Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
The Company 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.
The Company 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.
Macroeconomic Conditions and COVID-19
Global events, such as recent geopolitical instability, inflation and the COVID-19 pandemic, have created or contributed to uncertainty in macroeconomic conditions, including changes in interest rates, supply chain disruptions, labor shortages and increased labor costs, which, in turn, could decrease overall economic activity, hinder economic growth or cause a recession in the United States or in the global economy. Negative macroeconomic conditions may affect our clients’ businesses, which could result in reduced demand for our services or cancellations, increased demands for pricing accommodations or higher rates of delays in collection of, or losses on, our accounts receivable, which could adversely affect our results of operations. If we are unable to offset any decrease in revenue by increasing sales to new or existing customers, our revenues may decline or grow at lower rates. The extent of the impact of ongoing macroeconomic conditions on our operational and financial performance is uncertain and will depend on political, social, economic and regulatory factors that are outside of our control, including but not limited to the incidence and severity of additional COVID-19 virus variants and actions that may be taken by regulators and businesses (including customers) in response to macroeconomic uncertainty. We considered the impact of the current economic environment and COVID-19 on our estimates and assumptions and determined that there were no material adverse impacts on the unaudited condensed consolidated financial statements as of September 30, 2022 and for the three and nine months ended September 30, 2022. As events continue to evolve and additional information becomes available, our estimates and assumptions may change materially in future periods.
Key Business Metric
In addition to our financial information determined in accordance with generally accepted accounting principles in the U.S. (“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 retain and 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.
19
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 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 transactional revenue, revenue associated with our client conference and revenue associated with acquisitions where by-client revenue is not available. This revenue comprised 4.4% of revenue for each of the three months ended September 30, 2022 and 2021, respectively, and 4.4% and 3.1% of revenue for the nine months ended September 30, 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 September 30, 2022 and 2021, our net dollar retention rate was 116.1% and 90.0%, respectively. The year-over-year increase in our net dollar retention rate is primarily due to the lessening impact of the global COVID-19 pandemic in 2021 and 2022 on both the Event and Hospitality Clouds, resulting in increased spend on products supporting in-person events, in addition to the adoption of our virtual solution, Attendee Hub. With in-person meetings and events continuing to quickly return, our net dollar retention rate currently exceeds pre-pandemic levels. In the near-term, we believe our net dollar retention rate will return to pre-pandemic levels as the rate of growth of in-person meetings and events continues to normalize. Longer-term, we believe our net dollar retention rate may exceed pre-pandemic 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 on an annual or quarterly basis, as applicable. 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.
20
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 on an annual or quarterly basis, as applicable. 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. 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. 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 September 30, 2022 and December 31, 2021, our total current deferred revenue was $246.2 million and $239.8 million, respectively, which amounts do not include unbilled contract value for contracts not yet billed of $508.7 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 renewals, changes in customer financial circumstances and foreign currency fluctuations. We expect to recognize approximately 72.7% 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, virtual and hybrid solutions, 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 the Company 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 the Company’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, hybrid and in-person events and enhance our existing products, which in the near-term is expected to result in higher cost of revenue in absolute dollars.
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, virtual and hybrid solutions and merchant services products in the near-term, and additional costs associated with potential future acquisitions.
Operating expenses
21
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 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 increase 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, corporate development, strategy 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. Additionally, we expect to incur incremental general and administrative expenses to comply with the 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 to continue to pursue strategic acquisition opportunities, and if successful, we expect that our intangible asset amortization expenses will increase in absolute dollars.
Other
Our other income/expense items include interest expense, amortization of deferred financing costs and debt discount, loss on extinguishment of debt, net and other income, net.
Interest expense
Interest expense relates primarily to interest payments on our outstanding borrowings under our credit facilities as further described in Note 11. “Debt” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly
22
Report. As of September 30, 2022, the Company had outstanding borrowings of $165.0 million under its five-year, $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”).
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.
Loss on extinguishment of debt
Loss on extinguishment of debt consists of the write-off of unamortized deferred financing costs associated with the repayment and termination of the Term Loan Facility (as defined in Note 11. “Debt” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report).
Other income, net
Other income, 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.
23
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table sets forth our consolidated statement of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Event Cloud |
|
$ |
112,895 |
|
|
$ |
92,484 |
|
Hospitality Cloud |
|
|
48,426 |
|
|
|
41,574 |
|
Total revenue |
|
|
161,321 |
|
|
|
134,058 |
|
Cost of revenue |
|
|
63,011 |
|
|
|
50,635 |
|
Gross profit |
|
|
98,310 |
|
|
|
83,423 |
|
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
42,869 |
|
|
|
37,161 |
|
Research and development |
|
|
34,232 |
|
|
|
25,685 |
|
General and administrative |
|
|
24,685 |
|
|
|
25,358 |
|
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
12,170 |
|
|
|
12,757 |
|
Total operating expenses |
|
|
113,956 |
|
|
|
100,961 |
|
Loss from operations |
|
|
(15,646 |
) |
|
|
(17,538 |
) |
Interest expense |
|
|
(1,857 |
) |
|
|
(7,546 |
) |
Amortization of deferred financial costs and debt discount |
|
|
(157 |
) |
|
|
(938 |
) |
Other income, net |
|
|
1,094 |
|
|
|
1,864 |
|
Loss before income taxes |
|
|
(16,566 |
) |
|
|
(24,158 |
) |
Provision for income taxes |
|
|
1,667 |
|
|
|
1,968 |
|
Net loss |
|
$ |
(18,233 |
) |
|
$ |
(26,126 |
) |
The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Event Cloud |
|
|
70.0 |
% |
|
|
69.0 |
% |
Hospitality Cloud |
|
|
30.0 |
% |
|
|
31.0 |
% |
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
39.1 |
% |
|
|
37.8 |
% |
Gross profit |
|
|
60.9 |
% |
|
|
62.2 |
% |
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
26.6 |
% |
|
|
27.7 |
% |
Research and development |
|
|
21.2 |
% |
|
|
19.2 |
% |
General and administrative |
|
|
15.3 |
% |
|
|
18.9 |
% |
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
7.5 |
% |
|
|
9.5 |
% |
Total operating expenses |
|
|
70.6 |
% |
|
|
75.3 |
% |
Loss from operations |
|
|
(9.7 |
%) |
|
|
(13.1 |
%) |
Interest expense |
|
|
(1.2 |
%) |
|
|
(5.6 |
%) |
Amortization of deferred financial costs and debt discount |
|
|
(0.1 |
%) |
|
|
(0.7 |
%) |
Other income, net |
|
|
0.7 |
% |
|
|
1.4 |
% |
Loss before income taxes |
|
|
(10.3 |
%) |
|
|
(18.0 |
%) |
Provision for income taxes |
|
|
1.0 |
% |
|
|
1.5 |
% |
Net loss |
|
|
(11.3 |
%) |
|
|
(19.5 |
%) |
24
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Event Cloud |
|
$ |
112,895 |
|
|
$ |
92,484 |
|
|
$ |
20,411 |
|
|
|
22.1 |
% |
Hospitality Cloud |
|
|
48,426 |
|
|
|
41,574 |
|
|
|
6,852 |
|
|
|
16.5 |
% |
Total revenue |
|
$ |
161,321 |
|
|
$ |
134,058 |
|
|
$ |
27,263 |
|
|
|
20.3 |
% |
Total revenue for the three months ended September 30, 2022 was $161.3 million, an increase of $27.3 million, or 20.3% compared to the three months ended September 30, 2021. Event Cloud revenue accounted for $112.9 million, or 70.0% of total revenue, and Hospitality Cloud revenue accounted for $48.4 million, or 30.0% of total revenue, for the three months ended September 30, 2022.
Event Cloud revenue increased $20.4 million, or 22.1%, during the three months ended September 30, 2022 compared to the prior year. The increase was due to the strong performance of products that support in-person meetings as there is sustained momentum in the return of in-person meetings. While revenue associated with virtual meetings is still one of our top Event Cloud revenue drivers, the return of in-person meetings has caused a revenue mix shift towards products that support in-person and hybrid meetings. These increases were partially offset by the timing of revenue associated with our client conference, Cvent CONNECT, which was held in the second quarter of 2022 compared to the third quarter of 2021, and represented $1.2 million of revenue in the third quarter of 2021.
Hospitality Cloud revenue increased $6.9 million, or 16.5%, during the three months ended September 30, 2022 compared to the prior year primarily due to increased demand of our advertising and software solutions driven by the sustained momentum in the return of in-person meetings and events. These increases were partially offset by the timing of revenue associated with our client conference, Cvent CONNECT, which was held in the second quarter of 2022 compared to the third quarter of 2021, and represented $1.6 million of revenue in the third quarter of 2021.
We generate the majority of our revenue from North America. Revenue from outside North America accounted for 12.7% and 13.9% of total revenue for the three months ended September 30, 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 that total revenue from outside of North America as a proportion of total revenue will not substantially change.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Cost of revenue |
|
$ |
63,011 |
|
|
$ |
50,635 |
|
|
$ |
12,376 |
|
|
|
24.4 |
% |
Cost of revenue for the three months ended September 30, 2022 was $63.0 million, an increase of $12.4 million, or 24.4%, compared to the three months ended September 30, 2021. This increase was primarily driven by a $4.4 million increase in employee expense due to a 24.7% increase in average headcount, a $1.8 million increase in stock-based compensation, a $1.3 million increase in hosting expense and a $1.0 million increase in amortization of capitalized software development costs. Additionally, third-party costs related to supporting virtual, in-person, and hybrid events increased $3.1 million and credit card interchange fees related to our merchant services business increased $1.8 million primarily driven by the sustained momentum in the return of in-person meetings and events. These increases were partially offset by the timing of costs associated with our client conference, Cvent CONNECT, which was held in the second quarter of 2022 compared to the third quarter of 2021, and represented $0.9 million of costs in the third quarter of 2021.
25
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Sales and marketing |
|
$ |
42,869 |
|
|
$ |
37,161 |
|
|
$ |
5,708 |
|
|
|
15.4 |
% |
Research and development |
|
|
34,232 |
|
|
|
25,685 |
|
|
|
8,547 |
|
|
|
33.3 |
% |
General and administrative |
|
|
24,685 |
|
|
|
25,358 |
|
|
|
(673 |
) |
|
|
-2.7 |
% |
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
12,170 |
|
|
|
12,757 |
|
|
|
(587 |
) |
|
|
(4.6 |
%) |
Total operating expenses |
|
$ |
113,956 |
|
|
$ |
100,961 |
|
|
$ |
12,995 |
|
|
|
12.9 |
% |
Sales and Marketing. Sales and marketing expenses for the three months ended September 30, 2022 were $42.9 million, an increase of $5.7 million, or 15.4%, compared to the three months ended September 30, 2021. This increase was primarily driven by a $4.6 million increase in employee expense due to a 15.3% increase in average headcount, a $3.8 million increase in stock-based compensation, and a $0.9 million increase in marketing program spend. These increases were partially offset by the timing of costs associated with our client conference, Cvent CONNECT, which was held in the second quarter of 2022 compared to the third quarter of 2021, and represented $3.6 million of costs in the third quarter of 2021.
Research and Development. Research and development expenses for the three months ended September 30, 2022 were $34.2 million, an increase of $8.5 million, or 33.3%, compared to the three months ended September 30, 2021. This increase was primarily driven by a $6.4 million increase in employee expense due to a 17.1% increase in average headcount and a $3.1 million increase in stock-based compensation.
General and Administrative. General and administrative expenses for the three months ended September 30, 2022 were $24.7 million, a decrease of $0.7 million, or 2.7%, compared to the three months ended September 30, 2021. This decrease was primarily driven by a $4.1 million decrease in bad debt expense. This decrease was partially offset by a $2.2 million increase in stock-based compensation, a $1.9 million increase in employee expense due to a 18.7% increase in average headcount, and a $0.9 million increase in corporate insurance related to public company directors' and officers' insurance.
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 September 30, 2022 was $12.2 million, a decrease of $0.6 million, or 4.6%, compared to the three months ended September 30, 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 September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Interest expense |
|
$ |
(1,857 |
) |
|
$ |
(7,546 |
) |
|
$ |
5,689 |
|
|
|
(75.4 |
%) |
Interest expense for the three months ended September 30, 2022 was $1.9 million, a decrease of $5.7 million, or 75.4%, compared to the three months ended September 30, 2021. This decrease was driven primarily by a significantly lower principal amount on our outstanding long-term debt as a result of the $500.0 million partial repayment of the Company’s Term Loan Facility in December 2021. Additionally, the Company made partial repayments totaling $50.0 million under the Company’s Revolving Credit Facility during the three months ended September 30, 2022, partially offset by additional borrowings of $20.0 million.
Amortization of Deferred Financing Costs and Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Amortization of deferred financing costs and debt discount |
|
$ |
(157 |
) |
|
$ |
(938 |
) |
|
$ |
781 |
|
|
|
(83.3 |
%) |
Amortization of deferred financing costs and debt discount for the three months ended September 30, 2022 was $0.2 million, a decrease of $0.8 million, or 83.3%, compared to the three months ended September 30, 2021 due to the acceleration of amortization of
26
deferred financing costs and debt discount associated with the prepayment of the outstanding principal balance under the Term Loan Facility.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Other income, net |
|
$ |
1,094 |
|
|
$ |
1,864 |
|
|
$ |
(770 |
) |
|
|
(41.3 |
%) |
Other income, net for the three months ended September 30, 2022 was $1.1 million, a decrease of $0.8 million, or 41.3%, as compared to the three months ended September 30, 2021. The decrease in other income for the three months ended September 30, 2022 resulted primarily from lower foreign currency gains.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Provision for income taxes |
|
$ |
1,667 |
|
|
$ |
1,968 |
|
|
$ |
(301 |
) |
|
|
(15.3 |
%) |
Provision for income taxes for the three months ended September 30, 2022 was $1.7 million, a decrease of $0.3 million, or 15.3%, compared to the three months ended September 30, 2021. The decrease primarily resulted from the recording of lower pre-tax book income in high tax foreign jurisdictions.
27
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table sets forth our consolidated statement of operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Event Cloud |
|
$ |
320,517 |
|
|
$ |
259,207 |
|
Hospitality Cloud |
|
|
139,122 |
|
|
|
114,952 |
|
Total revenue |
|
|
459,639 |
|
|
|
374,159 |
|
Cost of revenue |
|
|
184,772 |
|
|
|
140,479 |
|
Gross profit |
|
|
274,867 |
|
|
|
233,680 |
|
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
131,787 |
|
|
|
99,069 |
|
Research and development |
|
|
98,766 |
|
|
|
72,016 |
|
General and administrative |
|
|
75,633 |
|
|
|
63,711 |
|
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
36,484 |
|
|
|
38,721 |
|
Total operating expenses |
|
|
342,670 |
|
|
|
273,517 |
|
Loss from operations |
|
|
(67,803 |
) |
|
|
(39,837 |
) |
Interest expense |
|
|
(7,054 |
) |
|
|
(22,717 |
) |
Amortization of deferred financial costs and debt discount |
|
|
(734 |
) |
|
|
(2,823 |
) |
Loss on extinguishment of debt |
|
|
(3,219 |
) |
|
|
- |
|
Other income, net |
|
|
1,979 |
|
|
|
6,135 |
|
Loss before income taxes |
|
|
(76,831 |
) |
|
|
(59,242 |
) |
Provision for income taxes |
|
|
4,292 |
|
|
|
5,294 |
|
Net loss |
|
$ |
(81,123 |
) |
|
$ |
(64,536 |
) |
The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
Event Cloud |
|
|
69.7 |
% |
|
|
69.3 |
% |
Hospitality Cloud |
|
|
30.3 |
% |
|
|
30.7 |
% |
Total revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
40.2 |
% |
|
|
37.5 |
% |
Gross profit |
|
|
59.8 |
% |
|
|
62.5 |
% |
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
28.7 |
% |
|
|
26.5 |
% |
Research and development |
|
|
21.5 |
% |
|
|
19.2 |
% |
General and administrative |
|
|
16.5 |
% |
|
|
17.0 |
% |
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
7.9 |
% |
|
|
10.3 |
% |
Total operating expenses |
|
|
74.6 |
% |
|
|
73.1 |
% |
Loss from operations |
|
|
(14.8 |
%) |
|
|
(10.6 |
%) |
Interest expense |
|
|
(1.5 |
%) |
|
|
(6.1 |
%) |
Amortization of deferred financial costs and debt discount |
|
|
(0.2 |
%) |
|
|
(0.8 |
%) |
Loss on extinguishment of debt |
|
|
(0.7 |
%) |
|
|
0.0 |
% |
Other income, net |
|
|
0.4 |
% |
|
|
1.6 |
% |
Loss before income taxes |
|
|
(16.7 |
%) |
|
|
(15.8 |
%) |
Provision for income taxes |
|
|
0.9 |
% |
|
|
1.4 |
% |
Net loss |
|
|
(17.6 |
%) |
|
|
(17.2 |
%) |
28
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
Event Cloud |
|
$ |
320,517 |
|
|
$ |
259,207 |
|
|
$ |
61,310 |
|
|
|
23.7 |
% |
Hospitality Cloud |
|
|
139,122 |
|
|
|
114,952 |
|
|
|
24,170 |
|
|
|
21.0 |
% |
Total revenue |
|
$ |
459,639 |
|
|
$ |
374,159 |
|
|
$ |
85,480 |
|
|
|
22.8 |
% |
Total revenue for the nine months ended September 30, 2022 was $459.6 million, an increase of $85.5 million, or 22.8%, compared to the nine months ended September 30, 2021. Event Cloud revenue accounted for $320.5 million, or 69.7% of total revenue, and Hospitality Cloud revenue accounted for $139.1 million, or 30.3% of total revenue, for the nine months ended September 30, 2022.
Event Cloud revenue increased $61.3 million, or 23.7%, during the nine months ended September 30, 2022 compared to the prior year. The increase was due to the strong performance of products that support in-person meetings as there is sustained momentum in the return of in-person meetings. While revenue associated with virtual meetings is still one of our top Event Cloud revenue drivers, the return of in-person meetings has caused a revenue mix shift towards products that support in-person and hybrid meetings.
Hospitality Cloud revenue increased $24.2 million, or 21.0%, during the nine months ended September 30, 2022 compared to the prior year primarily due to increased demand of our advertising and software solutions driven by the sustained momentum in the return of in-person meetings and events.
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 nine months ended September 30, 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 that total revenue from outside of North America as a proportion of total revenue will not substantially change.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Cost of revenue |
|
$ |
184,772 |
|
|
$ |
140,479 |
|
|
$ |
44,293 |
|
|
|
31.5 |
% |
Cost of revenue for the nine months ended September 30, 2022 was $184.8 million, an increase of $44.3 million, or 31.5%, compared to the nine months ended September 30, 2021. This increase was primarily driven by a $13.3 million increase in employee expense due to a 30.6% increase in average headcount, a $6.8 million increase in hosting expense, a $3.8 million increase in stock-based compensation, a $2.8 million increase in amortization of capitalized software development costs, and a $1.1 million increase in costs associated with our client conference, Cvent CONNECT. Additionally, third-party costs related to supporting virtual, in-person, and hybrid events increased $10.0 million, and credit card interchange fees related to our merchant services business increased $5.4 million, both of which were primarily driven by the sustained momentum in the return of in-person meetings and events.
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Sales and marketing |
|
$ |
131,787 |
|
|
$ |
99,069 |
|
|
$ |
32,718 |
|
|
|
33.0 |
% |
Research and development |
|
|
98,766 |
|
|
|
72,016 |
|
|
|
26,750 |
|
|
|
37.1 |
% |
General and administrative |
|
|
75,633 |
|
|
|
63,711 |
|
|
|
11,922 |
|
|
|
18.7 |
% |
Intangible asset amortization, exclusive of amounts included in cost of revenue |
|
|
36,484 |
|
|
|
38,721 |
|
|
|
(2,237 |
) |
|
|
(5.8 |
%) |
Total operating expenses |
|
$ |
342,670 |
|
|
$ |
273,517 |
|
|
$ |
69,153 |
|
|
|
25.3 |
% |
29
Sales and Marketing. Sales and marketing expenses for the nine months ended September 30, 2022 were $131.8 million, an increase of $32.7 million, or 33.0%, compared to the nine months ended September 30, 2021. This increase was primarily driven by an $16.1 million increase in employee expense due to a 15.7% increase in average headcount, a $10.2 million increase in stock-based compensation, a $5.1 million increase in marketing program spend, and a $0.7 million increase in travel related expense. Additionally, costs associated with our client conference, Cvent CONNECT, increased $1.1 million.
Research and Development. Research and development expenses for the nine months ended September 30, 2022 were $98.8 million, an increase of $26.8 million, or 37.1%, compared to the nine months ended September 30, 2021. This increase was primarily driven by an $18.6 million increase in employee expense due to a 15.7% increase in average headcount, a $7.5 million increase in stock-based compensation, and a $1.9 million decrease in wage subsidies received pursuant to the Canada Emergency Wage Subsidy program in 2022 compared to 2021. These increases were partially offset by a $0.8 million decrease in depreciation expense.
General and Administrative. General and administrative expenses for the nine months ended September 30, 2022 were $75.6 million, an increase of $11.9 million, or 18.7%, compared to the nine months ended September 30, 2021. This increase was primarily driven by a $7.7 million increase in stock-based compensation, a $6.0 million increase in employee expense due to a 22.4% increase in average headcount, a $2.8 million increase in corporate insurance related to public company directors' and officers' insurance, a $1.6 million increase in contracted services, and a $1.3 million increase in licenses and fees. A portion of these cost increases are related to additional costs incurred as a publicly traded company. These increases were partially offset by a $5.2 million decrease in bad debt expense and a $0.9 million decrease in legal costs associated with prosecuting a trade secret misappropriation claim.
Intangible Asset Amortization, Exclusive of Amounts Included in Cost of Revenue. Intangible asset amortization, exclusive of amounts included in cost of revenue for the nine months ended September 30, 2022 was $36.5 million, a decrease of $2.2 million, or, 5.8% compared to the nine months ended September 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Interest expense |
|
$ |
(7,054 |
) |
|
$ |
(22,717 |
) |
|
$ |
15,663 |
|
|
|
(68.9 |
%) |
Interest expense for the nine months ended September 30, 2022 was $7.1 million, a decrease of $15.7 million, or 68.9%, compared to the nine months ended September 30, 2021. This decrease was driven primarily by a significantly lower principal amount on our outstanding long-term debt as a result of the $500.0 million partial repayment of the Company’s Term Loan Facility in December 2021. Additionally, the Company made partial repayments totaling $120.0 million of the Company’s Revolving Credit Facility during the nine months ended September 30, 2022, partially offset by additional borrowings of $20.0 million.
Amortization of Deferred Financing Costs and Debt Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Amortization of deferred financing costs and debt discount |
|
$ |
(734 |
) |
|
$ |
(2,823 |
) |
|
$ |
2,089 |
|
|
|
(74.0 |
%) |
Amortization of deferred financing costs and debt discount for the nine months ended September 30, 2022 was $0.7 million, a decrease of $2.1 million, or 74.0%, compared to the nine months ended September 30, 2021 due to the acceleration of amortization of deferred financing costs and debt discount associated with the prepayment of the outstanding principal balance under the Term Loan Facility.
Loss on Extinguishment of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Loss on extinguishment of debt |
|
$ |
(3,219 |
) |
|
$ |
- |
|
|
$ |
(3,219 |
) |
|
|
100.0 |
% |
30
Loss on extinguishment of debt for the nine months ended September 30, 2022 was $3.2 million, which is due to the acceleration of debt issuance costs amortization associated with repayment of the outstanding principal balance under the Term Loan Facility.
Other Income, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Other income, net |
|
$ |
1,979 |
|
|
$ |
6,135 |
|
|
$ |
(4,156 |
) |
|
|
(67.7 |
%) |
Other income, net for the nine months ended September 30, 2022 was $2.0 million, a decrease of $4.2 million, or 67.7%, as compared to the nine months ended September 30, 2021. The decrease in other income for the nine months ended September 30, 2022 and 2021 resulted primarily from lower foreign currency gains.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
|
|
(in thousands) |
|
|
|
|
Provision for income taxes |
|
$ |
4,292 |
|
|
$ |
5,294 |
|
|
$ |
(1,002 |
) |
|
|
(18.9 |
%) |
Provision for income taxes for the nine months ended September 30, 2022 was $4.3 million, a decrease of $1.0 million, or 18.9% , compared to the nine months ended September 30, 2021. The decrease primarily resulted from the recording of lower pre-tax book income in high tax foreign jurisdictions.
31
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 considered collectively with the corresponding GAAP measures, 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 they 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 terms may vary from others in our industry.
32
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, for the three and nine months ended September 30, 2022 and 2021, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,233 |
) |
|
$ |
(26,126 |
) |
|
$ |
(81,123 |
) |
|
$ |
(64,536 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
1,857 |
|
|
|
7,546 |
|
|
|
7,054 |
|
|
|
22,717 |
|
Amortization of deferred financing costs and debt discount |
|
|
157 |
|
|
|
938 |
|
|
|
734 |
|
|
|
2,823 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
3,219 |
|
|
|
— |
|
Other income, net |
|
|
(1,094 |
) |
|
|
(1,864 |
) |
|
|
(1,979 |
) |
|
|
(6,135 |
) |
Provision for income taxes |
|
|
1,667 |
|
|
|
1,968 |
|
|
|
4,292 |
|
|
|
5,294 |
|
Depreciation |
|
|
1,817 |
|
|
|
2,493 |
|
|
|
5,740 |
|
|
|
8,478 |
|
Amortization of software development costs |
|
|
16,459 |
|
|
|
15,508 |
|
|
|
49,181 |
|
|
|
45,917 |
|
Intangible asset amortization |
|
|
12,170 |
|
|
|
12,757 |
|
|
|
36,484 |
|
|
|
38,721 |
|
Stock-based compensation expense |
|
|
19,288 |
|
|
|
8,387 |
|
|
|
46,008 |
|
|
|
16,811 |
|
Restructuring expense (1) |
|
|
224 |
|
|
|
1,212 |
|
|
|
760 |
|
|
|
1,777 |
|
Cost related to acquisitions (2) |
|
|
(141 |
) |
|
|
60 |
|
|
|
676 |
|
|
|
1,245 |
|
Other items (3) |
|
|
(427 |
) |
|
|
547 |
|
|
|
(1,182 |
) |
|
|
(2,255 |
) |
Adjusted EBITDA |
|
$ |
33,744 |
|
|
$ |
23,426 |
|
|
$ |
69,864 |
|
|
$ |
70,857 |
|
Adjusted EBITDA Margin: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
161,321 |
|
|
$ |
134,058 |
|
|
$ |
459,639 |
|
|
$ |
374,159 |
|
Net loss margin (4) |
|
|
(11.3 |
%) |
|
|
(19.5 |
%) |
|
|
(17.6 |
%) |
|
|
(17.2 |
%) |
Adjusted EBITDA margin (4) |
|
|
20.9 |
% |
|
|
17.5 |
% |
|
|
15.2 |
% |
|
|
18.9 |
% |
(1)Restructuring expense includes retention bonuses paid 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 prosecuting a trade secret misappropriation claim, and credit facility fees, net of the gain from government subsidies related to the 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 borrowings under our Revolving Credit Facility (see Note 11. “Debt” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report). Outstanding borrowings under the Revolving Credit Facility may fluctuate on a quarterly basis due to the seasonality of the Company’s operating cash flows, and the Company’s desire to minimize interest expense. 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 Credit Facility 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 macroeconomic conditions, including 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 Revolving Credit Facility, 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, the continuing market adoption of our platform and our level of acquisition activity or other strategic transactions. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.
33
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.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the nine months ended September 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
|
(in thousands) |
|
Net cash provided by operating activities |
|
$ |
141,154 |
|
|
$ |
121,558 |
|
Net cash used in investing activities |
|
|
(49,851 |
) |
|
|
(50,383 |
) |
Net cash used in financing activities |
|
|
(96,046 |
) |
|
|
(18,886 |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
(11,391 |
) |
|
|
(2,250 |
) |
Change in cash, cash equivalents, and restricted cash |
|
|
(16,134 |
) |
|
|
50,039 |
|
Cash, cash equivalents, and restricted cash at beginning of year |
|
|
126,629 |
|
|
|
65,470 |
|
Cash, cash equivalents, and restricted cash at September 30, 2022 |
|
$ |
110,495 |
|
|
$ |
115,509 |
|
Cash paid for interest |
|
$ |
6,955 |
|
|
$ |
22,721 |
|
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 nine months ended September 30, 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 nine months ended September 30, 2022, net cash provided by operating activities was $141.2 million, which was primarily driven by an $81.1 million net loss adjusted for non-cash items, including $91.2 million in depreciation and amortization, $46.0 million in stock-based compensation, and $23.8 million in amortization of capitalized commission, as well as other working capital components, including a $45.6 million increase in accounts payable, accrued expenses and other liabilities, a $34.2 million decrease in accounts receivable, and a $7.7 million increase in deferred revenue, partially offset by a $27.7 million increase in capitalized commissions, net. For the nine months ended September 30, 2021, net cash provided by operating activities was $121.6 million, which was primarily driven by a $64.5 million net loss adjusted for items, including $93.1 million in depreciation and amortization, $21.6 million in amortization of capitalized commissions, and $16.8 million in stock-based compensation, as well as other working capital components, including a $52.6 million decrease in accounts receivable, partially offset by a $26.7 million increase in capitalized commissions, net, and an $18.9 million increase in deferred revenue.
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 as our business grows, we expect our capital expenditures and our investment activity to continue to increase.
For the nine months ended September 30, 2022, net cash used in investing activities was $49.9 million, reflecting $38.4 million in capitalized software development, $2.3 million in net purchases of short-term investments, $3.6 million in acquisitions, net of cash acquired, and $5.7 million in purchases of property and equipment. For the nine months ended September 30, 2021, net cash used in investing activities was $50.4 million, reflecting $30.3 million in capitalized software development, $14.8 million for the acquisition of Shoflo, LLC, net of maturities, $2.8 million of purchases of property and equipment, and $2.7 million of purchases of short-term investments.
Financing Activities
Our financing activities have consisted primarily of principal payments on the Term Loan Facility, partially offset by net borrowings under the Revolving Credit Facility and proceeds from the exercise of stock options. For the nine months ended September 30, 2022, net cash used in financing activities was $96.0 million, consisting primarily of the repayment of $265.7 million
34
in the Company's Term Loan, as well as $120.0 million in repayments under the Revolving Credit Facility, partially offset by $285.0 million in borrowings under the Revolving Credit Facility and $7.8 million in proceeds from the exercise of stock options. For the nine months ended September 30, 2021, net cash used in financing activities was $18.9 million, consisting of $13.4 million in repayments on the Company’s prior $40.0 million Revolving Credit Facility and $6.0 million of scheduled principal payments on the Company’s Term Loan Facility.
Commitments and Contingencies
See the information set forth in Note 13. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
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 adverse 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. GAAP 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 unaudited 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.