You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited condensed consolidated financial statements, and related notes that are included elsewhere in this Quarterly Report on Form 10-Q, along with the financial information included in our Annual Report on Form 10-K, as filed with theSecurities and Exchange Commission (the "SEC") onMarch 18, 2022 . Some of the information contained in this discussion and analysis, including information with respect to our planned investments in our research and development, sales and marketing, and general and administrative functions, contains forward-looking statements based upon current plans, beliefs, and expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q. Company Overview We are a leading online visibility management software-as-a-service ("SaaS") platform, enabling companies globally to identify and reach the right audience in the right context and through the right channels. Online visibility represents how effectively companies connect with consumers across a variety of digital channels, including search, social and digital media, digital public relations, and review websites. Our proprietary SaaS platform enables us to aggregate and enrich trillions of data points collected from hundreds of millions of unique domains, social media platforms, online ads, and web traffic. This allows our customers to understand trends, derive unique and actionable insights to improve their websites and social media pages, and distribute highly relevant content to their targeted customers across channels to drive high-quality traffic. We generate substantially all of our revenue from monthly and annual subscriptions to our online visibility management platform under a SaaS model. Subscription revenue is recognized ratably over the contract term beginning on the date the product is made available to customers. In line with our business strategy, we have increased our activity with mergers and acquisitions. During the three months endedMarch 31, 2022 , we completed two strategic acquisitions of companies to complement our existing portfolio:Backlinko, LLC ("Backlinko") andIntellikom, Inc. , which does business under the name Kompyte ("Kompyte"). The purpose of the acquisition of Backlinko was to obtain valuable content and to access an existing revenue stream in Backlinko's SEO courses. We believe the online traffic to Backlinko is valuable to our growth strategy and may be monetized optimally through our resources, allowing us to grow organic traffic and sales. Kompyte is a provider of sales enablement and competitive intelligence software we believe complements our core platform. We intend to support Kompyte's traditional enterprise customers, and we expect to begin developing new products better suited for its small-to-medium sized business ("SMB") customer base. We believe there is a significant potential cross-sell opportunity for Kompyte's solution among the more than 87,000 customers on our coreSemrush platform. We currently operate subsidiaries inCyprus , theCzech Republic ,Germany ,the Netherlands ,Poland ,Spain , andRussia , with employees based in each location. Our business strategy has included the opening of new offices inTurkey ,Armenia ,Serbia , andGeorgia to facilitate our growth in operations and international expansion. As a response to the Russian military action inUkraine and subsequentU.S. , E.U., and other sanctions againstRussia , we are actively winding down operations in Russian and relocating employees outside of the country. We expect these relocations to be substantially complete bySeptember 30, 2022 , 29 -------------------------------------------------------------------------------- and we expect to incur costs of approximately$24.5 million to$28.5 million over the remainder of fiscal year 2022 with respect to such relocations. These expenses relate both to the costs of relocation and the expected higher costs of talent and labor in the geographies to which we are relocating these employees. For more information on the risks of geographic instability on our operations, see "Item 1A. Risk Factors-Most Material Risks to Us-Instability in geographies where we have significant operations and personnel, including inRussia , could have a material adverse effect on our business, customers, and financial results". Our revenue is primarily generated through sales of our products around the globe. The largest portion of our revenue continues to be driven by customers based in theU.S. andUK , generating revenues of$25.8 million and$5.9 million , respectively, for the three months endedMarch 31, 2022 , and$18.1 million and$4.2 million for the three months endedMarch 31, 2021 , respectively.
We have one reportable segment. See Note 17 of our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Key Factors Affecting Our Performance
We regularly review a number of factors that have impacted, and we believe will continue to impact, our results of operations and growth. These factors include:
Acquiring New Paying Customers
We expect increasing demand for third-party online visibility software to accelerate adoption of our platform. Our recurring subscription model provides significant visibility into our future results and we believe ARR is the best indicator of the scale of our platform, while mitigating fluctuations due to seasonality and contract term. We define ARR as the daily revenue of all paid subscription agreements that are actively generating revenue as of the last day of the reporting period multiplied by 365, except that we calculate the ARR from Prowly's customers as the monthly recurring revenue as of the last month of the reporting period multiplied by 12. We include both monthly recurring paid subscriptions, which renew automatically unless cancelled, as well as annual recurring paid subscriptions so long as we do not have any indication that a customer has cancelled or intends to cancel its subscription and we continue to generate revenue from them. As ofMarch 31, 2022 and 2021, we had more than 87,000 paying customers and 72,000 paying customers, respectively, accounting for$235.7 million and$167.6 million in ARR, respectively.
Retaining and Expanding Sales to Our Existing Customers
We serve a diverse customer base across a variety of sizes and industries that is focused on maximizing their online visibility. We believe there is a significant opportunity to expand within our existing customer base as customers often initially purchase our entry-level subscription, which offers lower usage limits and limited user licenses, as well as fewer features. We have demonstrated the ability to expand contract values with our existing customers as they use our products and recognize the critical nature of our platform and often seek premium offerings through incremental usage, features, add-ons, and additional user licenses. Our dollar-based net revenue retention rate enables us to evaluate our ability to retain and expand subscription revenue generated from our existing customers. Our dollar-based net revenue retention rate as ofMarch 31, 2022 andDecember 31, 2021 was approximately 127% and 126%, respectively.
We calculate our dollar-based net revenue retention rate as of the end of a period by using (a) the revenue from our customers during the twelve month period ending one year prior to such period as the denominator and (b) the revenue from those same customers during the twelve months ending as of the
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end of such period as the numerator. This calculation excludes revenue from new customers and any non-recurring revenue.
We have successfully increased ARR per paying customer over time and believe this metric is an indicator of our ability to grow the long-term value of our platform. We expect ARR per paying customer to continue to increase as customers adopt our premium offerings and we continue to introduce new products and functionality. Our ARR per paying customer as ofMarch 31, 2022 andDecember 31, 2021 was$2,687 and$2,584 , respectively. We define ARR per paying customer during a given period as ARR from our paying customers at the end of the period divided by the number of paying customers as of the end of the same period. We define the number of paying customers as the number of unique business and individual customers at the end of a particular period. We define a business customer as all accounts that contain a common non-individual business email domain (e.g., all subscriptions with an email domain of @XYZ.com will be considered to be one customer), and an individual customer as an account that uses an individual non-business email domain.
Sustaining Product and Technology Innovation
We have a strong track record of developing new products that have high adoption rates among our paying customers. Our product development organization plays a critical role in continuing to enhance the effectiveness and differentiation of our technology in an evolving landscape and maximizing retention of our existing customers. We intend to continue investing in product development to improve our data assets, expand our products and enhance our technological capabilities.
Non-GAAP Financial Measures
In addition to our financial results determined in accordance withU.S. generally accepted accounting principles ("GAAP"), we believe that free cash flow and free cash flow margin, each a non-GAAP financial measure, are useful in evaluating the performance of our business.
Free cash flow and free cash flow margin
We define free cash flow, a non-GAAP financial measure, as net cash provided by operating activities less purchases of property and equipment and capitalized software development costs. We define free cash flow margin as free cash flow divided by total revenue. We monitor free cash flow and free cash flow margin as two measures of our overall business performance, which enables us to analyze our future performance without the effects of non-cash items and allow us to better understand the cash needs of our business. While we believe that free cash flow and free cash flow margin are useful in evaluating our business, free cash flow and free cash flow margin are each a non-GAAP financial measure that have limitations as an analytical tool, and free cash flow and free cash flow margin should not be considered as an alternative to, or substitute for, net cash used in operating activities in accordance with GAAP. The utility of each of free cash flow and free cash flow margin as a measure of our liquidity is further limited as each measure does not represent the total increase or decrease in our cash balance for any given period. In addition, other companies, including companies in our industry, may calculate free cash flow and free cash flow margin differently or not at all, which reduces the usefulness of free cash flow and free cash flow margin as tool for comparison. A summary of our cash flows from operating, investing and financing activities is provided below. We recommend that you review the reconciliation of free cash flow to net cash used in operating activities, the most directly comparable GAAP financial measure, and the reconciliation of free cash flow margin to net cash used in operating activities (as a percentage of revenue), the most directly comparable GAAP financial measure, provided below, and that you not rely on free cash flow, free cash flow margin or any single financial measure to evaluate our business. 31 --------------------------------------------------------------------------------
Three Months Ended March 31, (in thousands) 2022 2021 Net cash provided by operating activities $ 8,026$ 9,007 Net cash used in investing activities (16,656) (1,139) Net cash (used in) provided by financing activities (13) 128,468 Effect of exchange rate changes on cash and cash equivalents (1,259) - Net (decrease) increase in cash, cash equivalents and $ (9,902) 136,336 restricted cash Three Months Ended March 31, (in thousands) 2022 2021 Net cash provided by operating activities$ 8,026 $ 9,007 Purchases of property and equipment (370) (166) Capitalization of internal-use software costs (286) (123) Free cash flow$ 7,370 $ 8,718
Three Months Ended
(in thousands)
2022 2021 Net cash provided by operating activities (as a percentage of 14.0 % 22.5 %
revenue)
Purchases of property and equipment (as a percentage of revenue) (0.6) % (0.4) % Capitalization of internal-use software costs (as a percentage (0.5) % (0.3) % of revenue) Free cash flow margin 12.9 % 21.8 %
Components of our Results of Operations
Revenue
We generate nearly all of our revenue from subscriptions to our online visibility management platform under a SaaS model. Subscription revenue is recognized ratably over the contract term beginning on the date on which we provide the customer access to our platform. Our customers do not have the right to take possession of our software. Our subscriptions are generally non-cancellable during the contractual subscription term, however our subscription contracts contain a right to a refund if requested within seven days of purchase. We offer our paid products to customers via monthly or annual subscription plans, as well as one-time and ongoing add-ons. Our subscription-based model enables customers to select a plan based on their needs and license our platform on a per user per month basis. As ofMarch 31, 2022 we served approximately 87,000 paying customers in various industries, and our revenue is not concentrated with any single customer or industry. For the three months endedMarch 31, 2022 and 2021, no single customer accounted for more than 10% of our revenue.
Cost of Revenue
Cost of revenue primarily consists of expenses related to hosting our platform, acquiring data, and providing support to our customers. These expenses are comprised of personnel and related costs, including salaries, benefits, incentive compensation, and stock-based compensation expense related to
32 -------------------------------------------------------------------------------- the management of our data centers, our customer support team and our customer success team, and data acquisition costs. In addition to these expenses, we incur third-party service provider costs, such as data center and networking expenses, allocated overhead costs, depreciation and amortization expense associated with our property and equipment, and amortization of capitalized software development costs and other intangible assets. We allocate overhead costs, such as rent and facility costs, certain information technology costs, and employee benefit costs to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category. We expect our cost of revenue to increase in absolute dollars due to expenditures related to the purchase of hardware, data, expansion, and support of our data center operations and customer support teams. We also expect that cost of revenue as a percentage of revenue will decrease over time as we are able to achieve economies of scale in our business, although it may fluctuate from period to period depending on the timing of significant expenditures. To the extent that our customer base grows, we intend to continue to invest additional resources in expanding the delivery capability of our products and other services. The timing of these additional expenses could affect our cost of revenue, both in terms of absolute dollars and as a percentage of revenue in any particular quarterly or annual period.
Operating Expenses
Research and Development
Research and development expenses primarily consist of personnel and related costs, including salaries, benefits, incentive compensation, stock-based compensation, and allocated overhead costs. Research and development expenses also include depreciation expense and other expenses associated with product development. Other than internal-use software costs that qualify for capitalization, research and development costs are expensed as incurred. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new products, features, and enhancements to our platform. We believe that investing in the development of new products, features, and enhancements improves customer experience, makes our platform more attractive to new paying customers and provides us with opportunities to expand sales to existing paying customers and convert free customers to paying customers.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel and related costs directly associated with our sales and marketing department, including salaries, benefits, incentive compensation, and stock-based compensation, online advertising expenses, and marketing and promotional expenses, as well as allocated overhead costs. We expense all costs as they are incurred, excluding sales commissions identified as incremental costs to obtain a contract, which are capitalized and amortized on a straight-line basis over the average period of benefit, which we estimate to be two years. We expect that our sales and marketing expenses will continue to increase, as both a percentage of sales and in absolute dollars for the year endingDecember 31, 2022 . New sales personnel require training and may take several months or more to achieve productivity; as such, the costs we incur in connection with the hiring of new sales personnel in a given period are not typically offset by increased revenue in that period and may not result in new revenue if these sales personnel fail to become productive. We expect to increase our investment in sales and marketing as we add new services, which will increase these expenses in absolute dollars. Over the long term, we believe that sales and marketing expenses as a percentage of revenue will vary depending upon the mix of revenue from new and existing customers, as well as changes in the productivity of our sales and marketing programs. General and Administrative General and administrative expenses primarily consist of personnel and related expenses, including salaries, benefits, incentive compensation, and stock-based compensation, associated with our finance, 33 -------------------------------------------------------------------------------- legal, human resources, and other administrative employees. Our general and administrative expenses also include professional fees for external legal, accounting, and other consulting services, insurance, depreciation and amortization expense, as well as allocated overhead. We expect to increase the size of our general and administrative functions to support the growth of our business. We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with rules and regulations applicable to companies listed on aU.S. securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of theSEC , increases in insurance premiums, investor relations and professional services. We expect our general and administrative expenses to increase for the foreseeable future, both in dollar amount and as a percentage of revenue, in part due to the estimated costs of relocation of employees as a result of the ongoing conflict inUkraine . For more information on the risks of geographic instability on our operations, see "Item 1A. Risk Factors-Most Material Risks to Us-Instability in geographies where we have significant operations and personnel, including inRussia , could have a material adverse effect on our business, customers, and financial results".
Other Income, Net
Included in other income, net are foreign currency transaction gains and losses. In accordance with ASC 830, Foreign Currency Matters, we redetermined our functional currencies of our international locations as ofJanuary 1, 2022 , when it was determined the local currencies for these regions were most appropriate; accordingly, for the three months endedMarch 31, 2022 , the functional currencies of our international locations were the local currencies for these regions. For the three months endedMarch 31, 2021 , the functional currency of our international operations was theU.S. dollar except for Prowly, which is Polish Zloty. Any differences resulting from the re-measurement of assets and liabilities denominated in a currency other than the functional currency are recorded within other income, net. We expect our foreign currency exchange gains and losses to continue to fluctuate in the future as foreign currency exchange rates change. Interest expense is related to our outstanding revolving credit facility, as well as interest associated with outstanding capital leases.
Other income, net also includes amounts for other miscellaneous income and expense, and gains and losses, unrelated to our core operations. We have elected the fair value option in respect to the accounting for our convertible note investments, allowing for increases and decreases in the fair value of such investments to be recorded to other income (expense) for each reporting period.
Income Tax Provision
We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. We account for income taxes in accordance with the asset and liability method. Under this method, deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and income tax bases of assets and liabilities using statutory rates. In addition, this method requires a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. To date, we have incurred cumulative net losses and maintain a full valuation allowance on our net deferred tax assets. We expect this trend to continue for the foreseeable future. Our tax expense for the three months endedMarch 31, 2022 and 2021 primarily relates to income earned in certain foreign jurisdictions.
Results of Operations
The following tables set forth information comparing our results of operations in dollars and as a percentage of total revenue for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods. 34
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Three Months Ended March 31, (in thousands) 2022 2021 Revenue$ 57,128 $ 39,998 Cost of revenue (1) 11,587 8,773 Gross profit 45,541 31,225 Operating expenses Sales and marketing (1) 25,830 16,457 Research and development (1) 8,138 5,358
General and administrative (1) 14,163 7,904 Total operating expenses
48,131 29,719 (Loss) income from operations (2,590) 1,506 Other income, net 159 51 (Loss) income before income taxes (2,431) 1,557 Provision for income taxes 140 86 Net (loss) income$ (2,571) $ 1,471 __________________
(1)Includes stock-based compensation expense as follows:
Three Months Ended March 31, 2022 2021 (in thousands) Cost of revenue$ 11 $ 7 Sales and marketing 133 190 Research and development 149 67 General and administrative 639 329 Total stock-based compensation$ 932 $ 593 The following table sets forth our unaudited condensed consolidated statements of operations data expressed as a percentage of revenue for the periods indicated: Three Months Ended March 31, 2022 2021 (as a percentage of total revenue) Revenue 100 % 100 % Cost of revenue 20 % 22 % Gross profit 80 % 78 % Operating expenses Sales and marketing 45 % 41 % Research and development 14 % 13 % General and administrative 25 % 20 % Total operating expenses 84 % 74 % (Loss) income from operations (5) % 4 % Other income, net - % - % (Loss) income before income taxes (4) % 4 % Provision for income taxes - % - % Net (loss) income (5) % 4 % 35
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Comparison of the Three Months Ended
Revenue
Our revenue during the three months endedMarch 31, 2022 and 2021 was as follows: Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Revenue $ 57,128 39,998$ 17,130 43 % Revenue increased in all regions. The majority of this increase was driven by an increase in the number of paying customers from 72,000 as ofMarch 31, 2021 to over 87,000 as ofMarch 31, 2022 . The increase in revenue for the three months endedMarch 31, 2022 was also driven by growth in user licenses per customer, add-ons, and attach rates. We define attach rates as the ratio of the number of paying customers who purchase specific add-ons to the number of total paying customers.
Revenue based upon the locations of our paying customers during the three months
ended
Three Months Ended March 31, 2022 2021 (in thousands) Revenue: United States$ 25,822 $ 18,132 United Kingdom 5,877 4,195 Other 25,429 17,671 Total revenue$ 57,128 $ 39,998
Cost of Revenue, Gross Profit and Gross Margin
Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Cost of revenue$ 11,587 $ 8,773 $ 2,814 32 % Gross profit$ 45,541 $ 31,225 $ 14,316 46 % Gross margin 79.7 % 78.1 % 36
-------------------------------------------------------------------------------- The increase in cost of revenue for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to the following changes: Three Months Ended March 31, 2022 Change (in thousands) Personnel costs $ 490 Hosting fees 495 Integration and data costs 563 Merchant fees 933 Depreciation and amortization 356 Other (23) Cost of revenue $ 2,814 For the three months endedMarch 31, 2022 , cost of revenue increased by$2.8 million . Personnel costs increased primarily as a result of a 39% increase in headcount from the prior year quarter, as we continue to grow our Customer Support and Customer Success teams to support our customer growth. Hosting fees increased, driven by the additional costs associated with our growth in subscription revenue and the additional costs associated with expanding our relationships with our current paying subscribers. Integration and data costs increased primarily as a result of increasing costs incurred related to new products and customer growth. Merchant fees increased with sales growth. Operating Expenses Sales and Marketing Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Sales and marketing$ 25,830 $ 16,457 $ 9,373 57 % Percentage of total revenue 45.2 % 41.1 % The increase in sales and marketing expense for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to the following: Three Months Ended March 31, 2022 Change (in thousands) Personnel costs $ 3,897 Marketing and advertising expense 4,273 Other 1,203 Sales and marketing $ 9,373 For the three months endedMarch 31, 2022 , sales and marketing expense increased by$9.4 million . This increase was partially driven by an increase in personnel costs due to a 36% increase in headcount 37 -------------------------------------------------------------------------------- as we continue to expand our sales and marketing teams to grow our customer base. Personnel costs include the amortization of capitalized commission costs, which increased in the three months endedMarch 31, 2022 , compared to the corresponding period of the prior year. Advertising expense increased primarily as a result of increasing expenses to acquire new paying customers. Research and Development Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Research and development$ 8,138 $ 5,358 $ 2,780 52 % Percentage of total revenue 14.2 % 13.4 % For the three months endedMarch 31, 2022 , research and development costs increased by$2.8 million , primarily as a result of a 24% increase in headcount compared to the corresponding period of the prior year, and increased employee costs due to the competitive labor market, as we continue to expand our product development teams.
General and Administrative
Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands)
General and administrative
The increase in general and administrative expense for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 was primarily due to the following: Three Months Ended March 31, 2022 Change (in thousands) Personnel costs $ 2,505 Dues and subscriptions 1,354 Professional services 1,015 Business insurance 879 Rent and office expenses 412 Other 94 General and administrative $ 6,259 For the three months endedMarch 31, 2022 , general and administrative expense increased by$6.3 million . This increase was primarily driven by a 16% increase in headcount as we continue to expand our accounting and reporting, legal and compliance, security, IT and internal support teams. Included in personnel costs is a 94% increase in stock-based compensation expense applicable to these teams for the three months endedMarch 31, 2022 . Dues and subscriptions, professional services, business insurance and office rent increases are related to our company growth and the higher costs associated with being a public company. 38 --------------------------------------------------------------------------------
Other Income, Net Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Other income, net$ 159 $ 51 $ 108 212 % Percentage of total revenue 0.3 % 0.1 %
The increase in other income for the three months ended
Provision for Income Taxes
Three Months Ended March 31, Change 2022 2021 Amount % (dollars in thousands) Provision for income taxes$ 140 $ 86 $ 54 63 % Percentage of total revenue 0.2 % 0.2 %
The provision for income taxes is primarily attributable to earnings in our foreign jurisdictions.
Liquidity and Capital Resources
Our principal sources of liquidity have been the net proceeds of our initial public offering inMarch 2021 (the "IPO") and our follow-on offering inNovember 2021 , which totaled$213.8 million , after deducting underwriting discounts and offering expenses paid or payable by us, and the net proceeds we received through private sales of equity securities, as well as sales of premium subscriptions to our platform. As ofMarch 31, 2022 , we had cash and cash equivalents of$259.8 million and accounts receivable of$2.8 million . With the exception of the three month period endedMarch 31, 2021 , we have generated losses from operations since inception. We expect to continue to incur operating losses and negative cash flows for the foreseeable future due to the investments in our business we intend to make as described above.
Our principal uses of cash in recent periods have been to fund operations, invest in capital expenditures, and strategically acquire new businesses. This cash is held in deposits and money market funds.
We believe our existing cash will be sufficient to meet our operating and capital needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support our research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings, and the continuing market acceptance of our platform and products. In the future, we may enter into arrangements to acquire or invest in complementary companies, products, 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 39 --------------------------------------------------------------------------------
generate cash flows necessary to expand our operations, our business, results of operations, and financial condition could be adversely affected.
Our Credit Facility
We have a senior secured credit facility that consists of a$45.0 million revolving credit facility and a letter of credit sub-facility with an aggregate limit equal to the lesser of$5.0 million and the aggregate unused amount of the revolving commitments then in effect. The availability of the credit facility is subject to the borrowing base based on an advance rate of 400% multiplied by annualized retention applied to monthly recurring revenue. The credit facility has a maturity of three years and will mature onJanuary 12, 2024 . OnMarch 15, 2022 , we entered into a second amendment to the Credit Agreement in order to (i) waive certain requirements concerning permitted acquisitions and (ii) incorporate certain technical amendments to facilitate the transition away from LIBOR. Borrowings under our credit facility bear interest at our option at (i) LIBOR, subject to a 0.50% floor, plus a margin, or (ii) the alternate base rate, subject to a 3.25% floor (or 1.50% prior to positive consolidated adjusted earnings before interest, taxes, depreciation, and amortization ("adjusted EBITDA") for the twelve months most recently ended), plus a margin. For LIBOR borrowings, the applicable rate margin is 2.75% (or 3.50% prior to positive consolidated adjusted EBITDA as of the twelve months most recently ended). For base rate borrowings, the applicable margin is 0.00% (or 2.50% prior to positive consolidated adjusted EBITDA as of the twelve months most recently ended). We are also required to pay a 0.25% per annum fee on undrawn amounts under our revolving credit facility, payable quarterly in arrears. As ofMarch 31, 2022 , we had not drawn on this revolving credit facility.
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscription services. Our primary uses of cash from operating activities are for online advertising, personnel costs across the sales and marketing and product and development departments, and hosting costs. Net cash provided by operating activities during the three months endedMarch 31, 2022 was$8.0 million , which resulted from a net loss of$2.6 million adjusted for non-cash charges of$4.1 million and a net cash inflow of$6.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$2.1 million for amortization of deferred contract acquisition costs related to capitalized commissions,$1.5 million of depreciation and amortization expense, and$0.9 million of stock-based compensation expense. The changes in operating assets and liabilities was primarily the result of a$6.6 million increase in deferred revenue due to the addition of new customers and expansion of the business, a$2.3 million increase in accounts payable, a$1.2 million decrease in prepaid expenses and other current assets, and a$0.5 million increase in other long-term liabilities. These inflows were partially offset by a$2.9 million increase in deferred contract costs, a$0.9 million decrease in accrued expenses, and a$0.4 million increase in accounts receivable. Net cash provided by operating activities during the three months endedMarch 31, 2021 was$9.0 million , which resulted from a net income of$1.5 million adjusted for non-cash charges of$2.3 million and a net cash inflow of$5.2 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of$0.5 million of depreciation and amortization expense,$1.3 million for amortization of deferred contract acquisition costs related to capitalized commissions, and$0.6 million of stock-based compensation expense. The changes in operating assets and liabilities was primarily the result of a$5.6 million increase in deferred revenue due to the addition of new customers and expansion of the business, a$2.4 million increase in accrued expenses, and a$1.6 million increase in accounts payable. These inflows were partially offset by a$2.4 million increase in deferred contract costs, a$1.0 million increase in prepaid expenses and other current assets, and a$1.0 million increase in accounts receivable. 40
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Investing Activities
Net cash used in investing activities for the three months endedMarch 31, 2022 and 2021 was$16.7 million and$1.1 million , respectively. The increase of$15.6 million of cash used in investing activities was primarily related to the one-time acquisitions of Backlinko and Kompyte inJanuary 2022 andMarch 2022 , respectively, totaling$14.0 million , the investment in convertible debt securities of$2.0 million and, to a lesser extent, an increase in the purchases of computer equipment and hardware and in capitalized costs associated with internal use software. During the three months endedMarch 31, 2021 , cash used in investing activities also included$0.5 million paid for two convertible debt securities. Financing Activities Net cash provided by financing activities for the three months endedMarch 31, 2022 was insignificant and consisted of cash inflows relating to the exercises of stock options and cash outflows relating to payments on capital leases. Net cash provided by financing activities for the three months endedMarch 31, 2021 was$128.5 , primarily consisting of the net proceeds from the IPO.
Contractual Obligations and Commitments and Off-Balance Sheet Arrangements
As ofMarch 31, 2022 , our contractual obligations consisted of: (i) operating lease commitments of$11.9 million , of which$3.1 million is due in 2022 and$8.8 million is due thereafter, (ii) capital lease commitments of$5.0 million , of which$1.8 million is due in 2022 and$3.2 million is due thereafter, and (iii) other purchase obligations of$26.8 million , a majority of which are due in 2022. Please refer to Note 14 "Commitments and Contingencies" to the Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion on our lease and purchase commitments. As ofMarch 31, 2022 , we did not have any relationships with any entities or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other purposes. As a result, we are not exposed to related financing, liquidity, market or credit risks that could arise if we had engaged in those types of arrangements.
Recent Accounting Pronouncements
Refer to the section titled "Recent Accounting Pronouncements" in Note 2 of the notes to our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for more information.
Critical Accounting Policies and Estimates
Our Unaudited Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates. Our critical accounting policies are described under the heading Item 7A. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates in our Annual Report on Form 10-K and in Note 2 of the notes to our Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. 41
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