SailPoint Inc.

09/10/2025 | Press release | Distributed by Public on 09/10/2025 14:32

Quarterly Report for Quarter Ending July 31, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included in Part I, Item 1A of our fiscal 2025 Form 10-K and elsewhere in this Quarterly Report. You should carefully review the risks described in our fiscal 2025 Form 10-K, in this Quarterly Report, and in other documents we file from time to time with the SEC. You should review the risk factors for a more complete understanding of the risks associated with an investment in our securities. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Our fiscal year end is January 31, and our fiscal quarters end on April 30, July 31, October 31, and January 31. Our fiscal years ended January 31, 2026 and January 31, 2025 are referred to herein as "fiscal 2026" and "fiscal 2025," respectively.
Overview
We deliver solutions to enable comprehensive identity security for the enterprise. We do this by unifying identity data across systems and identity types, including employee identities, non-employee identities, and machine identities. Our SaaS and customer-hosted offerings leverage intelligent analytics to provide organizations with critical visibility into which identities currently have access to which resources, which identities should have access to those resources, and how that access is being used. Our solutions enable organizations to establish, control, and automate policies that help them define and maintain a robust security posture and achieve regulatory compliance. Powered by AI, our solutions enable organizations to overcome the scale and complexity of managing identities in real-time across dynamic, complex IT environments. Our solutions empower organizations to maintain a robust security posture and achieve regulatory compliance.
Today, we offer a range of solutions to meet the varied needs of our customers across a broad set of deployment options including: Identity Security Cloud, our SaaS-based cloud solution built on our unified platform, Atlas, and IdentityIQ, our customer-hosted identity security solution. These solutions are designed to enable our customers to make more effective decisions regarding access, improve security processes, and provide them with a deeper understanding of identity and access.
SailPoint was founded in 2005 by industry experts to develop a new category of identity solutions, address emerging identity security challenges, and drive innovation in the identity market. After establishing leadership in on-premises identity solutions, SailPoint pioneered standalone identity governance and administration SaaS solutions with advanced analytics. Today, SailPoint delivers a robust, extensible SaaS platform for identity security that is ready for the AI age with modern data architecture and just-in-time access to critical data for advanced use cases.
Recent Developments
On January 31, 2025, we effected a 60.91-for-1 forward unit split and a 0.45-for-1 reverse unit split of our Class A Units and Class B Units, respectively. All Class A Unit and Class B Unit and per unit information included in this Quarterly Report has been retroactively adjusted to reflect this unit split for all periods presented. Additionally, all incentive unit and per unit information was adjusted to reflect the 0.45-for-1 reverse unit split of the Class B Units in this Quarterly Report.
On January 31, 2025, the Board approved modifications to accelerate the vesting of certain incentive units, EARs, and cash settled awards subject to the pricing and closing of the IPO. Prior to taking into effect the Corporate Conversion, the Company modified 3,036,888 incentive units and 377,077 EARs.Upon the IPO, the vested incentive units were considered redeemable. During the three months ended April 30, 2025, as a result of the modifications and the closing of the IPO, we recognized $113.8 million of equity-based compensation expense in the condensed consolidated statement of operations, which was comprised of $61.5 million, $12.6 million, and $39.8 million of expense for the modified incentive units, EARs, and cash settled awards, respectively.
On February 12, 2025, in connection with our IPO, SailPoint Parent, LP converted into a Delaware corporation pursuant to a statutory conversion and changed its name to SailPoint, Inc. (the "Corporate Conversion"). In conjunction with the Corporate Conversion, all of our outstanding partnership units were converted into an aggregate of 499,060,464 shares of our common stock. The number of shares of common stock issuable to holders of Class A Units and holders of Class B Units in connection with the Corporate Conversion was determined pursuant to the applicable provisions of the plan of conversion.
On February 14, 2025, we closed our IPO of 60.0 million shares of common stock, of which 57.5 million shares were sold by us and 2.5 million shares were sold by certain selling stockholders, at an initial offering price to the public of $23.00 per share for an aggregate offering price of $1,380.0 million. We received net proceeds of approximately $1,248.2 million, net of the underwriting discounts, commissions and offering costs.
We continue to be controlled by Thoma Bravo following the Corporate Conversion and the IPO. After giving effect to the Corporate Conversion and the closing of the IPO, Thoma Bravo controls approximately 86.2% of the voting power of the Company.
In conjunction with the closing of the IPO, we settled all outstanding fees of $9.3 million payable to Thoma Bravo.
On February 19, 2025, we repaid $690.0 million of our Term Loans using a portion of our proceeds from the IPO. On March 3, 2025, we repaid the remaining balance of $350.0 million of the Term Loans. We recorded a $15.3 million loss from extinguishment of debt related to debt issuance costs upon the full repayment of our Term Loans.
During February 2025, we issued 16,483,859 RSUs primarily in connection with our IPO under the new SailPoint, Inc. Omnibus Incentive Plan to certain of our employees, including our executive officers, and directors of the Board. These RSUs will vest predominately over two to four years based on continued service.
On July 4, 2025, H.R. 1, commonly referred to as the One Big Beautiful Bill Act, (the "Act"), was signed into law. The Act makes certain provisions of the 2017 Tax Cuts and Jobs Act permanent while also restoring immediate expensing of domestic research and development costs and modifying the interest expense limitation. In addition, Texas enacted legislation replacing its existing R&D franchise tax credit with a new R&D franchise tax credit regime during the current period. US GAAP requires the effects of changes in tax laws on deferred tax balances to be recognized in the period in which the legislation is enacted. As a result of these tax law changes, the Company recorded $21.2 millionnet discrete tax benefit for the change in valuation allowance in connection with its interest expense and Texas R&D credit carryforwards.
Our Business Model
Our customers include many of the world's largest and most complex organizations, including large enterprises across all major verticals and governments. The approximate number of customers at each annual recurring revenue ("ARR") level are as follows:
July 31, 2025 July 31, 2024
Customers
3,105 2,855
Customers less than $250,000 in ARR
2,015 1,995
Customers greater than $250,000 in ARR
1,090 860
Customers greater than $1,000,000 in ARR
185 125
The number of customers with $250,000 or more of ARR as of July 31, 2025 increased 27% on a year-over-year basis, and the number of customers with over $1,000,000 of ARR as of July 31, 2025 increased 48% on a year-over-year basis.
For Identity Security Cloud, our SaaS-based cloud solution, and IdentityIQ, our customer-hosted solution, our customers typically enter into three-year contracts, with annual billing upfront.
For Identity Security Cloud, our pricing is tiered and based on the suite, with the option for the customer to purchase additional products and capabilities a-la-carte. We price our IdentityIQ term subscriptions based on a number of factors, including the number of digital identities governed with the solution. Customers also have the option to purchase additional products and capabilities.
Key Factors Affecting Our Performance
Our historical financial performance has been, and we expect our financial performance in the future to be, driven by our ability to:
Add New Customers within Existing Markets. Countless organizations still use a combination of legacy solutions and home-grown tools. Furthermore, we estimate that over 60% of organizations in our target market still have a fragmented identity experience or use a mostly manual process based on our internal research. As a result, we believe that there is a significant opportunity for us to accelerate the growth of our customer base by enhancing our marketing efforts, increasing our sales capacity and productivity, and expanding and further leveraging our use of channel partners, including managed service providers. Our ability to attract new customers depends on a number of factors, including the effectiveness and pricing of our solutions, our ability to drive awareness of them, and the offerings of our competitors.
Generate Additional Sales to Existing Customers. We believe that our existing customer base provides us with a significant opportunity to expand incremental sales. Most new customers initially purchase one of our SaaS suites (Standard, Business, or Business Plus). We focus on expanding our customer relationships over time through up-selling and cross-selling opportunities, including suite upgrades and additional products. Additionally, we are focused on continuing to migrate customers of our customer-hosted solution to our SaaS suites, which typically results in increased ARR because of the additional functionality that our SaaS suites offer. Our ability to increase sales to existing customers will depend on a number of factors, including our customers' satisfaction with our products, competition, pricing, and overall changes in our customers' spending levels.
Increase Share of Revenue Derived from SaaS. Our go-to-market motion is focused primarily on Identity Security Cloud, our SaaS offering. We define incremental ARR as the increase in ARR from the prior period to current period. While we expect that this increase in SaaS contracts will drive growth in ARR, it is also expected to have a near term negative impact on revenue growth, driven by differences in revenue recognition policies between SaaS subscriptions and term subscriptions, and gross margins, as we incur hosting costs for our SaaS offering. Our ability to increase our revenue from SaaS subscriptions will depend on a number of factors, including our customers' specific circumstances, some of which necessitate their preference for our customer-hosted identity governance solution, IdentityIQ.
Deepen our Penetration in International Markets. We expect to continue to invest in our sales and marketing efforts and channel partner network to expand our reach and deepen our presence in existing geographies and to expand into new geographies. We believe that our global market opportunity is large and growing in response to the evolving IT and threat landscapes. We generated 64% and 65% of our revenue from the United States for the three and six months ended July 31, 2025, respectively. We generated 22% of our revenue from EMEA and 13% from the rest of the world, billed primarily in U.S. dollars, for both the three and six months ended July 31, 2025.
Our ability to deepen our penetration in international markets will depend on a number of factors, including the competitiveness of our solutions, the efficacy of our channel partner network, and our sales and marketing efforts.
Sustain Technology Leadership Through Extending Identity Security Portfolio. We recently launched new offerings in non-employee risk management, data access security, access risk management, and cloud infrastructure entitlement management. We are thoughtfully investing in AI, both to increase the capabilities of our solutions, as well as to help our customers protect their organizations while adopting AI for their own use cases. We intend to continue investing to extend our position as the leader in identity security by developing or acquiring new products and technologies and extending our portfolio into additional identity security use cases. Our future success is dependent on our ability to successfully develop, identify, market, and sell existing and new products to both new and existing customers.
Impact of Current Economic Conditions
Worldwide economic and political uncertainties and negative trends, including financial and credit market fluctuations, tariffs and increasing trade protectionism, changes in government spending levels, uncertainty in the banking sector, rising interest rates, inflation and other impacts from the macroeconomic environment have, and could continue to, adversely affect our business operations or financial results. As we continue to monitor the direct and indirect impacts of these circumstances, the broader implications of these macroeconomic and political events on our business, results of operations and overall financial position remain uncertain. See the section titled "Risk Factors'' included under Part I, Item 1A of the fiscal 2025 Form 10-K for further discussion of the possible impact of these factors and other risks on our business.
Key Business Metrics
In addition to our financial information prepared in accordance with GAAP, we monitor the following key business metrics to help us measure and evaluate the effectiveness of our operations. Although we believe we have a reasonable basis for each of these metrics, we caution you that these metrics are based on a combination of assumptions that may prove to be
inaccurate over time. Please see the section titled "Risk Factors" included under Part I, Item 1A of the fiscal 2025 Form 10-K for more information.
Annual Recurring Revenue
We believe ARR is a key metric to measure our business performance because it measures our ability to generate sales with new customers and to maintain and expand spend with existing customers. The way we define ARR normalizes the impact of revenue recognition differences between SaaS contracts and term subscription agreements. In recent years, ARR has grown faster than revenue, as a greater share of incremental ARR has been driven by SaaS contracts which have ratable revenue recognition compared to term subscription agreements where a portion of the contract value is recognized as revenue up-front.
We define ARR as the annualized value of SaaS, maintenance, term subscription, and other subscription contracts as of the measurement date. To the extent that we are actively negotiating a renewal or new agreement with a customer after the expiration of a contract, we continue to include that contract's annualized value in ARR until the customer notifies us that it is not renewing its contract. The amount included in our ARR calculation related to these contracts was less than 1% as of the end of each period shown in the ARR table below. We calculate ARR by dividing the active contract value by the number of days of the contract and then multiplying by 365. ARR should be viewed independently of revenue, as ARR is an operating metric and is not intended to be combined with or to replace revenue. ARR is not a forecast of future revenue, which can be impacted by ASC 606 allocations, and ARR does not consider other sources of revenue that are not recurring in nature.
ARR does not have a standardized meaning and is not necessarily comparable to similarly titled measures presented by other companies. Our ARR has grown in each of the past three years, reflecting growth in new customers as well as expanded sales to existing customers. The following table presents our ARR as of the dates noted below (dollars in millions):
July 31, 2025 July 31, 2024
ARR
$ 982.0 $ 766.7
SaaS Annual Recurring Revenue
In recent years, we have transitioned our business to a SaaS-first subscription model. As a result of those efforts, the share of SaaS ARR to total ARR has increased to 63% as of July 31, 2025 from 59% as of July 31, 2024. We believe the share of ARR generated by our SaaS solution will continue to increase over time.
We define SaaS ARR as the annualized value of SaaS contracts as of the measurement date. To the extent that we are actively negotiating a renewal or new agreement with a customer after the expiration of a contract, we continue to include that contract's annualized value in SaaS ARR until the customer notifies us that it is not renewing its contract. The amount included in our ARR calculation related to these contracts was less than 1% as of the end of each period shown in the SaaS ARR table below. We calculate SaaS ARR by dividing the active SaaS contract value by the number of days of the contract and then multiplying by 365.
SaaS ARR should be viewed independently of subscription revenue as SaaS ARR is an operating metric and is not intended to be combined with or replace subscription revenue. SaaS ARR is not a forecast of future subscription revenue, which can be impacted by ASC 606 allocations and renewal rates and does not consider other sources of revenue that are not recurring in nature. The following table presents our SaaS ARR as of the dates noted below (dollars in millions):
July 31, 2025 July 31, 2024
SaaS ARR
$ 622.7 $ 455.0
Dollar-Based Net Retention Rate
Our dollar-based net retention rate has remained consistent at 114% as of both July 31, 2025 and July 31, 2024. We continue to focus on growing our product portfolio as well as expanding customer relationships over time through cross-selling and up-selling.
We define dollar-based net retention rate as the comparison of our ARR from our subscription customers against the same metric for those subscription customers from the prior year. For the purposes of calculating our dollar-based net retention rate, we define a subscription customer as a separate legal entity that has entered into a distinct subscription agreement. Our dollar-based net retention rate reflects customer expansion, contraction, and churn. We calculate our dollar-based net retention rate as of period end by starting with the ARR from all subscription customers as of 12 months prior to such period end, or prior period ARR. We then calculate the ARR from these same subscription customers as of the current period end, or current period ARR. We then divide the current period ARR by the prior period ARR to arrive at our dollar-based net retention rate. The dollar-based net retention rate at the end of any period is the weighted average of the dollar-based net retention rates as of the end of each of the trailing four quarters. The following table presents our dollar-based net retention rate as of the dates noted below:
July 31, 2025 July 31, 2024
Dollar-based net retention rate
114 % 114 %
Factors Affecting the Comparability of Our Results of Operations
Our historical results of operations may not be comparable from period to period or going forward. Set forth below is a brief discussion of the key factors impacting the comparability of our results of operations.
Public Company and Other Costs
We incur additional costs associated with operating as a public company as compared to periods prior to the IPO. The Sarbanes-Oxley Act of 2002, as well as rules adopted by the SEC and national securities exchanges, require public companies to implement specified corporate governance practices that were inapplicable to us as a private company. These additional rules and regulations increase our legal, regulatory, financial, and insurance compliance costs and make some activities more time-consuming and costly. We no longer incur Thoma Bravo monitoring fees (which were annual service fees as described in Note 8 "Related Party Transactions" in the notes to our condensed consolidated financial statements).
Equity-Based Compensation Expense
We incurred a significant increase in equity-based compensation expense due to the conversion and vesting of equity awards issued prior to the IPO as well as the issuance of equity awards to certain employees in connection with the IPO. We also expect to incur higher equity-based compensation-related costs as we operate as a public company, including with respect to the issuance of new RSUs under the Omnibus Plan to certain of our employees, which will result in an increase in costs of revenue, research and development expenses, sales and marketing expenses, and general and administrative expenses.
Components of Results of Operations
Revenue
Subscription Revenue
The majority of our revenue relates to subscription revenue which consists of (i) fees for access to, and related support for, the SaaS offerings, (ii) fees for term subscriptions, (iii) fees for ongoing maintenance and support of perpetual license solutions, and (iv) other subscription services such as cloud managed services, and certain professional services. Term subscriptions include the term licenses and ongoing maintenance and support. Maintenance and support agreements consist of fees for providing software updates on a when and if available basis and for providing technical support for software products for a specified term.
Subscription revenue, including support for term licenses, is recognized ratably over the term of the applicable agreement. Revenue related to term subscription performance obligations, excluding support for term subscriptions, is recognized upfront at the point in time when the customer has taken control of the software license.
Over time, we expect subscription revenue will increase as a percentage of total revenue as we continue to focus on increasing our subscription revenue, specifically our SaaS offering, as a key strategic priority.
Perpetual License Revenue
Revenues from perpetual license performance obligations are recognized upfront at the point in time when the customer has taken control of the software license. All perpetual license transactions include maintenance and support performance obligations which are included in subscription revenue.
We expect perpetual license revenue as a percentage of total revenue to continue to decrease over time as we focus on increasing our subscription revenue.
Services and Other Revenue
Services and other revenue consist primarily of fees from professional services provided to customers and partners to configure and optimize the use of our solutions as well as non-subscription training services. Our professional services are structured on a time-and-materials or fixed priced basis, and the related revenue is recognized as the services are rendered.
Over time, we expect our professional services revenue as a percentage of total revenue to decrease as we increasingly rely on partners to help our customers deploy our software.
Cost of Revenue
Cost of Subscription Revenue
Cost of subscription revenue consists primarily of third-party cloud-based hosting costs, software, amortization expenses for developed technology acquired, amortization expense for capitalized software development costs, equity-based compensation, employee-related costs (which we define as salaries, benefits, bonuses, and allocated overhead) for providing subscriptions, third party royalties, facilities costs and contractor costs to supplement staff levels. We expect third-party cloud-based hosting costs to increase as our SaaS subscriptions continue to grow.
Cost of Perpetual License Revenue
Cost of perpetual license revenue consists of amortization expense for developed technology acquired and third-party royalties.
Cost of Services and Other Revenue
Cost of services and other revenue consists primarily of employee-related costs of professional services and training organizations, equity-based compensation, travel-related costs, facilities costs, and contractor costs to supplement staff levels.
Gross Profit and Gross Profit Margin
Gross profit is revenue less cost of revenue, and gross profit margin is gross profit as a percentage of total revenue. Gross profit has been and will continue to be affected by various factors, including the mix of our revenue, the costs associated with third-party cloud-based hosting services and software for our SaaS offering, and the extent to which we expand our customer support, professional services, and training organizations. We expect that our overall gross profit margin will fluctuate from period to period depending on the mix of these various factors. Our gross profit margin may decrease in the short term as we transition to generating an increasing share of our revenue from our SaaS offering.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of employee-related costs, equity-based compensation, software and hosting arrangement expenses, facilities costs, professional services expense, and amortization expense for acquired intangible assets.
We believe that continued investment in our offerings is vital to the growth of our business, and we intend to continue to invest in product development. We expect our research and development expenses to continue to increase on an absolute basis in the foreseeable future but to decrease as a percentage of revenue as our business grows.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of employee-related costs, equity-based compensation, costs for events and travel, facilities costs, costs of general marketing and promotional activities, payment processing fees and amortization expense for acquired intangible assets, and contract acquisition costs.
We expect our sales and marketing expenses to increase on an absolute basis for the foreseeable future as we continue to invest in our sales force for expansion to new geographic and vertical markets. We expect sales and marketing expenses to continue to be our largest operating expense category.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs related to the corporate functions such as executive and internal administrative operations, as well as equity-based compensation, third-party professional fees, bad debt expense, travel, and facilities costs.
We expect our general and administrative expenses to increase on an absolute basis as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations, and increased expenses for insurance, investor relations, and professional services. However, we expect that our general and administrative expense will decrease as a percentage of our revenue as our revenue grows over the longer term as our business grows.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income and interest expense. Interest income consists primarily of interest received on cash equivalents, which we expect will fluctuate based on our cash balances and interest rates. We expect interest expense to decrease due to the repayment of our Term Loans.
Income Tax Benefit (Expense)
Our income tax benefit (expense) consists of U.S. and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. Our income tax rate varies from the federal statutory rate due to state income taxes, differences in accounting and tax treatment of our equity-based compensation, research and development credits, and changes in the valuation allowance. We expect fluctuation in effective income tax rates, as well as its potential impact on our results of operations, to continue.
Seasonality
We generally experience seasonal fluctuations in demand for our products and services. Our quarterly sales are impacted by industry buying patterns. As a result, our sales have generally been highest in the fourth calendar quarter and lowest in the first calendar quarter. Although these seasonal factors are common in the technology industry, historical patterns should not be considered a reliable indicator of our future sales activity or performance.
Results of Operations
The following table sets forth our results of operations for the periods presented and as a percentage of revenue(1)(in thousands, except for percentages, per share and per unit data)(2). The period-to-period comparison of results is not necessarily indicative of results for future periods.
Three Months Ended July 31, Six Months Ended July 31,
2025 2024 2025 2024
Revenue
Subscription $ 247,937 94 % $ 181,811 92 % $ 463,260 94 % $ 351,903 91 %
Perpetual licenses 430 - 22 - 435 - 91 -
Services and other 15,992 6 16,742 8 31,132 6 34,237 9
Total revenue 264,359 100 198,575 100 494,827 100 386,231 100
Cost of revenue
Subscription (3) (4)
70,443 27 58,488 29 145,934 29 113,608 29
Perpetual licenses (4)
- - 46 - 3 - 106 -
Services and other (3)
16,110 6 16,728 8 43,429 9 33,714 9
Total cost of revenue 86,553 33 75,262 38 189,366 38 147,428 38
Gross profit 177,806 67 123,313 62 305,461 62 238,803 62
Operating expenses
Research and development (3) (4)
48,111 18 43,108 22 115,381 23 85,025 22
Sales and marketing (3) (4)
131,289 50 119,565 60 295,819 60 234,452 61
General and administrative (3)
39,204 15 26,470 13 120,024 24 53,349 14
Total operating expenses 218,604 83 189,143 95 531,224 107 372,826 97
Loss from operations (40,798) (15) (65,830) (33) (225,763) (46) (134,023) (35)
Other income (expense), net
Interest income 2,336 1 1,078 1 5,562 1 3,053 1
Interest expense (1,693) (1) (47,317) (24) (24,082) (5) (93,556) (24)
Other income (expense), net (1,710) (1) (1,148) (1) (1,901) - (2,338) (1)
Total other income (expense), net (1,067) - (47,387) (24) (20,421) (4) (92,841) (24)
Loss before income taxes (41,865) (16) (113,217) (57) (246,184) (50) (226,864) (59)
Income tax benefit (expense) 31,313 12 26,087 13 48,320 10 50,558 13
Net loss $ (10,552) (4) % $ (87,130) (44) % $ (197,864) (40) % $ (176,306) (46) %
Class A yield $ - $ (158,710) $ (23,786) $ (310,346)
Net loss attributable to common stockholders and Class B unitholders $ (10,552) $ (245,840) $ (221,650) $ (486,652)
Net loss per share attributable to common stockholders and Class B unitholders, basic and diluted (2)
$ (0.02) $ (2.97) $ (0.42) $ (5.89)
Weighted average shares and Class B Units outstanding, basic and diluted (2)
555,757 82,703 528,355 82,564
_______________
(1) Certain percentages may not foot due to rounding.
(2) Amounts for the period during February 2025 prior to the Corporate Conversion have been retrospectively adjusted to give effect to the Corporate Conversion described in Note 1 in this Quarterly Report. These amounts do not consider the shares of common stock sold in our IPO or the Class A Units considered preferred shares that were converted into common stock and issued upon the closing of our IPO. We did not retrospectively adjust for the effect of the Corporate Conversion for periods prior to fiscal year 2026.
(3) Includes equity-based compensation expense as follows:
Three Months Ended July 31, Six Months Ended July 31,
2025 2024 2025 2024
(In thousands)
Cost of revenue
Subscription $ 1,931 $ 1,626 $ 13,195 $ 3,328
Services and other 681 1,589 11,009 3,225
Operating expenses
Research and development 7,512 6,030 35,351 12,887
Sales and marketing 18,203 8,934 71,706 18,135
General and administrative 20,091 6,211 77,616 12,672
Total equity-based compensation expense, net of amounts capitalized $ 48,418 $ 24,390 $ 208,877 $ 50,247
(4) Includes amortization expense of acquired intangible assets as follows:
Three Months Ended July 31, Six Months Ended July 31,
2025 2024 2025 2024
(In thousands)
Cost of revenue
Subscription $ 26,322 $ 25,844 $ 52,380 $ 51,602
Perpetual licenses - 46 2 106
Operating expenses
Research and development 95 95 190 190
Sales and marketing 23,797 38,494 47,553 76,988
Total amortization expense $ 50,214 $ 64,479 $ 100,125 $ 128,886
Comparison of the Three Months Ended July 31, 2025 and 2024
Revenue
Three Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Revenue
Subscription
SaaS $ 144,758 $ 105,716 $ 39,042 37 %
Maintenance and support 38,471 38,909 (438) (1) %
Term subscriptions 58,120 32,630 25,490 78 %
Other subscription services 6,588 4,556 2,032 45 %
Total subscription 247,937 181,811 66,126 36 %
Perpetual licenses 430 22 408 **
Services and other 15,992 16,742 (750) (4) %
Total revenue $ 264,359 $ 198,575 $ 65,784 33 %
** Percentage not deemed meaningful
Subscription Revenue.Subscription revenue increased by $66.1 million, or 36%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024 primarily due to an increase in SaaS revenue and term subscription revenue from our focus on selling subscriptions to new and existing customers.
Perpetual License Revenue.License revenue increased by $0.4 million for the three months ended July 31, 2025 compared to the three months ended July 31, 2024. The increase was not considered significant and we continue to emphasize
on transitioning our sales effort from perpetual license solutions to subscriptions. We expect our license revenue as a percentage of total revenue to continue to decrease over time.
Services and Other Revenue.Services and other revenue decreased by $0.8 million, or 4% for the three months ended July 31, 2025 compared to the three months ended July 31, 2024. This decrease is primarily a result of a shift toward selling a higher proportion of professional services and training on a subscription basis.
Cost of Revenue
Three Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Cost of revenue
Subscription $ 70,443 $ 58,488 $ 11,955 20 %
Perpetual licenses - 46 (46) (100) %
Services and other 16,110 16,728 (618) (4) %
Total cost of revenue $ 86,553 $ 75,262 $ 11,291 15 %
Cost of Subscription Revenue.Cost of subscription revenue increased $12.0 million, or 20%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024 primarily due to an increase in employee-related costs of $4.3 million due to higher headcount and increased investments in existing employees, an increase of $0.3 million related to equity-based awards, an increase in software and hosting costs of $5.4 million from the increase in sales of SaaS subscriptions, an increase in third-party royalties of $0.4 million, an increase in partner costs of $0.6 million, an increase in amortization of intangibles of $0.5 million and an increase in amortization of capitalized software of $0.4 million.
Cost of Perpetual Licenses. Cost of perpetual licenses were not significant during either the three months ended July 31, 2025 or the three months ended July 31, 2024. Such cost decreased for the three months ended July 31, 2025 compared to the three months ended July 31, 2024 primarily due to our shift in focus on selling subscriptions to new and existing customers.
Cost of Services and Other.Cost of services and other decreased by $0.6 million, or 4%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024, remaining materially consistent with the prior period.
Gross Profit and Gross Margin
Three Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Gross profit
Subscription $ 177,494 $ 123,323 $ 54,171 44 %
Perpetual licenses 430 (24) 454 **
Services and other (118) 14 (132) **
Total gross profit $ 177,806 $ 123,313 $ 54,493 44 %
Three Months Ended July 31,
2025 2024
Gross profit margin
Subscription 72 % 68 %
Perpetual licenses 100 % (109) %
Services and other (1) % - %
Total gross profit margin 67 % 62 %
** Percentage not deemed meaningful
Subscription.Subscription gross profit increased by $54.2 million, or 44%, during the three months ended July 31, 2025 compared to the three months ended July 31, 2024. The increase was primarily due to the growth in subscriptions. Subscription gross profit margin was 72% for the three months ended July 31, 2025 and 68% for the three months ended July 31, 2024. The change was primarily due to the increased SaaS revenue and term subscription revenue from our focus on selling subscriptions to new and existing customers.
Perpetual Licenses.License gross profit increased during the three months ended July 31, 2025 compared to the three months ended July 31, 2024. The increase was not significant and we continue to emphasize transitioning our sales effort from perpetual license solutions to subscriptions. We expect our license gross profit to continue not to be significant.
Services and Other. Services and other gross profit decreased by $0.1 million during the three months ended July 31, 2025 compared to the three months ended July 31, 2024. The decrease in gross profit is primarily due to lower revenue from professional services and training as a result of the shift toward selling these services on a subscription basis. Services and other gross profit margin remained consistent with the prior period and is primarily due to lower revenue from professional services and training as a result of the shift toward selling these services on a subscription basis.
Total gross profit increased by $54.5 million, or 44%, during the three months ended July 31, 2025 compared to the three months ended July 31, 2024. The increase is primarily due to the growth in total revenue. Total gross profit margin was 67% for the three months ended July 31, 2025 and 62% for the three months ended July 31, 2024. The increase is primarily due to the growth in total revenue.
Operating Expenses
Three Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Operating expenses
Research and development $ 48,111 $ 43,108 $ 5,003 12 %
Sales and marketing 131,289 119,565 11,724 10 %
General and administrative 39,204 26,470 12,734 48 %
Total operating expenses $ 218,604 $ 189,143 $ 29,461 16 %
Research and Development Expenses.Research and development expenses increased by $5.0 million, or 12%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024. This increase was primarily driven by a $1.5 million increase in equity-based compensation from the issuance of equity-based awards upon the closing of the IPO, a $2.3 million increase in software and hosting costs and a $0.8 million increase in employee-based costs due to continued investment in talent related to the development of our products.
Sales and Marketing Expenses.Sales and marketing expenses increased by $11.7 million, or 10%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024. This increase was primarily driven by a $9.3 million increase in equity-based compensation from the issuance of equity-based awards upon the closing of the IPO, a $12.7 million increase in employee-based costs to support increased penetration into our existing customer base and expansion into new industry verticals and geographic markets, a $1.6 million increase for the fair value remeasurement of the contingent consideration related to the Imprivata acquisition, a $1.1 million increase in professional services fees, a $0.7 million increase in software and hosting costs, a $0.5 million increase in advertising and promotion costs and a $0.5 million increase in travel expenses. This increase was partially offset by a $14.7 million decrease in intangible amortization attributable to certain intangible assets reaching full amortization.
General and Administrative Expenses.General and administrative expenses increased by $12.7 million, or 48%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024. This increase was primarily driven by a $13.9 million increase in equity-based compensation from the issuance of equity-based awards upon the closing of the IPO, a $1.2 million increase in employee-related costs due to higher headcount and increased investments in personnel, a $0.5 million increase in provision for credit losses, a $0.4 million increase in travel expenses and a $0.3 million increase in software and hosting costs. This increase was partially offset by a $3.8 million decrease in professional service fees as the prior year included fees to Thoma Bravo under its advisory services agreement, which was terminated upon the closing of our IPO.
Other Income (Expense), Net
Three Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Other income (expense), net
Interest income $ 2,336 $ 1,078 $ 1,258 117 %
Interest expense (1,693) (47,317) 45,624 (96) %
Other income (expense), net (1,710) (1,148) (562) 49 %
Total other income (expense), net $ (1,067) $ (47,387) $ 46,320 (98) %
Other expense decreased by $46.3 million, or 98%, for the three months ended July 31, 2025 compared to the three months ended July 31, 2024. This decrease was primarily due to a $45.6 million net decrease in interest expense due to the full repayment of our Term Loans and a $1.3 million increase in interest income due to an increase in our cash and cash equivalents, partially offset by a $1.4 million increase for the extinguishment of debt related to the remaining balance of deferred financing costsrelated to the 2022 Revolving Credit Facility and a $0.6 million increase in other expense related to foreign currency exchange loss.
Income Tax (Expense) Benefit
Three Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Income tax benefit (expense) $ 31,313 $ 26,087 $ 5,226 20 %
The Company recorded an income tax benefit of $31.3 million for the three months ended July 31, 2025 compared to an income tax benefit of $26.1 million for the three months ended July 31, 2024, leading to a net benefit increase of $5.2 million, or 20%, year-over-year. The increase is primarily due to recordingtax benefit for the change in valuation allowance in the current period for changes in tax law.
For further information, refer to Note 12 "Income Taxes" in our notes to our condensed consolidated financial statements included in this Quarterly Report.
Comparison of the Six Months Ended July 31, 2025 and 2024
Revenue
Six Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Revenue
Subscription
SaaS $ 276,573 $ 202,783 $ 73,790 36 %
Maintenance and support 75,860 77,178 (1,318) (2) %
Term subscriptions 98,160 63,315 34,845 55 %
Other subscription services 12,667 8,627 4,040 47 %
Total subscription 463,260 351,903 111,357 32 %
Perpetual licenses 435 91 344 **
Services and other 31,132 34,237 (3,105) (9) %
Total revenue $ 494,827 $ 386,231 $ 108,596 28 %
** Percentage not deemed meaningful
Subscription Revenue.Subscription revenue increased by $111.4 million, or 32%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024 primarily due to an increase in SaaS revenue and term subscription revenue from our focus on selling subscriptions to new and existing customers.
Perpetual License Revenue.License revenue increased by $0.3 million for the six months ended July 31, 2025 compared to the six months ended July 31, 2024. The increase was not significant and we continue to emphasize on transitioning our sales effort from perpetual license solutions to subscriptions. We expect our license revenue as a percentage of total revenue to continue to decrease over time.
Services and Other Revenue.Services and other revenue decreased by $3.1 million, or 9%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024. This decrease is primarily a result of a shift toward selling a higher proportion of professional services and training on a subscription basis.
Cost of Revenue
Six Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Cost of revenue
Subscription $ 145,934 $ 113,608 $ 32,326 28 %
Perpetual licenses 3 106 (103) (97) %
Services and other 43,429 33,714 9,715 29 %
Total cost of revenue $ 189,366 $ 147,428 $ 41,938 28 %
Cost of Subscription Revenue.Cost of subscription revenue increased $32.3 million, or 28%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024 primarily due to an increase in employee-related costs of $9.4 million due to higher headcount and increased investments in personnel, an increase of $9.9 million related to acceleration of equity-based awards from the completion of our IPO and the issuance of new equity-based awards, an increase in software and hosting costs of $9.4 million from the increase in sales of SaaS subscriptions, an increase in partner costs of $1.2 million, an increase in third-party royalties of $0.8 million, an increase in amortization of intangibles of $0.8 million and an increase in amortization of capitalized software of $0.7 million.
Cost of Perpetual Licenses. Cost of perpetual licenses were not significant during either the six months ended July 31, 2025 or the six months ended July 31, 2024. Such cost decreased for the six months ended July 31, 2025 compared to the six months ended July 31, 2024 primarily due to our shift in focus on selling subscriptions to new and existing customers.
Cost of Services and Other.Cost of services and other increased by $9.7 million, or 29%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024, primarily due to the acceleration of equity-based awards from the completion of our IPO and the issuance of new equity-based awards.
Gross Profit and Gross Margin
Six Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Gross profit
Subscription $ 317,326 $ 238,295 $ 79,031 33 %
Perpetual licenses 432 (15) 447 **
Services and other (12,297) 523 (12,820) **
Total gross profit $ 305,461 $ 238,803 $ 66,658 28 %
Six Months Ended July 31,
2025 2024
Gross profit margin
Subscription 68 % 68 %
Perpetual licenses 99 % (16) %
Services and other (39) % 2 %
Total gross profit margin 62 % 62 %
** Percentage not deemed meaningful
Subscription.Subscription gross profit increased by $79.0 million, or 33%, during the six months ended July 31, 2025 compared to the six months ended July 31, 2024. The increase was primarily due to the growth in subscriptions. Subscription gross profit margin was 68% for both the six months ended July 31, 2025 and July 31, 2024. Subscription gross profit remained materially consistent with the prior period.
Perpetual Licenses.License gross profit increased during the six months ended July 31, 2025 compared to the six months ended July 31, 2024. The increase was not significant and we continue to emphasize on transitioning our sales effort from perpetual license solutions to subscriptions. We expect our license gross profit to continue not to be significant.
Services and Other. Services and other gross profit decreased by $12.8 million during the six months ended July 31, 2025 compared to the six months ended July 31, 2024. The decrease in gross profit is primarily due to an increase in employee-related costs and the acceleration of equity-based awards from the completion of our IPO and the issuance of new equity-based awards and lower revenue from professional services and training as a result of the shift toward selling these services on a subscription basis. Services and other gross profit margin was (39)% for the six months ended July 31, 2025 and 2% for the six months ended July 31, 2024. The change was primarily due to employee-related costs related to acceleration of equity-based awards from the completion of our IPO and the issuance of new awards and the decrease in services and other revenue.
Total gross profit increased by $66.7 million, or 28%, during the six months ended July 31, 2025 compared to the six months ended July 31, 2024. The increase is primarily due to the growth in total revenue. Total gross profit margin was 62% for both the six months ended July 31, 2025 and July 31, 2024. Total gross profit margin remained materially consistent with the prior period.
Operating Expenses
Six Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Operating expenses
Research and development $ 115,381 $ 85,025 $ 30,356 36 %
Sales and marketing 295,819 234,452 61,367 26 %
General and administrative 120,024 53,349 66,675 125 %
Total operating expenses $ 531,224 $ 372,826 $ 158,398 42 %
Research and Development Expenses.Research and development expenses increased by $30.4 million, or 36%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024. This increase was primarily driven by a $22.5 million increase in equity-based compensation due to the acceleration of awards from the completion of our IPO and the issuance of new equity-based awards, a $3.8 million increase in employee-based costs due to continued investment in talent related to the development of our products and a $3.4 million increase in software and hosting costs.
Sales and Marketing Expenses.Sales and marketing expenses increased by $61.4 million, or 26%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024. This increase was primarily driven by a $53.6 million increase in equity-based compensation due to the acceleration of awards from the completion of our IPO and the issuance of new equity-based awards, a $27.7 million increase in employee-based costs to support increased penetration into our existing customer base and expansion into new industry verticals and geographic markets, a $3.7 million increase in advertising and promotion costs, a $1.6 million increase for the fair value remeasurement of the contingent consideration related to the Imprivata acquisition, a $1.4 million increase in travel expenses, a $1.3 million increase in professional services fees, and a $1.1 million increase in software and hosting costs. This increase was partially offset by a $29.4 million decrease in intangible amortization attributable to certain intangible assets reaching full amortization.
General and Administrative Expenses.General and administrative expenses increased by $66.7 million, or 125%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024. This increase was primarily driven by a $64.9 million increase in equity-based compensation due to the acceleration of awards from the completion of our IPO and the issuance of new equity-based awards, a $3.1 million increase in employee-related costs due to higher headcount and increased investments in existing employees, a $3.4 million increase in provision for credit losses, a $1.0 million increase in software and hosting costs, and a $0.4 million increase in travel expenses. This increase was partially offset by a $6.1 million decrease in professional service fees as the prior year included fees to Thoma Bravo under its advisory services agreement, which was terminated upon the closing of our IPO.
Other Income (Expense), Net
Six Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Other income (expense), net
Interest income $ 5,562 $ 3,053 $ 2,509 82 %
Interest expense (24,082) (93,556) 69,474 (74) %
Other income (expense), net (1,901) (2,338) 437 (19) %
Total other income (expense), net $ (20,421) $ (92,841) $ 72,420 (78) %
Other expense decreased by $72.4 million, or 78%, for the six months ended July 31, 2025 compared to the six months ended July 31, 2024. This decrease was primarily due to a $69.5 million net decrease in interest expense due to the full repayment of our Term Loans and termination of our 2022 Revolving Credit Facility, which includes $16.7 million for the extinguishment of debt related to the remaining balance of the deferred financing costsof our Term Loans and debt issuance costs for our 2022 Revolving Credit Facility, and a $2.5 million increase in interest income due to an increase in our cash and cash equivalents, and a $0.4 million decrease in other expense related to foreign currency exchange loss.
Income Tax (Expense) Benefit
Six Months Ended July 31,
2025 2024 $ Change % Change
(In thousands, except percentages)
Income tax benefit (expense) $ 48,320 $ 50,558 $ (2,238) (4) %
The Company recorded an income tax benefit of $48.3 million for the six months ended July 31, 2025 compared to an income tax benefit of $50.6 million for the six months ended July 31, 2024, leading to a net benefit decrease of $2.2 million, or (4)%, year-over-year. The decrease is primarily due to certain non-deductible equity-based compensation and non-deductible executive officer compensation that is partially offset by the decrease in valuation allowance in the current period.
For further information, refer to Note 12 "Income Taxes" in our notes to our condensed consolidated financial statements included in this Quarterly Report.
Non-GAAP Financial Measures
In addition to our financial information presented in accordance with GAAP, we use certain "non-GAAP financial measures" to clarify and enhance our understanding of past performance.
Our non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in our industry because they may calculate non-GAAP financial results differently. In addition, there are limitations in using non-GAAP financial measures because they are not prepared in accordance with GAAP and exclude expenses that may have a material impact on our reported financial results. In particular, interest expense, which is excluded from adjusted income from operations, has been a significant recurring expense in our business. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. We urge you to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures included below and not to rely on any single financial measure to evaluate our business.
We believe excluding items that do not reflect our ongoing, core operating or business performance, such as equity-based compensation, payroll taxes related to awards that were accelerated upon the closing of our IPO, payroll taxes related to RSUs, amortization of acquired intangible assets, and acquisition-related expenses (including fair value adjustments to acquisition-contingent consideration), enables management and investors to compare our underlying business performance from period-to-period. Accordingly, we believe these adjustments facilitate a useful evaluation of our current operating performance and comparison to our past operating performance and provide investors with additional means to evaluate cost and expense trends. In addition, we also believe these adjustments enhance comparability of our financial performance against those of other technology companies.
Adjusted Gross Profit and Adjusted Gross Profit Margin
We define adjusted gross profit and adjusted gross profit margin as excluding equity-based compensation expense, payroll taxes related to awards that were accelerated upon the closing of our IPO and payroll taxes related to RSUs, all of which were issued after the closing of the IPO, amortization of acquired intangible assets, which includes impairment, acquisition related expenses, and restructuring expenses.
The following table reflects the reconciliation of adjusted gross profit to gross profit and adjusted gross profit margin to gross profit margin:
Three Months Ended July 31, Six Months Ended July 31,
2025 2024 2025 2024
(In thousands, except percentages)
GAAP gross profit $ 177,806 $ 123,313 $ 305,461 $ 238,803
GAAP gross profit margin 67 % 62 % 62 % 62 %
Equity-based compensation expense 2,612 3,215 24,204 6,553
Payroll taxes for IPO-accelerated awards and RSUs
- - 634 -
Amortization of acquired intangible assets 26,322 25,890 52,382 51,708
Adjusted gross profit $ 206,740 $ 152,418 $ 382,681 $ 297,064
Adjusted gross profit margin 78 % 77 % 77 % 77 %
Our adjusted gross profit margin (adjusted gross profit as a percentage of revenue) has remained generally consistent in recent periods and reflects the high value-added nature of our offerings.
Adjusted Subscription Gross Profit and Adjusted Subscription Gross Profit Margin
We define adjusted subscription gross profit and adjusted subscription gross profit margin as excluding equity-based compensation expense, payroll taxes related to awards that were accelerated upon the closing of our IPO and payroll taxes related to RSUs, all of which were issued after the closing of the IPO, amortization of acquired intangible assets, which includes impairment, acquisition related expenses, and restructuring expenses.
The following table reflects the reconciliation of adjusted subscription gross profit to subscription gross profit and adjusted subscription gross profit margin to subscription gross profit margin:
Three Months Ended July 31, Six Months Ended July 31,
2025 2024 2025 2024
(In thousands, except percentages)
GAAP subscription gross profit $ 177,494 $ 123,323 $ 317,326 $ 238,295
GAAP subscription gross profit margin 72 % 68 % 68 % 68 %
Equity-based compensation expense 1,931 1,626 13,195 3,328
Payroll taxes for IPO-accelerated awards and RSUs - - 332 -
Amortization of acquired intangible assets 26,322 25,844 52,380 51,602
Adjusted subscription gross profit $ 205,747 $ 150,793 $ 383,233 $ 293,225
Adjusted subscription gross profit margin 83 % 83 % 83 % 83 %
Our adjusted subscription gross profit margin (adjusted subscription gross profit as a percentage of subscription revenue) has remained generally consistent in recent periods and reflects the high value-added nature of our offerings.
Adjusted Income from Operations and Adjusted Operating Margin
We define adjusted income from operations as income (loss) from operations excluding equity-based compensation expense, payroll taxes related to awards that were accelerated upon the closing of our IPO and payroll taxes related to RSUs, all of which were issued after the closing of the IPO, amortization of acquired intangible assets which includes impairment charges, benefit from amortization related to acquired contract acquisition costs, acquisition-related expenses (including fair value adjustments to acquisition-contingent consideration), Thoma Bravo monitoring fees (which were annual service-fees as
described in Note 8 "Related Party Transactions" in the notes to our condensed consolidated financial statements), and restructuring expenses. The Thoma Bravo monitoring fees were incurred pursuant to a services agreement, and we do not expect to receive similar services in the future or enter into a similar arrangement again in the future.
The following table reflects the reconciliation of adjusted income (loss) from operations to operating income (loss):
Three Months Ended July 31, Six Months Ended July 31,
2025 2024 2025 2024
(In thousands, except percentages)
GAAP income (loss) from operations $ (40,798) $ (65,830) $ (225,763) $ (134,023)
GAAP income (loss) from operations margin (15) % (33) % (46) % (35) %
Equity-based compensation expense 48,418 24,390 208,877 50,247
Payroll taxes for IPO-accelerated awards and RSUs - - 3,399 -
Amortization of acquired intangible assets 50,214 64,479 100,125 128,886
Amortization of acquired contract acquisition costs (1)
(5,444) (6,559) (11,208) (13,304)
Acquisition-related expenses and Thoma Bravo monitoring fees 1,609 4,714 2,192 8,580
Adjusted income (loss) from operations $ 53,999 $ 21,194 $ 77,622 $ 40,386
Adjusted operating margin 20 % 11 % 16 % 10 %
(1) In accordance with GAAP reporting requirements, the Company has written off its contract acquisition costs at the time when the Company was acquired in an all-cash take-private transaction by Thoma Bravo on August 16, 2022. Therefore, GAAP commissions expense related to contract acquisition costs after August 16, 2024 do not reflect the commissions expense that would have been reported if the contract acquisition costs had not been written off. Accordingly, the Company believes that presenting the approximate amount of acquisition-related commission expenses (so that the full amount of commission expense is included) provides a more appropriate representation of commission expense in a given period and, therefore, provides readers of the Company's financial statements with a more consistent basis for comparison across accounting periods.
Our adjusted income from operations and adjusted operating margin increased for the three and six months ended July 31, 2025 compared to July 31, 2024, respectively, primarily due to the growth in our overall business and increased operating leverage.
Free cash flow
We define free cash flow as net cash provided by (used in) operating activities, less cash used for purchases of property and equipment, and capitalized software development costs. We use free cash flow as a measure of financial progress in our business, as it balances operating results, cash management, and capital efficiency. We believe information regarding free cash flow provides investors and others with an important perspective on the cash available to make strategic acquisitions and investments, to fund ongoing operations, and to fund other capital expenditures. Free cash flow can be volatile and is sensitive to many factors, including changes in working capital and timing of capital expenditures. Working capital at any specific point in time is subject to many variables including the discretionary timing of expense payments and fluctuations in foreign exchange rates.
The following table summarizes our free cash flow for the periods presented:
Six Months Ended July 31,
2025 2024
(in thousands)
GAAP net cash provided by (used in) operating activities
$ (46,862) $ (108,183)
Less: Purchase of property and equipment
(3,153) (1,476)
Less: Capitalized software development costs
(4,731) (5,345)
Free cash flow
$ (54,746) $ (115,004)
Liquidity, Capital Resources and Cash Requirements
Our primary sources of liquidity are cash flows from operations, issuance of Class A Units and Class B Units, issuance of our common stock in the IPO and debt financing. Our primary uses of liquidity are debt payments, offering costs, operating expenses, working capital requirements, and capital expenditures.
On February 14, 2025, the Company received net proceeds of approximately $1,248.2 million, net of the underwriting discounts, commissions and offering costs, upon the closing of its IPO.
On February 19, 2025, we repaid $690.0 million of the Term Loans from the proceeds of the IPO. On March 3, 2025, we repaid the remaining balance of $350.0 million of the Term Loans.
Cash flows from operations have been historically negative as we continue to develop and expand our products and services and increase our sales and marketing efforts.
As of July 31, 2025, our principal source of liquidity was cash and cash equivalents totaling $271.1 million and our 2025 Revolving Credit Facility as described further below. We have restricted cash of $6.3 million as of July 31, 2025 primarily related to unconditional standby letters of credit for our corporate headquarters and for our corporate credit card program.
We believe our existing cash and cash equivalents and amounts available under our 2025 Revolving Credit Facility will be sufficient to meet our liquidity, capital expenditures, and anticipated working capital requirements to fund our operations for at least the next 12 months.
Our future capital requirements will depend on many factors, including but not limited to our revenue growth rate, timing of cash receipt and payments, and the timing and extent of spending to support strategic initiatives. We may also enter into arrangements to acquire or invest in complementary businesses, services, and technologies.
To the extent existing cash and cash equivalents are not sufficient to fund future activities, we may borrow under our 2025 Revolving Credit Facility or seek to raise additional funds through equity, equity-linked or debt financings. We may enter into agreements or letters of intent with respect to potential investments in, or acquisitions of, complementary businesses, services or technologies, which could also require us to seek additional equity financing, incur indebtedness or use cash resources. 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 when desired, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, operating results and financial condition would be adversely affected.
2025 Credit Agreement
On June 25, 2025, we entered into the 2025 Credit Agreement, which provides for a five-year $250.0 millionsecured revolving credit facility, including a letter of credit sub-facility of up to $10.0 million. The 2025 Revolving Credit Facility matures on June 25, 2030. Borrowings under the 2025 Revolving Credit Facility may be used to provide ongoing working capital as well as for other general corporate purposes of the Company. We incurred deferred financing costs of $2.7 millionrelated to the issuance of the 2025 Credit Agreement, which are included in other non-current assets on the accompanying condensed consolidated balance sheets. These costs are being amortized to interest expense over the life of the 2025 Credit Agreement on a straight-line basis. Amortization of debt issuance costs related to the 2025 Credit Agreement was $0.1 millionfor both the three and six months ended July 31, 2025. The Company had no outstanding 2025 Revolving Credit Facility balance and were in compliance with all applicable covenants as of July 31, 2025. See Note 7 "Credit Agreement and Debt" in the notes to our condensed consolidated financial statements included in this Quarterly Report for more information regarding the terms and conditions of the 2025 Credit Agreement.
2022 Credit Agreement
On August 16, 2022, we entered into the 2022 Credit Agreement. The 2022 Credit Agreement provides for (i) a six-year $125.0 million senior secured Revolving Credit Facility, including a letter of credit subfacility of up to $5.0 million and (ii) the Term Loans. After the closing of the IPO, we fully repaid our Term Loans and recorded an extinguishment of debt related to the remaining balance of the associated deferred financing costs of $15.3 million. On June 25, 2025, the 2022 Credit Agreement was terminated upon the closing of the 2025 Credit Agreement. The remaining unamortized deferred financing costs for the 2022 Revolving Credit Facility of $1.4 million was recorded as a loss from extinguishment of debt. The
extinguishment of debt associated for the Term Loans and for the 2022 Revolving Credit Facility is recorded within interest expense on the condensed consolidated statements of operations.
Summary of Cash Flows
As of July 31, 2025, we had $271.1 million of cash and cash equivalents (of which $16.4 million was held in our foreign subsidiaries), $250.0 million of availability under the 2025 Credit Agreement, and $539.3 million in net working capital, which we define as current assets less current liabilities, excluding deferred revenue. As of January 31, 2025, we had $121.3 million of cash and cash equivalents (of which $11.6 million was held in our foreign subsidiaries), $125.0 million of availability under the 2022 Credit Agreement, and $350.7 million in net working capital. The increase in cash and cash equivalents and net working capital is due primarily to the proceeds received upon the closing of our IPO and increase in cash provided by operations.
The following table summarizes our cash flows for the periods presented:
Six Months Ended July 31,
2025 2024
(in thousands)
Net cash used in operating activities $ (46,862) $ (108,183)
Net cash used in investing activities (7,884) (11,503)
Net cash provided by (used in) financing activities 207,672 (2,225)
Net change in cash, cash equivalents and restricted cash $ 152,926 $ (121,911)
Cash Flows from Operating Activities
During the six months ended July 31, 2025, cash used in operating activities was $46.9 million, which consisted of a net loss of $197.9 million, adjusted by non-cash charges of $240.2 million and a net decrease of $89.2 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization expense of $104.5 million, equity-based compensation of $154.1 million, amortization of contract acquisition costs of $17.5 million, amortization of debt discount and issuance costs, including the early write-off of issuance costs related to the repayment of the Term Loans and termination of the 2022 Revolving Credit Facility of $17.1 million, provision for credit losses of $4.3 million and fair value adjustments to contingent consideration of $1.6 million, partially offset by deferred taxes of $58.9 million. The net cash outflow from changes in operating assets and liabilities was primarily a result of an increase in deferred contract acquisition costs of $26.6 million due to an increase in our sales, an increase in contract assets of $13.7 million primarily due to growth in our revenue and the timing of invoices and payments, a decrease in accrued expenses and other liabilities of $74.9 million due to the timing of cash disbursements primarily related to bonuses and commissions, the settlement of vested EARs and cash settled awards, interest payments and fees paid to Thoma Bravo, and an increase in prepayments and other current assets of $21.2 million. The outflows were partially offset by a decrease in accounts receivable of $46.3 million due to the timing of receipts of payments from customers.
During the six months ended July 31, 2024, cash used in operating activities was $108.2 million, which consisted of a net loss of $176.3 million, adjusted by non-cash charges of $104.1 million and a net decrease of $36.0 million in our net operating assets and liabilities. The non-cash charges are primarily comprised of depreciation and amortization expense of $132.1 million, equity-based compensation of $16.3 million, amortization of contract acquisition costs of $10.6 million, amortization of debt discount and issuance costs of $2.2 million and provision for credit losses of $0.7 million, partially offset by deferred taxes of $57.8 million. The net cash outflow from changes in operating assets and liabilities was primarily a result ofa decrease in accrued expenses of $24.3 milliondue to the timing of cash disbursements, including commissions and bonuses, an increase in deferred contract acquisition costs of $26.2 millionwhich has accelerated as subscription sales continue to grow, an increase in contract assets of $6.5 million, and an increase in prepayments and other assets, current and non current, of $6.8 million primarily for software maintenance and subscriptions.These were partially offset by a decrease in accounts receivable of $18.9 milliondue to the timing of receipts of payments from customers and an increase in deferred revenue of $9.4 million.
Cash Flows used in Investing Activities
During the six months ended July 31, 2025, cash used in investing activities was $7.9 million, consisting primarily of $4.7 million for capitalized software development costs and $3.2 million in purchases of property and equipment.
During the six months ended July 31, 2024, cash used in investing activities was $11.5 million,consisting primarily of $5.3 million for capitalized software development costs, $4.7 millionin net cash paid to acquire Double Zero and $1.5 million in purchases of property and equipment.
Cash Flows from Financing Activities
During the six months ended July 31, 2025, cash provided by financing activities was $207.7 million primarily due to the proceeds from our IPO, net of underwriting discounts and commissions of $1,259.7 million, partially offset by the repayment of our Term Loans of $1,040.0 million, payments of deferred offering costs of $8.6 million and payments of debt issuance costs related to our 2025 Credit Agreement of $2.7 million.
During the six months ended July 31, 2024, cash used in financing activities was $2.2 million primarily due to the repurchase of Class A Units and Class B Units.
Material Cash Commitments
Except for the debt extinguishment discussed in Note 7 to our condensed consolidated financial statements, there were no significant changes outside the ordinary course of business to our material cash requirements disclosed in the fiscal 2025 Form 10-K.
We did not have any material off-balance sheet arrangements during the periods presented or as of July 31, 2025.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting estimates for the three months ended July 31, 2025 from those discussed in the fiscal 2025 Form 10-K, except as described below:
Incentive Unit Valuations
Upon the completion of our IPO, we ceased issuing incentive equity units and all outstanding and unvested incentive equity units were converted to RSAs.
Recent Accounting Pronouncements
Refer to Note 1 "Description of Business and Summary of Significant Accounting Policies" in the notes to our condensed consolidated financial statements.
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