HUBSPOT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onFebruary 14, 2022 . As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below. Company Overview We provide a cloud-based customer relationship management ("CRM") Platform. Our CRM Platform is comprised of Marketing Hub, Sales Hub, Service Hub, content management system ("CMS") Hub, and Operations Hub as well as other tools, integrations, and a native payment solution that enable companies to attract, engage, and delight customers throughout the customer experience. At the core of our CRM Platform is our CRM that our customers use which creates a single view of all interactions a prospective or existing customer has with their marketing, sales and customer service teams. The CRM shares data across every application in the CRM Platform, automatically informing more personalized emails, website content, ads, and conversations, and enables more accurate timing cues for our customer's internal teams. Our CRM Platform was built to easily and seamlessly integrate third-party applications to further customize to an individual company's industry or needs. In addition, an end-to-end native payment solution, Payments, is built within our CRM Platform which enables customers to streamline their payment process. Our CRM Platform starts completely free and grows with our customers to meet their needs at different stages in their life-cycles. It supports multiple languages and currencies and offers an array of sophisticated features, including content partitioning at the enterprise level for companies operating in or serving multiple countries. We focus on selling to mid-market business-to-business, or B2B, companies, which we define as companies that have between two and 2,000 employees. While our CRM Platform was built to grow with any company, we focus on selling to mid-market businesses because we believe we have significant competitive advantages attracting and serving this market segment. These mid-market businesses seek an integrated, easy-to-implement and easy-to-use solution to reach customers and compete with organizations that have larger marketing, sales, and customer service budgets. We efficiently reach these businesses at scale through our proven inbound methodology, ourSolutions Partners , and our "freemium" model. A Solutions Partner is a service provider that helps businesses with strategy, execution, and implementation of go-to-market activities and technology solutions. Our freemium model attracts customers who begin using our CRM Platform through our free products and then upgrade to our paid products. As ofJune 30, 2022 , we had 7,045 full-time employees and 150,865 Customers of varying sizes in more than 120 countries, representing almost every industry. We derive most of our revenue from subscriptions to our cloud-based CRM Platform and related professional services, which consist of customer on-boarding, training and consulting services. Subscription revenue accounted for 98% of our total revenue for the three and six months endedJune 30, 2022 , 97% of our total revenue for the three months endedJune 30, 2021 , and 96% of our total revenue for the six months endedJune 30, 2021 . We sell multiple product plans at different base prices on a subscription basis, each of which includes our CRM and integrated applications to meet the needs of the various customers we serve. Customers pay additional fees if the number of contacts stored and tracked in the customer's database exceeds specified thresholds. We also generate additional revenue based on the purchase of additional subscriptions and products, and the number of account users and subdomains. Most of our customers' subscriptions are one year or less in duration. Subscriptions are billed in advance on various schedules. Because the mix of billing terms for orders can vary from period to period, the annualized value of the orders we enter into with our customers will not be completely reflected in deferred revenue at any single point in time. Accordingly, we do not believe that change in deferred revenue is an accurate indicator of future revenue. Many of our customers purchase on-boarding, training, and consulting services, and utilize other tools and Payments, which are designed to help customers enhance their ability to attract, engage and delight their customers using our CRM Platform. Professional services and other revenue accounted for 2% of total revenue for three and six months endedJune 30, 2022 , 3% of our total revenue for the three months endedJune 30, 2021 , and 4% of our total revenue for the six months endedJune 30, 2021 . We have focused on rapidly growing our business and plan to continue to make investments to help us address some of the challenges facing us to support this growth, such as demand for our CRM Platform by existing and new customers, significant 22 --------------------------------------------------------------------------------
competition from other providers of marketing, sales, customer service, operations, and content management software and related applications and rapid technological change in our industry.
We believe that the growth of our business is dependent on many factors, including our ability to expand our customer base, increase adoption of our CRM Platform within existing customers, develop new products and applications to extend the functionality of our CRM Platform and provide a high level of customer service. We expect to continue to invest in sales and marketing and expand our international operations. We also expect to increase our investment in research and development as we continue to introduce new products and applications to extend the functionality of our CRM Platform. We also intend to maintain a high level of customer service and support which we consider critical for our continued success. We plan to continue investing in our data center infrastructure and services capabilities in order to support continued future customer growth. We also expect to continue to incur additional general and administrative expenses as a result of both our growth and the infrastructure required to be a public company. We expect to use our cash flow from operations and the proceeds from our convertible debt and prior stock offerings to fund these growth strategies and support our business and do not expect to be profitable in the near term.
COVID-19 and Other Global Economic Conditions
Our results of operations can be significantly influenced by general
macroeconomic conditions, including but not limited to, the impact of the
pandemic, foreign currency fluctuations, interest rates, inflation, recession
risks, existing and new domestic and foreign laws and regulations, all of which
are beyond our control. Fluctuations in foreign exchange rates and rising
inflation has had, and may continue to have an adverse impact on our financial
condition and operating results in future periods.. As we continue to monitor
the direct and indirect impacts of these circumstances, the broader implications
of these macroeconomic events on our business, results of operations and overall
financial position, particularly in the long term, remain uncertain. See the
section titled "Risk Factors'' included under Part II, Item 1A below for further
discussion of the possible impact of these factors and other risks on our
business.
23--------------------------------------------------------------------------------
Results of Operations for the Three Months Ended
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 data
has been derived from the unaudited consolidated financial statements contained
in this Quarterly Report on Form 10-Q which include, in our opinion, all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair statement of the financial position and results of
operations for the interim periods presented. The period-to-period comparison of
financial results is not necessarily indicative of financial results to be
achieved in future periods.
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in thousands) 2022 2021 2022 2021
Revenues:
Subscription $ 412,401 $ 300,423 $ 797,356 $ 570,686
Professional services and other 9,354 10,365 19,998 21,467
Total revenue 421,755 310,788 817,354 592,153
Cost of revenues:
Subscription 64,431 51,134 123,816 94,986Professional services and other 14,500 11,743 28,053
22,625 Total cost of revenues 78,931 62,877 151,869 117,611 Gross profit 342,824 247,911 665,485 474,542 Operating expenses: Research and development 118,914 72,104 211,650 140,500 Sales and marketing 224,262 157,799 421,396 298,817 General and administrative 51,898 34,610 95,844 66,860 Total operating expenses 395,074 264,513 728,890 506,177 Loss from operations (52,250 ) (16,602 ) (63,405 ) (31,635 ) Other expense: Interest income 2,050 341 2,564 816 Interest expense (949 ) (7,179 ) (1,898 ) (16,578 ) Other (expense) income (3,091 ) 528 602 1,188 Total other (expense) income (1,990 ) (6,310 ) 1,268 (14,574 ) Loss before income tax expense (54,240 ) (22,912 ) (62,137 ) (46,209 ) Income tax expense (2,121 ) (1,660 ) (3,565 ) (1,522 ) Net loss$ (56,361 ) $ (24,572 ) $ (65,702 ) $ (47,731 ) Three Months Six Months Ended June 30, Ended June 30, 2022 2021 2022 2021 Revenue: Subscription 98 % 97 % 98 % 96 % Professional services and other 2 3 2 4 Total revenue 100 100 100 100 Cost of revenue: Subscription 15 16 15 16 Professional services and other 3 4 3 4 Total cost of revenue 19 20 19 20 Gross profit 81 80 81 80 Operating expenses: Research and development 28 23 26 24 Sales and marketing 53 51 52 50 General and administrative 12 11 12 11 Total operating expenses 94 85 89 85 Loss from operations (12 ) (5 ) (8 ) (5 ) Total other (expense) income (0 ) (2 ) 0 (2 ) Loss before income tax expense (13 ) (7 ) (8 ) (8 ) Income tax expense (1 ) (1 ) (0 ) (0 ) Net loss (13 )% (8 )% (8 )% (8 )%
Percentages are based on actual values. Totals may not sum due to rounding.
24
--------------------------------------------------------------------------------
Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30,
2021
Revenue
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change
Revenues:
Subscription $ 412,401 $ 300,423 $ 111,978 37 % $ 797,356 $ 570,686 $ 226,670 40 %
Professional
services and other 9,354 10,365 (1,011 ) (10 )% 19,998 21,467 (1,469 ) (7 )%
Total revenue $ 421,755 $ 310,788 $ 110,967 36 % $ 817,354 $ 592,153 $ 225,201 38 %
Three month change
Subscription revenue increased during the three months ended June 30, 2022
compared to the same period in 2021 primarily due to the increase in Customers,
which grew from 121,048 as of June 30, 2021 to 150,865 as of June 30, 2022 .
Average Subscription Revenue per Customer increased from $10,198 for the three
months ended June 30, 2021 to $11,198 for the three months ended June 30, 2022 .
The growth in Customers was primarily driven by our increased sales
representative capacity to meet market demand as well a continued demand for our
CRM Platform. The increase in Average Subscription Revenue per Customer was
primarily driven by a continued demand for our Professional and Enterprise
products, product upgrades by existing customers and impact from customer mix,
offset by the impact of foreign currency translations primarily attributable to
the decline in the value of the Euro relative to the U.S. Dollar.
Professional services and other revenue decreased during the three months ended
June 30, 2022 compared to the same period in 2021 primarily due to lower overall
services revenue from onboardings and trainings, and lower fees earned from
revenue share arrangements with third parties, partially offset by fees earned
from Payments and other revenue streams.
Six month change
Subscription revenue increased during the three months ended June 30, 2022
compared to the same period in 2021 primarily due to the increase in Customers,
which grew from 121,048 as of June 30, 2021 to 150,865 as of June 30, 2022 .
Average Subscription Revenue per Customer increased from $10,111 for the six
months ended June 30, 2021 to $11,137 for the six months ended June 30, 2022 .
The growth in Customers was primarily driven by our increased sales
representative capacity to meet market demand as well a continued demand for our
CRM Platform. The increase in Average Subscription Revenue per Customer was
primarily driven by a continued demand for our Professional and Enterprise
products, product upgrades by existing customers and impact from customer mix,
offset by the impact of foreign currency translations primarily attributable to
the decline in the value of the Euro relative to the U.S. Dollar.
Professional services and other revenue decreased during the six months ended
June 30, 2022 compared to the same period in 2021 primarily due to non-recurring
advertising revenue generated from our acquisition of the Hustle in the first
quarter of 2021, lower overall services revenue from onboardings and trainings,
and lower fees earned from revenue share arrangements with third parties,
partially offset by fees earned from Payments and other revenue streams.
Cost of Revenue, Gross Profit and Gross Margin Percentage
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Total cost of revenue
$ 78,931 $ 62,877 $ 16,054 26 %$ 151,869 $ 117,611 $ 34,258 29 % Gross profit$ 342,824 $ 247,911 $ 94,913 38 %$ 665,485 $ 474,542 $ 190,943 40 % Gross margin percentage 81 % 80 % 81 % 80 % Total cost of revenue for the three and six months endedJune 30, 2022 increased compared to the same period in 2021 primarily due to an increase in subscription and hosting costs, employee-related costs, amortization of capitalized software development costs, 25 --------------------------------------------------------------------------------
allocated overhead expenses, and amortization of acquired technology. Gross margins remained consistent year-over-year.
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change
Subscription cost
of revenue $ 64,431 $ 51,134 $ 13,297 26 % $ 123,816 $ 94,986 $ 28,830 30 %
Percentage of
subscription
revenue 16 % 17 % 16 % 17 %
The increase in subscription cost of revenue for the three and six months ended
June 30, 2022 compared to the same period in 2021 was primarily due to the
following:
Change
Three Months Six Months
(in thousands)
Subscription and hosting costs $ 7,337 $ 16,459
Employee-related costs 3,528
7,354
Amortization of capitalized software development costs 2,270
4,471
Allocated overhead expenses 91
393
Amortization of acquired technology 71 153
$ 13,297 $ 28,830
Three month change
Subscription and hosting costs increased primarily due to growth in our Total
Customer base from 121,048 as of June 30, 2021 to 150,865 as of June 30, 2022 .
We also saw higher subscription and hosting costs as we launched an additional
data center in the third quarter of 2021 and continued to focus on the security,
reliability and performance of our CRM Platform. Employee-related costs
increased as a result of increased headcount as we grew our customer support
organization to support our customer growth and improve service levels and
offerings. Amortization of capitalized software development costs increased due
to the increased number of developers working on our software platform as we
continue to develop new products and increased functionality. Allocated overhead
expenses increased due to an increase in shared company expenses associated with
our systems and infrastructure that is needed to grow our business. Amortization
of acquired technology increased due to certain acquired technology being
amortized using a method reflective of the expected economic benefit consumption
over the expected useful life of the asset.
Six month change
Subscription and hosting costs increased primarily due to growth in our Total Customer base from 121,048 as ofJune 30, 2021 to 150,865 as ofJune 30, 2022 . We also saw higher subscription and hosting costs as we launched an additional data center in the third quarter of 2021 and continued to focus on the security, reliability and performance of our CRM Platform. Employee-related costs increased as a result of increased headcount as we grew our customer support organization to support our customer growth and improve service levels and offerings. Amortization of capitalized software development costs increased due to the increased number of developers working on our software platform as we continue to develop new products and increased functionality. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure as we continued to grow our business. Amortization of acquired technology increased due to certain acquired technology being amortized using a method reflective of the expected economic benefit consumption over the expected useful life of the asset. Three Months Six Months Ended June 30, Ended June 30, (dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Professional services and other cost of revenue$ 14,500 $ 11,743 $ 2,757 23 %$ 28,053 $ 22,625 $ 5,428 24 % Percentage of professional services and other revenue 155 % 113 % 140 % 105 % 26
-------------------------------------------------------------------------------- The increase in professional services and other cost of revenue for three and six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to the following: Change Three Months Six Months (in thousands) Employee-related costs$ 2,657 $ 5,099 Allocated overhead expenses 100 329$ 2,757 $ 5,428 Employee-related costs increased as a result of increased headcount as we grew our professional services organization to support our customer growth. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure as we continued to grow our business.
Research and Development
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change
2022 2021 $ Change %
65 % $ 211,650 $ 140,500 $ 71,150 51 %
Percentage of
total revenue 28 % 23 % 26 % 24 %
The increase in research and development expense for the three and six months
ended June 30, 2022 compared to the same period in 2021 was primarily due to the
following:
Change
Three Months Six Months
(in thousands)
Employee-related costs
907 1,916
Hosting expenses (1,880 ) (4,391 )
$ 46,810 $ 71,150
Three month change
Employee-related costs increased as a result of increased headcount as we
continue to grow our engineering organization to develop new products, increase
functionality and to maintain our existing CRM Platform. Allocated overhead
expenses increased due to an increase in shared company expenses associated with
our systems and infrastructure as we continued to grow our business and expand
headcount. Hosting expense decreased due to incremental spend in the second
quarter of 2021 associated with product development infrastructure that is
unrelated to the hosting of our CRM Platform for paying Customers. In July of
2021, we launched a new data center and the ongoing expenses related to the
hosting of our CRM Platform on that data center are classified as subscription
cost of revenue.
Six month change
Employee-related costs increased as a result of increased headcount as we
continue to grow our engineering organization to develop new products, increase
functionality and to maintain our existing CRM Platform. Allocated overhead
expenses increased due to an increase in shared company expenses associated with
our systems and infrastructure as we continued to grow our business and expand
headcount. Hosting expense decreased due to incremental spend in the first half
of 2021 associated with product development infrastructure that is unrelated to
the hosting of our CRM Platform for paying Customers. In July of 2021, we
launched a new data center and the ongoing expenses related to the hosting of
our CRM Platform on that data center are classified as subscription cost of
revenue.
Sales and Marketing
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change
Sales and
marketing $ 224,262 $ 157,799 $ 66,463 42 % $ 421,396 $ 298,817 $ 122,579 41 %
Percentage of
total revenue 53 % 51 % 52 % 50 %
27-------------------------------------------------------------------------------- The increase in sales and marketing expense for the three and six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to the following: Change Three Months Six Months (in thousands) Employee-related costs$ 52,612 $ 91,384 Solutions Partner commissions 6,825 14,195 Marketing programs 3,212 9,283 Allocated overhead expenses 2,464 5,349 Professional services 1,005 2,023 Amortization of intangible asset 345 345$ 66,463 $ 122,579 Three month change Employee-related costs increased as a result of increased headcount as we expanded our selling and marketing organizations to grow our customer base. Solutions Partner commissions increased as a result of increased revenue generated through ourSolutions Partners . Marketing programs increased due to the timing and size of certain marketing efforts as we made investments in attracting new customers. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure as we continued to grow our business. Professional fees increased due to an increase in the use of third-party services and contractors for our marketing efforts. Amortization of intangible assets increased primarily due to the purchase of a domain name in the three months endedJune 30, 2022 .
Six month change
Employee-related costs increased as a result of increased headcount as we expanded our selling and marketing organizations to grow our customer base. Solutions Partner commissions increased as a result of increased revenue generated through ourSolutions Partners . Marketing programs increased due to the timing and size of certain marketing efforts as we continue to make investments in attracting new customers. Allocated overhead expenses increased due to an increase in shared company expenses associated with our systems and infrastructure as we continued to grow our business. Professional fees increased due to an increase in the use of third-party services and contractors for our marketing efforts. Amortization of intangible assets increased primarily due to the purchase of a domain name in the six months endedJune 30, 2022 .
General and Administrative
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change
General and
administrative $ 51,898 $ 34,610 $ 17,288 50 % $ 95,844 $ 66,860 $ 28,984 43 % Percentage of total revenue 12 % 11 % 12 % 11 % The increase in general and administrative expense for the three and six months endedJune 30, 2022 compared to the same period in 2021 was primarily due to the following: Change Three Months Six Months (in thousands)
Employee-related costs
886 1,238
Customer credit card fees 1,856 3,728
$ 17,288 $ 28,984
Three month change
Employee-related costs increased as a result of increased headcount as we grew
our business and required additional personnel to support our expanded
operations. Allocated overhead expenses increased due to an increase in shared
company expenses associated
28
--------------------------------------------------------------------------------with our systems and infrastructure as we continued to grow our business. Customer credit card fees increased due to increased customer transactions as we continue to grow our business.
Six month change
Employee-related costs increased as a result of increased headcount as we grew
our business and required additional personnel to support our expanded
operations. Allocated overhead expenses increased due to an increase in shared
company expenses associated with our systems and infrastructure as we continued
to grow our business. Customer credit card fees increased due to increased
customer transactions as we continue to grow our business.
Interest income
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change
2022 2021 $ Change % Change
Interest income
501 % $ 2,564 $ 816 $ 1,748 214 %
Percentage of total
revenue * * * *
* not meaningful
Interest income primarily consists of interest earned on invested cash and cash
equivalents balances and investments. The increase during the three and six
months ended June 30, 2022 is due to an increase in yields on our investment
balances.
Interest expense
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change
2022 2021 $ Change % Change
Interest expense
* (2 )% * (3 )%
* not meaningful
The change in interest expense for the three and six months ended
Change
Three Months Six Months
(in thousands)
Amortization of the debt discount and issuance
(11,593 )
costs and
contractual interest expense related to our
Notes
Loss on early extinguishment of 2022 Convertible
Notes (683 ) (3,087 )
$ (6,230 ) $ (14,680 )
Three month change
Interest expense primarily consists of amortization of the debt discount and
issuance costs and contractual interest expense related to our Notes and the
loss on early extinguishment of our 2022 Notes. The decrease in interest expense
related to the Notes and loss on extinguishment is primarily due to the adoption
of the new convertible debt guidance.
Six month change
Interest expense primarily consists of amortization of the debt discount and issuance costs and contractual interest expense related to our Notes, and the loss on early extinguishment of our 2022 Notes. The decrease in interest expense related to the Notes and loss on extinguishment is primarily due to the adoption of the new convertible debt guidance.
Other (expense) income
29
--------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Other (expense) income
$ (3,091 ) $ 528 $ (3,619 ) (685 )%$ 602 $ 1,188 $ (586 ) 49 % Percentage of total revenue (1 )% * * * * not meaningful
The change in other income during the three and six months ended
Change
Three Months Six Months
(in thousands)
Foreign currency transaction gains and losses $ (2,597 ) $ (3,763 )
Gain on strategic investments (1,022 ) 3,177
$ (3,619 ) $ (586 )
Three month change
Other (expense) income primarily consists of the impact of foreign currency
transaction gains and losses associated with monetary assets and liabilities and
any gains or losses on our strategic investments. The increase in foreign
currency transaction losses is primarily attributable to the decline in the
value of the Euro relative to the U.S. Dollar. The decrease in gain on
investments is due to an adjustment to the fair value of an investment as a
result of an observable price change in the three months ended June 30, 2021 ,
whereas no gain was recognized in the three months ended June 30, 2022 .
Six month change
Other (expense) income primarily consists of the impact of foreign currency transaction gains and losses associated with monetary assets and liabilities and any gains or losses on our strategic investments. The increase in foreign currency transaction losses is primarily attributable to the decline in the value of the Euro relative to theU.S. Dollar. The increase in gain on investments is due to an adjustment to the fair value of an investment as a result of an observable price change of$4.2 million in the six months endedJune 30, 2022 compared to$1.0 million in the six months endedJune 30, 2021 . Income tax expense Three Months Six Months Ended June 30, Ended June 30, (dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Income tax expense$ (2,121 ) $ (1,660 ) $ (461 ) 28 %$ (3,565 ) $ (1,522 ) $ (2,043 ) 134 % Effective tax rate 4 % 7 % 6 % 3 % Three month change Income tax expense consists of current and deferred taxes forU.S. and foreign income taxes. The increase in income tax expense was primarily driven by increased income in jurisdictions outside of theU.S. that are profitable from a tax perspective, the state tax effect of aU.S. federal tax law change in effect fromJanuary 1, 2022 that requires the capitalization of research and experimental costs, and lower-than-expected tax benefits associated with stock-based compensation.
Six month change
Income tax expense consists of current and deferred taxes forU.S. and foreign income taxes. The increase in income tax expense was primarily driven by increased income in jurisdictions outside of theU.S. that are profitable from a tax perspective, the state tax effect of aU.S. federal tax law change in effect fromJanuary 1, 2022 that requires the capitalization of research and experimental costs, and lower-than-expected tax benefits associated with stock-based compensation, partially offset by a non-recurring income tax benefit recognized in 2021 relating to the release of a portion of the Company's valuation allowance. The release was due to recording net deferred tax liabilities related to the Hustle acquisition, which are a source of income to support the realizability of the Company's pre-existingU.S. deferred tax assets. 30 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Our principal sources of liquidity to date have been cash and cash equivalents, net accounts receivable, our common stock offerings, and our convertible notes offerings. The following table shows cash and cash equivalents, working capital, net cash and cash equivalents provided by operating activities, net cash and cash equivalents used in investing activities, and net cash and cash equivalents provided by financing activities for the six months endedJune 30, 2022 and 2021. Six Months ended June 30, 2022 2021 (in thousands) Cash and cash equivalents$ 305,664 $ 338,336 Working capital 869,617 862,418 Net cash and cash equivalents provided by operating activities 123,146
100,891
Net cash and cash equivalents used in investing activities (176,013 ) (110,740 ) Net cash and cash equivalents used in financing activities (9,008 )
(26,729 )
Our cash and cash equivalents atJune 30, 2022 were held for working capital purposes. AtJune 30, 2022 ,$119.7 million of our cash and cash equivalents was held in accounts outsidethe United States . We do not assert indefinite reinvestment of our foreign earnings because these earnings have been subject to United States Federal tax. While we have concluded that any incremental tax incurred upon ultimate distribution of these earnings to be immaterial, our current plans do not demonstrate a need to repatriate undistributed earnings to fund ourU.S. operations. Cash from operations could be affected by various risks and uncertainties detailed in the section titled "Risk Factors" included under Part II, Item 1A. However, based on our current business plan and revenue prospects, we believe that our existing cash, cash equivalents and investment balances, and our anticipated cash flows from operations will be sufficient to meet our working capital and operating resource expenditure requirements for the next twelve months.
Net cash and cash equivalents provided by operating activities consists primarily of net loss adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization and other non-cash charges, net.
Net cash and cash equivalents provided by operating activities during the six months endedJune 30, 2022 primarily reflected our net loss of$65.7 million , benefit from deferred income taxes of$0.4 million ,$0.2 million accretion of bond discounts, and gains on strategic investments of$4.2 million , offset by non-cash expenses that included$27.1 million of depreciation and amortization,$126.9 million in stock-based compensation, and$1.0 million of amortization of debt discount and issuance costs. Working capital sources of cash and cash equivalents primarily included a$52.5 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a$13.4 million increase in right-of-use asset, a$9.0 million increase in accounts payable related to timing of bill payments, and$23.1 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a$21.9 million increase in prepaid expenses and other assets, a$11.3 million decrease in operating lease liabilities, a$13.7 million increase in deferred commissions, and a$14.3 million increase in accounts receivable as a result of increased billings to customers. Net cash and cash equivalents provided by operating activities during the six months endedJune 30, 2021 primarily reflected our net loss of$47.7 million , the portion of the repayment of the 2022 Notes attributable to the debt discount of$13.0 million , benefit from deferred income taxes of$1.1 million , and a gain on strategic investments of$1.0 million , offset by non-cash expenses that included$21.7 million of depreciation and amortization,$75.9 million in stock-based compensation,$1.7 million amortization of bond discounts,$12.5 million of amortization of debt discount and issuance costs, and$3.1 million of loss on early extinguishment of 2022 Notes. Working capital sources of cash and cash equivalents primarily included a$49.4 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a$8.9 million decrease in accounts receivable related to increased collection, a$18.5 million increase in right-of-use asset, and$15.5 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a$1.3 million increase in accounts payable related to timing of bill payments, a$7.7 million increase in prepaid expenses and other assets, a$18.4 million decrease in operating lease liabilities, and a$16.4 million increase in deferred commissions.
Our investing activities have consisted primarily of purchases and maturities of
investments, sale of investments, property and equipment purchases, an
acquisition of a business, purchase of intangible assets, purchases of strategic
investments, an equity method
31
--------------------------------------------------------------------------------investment and capitalization of software development costs. Capitalized software development costs are related to new products or improvements to our existing software platform that expands the functionality for our customers.
Net cash and cash equivalents used in investing activities during the six months endedJune 30, 2022 consisted primarily of$864.1 million purchases of investments,$18.3 million of purchased property and equipment,$13.9 million of purchases of strategic investments,$19.9 million of capitalized software development costs, and a$10.0 million purchase of intangible assets. These uses of cash were offset by$625.4 million received related to the maturity of investments and$125.0 million received for sale of investments. Net cash and cash equivalents used in investing activities during the six months endedJune 30, 2021 consisted primarily of$654.1 million purchases of investments,$10.7 million of purchased property and equipment, a$16.8 million business acquisition,$6.2 million of purchases of strategic investments,$3.1 million in an equity method investment and$16.4 million of capitalized software development costs. These uses of cash were offset by$596.6 million received related to the maturity of investments.
Our financing activities have consisted primarily of the various components of our 2022 Notes repayment, repayment of our 2025 Notes, the issuance of common stock under our stock plans, and payments of employee taxes related to the net share settlement of stock-based awards,. For the six months endedJune 30, 2022 cash used in financing activities consisted of$1.6 million used for the repayment of the 2025 Notes attributable to the principal,$79.8 million payment for settlement of the 2022 Notes, and$7.8 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by$19.7 million of proceeds related to issuance of common stock under stock plans and$60.5 million of proceeds from settlement of the Convertible Note Hedges. For the six months endedJune 30, 2021 cash used in financing activities consisted of$45.4 million used for repayment of the 2022 Notes attributable to the principal and$6.9 million used for payment of employee taxes related to the net share settlement of stock-based awards, offset by$0.7 million of proceeds from the settlement of the Convertible Note Hedges related to the 2022 Notes and$24.9 million of proceeds related to issuance of common stock under stock plans.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates during the six months endedJune 30, 2022 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Contractual Obligations and Commitments
Contractual obligations are cash that we are obligated to pay as part of certain contracts that we have entered during our course of business. Our contractual obligations consist of operating lease liabilities that are included in our consolidated balance sheet and vendor commitments associated with agreements that are legally binding. See Note 10 for all obligations the Company is committed to in the notes to the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see Recent Accounting Pronouncements in the notes to the consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
As ofJune 30, 2022 , we are committed to contribute additional capital of$9.2 million to theBlack Economic Development Fund . There were no other material off-balance sheet arrangements exclusive of operating leases and indemnifications of officers, directors and employees for certain events or occurrences while the officer, director or employee is, or was, serving at our request in such capacity.
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