EVERBRIDGE, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with (i) our condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and (ii) our audited consolidated financial statements and
the related notes and management's discussion and analysis of financial
condition and results of operations for the fiscal year ended
Overview
Everbridge is a global software company that provides enterprise software applications that automate and accelerate organizations' operational response to critical events in order to keep people safe and organizations running. During public safety threats including severe weather conditions, active shooter situations, terrorist attacks or a pandemic, as well as critical business events such as IT outages, cyber-attacks, product recalls or supply-chain interruptions, global customers rely on our Critical Event Management platform to quickly and reliably aggregate and assess threat data, locate people at risk and responders able to assist, automate the execution of pre-defined communications processes and track progress on executing response plans. Our customers use our platform to identify and assess hundreds of different types of threats to their organizations, people, assets or brand. Our solutions enable organizations to deliver intelligent, contextual messages to, and receive verification of delivery from, hundreds of millions of recipients, across multiple communications modalities such as voice, SMS and e-mail, in over 200 countries and territories, in several languages and dialects - all simultaneously. Our Critical Event Management platform is comprised of a comprehensive set of software applications packaged for organizations to address five core use cases, safeguarding: Business Operations, People Resilience, Digital Operations, Smart Security, and Public Safety. Everbridge's individual products, addressing the full spectrum of tasks an organization requires to manage a critical event, include Mass Notification, Safety Connection, IT Alerting, Visual Command Center, Public Warning, Community Engagement, Risk Center, Crisis Management, CareConverge, Control Center, 911 Connect, Travel Risk Management, SnapComms and E911. We believe that our broad suite of integrated, enterprise applications delivered via a single global platform is a significant competitive advantage in the market for Critical Event Management solutions, which we refer to generally as CEM.
Our customer base has grown from 867 customers at the end of 2011 to more than
6,224 customers as of
We sell all of our critical event management applications on a subscription
basis. We generally enter into contracts that range from one to three years in
length, with an average contract duration of 1.8 years as of
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We generated revenue of
We have focused on rapidly growing our business and believe that the future growth of our business is dependent on many factors, including our ability to increase the functionality of our platform and applications, expand our customer base, accelerate adoption of our applications beyond Mass Notification within our existing customer base and expand our international presence. Our future growth will also depend on the growth in the market for critical event management solutions and our ability to effectively compete. In order to further penetrate the market for critical event management solutions and capitalize on what we believe to be a significant opportunity, we intend to continue to invest in research and development, build-out our data center infrastructure and services capabilities and hire additional sales representatives, both domestically and internationally, to drive sales to new customers and incremental sales of new applications to existing customers. Nevertheless, we expect to continue to incur losses in the near term and, if we are unable to achieve our growth objectives, we may not be able to achieve profitability.
Recent Developments
2022 Strategic Realignment
On
Performance-Based Restricted Stock Unit Modification
On
Impacts of COVID-19 to Our Business
During the three months ended
Presentation of Financial Statements
Our consolidated financial statements include the accounts of our wholly-owned subsidiaries. Business acquisitions are included in our consolidated financial statements from the date of the acquisition. Our purchase accounting resulted in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany balances and transactions have been eliminated in consolidation.
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We report our financial results as one operating segment. Our operating results
are regularly reviewed on a consolidated basis by our chief executive officer,
who is our chief operating decision maker ("CODM"), principally to make
strategic decisions regarding how we allocate our resources and to assess our
consolidated operating performance.
Adoption of Accounting Standards Update 2020-06
In
During the three months ended
Components of Results of Operations
Revenue
We derive most of our revenue from the sale of subscriptions to our critical event management and enterprise safety applications.
We generally bill and collect payment for our subscriptions annually in advance. All revenue billed in advance of services being delivered is recorded in deferred revenue. The initial subscription period typically ranges from one to three years. We offer varying levels of customer support based on customer needs and the complexity of their businesses, including the level of usage by a customer in terms of minutes or the amount of data used to transmit the notifications. Our pricing model is based on the number of applications subscribed to and, per application, the number of people, locations and things connected to our platform as well as the volume of communications. We also offer premium services including data feeds for social media, threat intelligence and weather. We generate additional revenue by expanding the number of premium features and applications that our customers subscribe to and the number of contacts connected to our platform. Our revenue growth in the near-term may be adversely affected by our ability to integrate our recent acquisitions, drive new client adoption and sales of our full suite of solutions.
We also sell professional services, which primarily consist of fees for deployment and optimization services as well as training. In addition, we also sell our software and related post contract support for on premises usage.
Cost of Revenue
Cost of revenue includes expenses related to the fulfillment of our subscription services, consisting primarily of employee-related expenses for data center operations and customer support, including salaries, bonuses, benefits and stock-based compensation expense. Cost of revenue also includes hosting costs, messaging costs and depreciation and amortization. As we add data center capacity and support personnel in advance of anticipated growth, our cost of revenue will increase and, if anticipated revenue growth does not occur, our gross profit will be adversely affected. We expect expenses to increase during fiscal year 2022 as a result of the 2022 Strategic Realignment. After the 2022 Strategic Realignment is implemented, we expect a reduction in operational costs.
Operating Expenses
Operating expenses consist of sales and marketing, research and development and general and administrative expenses. Salaries, bonuses, stock-based compensation expense and other personnel costs are the most significant components of each of these expense categories. We include stock-based compensation expense incurred in connection with the grant of stock options, restricted stock units, performance-based restricted stock units, market-based grants and our employee stock purchase plan within the applicable operating expense category based on the equity award recipient's functional area.
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Sales and Marketing
Sales and marketing expense primarily consists of employee-related expenses for sales, marketing and public relations employees, including salaries, bonuses, commissions, benefits and stock-based compensation expense. Sales and marketing expense also includes trade show, market research, advertising and other related external marketing expense as well as office and software related costs to support sales. We defer certain sales commissions related to acquiring new customers or services and amortize these expenses ratably over the period of benefit that we have determined to be four years. Sales commissions attributable to professional services are expensed within twelve months of selling the service to the customer. We plan to continue to expand our sales and marketing functions to grow our customer base and increase sales to existing customers. This growth will include adding sales personnel and expanding our marketing activities to continue to generate additional leads and build brand awareness. We expect expenses to increase during fiscal year 2022 as a result of the 2022 Strategic Realignment. After the 2022 Strategic Realignment is implemented, we expect a reduction in operational costs.
Research and Development
Research and development expense primarily consists of employee-related expenses for research and development staff, including salaries, bonuses, benefits and stock-based compensation expense. Research and development expense also includes the cost of certain third-party services, office related costs to support research and development activities, software subscriptions and hosting costs. We capitalize certain software development costs that are attributable to developing new applications and adding incremental functionality to our platform and amortize these costs over the estimated life of the new application or incremental functionality, which is generally three years. We focus our research and development efforts on improving our applications, developing new applications and delivering new functionality. We expect expenses to increase during fiscal year 2022 as a result of the 2022 Strategic Realignment. After the 2022 Strategic Realignment is implemented, we expect a reduction in operational costs.
General and Administrative
General and administrative expense primarily consists of employee-related expenses for administrative, legal, finance and human resource personnel, including salaries, bonuses, benefits and stock-based compensation expense. General and administrative expense also includes professional fees, insurance premiums, corporate expenses, transaction-related costs, office-related expenses, facility costs, depreciation and amortization and software license costs. In the near term, we expect our general and administrative expense to increase on an absolute dollar basis as we continue to incur the costs associated with being a publicly traded company. We expect expenses to increase during fiscal year 2022 as a result of the 2022 Strategic Realignment. After the 2022 Strategic Realignment is implemented, we expect a reduction in operational costs.
Interest and Investment Income
Interest income consists of interest earned on our cash balances held at
financial institutions. Investment income consist of interest earned on our
short-term investments which consist of
Interest Expense
Interest expense consists of interest on our outstanding debt obligations including amortization of debt discounts and offering costs.
Loss on Extinguishment of Convertible Notes and Capped Call Modification
Loss on extinguishment of convertible notes and capped call modification relates to the partial extinguishment of our 2022 Notes and modification of a 2022 Notes capped call agreement.
Other Expense, Net
Other expense, net consists primarily of realized foreign currency gains and losses.
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Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The period-to-period comparison of our historical results is not necessarily indicative of the results that may be expected in the future (in thousands):
Three Months Ended
March 31,
2022 2021
Revenue $ 100,375 $ 82,210
Cost of revenue(1) 31,857 25,280
Gross profit 68,518 56,930
Operating expenses:
Sales and marketing(1) 41,816 34,527
Research and development(1) 23,559 18,079
General and administrative(1) 22,336 22,562
Total operating expenses 87,711 75,168
Operating loss (19,193 ) (18,238 )
Other expense, net (958 ) (9,364 )
Loss before income taxes (20,151 ) (27,602 )
Benefit from income taxes 1,078 5,813
Net loss $ (19,073 ) $ (21,789 ) (1) Includes stock-based compensation expense and depreciation and amortization
of acquired intangible assets as follows (in thousands):
Three Months Ended
March 31,
2022 2021
Stock-based compensation expense
Cost of revenue $ 817 $ 999
Sales and marketing 1,295 3,742
Research and development 1,723 2,028
General and administrative 2,249 5,916
Total $ 6,084 $ 12,685
Three Months Ended
March 31,
2022 2021
Depreciation and amortization expense
Cost of revenue $ 6,094 $ 4,852
Sales and marketing 224 231
Research and development 191 176
General and administrative 8,925 5,584
Total $ 15,434 $ 10,843
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The following table sets forth our condensed consolidated statements of operations as a percentage of revenue (1):
Three Months Ended
March 31,
2022 2021
Revenue 100 % 100 %
Cost of revenue 32 % 31 %
Gross profit 68 % 69 %
Operating expenses:
Sales and marketing 42 % 42 %
Research and development 23 % 22 %
General and administrative 22 % 27 %
Total operating expenses 87 % 91 %
Operating loss (19 )% (22 )%
Other expense, net (1 )% (11 )%
Loss before income taxes (20 )% (34 )%
Benefit from income taxes 1 % 7 %
Net loss (19 )% (27 )%
(1) Columns may not add up to 100% due to rounding.
Comparison of the Three Months Ended
Revenue
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Revenue $ 100,375 $ 82,210 $ 18,165 22.1 %
Revenue increased by
Cost of Revenue
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Cost of revenue $ 31,857 $ 25,280 $ 6,577 26.0 %
Gross margin % 68 % 69 %
Cost of revenue increased by
Gross margin percentage decreased due to our continued investment in personnel to support our growth.
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Operating Expenses Sales and Marketing Expense
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Sales and marketing $ 41,816 $ 34,527 $ 7,289 21.1 %
% of revenue 42 % 42 %
Sales and marketing expense increased by
Research and Development Expense
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Research and development $ 23,559 $ 18,079 $ 5,480 30.3 %
% of revenue 23 % 22 %
Research and development expense increased by
General and Administrative Expense
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
General and administrative $ 22,336 $ 22,562 $ (226 ) (1.0 )%
% of revenue 22 % 27 %
General and administrative expense decreased by
Other Expense, Net
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Other expense, net $ (958 ) $ (9,364 ) $ 8,406 89.8 %
% of revenue (1 )% (11 )%
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Other expense, net decreased by
Income Taxes
Three Months Ended
March 31, Change
(dollars in thousands) 2022 2021 $ %
Benefit from income taxes $ 1,078 $ 5,813 $ (4,735 ) (81.5 )%
% of revenue 1 % 7 %
A portion of the losses incurred during the three months ended
Other Metrics
We regularly monitor a number of financial and operating metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. Our other business metrics may be calculated in a manner different than similar other business metrics used by other companies (in thousands):
Three Months Ended
March 31,
2022 2021
Adjusted EBITDA $ 2,553 $ 5,283
Adjusted gross profit 72,486 60,533
Free cash flow 1,525 15,501
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• Adjusted EBITDA. Adjusted EBITDA represents our net loss before interest and
investment (income) expense, net, (benefit from) provision for income taxes,
depreciation and amortization expense, loss on extinguishment of convertible
notes and capped call modification, change in fair value of contingent
consideration and stock-based compensation expense. We do not consider these
items to be indicative of our core operating performance. The items that are
non-cash include depreciation and amortization expense, loss on
extinguishment of convertible notes and capped call modification, change in
fair value of contingent consideration and stock-based compensation expense.
Adjusted EBITDA is a measure used by management to understand and evaluate
our core operating performance and trends and to generate future operating
plans, make strategic decisions regarding the allocation of capital and
invest in initiatives that are focused on cultivating new markets for our
solutions. In particular, the exclusion of certain expenses in calculating
adjusted EBITDA facilitates comparisons of our operating performance on a
period-to-period basis. Adjusted EBITDA is not a measure calculated in
accordance with generally accepted accounting principles in the United
States of America ("U.S. GAAP"). We believe that adjusted EBITDA provides
useful information to investors and others in understanding and evaluating
our operating results in the same manner as our management and board of
directors. Nevertheless, use of adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation or as a
substitute for analysis of our financial results as reported under GAAP.
Some of these limitations are: (1) although depreciation and amortization
are non-cash charges, the capitalized software that is amortized will need
to be replaced in the future, and adjusted EBITDA does not reflect cash
capital expenditure requirements for such replacements or for new capital
expenditure requirements; (2) adjusted EBITDA does not reflect changes in,
or cash requirements for, our working capital needs; (3) adjusted EBITDA
does not reflect the potentially dilutive impact of equity-based
compensation; (4) adjusted EBITDA does not reflect tax payments or receipts
that may represent a reduction or increase in cash available to us; and (5)
other companies, including companies in our industry, may calculate adjusted
EBITDA or similarly titled measures differently, which reduces the
usefulness of the metric as a comparative measure. Because of these and
other limitations, you should consider adjusted EBITDA alongside our other
GAAP-based financial performance measures, net loss and our other GAAP
financial results. The following table presents a reconciliation of adjusted
EBITDA to net loss, the most directly comparable GAAP measure, for each of
the periods indicated (in thousands):
Three Months Ended
March 31,
2022 2021
Net loss $ (19,073 ) $ (21,789 )
Interest and investment expense, net 1,238 6,427
Benefit from income taxes (1,078 ) (5,813 )
Depreciation and amortization 15,434 10,843
Loss on extinguishment of convertible notes and
capped call modification - 2,888
Change in fair value of contingent consideration (52 ) 42
Stock-based compensation 6,084 12,685
Adjusted EBITDA $ 2,553 $ 5,283
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• Adjusted Gross Profit. Adjusted gross profit represents gross profit plus
amortization of acquired intangibles and stock-based compensation. Adjusted
gross profit is a measure used by management to understand and evaluate our
core operating performance and trends and to generate future operating
plans. The exclusion of stock-based compensation expense and amortization of
acquired intangibles facilitates comparisons of our operating performance on
a period-to-period basis. In the near term, we expect these expenses to
continue to negatively impact our gross profit. Adjusted gross profit is not
a measure calculated in accordance with GAAP. We believe that adjusted gross
profit provides useful information to investors and others in understanding
and evaluating our operating results in the same manner as our management
and board of directors. Nevertheless, our use of adjusted gross profit has
limitations as an analytical tool, and you should not consider it in
isolation or as a substitute for analysis of our financial results as
reported under GAAP. You should consider adjusted gross profit alongside our
other GAAP-based financial performance measures, gross profit and our other
GAAP financial results. The following table presents a reconciliation of
adjusted gross profit to gross profit, the most directly comparable GAAP
measure, for each of the periods indicated (in thousands):
Three Months Ended
March 31,
2022 2021
Gross profit $ 68,518 $ 56,930
Amortization of acquired intangibles 3,151 2,604
Stock-based compensation 817 999
Adjusted gross profit $ 72,486 $ 60,533
• Free Cash Flow. Free cash flow represents net cash from operating activities
minus capital expenditures and capitalized software development costs. Free
cash flow is a measure used by management to understand and evaluate our
core operating performance and trends and to generate future operating
plans. The exclusion of capital expenditures and amounts capitalized for
internally-developed software facilitates comparisons of our operating
performance on a period-to-period basis and excludes items that we do not
consider to be indicative of our core operating performance. Free cash flow
is not a measure calculated in accordance with GAAP. We believe that free
cash flow provides useful information to investors and others in
understanding and evaluating our operating results in the same manner as our
management and board of directors. Nevertheless, our use of free cash flow
has limitations as an analytical tool, and you should not consider it in
isolation or as a substitute for analysis of our financial results as
reported under GAAP. You should consider free cash flow alongside our other
GAAP-based financial performance measures, net cash provided by operating
activities, and our other GAAP financial results. The following table
presents a reconciliation of free cash flow to net cash for operating
activities, the most directly comparable GAAP measure, for each of the
periods indicated (in thousands):
Three Months Ended
March 31,
2022 2021
Net cash provided by operating activities
(1,847 ) (1,812 )
Capitalized software development costs (4,330 ) (2,495 )
Free cash flow $ 1,525 $ 15,501
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Additional Supplemental Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide investors with certain additional supplemental non-GAAP financial measures, including non-GAAP cost of revenue, non-GAAP gross profit, non-GAAP sales and marketing expense, non-GAAP research and development expense, non-GAAP general and administrative expense, non-GAAP total operating expenses, non-GAAP operating income (loss) and non-GAAP net income (loss), which we collectively refer to as non-GAAP financial measures. These non-GAAP financial measures exclude all or a combination of the following (as reflected in the following reconciliation tables): stock-based compensation expense, amortization of acquired intangibles, change in fair value of contingent consideration, accretion of interest on convertible senior notes and loss on extinguishment of convertible notes and capped call modification and the tax impact of such adjustments. The tax impact of such adjustments was determined by recalculating the estimated annual effective tax rate utilizing non-GAAP pre-tax income estimated for the year and then applying the recalculated estimated annual effective tax rate to year-to-date non-GAAP income. The presentation of the non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision making. While our non-GAAP financial measures are an important tool for financial and operational decision making and for evaluating our own operating results over different periods of time, you should consider our non-GAAP financial measures alongside our GAAP financial results.
We exclude stock-based compensation expense which can vary based on plan design, share price, share price volatility, and the expected lives of equity instruments granted. We believe that providing non-GAAP financial measures that exclude stock-based compensation expense allow for more meaningful comparisons between our operating results from period to period because stock-based compensation expense does not represent a cash expenditure. We believe that excluding the impact of amortization of acquired intangibles allows for more meaningful comparisons between operating results from period to period as the intangibles are valued at the time of acquisition and are amortized over a period of several years after the acquisition. We believe that excluding the change in fair value of contingent consideration allows for more meaningful comparisons between operating results from period to period as it is non-operating in nature. We believe that excluding the impact of accretion of interest on convertible senior notes allows for more meaningful comparisons between operating results from period to period as accretion of interest on convertible senior notes relates to interest cost for the time value of money and are non-operating in nature. We believe that excluding loss on extinguishment of convertible notes and capped call modification allows for more meaningful comparisons between operating results from period to period as losses on the extinguishment of convertible notes and capped call modifications are non-operating in nature. We do not engage in the repurchase of convertible notes on a regular basis or in the ordinary course of business. Accordingly, we believe that excluding these expenses provides investors and management with greater visibility of the underlying performance of our business operations, facilitates comparison of our results with other periods and may also facilitate comparison with the results of other companies in our industry.
There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP, may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact upon our reported financial results. Further, stock-based compensation expense has been and will continue to be for the foreseeable future a significant recurring expense in our business and an important part of the compensation provided to our employees.
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The following table reconciles our GAAP to non-GAAP financial measures (in
thousands):
Three Months Ended
March 31,
2022 2021
Cost of revenue $ 31,857 $ 25,280
Amortization of acquired intangibles (3,151 ) (2,604 )
Stock-based compensation (817 ) (999 )
Non-GAAP cost of revenue $ 27,889 $ 21,677
Gross profit $ 68,518 $ 56,930
Amortization of acquired intangibles 3,151 2,604
Stock-based compensation 817 999
Non-GAAP gross profit $ 72,486 $ 60,533
Non-GAAP gross margin 72.2 % 73.6 %
Sales and marketing $ 41,816 $ 34,527
Stock-based compensation (1,295 ) (3,742 )
Non-GAAP sales and marketing $ 40,521 $ 30,785
Research and development $ 23,559 $ 18,079
Stock-based compensation (1,723 ) (2,028 )
Non-GAAP research and development $ 21,836 $ 16,051
General and administrative $ 22,336 $ 22,562
Amortization of acquired intangibles (8,387 ) (5,255 )
Change in fair value of contingent consideration 52 (42 )
Stock-based compensation (2,249 ) (5,916 )
Non-GAAP general and administrative $ 11,752 $ 11,349
Total operating expenses $ 87,711 $ 75,168
Amortization of acquired intangibles (8,387 ) (5,255 )
Change in fair value of contingent consideration 52 (42 )
Stock-based compensation (5,267 ) (11,686 )
Non-GAAP operating expenses $ 74,109 $ 58,185
Operating loss $ (19,193 ) $ (18,238 )
Amortization of acquired intangibles 11,538 7,859
Change in fair value of contingent consideration (52 ) 42
Stock-based compensation 6,084 12,685
Non-GAAP operating income (loss) $ (1,623 ) $ 2,348
Net loss $ (19,073 ) $ (21,789 )
Amortization of acquired intangibles 11,538 7,859
Change in fair value of contingent consideration (52 ) 42
Stock-based compensation 6,084 12,685
Accretion of interest on convertible senior notes 1,158 6,313
Loss on extinguishment of convertible notes and
capped call modification - 2,888
Income tax adjustments (250 ) (36 )
Non-GAAP net income (loss) $ (595 ) $ 7,962 Liquidity and Capital Resources
To date, we have financed our operations primarily through cash from sales to
our customers, along with equity issuances and debt financing arrangements. Our
principal source of liquidity is cash and cash equivalents totaling
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We believe that our cash and cash equivalent balances and the cash flows
generated by our operations will be sufficient to satisfy our anticipated cash
needs for working capital and capital expenditures for at least the next
12 months. However, our belief may prove to be incorrect, and we could utilize
our available financial resources sooner than we currently expect. We believe
that our financial resources will allow us to manage the anticipated impact of
COVID-19 on our business operations for the foreseeable future, which could
include delays in payments from our customers. The challenges posed by COVID-19
on our business could evolve rapidly. We will continue to evaluate our financial
position in light of future developments, particularly those relating to
COVID-19. Our future capital requirements and the adequacy of available funds
will depend on many factors, including those set forth in the section of Part I,
Item 1A of our Annual Report on Form 10-K for the year ended
Material Cash Requirements and Contractual Obligations
We expect to use cash primarily for operating activities, such as expansion of
our sales and marketing operations, research and development activities and
other working capital needs, such as salaries, bonuses, and other personnel cost
and data center hosting costs, as well as payments for acquisitions of
businesses and interest payments on our convertible senior notes. We expect to
continue to finance our operations primarily through cash from sales to our
customers and may consider future equity issuances and debt financing
arrangements. Our commitments to settle contractual obligations include
Cash Flows
The following table summarizes our cash flows (in thousands):
Three Months Ended
March 31,
2022 2021
Cash, cash equivalents and restricted cash at
beginning of period $ 492,758 $ 475,630
Cash provided by operating activities 7,702 19,808
Cash used in investing activities (6,224 ) (36,708 )
Cash provided by financing activities 1,129 284,792
Effects of exchange rates on cash, cash equivalents and restricted cash
(356 ) (315 )
Cash, cash equivalents and restricted cash at end of
period $ 495,009 $ 743,207
Sources of Funds
Our sources of funds include cash from sales to our customers, along with equity issuances and debt financing arrangements including our 2026 Notes, 2024 Notes and 2022 Notes.
Uses of Funds
Our historical uses of cash have primarily consisted of cash used for operating activities, such as expansion of our sales and marketing operations, research and development activities and other working capital needs.
Operating Activities
Our net loss and cash flows provided by or used in operating activities are significantly influenced by our investments in headcount and infrastructure to support our growth, marketing and sponsorship expenses, and our ability to bill and collect in a timely manner. Our net loss has been significantly greater than our use of cash for operating activities due to the inclusion of non-cash expenses and charges.
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Operating activities generated
Operating activities generated
Investing Activities
Our investing activities consist primarily of capital expenditures for capitalized software development costs, business acquisitions, property and equipment expenses and purchase and sales of short-term investments.
Investing activities used
Investing activities used
Financing Activities
Cash generated by financing activities includes proceeds from the issuance of common stock from our follow-on public offering, borrowings under our convertible senior notes, proceeds from the partial termination of convertible note capped call hedges, proceeds from the exercise of employee stock options and contributions to our employee stock purchase plan. Cash used in financing activities includes payments for debt and offering issuance costs, purchases of convertible notes capped call hedges, extinguishment of debt, payment of contingent consideration and employee withholding liabilities from the exercise of restricted stock units.
Financing activities provided
Financing activities provided
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Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with
Except for the adoption of ASU 2020-06, there have been no changes to our
critical accounting estimates described in the Annual Report on Form 10-K for
the year ended
Recently Issued Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements. Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign exchange rates as well as, to a lesser extent, inflation.
Interest Rate Risk
Our investment portfolio is exposed to market risk from changes in interest
rates. The fair market value of fixed rate securities may be adversely impacted
by fluctuations in interest rates while income earned on floating rate
securities may decline as a result of decreases in interest rates. Under our
current policies, we do not use interest rate derivative instruments to manage
exposure to interest rate changes. We attempt to ensure the safety and
preservation of our invested principal funds by limiting default risk, market
risk and reinvestment risk. We mitigate default risk by investing in investment
grade securities. We have historically maintained a relatively short average
maturity for our investment portfolio, and we believe a hypothetical 100 basis
point adverse move in interest rates along the entire interest rate yield curve
would not change the fair value of our interest sensitive financial instruments
by a material amount. In addition, if a 100 basis point change in overall
interest rates were to occur in 2022, our interest income would not change
significantly in relation to amounts we would expect to earn, based on our cash,
cash equivalents, and investments as of
Changes in interest rates may also impact gains or losses from the conversion of
our outstanding convertible senior notes. In
Upon conversion, we are required to record a gain or loss for the difference
between the fair value of the debt to be extinguished and its corresponding net
carrying value. The fair value of the debt to be extinguished depends on our
then-current incremental borrowing rate. If our incremental borrowing rate at
the time of conversion is higher or lower than the implied interest rate of the
2026 Notes, 2024 Notes and 2022 Notes, we will record a gain or loss in our
consolidated statement of operations during the period in which the 2026 Notes,
2024 Notes and 2022 Notes are extinguished. An incremental borrowing rate that
is a hypothetical 100 basis points lower than the implicit interest rate upon
conversion of the 2026 Notes, 2024 Notes and 2022 Notes would result in a loss
of approximately
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We are exposed to interest rate risk in the ordinary course of our business. Our cash, cash equivalents and investments include cash in readily available checking and money market accounts and marketable securities. These securities are not dependent on interest rate fluctuations that may cause the principal amount of these assets to fluctuate.
We had cash and cash equivalents of
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and operating expenses
denominated in currencies other than our functional currency, the
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations historically. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations. Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act, that are designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.
Changes in Internal Control
There were no changes in our internal control over financial reporting
identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d)
of the Exchange Act during the period covered by this Quarterly Report on Form
10-Q that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. In response to the COVID-19
pandemic, our employees began working from home starting in
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our global organization have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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