ALTERYX, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, including, but not limited to, risks and uncertainties related to the impact of the COVID-19 pandemic on our business. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors," set forth in Part I, Item 1A of this Annual Report. See "Special Note Regarding Forward-Looking Statements" above. The following section generally discusses our financial condition and results of operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . A discussion regarding our financial condition and results of operations for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 is included in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operation," included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onFebruary 12, 2021 . Overview We are a leader in Analytic Process Automation, or Alteryx APA. The Alteryx APA software platform unifies analytics, data science and business process automation in one self-service platform to accelerate digital transformation, deliver high-impact business outcomes, accelerate the democratization of data and rapidly upskill modern workforces. Data workers, regardless of technical acumen, are empowered to be curious and solve problems. With the Alteryx APA software platform, users can automate the full range of analytics, data science and processes, embed intelligent decision-making and actions, and empower their organization to enable top and bottom line impact, efficiency gains, and rapid upskilling. Our platform has been adopted by organizations across a wide variety of industries and sizes. We derive a large portion of our revenue from subscriptions for use of our platform. Our software can be licensed for use on a desktop or server, or it can be deployed in the cloud. Subscription periods for our platform generally range from one to three years and the subscription fees are typically billed annually in advance. We also generate revenue from professional services, including training and consulting services. Highlights from Fiscal Year 2021 •Generated total revenue of$536.1 million during fiscal year 2021, an 8% increase from fiscal year 2020. •Ended the fiscal year 2021 with cash, cash equivalents, and short-term and long-term investments of$1.0 billion , compared with$1.0 billion as ofDecember 31, 2020 . Generated$63.2 million in cash flow from operations during fiscal year 2021, compared to$74.8 million generated during the prior year. •Ended the fourth quarter of 2021 with Annual Recurring Revenue of$638.0 million , a 30% increase from the fourth quarter of 2020. •Acquired Hyper Anna Pty. Ltd. andLore IO, Inc. to augment our development team and bring new technologies to enhance the functionality of our platform. •Introduced limited availability offerings of Alteryx Machine Learning and Alteryx Designer Cloud, the latest innovations that extend the functionality of the Alteryx APA platform. •Announced strategic alliances withKPMG LLP and made our platform available to customers onAWS Marketplace to accelerate adoption of APA. COVID-19 Impact InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout theU.S. and the world and has resulted in authorities implementing numerous measures from time to time to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. While we are unable to accurately predict the full impact that the COVID-19 pandemic has had or will have on our operating results, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic, any resurgences of the pandemic locally or globally, and the evolution and impact of COVID-19 variants, our compliance with these measures has impacted our day-to-day operations and could continue to disrupt our business and operations, as well as that of certain of our customers whose industries are more severely impacted by these factors, for an indefinite period of time. 68 -------------------------------------------------------------------------------- To support the health and well-being of our employees, customers, partners and communities, the majority of our offices worldwide were closed fromMarch 2020 throughMay 2021 . Beginning inJune 2021 and continuing into the three months endedDecember 31, 2021 , as conditions have improved, vaccination rates have increased, and local authorities have permitted, we have opened most of our offices worldwide. Those offices that are currently open have various restrictions still in place, including with respect to social distancing and mask wearing, and have enhanced cleaning protocols. Although our offices have begun to open for employees to return on a voluntary basis, most of our employees continue to work remotely either on a part-time or full-time basis and we are still developing plans on when and how to bring a larger portion of our workforce back to the office. We have also started reducing restrictions on domestic travel and have seen increases in travel in the three months endedDecember 31, 2021 . International travel, however, remains heavily restricted. While the evolution of the processes and policies we have implemented to our operations may result in inefficiencies, delays and additional costs in our product development, sales, marketing, and customer support efforts, as of the date of this filing, we do not believe our work from home protocol has materially adversely impacted our internal controls, financial reporting systems or our operations. InFebruary 2022 , we transitioned our corporate headquarters to our new facilities inIrvine, California . Although the impact of the pandemic on the commercial real estate market is still evolving, the increase in work-from-home arrangements and continued restrictions imposed by local authorities over the use of office space could impair our ability to find viable subtenants for our existing corporate headquarters, which could result in additional costs when we cease use of that space. In response to the COVID-19 pandemic, we implemented plans to manage our costs in 2020, including by limiting the addition of new employees and third-party contracted services, curtailing most travel expense except where critical to the business, and limiting discretionary spending. In 2021, we resumed increased investment in administrative, operational, and financial resources to grow our operations, including through enhancements to our infrastructure and systems and recruiting new employees. We intend to continue these activities, but to the extent any business disruption continues for an extended period, additional cost management actions may be considered. Although we monitor the situation and may adjust our current policies as more information and public health guidance become available, the ongoing effects of the COVID-19 pandemic and/or the precautionary measures that we, our customers and governmental authorities have adopted have resulted in, and could continue to result in, customers not purchasing or renewing our products or services, significant delays or lengthening of our sales cycles, and reductions in average transaction sizes, and could negatively affect our customer success and sales and marketing efforts, result in difficulties or changes to our customer support, or create operational or other challenges, any of which could harm our business and operating results. Because our products are offered as subscription-based licenses and a portion of that revenue is recognized over time, the effect of the pandemic may not be fully reflected in our operating results until future periods. Further, the COVID-19 pandemic and its impact on us and the economy significantly limited our ability to forecast our future operating results, including our ability to predict revenue and expense levels. Our competitors may have experienced similar or different impacts as a result of the COVID-19 pandemic, which could result in changes to our competitive landscape. While we have developed and continue to develop plans to help mitigate the negative impact of the pandemic on our business, these efforts may not be effective and any protracted economic downturn could significantly affect our business and operating results. We will continue to evaluate the nature and extent of the impact of the COVID-19 pandemic to our business. See Part I, Item 1A. Risk Factors of this Annual Report for further discussion of the possible impact of the COVID-19 pandemic on our business. 69 -------------------------------------------------------------------------------- Key Factors Affecting Our Performance We believe that our current and future performance are dependent on many factors, including, but not limited to, those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. For more information about these risks, see the section titled "Risk Factors" included elsewhere in this Annual Report. If we are unable to address these risks, our business and operating results could be adversely affected. Expansion and Further Penetration of Our Customer Base. We often employ a "land and expand" business model that focuses on efficiently acquiring new customers and growing our relationships with existing customers over time. Our current and future revenue growth and our ability to sustain profitability is dependent upon our ability to continue landing new customers and expanding the adoption of our platform by additional users within their organizations. We have increased our number of customers from 7,083 atDecember 31, 2020 to 7,936 atDecember 31, 2021 . We have maintained a net expansion rate in excess of 119% in each of the periods presented. See Dollar-Based Net Expansion Rate within this Management's Discussion and Analysis of Financial Condition and Result of Operations for additional information. International Expansion. We have continued to focus on international markets. For the years endedDecember 31, 2021 , 2020, and 2019, we derived 32%, 32%, and 29% of our revenue outside ofthe United States , respectively. We believe that the global opportunity for self-service data analytics solutions is significant, and should continue to expand as organizations outsidethe United States seek to adopt self-service platforms as we have experienced with our existing customers. To capitalize on this opportunity, we intend to continue to invest in growing our presence internationally. Investment in Growth. Operating expenses have increased from$340.8 million for the year endedDecember 31, 2019 to$616.6 million for the year endedDecember 31, 2021 as we continued investing in our business so that we can capitalize on our market opportunity. Full-time headcount has increased over this same time period from 1,291 employees to 1,993 employees. We intend to continue to add headcount to our global sales and marketing teams to acquire new customers and to increase sales to existing customers. We intend to continue to add headcount to our research and development team to extend the functionality and range of our platform by bringing new and improved products and services to our customers. We believe that these investments will contribute to our long-term growth, although they may adversely affect our operating results in the near term. Market Adoption of Our Platform. A key focus of our sales and marketing efforts is to continue creating market awareness about the benefits of our platform. Although the COVID-19 pandemic restricted our ability to hold in-person user conferences, which had grown to three annual events worldwide and over 6,400 attendees in 2019, we have utilized and may continue to utilize various forms of digital, virtual, and hybrid events to continue to create market awareness, including our first global Inspire user conference, which was held virtually and had approximately 10,000 attendees. While we cannot predict customer adoption rates and demand, the future growth rate and size of the self-service data analytics market, or the introduction of competitive products and services, our business and operating results will be significantly affected by the degree to and speed with which organizations adopt self-service data analytics solutions and our platform. Acquisitions. Our business strategy has included acquiring other complementary products, technologies, and/or talent that allow us to reduce the time or costs required to develop new technologies, incorporate enhanced functionality into and complement our existing product offerings, and augment the technical capabilities of our talent. InOctober 2021 , we acquired Hyper Anna Pty. Ltd. andLore IO, Inc. to augment our development team and bring new technologies to enhance the functionality of our platform. The consolidated financial statements include the results of operations of all of our acquired companies commencing as of their respective acquisition dates. See Note 4, Business Combinations, of the notes to our consolidated financial statements included elsewhere in this Annual Report for additional information related to these acquisitions. 70 -------------------------------------------------------------------------------- Key Business Metrics We review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions: Number of Customers. We believe that our ability to expand our customer base is a key indicator of our market penetration, the growth of our business, and our future potential business opportunities. We define a customer at the end of any particular period as an entity with a subscription agreement that runs through the current or future period as of the measurement date. Organizations with free trials have not entered into a subscription agreement and are not considered customers. A single organization with separate subsidiaries, segments, or divisions that use our platform may represent multiple customers, as we treat each entity that is invoiced separately as a single customer. In cases where customers subscribe to our platform through our channel partners, each end customer is counted separately. The following table summarizes the number of our customers at each quarter end for the periods indicated: As ofMar. 31, 2020 Jun. 30, 2020 Sep. 30, 2020 Dec. 31, 2020 Mar. 31, 2021 Jun. 30, 2021 Sep. 30, 2021 Dec. 31, 2021 Customers 6,443 6,714 6,955 7,083 7,214 7,405 7,6897,936 Dollar -Based Net Expansion Rate. Our dollar-based net expansion rate is a trailing four-quarter average of the annual contract value, or ACV, which is defined as the subscription revenue that we would contractually expect to recognize over the term of the contract divided by the term of the contract, in years, from a cohort of customers in a quarter as compared to the same quarter in the prior year. A dollar-based net expansion rate equal to 100% would generally imply that we received the same amount of ACV from our cohort of customers in the current quarter as we did in the same quarter of the prior year. A dollar-based net expansion rate less than 100% would generally imply that we received less ACV from our cohort of customers in the current quarter than we did in the same quarter of the prior year. A dollar-based net expansion rate greater than 100% would generally imply that we received more ACV from our cohort of customers in the current quarter than we did in the same quarter of the prior year. To calculate our dollar-based net expansion rate, we first identify a cohort of customers, or the Base Customers, in a particular quarter, or theBase Quarter . A customer will not be considered a Base Customer unless such customer has an active subscription on the last day of theBase Quarter . We then divide the ACV in the same quarter of the subsequent year attributable to the Base Customers, or theComparison Quarter , including Base Customers from which we no longer derive ACV in theComparison Quarter , by the ACV attributable to those Base Customers in theBase Quarter . Our dollar-based net expansion rate in a particular quarter is then obtained by averaging the result from that particular quarter with the corresponding result from each of the prior three quarters. The dollar-based net expansion rate excludes contract value relating to professional services from that cohort. The following table summarizes our dollar-based net expansion rate at the end of each quarter for the periods indicated: Three Months EndedMar. 31, 2020 Jun. 30, 2020 Sep. 30, 2020 Dec. 31, 2020 Mar. 31, 2021 Jun. 30, 2021 Sep. 30, 2021 Dec. 31, 2021 Dollar-based net expansion rate 128 % 126 % 124 % 122 % 120 % 120 % 119 % 119 % 71
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Annual Recurring Revenue. We derive a large portion of our revenue from
subscriptions for use of our platform. Subscription periods for our platform
generally range from one to three years and the subscription fees are typically
billed annually in advance. A portion of revenue from our subscriptions is
recognized at the point in time when the platform is first made available to the
customer, or the beginning of the subscription term, if later. The remaining
portion is recognized ratably over the life of the contract. This revenue
recognition creates variability in the revenue we recognize period to period
based on the timing of subscription start dates and the subscription term. In
order to measure the underlying performance of our subscription-based contracts,
we calculate annual recurring revenue, or ARR, which represents the annualized
recurring value of all active subscription contracts at the end of a reporting
period and excludes the value of non-recurring revenue streams, such as certain
professional services. ARR is a performance metric and should be viewed
independently of revenue and deferred revenue, and is not intended to be a
substitute for, or combined with, any of these items. Both multi-year contracts
and contracts with terms less than one year are annualized by dividing the total
committed contract value by the number of months in the subscription term and
then multiplying by twelve.
The following table summarizes our annual recurring revenue (in millions) for
each quarter end for the periods indicated:
As of
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
2020 2020 2020 2020 2021 2021 2021 2021
Annual recurring revenue $ 404.9 $ 432.3 $ 449.5 $ 492.6 $ 512.7 $ 547.6 $ 578.6 $ 638.0
Components of Our Results of Operations
Revenue
We derive our revenue primarily from the sale of software subscriptions. Revenue
from subscriptions reflects the revenue recognized from sales of licenses to our
platform to new customers and additional licenses to existing customers.
Subscription fees are based primarily on the number of users of our platform.
Our subscription agreements generally have terms ranging from one to three years
and are billed annually in advance. Subscriptions are generally non-cancelable
during the subscription term and subscription fees are non-refundable. We
recognize a portion of subscription revenue upfront on the date which the
platform is first made available to the customer, or the beginning of the
subscription term, if later, and the remaining portion of revenue ratably over
the subscription term. Our subscription agreements generally provide for
unspecified future updates, upgrades, enhancements, technical product support,
and access to hosted services and support. We also generate revenue from selling
subscriptions to third-party syndicated data, which we recognize ratably over
the subscription period, as well as revenue from professional services fees
earned for consulting engagements related to training customers and channel
partners, and consulting services. Revenue from professional services relating
to training results from contracts to provide educational services to customers
and channel partners regarding the use of our technologies and is recognized as
the services are provided. Revenue from professional services represented less
than 5% of revenue for each of the years ended December 31, 2021 , 2020, and
2019. In addition, due to our "land and expand" business model, a large portion
of our revenue in any given period is attributable to our existing customers
compared to new customers. In the fourth quarter of 2021, we released, on a
limited availability basis, Alteryx Machine Learning and Alteryx Designer Cloud,
which are hosted on Alteryx owned infrastructure. Revenue related to these
products was not material for the year ended December 31, 2021 .
For a description of our revenue recognition policies, see the section titled
"Critical Accounting Estimates" within this Management's Discussion and Analysis
of Financial Condition and Result of Operations.
Cost of Revenue
Cost of revenue consists primarily of employee-related costs, including salaries
and bonuses, stock-based compensation expense, and employee benefit costs
associated with our customer support and professional services organizations. It
also includes expenses related to hosting and operating our cloud infrastructure
in a third-party data center, licenses of third-party syndicated data,
amortization and impairment of intangible assets, subcontractor costs for
providing enablement and training services to existing customers, and related
overhead expenses. The majority of our cost of revenue does not fluctuate
directly with increases in revenue.
We allocate shared overhead costs such as information technology infrastructure,
rent, and occupancy charges in each expense category based on headcount in that
category. As such, certain general overhead expenses are reflected in cost of
revenue.
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We intend to continue to invest additional resources in our cloud
infrastructure. We expect that the cost of third-party data center hosting fees
will increase over time as we continue to expand our cloud-based offering. In
addition, we expect to continue to invest in our customer success organization,
including through broad-based wage increases to improve retention and
productivity, which will result in increased employee-related costs.
Gross Profit and Gross Margin
Gross profit is revenue less cost of revenue. Gross margin is gross profit
expressed as a percentage of revenue. Our gross margin has fluctuated and may
fluctuate from period to period based on a number of factors, including the
timing and mix of products and services we sell, the channel through which we
sell our products and services, and, to a lesser degree, the utilization of
customer support and professional services resources, as well as third-party
hosting and syndicated data fees in any given period. Our gross margin may
fluctuate from period to period depending on the interplay of the factors
discussed above.
Operating Expenses
Our operating expenses are classified as research and development, sales and
marketing, and general and administrative. For each of these categories, the
largest component is employee-related costs, which include salaries, bonuses,
sales commissions, stock-based compensation expense, and employee benefit costs.
We allocate shared overhead costs such as information technology infrastructure,
rent, and occupancy charges to each expense category based on headcount in that
category.
Research and development. Research and development expense consists primarily of
employee-related costs for our research and development employees, depreciation
of equipment used in research and development, third-party contractors, and
related allocated overhead costs. We expect research and development expenses to
continue to increase in absolute dollars for the foreseeable future as we
continue to increase the functionality and otherwise enhance our platform and
develop new products and services, including through broad-based wage increases
to improve retention and productivity, which will result in increased
employee-related costs. However, we expect research and development expense to
decrease as a percentage of revenue over the long term, although research and
development expense may fluctuate as a percentage of revenue from period to
period due to the seasonality of revenue and the timing and extent of these
expenses.
Sales and marketing. Sales and marketing expense consists primarily of
employee-related costs for our sales and marketing employees, marketing
programs, and related allocated overhead costs. Our sales and marketing
employees include quota-carrying headcount, sales operations, marketing, and
management. Marketing programs consist of advertising, promotional events, such
as our annual user conferences, corporate communications, brand building, and
product marketing activities, such as online lead generation.
We plan to continue to invest in sales and marketing by expanding our global
promotional activities, building brand awareness, attracting new customers, and
sponsoring additional marketing events. The timing of these events, such as our
annual sales kickoff and our annual user conferences, will affect our sales and
marketing expense in the period in which each occurs. We expect sales and
marketing expense to continue to increase in absolute dollars for the
foreseeable future as we expand our online and offline marketing efforts to
increase demand for our platform and awareness of our brand and as we continue
to expand our direct sales team and indirect sales channels both in the United
States and internationally, including through broad-based wage increases to
improve retention and productivity, which will result in increased
employee-related costs, and to continue to be our largest operating expense
category. However, we expect sales and marketing expense to decrease as a
percentage of revenue over the long term, although sales and marketing expense
may fluctuate as a percentage of revenue from period to period due to the
seasonality of revenue and the timing and extent of these expenses.
General and administrative. General and administrative expense consists
primarily of employee-related costs for our executive officers and finance,
legal, human resources, IT and security, and administrative personnel,
professional fees for external legal, accounting, and other consulting services,
including those incurred in connection with our business combinations, changes
in the fair value of contingent consideration, and related allocated overhead
costs. We expect general and administrative expense to continue to increase in
absolute dollars for the foreseeable future as we continue to invest in our
growth, including through broad-based wage increases to improve retention and
productivity, which will result in increased employee-related costs, as well
increased legal, audit, and consulting fees associated with corporate
transactions, such as our recent acquisitions. However, we expect general and
administrative expense to decrease as a percentage of revenue over the long term
as we improve our processes, systems, and controls to enable our internal
support functions to scale with the growth of our business, although general and
administrative expense may fluctuate as a percentage of revenue from period to
period due to the seasonality of revenue and the timing and extent of these
expenses.
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Interest Expense
Interest expense consists primarily of amortization of the debt discount,
issuance costs, and interest expense attributable to our 2023 Notes and 2024 &
2026 Notes issued during the years ended December 31, 2018 and 2019,
respectively.
Other Income (Expense), Net
Other income (expense), net consists primarily of gains and losses on foreign
currency remeasurement and transactions and interest income from our
available-for-sale investments.
Loss on Induced Conversion and Debt Extinguishment
Loss on induced conversion and debt extinguishment is attributable to exchange
agreements entered into during the year ended December 31, 2019 with certain
holders of our 2023 Notes. We exchanged principal, together with accrued and
unpaid interest thereon, for cash and shares of our Class A common stock.
Provision for (Benefit of) Income Taxes
Provision for (benefit of) income taxes consists primarily of accrued current
and deferred income taxes imposed by the United States and foreign jurisdictions
in which we conduct business.
Results of Operations for the Years Ended December 31, 2021 , 2020 and 2019
Year Ended December 31,
% of Total % of Total % of Total
2021 Revenue 2020 Revenue 2019 Revenue
(in thousands, except percentages)
Revenue:
Subscription-based software license $ 203,960 38 % $ 237,035 48 % $ 229,194 55 %
PCS and services 332,175 62 258,273 52 188,716 45
Total revenue 536,135 100 495,308 100 417,910 100
Cost of revenue(1):
Subscription-based software license 4,967 1 5,125 1 3,923 1
PCS and services 50,786 9 38,714 8 35,228 8
Total cost of revenue 55,753 10 43,839 9 39,151 9
Gross profit 480,382 90 451,469 91 378,759 91
Operating expenses:
Research and development (1) 132,420 25 101,117 20 69,100 17
Sales and marketing (1) 334,480 62 252,820 51 191,735 46
General and administrative (1) 149,747 28 101,439 21 79,943 19
Total operating expenses 616,647 115 455,376 92 340,778 82
Income (loss) from operations (136,265) (25) (3,907) (1) 37,981 9
Interest expense (39,208) (8) (38,119) (8) (21,844) (5)
Other income (expense), net (2,058) - 14,382 3 10,434 2
Loss on induced conversion and debt
extinguishment - - (1) - (20,507) (5)
Income (loss) before provision for (benefit of) income taxes (177,531) (33) (27,645) (6) 6,064
1
Provision for (benefit of) income taxes 2,150 1 (3,271) (1) (21,079) (5) Net income (loss)$ (179,681) (34) %$ (24,374) (5) %$ 27,143 6 % 74
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(1) Amounts include stock-based compensation expense as follows:
Year Ended December 31,
% of Total % of Total % of Total
2021 Revenue 2020 Revenue 2019 Revenue
(in thousands, except percentages)Cost of revenue$ 6,421 1 %$ 2,550 1 %$ 1,634 - % Research and development 28,903 5 18,388 4 6,954 2 Sales and marketing 40,519 8 28,463 6 12,659 3 General and administrative 48,222 9 25,515 5 11,878 3 Total$ 124,065 23 %$ 74,916 15 %$ 33,125 8 % Revenue Year Ended December 31, 2021 vs 2020 2021 2020 $ Change % Change (in thousands, except percentages) Subscription-based software license$ 203,960 $ 237,035 $ (33,075) (14.0) % PCS and services 332,175 258,273 73,902 28.6 % Total Revenue$ 536,135 $ 495,308 $ 40,827 8.2 % The decrease in subscription-based software license revenue for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 was primarily due to a decrease in average contract term length between periods, resulting in less upfront revenue, as fewer multi-year deals were sold during the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . This is partially offset by stronger demand in the current year for one-year deals resulting in an increase in sales based on average contract value. PCS and services revenue is primarily recognized ratably over the subscription term. Due to the ratable recognition of this revenue over time, the increases in PCS and service revenue is primarily attributed to sales to customers in prior periods and the growth in our customer base betweenDecember 31, 2020 andDecember 31, 2021 . Our product pricing and changes in product mix were not significant drivers of the change in subscription-based software license or PCS and services revenue for the periods presented. However, as a result of a decision to cease the inclusion of a certain performance obligation previously included in subscriptions to our platform, we anticipate that, starting in the first quarter of 2022, a larger portion of the contract value of our sales of software subscriptions will be recognized upfront on the date which the platform is first made available to the customer, or the beginning of the subscription term, if later. The disaggregation of revenue by region was as follows (in thousands): Year Ended December 31, 2021 vs 2020 2021 2020 $ Change % Change (in thousands, except percentages) United States$ 365,050 $ 338,190 $ 26,860 7.9 % International 171,085 157,118 13,967 8.9 % Total Revenue$ 536,135 $ 495,308 $ 40,827 8.2 % 75
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Cost of Revenue and Gross Margin
Year Ended December 31, 2021 vs 2020
2021 2020 $ Change % Change
(in thousands, except percentages)
Subscription-based software license $ 4,967 $ 5,125 $ (158) (3.1) %
PCS and services 50,786 38,714 12,072 31.2 %
Cost of revenue $ 55,753 $ 43,839 $ 11,914 27.2 %
Gross margin 89.6 % 91.1 %
Cost of revenue increased for the year ended December 31, 2021 as compared to
the year ended December 31, 2020 primarily due to an increase in
employee-related costs, including stock-based compensation expense of $10.6
million due to an increase in headcount, merit and market-based salary increases
as well as additional stock awards granted to new hires and as part of our
annual equity refresh programs to existing employees. Additionally, there was an
increase in consulting and outsourced labor costs of $1.7 million due to
increased use of subcontractors to provide enablement and training services to
existing customers, and $1.0 million in higher amortization expenses associated
with acquired technology from our recent business combinations. These increases
were offset by a decrease in impairment expenses as we recorded a non-cash
impairment charge in 2020 of $2.0 million related to certain developed
technology as a result of our strategic decision to discontinue further
investment and enhancements in the standalone existing technology.
As of December 31, 2021 , we had 160 cost of revenue personnel compared to 101 as
of December 31, 2020 .
Gross margin decreased for the year ended December 31, 2021 as compared to the
year ended December 31, 2020 primarily due to an increase in cost of revenue as
described above as we continued to invest in our customer success and support
teams to drive better product enablement and training with our customers. In
addition, gross margin is impacted by the slowdown in revenue growth related to
the decrease in average contract term length as noted above.
Research and Development
Year Ended December 31, 2021 vs 2020
2021 2020 $ Change % Change
(in thousands, except percentages)
Research and development $ 132,420 $ 101,117 $ 31,303 31.0 %
Research and development expense increased for the year ended December 31, 2021
as compared to the year ended December 31, 2020 primarily due to an increase in
employee-related costs, including stock-based compensation expense, of
$20.9 million resulting from an increase in headcount, merit and market-based
salary increases, as well as additional stock awards granted to new hires and as
part of our annual equity refresh programs to existing employees. In addition,
there was an increase of $7.5 million in consulting and professional fees to
assist in certain development projects, as well as higher information technology
and overhead costs of $2.3 million primarily associated with the procurement of
additional software licenses and web services.
As of December 31, 2021 , we had 506 research and development personnel compared
to 366 as of December 31, 2020 .
Sales and Marketing
Year Ended December 31, 2021 vs 2020
2021 2020 $ Change % Change
(in thousands, except percentages)
Sales and marketing $ 334,480 $ 252,820 $ 81,660 32.3 %
76-------------------------------------------------------------------------------- Sales and marketing expense increased for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 primarily due to an increase in employee-related costs, including stock-based compensation, of$44.1 million . The overall increase in employee-related costs was a result of the timing of when employees were hired, merit and market-based salary increases, and additional stock awards granted to new hires and as part of our annual equity refresh programs to existing employees. The increase was also attributable to an increase of$18.9 million in marketing programs due in part to our brand awareness campaigns such as the ongoing sponsorship ofMcLaren Racing and other digital marketing programs. In addition, the increase in sales and marketing expense related to costs associated with our annual Inspire user conference that was held virtually in 2021, while we did not hold the event in 2020 due to the COVID-19 pandemic. The increase in sales and marketing costs was also driven by an increase of$8.7 million in information technology and overhead expenses as a result of office expansion and fit outs, including our new corporate headquarters, and procuring additional information technology equipment to support the increased headcount, and an increase of$8.6 million associated with consulting and outsourced labor related to fees paid to channel partners and contractors to extend the reach of our sales and marketing programs. As ofDecember 31, 2021 , we had 970 sales and marketing personnel compared to 746 as ofDecember 31, 2020 . General and Administrative Year Ended December 31, 2021 vs 2020 2021 2020 $ Change % Change (in thousands, except percentages) General and administrative$ 149,747 $ 101,439 $ 48,308 47.6 % General and administrative expense increased for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 primarily due to an increase in employee-related costs, including stock-based compensation, of$37.6 million due to an increase in headcount, merit and market-based salary increases, and additional stock awards granted to new hires and as part of our annual equity refresh programs to existing employees. In addition, the increase was due to an increase in consulting and outsourced labor of$7.1 million primarily due to higher legal and accounting professional services fees related in part to our acquisition activity in 2021, and increased use of subcontractors in our human resources and project management departments to support our hiring plans, as well as an increase in overhead costs of$3.9 million due to office expansion and fit outs, including our new corporate headquarters. As ofDecember 31, 2021 , we had 357 general and administrative personnel compared to 256 as ofDecember 31, 2020 . Interest Expense Year Ended December 31, 2021 vs 2020 2021 2020 $ Change % Change (in thousands, except percentages) Interest expense$ (39,208) $ (38,119) $ (1,089) 2.9 % Interest expense is primarily attributable to our 2023 Notes and 2024 & 2026 Notes issued during the years endedDecember 31, 2018 and 2019, respectively. Interest expense fluctuation remained relatively flat year-over-year, with the increase in the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 related to the amortization of debt discount and issuance costs from the prior year increasing the carrying value of the Notes. Other Income (Expense), Net Year Ended December 31, 2021 vs 2020 2021 2020 $ Change % Change (in thousands, except percentages) Other income (expense), net$ (2,058) $ 14,382 $ (16,440) * * Not meaningful 77
-------------------------------------------------------------------------------- Other income (expense), net decreased for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 primarily related to a decrease in investment income of$8.1 million due to lower interest rates and a more conservative investment mix, as well as an increase in loss from foreign currency remeasurement of$8.2 million due to fluctuations inthe United States Dollar as compared to other major currencies in which we transact. Provision for (Benefit of) Income Taxes Year Ended December 31, 2021 vs 2020 2021 2020 $ Change % Change (in thousands, except percentages) Provision for (benefit of) income taxes$ 2,150 $ (3,271) $ 5,421 * * Not meaningful The change in the provision for (benefit of) income taxes for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 was primarily due to the reversal of deferred tax liabilities of$5.6 million and establishing a valuation allowance against netU.S. deferred tax assets in 2020. Liquidity and Capital Resources A discussion of our liquidity and capital resources for the year endedDecember 31, 2019 is included in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources," included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 14, 2020 . As of December 31, $ Change 2021 2020 (in thousands) Cash and cash equivalents and short-term and long-term investments$ 1,002,462 $ 1,022,136 $ (19,674) Working capital$ 523,979 $ 704,286 $ (180,307) Cash and marketable securities decreased for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 primarily due to capital expenditures, including our business acquisitions. Working capital decreased due to a change in investment mix between short-term marketable securities and long-term marketable securities, as well as an increase in deferred revenue due to higher billings in the current year as well as a decrease in average contract term. We had$1.0 billion of cash and cash equivalents and short-term and long-term investments in marketable securities as of each ofDecember 31, 2021 andDecember 31, 2020 , with approximately$972.3 million and$1.0 billion , respectively, held domestically. In the short term, we believe our existing cash and cash equivalents, marketable securities, and cash flow from operations (in periods in which we generate cash flow from operations) will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure requirements. In the long term, our ability to support our requirements and plans for cash, including meeting our working capital and capital expenditure requirements, will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support research and development efforts, the cost to develop and support our offering, the introduction of new products and services, the continuing adoption of our products by customers, any acquisitions or investments that we make in complementary businesses, products, and technologies, and our ability to obtain equity or debt financing. Our principal uses of cash are funding our operations and other working capital requirements, including the following contractual and other obligations. 78 -------------------------------------------------------------------------------- Business Acquisitions OnFebruary 7, 2022 , as discussed in Note 19, Subsequent Events, we acquired 100% of the outstanding equity ofTrifacta, Inc. , orTrifacta , pursuant to an Agreement and Plan of Merger, datedJanuary 6, 2022 , or the Trifacta Merger Agreement. The aggregate consideration payable in exchange for all of the outstanding equity interests ofTrifacta was approximately$400.0 million in cash, subject to customary adjustments set forth in the Trifacta Merger Agreement. Debt As ofDecember 31, 2021 , we had an aggregate principal amount of$884.7 million of convertible senior notes, of which$84.7 million is convertible at the option of the holders as ofDecember 31, 2021 and classified as current liabilities on our consolidated balance sheets. Interest payments of$6.4 million related to our convertible senior notes are due within the next twelve months. See Note 9, Convertible Senior Notes, for additional information on the convertible senior notes. Leases We have various non-cancelable operating leases for our corporate offices inCalifornia ,Colorado ,Massachusetts ,Michigan ,New York , andTexas inthe United States andAustralia ,Canada , theCzech Republic ,France ,Germany ,Japan ,Singapore ,Ukraine , theUnited Arab Emirates and theUnited Kingdom . These leases expire at various times through 2029. As ofDecember 31, 2021 , we had fixed minimum lease payments of$111.5 million , of which$24.0 million is due in the next twelve months. Other Obligations In the ordinary course of business, we enter into purchase orders with vendors for the purchase of goods and services, including non-cancelable agreements for software licenses, royalty agreements, advertising, and other marketing activities. As ofDecember 31, 2021 , we had purchase obligations of$91.4 million , of which$67.4 million is due in the next twelve months. To the extent existing cash and cash equivalents and short-term investments and cash from operations are not sufficient to fund future activities, we may need to raise additional funds. We may seek to raise additional funds through equity, equity-linked, or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness may have rights that are senior to holders of our equity securities and could contain covenants that restrict operations. Any additional equity or convertible debt financing may be dilutive to stockholders. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected. We also believe that our current financial resources will allow us to manage the ongoing impact anticipated as a result of the COVID-19 pandemic on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by the COVID-19 pandemic on our business are expected to evolve over time. Consequently, we will continue to evaluate our financial position in light of future developments. In addition to the uncertainties caused by the COVID-19 pandemic, our future capital requirements and the adequacy of available funds will depend on many factors, including the rate of our hiring, the rate of our revenue growth, the timing and extent of our spending on research and development efforts and other business initiatives, including any acquisition activity, the expansion of our sales and marketing activities, the timing of new product and service introductions, market acceptance of our platform, and overall economic conditions. We do not have any relationships with unconsolidated entities or financial partnerships, such as structure finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. Cash Flows The following table sets forth cash flows for the periods indicated: Year Ended December 31, 2021 2020 2019 (in thousands) Net cash provided by operating activities$ 63,159 $ 74,782 $ 34,192 Net cash used in investing activities$ (66,885) $ (311,846) $ (277,131) Net cash provided by (used in) financing activities$ (14,075)
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Operating Activities
Our net income (loss) and cash flow from operating activities are significantly
influenced by our investments in headcount and infrastructure to support
anticipated growth.
For the year ended December 31, 2021 , net cash provided by operating activities
was $63.2 million . Net cash provided by operating activities primarily reflected
net non-cash activity of $195.8 million and a change in operating assets and
liabilities of $47.1 million , offset in part by a net loss of $179.7 million .
For the year ended December 31, 2020 , net cash provided by operating activities
was $74.8 million . Net cash provided by operating activities primarily reflected
net non-cash activity of $123.9 million , offset in part by a net loss of $24.4
million and a change in operating assets and liabilities of $24.7 million .
The increase in non-cash activity was primarily driven by $32.8 million of
amortization of debt discount and issuance costs, as well as stock-based
compensation expense of $124.1 million due to higher headcount and additional
stock-based awards.
The change in operating assets and liabilities was primarily driven by the
following:
•an increase in accounts receivable of $56.9 million due to higher billings in
the current year;
•an increase in deferred commissions of $12.4 million due to additional
commissions earned in the current year as compared to commissions where the
amortization period expired, principally from commissions earned in 2019;
•a decrease in prepaid expenses, other current assets and other assets of $11.6
million and an increase in deferred revenue of $99.5 million as a result of the
decrease in the average contract term length of deals closed in the year ended
December 31, 2021 ;
•an increase in accrued payroll and payroll-related liabilities of $13.9 million
due to higher commissions and higher accrued bonuses earned as a result of
higher headcount in the current year; and
•a decrease in accrued expenses, other current liabilities, operating lease
liabilities and other liabilities of $11.3 million due primarily to payments on
operating lease liabilities.
Investing Activities
Our investing activities consist primarily of purchases, sales and maturities of
available-for-sale securities, property and equipment purchases, including
computer-related equipment, and leasehold improvements to leased office
facilities, and cash used in our business acquisitions.
Net cash used in investing activities for the year ended December 31, 2021 was
$66.9 million , consisting primarily of $32.8 million of purchases of property
and equipment, $27.2 million of net cash paid in connection with our business
acquisitions, and $6.9 million of net purchases of investments.
Net cash used in investing activities for the year ended December 31, 2020 was
$311.8 million , consisting primarily of $285.4 million of net purchases of
investments and $26.4 million of purchases of property and equipment.
Financing Activities
Our financing activities consist primarily of proceeds from, and costs
associated with, the issuances and/or payments of common stock and convertible
senior notes, including purchases of capped calls in 2019, proceeds from the
exercise of stock options, and minimum tax withholding paid on behalf of
employees for RSU settlements.
Net cash used in financing activities for the year ended December 31, 2021 was
$14.1 million , consisting primarily of the minimum tax withholding paid on
behalf of employees for RSU settlements of $24.5 million , offset in part by
proceeds from stock option exercises and purchases under our employee stock
purchase plan of $10.4 million .
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Net cash provided by financing activities for the year ended December 31, 2020
was $1.5 million , consisting primarily of the minimum tax withholding paid on
behalf of employees for RSUs of $21.2 million and $3.4 million of other
financing activity, offset in part by proceeds from stock option exercises and
purchases under our employee stock purchase plan of $23.1 million .
The timing and number of stock option exercises and employee stock purchases and
the amount of proceeds we receive from these equity awards is not within our
control. As it is now our general practice to issue principally RSUs to our
employees, cash paid on behalf of employees for minimum statutory withholding
taxes on RSU settlements will likely increase.
Critical Accounting Estimates
Our consolidated financial statements and the related notes have been prepared
in accordance with U.S. GAAP. The preparation of our consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, costs and operating expenses,
provision for income taxes, and related disclosures. Generally, we base our
estimates on historical experience and on various other assumptions in
accordance with U.S. GAAP that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates. To the extent
that there are material differences between these estimates and our actual
results, our future financial statements will be affected.
Critical accounting estimates are those that we consider the most important to
the portrayal of our financial condition and operating results because they
require our most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. Our critical accounting estimates are described below.
Revenue Recognition
Our revenue is derived from the licensing of subscription-based software, data
subscription services, and professional services, including training and
consulting services. Our subscriptions are generally licensed for terms of one
to three years and generally include access to hosted services and software and
PCS, which provides the customer the right to receive when-and-if-available
unspecified future updates, upgrades and enhancements, and technical product
support.
Our contracts with customers often include promises to transfer multiple
products and services to a customer. Determining whether products and services
are considered distinct performance obligations that should be accounted for
separately versus together may require significant judgment. In contracts that
contain multiple performance obligations we allocate the transaction price to
the various performance obligations based on standalone selling price, or SSP.
Certain performance obligations are not sold on a stand-alone basis. Therefore,
significant judgment is required to determine SSP for each distinct performance
obligation. We utilize several inputs when determining SSP, including sales of
goods and services sold on a standalone basis, our overall pricing strategies,
market conditions, including the geographic locations in which the products are
sold, the useful life of our products, and market data. Typically, our contracts
with customers contain multiple performance obligations. Although our SSP for
these performance obligations has not changed materially from 2020 to 2021, we
may modify our go-to-market practices in the future, which may result in changes
to SSP for one or more of our performance obligations. Any such changes to SSP
could impact the pattern and timing of revenue recognition for identical
arrangements executed in future periods but will not change the total revenue
recognized for any given arrangement.
Convertible Senior Notes
In accounting for the issuance of our Notes, we separated each series of Notes
into liability (debt) and equity components of the instrument. The carrying
amount of the debt component was calculated by estimating the fair value of
similar liabilities that do not have associated convertible features. The
carrying amount of the equity component, representing the conversion option, was
determined by deducting the fair value of the debt component from the principal
amount. The difference between the principal amount of each series of our Notes
and its respective fair value of the debt component are amortized to interest
expense over its respective term using the effective interest method. The equity
component, net of issuance costs and deferred tax effects, of each series of our
Notes is presented within additional paid-in-capital, and will not be remeasured
as long as it continues to meet the requirements for equity classification.
These assumptions involve inherent uncertainties and management judgment. In
accounting for the issuance costs related to our Notes, the allocation of
issuance costs incurred between the debt and equity components was based on
their relative values.
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Income Taxes
Our provision for income taxes, deferred tax assets and liabilities, and
reserves for unrecognized tax benefits reflect our best assessment of estimated
future taxes to be paid. Significant judgments and estimates based on
interpretations of existing tax laws or regulations in the United States and the
numerous foreign jurisdictions where we are subject to income tax are required
in determining our provision for income taxes. Changes in tax laws, statutory
tax rates, and estimates of our future taxable income could impact the deferred
tax assets and liabilities provided for in the consolidated financial statements
and would require an adjustment to the provision for income taxes.
Deferred tax assets are regularly assessed to determine the likelihood they will
be realized from future taxable income. A valuation allowance is established
when we believe it is not more likely than not all or some of a deferred tax
asset will be realized. In evaluating our ability to recover deferred tax assets
within the jurisdiction in which they arise, we consider all available positive
and negative evidence. Factors reviewed include the cumulative pre-tax book
income for the past three years, scheduled reversals of deferred tax
liabilities, our history of earnings and reliable forecasting, projections of
pre-tax book income over the foreseeable future, and the impact of any feasible
and prudent tax planning strategies. Due to cumulative losses over recent years
and based on all available positive and negative evidence, we have determined
that it is not more likely than not that our net U.S. and U.K. deferred tax
assets will not be realizable as of December 31, 2021 . We intend to continue
maintaining a full valuation allowance on our deferred tax assets until there is
sufficient evidence to support the reversal of all or some portion of these
allowances. A release of the valuation allowance would result in the recognition
of certain deferred tax assets and a decrease to income tax expense or an income
tax benefit for the period in which the release is recorded.
We recognize the impact of a tax position in our consolidated financial
statements only if that position is more likely than not of being sustained upon
examination by taxing authorities, based on the technical merits of the
position. Tax authorities may examine our returns in the jurisdictions in which
we do business and we regularly assess the tax risk of our return filing
positions. Due to the complexity of some of the uncertainties, the ultimate
resolution may result in payments that are materially different from our current
estimate of the tax liability. These differences, as well as any interest and
penalties, will be reflected in the provision for income taxes in the period in
which they are determined.
Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies, of the notes to our consolidated
financial statements included elsewhere in this Annual Report for a description
of recent accounting pronouncements.
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