SQUARESPACE, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year endedDecember 31, 2021 included in the Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 7, 2022 . This discussion contains forward-looking statements that involve risks and uncertainties. Our actual business, financial condition and results of operations could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly under "Part 2. Item 1A. Risk Factors." Our historical results are not necessarily indicative of the results that may be expected for any period in the future. OverviewSquarespace is an all-in-one platform with everything to sell anything, providing customers in over 200 countries and territories with all the tools they need to sell physical products, digital content, classes, appointments, reservations and more. Powered by best-in-class design for a consistent brand experience across all touchpoints, our suite of fully integrated products enables anyone to manage their projects and businesses through websites, domains, e-commerce, marketing tools, and scheduling, along with tools for managing a social media presence with Unfold and hospitality services via Tock. We primarily derive revenue from monthly and annual subscriptions to our presence and commerce solutions. Subscription revenue accounted for 91.6% of our total revenue for the three and six months endedJune 30, 2022 , and 91.2% and 92.7% of our total revenue for the three and six months endedJune 30, 2021 , respectively. Payments for our subscription plans are generally collected at the beginning of the subscription period and we generally recognize the associated revenue ratably over the term of the customer contract. Non-subscription revenue primarily consists of commerce transaction fees received through revenue sharing arrangements with payment processors that handle our customers' commerce transactions, payment processing fees received in exchange for use of our hospitality services as well as revenue we generate from third-party services we offer that provide additional functionality to our customers. We generated revenue of$212.7 million and$420.5 million for the three and six months endedJune 30, 2022 , respectively, and net income of$64.5 million and net loss of$28.4 million for the three and six months endedJune 30, 2022 , respectively. We generated revenue of$196.0 million and$375.7 million for the three and six months endedJune 30, 2021 , respectively, and net loss of$234.5 million and$235.7 million for the three and six months endedJune 30, 2021 , respectively. We believe we have a stable and predictable business model driven by customer acquisition and the adoption by our customers over time of higher value offerings and add-on subscriptions. Our platform serves all types of customers, from small and medium-sized businesses ("SMBs") and independent creators, such as restaurants, photographers, wedding planners, artists, musicians and bloggers, to iconic brands. No individual unique subscription accounted for more than 1% of our total bookings for the three and six months endedJune 30, 2022 and 2021.
Key Factors Affecting Our Performance
Acquisition of new and retention of existing unique subscriptions
The growth of unique subscriptions to our platform is the primary driver of our revenue growth. The number of unique subscriptions to our platform has grown sequentially across 26 consecutive quarters, rising to 4.2 million unique subscriptions as ofJune 30, 2022 , representing an increase of 6.2% relative toJune 30, 2021 . In order to continue to grow the number of unique subscriptions, we intend to continue to invest in our marketing efforts, develop new points of entry to our platform and expand internationally. We increased our marketing and sales spend 7.6% during the six months endedJune 30, 2022 relative to the same period in 2021. We view this increased spending as a long-term investment in our business to attract new unique subscriptions.
Expansion of our commerce offerings
We believe that our commerce offerings significantly expand our addressable market. Our comprehensive commerce offerings enable our customers to sell anything online, attracting a differentiated set of commerce-oriented brands to our platform. OnMarch 31, 2021 , we acquired Tock, which expanded our commerce offerings by adding a platform for reservations, take-out, delivery and events for the hospitality industry. For the three and six months endedJune 30, 2022 , our platform processed approximately$1,517.3 million and$3,091.8 million of gross merchandise value ("GMV"), respectively, representing an increase of 5.3% and 16.0% from the same period in 2021, respectively. GMV represents the total dollar value of orders processed through our platform in the period, net of refunds and fraudulent orders. We continue to invest and innovate our commerce offerings to enable customers to build the most impactful online stores, deepen our functionality in physical commerce and establish leadership in commerce services and hospitality 29 --------------------------------------------------------------------------------
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services. Our commerce revenue was$66.2 million and$130.0 million for the three and six months endedJune 30, 2022 , representing 12.7% and 23.2% growth from the same period in 2021, respectively. We believe the adoption of our commerce offerings by new and existing customers will help drive our long-term revenue growth.
Investments in product innovation
We rely on hiring and retaining a talented product development workforce. The success of our customers relies on the innovation tied to this workforce and our ability to remain agile to address customer needs. Our research and product development expenses were$58.8 million and$116.2 million for the three and six months endedJune 30, 2022 , representing 20.3% and 27.8% growth over the same period in 2021. Foreign currency fluctuations As ofJune 30, 2022 , we had customers in over 200 countries and territories and our international customers represented approximately 30% of our total bookings. As foreign currency exchange rates change, translation of the statements of operations of our international businesses intoU.S. dollars may affect year-over-year comparability of our operating results.
Key Components of Results of Operations
Revenue
We primarily derive revenue from annual and monthly subscriptions. Typically, annual and monthly subscriptions represent 70% and 30% of total subscriptions, respectively. Revenue is also derived from non-subscription services, including fixed percentages or fixed-fees earned on revenue share arrangements with third-parties and on sales made through our customers' sites. In addition, we earn fixed-fees on sales through certain hospitality offerings and payment processing fees received in exchange for use of our hospitality services. Payments received for subscriptions in advance of fulfillment of our performance obligations are recorded as deferred revenue. Subscription plans automatically renew unless advanced notice is provided to us. We primarily recognize subscription revenue ratably on a straight-line basis, net of a reserve for refunds. Transaction fee revenue, payment processing revenue and revenue generated from third-parties is recognized at a point in time, when the sale has been completed.
We disaggregate our revenue by product type in accordance with the following definitions:
Presence revenue Presence revenue primarily consists of fixed-fee subscriptions to our plans that offer core platform functionalities, currently branded "Personal" and "Business" plans in our offerings. Presence revenue also consists of fixed-fee subscriptions related to additional entry points for starting online such as domain managed services and social media stories. Additionally, presence revenue is derived from third-party solutions related to email services and access to third-party content to enhance online presence. For customers in need of a larger scale solution, we have an enterprise offering where revenue is recognized over the life of the contract.
Commerce revenue
Commerce revenue primarily consists of fixed-fee subscriptions to our plans that offer all the features of presence plans as well as additional features that support end to end commerce transactions, currently branded "Basic" and "Advanced" in our plan offerings. Commerce revenue also includes fixed-fee subscriptions to a number of other tools that support running an online business such as marketing, member areas, scheduling and hospitality tools. Non-subscription revenue is derived from fixed-fees earned on revenue share arrangements with commerce partners as well as fixed transaction fees earned on GMV processed through Business plan sites and certain hospitality offerings. Commerce revenue also includes payment processing fees received in exchange for use of our hospitality services.
Cost of revenue
Cost of revenue consists primarily of credit card and payment processing fees,
domain registration fees, and web hosting costs. Cost of revenue also includes
customer support employee-related expenses, amortization and depreciation, and
allocated shared costs. Employee-related expenses consist of salaries, taxes,
benefits and stock-based compensation. We expect that cost of revenue may
fluctuate as a percentage of total revenue from period to period based on the
subscriptions purchased and non-subscription transactions during that particular
period.
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Operating expenses:
Research and product development
Research and product development expenses are primarily employee-related expenses, costs associated with continuously developing new solutions and enhancing and maintaining our technology platform as well as allocated shared costs. These costs are expensed as incurred. Employee-related expenses consist of salaries, taxes, benefits and stock-based compensation. In addition, we capitalize employee-related expenses relating to software development costs incurred in connection with adding functionality to our platform, as well as internal-use projects during the application development stage. These capitalized software development costs are deferred and amortized ratably over three years. Marketing and sales Marketing and sales expenses include costs related to advertisements used to drive customer acquisition, employee-related expenses related to our brand and sales of hospitality services, customer acquisition and creative assets, affiliate fees on customer referrals, sales commissions, and allocated shared costs. Depending on the nature of the advertising, costs are expensed at the time a commercial initially airs, when a promotion first appears in the media or as incurred. Affiliate fees on customer referrals are deferred and recognized ratably over the expected period of our relationship with the new customer. In addition, we capitalize sales commissions paid to internal sales personnel relating to obtaining customer contracts for hospitality services. These capitalized sales commissions are deferred and amortized ratably over the expected life of the new customer.
General and administrative
General and administrative expenses are primarily employee-related expenses associated with supporting business operations as well as expenses required to comply with government regulations in the markets in which we operate. The functional elements included in general and administrative are finance, people, legal, information technology and overall corporate support. Employee-related expenses consist of salaries, taxes, benefits and stock-based compensation.
Interest expense
Interest expense primarily consists of the interest expense related to our debt facilities as well as the expense on acquisition liabilities. For further discussion on our interest expense related to our debt facilities, see "Liquidity and Capital Resources, Indebtedness."
Other income/(loss), net
Other income/(loss), net is primarily comprised of net investment income and realized and unrealized foreign currency gains and losses. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk, Foreign Currency Exchange Risk."
Benefit from/(provision for) income taxes
We are subject to income taxation and fileU.S. federal income tax returns as well as income tax returns in the variousU.S. states and foreign jurisdictions in which we conduct business. For interim periods, we historically utilized the estimated annual effective tax rate method under which we determined our benefit from/(provision for) income taxes based on the current estimate of our annual effective tax rate. For the three and six months endedJune 30, 2022 , we utilized the discrete effective tax rate method, as allowed under ASC 740, Income Taxes - Interim Reporting, when the application of the estimated annual tax rate method is impractical and does not provide a reasonable estimate of the annual effective tax rate. The discrete method treats the year-to-date period as if it were the annual period and determines the interim income taxes on that basis. We determined that since small changes in estimated annual pre-tax income/(loss) would result in significant changes in the estimated annual effective tax rate and significant variations in the customary relationship between the benefit from/(provision for) income taxes and pre-tax accounting income/(loss), the historical method would not provide a reliable estimate of our effective tax rate for the three and six months endedJune 30, 2022 . We will reevaluate the use of this method each quarter until we believe a return to the estimated annual effective rate method is deemed appropriate. 31 --------------------------------------------------------------------------------
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Results of operations
The following table sets forth our condensed consolidated statements of
operations information for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue $ 212,702 $ 196,010 $ 420,464 $ 375,656
Cost of revenue(1) 36,993 32,501 73,642 59,909
Gross profit 175,709 163,509 346,822 315,747
Operating expenses:
Research and product
development(1) 58,829 48,912 116,157 90,923
Marketing and sales(1) 68,743 70,784 181,649 168,756
General and administrative(1) 39,190 284,730 75,171 304,246
Total operating expenses 166,762 404,426 372,977 563,925
Operating income/(loss) 8,947 (240,917) (26,155) (248,178)
Interest expense (3,319) (2,827) (5,768) (6,087)
Other income/(loss), net 6,217 (1,201) 7,728 2,392
Income/(loss) before benefit
from/(provision for) income taxes 11,845 (244,945) (24,195) (251,873)
Benefit from/(provision for)
income taxes 52,651 10,413 (4,169) 16,195
Net income/(loss) $ 64,496 $ (234,532) $ (28,364) $ (235,678)
__________________
(1)Includes stock-based compensation as follows:
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cost of revenue $ 846 $ 380 $ 1,470 $ 655
Research and product
development 11,508 8,245 21,676 15,038
Marketing and sales 2,395 1,569 3,994 2,741
General and administrative 12,111 240,319 23,817 241,931
Total stock-based
compensation $ 26,860 $ 250,513 $ 50,957 $ 260,365
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The following table sets forth our condensed consolidated statements of
operations information as a percentage of total revenue for the three and six
months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue 17.4 % 16.6 % 17.5 % 15.9 %
Gross profit 82.6 % 83.4 % 82.5 % 84.1 %
Operating expenses:
Research and product development 27.7 % 25.0 % 27.6 % 24.2 %
Marketing and sales 32.3 % 36.1 % 43.2 % 44.9 %
General and administrative 18.4 % 145.3 % 17.9 % 81.0 %
Total operating expenses 78.4 % 206.4 % 88.7 % 150.1 %
Operating income/(loss) 4.2 % (123.0) % (6.2) % (66.0) %
Interest expense (1.6) % (1.4) % (1.4) % (1.6) %
Other income/(loss), net 2.9 % (0.6) % 1.8 % 0.6 %
Income/(loss) before benefit
from/(provision for) income taxes 5.5 % (125.0) % (5.8) % (67.0) %
Benefit from/(provision for)
income taxes 24.8 % 5.3 % (1.0) % 4.3 %
Net income/(loss) 30.3 % (119.7) % (6.8) % (62.7) %
The following table sets forth our condensed consolidated revenue by geographic
location and our condensed consolidated revenue by geographic location as
a percentage of total revenue for the three and six months ended June 30, 2022
and 2021.
Six Months Ended
Three Months Ended June 30, Change June 30, Change
($ in thousands, except percentages) 2022 2021 Amount % 2022 2021 Amount %
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
United States $ 152,354 $ 141,517 $ 10,837 7.7 % $ 299,174 $ 268,560 $ 30,614 11.4 %
International 60,348 54,493 5,855 10.7 % 121,290 107,096 14,194 13.3 %
Total revenue $ 212,702 $ 196,010 $ 16,692 8.5 % $ 420,464 $ 375,656 $ 44,808 11.9 %
Percentage of total revenue:
United States 71.6 % 72.2 % 71.2 % 71.5 %
International 28.4 % 27.8 % 28.8 % 28.5 %
Total revenue 100 % 100 % 100 % 100 %
During the three months ended September 30, 2021 , we identified certain revenues
which should have been classified as international revenues during the first and
second quarter. Accordingly, in the third quarter of 2021, we reclassified
approximately $4.1 million and $5.1 million related to the first and second
quarter out of United States and into international revenue. Using the updated
classification, the year-over-year growth for the three and six months ended
June 30, 2022 would have been 1.3% and 4.3% for international, respectively, and
11.7% and 15.4% for the United States , respectively. In addition, for the three
and six months ended June 30, 2021 the international percentage of total revenue
would have been 30.4% and 31.0%, respectively, and the United States percentage
of total revenue would have been 69.6% and 69.0%, respectively. No amounts were
reclassified related to fiscal 2022.
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Comparison of the Three Months Ended
Revenue
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Presence $ 146,531 $ 137,277 $ 9,254 6.7 %
Commerce 66,171 58,733 7,438 12.7 %
Total revenue $ 212,702 $ 196,010 $ 16,692 8.5 %Percentage of total revenue: Presence 68.9 % 70.0 % Commerce 31.1 % 30.0 % Total revenue 100 % 100 % Presence revenue Presence revenue increased$9.3 million , or 6.7%, for the three months endedJune 30, 2022 compared to the same period in 2021. This increase was primarily the result of our growing unique subscriptions, driven by strong retention of existing subscriptions and continued acquisition of new subscriptions.
Commerce revenue
Commerce revenue increased$7.4 million , or 12.7%, for the three months endedJune 30, 2022 compared to the same period in 2021. This increase was primarily a result of our growing unique subscriptions across our commerce offerings.
Cost of revenue and gross profit
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Cost of revenue $ 36,993 $ 32,501 $ 4,492 13.8 %
Gross profit $ 175,709 $ 163,509 $ 12,200 7.5 %
Percentage of total revenue:
Cost of revenue 17.4 % 16.6 %
Gross profit 82.6 % 83.4 %
Cost of revenue
Cost of revenue increased $4.5 million , or 13.8%, for the three months ended
June 30, 2022 compared to the same period in 2021. The increase was primarily
driven by increased payment processing fees and hosting costs associated with
our growing subscription base as well as payroll and associated benefit expenses
for customer support associated with hospitality services.
Gross profit
Gross profit increased$12.2 million , or 7.5%, for the three months endedJune 30, 2022 compared to the same period in 2021. As a percentage of total revenue, gross profit was 82.6% and 83.4% for the three months endedJune 30, 2022 and 2021, respectively. Operating expenses:
Research and product development
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Research and product development$ 58,829 $ 48,912 $ 9,917 20.3 % Percentage of total revenue 27.7 % 25.0 % 34
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Research and product development expenses increased$9.9 million , or 20.3%, for the three months endedJune 30, 2022 compared to the same period in 2021. The increase is primarily due to payroll and associated benefit expenses related to increased headcount in support of our product development roadmap.
Marketing and sales
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Marketing and sales $ 68,743 $ 70,784 $ (2,041) (2.9) %
Percentage of total revenue 32.3 % 36.1 %
Marketing and sales expenses decreased $2.0 million , or 2.9%, for the three
months ended June 30, 2022 compared to the same period in 2021, primarily due to
reduction in our brand spend channels partially offset by increased expenses
related to our direct response channels and increased headcount in support of
our expanded marketing operations.
General and administrative
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
General and administrative$ 39,190 $ 284,730 $ (245,540) (86.2) % Percentage of total revenue 18.4 %
145.3 %
General and administrative expenses decreased$245.5 million , or 86.2%, for the three months endedJune 30, 2022 compared to the same period in 2021, primarily due to expenses incurred in connection with our Direct Listing during 2021, including$229.3 million of stock-based compensation expense associated with the vesting conditions of a grant to our Chief Executive Officer ("CEO") of shares of Class B common stock upon consummation of the listing, as well as professional fees of$25.3 million .
Interest expense
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Interest expense $ (3,319) $ (2,827) $ 492 17.4 %
Percentage of total revenue (1.6) % (1.4) %
Interest expense increased $0.5 million , or 17.4%, for the three months ended
June 30, 2022 compared to the same period in 2021 due to higher interest rates
on our total debt outstanding related to our amended credit agreement.
Other income/(loss), net
Three Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Other income/(loss), net $ 6,217 $ (1,201) $ 7,418 (617.7) %
Percentage of total revenue 2.9 % (0.6) %
Other income/(loss), net was in a net income position of $6.2 million for the
three months ended June 30, 2022 compared to a net loss position of $1.2 million
during the same period in 2021. The increase is primarily due to favorable
foreign exchange rates for the three months ended June 30, 2022 compared to the
same period in 2021.
Benefit from/(provision for) income taxes
For the three months ended
Our effective income tax rate for the three months endedJune 30, 2022 differed from the statutory rate of 21% primarily due to the change in the valuation allowance for deferred tax assets related primarily to the capitalization of research and development expenditures, nondeductible executive compensation, unrecognized tax benefits, and the effect 35 --------------------------------------------------------------------------------
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from foreign operations, partially offset by research and development tax credits, windfall on stock-based compensation, and deduction from foreign-derived intangible income. The provision for income taxes for the three months endedJune 30, 2022 also reflects a provision of the Tax Cuts and Jobs Act of 2017 becoming effective as ofJanuary 1, 2022 that requires companies to capitalize and amortize research and development expenditures rather than deduct the costs as incurred. Unless the law is changed or repealed, we expect our effective tax rate and cash payments to change significantly as compared to fiscal 2021. Our estimated annual effective income tax rate for the three months endedJune 30, 2021 differed from the statutory rate of 21% primarily due to nondeductible executive compensation, nondeductible transaction expenses, minimum taxes, partially offset by windfall on stock-based compensation and research and development tax credits.
Comparison of the Six Months Ended
Revenue
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Presence $ 290,476 $ 270,148 $ 20,328 7.5 %
Commerce 129,988 105,508 24,480 23.2 %
Total revenue $ 420,464 $ 375,656 $ 44,808 11.9 %
Percentage of total revenue:
Presence 69.1 % 71.9 %
Commerce 30.9 % 28.1 %
Total revenue 100 % 100 %
Presence revenue
Presence revenue increased $20.3 million , or 7.5%, for the six months ended June
30, 2022 compared to the same period in 2021. This increase was primarily the
result of our growing unique subscriptions, driven by strong retention of
existing subscriptions and continued acquisition of new subscriptions.
Commerce revenue
Commerce revenue increased$24.5 million , or 23.2%, for the six months endedJune 30, 2022 compared to the same period in 2021. This increase was primarily a result of our growing unique subscriptions across our commerce offerings, as well as the addition and subsequent growth in hospitality services.
Cost of revenue and gross profit
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Cost of revenue $ 73,642 $ 59,909 $ 13,733 22.9 %
Gross profit $ 346,822 $ 315,747 $ 31,075 9.8 %
Percentage of total revenue:
Cost of revenue 17.5 % 15.9 %
Gross profit 82.5 % 84.1 %
Cost of revenue
Cost of revenue increased $13.7 million , or 22.9%, for the six months ended June
30, 2022 compared to the same period in 2021. The increase was primarily driven
by increased payment processing fees and hosting costs associated with our
growing subscription base as well as payroll and associated benefit expenses for
customer support associated with hospitality services.
Gross profit
Gross profit increased
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Operating expenses:
Research and product development
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Research and product development $ 116,157 $ 90,923 $ 25,234 27.8 %
Percentage of total revenue 27.6 % 24.2 %
Research and product development expenses increased $25.2 million , or 27.8%, for
the six months ended June 30, 2022 compared to the same period in 2021. The
increase is primarily due to payroll and associated benefit expenses related to
increased headcount in support of our product development roadmap and the
addition of hospitality services.
Marketing and sales
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Marketing and sales $ 181,649 $ 168,756 $ 12,893 7.6 %
Percentage of total revenue 43.2 % 44.9 %
Marketing and sales expenses increased $12.9 million , or 7.6%, for the six
months ended June 30, 2022 compared to the same period in 2021, primarily due to
payroll and associated benefits related to increased headcount in support of our
expanded marketing operations including hospitality services. The remainder of
the increase was due to spend in multiple direct response and associated
production channels both domestically and internationally.
General and administrative
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
General and administrative $ 75,171 $ 304,246 $ (229,075) (75.3) %
Percentage of total revenue 17.9 % 81.0 %
General and administrative expenses decreased $229.1 million , or 75.3%, for the
six months ended June 30, 2022 compared to the same period in 2021, primarily
due to one-time expense related to our Direct Listing in May 2021 , including a
$229.3 million expense for stock-based compensation associated with the vesting
conditions of a grant to our CEO of shares of Class B common stock upon
consummation of the listing, as well as professional fees of $25.3 million .
Interest expense
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Interest expense $ (5,768) $ (6,087) $ (319) (5.2) %
Percentage of total revenue (1.4) % (1.6) %
Interest expense decreased $0.3 million , or 5.2%, for the six months ended June
30, 2022 compared to the same period in 2021 due to lower total debt outstanding
partially offset by higher interest rates.
Other income/(loss), net
Six Months Ended June 30, Change
($ in thousands, except percentages) 2022 2021 Amount %
(Unaudited) (Unaudited)
Other income/(loss), net $ 7,728 $ 2,392 $ 5,336 223.1 %
Percentage of total revenue 1.8 % 0.6 %
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Other income/(loss), net was in a net income position of$7.7 million for the six months endedJune 30, 2022 compared to a net income position of$2.4 million during the same period in 2021. The increase is primarily due to favorable foreign exchange rates for the six months endedJune 30, 2022 compared to the same period in 2021.
Benefit from/(provision for) income taxes
For the six months ended
Our effective income tax rate for the six months endedJune 30, 2022 differed from the statutory rate of 21% primarily due to the change in the valuation allowance for deferred tax assets related primarily to the capitalization of research and development expenditures, nondeductible executive compensation, global intangible low-taxed income, unrecognized tax benefits, and the effect from foreign operations, partially offset by research and development tax credits, windfall on stock-based compensation, and deduction from foreign-derived intangible income. The provision for income taxes for the six months endedJune 30, 2022 also reflects a provision of the Tax Cuts and Jobs Act of 2017 becoming effective as ofJanuary 1, 2022 that requires companies to capitalize and amortize research and development expenditures rather than deduct the costs as incurred. Unless the law is changed or repealed, we expect our effective tax rate and cash payments to change significantly as compared to fiscal 2021.
Our estimated annual effective income tax rate for the six months ended
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Quarterly Results of Operations
The following tables set forth selected unaudited quarterly statements of operations data for each of the eight fiscal quarters endedJune 30, 2022 , as well as the percentage of revenues that each line item represents for each quarter. The information for each of these quarters has been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP") on the same basis as our audited historical condensed consolidated financial information and includes, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period. Three Months Ended (Unaudited) June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, ($ in thousands) 2022 2022 2021 2021 2021 2021 2020 2020 Revenue$ 212,702 $ 207,762 $
207,420
36,993 36,649 33,854 32,868 32,501 27,408 26,171 24,550
Gross profit 175,709 171,113 173,566 168,094 163,509 152,238 146,129 137,785
Operating expenses:
Research and product development(1) 58,829 57,328 50,679 48,769 48,912 42,011 57,409 38,379
Marketing and sales(1) 68,743 112,906 90,960 80,249 70,784 97,972 73,549 59,656
General and administrative(1) 39,190 35,981 31,608 32,091 284,730 19,516 17,077 11,961
Total operating expenses 166,762 206,215 173,247 161,109 404,426 159,499 148,035 109,996
Operating income/(loss) 8,947 (35,102) 319 6,985 (240,917) (7,261) (1,906) 27,789
Interest expense (3,319) (2,449) (2,503) (2,491) (2,827) (3,260) (1,997) (2,460)
Other income/(loss), net 6,217 1,511 2,138 2,101 (1,201) 3,593 (4,076) (3,488)
Income/(loss) before benefit
from/(provision for) income taxes 11,845 (36,040) (46) 6,595 (244,945) (6,928) (7,979) 21,841
Benefit from/(provision for) income
taxes 52,651 (56,820) (16,264) (3,756) 10,413 5,782 12,236 (3,917)
Net income/(loss) $ 64,496 $ (92,860) $
(16,310)
Net income/(loss) attributable to Class A, Class B and Class C common stockholders, basic(2)$ 64,496 $ (92,860) $ (16,310) $ 2,839 $ (234,532) $ (2,115) $ (275,439) $ 2,963 Net income/(loss) attributable to Class A, Class B and Class C common stockholders, dilutive(2)$ 64,496 $ (92,860) $ (16,310) $ 2,839 $ (234,532) $ (2,115) $ (275,439) $ 3,841 Net income/(loss) per share attributable to Class A, Class B, and Class C common stockholders, basic$ 0.46 $ (0.67) $ (0.12) $ 0.02$ (3.22) $ (0.11) $ (14.98) $ 0.13 Net income/(loss) per share attributable to Class A, Class B, and Class C common stockholders, dilutive$ 0.45 $ (0.67) $ (0.12) $ 0.02$ (3.22) $ (0.11) $ (14.98) $ 0.12 Weighted-average shares used in computing net income/(loss) per share attributable to Class A, Class B, and Class C stockholders, basic 140,082,038 139,423,228 138,970,923 138,625,579 72,900,951 19,012,323 18,383,523 22,535,791 Weighted-average shares used in computing net income/(loss) per share attributable to Class A, Class B, and Class C stockholders, dilutive 142,133,303 139,423,228
138,970,923 143,251,717 72,900,951 19,012,323 18,383,523 31,201,743
__________________
(1)Includes stock-based compensation as follows:
Three Months Ended (Unaudited)
June 30 , March 31 , September 30 , ($ in thousands) 2022 2022 2021 2021 2021 2021 2020 2020 Cost of revenue$ 846 $ 624 $ 450 $ 440$ 380 $ 275 $ 212 $ 202 Research and product development 11,508 10,168 9,210 8,782 8,245 6,793 6,151 5,522 Marketing and sales 2,395 1,599 1,472 1,716 1,569 1,172 839 882 General and administrative(a) 12,111 11,706 12,693 12,796 240,319 1,612 1,229
1,047
Total stock-based compensation$ 26,860 $ 24,097 $
23,825
7,653
a.In conjunction with our Direct Listing inMay 2021 , we incurred certain stock-based compensation expense associated with the vesting conditions of a grant to our CEO of shares of Class B common stock upon completion of the listing which resulted in a one time expense of$229.3 million . In addition, we incurred professional fees of$25.3 million associated with the Direct Listing. We expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on aU.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations 39 --------------------------------------------------------------------------------
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of the
(2) Preferred shares of the Company do not participate in periods of net loss. Therefore, in periods of net loss, or when undistributed earnings of the Company are negative, there is no additional allocation of undistributed earnings to preferred shareholders included within the calculation of net (loss)/income attributable to Class A, Class B and Class C common stockholders.
The following table sets forth our condensed consolidated statements of operations information as a percentage of total revenue for the three month periods indicated below.
Three Months Ended (Unaudited)
June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
($ in thousands) 2022 2022 2021 2021 2021 2021 2020 2020
Revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue(1) 17.4 % 17.6 % 16.3 % 16.4 % 16.6 % 15.3 % 15.2 % 15.1 %
Gross profit 82.6 % 82.4 % 83.7 % 83.6 % 83.4 % 84.7 % 84.8 % 84.9 %
Operating expenses:
Research and product
development(1) 27.7 % 27.6 % 24.4 % 24.3 % 25.0 % 23.4 % 33.3 % 23.6 %
Marketing and sales(1) 32.3 % 54.3 % 43.9 % 39.9 % 36.1 % 54.5 % 42.7 % 36.7 %
General and administrative(1) 18.4 % 17.3 % 15.2 % 16.0 % 145.3 % 10.9 % 9.9 % 7.4 %
Total operating expenses 78.4 % 99.2 % 83.5 % 80.2 % 206.4 % 88.8 % 85.9 % 67.7 %
Operating income/(loss) 4.2 % (16.8) % 0.2 % 3.4 % (123.0) % (4.1) % (1.1) % 17.2 %
Interest expense (1.6) % (1.2) % (1.2) % (1.2) % (1.4) % (1.8) % (1.2) % (1.5) %
Other income/(loss), net 2.9 % 0.7 % 1.0 % 1.0 % (0.6) % 2.0 % (2.4) % (2.1) %
Income/(loss) before benefit
from/(provision for) income taxes 5.5 % (17.3) % - % 3.2 % (125.0) % (3.9) % (4.7) % 13.6 %
Benefit from/(provision for)
income taxes 24.8 % (27.3) % (7.8) % (1.9) % 5.3 % 3.2 % 7.1 % (2.4) %
Net income/(loss) 30.3 % (44.6) % (7.8) % 1.3 % (119.7) % (0.7) % 2.4 % 11.2 %
Quarterly Trends
Our business is impacted by seasonal fluctuations. We typically register a
greater number of new unique subscriptions during the first quarter of a year.
We believe this is related to, among other things, our customers' buying habits
and our increased marketing and sales spend in the first quarter of most years.
Our hospitality services have experienced a greater number of prepayments on
reservations around the time of major holidays and special occasions during the
first and fourth quarter of the year. In the future, seasonal trends may cause
fluctuations in our quarterly results, which may impact the predictability of
our business and operating results.
Liquidity and Capital Resources
To date, we have primarily financed our operations through cash flows from operations.
As ofJune 30, 2022 , we had cash and cash equivalents and investment in marketable securities of$247.3 million and$15.4 million of available borrowing capacity under our Revolving Credit Facility, as defined below. DuringJuly 2021 , we were issued an additional letter of credit for$2.5 million relating to a security deposit for a new operating lease inChicago, IL which reduced the amount available under our Revolving Credit Facility from$17.9 million to$15.4 million ; see "Item 1. Financial Information, Item 1. Financial Statements, Note 9. Debt." We believe our existing cash and cash equivalents and investment in marketable securities will be sufficient to meet our operating working capital and capital expenditure requirements over the next 12 months. We have also filed federal tax refund claims totaling approximately$8.7 million of which$4.0 million relates to a research and development tax credit carryback to 2018 and$4.7 million relates to a 2020 tax overpayment. We do not expect to receive these refunds until later in 2022. Our principal commitments consist of payments for our Credit Facility, operating leases and purchase commitments related to cloud-computing services. In addition, as ofJune 30, 2022 , we had accrued$9.7 million of unrecognized tax benefits related to uncertain tax positions. OnMay 10, 2022 , the board of directors authorized a general share repurchase program of the Company's Class A common stock of up to$200 million , with no fixed expiration. During the three months endedJune 30, 2022 , the Company repurchased 1.6 million shares for a total cash consideration of$35.2 million , including commissions of$0.03 million , through open market purchases at an average price per share of$20.73 . As ofJune 30, 2022 , approximately$164.8 million remained available for stock repurchase. At this time, we are unable to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. Our future financing requirements will depend on many factors, including our growth rate, subscription renewal activity, the timing and extent of spending to support development of our platform and products, the expansion of marketing and sales activities and any future investments or acquisitions we may make. Although we currently are not a party to any agreement and do not have any understanding with any third-parties with respect to future investments in, or acquisitions of, businesses or technologies, we may enter into these types of arrangements following the filing of this Quarterly Report on Form 10-Q, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all, including as a result of disruptions in the credit markets. See "Part 2. Item 1A. Risk Factors." 40 --------------------------------------------------------------------------------
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The following table summarizes our operating, investing and financing activities
for the six months ended
Six Months Ended June 30,
($ in thousands) 2022 2021
Net cash provided by/(used in):
Operating activities $ 83,683 $ 58,823
Investing activities $ (6,811) $ (204,306)
Financing activities $ (55,154) $ 275,080 Net cash provided by operating activities
Net cash provided by operating activities in the six months endedJune 30, 2022 was$83.7 million , which reflected our net loss of$28.4 million , which was increased by non-cash items such as$51.0 million of stock-based compensation,$15.9 million of depreciation and amortization, and$0.6 million of non-cash lease expense. Cash provided by operating activities included$30.3 million in deferred revenue,$(3.0) million in prepaid expenses and other current assets,$9.5 million in funds payable to customers,$9.3 million of accounts payable and accrued liabilities, which was offset by$1.7 million in accounts receivables and due from vendors. Net cash provided by operating activities in the six months endedJune 30, 2021 was$58.8 million , which reflected our net loss of$235.7 million , which was increased by certain non-cash items primarily consisting of$260.4 million of stock-based compensation and$16.2 million of depreciation and amortization, partially offset by$17.0 million of deferred income taxes. Cash provided by operating activities included$4.3 million in accounts payable and accrued liabilities,$30.8 million in deferred revenue and$10.1 million in funds payable to customers, which was primarily offset by$10.8 million in prepaid expenses and other current assets.
Net cash used in investing activities
Net cash used in investing activities in the six months endedJune 30, 2022 was$6.8 million , which reflected$5.7 million spent in connection with the purchase of property and equipment, and$17.0 million used to purchase marketable securities, offset by$15.9 million in proceeds from the sale and maturities of marketable securities. Net cash used in investing activities in the six months endedJune 30, 2021 was$204.3 million , which reflected$202.5 million , net of acquired cash, used to pay for the acquisition of Tock and$14.2 million used to purchase marketable securities, which was partially offset by$14.8 million in proceeds from the sale and maturities of marketable securities. We additionally spent$2.4 million in connection with the purchase of property and equipment.
Net cash (used in)/provided by financing activities
Net cash used in financing activities in the six months endedJune 30, 2022 was$55.2 million , which reflects$35.2 million cash spent on proceeds from repurchase and retirement of Class A common stock,$15.3 million on stock purchases related to equity incentive plans, and$6.8 million in principal payments on our Term Loan, partially offset by$2.1 million in proceeds from the exercise of stock options. Net cash provided by financing activities in the six months endedJune 30, 2021 was$275.1 million , which primarily reflected$304.4 million in proceeds from the issuance of 4,452,023 shares of Class C common stock, net of issuance costs. These proceeds were partially offset by$25.7 million in stock purchases related to equity incentive plans and$6.8 million in principal payments on our Term Loan. Indebtedness OnDecember 12, 2019 , we entered into a credit agreement with various financial institutions that provided for a$350.0 million term loan (the "Term Loan") and a$25.0 million revolving credit facility ("Revolving Credit Facility"), which included a$15.0 million letter of credit sub-facility. OnDecember 11, 2020 , we amended the credit agreement (as amended, the "Credit Agreement") to increase the size of the Term Loan to$550.0 million and extend the maturity date for the Term Loan and the Revolving Credit Facility toDecember 11, 2025 . The original borrowings under the Term Loan were used to provide for the repurchase, and subsequent retirement, of outstanding capital stock in 2019. The additional borrowings were used to provide for a dividend on all outstanding capital stock. Borrowings under the Credit Agreement are subject to an interest rate equal to, at our option, LIBOR or the bank's alternative base rate (the "ABR"), in either case, plus an applicable margin. The ABR is the greater of the prime rate, the federal funds effective rate plus the applicable margin or the LIBOR quoted rate plus the applicable margin. The applicable margin is based on an indebtedness to consolidated EBITDA ratio as prescribed under the Credit Agreement and ranges from 1.25% to 2.25% on applicable LIBOR loans and 0.25% to 1.25% on ABR loans. In addition, the Revolving Credit Facility is subject to an unused commitment fee, payable quarterly, in an aggregate amount equal to 0.20% of the unutilized 41 --------------------------------------------------------------------------------
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commitments (subject to reduction in certain circumstances). Consolidated EBITDA is defined in the Credit Agreement and is not comparable to our definition of adjusted EBITDA used elsewhere in the Quarterly Report on Form 10-Q since the Credit Agreement allows for additional adjustments to net income/(loss) including the exclusion of transaction costs, changes in deferred revenue, and other costs that may be considered non-recurring. Further, consolidated EBITDA, as defined in the Credit Agreement, may be different from similarly titled EBITDA financial measures used by other companies. The definition of consolidated EBITDA is contained in Section 1.1 of the Credit Agreement. As ofJune 30, 2022 ,$523.1 million was outstanding under the Term Loan. The Term Loan requires scheduled quarterly principal payments beginningMarch 31, 2021 in aggregate annual amounts equal to 2.50% for 2021 and 2022, 7.50% for 2023 and 2024 and 10.00% for 2025, in each case, on the amended Term Loan principal amount, with the balance due at maturity. In addition, the Credit Agreement includes certain customary prepayment requirements for the Term Loan, which are triggered by events such as asset sales, incurrences of indebtedness and sale leasebacks. As ofJune 30, 2022 ,$9.6 million was outstanding under the Revolving Credit Facility in the form of outstanding letters of credit and$15.4 million remained available for borrowing by us. The outstanding letters of credit relate to security deposits for certain of our leased locations. The Credit Agreement contains certain customary affirmative covenants and events of default. The negative covenants in the Credit Agreement include, among others, limitations on our ability (subject to negotiated exceptions) to incur additional indebtedness or issue additional preferred stock, incur liens on assets, enter into agreements related to mergers and acquisitions, dispose of assets or pay dividends and distributions. In addition, commencing with the fiscal quarter endedDecember 31, 2020 , we are required to maintain an indebtedness to consolidated EBITDA ratio of not more than 4.50, tested as of the last day of each fiscal quarter, with a step-down to 4.25 for the fiscal quarters endingMarch 31, 2022 andJune 30, 2022 , a further step-down to 4.00 for the fiscal quarters endingSeptember 30, 2022 andDecember 31, 2022 and a final step-down to 3.75 for the fiscal quarter endingMarch 31, 2023 and each fiscal quarter thereafter (the "Financial Covenant"), subject to customary equity cure rights. The Financial Covenant is subject to a 0.50 step-up in the event of a material permitted acquisition, which we can elect to implement up to two times during the life of the facility. We did not elect to implement this step-up as a result of the acquisition of Tock. If we are not in compliance with the covenants under the Credit Agreement or we otherwise experience an event of default, the lenders would be entitled to take various actions, including acceleration of amounts due under the Credit Agreement. As ofJune 30, 2022 , we were in compliance with all applicable covenants, including the Financial Covenant. The obligations under the Credit Agreement are guaranteed by our wholly-owned domestic subsidiaries and are secured by substantially all of the assets of the guarantors, subject to certain exceptions. Total interest expense related to our indebtedness was$3.3 million and$5.8 million for the three and six months endedJune 30, 2022 , respectively, and$2.8 million and$6.1 million for the three and six months endedJune 30, 2021 , respectively.
Key Performance Indicators and Non-GAAP Financial Measures
We review the following key performance indicators and non-GAAP financial
measures to evaluate our business, measure our performance, identify trends
affecting our business, formulate financial projections and make strategic
decisions. Increases or decreases in our key performance indicators and non-GAAP
financial measures may not correspond with increases or decreases in our revenue
and our key performance indicators and non-GAAP financial measures may be
calculated in a manner different from similar key performance indicators and
non-GAAP financial measures, respectively, used by other companies.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Unique subscriptions (in
thousands) 4,182 3,937 4,182 3,937
Total bookings (in thousands) $ 219,912 $ 206,645 $ 448,451 $ 405,592
ARRR (in thousands) $ 837,759 $ 777,940 $ 837,759 $ 777,940
ARPUS $ 204.17 $ 193.03 $ 204.17 $ 193.03
Adjusted EBITDA (in thousands) $ 43,618 $ 42,640 $ 40,671 $ 53,737
Unlevered free cash flow (in
thousands) $ 36,377 $ 10,254 $ 81,912 $ 62,036
GMV (in thousands) $ 1,517,286 $ 1,440,442 $ 3,091,826 $ 2,666,430
Unique subscriptions. Unique subscriptions represent the number of unique
sites, standalone scheduling subscriptions, Unfold (social) and hospitality
subscriptions, as of the end of a period. A unique site represents a single
subscription and/or group of related subscriptions, including a website
subscription and/or a domain subscription, and other subscriptions related to a
single website or domain. Every unique site contains at least one domain
subscription or one website subscription. For instance, an active website
subscription, a custom domain subscription and a Google Workspace subscription
that represent services for a single website would count as one unique site, as
all of these subscriptions work
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together and are in service of a single entity's online presence. Unique subscriptions do not account for one-time purchases in Unfold or for hospitality services. The total number of unique subscriptions is a key indicator of the scale of our business and is a critical factor in our ability to increase our revenue base. Unique subscriptions increased 0.2 million, or 6.2%, as ofJune 30, 2022 compared to the same period in 2021. These increases were primarily a result of the continued acquisition of new subscriptions and the retention of existing customers. Total bookings. Total bookings includes cash receipts for all subscriptions purchased, as well as payments due under the terms of contractual agreements for obligations to be fulfilled. In the case of multi-year contracts, total bookings only includes one year of committed revenue. Total bookings provides insight into the sales of our solutions and the performance of our business because, for a large portion of our business, we collect payment at the time of sale and recognize revenue ratably over the term of our subscription agreements. Total bookings increased 13.3 million, or 6.4%, for the three months endedJune 30, 2022 compared to the same period in 2021 and increased 42.9 million, or 10.6%, for the six months endedJune 30, 2022 . These increases were primarily a result of an increase in unique subscriptions and the addition of hospitality services. Annual run rate revenue ("ARRR"). We calculate ARRR as the monthly revenue from subscription fees and revenue generated in conjunction with associated fees (fees taken or assessed in conjunction with commerce transactions) in the last month of the period multiplied by 12. We believe that ARRR is a key indicator of our future revenue potential. However, ARRR should be viewed independently of revenue, and does not represent our GAAP revenue on an annualized basis, as it is an operating metric that can be impacted by subscription start and end dates and renewal rates. ARRR is not intended to be a replacement or forecast of revenue. ARRR increased$59.8 million , or 7.7%, as ofJune 30, 2022 compared to the same period in 2021. This increase was primarily a result of an increase in unique subscriptions and an increase in our hospitality services. Average revenue per unique subscription. We calculate ARPUS as the total revenue during the preceding 12-month period divided by the average of the number of total unique subscriptions at the beginning and end of the period. We believe ARPUS is a useful metric in evaluating our ability to sell higher-value plans and add-on subscriptions.
ARPUS increased
Adjusted EBITDA. Adjusted EBITDA is a supplemental performance measure that our management uses to assess our operating performance. We calculate adjusted EBITDA as net income/(loss) excluding interest expense, other income, net, provision for/(benefit from) income taxes, depreciation and amortization, stock-based compensation expense and other items that we do not consider indicative of our ongoing operating performance. The following is a reconciliation of adjusted EBITDA to the most comparable GAAP measure, net income/(loss):
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
Net income/(loss) $ 64,496 $ (234,532) $ (28,364) $ (235,678)
Interest expense 3,319 2,827 5,768 6,087
(Benefit from)/provision for
income taxes (52,651) (10,413) 4,169 (16,195)
Depreciation and amortization 7,811 7,726 15,869 16,232
Stock-based compensation
expense 26,860 250,513 50,957 260,365
Other income/(loss), net (6,217) 1,201 (7,728) (2,392)
Direct listing costs - 25,318 - 25,318
Adjusted EBITDA 43,618 42,640 40,671 53,737
Adjusted EBITDA increased $1.0 million , or 2.3% for the three months ended June
30, 2022 compared to the same period in 2021. The increase is primarily due to
increases in revenue and a reduction in marketing and sales spend, partially
offset by an increase in cash-based payroll and associated benefits related to
increases in headcount in research and development and indirect tax expenses.
Adjusted EBITDA decreased $13.1 million , or 24.3% for the six months ended June
30, 2022 compared to the same period in 2021. The decrease is primarily due to
increased marketing and sales expenses, an increase in cash-based payroll and
benefit related expenses related to increases in headcount in research and
development and the addition of hospitality services.
Unlevered free cash flow. Unlevered free cash flow is a supplemental liquidity
measure that our management uses to evaluate our core operating business and our
ability to meet our current and future financing and investing needs. We define
unlevered free cash flow as cash flow from operating activities less cash paid
for capital expenditures increased by
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cash paid for interest expense net of the associated tax benefit. The following is a reconciliation of unlevered free cash flow to the most comparable GAAP measure, cash flows from operating activities:
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2022 2021 2022 2021
Cash flows from operating
activities $ 36,413 $ 8,692 $ 83,683 $ 58,823
Cash paid of capital
expenditures (2,376) (1,758) (5,735) (2,415)
Free cash flow 34,037 6,934 77,948 56,408
Cash paid for interest, net
of the associated tax benefit 2,340 3,320 3,964 5,628
Unlevered free cash flow $ 36,377 $ 10,254 $ 81,912 $ 62,036
Unlevered free cash flow increased $26.1 million , or 254.8%, for the three
months ended June 30, 2022 compared to the same period in 2021. The increase was
primarily driven by a reduction in spend related to the costs associated with
the Direct Listing partially offset by the timing of diner prepayments related
to our hospitality services. Unlevered free cash flow increased $19.9 million ,
or 32.0%, for the six months ended June 30, 2022 compared to the same period in
2021. The increase was primarily driven by a reduction in spend related to costs
associated with the Direct Listing, partially offset by increased spend in
research and development and marketing and sales expenses.
Gross Merchandise Value. GMV represents the value of merchandise, physical
goods, content and time sold, including hospitality services, net of refunds, on
our platform over a given period of time. GMV processed on our platform
increased $76.8 million , or 5.3%, for the three months ended June 30, 2022
compared to the same period in 2021 and increased $425.4 million , or 16.0%, for
the six months ended June 30, 2022 compared to the same period in 2021.
Critical Accounting Policies and Estimates
The preparation of the condensed consolidated financial statements in conformity withU.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the condensed consolidated financial statements. Management's estimates are based on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Our critical accounting policies have not significantly changed during the six months endedJune 30, 2022 . See "Part 1. Financial Information, Item 1. Financial Statements, Note 2. Summary of Significant Accounting Policies" elsewhere in this Quarterly Report on Form 10-Q for more information.
Recently Issued Accounting Standards
A discussion of recent accounting pronouncements is included in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Implications of Being an
As a company with less than$1.07 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include that:
•we are required to include only reduced disclosure in "Management's Discussion and Analysis of Financial Condition and Results of Operations";
•we are not required to engage an auditor to report on our internal controls over financial reporting pursuant to Section 404(b);
•we are not required to submit certain executive compensation matters to stockholder advisory votes, such as "say-on-pay," "say-on-frequency" and "say-on-golden parachutes"; and
•we are not required to disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer's compensation to our median employee compensation. We may take advantage of these provisions until the last day of the fiscal year following the fifth anniversary of the effectiveness of the registration statement on Form S-1 filed with theSEC onMay 19, 2021 or such earlier time that we are no longer an emerging growth company. Under the JOBS Act, emerging growth companies also can delay adopting new or revised accounting standards until such time as those standards would otherwise apply to private companies. We currently take advantage of this exemption. 44 --------------------------------------------------------------------------------
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For risks related to our status as an emerging growth company, see "Part II. Item 1A.Risk Factors, Risks Related to our Business and Industry". We are an "emerging growth company" and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors.
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