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, 2020 filed with theSEC onFebruary 16, 2021 . 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, CMS Hub, and Operations Hub (released inApril 2021 ) as well as other tools and integrations 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. In addition, the CRM Platform was built to easily and seamlessly integrate third party applications to further customize to an individual company's industry or needs. We designed and built our CRM Platform to serve a broad range of customers globally. 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 customerswho begin using our CRM Platform through our free products and then upgrade to our paid products. As ofJune 30, 2021 , we had 4,981 full-time employees and 121,048 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 CRM Platform and related professional services, which consist of customer on-boarding and training services. Subscription revenue accounted for 97% of our total revenue for the three months endedJune 30, 2021 , 96% of our total revenue for the six months endedJune 30, 2021 , and 96% of our total revenue for both the three and six months endedJune 30, 2020 . 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 and training services 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 3% of total revenue for the three months endedJune 30, 2021 , 4% of our total revenue for the six months endedJune 30, 2021 , and 4% of our total revenue for both the three and six months endedJune 30, 2020 . We expect professional services and other margins to range from a moderate loss to breakeven for the foreseeable future. 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, 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 increase our investment in sales and marketing as we continue to expand our sales teams, increase our marketing activities and grow 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 invest in maintaining 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 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 (the "pandemic"). This pandemic has had 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. Our focus remains on promoting employee health and safety, serving our customers, and ensuring business continuity. As we continue to reassess local restrictions across the globe and the administration of vaccine programs ramps up and cases decline, we are moving towards slowly re-opening some our offices on a staggered, region-to-region basis in accordance with local authority guidelines while ensuring 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. While the pandemic has not had a material adverse financial impact on our business to date, the broader implications of the pandemic on our results of operations and overall financial performance will depend on future developments and conditions. 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.
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
23
--------------------------------------------------------------------------------
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.
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenues:
Subscription $ 300,423 $ 196,415 $ 570,686 $ 387,643
Professional services and other 10,365 7,193 21,467 14,932
Total revenue 310,788 203,608 592,153 402,575
Cost of revenues:
Subscription 51,134 30,400 94,986 60,135
Professional services and other 11,743 8,377 22,625 16,926
Total cost of revenues 62,877 38,777 117,611 77,061
Gross profit 247,911 164,831 474,542 325,514
Operating expenses:
Research and development 72,104 49,372 140,500 95,573
Sales and marketing 157,799 102,600 298,817 204,928
General and administrative 34,610 26,484 66,860 52,741
Total operating expenses 264,513 178,456 506,177 353,242
Loss from operations (16,602 ) (13,625 ) (31,635 ) (27,728 )
Other expense:
Interest income 341 2,135 816 6,192
Interest expense (7,179 ) (16,809 ) (16,578 ) (22,761 )
Other income (expense) 528 (91 ) 1,188 (1,143 )
Total other expense (6,310 ) (14,765 ) (14,574 ) (17,712 )
Loss before income tax expense (22,912 ) (28,390 ) (46,209 ) (45,440 )
Income tax expense (1,660 ) (1,011 ) (1,522 ) (1,677 )
Net loss $ (24,572 ) $ (29,401 ) $ (47,731 ) $ (47,117 )
Net loss per share, basic and diluted $ (0.53 ) $ (0.67 ) $ (1.02 ) $ (1.08 )
Weighted average common shares used in
computing basic and diluted net loss
per share: 46,777 44,130 46,603 43,703
Three Months Six Months
Ended June 30, Ended June 30,
2021 2020 2021 2020
Revenue:
Subscription 97 % 96 % 96 % 96 %
Professional services and other 3 4 4 4
Total revenue 100 100 100 100
Cost of revenue:
Subscription 16 15 16 15
Professional services and other 4 4 4 4
Total cost of revenue 20 19 20 19
Gross profit 80 81 80 81
Operating expenses:
Research and development 23 24 24 24
Sales and marketing 51 50 50 51
General and administrative 11 13 11 13
Total operating expenses 85 88 85 88
Loss from operations (5 ) (7 ) (5 ) (7 )
Total other expense (2 ) (7 ) (2 ) (4 )
Loss before income tax expense (7 ) (14 ) (8 ) (11 )
Income tax expense (1 ) (0 ) (0 ) (0 )
Net loss (8 )% (14 )% (8 )% (12 )%
Percentages are based on actual values. Totals may not sum due to rounding.
24
--------------------------------------------------------------------------------
Three and Six Months Ended June 30, 2021 Compared to the Three and Six Months
Ended June 30, 2020
Revenue
Three Months Six Months
Ended June 30 , Ended June 30 ,(dollars in thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change Revenues: Subscription$ 300,423 $ 196,415 $ 104,008 53 %$ 570,686 $ 387,643 $ 183,043 47 %
Professional services and other 10,365 7,193 3,172
44 % 21,467 14,932 6,535 44 %
Total revenue $ 310,788 $ 203,608 $ 107,180 53 % $ 592,153 $ 402,575 $ 189,578 47 %
Three month change
Subscription revenue increased during the three months ended June 30, 2021
compared to the same period in 2020 primarily due to the increase in Total
Customers, which grew from 86,672 as of June 30, 2020 to 121,048 as of June 30,
2021 . Total Average Subscription Revenue per Customer increased from $9,466 for
the three months ended June 30, 2020 to $10,198 for the three months ended
June 30, 2021 . The growth in Total Customers was primarily driven by our
increased sales representative capacity to meet market demand as well as an
increase in demand primarily for our Professional and Enterprise products. The
increase in average subscription revenue per customer was primarily driven by an
increase in demand for our Professional and Enterprise products, product
upgrades by existing customers and impact from customer mix.
Professional services and other revenue increased during the three months ended
June 30, 2021 compared to the same period in 2020 resulted primarily from the
increase in Total Customers and from the delivery of on-boarding and training
services for the additional subscriptions sold, as well as fees earned on
revenue share arrangements with third parties.
Six month change
Subscription revenue increased during the six months ended June 30, 2021
compared to the same period in 2020 primarily due to the increase in Total
Customers, which grew from 86,672 as of June 30, 2020 to 121,048 as of June 30,
2021 . Total Average Subscription Revenue per Customer increased from $9,651 for
the six months ended June 30, 2020 to $10,111 for the six months ended June 30 ,
2021.The growth in Total Customers was primarily driven by our increased sales
representative capacity to meet market demand as well as an increase in demand
primarily for our Professional and Enterprise products. The increase in average
subscription revenue per customer was primarily driven by an increase in demand
for our Professional and Enterprise products, product upgrades by existing
customers and impact from customer mix.
Professional services and other revenue increased during the six months ended
June 30, 2021 compared to the same period in 2020 resulted primarily from the
increase in Total Customers and from the delivery of on-boarding and training
services for the additional subscriptions sold, as well as additional
advertising revenue generated from our acquisition of the Hustle, which is not
expected to recur, and fees earned on revenue share arrangements with third
parties.
Cost of Revenue, Gross Profit and Gross Margin Percentage
Three Months Six Months
Ended June 30 , Ended June 30 ,
(dollars in thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Total cost of revenue
62 % $ 117,611 $ 77,061 $ 40,550 53 %
Gross profit $ 247,911 $ 164,831 $ 83,080 50 % $ 474,542 $ 325,514 $ 149,028 46 %
Gross margin percentage 80 % 81 % 80 % 81 %
Total cost of revenue for the three and six months ended June 30, 2021 increased
compared to the same period in 2020 primarily due to an increase in subscription
and hosting costs, employee-related costs, amortization of capitalized software
development costs, allocated overhead expenses, offset by a decrease in
amortization of acquired technology due to certain acquired technology reaching
the end of its useful life during the third quarter of 2020. Gross margins
remained consistent year-over-year.
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in thousands) 2021 2020 $ Change
% Change 2021 2020 $ Change % Change
Subscription cost of revenue
68 % $ 94,986 $ 60,135 $ 34,851 58 %
Percentage of subscription revenue 17 % 15 % 17 % 16 %
25
-------------------------------------------------------------------------------- The increase in subscription cost of revenue for the three and six months endedJune 30, 2021 compared to the same period in 2020 was primarily due to the following: Change Three Months Six Months (in thousands) (in thousands) Subscription and hosting costs $ 15,015 $
24,918
Employee-related costs 4,168
7,265
Amortization of capitalized software development costs 1,752
3,221
Allocated overhead expenses 441
732
Amortization of acquired technology (642 ) (1,285 )
$ 20,734 $ 34,851
Three month change
Subscription and hosting costs increased primarily due to growth in our Total
Customer base from 86,672 as of June 30, 2020 to 121,048 as of June 30, 2021 .
Additionally, we saw higher subscription and hosting costs as we focus on the
security, reliability and performance of our CRM Platform. 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. 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 the expansion of our leased space
and infrastructure as we continued to grow our business and expand headcount.
Amortization of acquired technology decreased due to certain acquired technology
reaching the end of its useful life during the third quarter of 2020.
Six month change
Subscription and hosting costs increased primarily due to growth in our Total
Customer base from 86,672 as of June 30, 2020 to 121,048 as of June 30, 2021 .
Additionally, we saw higher subscription and hosting costs as we focus on the
security, reliability and performance of our CRM Platform. 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. 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 the expansion of our leased space
and infrastructure as we continued to grow our business and expand headcount.
Amortization of acquired technology decreased due to certain acquired technology
reaching the end of its useful life during the third quarter of 2020.
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change Professional services and other cost of
revenue$ 11,743 $ 8,377 $ 3,366 40 %$ 22,625 $ 16,926 $ 5,699 34 % Percentage of professional services and other revenue 113 % 116 % 105 % 113 % The increase in professional services and other cost of revenue for three and six months endedJune 30, 2021 compared to the same period in 2020 was primarily due to the following: Change Three Months Six Months (in thousands) (in thousands) Employee-related costs $ 2,464 $ 4,550 Allocated overhead expenses 902 1,149 $ 3,366 $ 5,699 Three month change Employee-related costs increased as a result of increased headcount as we continue to grow our professional services organization to support our customer growth. Allocated overhead expenses increased due to the expansion of our leased space and infrastructure as we continued to grow our business and expand headcount. 26
--------------------------------------------------------------------------------
Six month change
Employee-related costs increased as a result of increased headcount as we
continue to grow our professional services organization to support our customer
growth. Allocated overhead expenses increased due to the expansion of our leased
space and infrastructure as we continued to grow our business and expand
headcount.
Research and Development
Three Months Six Months
Ended June 30 , Ended June 30 ,
(dollars in thousands) 2021 2020 $ Change % Change 2021 2020 $ Change %
46 % $ 140,500 $ 95,573 $ 44,927 47 %
Percentage of total revenue 23 % 24 % 24 % 24 %
The increase in research and development expense for the three and six months
ended June 30, 2021 compared to the same period in 2020 was primarily due to the
following:
Change
Three Months Six Months
(in thousands) (in thousands)
Employee-related costs
2,563 4,808
Hosting expenses 1,879 4,391
$ 22,732 $ 44,927
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. Hosting expense
increased due to incremental spend associated with product development
infrastructure that is unrelated to the hosting of our CRM Platform for paying
customers. 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 CRM Platform. Hosting expense
increased due to incremental spend associated with product development
infrastructure that is unrelated to the hosting of our CRM Platform for paying
customers. 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 Six Months
Ended June 30, Ended June 30,(dollars in thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change Sales and marketing
$ 157,799 $ 102,600 $ 55,199 54 %$ 298,817 $ 204,928 $ 93,889 46 % Percentage of total revenue 51 % 50 % 50 % 51 % 27
-------------------------------------------------------------------------------- The increase in sales and marketing expense for the three and six months endedJune 30, 2021 compared to the same period in 2020 was primarily due to the following: Change Three Months Six Months (in thousands) (in thousands) Employee-related costs$ 33,715 $ 55,431 Marketing programs 10,102 18,650 Solutions Partner commissions 7,042
11,371
Allocated overhead expenses 4,258
8,269
Amortization of acquired intangible asset 82 168
$ 55,199 $ 93,889
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. Marketing programs increased due to the timing and size of certain
marketing efforts as we continue to make investments in attracting new
customers. Solutions Partner commissions increased as a result of increased
revenue generated through our partners. Allocated overhead expenses increased
due to expanding our leased space and infrastructure as we continue to grow our
business and expand headcount. Amortization of acquired intangible assets
increased due to the amortization of customer relationships associated with our
acquisition of the Hustle in the first quarter of 2021.
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. Marketing programs increased due to the timing and size of certain
marketing efforts as we continue to make investments in attracting new
customers. Solutions Partner commissions increased as a result of increased
revenue generated through our partners. Allocated overhead expenses increased
due to expanding our leased space and infrastructure as we continue to grow our
business and expand headcount. Amortization of acquired intangible assets
increased due to the amortization of customer relationships associated with our
acquisition of the Hustle in the first quarter of 2021.
General and Administrative
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
General and administrative
31 % $ 66,860 $ 52,741 $ 14,119 27 %
Percentage of total revenue 11 % 13 % 11 % 13 %
The increase in general and administrative expense for the three and six months
ended June 30, 2021 compared to the same period in 2020 was primarily due to the
following:
Change
Three Months Six Months
(in thousands) (in thousands)Employee-related costs $ 5,042 $ 6,913 Allocated overhead expenses
1,251 3,984
Customer credit card fees 1,833 3,222
$ 8,126 $ 14,119
Three month change
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. Allocated overhead expenses increased due to expanding our
leased space and infrastructure as we continue to grow our business and expand
headcount. Customer credit card fees increased due to increased customer
transactions as we continue to grow our business.
Six month change
28
--------------------------------------------------------------------------------
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. Allocated overhead expenses increased due to expanding our
leased space and infrastructure as we continue to grow our business and expand
headcount. Customer credit card fees increased due to increased customer
transactions as we continue to grow our business.
Other expense
Three Months Six Months
Ended June 30, Ended June 30,
(dollars in
thousands) 2021 2020 $ Change % Change 2021 2020 $ Change % Change
Interest income $ 341 $ 2,135 $ (1,794 ) (84 )% $ 816 $ 6,192 $ (5,376 ) (87 )%
Percentage of total
revenue * 1 % 0 % 2 %
Interest expense $ (7,179 ) $ (16,809 ) $ 9,630 (57 )% $ (16,578 ) $ (22,761 ) $ 6,183 (27 )%
Percentage of total
revenue (2 )% (8 )% (3 )% (6 )%
Other income
(expense) $ 528 $ (91 ) $ 619 680 % $ 1,188 $ (1,143 ) $ 2,331 204 %
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 the three and six
months ended
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 during the three and six months endedJune 30, 2021 is primarily due to the loss on the early extinguishment of our 2022 Notes of$10.5 million recorded in the three and six months endedJune 30, 2020 , offset by the amortization of the debt discount and issuance costs related to the 2025 Notes. Other income (expense) 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 other income during the three and six months endedJune 30, 2021 were primarily due to exchange rate fluctuations and a gain recorded on our strategic investments (Note 4). Income tax expense Three Months Six Months Ended June 30, Ended June 30, (dollars in thousands) 2021 2020 $ Change % Change
2021 2020 $ Change % Change
Income tax expense
64 % $ (1,522 ) $ (1,677 ) $ 155 (9 )%
Effective tax rate 7 % 4 % 3 % 4 %
Income tax expense consists of current and deferred taxes for U.S. and foreign
income taxes. The increase in the income tax expense in the three months ended
June 30, 2021 compared to the same period in 2020 was primarily driven by
increased income in jurisdictions outside of the United States that are
profitable from a tax perspective. The decrease in the six months ended June 30,
2021 compared to the same period in 2020 was primarily driven by a non-recurring
income tax benefit relating to the release of a portion of the Company's
valuation allowance, offset by increased income in jurisdictions outside of the
United States that are profitable from a tax perspective. 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-existing U.S. deferred tax assets.
29
--------------------------------------------------------------------------------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, 2021 and 2020. Six Months ended June 30, 2021 2020 (in thousands) Cash and cash equivalents$ 338,336 $ 201,086 Working capital 862,418 962,873 Net cash and cash equivalents provided by (used in) operating activities 100,891 (10,679 ) Net cash and cash equivalents used in investing activities (110,740 ) (277,154 ) Net cash and cash equivalents (used in) provided by financing activities (26,729 ) 213,577 Our cash and cash equivalents atJune 30, 2021 were held for working capital purposes. AtJune 30, 2021 ,$113.0 million of our cash and cash equivalents was held in accounts outsidethe United States . As ofDecember 31, 2018 , we no longer 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, 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. 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. 30
--------------------------------------------------------------------------------
Our investing activities have consisted primarily of purchases, maturities and sale of investments, property and equipment purchases, an acquisition of a business, purchases of strategic investments, an equity method 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, 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. 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.
Our financing activities have consisted primarily of the various components of our 2022 Notes repayment, the various components of our 2025 Notes offering, the issuance of 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, 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. 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.
Critical Accounting Policies and Estimates
There have been no significant changes in our critical accounting policies and estimates during the six months endedJune 30, 2021 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Contractual Obligations and Commitments
As ofJune 30, 2021 , 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 16, 2021 , 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
As ofJune 30, 2021 , we are committed to contribute additional capital of$9.4 million to theBlack Economic Development Fund (Note 5). 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. 31
--------------------------------------------------------------------------------
© Edgar Online, source
