chbase(BASE) - 2022 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section outlines the nature of forward-looking statements, cautioning investors about inherent risks and uncertainties Forward-Looking Statements Overview This section defines forward-looking statements, their scope across financial and operational aspects, and highlights their inherent risks and uncertainties - Forward-looking statements relate to future events or financial/operating performance, identified by words such as "may," "will," "should," "expect," "plan," "anticipate," "could," "would," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "potential" or "continue"[5] - Key areas covered by forward-looking statements include future financial performance, liquidity, product demand, customer retention, new product development, competition, COVID-19 impact, regulatory effects, risk management, market evolution, brand protection, infrastructure security, growth management, third-party relationships, intellectual property, open source software, acquisitions, and public company expenses[5] - These statements are based primarily on current expectations and projections about future events and trends, and their outcomes are subject to risks, uncertainties, and other factors described in the 'Risk Factors' section[7] Risk Factor Summary This section summarizes the main risks and uncertainties that could significantly harm the company's business, financial condition, and future prospects Principal Risk Factors This section summarizes key risks including net losses, intense competition, customer acquisition challenges, market evolution, and operational issues - The company has a history of net losses and may not achieve or maintain profitability in the future, nor continue to grow at historical rates[11] - Intense competition, failure to cost-effectively acquire new customers or expand existing ones, and the relatively new and evolving market for products and services pose significant risks[11] - Risks include failure to innovate, limited operating history, significant fluctuations in future results, and the impact of the global COVID-19 pandemic and economic downturns[11] - Operational risks encompass real or perceived errors in products, interruptions in technology infrastructure, and the quality of customer support[11] - Other risks involve reliance on internal operational metrics, maintaining company culture, challenges with acquisitions, partner relationships, use of third-party open source software, and intellectual property protection[11][13] PART I. FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, changes in equity, and cash flows - The financial statements are unaudited and prepared in accordance with GAAP and applicable SEC rules for interim financial reporting, with certain footnotes condensed or omitted[37] - The results of operations for the three and nine months ended October 31, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending January 31, 2022, or any other future period[37] Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :---------------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Assets | | | | | | Cash and cash equivalents | $141,440 | $37,297 | $104,143 | 279.2% | | Short-term investments | $66,195 | $19,546 | $46,649 | 238.7% | | Accounts receivable, net | $22,525 | $35,897 | $(13,372) | -37.3% | | Total current assets | $247,566 | $103,542 | $144,024 | 139.1% | | Total assets | $259,689 | $117,188 | $142,501 | 121.6% | | Liabilities | | | | | | Deferred revenue (current) | $48,226 | $57,168 | $(8,942) | -15.6% | | Long-term debt | $0 | $24,948 | $(24,948) | -100.0% | | Total liabilities | $68,221 | $103,708 | $(35,487) | -34.2% | | Stockholders' Equity (Deficit) | | | | | | Total stockholders' equity (deficit) | $191,468 | $(246,342) | $437,810 | 177.7% | - The significant increase in cash and cash equivalents and total assets was primarily driven by the net proceeds from the Initial Public Offering (IPO) in July 2021[17][38] - Long-term debt was fully repaid as of October 31, 2021, decreasing from $24.9 million as of January 31, 2021[18][69] Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total revenue | $30,824 | $25,653 | $5,171 | 20.2% | $88,478 | $73,858 | $14,620 | 19.8% | | Gross profit | $27,088 | $22,517 | $4,571 | 20.3% | $77,825 | $65,362 | $12,463 | 19.1% | | Loss from operations | $(15,491) | $(9,079) | $(6,412) | 70.6% | $(43,590) | $(25,076) | $(18,514) | 73.8% | | Net loss | $(15,924) | $(10,148) | $(5,776) | 56.9% | $(44,993) | $(30,336) | $(14,657) | 48.3% | | Net loss per share (basic and diluted) | $(0.37) | $(2.04) | $1.67 | -81.9% | $(2.43) | $(5.81) | $3.38 | -58.2% | | Weighted-average shares outstanding | 43,440 | 5,695 | 37,745 | 662.7% | 19,742 | 5,672 | 14,070 | 248.1% | - Total revenue increased by 20% for the three months and 20% for the nine months ended October 31, 2021, primarily due to growth from existing and new customers[148] - Net loss increased by 56.9% for the three months and 48.3% for the nine months ended October 31, 2021, reflecting continued investment in business growth[22][109] - Net loss per share decreased significantly due to a substantial increase in weighted-average shares outstanding following the IPO[22] Condensed Consolidated Statements of Comprehensive Loss This section presents the net loss and other comprehensive income/loss components, leading to total comprehensive loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net loss | $(15,924) | $(10,148) | $(5,776) | 56.9% | $(44,993) | $(30,336) | $(14,657) | 48.3% | | Net unrealized gains (losses) on investments, net of tax | $(29) | $0 | $(29) | N/A | $(30) | $0 | $(30) | N/A | | Total comprehensive loss | $(15,953) | $(10,148) | $(5,805) | 57.2% | $(45,023) | $(30,336) | $(14,687) | 48.4% | - Total comprehensive loss increased by 57.2% for the three months and 48.4% for the nine months ended October 31, 2021, primarily reflecting the increase in net loss[25] Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) This section outlines changes in redeemable convertible preferred stock and stockholders' equity, including impacts from the IPO - Upon the closing of the IPO in July 2021, all 26,710,600 shares of redeemable convertible preferred stock automatically converted into common stock, reclassifying $259.8 million to common stock and additional paid-in capital[78] - Additional paid-in capital increased significantly from $37.4 million as of January 31, 2021, to $520.2 million as of October 31, 2021, primarily due to IPO proceeds and stock-based compensation[28] - Accumulated deficit increased from $(283.8) million as of January 31, 2021, to $(328.7) million as of October 31, 2021, reflecting ongoing net losses[28] Condensed Consolidated Statements of Cash Flows This section details cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(38,922) | $(32,609) | $(6,313) | 19.4% | | Net cash used in investing activities | $(47,625) | $(16,915) | $(30,710) | 181.5% | | Net cash provided by financing activities | $190,848 | $79,427 | $111,421 | 140.3% | | Net increase in cash, cash equivalents and restricted cash | $104,143 | $29,897 | $74,246 | 248.3% | | Cash, cash equivalents and restricted cash, End of period | $141,983 | $48,664 | $93,319 | 191.8% | - Net cash provided by financing activities significantly increased by 140.3% to $190.8 million for the nine months ended October 31, 2021, primarily due to $214.9 million in net proceeds from the IPO[33][166] - Net cash used in investing activities increased by 181.5% to $47.6 million, mainly due to higher purchases of short-term investments[33][165] - Net cash used in operating activities increased by 19.4% to $38.9 million, driven by a higher net loss and changes in operating assets and liabilities[33][164] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Description of Business This note describes Couchbase, Inc.'s core business as an enterprise-class, multi-cloud NoSQL database provider - Couchbase, Inc. provides an enterprise-class, multi-cloud NoSQL database architected on top of an open source foundation[36] - The company was incorporated in Delaware in 2008 and is headquartered in Santa Clara, California[36] 2. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis of financial statement preparation, significant accounting policies, and the impact of the IPO and reverse stock split - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP and SEC rules for interim financial reporting, with certain footnotes condensed or omitted[37] - In July 2021, the company completed its IPO, issuing 9,589,999 shares of common stock at $24.00 per share, resulting in $214.9 million in net proceeds and the automatic conversion of all outstanding redeemable convertible preferred stock[38] - A 2.5-for-1 reverse stock split was effected on June 30, 2021, with all share and per share data retrospectively adjusted[39] - The company's fiscal year ends on January 31[40] - Management makes estimates and assumptions in preparing financial statements, which are subject to change and could differ from actual results, particularly concerning the impact of the COVID-19 pandemic[43][44] - As an emerging growth company, Couchbase has elected to use the extended transition period for complying with new or revised accounting standards[46] 3. Cash Equivalents and Short-Term Investments This note details the composition and fair value of cash equivalents and short-term investments Cash Equivalents and Short-Term Investments (in thousands) | Category | As of Oct 31, 2021 (Fair Value) | As of Jan 31, 2021 (Fair Value) | Change ($) | Change (%) | | :-------------------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Money market funds | $136,673 | $31,438 | $105,235 | 334.7% | | Commercial paper | $36,854 | $12,290 | $24,564 | 200.0% | | Corporate debt securities | $26,344 | $7,256 | $19,088 | 263.1% | | U.S. government treasury securities | $2,997 | $0 | $2,997 | N/A | | Total short-term investments | $66,195 | $19,546 | $46,649 | 238.7% | | Total cash equivalents and short-term investments | $202,868 | $50,984 | $151,884 | 297.9% | - As of October 31, 2021, the company had 16 short-term investments in an unrealized loss position with an estimated fair value of $29.3 million, none of which were in a continuous unrealized loss position for more than twelve months[51] 4. Fair Value Measurements This note explains the company's methodology for fair value measurements using a three-tiered hierarchy - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants[53] - The company uses a three-tiered hierarchy for fair value measurements: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[53] - Money market funds and U.S. government securities are classified as Level 1, while commercial paper and corporate debt securities are classified as Level 2[56] 5. Balance Sheet Components This note provides detailed breakdowns of various balance sheet accounts, including prepaid expenses, property and equipment, and accrued liabilities Prepaid Expenses and Other Current Assets (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | :--------- | | Prepaid expenses | $5,238 | $803 | $4,435 | 552.3% | | Prepaid software | $2,181 | $1,380 | $801 | 58.0% | | Other current assets | $772 | $266 | $506 | 190.2% | | Total prepaid expenses and other current assets | $8,191 | $2,449 | $5,742 | 234.5% | Property and Equipment, Net (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | :--------- | | Total gross property and equipment | $11,462 | $10,871 | $591 | 5.4% | | Accumulated depreciation and amortization | $(6,479) | $(4,365) | $(2,114) | 48.4% | | Total property and equipment, net | $4,983 | $6,506 | $(1,523) | -23.4% | Accrued Compensation and Benefits (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | :--------- | | Accrued bonus | $3,295 | $4,149 | $(854) | -20.6% | | Accrued commissions | $2,486 | $2,364 | $122 | 5.2% | | Accrued payroll and benefits | $2,184 | $2,597 | $(413) | -15.9% | | Employee contributions under the ESPP | $1,961 | $0 | $1,961 | N/A | | Total accrued compensation and benefits | $9,926 | $9,110 | $816 | 9.0% | Other Accrued Liabilities (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | :--------- | | Accrued professional fees | $584 | $1,925 | $(1,341) | -69.7% | | Sales and value added tax payable | $264 | $415 | $(151) | -36.4% | | Income taxes payable | $237 | $436 | $(199) | -45.7% | | Accrued interest | $0 | $95 | $(95) | -100.0% | | Other | $1,445 | $1,283 | $162 | 12.6% | | Total other accrued liabilities | $2,530 | $4,154 | $(1,624) | -39.1% | 6. Deferred Revenue and Remaining Performance Obligations This note details deferred revenue and the company's remaining performance obligations from customer contracts Deferred Revenue (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | :--------- | | Deferred revenue, current | $48,226 | $57,168 | $(8,942) | -15.6% | | Deferred revenue, noncurrent | $2,726 | $4,542 | $(1,816) | -40.0% | | Total deferred revenue | $50,952 | $61,710 | $(10,758) | -17.4% | - As of October 31, 2021, remaining performance obligations (RPOs) were $124.3 million, with $76.7 million expected to be recognized as revenue over the next twelve months[67] 7. Debt This note outlines the company's debt obligations, including changes in long-term debt and interest expense Long-Term Debt (in thousands) | Metric | As of Oct 31, 2021 | As of Jan 31, 2021 | Change ($) | Change (%) | | :------------------------------------------ | :----------------- | :----------------- | :--------- | :--------- | | Principal outstanding | $0 | $25,000 | $(25,000) | -100.0% | | Unamortized discount and debt issuance costs | $0 | $(52) | $52 | -100.0% | | Long-term debt | $0 | $24,948 | $(24,948) | -100.0% | Interest Expense (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Interest expense | $(133) | $(746) | $613 | -82.2% | $(630) | $(4,762) | $4,132 | -86.8% | - The term loan with Hercules Capital was fully terminated and paid off in January 2021[71] - The company repaid the outstanding principal of its revolving line of credit of $25.0 million during the three months ended October 31, 2021, with $40.0 million available for borrowing[72] 8. Commitments and Contingencies This note discloses the company's lease commitments, cloud hosting obligations, and potential legal matters - The company leases facilities for office space under non-cancelable operating leases with various expiration dates through March 2025[73] - In July 2021, the company negotiated a noncancelable arrangement with a cloud hosting service provider, committing to spend at least $10.0 million between August 2021 and July 2024[74] - The company is a party to various legal matters in the normal course of business and enters into standard indemnification arrangements for intellectual property infringement claims and for its directors and officers[75][76] 9. Retirement Plan This note describes the company's 401(k) retirement plan and matching contributions for employees - The company sponsors a defined contribution savings plan under Section 401(k) of the Internal Revenue Code, covering substantially all full-time U.S. employees[77] - The company matches its employee contributions to the 401(k) plan, with total matching contributions less than $0.1 million for each of the three months and $0.2 million for each of the nine months ended October 31, 2021 and 2020[77] 10. Stockholders' Equity (Deficit) and Employee Incentive Plans This note details changes in stockholders' equity, including the impact of the IPO, and information on stock option and RSU activity - Upon the IPO in July 2021, all 26,710,600 shares of redeemable convertible preferred stock automatically converted into common stock, reclassifying $259.8 million to common stock and additional paid-in capital[78] - As of October 31, 2021, 43,566,467 shares of common stock were issued and outstanding, compared to 6,199,305 shares as of January 31, 2021[80] - The company has reserved 10,653,339 shares of common stock for future issuance, including for stock options, common stock warrants, restricted stock units (RSUs), and the Employee Stock Purchase Plan (ESPP)[81] - The 2021 Equity Incentive Plan replaced previous plans, with 4.0 million shares available for grant as of October 31, 2021, and an automatic annual increase provision[82] - The ESPP was established in July 2021, allowing eligible employees to purchase common stock at a price equal to 85% of the lower of the fair market value at the beginning or end of the offering period[83] Stock Option Activity (9 Months Ended Oct 31, 2021) | Metric | Number of Options | Weighted-Average Exercise Price | Weighted-Average Contractual Term (years) | Aggregate Intrinsic Value (thousands) | | :------------------------------------------ | :---------------- | :------------------------------ | :---------------------------------------- | :------------------------------------ | | Balances as of Jan 31, 2021 | 8,912,477 | $6.42 | 6.49 | $38,582 | | Options exercised | (1,042,606) | $5.57 | N/A | N/A | | Options granted | 1,948,563 | $22.49 | N/A | N/A | | Options cancelled | (302,583) | $10.00 | N/A | N/A | | Balances as of Oct 31, 2021 | 9,515,851 | $9.69 | 6.72 | $291,474 | RSU Activity (9 Months Ended Oct 31, 2021) | Metric | Number of RSUs Outstanding | Weighted Average Grant Date Fair Value Per Share | | :------------------------------------------ | :------------------------- | :----------------------------------------------- | | Unvested Balance as of Jan 31, 2021 | 0 | $0 | | RSUs granted | 189,556 | $50.27 | | RSUs forfeited | (4,092) | $50.23 | | Unvested Balance as of Oct 31, 2021 | 185,464 | $50.27 | Stock-Based Compensation Expense (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total stock-based compensation expense | $3,353 | $1,135 | $7,163 | $3,342 | 11. Income Taxes This note explains the company's income tax expense and the valuation allowance maintained on U.S. deferred tax assets - Income tax expense was $0.2 million for each of the three months and $0.7 million for each of the nine months ended October 31, 2021 and 2020, primarily from foreign jurisdictions[98] - A full valuation allowance is maintained on substantially all U.S. deferred tax assets due to the company's history of losses[98] 12. Geographic Information This note provides a breakdown of revenue by geographic area and the location of long-lived assets Revenue by Geographic Area (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | United States | $18,618 | $16,324 | $2,294 | 14.1% | $55,001 | $47,690 | $7,311 | 15.3% | | International | $12,206 | $9,329 | $2,877 | 30.8% | $33,477 | $26,168 | $7,309 | 27.9% | | Total | $30,824 | $25,653 | $5,171 | 20.2% | $88,478 | $73,858 | $14,620 | 19.8% | - International revenue grew faster than U.S. revenue for both the three and nine months ended October 31, 2021[101] - Substantially all of the company's long-lived assets were located in the United States as of January 31, 2021, and October 31, 2021[103] 13. Net Loss per Share This note details the computation of basic and diluted net loss per share attributable to common stockholders Net Loss per Share Attributable to Common Stockholders (in thousands, except per share data) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net loss attributable to common stockholders | $(15,924) | $(11,594) | $(4,330) | 37.3% | $(47,910) | $(32,932) | $(14,978) | 45.5% | | Weighted-average shares outstanding | 43,440 | 5,695 | 37,745 | 662.7% | 19,742 | 5,672 | 14,070 | 248.1% | | Net loss per share (basic and diluted) | $(0.37) | $(2.04) | $1.67 | -81.9% | $(2.43) | $(5.81) | $3.38 | -58.2% | - Diluted net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive given the company's net loss position[104] - Potentially dilutive securities excluded from the computation of diluted net loss per share include stock options, redeemable convertible preferred stock (in 2020), common stock warrants, RSUs, and employee stock purchase rights under the ESPP[106] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Couchbase's financial condition and operational results, including an overview of its business model, key performance drivers, and a detailed analysis of revenue, expenses, and liquidity - Couchbase's mission is to empower enterprises to build, manage, and operate modern mission-critical applications at the highest scale and performance using its leading modern database[108] - For the nine months ended October 31, 2021, revenue was $88.5 million, representing 20% period-over-period growth, while net loss was $45.0 million due to continued investment in business growth[109] - Annual Recurring Revenue (ARR) grew by 21% to $122.3 million as of October 31, 2021, and the total number of customers increased to 568[109][118][119] Overview This section provides an overview of Couchbase's enterprise-class, multi-cloud NoSQL database platform and its market strategy - Couchbase provides an enterprise-class, multi-cloud NoSQL database designed for mission-critical applications, offering flexibility across cloud, multi-cloud, hybrid-cloud, and edge environments[108] - The platform combines NoSQL's schema flexibility with SQL query language, catering to both enterprise architects and application developers[108] - The company targets large global enterprises and introduced Couchbase Capella, a fully-managed DBaaS offering, in June 2020[108] Initial Public Offering This section details the completion of Couchbase's IPO in July 2021, including net proceeds and stock conversion - In July 2021, Couchbase completed its IPO, issuing and selling 9,589,999 shares of common stock at $24.00 per share, including shares from the underwriters' option[110] - The company received net proceeds of $214.9 million after deducting underwriting discounts and commissions[110] - All 26,710,600 shares of outstanding redeemable convertible preferred stock automatically converted into an equivalent number of common stock shares in connection with the IPO[110] Our Business Model This section describes the company's revenue generation from subscriptions and professional services, its go-to-market strategy, and land-and-expand model - The substantial majority of revenue is generated from subscriptions to the Enterprise Edition of the Couchbase platform (Couchbase Server and Mobile), licensed per node based on computing power, memory, and service level[111] - Couchbase Capella, a fully-managed DBaaS offering introduced in June 2020 and expanded in October 2021, is licensed using an on-demand consumption model or an annual credit model[111] - The company also generates revenue from professional services related to platform implementation, configuration, and training[111] - The go-to-market strategy includes a direct sales force targeting large enterprises and a "buy-from" motion focused on the application developer community through free Community Editions and trials[111] - The company employs a land-and-expand model, supported by a growing partner ecosystem and marketing efforts, resulting in a dollar-based net retention rate of at least 115% for the past seven quarters[112] Factors Affecting Our Performance This section discusses key drivers of performance, including customer acquisition, expansion within existing customers, and ongoing investments - Continued growth depends on acquiring new customers, with Couchbase Capella expected to become increasingly popular due to its compelling pricing, ease of operation, lower TCO, and flexibility[113] - A significant portion of growth is driven by expanding within existing customers, through increased deployment scale or new use cases, supported by the professional services organization[114] - The dollar-based net retention rate was at least 115% for each of the past seven quarters, demonstrating successful expansion within existing customers[114] - The company plans to continue investing in its offerings, personnel (R&D, sales, marketing, G&A), geographic presence, and infrastructure to drive future growth and pursue adjacent opportunities[115] Key Business Metrics This section defines and presents key business metrics such as Annual Recurring Revenue (ARR) and total customer count - Annual Recurring Revenue (ARR) is defined as the annualized recurring revenue contractually received from customers in the month ending 12 months following the given date, excluding on-demand arrangements and services[117] Annual Recurring Revenue (ARR) (in millions) | Metric | As of Oct 31, 2021 | As of Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :----------------- | :----------------- | :--------- | :--------- | | ARR | $122.3 | $101.4 | $20.9 | 20.6% | - The total number of customers increased from 524 as of October 31, 2020, to 568 as of October 31, 2021[119] Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP financial measures, including gross profit, operating loss, and net loss, by excluding specific items - Non-GAAP gross profit and non-GAAP gross margin exclude stock-based compensation expense recorded to cost of revenue[120] Non-GAAP Gross Profit and Gross Margin (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gross profit | $27,088 | $22,517 | $4,571 | 20.3% | $77,825 | $65,362 | $12,463 | 19.1% | | Add: Stock-based compensation expense | $136 | $30 | $106 | 353.3% | $239 | $91 | $148 | 162.6% | | Non-GAAP gross profit | $27,224 | $22,547 | $4,677 | 20.7% | $78,064 | $65,453 | $12,611 | 19.3% | | Gross margin | 87.9% | 87.8% | 0.1% | N/A | 88.0% | 88.5% | -0.5% | N/A | | Non-GAAP gross margin | 88.3% | 87.9% | 0.4% | N/A | 88.2% | 88.6% | -0.4% | N/A | - Non-GAAP operating loss and non-GAAP operating margin exclude stock-based compensation expense and litigation-related expenses[122] Non-GAAP Operating Loss and Operating Margin (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Loss from operations | $(15,491) | $(9,079) | $(6,412) | 70.6% | $(43,590) | $(25,076) | $(18,514) | 73.8% | | Add: Stock-based compensation expense | $3,353 | $1,135 | $2,218 | 195.4% | $7,163 | $3,342 | $3,821 | 114.3% | | Add: Litigation-related expenses | $0 | $0 | $0 | N/A | $0 | $213 | $(213) | -100.0% | | Non-GAAP operating loss | $(12,138) | $(7,944) | $(4,194) | 52.8% | $(36,427) | $(21,521) | $(14,906) | 69.3% | | Operating margin | (50)% | (35)% | -15% | N/A | (49)% | (34)% | -15% | N/A | | Non-GAAP operating margin | (39)% | (31)% | -8% | N/A | (41)% | (29)% | -12% | N/A | - Non-GAAP net loss and non-GAAP net loss per share exclude stock-based compensation expense and litigation-related expenses[124] Non-GAAP Net Loss and Net Loss Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net loss attributable to common stockholders | $(15,924) | $(11,594) | $(4,330) | 37.3% | $(47,910) | $(32,932) | $(14,978) | 45.5% | | Add: Stock-based compensation expense | $3,353 | $1,135 | $2,218 | 195.4% | $7,163 | $3,342 | $3,821 | 114.3% | | Add: Litigation-related expenses | $0 | $0 | $0 | N/A | $0 | $213 | $(213) | -100.0% | | Non-GAAP net loss attributable to common stockholders | $(12,571) | $(10,459) | $(2,112) | 20.2% | $(40,747) | $(29,377) | $(11,370) | 38.7% | | GAAP net loss per share | $(0.37) | $(2.04) | $1.67 | -81.9% | $(2.43) | $(5.81) | $3.38 | -58.2% | | Non-GAAP net loss per share | $(0.29) | $(1.84) | $1.55 | -84.2% | $(2.06) | $(5.18) | $3.12 | -60.2% | Free Cash Flow This section defines and presents the company's free cash flow, calculated from operating activities less capital expenditures - Free cash flow is defined as cash used in operating activities less purchases of property and equipment, including capitalized internal-use software costs[126] Free Cash Flow (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(19,747) | $(13,143) | $(6,604) | 50.2% | $(38,922) | $(32,609) | $(6,313) | 19.4% | | Less: Purchases of property and equipment | $(564) | $(144) | $(420) | 291.7% | $(814) | $(2,770) | $1,956 | -70.6% | | Free cash flow | $(20,311) | $(13,287) | $(7,024) | 52.9% | $(39,736) | $(35,379) | $(4,357) | 12.3% | Impact of COVID-19 This section analyzes the negative and potential long-term positive impacts of the COVID-19 pandemic on the company's business and operations - The COVID-19 pandemic negatively impacted business by delaying digital transformation projects, reducing IT spending, restricting sales/marketing efforts, delaying collections, and delaying professional services, particularly affecting 'COVID-19 impacted customers'[128] - ARR from 'COVID-19 impacted customers' declined by 3% from $14.1 million as of April 30, 2020, to $13.6 million as of April 30, 2021, while ARR from all other customers increased by 27% during the same period[128] - Potential long-term positive impacts include accelerated enterprise modernization and increased adoption of the platform due to its ability to support mission-critical applications with significant Total Cost of Ownership (TCO) benefits[129] - The pandemic also led to temporary cost savings from reduced business travel, deferred hiring, and virtualization/cancellation of events[129] Components of Results of Operations This section explains the various components of revenue, cost of revenue, operating expenses, and other financial items - Revenue is derived from term-based software licenses ('License'), post-contract support ('Support and other') recognized ratably, and professional services ('Services') recognized over time[130] - Cost of subscription revenue includes personnel, software, cloud infrastructure, and amortization of capitalized internal-use software; cost of services revenue includes personnel, third-party partners, and travel[131] - Gross profit and margin are influenced by sales price, product mix, and geography, with gross margin expected to modestly decline long-term due to new offerings and international expansion[132] - Operating expenses (Research and Development, Sales and Marketing, General and Administrative) are primarily personnel-related costs and are expected to increase in absolute dollars due to investments in growth and public company operations[133][134][135][137] - Interest expense relates to debt, and other income (expense), net, includes foreign currency gains/losses and interest income[138][139] - Provision for income taxes primarily consists of income taxes in foreign jurisdictions, as a full valuation allowance is maintained against U.S. deferred tax assets[140] Results of Operations This section provides a detailed comparative analysis of the company's revenue, cost of revenue, gross profit, and operating expenses Revenue Comparison (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | License revenue | $3,774 | $3,010 | $764 | 25% | $12,468 | $8,550 | $3,918 | 46% | | Support and other revenue | $25,234 | $21,078 | $4,156 | 20% | $71,034 | $60,347 | $10,687 | 18% | | Total subscription revenue | $29,008 | $24,088 | $4,920 | 20% | $83,502 | $68,897 | $14,605 | 21% | | Services revenue | $1,816 | $1,565 | $251 | 16% | $4,976 | $4,961 | $15 | 0% | | Total revenue | $30,824 | $25,653 | $5,171 | 20% | $88,478 | $73,858 | $14,620 | 20% | - Subscription revenue increased by 20% for the three months and 21% for the nine months ended October 31, 2021, with approximately 81-82% of the increase attributable to growth from existing customers[148] Cost of Revenue, Gross Profit, and Gross Margin Comparison (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Cost of subscription revenue | $2,094 | $1,840 | $254 | 14% | $6,218 | $4,113 | $2,105 | 51% | | Cost of services revenue | $1,642 | $1,296 | $346 | 27% | $4,435 | $4,383 | $52 | 1% | | Total cost of revenue | $3,736 | $3,136 | $600 | 19% | $10,653 | $8,496 | $2,157 | 25% | | Gross profit | $27,088 | $22,517 | $4,571 | 20% | $77,825 | $65,362 | $12,463 | 19% | | Gross margin | 87.9% | 87.8% | 0.1% | N/A | 88.0% | 88.5% | -0.5% | N/A | - Cost of subscription revenue increased by 51% for the nine months ended October 31, 2021, primarily due to increased personnel-related costs and amortization of capitalized internal-use software related to Couchbase Capella[150] Operating Expenses Comparison (in thousands) | Metric | 3 Months Ended Oct 31, 2021 | 3 Months Ended Oct 31, 2020 | Change ($) | Change (%) | 9 Months Ended Oct 31, 2021 | 9 Months Ended Oct 31, 2020 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Research and development | $13,103 | $10,109 | $2,994 | 30% | $38,267 | $28,388 | $9,879 | 35% | | Sales and marketing | $22,817 | $17,443 | $5,374 | 31% | $65,714 | $51,145 | $14,569 | 28% | | General and administrative | $6,659 | $4,044 | $2,615 | 65% | $17,434 | $10,905 | $6,529 | 60% | | Total operating expenses | $42,579 | $31,596 | $10,983 | 35% | $121,415 | $90,438 | $30,977 | 34% | - Operating expenses increased across all categories, primarily driven by higher personnel-related costs due to increased headcount and, for G&A, additional professional fees associated with being a publicly traded company[151][153][154][155] - Interest expense decreased significantly by 82% for the three months and 87% for the nine months ended October 31, 2021, due to the termination of the term loan and replacement with a lower-rate Credit Facility[156] Liquidity and Capital Resources This section discusses the company's cash position, capital resources, and ability to meet future operating and capital expenditure requirements - The company completed its IPO in July 2021, generating $214.9 million in net proceeds, and maintains a Credit Facility for up to $40.0 million in debt financing[160] - As of October 31, 2021, the company had $207.6 million in cash, cash equivalents, and short-term investments, but an accumulated deficit of $328.7 million[160] - Management believes existing cash, investments, and the Credit Facility will be sufficient to meet projected operating requirements and capital expenditures for at least the next 12 months, despite expected continued losses and negative cash flows from operations due to growth investments[160] - Remaining performance obligations were $124.3 million as of October 31, 2021, with $76.7 million expected to be recognized as revenue over the next 12 months[160] Contractual Obligations and Commitments This section outlines the company's significant contractual obligations and commitments, including cloud hosting and debt repayment - In July 2021, the company committed to spend an aggregate of at least $10.0 million with a cloud hosting service provider between August 2021 and July 2024[167] - The company repaid $25.0 million of outstanding debt under its Credit Facility during the three months ended October 31, 2021[167] Indemnification Agreements This section describes the company's standard indemnification arrangements for intellectual property and for its directors and officers - The company enters into standard indemnification arrangements in the ordinary course of business, including for intellectual property infringement claims, with generally perpetual terms and undeterminable maximum potential future payments[168] - Indemnification agreements with directors and officers cover liabilities arising from their status or service, excluding liabilities from willful misconduct[169] Critical Accounting Policies and Estimates This section confirms no significant changes to critical accounting policies and estimates compared to previous disclosures - There have been no significant changes to the company's critical accounting policies and estimates as compared to those described in its Final Prospectus[170] Recent Accounting Pronouncements This section refers to Note 2 for a discussion of recent accounting pronouncements affecting the company - Refer to Note 2 to the condensed consolidated financial statements for a discussion of recent accounting pronouncements[171] JOBS Act Accounting Election This section explains the company's election as an "emerging growth company" to use an extended transition period for new accounting standards - As an "emerging growth company" under the JOBS Act, Couchbase has elected to use the extended transition period for complying with new or revised accounting standards until they apply to private companies[172] - This election may result in financial statements that are not comparable to companies complying with public company effective dates[172] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet financing arrangements or relationships with unconsolidated entities - The company did not have any off-balance sheet financing arrangements or relationships with unconsolidated entities during the periods presented and does not currently have any[173] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Couchbase's exposure to market risks, primarily focusing on interest rate fluctuations and foreign currency exchange rates - The company is exposed to market risks primarily from fluctuations in interest rates and foreign currency exchange rates[175] Interest Rate Risk This section assesses the potential impact of interest rate fluctuations on the company's highly liquid investment portfolio - Cash, cash equivalents ($141.4 million), and short-term investments ($66.2 million) primarily consist of highly liquid investments in money market funds, commercial paper, and corporate debt securities[176] - Due to the short-term nature of the investment portfolio, a hypothetical 10% increase or decrease in interest rates is not expected to have a material effect on the company's results of operations and cash flows[176] Foreign Currency Risk This section evaluates the company's exposure to foreign currency exchange rate fluctuations and its current hedging strategy - The functional currency of foreign subsidiaries is the U.S. Dollar, with remeasurement adjustments recognized in other income (expense), net[177] - A hypothetical 10% change in the relative value of the U.S. Dollar to other currencies would not have a material impact on the company's results of operations and cash flows[177] - The company has not engaged in hedging foreign currency transactions to date[177] Item 4. Controls and Procedures This section details management's evaluation of the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of October 31, 2021, concluding they were effective at the reasonable assurance level[178] Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures at a reasonable assurance level - The company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of the end of the period covered by this Quarterly Report on Form 10-Q[178] Changes in Internal Control Over Financial Reporting This section reports no material changes in internal control over financial reporting during the period - There were no changes in internal control over financial reporting identified during the period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[179] Inherent Limitations on Effectiveness of Controls and Procedures This section acknowledges the inherent limitations of control systems, which provide reasonable but not absolute assurance - Management believes that disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance, but not absolute assurance, of achieving their objectives, as no control system can prevent or detect all errors and fraud[181] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, defaults, and other miscellaneous information Item 1. Legal Proceedings This section states that Couchbase is not currently involved in any legal proceedings that would materially harm its business or financial condition - The company is not currently a party to any legal proceedings that, if determined adversely, would have a material and adverse effect on its business, financial condition, or results of operations[183] - Future litigation may be necessary to defend the company, its partners, and customers, or to establish intellectual property rights, which can be costly, time-consuming, and divert management attention[183] Item 1A. Risk Factors This comprehensive section details various risks and uncertainties that could adversely affect Couchbase's business, financial condition, results of operations, and prospects - An investment in Couchbase is speculative and risky due to significant risks and uncertainties that could seriously harm its business, financial condition, results of operations, revenue, and future prospects[184] - The risk factors are categorized into five main areas: Risks Related to Our Industry and Business, Risks Related to Our Dependence on Third Parties, Risks Related to Our Open Source and Intellectual Property, Risks Related to Our Legal and Regulatory Environment, and Risks Related to Ownership of Our Common Stock and Governance Matters[184] Risks Related to Our Industry and Business This section outlines risks inherent to the company's industry and business, including net losses, competition, and growth management - The company has a history of net losses ($45.0 million for the nine months ended October 31, 2021) and expects to continue incurring losses due to significant investments in platform development, sales, marketing, and operations[185] - Historical revenue growth (20% for the nine months ended October 31, 2021) should not be considered indicative of future performance, and growth rates may fluctuate or decline due to various factors including competition and market demand[186] - Failure to effectively manage rapid growth in employee headcount (from 437 to 644), geographic reach, and operations could adversely affect the company's brand, business, and financial results[187] - The company faces intense competition from established legacy database providers (e.g., Oracle, IBM), NoSQL database offerings (e.g., MongoDB), and cloud infrastructure providers (e.g., Amazon, Microsoft, Google), many of whom have substantial competitive advantages[189][190] - Success depends on cost-effectively acquiring new customers and retaining/expanding existing ones, with risks including sales force effectiveness, customer renewal rates, and the balance between free Community Editions and paid Enterprise Editions[195][196][197] - The market for the company's products and services is relatively new and evolving, and its future success depends on the continued growth and widespread adoption of this market, particularly for NoSQL database solutions[200] - Failure to innovate in response to changing customer needs, new technologies (e.g., successful adoption of Couchbase Capella), or other market requirements could harm the business, financial condition, and results of operations[201][202] - The global COVID-19 pandemic has negatively impacted business by delaying digital transformation projects, reducing IT spending, restricting sales operations, and affecting collections, particularly for 'COVID-19 impacted customers'[218] - Real or perceived errors, failures, or bugs in products, or interruptions/performance problems with technology and infrastructure, could adversely affect growth prospects, business, and financial results, especially given the use of the platform for mission-critical applications[227][228] - International operations and planned continued international expansion subject the company to additional costs and risks, including differing labor regulations, currency fluctuations, and compliance with foreign laws[231] Risks Related to Our Dependence on Third Parties This section details risks arising from reliance on third-party partners and service providers for critical business functions - Inability to maintain successful relationships with partners (Cloud Service Providers, Independent Software Vendors, Systems Integrators, etc.) could harm the business, as partners may market competitive offerings or fail to effectively sell products[251] - Reliance on third-party service providers for critical business aspects, including cloud hosting infrastructure, means any disruptions, failures, or increased fees could lead to increased costs and delays in providing products and services[254] - Certain estimates and information publicly referred to are based on third-party sources, and the company does not independently verify their accuracy or completeness; any inaccuracies could harm reputation and business[255][256] Risks Related to Our Open Source and Intellectual Property This section addresses risks associated with the use of open source software, intellectual property protection, and licensing models - The use of third-party open source software and the availability of core portions of the company's source code on an open source basis could negatively affect its ability to sell products, lead to litigation, and allow third parties to access and use its technology[257][258] - Some open source licenses may require the company to make source code for modifications or derivative works publicly available, potentially reducing competitive advantages[260] - The company's distribution and licensing model, where products can be obtained for free, could negatively affect its ability to monetize and protect intellectual property rights and detect license violations[263] - The decision to license source code to Couchbase Server 7.0 under a source-available license (BSL 1.1) may harm its adoption, reduce brand awareness, and negatively impact competitiveness[267] - The company could incur substantial costs in obtaining, maintaining, protecting, defending, and enforcing its intellectual property rights, and any failure to do so could reduce the value of its software and brand[268] - The company has been and may in the future become subject to intellectual property disputes, which can be costly to defend, lead to significant liability, require substantial damages, and limit its ability to use certain technologies[272] Risks Related to Our Legal and Regulatory Environment This section covers risks from evolving laws and regulations, data privacy, security breaches, and international tax liabilities - The business is subject to a wide range of evolving federal, state, local, and foreign laws and regulations (e.g., data privacy, security, intellectual property, anti-bribery, export controls), and failure to comply could lead to investigations, fines, and damages[278] - Security breaches or unauthorized access to company or customer data/software could harm reputation, reduce product use, and lead to claims, litigation, regulatory investigations, and significant liability[281] - Inability to comply with U.S. and foreign data protection, information security, and privacy laws (e.g., GDPR, "Schrems II" decision, Brexit, CCPA, CPRA, VCDPA, CPA) could result in significant fines, penalties, and operational changes[288][289][292][293][294][295][296][297] - Any future litigation against the company could be costly and time-consuming to defend, diverting management's attention and resources[300] - Indemnity provisions in various agreements expose the company to substantial, potentially uncapped, liability for intellectual property infringement and other losses[302] - Sales to heavily regulated organizations (e.g., governments) present challenges such as high competition, complex compliance requirements, preferential pricing, and increased liability[304] - Failure to comply with anti-bribery, anti-corruption, anti-money laundering, and similar laws (e.g., FCPA) could subject the company to penalties, fines, and reputational damage[306] - The company is subject to governmental export control, trade sanctions, and import controls, which could impair its ability to compete in international markets or subject it to liability for violations[310] - International operations may lead to greater than anticipated tax liabilities due to challenges to transfer pricing policies or changes in tax laws, and the ability to use net operating losses (NOLs) may be limited[313][315][318] - Failure to develop and maintain proper and effective internal control over financial reporting could adversely affect investor confidence and the value of common stock, especially as a public company[328][331] Risks Related to Ownership of Our Common Stock and Governance Matters This section discusses risks related to public company operations, stock price volatility, and corporate governance - Operating as a public company incurs substantial legal, accounting, and other expenses, and requires significant management attention, potentially diverting from day-to-day business oper