Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Cvent was founded in 1999 in the Washington, D.C. metro area as a provider of event registration software to meeting and event organizers. Since that time, we have continually innovated to develop a comprehensive platform of event marketing and management solutions and hospitality solutions. We believe that since inception, we have demonstrated an entrepreneurial spirit, culture of teamwork and sense of resilience, particularly in moments of crisis. This is best evidenced by the Company’s continued progress and innovation in the midst of challenges like the recessions of 2001 and 2008 and the global COVID-19 pandemic.
Cvent is a leading cloud-based platform of enterprise event marketing and management and hospitality solutions. We power the marketing and management of meetings and events through our Event Cloud and Hospitality Cloud solutions. Our Event Cloud consists of tools to enable event organizers to manage the entire event lifecycle and deliver engaging experiences across every type of event and all event delivery models: in-person, virtual and hybrid. Event Cloud serves as the system of record for event and engagement data collected across an organization’s total event program, which comprises every internal and external event an organization hosts or attends (“Total Event Program”). Our Hospitality Cloud offers a marketplace that connects event organizers looking for the appropriate event space for their in-person and hybrid events with hoteliers and venue operators through a vertical search engine built on our proprietary database of detailed event space information. In addition, our Hospitality Cloud provides marketing and software solutions that hotels and venues leverage to digitally showcase their event space to attract valuable leads and grow their businesses. This combination of the Cvent Event Cloud and Hospitality Cloud results in a cohesive platform that we believe generates powerful network effects and attracts more event organizers and hotels and venues.
Impact of COVID-19 on Operating Results
The global COVID-19 pandemic significantly impacted our ability to sign new clients, and to upsell to and renew contracts with our existing clients, starting in March 2020. Our customer count declined 9.5% as of March 31, 2022 as compared to March 31, 2021. The extent to which the global COVID-19 pandemic will affect our business will depend on future developments in the United States and around the world, which are highly uncertain and cannot be predicted, including the duration and spread of the pandemic and different COVID-19 variants, new information which may emerge concerning the severity of COVID-19 and the actions required to contain and treat it, among others. Although the ultimate impact of the global COVID-19 pandemic on our business and financial results remains uncertain, a continued and prolonged public health crisis such as the global COVID-19 pandemic could have a material negative impact on our business, operating results and financial condition. See Part I. Item 1A. “Risk Factors — The effects of the global COVID-19 pandemic have materially affected how we and our customers are operating our businesses, and the duration and extent to which this will impact our future results of operations and overall financial performance remains uncertain” in our Annual Report on Form 10-K for the year ended December 31, 2021 for more information.
Key Business Metric
In addition to our financial information determined in accordance with generally accepted accounting principles (“GAAP”), we review the following key business metric to measure our performance, identify trends, formulate business plans and make strategic decisions.
Net Dollar Retention Rate
To evaluate the efficacy of our land and expand model, we examine the rate at which our customers increase their spend with us for our solutions. Our net dollar retention rate measures our ability to increase spend across our existing customer base through expanded use of our platform, offset by customers who choose to stop using our solutions or spend less with us.
We calculate our net dollar retention rate as a quotient of the following:
•Denominator: Revenue from customers whose revenue existed in the twelve months ending on the day twelve months prior to the date as of which the retention rate is being reported.
•Numerator: Revenue in the last twelve months from the customers whose revenue is reflected in the denominator.
In the Event Cloud, we define a customer as a party who has entered into an active subscription contract with us. The majority of our customers are parties who are separate organizations. In certain instances, separate business units of an organization that have each entered into separate subscription agreements with us are considered separate customers. In the Hospitality Cloud, we define a customer as an entity with an active account with the Company, where the customer pays for the account or the account has been paid
18
for by the customer’s parent company. For example, a corporate brand’s individual hotel properties whose accounts are paid for by that property’s corporate brand would be considered separate customers.
The calculation excludes revenue associated with acquisitions where by-client revenue is not available, revenue is recognized on a transactional basis and revenue associated with our client conference. This revenue comprised 3.6% and 3.2% of revenue for three months ended March 31, 2022 and 2021, respectively.
We believe our ability to not only retain, but upsell and cross-sell additional features and products to, our existing customers will continue to support our net dollar retention rate. As of March 31, 2022 and 2021, our net dollar retention rate was 108.7% and 83.9%, respectively. The return of our net dollar retention rate to pre-COVID levels was primarily due to the lessening impact of the global COVID-19 pandemic in 2021 and 2022 on both the Event and Hospitality Clouds and the adoption of our new virtual solution, Attendee Hub. We believe our net dollar retention rate may exceed historical levels as a result of the market opportunity created by virtual and hybrid events and the accelerated digitization of the meetings and events industry.
Our net dollar retention rate may fluctuate as a result of a number of factors, including the growing level of our revenue base, the level of penetration within our customer base, expansion of products and features, our ability to retain our customers and our ability to upsell and cross-sell to our customers. Our calculation of net dollar retention rate may differ from similarly titled metrics presented by other companies.
Components of Operating Results
Revenue
We generate revenue from two primary sources: Event Cloud subscription-based solutions and Hospitality Cloud marketing-based and subscription-based solutions. Subscription-based solution revenue consists primarily of fees to provide our customers with access to our cloud-based software platform. Marketing-based solution revenue consists primarily of fees for digital advertising on the Cvent Supplier Network (“CSN”) or one of our other online advertising platforms.
Event Cloud
We generate the majority of our Event Cloud revenue from subscriptions for our event marketing and management software solution. Subscription revenue is driven primarily by the number of registrations purchased and the number and complexity of mobile applications, onsite events and virtual events purchased in addition to additional modules that enhance the functionality of the software solution. In some cases, the subscription price is based on the number of subscriptions being purchased by the customer.
The terms of our Event Cloud contracts are typically non-cancellable, have annual or multi-year terms, and are billed in advance, generally annually, but also on a quarterly basis. In the case of multi-year agreements, the agreement sometimes includes annual price increases over the contract term. Our agreements are sum-certain and not pay-as-you-go. Generally, if a customer exceeds their purchased number of registrations, the customer will incur an overage fee. We recognize revenue associated with Event Cloud subscription agreements ratably over the term of the contract. Certain revenue associated with Onsite Solutions and Attendee Hub products is recognized at a point in time as the services are performed and the performance obligations are satisfied. Amounts that have been contractually invoiced are initially recorded as deferred revenue and are recognized as revenue ratably over the subscription period. We refer to contractual amounts that have not been invoiced as unbilled contract value, and together with deferred revenue, remaining performance obligations. Unbilled contract value is not reflected in our consolidated financial statements.
Hospitality Cloud
We generate our Hospitality Cloud revenue from marketing and subscription-based software solutions. Marketing solutions revenue is primarily driven by the number of advertisements purchased on CSN. The advertisement price is primarily determined by the term, targeted geography, market tier, number and prominence of the advertising placement. Subscription revenue is driven primarily by the number of licenses purchased for our lead scoring solution to prioritize group RFPs, three-dimensional hotel tours, event diagramming to collaborate with event organizers on designing optimal event layouts and viewing three-dimensional renderings, room block management to enable event attendees to reserve hotel rooms, business transient solutions and business intelligence solutions to benchmark against internal and targeted competitive metrics. In some cases, the subscription price is based on the number of subscriptions being purchased by the customer.
The terms of our subscription and marketing contracts are typically non-cancellable, annual or multi-year terms, and are typically billed in advance, generally annually, but also on a quarterly basis. In the case of multi-year agreements, the agreement sometimes includes annual price increases over the contract term. Our agreements are typically sum-certain and not based on usage.
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We recognize revenue associated with these agreements ratably over the term of the subscription or advertising period. Amounts that have been contractually invoiced are initially recorded as deferred revenue and are recognized as revenue ratably over the subscription or advertising period. We refer to contractual amounts that have not been invoiced as unbilled contract value, and together with deferred revenue, remaining performance obligations.
We refer to contractual amounts that have not been invoiced as unbilled contract value, and together with deferred revenue, remaining performance obligations. Unbilled contract value is not reflected in our consolidated financial statements. See “Key Factors Affecting Our Performance —Seasonality” included in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021 for the effects of seasonality on our Hospitality Cloud Revenue.
For multi-year agreements for either Event Cloud or Hospitality Cloud solutions, we typically invoice the amount for the first year of the contract at signing, followed by subsequent annual invoices at the anniversary of each year. Since we bill most of our customers in advance, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced or recognized in revenue, they are considered by us to be unbilled contract value, and together with deferred revenue, remaining performance obligations. As of March 31, 2022 and December 31, 2021 our total current deferred revenue was $287.5 million and $239.8 million, which amounts do not include unbilled contract value for contracts not yet billed of $518.8 million and $573.4 million, respectively. We expect that the amount of unbilled contract value relative to the total value of our contracts will change from year to year for several reasons, including the amount of cash collected early in the contract term, the specific timing and duration of customer agreements, varying invoicing cycles of agreements, the specific timing of customer renewal, changes in customer financial circumstances and foreign currency fluctuations. We expect to recognize approximately 69.2% of our remaining performance obligations as revenue over the subsequent 24 months, and the remainder thereafter.
Cost of revenue
Cost of revenue primarily consists of employee-related expenses, such as salaries, benefits, bonuses and stock-based compensation, related to providing support and hosting our solutions, costs of cloud-based data center capacity, software license fees, costs to support our onsite solutions and virtual products, interchange fees related to merchant services and amortization expense associated with capitalized software. In addition, we allocate a portion of overhead, such as rent and depreciation and amortization to cost of revenue based on headcount.
Although Cvent breaks out revenue by cloud, we do not track or manage the business by cost of revenue by cloud. Rather, we manage cost of revenue by type of direct cost, and a significant portion of these direct costs are shared costs to support both Event Cloud and Hospitality Cloud solutions. This is consistent with Cvent’s approach to management of the business as one comprehensive solution for the entire event management lifecycle.
We are invested in our customers’ success and as such, we will continue to invest in providing support, expanding our capacity to support our growth and developing new features to support virtual and hybrid events and enhance our existing products, which in the near-term will result in higher cost of revenue in absolute dollars and as a percentage of revenue.
Gross profit and gross margin
Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of total revenue. We expect that our gross margin may fluctuate from period to period as a result of seasonality related to our onsite solutions, virtual and merchant services products in the near-term, and additional costs associated with potential future acquisitions.
Operating expenses
Our operating expenses include selling and marketing expenses, research and development expenses, general and administrative expenses and intangible asset amortization, exclusive of amounts included in cost of revenue.
Sales and marketing
Sales and marketing expenses primarily consist of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. We capitalize commissions when they are earned by staff, which is when the customer contract is signed. We amortize capitalized commissions over the average historic customer contract life. In addition to staff costs, our cost of marketing includes product marketing and other brand-building and lead generation tactics such as webinars, trade shows, product seminars, content marketing, digital marketing, third-party content distribution and our annual client
20
conference, Cvent CONNECT. In addition, we also allocate a portion of overhead, such as rent and depreciation to sales and marketing based on headcount.
We intend to continue to invest in sales and marketing and expect spending in these areas to increase in absolute dollars in the near-term as we continue to expand our business both domestically and internationally and take advantage of the growing need for virtual and hybrid events. We expect sales and marketing expenses to continue to be among the most significant components of our operating expenses.
Research and development
Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation and the cost of third-party contractors. Research and development expenses, other than software development costs that qualify for capitalization, are expensed as incurred. In addition, we allocate a portion of overhead, such as rent and depreciation to research and development based on headcount.
With the exception of software developed by companies we have acquired, we maintain a unified software code base for our entire platform, which we believe improves the efficiency of our research and development activities. We expect research and development expenses to remain consistent in absolute dollars in the near-term as we continue to expand our product offerings, including our virtual and hybrid event functionality, and integrate and support potential future acquired businesses and technologies.
General and administrative
General and administrative expenses consist primarily of personnel and related expenses for administrative, internal information technology operations, finance, legal and human resource staff, including salaries, benefits, bonuses and stock-based compensation, as well as professional fees, insurance premiums and other corporate expenses. In addition, we allocate a portion of overhead, such as rent and depreciation to general and administrative based on headcount.
We expect our general and administrative expenses to increase in absolute dollars in the near-term as we continue to expand our operations and hire additional personnel to support our growth. Additionally, we expect to incur incremental general and administrative expenses to comply with the additional requirements of being a public company.
Intangible asset amortization, exclusive of amounts included in cost of revenue
Intangible asset amortization, exclusive of amounts included in cost of revenue, consists entirely of amortization expenses related to acquired customer relationship and trademark intangible assets. This line item excludes intangible asset amortization related to cost of revenue, which is defined as acquired developed technology and capitalized software intangible asset amortization.
We expect our intangible asset amortization expenses to increase in absolute dollars in the near-term as we expect to strategically acquire companies to aid in our near-term growth.
Other
Our other income/expense items include interest expense, amortization of deferred financing costs and debt discount, gain/loss on divestitures, net and other income/expense, net.
Interest expense
Interest expense relates primarily to interest payments on our outstanding borrowings under the credit facility with a syndicate of lenders (such term loan facility as increased by the incremental facilities, the “Term Loan Facility,” as further described in Note 10. “Debt” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report) and a $40.0 million revolving loan facility (the “Revolving Credit Facility,” and together with the Term Loan Facility, the “Credit Facilities”) we entered into pursuant to the Credit Agreement dated November 30, 2017 (the “Credit Agreement”) by and between Cvent, Inc. as borrower, Papay Holdco, LLC, as Holdings, Goldman Sachs Bank USA, as administrative agent, the guarantors from time to time party thereto, and the lenders and other parties from time to time party thereto, as amended, restated, amended and restated, supplemented or otherwise modified from time to time. As of March 31, 2022, the Company had an outstanding balance of $265.7 million on the term loan facility and no outstanding borrowings on the revolving loan facility.
21
Amortization of deferred financing costs and debt discount
Amortization of deferred financing costs and debt discount consists of the amortization of up-front fees paid at the inception of our Credit Facilities.
Other income, net
Other income/(expense), net consists primarily of interest income, foreign currency gains or losses, and import tax credits.
Provision for income taxes
Provision for income taxes consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.
22
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table sets forth our consolidated statement of operations for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Event cloud |
|
$ |
94,988 |
|
|
$ |
81,133 |
|
Hospitality cloud |
|
|
42,368 |
|
|
|
36,154 |
|
Total revenue |
|
|
137,356 |
|
|
|
117,287 |
|
Cost of revenue |
|
|
56,200 |
|
|
|
43,845 |
|
Gross profit |
|
|
81,156 |
|
|
|
73,442 |
|
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
40,091 |
|
|
|
28,837 |
|
Research and development |
|
|
31,406 |
|
|
|
21,674 |
|
General and administrative |
|
|
24,951 |
|
|
|
16,754 |
|
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
12,154 |
|
|
|
13,035 |
|
Total operating expenses |
|
|
108,602 |
|
|
|
80,300 |
|
Loss from operations |
|
|
(27,446 |
) |
|
|
(6,858 |
) |
Interest expense |
|
|
(2,592 |
) |
|
|
(7,533 |
) |
Amortization of deferred financial costs and debt discount |
|
|
(320 |
) |
|
|
(943 |
) |
Other income, net |
|
|
260 |
|
|
|
273 |
|
Loss before income taxes |
|
|
(30,098 |
) |
|
|
(15,061 |
) |
Provision for income taxes |
|
|
1,291 |
|
|
|
1,500 |
|
Net loss |
|
$ |
(31,389 |
) |
|
$ |
(16,561 |
) |
The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Event Cloud |
|
|
69.2 |
% |
|
|
69.2 |
% |
Hospitality Cloud |
|
|
30.8 |
% |
|
|
30.8 |
% |
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
40.9 |
% |
|
|
37.4 |
% |
Gross profit |
|
|
59.1 |
% |
|
|
62.6 |
% |
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
29.2 |
% |
|
|
24.6 |
% |
Research and development |
|
|
22.9 |
% |
|
|
18.5 |
% |
General and administrative |
|
|
18.2 |
% |
|
|
14.3 |
% |
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
8.8 |
% |
|
|
11.1 |
% |
Total operating expenses |
|
|
79.1 |
% |
|
|
68.5 |
% |
Loss from operations |
|
|
(20.0 |
%) |
|
|
(5.8 |
%) |
Interest expense |
|
|
(1.9 |
%) |
|
|
(6.4 |
%) |
Amortization of deferred financial costs and debt discount |
|
|
(0.2 |
%) |
|
|
(0.8 |
%) |
Other income, net |
|
|
0.2 |
% |
|
|
0.2 |
% |
Loss before income taxes |
|
|
(21.9 |
%) |
|
|
(12.8 |
%) |
Provision for income taxes |
|
|
0.9 |
% |
|
|
1.3 |
% |
Net loss |
|
|
(22.9 |
%) |
|
|
(14.1 |
%) |
23
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Event Cloud |
|
$ |
94,988 |
|
|
$ |
81,133 |
|
|
$ |
13,855 |
|
|
|
17.1 |
% |
Hospitality Cloud |
|
|
42,368 |
|
|
|
36,154 |
|
|
|
6,214 |
|
|
|
17.2 |
% |
Total revenue |
|
$ |
137,356 |
|
|
$ |
117,287 |
|
|
$ |
20,069 |
|
|
|
17.1 |
% |
Total revenue for the three months ended March 31, 2022 was $137.4 million, an increase of $20.1 million, or 17.1% compared to the three months ended March 31, 2021. Event Cloud revenue accounted for $95.0 million, or 69.2% of total revenue, and Hospitality Cloud revenue accounted for $42.4 million, or 30.8% of total revenue, for three months ended March 31, 2022.
Event Cloud revenue for the three months ended March 31, 2022 was $95.0 million, an increase of $13.9 million, or 17.1%, compared to the three months ended March 31, 2021. This increase was primarily due to in-person meetings starting to return and events and continued momentum in virtual events, which drove increases in products across the platform.
Hospitality Cloud revenue for the three months ended March 31, 2022 was $42.4 million, an increase of $6.2 million, or 17.2%, compared to the three months ended March 31, 2021. The increase was primarily due to increased demand for our advertising and software solutions driven by in-person meetings and events beginning to return.
We generate the majority of our revenue from North America. Revenue from outside North America accounted for 12.0% and 13.6% of total revenue for the three months ended March 31, 2022 and 2021, respectively. In the near-term, in absolute dollars, we expect that total revenue from outside North America will increase at the same rate as the rest of our business, and as such, we expect total revenue from outside of North America as proportion of total revenue will not substantially change.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Cost of revenue |
|
$ |
56,200 |
|
|
$ |
43,845 |
|
|
$ |
12,355 |
|
|
|
28.2 |
% |
Cost of revenue for the three months ended March 31, 2022 was $56.2 million, an increase of $12.4 million, or 28.2%, compared to the three months ended March 31, 2021. This increase was primarily driven by a $3.9 million increase in employee expense due to a 33.3% increase in average headcount, a $0.5 million increase in stock-based compensation, a $2.8 million increase in hosting expense and a $0.8 million decrease in wage subsidies received in 2021 pursuant to the Canada Emergency Wage Subsidy program in 2022 compared to 2021. Additionally, third-party costs related to supporting virtual, in-person, and hybrid events increased $2.1 million and credit card interchange fees related to our merchant services business increased $1.7 million, both of which were primarily driven by in-person meetings and events beginning to return.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Sales and marketing |
|
$ |
40,091 |
|
|
$ |
28,837 |
|
|
$ |
11,254 |
|
|
|
39.0 |
% |
Research and development |
|
|
31,406 |
|
|
|
21,674 |
|
|
|
9,732 |
|
|
|
44.9 |
% |
General and administrative |
|
|
24,951 |
|
|
|
16,754 |
|
|
|
8,197 |
|
|
|
48.9 |
% |
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
12,154 |
|
|
|
13,035 |
|
|
|
(881 |
) |
|
|
(6.8 |
%) |
Total operating expenses |
|
$ |
108,602 |
|
|
$ |
80,300 |
|
|
$ |
28,302 |
|
|
|
35.2 |
% |
24
Sales and Marketing. Sales and marketing expenses for the three months ended March 31, 2022 were $40.1 million, an increase of $11.3 million, or 39.0%, compared to the three months ended March 31, 2021. This increase was primarily driven by a $5.6 million increase in employee expense due to a 15.0% increase in average headcount, a $2.6 million increase in stock-based compensation, a $2.5 million increase in marketing program spend, and a $0.6 million increase in travel related expense.
Research and Development. Research and development expenses for the three months ended March 31, 2022 were $31.4 million, an increase of $9.7 million, or 44.9%, compared to the three months ended March 31, 2021. This increase was primarily driven by $5.2 million increase in employee expense due to a 13.5% increase in average headcount, a $2.4 million increase in stock-based compensation and a $2.4 million decrease in wage subsidies received pursuant to the Canada Emergency Wage Subsidy program in 2022 compared to 2021.
General and Administrative. General and administrative expenses for the three months ended March 31, 2022 were $25.0 million, an increase of $8.2 million, or 48.9%, compared to the three months ended March 31, 2021. This increase was primarily driven by a $3.5 million increase in stock-based compensation, a $2.0 million increase in employee expense due to a 24.9% increase in average headcount, a $1.0 million increase in corporate insurance related to public company directors' and officers' insurance, and a $0.8 million increase in contracted services. A portion of these cost increases are related to additional costs incurred as a publicly traded company.
Intangible Asset Amortization, Exclusive of Amounts Included in Cost of Revenue. Intangible asset amortization, exclusive of amounts included in cost of revenue for the three months ended March 31, 2022 was $12.2 million, a decrease of $0.9 million, or 6.8%, compared to the three months ended March 31, 2021. This decrease was driven primarily by the scheduled decline in the amortization of intangible assets acquired in past years and no significant business acquisitions occurring in 2022.
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Interest expense |
|
$ |
(2,592 |
) |
|
$ |
(7,533 |
) |
|
$ |
4,941 |
|
|
|
(65.6 |
%) |
Interest expense for the three months ended March 31, 2022 was $2.6 million, a decrease of $4.9 million, or 65.6%, compared to the three months ended March 31, 2021. This decrease was driven primarily by a significantly lower principal amount on our outstanding long-term debt. In addition, there were outstanding revolving borrowings during the three months ended March 31, 2021 incurring interest whereas there were zero outstanding borrowings during the three months ended March 31, 2022. The Revolving Credit Facility was fully repaid in April 2021.
Amortization of Deferred Financing Costs and Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Amortization of deferred financing costs and debt discount |
|
$ |
(320 |
) |
|
$ |
(943 |
) |
|
$ |
623 |
|
|
|
(66.1 |
%) |
Amortization of deferred financing costs and debt discount for the three months ended March 31, 2022 was $0.3 million, a decrease of $0.6 million, or 66.1%, compared to the three months ended March 31, 2021 due to the acceleration of amortization of deferred financing costs and debt discount associated with the prepayment of $500.0 million of outstanding principal indebtedness under our Term Loan Facility in December 2021.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Other income, net |
|
$ |
260 |
|
|
$ |
273 |
|
|
$ |
(13 |
) |
|
|
(4.8 |
%) |
25
Other income, net for the three months ended March 31, 2022 was $0.3 million, which did not change significantly as compared to the three months ended March 31, 2021. Other income for the three months ended March 31, 2022 and 2021 consisted primarily of foreign currency gains.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Provision for income taxes |
|
$ |
1,291 |
|
|
$ |
1,500 |
|
|
$ |
(209 |
) |
|
|
(13.9 |
%) |
Provision for income taxes for the three months ended March 31, 2022 was $1.3 million, a decrease of $0.2 million, or 13.9%, compared to the three months ended March 31, 2021. The decrease primarily resulted from the recording of lower pre-tax book income in high tax foreign jurisdictions.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the non-GAAP measures of Adjusted EBITDA and Adjusted EBITDA margin are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, an alternative to net loss or net loss margin, as determined by GAAP. We define Adjusted EBITDA as net loss adjusted for interest expense, amortization of deferred financing costs and debt discount, gain/(loss) on extinguishment of debt, gain/(loss) on divestitures, net, other income/(expense), net, provision for/(benefit from) income taxes, depreciation, amortization of software development costs, intangible asset amortization, stock-based compensation expense, restructuring expense, cost related to acquisitions, and other items. Adjusted EBITDA margin represents Adjusted EBITDA divided by revenue. We use Adjusted EBITDA and Adjusted EBITDA margin to understand and evaluate our core operating performance and trends. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts, and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical financial periods.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider either in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including net loss, net loss margin and our other GAAP results. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are not a presentation made in accordance with GAAP and the use of the term varies from others in our industry.
26
A reconciliation of Adjusted EBITDA to net loss and of Adjusted EBITDA margin to net loss margin (defined as net loss divided by revenue), the most directly comparable GAAP measure, respectively, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Adjusted EBITDA: |
|
|
|
|
|
|
Net loss |
|
$ |
(31,389 |
) |
|
$ |
(16,561 |
) |
Adjustments |
|
|
|
|
|
|
Interest expense |
|
|
2,592 |
|
|
|
7,533 |
|
Amortization of deferred financing costs and debt discount |
|
|
320 |
|
|
|
943 |
|
Other income, net |
|
|
(260 |
) |
|
|
(273 |
) |
Provision for income taxes |
|
|
1,291 |
|
|
|
1,500 |
|
Depreciation |
|
|
2,038 |
|
|
|
3,084 |
|
Amortization of software development costs |
|
|
15,961 |
|
|
|
15,195 |
|
Intangible asset amortization |
|
|
12,154 |
|
|
|
13,035 |
|
Stock-based compensation expense |
|
|
9,768 |
|
|
|
608 |
|
Restructuring expense (1) |
|
|
277 |
|
|
|
254 |
|
Cost related to acquisitions (2) |
|
|
187 |
|
|
|
422 |
|
Other items (3) |
|
|
(180 |
) |
|
|
(3,091 |
) |
Adjusted EBITDA |
|
$ |
12,759 |
|
|
$ |
22,649 |
|
Adjusted EBITDA Margin: |
|
|
|
|
|
|
Revenue |
|
$ |
137,356 |
|
|
$ |
117,287 |
|
Net loss margin (4) |
|
|
(22.9 |
%) |
|
|
(14.1 |
%) |
Adjusted EBITDA margin (4) |
|
|
9.3 |
% |
|
|
19.3 |
% |
(1)Restructuring expense includes retention bonuses to employees of acquired entities and costs to discontinue use of a back-office system and closing of office space.
(2)Represents costs incurred in association with acquisition activity, including due diligence and post-acquisition earn out payments.
(3)Includes other costs associated with litigation, private equity management fees, and credit facility fees, net of the gain from government subsidies related to global COVID-19 pandemic.
(4)Net loss margin represents net loss divided by revenue and Adjusted EBITDA margin represents Adjusted EBITDA divided by revenue.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, on-going collection of our accounts receivable and our Credit Facilities. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments and certificates of deposit. We also periodically invest a portion of our excess cash in short-term investments with stated maturity dates between three months and one year from the purchase date.
We believe that existing cash and cash equivalents and short-term investments held by us, cash and cash equivalents anticipated to be generated by us and borrowing capacity under our revolving line of credit are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least 12 months and beyond. We also believe that these financial resources will continue to allow us to manage the ongoing impact of COVID-19 on our business operations for the foreseeable future, including mitigating potential reductions in revenue and delays in payments from our customers and partners. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our Credit Facilities, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions and the continuing market adoption of our platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.
We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.
27
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Net cash provided by operating activities |
|
$ |
79,924 |
|
|
$ |
51,205 |
|
Net cash used in investing activities |
|
|
(17,680 |
) |
|
|
(24,963 |
) |
Net cash provided by financing activities |
|
|
510 |
|
|
|
(10,065 |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(1,209 |
) |
|
|
(626 |
) |
Change in cash, cash equivalents, and restricted cash |
|
|
61,545 |
|
|
|
15,551 |
|
Cash, cash equivalents, and restricted cash at beginning of year |
|
|
126,629 |
|
|
|
65,470 |
|
Cash, cash equivalents, and restricted cash at end of year |
|
$ |
188,174 |
|
|
$ |
81,021 |
|
Cash paid for interest |
|
$ |
2,584 |
|
|
$ |
4,382 |
|
Operating Activities
Net cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and the amount and timing of customer payments. Cash provided by operations in the three months ended March 31, 2022 and 2021 is primarily attributable to net loss adjusted for non-cash items. Cash provided by operations is also attributable to the change in accounts receivable and deferred revenue, which is driven by the seasonality of our business as a result of higher levels of invoicing in the first and fourth quarters and our collections process. Our cash flows from operating activities are generally reflective of our ability to invoice annual subscription fees upfront with payments due 30 days after the customer’s receipt of the invoice.
For the three months ended March 31, 2022, net cash provided by operating activities was $79.9 million, which was primarily driven by net loss adjusted for non-cash items, a $48.2 million increase in deferred revenue, and an $18.9 million decrease in accounts receivable, partially offset by a $13.6 million increase in capitalized commissions, net. For the three months ended March 31, 2021, net cash provided by operating activities was $51.2 million, which was primarily driven by net loss adjusted for non-cash items, a $35.9 million increase in deferred revenue, and an $11.2 million increase in accounts payable, partially offset by a $12.5 million increase in capitalized commissions, net, a $4.2 million increase in accounts receivable, and a $3.3 million reduction in operating lease liability.
Investing Activities
Our investing activities have consisted primarily of costs related to software developed for internal use, purchases of computer equipment and leasehold improvements, purchases and sales of short-term investments and business acquisitions. During 2021 and 2022, the impact of the pandemic lessened, and as these effects continue to lessen and when our business begins to grow again, we expect our capital expenditures and our investment activity to continue to increase.
For the three months ended March 31, 2022, net cash used in investing activities was $17.7 million, reflecting $11.9 million in capitalized software development, $4.4 million in net purchases of short-term investments and $1.4 million in purchases of property and equipment. For the three months ended March 31, 2021, net cash used in investing activities was $25.0 million, reflecting $15.2 million in net purchases of short-term investments, $8.7 million in capitalized software development and $1.0 million of purchases of property and equipment.
Financing Activities
Our financing activities have consisted primarily of proceeds from and principal payments on the Company’s Term Loan and Revolving Credit Facility and proceeds from the exercise of stock options. For the three months ended March 31, 2022, net cash provided by financing activities was $0.5 million, consisting of proceeds from the exercise of stock options. For the three months ended March 31, 2021, net cash used in financing activities was $10.1 million, consisting of $8.4 million in repayments on the Company's Revolving Credit Facility and $2.0 million of scheduled principal payments on the Company’s Term Loan Facility, partially offset by $0.3 million in proceeds from the exercise of stock options.
Commitments and Contingencies
See the information set forth in Note 12. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
28
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses related to breach of confidentiality and claims by third parties of intellectual property infringement, misappropriation or other violation. See Part I, Item 1A. “Risk Factors—We have indemnity provisions under our contracts with our customers, channel partners and other third parties, which could have a material adverse effect on our business” in our Annual Report on Form 10-K for the year ended December 31, 2021. In addition, we enter into indemnification agreements with our directors and certain officers and employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. There are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2. “Summary of Significant Accounting Policies” to the condensed consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2021.