GTY TECHNOLOGY HOLDINGS INC. You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with theSEC onFebruary 19, 2021 . Certain statements in this Quarterly Report on Form 10-Q are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could materially affect such forward-looking statements can be found in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 and elsewhere in this Form 10-Q. Investors are urged to consider these factors carefully in evaluating any forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Certain statements in the following discussions are based on non-GAAP financial measures. A "non-GAAP financial measure" is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of comprehensive income, balance sheets or statements of cash flows of the issuer; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. The Company includes non-GAAP financial measures in this Management's Discussion and Analysis, as the Company's management believes that these measures and the information they provide are useful to investors because they permit investors to view the Company's performance using the same tools that management uses and to better evaluate the Company's ongoing business performance. In order to better align the Company's reported results with the internal metrics used by the Company's management to evaluate business performance as well as to provide better comparisons to prior periods and peer data, non-GAAP measures exclude the impact of purchase accounting related to the Acquisition. See "Reconciliation of Non-GAAP Revenues" below for more information and reconciliations of such measures to the nearest comparable
GAAP measures. Overview
We are a public sector company that offers a cloud-based suite of solutions primarily for North American state and local governments. Our six wholly-owned subsidiaries are Bonfire,CityBase , eCivis, Open Counter, Questica and Sherpa. Through our operating subsidiaries, we serve some of the fastest growing segments in the government technology sector, specifically procurement, payments, grants management, permitting, and budgeting. We were formed onAugust 11, 2016 for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the "business combination"). Until the business combination, we did not engage in any operations nor generate any revenues. We recognized an opportunity to replace costly legacy on-premises software systems with scalable and efficient SaaS products. Our search led to the acquisition (the "Acquisition") of Bonfire,CityBase , eCivis, Open Counter, Questica, and Sherpa onFebruary 19, 2019 . Our customers are primarily located inthe United States andCanada , including counties, municipalities, special districts, law enforcement agencies and public school districts. We plan to increase our customer base by leveraging our comprehensive product portfolio with our existing customer base, investing in direct sales to new customers, and using relationships with complementary products and services. We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers, in the second and third quarters of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the public sector. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into in any given month of any quarter will generally come up for 23 Table of Contents
renewal at that same time in subsequent years. This seasonality is reflected in our invoicing and cash flows with our highest collections occurring in the second and third quarters and lower collections in the first and fourth quarters.
Our variable consideration or usage fee revenue is also dependent on the payment patterns of our customers' constituents. Historically, a high percentage of these usage fees have been earned in the second and fourth quarters of each year. This seasonality is also reflected in our revenues and cash flows during the respective periods. Expansion and Further Penetration of Our Customer Base. We employ a strategy that focuses on acquiring new customers and growing our relationships with existing customers over time. We believe that significant opportunity exists for us to acquire new customers as well as expand the use of our platforms by selling additional products and increasing the number of users within our current customers' organizations. Investment in Growth. We plan to continue to invest in our business so that we can capitalize on our market opportunity. We intend to continue to grow our sales and marketing team to acquire new customers and to increase sales to existing customers. We intend to continue to grow our research and development team to extend the functionality and range of our applications. We also intend to invest in new and improved information technology solutions to support our business. However, we expect our sales and marketing expenses and research and development expenses as a percentage of revenues to decrease over time as we grow our revenues and gain economies of scale by increasing our customer base and increase sales to our existing customer base. We believe that these investments will contribute to our long-term growth, although they may adversely affect our profitability in the near term. Leveraging Relationships. We plan to continue to strengthen and expand our relationships with technology vendors, professional services firms, and resellers. These relationships enable us to increase the speed of deployment and offer a wider range of integrated services to our customers. We intend to support these existing relationships, seek additional relationships and further expand our channel of resellers to help us increase our presence in existing markets and to expand into new markets. Our business and results of operations will be significantly affected by whether we succeed in leveraging and expanding these relationships. Market Adoption of Our Platforms. A key focus of our sales and marketing efforts is creating market awareness about the benefits of our cloud-based SaaS platforms. The market for SaaS solutions is less mature than the market for on-premise software applications, and potential customers may be slow or unwilling to migrate from their legacy solutions. Our business and operating results will be significantly affected by the degree to and speed with which organizations adopt our solutions.
Key Components of our Results of Operations
Revenues
Subscription, support and maintenance. We deliver SaaS and provide customers with access to SaaS-related support and updates during the term of the arrangement. Revenues are recognized ratably over the contract term as the customer simultaneously receives and consumes the benefits of the subscription service. Subscription fees are typically payable within 30 days after the execution of a contract, and thereafter upon renewal. We initially record subscription fees as contract liabilities and recognize revenues on a straight-line basis over the term of the agreement.
Our contracts may include variable consideration in the form of usage fees, which are included in the transaction price in the period in which the usage occurs and the fee is known.
Subscription, support and maintenance revenues also includes kiosk rentals and on-premise support or maintenance pertaining to license sales. Revenues from kiosk rentals and on-premise support are recognized on a straight-line basis over the support period. Revenues from subscription, support and maintenance comprised approximately 77% and 68% of total revenues for the three months endedMarch 31, 2021 and 2020, respectively. 24 Table of Contents Professional services. Our professional services contracts generate revenues on a time and materials, fixed fee or subscription basis. Revenues are recognized as the services are rendered for time and materials contracts. Revenues are recognized when the milestones are achieved and accepted by the customer or on a proportional performance basis for fixed fee contracts. Revenues are recognized ratably over the contract term for subscription contracts. The milestone method for revenue recognition is used when there is substantive uncertainty at the date the contract is entered into regarding whether the milestone will be achieved. Training revenues are recognized as the services are performed. Revenues from professional services comprised approximately 22% and 28% of total revenues for the three months endedMarch 31, 2021 and 2020. License. Revenues from distinct licensed software are recognized upfront when that software is made available to the customer, which normally coincides with contract execution, as this is when the customer has the risks and rewards of the right to use the software. Revenues from licenses comprised approximately less than 1% and 3% of total revenues for the three months endedMarch 31, 2021 and 2020, respectively. Asset sales. Revenues from asset sales are recognized when the asset, typically a kiosk, has been received by the customer and is fully operational and ready to accept transactions, which is when the customer obtains control and has the risks and rewards of the asset. Asset sales were approximately 1% and less than 1% of total revenues for the three months endedMarch 31, 2021 and 2020, respectively.
Cost of Revenues
Cost of revenues primarily consists of salaries and benefits of personnel relating to our hosting operations and support, implementation, and grants research. Cost of revenues includes data center costs including depreciation of the Company's data center assets, third-party licensing costs, consulting fees, and the amortization of acquired technology from recent acquisitions.
Operating Expenses
Sales and marketing
Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including salaries, sales commissions and incentives and benefits, travel and related costs, outside consulting fees, marketing programs, including lead generation, and costs of advertising and trade shows. We defer sales commissions and amortize them ratably over the expected customer life. We expect that sales and marketing expenses will increase as we expand our direct sales teams and increase sales through our strategic relationships and resellers. Research and development Research and development expenses consist primarily of salaries and benefits associated with our engineering, product and quality assurance personnel. Research and development expenses also include the cost of third-party contractors. Other than internal-use software development costs that qualify for capitalization, research and development costs are expensed as incurred. We expect research and development costs to increase as we develop new solutions and make improvements to our existing platforms.
General and administrative
General and administrative expenses consist primarily of salaries and benefits with our executive, finance, legal, human resources, compliance and other administrative personnel, accounting, auditing and legal professional services fees, recruitment costs, and other corporate-related expenses. We expect that general and administrative expenses will increase as we scale our business,
but
at a lower rate over time.
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Results of Operations
Three Months Ended
Total revenues Our total revenues were$13.3 million for the three months endedMarch 31, 2021 . Excluding the$0.1 million impact of purchase accounting, our total non-GAAP revenues for the three months endedMarch 31, 2021 was$13.4 million compared to$11.6 million for the three months endedMarch 31, 2020 , representing a 15% increase. This increase was driven by an increase in the number of customers, an increase in the number of users added by existing customers and an increase in the number of products purchased by existing customers. The change in revenues for each operating segment is provided in the following table (in thousands, except percentages): Generally Accepted Accounting Principles ("GAAP") Non-GAAP Total Total Increase / Increase / Total Total Increase / Increase / Revenues Revenues (Decrease) (Decrease) Revenues Revenues (Decrease) (Decrease) 2021 2020 in Dollars in % 2021 2020 in Dollars in % Procurement$ 2,437 $ 1,656 $ 781 47 %$ 2,437 1,665$ 772 46 % Payments 2,229 1,899 330 17 % 2,351 2,032 319 16 % Grants Management 1,750 1,465 285 19 % 1,750 1,480 270 18 % Permitting 695 613 82 13 % 695 613 82 13 % Budget 6,148 5,643 505 9 % 6,148 5,801 347 6 % Total$ 13,259 $ 11,276 $ 1,983 18 %$ 13,381 $ 11,591 $ 1,790 15 %
A reconciliation of non-GAAP revenues and other non-GAAP financial measures is included in the section titled "Reconciliation of Non-GAAP Financial Measures" in this Quarterly Report on Form 10-Q.
Total cost of revenues
Our total cost of revenues for the three months endedMarch 31, 2021 increased primarily as a result of headcount additions to support our revenue growth and share-based compensation resulting from the grant of restricted stock units. The change in cost of revenues for each operating segment is due to the following (in thousands, except percentages): ` Total Cost Total Cost of of Increase / Increase / Revenues Revenues (Decrease) (Decrease) 2021 2020 in Dollars in % Procurement$ 470 $ 392 $ 78 20 % Payments 1,566 1,470 96 7 % Grants Management 650 722 (72) (10) % Permitting 154 139 15 11 % Budget 1,902 1,804 98 5 % Total$ 4,742 $ 4,527 $ 215 5 % Procurement
Procurement's total cost of revenues increased by
Payments
Payments' total cost of revenues increased by$0.1 million or 7% primarily due to a$0.1 million increase in hardware costs resulting from an increase in
asset
sales.
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Grants Management
Grants Management's total cost of revenues decreased by
Permitting
Permitting's total cost of revenues was materially consistent year-over-year.
Budget
Budget's total cost of revenues increased by$0.1 million or 5% primarily due to a$0.1 million increase in share-based compensation related to the issuance of restricted stock units.
Operating expenses (sales and marketing, general and administrative, and research and development)
Our operating expenses (including sales and marketing, general and administrative and research and development expenses) for the three months endedMarch 31, 2021 have decreased due primarily to the restructuring plan implemented inMarch 2020 . The change in operating expenses for each operating segment is due to the following (in thousands, except percentages): Operating Operating Increase / Increase / Expenses Expenses (Decrease) (Decrease) 2021 2020 in Dollars in % Procurement$ 2,121 $ 2,556 $ (435) (17) % Payments 3,054 5,019 (1,965) (39) % Grants Management 1,732 1,869 (137) (7) % Permitting 631 937 (306) (33) % Budget 2,646 2,991 (345) (12) % Corporate 1,756 2,729 (973) (36) % Total$ 11,940 $ 16,101 $ (4,161) (26) % Procurement Procurement's total operating expense decreased by$0.4 million or 17% primarily due to a$0.3 million or 23% decrease in sales and marketing expenses and a$0.1 million or 13% decrease in research and development. The decrease in sales and marketing expenses was due primarily to a$0.1 million or 15% decrease in salaries and wages, a$0.1 million decrease in share-based compensation and a$0.1 million decrease in travel and trade shows resulting from the COVID-19 pandemic. The decrease in salaries and wages was due primarily to a 26% decrease in average headcount fromMarch 31, 2020 toMarch 31, 2021 driven mainly by ourMarch 2020 restructuring. The decrease in research and development was primarily due to a$0.1 million or 12% decrease in salaries and wages due to a 29% decrease in average headcount fromMarch 31, 2020 toMarch 31, 2021 . Payments Payments' total operating expense decreased by$2.0 million or 39% primarily due to a$0.7 million or 40% decrease in research and development, a$0.6 million or 48% decrease in sales and marketing expense, and a$0.6 million or 32% decrease in general and administrative expenses. The decrease in sales and marketing expenses was due primarily to a$0.3 million decrease in share-based compensation and a$0.2 million or 25% decrease in salaries and wages. The decrease in salaries and wages related to sales and marketing was due primarily to a 23% decrease in average headcount fromMarch 31, 2020 toMarch 31, 2021 driven mainly by ourMarch 2020 restructuring. The$0.6 million decrease in general and administrative expenses was due primarily to a$0.4 million decrease in share-based compensation and a$0.2 million or 26% decrease in salaries and wages resulting from a 28% decrease in average headcount fromMarch 31, 2020 toMarch 31, 2021 . The$0.7 million decrease in research and development was due primarily to a$0.6 million or 39% decrease in 27
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salaries and wages related to a 30% decrease in average headcount from
Grants Management
Grants Management's total operating expense decreased by$0.1 million or 7% primarily due to a$0.2 million or 34% decrease in general and administrative costs offset by a$0.1 million or 16% increase in sales and marketing expenses. The decrease in general and administrative costs was primarily due to a$0.1 million decrease in human resources and recruiting spend and a$0.1 million decrease in consulting and professional services costs. The increase in sales and marketing costs was primarily driven by a$0.1 increase in third-party commissions.
Permitting
Permitting's total operating expenses decreased by$0.3 million or 33% primarily due a$0.2 million or 37% decrease in sales and marketing expenses and a$0.1 million or 50% decrease in general and administrative expenses. The decrease in sales and marketing is primarily due to a$0.2 million or 42% decrease in salaries and wages related to a 24% decrease in headcount resulting from the March restructuring. The$0.1 million decrease in general and administrative costs was related to a$0.1 million decrease in travel spend due to the Covid-19 pandemic. Budget Budget's total operating expenses decreased by$0.3 million or 12% primarily due to a$0.2 million or 14% decrease in sales and marketing expenses and a$0.1 million or 16% decrease in general and administrative expenses. The decrease in sales and marketing expenses is primarily related to a$0.2 million or 18% decrease in salaries and wages related to a 4% decrease in average headcount fromMarch 31, 2020 toMarch 31, 2021 . The$0.1 million decrease in general and administrative expenses is primarily related to a$0.1 decrease in share-based compensation related to issuance of restricted stock units.
Corporate
Corporate expenses are primarily comprised of outside services including legal, accounting and consulting fees, payroll and related expenses, corporate insurance, and share-based compensation. Corporate expenses decreased by$1.0 million or 36% due primarily to a$0.5 million decrease in share-based compensation from the cancellation of restricted stock units and a$0.5 million or 62% decrease in salaries and wages. The decrease in salaries and wages is due primarily to a 41% decrease in average headcount fromMarch 31, 2020 toMarch 31, 2021 driven mainly by ourMarch 2020 restructuring.
Other operating expenses
Amortization of intangible assets
Amortization of intangible assets consists of the amortization of finite lived intangibles resulting from the Acquisition as described in Note 4 of the notes to our condensed consolidated financial statements.
Acquisition costs
Acquisition costs consists primarily of Acquisition transaction costs, capital market advisory fees, and bonuses incurred as a result of the transaction or a change in control. Restructuring costs OnMarch 30, 2020 , the Company implemented a global restructuring plan which resulted in an approximate 10% reduction of the Company's workforce. This action was intended to streamline the Company's operational reporting and reduce operating cash outflows. The Company recorded pre-tax restructuring charges of approximately$3.5 million which 28
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was comprised of one-time employee termination benefits paid over a weighted average period of approximately 10 months.
Change in fair value of contingent consideration
The change in fair value of contingent consideration consists of any adjustments to the contingent consideration liability since the Acquisition.
Other income (expense)
Interest income (expense)
Interest income (expense) is primarily comprised of the investments held by GTY
Corporate offset by interest under the
Loss on repurchase/issuance of shares
Loss on repurchase/issuance of shares is comprised of the difference in fair value between the price in which shares are issued and the market value on the date of grant.
Change in fair value of warrant liability
Change in fair value between the current price of the Company's warrants and the previously reported price.
Other income (loss)
Other income (loss) is comprised primarily of unrealized gains and losses
associated with transactions in currencies that are not denominated in
Reconciliation of Non-GAAP Revenues
To supplement our condensed consolidated financial statements, which are prepared in accordance withU.S. generally accepted accounting principles, or GAAP, we have provided certain financial measures that have not been prepared in accordance with GAAP ("non-GAAP financial measures"), which include (i) non-GAAP revenues, (ii) non-GAAP gross profit and non-GAAP gross margin and (iii) non-GAAP loss from operations. We use these non-GAAP financial measures internally in analyzing our financial results and believe that these metrics are useful to investors, as a supplement to the corresponding GAAP measure, in evaluating our ongoing operational performance and trends. However, it is important to note that particular items we exclude from, or include in, our non-GAAP financial measures may differ from the items excluded from, or included in, similar non-GAAP financial measures used by other companies in the same industry. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures. Non-GAAP Revenues. Non-GAAP revenues are defined as GAAP revenues adjusted for the impact of purchase accounting resulting from a company's business combination which reduced its acquired contract liabilities to fair value. The Company believes that presenting non-GAAP revenues is useful to investors as it eliminates the impact of the purchase accounting adjustments to revenues to allow for a direct comparison between current and future periods. Non-GAAP Gross Profit and Non-GAAP Gross Margin. Non-GAAP gross profit is defined as GAAP gross profit adjusted for the impact of purchase accounting resulting from a company's business combination and share-based compensation included in cost of revenues. Non-GAAP gross margin is defined as non-GAAP gross profit divided by non-GAAP revenues. The Company believes that presenting non-GAAP gross profit and margin is useful to investors as it eliminates the impact of the purchase accounting adjustments to allow for a direct comparison between periods. 29 Table of Contents
Non-GAAP Loss from Operations. Non-GAAP loss from operations is defined as GAAP loss from operations adjusted for the impact of purchase accounting to revenues resulting from a company's business combination, the amortization of acquired intangible assets, share-based compensation, acquisition related costs, goodwill impairment expense, restructuring charges and the change in fair value of contingent consideration. The Company believes that presenting non-GAAP loss from operations is useful to investors as it eliminates the impact of certain non-cash and acquisition related expenses to allow a direct comparison of loss from operations between all periods presented.
Below is a reconciliation of non-GAAP revenues, non-GAAP gross profit and non-GAAP gross margin and non-GAAP loss from operations to their most directly comparable GAAP financial measures (in thousands, except percentages):
Three Months Ended
March 31, December 31, March 31,
2021 2020 2020
Revenues $ 13,259 $ 13,101 $ 11,276 Purchase accounting adjustment to revenue 122
126 315
Non-GAAP Revenues $ 13,381 $ 13,227 $ 11,591
Gross Profit $ 8,517 $ 8,174 $ 6,749 Purchase accounting adjustment to revenue 122
126 315
Share-based compensation 292 236 218
Non-GAAP Gross Profit $ 8,931 $ 8,536 $ 7,282
Gross Margin 64 % 62 % 60 %
Non-GAAP Gross Margin 67 % 65 % 63 %
Loss from operations $ (8,136) $ (11,125) $ (16,520) Purchase accounting adjustment to revenue 122
126 315
Amortization of intangibles 3,599 3,683 3,673
Share-based compensation 1,823 2,283 3,295
Goodwill impairment expense - 2,000 -
Restructuring charges - - 3,466Change in fair value of contingent consideration 1,114 1,951 29 Non-GAAP Loss from operations$ (1,478) $
(1,082) $ (5,742)
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Three Months Ended March 31,
2021 2020
Revenues 13,259 11,276Purchase accounting adjustment to revenue 122
315
Non-GAAP Revenues $ 13,381 $ 11,591
Gross Profit 8,517 6,749Purchase accounting adjustment to revenue 122 315 Share-based compensation 292 218 Non-GAAP Pro forma as Adjusted Gross Profit$ 8,931
$ 7,282
Gross Margin 64 % 60 %
Non-GAAP Gross Margin 67 % 63 %
Loss from operations $ (8,136) $ (16,520) Purchase accounting adjustment to revenue 122
315
Amortization of intangibles 3,599 3,673
Share-based compensation 1,823 3,295
Restructuring charges - 3,466Change in fair value of contingent consideration 1,114
29
Non-GAAP Loss from operations $ (1,478) $ (5,742)
Below is a reconciliation of non-GAAP revenues to revenues by operating segment:
Three Months Ended March 31,
Grants Total
Procurement Payments Management Permitting Budget Revenues
Revenues 2021 $ 2,437 $ 2,229 $ 1,750 $ 695 $ 6,148 $ 13,259
Purchase accounting
adjustment to revenues - 122 - - - 122
Non-GAAP Revenues 2021 $ 2,437 $ 2,351 $ 1,750 $ 695 $ 6,148 $ 13,381
Revenues 2020 $ 1,656 $ 1,899 $ 1,465 $ 613 $ 5,643 $ 11,276
Purchase accounting
adjustment to revenues 9 133 15 - 158 315
Non-GAAP Revenues 2020 $ 1,665 $ 2,032 $ 1,480 $ 613 $ 5,801 $ 11,591
% change 46 % 16 % 18 % 13 % 6 % 15 %
Liquidity and Capital Resources
As ofMarch 31, 2021 , we had a cash balance of approximately$17.9 million . From the date of the Acquisition throughMarch 31, 2021 , our liquidity needs have been satisfied through proceeds from the January-February 2020 PIPE transactions, proceeds from our initial public offering that were released inFebruary 2019 from the trust account established in connection such offering for the benefit of our shareholders, proceeds from ourJune 2019 registered direct offering, proceeds from ourFebruary 2020 andNovember 2020 credit facilities, proceeds from issuance of stock under our ATM agreement, and loan proceeds in April-May 2020 from the Paycheck Protection Program. Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. 31
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We are attempting to further expand our customer base, scale up production of various products; and increase revenues; however, our cash position may not be sufficient to support our daily operations through the next twelve months from the date of filing this 10-Q. Our ability to continue as a going concern is dependent upon our ability to raise additional funds by way of a public or private offering and our ability to further generate sufficient revenues. While we believe in the viability of our platforms, and in our ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect.
COVID-19 Update
InDecember 2019 , the emergence of a novel coronavirus, or COVID-19, was reported and inMarch 2020 , theWorld Health Organization , orWHO , characterized COVID-19 as a pandemic. We responded by immediately restricting non-essential travel and enabled work-from-home protocols. Shortly thereafter, and in line with guidance provided by government agencies and international organizations, we restricted all travel, mandated a work-from-home policy across our global workforce, and moved all in-person customer-facing events to virtual ones. We expect these restrictions to stay in effect during the second quarter of 2021. We also responded by launching the GTY COVID Emergency Response Program, where a number of GTY products were offered free for a few months to allow our customers to move quickly to solve their infrastructure problems and prevent interruption to government services. As a result of the pandemic, we have seen purchasing decisions being deferred or delayed, delays in services revenue due to the delayed implementation of projects, and an impact on new business pipeline and large deals. We have also seen a decrease in travel-related expenses and advertising and trade show expenses. We expect to see similar impacts in 2021. The broader implications of the global emergence of COVID-19 on our business, operating results, and overall financial performance remain uncertain and they depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, impact on our partners or employees, and impact on the economic environment and financial markets, all of which are uncertain and cannot be predicted. We are conducting business as usual with certain limitations to employee travel, employee work locations, and marketing events, among other modifications. We have observed other companies taking precautionary and preemptive actions to address COVID-19, and the effects it has had and is expected to have on business and the economy. SinceMarch 2020 , we have seen certain new and existing customers halt or decrease investment in infrastructure, and we expect that certain of our current and potential customers will take actions to reduce operating expenses and moderate cash flows, including by delaying sales and requesting extended billing and payment terms. We will continue to actively monitor the situation and may take further actions that alter our business operations, as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders.
Historical Cash Flows
The following table sets forth a summary of our cash flows for the periods
indicated:
Three Months Ended Three Months Ended
March 31 , March 31,
2021 2020Net cash used in operating activities $ (3,406) $
(10,269)
Net cash used in investing activities $ (31) $
(1,111)
Net cash provided by (used in) financing activities $ (1,418) $ 11,317
Our net loss and cash flows from operating activities are significantly influenced by the Acquisition and our investments in headcount and infrastructure to support anticipated growth.
For the three months ended
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common stock,$4.0 million change in fair value of warrant liability,$3.6 million of amortization of intangible assets acquired as a result of the Acquisition,$1.8 million from share-based compensation resulting from our issuance of stock options and restricted stock units and a$1.1 million change in contingent consideration, offset by$0.2 million of deferred tax benefits related to the tax and book basis difference on the amortization of intangible assets and$0.2 million gain on extinguishment of debt. The changes in operating assets and liabilities of$(1.7) million was comprised primarily of a$1.5 million increase in prepaid expenses and other assets, a$0.8 million decrease in accounts payable and accrued liabilities, and a$0.8 million increase in accounts receivable, offset by a$1.7 million increase in deferred revenue and other long-term liabilities. For the three months endedMarch 31, 2020 , net cash used in operations was$10.3 million resulting from our net loss of$17.4 million and changes in operating assets and liabilities of$1.6 million and offset by net non-cash expenses of$8.7 million . The$8.7 million of non-cash expenses was comprised of$3.7 million of amortization of intangible assets acquired as a result of the Acquisition, a$3.3 million from share-based compensation, a$2.1 million loss on issuance of shares, and$1.6 million change in fair value of warrant liability, and offset by$2.5 million of deferred tax benefits related to the tax and book basis difference on the amortization of intangible assets. The changes in operating assets and liabilities of$1.6 million was comprised primarily of a$1.1 million increase in prepaid expenses and other assets associated with the payments for insurance premiums, letters of credit required by certain customers and software subscription payments.
Our primary investing activities have consisted of capital expenditures.
For the three months ended
For the three months endedMarch 31, 2020 , cash used in investing activities was$1.1 million resulting from$1.1 million of capital expenditures associated with lease improvements and furniture purchases at Questica's new facility.
Net Cash Provided By (Used in) Financing Activities
For the three months endedMarch 31, 2021 , cash used in financing activities was$(1.4) million primarily due to$8.0 million in redemptions of common shares offset by$6.8 million in proceeds from the issuance of common stock. For the three months endedMarch 31, 2020 , cash provided by financing activities was$11.3 million primarily due to$11.5 million of proceeds from the issuance of our term loan, net of issuance costs and offset by$0.2 million in repayments of finance lease obligations and contingent consideration payments.
Critical Accounting Policies and Use of Estimates
See Note 3 of the notes to our unaudited condensed consolidated financial statements.
Recent Accounting Pronouncements
The impact of recently issued accounting standards is set forth in Note 3, Summary of Significant Accounting Policies, of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We are not party to any off-balance sheet transactions. We have no guarantees or obligations other than those which arise out of normal business operations.
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Contractual Obligations and Commitments
As of
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