INFORMATICA INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Report and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the year endedDecember 31, 2021 included in the Annual Report on Form 10-K for the year endedDecember 31, 2021 and filed with theSecurities and Exchange Commission (the "SEC") onMarch 24, 2022 . This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled "Risk Factors" and "Information Regarding Forward-Looking Statements" included elsewhere in this Report. Overview We have pioneered a new category of software, the Intelligent Data Management Cloud ("IDMC"). IDMC is our AI-powered platform that connects, manages, and unifies data across any multi-cloud, hybrid system, empowering enterprises to modernize and advance their data strategies. OnOctober 29, 2021 ,Informatica completed its initial public offering (the "IPO"), in which we issued and sold 29,000,000 shares of our Class A common stock at$29.00 per share. OnNovember 10, 2021 , we issued and sold an additional 4,350,000 shares of Class A common stock in connection with a full exercise of the underwriters' option to purchase additional shares granted in the IPO. We received net proceeds from the IPO of$915.7 million after deducting the underwriters' discounts and commission. We generate revenues from the sale of software products and related maintenance and professional services. Substantially all of our software revenue consists of fees generated through the sale of our subscription-based products and related support agreements for our subscription products. We have grown our subscription revenue to$197.7 million and$157.5 million for the three months endedMarch 31, 2022 and 2021, respectively. Over this period, our subscription revenue as a percentage of total software revenue was 99% and 94% for the three months endedMarch 31, 2022 and 2021, respectively. Our subscription products can be purchased individually as distinct product families or together as a tightly integrated platform to support complex data management needs and certain customer journeys. Our subscription products are sold through contracts primarily with a one-, two- or three-year term, with an average contract term slightly over two years as ofMarch 31, 2022 . Substantially all of our subscription customers pay us annual fees in advance at the start of each contract year. We recognize revenue from our cloud-based subscription products on a ratable basis over the contract term. We generally recognize the majority of the revenue from our subscription-based on-premises licenses at the start of the contract term. The remaining portion of on-premises subscription fees attributable to related support services are generally recognized on a ratable basis over the contract term. We generate additional software revenue from the sale of perpetual licenses. Consistent with our business transformation strategy and focus on subscription revenue, our perpetual license revenue has decreased substantially. The perpetual license revenue as a percentage of total software revenue was 1% and 6% for the three months endedMarch 31, 2022 and 2021, respectively. Our maintenance and professional services revenues consist of recurring maintenance fees related to perpetual licenses and one-time professional services fees, respectively. Our recurring maintenance fees grant our customers access to software updates and support for our perpetual license products. We recognized$161.9 million and$167.0 million during the three months endedMarch 31, 2022 and 2021, respectively.
We generate professional services revenues through one-time fees associated with implementation, education, and consulting services related to our software products.
We market and sell our subscription products primarily through our global direct
sales team, which is enhanced by our relationships and collaboration with our
partners that include global system integrators such as
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Deloitte and Accenture, hyperscale cloud platform providers such as AWS,
Microsoft Azure and Google Cloud Platform, and channel partners. Our sales
organization consists of sales development, inside sales, and field sales
personnel and is generally organized by region, the size of customers and
prospective customers and certain industry verticals. Cloud hyperscalers help us
amplify our commercial reach when we jointly engage in cloud modernization
efforts or when customers purchase our products via the hyperscaler product
marketplaces. In addition, our global system integrator partners provide
implementation services for our products for customers as part of their support
of broader, overall cloud modernization initiatives.
Historically, we have focused our selling efforts on executives such as chief
information officers ("CIOs") and chief data officers ("CDOs") who are often
making decisions to purchase our products for their most important business
initiatives. CIOs adopt our platform as part of their cloud migration journey,
application modernization efforts, and business 360 initiatives. CDOs purchase
our products as part of their overall data governance, access, and security
strategies in order to democratize data access for everyone across the company.
We are expanding our go-to-market efforts to focus more on departmental line of
business customers.
We employ a "land and expand" model to increase sales to our existing customer
base. Once customers have purchased one of our products-for example, Data
Integration-they often identify additional use cases for our software and expand
their use of our products accordingly. For example, as a customer seeks to
expand the distribution of data-centric reports powered by our data integration
solutions to a broader set of internal or external users, enhanced levels of
data quality and control may be required, prompting the purchase of our Data
Quality and Data Governance families of products. We also market our cloud
products to our large installed base of perpetual license customers, enabling
them to advance their cloud modernization efforts to migrate existing processes
and net new workloads from costly-to-maintain internal IT infrastructure to
lower-cost elastic cloud architecture. In 2020, we also introduced a new
consumption-based pricing model to provide customers greater flexibility
regarding trial, use and consumption of a broad array of our cloud-based
services. The effectiveness of our land and expand strategy is evidenced by our
Subscription Net Retention Rate ("NRR"), which was 113% and 115% for the three
months ended March 31, 2022 and 2021, respectively.
As of March 31, 2022 , we had approximately 5,700 customers1 in a wide variety of
industries located in approximately 100 countries and territories. Approximately
67% and 67% of our total revenues for the three months ended March 31, 2022 and
2021, respectively, were from our North America region, which we define as the
United States and Canada .
Purchasing patterns for our products have followed quarterly and seasonal trends
that we expect to continue. We typically sell a substantial portion of our
software product licenses and services in the last month of each quarter, and
demand for our software products and professional services are generally highest
in the fourth quarter and lowest in the first quarter of each year.
Factors Affecting Our Performance
We believe that the growth of our business and our future success are dependent
upon many factors, including those described below. While each of these factors
presents significant opportunities for us, these factors also pose important
challenges that we must successfully address in order to sustain the growth of
our business and improve our results of operations.
Continued Adoption of our Subscription Products. Our success will largely
depend on customers' continued uptake of our subscription offerings. Our success
will also largely depend on the value businesses place on data management as
part of their overall digital transformation initiatives and the timing and
willingness of businesses to move their data and workloads to the cloud. As
companies from all industries continue to shift to subscription and cloud-based
services, we believe demand for our platform and subscription-based products
will increase. Total Subscription ARR was $849 million and $643 million as of
March 31, 2022 and 2021, respectively, representing growth of 32%. At March 31,
2022 , Subscription ARR represented 61% of total ARR. Cloud ARR (which is the
total ARR derived from hosting products) represented 40% and 25% of Subscription
ARR and total ARR, respectively, during that period. At March 31, 2021 ,
Subscription ARR
1 We compute the number of customers by assessing when we have a subscription
contract or perpetual license maintenance contract sold to a unique entity. If
we sell to several different divisions, segments or subsidiaries inside a
company, we count each division, segment or subsidiary as a separate customer.
If a customer has both a maintenance contract and a subscription contract, we
count this as a single customer.
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represented 54% of total ARR. Cloud ARR represented 37% and 20% of Subscription ARR and total ARR, respectively. AtMarch 31, 2022 , our$849 million of Subscription ARR was comprised of$343 million in Cloud ARR,$129 million in PowerCenter-related product ARR and$377 million in ARR from non-PowerCenter self-managed products. Cloud ARR grew at a rate of 43% for the period endedMarch 31, 2022 compared toMarch 31, 2021 . Many of our new subscription products were architected to be deployed in the cloud, and we intend to make the remainder of our subscription products available in the cloud to meet the demands of our customers. In addition, we assist our customers with migrations of theirInformatica on-premises data integration and MDM installations to our corresponding cloud solutions. For the period starting in our fourth fiscal quarter of 2020 and endedMarch 31, 2022 , we have entered into agreements to migrate a total of approximately$12.2 million of maintenance ARR, which has converted into approximately$25 million in Cloud ARR. Our future growth will depend in part on our ability to develop new market-leading cloud products to expand the offerings in our platform. New Customer Acquisition. Our future growth depends on our ability to acquire new customers. Our ability to acquire new customers is demonstrated by the fact that 55% of our subscription customers as ofMarch 31, 2022 did not have a prior maintenance contract with us. In addition, our ability to attract new customers will depend in part on our ability to continue to compete effectively against a variety of different vendors who offer existing data management products, as well as our ability to convert companies into paying customers who are using hand-coded, custom-built solutions. Additionally, we will continue to rely on our sales and marketing team to effectively and efficiently identify and engage with prospective customers, increase brand awareness, and drive adoption of our products. We have recently added a dedicated inside sales team to our go-to-market strategy that is focused on growing adoption of our products by targeting key business personnel adjacent to technical roles, as well as small- and mid-market organizations, which represents a new addressable customer base for us. We will continue to make investments in sales and marketing to grow our total customer base, with a focus on targeting these new buyers. Expansion Within our Customer Base. Our business depends, in part, on our ability to expand within our large existing customer base by adding new products, addressing cloud modernization initiatives, and growing with our customers' overall data footprint. We have successfully expanded our existing customers' adoption of our platform through upselling and cross-selling, as evidenced by our Subscription NRR, which was 113% and 115% for the three months endedMarch 31, 2022 and 2021, respectively. We increased the average Subscription ARR per subscription customer fromMarch 31, 2021 toMarch 31, 2022 , from$193 thousand to$231 thousand , respectively. We continuously focus on increasing the value our customers derive from our platform and often become a strategic vendor to them in the process. For example, asMarch 31, 2022 and 2021, we had 164 and 109 customers individually with over$1 million in Subscription ARR each, respectively. Retention of Existing Customers. Our business also depends, in part, on our ability to retain our existing customer base. We typically enjoy a high customer renewal rate, which we attribute to the fact that our products are embedded in mission-critical applications, as well as the fact that we have an expansive product portfolio and world-class customer success organization. For example, for the three months endedMarch 31, 2022 and 2021, our subscription renewal rate was 93% and 92%, respectively, and our maintenance renewal rate was 96% and 96%, respectively. We intend to continue investing in our products and customer success organization to maintain these compelling retention rates. Investment in Go-to-Market Efforts. Our business and results of operations will also be significantly affected by our success in strengthening our relationships with strategic partners, including cloud hyperscalers, including AWS, Google Cloud Platform, Microsoft Azure, cloud partners such as Snowflake andDatabricks , global system integrators, including Deloitte, Accenture and Cognizant, and value-added resellers and distributors. We believe further developing these key strategic relationships will help us scale and enhance co-selling of our products and services with these partners. We plan to continue to strengthen and expand our network of strategic partners to increase sales to both new and existing customers and offer new and existing products on partner marketplaces. We believe that investing in sales enablement and co-selling efforts with our strategic partners will broaden our distribution footprint globally and extend and improve our engagement with a broad set of prospective customers. 31
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Key Business Metrics and Non-GAAP Financial Measure
We review a number of operating and financial metrics, including the following
unaudited key business metrics and non-GAAP financial measure to evaluate our
business, measure our performance, identify trends affecting our business,
formulate business plans, and make strategic decisions.
March 31,
2022 2021
(in thousands, except percentages)
Total Annual Recurring Revenue $ 1,397,028 $ 1,194,906
Maintenance Annual Recurring Revenue $ 547,953 $ 551,492
Subscription Annual Recurring Revenue $ 849,075 $ 643,414
Cloud Annual Recurring Revenue $ 343,482 $ 239,687
Subscription Net Retention Rate 113 % 115 %
Adjusted EBITDA (Non-GAAP) $ 89,119 $ 89,352
Key Business Metrics
Annual Recurring Revenue
Annual Recurring Revenue ("ARR") represents the expected annual billing amounts
from all active maintenance and subscription agreements. ARR is calculated based
on the contract Monthly Recurring Revenue ("MRR") multiplied by 12. MRR is
calculated based on the accounting adjusted total contract value divided by the
number of months of the agreement based on the start and end dates of each
contracted line item. The aggregate ARR calculated at the end of each reported
period represents the value of all contracts that are active as of the end of
the period, including those contracts that have expired but are still under
negotiation for renewal. We typically allow for a grace period of up to 6 months
past the original contract expiration quarter during which we engage in the
renewal process before we report the contract as lost /inactive. This
grace-period ARR amount has been less than 2% of the reported ARR in each period
presented. If there is an actual cancellation of an ARR contract, we remove that
ARR value at that time.
We believe ARR is an important metric for understanding our business since it
tracks the annualized cash value collected over a 12-month period for all our
recurring contracts, irrespective of whether it is a maintenance contract on a
perpetual license, a ratable cloud contract, or an on-premises term-based
subscription license.
Maintenance Annual Recurring Revenue
Maintenance Annual Recurring Revenue represents the portion of ARR only attributable to our maintenance contracts.
We believe that Maintenance ARR is a helpful metric for understanding our business since it represents the approximate annualized cash value collected over a 12-month period for all our maintenance contracts. Maintenance ARR includes maintenance contracts supporting our on-premises perpetual licenses. Maintenance ARR should be viewed independently of maintenance revenue and deferred revenue related to our maintenance contracts and is not intended to be combined with or to replace either of those items.
Subscription Annual Recurring Revenue
Subscription ARR represents the portion of ARR only attributable to our subscription contracts.
We believe that Subscription ARR is a helpful metric for understanding our
business since it represents the approximate annualized cash value collected
over a 12-month period for all our recurring subscription contracts.
Subscription ARR excludes maintenance contracts on our perpetual licenses to
provide information regarding the period-to-period performance and overall size
and scale of our subscription business as we continue to focus our efforts on
subscription-based licensing. Subscription ARR should be viewed independently of
subscription revenue and deferred revenue related to our subscription contracts
and is not intended to be combined with or to replace either of those items.
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Cloud Annual Recurring Revenue
Cloud ARR represents the portion of ARR that is attributable to our hosted cloud contracts.
We believe that Cloud ARR is a helpful metric for understanding our business since it represents the approximate annualized cash value collected over a 12-month period for all our recurring Cloud contracts. Cloud ARR is a subset of our overall Subscription ARR, and by providing this breakdown of Cloud ARR, it provides visibility on the size and growth rate of our Cloud ARR within our overall Subscription ARR. Cloud ARR should be viewed independently of subscription revenue and deferred revenue related to our subscription contracts and is not intended to be combined with or to replace either of those items.
Subscription Net Retention Rate
Subscription NRR compares the contract value for Subscription ARR from the same set of customers at the end of a period compared to the prior year. We treat divisions, segments or subsidiaries inside companies as separate customers. To calculate our Subscription NRR for a particular period, we first establish the Subscription ARR value at the end of the prior year period. We subsequently measure the Subscription ARR value at the end of the current period from the same cohort of customers. The net retention rate is then calculated by dividing the aggregate Subscription ARR in the current period by the prior year period. An increase in the Subscription NRR occurs as a result of price increases on existing contracts, higher consumption of existing products, and sales of additional new subscription products to existing customers exceeding losses from subscription contracts due to cancellations. We believe Subscription NRR is an important metric for understanding our business since it measures the rate at which we are able to sell additional products into our subscription customer base. Non-GAAP Financial Measure In addition to our results determined in accordance with generally accepted accounting principles inthe United States ("GAAP"), we believe the following non-GAAP measure is useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as tools for comparison. A reconciliation is provided below for our non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure, and not to rely on any single financial measure to evaluate our business. 33
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Adjusted EBITDA
We define adjusted EBITDA as GAAP net loss as adjusted for income tax expense,
interest income, interest expense, other income (expense), net, stock-based
compensation, amortization of intangibles, equity compensation, one-time fees
related to acquisitions, restructuring costs, sponsor-related costs and
depreciation.
Three Months Ended March 31,
2022 2021
(in thousands)
GAAP net loss $ (3,186) $ (1,995)
Income tax expense 1,185 811
Interest income (366) (280)
Interest expense 12,825 35,799
Other income, net (4,220) (16,325)
Stock-based compensation 29,275 2,577
Amortization of intangibles 47,798 61,825
Equity compensation 83 (238)
Restructuring, acquisition and other charges - 333
Sponsor-related costs - 500
Depreciation 5,725 6,345
Adjusted EBITDA $ 89,119 $ 89,352 We believe adjusted EBITDA is an important metric for understanding our business to assess our relative profitability adjusted for balance sheet debt levels.
COVID-19 Pandemic
The COVID-19 pandemic has impacted worldwide economic activity and financial markets and significantly increased economic volatility and uncertainty, which may continue to directly or indirectly impact our business, results of operations, and financial condition as a result of governmental restrictions and other measures to mitigate the spread of COVID-19. In 2021, the COVID-19 pandemic contributed to decreases in certain of our operating expenses, particularly in our travel and entertainment expenses and event spending. We expect these expenses to increase as the COVID-19 pandemic subsides but that they will remain lower than they were before the COVID-19 pandemic, as we expect certain sales and marketing efforts and events will be increasingly virtual going forward. The effects of the COVID-19 pandemic also had an adverse impact on revenues, which was partially offset by the savings in travel and entertainment expenses. While the duration and extent of the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment actions, it has already had an adverse effect on the global economy and the ultimate societal and economic impact of the COVID-19 pandemic remains unknown. In particular, the ongoing conditions caused by this pandemic may affect the rate of global information technology spending and could adversely affect our business during 2022 or future periods by lengthening our sales cycles. Additionally, the COVID-19 pandemic may continue to impact our operations outsidethe United States even if local containment efforts are successful. Refer to the section titled "Risk Factors" for further discussion of the possible impact of the COVID-19 pandemic on our business. Components of Results of Operations Software Revenues Subscription Revenues. Subscription revenues consist of revenues from customers under subscription cloud services, subscription-based on-premises licenses, and related support services. Revenues from our cloud-based subscription products are recognized over time on a ratable basis over the contract term beginning on the date that the service is made available to the customer or on the date the contractual term commences, if later. The majority of the revenues from our subscription-based on-premises licenses is recognized at a point in 34
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time upon transfer of control of the license to the customer, similar to perpetual licenses. Support services sold with subscription-based on-premises licenses are recognized over time on a ratable basis over the contract term beginning on the date the service is made available to the customer. In general, subscription contracts are one to three years in length, with an average contract duration slightly greater than two years in 2022, and the related fees are typically billed annually in advance in equal installments across the term of the contracts. Perpetual License Revenues. Perpetual license revenues are revenues from customers and partners for sales of our software under on-premises perpetual licenses. Revenue from our perpetual license products is generally recognized at a point in time upon transfer of control of the license to the customer, which is typically upon making the software available to our customers. We expect revenue from perpetual licenses to be less than 2% of total revenues going forward, as we focus the majority of our product development spending on pure cloud products and our go-to-market efforts on subscription-based licensing for software sales. While we continue to offer our perpetual licenses to select customers and geographies, we disincentivize our sales force from selling our perpetual licenses in favor of our subscription-based offerings.
Service Revenues
Maintenance Revenues. Maintenance revenue, which consists of fees for ongoing support and product updates for our perpetual licenses, is recognized ratably over the term of the contract, typically one year. Maintenance contracts are generally billed annually in advance. We expect our maintenance revenues to gradually decrease over time as our customers transition to our subscription-based licensing model and adopt our cloud-based products. Professional Services Revenues. Professional services revenues consist of one-time fees associated with implementation, education, and consulting services related to our software products. Consulting revenues are primarily related to configuration, installation, and implementation of our products. These services are generally performed on a time-and-materials basis and, accordingly, revenues are recognized as the services are performed. Consulting services, if included as part of the software arrangement, generally do not entail significant modification or customization of the software and hence, such services are not considered essential to the functionality of the software. Education service revenues are generated from classes offered at our headquarters, sales and training offices, customer locations, and on-line. Revenues are recognized as the classes are delivered or when the subscription period ends. Cost of Revenues Cost of Software Revenues. Our cost of software revenues is a combination of costs of subscription revenues and perpetual licenses. Cost of subscription revenues consists primarily of fees paid to third party vendors for hosting services related to our subscription services, internal personnel-related expenses to operate and secure our hosting infrastructure, and royalties paid to postal authorities for address data and other vendors that provide content for our data-as-a-service offerings. In addition, these expenses include costs which are personnel-related expenses from our IT, Facilities and Procurement functions and expenses related to occupancy and enterprise systems allocated based on headcount (Shared Costs). Cost of perpetual license revenues consists primarily of software royalties payable to third parties. Cost of Maintenance and Professional Services Revenues. Our cost of service revenues is a combination of costs of maintenance, consulting and education services revenues. Our cost of maintenance revenues consists primarily of costs associated with customer service personnel-related expenses including stock-based compensation and royalty fees for maintenance related to third-party software providers. Cost of consulting revenues consists primarily of personnel-related expenses, including employee costs, stock-based compensation, subcontractor costs and travel, entertainment, Shared Costs, and other expenses. Cost of education services revenues consists primarily of the costs of providing education classes and materials at our headquarters, sales and training offices and customer locations. Amortization of Acquired Technology. Amortization of acquired technology is the amortization of technologies recorded primarily as a result of the 2015 transaction whereInformatica was taken private by our Sponsors (the "2015 Privatization Transaction") and, to a lesser extent, from business acquisitions and acquired technology licenses. 35
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Table of Contents Operating Expenses Research and Development Our research and development expenses consist primarily of salaries and other personnel-related expenses, including stock-based compensation as well as consulting services, travel expenses, Shared Costs, other expenses, software expenses associated with the development of new products, enhancement and localization of existing products, and quality assurance and development of documentation for our products. All software development costs for software intended to be marketed to customers have been expensed in the period incurred since the costs incurred subsequent to the establishment of technological feasibility have not been significant. We believe that continued investment in our products is important for our growth and, as such, expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future, but are expected to be relatively consistent as a percentage of revenue. Sales and Marketing Our sales and marketing expenses consist primarily of personnel-related expenses, including commissions, stock-based compensation and bonuses, as well as costs of public relations, seminars, marketing programs, lead generation, travel and entertainment, trade shows, software expenses, outside services and Shared Costs. Although we shifted our go-to-market strategy within APAC and EMEA in 2020, reducing our direct sales headcount to align with local channel partners for distribution, we expect to make significant investments going forward as we expand our customer acquisition and retention efforts, and to support the growth of our subscription products, and therefore expect sales and marketing expense to increase in absolute dollars but may vary as a percentage of revenue for the foreseeable future.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related expenses (including stock-based compensation) for finance, human resources, legal, and general management, as well as professional service expenses associated with recruiting, legal, tax and accounting services, travel expenses, Shared Costs and other expenses. We expect to incur ongoing costs as a result of operating as a public company, including costs related to compliance and reporting obligations of public companies, and increased costs for insurance, investor relations, and professional services. As a result, we expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future but may vary as a percentage of revenue.
Restructuring, Acquisition, and Other Charges
Restructuring, Acquisition, and Other Charges consist of amortization of intangible assets, acquisition, other charges and restructuring charges. Amortization of intangible assets is the amortization of customer relationships, and trade names and trademarks recorded as a result of the 2015 Privatization Transaction and, to a lesser extent, acquired through business acquisitions. Restructuring, acquisition, and other charges relate to the costs incurred on acquisitions made by the Company. The restructuring charges relate to our reorganization activities related to our workforce and from the closing of certain facilities.
Interest and Other Income (Expense), Net
Interest and other income (expense), net consists primarily of interest expense,
interest income earned on our cash, cash equivalents, short-term
investments, mark-to-market gains and losses on interest rate swaps, unrealized
gain and loss on euro term loans, foreign exchange transaction gains and losses
and rental income.
Income Taxes
We use the liability method of accounting for income taxes in accordance with
ASC 740, Income Taxes. Under this method, income tax expense or benefit is
recognized for the amount of taxes payable or refundable for the current year.
In addition, deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been recognized in the Company's
condensed consolidated financial statements or tax returns. The measurement of
current and deferred tax assets and liabilities is based on
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provisions of currently enacted tax laws. We evaluate the realization of
deferred tax assets based on all available evidence and establish a valuation
allowance to reduce deferred tax assets when it is more likely than not that
they will not be realized.
Results of Operations
The following table sets forth our condensed consolidated statement of operations data for the periods indicated (in thousands):
Three Months Ended March 31,
2022 2021
Revenues:
Subscriptions $ 197,747 $ 157,542
Perpetual license 2,672 9,216
Software revenue 200,419 166,758
Maintenance and professional services 161,928 166,955
Total revenues 362,347 333,713
Cost of revenues:
Subscriptions 24,704 18,309
Perpetual license 153 1,027
Software costs 24,857 19,336
Maintenance and professional services 49,805 39,494
Amortization of acquired technology 9,137 18,599 Total cost of revenues 83,799 77,429 Gross profit 278,548 256,284 Operating expenses: Research and development 75,123 59,904 Sales and marketing 128,952 108,526 General and administrative 29,574 26,285 Amortization of intangible assets 38,661
43,226
Restructuring, acquisition and other charges - 333 Total operating expenses 272,310 238,274 Income from operations 6,238 18,010 Interest income 366 280 Interest expense (12,825) (35,799) Other income, net 4,220 16,325 Loss before income taxes (2,001) (1,184) Income tax expense 1,185 811 Net loss$ (3,186) $ (1,995) 37
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The following table presents certain financial data for the periods indicated as a percentage of total revenues:
Three Months Ended March 31,
2022 2021
Revenues:
Subscriptions 55 % 47 %
Perpetual license 1 3
Software revenue 55 50
Maintenance and professional services 45 50
Total revenues 100 100
Cost of revenues:
Subscriptions 7 5
Perpetual license - -
Software costs 7 6
Maintenance and professional services 13 11
Amortization of acquired technology 3 6 Total cost of revenues 23 23 Gross profit 77 77 Operating expenses: - Research and development 21 18 Sales and marketing 36 33 General and administrative 8 8 Amortization of intangible assets 11
13
Restructuring, acquisition and other charges - - Total operating expenses 75 72 Income from operations 2 5 Interest income - - Interest expense (4) (11) Loss on debt refinancing - - Other income, net 1 5 Loss before income taxes (1) - Income tax expense - - Net loss (1) (1) Revenues
The following table sets forth, for the periods indicated, our revenues (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Subscriptions $ 197,747 $ 157,542 26 %
Perpetual license 2,672 9,216 (71) %
Total software revenues 200,419 166,758 20 %
Maintenance 132,477 142,371 (7) %
Professional services 29,451 24,584 20 %
Total maintenance and professional services revenues 161,928 166,955 (3) %
Total revenues $ 362,347 $ 333,713 9 %
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Total revenues increased by 9% to$362.3 million during the three months endedMarch 31, 2022 compared to$333.7 million for the three months endedMarch 31, 2021 , primarily due to a 20% increase in software revenues, which represent 55% of total revenues. Software Revenues Our subscription revenues increased to$197.7 million (or 55% of total revenues) for the three months endedMarch 31, 2022 compared to$157.5 million (or 47% of total revenues) for the three months endedMarch 31, 2021 . The increase of$40.2 million (or 26%) in subscription revenues for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due to an increase in our subscription customers and continued expansion within existing customers.
We expect the mix of subscription revenues as compared to total software revenues to continue to increase from prior year levels due to our prioritization of subscription revenues, growing installed customer base, a large number of multi-year subscription sales, and an anticipated increase in demand for subscription offerings.
Our perpetual license revenues decreased to$2.7 million (or 1% of total revenues) for the three months endedMarch 31, 2022 from$9.2 million (or 3% of total revenues) for the three months endedMarch 31, 2021 . The decrease in perpetual license revenues of$6.5 million (or 71%) for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due to a decrease in number of transactions and average transaction price of our software under perpetual licenses as we have focused our sales efforts on our subscription offerings and expanded our cloud business.
We expect perpetual license revenues and the mix of perpetual license revenues as compared to total software revenues to continue to decrease in future periods.
Maintenance and Professional Services Revenues
Maintenance revenues decreased to$132.5 million (or 37% of total revenues) for the three months endedMarch 31, 2022 from$142.4 million (or 43% of total revenues) for the three months endedMarch 31, 2021 . Maintenance revenues decreased for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 due to non-renewals, declining sales of perpetual licenses and an unfavorable foreign currency impact of$2.9 million offset by maintenance on new perpetual license sales and uplifts upon renewal. We expect maintenance revenues to continue to decrease gradually in dollar value and as a percentage of total revenue due to the continued lower expected sales of new perpetual licenses as we sell a greater mix of new cloud and other subscription-based offerings. Professional services revenues increased to$29.5 million (or 8% of total revenues) for the three months endedMarch 31, 2022 compared to$24.6 million (or 7% of total revenues) for the three months endedMarch 31, 2021 . The increase of$4.9 million (or 20%) in professional services revenues for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily driven by the increase in the demand for our consulting and education offerings. 39
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Cost of Revenues
The following table sets forth, for the periods indicated, our cost of revenues (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Cost of software revenues $ 24,857 $ 19,336 29 %
Cost of maintenance and professional service revenues 49,805
39,494 26 %
Amortization of acquired technology 9,137 18,599 (51) %
Total cost of revenues $ 83,799 $ 77,429 8 %
Cost of software revenues, as a percentage of
software revenues 12 % 12 %
Cost of maintenance and professional services
revenues, as a percentage of maintenance and
professional service revenues 31 % 24 %
Cost of Software Revenues
Cost of software revenues increased to $24.8 million (or 12% of software
revenues) for the three months ended March 31, 2022 compared to $19.3 million
(or 12% of software revenues) for the three months ended March 31, 2021 . The
increase of $5.5 million (or 29%) for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 was primarily due to a $2.2
million increase in fees paid to third party vendors for hosting services
related to our subscription services, a $1.7 million increase in
personnel-related expenses to operate and secure our hosting infrastructure, a
$1.2 million increase in royalties paid to vendors, and a $0.4 million increase
in Shared Costs.
Cost of Maintenance and Professional Services Revenues
Cost of maintenance and professional services revenues increased to$49.8 million (or 31% of maintenance and professional services revenues) during the three months endedMarch 31, 2022 compared to$39.5 million (or 24% of maintenance and professional services revenues) during the three months endedMarch 31, 2021 . The increase of$10.3 million (or 26%) during the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to a$7.7 million increase in personnel-related expenses (including stock-based compensation of$4.3 million ) mainly driven by an increase in headcount and higher stock-based compensation expense primarily due to the vesting of certain performance-based options on the completion of the IPO and the issuance of new restricted stock units, performance restricted stock units and common stock under the ESPP starting in the fourth quarter of 2021, a$1.6 million increase in outside services, and a$1.4 million increase in Shared Costs, partially offset by a$0.4 million decrease in other expenses.
Amortization of Acquired Technology
Amortization of acquired technology decreased to$9.1 million (or 3% of total revenues) for the three months endedMarch 31, 2022 from$18.6 million (or 6% of total revenues) for the three months endedMarch 31, 2021 . The decrease of$9.4 million (or 51%) for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was due to a decrease in the amortization of acquired technology primarily from the 2015 Privatization Transaction, as some components of the technology become fully amortized. 40
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Table of Contents Operating Expenses Research and Development
The following table sets forth, for the periods indicated, our research and development expenses (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Research and development $ 75,123 $ 59,904 25 %
Research and development expenses increased to $75.1 million (or 21% of total
revenues) for the three months ended March 31, 2022 compared to $59.9 million
(or 18% of total revenues) for the three months ended March 31, 2021 . The
increase of $15.2 million (or 25%) during the three months ended March 31, 2022
compared to the three months ended March 31, 2021 was primarily due to $13.4
million increase in salaries and other personnel-related expenses (including
stock-based compensation of $8.6 million ) mainly driven by an increase in
headcount and higher stock-based compensation expense primarily due to the
vesting of certain performance-based options on the completion of the IPO and
the issuance of new restricted stock units, performance restricted stock units
and common stock under the ESPP starting in the fourth quarter of 2021, a $1.4
million increase in Shared Costs and a $0.4 million increase in other expenses.
Sales and Marketing
The following table sets forth, for the periods indicated, our sales and marketing expenses (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Sales and marketing $ 128,952 $ 108,526 19 %
Sales and marketing expenses increased to $129.0 million (or 36% of total
revenues) during the three months ended March 31, 2022 compared to $108.6
million (or 33% of total revenues) during the three months ended March 31, 2021 .
The increase of $20.4 million (or 19%) for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 was primarily due to a $15.3
million increase in personnel-related expenses (including stock-based
compensation of $6.7 million ) mainly driven by an increase in headcount and
commissions expense. The higher stock-based compensation expense was primarily
due to the vesting of certain performance-based options on the completion of the
IPO and the issuance of new restricted stock units, performance restricted stock
units and common stock under the ESPP starting in the fourth quarter of 2021, a
$2.2 million increase in Shared Costs, a $1.8 million increase in marketing
related expenses, and a $1.1 million increase in travel expense due to
pandemic-related travel restrictions being lifted.
General and Administrative
The following table sets forth, for the periods indicated, our general and administrative expenses (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
General and administrative $ 29,574 $ 26,285 13 %
General and administrative expenses increased to $29.6 million (or 8% of total
revenues) during the three months ended March 31, 2022 compared to $26.3 million
(or 8% of total revenues) during the three months ended March 31, 2021 . The
increase of $3.3 million (or 13%) for the three months ended March 31, 2022
compared to the three months ended March 31, 2021 was primarily due to $9.0
million increase in personnel-related expenses (including stock-based
compensation of $7.0 million ) mainly driven by an increase in headcount and
higher stock-based compensation expense primarily due to the vesting of certain
performance-based options on the completion of the IPO and the issuance of new
restricted stock units, performance
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restricted stock units and common stock under the ESPP starting in the fourth quarter of 2021, partially offset by a$5.5 million decrease in consulting expense due to substantial costs incurred to optimize our "go-to-market" efforts during 2021 and$0.2 decrease in other expenses.
Other Operating Expenses
The following table sets forth, for the periods indicated, our amortization of
intangible assets, acquisition and other charges (in thousands, except
percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Amortization of intangible assets $ 38,661 $ 43,226 (11) %
Restructuring, acquisition and other charges - 333 (100) %
Amortization of intangible assets decreased to $38.7 million (or 11% of
revenues) during the three months ended March 31, 2022 compared to $43.2 million
(or 13% of revenues) during the three months ended March 31, 2021 . The decrease
of $4.6 million (or 11%) for the three months ended March 31, 2022 compared to
the three months ended March 31, 2021 was a result of the amortization of our
intangible assets primarily from the 2015 Privatization Transaction, as some of
the components of the intangible assets become fully amortized.
Interest and Other Income (Expense), Net
The following table sets forth, for the periods indicated, our interest and other income, net (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Interest income $ 366 $ 280 31 %
Interest expense (12,825) (35,799) (64) %
Other income (expense), net 4,220 16,325 (74) %
Interest and other income (expense), net $ (8,239) $ (19,194) (57) %
The increase in interest and other income (expense), net, of $11.0 million (or
57%) for the three months ended March 31, 2022 compared to the three months
ended March 31, 2021 was due to a $23.0 million decrease in interest expense
primarily due to a decrease in the debt balance associated with the debt
repayment and lower interest rates as a result of debt refinancing in October
2021 and an $11.0 million increase in foreign exchange gains. These increases
were partially offset by a $23.0 million decrease in revaluation gains on the
euro term loans resulting from the debt repayment of the euro term loans in
October 2021 .
Income Tax Expense
The following table sets forth, for the periods indicated, our provision for income taxes (in thousands, except percentages):
Three Months Ended March 31, Percent
2022 2021 Change
Income tax expense $ 1,185 $ 811 46 %
Effective tax rate (59) % (68) %
Our income tax expense was $1.2 million and $0.8 million for the three months
ended March 31, 2022 and 2021. The tax expense recorded in the current period
compared to the tax expense recorded in the prior year comparable period was
primarily due to foreign withholding tax not fully offset by foreign tax credits
and certain discrete expenses related to stock-based compensation.
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ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. In assessing the need for any additional valuation allowance as ofMarch 31, 2022 , the Company considered all available evidence both positive and negative, expectations and risks associated with estimates of future taxable income, and ongoing prudent and feasible tax planning strategies. As a result of this analysis for the three months endedMarch 31, 2022 , management believes it is more likely than not that the Company's deferred tax assets, after recorded valuation allowances for disallowed interest expense, foreign tax credit, the netCalifornia deferred tax assets and operating loss carryforwards in certain non-U.S. jurisdictions, will be realized.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through cash flows from operations and debt financing. As ofMarch 31, 2022 andDecember 31, 2021 , respectively, we had$577.8 million and$498.1 million in available cash, cash equivalents, restricted cash, and short-term investments. Our cash and cash equivalents and short-term investments primarily consist of bank account balances, short-term time deposits and highly liquid money market funds. As ofMarch 31, 2022 andDecember 31, 2021 , we did not hold any marketable securities. We believe that our existing cash and cash equivalents, cash flows generated by operations and the Revolving Facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. However, we may be required to raise or desire additional funds for selective purposes, such as acquisitions or other investments in complementary businesses, products, or technologies, and may raise such additional funds through equity or debt financing or from other sources. OnOctober 29, 2021 , we completed our IPO, with a subsequent full exercise of underwriters' option to purchase additional shares, which resulted in aggregate net proceeds of$915.7 million , after underwriting discounts and commissions of$51.5 million . The Company also incurred offering costs of approximately$11.9 million . We also (i) repaid in full the$2.8 billion of outstanding indebtedness under the First Lien Credit Agreement and Second Lien Credit Agreement from$1.9 billion of borrowings under the Credit Agreement and$915.7 million of the net proceeds from the IPO and$30.2 million from cash and cash equivalents on hand; (ii) paid a 2.0% prepayment premium under our Second Lien Credit Agreement. The borrowings under the Term Facility bear interest at either, at the Company's election, LIBOR plus 2.75% or the base rate plus 1.75%. The Revolving Facility accrues interest at a per annum rate based on either, at the borrower's election, (i) LIBOR plus the applicable margin for LIBOR loans ranging between 2.00% and 2.50% based on the borrower's total net first lien leverage ratio or (ii) the base rate plus an applicable margin ranging between 1.00% and 1.50% based on the borrower's total net first lien leverage ratio. See Note 6. Borrowings in the Notes to the Condensed Consolidated Financial Statements for details. Our primary sources of cash are from cash and cash equivalents, short-term investments, the Revolving Facility and the collection of accounts receivable from our customers. Our uses of cash include payroll and payroll-related expenses and operating expenses such as marketing programs, travel, professional services, facilities and related costs, servicing our borrowings, and debt principal payments. We have also used cash to purchase property and equipment and to acquire businesses and technologies to expand our product offerings. We expect to use most of our available cash to service our borrowings, to the extent not used for working capital needs.
Approximately a fourth of our cash, cash equivalents and short-term investments are held by our foreign subsidiaries.
The following table summarizes our cash flows for the periods indicated (in
thousands):
Three Months Ended March 31,
2022 2021
Cash provided by operating activities $ 70,155 $ 64,948
Cash provided by investing activities 6,244 1,292
Cash provided by (used in) financing activities 13,235 (19,540)
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Operating Activities: Cash provided by operating activities for the three months endedMarch 31, 2022 was$70.2 million . Our net loss for the three months endedMarch 31, 2022 was$3.2 million , adjusted for non-cash charges, primarily consisting of$54.4 million of depreciation and amortization,$4.6 million of non-cash operating lease cost and$29.3 million of stock-based compensation expense which was partially offset by$6.1 million of deferred income taxes. Additional uses of cash resulted from changes in operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$126.3 million decrease in accounts payable and accrued liabilities due to timing of payments and payment of our lease obligations, a$37.7 million decrease in contract liabilities, a$18.0 million decrease in income tax payable due to the timing of tax payments and a$4.5 million increase in prepaid expenses and assets associated with the growth in our operations. This was partially offset mainly by a$177.7 million decrease in accounts receivable due to the timing of collections. Our "days sales outstanding" in accounts receivable decreased to 64 days during the three months endedMarch 31, 2022 from 69 days during the three months endedMarch 31, 2021 . Cash provided by operating activities for the three months endedMarch 31, 2021 was$64.9 million . Our net loss for the three months endedMarch 31, 2021 was$2.0 million , adjusted for non-cash charges, primarily consisting of$69.6 million of depreciation and amortization,$3.4 million of non-cash operating lease cost and$2.6 million of stock-based compensation expense, which was partially offset by$23.6 million of unrealized gain on remeasurement of our euro debt and$6.5 million of deferred income taxes. Additional uses of cash resulted from changes in operating assets and liabilities. The main drivers of the changes in operating assets and liabilities were a$150.7 million decrease in accounts receivable due to collections, partially offset by a$95.5 million decrease in accounts payable and accrued liabilities due to timing of payment and payment of our lease obligations, a$20.2 million decrease in contract liabilities, a$8.9 million decrease in income tax payable due to the timing of tax payments and a$4.5 million increase in prepaid expenses and assets associated with the growth in our operations. Our "days sales outstanding" in accounts receivable decreased to 69 days during the three months endedMarch 31, 2021 from 73 days during the three months endedMarch 31, 2020 . Investing Activities: Net cash provided by investing activities for the three months endedMarch 31, 2022 was$6.2 million primarily due to a cash inflow consisting of$24.1 million in maturities of investments, partially offset by$17.2 million in purchases of investments and$0.7 million for purchases of property and equipment. Net cash provided by investing activities for the three months endedMarch 31, 2021 was$1.3 million primarily due to a cash inflow consisting of$11.8 million in maturities of investments, partially offset by$9.9 million in purchases of investments,$0.7 million for purchases of property and equipment and$0.1 million related to sale of investment in equity interest. We acquire property and equipment in our normal course of business. The amount and timing of these purchases and the related cash outflows in future periods depend on a number of factors, including the hiring of employees, the rate of upgrade of computer hardware and software used in our business, as well as our business outlook. We have used cash to acquire businesses and technologies that enhance and expand our product offerings, and we anticipate that we will continue to do so in the future. Due to the nature of these transactions, it is difficult to predict the amount and timing of such cash requirements to complete such transactions. We may be required to raise additional funds to complete future acquisitions. In addition, we may be obligated to pay certain variable and deferred earn-out payments based upon achievement of certain performance targets. Financing Activities: Net cash provided by financing activities for the three months endedMarch 31, 2022 was$13.2 million primarily due to$13.6 million proceeds from issuance of common stock under the ESPP and$4.7 million in proceeds from the issuance of shares. These cash inflows were partially offset by$4.6 million of net activity from derivatives with an other-than-insignificant financing element and$0.5 million payment of offering costs. Net cash used in financing activities for the three months endedMarch 31, 2021 was$19.5 million driven by$9.0 million paid for contingent consideration,$5.9 million payment of debt,$4.6 million of net activity from derivatives with an other-than-insignificant financing element,$0.8 million payments for share repurchases 44 -------------------------------------------------------------------------------- Table of Contents and$0.1 million payments for taxes related to net share settlement of equity awards. These cash outflows were partially offset by$0.9 million in proceeds from the issuance of shares. Debt Credit Facilities OnFebruary 25, 2020 , we amended our existing credit facilities (as amended, the "First Lien Credit Agreement") and entered into a new SecondLien Credit and Guaranty Agreement (the "Second Lien Credit Agreement" and, together with the First Lien Credit Agreement, the "2020 Credit Agreements") withNomura Corporate Funding Americas, LLC , as agent, for a syndicate of lenders. We borrowed$1.8 billion of dollar term loans and €480.0 million of euro term loans under the First Lien Credit Agreement and$425.0 million of term loans under the Second Lien Credit Agreement
On
OnOctober 29, 2021 , the Company refinanced the 2020 Credit Agreements with a new Credit and Guaranty Agreement (the "Credit Agreement"), withJPMorgan Chase Bank, N.A ., as agent, for a syndicate of lenders. Under the Credit Agreement, the Company incurred$1.9 billion of dollar term loans (the "Term Facility") and obtained$250.0 million of commitments under a revolving credit facility (the "Revolving Facility").
The Term Facility matures on
As of
The Credit Agreement requires that, as of the last day of any fiscal quarter if on such date the aggregate principal amount of all revolving loans, swingline loans and letter of credit obligations (in excess of$15 million ) exceed 35% of the revolving loan commitments, the total net first lien leverage ratio cannot exceed 6.25 to 1.00. Accrued interest on the Term Facilities is payable quarterly in arrears with respect to base rate loans, at the end of each interest rate period (or at each 3- month interval in the case of loans with interest periods greater than 3 months) with respect to LIBOR loans, the date of any repayment or prepayment, and at maturity (whether by acceleration or otherwise).
The Credit Agreements contain certain customary affirmative and negative
covenants. As of
Contractual and Lease Obligations
There were no material changes outside of the ordinary course of business in our contractual and lease obligations for the three months endedMarch 31, 2022 from the contractual and lease obligations disclosed in our Annual Report on form 10-K. Critical Accounting Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP which requires us to make estimates, judgments and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these assumptions, judgments, and estimates are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expenses during the periods presented. Any material differences between these estimates and actual results will impact our condensed consolidated financial statements. On a regular basis, we evaluate our estimates, judgments, and assumptions and make changes accordingly. 45
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There have been no material changes to our critical accounting policies and estimates as compared to those described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Annual Report on form 10-K, filed with theSEC onMarch 24, 2022 .
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