BLACKLINE, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 filed with theU.S. Securities and Exchange Commission (the "SEC") onFebruary 27, 2020 ("Annual Report on Form 10-K"). This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. The consolidated financial statements for the quarter endedMarch 31, 2019 have been revised to correct for prior period errors as discussed in Item 1 - Note 2, "Basis of Presentation, Significant Accounting Policies and Recently-Issued Accounting Pronouncements". Accordingly, this Management's Discussion and Analysis of Financial Condition and Results of Operations reflects the effects of the revisions. Overview We have created a comprehensive cloud-based software platform designed to transform and modernize accounting and finance operations for organizations of all types and sizes. Our secure, scalable platform supports critical accounting processes such as the financial close, account reconciliations, intercompany accounting, and controls assurance. By introducing software to automate these processes and to enable them to function continuously, we empower our customers to improve the integrity of their financial reporting, increase efficiency in their accounting and finance processes and enhance real-time visibility into their operations. AtMarch 31, 2020 , we had approximately 271,957 individual users across approximately 3,056 customers exclusive of on-premise software. Additionally, we continue to build strategic relationships with technology vendors, professional services firms, business process outsourcers, and resellers. We are a holding company and conduct our operations through our wholly-owned subsidiary,BlackLine Systems, Inc. ("BlackLine Systems").BlackLine Systems funded its business with investments from our founder and cash flows from operations untilSeptember 3, 2013 . OnSeptember 3, 2013 , we acquiredBlackLine Systems , andSilver Lake Sumeru and Iconiq acquired a controlling interest in us, which we refer to as the "2013 Acquisition." The 2013 Acquisition was accounted for as a business combination under accounting principles generally accepted inthe United States ("GAAP") and resulted in a change in accounting basis as of the date of the 2013 Acquisition. Our platform consists of eight core cloud-based products, including Transaction Matching, Account Reconciliations, Consolidation Integrity Manager, Daily Reconciliations, Journal Entry, Variance Analysis, Task Management, and Compliance. Customers typically purchase these products in packages that we refer to as solutions, but they have the option to purchase these products individually. Current solutions include Balance Sheet Integrity, Close Process Management, Accounting Process Automation, Finance Transformation, Intercompany Hub and Smart Close. We sell our solutions primarily through our direct sales force, which leverages our relationships with technology vendors, professional services firms and business process outsourcers. In particular, our solution is an SAP endorsed business solution that integrates with SAP's ERP solutions. In the fourth quarter of 2018, SAP became part of the reseller channel that we use in the ordinary course of business. SAP has the ability to resell our accounting solutions, for which we receive a percentage of the revenues. SinceOctober 1, 2018 , we are no longer obligated to pay SAP a fee based on a percentage of revenues from our new customers that use an SAP ERP solution. The length of our sales cycle depends on the size of the potential customer and contract, as well as the type of solution or product being purchased. The sales cycle for our global enterprise customers is generally longer than that of our mid-market customers. In addition, the length of the sales cycle tends to increase for larger contracts and for more complex, strategic products like Intercompany Hub. As we continue to focus on increasing our average contract size and selling more strategic products, we expect our sales cycle to lengthen and become less predictable, which could cause variability in our results for any particular period. We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the software industry. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into the fourth quarter or last month of any quarter will generally come up for renewal at that same time in subsequent years. This seasonality is reflected in our revenues, though the impact to overall annual or quarterly revenues is minimal due to the fact that we recognize subscription revenue ratably over the term of the customer contract. 20 -------------------------------------------------------------------------------- For the quarters endedMarch 31, 2020 and 2019, we had revenues totaling$82.6 million and$64.1 million , respectively, and we incurred net losses attributable toBlackLine, Inc. of$12.8 million and$8.8 million , respectively.
COVID-19 Update
InDecember 2019 , the emergence of a novel coronavirus, or COVID-19, was reported and inJanuary 2020 , theWorld Health Organization , or WHO, declared it a Public Health Emergency of International Concern. InMarch 2020 , the WHO characterized COVID-19 as a pandemic. We responded to the pandemic by creating an executive task force to monitor the COVID-19 situation daily and immediately restricted non-essential travel and enabled work-from-home protocols. Shortly thereafter, and in line with guidance provided by government agencies and international organizations, we restricted all travel, mandated a work-from-home policy across our global workforce, and moved all in-person customer-facing events to virtual ones. We also responded with COVID-19 customer-relief programs to help our community of global accounting and finance professionals in these challenging times. We have offered free access to our entire training library. We also offered the Task Management and Reporting modules complimentary for six months to existing customers to enable a more effective remote close. In addition, we announced complimentary one-on-one coaching sessions with our customers. We have started to see purchasing decisions being deferred due to COVID-19, decreased services revenue due to the delayed implementation of projects, and an impact on new business pipeline and large deals. Moreover, we expect delays in deals in EMEA andNorth America mid-market, as well as large digital transformation deals. We further expect delays in deals arising out of our SAP partnership, all which will impact our customers and prospects, and our financial results for fiscal 2020. The broader implications of the global emergence of COVID-19 on our business, operating results, and overall financial performance remain uncertain and it depends on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, impact on our partners or employees, and impact on the economic environment and financial markets, all of which are uncertain and cannot be predicted. We are conducting business as usual with certain modifications to employee travel, employee work locations, and marketing events, among other modifications. We have observed other companies taking precautionary and preemptive actions to address COVID-19, and the effects it has had and is expected to have on business and the economy. We expect that our customers and potential customers will take actions to reduce operating expenses and moderate cash flows, including by delaying sales and requesting extended billing and payment terms. We will continue to actively monitor the situation and may take further actions that alter our business operations, as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. Key Metrics We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions. Each of the metrics below exclude the impact of on-premise software.Mar 31, 2019 Jun 30 ,
2019
108 % 108 % 109 % 110 % 110 %
Number of customers 2,707 2,813 2,871 3,024 3,056
Number of users 226,979 236,802 244,515 267,621 271,957
Dollar -based net revenue retention rate. We believe that dollar-based net
revenue retention rate is an important metric to measure the long-term value of
customer agreements and our ability to retain and grow our relationships with
existing customers over time. We calculate dollar-based net revenue retention
rate as the implied monthly subscription and support revenue at the end of a
period for the base set of customers from which we generated subscription
revenue in the year prior to the calculation, divided by the implied monthly
subscription and support revenue one year prior to the date of calculation for
that same customer base. This calculation does not reflect implied monthly
subscription and support revenue for new customers added during the one-year
period but does include the effect of customers who terminated during the
period. We define implied monthly subscription and support revenue as the total
amount of minimum subscription and support revenue contractually committed to,
under each of our customer agreements over the entire term of the agreement,
divided by the number of months in the term of the agreement. Our ability to
maximize the lifetime value of our customer relationships will depend, in part,
on the willingness of the customer to purchase additional user licenses and
products from us. We rely on our customer success and sales teams to support and
grow our existing customers by maintaining high customer satisfaction and
educating the customer on the value all our products provide.
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Number of customers. We believe that our ability to expand our customer base is
an indicator of our market penetration and the growth of our business. We define
a customer as an entity with an active subscription agreement as of the
measurement date. In situations where an organization has multiple subsidiaries
or divisions, each entity that is invoiced as a separate entity is treated as a
separate customer. However, where an existing customer requests its invoice be
divided for the sole purpose of restructuring its internal billing arrangement
without any incremental increase in revenue, such customer continues to be
treated as a single customer. For the quarters ended March 31, 2020 and 2019, no
single customer accounted for more than 10% of our total revenues.
Number of users. Since our customers generally pay fees based on the number of
users of our platform within their organization, we believe the total number of
users is an indicator of the growth of our business. We are also beginning to
sell an increasing number of non-user based strategic products, such as
Transaction Matching and Intercompany Hub.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the
non-GAAP measures below are useful to us and our investors in evaluating our
business. These non-GAAP financial measures are useful because they provide
consistency and comparability with our past performance, facilitate
period-to-period comparisons of operations and facilitate comparisons with other
peer companies, many of which use similar non-GAAP financial measures to
supplement their GAAP results.
Quarter Ended March 31,
2020 2019
(in thousands, except percentages)
GAAP gross profit $ 66,533 $ 50,511
GAAP gross margin 80.6 % 78.8 %
GAAP net loss attributable to BlackLine, Inc. $ (12,843 ) $ (8,781 )
Quarter Ended March 31,
2020 2019
(in thousands, except percentages)
Non-GAAP gross profit $ 68,031 $ 53,110
Non-GAAP gross margin 82.4 % 82.8 %
Non-GAAP net income attributable to BlackLine, Inc. $ 6,018 $ 951
Non-GAAP Gross Profit and Non-GAAP Gross Margin. Non-GAAP gross profit is
defined as GAAP revenues less GAAP cost of revenue adjusted for the amortization
of acquired developed technology resulting from the 2013 Acquisition and the
Runbook Acquisition and stock-based compensation. Non-GAAP gross margin is
defined as non-GAAP gross profit divided by GAAP revenues. We believe that
presenting non-GAAP gross margin is useful to investors as it eliminates the
impact of certain non-cash expenses and allows a direct comparison of gross
margin between periods.
Non-GAAP Net Income. Non-GAAP net income is defined as GAAP net loss adjusted
for the impact of the provision for (benefit from) income taxes that we were
able to recognize as a result of the deferred tax liabilities associated with
the intangible assets established upon the 2013 Acquisition and the Runbook
Acquisition, amortization of acquired intangible assets resulting from the 2013
Acquisition and the Runbook Acquisition, stock-based compensation, the
amortization of debt discount and issuance costs from our convertible notes (the
"Notes"), the change in the fair value of contingent consideration, shelf
offering costs, and the adjustment to the value of the redeemable
non-controlling interest to the redemption amount. We believe that presenting
non-GAAP net income is useful to investors as it eliminates the impact of items
that have been affected by the 2013 Acquisition and the Runbook Acquisition,
certain non-cash expenses, and other costs related to non-recurring
non-operating events in order to allow a direct comparison of net loss between
current and future periods.
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Reconciliation of Non-GAAP Financial Measures
The following table presents a reconciliation of gross profit, gross margin and
net loss, the most comparable GAAP measures, to non-GAAP gross profit, non-GAAP
gross margin and non-GAAP net income:
Quarter Ended March 31,
2020 2019
(in thousands)
Non-GAAP Gross Profit:
Gross profit $ 66,533 $ 50,511
Amortization of developed technology 175 1,711
Stock-based compensation expense 1,323 888 Total non-GAAP gross profit$ 68,031 $ 53,110 Gross margin 80.6 % 78.8 % Non-GAAP gross margin 82.4 % 82.8 % Non-GAAP Net Income Attributable toBlackLine, Inc. : Net loss attributable to BlackLine, Inc.$ (12,843 ) $ (8,781 ) Provision for (benefit from) income taxes (16 )
-
Amortization of intangible assets 1,543
3,077
Stock-based compensation 9,456
6,452
Amortization of debt discount and issuance costs 5,532
-
Change in fair value of contingent consideration 145 (9 ) Shelf offering costs -
212
Adjustment to redeemable non-controlling interest 2,201
-
Total non-GAAP net income attributable to
BlackLine, Inc. $ 6,018 $ 951
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Results of OperationsThe following table sets forth our statements of operations for each of the periods indicated:
The following table presents our consolidated results of operations and reflects
the revisions as discussed in Item 1 - Note 2, "Basis of Presentation,
Significant Accounting Policies and Recently-Issued Accounting Pronouncements".
Quarter Ended March 31,
2020 2019
(in thousands)
Revenues
Subscription and support $ 77,035 $ 61,274
Professional services 5,563 2,855
Total revenues 82,598 64,129
Cost of revenues
Subscription and support 11,380 10,832
Professional services 4,685 2,786
Total cost of revenues 16,065 13,618
Gross profit 66,533 50,511
Operating expenses
Sales and marketing 44,785 35,848
Research and development 11,747 10,307
General and administrative 17,338 13,679
Total operating expenses 73,870 59,834
Loss from operations (7,337 ) (9,323 )
Other income (expense)
Interest income 2,409 695
Interest expense (5,685 ) -
Other income (expense), net (3,276 ) 695
Loss before income taxes (10,613 ) (8,628 )
Provision for income taxes 357 403
Net loss (10,970 ) (9,031 )
Net loss attributable to non-controlling interest (328 ) (250 )
Adjustment attributable to non-controlling interest 2,201 -
Net loss attributable to BlackLine, Inc.$ (12,843 ) $ (8,781 ) Comparison of Quarters Ended March 31, 2020 and 2019 Revenues Quarter Ended March 31, Change 2020 2019 $ % (in thousands, except percentages) Subscription and support$ 77,035 $ 61,274 $ 15,761 26 % Professional services 5,563 2,855 2,708 95 % Total revenues$ 82,598 $ 64,129 $ 18,469 29 % March 31, 2020 2019
Dollar-based net revenue retention rate* 110 % 108 % Number of customers*
3,056 2,707
Number of users* 271,957 226,979
The increase in revenues for the quarter ended March 31, 2020 , compared to the
quarter ended March 31, 2019 , was primarily due to an increase in the number of
customers, an increase in the number of users added by existing customers, an
increase in the number of products purchased by existing customers in the
period, and an increase in non-user based strategic product sales. The total
number of customers and users at March 31, 2020 increased by 13% and 20%,
respectively, as compared to March 31, 2019 .
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Cost of revenues
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
Subscription and support $ 11,380 $ 10,832 $ 548 5 %
Professional services 4,685 2,786 1,899 68 %
Total cost of revenues $ 16,065 $ 13,618 $ 2,447 18 %
Gross margin 80.6 % 78.8 %
The increase in cost of revenues for the quarter ended March 31, 2020 , compared
to the quarter ended March 31, 2019 , was primarily due to a $2.5 million
increase in salaries, benefits, and stock-based compensation, of which $1.5
million was from professional services-related headcount. This increase was
partially offset by a $1.3 million decrease in depreciation and amortization.
The increase in salaries, benefits, and stock-based compensation was primarily
driven by a 27% increase in average cost of revenues-related headcount from the
quarter ended March 31, 2019 to the quarter ended March 31, 2020 . Depreciation
and amortization expense decreased primarily due to a decrease of amortization
relating to developed technology from the 2013 Acquisition, which became fully
amortized in the quarter ended September 30, 2019 .
Sales and marketing
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
Sales and marketing $ 44,785 $ 35,848 $ 8,937 25 %
Percentage of total revenues 54.2 % 55.9 %
The increase in sales and marketing expenses for the quarter ended March 31,
2020 , compared to the quarter ended March 31, 2019 , was primarily due to a $9.3
million increase in salaries, sales commissions, stock-based compensation, and
incentives; a $1.3 million increase in company event-related expenses; and a
$0.7 million increase in advertising and trade show expenses. These increases
were partially offset by a $2.5 million decrease in partner referral fees. The
increase in salaries, sales commissions, and incentives was primarily driven by
an increase in headcount and revenue growth. Our sales and marketing average
headcount increased 28% from the quarter ended March 31, 2019 to the quarter
ended March 31, 2020 . The increase in advertising and trade shows was primarily
due to an increase in our marketing efforts. The decrease in partner referral
fees was primarily driven by the amendment of the previous SAP agreement in the
fourth quarter of 2018 and the addition of SAP to our channel of resellers.
Research and development
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
Research and development, gross
(2,116 ) (1,013 ) (1,103 ) 109 %
software costs
Research and development, net $ 11,747 $ 10,307 $ 1,440 14 %
Percentage of total revenues 14.2 % 16.1 %
The increase in research and development expenses for the quarter ended March
31, 2020 , compared to the quarter ended March 31, 2019 , was primarily due to a
$1.8 million increase in salaries, benefits, and stock-based compensation and a
$0.4 million increase in professional services expense. These increases were
partially offset by a $1.1 million increase in capitalized software costs, which
resulted in a decrease in net expenses. The increase in salaries, benefits, and
stock-based compensation was primarily driven by a 12% increase in average
headcount from the quarter ended March 31, 2019 to the quarter ended March 31,
2020 . The increase in professional services expense was primarily driven by the
investment in products, features, and functionality buildouts by external
consultants.
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General and administrative
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
General and administrative $ 17,338 $ 13,679 $ 3,659 27 %
Percentage of total revenues 21.0 % 21.3 %
The increase in general and administrative expenses for the quarter ended March
31, 2020 , compared to the quarter ended March 31, 2019 , was primarily due to a
$1.8 million increase in salaries, benefits, and stock-based compensation and a
$1.3 million increase in foreign currency losses. The increase in salaries,
benefits, and stock-based compensation was primarily driven by a 12% increase in
average headcount from the quarter ended March 31, 2019 to the quarter ended
March 31, 2020 . The increase in foreign currency losses was primarily due to the
impact of foreign currency rates related to the British Pound and Euro during
the quarter ended March 31, 2020 , compared to the quarter ended March 31, 2019 ,
on net asset balances denominated in foreign currencies.
Interest income
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
Interest income $ 2,409 $ 695 $ 1,714 247 %
The increase in interest income during the quarter ended March 31, 2020 ,
compared quarter ended March 31, 2019 , was primarily due to interest earned on
higher cash balances relating to the proceeds of the Notes, partially offset by
a decrease in average interest rates in the quarter ended March 31, 2020 ,
compared to the quarter ended March 31, 2019 .
Interest expense
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
Interest expense $ 5,685 $ - $ 5,685 *
* Not meaningful
Interest expense during the quarter ended March 31, 2020 was due to amortization
of the debt discount on the Notes issued in August of 2019 and, to a lesser
extent, interest accrued during the period on the outstanding balance on the
Notes.
Provision for income taxes
The amounts below reflect the revisions as discussed in Note 2, "Basis of
Presentation, Significant Accounting Policies and Recently-Issued Accounting
Pronouncements".
Quarter Ended March 31, Change
2020 2019 $ %
(in thousands, except percentages)
Provision for income taxes $ 357 $ 403 $ (46 ) (11 %)
We are subject to federal and state income taxes in the United States and taxes
in foreign jurisdictions. For the quarter ended March 31, 2020 , our annual
estimated effective tax rate differed from the U.S. federal statutory rate of
21% primarily as a result of state taxes, foreign taxes, and changes in our
valuation allowance for domestic income taxes. For the quarters ended March 31,
2020 and 2019, we recorded $0.4 million in income tax expense. Income tax
expense for the quarter ended March 31, 2020 , compared to the quarter ended
March 31, 2019 , remained relatively flat. For the quarter ended March 31, 2020 ,
we continued to maintain a full valuation allowance on our U.S. federal and
state net deferred tax assets as it was more likely than not that those deferred
tax assets will not be realized.
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Liquidity and Capital Resources
AtMarch 31, 2020 , our principal sources of liquidity were an aggregate of$614.0 million of cash and cash equivalents and marketable securities, which primarily consist of short-term, investment-gradeU.S. treasury securities, corporate bonds, and commercial paper. We had$500.0 million aggregate principal amount of Notes outstanding atMarch 31, 2020 . We have the ability to settle the Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election. The Notes were not convertible atMarch 31, 2020 . In connection with the offering of the Notes, we entered into the Capped Calls with certain counterparties covering, subject to anti-dilution adjustments, approximately 6.8 million shares of our common stock and are generally expected to offset the potential economic dilution of our common stock up to the initial cap price. The Capped Calls have an initial strike price of$73.40 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of$106.76 per share, subject to certain adjustments. We believe our existing cash and cash equivalents, investments in marketable securities and cash from operations will be sufficient to meet our working capital needs, capital expenditures and financing obligations for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the expansion of our direct sales force, strategic relationships and international operations, the timing and extent of spending to support research and development efforts and the continuing market acceptance of our solutions. We may require or opportunistically raise additional equity or debt financing. Sales of additional equity or equity-linked securities could result in dilution to our stockholders. If we raise funds by borrowing from third parties, the terms of those financing arrangements would require us to incur interest expense and may include negative covenants or other restrictions on our business that could impair our operating flexibility. We can provide no assurance that financing will be available at all or, if available, that we would be able to obtain financing on terms favorable to us. If we are unable to raise additional capital when needed, we would be required to curtail our operating activities and capital expenditures, and our business operating results and financial condition would be adversely affected.
Historical Cash Flows
The following table sets forth a summary of our cash flows for the periods
indicated:
Quarter Ended March 31,
2020 2019
(in thousands)
Net cash provided by operating activities $ 8,517 $ 3,026
Net cash provided by (used in) investing activities $ 181,308 $ (515 )
Net cash provided by financing activities $ 925 Net Cash Provided By Operating Activities
Our net loss and cash flows from operating activities are significantly
influenced by our investments in headcount and infrastructure to support
anticipated growth. In recent periods, our net loss has generally been
significantly greater than our use of cash for operating activities due to our
subscription-based revenue model in which billings occur in advance of revenue
recognition, as well as the substantial amount of non-cash charges which we
incur. Non-cash charges primarily include depreciation and amortization,
stock-based compensation, non-cash lease expense, amortization of debt discount
and issuance costs, and deferred taxes.
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For the quarter ended March 31, 2020 , cash provided by operations was $8.5
million , resulting from net non-cash expenses of $21.3 million , partially offset
by our net loss of $11.0 million and net cash flow used as a result of changes
in operating assets and liabilities of $1.8 million . The $1.8 million of net
cash flows used as a result of changes in our operating assets and liabilities
reflected the following:
• a
primarily associated with payments of the 2019 employee bonuses during the
quarter;
• a $1.5 million increase in prepaid expenses and other current assets;
• a
our customer and user bases;
• a $1.3 million decrease in operating lease liabilities; and
• a $1.2 million increase in other assets.
These changes in our operating assets and liabilities were largely offset by the following:
• a$12.1 million decrease in accounts receivable, and • a$1.3 million increase in accounts payable. For the quarter endedMarch 31, 2019 , cash provided by operations was$3.0 million , resulting from net non-cash expenses of$13.4 million , largely offset by our net loss of$9.0 million and net cash flow used as a result of changes in operating assets and liabilities of$1.4 million . The$1.4 million of net cash flows used as a result of changes in our operating assets and liabilities reflected the following:
• a
primarily associated with payments of the 2018 employee bonuses during the
first quarter of 2019;
• a $2.5 million increase in other assets; and
• a $1.3 million decrease in operating lease liabilities.
These changes in our operating assets and liabilities were largely offset by the following:
• a
our customer and user bases;
• a $2.3 million decrease in accounts receivable;
• a
• a
Net Cash Provided By (Used In) Investing Activities
Our investing activities consist primarily of investments in and maturities of marketable securities, capital expenditures for property and equipment and capitalized software development costs.
For the quarter endedMarch 31, 2020 , cash provided by investing activities was$181.3 million as a result of$184.7 million of proceeds from maturities and sales of marketable securities, net of purchases, partially offset by$2.3 million in capitalized software development costs and$1.2 million in purchases of property and equipment. For the quarter endedMarch 31, 2019 , cash used in investing activities was$0.5 million as a result of$1.2 million in capitalized software development costs and$1.1 million in purchases of property and equipment, partially offset by$1.8 million of proceeds from maturities of marketable securities, net of purchases.
Net Cash Provided By Financing Activities
For the quarter endedMarch 31, 2020 , cash provided by financing activities was$0.9 million as a result of$4.7 million of proceeds from exercises of stock options, partially offset by$3.6 million of acquisitions of common stock for tax withholding obligations. For the quarter endedMarch 31, 2019 , cash provided by financing activities was$1.0 million primarily as a result of$2.8 million of proceeds from exercises of stock options, partially offset by$1.7 million of acquisitions of common stock for tax withholding obligations. 28
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Contractual Obligations and Commitments
Contractual obligations at
Payments Due by Period
Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years
Purchase obligations $ 14,969 $ 4,579 $ 10,050 $ 170 $ 170
We are required to pay up to a maximum of $8.0 million of contingent
consideration relating to our 2013 Acquisition if we realize a tax benefit from
the use of net operating losses generated from the stock option exercises
concurrent with the 2013 Acquisition. We have not included this obligation in
the table above because there is a high degree of uncertainty regarding the
amount and timing of future cash flows to extinguish this liability. The
settlement of this liability depends on our ability to generate taxable income
in the future to realize this tax benefit.
At March 31, 2020 , liabilities for unrecognized tax benefits of $1.8 million
were not included in the table above because, due to their nature, there was a
high degree of uncertainty regarding the timing of future cash outflows and
other events that extinguish these liabilities.
Commitments under letters of credit at March 31, 2020 were scheduled to expire
as follows (in thousands):
Total Less than 1 Year 1-3 Years 3-5 Years Thereafter
Letters of credit $ 278 $ - $ - $ - $ 278
Letters of credit are maintained pursuant to certain of our lease arrangements.
The letters of credit remain in effect at varying levels through the terms of
the related agreements.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not have any relationships with other entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, vendors, investors, directors and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments we could be required to make under these indemnification provisions is indeterminable. We have never paid a material claim, nor have we been sued in connection with these indemnification arrangements. AtMarch 31, 2020 , we had not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not probable or reasonably estimable.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions about future events that affect the amounts reported in our unaudited consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. Our critical accounting policies and estimates are detailed in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Recent Accounting Pronouncements
See Note 2 - "Basis of Presentation, Significant Accounting Policies and
Recently-Issued Accounting Pronouncements" contained in the "Notes to Unaudited
Condensed Consolidated Financial Statements" in Item 1 of Part I of this
Quarterly Report on Form 10-Q for a full description of the recent accounting
pronouncements and our expectation of their impact, if any, on our results of
operations and financial condition.
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