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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-Q
__________________________________
(Mark One)

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

For the quarterly period ended July 31, 2023
OR

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

For the transition period from to
Commission File Number: 001-40601
__________________________________
Couchbase, Inc.
(Exact name of registrant as specified in its charter)
__________________________________

Delaware |  | 26-3576987
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
| 3250 Olcott Street Santa Clara, California 95054 |
| (Address of principal executive offices and Zip Code) |

(650) 417-7500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common stock, par value $0.00001 per share |  | BASE |  | Nasdaq Global Select Market

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 x No o
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 such files). Yes x No o
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.

Large accelerated filer | o |  | Accelerated filer | x
Non-accelerated filer | o |  | Smaller reporting company | o
|  |  | Emerging growth company | x

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 x
As of August 31, 2023, the registrant had 47,074,529 shares of common stock outstanding.

Table of Contents
Table of Contents

|  | Page
Part I. | Financial Information |
Item 1. | Financial Statements (unaudited) | 4
| Condensed Consolidated Balance Sheets | 4
| Condensed Consolidated Statements of Operations | 5
| Condensed Consolidated Statements of Comprehensive Loss | 6
| Condensed Consolidated Statements of Stockholders’ Equity | 7
| Condensed Consolidated Statements of Cash Flows | 9
| Notes to Condensed Consolidated Financial Statements | 10
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 40
Item 4. | Controls and Procedures | 41
Part II. | Other Information | 43
Item 1. | Legal Proceedings | 43
Item 1A. | Risk Factors | 43
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 76
Item 3. | Defaults Upon Senior Securities | 77
Item 4. | Mine Safety Disclosures | 77
Item 5. | Other Information | 77
Item 6. | Exhibits | 77
Signatures | 79

1

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Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “would,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about our expectations regarding:
•our future financial performance, including our expectations regarding our revenue, cost of revenue, operating expenses, our ability to determine reserves and our ability to achieve and maintain future profitability;
•the sufficiency of our cash, cash equivalents and short-term investments to meet our liquidity needs;
•the demand for our products and services or for data management solutions in general;
•our ability to attract and retain customers and partners;
•our ability to develop new products and features and bring them to market in a timely manner and make enhancements to our offerings, as well as market acceptance of new products and features;
•our expectations regarding future developments with respect to Couchbase Capella, our fully-managed database-as-a-service (“DBaaS”) offering;
•our ability to compete with existing and new competitors in existing and new markets and offerings;
•macroeconomic conditions, foreign exchange fluctuation, inflation concerns, rising interest rates and recessionary fears, on our business and results of operations;
•our expectations regarding the effects of existing and developing laws, rules, regulations and other legal obligations, including with respect to taxation and data privacy and security;
•our ability to manage risk associated with our business;
•our expectations regarding new and evolving markets, as well as the impact of artificial intelligence (AI) in business;
•our ability to maintain, develop and protect our brand;
•our ability, and our customers’ and our third-party service providers’ ability, to maintain the security and availability to each of our technological and physical infrastructures;
•our expectations and management of future growth;
•our expectations concerning relationships with third parties;
•our ability to obtain, maintain, defend and enforce our intellectual property;
•our use of third-party open source software in our solutions and the availability of portions of our source code on an open source basis;
•our ability to successfully acquire and integrate companies and assets; and
•the increased expenses associated with being a public company.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events.
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We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors, including those described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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Risk Factor Summary
Our business is subject to significant risks and uncertainties that make an investment in us speculative and risky. Below we summarize what we believe are the principal risk factors but these risks are not the only ones we face. You should carefully review and consider the full discussion of our risk factors below this summary, together with the other information in this Quarterly Report on Form 10-Q. If any of the following risks or if any of those listed elsewhere in this Quarterly Report on Form 10-Q actually occur, our business, reputation, financial condition, results of operations, revenue and future prospects could be seriously harmed. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.
•We have a history of net losses, may not achieve or maintain profitability in the future and may not continue to grow on pace with historical rates.
•We face intense competition and if we are unable to compete effectively, our business, financial condition and results of operations would be adversely affected.
•We may fail to cost-effectively acquire new customers or obtain renewals, upgrades or expansions from our existing customers, which would adversely affect our business, financial condition and results of operations.
•The market for our products and services is relatively new and evolving, and our future success depends on the growth and expansion of this market.
•If we fail to innovate in response to changing customer needs, new technologies or other market requirements, our business, financial condition and results of operations could be harmed.
•We have a limited operating history, which makes it difficult to predict our future results of operations.
•Our future results of operations and key business metrics may fluctuate significantly, and if we fail to meet the expectations of analysts or investors, the market price of our common stock and the value of your investment could decline substantially.
•We recognize a significant portion of revenue from subscriptions over the term of the relevant subscription period, and as a result, downturns or upturns in sales are not immediately reflected in full in our results of operations.
•We depend on our sales force, and we may fail to attract, retain, motivate or train our sales force, which could adversely affect our business, financial condition and results of operations.
•Our sales strategy to target larger enterprises involves risks that may not be present or that are present to a lesser extent with respect to smaller enterprises, such as long and unpredictable sales cycles and sales efforts that require considerable time and expense, particularly in the current macroeconomic environment.
•If we are not able to maintain and enhance our brand, especially among enterprise architects, application developers and other key functions that support them, our business and results of operations may be adversely affected.
•Our business could be adversely affected by economic downturns.
•Real or perceived errors, failures or bugs in our products or interruptions or performance problems associated with our technology and infrastructure could adversely affect our growth prospects, business, financial condition and results of operations.
•Our ability to maintain and increase sales with our existing customers depends, in part, on the quality of our customer support, and our failure to offer high-quality support would harm our reputation and adversely affect our business and results of operations.
•We track certain key business metrics with internal systems and tools and do not independently verify such metrics. Certain of these metrics are subject to inherent challenges in measurement, and any real or perceived inaccuracies in such metrics may adversely affect our business and reputation.
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•Our company culture has contributed to our success and if we cannot maintain this culture as we grow, our business could be harmed.
•We may be unable to make acquisitions and investments or successfully integrate acquired companies and assets into our business, and our acquisitions and investments may not meet our expectations, any of which could adversely affect our business, financial condition and results of operations.
•If we are unable to maintain successful relationships with our partners, our business, financial condition and results of operations could be harmed.
•Certain estimates and information we refer to publicly are based on information from third-party sources and we do not independently verify the accuracy or completeness of the data contained in such sources or the methodologies for collecting such data, and any real or perceived inaccuracies in such estimates and information may harm our reputation and adversely affect our business.
•Our use of third-party open source software in our solutions, the availability of core portions of our source code on an open source or source available basis and contributions to our open source projects could negatively affect our ability to sell our products and provide our services, subject us to possible litigation and allow third parties to access and use software and technology that we use in our business, all of which could adversely affect our business and results of operations.
•Our distribution and licensing model could negatively affect our ability to monetize and protect our intellectual property rights.
•Because of the rights accorded to third parties under open source licenses, there may be fewer technology barriers to entry in the markets in which we compete and it may be relatively easy for new and existing competitors, some of whom may have greater resources than we have, to compete with us.
•We could incur substantial costs in obtaining, maintaining, protecting, defending and enforcing our intellectual property rights and any failure to obtain, maintain, protect, defend or enforce our intellectual property rights could reduce the value of our software and brand.
•We have been and may in the future become subject to intellectual property disputes which may be costly to defend, subject us to significant liability, require us to pay significant damages and limit our ability to use certain technologies.
•If our security measures, or those of our service providers or customers, are breached or unauthorized parties otherwise obtain access to our or our customers’ data or software, our products and services may be perceived as not being secure, customers may reduce or terminate their use of our products and services and we may face claims, litigation, regulatory investigations, significant liability and reputational damage.
•Issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business.
•A portion of our revenue is generated by sales to heavily regulated organizations, which are subject to a number of challenges and risks.
•Our executive officers, directors and holders of 5% or more of our common stock continue to have substantial control over us, which will limit your ability to influence the outcome of important transactions, including a change in control.
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Part I – Financial Information
Item 1. Financial Statements (unaudited)
COUCHBASE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share and per share amounts)

| As of July 31, |  | As of January 31,
| 2023 |  | 2023
Assets |  |  |
Current assets |  |  |
Cash and cash equivalents | $ | 41,437 |  |  | $ | 40,446 |
Short-term investments | 124,361 |  |  | 127,856 |
Accounts receivable, net | 32,453 |  |  | 39,847 |
Deferred commissions | 12,787 |  |  | 13,096 |
Prepaid expenses and other current assets | 8,034 |  |  | 8,234 |
Total current assets | 219,072 |  |  | 229,479 |
Property and equipment, net | 8,581 |  |  | 7,430 |
Operating lease right-of-use assets | 5,620 |  |  | 6,940 |
Deferred commissions, noncurrent | 7,736 |  |  | 7,524 |
Other assets | 2,645 |  |  | 1,666 |
Total assets | $ | 243,654 |  |  | $ | 253,039 |
Liabilities and Stockholders’ Equity |  |  |
Current liabilities |  |  |
Accounts payable | $ | 3,156 |  |  | $ | 1,407 |
Accrued compensation and benefits | 10,887 |  |  | 12,641 |
Other accrued expenses | 4,874 |  |  | 6,076 |
Operating lease liabilities | 2,984 |  |  | 3,117 |
Deferred revenue | 79,721 |  |  | 71,716 |
Total current liabilities | 101,622 |  |  | 94,957 |
Operating lease liabilities, noncurrent | 3,271 |  |  | 4,543 |
Deferred revenue, noncurrent | 3,219 |  |  | 3,275 |
Total liabilities | 108,112 |  |  | 102,775 |
Commitments and contingencies (Note 9) |  |  |
Stockholders’ equity |  |  |
Preferred stock, $0.00001 par value; 200,000,000 shares authorized as of July 31, 2023 and January 31, 2023; zero shares issued outstanding as of July 31, 2023 and January 31, 2023 | — |  |  | — |
Common stock, $0.00001 par value; 1,000,000,000 shares authorized as of July 31, 2023 and January 31, 2023; 47,063,914 and 45,432,029 shares issued and outstanding as of July 31, 2023 and January 31, 2023, respectively | — |  |  | — |
Additional paid-in capital | 588,845 |  |  | 561,547 |
Accumulated other comprehensive loss | (301) |  |  | (807) |
Accumulated deficit | (453,002) |  |  | (410,476) |
Total stockholders’ equity | 135,542 |  |  | 150,264 |
Total liabilities and stockholders’ equity | $ | 243,654 |  |  | $ | 253,039 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COUCHBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenue: |  |  |  |  |  |  |
License | $ | 4,798 |  |  | $ | 6,382 |  |  | $ | 9,741 |  |  | $ | 11,389 |
Support and other | 36,156 |  |  | 30,677 |  |  | 69,755 |  |  | 57,651 |
Total subscription revenue | 40,954 |  |  | 37,059 |  |  | 79,496 |  |  | 69,040 |
Services | 2,185 |  |  | 2,732 |  |  | 4,639 |  |  | 5,604 |
Total revenue | 43,139 |  |  | 39,791 |  |  | 84,135 |  |  | 74,644 |
Cost of revenue: |  |  |  |  |  |  |
Subscription | 3,845 |  |  | 2,521 |  |  | 7,518 |  |  | 4,917 |
Services | 2,064 |  |  | 2,260 |  |  | 4,313 |  |  | 4,515 |
Total cost of revenue | 5,909 |  |  | 4,781 |  |  | 11,831 |  |  | 9,432 |
Gross profit | 37,230 |  |  | 35,010 |  |  | 72,304 |  |  | 65,212 |
Operating expenses: |  |  |  |  |  |  |
Research and development | 16,292 |  |  | 14,341 |  |  | 31,675 |  |  | 28,762 |
Sales and marketing | 32,348 |  |  | 27,473 |  |  | 64,901 |  |  | 54,316 |
General and administrative | 10,459 |  |  | 8,429 |  |  | 20,084 |  |  | 16,355 |
Restructuring | — |  |  | — |  |  | 46 |  |  | — |
Total operating expenses | 59,099 |  |  | 50,243 |  |  | 116,706 |  |  | 99,433 |
Loss from operations | (21,869) |  |  | (15,233) |  |  | (44,402) |  |  | (34,221) |
Interest expense | (18) |  |  | (25) |  |  | (43) |  |  | (50) |
Other income (expense), net | 1,255 |  |  | 261 |  |  | 2,688 |  |  | (295) |
Loss before income taxes | (20,632) |  |  | (14,997) |  |  | (41,757) |  |  | (34,566) |
Provision for income taxes | 19 |  |  | 372 |  |  | 769 |  |  | 637 |
Net loss | $ | (20,651) |  |  | $ | (15,369) |  |  | $ | (42,526) |  |  | $ | (35,203) |
Net loss per share, basic and diluted | $ | (0.44) |  |  | $ | (0.34) |  |  | $ | (0.92) |  |  | $ | (0.79) |
Weighted-average shares used in computing net loss per share, basic and diluted | 46,714 |  |  | 44,648 |  |  | 46,285 |  |  | 44,459 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COUCHBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands)

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Net loss | $ | (20,651) |  |  | $ | (15,369) |  |  | $ | (42,526) |  |  | $ | (35,203) |
Other comprehensive loss: |  |  |  |  |  |  |
Net unrealized gains (losses) on investments, net of tax | 189 |  |  | (162) |  |  | 506 |  |  | (848) |
Total comprehensive loss | $ | (20,462) |  |  | $ | (15,531) |  |  | $ | (42,020) |  |  | $ | (36,051) |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COUCHBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except shares)

| Common Stock |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Accumulated Deficit |  | Total Stockholders’ Equity (Deficit)
| Shares |  | Amount |  |  |  |
Balance as of April 30, 2023 | 46,155,499 |  |  | $ | — |  |  | $ | 573,791 |  |  | $ | (490) |  |  | $ | (432,351) |  |  | $ | 140,950 |
Issuance of common stock upon exercise of stock options | 378,175 |  |  | — |  |  | 2,733 |  |  | — |  |  | — |  |  | 2,733 |
Vesting of restricted stock units | 530,240 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 12,321 |  |  | — |  |  | — |  |  | 12,321 |
Net unrealized losses on investments | — |  |  | — |  |  | — |  |  | 189 |  |  | — |  |  | 189 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | (20,651) |  |  | (20,651) |
Balance as of July 31, 2023 | 47,063,914 |  |  | $ | — |  |  | $ | 588,845 |  |  | $ | (301) |  |  | $ | (453,002) |  |  | $ | 135,542 |
| Common Stock |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Accumulated Deficit |  | Total Stockholders’ Equity (Deficit)
| Shares |  | Amount |  |  |  |
Balance as of April 30, 2022 | 44,537,296 |  |  | $ | — |  |  | $ | 536,981 |  |  | $ | (881) |  |  | $ | (361,816) |  |  | 174,284 |
Issuance of common stock upon exercise of stock options | 108,618 |  |  | — |  |  | 753 |  |  | — |  |  | — |  |  | 753 |
Vesting of restricted stock units | 125,803 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 6,880 |  |  | — |  |  | — |  |  | 6,880 |
Net unrealized losses on investments | — |  |  | — |  |  | — |  |  | (162) |  |  | — |  |  | (162) |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | (15,369) |  |  | (15,369) |
Balance as of July 31, 2022 | 44,771,717 |  |  | $ | — |  |  | $ | 544,614 |  |  | $ | (1,043) |  |  | $ | (377,185) |  |  | $ | 166,386 |

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| Common Stock |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Accumulated Deficit |  | Total Stockholders’ Equity
| Shares |  | Amount |  |  |  |
Balance as of January 31, 2023 | 45,432,029 |  |  | $ | — |  |  | $ | 561,547 |  |  | $ | (807) |  |  | $ | (410,476) |  |  | $ | 150,264 |
Issuance of common stock upon exercise of stock options | 767,552 |  |  | — |  |  | 4,650 |  |  | — |  |  | — |  |  | 4,650 |
Issuance of common stock in connection with employee stock purchase plan | 74,113 |  |  | — |  |  | 847 |  |  | — |  |  | — |  |  | 847 |
Vesting of restricted stock units | 790,220 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 21,801 |  |  | — |  |  | — |  |  | 21,801 |
Net unrealized gains on investments | — |  |  | — |  |  | — |  |  | 506 |  |  | — |  |  | 506 |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | (42,526) |  |  | (42,526) |
Balance as of July 31, 2023 | 47,063,914 |  |  | $ | — |  |  | $ | 588,845 |  |  | $ | (301) |  |  | $ | (453,002) |  |  | $ | 135,542 |

| Common Stock |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Income (Loss) |  | Accumulated Deficit |  | Total Stockholders’ Equity
| Shares |  | Amount |  |  |  |
Balance as of January 31, 2022 | 43,847,484 |  |  | $ | — |  |  | $ | 525,392 |  |  | $ | (195) |  |  | $ | (341,982) |  |  | $ | 183,215 |
Issuance of common stock upon exercise of stock options | 560,931 |  |  | — |  |  | 3,367 |  |  | — |  |  | — |  |  | 3,367 |
Issuance of common stock in connection with employee stock purchase plan | 237,499 |  |  | — |  |  | 3,525 |  |  | — |  |  | — |  |  | 3,525 |
Vesting of restricted stock units | 125,803 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation | — |  |  | — |  |  | 12,330 |  |  | — |  |  | — |  |  | 12,330 |
Net unrealized losses on investments | — |  |  | — |  |  | — |  |  | (848) |  |  | — |  |  | (848) |
Net loss | — |  |  | — |  |  | — |  |  | — |  |  | (35,203) |  |  | (35,203) |
Balance as of July 31, 2022 | 44,771,717 |  |  | $ | — |  |  | $ | 544,614 |  |  | $ | (1,043) |  |  | $ | (377,185) |  |  | $ | 166,386 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COUCHBASE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

| Six Months Ended July 31,
| 2023 |  | 2022
Cash flows from operating activities |  |  |
Net loss | $ | (42,526) |  |  | $ | (35,203) |
Adjustments to reconcile net loss to net cash used in operating activities |  |  |
Depreciation and amortization | 1,635 |  |  | 1,466 |
Stock-based compensation, net of amounts capitalized | 21,393 |  |  | 12,177 |
Amortization of deferred commissions | 9,242 |  |  | 8,410 |
Non-cash lease expense | 1,548 |  |  | 1,400 |
Foreign currency transaction losses | 165 |  |  | 1,036 |
Other | (1,776) |  |  | 301 |
Changes in operating assets and liabilities |  |  |
Accounts receivable | 7,537 |  |  | 7,329 |
Deferred commissions | (9,146) |  |  | (7,706) |
Prepaid expenses and other assets | (118) |  |  | (1,214) |
Accounts payable | 1,745 |  |  | 3,543 |
Accrued compensation and benefits | (1,754) |  |  | (5,608) |
Accrued expenses and other liabilities | (1,871) |  |  | 1,035 |
Operating lease liabilities | (1,723) |  |  | (1,111) |
Deferred revenue | 7,949 |  |  | (2,117) |
Net cash used in operating activities | (7,700) |  |  | (16,262) |
Cash flows from investing activities |  |  |
Purchases of short-term investments | (64,315) |  |  | (69,468) |
Maturities of short-term investments | 70,120 |  |  | 32,802 |
Additions to property and equipment | (2,359) |  |  | (2,476) |
Net cash provided by (used in) investing activities | 3,446 |  |  | (39,142) |
Cash flows from financing activities |  |  |
Proceeds from exercise of stock options | 4,650 |  |  | 3,367 |
Proceeds from issuance of common stock under ESPP | 847 |  |  | 3,525 |
Net cash provided by financing activities | 5,497 |  |  | 6,892 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (252) |  |  | (838) |
Net increase (decrease) in cash, cash equivalents and restricted cash | 991 |  |  | (49,350) |
Cash, cash equivalents and restricted cash |  |  |
Beginning of period | 40,989 |  |  | 96,231 |
End of period | $ | 41,980 |  |  | $ | 46,881 |
Cash and cash equivalents | $ | 41,437 |  |  | $ | 46,338 |
Restricted cash included in other assets | 543 |  |  | 543 |
Total cash, cash equivalents and restricted cash | $ | 41,980 |  |  | $ | 46,881 |
Supplemental disclosures of cash activities |  |  |
Cash paid for income taxes | $ | 410 |  |  | $ | 359 |
Cash paid for interest | $ | 43 |  |  | $ | 50 |
Non-cash investing and financing activities: |  |  |
Stock-based compensation capitalized as internal-use software costs | $ | 408 |  |  | $ | 153 |
Net change in unrealized gains or losses on available-for-sale debt securities | $ | 506 |  |  | $ | (848) |
Change in purchases of property and equipment included in accounts payable and other accrued expenses | $ | 22 |  |  | $ | 194 |

The accompanying notes are an integral part of these condensed consolidated financial statements
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COUCHBASE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
Couchbase, Inc. provides an enterprise-class, multi-cloud NoSQL database architected on top of an open source foundation. Couchbase was incorporated in the State of Delaware in 2008 and is headquartered in Santa Clara, California. In these notes to the unaudited condensed consolidated financial statements, the “Company,” “Couchbase,” “we,” “us” and “our” refers to Couchbase, Inc. and its subsidiaries on a consolidated basis.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance 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. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the balance sheet as of January 31, 2023, and related disclosures, have been derived from the audited consolidated financial statements at that date but do not include all the information required by GAAP for complete consolidated financial statements. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of only normal recurring adjustments) that are necessary for the fair statement of the Company’s condensed consolidated financial information. The results of operations for the three and six months ended July 31, 2023, are not necessarily indicative of the results to be expected for the year ending January 31, 2024, or for any other interim period or for any other future year.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2023, as filed with the SEC on March 29, 2023.
Fiscal Year
The Company’s fiscal year ends on January 31. Unless otherwise stated, references to year in these condensed consolidated financial statements relate to fiscal year rather than calendar year.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Couchbase, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts stated in the financial statements and accompanying notes. Such estimates include, but are not limited to, standalone selling prices for each distinct performance obligation, capitalized internal-use software costs, expected period of benefit for deferred commissions, valuation of stock-based awards, the determination of allowance for doubtful accounts, the incremental borrowing rate used to measure operating lease liabilities, and accounting for income taxes. The Company bases its estimates on historical experience and assumptions that management considers reasonable.
The Company assesses these estimates on a regular basis; however, actual results could differ from these estimates. Estimates and assumptions about future events and their effects, including the impact of macroeconomic conditions such as inflation and foreign exchange fluctuations, cannot be determined with certainty and therefore require increased judgment. These estimates and assumptions may change in future periods and will be recognized in the condensed consolidated financial statements as new events occur and additional information becomes known. To the extent the Company’s actual results differ materially from those estimates and assumptions, the Company’s future financial statements could be affected.
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Significant Accounting Policies
Other than those described below related to the Company's adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), there have been no material changes to the Company's significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023, that have had a material impact on its condensed consolidated financial statements and related notes.
Short-Term Investments
The Company determines the appropriate classification of its investments at the time of purchase. As the Company views these securities as available to support current operations, it accounts for these debt securities as available-for-sale and classifies them as current assets on its condensed consolidated balance sheets. These securities are recorded at estimated fair value. When the fair value of a security declines below its amortized cost basis, the carrying value of the security will be reduced to its fair value if it is more likely than not that management is required to sell the impaired security before recovery of its amortized basis, or management has the intention to sell the security. If neither of these conditions are met, the Company determines whether any portion of the decline is due to credit losses. Any portion of that decline attributable to credit losses, to the extent expected to be nonrecoverable before the sale of the security, is recognized in the Company’s condensed consolidated statement of operations. When the fair value of the security declines below its amortized cost basis due to changes in interest rates, such amounts are recorded in accumulated other comprehensive income (loss) and are recognized in the Company’s condensed consolidated statement of operations only if the Company sells or intends to sell the security before recovery of its cost basis. Realized gains and losses are determined based on the specific identification method and are reported in interest and other income (expense), net in the Company’s condensed consolidated statements of operations.
Accounts Receivable
Accounts receivable includes billed and unbilled receivables, net of allowance for credit losses. Trade accounts receivable are recorded at invoiced amounts and do not bear interest. The allowance for credit losses is estimated based on the Company’s assessment of the collectibility of accounts receivable by considering various factors, including the age of each outstanding invoice, the collection history of each customer, historical write-off experience, current economic conditions, and reasonable and supportable forecasts of future economic conditions over the life of the receivable. The Company assesses collectibility by reviewing accounts receivable on an aggregate basis when similar characteristics exist and on an individual basis when specific customers with collectibility issues are identified. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consist of cash, cash equivalents, restricted cash, short-term investments and accounts receivable. The Company maintains its cash and cash equivalents, restricted cash and short-term investments with high-quality financial institutions. Cash equivalents consist of money market funds which are invested through financial institutions in the United States. Deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on these deposits.
For its accounts receivable, the Company is exposed to credit risk in the event of nonpayment by customers to the extent of the amounts recorded on the consolidated balance sheet. Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer base and their dispersion across different geographies and industries. The Company performs ongoing credit evaluations on certain customers and generally does not require collateral on accounts receivable. The Company maintains an allowance for doubtful accounts and historically bad debts have not been material.
No customer accounte d for 10% or more of total revenue for the three and six months ended July 31, 2023 and 2022. No customer accounted for 10% or more of gross accounts receivable as of July 31, 2023, and one customer accounted for approximately 12% of gross accounts receivable as of January 31, 2023.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires a financial asset measured at amortized cost basis to be presented at the net amount expected to be collected, with further clarifications made more recently. For trade receivables, loans and other financial instruments, the Company will be required to use a forward-looking expected loss model rather than the
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incurred loss model for recognizing credit losses which reflects losses that are probable. Credit losses relating to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The Company adopted this standard effective February 1, 2023 on a modified retrospective basis, and the adoption did not result in any cumulative effect adjustment in the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Under the Jumpstart Our Business Startups Act (the “JOBS Act”), the Company meets the definition of an emerging growth company and can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the Company is no longer an emerging growth company or until the Company affirmatively and irrevocably opts out of the extended transition period.
3. Cash Equivalents and Short-Term Investments
The following tables summarize the Company’s cash equivalents and short-term investments (in thousands):

| As of July 31, 2023
Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Cash Equivalents |  |  |  |  |  |  |
Money market funds | $ | 12,667 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,667 |
Total cash equivalents | 12,667 |  |  | — |  |  | — |  |  | 12,667 |
Short-Term Investments |  |  |  |  |  |  |
U.S. government treasury securities | 96,024 |  |  | 1 |  |  | (245) |  |  | 95,780 |
U.S. government agency securities | 11,928 |  |  | — |  |  | (46) |  |  | 11,882 |
Commercial paper | 9,941 |  |  | — |  |  | — |  |  | 9,941 |
Corporate debt securities | 3,957 |  |  | — |  |  | (4) |  |  | 3,953 |
Asset-backed securities | 2,812 |  |  | — |  |  | (7) |  |  | 2,805 |
Total short-term investments | 124,662 |  |  | 1 |  |  | (302) |  |  | 124,361 |
Total | $ | 137,329 |  |  | $ | 1 |  |  | $ | (302) |  |  | $ | 137,028 |

| As of January 31, 2023
Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value
Cash Equivalents |  |  |  |  |  |  |
Money market funds | $ | 29,239 |  |  | $ | — |  |  | $ | — |  |  | $ | 29,239 |
Corporate debt securities | $ | 1,122 |  |  | $ | — |  |  | $ | — |  |  | 1,122 |
Total cash equivalents | 30,361 |  |  | — |  |  | — |  |  | 30,361 |
Short-Term Investments |  |  |  |  |  |  |
U.S. government treasury securities | 71,981 |  |  | 1 |  |  | (729) |  |  | 71,253 |
U.S. government agency securities | 7,839 |  |  | 3 |  |  | (1) |  |  | 7,841 |
Commercial paper | 31,500 |  |  | — |  |  | — |  |  | 31,500 |
Corporate debt securities | 11,952 |  |  | — |  |  | (50) |  |  | 11,902 |
Asset-backed securities | 5,391 |  |  | — |  |  | (31) |  |  | 5,360 |
Total short-term investments | 128,663 |  |  | 4 |  |  | (811) |  |  | 127,856 |
Total | $ | 159,024 |  |  | $ | 4 |  |  | $ | (811) |  |  | $ | 158,217 |

During the three and six months ended July 31, 2023 and 2022, the Company did not reclassify any amounts to earnings from accumulated other comprehensive income (loss) related to unrealized gains or losses in other income (expense), net in the condensed consolidated statements of operations.
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As of July 31, 2023, the Company’s short-term investments consisted of $120.4 million and $4.0 million with a contractual maturity date of less than one year and greater than one year, respectively. As of January 31, 2023, the Company’s short-term investments consisted of $122.0 million and $5.9 million with a contractual maturity of less than one year and greater than one year, respectively.
The Company’s gross unrealized losses and fair values for short-term investments that were in an unrealized loss position as of July 31, 2023 and January 31, 2023, aggregated by investment category and the length of time that individual securities have been in a continuous loss position were as follows (in thousands):

| As of July 31, 2023
| Less Than 12 Months |  | 12 Months or Greater |  | Total
| Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value
U.S. government treasury securities | $ | (60) |  |  | $ | 57,460 |  |  | $ | (185) |  |  | $ | 25,750 |  |  | $ | (245) |  |  | $ | 83,210 |
U.S. government agency securities | (46) |  |  | 11,882 |  |  | — |  |  | — |  |  | (46) |  |  | 11,882 |
Corporate debt securities | (3) |  |  | 2,953 |  |  | (1) |  |  | 999 |  |  | (4) |  |  | 3,952 |
Asset-backed securities | (5) |  |  | 1,811 |  |  | (2) |  |  | 994 |  |  | (7) |  |  | 2,805 |
Total | $ | (114) |  |  | $ | 74,106 |  |  | $ | (188) |  |  | $ | 27,743 |  |  | $ | (302) |  |  | $ | 101,849 |

| As of January 31, 2023
| Less Than 12 Months |  | 12 Months or Greater |  | Total
| Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value
U.S. government treasury securities | $ | (729) |  |  | $ | 64,397 |  |  | $ | — |  |  | $ | — |  |  | $ | (729) |  |  | $ | 64,397 |
U.S. government agency securities | (1) |  |  | 1,918 |  |  | — |  |  | — |  |  | (1) |  |  | 1,918 |
Corporate debt securities | (49) |  |  | 8,909 |  |  | (1) |  |  | 1,999 |  |  | (50) |  |  | 10,908 |
Asset-backed securities | (31) |  |  | 5,359 |  |  | — |  |  | — |  |  | (31) |  |  | 5,359 |
Total | $ | (810) |  |  | $ | 80,583 |  |  | $ | (1) |  |  | $ | 1,999 |  |  | $ | (811) |  |  | $ | 82,582 |

As of July 31, 2023, the Company had 30 short-term investments in an unrealized loss position. As of January 31, 2023, the Company had 27 short-term investments in an unrealized loss position. As of July 31, 2023, the Company determined that the declines in the market value of its investment portfolio were not driven by credit related factors. During the three and six months ended July 31, 2023, the Company did not recognize any losses on its short-term investments due to credit related factors.
4. Fair Value Measurements
The Company accounts for certain of its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities.
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 and that are significant to the fair value of the assets or liabilities.
The carrying amounts reflected on the condensed consolidated balance sheets for cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short maturities of those instruments.
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The following tables present the fair value hierarchy for the Company’s assets measured at fair value on a recurring basis (in thousands):

| As of July 31, 2023
Level 1 |  | Level 2 |  | Total
Cash Equivalents |  |  |  |  |
Money market funds | $ | 12,667 |  |  | $ | — |  |  | $ | 12,667 |
Total cash equivalents | 12,667 |  |  | — |  |  | 12,667 |
Short-Term Investments |  |  |  |  |
U.S. government treasury securities | — |  |  | 95,780 |  |  | 95,780 |
U.S. government agency securities | — |  |  | 11,882 |  |  | 11,882 |
Commercial paper | — |  |  | 9,941 |  |  | 9,941 |
Corporate debt securities | — |  |  | 3,953 |  |  | 3,953 |
Asset-backed securities | — |  |  | 2,805 |  |  | 2,805 |
Total short-term investments | — |  |  | 124,361 |  |  | 124,361 |
Total | $ | 12,667 |  |  | $ | 124,361 |  |  | $ | 137,028 |

| As of January 31, 2023
Level 1 |  | Level 2 |  | Total
Cash Equivalents |  |  |  |  |
Money market funds | $ | 29,239 |  |  | $ | — |  |  | $ | 29,239 |
Corporate debt securities | $ | — |  |  | 1,122 |  |  | 1,122 |
Total cash equivalents | 29,239 |  |  | 1,122 |  |  | 30,361 |
Short-Term Investments |  |  |  |  |
U.S. government treasury securities | — |  |  | 71,253 |  |  | 71,253 |
U.S. government agency securities | — |  |  | 7,841 |  |  | 7,841 |
Commercial paper | — |  |  | 31,500 |  |  | 31,500 |
Corporate debt securities | — |  |  | 11,902 |  |  | 11,902 |
Asset-backed securities | — |  |  | 5,360 |  |  | 5,360 |
Total short-term investments | — |  |  | 127,856 |  |  | 127,856 |
Total | $ | 29,239 |  |  | $ | 128,978 |  |  | $ | 158,217 |

The Company classifies its money market funds within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its U.S. government agency securities, asset-backed securities, commercial paper, U.S. government treasury securities, and corporate debt securities within Level 2 because they are valued using inputs other than quoted prices which are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded.
5. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):

| As of July 31, |  | As of January 31,
2023 |  | 2023
Prepaid expenses | $ | 3,281 |  |  | $ | 4,140 |
Prepaid software | 3,689 |  |  | 2,560 |
Other current assets | 1,064 |  |  | 1,534 |
Total prepaid expenses and other current assets | $ | 8,034 |  |  | $ | 8,234 |

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Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):

| As of July 31, |  | As of January 31,
2023 |  | 2023
Computer equipment | $ | 3,556 |  |  | $ | 3,586 |
Furniture and fixtures | 342 |  |  | 342 |
Capitalized internal-use software | 8,435 |  |  | 7,884 |
Leasehold improvements | 1,889 |  |  | 1,889 |
Construction in progress—capitalized internal-use software | 5,630 |  |  | 3,395 |
Total gross property and equipment | 19,852 |  |  | 17,096 |
Accumulated depreciation and amortization | (11,271) |  |  | (9,666) |
Total property and equipment, net | $ | 8,581 |  |  | $ | 7,430 |

Depreciation and amortization expense was $0.7 million and $0.8 million for three months ended July 31, 2023 and 2022, respectively, and $1.6 million and $1.5 million for the six months ended July 31, 2023 and 2022, respectively. Included in these amounts were the amortization of capitalized internal-use software development costs of $0.5 million and $0.5 million in the three months ended July 31, 2023 and 2022, respectively, and $1.2 million and $1.0 million for the six months ended July 31, 2023 and 2022, respectively.
Accrued Compensation and Benefits
Accrued compensation and benefits consisted of the following (in thousands):

| As of July 31, |  | As of January 31,
2023 |  | 2023
Accrued bonus | $ | 4,960 |  |  | $ | 5,944 |
Accrued commissions | 2,501 |  |  | 3,593 |
Accrued payroll and benefits | 2,194 |  |  | 1,995 |
Employee contributions under the ESPP | 1,232 |  |  | 1,109 |
Total accrued compensation and benefits | $ | 10,887 |  |  | $ | 12,641 |

Other Accrued Expenses
Other accrued expenses consisted of the following (in thousands):

| As of July 31, |  | As of January 31,
2023 |  | 2023
Accrued professional fees | $ | 1,051 |  |  | $ | 1,020 |
Sales and value added tax payable | 234 |  |  | 737 |
Income taxes payable | 1,590 |  |  | 743 |
Accrued restructuring | 40 |  |  | 1,567 |
Other | 1,959 |  |  | 2,009 |
Total other accrued expenses | $ | 4,874 |  |  | $ | 6,076 |

6. Deferred Revenue and Remaining Performance Obligations
The following table presents the deferred revenue balances (in thousands):

| As of July 31, |  | As of January 31,
2023 |  | 2023
Deferred revenue, current | $ | 79,721 |  |  | $ | 71,716 |
Deferred revenue, noncurrent | 3,219 |  |  | 3,275 |
Total deferred revenue | $ | 82,940 |  |  | $ | 74,991 |

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Changes in the deferred revenue balances during the six months ended July 31, 2023 and 2022 were as follows (in thousands):

| Six Months Ended July 31,
2023 |  | 2022
Beginning balance | $ | 74,991 |  |  | $ | 71,723 |
Performance obligations satisfied during the period that were included in the deferred revenue balance at the beginning of the year | (49,726) |  |  | (43,450) |
Increases due to invoicing prior to satisfaction of performance obligations | 57,675 |  |  | 41,333 |
Ending balance | $ | 82,940 |  |  | $ | 69,606 |

Remaining performance obligations (“RPOs”) represent the amount of contracted future revenue that has not yet been recognized, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods.
As of July 31, 2023, the Company’s RPOs were $170.6 million. The Company expects to recognize revenue of $114.4 million of these remaining performance obligations over the next twelve months with the remaining balances recognized thereafter.
7. Debt
Interest expense consisting primarily of unused Credit Facility (as defined below) fees was immaterial for both the three and six months ended July 31, 2023 and 2022.
Term Loan
In August 2018, the Company entered into an agreement for a term loan with a certain lender, which was amended in April 2019 and in June 2020 (the “Amended Loan”). The Amended Loan provided maximum borrowings of up to $25.0 million, maturing in June 2024. In January 2021, the Company repaid all outstanding indebtedness owed pursuant to the Amended Loan and terminated the agreement. Pursuant to the termination of the Amended Loan, the related security interests have been removed and the covenants shall be of no further force and effect.
In connection with the April 2019 amendment, the Company issued warrants to purchase 105,350 shares of the Company’s common stock at $7.48 per share, exercisable over 10 years. The fair value of the warrants was recorded to equity and as a debt discount that was amortized to interest over the term of the loan. The total fair value of the common stock warrants was $0.4 million. As of July 31, 2023, all warrants were outstanding and exercisable.
Credit Facility
In January 2021, the Company entered into an Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “Credit Facility”) providing the Company the ability to borrow up to $40.0 million from a revolving line of credit and extending the maturity date to January 2024. Upon the execution of the amended Credit Facility, the Company borrowed $25.0 million from the line of credit, which was repaid in full during the fiscal year ended January 31, 2022.
The line of credit was secured with a pledge on substantially all the assets of the Company, except any intellectual property and was subject to a minimum revenue covenant. The amendment also added certain financial covenants, including covenants related to certain financial metrics, that if not met, would limit the amount of additional borrowings under the line of credit. The amended line of credit agreement also required the company to maintain an adjusted quick ratio (as defined by the agreement) of at least 1.15 to 1.0. The line of credit agreement also contained certain customary affirmative and negative covenants as well as customary events of default, subject to certain exceptions, including restrictions on the Company’s ability to, among other things, incur debt and liens, maintain collateral accounts, undergo fundamental changes including mergers or consolidations, dispose assets including selling, transferring or assigning assets, pay dividends or other distributions or make or permit payments on any subordinated debt. The outstanding principal balance was due at maturity with interest payable monthly. The line of credit beared a variable annual interest rate of the prime rate plus 0.5%. The Company was required to pay a fee equal to 0.25% per annum on the unused portion of the line of credit. The Company was also subject to a termination fee ranging from 0.5% to 1.0% of the line of credit if the Company terminates the agreement prior to the maturity date.
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On March 14, 2023, Silicon Valley Bridge Bank, N.A. announced that it had assumed the obligations and commitments of former Silicon Valley Bank, including the line of credit, and later became a division of First-Citizens Bank & Trust Company. The agreements that governed the former Silicon Valley Bank relationship remained in place. There were no changes to the terms of the Credit Facility and the Company had full access to its cash balances.
On June 5, 2023, the Company terminated the Credit Facility pursuant to Section 12.1 thereof. Any termination fee owed by the Company as required by Section 2.5(c) thereof has been waived by Silicon Valley Bank. At the time of termination, no borrowings were outstanding under the Credit Facility. Concurrently with the termination of the Credit Facility, all liens securing the Company’s obligations under the Credit Facility were released.
8. Leases
The Company leases facilities under non-cancelable operating leases, primarily for rent of office space. The Company's leases have various expiration dates through November 2027, some of which include options to extend the leases for up to three years. The Company does not have any finance leases.
Operating lease costs were $0.7 million and $0.8 million for the three months ended July 31, 2023 and 2022, respectively, and $1.5 million and $1.4 million for the six months ended July 31, 2023 and 2022, respectively. Variable lease costs were $0.2 million and $0.2 million during the three months ended July 31, 2023 and 2022, respectively, and $0.3 million and $0.4 million during the six months ended July 31, 2023 and 2022, respectively. Short-term lease costs were immaterial during the three and six months ended July 31, 2023 and 2022.
The following table presents supplemental cash flow information related to leases:

| Six Months Ended July 31,
| 2023 |  | 2022
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash outflows from operating leases | $ | 1,694 |  | $ | 1,529
Right-of-use assets obtained in exchange for lease obligations: |  |  |
Operating leases | $ | 130 |  | $ | 2,205

The following table presents supplemental balance sheet information related to operating leases (in thousands, except for lease term and discount rate):

| July 31, 2023 |  | January 31, 2023
Operating lease right-of-use assets | $ | 5,620 |  |  | $ | 6,940 |
Operating lease liabilities | $ | 2,984 |  |  | $ | 3,117 |
Operating lease liabilities, noncurrent | 3,271 |  |  | 4,543 |
Total operating lease liabilities | $ | 6,255 |  |  | $ | 7,660 |
Weighted-average remaining lease term | 2.3 years |  | 2.7 years
Weighted-average discount rate | 3.9 | % |  | 3.8 | %

As of July 31, 2023, remaining maturities of operating lease liabilities were as follows (in thousands):

Period | Operating Leases
Remaining for Fiscal 2024 | $ | 1,647
Fiscal 2025 | 3,072
Fiscal 2026 | 1,218
Fiscal 2027 | 353
Fiscal 2028 and thereafter | 250
Total lease payments | 6,540
Less: imputed interest | (285)
Total | $ | 6,255

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9. Commitments and Contingencies
Other Contractual Commitments
Other contractual commitments relate to third-party cloud infrastructure agreements and subscription arrangements.
As of July 31, 2023, there were no material changes to the Co mpany’s contractual commitments since January 31, 2023.
Legal Matters
From time to time, the Company may be a party to various legal matters, threatened claims, or proceedings in the normal course of business. Legal fees and other costs associated with such actions are expensed as incurred. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. Legal accruals are recorded when and if it is determined that a loss related to a certain matter is both probable and reasonably estimable. The Company is not currently a party to any legal proceedings that, if determined adversely to it, would, in management’s opinion, have a material and adverse effect on the Company’s financial condition, results of operations, or cash flows.
Indemnification Agreements
In the ordinary course of business, the Company enters into agreements of varying scope and terms pursuant to which the Company agrees to indemnify customers, vendors, lessors and other business partners with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. Additionally, the Company entered into indemnification agreements with the Company’s directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements nor are we aware of any such claims that could reasonably be expected to incur material costs.
10. Stockholders’ Equity and Employee Incentive Plans
Redeemable Convertible Preferred Stock
As of July 31, 2023, there were no shares of redeemable convertible preferred stock issued and outstanding.
The Company’s Amended and Restated Certificate of Incorporation authorizes the issuance of 200,000,000 shares of undesignated preferred stock with a par value of $0.00001 per share with rights and preferences, including voting rights, designated from time to time by the board of directors.
Common Stock
The Company’s Amended and Restated Certificate of Incorporation authorized the Company to issue 1,000,000,000 shares of common stock at a par value of $0.00001 as of July 31, 2023 and January 31, 2023.
Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when and if declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding. As of July 31, 2023 and January 31, 2023, no dividends had been declared.
As of July 31, 2023, the Company has reserved common stock for future issuance as follows:

| Number of Shares
Stock options outstanding | 6,961,108 |
Restricted stock units issued and outstanding | 6,125,102 |
Remaining shares available for issuance under the 2021 Plan | 2,234,791 |
Shares available for issuance under the 2023 Inducement Plan | 1,079,006 |
ESPP | 1,334,366 |
Common stock warrants | 105,350 |
Total | 17,839,723 |

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Stock Plans
The Company has four equity incentive plans: the 2008 Equity Incentive Plan (the “2008 Plan”), 2018 Equity Incentive Plan (the “2018 Plan”), 2021 Equity Incentive Plan (the “2021 Plan”) and 2023 Inducement Equity Incentive Plan (the "2023 Inducement Plan"), collectively (the “Stock Plans”). In connection with the Company’s IPO in July 2021, the 2008 Plan and the 2018 Plan were terminated and replaced by the 2021 Plan and all shares that remained available for issuance under the 2018 Plan at that time were reserved for issuance under the 2021 Plan. The number of shares of common stock available for issuance under the 2021 Plan will be increased by any shares of common stock subject to awards outstanding under the 2008 Plan and the 2018 Plan that expire or otherwise terminate without having been exercised or issued in full, are tendered to or withheld by the Company for payment of an exercise price or for satisfying tax withholding obligations or are forfeited to or repurchased by the Company due to failure to vest.
The Company has issued stock options to employees, directors, consultants and advisors pursuant to the 2018 Plan and restricted stock units (“RSUs”) under the 2021 Plan.
Equity awards permitted under the 2021 Plan may be stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares. Stock option grants may be either Incentive Stock Options (“ISO”) or Non-Qualified Stock Options (“NSO”). ISO may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, consultants, and nonemployee directors. Employee stock options are granted with an exercise price no less than the fair value of the underlying common stock on the grant date. Options granted under the 2021 Plan expire ten years from the date of grant and generally vest over four years at a rate of 25% upon the first anniversary of the issuance date and 1/48 per month thereafter.
As of July 31, 2023, there were 2.2 million shares available for grant under the 2021 Plan. The 2021 Plan provides that the number of shares reserved will automatically increase on the first day of each fiscal year, beginning on February 1, 2022, by an amount equal to the least of (i) 4,120,000 shares, (ii) five-percent (5%) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2021 Plan no later than the last day of the immediately preceding Fiscal Year.
During the fiscal year ended January 31, 2023, the Company adopted the 2023 Inducement Equity Incentive Plan (the “2023 Inducement Plan”), pursuant to which the Company reserved 1,300,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The maximum number of shares of our common stock that may be issued under the 2023 Inducement Plan will not exceed 1,300,000 shares. The 2023 Inducement Plan was approved by the Company’s Board of Directors without stockholder approval in accordance with such rule. As of July 31, 2023, there were 1.1 million shares available for grant under the 2023 Inducement Plan.
Employee Stock Purchase Plan
In July 2021, the Company established an Employee Stock Purchase Plan (“ESPP”) in which eligible employees may contribute up to 15% of their base compensation to purchase shares of common stock at a price equal to 85% of the lower of (1) the fair market value of a share of the Company’s common stock at the beginning of the offering period and (2) the fair market value of a share of the Company’s common stock on the purchase date. Participants are permitted to purchase a maximum of shares during each offering period and, initially, no participant may purchase more than 1,000 shares during any offering period. Starting with the offering period beginning September 21, 2023, participants may purchase up to 1,500 shares during any offering period.
Except for the initial offering period, the ESPP provides for 24-month offering periods beginning March 21 and September 21 of each year, and each offering period will consist of four six-month purchase periods. The initial offering period began on July 22, 2021 and will end on September 20, 2023. The initial offering period consists of four purchase periods with the first purchase date on March 21, 2022, and the final purchase period ending on September 20, 2023.
The Company recognized stock-based compensation expense related to the ESPP of $0.3 million and $0.5 million during the three months ended July 31, 2023 and 2022, respectively, and $0.7 million and $1.3 million during the six months ended July 31, 2023 and 2022, respectively. As of July 31, 2023, accrued ESPP employee payroll contributions of $1.2 million are included within accrued compensation and benefits in the consolidated balance sheet. ESPP payroll contributions used to purchase shares are reclassified to stockholders’ equity on the purchase date. As of July 31, 2023, $0.5 million of unrecognized stock-based compensation expense related to the ESPP is expected to be recognized over a weighted-average vesting period of 0.6 years.
During the six months ended July 31, 2023, 74,113 shares of common stock were issued under the ESPP.
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Stock Options
The following table summarizes stock option activity under the Stock Plans for the six months ended July 31, 2023 (aggregate intrinsic value in thousands):

| Options Outstanding |  | Weighted- Average Contractual Term |  | Aggregate Intrinsic Value
Number of Options |  | Weighted- Average Exercise Price |  |
Balances as of January 31, 2023 | 7,819,480 |  |  | $ | 9.78 |  |  | 5.21 |  | $ | 51,606 |
Options exercised | (767,552) |  |  | $ | 6.06 |  |  |  |  |
Options granted | — |  |  | $ | — |  |  |  |  |
Options cancelled | (90,820) |  |  | $ | 19.94 |  |  |  |  |
Balances as of July 31, 2023 | 6,961,108 |  |  | $ | 10.06 |  |  | 4.97 |  | $ | 55,070 |
Options vested and expected to vest as of July 31, 2023 | 6,961,108 |  |  | $ | 10.06 |  |  | 4.97 |  | $ | 55,070 |
Options vested and exercisable as of July 31, 2023 | 6,110,028 |  |  | $ | 8.88 |  |  | 4.66 |  | $ | 53,060 |

No stock options were granted during the six months ended July 31, 2023 and 2022.
The aggregate intrinsic value of options exercised during the three months ended July 31, 2023 and 2022 was $4.5 million and $1.0 million, respectively, and $8.7 million and $7.7 million during the six months ended July 31, 2023 and 2022, respectively. Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s common stock.
The Company recognized stock-based compensation expense related to stock options of $1.2 million and $2.4 million during the three and six months ended July 31, 2023, respectively.
As of July 31, 2023, there was $6.1 million of unrecognized stock-based compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.3 years.
Service-Based RSUs
During the year ended January 31, 2022, the Company began granting RSUs to its employees. RSUs granted had service-based vesting conditions. The service-based vesting condition for these awards is generally satisfied by rendering continuous service over two to four years, depending on the award, during which time the grants will vest quarterly.
The following table is a summary of service-based RSU activity for the six months ended July 31, 2023:

| RSUs Outstanding
Number of RSUs |  | Weighted Average Grant Date Fair Value Per Share
Balances as of January 31, 2023 | 3,442,982 |  |  | $ | 18.39 |
RSUs granted | 2,628,090 |  |  | $ | 16.59 |
RSUs vested | (790,220) |  |  | $ | 18.34 |
RSUs forfeited | (277,750) |  |  | $ | 17.80 |
Balances as of July 31, 2023 | 5,003,102 |  |  | $ | 17.48 |

The aggregate fair value of the RSU awards granted was $4.3 million and $14.6 million during the three months ended July 31, 2023 and 2022, respectively, and $43.6 million and $64.3 million during the six months ended July 31, 2023 and 2022, respectively. This represents the fair value of the common stock on the date the service-based vesting awards were granted.
We recognized $8.5 million and $4.0 million in stock-based compensation expense related to service vesting-based RSUs during the three months ended July 31, 2023 and 2022, respectively, and $15.4 million and $6.4 million during the six months ended July 31, 2023 and 2022, respectively. As of July 31, 2023, there was $79.7 million of unrecognized compensation expense related to service-based RSUs expected to be recognized over a weighted-average vesting period of 2.5 years.
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Performance-based and Market-based Awards
Modification of Market-Based Awards
On March 20, 2023, the Board of Directors approved a modification of the Company’s 1,060,000 outstanding Market-based RSUs granted to certain executive officers and members of senior management. This resulted in 840,000 of the awards modified to performance-based vesting and the other 220,000 remained market-based vesting with modified stock price targets and requisite service periods.
Performance-based Awards
The 840,000 awards granted to certain executive officers were modified from market-based vesting conditions to performance-based vesting conditions and will vest based on the Company achieving certain financial metrics over revised service periods. For the portion of the awards where the expectation of the achievement of performance conditions remained probable prior to and post modification, the Company accounted for this change as a Type I modification under ASC 718, Compensation—Stock Compensation. For the portion of the awards where the expectation of the achievement of performance conditions changed from probable prior to the modification to improbable post-modification, the Company accounted for this change as a Type II modification. The Company recognizes expense for performance-based RSUs ("PSUs") over the requisite service period based on management's expectation of the number of PSUs expected to vest. For any change in the expectation of the number of PSUs that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. The incremental stock-based compensation expense related to these modified awards was $6.0 million.
During the six months ended July 31, 2023, the Company granted 70,000 PSUs to an executive officer pursuant to the 2021 Plan with vesting conditions identical to the modified awards discussed above. The grant date fair value of the award was $0.7 million.
We recognized a total of $1.7 million and $2.5 million in stock-based compensation expense related to PSUs during the three and six months ended July 31, 2023, respectively. As of July 31, 2023, there were 910,000 awards outstanding and a total of $8.2 million of unrecognized compensation expense related to PSUs expected to be recognized over an average vesting period of 1.3 years.
Market-based Awards
The 220,000 awards granted to certain members of senior management were modified to revise the 60-trading day stock price target of the Company’s common stock and the requisite service periods. The incremental stock-based compensation expense related to these modified awards was not material. As of July 31, 2023, there were 212,000 awards outstanding and a total of $1.7 million of unrecognized compensation expense related to market-based RSUs expected to be recognized over an average vesting period of 1.3 years.
Determination of Fair Value
The Company estimates the fair value of stock options and purchase rights issued to employees under the ESPP using the Black-Scholes option-pricing model, which is dependent upon several variables, such as the fair value of the Company’s common stock, the expected option term, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected option term, and expected dividend yield.
Expected term—The expected term represents the weighted-average period the stock options are expected to remain outstanding and is calculated using the simplified method, as the Company did not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The simplified method calculates the expected term as the midpoint between the vesting date and the contractual expiration date of the option.
Expected volatility—The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company does not have sufficient trading history for the Company’s common stock.
Risk-free interest rate—The risk-free rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s awards.
Dividend yield—The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.
Fair value of underlying common stock— Prior to the Company’s IPO, the fair value was determined by the Board of Directors with input from management and contemporaneous independent third-party valuations. Subsequent to
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the IPO, the fair value of the Company’s common stock is based on the daily average selling price on the Nasdaq Global Select Market.
No stock options were granted during the three and six months ended July 31, 2023 or 2022.
The fair value of employee stock purchase rights for the offering period under the 2021 ESPP was determined on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

| Six Months Ended July 31, |  |
| 2023 |  | 2022 |  |
Employee Stock Purchase Plan: |  |  |  |  |
Expected term (in years) | 0.8 |  | 1.6 |  |
Expected volatility | 66.9 | % |  | 49.4 | % |  |
Risk-free interest rate | 4.8 | % |  | 0.2 | % |  |
Dividend yield | — |  |  | — |  |  |

Stock-Based Compensation
Stock-based compensation expense, net of amounts capitalized was as follows (in thousands):

| Three Months Ended July 31, |  | Six Months Ended July 31,
2023 |  | 2022 |  | 2023 |  | 2022
Cost of revenue—subscription | $ | 236 |  | $ | 141 |  | $ | 429 |  | $ | 263
Cost of revenue—services | 149 |  | 117 |  | 294 |  | 211
Research and development | 3,614 |  | 2,087 |  | 6,382 |  | 3,986
Sales and marketing | 4,032 |  | 2,463 |  | 7,273 |  | 4,450
General and administrative | 4,086 |  | 1,919 |  | 7,014 |  | 3,267
Restructuring | — |  | — |  | 1 |  | —
Total stock-based compensation expense | $ | 12,117 |  |  | $ | 6,727 |  |  | $ | 21,393 |  |  | $ | 12,177 |

11. Income Taxes
Accounting for income taxes for interim periods generally requires the provision for income taxes to be determined by applying an estimate of the annual effective tax rate for the full fiscal year to income or loss before income taxes, adjusted for discrete items, if any, for the reporting period. The Company updates its estimate of the annual effective tax rate each quarter and records a cumulative adjustment in such period.
The Company recorded an immaterial amount of income tax expense for the three months ended July 31, 2023 and $0.4 million for the three months ended July 31, 2022, and $0.8 million and $0.6 million for the six months ended July 31, 2023 and 2022, respectively. Income tax expense consists primarily of income taxes in foreign jurisdictions in which the Company conducts business. Due to the Company’s history of losses in the United States, a full valuation allowance on the Company’s domestic deferred tax assets, including net operating loss carryforwards, research and development tax credits, capitalized research and development, and other book versus tax differences was maintained. The Company has deferred tax attributes for stock-based compensation and fixed assets in the United Kingdom, and has not recorded a valuation allowance on the deferred tax attributes as of July 31, 2023. The Company will continue to evaluate for any future developments.
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12. Restructuring
During the fiscal year ended January 31, 2023, the Company initiated a restructuring plan to improve operational efficiency. This resulted in severance and related costs and stock-based compensation related to modifications of vested awards granted to certain employees impacted by the restructuring plan. As of July 31, 2023, the restructuring plan is substantially complete.
Restructuring expense was as follows (in thousands):

| Six Months Ended July 31, 2023 |  |  |  |  |  |
Employee severance and related costs | $ | 45 |  |  |  |  |  |  |
Stock-based compensation | 1 |  |  |  |  |  |  |
Total restructuring charges | $ | 46 |  |  |  |  |  |  |

Accrued Restructuring
Restructuring liabilities are reported within accrued expenses in the condensed consolidated balance sheets. An immaterial amount was paid during the year ended January 31, 2023. The activity in our restructuring liabilities for the six months ended July 31, 2023 is as follows (in thousands):

| Total
Balance as of January 31, 2023 | $ | 1,567 |
Restructuring charges and adjustments | 45
Payments | (1,572)
Balance as of July 31, 2023 | $ | 40 |

13. Geographic Information
The following table depicts the disaggregation of revenue by geographic area based on the billing address of the customer (in thousands):

| Three Months Ended July 31, |  | Six Months Ended July 31,
2023 |  | 2022 |  | 2023 |  | 2022
United States | $ | 27,060 |  |  | $ | 23,806 |  |  | $ | 53,052 |  |  | $ | 45,142 |
International | 16,079 |  |  | 15,985 |  |  | 31,083 |  |  | 29,502 |
Total | $ | 43,139 |  |  | $ | 39,791 |  |  | $ | 84,135 |  |  | $ | 74,644 |

No individual foreign country contributed 10% or more of total revenue for the three and six months ended July 31, 2023 and 2022.
As of July 31, 2023 and January 31, 2023, the majority of the Company’s long-lived assets, including operating lease ROU assets, were located in the United States.
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14. Net Loss per Share
Basic net loss per share attributable to the Company’s common stockholders is computed by dividing the net loss attributable to the Company’s common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is the same as basic net loss per share for all years presented because the effects of potentially dilutive items were anti-dilutive given the Company’s net loss position in each period presented.
The following table presents the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):

| Three Months Ended July 31, |  | Six Months Ended July 31,
2023 |  | 2022 |  | 2023 |  | 2022
Numerator |  |  |  |  |  |  |
Net loss | $ | (20,651) |  |  | $ | (15,369) |  |  | $ | (42,526) |  |  | $ | (35,203) |
Denominator |  |  |  |  |  |  |
Weighted-average shares used in computing net loss per share, basic and diluted | 46,714 |  |  | 44,648 |  |  | 46,285 |  |  | 44,459 |
Net loss per share, basic and diluted | $ | (0.44) |  |  | $ | (0.34) |  |  | $ | (0.92) |  |  | $ | (0.79) |

The following potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because the impact of including them would have been anti-dilutive (in thousands):

| As of July 31,
2023 |  | 2022
Stock options | 6,961 |  |  | 8,297 |
RSUs | 6,084 |  |  | 4,495 |
Employee stock purchase rights under the ESPP | 113 |  |  | 154 |
Common stock warrants | 105 |  |  | 105 |
Total | 13,263 |  |  | 13,051 |

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The last day of our fiscal year is January 31. Our fiscal quarters end on April 30, July 31, October 31 and January 31. Our fiscal years ended January 31, 2022, 2023 and 2024 are referred to herein as fiscal 2022, fiscal 2023 and fiscal 2024, respectively.
Overview
Couchbase provides a leading cloud database platform for modern applications. Our mission is to simplify how developers and architects develop, deploy and consume modern applications that span cloud, edge and everything in between. Enterprises rely on Couchbase to cost-effectively power the core applications their businesses depend on with the highest performance, reliability, scalability and versatility requirements for which there is no tolerance for disruption or downtime. Any compromise of these requirements could cause these applications to fail—stopping or delaying package delivery for shipping companies, interrupting reservations for travel companies or causing product shortages in stores for retailers.
Our database is versatile and works in multiple configurations, from fully-managed cloud to multi- or hybrid-cloud, to on-premises environments, and beyond the edge. We have architected our database to fuse the trusted strengths of relational databases with the flexibility, performance and scale of many NoSQL systems, across the cloud. Our database platform serves the needs of both enterprise architects and application developers. Combined with our performance at scale, we believe this power enables customers to run their most important applications with the effectiveness they require, with the efficiency they desire and in the modern infrastructure environments they demand.
With nearly every aspect of our lives being transformed by digital innovation, enterprises are charged with building applications that enable delightful and meaningful customer experiences. Enterprises are increasingly reliant on applications, which in turn rely on databases to store, retrieve and operationalize data into action. Today, applications are operating at a scale, speed and dynamism unheard of just a decade ago. There is an increasing diversity of application types, modalities and delivery and consumption models, and the volume, velocity and variety of data on which they rely is growing at an exponential rate. Looking forward, there is potential for Artificial Intelligence (AI) to drastically transform business and the nature of modern applications as a whole. Consequently, the demand on enterprises and their databases is growing exponentially.
While legacy database technologies were built to the highest performance and reliability requirements of their generation, they are approaching the limits for which they were designed. The underlying architecture of these technologies has not changed significantly, while the requirements of the applications they need to support are changing dramatically, especially with the emergence of generative AI which relies heavily on real-time data. Legacy database technologies are buckling under the pressure of digital transformation, as they were not built to update and respond in microseconds, enable rich, customized user experiences and perform without latency.
We designed Couchbase to give enterprises a database for the modern cloud world. Our platform combines the best capabilities of a relational database, like SQL transactions and ACID guarantees, with the flexibility and scalability of a NoSQL database. This allows enterprises to confidently accelerate strategic initiatives such as more quickly moving business-critical applications into the cloud, improving application flexibility and increasing developer agility. For our customers, we facilitate a seamless transition from legacy relational databases to our modern cloud database platform resulting in better application scalability, user experience and security at the pace that works for them. We believe our unique architecture is also well-suited to power AI applications which require exceptionally high performance and scalability. We deliver this cloud database platform both as a customer-managed product and as a fully-managed database-as-a-service that is managed by Couchbase. Our database-as-a-service, called Couchbase Capella, supports a broad set of use cases, reducing a customer’s need to buy, deploy and manage additional databases or supporting technologies.
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We sell our platform through our direct sales force and our growing ecosystem of partners. Our platform is broadly accessible to a wide range of enterprises, as well as governments and organizations. We have customers in a range of industries, including retail and e-commerce, travel and hospitality, financial services and insurance, software and technology, gaming, media and entertainment and industrials. We focus our selling efforts on the largest global enterprises with the most complex data requirements, and we have cloud-based, fully managed offerings for enterprises looking for a turnkey version of our platform.
We have achieved significant growth over our operating history. For the six months ended July 31, 2023 and 2022, our revenue was $84.1 million and $74.6 million, respectively, representing period-over-period growth of 13%. As of July 31, 2023 and 2022, our annual recurring revenue (“ARR”) was $180.7 million and $145.2 million, respectively, representing period-over-period growth of 24%. For the six months ended July 31, 2023 and 2022, our net loss was $42.5 million and $35.2 million, respectively, as we continued to invest in the growth of our business to capture the massive opportunity that we believe is available to us.
Our Business Model
We generate the substantial majority of our revenue from sales of subscriptions, which accounted for 94% and 92% of total revenue for the six months ended July 31, 2023 and 2022, respectively. We derive a substantial majority of our subscription revenue from the Enterprise Edition of Couchbase Server and Couchbase Mobile. Couchbase Server is generally licensed per node, which we define as an instance of Couchbase running on a server. Our subscription pricing is based on the computing power and memory per instance, as well as the chosen service level. We offer three different support levels: the Platinum level offers 24/7 support and the shortest response time of 30 minutes; the Gold level offers 24/7 support with a response time of 2 hours; and the Silver level offers 7am-5pm local time support, 5 days a week. These response times are for incidents of the highest severity level, which we identify as level P1. The initial response time for levels P2 and P3 incidents, which are less severe, are longer.
We also derive subscription revenue from our database-as-a-service offering. Our database-as-a-service offering, called Couchbase Capella, is sold on a consumption basis, which removes the need to license different node types separately. Couchbase Capella pricing delivers superior customer flexibility relative to other Cloud Service Providers (“CSPs”) as on-demand pricing allows customers to pay only for what they use based on hourly pricing and the credits purchased through our annual credit model expire only at the end of a 12-month period, rather than ratably throughout the year. We also provide automatic conversion to on-demand consumption when annual credits expire or are exhausted. Couchbase Capella credits can be purchased upfront to provide cost savings with volume discounts available based on credit quantity. We offer three pricing levels for Couchbase Capella, based on the support response time. Revenue from Couchbase Capella was not material for both the six months ended July 31, 2023 and 2022.
The non-cancelable term of our subscription arrangements typically ranges from one to three years but may be longer or shorter in limited circumstances and is typically billed annually in advance. The timing and billing of large, multi-year contracts can create variability in revenue and deferred revenue between periods.
We also generate revenue from services, which represented 6% and 8% of our total revenue for the six months ended July 31, 2023 and 2022, respectively. Our services revenue is derived from our professional services related to the implementation or configuration of our platform and training. We have invested in building our services organization because we believe it plays an important role in customer success, ensuring that our customers fulfill their digital transformation agendas while leveraging our platform, accelerating our customers’ realization of the full benefits of our platform and driving increased adoption of our platform.
Our go-to-market strategy is focused on organizations that are modernizing existing applications or building net new applications. As an example, for large enterprises recognized as leaders in their respective industries, this could mean attempting to solve complicated business problems by digitally transforming their operations. For mid-size companies to start ups, this could be building a new product or service that seeks to disrupt an established market. As a result, Couchbase powers a wide variety of applications across a broad array of industries, from some of the largest and most complex enterprise applications worldwide to the next generation of personalized and dynamic apps. Through our highly instrumented “sell-to” go-to-market motion, we have built a direct sales organization that understands the strategic needs of enterprises as well as a marketing organization that emphasizes our enablement of digital transformation through our no-compromises approach to performance, resiliency, scalability, agility and total cost of ownership (“TCO”) savings.
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We complement our “sell-to” go-to-market motion with a “buy-from” go-to-market motion, which is focused on targeting the application developer community to drive adoption of our platform. To accomplish this, we have and plan to continue to invest in Couchbase Capella, our fully-managed database-as-a-service offering. We also offer free Community Editions of some of our products, free trials of our Enterprise Edition of Couchbase Server and Couchbase Capella products and a web browser-based demonstration version of Couchbase Server to further accelerate application developer adoption. We believe these offerings lead to future purchases of our paid products. While our Community Edition includes the core functionality of Couchbase Server, it is not suited for mission-critical deployments, as it offers only limited functionality around the scaled performance and security that enterprises require and no direct customer support from Couchbase.
We also continuously grow and cultivate our cloud provider partner and technology provider ecosystem. A significant portion of our revenue in the six months ended July 31, 2023 and 2022 was attributable to our partner ecosystem.
We employ a land-and-expand model centered around our platform offerings, which have a rapid time to production and time to value for our customers, and our sales and customer success organizations, which proactively guide customers to realize strategic and transformative use cases and drive greater adoption of our platform and services. Our marketing organization is focused on building our brand reputation and awareness. Our marketing initiatives drive awareness and demand for Couchbase products, starting at the top of the sales funnel with trial experiences. As part of these efforts, we offer application developers robust educational resources including a robust and growing community to help them learn more about our platform, including access to on-demand instructional webinars.
Impact of Macroeconomic Conditions
Current macroeconomic conditions, including recessionary fears, inflation concerns, and rising interest rates as a result of government actions to combat inflation, as well as other geopolitical developments, have impacted and may continue to impact business spending and the economy as a whole. We are seeing longer deal cycles along with extra layers of scrutiny and approval, and customers electing to buy in smaller increments. Additionally, effects from foreign exchange fluctuations have impacted and may continue to impact our results of operations.
The effects of these macroeconomic conditions on our business and operations remains highly uncertain, and it is not possible for us to predict the duration and extent to which they will affect our business, future results of operations, and financial condition. See the section titled “Risk Factors” for further discussion of these challenges and risks.
Factors Affecting Our Performance
Continuing to Acquire New Customers
We grow our subscription revenue by acquiring new customers. The size of our customer base may vary from period to period for several reasons, including the length of our sales cycle, the effectiveness of our sales and marketing efforts, enterprise application development cycles and the corresponding adoption rates of modern applications that require database solutions like ours. Additionally, our revenue has and will vary as new customers purchase our products due to the fact that we recognize a portion of such subscription revenue upfront. As digital transformation continues to accelerate, we believe that Couchbase Capella, our fully-managed database-as-a-service offering, will become increasingly popular as a result of its compelling pricing model, ease of operation, lower TCO, time to market and flexibility. We will continue to offer Couchbase Capella and provide flexible, highly available and differentiated economical options to capture new customers.
Continuing to Expand Within Existing Customers
A significant part of our growth has been, and we expect will continue to be, driven by expansion within our existing customer base. Growth of our revenue from our existing customers results from increases in the scale of their deployment for existing use cases, or when customers utilize our platform to address new use cases. In addition, our professional services organization helps customers deploy new use cases and optimize their existing implementations. Our revenue from our subscription offerings varies depending on the scale and performance requirements of our customers’ deployments. We are focusing on growing our subscription revenue, particularly from enterprises, while delivering professional services and training to support this growth. We have been successful in expanding our existing customers’ adoption of our platform as demonstrated by our dollar-based net retention rate of over 115% in seven of the past eight quarters.
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Our dollar-based net retention rate for any period equals the simple arithmetic average of our quarterly dollar-based net retention rate for the four quarters ending with the most recent fiscal quarter. To calculate our dollar-based net retention rate for a given quarter, we start with the ARR (“Base ARR"”) attributable to our customers (“Base Customers”) as of the end of the same quarter of the prior fiscal year. We then determine the ARR attributable to the Base Customers as of the end of the most recent quarter and divide that amount by the Base ARR.
Continuing to Invest in Growth
We expect to continue to invest in our offerings, personnel, geographic presence and infrastructure in order to drive future growth, as well as to pursue adjacent opportunities. We expend research and development resources to drive innovation in our proprietary software to constantly improve the functionality and performance of our platform and to increase the deployment models available to our customers. We anticipate continuing to increase our headcount to ensure that our product development organization drives improvements in our product offerings, our sales and marketing organization can maximize opportunities for growing our business and revenue and our general and administrative organization efficiently supports the growth of our business as well as our effective operation as a public company.
Key Business Metrics
Annual Recurring Revenue
We define ARR as of a given date as the annualized recurring revenue that we would contractually receive from our customers in the month ending 12 months following such date. Based on historical experience with customers, we assume all contracts will be automatically renewed at the same levels unless we receive notification of non-renewal and are no longer in negotiations prior to the measurement date. ARR also includes revenue from consumption-based cloud credits of Couchbase Capella products. ARR for Couchbase Capella products in a customer’s initial year is calculated as described above; after a customer’s initial year it is calculated by annualizing the prior 90 days of actual consumption, assuming no increases or reductions in usage. ARR excludes revenue derived from the use of cloud products only based on on-demand arrangements and services revenue. ARR should be viewed independently of revenue, and does not represent our revenue under GAAP on an annualized basis, as it is an operating metric that can be impacted by contract start and end dates and renewal dates. ARR is not intended to be a replacement for forecasts of revenue. Although we seek to increase ARR as part of our strategy of targeting large enterprise customers, this metric may fluctuate from period to period based on our ability to acquire new customers and expand within our existing customers. We believe that our ARR is an important indicator of the growth and performance of our business. We updated our definition of ARR in the third quarter of fiscal 2023 to clarify that the 90-day actual consumption methodology is only used after a customer’s initial year. The reason for this change is to better reflect the ARR for Couchbase Capella products following the launch of Couchbase Capella in fiscal 2022. ARR for prior periods have not been adjusted to reflect this change as it is not material to any period previously presented.

| As of July 31,
| 2023 |  | 2022
| (in millions)
ARR | $ | 180.7 |  |  | $ | 145.2 |

Customers
We calculate our total number of customers at the end of each period. We include in this calculation each customer account that has an active subscription contract with us or with which we are negotiating a renewal contract at the end of a given period. Each party with which we enter into a subscription contract is considered a unique customer and, in some cases, a single organization may be counted as more than one customer. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs and other market activity. We believe that our number of customers is an important indicator of the growth of our business and future revenue trends.

| As of July 31,
| 2023 |  | 2022
Customers | 691 |  |  | 632 |

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Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we believe certain non-GAAP financial measures are useful to investors in evaluating our operating performance. We use certain 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 together with the corresponding GAAP financial measures, may be helpful to investors because they provide consistency and comparability with past financial performance and meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook. Non-GAAP financial measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP and may be different from similarly-titled non-GAAP financial measures used by other companies. In addition, other companies, including companies in our industry, may calculate similarly-titled non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. 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, and not to rely on any single financial measure to evaluate our business.
We define the non-GAAP financial measures below as their respective GAAP measures, excluding expenses related to stock-based compensation expense, employer payroll taxes on employee stock transactions and restructuring expense. We use these non-GAAP financial measures in conjunction with GAAP measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.
Beginning with the first quarter of fiscal 2023, we have excluded employer payroll taxes on employee stock transactions, which is a cash expense, from our non-GAAP results. These payroll taxes have been excluded from our non-GAAP results because they are tied to the timing and size of the exercise or vesting of the underlying equity awards, and the price of our common stock at the time of vesting or exercise may vary from period to period independent of the operating performance of our business.
Non-GAAP Gross Profit and Non-GAAP Gross Margin
We define non-GAAP gross profit and non-GAAP gross margin as gross profit and gross margin, respectively, excluding stock-based compensation expense and employer taxes on employee stock transactions. We use non-GAAP gross profit and non-GAAP gross margin in conjunction with GAAP financial measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (dollars in thousands)
Total revenue | $ | 43,139 |  | $ | 39,791 |  | $ | 84,135 |  | $ | 74,644
Gross profit | $ | 37,230 |  | $ | 35,010 |  | $ | 72,304 |  | $ | 65,212
Add: Stock-based compensation expense | 385 |  | 258 |  | 723 |  | 474
Add: Employer taxes on employee stock transactions | 21 |  | 22 |  | 31 |  | 24
Non-GAAP gross profit | $ | 37,636 |  | $ | 35,290 |  | $ | 73,058 |  | $ | 65,710
Gross margin | 86.3% |  | 88.0% |  | 85.9% |  | 87.4%
Non-GAAP gross margin | 87.2% |  | 88.7% |  | 86.8% |  | 88.0%

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Non-GAAP Operating Loss and Non-GAAP Operating Margin
We define non-GAAP operating loss and non-GAAP operating margin as loss from operations and operating margin, respectively, excluding stock-based compensation expense, employer taxes on employee stock transactions and restructuring expenses. We use non-GAAP operating loss and non-GAAP operating margin in conjunction with GAAP measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (dollars in thousands)
Total revenue | $ | 43,139 |  | $ | 39,791 |  | $ | 84,135 |  | $ | 74,644
Loss from operations | $ | (21,869) |  | $ | (15,233) |  | $ | (44,402) |  | $ | (34,221)
Add: Stock-based compensation expense | 12,117 |  | 6,727 |  | 21,392 |  | 12,177
Add: Employer taxes on employee stock transactions | 533 |  | 147 |  | 800 |  | 280
Add: Restructuring(1) | — |  | — |  | 46 |  | —
Non-GAAP operating loss | $ | (9,219) |  | $ | (8,359) |  | $ | (22,164) |  | $ | (21,764)
Operating margin | (51) | % |  | (38) | % |  | (53) | % |  | (46) | %
Non-GAAP operating margin | (21) | % |  | (21) | % |  | (26) | % |  | (29) | %

______________
(1)For the six months ended July 31, 2023, an immaterial amount of stock-based compensation expense related to restructuring charges was included in the restructuring expense line.
Non-GAAP Net Loss and Non-GAAP Net Loss Per Share
We define non-GAAP net loss attributable to common stockholders as net loss attributable to common stockholders, excluding stock-based compensation expense, employer taxes on employee stock transactions and restructuring expenses. We use non-GAAP net loss attributable to common stockholders and non-GAAP net loss per share attributable to common stockholders in conjunction with GAAP measures to assess our performance, including in the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in thousands, except per share data)
Net loss | $ | (20,651) |  | $ | (15,369) |  | $ | (42,526) |  | $ | (35,203)
Add: Stock-based compensation expense | 12,117 |  | 6,727 |  | 21,392 |  | 12,177
Add: Employer taxes on employee stock transactions | 533 |  | 147 |  | 800 |  | 280
Add: Restructuring(1) | — |  | — |  | 46 |  | —
Non-GAAP net loss | $ | (8,001) |  | $ | (8,495) |  | $ | (20,288) |  | $ | (22,746)
GAAP net loss per share | $ | (0.44) |  | $ | (0.34) |  | $ | (0.92) |  | $ | (0.79)
Non-GAAP net loss per share | $ | (0.17) |  | $ | (0.19) |  | $ | (0.44) |  | $ | (0.51)
Weighted average shares outstanding, basic and diluted | 46,714 |  | 44,648 |  | 46,285 |  | 44,459

______________
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(1)For the six months ended July 31, 2023, an immaterial amount of stock-based compensation expense related to restructuring charges was included in the restructuring expense line.
Free Cash Flow
We define free cash flow as cash used in operating activities less additions to property and equipment, which includes capitalized internal-use software costs. We believe free cash flow is a useful indicator of liquidity that provides our management, board of directors and investors with information about our future ability to generate or use cash to enhance the strength of our balance sheet and further invest in our business and pursue potential strategic initiatives. For the three months ended July 31, 2023 and 2022, our free cash flow included cash paid for our unused Credit Facility (as defined above) and interest on our long-term debt of less than $0.1 million. Additionally, our free cash flow for the three and six months ended July 31, 2023, included cash payments related to restructuring of less than $0.1 million and $1.6 million, respectively.

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
| ( in thousands)
Net cash used in operating activities | $ | (519) |  |  | $ | (7,655) |  |  | $ | (7,700) |  |  | $ | (16,262) |
Less: Additions to property and equipment | (1,071) |  |  | (1,677) |  |  | (2,359) |  |  | (2,476) |
Free cash flow | $ | (1,590) |  |  | $ | (9,332) |  |  | $ | (10,059) |  |  | $ | (18,738) |
Net cash provided by (used in) investing activities | $ | (6,868) |  |  | $ | 5,687 |  |  | 3,446 |  |  | (39,142) |
Net cash provided by financing activities | $ | 2,733 |  |  | $ | 753 |  |  | 5,497 |  |  | 6,892 |

Components of Results of Operations
Revenue
We derive revenue from sales of subscriptions and services. Our subscription revenue is primarily derived from: (1) term-based software licenses sold in conjunction with post-contract support (“PCS” or “Support”) and (2) a consumption-based database-as-a-service offering. PCS bundled with software licenses includes internet, email and phone support, bug fixes and the right to receive unspecified software updates and upgrades released when and if available during the subscription term. The software license is presented as “License.” PCS and database-as-a-service revenue are presented as “Support and other” in our consolidated statements of operations. License revenue is recognized upon transfer when our customer has received access to our software. The PCS is recognized ratably over the term of the arrangement beginning on the date when access to the subscription is made available to the customer and represents a substantial majority of our revenue. The database-as-a-service revenue is recognized on a consumption basis. The non-cancelable term of our subscription arrangements typically ranges from one to three years but may be longer or shorter in limited circumstances.
Our services revenue is derived from our professional services for the implementation or configuration of our platform and training. Services revenue is recognized over time based on input measures for professional services and upon delivery for training.
We expect our revenue may vary from period to period based on, among other things, the timing and size of new subscriptions, the proportion of term license contracts that commence within the period, the rate of customer renewals and expansions, the length of sales cycles and timing, delivery of professional services and training and fluctuations in customer consumption of our database-as-a-service offering.
Cost of Revenue
Cost of subscription revenue primarily consists of personnel-related costs associated with our customer support organization, including salaries, bonuses, benefits and stock-based compensation, expenses associated with software and subscription services dedicated for use by our customer support organization, third-party cloud infrastructure expenses, amortization of costs associated with capitalized internal-use software related to our database-as-a-service offering and allocated overhead. There is no cost of revenue associated with our license revenue. We expect our cost of subscription revenue to increase in absolute dollars as our subscription revenue increases and as we continue to amortize capitalized internal-use software costs related to our database-as-a-service offering.
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Cost of services revenue primarily consists of personnel-related costs associated with our professional services and training organization, including salaries, bonuses, benefits and stock-based compensation, costs of contracted third-party partners for professional services, expenses associated with software and subscription services dedicated for use by our professional services and training organization, travel-related expenses and allocated overhead. We expect our cost of services revenue to fluctuate from period to period depending on the timing and delivery of professional services and training.
Gross Profit and Gross Margin
Our gross profit and gross margin have been and will continue to be affected by various factors, including the average sales price of our subscriptions and services, the mix of subscriptions and services we sell and the associated revenue, the mix of geographies into which we sell and transaction volume growth. We expect our gross profit and gross margin to fluctuate in the near term depending on the interplay of these factors, and to the extent the revenue from our database-as-a-service offering increases as a percentage of total revenue, we expect our gross margin will decline over time.
Operating Expenses
Our operating expenses consist of research and development, sales and marketing, general and administrative and restructuring expenses. Personnel-related costs are the most significant component of operating expenses and consist of salaries, bonuses, benefits, sales commissions and stock-based compensation expenses.
Research and Development
Research and development expenses consist primarily of personnel-related costs, expenses associated with software and subscription services dedicated for use by our research and development organization, depreciation and amortization of property and equipment and allocated overhead. We expect that our research and development expenses will increase in absolute dollars as we continue to invest in the features and functionalities of our platform. We expect research and development expenses to fluctuate as a percentage of revenue in the near term, but to decrease as a percentage of revenue over the long term as we achieve greater scale in our business.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel-related costs, expenses associated with software and subscription services dedicated for use by our sales and marketing organization, costs of general marketing and promotional activities, amortization of deferred commissions, fees for professional services related to sales and marketing, travel-related expenses and allocated overhead. We expect that our sales and marketing expenses will increase in absolute dollars as we continue to expand our sales and marketing efforts to attract new customers and deepen our engagement with existing customers. We expect sales and marketing expenses to fluctuate as a percentage of revenue in the near term as we continue to invest in growing the reach of our platform through our sales and marketing efforts, but to decrease as a percentage of revenue over the long term as we achieve greater scale in our business.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs associated with our finance, legal, human resources and other administrative personnel. In addition, general and administrative expenses include non-personnel costs, such as fees for professional services such as external legal, accounting and other professional services, expenses associated with software and subscription services dedicated for use by our general and administrative organization, certain taxes other than income taxes and allocated overhead. We expect that our general and administrative expenses will increase in absolute dollars as we continue to invest in the growth of our business and operate as a publicly-traded company. We expect general and administrative expenses to fluctuate as a percentage of revenue in the near term, but to decrease as a percentage of revenue over the long term as we achieve greater scale in our business.
Restructuring
Restructuring expenses primarily consist of efforts we have undertaken to improve operational efficiency. Restructuring activities include employee severance and related costs and stock-based compensation expense from modifications of vested awards granted to certain employees impacted by our restructuring plan. For further information on restructuring expense, refer to Note 12 in our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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Interest Expense
Interest expense consists primarily of unused credit facility fees related to our Credit Facility.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency gains and losses related to the impact of transactions denominated in a foreign currency and interest income.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes in certain foreign jurisdictions in which we conduct business. We recorded a full valuation allowance against our U.S. deferred tax assets as we have determined that it is not more likely than not that the deferred tax assets will be realized. The cash tax expenses are impacted by each jurisdiction’s individual tax rates, laws on the timing of recognition of income and deductions and availability of NOLs and tax credits. Our effective tax rate could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates.
Results of Operations
The following table sets forth our condensed consolidated statements of operations for the periods indicated (in thousands):

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenue: |  |  |  |  |  |  |
License | $ | 4,798 |  |  | $ | 6,382 |  |  | $ | 9,741 |  |  | $ | 11,389 |
Support and other | 36,156 |  |  | 30,677 |  |  | 69,755 |  |  | 57,651 |
Total subscription revenue | 40,954 |  |  | 37,059 |  |  | 79,496 |  |  | 69,040 |
Services | 2,185 |  |  | 2,732 |  |  | 4,639 |  |  | 5,604 |
Total revenue | 43,139 |  |  | 39,791 |  |  | 84,135 |  |  | 74,644 |
Cost of revenue: |  |  |  |  |  |  |
Subscription(1) | 3,845 |  |  | 2,521 |  |  | 7,518 |  |  | 4,917 |
Services(1) | 2,064 |  |  | 2,260 |  |  | 4,313 |  |  | 4,515 |
Total cost of revenue | 5,909 |  |  | 4,781 |  |  | 11,831 |  |  | 9,432 |
Gross profit | 37,230 |  |  | 35,010 |  |  | 72,304 |  |  | 65,212 |
Operating expenses: |  |  |  |  |  |  |
Research and development(1) | 16,292 |  |  | 14,341 |  |  | 31,675 |  |  | 28,762 |
Sales and marketing(1) | 32,348 |  |  | 27,473 |  |  | 64,901 |  |  | 54,316 |
General and administrative(1) | 10,459 |  |  | 8,429 |  |  | 20,084 |  |  | 16,355 |
Restructuring(1) | — |  |  | — |  |  | 46 |  |  | — |
Total operating expenses | 59,099 |  |  | 50,243 |  |  | 116,706 |  |  | 99,433 |
Loss from operations | (21,869) |  |  | (15,233) |  |  | (44,402) |  |  | (34,221) |
Interest expense | (18) |  |  | (25) |  |  | (43) |  |  | (50) |
Other income (expense), net | 1,255 |  |  | 261 |  |  | 2,688 |  |  | (295) |
Loss before income taxes | (20,632) |  |  | (14,997) |  |  | (41,757) |  |  | (34,566) |
Provision for income taxes | 19 |  |  | 372 |  |  | 769 |  |  | 637 |
Net loss | $ | (20,651) |  |  | $ | (15,369) |  |  | $ | (42,526) |  |  | $ | (35,203) |

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(1)Includes stock-based compensation expense as follows:

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in thousands)
Cost of revenue—subscription | $ | 236 |  |  | $ | 141 |  |  | $ | 429 |  |  | $ | 263 |
Cost of revenue—services | 149 |  |  | 117 |  |  | 294 |  |  | 211 |
Research and development | 3,614 |  |  | 2,087 |  |  | 6,382 |  |  | 3,986 |
Sales and marketing | 4,032 |  |  | 2,463 |  |  | 7,273 |  |  | 4,450 |
General and administrative | 4,086 |  |  | 1,919 |  |  | 7,014 |  |  | 3,267 |
Restructuring | — |  |  | — |  |  | 1 |  |  | — |
Total stock-based compensation expense | $ | 12,117 |  |  | $ | 6,727 |  |  | $ | 21,393 |  |  | $ | 12,177 |

The following table sets forth our condensed consolidated statements of operations data expressed as a percentage of revenue:

| Three Months Ended July 31, |  | Six Months Ended July 31,
| 2023 |  | 2022 |  | 2023 |  | 2022
Revenue: |  |  |  |  |  |  |
License | 11 | % |  | 16 | % |  | 12 | % |  | 15 | %
Support and other | 84 |  |  | 77 |  |  | 83 |  |  | 77 |
Total subscription revenue | 95 |  |  | 93 |  |  | 94 |  |  | 92 |
Services | 5 |  |  | 7 |  |  | 6 |  |  | 8 |
Total revenue | 100 |  |  | 100 |  |  | 100 |  |  | 100 |
Cost of revenue: |  |  |  |  |  |  |
Subscription | 9 |  |  | 6 |  |  | 9 |  |  | 7 |
Services | 5 |  |  | 6 |  |  | 5 |  |  | 6 |
Total cost of revenue | 14 |  |  | 12 |  |  | 14 |  |  | 13 |
Gross profit | 86 |  |  | 88 |  |  | 86 |  |  | 87 |
Operating expenses: |  |  |  |  |  |  |
Research and development | 38 |  |  | 36 |  |  | 38 |  |  | 39 |
Sales and marketing | 75 |  |  | 69 |  |  | 77 |  |  | 73 |
General and administrative | 24 |  |  | 21 |  |  | 24 |  |  | 22 |
Restructuring | — |  |  | — |  |  | * |  | — |
Total operating expenses | 137 |  |  | 126 |  |  | 139 |  |  | 133 |
Loss from operations | (51) |  |  | (38) |  |  | (53) |  |  | (46) |
Interest expense | * |  | * |  | * |  | *
Other income (expense), net | 3 |  |  | 1 |  |  | 3 |  |  | *
Loss before income taxes | (48) |  |  | (38) |  |  | (50) |  |  | (46) |
Provision for income taxes | * |  | 1 |  |  | 1 |  |  | 1 |
Net loss | (48) | % |  | (39) | % |  | (51) | % |  | (47) | %

*   Represents less than 1%
Note: Certain figures may not sum due to rounding.
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Comparison of Three and Six Months Ended July 31, 2023 and 2022
Revenue

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Revenue |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
License | $ | 4,798 |  |  | $ | 6,382 |  |  | $ | (1,584) |  |  | (25) | % |  | $ | 9,741 |  |  | $ | 11,389 |  |  | $ | (1,648) |  |  | (14) | %
Support and other | 36,156 |  |  | 30,677 |  |  | 5,479 |  |  | 18 | % |  | 69,755 |  |  | 57,651 |  |  | 12,104 |  |  | 21 | %
Total subscription revenue | 40,954 |  |  | 37,059 |  |  | 3,895 |  |  | 11 | % |  | 79,496 |  |  | 69,040 |  |  | 10,456 |  |  | 15 | %
Services | 2,185 |  |  | 2,732 |  |  | (547) |  |  | (20) | % |  | 4,639 |  |  | 5,604 |  |  | (965) |  |  | (17) | %
Total revenue | $ | 43,139 |  |  | $ | 39,791 |  |  | $ | 3,348 |  |  | 8 | % |  | $ | 84,135 |  |  | $ | 74,644 |  |  | $ | 9,491 |  |  | 13 | %

Subscription revenue increased by $3.9 million, or 11%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The increase in subscription revenue was due to an increase in revenue from existing customers and new customers, as we increased our customer base from 632 customers as of July 31, 2022 to 691 customers as of July 31, 2023. Approximately 88% of the increase in revenue was attributable to growth from existing customers.
Subscription revenue increased by $10.5 million, or 15%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. Approximately 91% of the increase in revenue was attributable to growth from existing customers.
Services revenue decreased by $0.5 million, or 20%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The decrease in services revenue was primarily due to a decrease in delivery of professional services.
Services revenue decreased by $1.0 million, or 17%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. The decrease in services revenue was primarily due to a decrease in delivery of professional services. We do not anticipate the same degree of strength in professional services in fiscal 2024 as we saw in fiscal 2023.
Cost of Revenue, Gross Profit and Gross Margin

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Cost of revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Subscription | $ | 3,845 |  |  | $ | 2,521 |  |  | $ | 1,324 |  |  | 53 | % |  | $ | 7,518 |  |  | $ | 4,917 |  |  | $ | 2,601 |  |  | 53 | %
Services | 2,064 |  |  | 2,260 |  |  | (196) |  |  | (9) | % |  | 4,313 |  |  | 4,515 |  |  | (202) |  |  | (4) | %
Total cost of revenue | $ | 5,909 |  |  | $ | 4,781 |  |  | $ | 1,128 |  |  | 24 | % |  | $ | 11,831 |  |  | $ | 9,432 |  |  | $ | 2,399 |  |  | 25 | %
Gross profit | $ | 37,230 |  |  | $ | 35,010 |  |  |  |  |  |  | $ | 72,304 |  |  | $ | 65,212 |  |  |  |  |
Gross margin | 86.3 | % |  | 88.0 | % |  |  |  |  |  | 85.9 | % |  | 87.4 | % |  |  |  |
Headcount (at period end) | 73 |  | 53 |  |  |  |  |  | 73 |  | 53 |  |  |  |

Cost of subscription revenue increased by $1.3 million, or 53%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The change in cost of subscription revenue was primarily due to an increase of $0.7 million related to the computing infrastructure costs associated with Couchbase Capella and an increase of $0.5 million in personnel-related costs associated with increased headcount and increased stock-based compensation related to our RSUs.
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Cost of subscription revenue increased by $2.6 million, or 53%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. The change in cost of subscription revenue was primarily due to an increase of $1.3 million related to the computing infrastructure costs associated with Couchbase Capella and an increase of $0.9 million in personnel-related costs associated with headcount growth and increased stock-based compensation related to our RSUs.
Cost of services revenue decreased by $0.2 million, or 9%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. This was primarily due to a decrease of $0.2 million in contracted third-party professional services.
Cost of services revenue decreased by $0.2 million, or 4%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. This was primarily due to a decrease of $0.5 million in contracted third-party professional services, offset by an increase of $0.2 million in personnel-related costs associated with merit increases and increased stock-based compensation related to our RSUs.
Gross margin decreased during both the three and six months ended July 31, 2023 compared to the three and six months ended July 31, 2022, primarily due to changes in the mix of subscription and service revenue, including higher costs associated with the growth of our cloud offering.
Research and Development

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Research and development | $ | 16,292 |  |  | $ | 14,341 |  |  | $ | 1,951 |  |  | 14 | % |  | $ | 31,675 |  |  | $ | 28,762 |  |  | $ | 2,913 |  |  | 10 | %
Percentage of revenue | 38 | % |  | 36 | % |  |  |  |  |  | 38 | % |  | 39 | % |  |  |  |
Headcount (at period end) | 298 |  | 254 |  |  |  |  |  | 298 |  | 254 |  |  |  |

Research and development increased by $2.0 million, or 14%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The change in research and development expenses was primarily due to an increase of $1.5 million in stock-based compensation related to our RSUs and an increase of $0.2 million in contracted third-party professional services.
Research and development increased by $2.9 million, or 10%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. The increase in research and development expenses was primarily due to an increase of $2.4 million in stock-based compensation related to our RSUs, an increase of $0.7 million associated with computing infrastructure costs and an increase of $0.4 million in contracted third-party professional services. This was partially offset by a decrease of $0.7 million in personnel-related costs despite headcount growth as part of our efforts to optimize our cost structure coupled with increased capitalized-internal use software costs.
Sales and Marketing

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Sales and marketing | $ | 32,348 |  |  | $ | 27,473 |  |  | $ | 4,875 |  |  | 18 | % |  | $ | 64,901 |  |  | $ | 54,316 |  |  | $ | 10,585 |  |  | 19 | %
Percentage of revenue | 75 | % |  | 69 | % |  |  |  |  |  | 77 | % |  | 73 | % |  |  |  |
Headcount (at period end) | 348 |  | 297 |  |  |  |  |  | 348 |  | 297 |  |  |  |

Sales and marketi ng increased by $4.9 million, or 18%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The change in sales and marketing expenses was primarily due to an increase of $5.0 million in personnel-related costs associated with headcount growth, merit increases and higher stock-based compensation related to our RSUs, partially offset by a decrease of $0.6 million in sales and marketing program expenses.
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Sales and marketing increased by $10.6 million, or 19%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. The change in sales and marketing expenses was primarily due to an increase of $8.9 million in personnel-related costs associated with headcount growth, merit increases and higher stock-based compensation related to our RSUs and an increase of $2.2 million due to a return to more normal levels of travel-related costs to attend in-person events. This was partially offset by a decrease of $0.7 million in sales and marketing program expenses.
General and Administrative

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
General and administrative | $ | 10,459 |  |  | $ | 8,429 |  |  | $ | 2,030 |  |  | 24 | % |  | $ | 20,084 |  |  | $ | 16,355 |  |  | $ | 3,729 |  |  | 23 | %
Percentage of revenue | 24 | % |  | 21 | % |  |  |  |  |  | 24 | % |  | 22 | % |  |  |  |
Headcount (at period end) | 68 |  | 68 |  |  |  |  |  | 68 |  | 68 |  |  |  |

General and administrativ e increased by $2.0 million, or 24%, during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The change in general and administrative expenses was primarily due to an increase of $2.2 million in stock-based compensation related to our RSUs, partially offset by a decrease of $0.4 million in corporate insurance expense.
General and administrativ e increased by $3.7 million, or 23%, during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. The change in general and administrative expenses was primarily due to an increase of $4.2 million in personnel-related costs associated with increased headcount, merit increases and higher stock-based compensation related to our RSUs, partially offset by a decrease of $0.7 million in corporate insurance expense.
Interest Expense

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Interest expense | $ | (18) |  |  | $ | (25) |  |  | $ | 7 |  |  | (28) | % |  | $ | (43) |  |  | $ | (50) |  |  | $ | 7 |  |  | (14) | %

The changes in interest expense during both the three and six months ended July 31, 2023 and 2022 were not material.
Other Income (Expense), Net

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Other income (expense), net | $ | 1,255 |  |  | $ | 261 |  |  | $ | 994 |  |  | 381 | % |  | $ | 2,688 |  |  | $ | (295) |  |  | $ | 2,983 |  |  | (1011) | %

Other income (expense), net increased by $1.0 million during the three months ended July 31, 2023 compared to the three months ended July 31, 2022. The change in other income (expense), net was primarily driven by an increase of $1.1 million in interest income driven by higher yields on securities, partially offset by an increase of $0.1 million in unrealized and realized foreign currency losses due to fluctuations in exchange rates.
Other income (expense), net increased by $3.0 million during the six months ended July 31, 2023 compared to the six months ended July 31, 2022. The change in other income (expense), net was primarily driven by an increase of $2.3 million in interest income driven by higher yields on securities. There was an additional increase of $0.7 million in unrealized and realized foreign currency gains due to fluctuations in exchange rates.
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Provision for Income Taxes

| Three Months Ended July 31, |  |  |  |  |  | Six Months Ended July 31, |  |  |  |
| 2023 |  | 2022 |  | $ Change |  | % Change |  | 2023 |  | 2022 |  | $ Change |  | % Change
| (dollars in thousands) |  | (dollars in thousands)
Loss before income taxes | $ | (20,632) |  |  | $ | (14,997) |  |  | $ | (5,635) |  |  | 38 | % |  | $ | (41,757) |  |  | $ | (34,566) |  |  | $ | (7,191) |  |  | 21 | %
Provision for income taxes | 19 |  |  | 372 |  |  | $ | (353) |  |  | (95) | % |  | 769 |  |  | 637 |  |  | $ | 132 |  |  | 21 | %
Effective tax rate | (0.1) | % |  | (2.5) | % |  |  |  |  |  | (1.8) | % |  | (1.8) | % |  |  |  |

The change in provision for income taxes for both the three and six months ended July 31, 2023 compared with the same period last year was primarily driven by the mix of income in foreign jurisdictions.
Liquidity and Capital Resources
We have financed our operations through subscription revenue from customers accessing our platform and services revenue, and in July 2021, we completed our IPO with net proceeds totaling $214.9 million. We have incurred losses and generated negative cash flows from operations for the last several years, including fiscal 2022 and 2023 and the six months ended July 31, 2023. As of July 31, 2023, we had an accumulated deficit of $453.0 million.
As of July 31, 2023, we had $165.8 million in cash, cash equivalents and short-term investments. We maintain our cash and cash equivalents, restricted cash and short-term investments with high-quality financial institutions. For more information, see "Concentration of Credit Risk" in Note 2 of our notes to the condensed consolidated financial statements. We believe our existing cash, cash equivalents and short-term investments and cash provided by sales of subscriptions to our platform and sales of our services will be sufficient to meet our projected operating requirements and cash expenditures for at least the next 12 months. As a result of our revenue growth plans, both domestically and internationally, we expect that losses and negative cash flows from operations may continue in the future. Our future cash requirements will depend on many factors, including our subscription revenue growth rate, subscription renewals, billing timing and frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced platform features and functionality and the continued market adoption of our platform. We may in the future pursue acquisitions of businesses, technologies, assets and talent.
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 competitive position could weaken, and our business, financial condition and results of operations could be adversely affected.
We typically invoice our subscription customers annually in advance. Therefore, a substantial source of our cash is from such prepayments, which are included on our condensed consolidated balance sheets as deferred revenue. Deferred revenue consists of billed fees for our subscriptions, prior to satisfying the criteria for revenue recognition, which are subsequently recognized as revenue in accordance with our revenue recognition policy. As of July 31, 2023, remaining performance obligations, including both deferred revenue and non-cancelable contracted amounts, were $170.6 million. We expect to recognize revenue of $114.4 million on these remaining performance obligations over the next 12 months, with the remaining balance recognized thereafter.
On June 5, 2023, we terminated our Credit Facility with Silicon Valley Bank.
Cash Flows
The following table shows a summary of our cash flows for the periods presented:

|  |  | Six Months Ended July 31,
|  |  |  |  | 2023 |  | 2022
|  |  | (in thousands)
Net cash provided by (used in): |  |  |  |  |  |  |
Operating activities |  |  |  |  | $ | (7,700) |  |  | $ | (16,262) |
Investing activities |  |  |  |  | $ | 3,446 |  |  | $ | (39,142) |
Financing activities |  |  |  |  | $ | 5,497 |  |  | $ | 6,892 |

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Operating Activities
Cash used in operating activities for the six months ended July 31, 2023 of $7.7 million primarily consisted of our net loss of $42.5 million, adjusted for non-cash charges of $32.2 million and net cash inflows of $2.6 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities include a $7.9 million increase in deferred revenue due to timing of billings, a $7.5 million decrease in accounts receivable related to timing of billings and collections, and a $1.7 million increase in accounts payable due to timing of payments. These changes were partially offset by a $9.1 million increase in deferred commissions related to increased sales during the period, a $1.9 million decrease in accrued expenses and other liabilities due to the timing of accruals and payments, a $1.8 million decrease in accrued compensation primarily due to timing of bonus and commissions payments, and a $1.7 million decrease in lease liabilities driven by monthly rental payments for operating leases.
Ca sh used in oper ating activities for the six months ended July 31, 2022 of $16.3 million primarily consisted of our net loss of $35.2 million, adjusted for non-cash charges of $24.8 million and net cash outflows of $5.8 million from changes in our operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities include a $7.7 million increase in deferred commissions related to increased sales during the period, a $7.3 million decrease in accounts receivable related to timing of billings and collections, a $5.6 million decrease in accrued compensation primarily due to the timing of bonus payments and purchases under our employee stock purchase plan, an increase of $3.5 million in accounts payable, a $2.1 million decrease in deferred revenue due to timing of billings, and an increase of $1.2 million in prepaid expenses and other assets.
Investing Activities
Cas h provided by investing activities for the six months ended July 31, 2023 of $3.4 million consisted of maturities of short-term investments net of purchases of $5.8 million and additions to property and equipment of $2.4 million.
Cash used in in vesting activities for the six months ended July 31, 2022 of $39.1 million consisted of purchases of short-term investments net of maturities and sales of $36.7 million and additions to property and equipment of $2.5 million.
Financing Activities
Cash provided by financing activities for the six months ended July 31, 2023 of $5.5 million was primarily due to $4.7 million in proceeds from the issuance of common stock upon exercises of stock options, and $0.8 million in proceeds from the issuance of common stock under our employee stock purchase plan.
Cash provided by financing activities for the six months ended July 31, 2022 of $6.9 million was primarily due to $3.5 million in proceeds from the issuance of common stock under our employee stock purchase plan, and $3.4 million in proceeds from the issuance of common stock upon exercises of stock options.
Contractual Obligations and Commitments
Our contractual obligations consist of purchase obligations and operating lease commitments. Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions and the approximate timing of the transaction. These obligations relate to third-party cloud infrastructure agreements and subscription arrangements. Our operating lease commitments relate primarily to our office facilities.
For further information on our commitments and contingencies, refer to Note 9 in our u naudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There has been no material change in our contractual obligations and commitments other than in the ordinary course of business since ou r fiscal year ended January 31, 2023. See our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, which was filed with the SEC on March 29, 2023, for additional information regarding our contractual obligations.
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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 and other business partners 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. Additionally, we entered into indemnification agreements with our directors and officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. To date, no demands have been made upon us to provide indemnification under such agreements, and there are no claims that we are awa re of that could reasonably be expected to have a material effect on our financial condition, results of operations or cash flows.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected.
There have been no significant changes to our critical accounting policies and estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, which was filed with the SEC on March 29, 2023.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the JOBS Act. The JOBS Act provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an “emerging growth company” to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an “emerging growth company” or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates.
Interest Rate Risk
Our cash, cash equivalents and short-term investments primarily consist of highly liquid investments in money m arket funds, U.S. government treasury securities, commercial paper, U.S. government agency securities, corporate debt securities, and asset-backed securities. As of July 31, 2023, we had cash and cash equivalents of $41.4 million and short-term investments of $124.4 million. We do not enter into investments for trading or speculative purposes. Our i nvestments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the f air value of our investments. However, due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase or decrease in interest rates would have a material effect on our results of operations and cash flows. We therefore do not expect our results of operations or cash flows to be materially affected by a sudden change in market interest rates.
Foreign Currency Risk
The functional currency of our foreign subsidiaries is the U.S. Dollar. Accordingly, each foreign subsidiary remeasures monetary assets and liabilities at period-end exchange rates, while nonmonetary items are remeasured at historical rates. Revenue and expense items are remeasured at the exchange rates in effect on the day the transaction occurred, except for those expenses related to non-monetary assets and liabilities, which are remeasured at historical exchange rates. Remeasurement adjustments are recognized in other income (expense), net in our condensed consolidated statement of operations.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in foreign exchange gains (losses) related to changes in foreign currency exchange rates. In the event our foreign currency denominated assets, liabilities, revenue or expenses increase, our results of operations and cash flows may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future.
As of July 31, 2023, a hypothetical 10% change in the rela tive value of the U.S. Dollar to other currencies would not have a material impact on our results of operations and cash flows.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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Part II Other Information
Item 1. Legal Proceedings
From time to time, we may be subject to legal proceedings and claims that arise in the ordinary course of business, as well as governmental and other regulatory investigations and proceedings. In addition, third parties may from time to time assert claims against us in the form of letters and other communications. We are not currently a party to any legal proceedings that, if determined adversely to us, would, in our opinion, have a material and adverse effect on our business, financial condition, results of operations or cash flows. Future litigation may be necessary to defend ourselves, our partners and our customers, to determine the scope, enforceability and validity of third-party intellectual property and proprietary rights or to establish our intellectual property and proprietary rights. The results of any current or future litigation cannot be predicted with certainty and there can be no assurances that favorable outcomes will be obtained, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management attention and resources and other factors.
Item 1A. Risk Factors
You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment. The last day of our fiscal year is January 31. Our fiscal years ended January 31, 2022 and 2023 are referred to herein as fiscal 2022 and fiscal 2023, respectively.
Risks Related to Our Industry and Business
We have a history of net losses and may not achieve or maintain profitability in the future.
We have incurred net losses since our inception, and we expect to continue to incur net losses in the near future. We incurred net losses of $68.5 million, $58.2 million, $42.5 million and $35.2 million for fiscal 2023, fiscal 2022 and the six months ended July 31, 2023 and 2022, respectively. As of July 31, 2023, we had an accumulated deficit of $453.0 million. We expect our costs to increase in future periods. In particular, we intend to continue to invest significant resources to further develop our platform, expand our sales and marketing and expand our operations and infrastructure, both domestically and internationally. Any failure to increase our revenue sufficiently at a rate that exceeds the rate of increase in our investments and other expenses could prevent us from achieving or maintaining profitability.
We may not continue to grow on pace with historical rates.
Our historical revenue growth should not be considered indicative of our future performance. Our revenue was $154.8 million, $123.5 million, $84.1 million and $74.6 million for fiscal 2023, fiscal 2022 and the six months ended July 31, 2023 and 2022, respectively. However, you should not rely on our revenue or key business metrics for any previous quarterly or annual period as any indication of our revenue, revenue growth, key business metrics or key business metrics growth in future periods. In particular, our revenue growth rate has fluctuated in prior periods. We expect our revenue growth rate to continue to fluctuate. Our revenue growth rate may also decline in future periods for a number of reasons, including slowing adoption of or demand for our products and services, increasing competition, a decrease in the growth of our overall market, changes to technology or our failure to capitalize on growth opportunities, among others.
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If we fail to manage our growth effectively, our brand, business, financial condition and results of operations could be adversely affected.
We have experienced strong growth in our employee headcount, our geographic reach and our operations, and we expect to continue to grow in the future. Our employee headcount grew from 672 as of July 31, 2022 to 787 as of July 31, 2023. Our ability to manage our growth effectively and to integrate new employees, technologies and acquisitions into our existing business will require us to continue to expand our operational and financial infrastructure and to continue to effectively integrate, develop and motivate a large number of new employees, while maintaining the beneficial aspects of our culture. Continued growth could challenge our ability to develop and improve our operational, financial and management controls, enhance our reporting systems and procedures, recruit, train and retain highly skilled personnel and maintain customer satisfaction. In addition, we have encountered and will continue to encounter risks and challenges frequently experienced by growing companies in evolving industries, including our ability to manage our costs and operating expenses. Further, as our customers adopt our products and services for an increasing number of use cases, we have had to support more complex commercial relationships. We must continue to improve and expand our information technology (“IT”), and financial infrastructure, operating and administrative systems and relationships with various partners and other third parties. In addition, we operate globally and have established numerous international subsidiaries. We plan to continue to expand our international operations into other countries in the future, which will place additional demands on our resources and operations. If we do not manage the growth of our business and operations effectively, the quality of our products and services and the efficiency of our operations could suffer. This could impair our ability to attract new customers, retain existing customers and expand their use of our products and services, any of which could adversely affect our brand, business, financial condition and results of operations.
We face intense competition and if we are unable to compete effectively, our business, financial condition and results of operations would be adversely affected.
The database software market in which we operate is competitive and characterized by rapid changes in technology, customer requirements and industry standards and frequent introductions of new products and services. Many established businesses aggressively compete against us and have offerings with functionalities similar to those of our products and services. These competing offerings may also be complementary with ours and customers often deploy our platform alongside a competitor’s product.
We primarily compete with established legacy database providers, such as Oracle, IBM and Microsoft, providers of NoSQL database offerings, such as MongoDB, and cloud infrastructure providers with database functionalities, such as Amazon, Microsoft and Google. In the future, other large software and internet companies with substantial resources, customers and brand power may also seek to enter our market.
Many of our existing competitors have, and our potential competitors could have, substantial competitive advantages, such as:
•greater name recognition and brand awareness, longer operating histories and larger customer bases and application developer communities;
•larger sales and marketing budgets and resources;
•broader distribution and established relationships with partners and customers;
•greater professional services and customer support resources;
•greater resources to make acquisitions and enter into strategic partnerships;
•lower labor and research and development costs;
•larger and more mature intellectual property rights portfolios; and
•substantially greater financial, technical and other resources.
If we fail to compete effectively with respect to any of these competitive advantages, we may fail to attract new customers or lose or fail to renew existing customers, which would adversely affect our business, financial condition and results of operations.
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We expect competition to increase with the entry of new companies and the introduction of innovative technologies. Start-ups and well-funded competitors investing in R&D may offer similar or superior products. Potential customers may believe that substitute technologies or ancillary solutions that address narrower segments overall are adequate for their needs. Our competitors could also introduce competitive pricing and performance characteristics or undertake more aggressive marketing campaigns than ours. Further, we have made portions of our source code available on an open source and source available basis and face risks if others compete effectively using our code. Additionally, some of our current or potential competitors have made or could make acquisitions of businesses or establish cooperative relationships, among themselves or with others, that may allow them to offer more directly competitive and comprehensive offerings than were previously offered and adapt more quickly to new technologies and customer needs, devote greater resources to the promotion or sale of their products, initiate or withstand substantial price competition, take advantage of other opportunities more readily or develop and expand their offerings, including those that may incorporate artificial intelligence, more quickly than we do. For all of these reasons, we may not be able to compete successfully against our current or potential competitors. If we are unable to anticipate or effectively react to competitive challenges, our competitive position would weaken, and our business, financial condition and results of operations would be adversely affected.
We may fail to cost-effectively acquire new customers or obtain renewals, upgrades or expansions from our existing customers, which would adversely affect our business, financial condition and results of operations.
Attracting and retaining sales and marketing personnel, developing partner relationships and raising awareness of our platform, including leveraging Community Edition and free trials, are critical for customer acquisition, and failure to cost-effectively acquire new customers could negatively impact our growth.
Our success also depends, in part, on retaining existing customers through subscription renewals and expanding relationships, including broadening customers' use cases within our products and adopting additional Couchbase products and services. The non-cancelable term of our subscriptions are typically one to three years but may be longer or shorter in limited circumstances, and renewals or upgrades are not guaranteed. In addition, renewals might not have a similar contract period or differ in price, terms or capacity, or customers may decide to otherwise downgrade their subscriptions. For example, the impact of the macroeconomic environment has caused, and may in the future continue to cause, certain customers to request concessions including extended payment terms or better pricing, increased customer churn, a lengthening of our sales cycles with prospective customers, a delay of planned projects or expansions and reduced contract values with certain prospective and existing customers. Retention may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our products and services, our licensing models, the prices, features or perceived value of competing offerings, changes to our offerings or general economic conditions. We invest significantly in our technology, sales and marketing functions. Failure to see commensurate customer adoption could harm our business.
Additionally, our success depends, in part, on our determination of which product features to include in our free versus paid versions of our products (which we call the Community Edition and Enterprise Edition, respectively, for our Server and Mobile suite of products) including the timing of when to incorporate Enterprise Edition features into our Community Edition products. Any failure on our part to determine the correct balance and timing may adversely affect our business. Existing or potential customers may determine that the functionality of our free versions is sufficient for their needs and as a result may not convert from the use of our Community Edition or free trials to a paid product or downgrade from our paid products. Further, users of our Enterprise Edition Server and Mobile products may violate our license terms by using our product without paying for a required subscription or by exceeding their subscription entitlements, and we may not always be able to determine when this occurs or enforce our license terms.
In addition, expanding our customer base in new industry verticals depends on effective organization, focus and training of our sales and marketing personnel, efficient pricing and product strategies and educating the enterprise architects and application developers in such industries about the benefits and features of our products and services. Adapting our products and services and our marketing efforts to target specific industries will require significant resources. Inadequate returns on sales and marketing efforts and investments may harm our business.
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The market for our products and services is relatively new and evolving, and our future success depends on the growth and expansion of this market.
It is uncertain whether the market for our products and services will continue to grow, how rapidly it will grow, or whether our products and services will be more widely adopted. For example, many enterprises have invested substantial resources into legacy database solutions and may be reluctant or unwilling to migrate to or invest in alternative solutions. Accordingly, any predictions or forecasts about our future growth, revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market. Our success will depend, in part, on market acceptance and the widespread adoption of our products and services as an alternative to other offerings and the selection of our products and services over competing offerings that may have similar functionality. Technologies related to database offerings are still evolving and we cannot predict market acceptance of our products and services or the development of other competing offerings based on entirely new technologies. For example, we derive a substantial majority of our revenue from subscriptions for, and services related to Couchbase Server and Couchbase Mobile. Demand for our platform is affected by a number of factors, many of which are beyond our control, including continued market acceptance by existing customers and potential customers, the ability to expand the product for different use cases, the timing of development and releases of new offerings by our competitors, technological change and the growth or contraction in the market in which we compete. It is possible that customer adoption of our new products, such as Couchbase Capella, may replace a portion of customer spend on our existing products. If the market for database solutions, and for NoSQL database solutions in particular, does not continue to grow as expected, or if we are unable to continue to efficiently and effectively respond to the rapidly evolving trends and meet the demands of our customers, achieve more widespread market awareness and adoption of our products and services or otherwise manage the risks associated with the introduction of new products and services, our competitive position would weaken and our business, financial condition, results of operations and prospects would be adversely affected.
If we fail to innovate in response to changing customer needs, new technologies or other market requirements, our business, financial condition and results of operations could be harmed.
Our ability to attract new customers and expand our relationship with our existing customers depends, in part, on our ability to enhance and improve our products and services, introduce compelling new features and address additional use cases. To continue to grow our business, we must continue to enhance our products and services and develop features that reflect the constantly evolving nature of technology, regulations, and our customers’ needs. The success of any new or enhanced product or service features depends on several factors, including our anticipation of market changes and market demand, timely completion and delivery, adequate quality testing, integration with existing technologies and applications and competitive pricing. If our investments in new products and services, including Couchbase Capella, are not successful, our business, financial condition and results of operations would be adversely affected.
In addition, because our products and services are designed to operate with a variety of systems, applications, data and devices, we will need to continuously modify and enhance our products and services to keep pace with changes in such systems. We may not be successful in developing these modifications and enhancements. The addition of new features and solutions to our products and services may increase our research and development expenses, compliance, personnel. security, infrastructure and other expenses. Any new features that we develop, including those that may incorporate artificial intelligence, may not be introduced in a timely or cost-effective manner or may not achieve the market acceptance necessary to generate sufficient revenue to justify the related research and development and other related expenses. It is difficult to predict customer adoption of new features. Such uncertainty limits our ability to forecast our future results of operations and subjects us to a number of challenges, including our ability to plan for and model future growth. If we are unable to manage the risks associated with the development of new products and features, our business would be adversely affected. If new technologies emerge that enable others to deliver competitive products and services at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete effectively.
Our professional services and training revenues have grown as our subscription revenue has grown. We believe our investment in services facilitates the adoption of our products. Capella contains a service component and Capella customers may not require standalone services at the same rate as for our enterprise Server and Mobile offerings. As a result, as customers migrate to Capella, it is not clear if revenue from our services business will continue to grow at rates consistent with prior periods. Further, professional services and training may be seen as ancillary to our core product offerings. To the extent customers reduce spending due to macroeconomic conditions, we may see customers opt out of services, which may harm our results of operations.
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We have a limited operating history, which makes it difficult to predict our future results of operations.
We were formed in 2011 with the merger of Membase, Inc. and CouchOne, Inc. Since our formation, we have frequently expanded our product features and services and evolved our pricing methodologies. Our limited operating history and our evolving business make it difficult to evaluate our future prospects and the risks and challenges we may encounter. These risks and challenges include, among other things, our ability to manage our costs, accurately forecast revenue, gain new customers, retain or expand existing customers, introduce successful products, services and features and compete effectively.
If we fail to address the risks and difficulties that we face, including those associated with the challenges listed above as well as those described elsewhere in this “Risk Factors” section, our business, financial condition, results of operations, key business metrics and prospects could be adversely affected. Further, because we have limited historical financial data and operate in a rapidly evolving market, any predictions about our future revenue and expenses may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations could be adversely affected.
Our future results of operations and key business metrics may fluctuate significantly, and if we fail to meet the expectations of analysts or investors, the market price of our common stock and the value of your investment could decline substantially.
Our results of operations and key business metrics may fluctuate from period to period as a result of a number of factors, many of which are outside of our control and may be difficult to predict. Some of the factors that may cause our results of operations and key business metrics to fluctuate from period to period include:
•market acceptance and the level of demand for our products and services, including new products and services we offer;
•the quality and level of our execution of our business strategy and operating plan;
•the effectiveness of our sales and marketing programs;
•the length of our sales cycle, including the timing of renewals;
•our ability to attract new customers, particularly large enterprises;
•our ability to retain customers and expand their adoption of our products and services, particularly our largest customers;
•our ability to successfully expand internationally and penetrate key markets;
•our failure to maintain the level of service uptime and performance required by our customers with certain of our products;
•technological changes and the timing and success of new or enhanced product features by us or our competitors or any other change in the competitive landscape of our market;
•our product mix and the revenue recognition related to such products;
•changes in the average contract term or the timing of revenue recognition, any of which may impact implied growth rates;
•changes to our packaging and licensing models, which may impact the timing and amount of revenue recognized;
•increases in and the timing of operating expenses that we may incur to grow our operations and to remain competitive;
•pricing pressure as a result of competition or otherwise;
•seasonal buying patterns;
•delays in our sales cycles, decreases in sales to new customers and reductions in upselling and cross-selling to existing customers due to macroeconomic conditions;
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•the implementation of cost-saving activities, longer deal cycles, extra layers of scrutiny and approval, and customers electing to buy in smaller increments as a result of macroeconomic conditions;
•the impact and costs, including those with respect to integration, related to the acquisition of businesses, talent, technologies or intellectual property rights;
•our inability to enforce our licenses associated with our products;
•our ability to successfully hire and retain employees and key members of our management team;
•changes in the legislative or regulatory environment;
•adverse litigation judgments, settlements or other litigation-related costs; and
•general economic conditions in either domestic or international markets, including geopolitical uncertainty and instability, as well as the effects of foreign exchange fluctuations.
Any one or more of the factors above may result in significant fluctuations in our results of operations. We also intend to continue to invest significantly to grow our business in the near future. In addition, we generally experience seasonality based on when we enter into agreements with customers, and our quarterly results of operations generally fluctuate from quarter to quarter depending on customer buying habits. This seasonality is reflected to a lesser extent, and sometimes is not immediately apparent, in revenue, due to the fact that a substantial portion of our subscription revenue is recognized ratably over the term of the subscription, which typically ranges from one to three years. We expect that seasonality will continue to affect our results of operations in the future. The variability of our results of operations or other operating estimates could result in our failure to meet our expectations or those of securities analysts or investors. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could decline, and we could face costly lawsuits, including securities class action suits.
We recognize a significant portion of revenue from subscriptions over the term of the relevant subscription period, and as a result, downturns or upturns in sales are not immediately reflected in full in our results of operations.
Subscription revenue accounts for a significant portion of our revenue, comprising 94% and 92% of total revenue for the six months ended July 31, 2023 and 2022, respectively.
Sales of new or renewal subscriptions may decline and fluctuate as a result of a number of factors, including customers satisfaction, pricing, the prices of competitors’ products and reductions in our customers’ spending levels or fluctuations in customer usage of consumption-based offerings. If sales decline or if consumption-based customers consume Couchbase Capella at a slower rate than expected, our total revenue and revenue growth rate may decline.
Under most of our contracts, we recognize a portion of subscription revenue upon transfer of the software license to the customer and the larger remainder of the transaction price ratably over the term of the arrangement. See Note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information. As we significantly rely on subscription revenue, a significant portion of the revenue that we report in each period will be derived from the recognition of deferred revenue relating to agreements entered into in prior periods. Consequently, a decline in new sales or renewals in any one period may not be immediately reflected in our results of operations for such period. Any such decline, however, would be reflected in future periods. Accordingly, the effect of significant downturns in sales and market acceptance of and demand for our products and changes in our rate of renewals or customer churn may not be fully reflected in our results of operations until future periods. Our subscription-based products also make it difficult to rapidly increase our revenue through additional sales in any period, as a significant portion of such revenue from customers will be recognized over the term of the applicable agreement.
Further, we intend to increase our investment in research and development, sales and marketing and general and administrative functions and other areas to grow our business. These costs are generally expensed as incurred, as compared to our revenue, of which a significant portion is recognized ratably in future periods. We may recognize the costs associated with such increased investments earlier than some of the anticipated benefits and the return on these investments may be lower, or may develop more slowly, than we expect, which could adversely affect our financial condition and results of operations.
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We depend on our sales force, and we may fail to attract, retain, motivate or train our sales force, which could adversely affect our business, financial condition and results of operations.
Our sales force obtains new customers and drives additional sales to existing customers. We believe that there is significant competition for sales personnel, including sales representatives, sales managers and sales engineers, with the skills and technical knowledge that we require. Our ability to achieve revenue growth will depend, in part, on our decision to hire and succeed in recruiting, training and retaining sufficient numbers of sales personnel to support our growth. Our hiring, training and retention efforts have been, and may further be, hindered as a result of the intense competition for talent. New hires require significant training and may take significant time before they achieve full productivity, and our remote and online onboarding and training processes may be less effective than in-person training and take longer. Further, hiring sales personnel in new countries requires additional set up and upfront costs that we may not recover if the sales personnel fail to achieve full productivity. If we are unable to attract, retain, motivate and train sufficient numbers of effective sales personnel, our sales personnel do not reach significant levels of productivity in a timely manner or our sales personnel are not successful in bringing potential customers into the pipeline, converting them into new customers or increasing sales to our existing customer base, our business, financial condition and results of operations would be adversely affected.
Our sales strategy to target larger enterprises involves risks that may not be present or that are present to a lesser extent with respect to smaller enterprises, such as long and unpredictable sales cycles and sales efforts that require considerable time and expense, particularly in the current macroeconomic environment.
Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller customers, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs and less predictability in completing some of our sales. These risks may be enhanced in the current macroeconomic environment. For example, large customers may require considerable time to evaluate and test our products and services prior to making a purchase decision. They may also need to build and test the applications to be used with our products prior to a sale, which also lengthens and introduces additional uncertainty and risk to the sales process. A number of factors influence the length and variability of our sales cycles, including the need to educate potential customers about the uses and benefits of our products and services, the discretionary nature of purchasing and budget cycles and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycles, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Large customer sales have, in some cases, occurred in periods subsequent to those we anticipated, or have not occurred at all. The loss or delay of one or more large transactions in a period could affect our cash flows and results of operations for that fiscal period and for future periods.
Moreover, large customers often require proof of concept deployments, free trials or begin to deploy our products on a limited basis but nevertheless negotiate pricing discounts, which all increase our upfront investment in the sales effort with no guarantee that sales to these customers will justify our substantial upfront investment. If we fail to effectively manage risks associated with sales cycles and sales to large customers, our business could be adversely affected.
If we are not able to maintain and enhance our brand, especially among enterprise architects, application developers and other key functions that support them, our business and results of operations may be adversely affected.
We believe that maintaining and enhancing our brand and our reputation as a leader in the market for database solutions is critical to our relationship with our existing customers and partners and our ability to attract new customers and partners. The successful promotion of our brand will depend on a number of factors, including our marketing efforts, our ability to foster awareness among enterprise architects, application developers and other key functions that support them, our ability to continue to develop high-quality products and services, our ability to successfully differentiate our products and services from those of our competitors, our ability to maintain the reputation of our products and services for data security and our ability to obtain, maintain, protect, defend and enforce our intellectual property and proprietary rights. Our brand promotion activities may not be successful or yield increased revenue. In addition, independent industry analysts often provide reports of our products and services, as well as the offerings of our competitors, and perception of our products and services in the marketplace may be significantly influenced by these reports. Negative reports, or reports that are less positive as compared to those of our competitors, may adversely affect our reputation and brand. Additionally, the performance of our partners may affect our reputation and brand if customers do not have a positive experience with our partners.
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Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks and our competitors may adopt trade names or trademarks similar to ours leading to market confusion. If we are otherwise unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. The maintenance and promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, we expand into new geographies and markets and more sales are generated through our partners. Our brand promotion activities may not generate customer awareness or yield increased revenue, and even if they do, any increase in revenue from such brand promotion initiatives may not offset the increased expenses we incur. If we do not successfully maintain and enhance our reputation and brand, we may have reduced pricing power relative to our competitors, we could lose customers or we could fail to attract potential customers or expand sales to our existing customers, all of which could materially and adversely affect our business, financial condition and results of operations.
Our business could be adversely affected by economic downturns.
Prolonged economic uncertainties or downturns could adversely affect our business, financial condition and results of operations and key business metrics. Negative conditions in the general economy in either the United States or abroad, including inflation and rising interest rate concerns, conditions resulting from financial and credit market fluctuations, changes in economic policy, trade uncertainty including changes in tariffs, sanctions, international treaties and other trade restrictions, the occurrence of a natural disaster, global public health crisis or armed conflicts, could continue to cause a decrease in corporate spending on IT offerings in general and negatively affect the growth of our business.
These conditions could make it extremely difficult for our customers and us to forecast and plan future business activities accurately and could cause our customers to reevaluate their decision to purchase our products and services, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. In the current macroeconomic environment, we are seeing longer deal cycles, extra layers of scrutiny and approval, and customers electing to buy in smaller increments. Further, during challenging economic times, our customers may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us, if at all. If that were to occur, we may be required to increase our allowance for doubtful accounts, which would adversely affect our results of operations.
A substantial downturn in any of the industries in which our customers operate may cause firms to react to worsening conditions by reducing their capital expenditures in general or by specifically reducing their spending on IT offerings. Customers in these industries may delay or cancel projects or seek to lower their costs by renegotiating vendor contracts. To the extent subscriptions to our products or expenditures on our services are perceived by existing customers or potential customers to be discretionary, our revenue may be disproportionately affected by delays or reductions in general IT spending.
We cannot predict the timing, strength or duration of any economic slowdown, instability or recovery, generally or within any particular industry or geography. Any economic downturns of the general economy or industries in which we operate would adversely affect our business, financial condition and results of operations.
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Real or perceived errors, failures or bugs in our products or interruptions or performance problems associated with our technology and infrastructure could adversely affect our growth prospects, business, financial condition and results of operations.
Our products are complex, and therefore, undetected errors, failures or bugs have occurred in the past and may occur in the future. Our products are used in IT environments with different operating systems, system management software, applications, devices, databases, servers, storage, middleware, custom and third-party applications and equipment and networking configurations, which may cause errors or failures in the IT environment into which our products are deployed. This diversity increases the likelihood of errors or failures in those IT environments. Additionally, we rely upon third-party cloud hosting infrastructure providers to host our cloud offering. Despite testing by us, real or perceived errors, failures or bugs in our customer solutions, software or technology or the technology or software we license from third parties, including open source software, may not be found until our customers use our products. Real or perceived errors, failures or bugs in our products or the services upon which we rely could result in negative publicity, security related incidents such as data breaches, data loss, unavailability or corruption, loss of or delay in market acceptance of our products, harm to our brand, weakening of our competitive position or complaints or claims by customers for losses sustained by them or our failure to meet the stated service level commitments in our customer agreements. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend significant additional resources in order to help correct the problem. Any errors, failures or bugs in our products could impair our ability to attract new customers, retain existing customers or expand their use of our products, any of which could adversely affect our business, financial condition and results of operations.
For certain of our products, our success depends, in part, on the ability of our existing customers and potential customers to access such products at any time and within an acceptable amount of time. We may experience service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes or failures, human or software errors, malicious acts, terrorism, denial of service attacks or other security related incidents or capacity constraints. Capacity constraints could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks. In some instances, we may not be able to identify or remedy the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and customer implementations become more complex. If our products are unavailable or if our customers are unable to access our products within a reasonable amount of time or at all, or if other performance problems occur, we may experience a loss of customers, lost or delayed market acceptance of our platform and services, delays in payment to us by customers, injury to our reputation and brand, legal claims against us and the diversion of our resources. The foregoing risks associated with any outage or service disruptions are magnified by the fact that our platform is typically used by our customers to support mission-critical applications. In addition, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, financial condition and results of operations could be adversely affected.
Some of our customer contracts contain service level commitments, which contain specifications regarding response times for support, performance of our products and availability of our services. Any failure of or disruption to our infrastructure could impact the performance of our products and the availability of services to customers. If we are unable to meet our stated service level commitments or if we suffer extended periods of poor performance or unavailability of our products or services, we may be contractually obligated to provide affected customers with service credits for future subscriptions. In certain cases, we may face contract termination with refunds of prepaid amounts related to unused subscriptions. If we suffer performance issues or downtime that exceeds the service level commitments under our contracts with our customers, our business, financial condition and results of operations could be adversely affected.
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Our ability to maintain and increase sales with our existing customers depends, in part, on the quality of our customer support, and our failure to offer high-quality support would harm our reputation and adversely affect our business and results of operations.
Our customers sometimes depend on our technical support services to resolve issues relating to our products. Our ability to provide effective support is vital to our business as our products are often utilized by our customers for mission-critical applications and are often integrated with and dependent on other core technologies, which factors also increase the complexity and challenge of providing support. If we do not succeed in helping our customers quickly resolve issues or provide effective ongoing education related to our products, our reputation could be harmed, and our existing customers may not renew or expand their use of our products. To the extent that we are unsuccessful in hiring, training and retaining adequate customer support personnel, our ability to provide adequate and timely support to our customers and our customers’ satisfaction with our products, would be adversely affected. Our failure to provide and maintain high-quality customer support would harm our reputation and brand and adversely affect our business, financial condition and results of operations.
Our international operations and planned continued international expansion subject us to additional costs and risks, which could adversely affect our business, financial condition and results of operations.
Our continued success and our growth strategy depend, in part, on our planned continued international expansion. We are continuing to adapt to and develop strategies to address international markets, but such efforts may not be successful.
Additionally, our international sales and operations are subject to a number of risks, including, without limitation:
•greater difficulty in enforcing contracts and managing collections in countries where our recourse may be more limited, as well as longer collection periods;
•higher costs of doing business internationally, including costs incurred in establishing and maintaining office space and equipment for our international operations;
•differing labor regulations, especially in the European Union (“EU”) where labor laws may be and often are more favorable to employees;
•challenges inherent to efficiently recruiting and retaining talented and capable employees in foreign countries and maintaining our company culture and employee programs across all of our offices;
•fluctuations in exchange rates between the U.S. Dollar and foreign currencies in markets where we do business;
•management communication and integration problems resulting from language and cultural differences and geographic dispersion;
•costs associated with language localization of our products and services;
•risks associated with trade restrictions and foreign legal requirements, including any importation, certification and localization of our products and services that may be required in foreign countries;
•greater risk of unexpected changes in regulatory requirements, tariffs and tax laws, trade laws, export quotas, customs duties, treaties and other trade restrictions;
•costs of compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws and regulations, including, but not limited to laws and regulations governing our corporate governance, product licenses, data privacy, data protection and data security regulations, particularly in the EU;
•compliance with anti-bribery laws, including, without limitation, the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the U.S. Travel Act and the United Kingdom Bribery Act 2010, violations of which could lead to significant fines, penalties and collateral consequences for us;
•risks relating to the implementation of exchange controls, including restrictions promulgated by the Office of Foreign Assets Control ( “OFAC”) and other similar trade protection regulations and measures;
•heightened risk of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact our financial condition and result in restatements of, or irregularities in, financial statements;
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•the uncertainty of protection for intellectual property rights in some countries, particularly, those countries where we operate through a professional employer organization and do not have a direct contractual relationship with our service providers in such countries;
•exposure to regional or global public health issues and restrictions on travel or other measures undertaken by governments in response;
•general economic and political conditions in these foreign markets, including inflation concerns and rising interest rates and political and economic instability in some countries, such as the significant military action against Ukraine launched by Russia and any related political or economic response and counter responses or otherwise by various global actors or general effect on the global economy;
•foreign exchange controls or tax regulations that might prevent us from repatriating cash earned outside the United States; and
•double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate.
If we are unable to address these or other problems encountered in connection with our international operations and expansion, our operations may be negatively impacted. Some of our business partners also have international operations and are subject to the risks described above. These and other factors could harm our ability to generate revenue outside of the United States and, consequently, adversely affect our business.
In addition, compliance with evolving foreign regulations may increase operational costs. Failure to comply with these laws and regulations could have adverse effects on our business. In many foreign countries it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us. Although we have implemented policies and procedures designed to ensure compliance with these laws and policies, there can be no assurance that all of our employees, contractors, partners and third-party service providers will comply with these laws and policies. Violations of laws or key control policies by our employees, contractors, partners or third-party service providers could result in delays in revenue recognition, financial reporting misstatements, fines, penalties or the prohibition of the importation or exportation of our products and services and could have an adverse effect on our business, financial condition and results of operations.
We face fluctuations in currency exchange rates, which could adversely affect our financial condition and results of operations.
To the extent we continue to expand internationally, we will become more exposed to fluctuations in currency exchange rates. The strengthening of the U.S. Dollar relative to foreign currencies increases the real cost of our products and services for our customers outside of the United States, which could lead to the lengthening of our sales cycles or reduced demand for our products and services. Additionally, increased international sales may result in foreign currency denominated sales, increasing our foreign currency risk. Moreover, such continued expansion would increase operating expenses incurred outside the United States and denominated in foreign currencies. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully hedge our exposure, which could adversely affect our financial condition and results of operations.
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We track certain key business metrics with internal systems and tools and do not independently verify such metrics. Certain of these metrics are subject to inherent challenges in measurement, and any real or perceived inaccuracies in such metrics may adversely affect our business and reputation.
We track certain metrics, including ARR, dollar-based net retention rate and number of customers, with internal systems and tools that are not independently verified by any third party and which may differ from estimates or similar metrics published by third parties due to differences in sources, methodologies or the assumptions on which we rely. Our internal systems and tools have a number of limitations, and our methodologies for tracking these metrics may change over time, which could result in unexpected changes to our metrics, including the metrics we publicly disclose. In addition, our ARR and dollar-based net retention rate calculations assume our customers will renew unless we receive notification of non-renewal and are no longer in negotiations prior to a measurement date, and will not increase or reduce, their subscriptions for our platform and services. If these assumptions prove to be incorrect, our actual ARR and dollar-based net retention rate may differ significantly from the metrics presented in this Quarterly Report on Form 10-Q. If the internal systems and tools we use to track these metrics undercount or overcount performance or contain algorithmic or other technical errors, the data we report may not be accurate. While these numbers are based on what we believe to be reasonable estimates of our metrics for the applicable period of measurement, there are inherent challenges in measuring these metrics. Limitations or errors with respect to how we measure data or with respect to the data that we measure may affect our understanding of certain details of our business, which could affect our long-term strategies. If our key business metrics are not accurate representations of our business, if investors do not perceive our key business metrics to be accurate or if we discover material inaccuracies with respect to these figures, we expect that our business, reputation, financial condition and results of operations would be adversely affected.
We depend on our management team and other highly skilled personnel, and we may fail to attract, retain, motivate or integrate highly skilled personnel, which could adversely affect our business, financial condition and results of operations.
We depend on the continued contributions of our management team, key employees and other highly skilled personnel. Our management team and key employees are at-will employees, which means they may terminate their relationship with us at any time. We are also substantially dependent on the continued service of our existing engineering personnel because of the complexity of our products. The competition for top management, engineering talent and other highly skilled personnel is high, and the loss of the services of any of our key personnel or delays in hiring required personnel, particularly within our research and development and engineering organizations, could adversely affect our business, financial condition and results of operations.
Our future success also depends, in part, on continuing to attract and retain highly skilled personnel. Competition for these personnel in the San Francisco Bay Area, where our headquarters are located, and in other locations, is intense, and our industry faces significant competition for skilled personnel as well as high employee attrition. In addition, the recent move by companies to offer a remote or hybrid work environment may increase competition for employees outside of our traditional office locations.
Additionally, the former employers of our new employees may assert that our new employees or we have breached legal obligations, which may be time-consuming, distracting to management and may divert our resources. Current and potential personnel also often consider the value of equity awards they receive in connection with their employment, and if the perceived value of our equity awards declines relative to those of our competitors, our ability to attract and retain highly skilled personnel may be harmed. If we fail to attract and integrate new personnel or retain and motivate our current personnel, our business, financial condition and results of operations could be adversely affected.
Our company culture has contributed to our success and if we cannot maintain this culture as we grow, our business could be harmed.
We believe that our company culture, which promotes being valued and creating value, has been critical to our success. We face a number of challenges that may affect our ability to sustain our corporate culture, including:
•failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values and mission;
•the increasing size and geographic diversity of our workforce;
•the continued challenges of a rapidly-evolving industry; and
•the integration of new personnel and businesses from acquisitions.
If we are not able to maintain our culture, our business could be adversely affected.
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We may require additional capital, which may not be available on terms acceptable to us, or at all.
Historically, we have funded our operations and capital expenditures primarily through equity issuances, debt instruments and cash generated from our operations. To support our growing business, we must have sufficient capital to continue to make significant investments in our products and services. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and our existing stockholders may experience dilution. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.
We evaluate financing opportunities from time to time, and our ability to obtain financing will depend on, among other things, our development efforts, business plans and operating performance and the condition of the capital markets at the time we seek financing. We cannot be certain that additional financing will be available to us on favorable terms, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to grow and to respond to business challenges could be significantly limited and our business could be adversely affected.
Future debt obligations could materially and adversely affect our business, financial condition or results of operations.
In the future, we may decide that it is advisable to enter a new line of credit or other debt financing. There is a risk that we may not be able to negotiate terms of the new line of credit or additional debt financing that are as favorable as the terms of our prior indebtedness. Furthermore, if prevailing interest rates or other factors at the time of negotiation of the new line of credit or additional debt financing result in higher interest rates, then the interest expense relating to that new line of credit or additional debt financing would increase. Our ability to pay interest and repay the principal for any indebtedness is dependent upon our ability to manage our business operations, generate sufficient cash flows to service such debt and the other factors discussed in this “Risk Factors” section.
In the event we incur indebtedness, our debt obligations could adversely impact us. For example, these obligations could:
•require us to use a large portion of our cash flow to pay principal and interest on debt, which will reduce the amount of cash flow available to fund working capital, capital expenditures, acquisitions, research and development expenditures and other business activities;
•limit our future ability to raise funds for capital expenditures, strategic acquisitions or business opportunities, research and development and other general corporate requirements;
•restrict our ability to incur additional indebtedness and to create or incur certain liens;
•increase our vulnerability to adverse economic and industry conditions; and
•increase our exposure to interest rate risk from variable rate indebtedness.
There can be no assurance that we will be able to manage any of these risks successfully.
We may be unable to make acquisitions and investments or successfully integrate acquired companies and assets into our business, and our acquisitions and investments may not meet our expectations, any of which could adversely affect our business, financial condition and results of operations.
We may in the future acquire or invest in businesses, offerings, technologies or talent that we believe could complement or expand our products and services, enhance our technical capabilities or otherwise offer growth opportunities. However, we may not be able to fully realize the anticipated benefits of such acquisitions or investments. Further, the pursuit of potential acquisitions may divert the attention of management and cause us to incur significant expenses related to identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.
There are inherent risks in integrating and managing acquisitions. If we acquire additional businesses, we may not be able to assimilate or integrate the acquired personnel, operations, solutions and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits or synergies from the acquired business due to a number of factors, including, without limitation:
•unanticipated costs or liabilities associated with the acquisition, including claims related to the acquired company, its offerings or technology;
•incurrence of acquisition-related expenses, which would be recognized as a current period expense;
•inability to generate sufficient revenue to offset acquisition or investment costs;
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•inability to maintain relationships with customers and partners of the acquired business;
•challenges with incorporating acquired technology and rights into our products and services and maintaining quality and security standards consistent with our brand;
•inability to identify security vulnerabilities in acquired technology prior to integration with our technology and products and services;
•inability to achieve anticipated synergies or unanticipated difficulty with integration into our corporate culture;
•delays in customer purchases due to uncertainty related to any acquisition;
•the need to integrate or implement additional controls, procedures and policies;
•challenges caused by distance, language and cultural differences;
•harm to our existing business relationships with partners and customers as a result of the acquisition;
•potential loss of key employees;
•use of resources that are needed in other parts of our business and diversion of management and employee resources;
•inability to recognize acquired deferred revenue in accordance with our revenue recognition policies; and
•use of substantial portions of our available cash or the incurrence of debt to consummate the acquisition.
Acquisitions also increase the risk of unforeseen legal liability, including for potential violations of applicable law or industry rules and regulations, arising from prior or ongoing acts or omissions by the acquired businesses that are not discovered by due diligence during the acquisition process. We may have to pay cash, incur debt or issue equity or equity-linked securities to pay for any future acquisitions, each of which could adversely affect our financial condition or the market price of our common stock. The sale of equity or issuance of equity-linked debt to finance any future acquisitions could result in dilution to our stockholders. The use of cash to finance any future acquisitions may limit other potential uses of our cash, including the retirement of outstanding indebtedness. The incurrence of indebtedness would result in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manage our operations. We may have to delay or forego a substantial acquisition if we cannot obtain the necessary financing to complete such acquisition in a timely manner or on favorable terms. Any of the foregoing could adversely affect our business, financial condition and results of operations.
Our business could be adversely affected by pandemics, natural disasters, political crises or other unexpected events.
A significant natural disaster, such as an earthquake, fire, hurricane, tornado or flood, or a significant power outage or telecommunications failure, could disrupt our operations, mobile networks, the internet or the operations of our third-party service and technology providers. In particular, our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity and wildfires. In addition, any unforeseen public health crises, political crises, such as terrorist attacks, war and other political instability or other catastrophic events, whether in the United States or abroad, including the significant military action against Ukraine launched by Russia and any related political or economic response and counter responses or otherwise by various global actors or general effect on the global economy, can continue to adversely affect our operations or the economy as a whole. The impact of any natural disaster, act of terrorism or other disruption to us or our third-party providers’ abilities could result in decreased demand for our products and services or a delay in the provision of our products and services or could negatively impact consumer and business spending in the impacted regions or globally depending on the severity, any of which would adversely affect our business, financial condition and results of operations. All of the aforementioned risks would be further increased if our disaster recovery plans prove to be inadequate.
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Risks Related to Our Dependence on Third Parties
If we are unable to maintain successful relationships with our partners, our business, financial condition and results of operations could be harmed.
We employ a go-to-market business model whereby a portion of our revenue is generated by sales through or with our partners, including CSPs, independent software vendors, systems integrators, technology partners, original equipment manufacturers, marketplaces, managed service providers and resellers, that further expand the reach of our direct sales force into additional geographies, sectors, industries and channels. We have entered, and intend to continue to enter, into reseller relationships in certain international markets where we do not have a local presence. We provide certain partners with specific training and programs to assist them in selling our products and services, but our efforts to provide training and build relationships may be ineffective. In addition, if our partners are unsuccessful in marketing and selling our products and services, it would limit our planned expansion into certain geographies, sectors, industries and channels. If we are unable to develop and maintain effective sales incentive programs for our partners, we may not be able to successfully incentivize these partners to sell our products and services to customers.
Some of our partners may also market, sell and support offerings that are competitive with ours, may devote more resources to the marketing, sales and support of such competitive offerings, may have incentives to promote our competitors’ offerings to the detriment of our own or may cease selling our products and services altogether. Our partners could also subject us to lawsuits, potential liability and reputational harm if, for example, any of our partners misrepresents the functionality of our products and services to customers, violate laws or violate our or their corporate policies. Our ability to achieve revenue growth in the future will depend, in part, on our success in maintaining successful relationships with our partners, identifying additional partners and training our partners to independently sell our products and services. If our partners are unsuccessful in selling our products and services, or if we are unable to enter into arrangements with or retain a sufficient number of high-quality partners in the regions in which we sell our products and services and keep them motivated to sell our products and services, our business, financial condition, results of operations and growth prospects could be adversely affected.
We rely on third-party service providers for many aspects of our business, and any failure to maintain these relationships could harm our business.
Our success depends, in part, on our relationships with third-party service providers, including providers of cloud hosting infrastructure, customer relationship management systems, financial reporting systems, human resource management systems, credit card processing platforms, marketing automation systems, payroll processing systems and data centers, among others. In particular, cloud hosting infrastructure is becoming increasingly important as customers adopt Couchbase Capella. If any of these third parties experience difficulty meeting our requirements or standards, become unavailable due to extended outages or interruptions, temporarily or permanently cease operations, face financial distress or other business disruptions or increase their fees, or if our relationships with any of these providers deteriorate or if any of the agreements we have entered into with such third parties are terminated or not renewed without adequate transition arrangements, we could suffer increased costs and delays in our ability to provide customers with our products and services, our ability to manage our finances could be interrupted, receipt of payments from customers may be delayed, our processes for managing sales of our offerings could be impaired, our ability to generate and manage sales leads could be weakened or our business operations could be disrupted. Any of such disruptions may adversely affect our business, financial condition, results of operations or cash flows until we replace such providers or develop replacement technology or operations. In addition, if we are unsuccessful in identifying high-quality service providers, negotiating cost-effective relationships with them or effectively managing these relationships, our business, financial condition and results of operations could be adversely affected.
Certain estimates and information we refer to publicly are based on information from third-party sources and we do not independently verify the accuracy or completeness of the data contained in such sources or the methodologies for collecting such data, and any real or perceived inaccuracies in such estimates and information may harm our reputation and adversely affect our business.
Certain estimates and information we refer to publicly, including general expectations concerning our industry and the market in which we operate and market size, are based to some extent on information provided by third-party providers. This information involves a number of assumptions and limitations, and although we believe the information from such third-party sources is reliable, we have not independently verified the accuracy or completeness of the data contained in such third-party sources or the methodologies for collecting such data. If there are any limitations or errors with respect to such data or methodologies, or if investors do not perceive such data or methodologies to be accurate, or if we discover material inaccuracies with respect to such data or methodologies, our reputation, financial condition and results of operations could be adversely affected.
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Risks Related to Our Open Source and Intellectual Property
Our use of third-party open source software in our solutions, the availability of core portions of our source code on an open source or source available basis and contributions to our open source projects could negatively affect our ability to sell our products and provide our services, subject us to possible litigation and allow third parties to access and use software and technology that we use in our business, all of which could adversely affect our business and results of operations.
Our products include software that is licensed to us by third parties under “open source” licenses. Use and distribution of open source software may entail greater risks than use of third-party commercial software, because open source projects may have vulnerabilities and architectural instabilities, and also because open source licensors generally provide their software on an “as-is” basis and do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code even though our customers may insist on such protections in our contracts with them. We have historically elected to make core portions of our source code available on an open source basis to facilitate adoption as well as collaboration and participation from our application developer communities. However, we may not be successful in this strategy, and our move toward source-available licensing, as well as the continued availability of our source code, may enable others to compete more effectively against us. In addition, the public availability of the source code for such software may make it easier for others to compromise our products. We expect to continue to incorporate such open source software in our products and allow core portions of our source code to be available on an open source or source-available basis in the future.
Although most of our code is developed in-house, we also receive a limited amount of contributions from our open source developer communities. We require third parties who provide contributions to us to assign ownership of all intellectual property rights in their contributions to us, or provide us with a perpetual license to their works, and represent that their contributions are original works and that they are entitled to assign or license these rights to us. However, we cannot be sure that we can use all contributions without obtaining additional licenses from third parties, and may be subject to intellectual property infringement or misappropriation claims as a result of our use of these contributions.
Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use, or grant other licenses to our intellectual property. We seek to ensure that our closed-source proprietary software is not combined with, and does not incorporate, open source software in ways that would require the release of the source code of our closed-source proprietary software to the public. However, we cannot ensure that we have not incorporated additional open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. If we fail to comply with the terms of these licenses or otherwise combine our closed-source proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our closed-source proprietary software to the public at no cost, make available source code for modifications or derivative works we create based upon, incorporating or using the open source software and license such modifications or derivative works under the terms of applicable open source licenses. This would allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Additionally, if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our products that contained the open source software and required to comply with onerous conditions or restrictions on these products, which could disrupt the distribution and sale of these products. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software which may divert resources away from our product development efforts and, as a result, adversely affect our business.
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Although we monitor our use of open source software to avoid subjecting our products to conditions we do not intend, the terms of many open source licenses have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our products. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products, and the licensors of such open source software provide no warranties or indemnities with respect to such claims. As a result, we and our customers could be subject to lawsuits by parties claiming ownership of what we believe to be open source software. Moreover, we cannot ensure that our processes for controlling our use of open source software in our products will be effective. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, or if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we could be required to incur significant legal expenses defending against such allegations. In the event we are unable to successfully defend against such allegations, we could be subject to significant damages or other liability, including being enjoined from the sale of our products and services. We could also be required to seek licenses from third parties to continue providing our products on terms that are not economically feasible, re-engineer our products, discontinue or delay the provision of our products if re-engineering cannot be accomplished on a timely basis or make generally available, in source code form, our proprietary code. Any of the foregoing would adversely affect our business, financial condition and results of operations.
Our distribution and licensing model could negatively affect our ability to monetize and protect our intellectual property rights.
Many of our products are available for free on the internet, including a substantial portion of our source code on open source or source available terms. Also, we may have limited or no direct visibility into who may be using our software or to what extent or purpose, so our ability to detect violations of our product licenses is extremely limited. If we are unable to manage the risks related to our licensing and distribution model, our business could be adversely affected. Additionally, we have adopted a source-available license, BSL 1.1, for certain of our publicly available source code. We believe that the move to BSL 1.1 enables us to fairly and transparently control commercialization of our source code. However, BSL 1.1 is not an open source license, which may negatively impact adoption of the source code, reduce our brand and product awareness and ultimately negatively impact our ability to compete, any of which may adversely affect our business.
Because of the rights accorded to third parties under open source licenses, there may be fewer technology barriers to entry in the markets in which we compete and it may be relatively easy for new and existing competitors, some of whom may have greater resources than we have, to compete with us.
One of the characteristics of open source software is that the governing license terms generally allow liberal modifications of the code and distribution thereof to a wide group of companies or individuals. We have historically elected to make a core portion of our source code available on an open source basis, and have moved toward source-available licensing. The continued availability of our source code, among other things, may enable others to develop new software products or services that are competitive to ours without the same degree of overhead and lead time required by us, particularly if customers do not value the differentiation of our proprietary components. It is possible for new and existing competitors, including those with greater resources than ours, to develop their own open source software or hybrid proprietary and open source software offerings, potentially reducing the demand for, and putting price pressure on, our products. In addition, some competitors make open source software available for free download or use or may position competing open source software as a loss leader. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure or the availability of open source software will not result in price reductions, reduced revenue and gross margins and loss of market share, any one of which could adversely affect our business. Our use of open source software may also limit our ability to assert certain of our intellectual property and proprietary rights against third parties, including competitors, who access or use software or technology that we have contributed to such open source projects.
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We could incur substantial costs in obtaining, maintaining, protecting, defending and enforcing our intellectual property rights and any failure to obtain, maintain, protect, defend or enforce our intellectual property rights could reduce the value of our software and brand.
Our success depends, in part, upon our ability to obtain, maintain, protect, defend and enforce our intellectual property rights, including our proprietary technology, know-how and our brand. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws, other intellectual property laws, confidentiality procedures and contractual provisions in an effort to establish and protect our proprietary rights. However, the steps we take to obtain, maintain, protect, enforce and defend our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. If we fail to protect or enforce our intellectual property rights adequately, our competitors might gain access to our proprietary technology and develop and commercialize similar or substantially identical products, services or technologies, and our business, financial condition, results of operations or prospects could be adversely affected. While we have patent applications pending in the United States, there can be no assurance that our patent applications will result in issued patents. As of July 31, 2023, we owned five issued U.S. patents, eight U.S. non-provisional patent applications, one U.S. provisional patent application, two Patent Cooperation Treaty, or PCT, patent application, and four foreign patent applications. Pending PCT patent applications are not eligible to become issued patents until, among other things, we file national stage patent applications within 30 months in the countries in which we seek patent protection. If we do not timely file such national stage patent applications, we may lose our priority date with respect to our PCT patent application and any patent protection on the inventions disclosed in such applications.
Even if we continue to seek patent protection in the future, we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. In addition, defending our intellectual property rights might entail significant expenses. Any of our patents, trademarks or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings and equivalent proceedings in foreign jurisdictions or litigation in the United States or in foreign jurisdictions. Others may infringe on our patents, trademarks or other intellectual property rights, independently develop similar, substantially identical or superior offerings, duplicate any of our offerings or design around our patents or other intellectual property rights or use information that we regard as proprietary to create products and services that compete with ours. Further, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Various courts, including the United States Supreme Court, have rendered decisions that affect the scope of patentability of certain inventions or discoveries relating to software and business methods. These decisions state, among other things, that a patent claim that recites an abstract idea, natural phenomenon or law of nature are not themselves patentable. Precisely what constitutes a law of nature or abstract idea is uncertain, and it is possible that certain aspects of our technology could be considered abstract ideas. Accordingly, the evolving case law in the United States may adversely affect our ability to obtain patents and may facilitate third-party challenges to any future owned or licensed patents. Additionally, patent, trademark, copyright and trade secret protection may not be available to us in every country in which our services are available. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our services and platform capabilities and proprietary information will likely increase. Policing unauthorized use of our technologies, trade secrets and intellectual property may be difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon, misappropriating or otherwise violating our intellectual property rights.
In addition, we have made core portions of our own software available under open source or source-available licenses, and we include third-party open source software in our products. We have also occasionally contributed source code to open source projects. Because the source code for any software we distribute under open source or source-available licenses or contribute to open source projects is publicly available, our ability to protect our intellectual property rights with respect to such source code may be limited or lost entirely.
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We rely, in part, on trade secrets, proprietary know-how and other confidential information to maintain our competitive position and protect our confidential and proprietary information, know-how and trade secrets. While we generally enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including suppliers, vendors and the parties with whom we have strategic relationships and business alliances, the assignment of intellectual property rights may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Additionally, we cannot guarantee that we have entered into such agreements with each party that has or may have created or developed intellectual property on our behalf or had access to our proprietary information, know-how or trade secrets. We cannot guarantee that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering or disclosure of our proprietary information, know-how and trade secrets. Further, these agreements may not prevent our competitors or partners from independently developing offerings that are substantially equivalent or superior to ours. These agreements may be breached, and we may not have adequate remedies for any such breach. Further, we have experienced and may in the future experience unauthorized access of our proprietary source code, confidential information and know-how. We have and may in the future initiate litigation regarding trade secret misappropriation, but enforcing a claim that a party illegally disclosed or misappropriated a trade secret or know-how is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in and outside the United States are less willing or unwilling to protect trade secrets and know-how.
We may be required to spend significant resources in order to monitor and protect our intellectual property rights, and some violations may be difficult or impossible to detect. Litigation may be necessary in the future to protect and enforce our intellectual property rights, and such litigation could be costly, time-consuming and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights, and, if such defenses, counterclaims and countersuits are successful, we could lose valuable intellectual property rights. Our inability to protect our intellectual property and proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could impair the functionality of our products, delay introductions of enhancements to our products, result in our substituting inferior or more costly technologies into our products or harm our reputation and brand. In addition, we may be required to license additional technology from third parties to develop and market new product features, which may not be on commercially reasonable terms, or at all, and would adversely affect our ability to compete.
We have been and may in the future become subject to intellectual property disputes which may be costly to defend, subject us to significant liability, require us to pay significant damages and limit our ability to use certain technologies.
We have been and may in the future become subject to intellectual property disputes. Our success depends, in part, on our ability to develop and commercialize our products and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties. However, we may not be aware if our products are infringing, misappropriating or otherwise violating third-party intellectual property rights, and such third parties may bring claims alleging such infringement, misappropriation or violation. Further, we have faced and may in the future face claims from third parties claiming ownership of, or demanding release of, the software or derivative works that we have developed, including works using third-party open source software, which could include our proprietary source code, or otherwise seeking to enforce the terms of the applicable open source license. Companies in the software and technology industries, including some of our current and potential competitors, are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. In addition, certain companies and rights holders seek to enforce and monetize patents or other intellectual property rights they own, have purchased or otherwise obtained. Many potential litigants, including some of our competitors and patent-holding companies, have the ability to dedicate substantial resources to assert their intellectual property rights and to defend claims that may be brought against them.
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Lawsuits are time-consuming and expensive to resolve and they divert management’s time and attention. Certain of our agreements with our customers and other third parties include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of intellectual property rights. Any claim of infringement by a third party, even those without merit, against us or for which we are required to provide indemnification, could cause us to incur substantial costs defending against the claim, could distract our management from our business and could require us to cease use of such intellectual property. Further, because of the substantial amount of discovery required in connection with intellectual property litigation, we risk compromising our confidential information during this type of litigation. We may be required to make substantial payments for legal fees, settlement fees, damages (including treble damages and attorneys’ fees if we are found to have willfully infringed a party’s rights), royalties or other fees in connection with a claimant securing a judgment against us and we may be subject to an injunction or other restrictions that cause us to cease selling or using products or services that incorporate the intellectual property rights that we allegedly infringe, misappropriate or violate, including subscriptions to our products. We may also be required to redesign any allegedly infringing portion of our products, which could be time-consuming or impossible, or we may agree to a settlement that prevents us from distributing our products or a portion thereof, any of which could adversely affect our business, financial condition and results of operations.
With respect to any intellectual property rights claim, we may have to seek out a license to continue operations found to be in violation of such rights, which may not be available on favorable or commercially reasonable terms and may significantly increase our operating expenses. Some licenses may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. If a third party does not offer us a license to its intellectual property on commercially reasonable terms, or at all, we may be required to develop alternative, non-infringing technology, which could require significant time (during which we would be unable to continue to offer our affected product features), effort and expense and may ultimately not be successful. Any of these events would adversely affect our business, financial condition and results of operations.
Even if the claims do not result in litigation or are resolved in our favor, these claims and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and results of operations. Moreover, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it would have a substantial adverse effect on our business, results of operations or the market price of our common stock. We expect that the occurrence of infringement claims is likely to grow as the market for platform and services grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.
Risks Related to Our Legal and Regulatory Environment
Our business is subject to a wide range of laws and regulations, many of which are evolving, and failure to comply with such laws and regulations could harm our business, financial condition and results of operations.
Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing data privacy, security and protection laws and regulations, intellectual property, employment and labor laws, workplace safety, consumer protection laws, anti-bribery laws, import and export controls, immigration laws, federal securities laws and tax laws and regulations. Further, emerging tools and technologies we may utilize in our products and services, like artificial intelligence, may become subject to regulation under new laws or new applications of existing laws. In certain foreign jurisdictions, these regulatory requirements may be more stringent than in the United States. These laws and regulations impose added costs on our business. Noncompliance with applicable regulations or requirements could subject us to:
•investigations, enforcement actions, orders and sanctions;
•mandatory changes to our products and services;
•disgorgement of profits, fines and damages;
•civil and criminal penalties or injunctions;
•claims for damages by our customers or partners;
•termination of contracts;
•loss of intellectual property rights; and
•temporary or permanent debarment from sales to heavily regulated organizations and governments.
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If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could materially harm our business, financial condition and results of operations.
In addition, we must comply with laws and regulations relating to the formation, administration and performance of contracts with customers in heavily regulated industries and the public sector, including U.S. federal, state and local governmental organizations, which affect how we and our partners do business with such customers. Selling our product to customers in heavily regulated industries or to the U.S. government, whether directly or through partners, also subjects us to certain regulatory and contractual requirements. Failure to comply with these requirements by either us or our partners could subject us to investigations, fines and other penalties, which would adversely affect our business, financial condition, results of operations and growth prospects. Violations of certain regulatory and contractual requirements could also result in us being suspended or debarred from future government contracting or other contracting opportunities. Any of these outcomes could adversely affect our business, financial condition, results of operations and growth prospects.
If our security measures, or those of our service providers or customers, are breached or unauthorized parties otherwise obtain access to our or our customers’ data or software, our products and services may be perceived as not being secure, customers may reduce or terminate their use of our products and services and we may face claims, litigation, regulatory investigations, significant liability and reputational damage.
We collect, use, store and transmit or otherwise process data as part of our business operations, including personal data in and across multiple jurisdictions. We also use third-party service providers to collect, use, store, transmit, maintain and otherwise process such information. Increasingly, threats from computer malware, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse and general hacking have become more prevalent in our industry and our customers’ industries. Any of these security incidents could result in unauthorized access or damage to, or disablement, encryption, use, disclosure, modification, destruction, loss or other processing of, our data or customer data (including personal data), software or systems or disrupt our ability to provide our products and services. Any actual or perceived security incident could interrupt our operations, harm our reputation and brand, result in significant remediation and cybersecurity protection costs (including deploying additional personnel and modifying or enhancing our protection technologies and investigating and remediating any information security vulnerabilities), result in lost revenue, lead to regulatory investigations and orders, litigation, disputes, indemnity obligations, damages for breach of contract, penalties for violations of law or regulation and other legal risks, increase our insurance premiums, result in any other financial exposure, lead to loss of customer confidence in us or decreased use of our products and services and otherwise adversely affect our reputation, competitiveness, business, financial condition and results of operations.
We have taken steps to protect the data on our systems and offerings, but our security measures or those of our customers or third-party service providers could be insufficient and breached as a result of third-party action, employee or user errors, technological limitations, defects or vulnerabilities in our systems or offerings or those of our third-party service providers, malfeasance, fraud or malice on the part of employees or third parties, including state-sponsored organizations with significant financial and technological resources, or from failure in technological resources, failure to comply with policies or otherwise. We have experienced and may continue to experience security incidents and attacks of varying types and degrees, including instances where our third-party providers have been impacted by a supply-chain attack and instances where there has been exposure and unauthorized use of credentials of our personnel. In addition, we have identified and been required to remediate or mitigate vulnerabilities in our code and in third-party code. We could be impacted by these and other security incidents and vulnerabilities in the future, and our internal controls and operations regarding security may not be effective in eliminating the risk of compromise of our systems, data and software. Additionally, with our employees and many employees of our third-party service providers working remotely, we may be exposed to increased risks of security breaches or incidents. For example, we have seen an increase in phishing attempts and spam emails over time and it is possible this trend will continue. Also, due to political uncertainty, we and our third-party service providers are vulnerable to a heightened risk of cybersecurity attacks, phishing attacks, viruses, malware, ransomware, hacking or similar breaches from or affiliated with nation-state actors, including attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our products and services, as well as retaliatory cybersecurity attacks from Russian and affiliated actors against companies with a U.S. presence.
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There can be no assurance that any security measures that we or our customers or third-party service providers have implemented will be effective against current or future security threats. We have developed systems and processes to protect the integrity, confidentiality, availability and security of our systems, data and software, but our security measures or those of our customers or third-party service providers could fail and result in unauthorized access or damage to, or disablement, encryption, use, disclosure, modification, destruction or loss of, such systems, data and software. Through contractual provisions and third-party risk management processes, we take steps to require that our third-party providers and their subcontractors protect our data, but our ability to monitor their data security is limited, and we cannot ensure the security measures they take will be sufficient to protect our data. A vulnerability in a third-party provider’s or a customer’s software or systems, a failure of our customers’ or third-party providers’ safeguards, policies or procedures or a breach of a customer’s or third-party provider’s software or systems could result in the compromise of the confidentiality, integrity or availability of our offerings, systems or the data housed in our third-party solutions. Further, because there are many different security breach techniques and such techniques continue to evolve, including through the use of generative artificial intelligence to launch more automated, targeted and coordinated attacks, which may not be detected until after an incident has occurred, we may be unable to implement adequate preventative measures, anticipate, prevent or detect attempted security breaches or other security incidents or react in a timely manner.
We have contractual and other legal obligations to notify customers, regulators, impacted individuals or other relevant stakeholders of certain security incidents. We have made such notifications in the past and may be required to do so in the future. Such disclosures or the failure to comply with relevant requirements could lead to adverse consequences. Any security breach or other security incident that we or our third-party service providers experience, or the perception that one has occurred, could result in a loss of revenue or customer confidence in the security of our products and services, lead to negative publicity or otherwise harm our reputation and brand, reduce the demand for our products and services, disrupt normal business operations, divert management’s attention and resources, require us to spend material resources to investigate, correct existing or prevent future security breaches and incidents (including deploying additional personnel and modifying or enhancing our protection technologies and investigating and remediating any information security vulnerabilities), increase our insurance premiums or expose us to legal liabilities, including claims, litigation, regulatory enforcement and orders, disputes, investigations, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations and significant costs for remediation, any of which could adversely affect our results of operations. In addition, our remediation efforts may not be successful. We cannot ensure that any limitation of liability provisions in our customer, partner, vendor and other contracts would be enforceable or adequate with respect to any security lapse or breach or other security incident or would otherwise protect us from any liabilities or damages with respect to any particular claim. These risks will increase as we continue to grow and evolve our offerings to collect, host, process, store and transmit increasing volumes of data, which may increasingly include sensitive and regulated data, such as protected health information, credit card information and some types of personally identifiable information.
Further, if a security incident or breach occurs with respect to us or a competitor or third-party service provider, our customers and potential customers may lose trust in the security of our products or services or database software generally, which could adversely impact our ability to retain existing customers or attract new customers, which could adversely affect our business, financial condition and results of operations.
Moreover, our insurance coverage, subject to applicable deductibles, may not be adequate for liabilities incurred or cover any indemnification claims against us relating to any security incident or breach or an insurer may deny or exclude from coverage certain types of claims. In the future, we may not be able to secure insurance for such matters on commercially reasonable terms, or at all. The successful assertion of one or more 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, could adversely affect our business, financial condition and results of operations.
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If we are not able to comply with, or are perceived to not comply with U.S. and foreign laws, rules, regulations, industry standards, contractual obligations and other requirements relating to data protection, information security and privacy, our business, financial condition and results of operations could be harmed.
We are subject to a variety of federal, state, local and international laws, rules and regulations, as well as industry standards, internal and external privacy policies and contractual obligations to third parties, relating to the collection, use, retention, security, disclosure, transfer, storage and other processing of personal information and other data. The regulatory framework governing data privacy, security, protection and transfers worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future, and it is possible that these or other actual or future obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any actual or perceived failure by us, our suppliers or other third parties with whom we do business to comply with our contractual commitments, policies or federal, state, local or international regulations could result in proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include enforcement actions in response to rules and regulations promulgated under the authority of federal agencies, state attorneys general and legislatures and consumer protection agencies. In addition, security advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards with which we must legally comply or that contractually apply to us. If we fail to follow these standards even if no personal information is compromised, we may incur significant fines or experience a significant increase in costs.
Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply, including but not limited to the United Kingdom ("UK"), Switzerland and the EU. The EU has adopted the General Data Protection Regulation (“GDPR”), which went into effect in May 2018, and together with national legislation, regulations and guidelines of the EU member states, contains numerous requirements relating to the processing of personal data of EU data subjects, including the increased jurisdictional reach of the European Commission ("EC"), more robust obligations and additional requirements for data protection compliance programs by companies. EU member states are tasked under the GDPR to enact, and have enacted, certain legislation that adds to or further interprets the GDPR requirements and potentially extends our obligations and potential liability for failing to meet such obligations. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data. The GDPR also introduced numerous data processing and notification requirements and increased fines. In particular, under the GDPR, fines of up to 20 million euros or 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. Such penalties are in addition to any civil litigation claims by customers and data subjects. The GDPR requirements apply not only to third-party transactions, but also to transfers of personal data between us and our subsidiaries, including employee information.
While we have taken steps to mitigate the impact on us with respect to transfers of personal data, the efficacy and longevity of these transfer mechanisms remains uncertain. The occurrence of unanticipated events and development of evolving technologies often rapidly drives the adoption of legislation or regulation affecting the use, collection or other processing of data and manner in which we conduct our business.
For example, there can be no certainty that the EU-U.S. Data Privacy Framework, which forms the basis of an adequacy decision by the EC to allow personal data transfers from the EU to the U.S., will be upheld if it is challenged, or whether it will be or remain implemented or serve as an appropriate mechanism for us to transfer personal data to the United States. Additionally, while the EC has issued an adequacy decision under the GDPR and the Law Enforcement Directive, pursuant to which personal data generally may be transferred from the EU to the UK without restriction, this adequacy decision is subject to a four-year “sunset” period and the EC may intervene at any time with respect to its adequacy decision. We have in the past and may in the future be required to take additional steps to legitimize any personal data transfers impacted by these developments and be subject to increasing costs of compliance and limitations on our customers and us. More generally, we may find it necessary or desirable to modify our personal data handling practices, and the outcomes of legal challenges relating to cross-border personal data transfer may serve as a basis for our personal data handling practices, or those of our customers and vendors, may continue to be challenged, which may adversely affect our business.
The UK has adopted a version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations. Furthermore, there will be increasing scope for divergence in application, interpretation and enforcement of data protection law between the UK and the European Economic Area. We continue to monitor and review the impact of any resulting changes to EU or UK law that could affect our operations. We may incur liabilities, expenses, costs and other operational losses under the GDPR and data protection laws of the applicable EU member states and the UK in connection with any measures we take to comply with them. Other countries have also passed or are considering passing laws requiring local data residency or restricting the international transfer of personal data.
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In addition, domestic data privacy laws continue to evolve and could require us to modify our data processing practices and policies and expose us to further regulatory or operational burdens. For example, the California Consumer Privacy Act (“CCPA”) took effect in January 2020 and was subsequently modified by the California Privacy Rights Act ("CPRA") which took effect in January 2023. The CCPA imposes obligations on companies that process California residents’ personal information, including an obligation to provide certain new disclosures to such residents and creates new consumer rights. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. The CPRA also created a new state agency vested with authority to implement and enforce the CCPA and the CPRA.
Additionally, other states, including Colorado, Connecticut, Indiana, Iowa, Tennessee, Utah, Montana, Florida, Oregon, Texas and Virginia, have enacted privacy laws that have gone or will go into effect between 2023 and 2026. While these new privacy laws may share similarities with each other, as well as with the CPRA and CCPA, they differ in many ways and we must comply with each if our operations fall within their scopes. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. We expect that this increase in legislation will continue to add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs or changes in business practices and policies.
Additionally, in connection with Couchbase Capella, we may receive higher volumes of data, including sensitive and regulated data, which may require us to comply with additional legal or regulatory requirements. For example, we may store and process protected health information on behalf of our customers, which may subject us to a number of data protection, security and privacy requirements under our contracts and under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and other laws and regulations. We may sign business associate agreements with certain of our customers and be directly subject to certain provisions of HIPAA applicable to business associates, as well as additional contractual requirements. We may also be subject to additional data protection, security and privacy requirements relating to cardholder data, including the Payment Card Industry Data Security Standard, and increased customer adoption of Couchbase Capella may result in further increases in such requirements. If we are, or are perceived to be, unable to maintain the privacy and security of such sensitive and regulated data, we could be subject to claims and demands by private parties, investigations and other proceedings by regulatory authorities, and significant fines, civil and criminal penalties and other liabilities.
Complying with these laws, regulations, amendments to or re-interpretations of existing laws and regulations and contractual or other obligations relating to privacy, security, data protection, transfer or localization and information security may require us to make changes to our products and services to enable us or our customers to meet new legal requirements, incur substantial operational costs, modify our data practices and policies and restrict our business operations. Any actual or perceived failure by us to comply with these laws, regulations or other obligations may lead to significant fines, penalties, regulatory investigations, lawsuits, significant costs for remediation, damage to our reputation or other liabilities. Additionally, because the interpretation and application of many privacy, security, and data protection laws and regulations along with contractually imposed industry standards are uncertain, it is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform capabilities. If so, in addition to the possibility of fines, lawsuits, regulatory enforcement or orders, investigations, imprisonment of company officials and public censure, other claims and penalties, significant costs for remediation and damage to our reputation, we could be required to fundamentally change our business activities and practices or modify our services and platform capabilities, any of which could require significant additional expense and have an adverse effect on our business, including impacting our ability to innovate, delaying our product development roadmap and adversely affecting our relationships with customers and our ability to compete. If we are obligated to fundamentally change our business activities and practices or modify our products and services, we may be unable to make such changes and modifications in a commercially reasonable manner, or at all, and our ability to develop new product features and services could be limited.
In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on our ability to provide our products and services globally. Our customers expect us to meet certain voluntary certification and other standards established by third parties. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to attract new customers or continue providing our services to certain customers and could harm our business. Further, the uncertain and shifting regulatory environment may cause concerns regarding privacy, data protection or security, and may cause our customers to resist providing the data that could improve our products and services, or limit the use and adoption of our products and services.
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These laws, regulations, rules, industry standards and contractual or other obligations relating to privacy, security, data protection, transfers or localization and information security could require us to take on more onerous obligations in our contracts, restrict our ability to store, transfer and otherwise process data or, in some cases, impact our ability to offer our products and services in certain locations, to reach existing and potential customers or to derive insights from customer data globally. The costs of compliance with, and other burdens imposed by, these laws, regulations, standards and obligations, or any inability to adequately address privacy, data protection or security-related concerns, even if unfounded, may limit the use and adoption of our products and services, reduce overall demand for our products and services, make it more difficult to meet expectations from or commitments to customers, impact our reputation or slow the pace at which we close sales transactions, any of which could harm our business, financial condition and results of operations.
Issues in the development and use of artificial intelligence, combined with an uncertain regulatory environment, may result in reputational harm, liability, or other adverse consequences to our business.
We are making investments in developing new product features using artificial intelligence technologies, including, for example, generative AI. Artificial intelligence technologies are complex and rapidly evolving, and we face significant competition from other companies as well as an evolving regulatory landscape. The introduction of artificial intelligence into our products, or the use of our products as part of artificial intelligence technologies and applications, may result in new or enhanced governmental or regulatory scrutiny, litigation, intellectual property risks, confidentiality or security risks, ethical concerns or other complications that could harm our business, reputation or financial condition.
Uncertainty around artificial intelligence may require additional investment in the development and maintenance of proprietary datasets and development of appropriate protections and safeguards for handling the use of customer data with artificial intelligence technologies, which may be costly and could impact our expenses if we decide to expand generative AI into our product offerings. Artificial intelligence may create content that appears correct but is inaccurate or flawed. Our customers or others may rely on or use this flawed content to their detriment, which may expose us to brand or reputational harm, competitive harm or legal liability.
Any future litigation against us could be costly and time-consuming to defend.
From time to time, we may become involved in various legal proceedings relating to matters incidental to the ordinary course of our business, including intellectual property, commercial, product liability, employment, class action, whistleblower and other litigation and claims and governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources, cause us to incur significant expenses or liability or require us to change our business practices. In addition, the expense of litigation and the timing of this expense from period to period are difficult to estimate, subject to change and could adversely affect our financial condition and results of operations. Because of the potential risks, expenses and uncertainties of litigation, we may, from time to time, settle disputes, even where we have meritorious claims or defenses, by agreeing to settlement agreements. Any of the foregoing could adversely affect our business, financial condition and results of operations. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and omissions will continue to be available on acceptable terms or that our insurers will not deny coverage as to any future claim.
Indemnity provisions in various agreements to which we are party potentially expose us to substantial liability for intellectual property infringement, misappropriation or other violation and other losses.
Our agreements with our customers, partners and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or violation of intellectual property rights, data protection, damages caused by us to property or persons, or in connection with any such defects or errors in our products, or other liabilities relating to or arising from our products and services, our acts or omissions under such agreements or other contractual obligations. Some of these indemnity agreements provide for uncapped liability for which we would be responsible, and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, financial condition and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to such claims and we may be required to cease use of certain functions of our products or services as a result of any such claims. Moreover, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation, divert management’s time and other resources and harm our business and reputation.
In addition, although we carry general liability insurance, our insurance against this liability may not be adequate to cover a potential claim, and such coverage may not be available to us on acceptable terms, or at all. Any dispute with a customer, channel party or other third party with respect to such obligations could have adverse effects on our relationship with such customer, channel party or other third party or other existing or potential customers, harm our reputation or
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reduce demand for our products and services. Any of the foregoing could adversely affect our business, financial condition and results of operations.
A portion of our revenue is generated by sales to heavily regulated organizations, which are subject to a number of challenges and risks.
We provide our products and services to heavily regulated organizations, and at times to the U.S. government, state and local governments and non-U.S. governments directly and through our partners. Selling to these entities can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will result in a sale. For instance, highly regulated entities and government customers often require contract terms that differ from our standard arrangements and impose compliance requirements that are complicated, require preferential pricing or “most favored nation” terms and conditions or are otherwise time-consuming and expensive to satisfy. If we undertake to meet special standards or requirements and do not meet them, we could be subject to increased liability from our customers. Even if we do meet them, the additional costs associated with providing our services to highly regulated organizations and governments could harm our financial condition and results of operations.
We have been and are increasingly doing more business in heavily regulated industries. Existing and potential customers, such as those in these industries, may be required to comply with more stringent regulations in connection with subscribing to and implementing our products and services or particular regulations regarding third-party vendors that may be interpreted differently by different customers. In addition, regulatory agencies may impose requirements toward third-party vendors generally, or to us in particular, that we may not be able to, or may not choose to, meet. Any changes in the underlying regulatory conditions that affect these types of customers could harm our ability to efficiently provide our products and services to them and to grow or maintain our customer base. Moreover, customers in these heavily regulated areas often have a right to conduct audits of our systems, products and practices. In the event that one or more customers determine that some aspect of our business does not meet contractual or regulatory requirements, we may be limited in our ability to continue or expand our business. Each of these difficulties could adversely affect our business and results of operations.
Failure to comply with anti-bribery, anti-corruption, anti-money laundering and similar laws could subject us to penalties and other adverse consequences.
We are subject to the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201 and the U.S. Travel Act and other anti-bribery and anti-money laundering laws in countries outside of the United States in which we conduct our activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, agents, representatives, partners and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits to recipients in the public or private sector.
We sometimes leverage third parties to sell our products and services and conduct our business abroad. We, our employees, agents, representatives, partners and third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of these employees, agents, representatives, partners or third-party intermediaries even if we do not explicitly authorize such activities. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures designed to address compliance with such laws, we cannot ensure that none of our employees, agents, representatives, partners or third-party intermediaries will take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.
Any allegations or violation of the FCPA or other applicable anti-bribery, anti-corruption and anti-money laundering laws could result in whistleblower complaints, sanctions, settlements, prosecution, enforcement actions, fines, damages, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions or suspension or debarment from U.S. government contracts, all of which may adversely affect our reputation, business, results of operations and prospects. Responding to any investigation or action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. In addition, the U.S. government may seek to hold us liable for successor liability for FCPA violations committed by companies in which we invest or that we acquire. As a general matter, investigations, enforcement actions and sanctions could harm our reputation, business, financial condition and results of operations.
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We are subject to governmental export control, trade sanctions and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.
Certain of our business activities are subject to the U.S. export control laws and regulations, including the Export Administration Regulations (the “EAR”) and the U.S. trade and economic sanctions maintained by the U.S. Department of Treasury’s OFAC as well as the U.S. import laws and regulations. The U.S. export control laws and economic sanctions prohibit the export, re-export and in-country transfer of our offerings, including software and services, to certain U.S. embargoed or sanctioned countries and territories, governments and persons, as well as for prohibited end-uses. Further, we incorporate encryption functionality into certain of our products, and as a result, we may need to make filings with the U.S. Department of Commerce’s Bureau of Industry and Security to ensure that our exports, re-exports and transfers are in accordance with the EAR. Also, in certain cases, it is possible that a license may be required to export or re-export our products to certain countries, end-users and end-uses. Obtaining the necessary export license for a particular sale or offering may be time-consuming, may not be possible and may result in the delay or loss of sales opportunities. In addition, various countries regulate the import of certain encryption technology, including through import permit and license requirements, and have enacted laws that could limit our ability to distribute our products or could limit our customers’ ability to implement our products in those countries.
If we were to fail to comply with such U.S. export controls, economic sanctions and import laws and regulations or other similar laws, we could be subject to both civil and criminal penalties, including substantial fines, possible incarceration for employees and managers for willful violations and the possible loss of our export or import privileges. We take precautions designed to ensure that we and our partners comply with all relevant export control, sanctions and import laws and regulations, but we cannot ensure that our measures will always prevent noncompliance by us or our partners with respect to such laws and regulations as they are very detailed and technical.
In addition, changes in our products or services or changes in export and import regulations in various countries may create delays in the introduction of our products and services into international markets, prevent our customers with international operations from deploying our products and services globally or, in some cases, prevent or delay the export or import of our products and services to certain countries, governments or persons altogether. Any change in export or import laws or regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing export, import or sanctions laws or regulations, or change in the countries, governments, persons or technologies targeted by such export, import or sanctions laws or regulations, could result in decreased use of our products and services by or in our decreased ability to export or sell access to our products and services to, existing or potential end-customers with international operations. Any decreased use of our products and services or limitation on our ability to export to or sell access to our products and services in international markets would adversely affect our business, financial condition and results of operations.
Our international operations may subject us to greater than anticipated tax liabilities.
Our corporate structure and associated transfer pricing policies contemplate future growth in international markets and consider the functions, risks and assets of the various entities involved in intercompany transactions, the amount of taxes we pay in different jurisdictions, including the United States, our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany agreements. The relevant taxing authorities may challenge our methodologies for pricing intercompany transactions pursuant to intercompany arrangements or disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Changes in tax laws could materially affect our financial condition, results of operations and cash flows.
The tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change. For example, the Inflation Reduction Act (the “IRA”) was signed into law on August 16, 2022, and was effective beginning in fiscal 2024. The IRA imposes a 15% minimum tax for large corporation on global adjusted financial statement income for tax years beginning after December 31, 2022, and a 1% excise tax on certain share repurchases occurring after December 31, 2022. We do not currently expect that the IRA will have a material impact on our income tax liability, but will continue to monitor this change in future periods. We are unable to predict what changes to the tax laws of the U.S. and other jurisdictions may be proposed or enacted in the future or what effect such changes would have on our business. Any significant increase in our future effective tax rate could have a material adverse impact on our business, financial condition, results of operations, or cash flows.
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There is also a high level of uncertainty in today’s tax environment stemming from both global initiatives put forth by the Organisation for Economic Co-operation and Development (the “OECD”) and unilateral measures being implemented by various countries due to a lack of consensus on these global initiatives. Further, unilateral measures such as Pillar Two and the global minimum tax, digital services tax and corresponding tariffs in response to such measures are creating additional uncertainty. If these proposals are passed, it is likely that we will have to pay higher income taxes in countries where such rules are applicable.
As we expand the scale of our international business activities, any changes in the U.S. or foreign taxation of such activities may increase our worldwide effective tax rate and harm our business, financial condition and results of operations. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our financial statements.
Our ability to use our net operating losses may be limited.
As of January 31, 2023, we had federal and state net operating losses (“NOLs”) of $324.4 million and $178.5 million, respectively, which may be available to offset taxable income in the future. A lack of future taxable income would adversely affect our ability to utilize these NOLs before they expire. Unused U.S. federal NOLs for taxable years beginning before January 1, 2018, may be carried forward to offset future taxable income, if any, until such unused NOLs expire. Under the Tax Cuts and Jobs Act, U.S. federal NOLs arising in tax years beginning after December 31, 2017 can be carried forward indefinitely, but the deductibility of such U.S. federal NOLs is limited to 80% of current year taxable income.
Of our U.S. federal NOLs, no amount may be carried forward indefinitely with no limitations when utilized, and $155.6 million may be carried forward indefinitely with utilization limited to 80% of taxable income. The remaining $168.8 million will begin to expire in 2028. Our state NOLs carryforwards begin to expire in 2026.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOLs to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. A Section 382 ownership change could limit the amount of NOLs that we can utilize annually to offset future taxable income. Subsequent ownership changes and changes to the U.S. tax rules in respect of the utilization of NOLs may further affect the limitation in future years.
There is also a risk that due to U.S. federal or state regulatory changes, such as suspensions on the use of NOLs, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities.
Changes in our effective tax rate or tax liability may have an adverse effect on our results of operations.
We are, and expect to continue to be, subject to review and audit by the U.S. Internal Revenue Service and other tax authorities in various domestic and foreign jurisdictions. As a result, we may receive assessments in multiple jurisdictions on various tax-related assertions. Taxing authorities may challenge our tax positions and methodologies on various matters, including our positions regarding the collection of sales and use taxes and the jurisdictions in which we are subject to taxes, which could expose us to additional taxes. We assess the likelihood of adverse outcomes resulting from any ongoing tax examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable judgments and estimates. The calculation of our tax liabilities involves uncertainties in the application of complex tax laws and regulations in a variety of jurisdictions. There can be no assurance that our tax positions and methodologies or calculation of our tax liabilities are accurate or that the outcomes from tax examinations will not have an adverse effect on our financial condition and results of operations. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could adversely affect our financial condition and results of operations.
Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.
We collect sales tax in a number of jurisdictions. Sales and use, value added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties, interest or future requirements would adversely affect our financial condition and results of operations.
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Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
Generally accepted accounting principles in the United States ("GAAP") are subject to interpretation by the Financial Accounting Standards Board, the SEC and other various bodies formed to promulgate and interpret appropriate accounting principles. Changes in accounting principles applicable to us, or varying interpretations of current accounting principles, in particular with respect to revenue recognition, could have a significant effect on our reported results of operations and could affect the reporting of transactions completed before the announcement of the change. Further, any difficulties in the implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the recognition and measurement of certain assets and liabilities and revenue and expenses that is not readily apparent from other sources. Our accounting policies that involve judgment include standalone selling prices for each distinct performance obligation, capitalized internal-use software costs, expected period of benefit for deferred commissions, valuation of our common stock prior to our IPO, valuation of stock-based awards, determination of allowance for doubtful accounts, incremental borrowing rate used to measure operating lease liabilities, and accounting for income taxes. If our assumptions change or if actual circumstances differ from those in our assumptions, our results of operations could be adversely affected, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
We are obligated to maintain proper and effective internal control over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the listing standards of the Nasdaq Global Select Market. Our management and other personnel devote a substantial amount of time to comply with these requirements. Moreover, these laws, regulations and standards are subject to varying interpretations and their application in practice may evolve over time as regulatory and governing bodies issue revisions to, or new interpretations of, these public company requirements. Such changes could result in continuing uncertainty regarding compliance matters and higher legal and financial costs necessitated by ongoing revisions to disclosure and governance practices. We will continue to invest resources to comply with evolving laws, regulations and standards and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. We have expended, and anticipate that we will continue to expend, significant resources in order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting.
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Our current controls and any new controls that we develop may become inadequate because of changes in the conditions in our business, including increased complexity resulting from any international expansion. Further, weaknesses in our disclosure controls or our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely adversely affect the market price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Global Select Market.
Our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting when we are no longer an “emerging growth company.” At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could have an adverse effect on our business, financial condition and results of operations, and could cause a decline in the market price of our common stock.
Risks Related to Ownership of Our Common Stock and Governance Matters
Operating as a public company has and will require us to incur substantial costs and will require substantial management attention.
As a public company, we incur substantial legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules and regulations of the SEC and the listing standards of the Nasdaq Global Select Market. The Exchange Act requires, among other things, we file annual, quarterly and current reports with respect to our business, financial condition and results of operations. Compliance with these rules and regulations will increase our legal and financial compliance costs, and increase demand on our systems, particularly after we are no longer an “emerging growth company.” In addition, as a public company, we may be subject to stockholder activism, which can lead to additional substantial costs, distract management and impact the manner in which we operate our business in ways we cannot currently anticipate. As a result of disclosure of information in filings required of a public company, our business and financial condition become more visible, which may result in threatened or actual litigation, including by competitors.
Certain members of our management team have limited experience managing a publicly traded company, and certain members joined us more recently. Accordingly, our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an “emerging growth company,” we are also allowed to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As a result, our financial statements may not be comparable to those of companies that comply with new or revised accounting pronouncements as of public company effective dates. We have elected to take advantage of this extended transition period under the JOBS Act with respect to the adoption of new accounting pronouncements. Any difficulties in implementing these pronouncements could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. We may take advantage of these exemptions for so long as we are an “emerging growth company,” which could be for as long as
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five full fiscal years following the completion of our IPO. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and the market price of our common stock may be more volatile.
Our executive officers, directors and holders of 5% or more of our common stock continue to have substantial control over us, which will limit your ability to influence the outcome of important transactions, including a change in control.
Our executive officers, directors and our stockholders who own 5% or more of our outstanding common stock and their affiliates, in the aggregate, beneficially own a substantial portion of the outstanding shares of our common stock. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and might ultimately affect the market price of our common stock.
The market price of our common stock may continue to be volatile, and you could lose all or part of your investment.
The market price of our common stock may continue to be volatile and could be subject to fluctuations in response to various factors, some of which are beyond our control. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the market price of our common stock include the following:
•price and volume fluctuations in the overall stock market from time to time;
•volatility in the market prices and trading volumes of technology stocks;
•changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
•sales of shares of our common stock by us or our stockholders;
•failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company or our failure to meet these estimates or the expectations of investors;
•the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections;
•announcements by us or our competitors of new offerings or platform features and market acceptance of such new offerings or platform features;
•the public’s reaction to our press releases, other public announcements and filings with the SEC;
•rumors and market speculation involving us or other companies in our industry;
•short selling of our common stock or related derivative securities;
•actual or anticipated changes in our results of operations or key business metrics or fluctuations in our results of operations or key business metrics;
•actual or anticipated developments in our business, our competitors’ businesses or the competitive landscape generally;
•announced or completed acquisitions of businesses, offerings or technologies by us or our competitors;
•developments or disputes concerning our intellectual property or other proprietary rights;
•litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors;
•new laws, regulations, rules or industry standards or new interpretations of existing laws, regulations, rules or industry standards applicable to our business;
•changes in accounting standards, policies, guidelines, interpretations or principles;
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•any significant change in our management; and
•general economic conditions and slow or negative growth of our markets and other geopolitical developments.
In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the market price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. The market price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, would result in substantial costs and a diversion of our management’s attention and resources.
Recently, the stock markets in general, and the markets for technology stocks in particular, have experienced extreme volatility, including as a result of global economic conditions, such as recessionary fears, inflation concerns and rising interest rates, and other geopolitical developments. Furthermore, the market price of our common stock may be adversely affected by third parties trying to drive down the price of our common stock. Short sellers and others, some of whom post anonymously on social media, can negatively affect the market price of our common stock and may be positioned to profit if the market price of our common stock declines. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
Sales of substantial amounts of shares of our common stock in the public market, or the perception that such sales might occur, could cause the market price of our common stock to decline or impair our ability to raise capital through the sale of additional equity securities.
Sales of a substantial number of shares of our common stock in the public market could occur. If our stockholders sell, or the market perceives that our stockholders intend to sell, a substantial number of shares of our common stock in the public market, the market price of our common stock could decline and our ability to raise capital through the sale of additional equity securities could be impaired. Many of our existing equity holders have substantial unrecognized gains on the value of the equity they hold, and may take, or attempt to take, steps to sell, directly or indirectly, their shares or otherwise secure, or limit the risk to, the value of their unrecognized gains on those shares.
In addition, certain of our stockholders are entitled, under our investors’ rights agreement, to require us to register shares owned by them for public sale in the United States. Sales of our common stock pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our common stock to fall and make it more difficult for you to sell shares of our common stock.
The issuance of additional stock in connection with financings, acquisitions, investments, our equity compensation plans or otherwise will dilute all other stockholders.
Our amended and restated certificate of incorporation authorizes us to issue up to 1,000,000,000 shares of common stock and up to 200,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue shares of common stock or securities convertible into shares of our common stock from time to time in connection with a financing, acquisition, investment, our equity compensation plans or otherwise.
Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our common stock to decline.
Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our common stock.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
•our board of directors will be classified into three classes of directors with staggered three-year terms, and directors will only be able to be removed from office for cause;
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•certain amendments to our amended and restated certificate of incorporation will require the approval of at least 66 2/3% of our then-outstanding common stock;
•our stockholders will only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter;
•our amended and restated certificate of incorporation will not provide for cumulative voting;
•vacancies on our board of directors will be able to be filled only by our board of directors and not by stockholders;
•a special meeting of our stockholders may only be called by the chairperson of our board of directors, our Chief Executive Officer or a majority of our board of directors;
•certain litigation against us can only be brought in Delaware;
•our amended and restated certificate of incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued without further action by our stockholders; and
•advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders.
These provisions, alone or together, could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any other action asserting a claim that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable parties named as defendants.
Section 22 of the Securities Act of 1933, as amended (the “Securities Act”), creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws further provide that the federal district courts of the United States will be the exclusive forum for resolving any complaints asserting a cause of action arising under the Securities Act. We note, however, that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder, and that there is uncertainty as to whether a court would enforce this exclusive forum provision. If a court were to find either exclusive-forum provision in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could harm our results of operations.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us, our business or our market, or if they change their recommendations regarding our common stock adversely, the market price and trading volume of our common stock could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. The analysts’ estimates are based upon their own opinions and are often different from our estimates or expectations. If any of the analysts who cover us change their recommendation regarding our common stock adversely, provide more favorable relative recommendations about our competitors or publish inaccurate or unfavorable research about our business, the market price of our common stock would likely decline. If few securities analysts commence coverage of us, or if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets and demand for our securities could decrease, which could cause the market price and trading volume of our common stock to decline.
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We do not intend to pay dividends for the foreseeable future.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. As a result, stockholders must rely on sales of their common stock after price appreciation, if any, as the only way to realize any future gains on their investment in our common stock.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Use of Proceeds
On July 26, 2021, we completed our IPO in which we sold 9,589,999 shares of common stock at a price to the public of $24.00 per share, which includes 1,250,869 shares issued upon the exercise of the underwriters’ option to purchase additional shares. We received aggregate net proceeds of $214.9 million, net of underwriting discounts and commissions of $16.1 million. We incurred offering costs of approximately $4.9 million subject to certain cost reimbursements. As of January 31, 2022, all $4.9 million of offering expenses incurred in connection with our IPO were paid.
We intend to use a portion of the net proceeds we received from our IPO for general corporate purposes, including working capital, operating expenses, and capital expenditures. In the year ended January 31, 2022, we used a portion of our net proceeds to repay the $25.0 million outstanding debt under the Credit Facility. Further, we may use a portion of the net proceeds to acquire or invest in businesses, products, services, or technologies. There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus filed with the SEC on July 22, 2021, pursuant to Rule 424(b).
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Securities Trading Plans of Directors and Executive Officers
On June 9, 2023, during our last fiscal quarter, Bill Carey, our Chief Accounting Officer and officer as defined in Rule 16a-1(f), adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408. The trading arrangement provides for the sale from time to time of an aggregate of up to 29,085 shares of our common stock, the actual amount of which may be less based on tax withholdings and vesting conditions of PSUs. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until September 30, 2024, or earlier if all transactions under the trading arrangement are completed.
No other directors or officers, as defined in Rule 16a-1(f), adopted, modified and/or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the last fiscal quarter.
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Item 6. Exhibits

Exhibit Number |  | Description | Form | File No. | Exhibit | Filing Date | Filed Herewith
31.1 |  | Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |  | X
31.2 |  | Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  |  |  | X
32.1* |  | Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  |  |  |  | X
101.INS |  | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |  |  |  |  | X
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document. |  |  |  |  | X
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |  |  |  |  | X
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document. |  |  |  |  | X
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document. |  |  |  |  | X
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |  |  |  |  | X
104 |  | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101) - the cover page interactive data is embedded within the Inline XBRL document or included within the Exhibit 101 attachments. |  |  |  |  | X

______________________
*The certifications attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q are deemed furnished and not filed with the SEC and are not to be incorporated by reference into any filing of Couchbase, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| COUCHBASE, INC.
Date: September 7, 2023 |  |
| By: | /s/ MATTHEW M. CAIN
|  | Matthew M. Cain
|  | Chair, President and Chief Executive Officer
|  | (Principal Executive Officer)
| By: | /s/ GREG HENRY
|  | Greg Henry
|  | Senior Vice President and Chief Financial Officer
|  | (Principal Financial Officer)
| By: | /s/ BILL CAREY
|  | Bill Carey
|  | Vice President and Chief Accounting Officer
|  | (Principal Accounting Officer)

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