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, 2019 filed with theSEC onFebruary 12, 2020 . 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 marketing, sales, and customer service software platform, which we refer to as our Growth Platform, that enables businesses to grow better. AtHubSpot , we are committed to helping our customers grow better, which means helping them grow without compromise, always solving for the customer, and creating a better experience for customers and company alike. To that end, our Growth Platform, comprised of Marketing Hub, Sales Hub, Service Hub, Content Management System, or CMS, Hub (released inApril 2020 ), and a free customer relationship management system, or CRM, features integrated applications and tools that enable businesses to create a cohesive and adaptable customer experience throughout the customer lifecycle. 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 Growth 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 customerswho begin using our Growth Platform through our free products and then upgrade to our paid products. As ofJune 30, 2020 , we had 3,769 full-time employees and 86,672 Total 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 Growth Platform and related professional services, which consist of customer on-boarding and training services. Subscription revenue accounted for 96% of total revenue for the three and six months endedJune 30, 2020 and 95% of total revenue for the three and six months endedJune 30, 2019 . 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, subdomains and website visits. Our customers purchase a subscription to one or more of our products and commit for a specified subscription period, which is typically 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 and training services which are designed to help customers enhance their ability to attract, engage and delight their customers using our Growth Platform. Professional services and other revenue accounted for 4% of total revenue for the three and six months endedJune 30, 2020 and 5% of total revenue for the three and six months endedJune 30, 2019 . We expect professional services and other margins to range from a moderate loss to breakeven for the foreseeable future.
COVID-19 Update
InMarch 2020 , theWorld Health Organization , orWHO , declared the outbreak of a disease caused by a novel strain of the coronavirus (COVID-19) to be a pandemic, or pandemic. This pandemic is having widespread, rapidly-evolving, and unpredictable impacts on global societies, economies, financial markets, and business practices. Federal and state governments have implemented measures in an effort to contain the virus, including physical distancing, travel bans and restrictions, closure of non-essential businesses, quarantines, work-from-home directives, shelter-in-place orders, and limitations on public gatherings. These measurements have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide. 24 -------------------------------------------------------------------------------- Our focus remains on promoting employee health and safety, serving our customers, and ensuring business continuity. InMarch 2020 , we temporarily closed our global offices, including our corporate headquarters, suspended all company-related travel, and allHubSpot employees globally were required to work from home. We shifted our Solutions Partner events and INBOUND 2020 to virtual-only experiences, and have cancelled other customer and industry events. We have begun to slowly re-open our offices on a staggered, region-to-region basis in accordance with local authority guidelines, and are working to ensure that our return to work is thoughtful, prudent, and handled with an abundance of caution with the health of our employees being the top priority. Given that the economic consequences of the pandemic have been exceptionally challenging for many of our customers and prospects, we also implemented certain changes to our pricing structure inMarch 2020 , including reducing prices on our Starter Growth Suite, offering certain product functionality free of charge, suspending marketing email send limits, and offering a six-month advance on commissions to certain of ourSolutions Partners . The broader implications of the pandemic on our results of operations and overall financial performance remain uncertain. The pandemic and its adverse effects are prevalent in the locations where we, our customers, and partners conduct business. As a result, we have experienced and may continue to experience curtailed customer demand that could adversely impact our business, results of operations and overall financial performance in future periods. Specifically, we may be impacted by changes in our customers' ability or willingness to purchase our offerings; changes in the timing of our current or prospective customers' purchasing decisions; pricing discounts or extended payment terms; reductions in the amount or duration of customers' subscription contracts; or increased customer attrition rates. While our revenue, customer retention, and earnings are relatively predictable as a result of our subscription-based business model, the effect of the pandemic and the resulting decrease in customer demand will not be fully reflected in our results of operations and overall financial performance until future periods. While the implications of the pandemic remain uncertain, we plan to continue to make investments to support business growth. 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 Growth Platform within existing customers, develop new products and applications to extend the functionality of our Growth Platform and provide a high level of customer service. We expect to invest in sales and marketing to support customer growth. We also expect to invest in research and development as we continue to introduce new products and applications to extend the functionality of our Growth 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 to invest in our data center infrastructure and services capabilities in order to support continued customer growth. We also expect to continue to incur general and administrative expenses to support our business and to maintain 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 stock offerings to fund these growth strategies and support our business despite the potential impact from the pandemic and do not expect to be profitable in the near term.
See the section titled "Risk Factors" included under Part II, Item 1A below for further discussion of the possible impact of the pandemic on our business.
25
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Results of Operations for the three and six 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) 2020 2019 2020 2019
Revenues:
Subscription $ 196,415 $ 155,876 $ 387,643 $ 300,102
Professional services and other 7,193 7,379 14,932 14,951
Total revenue 203,608 163,255 402,575 315,053
Cost of revenues:
Subscription 30,400 23,578 60,135 44,879Professional services and other 8,377 7,564 16,926
15,841 Total cost of revenues 38,777 31,142 77,061 60,720 Gross profit 164,831 132,113 325,514 254,333 Operating expenses: Research and development 49,372 40,456 95,573 75,633 Sales and marketing 102,600 84,079 204,928 158,984 General and administrative 26,484 23,303 52,741 44,477 Total operating expenses 178,456 147,838 353,242 279,094 Loss from operations (13,625 ) (15,725 ) (27,728 ) (24,761 ) Other expense: Interest income 2,135 5,424 6,192 9,598 Interest expense (16,809 ) (5,673 ) (22,761 ) (11,186 ) Other expense (91 ) (672 ) (1,143 ) (684 ) Total other expense (14,765 ) (921 ) (17,712 ) (2,272 ) Loss before income tax expense (28,390 ) (16,646 ) (45,440 ) (27,033 ) Income tax expense (1,011 ) (711 ) (1,677 ) (1,424 ) Net loss$ (29,401 ) $ (17,357 ) $ (47,117 ) $ (28,457 ) Three Months Six Months Ended June 30, Ended June 30, 2020 2019 2020 2019 Revenue: Subscription 96 % 95 % 96 % 95 % Professional services and other 4 5 4 5 Total revenue 100 100 100 100 Cost of revenue: Subscription 15 14 15 14 Professional services and other 4 5 4 5 Total cost of revenue 19 19 19 19 Gross profit 81 81 81 81 Operating expenses: Research and development 24 25 24 24 Sales and marketing 50 52 51 50 General and administrative 13 14 13 14 Total operating expenses 88 91 88 89 Loss from operations (7 ) (10 ) (7 ) (8 ) Total other expense (7 ) (1 ) (4 ) (1 ) Loss before income tax expense (14 ) (10 ) (11 ) (9 ) Income tax expense (0 ) - (0 ) - Net loss (14 )% (11 )% (12 )% (9 )%
Percentages are based on actual values. Totals may not sum due to rounding.
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Three and Six Months Ended June 30, 2020 Compared to the Three and Six Months
Ended June 30, 2019
Revenue
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Revenues:
Subscription $ 196,415 $ 155,876 $ 40,539 26 % $ 387,643 $ 300,102 $ 87,541 29 %
Professional services and other 7,193 7,379 (186 ) -3 % 14,932 14,951 (19 ) 0 %
Total revenue $ 203,608 $ 163,255 $ 40,353 25 % $ 402,575 $ 315,053 $ 87,522 28 %
Three month change
Subscription revenue increased during the three months ended June 30, 2020
compared to the same period in 2019 primarily due to the increase in Total
Customers, which grew from 64,836 as of June 30, 2019 to 86,672 as of June 30,
2020 . Total Average Subscription Revenue per Customer decreased from $9,913 for
the three months ended June 30, 2019 to $9,466 for the three months ended June
30, 2020 . The growth in Total Customers was primarily driven by our increased
sales representative capacity to meet market demand as well as the freemium
model. The decrease in average subscription revenue per customer was driven
primarily by the volume of continued purchases of our lower priced starter
products and downgrades as a result of the pandemic.
The 3% decrease in professional services and other revenue resulted primarily
from changes to our pricing structure in March, as well as fewer events and
classroom trainings being held due to social gathering restrictions and travel
bans caused by the pandemic.
Six month change
Subscription revenue increased during the six months ended June 30, 2020
compared to the same period in 2019 primarily due to the increase in Total
Customers, which grew from 64,836 as of June 30, 2019 to 86,672 as of June 30,
2020 . Total Average Subscription Revenue per Customer decreased from $9,871 for
the six months ended June 30, 2019 to $9,651 for the six months ended June 30,
2020 . The growth in Total Customers was primarily driven by our increased sales
representative capacity to meet market demand as well as the freemium model. The
decrease in average subscription revenue per customer was driven primarily by
the volume of continued purchases of our lower priced starter products and
downgrades as a result of the pandemic.
The slight decrease in professional services and other revenue resulted primarily from changes to our pricing structure in March, as well as fewer events and classroom trainings being held due to social gathering restrictions and travel bans caused by the pandemic.
Cost of Revenue, Gross Profit and Gross Margin Percentage
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Total cost of revenue $ 38,777 $ 31,142 $ 7,635 25 % $ 77,061 $ 60,720 $ 16,341 27 %
Gross profit $ 164,831 $ 132,113 $ 32,718 25 % $ 325,514 $ 254,333 $ 71,181 28 %
Gross margin percentage 81 % 81 % 81 % 81 %
Total cost of revenue for the three and six months ended June 30, 2020 increased
compared to the same period in 2019 primarily due to an increase in subscription
and hosting costs, amortization of capitalized software development costs,
employee-related costs, allocated overheard expenses, and amortization of
acquired technology. Gross margins remained consistent year-over-year.
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019
$ Change % Change 2020 2019 $ Change % Change
Subscription cost of revenue $ 30,400 $ 23,578 $ 6,822 29 % $ 60,135 $ 44,879 $ 15,256 34 %
Percentage of subscription revenue 15 % 15 % 16 % 15 %
27
-------------------------------------------------------------------------------- The increase in subscription cost of revenue for the three and six months endedJune 30, 2020 compared to the same period in 2019 was primarily due to the following: Change Three Months Six Months (in thousands) (in thousands) Subscription and hosting costs $ 5,386 $ 11,324 Amortization of capitalized software development costs 921 1,817 Employee-related costs 288 1,556 Allocated overhead expenses 148 400 Amortization of acquired technology 79 159 $ 6,822 $ 15,256 Three month change Subscription and hosting costs increased primarily due to growth in our Total Customer base from 64,836 as ofJune 30, 2019 to 86,672 as ofJune 30, 2020 . Additionally, we saw higher subscription and hosting costs as we focus on the security, reliability and performance of our Growth Platform. 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. Employee-related costs increased as a result of increased headcount as we continue to grow our customer support organization to support our customer growth and improve service levels and offerings, offset by reduced discretionary spending as a result of the pandemic. Allocated overhead expenses increased due to the expansion of our leased space and infrastructure as we continued to grow our business and expand headcount. Amortization of acquired technology increased due to acquired technology being placed into service during the fourth quarter of 2019. Six month change Subscription and hosting costs increased primarily due to growth in our Total Customer base from 64,836 as ofJune 30, 2019 to 86,672 as ofJune 30, 2020 . Additionally, we saw higher subscription and hosting costs as we focus on the security, reliability and performance of our Growth Platform. 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. Employee-related costs increased as a result of increased headcount as we continue to grow our customer support organization to support our customer growth and improve service levels and offerings, offset by reduced discretionary spending as a result of the pandemic. Allocated overhead expenses increased due to the expansion of our leased space and infrastructure as we continued to grow our business and expand headcount. Amortization of acquired technology increased due to acquired technology being placed into service during the fourth quarter of 2019. Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change Professional services and other cost of revenue$ 8,377 $ 7,564 $ 813 11 %$ 16,926 $ 15,841 $ 1,085 7 % Percentage of professional services and other revenue 116 % 103 % 113 % 106 %
The increase in professional services and other cost of revenue for the three
and six months ended
Change
Three Months Six Months
(in thousands) (in thousands)
Employee-related costs and allocated overhead expenses $ 813 $ 1,085
$ 813 $ 1,085
Three month change
28
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Employee-related costs and allocated overhead expenses increased as a result of increased headcount as we continue to grow our professional services organization to support our customer growth.
Six month change
Employee-related costs and allocated overhead expenses increased as a result of increased headcount as we continue to grow our professional services organization to support our customer growth.
Research and Development
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Research and development $ 49,372 $ 40,456 $ 8,916 22 % $ 95,573 $ 75,633 $ 19,940 26 %
Percentage of total revenue 24 % 25 % 24 % 24 %
The increase in research and development expense for the three and six months
ended June 30, 2020 compared to the same period in 2019 was primarily due to the
following:
Change
Three Months Six Months
(in thousands) (in thousands)Employee-related costs $ 6,809 $ 15,914 Allocated overhead expenses
2,107 4,026
$ 8,916 $ 19,940
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 Growth Platform, offset by reduced
discretionary spending as a result of the pandemic. Allocated overhead expense
increased due to expanding our leased space and infrastructure as we continue to
grow our business and expand headcount.
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 Growth Platform, offset by reduced
discretionary spending as a result of the pandemic. Allocated overhead expense
increased due to expanding our leased space and infrastructure as we continue to
grow our business and expand headcount.
Sales and Marketing
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Sales and marketing $ 102,600 $ 84,079 $ 18,521 22 % $ 204,928 $ 158,984 $ 45,944 29 %
Percentage of total revenue 50 % 52 % 51 % 50 %
29
-------------------------------------------------------------------------------- The increase in sales and marketing expense for the three and six months endedJune 30, 2020 , compared to the same period in 2019 was primarily due to the following: Change Three Months Six Months (in thousands) (in thousands) Employee-related costs$ 11,176 $ 28,878 Allocated overhead expenses 3,270 6,069 Solutions Partner commissions 3,032 7,230 Marketing programs 1,043 3,767$ 18,521 $ 45,944 Three month change Employee-related costs increased as a result of increased headcount as we continue to expand our selling and marketing organizations to grow our customer base, offset by reduced discretionary spending as a result of the pandemic. Allocated overhead expenses increased due to expanding our leased space and infrastructure as we continue to grow our business and expand headcount. Solutions Partner commissions increased as a result of increased revenue generated through our partners. Marketing programs increased due to the timing and size of certain marketing efforts as we continue to make investments in attracting new customers. Six month change Employee-related costs increased as a result of increased headcount as we continue to expand our selling and marketing organizations to grow our customer base, offset by reduced discretionary spending as a result of the pandemic. Allocated overhead expenses increased due to expanding our leased space and infrastructure as we continue to grow our business and expand headcount. Solutions Partner commissions increased as a result of increased revenue generated through our partners. Marketing programs increased due to the timing and size of certain marketing efforts as we continue to make investments in attracting new customers.
General and Administrative
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
General and administrative $ 26,484 $ 23,303 $ 3,181 14 % $ 52,741 $ 44,477 $ 8,264 19 %
Percentage of total revenue 13 % 14 % 13 % 14 %
The increase in general and administrative expense for the three and six months
ended June 30, 2020 compared to the same period in 2019 was primarily due to the
following:
Change
Three Months Six Months
(in thousands) (in thousands)
Allocated overhead expenses $ 1,831 $ 3,101
Employee-related costs 728 3,790
Customer credit card fees 622 1,373
$ 3,181 $ 8,264
Three month change
Allocated overhead expenses increased due to expanding our leased space and
infrastructure as we continue to grow our business and expand headcount.
Employee-related costs increased as a result of increased headcount as we
continue to grow our business and require additional personnel to support our
expanded operations, offset by reduced discretionary spending as a result of the
pandemic. Customer credit card fees increased due to increased customer
transactions as we continue to grow our business.
Six month change
30
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Allocated overhead expenses increased due to expanding our leased space and
infrastructure as we continue to grow our business and expand headcount.
Employee-related costs increased as a result of increased headcount as we
continue to grow our business and require additional personnel to support our
expanded operations, offset by reduced discretionary spending as a result of the
pandemic. Customer credit card fees increased due to increased customer
transactions as we continue to grow our business.
Other expense
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Interest income $ 2,135 $ 5,424 $ (3,289 ) (61 )% $ 6,192 $ 9,598 $ (3,406 ) (35) %
Percentage of total revenue 1 % 3 % 2 % 3 %
Interest expense $ (16,809 ) $ (5,673 ) $
(11,136 ) 196 %
103 %
Percentage of total revenue (8 )% (3 )% (6 )% (4 )%
Other expense $ (91 ) $ (672 ) $ 581 (86) % $ (1,143 ) $ (684 ) $ (459 ) 67 %
Percentage of total revenue * * * *
* not meaningful
Interest income primarily consists of interest earned on invested cash and cash
equivalents balances and investments. The decrease during three and six months
ended June 30, 2020 is due to a decrease in yields on our investment balances.
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 increase during the three
and six months ended June 30, 2020 was primarily due to the $10.5 million loss
on the early extinguishment of our 2022 Notes.
Other expense primarily consists of the impact of foreign currency transaction
gains and losses associated with monetary assets and liabilities. The increase
(decrease) during the three and six months ended June 30, 2020 was primarily due
to exchange rate fluctuations.
Income tax expense
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Income tax expense $ (1,011 ) $ (711 ) $ (300 ) 42 % $ (1,677 ) $ (1,424 ) $ (253 ) 18 %
Effective tax rate 4 % 4 % 4 % 5 %
Income tax expense consists of current and deferred taxes for
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, 2020 and 2019. Six Months Ended June 30, 2020 2019 (in thousands) Cash and cash equivalents$ 201,086 $ 238,080 Working capital 962,873 809,963 Net cash and cash equivalents (used in) provided by operating activities (10,679 )
51,413
Net cash and cash equivalents used in investing
activities (277,154 ) (273,153 )
Net cash and cash equivalents provided by
financing activities 213,577 350,426
31
-------------------------------------------------------------------------------- Our cash and cash equivalents atJune 30, 2020 were held for working capital purposes. AtJune 30, 2020 ,$51.3 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, including, but not limited to, the effects of the pandemic and other risks 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, 2020 , primarily reflected our net loss of$47.1 million , the portion of the repayment of the 2022 Notes attributable to the debt discount of$48.7 million and accretion of bond discounts of$3.5 million offset by non-cash expenses that included$17.7 million of depreciation and amortization,$58.8 million in stock-based compensation,$10.5 million of loss on early extinguishment of 2022 Notes and$11.7 million of amortization of debt discount and issuance costs. Working capital sources of cash and cash equivalents included a$7.1 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a$5.9 million decrease in accounts receivable related to increased collection, a$1.8 million increase in accounts payable related to timing of bill payments, a$13.4 million increase in right-of-use asset, and a$0.4 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a$20.4 million increase in prepaid expenses and other assets, a$12.3 million decrease in operating lease liabilities, and a$5.8 million increase in deferred commissions. Net cash and cash equivalents provided by operating activities during the six months endedJune 30, 2019 primarily reflected our net loss of$28.5 million and accretion of bond discounts of$6.8 million offset by non-cash expenses that included$14.0 million of depreciation and amortization,$49.9 million in stock-based compensation and$10.7 million of amortization of debt discount and issuance costs. Working capital sources of cash and cash equivalents included an$12.8 million increase in deferred revenue primarily resulting from the growth in the number of customers invoiced during the period, a$3.9 million decrease in accounts receivable related to increased collection, a$9.3 million increase in right-of-use asset, a$5.0 million increase in accounts payable related to timing of bill payments, and a$3.3 million increase in accrued expenses and other liabilities. These sources of cash and cash equivalents were offset by a$10.2 million decrease in lease liabilities, a$6.3 million increase in prepaid expenses and other assets, and a$5.5 million increase in deferred commissions
Our investing activities have consisted primarily of purchases, maturities and sale of investments, property and equipment purchases, 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, 2020 consisted primarily of$967.0 million purchases of investments,$19.9 million of purchased property and equipment,$1.0 million of purchases of strategic investments, and$10.2 million of capitalized software development costs. These uses of cash were offset by$710.0 million received related to the maturity of investments and$10.9 million received for sale of investments. Net cash and cash equivalents used in investing activities during the six months endedJune 30, 2019 consisted primarily of$597.8 million purchases of investments,$12.1 million of purchased property and equipment,$5.3 million of capitalized software development costs, and$0.4 million of purchases of strategic investments. These uses of cash were offset by$342.4 million received related to the maturity of investments. 32 --------------------------------------------------------------------------------
Our financing activities have consisted primarily of our stock offerings, the various components of our 2025 Notes offering, the various components of our 2022 Notes repayment, the issuance of our common stock under our stock plans, payments of employee taxes related to the net share settlement of stock-based awards, and repayments of our finance lease obligations. For the six months endedJune 30, 2020 cash provided by financing activities consisted of$450.6 million of net proceeds from the issuance of the 2025 Notes,$362.5 million of proceeds from the settlement of the Convertible Note Hedges related to the 2022 Notes, and$15.2 million of proceeds related to issuance of common stock under stock plans. This source of cash was offset by$234.4 million used for repayment of the 2022 Notes attributable to the principal,$327.5 million for payment to settle the Warrants related to the 2022 Notes,$50.6 million for payment of the Capped Call Options related to the 2025 Notes, and$2.2 million used for payment of employee taxes related to the net share settlement of stock-based awards. For the six months endedJune 30, 2019 , cash provided by financing activities consisted primarily of$342.6 million of net proceeds related to common stock offering and$10.7 million of proceeds related to issuance of common stock under stock plans. This source of cash was offset by$2.7 million used for payment of employee taxes related to the net share settlement of stock-based awards.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates during the six months endedJune 30, 2020 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Contractual Obligations and Commitments
As ofJune 30, 2020 , there were no material changes in our contractual obligations and commitments from those disclosed in the Annual Report on Form 10-K filed with theSEC onFebruary 12, 2020 , other than those 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
During the three months endedJune 30, 2020 we had no 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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