing by May 25, 2027 with total lease payments of $0.5 million and a total present value of lease liabilities of $0.5 million. In addition, JiHu has various other short-term leases. Lease expense associated with short-term leases was immaterial and $0.1 million during the three and nine months ended October 31, 2024, respectively.

The Company recognized $0.1 million and $0.4 million of operating lease expense during the three and nine months ended October 31, 2024, respectively. The Company recognized $0.2 million and $0.5 million of operating lease expense during the three and nine months ended October 31, 2023, respectively.

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



Weighted-average remaining lease term (in years)	1.90
Weighted-average discount rate	3.3		%
Right-of-use assets obtained in exchange for new operating lease liabilities	$	327
Cash paid for amounts included in the measurement of lease liabilities	$	355

Selected Financial Information

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


	Three Months Ended October 31,				Nine Months Ended October 31,
	2024		2023		2024		2023

Revenue	$	1,900	$	1,700	$	5,321	$	4,773
Cost of revenue	523		779		1,542		1,830
Gross profit	1,377		921		3,779		2,943
Operating expenses:
Sales and marketing	1,804		1,644		4,850		5,688
Research and development	604		1,463		970		4,146
General and administrative	1,617		1,003		3,362		966
Total operating expenses	4,025		4,110		9,182		10,800
Loss from operations	(2,648)		(3,189)		(5,403)		(7,857)
Interest income	168		262		625		817
Other income (expense), net	(341)		279		(36)		841
Net loss before income taxes	(2,821)		(2,648)		(4,814)		(6,199)

Net loss	$	(2,821)	$	(2,648)	$	(4,814)	$	(6,199)

Net loss attributable to noncontrolling interest	$	(1,298)	$	(1,197)	$	(2,216)	$	(2,755)


	October 31, 2024		January 31, 2024

Cash and cash equivalents	$	40,180	$	43,896
Property and equipment, net	196		489
Operating lease right-of-use assets	444		405
Other assets	2,613		2,835
Total assets	$	43,433	$	47,625

Total liabilities	$	6,130	$	6,080

Equity Method Investment

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

The Company recorded an impairment charge of $8.9 million in other income (expense), net in the condensed consolidated statement of operations during the year ended January 31, 2024 which reduced the equity method investment value to zero as of January 31, 2024.

During the three and nine months ended October 31, 2024, the Company recorded a loss from equity method investment of zero. During the three and nine months ended October 31, 2023, the Company recognized a loss from equity method investment of $0.7 million and $2.4 million, net of tax on the condensed consolidated statements of operations, respectively.