ZENDESK, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onFebruary 15, 2022 . As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, impacts on our business and general economic conditions due to the current COVID-19 pandemic, those identified below, and those discussed in the section titled "Risk Factors" included under Part II, Item 1A below. Overview We are a software development company that provides software as a service solutions that are intended to help organizations and their customers build better experiences. Our customer experience solutions are built upon a modern architecture that enables us and our customers to rapidly innovate, adapt our technology in novel ways, and easily integrate with other products and applications. With our origins in customer service, we have evolved our offerings over time to product and platform solutions that work together to help organizations understand the broader customer journey, improve communications across all channels, and engage where and when it's needed most. We believe in developing solutions that serve organizations of all sizes and across all industries. Our flagship product solution, Zendesk Support, provides organizations with the ability to track, prioritize, and solve customer support tickets across multiple channels, bringing customer information and interactions into one place. Our other widely available product solutions integrate with Support and include Zendesk Chat, Zendesk Talk, and Zendesk Guide. Chat is live chat and messaging software that provides a fast and responsive way for organizations to connect with their customers. Talk is cloud-based call center software that facilitates personal and productive voice and short message service support conversations between organizations and their customers. Guide is a self-service destination that organizations can use to provide articles, interactive forums, and a community that help an organization's customers help themselves. We additionally offer Zendesk Sell, sales customer relationship management software that complements our mission in delivering solutions that provide a better customer experience, Zendesk Explore, a solution to provide analytics for organizations to measure and improve the entire customer experience,Zendesk Gather, a product solution that enables companies to provide trusted and transparent support to customers through online community forums,Zendesk Sunshine, a customer relationship management platform which enables organizations to connect and integrate customer data generated through our product solutions, and Zendesk Sunshine Conversations, a messaging platform solution that allows businesses to integrate messaging through social channels and directly interact and transact with customers. For a service solution which provides Support, Chat, Talk, Guide, Gather, Explore, and Sunshine together, we offer the Zendesk Suite. We offer a range of subscription account plans for our solutions that vary in price based on functionality, type, and the amount of product support we offer. We also offer a range of additional features that customers can purchase and add to their subscriptions. For the three months endedMarch 31, 2022 and 2021, our revenue was$388 million and$298 million , respectively, representing a 30% growth rate. For the three months endedMarch 31, 2022 and 2021, we derived$191 million , or 49%, and$145 million , or 49%, respectively, of our revenue from customers located outside ofthe United States . We expect that the rate of growth in our revenue will decline as our business scales, even if our revenue continues to grow in absolute terms. For the three months endedMarch 31, 2022 and 2021, we generated net losses of$67 million and$49 million , respectively. 27
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The growth of our business and our future success depend on many factors,
including our ability to continue to innovate, further develop our product and
platform solutions geared towards the entire customer experience, build brand
recognition and scalable solutions for larger organizations, sell to and provide
a unified and reliable service to those larger organizations, maintain our
leadership in the small and midsized business market, add new customers,
generate additional revenue from our existing customer base, and increase our
global customer footprint. While these areas represent significant opportunities
for us, we also face significant risks and challenges that we must successfully
address in order to sustain the growth of our business and improve our operating
results. We anticipate that we will continue to invest in our operations. The
expected expenditures that we anticipate will be necessary to manage our
anticipated growth, including personnel costs, expenditures relating to hosting
capabilities, leasehold improvements, and related fixed assets, will make it
more difficult for us to achieve profitability in the near term. Many of these
investments will occur in advance of us experiencing any direct benefit and will
make it difficult to determine if we are allocating our resources efficiently.
We have focused on rapidly growing our business and plan to continue to invest
for long-term growth. We expect to continue to develop our hosting capabilities
primarily through expenditures for third-party managed hosting services. The
amount and timing of these expenditures will vary based on our estimates of
projected growth and planned use of hosting resources. Over time, we anticipate
that we will continue to gain economies of scale by efficiently utilizing our
hosting and personnel resources to support the growth in our number of
customers. In addition, we expect to incur third-party license fees to support
certain products and amortization expense associated with acquired intangible
assets and capitalized internal-use software. As a result, we expect our gross
margin to improve in the long-term, although our gross margin may decrease in
the near-term and may vary from period to period as our revenue fluctuates and
as a result of the timing and amount of such costs.
We expect our operating expenses to continue to increase in absolute dollars in
future periods. We have invested, and expect to continue to invest, in our
software development efforts to broaden the functionality of our existing
solutions, to further integrate these solutions and services, and to introduce
new solutions. We plan to continue to invest in our sales and marketing
organizations, particularly in connection with our efforts to expand our
customer base and expand usage of our solutions. We also expect to continue to
incur additional general and administrative costs in order to support the growth
of our business and the infrastructure required to comply with our obligations
as a public company.
COVID-19 Update
We are continuing to ascertain the long-term impact of the COVID-19 pandemic on
our business. We continue to focus on supporting our employees, customers, and
community.
Our business continuity plans have continued to focus on the health and safety
of our employees while continuing to drive innovation in customer experience
solutions for our customers. The ongoing global shift to a digital-first world
has continued to emphasize the importance of fast time-to-value solutions such
as our own and our need to reimagine the way our employees engage with each
other and their customers. We continue to evaluate conditions in each region we
operate and reassess local restrictions across the globe. We have reopened some
of our offices on a staggered, region-to-region basis in accordance with local
authority guidelines, while taking into account vaccine administration
prevalence and infection rates.
Because we primarily have a subscription-based business model which generally
results in recognition of revenue in subsequent periods originating from
customer contracts executed in prior periods, the effects of the COVID-19
pandemic may continue to have a delayed impact on our results of operations. See
the "Risk Factors" section for further discussion of the possible impact of the
COVID-19 pandemic on our business.
Key Business Metrics
We review a number of operating metrics, including the following key metrics, to
evaluate our business, measure our performance, identify trends affecting our
business, formulate business plans, and make strategic decisions.
Logos. Our number of logos is a consolidation of paid customer accounts across
our solutions, exclusive of our legacy Starter plan, free trials, or other free
services, as of the end of the period. A paid customer account is one individual
billing relationship for subscription to our services. We calculate our logo
number by consolidating paid customer accounts that share common corporate
information as a single organization or customer may have multiple paid customer
accounts across our solutions to service separate subsidiaries, divisions, or
work processes. As of March 31, 2022 , we had 110,300 logos. We do not currently
include in our logo metric logos associated with our legacy analytics product,
our legacy Outbound product, our legacy Starter plan, our Sell product, Sunshine
Conversations, our legacy Smooch product, free trials, or other free services.
We
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may from time to time refer to "customers" or "brands" in our publicly-available disclosures, each of which refers to our number of logos.
Dollar-Based Net Expansion Rate. Our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our solutions. We believe we can achieve this by focusing on delivering value and functionality that retains our existing customers, expands the number of authorized agents associated with an existing logo, and results in upgrades to higher-priced subscription plans and the purchase of additional products. Maintaining customer relationships allows us to sustain and increase revenue to the extent customers maintain or increase the number of authorized agents licensed to use our products. We assess our performance in this area by measuring our dollar-based net expansion rate. Our dollar-based net expansion rate provides a measurement of our ability to increase revenue across our existing customer base through expansion of authorized agents associated with a logo, upgrades in subscription plans, and the purchase of additional products as offset by contraction and churn in authorized agents associated with a logo, and downgrades in subscription plans. We do not currently incorporate operating metrics associated with our legacy analytics product, our legacy Outbound product, our legacy Starter plan, our Sell product, Sunshine Conversations, our legacy Smooch product, free trials, or other free services into our measurement of dollar-based net expansion rate. Our dollar-based net expansion rate is based upon our annual recurring revenue for a set of logos on our products. Annual recurring revenue is determined by multiplying monthly recurring revenue by 12. Monthly recurring revenue is a legal and contractual determination made by assessing the contractual terms, as of the date of determination, as to the revenue we expect to generate in the next monthly period, assuming no changes to the subscription and without taking into account any usage above the subscription base, if any, that may be applicable to such subscription. We exclude the impact of revenue that we expect to generate from fixed-term contracts that are each associated with an existing account, are solely for additional temporary agents, and are not contemplated to last for the duration of the primary contract for the existing account from our determination of monthly recurring revenue. We additionally exclude the impact of accounts that are free-trial accounts that did not result in paid subscriptions, and temporary coupons, such as short-term discounts that were applied to certain accounts due to the COVID-19 pandemic, from our annual recurring revenue. Monthly recurring revenue is not determined by reference to historical revenue, deferred revenue, or any otherUnited States generally accepted accounting principles, or GAAP, financial measure over any period. We calculate our dollar-based net expansion rate by dividing our retained revenue net of contraction and churn by our base revenue. We define our base revenue as the aggregate annual recurring revenue across our products from logos as of the date one year prior to the date of calculation. We define our retained revenue net of contraction and churn as the aggregate annual recurring revenue across our products from the same customer base included in our measure of base revenue at the end of the annual period being measured. Our dollar-based net expansion rate was 121% as ofMarch 31, 2022 . We expect that, among other factors, our continued focus on adding larger logos at the time of addition and the growth in our revenue will result in an overall decline in our dollar-based net expansion rate over time as our aggregate annual recurring revenue grows. Components of Results of Operations
Revenue
We derive substantially all of our revenue from subscription services, which are
comprised of subscription fees from customer accounts on Support and, to a
lesser extent, Chat, Talk, Guide, Sell, Explore, Gather and Sunshine and
includes related support services. We also derive revenue from Zendesk Suite,
which provides a subset of these solutions for a single price. Each subscription
may have multiple authorized users, and we refer to each user as an "agent." The
number of agents ranges from one to thousands for various customer accounts. Our
pricing is generally established on a per agent basis. We offer a range of
subscription account plans for our solutions that vary in price based on
functionality, type, and the amount of support we offer. We also offer a range
of additional features that customers can purchase and add to their
subscriptions. Certain arrangements provide for incremental fees above a fixed
maximum number of monthly agents during the subscription term. Additionally,
certain customers have arrangements that provide for unlimited users during the
subscription term for a fixed fee. We sell subscription services under
contractual agreements that vary in length, ranging between one month and
multiple years, with the majority of subscriptions having a term of either one
month or one year.
Subscription fees are generally non-refundable regardless of the actual use of
the service. Subscription revenue is typically affected by the number of
customer accounts, number of agents, and the type of plan purchased by our
customers, and is recognized ratably over the term of the arrangement beginning
on the date that our services are made available to our customers. Subscription
services purchased online are typically paid for via a credit card on the date
of purchase while
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subscription services purchased through our internal sales organization are generally billed with monthly, quarterly, or annual payment frequencies. Due to our mixed contract lengths and billing frequencies, the annualized value of the arrangements we enter into with our customers may not be fully reflected in deferred revenue at any single point in time. Accordingly, we do not believe that the change in deferred revenue for any period provides sufficient context to accurately predict our future revenue for a given period of time. We also derive revenue from implementation and training services, for which we recognize revenue based on proportional performance, and Talk usage, for which we recognize revenue based on usage.
Cost of Revenue, Gross Margin, and Operating Expenses
Cost of Revenue. Cost of revenue consists primarily of personnel costs (primarily including salaries, share-based compensation, and benefits) for employees associated with our infrastructure, product support, and professional service organizations, and expenses for hosting capabilities, primarily for third-party managed hosting services located inNorth America ,Europe ,Asia andAustralia . Cost of revenue also includes third-party license fees, payment processing fees, amortization expense associated with acquired intangible assets, amortization expense associated with capitalized internal-use software, and allocated shared costs. We allocate shared costs such as facilities, information technology, and security costs to all departments based on headcount. As such, allocated shared costs are reflected in cost of revenue and each operating expense category. We intend to continue to invest additional resources in our infrastructure, professional service organizations, and product support organically and through acquisitions. We expect that recent and future business acquisitions will result in increased amortization expense of intangible assets such as acquired technology. As we continue to invest in technology innovation, we expect to continue to incur capitalized internal-use software costs and related amortization. We expect these investments in technology to not only expand the capabilities of our solutions but also to increase the efficiency of how we deliver these services, enabling us to improve our gross margin over time, although our gross margin may decrease in the near-term and may vary from period to period as our revenue fluctuates and as a result of the timing and amount of these investments. To the extent that we continue to rely on third-party technology to provide certain functionality within our solutions or for certain subscription plans or integrations, we expect third-party license fees for technology that is incorporated in such solutions and subscription plans to remain significant over time. Gross Margin. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates and as a result of the timing and amount of usage of third-party managed hosting resources, investments to expand our product support and professional services teams, investments in additional personnel, increased share-based compensation expense, as well as the amortization of certain acquired intangible assets, costs associated with capitalized internal-use software, and third-party license fees. Research and Development. Research and development expenses consist primarily of personnel costs (primarily including salaries, share-based compensation, and benefits) for employees associated with our research and development organization and allocated shared costs. We focus our research and development efforts on the continued development of our solutions, including the development and deployment of new features and functionality and enhancements to our software architecture and integration across our solutions. We expect that, in the future, research and development expenses will increase in absolute dollars. However, we expect our research and development expenses to decrease modestly as a percentage of our revenue in the long-term, although this may fluctuate from period to period depending on fluctuations in revenue and the timing and the extent of our research and development expenses. Sales and Marketing. Sales and marketing expenses consist of personnel costs (primarily including salaries, share-based compensation, sales commissions, and benefits) for employees associated with our sales and marketing organizations, costs of marketing activities, and allocated shared costs. Marketing activities include online and offline marketing initiatives, including digital advertising, such as search engine, paid social, e-mail and product marketing, content marketing, user events, conferences, corporate communications, web marketing and optimization, and outbound list and contact generation. Sales commissions are considered incremental costs of obtaining customer contracts and are capitalized and amortized on a straight-line basis over their anticipated period of benefit, which we have determined to be three years. 30
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We focus our sales and marketing efforts on generating awareness of our solutions, establishing and promoting our brand, and cultivating a community of successful and vocal customers. We plan to continue investing in sales and marketing by increasing the number of sales employees, developing our marketing teams, improving our demand generation strategies, and building brand awareness, which we believe will enable us to add new customers and increase penetration within our existing customer base. Because we do not have a long history of undertaking or growing many of these activities, we cannot predict whether, or to what extent, our revenue will increase as we invest in these strategies. We expect our sales and marketing expenses to continue to increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future. Our sales and marketing expenses as a percentage of our revenue over time may fluctuate from period to period depending on fluctuations in revenue and the timing and extent of our sales and marketing expenses. General and Administrative. General and administrative expenses consist primarily of personnel costs (primarily including salaries, share-based compensation, and benefits) for our executive, finance, legal, human resources, and other administrative employees. In addition, general and administrative expenses include fees for third-party professional services, including legal, accounting, and tax related services, allowance for credit losses on accounts receivable, other corporate expenses, and allocated shared costs. We expect to incur incremental costs associated with supporting the growth of our business, both in terms of size and geographic expansion. As a result, we expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future. Our general and administrative expenses as a percentage of our revenue over time may fluctuate from period to period depending on fluctuations in revenue and the timing and extent of our general and administrative expenses.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income from marketable securities, strategic investment gains and losses, foreign currency gains and losses, and interest expense from our convertible senior notes. Interest expense includes amortization of the debt discount, amortization of issuance costs, and contractual interest expense.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) income taxes consists of federal and state income
taxes in
Results of Operations
The following tables set forth our results of operations for the periods
presented in dollars and as a percentage of our revenue (in thousands, except
percentages):
Three Months Ended March 31,
2022 2021
Revenue $ 388,327 $ 298,048
Cost of revenue (1) 75,678 60,894
Gross profit 312,649 237,154Operating expenses (1):
Research and development 108,077
73,783
Sales and marketing 201,660
157,518
General and administrative 63,538 43,133 Total operating expenses 373,275 274,434 Operating loss (60,626) (37,280)
Other income (expense), net:
Interest expense (3,121)
(14,415)
Interest and other income (expense), net 838
5,084
Total other income (expense), net (2,283)
(9,331)
Loss before provision for income taxes (62,909) (46,611) Provision for income taxes 4,037 2,354 Net loss$ (66,946) $ (48,965) 31
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(1) Includes share-based compensation expense as follows (in thousands):
Three Months Ended March 31,
2022 2021
Cost of revenue $ 6,177 $ 4,486
Research and development 19,287 15,673
Sales and marketing 26,800 23,232
General and administrative 11,674 8,983
Three Months Ended March 31,
2022 2021
Revenue 100.0 % 100.0 %
Cost of revenue (1) 19.5 20.4
Gross profit 80.5 79.6
Operating expenses (1):
Research and development 27.8 24.8
Sales and marketing 51.9 52.8
General and administrative 16.4 14.5
Total operating expenses 96.1 92.1
Operating loss (15.6) (12.5)
Other income (expense), net:
Interest expense (0.8) (4.8)
Interest and other income (expense), net 0.2 1.7
Total other income (expense), net (0.6) (3.1)
Loss before provision for income taxes (16.2) (15.6)
Provision for income taxes 1.0 0.8
Net loss (17.2) % (16.4) %
(1) Includes share-based compensation expense as follows:
Three Months Ended March 31,
2022 2021
Cost of revenue 1.6 % 1.5 %
Research and development 5.0 5.3
Sales and marketing 6.9 7.8
General and administrative 3.0 3.0
Revenue
Three Months Ended March 31,
2022 2021 % Change
(In thousands, except percentages)
Revenue $ 388,327 $ 298,048 30 %
Revenue increased $90 million , or 30%, in the three months ended March 31, 2022
compared to the same period in 2021. The total increase in revenue was primarily
attributable to expansions from existing accounts as of March 31, 2021 and the
remainder was attributable to revenue from new accounts acquired thereafter.
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Cost of Revenue and Gross Margin
Three Months Ended March 31,
2022 2021 % Change
(In thousands, except percentages)
Cost of revenue $ 75,678 $ 60,894 24 %
Gross margin 80.5 % 79.6 %
Cost of revenue increased $15 million , or 24%, in the three months ended
March 31, 2022 compared to the same period in 2021. The overall increase was
primarily due to higher employee compensation costs of $10 million , driven by
headcount growth, and higher allocated shared costs of $1 million . Additionally,
in the three months ended March 31, 2022 , hosting and related costs and
third-party license fees increased by $2 million , driven by increased customer
usage.
Our gross margin increased by 0.9 percentage points in the three months ended
March 31, 2022 compared to the same period in 2021. The overall improvement was
driven primarily by efficiencies in our use of third-party licenses and hosting
services, including timing of vendor credits, partially offset by increased
employee compensation-related costs.
Operating Expenses
Research and Development Expenses
Three Months Ended March 31,
2022 2021 % Change
(In thousands, except percentages)
Research and development $ 108,077 $ 73,783 46 %
Research and development expenses increased$34 million , or 46%, in the three months endedMarch 31, 2022 compared to the same period in 2021. The overall increase was primarily due to increased employee compensation-related costs of$26 million , driven by headcount growth. The increase was also driven by higher allocated shared costs of$4 million . Sales and Marketing Expenses Three Months Ended March 31, 2022 2021 % Change (In thousands, except percentages) Sales and marketing$ 201,660 $ 157,518 28 % Sales and marketing expenses increased$44 million , or 28%, in the three months endedMarch 31, 2022 compared to the same period in 2021. The overall increase was primarily due to increased employee compensation-related costs, including amortization of deferred commissions, of$35 million , driven by headcount growth. The increase was also driven by higher allocated shared costs of$5 million .
General and Administrative Expenses
Three Months Ended March 31,
2022 2021 % Change
(In thousands, except percentages)
General and administrative $ 63,538 $ 43,133 47 %
General and administrative expenses increased$20 million , or 47%, in the three months endedMarch 31, 2022 compared to the same period in 2021. The overall increase was primarily due to increased employee compensation-related costs of$18 million , due to headcount growth, and higher allocated shared costs of$1 million . 33
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Other Income (Expense), Net
Three Months Ended March 31,
2022 2021 % Change
(Inthousands, except percentages)
Interest expense$ (3,121) $ (14,415) (78) % Interest and other income (expense), net 838 5,084 (84) % Interest expense decreased by$11 million in the three months endedMarch 31, 2022 compared to the same period in 2021, primarily due to the adoption of ASU 2020-06, which resulted in the elimination of the debt discounts that were amortized to interest expense over the contractual term of the related convertible senior notes prior toJanuary 1, 2022 . Interest and other income (expense), net decreased by$4 million in the three months endedMarch 31, 2022 compared to the same period in 2021, primarily due to net foreign currency losses. Liquidity and Capital Resources As ofMarch 31, 2022 , our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling$1.6 billion , which were held for working capital and general corporate purposes. Our cash equivalents and marketable securities are comprised ofU.S. Treasury securities, corporate bonds, money market funds, asset-backed securities, agency securities, commercial paper, certificates of deposit, and time deposits. The following table summarizes our cash flows for the periods indicated (in thousands): Three Months Ended March 31, 2022 2021 Net cash provided by operating activities$ 11,212 $ 33,595 Net cash used in investing activities (18,568)
(77,676)
Net cash provided by financing activities 26,949
16,315
To date, we have financed our operations primarily through customer payments for subscription services, the issuance of our convertible senior notes, and public and private equity financings. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, including timing of cash collections from our customers, and other risks detailed in the "Risk Factors" section. However, based on our current business plan and revenue prospects, we believe that our existing cash, cash equivalents, and marketable securities balances, together with cash generated from operations, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. InMarch 2018 , we issued$575 million aggregate principal amount of 0.25% convertible senior notes dueMarch 15, 2023 (refer to Note 8 of the Notes to our Condensed Consolidated Financial Statements for more information). As of the date of this filing, we have received one request for conversion for an immaterial amount. The 2023 Notes are convertible during the three months endingJune 30, 2022 . InJune 2020 , we issued$1,150 million aggregate principal amount of 0.625% convertible senior notes dueJune 15, 2025 (refer to Note 8 of the Notes to our Condensed Consolidated Financial Statements for more information). In connection with the offering of the 2025 Notes, we used$618 million of the proceeds from the offering to repurchase a portion of the 2023 Notes, of which$39 million was related to repayment of the debt discount and was reflected as a cash outflow from operating activities. We also terminated a portion of our existing capped call in amounts corresponding to the principal of the 2023 Notes repurchased. The 2025 Notes are not convertible during the three months endingJune 30, 2022 .
We are in compliance with all covenants under both the 2023 Notes and the 2025
Notes as of
The impact of the 2023 Notes and the 2025 Notes on our liquidity will depend on
whether we elect to settle any conversions in shares of our common stock or a
combination of cash and shares.
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Our material cash requirements from known contractual and other obligations consist of our convertible senior notes, obligations under operating leases for office space, and contractual commitments for third-party managed hosting and other support services. For more information regarding our convertible senior notes, refer to Note 8 of the Notes to our Condensed Consolidated Financial Statements. For more information regarding our lease obligations, refer to Note 6 of the Notes to our Condensed Consolidated Financial Statements. Our other contractual obligations consist primarily of purchase commitments for third-party managed hosting services. Except as discussed below, there were no material changes to our material cash requirements from known contractual and other obligations from those disclosed in our audited consolidated financial statements for the year endedDecember 31, 2021 . InFebruary 2022 , we terminated and entered into a new agreement with a cloud services provider for which we have a total obligation of$400 million over a five-year period. Our future capital requirements will depend on many factors, including employee-related expenditures from expansion of our headcount, hosting costs to support the growth in our customer accounts and continued customer expansion, the timing and extent of spending to support product development efforts, the introduction of new and enhanced solutions, features, and functionality, the expansion of sales and marketing activities, and costs related to building out our leased office facilities. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, and intellectual property rights. We may be required to seek additional equity or debt financing in order to meet these future capital requirements. 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 when desired, our business, results of operations, and financial condition would be adversely affected.
Operating Activities
Our largest source of operating cash inflows is cash collections from our customers. Our primary uses of cash from operating activities are for employee-related expenditures, hosting costs, office facilities, and marketing programs.
Net cash provided by operating activities in the three months endedMarch 31, 2022 was$11 million , reflecting our net loss of$67 million , adjusted by non-cash charges including share-based compensation expense of$64 million , amortization of deferred costs of$20 million , depreciation and amortization of$10 million , allowance for credit losses on accounts receivable of$2 million , and amortization of debt issuance costs of$1 million , partially offset by net changes in operating assets and liabilities of$23 million . The net outflow from changes in operating assets and liabilities was primarily attributable to an increase in deferred costs of$27 million , primarily including sales commissions, a decrease in accrued compensation and related benefits of$23 million , a decrease in accounts payable of$18 million due to timing of vendor payments, and an increase in prepaid expenses and other current assets of$13 million , partially offset by a decrease in accounts receivable of$48 million due to timing of customer billings and collections and an increase in deferred revenue of$8 million . Net cash provided by operating activities in the three months endedMarch 31, 2021 was$34 million , reflecting our net loss of$49 million , adjusted by non-cash charges including share-based compensation expense of$52 million , depreciation and amortization of$10 million , amortization of deferred costs of$15 million , amortization of debt discount and issuance costs of$13 million , and allowance for credit losses on accounts receivable of$3 million , partially offset by net changes in operating assets and liabilities of$9 million . The net outflow from changes in operating assets and liabilities was primarily attributable to an increase in deferred costs of$21 million , primarily including sales commissions, and a decrease in accrued compensation and benefits of$20 million , partially offset by an increase in deferred revenue of$13 million , a decrease in accounts receivable of$16 million due to timing of customer billings and collections, and an increase in accounts payable of$6 million due to timing of payments.
Investing Activities
Net cash used in investing activities in the three months endedMarch 31, 2022 of$19 million was primarily attributable to purchases of marketable securities of$8 million , net of sales and maturities, purchases of property and equipment of$7 million , primarily for employee equipment and leasehold improvements for newly leased office facilities, and capitalized internal-use software costs of$3 million , primarily related to the development of additional features and functionality for our platform. Net cash used in investing activities in the three months endedMarch 31, 2021 of$78 million was primarily attributable to purchases of marketable securities of$70 million , net of sales and maturities, purchases of property and equipment of$3 million , primarily for employee equipment, and capitalized internal-use software costs of$4 million related to the development of additional features and functionality for our platform. 35
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Financing Activities
Net cash provided by financing activities in the three months endedMarch 31, 2022 of$27 million was primarily attributable to proceeds from our employee stock purchase plan of$18 million and proceeds from exercises of employee stock options of$11 million , partially offset by payments for withholding taxes related to net share settlement of RSUs of$2 million . Net cash provided by financing activities in the three months endedMarch 31, 2021 of$16 million was primarily attributable to proceeds from our employee stock purchase plan of$15 million and proceeds from exercises of employee stock options of$4 million , partially offset by payments for withholding taxes related to net share settlement of RSUs of$3 million . 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.
There were no changes to our critical accounting policies described in our
Annual Report on Form 10-K for the year ended
Recently Issued and Adopted Accounting Pronouncements
Refer to Note 1 of the Notes to our Condensed Consolidated Financial Statements for a summary of recently issued and adopted accounting pronouncements.
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