CVENT HOLDING CORP. Overview
The Company was founded in 1999 in theWashington, D.C. metro area as a provider of event registration software to meeting and event organizers. Since that time, we have continually innovated to develop a comprehensive platform of event marketing and management solutions and hospitality solutions. We believe that since inception, we have demonstrated an entrepreneurial spirit, culture of teamwork and sense of resilience, particularly in moments of crisis. This is best evidenced by the Company's continued progress and innovation in the midst of challenges like the recessions of 2001 and 2008 and the global COVID-19 pandemic. The Company is a leading cloud-based platform of enterprise event marketing and management and hospitality solutions. We power the marketing and management of meetings and events through our Event Cloud and Hospitality Cloud solutions. Our Event Cloud consists of tools to enable event organizers to manage the entire event lifecycle and deliver engaging experiences across every type of event and all event formats: in-person, virtual and hybrid. Event Cloud serves as the system of record for event and engagement data collected across an organization's total event program, which comprises every internal and external event an organization hosts or attends (its "Total Event Program"). Our Hospitality Cloud offers a marketplace that connects event organizers looking for the appropriate event space for their in-person and hybrid events with hoteliers and venue operators through a vertical search engine built on our proprietary database of detailed event space information. In addition, our Hospitality Cloud provides marketing and software solutions that hotels and venues leverage to digitally showcase their event space to attract valuable leads and grow their businesses. This combination of our Event Cloud and Hospitality Cloud offerings results in an integrated solution.
Proposed Merger
OnMarch 14, 2023 , the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") withCapstone Borrower, Inc. ("Capstone Parent"), andCapstone Merger Sub, Inc. , a wholly owned subsidiary of Capstone Parent ("Merger Sub"). Capstone Parent and Merger Sub are affiliates of investment funds affiliated with or managed by affiliates of Blackstone Inc. Pursuant to the Merger Agreement and subject to the satisfaction of customary closing conditions, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Capstone Parent (the "Merger"). If the Merger is consummated, the Company's common stock (the "Company Common Stock") will be delisted from the Nasdaq Global Market and deregistered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The closing of the proposed Merger is subject to certain conditions, including the adoption of the Merger Agreement by stockholders representing a majority of the outstanding shares of Company Common Stock and the receipt of applicable regulatory approvals. The proposed Merger is expected to close mid-year 2023.
Trends and Economic Conditions
Global events, such as recent geopolitical instability, inflation and the COVID-19 pandemic, have created or contributed to uncertainty in macroeconomic conditions, including changes in interest rates, supply chain disruptions, labor shortages and increased labor costs, which, in turn, could decrease overall economic activity, hinder economic growth or cause a recession inthe United States or in the global economy. Negative macroeconomic conditions may affect our clients' businesses, which could result in reduced demand for our services or cancellations, increased demands for pricing accommodations or higher rates of delays in collection of, or losses on, our accounts receivable, which could adversely affect our results of operations. If we are unable to offset any decrease in revenue by increasing sales to new or existing customers, or otherwise offset higher costs through price increases, our revenues may decline or grow at lower rates. The extent of the impact of ongoing macroeconomic conditions on our operational and financial performance is uncertain and will depend on political, social, economic and regulatory factors that are outside of our control, including but not limited to the incidence and severity of additional COVID-19 virus variants and actions that may be taken by regulators and businesses (including customers) in response to macroeconomic uncertainty. We considered the impact of the current economic environment and COVID-19 on our estimates and assumptions and determined that there were no material adverse impacts on the consolidated financial statements as ofMarch 31, 2023 . As events continue to evolve and additional information becomes available, our estimates and assumptions may change materially in future periods. Key Business Metric
In addition to our GAAP financial information, we review the following key business metric to measure our performance, identify trends, formulate business plans and make strategic decisions.
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--------------------------------------------------------------------------------Net Dollar Retention Rate
To evaluate the efficacy of our land and expand model, we examine the rate at which our customers increase their spend with us for our solutions. Our net dollar retention rate measures our ability to retain and increase spend across our existing customer base through expanded use of our platform, offset by customers who choose to stop using our solutions or spend less with us.
We calculate our net dollar retention rate as a quotient of the following:
•
Denominator: Revenue from customers whose revenue existed in the twelve months ending on the day twelve months prior to the date as of which the retention rate is being reported.
•
Numerator: Revenue in the last twelve months from the customers whose revenue is reflected in the denominator.
In the Event Cloud, we define a customer as a party who has entered into an active subscription contract with us. The majority of our customers are parties who are separate organizations. In certain instances, separate business units of an organization that have each entered into separate subscription agreements with us are considered separate customers. In the Hospitality Cloud, we define a customer as an entity with an active account with the Company, where the customer pays for the account or the account has been paid for by the customer's parent company. For example, a corporate brand's individual hotel properties whose accounts are paid for by that property's corporate brand would be considered separate customers. The calculation excludes transactional revenue associated with our Cvent CONNECT client conference and revenue associated with acquisitions whereby client revenue is not available. This revenue comprised 1.7% and 3.6% of revenue for three months endedMarch 31, 2023 and 2022, respectively. We believe our ability to not only retain, but upsell and cross-sell additional features and products to, our existing customers will continue to support our net dollar retention rate. As ofMarch 31, 2023 and 2022, our net dollar retention rate was 115.1% and 108.7%, respectively. The year-over-year increase in our net dollar retention rate is primarily due to the lessening impact of the global COVID-19 pandemic in 2022 and 2023 on both the Event Cloud and Hospitality Cloud, resulting in increased spend on products supporting in-person events, in addition to the adoption of Attendee Hub, our solution for ongoing engagement and virtual events. With in-person meetings and events continuing to quickly return, our net dollar retention rate currently exceeds pre-pandemic levels. In the near-term, we believe our net dollar retention rate will return to pre-pandemic levels as the rate of growth of in-person meetings and events continues to normalize. Longer-term, we believe our net dollar retention rate may exceed pre-pandemic levels as a result of the market opportunity created by virtual and hybrid events and the accelerated digitization of the meetings and events industry. Our net dollar retention rate may fluctuate as a result of a number of factors, including the growing level of our revenue base, the level of penetration within our customer base, expansion of products and features, our ability to retain our customers and our ability to upsell and cross-sell to our customers. Our calculation of net dollar retention rate may differ from similarly titled metrics presented by other companies.
Components of Operating Results
Revenue
We generate revenue from two primary sources: Event Cloud subscription-based
solutions and Hospitality Cloud marketing-based and subscription-based
solutions. Subscription-based solution revenue consists primarily of fees to
provide our customers with access to our cloud-based software platform.
Marketing-based solution revenue consists primarily of fees for digital
advertising on the Cvent Supplier Network ("CSN") or one of our other online
advertising platforms.
Event Cloud
We generate the majority of our Event Cloud revenue from subscriptions for our
event marketing and management software solution. Subscription revenue is driven
primarily by the number of registrations purchased and the number and complexity
of mobile applications, onsite events and virtual events purchased in addition
to additional modules that enhance the functionality of the software solution.
In some cases, the subscription price is based on the number of subscriptions
being purchased by the customer.
The terms of our Event Cloud contracts are typically non-cancellable, have
annual or multi-year terms, and are billed in advance on an annual or quarterly
basis, as applicable. In the case of multi-year agreements, the agreement
sometimes includes annual price increases over the contract term. Our agreements
are sum-certain and not pay-as-you-go. Generally, if a customer exceeds their
purchased number of registrations, the customer will incur an overage fee. We
recognize revenue associated with Event Cloud
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subscription agreements ratably over the term of the contract. Certain revenue
associated with Onsite Solutions and Attendee Hub products is recognized at a
point in time as the services are performed and the performance obligations are
satisfied.
Hospitality Cloud
We generate our Hospitality Cloud revenue from marketing and subscription-based
software solutions. Marketing solutions revenue is primarily driven by the
number of advertisements purchased on CSN. The advertisement price is primarily
determined by the term, targeted geography, market tier, number and prominence
of the advertising placement. Subscription revenue is driven primarily by the
number of licenses purchased for our lead scoring solution to prioritize group
RFPs, three-dimensional hotel tours, event diagramming to collaborate with event
organizers on designing optimal event layouts and viewing three-dimensional
renderings, room block management to enable event attendees to reserve hotel
rooms, business transient solutions and business intelligence solutions to
benchmark against internal and targeted competitive metrics. In some cases, the
subscription price is based on the number of subscriptions being purchased by
the customer.
The terms of our subscription and marketing contracts are typically
non-cancellable, annual or multi-year terms, and are typically billed in advance
on an annual or quarterly basis, as applicable. In the case of multi-year
agreements, the agreement sometimes includes annual price increases over the
contract term. Our agreements are typically sum-certain and not based on usage.
We recognize revenue associated with these agreements ratably over the term of
the subscription or advertising period. For both Event Cloud and Hospitality
Cloud, amounts that have been contractually invoiced are initially recorded as
deferred revenue and are recognized as revenue ratably over the subscription or
advertising period. We refer to contractual amounts that have not been invoiced
as unbilled contract value, and together with deferred revenue, remaining
performance obligations. Unbilled contract value is not reflected in our
consolidated financial statements. See "Key Factors Affecting Our Performance
-Seasonality" included in Part II, Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form 10-K for the year ended December 31, 2022 for the effects of seasonality
on our Hospitality Cloud revenue.
For multi-year agreements for either Event Cloud or Hospitality Cloud solutions,
we typically invoice the amount for the first year of the contract at signing,
followed by subsequent annual invoices at the anniversary of each year. Since we
bill most of our customers in advance, there can be amounts that we have not yet
been contractually able to invoice. Until such time as these amounts are
invoiced or recognized in revenue, they are considered by us to be unbilled
contract value, and together with deferred revenue, remaining performance
obligations. As of March 31, 2023 and December 31, 2022 our total current
deferred revenue was $302.2 million and $267.9 million , which amounts do not
include unbilled contract value for contracts not yet billed of $532.1 million
and $539.7 million , respectively. We expect that the amount of unbilled contract
value relative to the total value of our contracts will change from year to year
for several reasons, including the amount of cash collected early in the
contract term, the specific timing and duration of customer agreements, varying
invoicing cycles of agreements, the specific timing of customer renewals,
changes in customer financial circumstances and foreign currency fluctuations.
We expect to recognize approximately 71.5% of our remaining performance
obligations as revenue over the subsequent 24 months, and the remainder
thereafter.
Cost of Revenue
Cost of revenue primarily consists of employee-related expenses, such as
salaries, benefits, bonuses and stock-based compensation, related to providing
support and hosting our solutions, costs of cloud-based data center capacity,
software license fees, costs to support our onsite, virtual and hybrid
solutions, interchange fees related to merchant services and amortization
expense associated with capitalized software. In addition, we allocate a portion
of overhead, such as rent and depreciation and amortization to cost of revenue
based on headcount.
Although we break out revenue by solution, we do not track or manage the
business by cost of revenue by solution. Rather, we manage cost of revenue by
type of direct cost, and a significant portion of these direct costs are shared
costs to support both Event Cloud and Hospitality Cloud solutions. This is
consistent with our approach to management of the business as one comprehensive
solution for the entire event management lifecycle.
We are invested in our customers' success and as such, we will continue to
invest in providing support, expanding our capacity to support our growth and
developing new features to support virtual, hybrid and in-person events and
enhance our existing products, which in the near-term is expected to result in
higher cost of revenue in absolute dollars.
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--------------------------------------------------------------------------------Gross Profit and Gross Margin
Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of total revenue. We expect that our gross margin may fluctuate from period to period as a result of seasonality related to our onsite, virtual and hybrid solutions and merchant services products in the near-term, and additional costs associated with potential future acquisitions. Operating Expenses
Our operating expenses include selling and marketing expenses, research and development expenses, general and administrative expenses and intangible asset amortization, exclusive of amounts included in cost of revenue.
Sales and Marketing
Sales and marketing expenses primarily consist of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. We capitalize commissions when they are earned by staff, which is when the customer contract is signed. We amortize capitalized commissions over the average historic customer contract life. In addition to staff costs, our cost of marketing includes product marketing and other brand-building and lead generation tactics such as webinars, trade shows, product seminars, content marketing, digital marketing, third-party content distribution and our annual client conference, Cvent CONNECT. In addition, we also allocate a portion of overhead, such as rent and depreciation to sales and marketing based on headcount. We intend to continue to invest in sales and marketing and expect expenses to increase in absolute dollars in the near-term as we continue to expand our business both domestically and internationally and take advantage of the growing need for virtual and hybrid events. Although we expect sales and marketing expenses to continue to be among the most significant components of our operating expenses, we expect sales and marketing expenses as a percentage of revenue to decrease in the near-term.
Research and Development
Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation and the cost of third-party contractors. Research and development expenses, other than software development costs that qualify for capitalization, are expensed as incurred. In addition, we allocate a portion of overhead, such as rent and depreciation to research and development based on headcount. With the exception of software developed by companies we have acquired, we maintain a unified software code base for our entire platform, which we believe improves the efficiency of our research and development activities. We expect research and development expenses to increase in absolute dollars in the near-term as we continue to expand our product offerings, including our virtual and hybrid event functionality, and integrate and support potential future acquired businesses and technologies. However, we expect research and development expenses as a percentage of revenue to decrease in the near-term. General and Administrative General and administrative expenses consist primarily of personnel and related expenses for administrative, internal information technology operations, finance, legal, corporate development, strategy and human resource staff, including salaries, benefits, bonuses and stock-based compensation, as well as professional fees, insurance premiums and other corporate expenses, including expenses associated with the Merger. In addition, we allocate a portion of overhead, such as rent and depreciation to general and administrative based on headcount.
We expect our general and administrative expenses to increase in absolute dollars in the near-term, primarily due to incremental expenses in connection with the Merger.
Intangible Asset Amortization, Exclusive of Amounts Included in Cost of Revenue
Intangible asset amortization, exclusive of amounts included in cost of revenue,
consists entirely of amortization expenses related to acquired customer
relationship and trademark intangible assets. This line item excludes intangible
asset amortization related to cost of revenue, which is defined as acquired
developed technology and capitalized software intangible asset amortization.
We expect to continue to pursue strategic acquisition opportunities, subject to
any restrictions under the Merger Agreement, and if successful, we expect that
our intangible asset amortization expenses will increase in absolute dollars.
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--------------------------------------------------------------------------------Other
Our other income/expense items include interest expense, amortization of deferred financing costs and debt discount and other income, net.
Interest Expense
Interest expense relates primarily to interest payments on our outstanding borrowings under our credit facilities as further described in Note 10. "Debt" to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report. As ofMarch 31, 2023 , we had outstanding borrowings of$138.0 million under our five-year,$500.0 million senior secured revolving credit facility (the "Revolving Credit Facility").
Amortization of Deferred Financing Costs and Debt Discount
Amortization of deferred financing costs and debt discount consists of the amortization of up-front fees paid at the inception of our credit facilities.
Other Income, Net
Other income, net consists primarily of interest income and foreign currency gains or losses.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to
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--------------------------------------------------------------------------------Results of Operations
Comparison of the Three Months Ended
The following table sets forth our consolidated statement of operations for the
periods indicated:
Three Months Ended March 31,
2023 2022
(in thousands)
Consolidated Statement of Operations Data:
Revenue:
Event Cloud $ 114,686 $ 94,988
Hospitality Cloud 51,519 42,368
Total revenue 166,205 137,356
Cost of revenue 60,691 56,200
Gross profit 105,514 81,156
Operating expenses:
Sales and marketing 44,960 40,091
Research and development 35,973 31,406
General and administrative 39,768 24,951
Intangible asset amortization, exclusive of amounts
included in cost of revenue 11,713 12,154
Total operating expenses 132,414 108,602
Loss from operations (26,900 ) (27,446 )
Interest expense (2,647 ) (2,592 )
Amortization of deferred financial costs and debt
discount (158 ) (320 )
Other income, net 1,169 260
Loss before income taxes (28,536 ) (30,098 )
Provision for income taxes 4,107 1,291
Net loss $ (32,643 ) $ (31,389 ) The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
Three Months
Ended
2023 2022
Consolidated Statement of Operations Data:
Revenue:
Event Cloud 69.0 % 69.2 %
Hospitality Cloud 31.0 % 30.8 %
Total revenue 100.0 % 100.0 %
Cost of revenue 36.5 % 40.9 %
Gross profit 63.5 % 59.1 %
Operating expenses:
Sales and marketing 27.1 % 29.2 %
Research and development 21.6 % 22.9 %
General and administrative 23.9 % 18.2 %
Intangible asset amortization, exclusive of amounts
included in cost of revenue 7.0 % 8.8 %
Total operating expenses 79.7 % 79.1 %
Loss from operations (16.2 %) (20.0 %)
Interest expense (1.6 %) (1.9 %)
Amortization of deferred financial costs and debt
discount (0.1 %) (0.2 %)
Other income, net 0.7 % 0.2 %
Loss before income taxes (17.2 %) (21.9 %)
Provision for income taxes 2.5 % 0.9 %
Net loss (19.6 %) (22.9 %)
22--------------------------------------------------------------------------------
Revenue
Three Months Ended
March 31,
2023 2022 $ Change % Change
(in thousands)
Revenue:
Event Cloud $ 114,686 $ 94,988 $ 19,698 20.7 %
Hospitality Cloud 51,519 42,368 9,151 21.6 %
Total revenue $ 166,205 $ 137,356 $ 28,849 21.0 %
Total revenue for the three months ended March 31, 2023 was $166.2 million , an
increase of $28.8 million , or 21.0% compared to the three months ended March 31,
2022 . Event Cloud revenue accounted for $114.7 million , or 69.0% of total
revenue, and Hospitality Cloud revenue accounted for $51.5 million , or 31.0% of
total revenue, for three months ended March 31, 2023 .
Event Cloud revenue for the three months ended March 31, 2023 was $114.7
million , an increase of $19.7 million , or 20.7%, compared to the three months
ended March 31, 2022 . The increase was due to the strong performance of products
that support in-person meetings and events because of the lessening impact of
the global COVID-19 pandemic between the first quarter of 2022 and the first
quarter of 2023.
Hospitality Cloud revenue for the three months ended March 31, 2023 was $51.5
million , an increase of $9.2 million , or 21.6%, compared to the three months
ended March 31, 2022 . The increase was primarily due to increased demand of our
advertising and software solutions driven by the sustained return of in-person
meetings.
We generate the majority of our revenue from North America . Revenue from outside
North America accounted for 13.7% and 12.0% of total revenue for the three
months ended March 31, 2023 and 2022, respectively. In the near-term, in
absolute dollars, we expect that total revenue from outside North America will
increase at the same rate as the rest of our business, and as such, we expect
total revenue from outside of North America as proportion of total revenue will
not substantially change.
Cost of Revenue
Three Months Ended
March 31,
2023 2022 $ Change % Change
(in thousands)
Cost of revenue $ 60,691 $ 56,200 $ 4,491 8.0 %
Cost of revenue for the three months ended March 31, 2023 was $60.7 million , an
increase of $4.5 million , or 8.0%, compared to the three months ended March 31,
2022 . This increase was primarily driven by a $2.0 million increase in employee
expense due to an 8.2% increase in average headcount, a $1.0 million increase in
amortization of capitalized software development costs and a $0.6 million
increase in stock-based compensation. Additionally, third-party costs related to
supporting virtual, in-person, and hybrid events increased $1.6 million and
credit card interchange fees related to our merchant services business increased
$1.5 million , primarily driven by the sustained return of in-person meetings and
events. These cost increases were partially offset by a $1.7 million decrease in
hosting expense related to cost optimization and higher credits received in the
first quarter of 2023 compared to the first quarter of 2022.
Operating Expenses
Three Months Ended
March 31,
2023 2022 $ Change % Change
(in thousands)
Sales and marketing $ 44,960 $ 40,091 $ 4,869 12.1 %
Research and development 35,973 31,406 4,567 14.5 %
General and administrative 39,768 24,951 14,817 59.4 %
Intangible asset amortization,
exclusive of amounts included in cost
of revenue 11,713 12,154 (441 ) (3.6 %)
Total operating expenses $ 132,414 $ 108,602 $ 23,812 21.9 %
23-------------------------------------------------------------------------------- Sales and Marketing. Sales and marketing expenses for the three months endedMarch 31, 2023 were$45.0 million , an increase of$4.9 million , or 12.1%, compared to the three months endedMarch 31, 2022 . This increase was primarily driven by a$3.6 million increase in employee expense due to a 10.4% increase in average headcount, and a$2.0 million increase in stock-based compensation. These increases were partially offset by$0.9 million in lower marketing program spend. Research and Development. Research and development expenses for the three months endedMarch 31, 2023 were$36.0 million , an increase of$4.6 million , or 14.5%, compared to the three months endedMarch 31, 2022 . This increase was primarily driven by a$3.1 million increase in employee expense due to a 11.2% increase in average headcount, and a$1.2 million increase in stock-based compensation. General and Administrative. General and administrative expenses for the three months endedMarch 31, 2023 were$39.8 million , an increase of$14.8 million , or 59.4%, compared to the three months endedMarch 31, 2022 . This increase was driven by$13.5 million in transaction costs related to the Merger, a$0.9 million increase in stock-based compensation, and a$0.7 million increase in travel related expense. These increases were partially offset by$0.7 million decrease in bad debt expense. Intangible Asset Amortization, Exclusive of Amounts Included in Cost of Revenue. Intangible asset amortization, exclusive of amounts included in cost of revenue for the three months endedMarch 31, 2023 was$11.7 million , a decrease of$0.4 million , or 3.6%, compared to the three months endedMarch 31, 2022 . This decrease was driven primarily by the scheduled decline in the amortization of intangible assets acquired in past years and no business acquisitions occurring in the first quarter of 2023. Interest Expense Three Months Ended March 31, 2023 2022 $ Change % Change (in thousands) Interest expense$ (2,647 ) $ (2,592 ) $ (55 ) 2.1 % Interest expense for the three months endedMarch 31, 2023 was$2.6 million , an increase of$0.1 million , or 2.1%, compared to the three months endedMarch 31, 2022 . This increase was driven by higher interest rates in the three months endedMarch 31, 2023 as compared to the same period in 2022, partially offset by lower long-term debt balances during the three months endedMarch 31, 2023 as compared to prior year.
Amortization of Deferred Financing Costs and Debt Discount
Three Months Ended
March 31,
2023 2022 $ Change % Change
(in thousands)
Amortization of deferred financing
costs and debt discount $ (158 ) $ (320 ) $ 162 (50.6 %)
Amortization of deferred financing costs and debt discount for the three months
ended March 31, 2023 was $0.2 million , a decrease of $0.2 million , or 50.6%,
compared to the three months ended March 31, 2022 due to the acceleration of
amortization of deferred financing costs and debt discount associated with the
prepayment of the outstanding principal balance under the Company's variable
rate first lien loan in May 2022 .
Other Income, Net
Three Months Ended
March 31,
2023 2022 $ Change % Change
(in thousands)
Other income, net $ 1,169 $ 260 $ 909 349.6 %
Other income, net for the three months ended March 31, 2023 was $1.2 million , an
increase of $0.9 million , or 349.6%, compared to the three months ended March
31, 2022 . Other income for the three months ended March 31, 2023 and 2022
consisted primarily of interest income of $0.8 million in each period from
short-term investments.
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Provision for Income Taxes
Three Months Ended
March 31,
2023 2022 $ Change % Change
(in thousands)
Provision for income taxes $ 4,107 $ 1,291 $ 2,816 218.1 %
Provision for income taxes for the three months ended March 31, 2023 was $4.1
million , an increase of $2.8 million , or 218.1%, compared to the three months
ended March 31, 2022 . The increase primarily resulted from the recording of
higher pre-tax book income in high tax foreign jurisdictions and an increase in
state tax expense due to the prior year utilization of net operating losses in
certain states.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the
non-GAAP measures of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Free Cash
Flow and Adjusted Free Cash Flow margin are useful in evaluating our operating
performance. We believe that non-GAAP financial information, when considered
collectively with the corresponding GAAP measures, may be helpful to investors
because it provides consistency and comparability with past financial
performance and assists in comparisons with other companies, some of which use
similar non-GAAP information to supplement their GAAP results. The non-GAAP
financial information is presented for supplemental informational purposes only,
and should not be considered a substitute for financial information presented in
accordance with GAAP, and may be different from similarly-titled non-GAAP
measures used by other companies. A reconciliation is provided below for each
non-GAAP financial measure to the most directly comparable financial measure
stated in accordance with GAAP. Investors are encouraged to review the related
GAAP financial measures and the reconciliation of these non-GAAP financial
measures to their most directly comparable GAAP financial measures.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of
operating performance monitored by management that are not defined under GAAP
and that do not represent, and should not be considered as, an alternative to
net loss or net loss margin, as determined by GAAP. We define Adjusted EBITDA as
net loss adjusted for interest expense, amortization of deferred financing costs
and debt discount, gain/(loss) on extinguishment of debt, gain/(loss) on
divestitures, net, other income/(expense), net, provision for/(benefit from)
income taxes, depreciation, amortization of software development costs,
intangible asset amortization, stock-based compensation expense, restructuring
expense, cost related to acquisitions, and other items. Adjusted EBITDA margin
represents Adjusted EBITDA divided by revenue. We use Adjusted EBITDA and
Adjusted EBITDA margin to understand and evaluate our core operating performance
and trends. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to
investors, analysts, and other interested parties because they can assist in
providing a more consistent and comparable overview of our operations across our
historical financial periods.
Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools,
and you should not consider either in isolation or as a substitute for analysis
of our results as reported under GAAP. Because of these limitations, you should
consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial
performance measures, including net loss, net loss margin and our other GAAP
results. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be
aware that in the future we may incur expenses that are the same as or similar
to some of the adjustments in this presentation. Our presentation of Adjusted
EBITDA and Adjusted EBITDA margin should not be construed to imply that our
future results will be unaffected by the types of items excluded from the
calculation of Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and
Adjusted EBITDA margin are not a presentation made in accordance with GAAP and
the use of the terms may vary from others in our industry.
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--------------------------------------------------------------------------------A reconciliation of Adjusted EBITDA to net loss and of Adjusted EBITDA margin to net loss margin (defined as net loss divided by revenue), the most directly comparable GAAP measure, respectively, is as follows:
Three Months Ended March 31,
2023 2022
(in thousands)
Adjusted EBITDA:
Net loss $ (32,643 ) $ (31,389 )
Adjustments
Interest expense 2,647 2,592
Amortization of deferred financing costs and debt discount 158 320
Other income, net (1,169 ) (260 )
Provision for income taxes 4,107 1,291
Depreciation 1,816 2,038
Amortization of software development costs 17,008 15,961
Intangible asset amortization 11,713 12,154
Stock-based compensation expense 14,556 9,768
Restructuring (income) expense (1) (4 ) 277
Cost related to acquisitions (2) 13,585 187
Other items (3) 660 (180 )
Adjusted EBITDA $ 32,434 $ 12,759
Adjusted EBITDA Margin:
Revenue $ 166,205 $ 137,356
Net loss margin (4) (19.6 %) (22.9 %)
Adjusted EBITDA margin (4) 19.5 % 9.3 %
(1)
Restructuring expense includes retention bonuses to employees of acquired
entities and costs to discontinue use of a back-office system and closing of
office space.
(2)
Represents costs incurred in association with acquisition activity, including
due diligence and post-acquisition earn out payments, and costs incurred in
relation to the Merger.
(3)
Includes other costs associated with prosecuting a trade secret misappropriation
claim, private equity management fees, and credit facility fees, net of the gain
from government subsidies related to the global COVID-19 pandemic.
(4)
Net loss margin represents net loss divided by revenue and Adjusted EBITDA
margin represents Adjusted EBITDA divided by revenue.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, on-going collection of our accounts receivable and borrowings under our Revolving Credit Facility (see Note 10. Debt to the consolidated financial statements included in Part I1, Item 1 of this Quarterly Report). Outstanding borrowings under the Revolving Credit Facility may fluctuate on a quarterly basis due to the seasonality of the Company's operating cash flows, and the Company's desire to minimize interest expense. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments and certificates of deposit. We also periodically invest a portion of our excess cash in short-term investments with stated maturity dates between three months and one year from the purchase date. OurU.S. entities held$33.3 million and$40.2 million in cash and cash equivalents and short-term investments as ofMarch 31, 2023 andDecember 31, 2022 , respectively. Our non-U.S. entities held$122.8 million and$99.9 million in cash and cash equivalents and short-term investments as ofMarch 31, 2023 andDecember 31, 2022 , respectively. We believe that existing cash and cash equivalents and short-term investments held by us, cash and cash equivalents anticipated to be generated by us and borrowing capacity under our Revolving Credit Facility are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months and beyond. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our Revolving Credit Facility, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, the continuing market adoption of our platform and our level of acquisition activity or other strategic transactions. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights. 26 -------------------------------------------------------------------------------- We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the three months endedMarch 31, 2023 and 2022: Three Months Ended March 31, 2023 2022 (in thousands) Net cash provided by operating activities$ 92,525 $ 79,924 Net cash used in investing activities (25,005 ) (17,680 ) Net cash (used in) provided by financing activities (64,873 ) 510 Effect of exchange rate changes on cash, cash equivalents and restricted cash 2,185 (1,209 ) Change in cash, cash equivalents, and restricted cash 4,832
61,545
Cash, cash equivalents, and restricted cash at beginning of period 99,923
126,629
Cash, cash equivalents, and restricted cash at end of period$ 104,755 $ 188,174 Cash paid for interest$ 2,448 $ 2,584 Operating Activities Net cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and the amount and timing of customer payments. Cash provided by operations in the three months endedMarch 31, 2023 and 2022 is primarily attributable to net loss adjusted for non-cash items. Cash provided by operations is also attributable to the change in accounts receivable and deferred revenue, which is driven by the seasonality of our business and our collections process. Our cash flows from operating activities are generally reflective of our ability to invoice annual subscription fees upfront with payments due 30 days after the customer's receipt of the invoice. We experience seasonality in our accounts receivable. The first and fourth quarters historically include a higher level of cash collections, which is a result of higher levels of invoicing in the first and fourth quarters. For the three months endedMarch 31, 2023 , net cash provided by operating activities was$92.5 million , which was primarily driven by net loss adjusted for non-cash items, increased fees payable to customers related to registration fees collected on behalf of our customers for meetings and events in the future, and cash collections and increased deferred revenue related to calendar year contracts, partially offset by a right-of-use asset associated with a lease we renewed for ourIndia office. For the three months endedMarch 31, 2022 , net cash provided by operating activities was$79.9 million , which was primarily driven by net loss adjusted for non-cash items, increased fees payable to customers related to registration fees collected on behalf of our customers for meetings and events in the future, and cash collections and increased deferred revenue related to calendar year contracts.
Investing Activities
Our investing activities have consisted primarily of costs related to software developed for internal use, purchases of computer equipment and leasehold improvements, purchases and sales of investments and business acquisitions. Investments in software developed for internal use, computer equipment and leasehold improvements and business acquisitions are intended to enable sales growth in new, existing, and expanding markets, help us meet product demand, and increase our product offerings across multiple platforms, while the purchases of investments are intended to maximize returns from our existing cash balances. For the three months endedMarch 31, 2023 , net cash used in investing activities was$25.0 million , reflecting$12.7 million in capitalized software development,$9.9 million in net purchases of short-term investments and$2.4 million in purchases of property and equipment. For the three months endedMarch 31, 2022 , net cash used in investing activities was$17.7 million , reflecting$11.9 million in capitalized software development,$4.4 million in net purchases of short-term investments and$1.4 million in purchases of property and equipment.
Financing Activities
Our financing activities have consisted primarily of proceeds from and principal payments on the Company's Revolving Credit Facility and proceeds from the exercise of stock options. Our practice has been to minimize interest expense while maintaining reasonable liquidity. For the three months endedMarch 31, 2023 , net cash used in financing activities was$64.9 million , consisting 27 -------------------------------------------------------------------------------- primarily of$115.0 million of principal repayments on the Company's Revolving Credit Facility, partially offset by$45.0 million in proceeds from the Company's Revolving Credit Facility and$5.1 million of proceeds from the exercise of stock options. For the three months endedMarch 31, 2022 , net cash provided by financing activities was$0.5 million , consisting of proceeds from the exercise of stock options.
Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin
Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, an alternative to our consolidated cash flow statement, as determined by GAAP. We define Adjusted Free Cash Flow as our net cash provided by operating activities adjusted to: (i) include purchases of property and equipment, (ii) include capitalized software development costs, (iii) include the changes in fees payable to customers, and (iv) exclude cash payments for interest. Adjusted Free Cash Flow margin represents Adjusted Free Cash Flow divided by revenue. We use Adjusted Free Cash Flow and Adjusted Free Cash Flow margin to understand and evaluate our core operating performance and trends. We believe Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted Free Cash Flow and Adjusted Free Cash Flow margin have limitations as analytical tools, and you should not consider either in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted Free Cash Flow and Adjusted Free Cash Flow margin alongside other financial performance measures, including operating cash flows, investing cash flows and our other GAAP results. In evaluating Adjusted Free Cash Flow and Adjusted Free Cash Flow margin, you should be aware that in the future we may incur cash flow activities that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted Free Cash Flow and Adjusted Free Cash Flow margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted Free Cash Flow and Adjusted Free Cash Flow margin. Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are not a presentation made in accordance with GAAP and the use of the terms may vary from others in our industry.
The following table presents a summary of our Adjusted Free Cash Flow for each
of the three months ended
Three Months Ended March 31,
2023 2022
(in thousands)
Adjusted Free Cash Flow:
Net cash provided by operating activities: $ 92,525 $ 79,924
Adjustments
Purchase of property and equipment (2,356 ) (1,375 )
Capitalized software development costs (12,725 ) (11,891 )
Change in fees payable to customers (25,210 ) (24,493 )
Interest paid 2,448 2,584
Adjusted Free Cash Flow $ 54,682 $ 44,749
Adjusted Free Cash Flow margin:
Revenue $ 166,205 $ 137,356
Adjusted Free Cash Flow margin 32.9 %
32.6 %
Adjusted Free Cash Flow for the three months endedMarch 31, 2023 increased$9.9 million compared to the three months endedMarch 31, 2022 primarily as a result of an increase in cash provided by operating activities driven by increased fees payable to customers in the first quarter of 2023 as in-person meetings and events continue to return, net of decreased deferred revenue due to the timing of contract renewals and a right-of-use asset created in the first quarter of 2023.
Commitments and Contingencies
See the information set forth in Note 12. "Commitments and Contingencies" to the
unaudited condensed consolidated financial statements included in Part I, Item 1
of this Quarterly Report.
28
--------------------------------------------------------------------------------Indemnification Agreements
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses related to breach of confidentiality and claims by third parties of intellectual property infringement, misappropriation or other violation. In addition, we have entered into indemnification agreements with each of our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. There are no indemnification claims that we are currently aware of that could have a material adverse effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity withU.S. generally accepted accounting principles and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported. Note 2. "Summary of Significant Accounting Policies" to the condensed consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year endedDecember 31, 2022 describe the significant accounting policies and methods used in the preparation of the Company's condensed consolidated financial statements. There have been no material changes to the Company's critical accounting estimates since our Annual Report on Form 10-K for the year endedDecember 31, 2022 .
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