ALTERYX, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated 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, 2020 , or Annual Report, filed with theSecurities and Exchange Commission , or theSEC , onFebruary 12, 2021 . 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 II, Item 1A of this Quarterly Report on Form 10-Q. See "Special Note Regarding Forward-Looking Statements" above. Overview We are a leader in Analytic Process Automation, or 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. 20 -------------------------------------------------------------------------------- Our platform includes Alteryx Designer, our data profiling, preparation, blending, analytics, data science and process automation product deployable to the cloud and on premise, Alteryx Server, our secure and scalable server-based product for managing, automating and governing processes and applications in a web-based environment, Alteryx Intelligence Suite, our augmented machine learning, auto-modeling, and text mining product, Alteryx Connect, our collaborative data exploration platform for discovering information assets and sharing recommendations across the enterprise, and Alteryx Promote, our advanced analytics model management product for data scientists and analytics teams to build, manage, monitor and deploy predictive models into real-time production applications. In addition,Alteryx Analytics Gallery , our cloud-based collaboration offering, allows users to find ready-to-use template solutions to accelerate outcomes and share solutions and outcomes in a centralized repository, andAlteryx Community , our online user community, allows users to gain valuable insights from one another, collaborate and share their experiences and ideas, and innovate around our platform. Our platform has been adopted by organizations across a wide variety of industries and sizes. As ofJune 30, 2021 , we had over 7,400 customers in more than 90 countries, including 770 of the Global 2000 companies. 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. Revenue from subscriptions, including related PCS, represented over 95% of revenue for each of the three and six months endedJune 30, 2021 and 2020, respectively. We employ a "land and expand" business model. Our go-to-market approach often begins with a free trial of Alteryx Designer and is followed by an initial purchase of our platform offerings. As organizations quickly realize the benefits derived from our platform, use frequently spreads across departments, divisions, and geographies through word-of-mouth, collaboration, and standardization and automation of business processes. Both for an initial purchase and as part of expanding a current customer's use of our products, we have also begun, where appropriate, to target and involve members of the customer's senior management team to accelerate adoption within their organization. Over time, many of our customers find that the use of our platform is strategic and collaborative in nature and it becomes a fundamental element of their operational, analytical and business processes. We sell our platform primarily through direct sales and marketing channels utilizing a wide range of online and offline sales and marketing activities. In addition, we have cultivated strong relationships with channel partners to help us extend the reach of our sales and marketing efforts, especially internationally. Our channel partners include technology alliances, solution providers, strategic global system integrators, solution partners, and value-added resellers, or VARs. These channel partners also provide solution-based selling, services, and training internationally. 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 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, or 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 measures, for an indefinite period of time. SinceMarch 2020 , as a result of the impact of the COVID-19 pandemic, we have experienced and may continue to experience changes in customer buying behavior, including decreased customer engagement, delayed sales cycles, deterioration in near-term demand, and an increased volume of sales occurring in the final weeks of each quarter. During this time, we also determined to make adjustments to certain sales strategies, including the realignment of our sales associates to certain market and customer opportunities and a reduction in our sales force in certain geographies and market segments. To support the health and well-being of our employees, customers, partners and communities, the majority of our offices worldwide have been closed sinceMarch 2020 . During the three months endedJune 30, 2021 , as conditions have improved, vaccination rates have increased, and local authorities have permitted the opening of offices, we have begun to open most of our offices worldwide. The majority of our offices are currently open on a voluntary basis with various restrictions still in place, including with respect to social distancing and mask wearing, and with enhanced cleaning protocols. Although our offices have begun to open 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 endedJune 30, 2021 . International travel, however, remains heavily restricted. While the evolution of the processes and policies we have 21 -------------------------------------------------------------------------------- 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. InOctober 2019 , we entered into a new operating lease agreement for space located inIrvine, California that will eventually replace our existing corporate headquarters. 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 had 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 acting to limit 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 throughout 2021, 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 has significantly limited our ability to forecast our future operating results, including our ability to predict revenue and expense levels, and plan for and model future operating results. Our competitors could experience 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 II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business. 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 of Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, 2020 2020 2020 2020 2021 2021 Customers 6,443 6,714 6,955 7,083 7,214 7,405 22
-------------------------------------------------------------------------------- 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 Ended Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, 2020 2020 2020 2020 2021 2021 Dollar-based net expansion rate 128 % 126 % 124 % 122 % 120 % 120 % 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, and 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 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, 2020 2020 2020 2020 2021 2021
Annual recurring revenue $ 404.9 $ 432.3 $ 449.5 $ 492.6 $ 512.7 $ 547.6
23
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Results of Operations
The following table sets forth our results of operations for the periods
indicated. The period-to-period comparison of financial results is not
necessarily indicative of financial results to be achieved in future periods.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(in thousands)
Revenue:
Subscription-based software license $ 40,016 $ 34,646 $ 83,374 $ 85,390
PCS and services 80,054 61,587 155,455 119,674
Total revenue 120,070 96,233 238,829 205,064
Cost of revenue:
Subscription-based software license 1,226 946 2,475 2,927
PCS and services 11,704 8,689 21,296 19,755
Total cost of revenue(1) 12,930 9,635 23,771 22,682
Gross profit 107,140 86,598 215,058 182,382
Operating expenses:
Research and development(1) 30,866 23,256 62,188 49,437
Sales and marketing(1) 77,656 57,941 149,563 123,106
General and administrative(1) 33,666 23,195 67,166 47,738
Total operating expenses 142,188 104,392 278,917 220,281
Loss from operations (35,048) (17,794) (63,859) (37,899)
Interest expense (9,635) (9,496) (19,233) (18,799)
Other income, net 2,056 4,530 802 2,068
Loss before provision for (benefit of) income taxes (42,627) (22,760) (82,290) (54,630)
Provision for (benefit of) income taxes 813 12,533 1,806 (3,864)
Net loss $ (43,440) $ (35,293) $ (84,096) $ (50,766) (1) Amounts include stock-based compensation expense as follows:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(in thousands)
Cost of revenue $ 1,293 $ 597 $ 2,401 $ 1,033
Research and development 7,330 2,992 13,655 6,619
Sales and marketing 8,042 7,610 15,087 12,759
General and administrative 11,122 5,724 21,083 10,176
Total $ 27,787 $ 16,923 $ 52,226 $ 30,587
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The following table sets forth selected historical financial data for the periods indicated, expressed as a percentage of revenue:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenue:
Subscription-based software license 33.3 % 36.0 % 34.9 % 41.6 %
PCS and services 66.7 64.0 65.1 58.4
Total revenue 100.0 100.0 100.0 100.0
Cost of revenue:
Subscription-based software license 1.0 1.0 1.1 1.4
PCS and services 9.8 9.0 8.9 9.6
Total cost of revenue 10.8 10.0 10.0 11.0
Gross profit 89.2 90.0 90.0 89.0
Operating expenses:
Research and development 25.7 24.2 26.0 24.1
Sales and marketing 64.7 60.2 62.6 60.0
General and administrative 28.0 24.1 28.1 23.3
Total operating expenses 118.4 108.5 116.7 107.4
Loss from operations (29.2) (18.5) (26.7) (18.4)
Interest expense (8.0) (9.9) (8.1) (9.2)
Other income, net 1.7 4.7 0.3 1.0
Loss before provision for (benefit of) income taxes (35.5) (23.7) (34.5) (26.6)
Provision for (benefit of) income taxes 0.7 13.0 0.7 (1.9)
Net loss (36.2) % (36.7) % (35.2) % (24.7) %
Comparison of the Three and Six Months Ended June 30, 2021 and 2020
Revenue
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Subscription-based software
license $ 40,016 $ 34,646 $ 5,370 15.5 % $ 83,374 $ 85,390 $ (2,016) (2.4) %
PCS and services 80,054 61,587 18,467 30.0 155,455 119,674 35,781 29.9
Total revenue $ 120,070 $ 96,233 $ 23,837 24.8 % $ 238,829 $ 205,064 $ 33,765 16.5 %
Subscription-based software license revenue increased for the three months ended
June 30, 2021 as compared to the three months ended June 30, 2020 primarily due
to an increase in sales to new and existing customers in the three months ended
June 30, 2021 as compared to the three months ended June 30, 2020 .
Subscription-based software license revenue decreased for the six months ended
June 30, 2021 as compared to the six months ended June 30, 2020 primarily due to
a decrease in average contract term length between periods as we sold fewer
multi-year deals during the six months ended June 30, 2021 as compared to the
six months ended June 30, 2020 .
PCS and services revenue is primarily recognized ratably over the subscription
term. Due to the ratable recognition of this revenue over time, the increase in
PCS and services revenue is primarily attributed to sales to customers in prior
periods and the growth in our customer base between June 30, 2020 and June 30,
2021 . Our product pricing was not a significant driver of the increase in
subscription-based software license or PCS and services revenue for the periods
presented.
25
--------------------------------------------------------------------------------The disaggregation of revenue by region was as follows:
Three Months Ended
June 30, Change Six Months Ended June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
United States $ 81,060 $ 65,969 $ 15,091 22.9 % $ 158,297 $ 146,504 $ 11,793 8.0 %
International 39,010 30,264 8,746 28.9 80,532 58,560 21,972 37.5
Total revenue $ 120,070 $ 96,233 $ 23,837 24.8 % $ 238,829 $ 205,064 $ 33,765 16.5 %
Cost of Revenue and Gross Margin
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Subscription-based software
license $ 1,226 $ 946 $ 280 29.6 % $ 2,475 $ 2,927 $ (452) (15.4) %
PCS and services 11,704 8,689 3,015 34.7 21,296 19,755 1,541 7.8
Total cost of revenue $ 12,930 $ 9,635 $ 3,295 34.2 % $ 23,771 $ 22,682 $ 1,089 4.8 %
% of revenue 10.8 % 10.0 % 10.0 % 11.0 %
Gross margin 89.2 % 90.0 % 90.0 % 89.0 %
Cost of revenue increased for the three months ended June 30, 2021 as compared
to the three months ended June 30, 2020 primarily due to an increase in
employee-related costs, including stock-based compensation, of $2.3 million due
to an increase in headcount as well as additional stock awards granted to new
hires and as part of our annual equity refresh program. Additionally, there was
an increase in consulting and contractor costs of $0.6 million due to increased
use of subcontractors to provide enablement and training services to existing
customers.
Cost of revenue increased for the six months ended June 30, 2021 as compared to
the six months ended June 30, 2020 primarily due to an increase in
employee-related costs, including stock-based compensation, of $2.9 million due
to an increase in headcount, as well as additional stock awards granted to new
hires and as part of our annual equity refresh program. This was partially
offset by a decrease resulting from a $2.0 million non-cash impairment charge
related to certain developed technology assets as a result of our strategic
decision to discontinue further investment and enhancements in the standalone
existing technology during the six months ended June 30, 2020 .
As of June 30, 2021 , we had 125 cost of revenue personnel as compared to 99 as
of June 30, 2020 .
Research and Development
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Research and development $ 30,866 $ 23,256 $ 7,610 32.7 % $ 62,188 $ 49,437 $ 12,751 25.8 %
% of revenue 25.7 % 24.2 % 26.0 % 24.1 %
Research and development expense increased for the three months ended June 30,
2021 as compared to the three months ended June 30, 2020 primarily due to an
increase in employee-related costs, including stock-based compensation, of $6.1
million due to an increase in headcount, as well as additional stock awards
granted to new hires and as part of our annual equity refresh program. In
addition, there was an increase in consulting and outsourced labor costs of $1.1
million to assist in certain development projects, as well as higher information
technology and overhead costs of $0.3 million related to software licenses and
web services.
26
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Research and development expense increased for the six months ended June 30,
2021 as compared to the six months ended June 30, 2020 primarily due to an
increase in employee-related costs, including stock-based compensation, of $10.9
million due to an increase in headcount. In addition, there was an increase in
consulting and outsourced labor costs of $1.6 million to assist in certain
development projects.
As of June 30, 2021 , we had 408 research and development personnel as compared
to 360 as of June 30, 2020 .
Sales and Marketing
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Sales and marketing $ 77,656 $ 57,941 $ 19,715 34.0 % $ 149,563 $ 123,106 $ 26,457 21.5 %
% of revenue 64.7 % 60.2 % 62.6 % 60.0 %
Sales and marketing expense increased for the three months ended June 30, 2021
as compared to the three months ended June 30, 2020 primarily due to an increase
in employee-related costs, including stock-based compensation, of $6.9 million .
The overall increase in employee-related costs was a result of the timing within
the period and the market in which headcount was added or reduced, annual merit
increases, and additional stock awards granted as part of our annual equity
refresh program. Additionally, the increase in employee-related costs includes
the effect of an increase in travel and entertainment expense of $0.8 million as
a result of the easing of domestic travel restrictions associated with the
COVID-19 pandemic. The increase is also due to an increase of $8.7 million in
marketing programs, including our virtual user conference that occurred in May
2021 which had been cancelled in the prior year, our participation in brand
awareness campaigns such as the sponsorship of McLaren Racing and other digital
marketing programs, an increase of $2.1 million in information technology and
overhead costs as a result of office expansion and fit outs, and an increase in
consulting and outsourced labor costs of $1.8 million related to projects for
go-to-market strategies and global campaign integration.
Sales and marketing expense increased for the six months ended June 30, 2021 as
compared to the six months ended June 30, 2020 primarily due to an increase in
employee-related costs, including stock-based compensation, of $7.9 million . The
overall increase in employee-related costs was a result of the timing within the
period and the market in which headcount was added or reduced, annual merit
increases, and additional stock awards granted as part of our annual equity
refresh program. The increase is also related to higher marketing program costs
of $12.5 million , including our virtual user conference that occurred in May
2021 which had been cancelled in the prior year, our participation in brand
awareness campaigns such as the sponsorship of McLaren Racing and other digital
marketing programs, an increase of $2.8 million in information technology and
overhead costs as a result of office expansion and fit outs, and an increase in
consulting and outsourced labor costs of $2.6 million related to projects for
go-to-market strategies and global campaign integration.
As of June 30, 2021 , we had 771 sales and marketing personnel as compared to 812
as of June 30, 2020 .
General and Administrative
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
General and administrative $ 33,666 $ 23,195 $ 10,471 45.1 % $ 67,166 $ 47,738 $ 19,428 40.7 %
% of revenue 28.0 % 24.1 % 28.1 % 23.3 %
27-------------------------------------------------------------------------------- General and administrative expense increased for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 primarily due to an increase in employee-related costs, including stock-based compensation, of$8.6 million due to an increase in headcount and additional stock awards granted to new hires and as part of our annual equity refresh program. In addition, the increase was due to an increase in overhead costs of$1.1 million due to office expansion and fit outs, including our new corporate headquarters, as well as an increase in consulting and outsourced labor costs of$1.0 million primarily due to higher legal and accounting professional services fees and increased use of subcontractors in our human resources department. General and administrative expense increased for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 primarily due to an increase in employee-related costs, including stock-based compensation, of$16.4 million due to an increase in headcount and additional stock awards granted to new hires and as part of our annual equity refresh program. In addition, the increase was due to an increase in consulting and outsourced labor costs of$2.3 million primarily due to higher legal and accounting professional services fees and increased use of subcontractors in our human resources department, as well as an increase in overhead costs of$1.6 million due to office expansion and fit outs, including our new corporate headquarters. As ofJune 30, 2021 , we had 292 general and administrative personnel as compared to 244 as ofJune 30, 2020 . Interest Expense Three Months Ended Six Months Ended June 30, Change June 30, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands,
except percentages)
Interest expense
Interest expense is primarily attributable to our 2023 Notes and 2024 & 2026 Notes issued during the three months endedJune 30, 2018 andSeptember 30, 2019 , respectively. Interest expense fluctuation remained relatively flat year-over-year, with the slight increase in the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 related to the amortization of debt discount and issuance costs from the prior year increasing the carrying value of the Notes. Other Income, Net Three Months Ended Six Months Ended June 30, Change June 30, Change 2021 2020 Amount % 2021 2020 Amount % (in thousands,
except percentages)
Other income, net
$ 802 $ 2,068 $ (1,266) * * Not meaningful Other income, net consists primarily of gains and losses on foreign currency remeasurement and transactions and interest income from our available-for-sale securities. The decrease in other income, net for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 was primarily related to a decrease in investment income of$2.5 million due to lower interest rates and a more conservative investment mix, as well as a decrease in gains in foreign currency remeasurement of$0.6 million . The decrease in other income, net for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 was primarily related to a decrease in investment income of$5.8 million due to lower interest rates and a more conservative investment mix, which was partially offset by a decrease in losses in foreign currency remeasurement of$3.8 million . 28 --------------------------------------------------------------------------------
Provision for (Benefit of) Income Taxes
Three Months Ended Six Months Ended
June 30, Change June 30, Change
2021 2020 Amount % 2021 2020 Amount %
(in thousands, except percentages)
Provision for (benefit
of) income taxes $ 813 $ 12,533 $ (11,720) * $ 1,806 $ (3,864) $ 5,670 *
* Not meaningful
The change in the provision for (benefit of) income taxes for the three months
ended June 30, 2021 as compared to the three months ended June 30, 2020 was
primarily due to a discrete tax expense of $10.7 million related to the
valuation allowance established against excess tax deductions from exercised
stock options and settled RSUs during the three months ended June 30, 2020 .
The change in the provision for (benefit of) income taxes for the six months
ended June 30, 2021 as compared to the six months ended June 30, 2020 was
primarily due to $4.7 million of tax expense due to a valuation allowance
against U.S. deferred tax assets for the six months ended June 30, 2021 .
Liquidity and Capital Resources
We had $1.0 billion of cash and cash equivalents and short-term and long-term
investments in marketable securities as of each of June 30, 2021 and December
31, 2020 , with $998.4 million and $1.0 billion , respectively, held domestically.
Our principal uses of cash are funding our operations and other working capital
requirements.
We believe that our existing cash and cash equivalents and short-term
investments and any positive cash flows from operations will be sufficient to
support our working capital and capital expenditure requirements for at least
the next 12 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, 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.
Cash Flows
The following table sets forth cash flows for the periods indicated:
Six Months Ended June 30,
2021 2020
(in thousands)
Net cash provided by operating activities $ 15,838 $ 6,614
Net cash provided by (used in) investing activities 108,086 (288,085)
Net cash provided by (used in) financing activities (11,188) 162
29
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Operating Activities
Net cash provided by operating activities was $15.8 million for the six months
ended June 30, 2021 . Net cash provided by operating activities primarily
reflected net non-cash activity of $84.9 million and a change in operating
assets and liabilities of $15.1 million , offset in part by a net loss of $84.1
million .
Net cash provided by operating activities was $6.6 million for the six months
ended June 30, 2020 . Net cash provided by operating activities primarily
reflected net non-cash activity of $57.5 million , offset in part by a net loss
of $50.8 million and a change in operating assets and liabilities of $0.1
million .
Changes in operating assets and liabilities is primarily driven by the
seasonality of our sales cycle. The fourth quarter of each fiscal year has
historically been our strongest quarter for new business and renewals and,
correspondingly, the first quarter of the subsequent fiscal year has
historically been the strongest for cash collections on accounts receivable and
highest for payments of sales commissions. As a result of this seasonality, our
accounts receivable decreased during each of the six months ended June 30, 2020
and 2021 compared to the year ended December 31, 2019 and 2020, respectively.
These decreases were offset in part by a decrease to accrued payroll and
payroll-related liability and a net increase in contract asset balances during
each respective period. In addition to the sales cycle, our cash flow from
operations is also impacted by the payment of our annual cash incentive bonuses
to our non-commissioned employees in the first quarter of the fiscal year and
the timing of obligations on accounts payable.
Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2021
was $108.1 million , consisting of $119.5 million of sales and maturities of
investments, net of purchases, offset in part by $11.4 million of purchases of
property and equipment.
Net cash used in investing activities for the six months ended June 30, 2020 was
$288.1 million , consisting of $277.7 million of purchases of investments, net of
maturities and sales, and $10.4 million of purchases of property and equipment.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2021 was
$11.2 million , consisting primarily of the minimum tax withholding paid on
behalf of employees for RSU settlements of $17.0 million , offset in part by
proceeds from stock option exercises of $5.8 million .
Net cash provided by financing activities for the six months ended June 30, 2020
was $0.2 million , consisting primarily of proceeds from stock option exercises
of $14.8 million , offset in part by the minimum tax withholding paid on behalf
of employees for RSU settlements and other financing activity of $14.6 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.
Contractual Obligations and Commitments
There were no material changes in our contractual obligations and commitments
during the six months ended June 30, 2021 from the contractual obligations and
commitments disclosed in the Annual Report. See Note 7, Convertible Senior
Notes, Note 9, Leases, and Note 10, Contingencies, of the notes to our condensed
consolidated financial statements included in Part 1, Item 1 of this Quarterly
Report on Form 10-Q for additional information regarding contractual obligations
and commitments.
Off-Balance Sheet Arrangements
As of
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes have been
prepared in accordance with U.S. GAAP. The preparation of our condensed
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.
There have been no changes to our critical accounting policies disclosed in our
Annual Report.
Recent Accounting Pronouncements
See Note 2, Significant Accounting Policies, of the notes to our condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q for a description of recent accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Foreign Currency Exchange Risk
Due to our international operations, we have foreign currency risks related to
revenue and operating expenses denominated in currencies other than the U.S.
dollar, primarily the British Pound and Euro. Our sales contracts are primarily
denominated in the local currency of the customer making the purchase. In
addition, a portion of our operating expenses are incurred outside the United
States and are denominated in foreign currencies where our operations are
located. We are also exposed to certain foreign exchange rate risks related to
our foreign subsidiaries, including as a result of intercompany loans
denominated in non-functional currencies. Increases in the relative value of the
U.S. dollar to other currencies may negatively affect revenue and other
operating results as expressed in U.S. dollars. We do not believe that an
immediate 10% increase or decrease in the relative value of the U.S. dollar to
other currencies would have a material effect on our operating results.
We have experienced and will continue to experience fluctuations in net income
(loss) as a result of transaction gains or losses related to remeasuring certain
asset and liability balances that are denominated in currencies other than the
functional currency of the entities in which they are recorded. These exposures
may change over time as business practices evolve and economic conditions
change, including market impacts associated with COVID-19. To date, we have not
entered into derivatives or hedging transactions, as our exposure to foreign
currency exchange rates has historically been partially hedged by our U.S.
dollar denominated inflows covering our U.S. dollar denominated expenses and our
foreign currency denominated inflows covering our foreign currency denominated
expenses. However, we may enter into derivative or hedging transactions in the
future if our exposure to foreign currency should become more significant.
Interest Rate and Market Risk
We had cash and cash equivalents and short-term and long-term investments of
$1.0 billion as of June 30, 2021 . The primary objective of our investment
activities is the preservation of capital, and we do not enter into investments
for trading or speculative purposes. A hypothetical 10% increase in interest
rates during the six months ended June 30, 2021 would not have had a material
impact on our condensed consolidated financial statements. We do not have
material exposure to market risk with respect to short-term and long-term
investments, as any investments we enter into are primarily highly liquid
investments.
Each series of our Notes bears a fixed interest rate, and therefore, is not
subject to interest rate risk. We have not utilized derivative financial
instruments, derivative commodity instruments or other market risk sensitive
instruments, positions or transactions in any material fashion, except for the
privately negotiated capped call transactions entered into in May and June 2018
related to the issuance of our 2023 Notes and August 2019 related to the
issuance of our 2024 & 2026 Notes.
Inflation Risk
We do not believe that inflation has had a material effect on our business,
financial condition, or operating results.
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