PING IDENTITY HOLDING CORP. The following discussion and analysis summarizes the significant factors
affecting the consolidated operating results, financial condition, liquidity and
cash flows of our company as of and for the periods presented below. The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto included
elsewhere in this Annual Report on Form 10-K. The discussion contains
forward-looking statements that are based on the beliefs of management, as well
as assumptions made by, and information currently available to, our management.
Actual results could differ materially from those discussed in or implied by
forward-looking statements as a result of various factors, including those
discussed below and elsewhere in this Annual Report on Form 10-K, particularly
in the sections entitled "Risk Factors" and "Forward-Looking Statements." We
have omitted the financial results for the fiscal year ended
Overview
We solve big problems for the world's largest enterprises. We serve more than half of the Fortune 100, and we have partnerships with companies such as
Microsoft and Amazon. We serve a broad range of vertical markets with particular strength in financial services, healthcare, technology, aerospace, and retail especially among the Global 5000.
The Ping Intelligent Identity Platform is comprised of multiple solutions that can be purchased individually or integrated as a more complete set of solutions for the customer, workforce, partner or IoT use case: SSO, MFA, Access Security, Directory, Dynamic Authorization, Risk Management, Identity Verification, API Intelligence, Orchestration and Fraud Detection.
Our offerings are predominantly priced based on the solution, use case and number of identities. We sell our platform through subscription-based contracts, and substantially all of our customers pay annually in advance. We sell our solutions primarily through direct sales, which are enhanced by collaboration with our channel partners, resellers, system integrators and technology partners. This includes sourcing new leads, aiding in pre-sale processes (such as proof of concepts, demos or requests for proposals) and reselling our solutions to customers. We also leverage a number of our channel partners and system integrators to provide the implementation services for some of our larger and more complex deployments, significantly increasing the time-to-value for our customers and maximizing the efficiency of our go-to-market efforts.
Impact of COVID-19
Though the impact of rapidly changing market and economic conditions due to the COVID-19 pandemic remains uncertain, it continues to disrupt the business of our customers and partners and may continue to impact our business and consolidated results of operations and financial condition in the future. The COVID-19 pandemic resulted in a global recession with a corresponding decrease in demand for certain goods and
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services, including from our own customers, while also disrupting sales channels, marketing activities and supply chains, and the sustainability of the economic recovery observed in 2021 remains unclear.
While we continued to see limited effects of the COVID-19 pandemic on our
results of operations and overall financial performance for the year ended
In addition, our consolidated financial statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in our consolidated financial statements include, but are not limited to, establishing valuation allowances based on expected credit losses and the collectability of financial assets, determining useful lives for finite-lived assets, assessing the recoverability of long-lived assets, determining the fair values of assets acquired and liabilities assumed in business combinations, determining the value of right-of-use assets and lease liabilities, accounting for income taxes and related valuation allowances against deferred tax assets, valuing stock option awards and assessing the probability of the awards meeting vesting conditions, recognizing revenue, determining the amortization period for deferred commissions and assessing the accounting treatment for commitments and contingencies. Management evaluates these estimates and assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates, including as a result of the COVID-19 pandemic. We will continue to evaluate the nature and extent of the impact to our business and our consolidated results of operations and financial condition.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
Generating Additional Sales to Existing Customers
A customer journey often begins with the purchase of one of our solutions for one use case. Once customers realize the value of that solution, their spend with us expands by (i) adopting another identity use case, (ii) deploying additional solutions and solution packages and/or (iii) adding more identities over time.
Our future revenue growth is dependent upon our ability to continue to expand our customers' use of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including satisfaction or dissatisfaction with our solutions, competition, pricing, economic conditions and spending by customers on our solutions. We have adopted a customer success strategy and implemented processes across our customer base to drive revenue retention and expansion.
Increasing the Size of our Customer Base
We believe there is significant opportunity to increase market adoption of our platform by new customers. Our SSO, Access Security and Directory solutions often replace legacy and homegrown systems. We also have significant greenfield opportunities with our MFA, Dynamic Authorization, Risk Management, Identity Verification, API Intelligence, Orchestration and Fraud Detection solutions and the IoT use case. To increase our customer base, we plan to continue to expand our sales force and channel partner network, both domestically and internationally, enhance our marketing efforts and target new buyers. For example, we have
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extended our cloud-based offering to target developers, who represent a new potential buyer for us. Over time, we believe sales to developers could increase the size of our customer base.
Maintaining our Technology Differentiation and Product Leadership
The Ping Intelligent Identity Platform is designed for large enterprises with complex, hybrid IT requirements. We have spent over a decade building a standards-based platform with turnkey integrations designed to ensure that large enterprises can easily and rapidly deploy our platform within their complex infrastructures. We intend to continue making investments in research and development to extend our platform and technology capabilities while also expanding our solutions to address new use cases.
Investing for Growth
We believe IAM represents a large market opportunity, and we plan to invest in order to support further growth. During 2018, we accelerated investments in our business to expand our footprint within this large and growing market. Specifically, we invested in new cloud-based offerings to broaden the Ping Intelligent Identity Platform and the scope of our solutions to cover new identity security threats, such as APIs. We also invested in deploying our platform as a single tenant cloud-based offering, managed by us, to help extend the reach of our solutions within our customers' infrastructures, while providing them with the level of control and configuration they require. Since 2018, we have seen progress with these investments and expect to continue to invest in these areas. Additionally, we plan to invest in increased marketing efforts, expanding our sales force, and growing our network of channel partners, resellers, system integrators and technology partners. However, we are not expecting these investments to provide our business with meaningful increases to ARR growth in the immediate term as we expect natural purchasing cycles will affect the speed of market adoption.
Additionally, we have a large and growing international presence and intend to
grow our customer base in various international regions by making investments in
our sales team globally. For the year ended
Seasonality
Given the purchasing patterns of our enterprise customers, we typically
experience seasonality in terms of when we receive orders from our customers.
Our customers often time their purchases and renewals of our solutions to
coincide with their fiscal year end, which is typically
Key Business Metrics
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Annual Recurring Revenue
ARR represents the annualized value of all subscription contracts as of the end of the period. ARR mitigates fluctuations due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. ARR only includes the annualized value of subscription contracts. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies.
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ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
The table below sets forth our ARR as of the end of
December 31, Change
2021 2020 $ %
(dollars in thousands)
ARR $ 312,726 $ 259,090 $ 53,636 21 %
Dollar-Based Net Retention Rate
To further illustrate the land and expand economics of our customer relationships, we examine the rate at which our customers increase their subscriptions for our solutions. Our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expanded use of our platform, offset by customers whose subscription contracts with us are not renewed or renew at a lower amount.
We calculate our dollar-based net retention rate as of the end of a reporting period as follows:
? Numerator. We measure ending ARR for the current reporting period from
customers with associated ending ARR for the same period last year.
? Denominator. We measure ending ARR for the same period last year.
The quotient obtained from this calculation is our dollar-based net retention
rate. Our dollar-based net retention rates were 112% and 108% at
Large Customers
We believe that our ability to increase the number of customers on our platform,
particularly the number of customers with greater than ARR of
At
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. 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 and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by
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other companies. A reconciliation is provided below for each 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 these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Free Cash Flow
Free Cash Flow is a supplemental measure of liquidity that is not made under GAAP and that does not represent, and should not be considered as, an alternative to cash flow from operations, as determined by GAAP. We define Free Cash Flow as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized software development costs.
We use Free Cash Flow as one measure of the liquidity of our business. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized software development costs, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in Free Cash Flow, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or is not available) to be used for strategic initiatives. For example, if Free Cash Flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. We also believe that the use of Free Cash Flow enables us to more effectively evaluate our liquidity period-over-period and relative to our competitors.
A reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable GAAP measure, is as follows:
Year Ended December 31,
2021 2020 2019
(in thousands)
Net cash provided by operating
activities $ 41,656 $ 22,375 $ 5,795 Less:
Purchases of property and equipment (4,153) (2,595) (8,696) Capitalized software development costs
(18,997) (13,255) (10,460)
Free Cash Flow $ 18,506 $ 6,525 $ (13,361) Net cash used in investing activities
$ 135,504 $ 103,009 $ (2,020) Cash paid for interest$ 2,486 $ 2,263 $ 12,169
Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash Flow should not be considered as a replacement for cash flow from operations, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
Non-GAAP Gross Profit
Non-GAAP Gross Profit is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to gross profit, as determined by GAAP. We define Non-GAAP Gross Profit as gross profit, adjusted for stock-based compensation expense and certain amortization expense of acquired intangible assets and software developed for internal use.
We use Non-GAAP Gross Profit to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe
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that Non-GAAP Gross Profit is a useful measure to us and to our investors because it provides consistency and comparability with our past financial performance and between fiscal periods, as the metric generally eliminates the effects of the variability of amortization of acquired intangibles and internal-use software and stock-based compensation expense from period to period, which may fluctuate for reasons unrelated to overall operating performance. We believe that the use of this measure enables us to more effectively evaluate our performance period-over-period and relative to our competitors.
A reconciliation of Non-GAAP Gross Profit to gross profit, the most directly comparable GAAP measure, is as follows:
Year Ended December 31,
2021 2020 2019
(in thousands)
Gross profit $ 204,567 $ 175,378 $ 187,194
Amortization expense 26,947 20,269 16,338Stock-based compensation expense 3,446 1,072 221 Non-GAAP Gross Profit
$ 234,960 $ 196,719 $ 203,753
Non-GAAP Gross Profit has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Non-GAAP Gross Profit should not be considered as a replacement for gross profit, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
Components of Results of Operations
Revenue
We recognize revenue under ASC 606 when our customer obtains control of goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.
We derive revenue primarily from sales of subscriptions for our solutions to new and existing customers and, to a lesser extent, sales of professional services.
Subscription. Subscription revenue includes subscription term-based license revenue for solutions deployed on-premise within the customer's IT infrastructure or in a third-party cloud of their choice, subscription maintenance and support revenue from such deployments, and SaaS subscriptions, which give customers the right to access our SaaS-based solutions. We typically invoice subscription fees annually in advance. Subscription term-based license revenue is recognized upon transfer of control of the software, which occurs at delivery or when the license term commences, if later. All of our maintenance and support revenue and revenue from SaaS subscriptions is recognized ratably over the term of the applicable agreement.
For the years ended
? the type of new and renewed subscriptions (i.e., term-based or SaaS); and
? the duration of new and renewed term-based subscriptions.
While the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning
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of the subscription term, while subscription revenue from SaaS and maintenance
and support is recognized ratably over the subscription term. As a result, our
revenue may fluctuate due to the timing of term-based licensing transactions. In
addition, keeping other factors constant, when the percentage of subscription
term-based licenses to total subscriptions sold or renewed in a period increases
relative to the prior period, revenue growth will increase. Conversely, when the
percentage of subscription SaaS and maintenance and support to total
subscriptions sold or renewed in a period increases, revenue growth will
generally decrease. Additionally, a multi-year subscription term-based license
will generally result in greater revenue recognition up front relative to a
one-year subscription term-based license. Therefore, keeping other factors
constant, revenue growth will also trend higher in a period where the percentage
of multi-year subscription term-based licenses to total subscription term-based
licenses increases. In the year ended
Professional Services and Other. Professional services and other revenue consists primarily of fees from professional services provided to our customers and partners to configure and optimize the use of our solutions, as well as training services related to the configuration and operation of our solutions. Our professional services are generally priced on a time and materials basis, which is generally invoiced monthly and for which revenue is recognized as the services are performed. Revenue from our training services and sponsorship fees is recognized on the date the services are complete. Over time, we expect our professional services revenue to remain relatively stable as a percentage of total revenue.
Cost of Revenue
Subscription. Subscription cost of revenue consists primarily of employee compensation costs for employees associated with supporting our subscription arrangements and certain third-party expenses. Employee compensation and related costs include cash compensation and benefits to employees, stock-based compensation, costs of third-party contractors and associated overhead costs. Third-party expenses consist of cloud infrastructure costs and other expenses directly associated with our customer support. We expect our subscription cost of revenue to increase in absolute dollars to the extent our subscription revenue increases.
Professional Services and Other. Professional services and other cost of revenue consists primarily of employee compensation costs directly associated with delivery of professional services and training, including stock-based compensation, costs of third-party contractors, and facility rental charges and other associated overhead costs. We expect our professional services and other cost of revenue to increase in absolute dollars relative to the growth of our business.
Amortization Expense. Amortization expense consists of amortization of developed technology and internal-use software.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense.
Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on subscription contracts are deferred and amortized over the period of benefit, which is generally four years. We expect to continue to invest in our sales force domestically and internationally, as well as in our channel relationships. We expect our sales and
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marketing expenses to increase on an absolute dollar basis and continue to be our largest operating expense category for the foreseeable future.
Research and Development. Research and development expenses consist primarily of employee compensation costs, allocated overhead and software and maintenance expenses. We will continue to invest in innovation and offer our customers new solutions to enhance our existing platform and expect such investment to increase on an absolute dollar basis as our business grows.
General and Administrative. General and administrative expenses consist primarily of employee compensation costs for corporate personnel, such as those in our executive, human resource, legal, facilities, accounting and finance, information security and information technology departments. In addition, general and administrative expenses include third-party professional fees, as well as all other supporting corporate expenses not allocated to other departments. General and administrative expense also includes acquisition-related expenses, which primarily consist of third-party expenses related to business acquisitions, such as professional services and legal fees.
We expect our general and administrative expenses to increase on an absolute
dollar basis as our business grows. Also, we expect to incur additional general
and administrative expenses as a result of continuing to operate as a public
company, including costs related to maintaining the effectiveness of our
internal control over financial reporting, including accounting-related costs
and significant management oversight, costs to comply with the rules and
regulations applicable to companies listed on a national securities exchange,
costs related to compliance and reporting obligations pursuant to the rules and
regulations of the
Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of finite-lived acquired intangible assets such as customer relationships, trade names and non-compete agreements.
Other Income (Expense)
Interest Expense. Interest expense consists primarily of interest payments on our outstanding borrowings under our credit facilities as well as the amortization of associated deferred financing costs. See "- Liquidity and Capital Resources - Senior Secured Credit Facilities."
Other Income (Expense), Net. Other income (expense), net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency, interest income and other income (expense). As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.
Benefit (Provision) for Income Taxes
Benefit (provision) for income taxes consists primarily of income taxes related
to
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Results of Operations
The following table sets forth our consolidated statements of operations data
for the periods indicated:
Year Ended December 31,
2021 2020 2019
(in thousands)
Revenue:
Subscription $ 279,294 $ 224,131 $ 225,345
Professional services and other 20,155 19,458 17,553
Total revenue 299,449 243,589 242,898
Cost of revenue:
Subscription (exclusive of
amortization shown below)(1) 43,515 30,797 24,044
Professional services and other
(exclusive of amortization shown
below)(1) 24,420 17,145 15,322
Amortization expense 26,947 20,269 16,338
Total cost of revenue 94,882 68,211 55,704
Gross profit 204,567 175,378 187,194
Operating expenses:
Sales and marketing(1) 117,459 88,910 78,889
Research and development(1) 78,512 48,934 46,016
General and administrative(1) 71,581 47,198 38,293
Depreciation and amortization 17,437 16,997 16,639
Gain on asset disposition (1,397) - -
Total operating expenses 283,592 202,039 179,837
Income (loss) from operations (79,025) (26,661) 7,357
Other income (expense):
Interest expense (3,010) (2,433) (12,914)
Loss on extinguishment of debt (153) - (4,532)
Other income (expense), net (1,148) 2,947 363
Total other income (expense) (4,311) 514 (17,083)
Loss before income taxes (83,336) (26,147) (9,726)
Benefit for income taxes 18,945 14,256 8,222
Net loss $ (64,391) $ (11,891) $ (1,504)
______________________
(1) Includes stock-based compensation as follows:
Year Ended December 31,
2021 2020 2019
(in thousands)
Subscription cost of revenue $ 1,735 $ 675 $ 141
Professional services and other cost of revenue 1,711 397 80
Sales and marketing 14,921 4,467 1,407
Research and development 20,702 5,294 1,364
General and administrative 16,731 5,791 3,340
Total $ 55,800 $ 16,624 $ 6,332
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The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
Year Ended December 31,
2021 2020 2019
Revenue:
Subscription 93 % 92 % 93 %
Professional services and other 7 8 7
Total revenue 100 100 100
Cost of revenue:
Subscription (exclusive of
amortization shown below) 15 13 10
Professional services and other
(exclusive of amortization shown
below) 8 7 6
Amortization expense 9 8 7
Total cost of revenue 32 28 23
Gross profit 68 72 77
Operating expenses:
Sales and marketing 38 37 32
Research and development 26 20 19
General and administrative 24 19 16
Depreciation and amortization 6 7 7
Gain on asset disposition - - -
Total operating expenses 94 83 74
Income (loss) from operations (26) (11) 3
Other income (expense):
Interest expense (2) (1) (5)
Loss on extinguishment of debt - - (2)
Other income (expense), net - 1 -
Total other income (expense) (2) - (7)
Loss before income taxes (28) (11) (4)
Benefit for income taxes 6 6 3
Net loss (22) % (5) % (1) %
Comparison of the Years Ended December 31, 2021 and 2020
Revenue
Year Ended
December 31, Change
2021 2020 $ %
(dollars in thousands)
Revenue:
Subscription $ 279,294 $ 224,131 $ 55,163 25 %
Professional services and other 20,155 19,458 697 4 Total revenue
$ 299,449 $ 243,589 $ 55,860 23 %
Total revenue increased by
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The table below sets forth the components of subscription revenue for the years
ended
Year Ended
December 31, Change
2021 2020 $ %
(dollars in thousands)
Subscription:
Multi-year subscription term-based licenses
62,468 57,966 4,502 8
Subscription term-based licenses 172,512 144,544 27,968 19
Subscription SaaS 57,617 38,072 19,545 51
Maintenance and support 49,165 41,515 7,650 18
Total subscription revenue $ 279,294 $ 224,131 $ 55,163 25 %
Subscription revenue increased 25%, or
Change in subscription type. The following table sets forth the components of subscription revenue expressed as a percentage of total subscription revenue:
Year Ended
December 31, Change
2021 2020 %
Subscription term-based licenses 62 % 64 % (2) %
Subscription SaaS 21 17 4
Maintenance and support 17 19 (2)
Total subscription revenue 100 % 100 %
Subscription term-based license revenue as a percentage of subscription revenue
decreased from 64% in the year ended
Additionally, subscription SaaS revenue increased by 51%, or
Change in term-based subscription duration. The following table sets forth the components of subscription term-based licenses expressed as a percentage of total subscription term-based license revenue:
Year Ended
December 31, Change
2021 2020 %
Multi-year subscription term-based licenses 64 % 60 % 4 % 1-year subscription term-based licenses 36 40 (4) Total subscription term-based licenses 100 % 100 %
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Multi-year subscription term-based license revenue as a percentage of total
subscription term-based license revenue increased from 60% in the year ended
Cost of Revenue
Year Ended
December 31, Change
2021 2020 $ %
(dollars in thousands)
Cost of revenue:
Subscription (exclusive of
amortization shown below) $ 43,515 $ 30,797 $ 12,718 41 %
Professional services and other
(exclusive of amortization shown
below) 24,420 17,145 7,275 42
Amortization expense 26,947 20,269 6,678 33
Total cost of revenue $ 94,882 $ 68,211 $ 26,671 39 %
Subscription cost of revenue increased by
Professional services and other cost of revenue increased by
Amortization expense increased by
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Operating Expenses
Year Ended
December 31, Change
2021 2020 $ %
(dollars in thousands)
Sales and marketing $ 117,459 $ 88,910 $ 28,549 32 %
Research and development 78,512 48,934 29,578 60
General and administrative 71,581 47,198 24,383 52 Depreciation and amortization 17,437 16,997 440 3 Gain on asset disposition (1,397)
- (1,397) N/M
Total operating expenses
Sales and Marketing. Sales and marketing expenses increased by
Research and Development. Research and development expenses increased by
General and Administrative. General and administrative expenses increased by
Depreciation and Amortization. Depreciation and amortization expense remained
substantially the same during the year ended
Gain on Asset Disposition. In
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Other Income (Expense)
Year Ended
December 31, Change
2021 2020 $ %
(dollars in thousands)
Interest expense $ (3,010) $ (2,433) $ (577) 24 %
Loss on extinguishment of debt (153) - (153) N/M
Other income (expense), net (1,148) 2,947 (4,095) (139)
Total other income (expense)
Interest Expense. Interest expense increased by
Loss on Extinguishment of Debt. During the year ended
Other Income (Expense), Net. Other income (expense), net decreased by
Benefit (Provision) for Income Taxes
Year Ended
December 31, Change
2021 2020 $ %
(dollars in thousands)
Benefit for income taxes $ 18,945 $ 14,256 $ 4,689 33 %
Our benefit for income taxes was
Liquidity and Capital Resources
General
As of
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However, we expect our long-term operating cash flows to improve as we increase our operational efficiency and realize benefits from cash investments.
We have financed our operations primarily through cash received from operations and proceeds from our debt and equity financings. We believe our existing cash and cash equivalents, our 2021 Credit Facilities and cash provided by sales of our solutions and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our 2021 Credit Agreement, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, the continuing market adoption of our platform, and the continuing effects of the COVID-19 pandemic, including potential reductions in revenue and delays in payments from our customers and partners. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.
We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.
A majority of our customers pay in advance for annual subscriptions, a portion
of which is recorded as deferred revenue. Deferred revenue consists of the
unearned portion of billed fees for our subscriptions, which is later recognized
as revenue in accordance with our revenue recognition policy. As of
Senior Secured Credit Facilities
On
The 2021 Term Loans mature on
Under the terms of the 2021 Credit Agreement, Holdings and its restricted
subsidiaries are required to maintain a total net leverage ratio (as calculated
pursuant to the 2021 Credit Agreement) (i) commencing with the fiscal quarter
ending
See additional discussion of the 2021 Credit Facilities in in Note 9 of our condensed consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the periods indicated.
Year Ended December 31,
2021 2020
(in thousands)
Net cash provided by operating activities
(103,117) (48,320)
Net cash provided by (used in) financing
activities 135,504 103,009
Effect of exchange rate changes on cash and
cash equivalents and restricted cash 347 1,049
Net increase (decrease) in cash and cash
equivalents and restricted cash $ 74,390 $ 78,113
Cash and cash equivalents and restricted cash
at beginning of period 146,499 68,386
Cash and cash equivalents and restricted cash
at end of period $ 220,889 $ 146,499
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.
For the year ended
For the year ended
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Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, we previously entered into indemnification agreements with our directors and certain officers and employees that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
The estimates used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The accounting estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below. Refer to "Note 2 - Summary of Significant Accounting Policies" to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more detailed information regarding our significant accounting policies.
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Acquisitions and Identifiable Intangible Assets
We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The fair value of identifiable intangible assets is based on significant judgments and estimates made by management. We typically engage third-party valuation appraisal firms to assist in determining the fair values of the assets acquired. Such valuations require us to make significant estimates and assumptions. These estimates and assumptions are based on historical experience and information obtained from the management of the acquired companies, and also include, but are not limited to, future expected cash flows earned from the product-related technology and discount rates applied in determining the present value of those cash flows. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.
Stock Options and Restricted Stock Units
We have granted certain awards to our employees, including stock options and
restricted stock units, that are subject to market and performance conditions
for which we are required to assess the probability of vesting. These awards
will vest following both (i) an IPO and registration of shares of common stock
of
When the vesting of the awards became probable during the second quarter of 2021, the Company began to recognize stock-based compensation expense for the options and restricted stock units subject to market and performance conditions on a graded vesting basis over the term of the award.
The assumptions used in determining when the probability threshold is met reflect our best estimates but involve uncertainties related to market and other conditions, many of which are outside our control. As the determination of probability has a direct impact on the pattern of recognition of compensation expense associated with these awards, changes in our assumptions may affect the amount of compensation expense we recognize in a given period.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see "Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements" to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
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