YEXT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year endedJanuary 31, 2020 , filed with theSEC onMarch 20, 2020 . As discussed in the section titled "Special Note Regarding Forward Looking Statements," the following discussion and analysis contains forward looking statements that involve risks and uncertainties, including uncertainty resulting from the ongoing COVID-19 pandemic, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q. OverviewYext , a search experience cloud company, puts businesses in control of their facts online by delivering their official answers. Our platform lets businesses structure the facts about their brands in a database called a Knowledge Graph. Our platform is built to leverage the structured data stored in the Knowledge Graph to power direct answers on a business's own website, as well as across more than 175 service and application providers, which we refer to as our Knowledge Network and includes Amazon Alexa, Apple Maps, Bing,Cortana , Facebook, Google, Google Assistant, Google Maps, Siri and Yelp. TheYext platform powers all of our key features, including Listings, Pages, and Answers, along with its other features and capabilities. We sell our platform throughout the world and intend to continue to expand our international sales efforts. We sell to customers of all sizes, through direct sales efforts to our customers, including third-party reseller customers. In transactions with resellers, we are only party to the transaction with the reseller and are not a party to the reseller's transaction with its customer. Revenue is a function of the number of customers, the number of licenses with each customer, the package to which each customer subscribes, the price of the package and renewal rates. We offer subscriptions in a discrete range of packages, with pricing based on specified feature sets and the number of licenses managed by the customer as well as on a capacity-basis. Fiscal Year Our fiscal year ends onJanuary 31st . References to fiscal 2021, for example, are to the fiscal year endingJanuary 31, 2021 . COVID-19 Update InMarch 2020 , theWorld Health Organization ("WHO") declared the coronavirus disease ("COVID-19") as a pandemic. The COVID-19 pandemic has disrupted business operations for us and our customers, suppliers, and other parties with whom we do business and such disruptions are expected to continue for an indefinite period of time. In an effort to control the spread of COVID-19, governments and municipalities around the world have instituted restrictive measures, including orders to shelter-in-place, travel restrictions, and mandated business closures. More recently, certain regions and countries have begun phased re-openings of businesses that were previously ordered to close. As a result of the COVID-19 pandemic, we have temporarily closed our offices requiring all of our employees globally to work remotely. We have restricted non-essential business travel, and canceled in-person marketing events, including our annual industry and customer event, ONWARD20, which had been scheduled to occur inNovember 2020 inNew York City . We continue to monitor regional developments relating to the COVID-19 pandemic to inform decisions on office re-openings and lifting of travel restrictions. The uncertain duration of these measures have had and may continue to have increasingly negative effects on our sales efforts and revenue growth rates. Many of our customers and potential customers needs have been impacted by the COVID-19 pandemic, and we are continuing to adapt to those needs. In response to the COVID-19 pandemic, some existing and potential customers, in particular customers in industries highly impacted by the pandemic such as retail and food services, have, and we expect other customers may, reduce, suspend or delay technology spending; request to renegotiate contracts to obtain concessions such as, extended billing and payment terms; shorten the duration of contracts; or elect not to renew their subscriptions. Despite the economic challenges brought on by the COVID-19 pandemic, we are committed to the long term overall health of our business, the strength of our platform, and our ability to continue to execute on our strategy. Earlier this year, we announced collaborations with theWHO ,United States Department of State , and the States ofNew Jersey andAlabama , to launch comprehensive information hubs, powered by Yext Answers, that centralize accurate information and updates about the pandemic. We also launched the No Wrong Answers integrated marketing campaign to help more organizations across industries transform their websites with Yext Answers, and are offering Yext Answers as a 90-day free trial. More recently, we announced a global technology partnership with Adobe where Adobe content management system clients can choose to upgrade their search experience with Yext Answers. We also expanded Yext Answers into four new languages: French, German, Italian, and Spanish. The ultimate extent of the impact of the pandemic on our business, financial condition and results of operations will depend on future developments, which continue to be highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the COVID-19 pandemic and the actions taken to contain and address its impact, among others. However, because we generally recognize revenue from our customer contracts ratably over the term of the contract, changes in our contracting 20 -------------------------------------------------------------------------------- activity in the near term may not be fully reflected in our results of operations and overall financial performance until future periods. See Part II Item 1A "Risk Factors" for further discussion of the possible impact of the COVID-19 pandemic on our business. Components of Results of Operations Revenue We derive our revenue primarily from subscription and associated support to ourYext platform. Our contracts are typically one year in length, but may be up to three years or longer in length. Revenue is a function of the number of customers, the number of licenses with each customer, the package to which each customer subscribes, the price of the package and renewal rates. Revenue is generally recognized ratably over the contract term beginning on the commencement date of each contract, which is the date our platform is made available to customers. At the beginning of each subscription term we invoice our customers, typically in annual installments, but also monthly, quarterly, and semi-annually. Amounts that have been invoiced for non-cancelable contracts are recorded in accounts receivable and unearned revenue. Unearned revenue is subsequently recognized as revenue when transfer of control to a customer has occurred. Cost of Revenue Cost of revenue consists primarily of employee-related costs, including personnel-related costs, which mainly consist of salaries and wages, and stock-based compensation expense. Cost of revenue also includes fees associated with our Knowledge Network application provider arrangements, the nature of which may be unpaid, fixed, or variable, and are unpaid with many of our larger providers. In addition, cost of revenue includes the costs associated with our data centers, as well as depreciation expense, including with respect to certain capitalized software development costs incurred in connection with additional functionality to our platform. Cost of revenue also includes operating and short-term lease expenses associated with our office spaces, which are allocated based on employee headcount. Operating Expenses Sales and marketing expenses. Sales and marketing expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages and costs of obtaining revenue contracts. Sales and marketing expenses also include costs related to advertising and conferences and brand awareness events. In addition, sales and marketing expenses include operating and short-term lease expenses associated with our office spaces, which are allocated based on employee headcount. Research and development expenses. Research and development expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense. Personnel-related costs mainly consist of salaries and wages. Capitalized software development costs related to additional functionality to our platform are excluded from research and development expenses as they are capitalized as a component of property and equipment, net and depreciated to cost of revenue over the term of their useful life. Research and development expenses also include operating and short-term lease expenses associated with our office spaces, which are allocated based on employee headcount. General and administrative expenses. General and administrative expenses consist primarily of employee-related costs which are comprised of personnel-related costs and stock-based compensation expense for our finance and accounting, human resources, information technology and legal support departments. Personnel-related costs mainly consist of salaries and wages. General and administrative expenses also include operating and short-term lease expenses associated with our office spaces, which are allocated based on employee headcount, and other professional related costs. 21 --------------------------------------------------------------------------------
Results of Operations The following table sets forth selected condensed consolidated statement of operations data for each of the periods indicated:
Six months ended July
Three months ended July 31, 31,
(in thousands) 2020 2019 2020 2019
Revenue $ 88,055 $ 72,373 $ 173,406 $ 141,081
Cost of revenue(1) 21,984 19,269 43,168 35,742
Gross profit 66,071 53,104 130,238 105,339
Operating expenses:
Sales and marketing(1) 56,049 52,371 114,569 98,769
Research and development(1) 14,788 12,686 29,166 22,592
General and administrative(1) 19,474 18,344 39,932 33,535
Total operating expenses 90,311 83,401 183,667 154,896
Loss from operations (24,240) (30,297) (53,429) (49,557)
Interest income 47 1,377 515 2,283
Interest expense (154) (79) (291) (132)
Other expense, net (423) (203) (507) (409)
Loss from operations before income
taxes (24,770) (29,202) (53,712) (47,815)
(Provision for) benefit from income
taxes (346) (89) (628) (435)
Net loss $ (25,116) $ (29,291) $ (54,340) $ (48,250) (1)Amounts include stock-based compensation expense as follows:
Six months ended July
Three months ended July 31, 31,
(in thousands) 2020 2019 2020 2019
Cost of revenue $ 1,307 $ 988 $ 2,540 $ 1,806
Sales and marketing 7,960 8,229 15,741 15,069
Research and development 3,933 3,058 7,876 5,630
General and administrative 4,030 4,334 8,445 7,320
Total stock-based compensation
expense $ 17,230 $ 16,609
The following table sets forth selected condensed consolidated statements of
operations data for each of the periods indicated as a percentage of total
revenue:
Six months ended July
Three months ended July 31, 31,
2020 2019 2020 2019
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 25 27 25 25
Gross profit 75 73 75 75
Operating expenses:
Sales and marketing 64 72 66 70
Research and development 17 18 17 16
General and administrative 22 25 23 24
Total operating expenses 103 115 106 110
Loss from operations (28) (42) (31) (35)
Interest income - 2 - 1
Interest expense - - - -
Other expense, net - - - -
Loss from operations before income
taxes (28) (40) (31) (34)
(Provision for) benefit from income
taxes (1) - - -
Net loss (29) % (40) % (31) % (34) %
22-------------------------------------------------------------------------------- Three Months EndedJuly 31, 2020 Compared to Three Months EndedJuly 31, 2019 Revenue and Cost of Revenue Three months ended July 31, Variance (in thousands) 2020 2019 Dollars Percent Revenue$ 88,055 $ 72,373 $ 15,682 22 % Cost of revenue 21,984 19,269$ 2,715 14 % Gross profit$ 66,071 $ 53,104 $ 12,967 24 % Gross margin 75.0 % 73.4 % Total revenue was$88.1 million for the three months endedJuly 31, 2020 , compared to$72.4 million for the three months endedJuly 31, 2019 , an increase of$15.7 million or 22%. This increase was primarily due to new customers and expanded subscriptions sold to existing customers. Revenue from our enterprise and mid-size customers, which include third-party reseller customers, grew 23% from$69.2 million to$85.4 million , and excludes revenue from small business customers, which by their nature have inherently high turnover. Cost of revenue was$22.0 million for the three months endedJuly 31, 2020 , compared to$19.3 million for the three months endedJuly 31, 2019 , an increase of$2.7 million or 14%. This increase was primarily due to employee-related costs reflecting higher headcount, including a$0.9 million increase in personnel-related costs, which mainly consisted of salaries and wages, and a$0.3 million increase in stock-based compensation expense. In addition, there was a$0.6 million increase in costs associated with our data centers and a$0.4 million increase in depreciation expense. Gross margin was 75.0% for the three months endedJuly 31, 2020 , compared to 73.4% for the three months endedJuly 31, 2019 . Operating Expenses Three months ended July 31, Variance (in thousands) 2020 2019 Dollars Percent Sales and marketing$ 56,049 $ 52,371 $ 3,678 7 % Research and development$ 14,788 $ 12,686 $ 2,102 17 % General and administrative$ 19,474 $ 18,344 $ 1,130 6 % Sales and marketing expense was$56.0 million for the three months endedJuly 31, 2020 , compared to$52.4 million for the three months endedJuly 31, 2019 , an increase of$3.7 million or 7%. The increase was primarily due to a$7.6 million increase in personnel-related costs, which mainly consisted of salaries and wages and costs to obtain revenue contracts, reflecting higher headcount, and also included a$0.5 million increase in depreciation expense. These increases were partially offset by an approximately$5.0 million decrease resulting from certain expenses reduced in light of the COVID-19 pandemic, such as limited or canceled employee travel, conferences and events. Research and development expense was$14.8 million for the three months endedJuly 31, 2020 , compared to$12.7 million for the three months endedJuly 31, 2019 , an increase of$2.1 million or 17%. The increase was primarily due to employee-related costs reflecting higher headcount, including a$1.1 million increase in personnel-related costs, which mainly consisted of salaries and wages, and a$0.9 million increase in stock-based compensation expense. General and administrative expense was$19.5 million for the three months endedJuly 31, 2020 , compared to$18.3 million for the three months endedJuly 31, 2019 , an increase of$1.1 million or 6%. The general and administrative expense was relatively consistent compared to the prior period, with the net increase of$1.1 million primarily driven by a$1.6 million increase in the allowance for doubtful accounts relating to extended billing and payment terms with certain customers and considerations in light of impacts from the COVID-19 pandemic, partially offset by$0.7 million in reduced expenses resulting from limited or canceled employee travel, similarly in light of the COVID-19 pandemic. 23 --------------------------------------------------------------------------------
Six Months Ended
Six months ended July 31, Variance
(in thousands) 2020 2019 Dollars Percent
Revenue $ 173,406 $ 141,081 $ 32,325 23 %
Cost of revenue 43,168 35,742 $ 7,426 21 %
Gross profit $ 130,238 $ 105,339 $ 24,899 24 %
Gross margin 75.1 % 74.7 %
Total revenue was $173.4 million for the six months ended July 31, 2020 ,
compared to $141.1 million for the six months ended July 31, 2019 , an increase
of $32.3 million or 23%. This increase was primarily due to new customers and
expanded subscriptions sold to existing customers. Revenue from our enterprise
and mid-size customers, which include third-party reseller customers, grew 25%
from $134.6 million to $168.1 million , and excludes revenue from small business
customers, which by their nature have inherently high turnover.
Cost of revenue was $43.2 million for the six months ended July 31, 2020 ,
compared to $35.7 million for the six months ended July 31, 2019 , an increase of
$7.4 million or 21%. This increase was primarily due to employee-related costs
reflecting higher headcount, including a $2.8 million increase in
personnel-related costs, which mainly consisted of salaries and wages, and a
$0.7 million increase in stock-based compensation expense. In addition, there
was a $1.3 million increase in costs associated with our data centers, a $0.6
million increase in depreciation expense, and a $0.6 million increase in
operating and short-term lease expenses, mainly as a result of our lease
arrangement for our new corporate headquarters in New York, NY which commenced
in May 2019 .
Gross margin was 75.1% for the six months ended July 31, 2020 , compared to 74.7%
for the six months ended July 31, 2019 .
Operating Expenses
Six months ended July 31, Variance
(in thousands) 2020 2019 Dollars Percent
Sales and marketing $ 114,569 $ 98,769 $ 15,800 16 %
Research and development $ 29,166 $ 22,592 $ 6,574 29 %
General and administrative $ 39,932 $ 33,535 $ 6,397 19 %
Sales and marketing expense was $114.6 million for the six months ended July 31,
2020 , compared to $98.8 million for the six months ended July 31, 2019 , an
increase of $15.8 million or 16%. The increase was primarily due to
employee-related costs reflecting higher headcount, including a $18.0 million
increase in personnel-related costs, which mainly consisted of salaries and
wages and costs to obtain revenue contracts, and a $0.7 million increase in
stock-based compensation expense. In addition, there was a $2.1 million increase
in operating and short-term lease expenses, mainly as a result of our lease
arrangement for our new corporate headquarters in New York, NY which commenced
in May 2019 . These increases were partially offset by an approximately $7.2
million decrease resulting from certain expenses reduced in light of the
COVID-19 pandemic, such as limited or canceled employee travel, conferences and
events.
Research and development expense was $29.2 million for the six months ended July
31, 2020 , compared to $22.6 million for the six months ended July 31, 2019 , an
increase of $6.6 million or 29%. The increase was primarily due to
employee-related costs reflecting higher headcount, including a $2.9 million
increase in personnel-related costs, which mainly consisted of salaries and
wages, and a $2.2 million increase in stock-based compensation expense. In
addition, there was a $0.5 million increase in operating and short-term lease
expenses, mainly as a result of our lease arrangement for our new corporate
headquarters in New York, NY which commenced in May 2019 .
General and administrative expense was $39.9 million for the six months ended
July 31, 2020 , compared to $33.5 million for the six months ended July 31, 2019 ,
an increase of $6.4 million or 19%. The increase was primarily due to
employee-related costs reflecting higher headcount, including a $2.5 million
increase in personnel-related costs, which mainly consisted of salaries and
wages, and a $1.1 million increase in stock-based compensation expense. In
addition, there was a $2.3 million increase in the allowance for doubtful
accounts relating to extended billing and payment terms with certain customers
and considerations in light of impacts from the COVID-19 pandemic, and a $0.5
million increase in operating and short-term lease expenses, mainly as a result
of our lease arrangement for our new corporate headquarters in New York, NY
which commenced in May 2019 .
Liquidity and Capital Resources
As of July 31, 2020 , our principal sources of liquidity were cash and cash
equivalents of $223.3 million . We believe our existing cash and cash equivalents
will be sufficient to meet our projected operating requirements for at least the
next 12 months. Our cash
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flows, including net cash used in or provided by operating activities, may vary
significantly from quarter to quarter, due to the timing of billings, cash
collections, lease payments and capital expenditures, significant marketing
events and related expenses, the potential effects of the COVID-19 pandemic,
among other factors.
Our future capital requirements will depend on many factors, including those set
forth under "Risk Factors." We may in the future enter into arrangements to
acquire or invest in complementary businesses, services, technologies, and
intellectual property rights. We have and will continue to enter into new lease
arrangements for new and expanded facilities, such as our lease arrangement for
our new corporate headquarters in New York, NY , which commenced in May 2019 . In
connection with these arrangements, we expect our lease expenses and related
capital expenditures to increase, which may limit our ability to take advantage
of business opportunities or respond to changing business or market conditions.
In addition, 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 when desired, our business, operating results and
financial condition would be adversely affected.
Credit Arrangements
On March 16, 2016 , we entered into a Loan and Security agreement with Silicon
Valley Bank ("SVB") that provides for a $15.0 million revolving credit line
("Revolving Line") and a $7.0 million Letter of Credit facility (together with
the Revolving Line, the "Credit Agreement"). In March 2018 , the Credit Agreement
was amended to extend the maturity date to March 16, 2020 . On March 11, 2020 , we
replaced our existing Credit Agreement and entered into a new credit agreement
with Silicon Valley Bank (the "March 2020 Credit Agreement"). No significant
debt issuance costs were incurred in association with the March 2020 Credit
Agreement.
The March 2020 Credit Agreement provides for a senior secured revolving loan
facility of up to $50.0 million that matures three years after the effective
date, with the right subject to certain conditions to add an incremental
revolving loan facility of up to $50.0 million in the aggregate. The three-year
revolving loan facility provides for borrowings up to the amount of the facility
with sub-limits of up to (i) $30.0 million to be available for the issuance of
letters of credit and (ii) $10.0 million to be available for swingline loans.
Under the March 2020 Credit Agreement, loans bear interest, at our option, at an
annual rate based on LIBOR or a base rate. Loans based on LIBOR shall bear
interest at a rate between LIBOR plus 2.50% and LIBOR plus 3.00%, depending on
our average daily usage of the revolving loan facility. Loans based on the base
rate shall bear interest at a rate between the base rate minus 0.50% and the
base rate plus 0.00%, depending on our average daily usage of the revolving loan
facility. See Part II Item 1A "Risk Factors - Our new credit facility contains
restrictive covenants that may limit our operating flexibility" for discussion
of LIBOR being phased out.
The obligations under the March 2020 Credit Agreement are secured by a lien on
substantially all of our tangible and intangible property and by a pledge of all
of our equity interests of material direct and indirect domestic subsidiaries
and 66% of each class of capital stock of any material first-tier foreign
subsidiaries, subject to limited exceptions.
The March 2020 Credit Agreement contains customary affirmative and negative
covenants and restrictions, as well as financial covenants that require us to
maintain the year-over-year growth rate of its ordinary course recurring revenue
for a trailing four fiscal quarter period above specified rates when certain
liquidity thresholds are not met and to maintain a consolidated quick ratio of
at least 1.50 to 1.00 tested on a monthly basis.
As of January 31, 2020 , we had back-to-back standby letters of credit for $12.1
million , which were fully secured by a $12.1 million cash deposit. The $12.1
million was classified as restricted cash on our condensed consolidated balance
sheet. In connection with the March 2020 Credit Agreement, the $12.1 million
cash deposit was released and is no longer classified as restricted cash on our
condensed consolidated balance sheet as of July 31, 2020 .
As of July 31, 2020 , we were in compliance with all debt covenants. As of
such date, the $50.0 million revolving loan facility had $30.4 million available
and $19.6 million in letters of credit allocated as security in connection with
office space.
Cash Flows
The following table summarizes our cash flows:
Six months ended July 31,
(in thousands) 2020 2019
Net cash (used in) operating activities $
(16,295)
Net cash (used in) provided by investing activities $
(40,055)
Net cash provided by financing activities $
9,664
Operating Activities Net cash used in operating activities of$16.3 million for the six months endedJuly 31, 2020 was primarily due to the net loss of$54.3 million , as well as changes in unearned revenue of$31.4 million , changes in prepaid expenses and other current assets of$7.9 million and accounts payable, accrued expenses and other current liabilities of$7.0 million , respectively, associated with the timing of invoices and payments. This was partially offset by positive adjustments in reconciling our net loss to net cash used in operating 25 -------------------------------------------------------------------------------- activities related to changes in accounts receivable of$26.0 million , mainly due to timing of billing and cash collections during the period, as well as changes in costs to obtain revenue contracts of$3.7 million and operating lease liabilities of$3.7 million . Net cash used in operating activities was also partially offset by non-cash charges related to stock-based compensation expense of$34.6 million , amortization of operating lease right-of-use assets of$6.8 million , depreciation and amortization expense of$5.2 million , and bad debt expense of$2.3 million which includes an increase in the allowance for doubtful accounts relating to extended billing and payment terms with certain customers and considerations in light of impacts from the COVID-19 pandemic. Net cash used in operating activities of$10.6 million for the six months endedJuly 31, 2019 was primarily due to the net loss of$48.3 million , changes in unearned revenue of$12.2 million and costs to obtain revenue contracts of$2.6 million . These decreases were partially offset by a change in accounts receivable of$17.9 million , mainly due to timing of billing and cash collections during the period. In addition, non-cash charges related to stock-based compensation expense of$29.8 million , amortization of operating right-of-use assets of$4.7 million , and depreciation and amortization of$3.8 million , resulted in positive adjustments in reconciling our net loss to net cash used in operating activities. Investing Activities Net cash used in investing activities of$40.1 million for the six months endedJuly 31, 2020 reflected capital expenditures primarily associated with our new corporate headquarters inNew York, NY , and our office spaces inRosslyn, VA andTokyo, Japan , among others. We expect our investments in capital expenditures associated with our new office space will continue to drive our cash used in investing activities for the fiscal year endingJanuary 31, 2021 as we work to complete the build-out of our new offices. We will continue to evaluate our real estate strategy in light of our evolving needs for office space. Net cash provided by investing activities of$41.3 million for the six months endedJuly 31, 2019 was related to maturities associated with marketable securities of$45.8 million , partially offset by capital expenditures of$4.4 million . Financing Activities Net cash provided by financing activities of$9.7 million for the six months endedJuly 31, 2020 was primarily related to proceeds from exercise of stock options of$6.7 million and net proceeds from employee stock purchase plan withholdings of$3.7 million , partially offset by payments of deferred financing costs of$0.7 million . Net cash provided by financing activities of$159.0 million for the six months endedJuly 31, 2019 was primarily related to proceeds from our common stock offering of$147.0 million , net of underwriting discounts and commissions, as well as proceeds from exercises of stock options of$9.2 million , and net proceeds from employee stock purchase plan withholdings of$3.6 million . Contractual Obligations We are obligated to make payments under certain non-cancelable contractual obligations in the normal course of business. Our contractual obligations primarily relate to our operating lease arrangements for office space. Our other contractual obligations include contracts with our Knowledge Network application providers, which generally have a term of one year, and our software vendors, among others. These obligations represent minimum contractual payments, or our best estimate for variable elements based on historical payments. Our contractual obligations have various expiry dates between fiscal years 2021 and 2035.
As of
6,865 $ 19,352
2022 19,385 10,865
2023 19,337 4,691
2024 18,818 1,874
2025 18,289 1,494
2026 and thereafter 111,377 2,862
Total $ 194,071 $ 41,138
See Note 13 "Commitments and Contingencies" to our condensed consolidated
financial statements for further discussion on contractual obligations.
Off-Balance Sheet Arrangements
We do not engage in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as
structured finance or special purpose entities, as part of our ongoing business.
Accordingly, our operating results, financial condition and cash flows are not
subject to off-balance sheet risks.
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Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). The preparation of these financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported revenue generated and
expenses incurred during the reporting periods. Our estimates are based on our
historical experience and various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making
judgments about items that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
See Note 2 "Summary of Significant Accounting Policies," to our condensed
consolidated financial statements, included in this Quarterly Report on Form
10-Q, for further discussion on our accounting policies. There have been no
material changes to our critical accounting policies and estimates as compared
to those disclosed in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 "Summary of Significant Accounting Policies- Recent Accounting
Pronouncements," to the condensed consolidated financial statements for our
discussion about adopted and pending recent accounting pronouncements.
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