SPROUT SOCIAL, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving 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 "Risk Factors" in Part II-Item 1A of this Quarterly Report and in Part I-Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2022 , and in other parts of this Quarterly Report. See "Cautionary Note Regarding Forward-Looking Statements."
Overview
Sprout Social is a powerful, centralized platform that provides the critical business layer to unlock the massive commercial value of social media. We have made it increasingly easy to standardize onSprout Social as the centralized system of record for social and to help customers maximize the value of this mission critical channel. Currently, more than 33,000 customers across more than 100 countries rely on our platform. Introduced in 2011, our cloud software brings together social messaging, data and workflows in a unified system of record, intelligence and action. Operating across major networks, including Twitter, Facebook, Instagram,TikTok , Pinterest, LinkedIn,Facebook Shops , Shopify and WooCommerce, we provide organizations with a centralized platform to manage their social media efforts across stakeholders and business functions. Virtually every aspect of business has been impacted by social media, from marketing, sales, commerce and public relations to customer service, product and strategy, creating a need for an entirely new category of software. We offer our customers a centralized, secure and powerful platform to manage this broad, complex channel effectively across their organization. We generate revenue primarily from subscriptions to our social media management platform under a software-as-a-service model. Our subscriptions can range from monthly to one-year or multi-year arrangements and are generally non-cancellable during the contractual subscription term. Subscription revenue is recognized ratably over the contract terms beginning on the date the product is made available to customers, which typically begins on the commencement date of each contract. We also generate revenue from professional services related to our platform provided to certain customers, which is recognized at the time these services are provided to the customer. This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future. Our tiered subscription-based model allows our customers to choose among three core plans to meet their needs. Each plan is licensed on a per user per month basis at prices dependent on the level of features offered. Additional product modules, which offer increased functionality depending on a customer's needs, can be purchased by the customer on a per user per month basis. We generated revenue of$75.2 million and$57.4 million during the three months endedMarch 31, 2023 and 2022, respectively, representing growth of 31%. In the three months endedMarch 31, 2023 , software subscriptions contributed 99% of our revenue. We generated net losses of$10.3 million and$9.8 million during the three months endedMarch 31, 2023 and 2022, respectively, which included stock-based compensation expense of$13.7 million and$8.4 million , respectively. We expect to continue investing in the growth of our business and, as a result, generate net losses for the foreseeable future. 20
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Macroeconomic Conditions
As a company with a global footprint, we are subject to risks and exposures caused by significant events and their macroeconomic impacts, including, but not limited to, the COVID-19 pandemic, theRussia -Ukraine war, global geopolitical tension and more recently, rising inflation and interest rates, volatility in the capital markets and related market uncertainty. We continuously monitor the direct and indirect impacts, and the potential for future impacts, of these circumstances on our business and financial results, as well as the overall global economy and geopolitical landscape. Given the importance of our technology platform and heightened market awareness of social media as a strategic communications channel, these factors have not had a material adverse impact on our operational and financial performance to date. However, the potential implications of these macroeconomic events on our business, results of operations and overall financial position, particularly in the long term, introduce additional uncertainty. Our current and prospective customers are impacted by worsening macroeconomic conditions to varying degrees. We are continuing to monitor for potential future direct and indirect impacts on our business and results of operations.
Acquisition of
OnJanuary 19, 2023 , the Company completed the acquisition ofRepustate, Inc. for a total purchase consideration of approximately$8.4 million , consisting of approximately$6.8 million in cash paid at the closing time of the acquisition and a holdback of$1.6 million in cash to be paid as purchase consideration after the one-year anniversary of the closing of the acquisition, assuming no claims by the Company against the holdback amount for post-closing purchase price adjustments or indemnification matters. The purchase price allocation as of the date of acquisition was based on a preliminary valuation and is subject to revision as more detailed analyses are completed and additional information about the fair value of assets and liabilities acquired become available. We expect to finalize the allocation of the purchase consideration as soon as practicable, pending any other adjustments to acquired assets or liabilities, but no later than 12 months from the acquisition date. The acquisition is expected to increase the Company's power, breadth and automation of social listening, messaging, and customer care capabilities with added sentiment analysis, natural language processing (NLP) and artificial-intelligence (AI). We have included the financial results of Repustate in our condensed consolidated financial statements from the date of acquisition. The impact of Repustate's financial results following the date of acquisition were not significant to Sprout's condensed consolidated financial statements. Refer to Note 10 - Business Combinations of the Notes to the Financial Statements (Part 1, Item 1 of this Form 10-Q) for further discussion.
Key Factors Affecting Our Performance
Acquiring new customers
We are focused on continuing to organically grow our customer base by increasing demand for our platform and penetrating our addressable market. We have invested, and expect to continue to invest, heavily in expanding our sales force and marketing efforts to acquire new customers. Currently, we have more than 33,000 customers. InNovember 2022 , we announced a price increase. For the quarter endedMarch 31, 2023 , as compared to the quarter endedMarch 31, 2022 , this price increase contributed to an increase in our average revenue per customer and a decrease in the growth rate of our total number of customers. We expect this trend to continue as we remain focused on higher-value customers. 21 --------------------------------------------------------------------------------
Expanding within our current customer base
We believe that there is a substantial and largely untapped opportunity for organic growth within our existing customer base. Customers often begin by purchasing a small number of user subscriptions and then expand over time, increasing the number of users or social profiles, as well as purchasing additional product modules. Customers may then expand use-cases between various departments to drive collaboration across their organizations. Our sales and customer success efforts include encouraging organizations to expand use-cases to more fully realize the value from the broader adoption of our platform throughout an organization. We will continue to invest in enhancing awareness of our brand, creating additional uses for our products and developing more products, features and functionality of existing products, which we believe are vital to achieving increased adoption of our platform. We have a history of attracting new customers and we have increased our focus on expanding their use of our platform over time.
Sustaining product and technology innovation
Our success is dependent on our ability to sustain product and technology innovation and maintain the competitive advantage of our proprietary technology. We continue to invest resources to enhance the capabilities of our platform by introducing new products, features and functionality of existing products.
International expansion
We see international expansion as a meaningful opportunity to grow our platform. Revenue generated from non-U.S. customers during the three months endedMarch 31, 2023 was approximately 27% of our total revenue. We have built local teams inIreland ,Canada , theUnited Kingdom ,Singapore ,India ,Australia andthe Philippines to support our growth internationally. We believe global demand for our platform and offerings will continue to increase as awareness of our platform in international markets grows. We plan to continue adding to our local sales, customer support and customer success teams in select international markets over time.
Key Business Metrics
We review the following key business metrics to evaluate our business, measure our performance, identify trends, formulate financial projections and make strategic decisions.
Number of customers
We define a customer as a unique account, multiple accounts containing a common
non-personal email domain, or multiple accounts governed by a single agreement
or entity. We believe that the number of customers using our platform is an
indicator not only of our market penetration, but also of our potential for
future growth as our customers often expand their adoption of our platform over
time based on an increased awareness of the value of our platform and products.
As of March 31,
2023 2022
Number of customers 33,861 32,800
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ARR
We define ARR as the annualized revenue run-rate of subscription agreements from
all customers as of the last date of the specified period. We believe ARR is an
indicator of the scale of our entire platform while mitigating fluctuations due
to seasonality and contract term.
As of March 31,
2023 2022
(in thousands)
ARR $ 309,913 $ 239,091 Number of customers contributing more than
We define customers contributing more than
We view the number of customers that contribute more than$10,000 in ARR as a measure of our ability to scale with our customers and attract larger organizations. We believe this represents potential for future growth, including expanding within our current customer base. Over time, larger customers have constituted a greater share of our revenue. As of
2023 2022
Number of customers contributing more than
5,349
Number of customers contributing more than
We define customers contributing more than
We view the number of customers that contribute more than$50,000 in ARR as a measure of our ability to scale with our largest customers and attract more sophisticated organizations. We believe this represents potential for future growth, including expanding within our current customer base. Over time, our largest customers have constituted a greater share of our revenue. As of
2023 2022
Number of customers contributing more than
692
Components of our Results of Operations
Revenue
Subscription
We generate revenue primarily from subscriptions to our social media management
platform under a software-as-a-service model. Our subscriptions can range from
monthly to one-year or multi-year arrangements and are generally non-cancellable
during the contractual subscription term. Subscription revenue is recognized
ratably over the contract terms beginning on the date our product is made
available to customers, which typically begins on the commencement date of each
contract. Our customers do not have the right to take possession of the online
software solution. We also generate a small portion of our subscription revenue
from third-party resellers.
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Professional Services
We sell professional services consisting of, but not limited to, implementation fees, specialized training, one-time reporting services and recurring periodic reporting services. Professional services revenue is recognized at the time these services are provided to the customer. This revenue has historically represented less than 1% of our revenue and is expected to be immaterial for the foreseeable future. Cost of Revenue Subscription Cost of revenue primarily consists of expenses related to hosting our platform and providing support to our customers. These expenses are comprised of fees paid to data providers, hosted data center costs and personnel costs directly associated with cloud infrastructure, customer success and customer support, including salaries, benefits, bonuses and allocated overhead. These costs also include depreciation expense and amortization expense related to acquired developed technologies. Overhead associated with facilities and information technology is allocated to cost of revenue and operating expenses based on headcount. Although we expect our cost of revenue to increase in absolute dollars as our business and revenue grows, we expect our cost of revenue to decrease as a percentage of our revenue over time.
Professional Services and Other
Cost of professional services primarily consists of expenses related to our professional services organization and are comprised of personnel costs, including salaries, benefits, bonuses and allocated overhead.
Gross Profit and Gross Margin
Gross margin is calculated as gross profit as a percentage of total revenue. Our gross margin may fluctuate from period to period based on revenue earned, the timing and amount of investments made to expand our hosting capacity, our customer support and professional services teams and in hiring additional personnel, and the impact of acquisitions. We expect our gross profit and gross margin to increase as our business grows over time.
Operating Expenses
Research and Development
Research and development expenses primarily consist of personnel costs, including salaries, benefits and allocated overhead. Research and development expenses also include depreciation expense and other expenses associated with product development. We plan to increase the dollar amount of our investment in research and development for the foreseeable future as we focus on developing new features and enhancements to our plan offerings.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel costs directly
associated with our sales and marketing department, online advertising expenses,
as well as allocated overhead, including depreciation expense and amortization
related to acquired developed technologies. Sales force commissions and bonuses
are considered incremental costs of obtaining a contract with a customer. Sales
commissions are earned and recorded at contract commencement for both new
customer contracts and expansion of contracts with existing customers. Sales
commissions are deferred and amortized on a straight-line basis over a period of
benefit of three years. We plan to increase the dollar amount of our
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--------------------------------------------------------------------------------investment in sales and marketing for the foreseeable future, primarily for increased headcount for our sales department.
General and Administrative
General and administrative expenses primarily consist of personnel expenses associated with our finance, legal, human resources and other administrative employees. Our general and administrative expenses also include professional fees for external legal, accounting and other consulting services, 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 the dollar amount of our general and administrative expenses to increase for the foreseeable future. However, we expect our general and administrative expenses to decrease as a percentage of revenue over time.
Interest Income (Expense), Net
Interest income (expense), net consists primarily of interest income earned on our cash and investment balances.
Other Expense, Net
Other expense, net primarily consists of foreign currency transaction gains and losses.
Income Tax Provision The income tax provision consists of current and deferred taxes for ourUnited States and foreign jurisdictions. We have historically reported a taxable loss in our most significant jurisdiction,the United States , and have a full valuation allowance against our deferred tax assets. We expect this trend to continue for the foreseeable future. 25 --------------------------------------------------------------------------------
Results of Operations
The following tables set forth information comparing the components of our
results of operations in dollars and as a percentage of total revenue for the
periods presented.
Three Months Ended March 31,
2023 2022
(in thousands)
Revenue
Subscription $ 74,742 $ 56,780
Professional services and other 470 649
Total revenue 75,212 57,429
Cost of revenue(1)
Subscription 16,633 13,757
Professional services and other 242 234
Total cost of revenue 16,875 13,991
Gross profit 58,337 43,438
Operating expenses
Research and development(1) 17,876 13,065
Sales and marketing(1) 36,905 25,612
General and administrative(1) 15,489 14,370
Total operating expenses 70,270 53,047
Loss from operations (11,933) (9,609)
Interest expense (28) (71)
Interest income 2,020 123
Other expense, net (209) (108)
Loss before income taxes (10,150) (9,665)
Income tax expense 102 90
Net loss $ (10,252) $ (9,755)
_______________(1)Includes stock-based compensation expense as follows:
Three Months Ended March 31,
2023 2022
(in thousands)
Cost of revenue $ 501 $ 448
Research and development 3,602 1,725
Sales and marketing 6,570 4,218
General and administrative 2,983 2,001
Total stock-based compensation $ 13,656 $ 8,392
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Three Months Ended March 31,
2023 2022
(as a percentage of total revenue)
Revenue
Subscription 99 % 99 %
Professional services and other 1 % 1 %
Total revenue 100 % 100 %
Cost of revenue
Subscription 22 % 24 %
Professional services and other - % - %
Total cost of revenue 22 % 24 %
Gross profit 78 % 76 %
Operating expenses
Research and development 24 % 23 %
Sales and marketing 49 % 45 %
General and administrative 21 % 25 %
Total operating expenses 93 % 92 %
Loss from operations (16) % (17) %
Interest expense - % - %
Interest income 3 % - %
Other expense, net - % - %
Loss before income taxes (13) % (17) %
Income tax expense - % - %
Net loss (14) % (17) %
Note: Certain amounts may not sum due to rounding
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Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Revenue
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Revenue
Subscription $ 74,742 $ 56,780 $ 17,962 32 %
Professional services and other 470 649 (179) (28) %
Total revenue $ 75,212 $ 57,429 $ 17,783 31 %
Percentage of Total Revenue
Subscription 99 % 99 %
Professional services and other 1 % 1 %
The increase in subscription revenue was primarily driven by revenue from new
customers and expansion within existing customers. The total number of customers
grew from 32,800 as of March 31, 2022 to 33,861 as of March 31, 2023 . Customers
contributing over $10,000 in ARR grew 33% versus the prior year and customers
contributing over $50,000 in ARR grew 46% versus the prior year. The increase in
new customers was primarily driven by our growing sales force capacity to meet
market demand. Expansion within existing customers was driven by our ability to
increase the number of users, social profiles and products purchased by
customers. This is in part attributable to the expansion of use-cases across
various functions within our existing customers' organizations.
Cost of Revenue and Gross Margin
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Cost of revenue
Subscription $ 16,633 $ 13,757 $ 2,876 21 %
Professional services and other 242 234 8 3 %
Total cost of revenue 16,875 13,991 2,884 21 %
Gross profit $ 58,337 $ 43,438 $ 14,899 34 %
Gross margin
Total gross margin 78 % 76 %
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-------------------------------------------------------------------------------- The increase in cost of subscription revenue for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 was primarily due to the following: Change (in thousands) Data provider fees$ 2,488 Personnel costs 160 Other 228 Subscription cost of revenue$ 2,876 Fees paid to our data providers increased due to revenue growth. Personnel costs increased primarily as a result of a 11% increase in headcount as we continue to grow our customer support and customer success teams to support our customer growth. Operating Expenses
Research and Development
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Research and development $ 17,876 $ 13,065 $ 4,811 37 %
Percentage of total revenue 24 % 23 %
The increase in research and development expense for the three months ended
March 31, 2023 compared to the three months ended March 31, 2022 was primarily
due to the following:
Change
(in thousands)
Personnel costs $ 2,849
Stock-based compensation expense 1,877
Other 85
Research and development $ 4,811
Personnel costs increased primarily as a result of a 21% increase in headcount
to grow our research and development teams to drive our technology innovation
through the development and maintenance of our platform. The increase in
stock-based compensation expense was primarily due to the increased headcount.
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Sales and Marketing
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Sales and marketing $ 36,905 $ 25,612 $ 11,293 44 %
Percentage of total revenue 49 % 45 %
The increase in sales and marketing expense for the three months ended March 31,
2023 compared to the three months ended March 31, 2022 was primarily due to the
following:
Change
(in thousands)
Personnel costs $ 8,927
Stock-based compensation expense 2,352
Other 14
Sales and marketing $ 11,293
Personnel costs increased primarily as a result of a 32% increase in headcount
as we continue to expand our sales teams to grow our customer base, as well as
additional sales commission expense due to the year-over-year sales growth,
which increased the amortization of contract acquisition costs. The increase in
stock-based compensation expense was primarily due to the increased headcount.
General and Administrative
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
General and administrative $ 15,489 $ 14,370 $ 1,119 8 %
Percentage of total revenue 21 % 25 %
The increase in general and administrative expense for the three months ended
March 31, 2023 compared to the three months ended March 31, 2022 was primarily
due to the following:
Change
(in thousands)Stock-based compensation expense $ 982 Credit losses on accounts receivable
262
Other (125)
General and administrative $ 1,119 Stock-based compensation expense increased primarily as a result of a 13% increase in headcount. The increase in credit losses on accounts receivable was primarily driven by higher accounts receivable balances.
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Interest Income, Net
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Interest income, net $ 1,992 $ 52 $ 1,940 n/m(1)
Percentage of total revenue 3 % - %
_________________(1)Calculated metric is not meaningful.
The increase in interest income, net was primarily driven by the increased investment in marketable securities and higher interest rates.
Other Expense, Net
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Other expense net $ (209) $ (108) $ (101) 94 %
Percentage of total revenue - % - %
The change in other expense, net was primarily driven by foreign exchange
transaction losses.
Income Tax Expense
Three Months Ended March 31, Change
2023 2022 Amount %
(dollars in thousands)
Income tax expense $ 102 $ 90 $ 12 13 %
Percentage of total revenue - % - %
The increase in income tax expense is due to higher earnings in foreign jurisdictions.
Non-GAAP Financial Measures
In addition to our results determined in accordance withU.S. generally accepted accounting principles, or GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the below non-GAAP financial information, collectively, 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 by excluding certain items that may not be indicative of our business, operating results or future outlook. 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 non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP 31 -------------------------------------------------------------------------------- financial measures as tools for comparison. 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, and not to rely on any single financial measure to evaluate our business.
Non-GAAP Gross Profit
We define non-GAAP gross profit as GAAP gross profit, excluding stock-based
compensation expense. We believe non-GAAP gross profit provides our management
and investors consistency and comparability with our past financial performance
and facilitates period-to-period comparisons of operations, as this non-GAAP
financial measure eliminates the effect of stock-based compensation, which is
often unrelated to overall operating performance.
Three Months Ended March
31,
2023 2022
Reconciliation of Non-GAAP gross profit (dollars in thousands)
Gross profit $ 58,337 $ 43,438
Stock-based compensation expense 501 448
Non-GAAP gross profit $ 58,838 $ 43,886 Non-GAAP Operating Income (Loss)
We define non-GAAP operating income (loss) as GAAP loss from operations,
excluding stock-based compensation expense. We believe non-GAAP operating income
(loss) provides our management and investors consistency and comparability with
our past financial performance and facilitates period-to-period comparisons of
operations, as this non-GAAP financial measure eliminates the effect of
stock-based compensation, which is often unrelated to overall operating
performance.
Three Months Ended March
31,
2023 2022
Reconciliation of Non-GAAP operating income (loss) (dollars in thousands)
Loss from operations $ (11,933) $ (9,609)
Stock-based compensation expense 13,656 8,392
Non-GAAP operating income (loss) $ 1,723 $ (1,217)
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Non-GAAP Net Income (Loss)
We define non-GAAP net income (loss) as GAAP net loss, excluding stock-based
compensation expense. We believe non-GAAP net income (loss) provides our
management and investors consistency and comparability with our past financial
performance and facilitates period-to-period comparisons of operations, as this
non-GAAP financial measure eliminates the effect of stock-based compensation,
which is often unrelated to overall operating performance.
Three Months Ended March
31,
2023 2022
Reconciliation of Non-GAAP net income (loss) (dollars in thousands)
Net loss $ (10,252) $ (9,755)
Stock-based compensation expense 13,656 8,392
Non-GAAP net income (loss) $ 3,404 $ (1,363) Non-GAAP Net Income (Loss) per Share
We define non-GAAP net income (loss) per share as GAAP net loss per share
attributable to common shareholders, basic and diluted, excluding stock-based
compensation expense. We believe non-GAAP net income (loss) per share provides
our management and investors consistency and comparability with our past
financial performance and facilitates period-to-period comparisons of
operations, as this non-GAAP financial measure eliminates the effect of
stock-based compensation, which is often unrelated to overall operating
performance.
Three Months Ended
March 31,
2023 2022Reconciliation of Non-GAAP net income (loss) per share Net loss per share attributable to common shareholders, basic and diluted
$ (0.19) $ (0.18) Stock-based compensation expense per share 0.25 0.15 Non-GAAP net income (loss) per share$ 0.06 $ (0.03) Free Cash Flow Free cash flow is a non-GAAP financial measure that we define as net cash provided by operating activities less purchases of property and equipment. We believe that free cash flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash provided by our core operations that, after the purchases of property and equipment, is 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. One limitation of free cash flow is that it does not reflect our future contractual obligations. Additionally, free cash flow does not represent the 33
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total increase or decrease in our cash balance for a given period.
Three Months Ended
March 31,
2023 2022
Reconciliation of Free cash flow (dollars in thousands)
Net cash provided by operating activities $ 8,284 $ 5,402
Purchases of property and equipment (383) (313)
Free cash flow $ 7,901 $ 5,089 Liquidity and Capital Resources
As ofMarch 31, 2023 , our principal sources of liquidity were cash and cash equivalents of$78.4 million , marketable securities of$108.8 million and net accounts receivable of$36.7 million . Historically, we have generated losses from operations as evidenced by our accumulated deficit and in previous years, we had negative cash flows from operations. However, for the three months endedMarch 31, 2023 and 2022, we generated positive cash flows from operations. We expect to continue to incur operating losses and may have negative operating cash flows for the foreseeable future due to the investments in our business we intend to make as described above. We may experience greater than anticipated operating losses in the short- and long-term due to macroeconomic, financial, and other factors that are beyond our control, such as rising inflation rates and a potential recession. The impact of these factors on our customers and our operations going forward remains uncertain, and we continue to proactively monitor our liquidity position. Prior to our IPO inDecember 2019 , we financed our operations primarily through private issuance of equity securities and line of credit borrowings. In our IPO, we received net proceeds of$134.3 million after deducting underwriting discounts and commissions of$10.5 million and offering expenses of$5.2 million . We subsequently received an additional$10.0 million of net proceeds after deducting underwriting discounts and commissions inJanuary 2020 as a result of the over-allotment option exercise by the underwriters of our IPO. InAugust 2020 , we received$42.1 million of net proceeds from our equity follow-on offering after deducting underwriting discounts and commissions. Our principal uses of cash in recent periods have been to fund operations and invest in capital expenditures. We believe our existing cash and cash equivalents will be sufficient to meet our operating and capital needs for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash, investment balances, and potential future equity or debt transactions. Our future capital requirements will depend on many factors, including our subscription growth rate, subscription renewal activity, billing frequency, the impact of macroeconomic conditions on our customers and our operations, 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 product. We have in the past, and may in the future, enter into arrangements to acquire or invest in complementary businesses, 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 generate cash flows necessary to expand our operations, our business, results of operations and financial condition could be adversely affected. 34 --------------------------------------------------------------------------------
The following table summarizes our cash flows for the periods presented:
Three Months Ended March 31,
2023 2022
(in thousands)
Net cash provided by operating activities $ 8,284 $ 5,402
Net cash used in investing activities (8,691) (29,898)
Net cash used in financing activities (1,099) (956)
Net (decrease) increase in cash and cash equivalents $ (1,506) $ (25,452)
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 personnel costs across the sales and marketing and research and development
departments and hosting costs. Historically, we have generated negative cash
flows from operating activities. However, for the three months ended March 31,
2023 and 2022, we generated positive cash flows from operating activities.
Net cash provided by operating activities during the three months ended
March 31, 2023 was $8.3 million , which resulted from a net loss of $10.3 million
adjusted for non-cash charges of $20.4 million and net cash outflow of $1.9
million from changes in operating assets and liabilities. Non-cash charges
primarily consisted of $13.7 million of stock-based compensation expense, $5.9
million for amortization of deferred contract acquisition costs, which were
primarily commissions, $0.4 million of amortization of right-of-use, or ROU,
operating lease assets, and $1.1 million of depreciation and intangible asset
amortization expense. The net cash outflow from changes in operating assets and
liabilities was primarily the result of a $7.8 million increase in deferred
commissions due to the addition of new customers and expansion of the business,
a $4.1 million increase in prepaid expenses and other assets, a $0.8 million
decrease in operating lease liabilities, a $1.1 million increase in accounts
receivable and a $1.6 million decrease in accounts payable and accrued expenses.
These outflows were primarily offset by a $13.6 million increase in deferred
revenue.
Net cash provided by operating activities during the three months ended March
31, 2022 was $5.4 million , which resulted from a net loss of $9.8 million
adjusted for non-cash charges of $13.8 million and net cash inflow of $1.4
million from changes in operating assets and liabilities. Non-cash charges
primarily consisted of $8.4 million of stock-based compensation expense, $1.0
million of depreciation and intangible asset amortization expense, $4.0 million
for amortization of deferred contract acquisition costs, which were primarily
commissions, and $0.2 million of amortization of ROU operating lease assets. The
net cash inflow from changes in operating assets and liabilities was primarily
the result of a $7.3 million increase in deferred revenue, a $1.5 million
increase in accounts payable and accrued expenses and a $2.3 million decrease in
gross accounts receivable. These inflows were primarily offset by a $6.3 million
increase in deferred commissions due to the addition of new customers and
expansion of the business, a $2.9 million decrease in prepaid expenses and other
assets as well as a $0.7 million decrease in operating lease liabilities.
Investing Activities
Net cash used in investing activities for the three months endedMarch 31, 2023 was$8.7 million , which was primarily due to$30.1 million in purchases of marketable securities and$6.4 million for the acquisition of Repustate, partially offset by$28.2 million in proceeds from the maturities and sale of marketable securities. 35
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Net cash used in investing activities for the three months ended
Financing Activities
Net cash used in financing activities for the three months ended
Net cash used in financing activities for the three months ended
Contractual Obligations
As ofMarch 31, 2023 , we have non-cancellable contractual obligations related primarily to operating leases and minimum guaranteed purchase commitments for data and services. As ofMarch 31, 2023 , the total obligation for operating leases was$24.4 million , of which$3.5 million is expected to be paid in the next twelve months. As ofMarch 31, 2023 , our purchase commitment for primarily data and services was$17.4 million , of which$12.4 million is expected to be paid in the next twelve months. See Note 3 and Note 6 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report for more information regarding these obligations.
Recent Accounting Pronouncements
Refer to section titled "Summary of Significant Accounting Policies" in Note 1 of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report 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 significant accounting policies are discussed in Note 1, "Nature of Operations and Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements as of and for the year endedDecember 31, 2022 included in our Annual Report on Form 10-K for the year endedDecember 31, 2022 , filed with theSEC onFebruary 22, 2023 . There have been no significant changes to these policies during the three months endedMarch 31, 2023 . 36
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