MOMENTIVE GLOBAL INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled "Forward-Looking Statements,", the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Additionally, our unaudited results for the interim periods presented may not be indicative of the results to be expected for any full year period. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q.
Overview
We were founded in 1999 and are a leading global provider of survey software products that enable organizations to engage with their key stakeholders, including their customers, employees and the markets they research and serve. Our mission is to power curious individuals and organizations to measure, benchmark and act on the opinions that drive success. Our People Powered Data platform enables conversations at scale to deliver impactful customer, employee and market insights to our over 17 million active users globally. Our widely adopted cloud-based SaaS platform helps individuals and organizations design and distribute surveys across more than 190 countries and territories. Our products drive actionable insights that allow organizations to solve mission-critical business problems, including enhancing customer experience and loyalty, increasing employee productivity and retention and optimizing product and marketing investments. Impact of COVID-19 InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout theU.S. and the world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain as the businesses of our customers and partners is disrupted. We expect that our business and consolidated results of operations will be impacted and that our financial condition in the future could be impacted as well. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the businesses of our customers and partners and other factors identified in Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. We are continuously evaluating the nature and extent of the impact to our business, consolidated results of operations, and financial condition. Our products We generate substantially all of our revenue from the sale of subscriptions to our products. In addition to our free basic survey product, we offer multiple tiers of subscriptions to individual users-Standard, Advantage and Premier-that provide a compelling range of functionality and features to power the collection and analysis of feedback. We also offer team versions of our individual Advantage and Premier subscription plans. Our SurveyMonkey Teams' versions of such subscription plans are oriented for smaller groups of users who want to collaborate with others. In addition to the features available in individual Advantage and Premier subscription plans, the SurveyMonkey Teams' versions provide collaboration capabilities around sharing, commenting and analyzing surveys and a shared asset library for team users.
In addition, we offer an enterprise-grade version of our survey platform, SurveyMonkey Enterprise, which provides managed user accounts, customized company branding, enterprise-grade security, sophisticated collaboration capabilities and deep integrations with a broad set of leading software applications. We also generate revenue from a wide range of purpose-built solutions, including Usabilla, GetFeedback and SurveyMonkey CX for customer experience and feedback, SurveyMonkey Audience for market research and analysis, TechValidate for content marketing and SurveyMonkey Engage for employee engagement. We generate revenue from these purpose-built solutions by subscription or on a transactional basis, depending on the product.
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--------------------------------------------------------------------------------Our business model
Our self-serve offering underpins a powerful, capital efficient business model that is fueled by the virality of our products. We believe our brand is synonymous with high-quality, easy to use products. The strength of our brand enables us to rapidly and cost-effectively acquire new users through free organic searches, paid online marketing and word of mouth referrals. Our survey platform and purpose-built solutions can be used without costly implementation, professional services or training, and anyone can create a survey in minutes. Our free basic survey product allows users to design and send simple surveys to collect and analyze feedback. Users and respondents can access our survey platform on a broad range of desktop and mobile devices, and surveys can be distributed through multiple channels, such as email, web, mobile, messaging apps and social media. Users often share results and collaborate with others, who are then attracted to our survey platform and frequently sign up as new users. Every person who takes a survey is a potential future customer, and we seek to capitalize on that opportunity through end of survey marketing designed to engage further with respondents and encourage them to create accounts and become new users. We invest in new features and improvements to our product functionality as well as targeted marketing campaigns to drive conversion of unpaid users to paid users. As a result, we have a predictable, high-visibility revenue model where we generated more than 90% of our revenue from sales of subscriptions to our products in 2019. We have a broad and diverse customer base and no customer represented more than 10% of our revenue in any of the periods presented. We supplement our self-serve channel with a targeted sales effort to upsell organizations to SurveyMonkey Enterprise, to expand deployments ofSurveyMonkey Enterprise within organizations and to cross-sell purpose-built solutions within organizations. We believe our existing user base represents a significant opportunity to expand our business and increase our revenue. As ofMarch 31, 2020 , we had approximately 746,200 paying users within more than 335,000 organizational domains. Within that population of organizational domains, we had over 6,800 customers with organization-level agreements with us and who purchased through our enterprise sales force as ofMarch 31, 2020 . We believe that paying users within organizational domains represent an opportunity to significantly increase conversion from individual subscriptions to our enterprise offerings. As ofMarch 31, 2020 , over 90% of our trailing 12-month bookings were from organizational domain-based customers, which are customers who register with us using an email account with an organizational domain name, such as @surveymonkey.com, but excludes customers with email addresses hosted on widely used domains such as @gmail, @outlook or @yahoo. As ofMarch 31, 2020 , our dollar-based net retention rate for organizational domain-based customers was over 100%. We calculate bookings as the sum of the monthly and annual contract values for contracts sold during a period for our monthly and annual customers, respectively. We calculate organizational dollar-based net retention rate as of a period end by starting with the trailing 12 months of bookings from the cohort of all domain-based customers as of the 12 months prior to such period end ("Prior Period Bookings"). We then calculate the trailing 12 months of bookings from these same customers as of the current period end ("Current Period Bookings"). Current Period Bookings includes any upsells and is net of contraction or attrition, but excludes bookings from new domain-based customers in the current period. We then divide the total Current Period Bookings by the total Prior Period Bookings to arrive at the organizational dollar-based net retention rate. 23
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Key Business Metrics
We review a number of operating and financial metrics, including the following
key metrics to evaluate our business, measure our performance, identify trends
affecting our business, formulate our business plan and make strategic
decisions.
As of March 31,
2020 2019
Paying users 746,180 670,862
Average revenue per paying user ("ARPU")
Paying users We define a paying user as an individual customer of our survey platform or form-based application, a seat within a SurveyMonkey Enterprise deployment or a subscription to one of our purpose-built solutions, in each case as of the end of a period. One person would count as multiple paying users if the person had more than one paid license at the end of the period. For example, if an individual paying user also had a designated seat in a SurveyMonkey Enterprise deployment, we would count that person as two paying users. Paying users is an indicator of the scale of our business and an important factor in our ability to increase our revenue.
Average revenue per paying user
We define ARPU as revenue divided by the average number of paying users during the period. For interim periods, we use annualized revenue which is calculated by dividing the revenue for the period by the number of days in that period and multiplying this value by 365 days. We calculate the average number of paying users by adding the number of paying users as of the end of the prior period to the number of paying users as of the end of the current period, and then dividing by two. We consider ARPU to be an important measure because it helps illustrate underlying trends in our business by showing investors the changes in per-user revenue, which is a reflection of our ability to successfully upsell or cross-sell our products and purpose-built solutions. ARPU has limitations as an analytic tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures. Some of the limitations of ARPU are that it is a calculation that does not reflect expenses that we incurred to generate revenue that is excluded from revenue.
Non-GAAP Financial Measure
We believe that, in addition to our results determined in accordance with GAAP,
free cash flow, a non-GAAP financial measure, is useful in evaluating our
business, results of operations and financial condition. In the first quarter of
2020, we removed Adjusted EBITDA as a key non-GAAP financial measure as we
believe it is no longer a relevant measure for our business.
Three Months Ended March 31,
(in thousands) 2020 2019
Free cash flow $ 881 $ 4,072
Free cash flow
We define free cash flow as GAAP net cash provided by operating activities less
purchases of property and equipment, and capitalized internal-use software. We
consider free cash flow to be an important measure because it measures our
liquidity after deducting capital expenditures for purchases of property and
equipment and capitalized software development costs, which we believe provides
a more accurate view of our cash generation and cash available to grow our
business. We expect to generate positive free cash flow over the long term. Free
cash flow has limitations as an analytical tool, and it should not be considered
in isolation or as a substitute for analysis of other GAAP financial measures,
such as net cash provided by operating activities. Some of the limitations of
free cash flow are that free cash flow does not reflect our future contractual
commitments and may be calculated differently by other companies in our
industry, limiting its usefulness as a comparative measure.
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--------------------------------------------------------------------------------The following is a reconciliation of free cash flow to the most comparable GAAP measure, net cash provided by operating activities:
Three Months Ended March 31,
(in thousands) 2020 2019
Net cash provided by operating activities
(406 ) (581 )
Capitalized internal-use software (2,946 ) (3,150 )
Free cash flow $ 881 $ 4,072
Free cash flow is presented for supplemental informational purposes only and
should not be considered a substitute for financial information presented in
accordance with GAAP.
Components of Results of Operations
Revenue
We derive revenue primarily from sales of subscriptions to our products.
We recognize revenue ratably over the subscription term, generally ranging from one month to one year, as long as all other revenue recognition criteria have been met. We have an increasing proportion of multi-year contracts with organizations. Our contracts are generally non-cancellable and do not contain refund provisions. Subscription fees are collected primarily from credit cards through our website at the beginning of the subscription period.
We also generate a small portion of revenue from one of our purpose-built solutions that we sell on a transactional basis.
No customer represented more than 10% of our revenue in any of the periods presented.
Cost of Revenue and Operating Expenses
We allocate shared costs, such as depreciation on equipment shared by all
departments, facilities (including rent and utilities), employee benefit costs
and information technology costs to all departments based on headcount. As such,
allocated shared costs are reflected in each cost of revenue and operating
expense category, other than restructuring.
Cost of Revenue. Our cost of revenue consists primarily of expenses associated
with the delivery and distribution of our products to our users. These expenses
generally consist of infrastructure costs, personnel costs and other related
costs. Infrastructure costs generally include expenses related to the operation
of our data centers, such as data center equipment depreciation, facility costs
(such as co-location rentals), amortization of capitalized software, payment
processing fees, website hosting costs, external sample costs and charitable
donations associated with our SurveyMonkey Audience solution. Personnel costs
include salaries, bonuses, stock-based compensation, other employee benefits and
travel-related expenses for employees whose primary responsibilities relate to
supporting our infrastructure and delivering user support. Other related costs
include amortization of acquired developed technology intangible assets and
allocated overhead. We plan to continue investing in additional resources to
enhance the capability and reliability of our infrastructure to support user
growth and increased use of our products. We expect that cost of revenue will
increase in absolute dollars in future periods and vary from period to period as
a percentage of revenue in the near term. We expect that cost of revenue will
decrease as a percentage of revenue in the long term.
Research and Development. Research and development expenses primarily include
personnel costs, costs for third-party consultants, depreciation of equipment
used in research and development activities and allocated overhead. Personnel
costs for our research and development organization include salaries, bonuses,
stock-based compensation, other employee benefits and travel-related expenses.
Our research and development efforts focus on maintaining and enhancing existing
products and adding new products. Except for costs associated with the
application development phase of internal-use software, research and development
costs are expensed as incurred. We expect that research and development expenses
will increase in absolute dollars in future periods
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and vary from period to period as a percentage of revenue in the near term. We
expect that research and development expenses will remain relatively constant as
a percentage of revenue in the long term.
Sales and Marketing. Sales and marketing expenses primarily include personnel
costs, costs related to brand campaigns, paid marketing, amortization of
acquired trade name and customer relationship intangible assets and allocated
overhead. Personnel costs for our sales and marketing organization include
salaries, bonuses, sales commissions, stock-based compensation, other employee
benefits and travel-related expenses. Sales commissions earned by our sales
personnel, including any related payroll taxes, that are considered to be
incremental and recoverable costs of obtaining a customer contract are deferred
and amortized over an estimated period of benefit of generally four years. We
expect that sales and marketing expenses will increase in absolute dollars in
future periods and increase as a percentage of revenue in the near term. We
expect that sales and marketing expenses will vary from period to period in the
long term.
General and Administrative. General and administrative expenses primarily
include personnel costs for legal, finance, human resources and other
administrative functions, as well as certain executives. Personnel costs for our
general and administrative staff include salaries, bonuses, stock-based
compensation, other employee benefits and travel-related expenses. In addition,
general and administrative expenses include outside legal, accounting and other
professional fees, non-income-based taxes and allocated overhead. We expect that
general and administrative expense will increase in absolute dollars in future
periods and vary from period to period as a percentage of revenue in the near
term. We expect that general and administrative expenses will decrease as a
percentage of revenue in the long term.
Interest Expense
Interest expense consists of interest on our credit facilities. For additional information regarding our credit facilities, see Note 10 of the notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Other Non-Operating (Income) Expense, Net
Other non-operating (income) expense, net consists primarily of interest income, net foreign currency exchange gains and losses, gain on sale of private company investments and other gains and losses.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists ofU.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We maintain a valuation allowance on ourU.S. federal,U.S. state and Irish deferred tax assets that we have determined are not realizable on a more likely than not basis. For additional information regarding our income taxes, see Note 11 of the notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. 26 --------------------------------------------------------------------------------
Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our revenue for those periods. Percentages presented in the following tables may not sum due to rounding.
Three Months Ended March 31,
(in thousands) 2020 2019
Revenue $ 88,265 $ 68,641
Cost of revenue(1)(2) 19,944 17,530
Gross profit 68,321 51,111
Operating expenses:
Research and development(1) 26,557 20,806
Sales and marketing (1)(2) 42,091 26,050
General and administrative(1) 21,932 20,556
Restructuring - (66 )
Total operating expenses 90,580 67,346
Loss from operations (22,259 ) (16,235 )
Interest expense 3,086 3,659
Other non-operating (income) expense, net (1,236 ) (1,979 )
Loss before income taxes (24,109 ) (17,915 )
Provision for (benefit from) income taxes 141 (138 )
Net loss $ (24,250 ) $ (17,777 )
(1) Includes stock-based compensation, net of amounts capitalized as follows:
Three Months Ended March 31,
(in thousands) 2020 2019
Cost of revenue $ 960 $ 1,096
Research and development 6,457 4,766
Sales and marketing 4,343 2,780
General and administrative 5,742 6,469
Stock-based compensation, net of amounts capitalized
$ 15,111
(2) Includes amortization of acquisition intangible assets as follows:
Three Months Ended March 31,
(in thousands) 2020 2019
Cost of revenue $ 2,010 $ 488
Sales and marketing 1,358 537
Amortization of acquisition intangible assets
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Three Months Ended March 31,
2020 2019
Revenue 100 % 100 %
Cost of revenue 23 % 26 %
Gross profit 77 % 74 %
Operating expenses:
Research and development 30 % 30 %
Sales and marketing 48 % 38 %
General and administrative 25 % 30 %
Restructuring - % - %
Total operating expenses 103 % 98 %
Loss from operations (25 )% (24 )%
Interest expense 3 % 5 %
Other non-operating (income) expense, net (1 )% (3 )%
Loss before income taxes (27 )% (26 )%
Provision for (benefit from) income taxes - % - %
Net loss (27 )% (26 )%
Comparison of the Three Months Ended
Revenue and cost of revenue
Three Months Ended March 31,
(dollars in thousands) 2020 2019 $ Change % Change
Revenue $ 88,265 $ 68,641 $ 19,624 29 %
Cost of revenue 19,944 17,530 2,414 14 %
Gross profit $ 68,321 $ 51,111 $ 17,210 34 %
Gross margin 77 % 74 %
Revenue increased for the three months ended March 31, 2020 compared to the
three months ended March 31, 2019 . Revenue growth was driven primarily by an
increase of 128% in Enterprise sales. Enterprise sales accounted for 29% and 16%
of revenue for the three months ended 2020 and 2019, respectively. In addition,
paying users increased 11% from approximately 670,900 as of March 31, 2019 to
approximately 746,200 as of March 31, 2020 and ARPU increased 14% from $423 for
the three months ended March 31, 2019 to $483 for the three months ended March
31, 2020 . Revenue for the three months ended March 31, 2020 also included
approximately $2.1 million of non-recurring revenue from a one-time Audience
customer.
Cost of revenue increased for the three months ended March 31, 2020 compared to
the three months ended March 31, 2019 , primarily due to a $1.5 million increase
in amortization of intangible assets due to our recent acquisitions and a $0.9
million increase in payment processing fees and web hosting costs due to
increased sales.
Our gross margin increased for the three months ended
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Research and development
Three Months Ended March 31,
(dollars in thousands) 2020 2019 $ Change % Change
Research and development $ 26,557 $ 20,806 $ 5,751 28 %
Research and development expenses increased for the three months ended March 31,
2020 compared to the three months ended March 31, 2019 , primarily due to a $5.3
million increase in personnel related costs due to headcount growth.
Sales and marketing
Three Months Ended March 31,
(dollars in thousands) 2020 2019 $ Change % Change
Sales and marketing $ 42,091 $ 26,050 $ 16,041 62 %
Sales and marketing expenses increased for the three months ended March 31, 2020
compared to the three months ended March 31, 2019 , primarily due to a $9.7
million increase in personnel related costs due to headcount growth, an increase
of $3.4 million in costs related to brand campaigns and paid marketing and a
$0.8 million increase in amortization of intangible assets due to our recent
acquisitions. In addition, there were also increases in our facilities, IT costs
and other expense.
General and administrative
Three Months Ended March 31,
(dollars in thousands) 2020 2019 $ Change % Change
General and administrative $ 21,932 $ 20,556 $ 1,376 7 %
General and administrative expenses increased for the three months ended March
31, 2020 compared to the three months ended March 31, 2019 , primarily due to a
$1.1 million increase in personnel related costs.
Interest expense
Three Months Ended March 31,
(dollars in thousands) 2020 2019 $ Change % Change
Interest expense $ 3,086 $ 3,659 $ (573 ) (16 )%
Interest expense decreased for the three months ended March 31, 2020 compared to
the three months ended March 31, 2019 primarily due to lower interest rates and
lower average debt balances from our repayment of principal. For additional
information regarding our credit facilities, see Note 10 of the notes to our
condensed consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q.
Other non-operating (income) expense, net
Three Months Ended March 31,
(dollars in thousands) 2020 2019
$ Change % Change
Other non-operating (income) expense, net
(38 )%
Other non-operating income, net for the three months ended March 31, 2020
decreased compared to the three months ended March 31, 2019 , primarily due to an
decrease in interest income of $0.5 million resulting from lower interest rates
and lower average cash balances, and lower foreign currency losses of $0.2
million .
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Provision for (benefit from) income taxes
Three Months Ended March 31,
(dollars in thousands) 2020 2019 $ Change % Change Provision for (benefit from) income taxes$ 141 $ (138 )$ 279 (202 )% Effective tax rate (1 )% 1 % *Less than 1% The provision for income taxes was$0.1 million for the three months endedMarch 31, 2020 , as compared to a benefit from income taxes of$0.1 million for the three months endedMarch 31, 2019 . The increase in our income tax provision for the three months endedMarch 31, 2020 , relative to the respective prior period, was primarily due to our expanding international footprint.
Seasonality
We have historically experienced seasonality in terms of when we enter into subscription agreements with customers. We typically enter into a lower percentage of agreements with new customers, as well as renewal agreements with existing customers, during the summer months and during the holiday season in the second and fourth quarter of each year.
Liquidity and Capital Resources
As ofMarch 31, 2020 andDecember 31, 2019 , our principal sources of liquidity were cash and cash equivalents totaling$144.6 million and$131.0 million , respectively, all of which were bank deposits as well as cash to be received from customers and cash available under our credit facilities. Since our inception, we have financed our operations primarily through payments received from our customers, borrowings under credit facilities and lines of credit, and our initial public offering in 2018. We believe our existing cash and cash equivalents, our credit facilities and cash provided by sales of our products will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on many factors, including the timing and amount of cash received from customers, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product offerings and the continuing market adoption of our products. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations. Additionally, we believe that our financial resources will allow us to manage the potential impacts of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. We will continue to assess our liquidity needs as the impact of the COVID-19 pandemic on the economy and our operations continues to evolve. Ongoing worldwide business and economic disruptions could materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. In the event of a sustained market deterioration, we may need additional liquidity, which would require us to evaluate available alternatives and take appropriate actions. A significant majority of our customers pay in advance for annual subscriptions, which is a substantial source of cash. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which we recognized as revenue in accordance with our revenue recognition policy. As ofMarch 31, 2020 andDecember 31, 2019 , we had deferred revenue of$152.0 million and$141.0 million , respectively, a substantial majority of which we expect to record as revenue in the next 12 months, provided all other revenue recognition criteria have been met. 30
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
(in thousands) 2020 2019
Net cash provided by operating activities $ 4,233 $ 7,803
Net cash used in investing activities (2,351 ) (2,730 ) Net cash provided by financing activities 13,265
7,090
Effects of exchange rate changes on cash (1,267 ) (44 ) Net increase in cash, cash equivalents and restricted cash$ 13,880 $ 12,119
Cash Flows from Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions to our products. Our primary uses of cash in operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs. Historically, we have generated positive cash flows from operating activities. Net cash provided by operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, stock-based compensation, deferred income taxes, as well as the effect of changes in operating assets and liabilities. During the three months endedMarch 31, 2020 , cash provided by operating activities was$4.2 million , primarily due to our net loss of$24.3 million , adjusted for non-cash charges of$32.6 million and net cash outflows of$4.1 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, stock-based compensation and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to cash provided by an$11.2 million increase in deferred revenue and a$2.6 million increase in accounts payable and accrued liabilities, partially offset by a decrease in accrued compensation of$10.4 million , a decrease in operating lease liabilities of$3.8 million , cash used for prepaid expenses and other assets of$2.2 million , and an increase in accounts receivable of$1.5 million . During the three months endedMarch 31, 2019 , cash provided by operating activities was$7.8 million , primarily due to our net loss of$17.8 million , adjusted for non-cash charges of$26.8 million and net cash outflows of$1.2 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of depreciation and amortization, stock-based compensation, and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to cash provided by a$9.6 million increase in deferred revenue and a$3.0 million increase in accounts payable and accrued liabilities, partially offset by cash used for prepaid expenses and other assets of$2.2 million , accrued compensation of$8.4 million and an increase in operating lease liabilities of$3.4 million .
Cash Flows from Investing Activities
Our primary investing activities have consisted of capital expenditures to purchase equipment necessary to support our data center facilities and our network and other operations and capitalization of internal-use software necessary to deliver significant new features and functionality in our survey platform which provides value to our customers. As our business grows, we expect our capital expenditures to continue to increase. Net cash used in investing activities during the three months endedMarch 31, 2020 of$2.3 million was primarily attributable to cash used for the development of internal-use software$2.9 million that is capitalized and purchases of property and equipment of$0.4 million , which was partially offset by proceeds from the sale of investment in privately-held company of$1.0 million . Net cash used in investing activities during the three months endedMarch 31, 2019 of$2.7 million was primarily attributable to purchases of property and equipment of$0.5 million to support additional office space and 31 -------------------------------------------------------------------------------- headcount, and the capitalization of internal-use software costs of$3.2 million associated with the development of additional features and functionality of our platform, which was partially offset by proceeds from the sales of investment in privately-held companies and other property of$1.0 million .
Cash Flows from Financing Activities
Cash provided by financing activities during the three months endedMarch 31, 2020 of$13.3 million was primarily attributable to proceeds from the exercise of stock options of$13.8 million , partially offset by the principal payments on our credit facilities of$0.5 million . Cash provided by financing activities during the three months endedMarch 31, 2019 of$7.1 million was primarily attributable to proceeds from the exercise of stock options of$7.6 million partially offset by the principal payments on our credit facilities of$0.5 million .
Contractual Obligations
Our principal commitments consist of obligations under our credit facilities and
operating leases for office space. As of
Payments Due by Period
Remainder of
(in thousands) Total 2020 2021 2022 2023 2024 ThereafterCredit facilities(1)$ 216,700 $ 1,650 $ 2,200 $ 2,200 $ 2,200 $ 2,200 $ 206,250 Interest payments on credit facilities(1) 51,687 7,216 9,491 9,394 9,297 9,224 7,065 Operating leases(2) 119,084 10,453 13,078 13,330 13,426 13,196 55,601 Purchase commitments(3) 32,765 11,664 7,168 6,695 5,123 2,115 - Total contractual obligations$ 420,236 $ 30,983 $ 31,937 $ 31,619 $ 30,046 $ 26,735 $ 268,916
(1) Represents the principal balances and related interest payments to be paid in
connection with our 2018 Credit Facility. Interest payments on our 2018
Credit Facility are based upon the applicable interest rates as of
2020 and are subject to change in future periods. For additional information
regarding our credit facilities, see Note 10 of the notes to condensed
consolidated financial statements included elsewhere in this Quarterly Report
on Form 10-Q.
(2) Primarily consists of future non-cancelable minimum rental payments under
operating leases for our corporate headquarters and our other facilities. The
amounts above exclude expected sublease payments to be received of
approximately
operating lease obligations, see Note 8 of the notes to condensed
consolidated financial statements included elsewhere in this Quarterly Report
on Form 10-Q.
(3) Primarily consists of open non-cancellable purchase orders for data center
hosting services and the procurement of goods and services in the ordinary
course of business.
Off-Balance Sheet Arrangements
As ofMarch 31, 2020 , we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 32
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Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below. For the three months ended March, 31, 2020, there have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Recent Accounting Pronouncements
See Note 2 of the notes to condensed consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q for discussion of recently
adopted accounting pronouncements and recently issued accounting pronouncements
not yet adopted.
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