UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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The (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 28, 2022, there were
TABLE OF CONTENTS
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “toward,” “will,” “would,” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
1
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Where You Can Find More Information
Investors and others should note that we may announce material business and financial information to our investors using our Investor Relations website (investors.confluent.io), our filings with the Securities and Exchange Commission (“SEC”), webcasts, press releases, public conference calls, and blogs published on our website. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.
We also use our Twitter, LinkedIn, and Facebook accounts as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts, in addition to following our SEC filings, webcasts, press releases, public conference calls, and blogs published on our website. This list may be updated from time to time. The information we post through these channels is not a part of this Quarterly Report on Form 10-Q. These channels may be updated from time to time on our investor relations website.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Confluent, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
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March 31, 2022 |
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December 31, 2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Marketable securities |
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Accounts receivable, net |
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Deferred contract acquisition costs |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Deferred contract acquisition costs, non-current |
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Other assets, non-current |
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Total assets |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
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$ |
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Accrued expenses and other liabilities |
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Operating lease liabilities |
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Deferred revenue |
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Liability for early exercise of unvested stock options |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Deferred revenue, non-current |
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Convertible senior notes, net |
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Other liabilities, non-current |
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Total liabilities |
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3
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March 31, 2022 |
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December 31, 2021 |
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Stockholders’ equity: |
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Preferred stock, par value of $ |
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Class A common stock, par value of $ |
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Class B common stock, par value of $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ |
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$ |
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See accompanying notes to the condensed consolidated financial statements.
4
Confluent, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenue: |
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Subscription |
$ |
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$ |
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Services |
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Total revenue |
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Cost of revenue: |
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Subscription |
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Services |
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Total cost of revenue |
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Gross profit |
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Operating expenses: |
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Research and development |
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Sales and marketing |
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General and administrative |
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Total operating expenses |
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Operating loss |
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Interest income |
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Other expense, net |
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( |
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( |
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Loss before income taxes |
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( |
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( |
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Provision for (benefit from) income taxes |
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( |
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Net loss |
$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
$ |
( |
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$ |
( |
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Weighted-average shares used to compute net loss per share, basic and diluted |
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See accompanying notes to the condensed consolidated financial statements.
5
Confluent, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net loss |
$ |
( |
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$ |
( |
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Other comprehensive loss: |
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Unrealized loss on marketable securities |
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( |
) |
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( |
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Other comprehensive loss |
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( |
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( |
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Total comprehensive loss |
$ |
( |
) |
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$ |
( |
) |
See accompanying notes to the condensed consolidated financial statements.
6
Confluent, Inc.
Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
(unaudited)
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Three Months Ended March 31, 2022 |
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Class A and Class B |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances as of January 1, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Issuance of common stock upon early exercise of unvested options, net of repurchases |
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- |
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- |
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- |
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- |
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- |
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Vesting of early exercised options |
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- |
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- |
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- |
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- |
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Issuance of common stock upon exercise of vested options |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Issuance of common stock under employee stock purchase plan |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balances as of March 31, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Three Months Ended March 31, 2021 |
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Redeemable Convertible |
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Convertible |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated |
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Total Stockholders’ |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Income |
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Deficit |
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Deficit |
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Balances as of January 1, 2021 |
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$ |
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$ |
- |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Issuance of common stock upon early exercise of unvested options, net of repurchases |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Vesting of early exercised options |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Issuance of common stock upon exercise of vested options |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Net loss |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Balances as of March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
See accompanying notes to the condensed consolidated financial statements.
7
Confluent, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
$ |
( |
) |
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$ |
( |
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Adjustments to reconcile net loss to cash used in operating activities: |
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Depreciation and amortization |
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Net amortization of premiums or discounts on marketable securities |
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Amortization of debt issuance costs |
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Amortization of deferred contract acquisition costs |
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Non-cash operating lease costs |
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Stock-based compensation, net of amounts capitalized |
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Deferred income taxes |
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( |
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( |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Deferred contract acquisition costs |
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( |
) |
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( |
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Prepaid expenses and other assets |
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( |
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( |
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Accounts payable |
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Accrued expenses and other liabilities |
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( |
) |
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Operating lease liabilities |
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( |
) |
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( |
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Deferred revenue |
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Net cash used in operating activities |
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( |
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( |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Capitalization of internal-use software costs |
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( |
) |
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( |
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Purchases of marketable securities |
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( |
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( |
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Maturities of marketable securities |
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Purchases of property and equipment |
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( |
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( |
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Other |
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Net cash (used in) provided by investing activities |
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( |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from issuance of common stock upon exercise of vested options |
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Proceeds from issuance of common stock upon early exercise of unvested options, net of repurchases |
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Payments of deferred offering costs |
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( |
) |
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Payments of debt issuance costs for convertible senior notes |
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( |
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Proceeds from issuance of common stock under employee stock purchase plan |
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Net cash provided by financing activities |
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Effect of exchange rate changes on cash, cash equivalents, and restricted cash |
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( |
) |
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( |
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Net (decrease) increase in cash, cash equivalents, and restricted cash |
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( |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
$ |
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$ |
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8
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Three Months Ended March 31, |
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2022 |
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2021 |
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Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown above: |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash included in other assets, current and non-current |
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Total cash, cash equivalents, and restricted cash |
$ |
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$ |
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Supplementary cash flow disclosures: |
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Cash paid for: |
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Income taxes |
$ |
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$ |
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Non-cash investing and financing activities: |
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Stock-based compensation capitalized as internal-use software costs |
$ |
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$ |
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Vesting of early exercised stock options |
$ |
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$ |
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Unpaid deferred offering costs |
$ |
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$ |
|
See accompanying notes to the condensed consolidated financial statements.
9
Confluent, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
Description of Business
Confluent, Inc. (“Confluent” or the “Company”) created a data infrastructure platform focused on data in motion. Confluent’s platform allows customers to connect their applications, systems, and data layers and can be deployed either as a self-managed software offering, Confluent Platform, or as a fully-managed cloud-native software-as-a-service (“SaaS”) offering, Confluent Cloud. Confluent also offers professional services and education services. The Company was incorporated in the state of Delaware in September 2014 and is headquartered in California with various other global office locations.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022 (the “Annual Report”).
In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2022 and the results of operations and cash flows for the three months ended March 31, 2022 and 2021. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full year or any other future interim or annual period.
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Such estimates include, but are not limited to, the standalone selling price for each distinct performance obligation included in customer contracts, deferred contract acquisition costs and their period of benefit, valuation of stock-based awards, the fair value of the Company’s common stock prior to its initial public offering (“IPO”) in June 2021, capitalization and estimated useful life of internal-use software, the incremental borrowing rate used to measure operating lease liabilities, and accounting for income taxes.
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The Company bases its estimates on historical and anticipated results, trends, and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions about future events and their effects, including the impact of the COVID-19 pandemic, cannot be determined with certainty and therefore require the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to the Company’s condensed consolidated financial statements.
Significant Accounting Policies
Other than the policies described below, there were no significant changes to the Company’s significant accounting policies disclosed in “Note 2 – Basis of Presentation and Summary of Significant Accounting Policies” of the Company’s Annual Report.
Marketable Securities
The Company’s marketable securities consist of corporate notes and bonds, commercial paper, U.S. agency obligations, U.S. treasury securities, and municipal bonds. The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. The Company has classified and accounted for its marketable securities as available-for-sale securities. The Company may sell these securities at any time for use in its current operations or for other purposes, even prior to maturity. As a result, the Company classifies its marketable securities within current assets.
Available-for-sale securities are recorded at fair value each reporting period, and are adjusted for amortization of premiums and accretion of discounts to maturity and such amortization and accretion are included in other income (expense), net in the consolidated statements of operations. Realized gains and losses are determined based on the specific identification method and are reported in other income (expense), net in the condensed consolidated statements of operations. Unrealized gains are reported as a separate component of accumulated other comprehensive income (loss) on the condensed consolidated balance sheets until realized.
For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell the security or it is more likely than not that the Company will be required to sell the security before the recovery of its entire amortized cost basis. If either of these criteria is met, the security’s amortized cost basis is written down to fair value through other income (expense), net in the condensed consolidated statements of operations. If neither of these criteria is met, the Company evaluates whether the decline in fair value below amortized cost is due to credit or non-credit related factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. Credit related unrealized losses are recognized as an allowance for expected credit losses of available-for-sale debt securities on the condensed consolidated balance sheets with a corresponding charge in other income (expense), net in the condensed consolidated statements of operations. Non-credit related unrealized losses are included in accumulated other comprehensive income (loss).
Accounts Receivable and Allowance for Credit Losses
Accounts receivable on the condensed consolidated balance sheets consists of trade accounts receivable and unbilled receivables, net of an allowance for expected credit losses. Trade accounts receivable are stated at the invoiced amount and consist of amounts currently due from customers. Unbilled receivables represent revenue recognized in excess of invoiced amounts for the Company’s unconditional right to consideration in exchange for goods or services that the Company has transferred to the customer, such that only the passage of time is required before payment of consideration is due. The unbilled receivables balance was $
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Accounts receivable are reduced by an allowance for expected credit losses. The allowance for expected credits losses represents the best estimate of lifetime expected credit losses against the existing accounts receivable, inclusive of unbilled receivables, based on certain factors including the age of the receivable balance, past collection experience with the customer, historical write-off experience, credit quality of the customer, current economic conditions, and reasonable and supportable forecasts of future economic conditions. Accounts receivable deemed uncollectible are written off against the allowance for expected credit losses when identified and the Company no longer actively pursues collection of the receivable. The Company’s allowance for expected credit losses was
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements