10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40526

 

CONFLUENT, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-1824387

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

899 W. Evelyn Avenue

Mountain View, California

94041

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (800) 439-3207

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A Common Stock, par value $0.00001 per share

 

CFLT

 

The Nasdaq Stock Market LLC

(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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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 No ☒

As of April 28, 2022, there were 125,926,055 shares of the registrant’s Class A common stock and 152,416,050 shares of the registrant's Class B common stock, each with a par value of $0.00001 per share, outstanding.

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I. Financial Information

 

 

ITEM 1. Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021

5

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021

6

 

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended March 31, 2022 and 2021

7

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021

8

 

 

Notes to Condensed Consolidated Financial Statements

10

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

36

 

ITEM 4. Controls and Procedures

37

PART II. Other Information

 

 

ITEM 1. Legal Proceedings

38

 

ITEM 1A. Risk Factors

38

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

86

 

ITEM 3. Defaults Upon Senior Securities

86

 

ITEM 4. Mine Safety Disclosures

86

 

ITEM 5. Other Information

86

 

ITEM 6. Exhibits

87

Signatures

88

 

 


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:

 

our expectations regarding our revenue, revenue mix, expenses, and other results of operations;
our ability to acquire new customers and successfully retain existing customers;
our ability to increase consumption of our offering and expand features and functionalities;
our ability to achieve or sustain our profitability;
future investments in our business, our anticipated capital expenditures, and our estimates regarding our capital requirements;
the costs and success of our sales and marketing efforts and our ability to promote our brand;
our growth strategies;
the estimated addressable market opportunity;
our reliance on key personnel and our ability to identify, recruit, and retain skilled personnel;
our ability to effectively manage our growth, including international expansion;
our ability to protect our intellectual property rights and any costs associated therewith;
the effects of the COVID-19 pandemic or other public health crises;
our ability to compete effectively with existing competitors and new market entrants; and
the growth rates of the markets in which we compete.

 

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


Table of Contents

 

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.

 

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Table of Contents

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

Confluent, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

1,047,589

 

 

$

1,375,932

 

Marketable securities

 

943,048

 

 

 

640,085

 

Accounts receivable, net

 

124,504

 

 

 

137,491

 

Deferred contract acquisition costs

 

28,433

 

 

 

27,646

 

Prepaid expenses and other current assets

 

51,675

 

 

 

44,919

 

Total current assets

 

2,195,249

 

 

 

2,226,073

 

Property and equipment, net

 

18,486

 

 

 

14,428

 

Operating lease right-of-use assets

 

34,814

 

 

 

37,281

 

Deferred contract acquisition costs, non-current

 

54,001

 

 

 

51,178

 

Other assets, non-current

 

14,951

 

 

 

13,769

 

Total assets

$

2,317,501

 

 

$

2,342,729

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

8,151

 

 

$

7,591

 

Accrued expenses and other liabilities

 

71,924

 

 

 

98,974

 

Operating lease liabilities

 

8,540

 

 

 

9,236

 

Deferred revenue

 

235,119

 

 

 

220,920

 

Liability for early exercise of unvested stock options

 

6,995

 

 

 

11,467

 

Total current liabilities

 

330,729

 

 

 

348,188

 

Operating lease liabilities, non-current

 

29,674

 

 

 

31,645

 

Deferred revenue, non-current

 

30,565

 

 

 

25,557

 

Convertible senior notes, net

 

1,081,637

 

 

 

1,080,701

 

Other liabilities, non-current

 

8,827

 

 

 

6,357

 

Total liabilities

 

1,481,432

 

 

 

1,492,448

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

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Table of Contents

 

March 31, 2022

 

 

December 31, 2021

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

-

 

 

 

-

 

Class A common stock, par value of $0.00001 per share; 1,000,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 125,370,709 and 116,728,968 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

1

 

 

 

1

 

Class B common stock, par value of $0.00001 per share; 500,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 152,666,053 and 155,072,914 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

1,703,449

 

 

 

1,599,962

 

Accumulated other comprehensive loss

 

(5,542

)

 

 

(830

)

Accumulated deficit

 

(861,841

)

 

 

(748,854

)

Total stockholders’ equity

 

836,069

 

 

 

850,281

 

Total liabilities and stockholders’ equity

$

2,317,501

 

 

$

2,342,729

 

 

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

Subscription

$

113,920

 

 

$

67,992

 

Services

 

12,219

 

 

 

9,036

 

Total revenue

 

126,139

 

 

 

77,028

 

Cost of revenue:

 

 

 

 

 

Subscription

 

33,603

 

 

 

15,757

 

Services

 

12,174

 

 

 

8,081

 

Total cost of revenue

 

45,777

 

 

 

23,838

 

Gross profit

 

80,362

 

 

 

53,190

 

Operating expenses:

 

 

 

 

 

Research and development

 

57,661

 

 

 

24,313

 

Sales and marketing

 

106,702

 

 

 

58,509

 

General and administrative

 

27,481

 

 

 

15,512

 

Total operating expenses

 

191,844

 

 

 

98,334

 

Operating loss

 

(111,482

)

 

 

(45,144

)

Interest income

 

566

 

 

 

844

 

Other expense, net

 

(1,382

)

 

 

(336

)

Loss before income taxes

 

(112,298

)

 

 

(44,636

)

Provision for (benefit from) income taxes

 

689

 

 

 

(110

)

Net loss

$

(112,987

)

 

$

(44,526

)

Net loss per share, basic and diluted

$

(0.41

)

 

$

(0.41

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

272,890,829

 

 

 

108,731,605

 

 

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

Confluent, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Net loss

$

(112,987

)

 

$

(44,526

)

Other comprehensive loss:

 

 

 

 

 

Unrealized loss on marketable securities

 

(4,712

)

 

 

(185

)

Other comprehensive loss

 

(4,712

)

 

 

(185

)

Total comprehensive loss

$

(117,699

)

 

$

(44,711

)

 

See accompanying notes to the condensed consolidated financial statements.

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Confluent, Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

(unaudited)

 

Three Months Ended March 31, 2022

 

 

Class A and Class B
Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances as of January 1, 2022

 

271,801,882

 

 

$

3

 

 

$

1,599,962

 

 

$

(830

)

 

$

(748,854

)

 

$

850,281

 

Issuance of common stock upon early exercise of unvested options, net of repurchases

 

35,623

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

5,701

 

 

 

-

 

 

 

-

 

 

 

5,701

 

Issuance of common stock upon exercise of vested options

 

5,026,565

 

 

 

-

 

 

 

16,405

 

 

 

-

 

 

 

-

 

 

 

16,405

 

Vesting of restricted stock units

 

437,875

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock under employee stock purchase plan

 

734,817

 

 

 

-

 

 

 

22,485

 

 

 

-

 

 

 

-

 

 

 

22,485

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

58,896

 

 

 

-

 

 

 

-

 

 

 

58,896

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,712

)

 

 

-

 

 

 

(4,712

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(112,987

)

 

 

(112,987

)

Balances as of March 31, 2022

 

278,036,762

 

 

$

3

 

 

$

1,703,449

 

 

$

(5,542

)

 

$

(861,841

)

 

$

836,069

 

 

 

Three Months Ended March 31, 2021

 

 

Redeemable Convertible
Preferred Stock

 

 

 

Convertible
Founder Stock

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Total Stockholders’

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Deficit

 

Balances as of January 1, 2021

 

115,277,850

 

 

$

574,634

 

 

 

 

635,818

 

 

$

-

 

 

 

109,447,843

 

 

$

1

 

 

$

99,575

 

 

$

228

 

 

$

(406,053

)

 

$

(306,249

)

Issuance of common stock upon early exercise of unvested options, net of repurchases

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

1,128,365

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Vesting of early exercised options

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,208

 

 

 

-

 

 

 

-

 

 

 

1,208

 

Issuance of common stock upon exercise of vested options

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

2,875,314

 

 

 

-

 

 

 

6,215

 

 

 

-

 

 

 

-

 

 

 

6,215

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,451

 

 

 

-

 

 

 

-

 

 

 

13,451

 

Other comprehensive loss

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(185

)

 

 

-

 

 

 

(185

)

Net loss

 

-

 

 

 

-

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44,526

)

 

 

(44,526

)

Balances as of March 31, 2021

 

115,277,850

 

 

$

574,634

 

 

 

 

635,818

 

 

$

-

 

 

 

113,451,522

 

 

$

1

 

 

$

120,449

 

 

$

43

 

 

$

(450,579

)

 

$

(330,086

)

 

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents


Confluent, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net loss

$

(112,987

)

 

$

(44,526

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,250

 

 

 

787

 

Net amortization of premiums or discounts on marketable securities

 

705

 

 

 

505

 

Amortization of debt issuance costs

 

936

 

 

 

-

 

Amortization of deferred contract acquisition costs

 

8,470

 

 

 

5,535

 

Non-cash operating lease costs

 

2,275

 

 

 

2,856

 

Stock-based compensation, net of amounts capitalized

 

57,369

 

 

 

13,353

 

Deferred income taxes

 

(4

)

 

 

(567

)

Other

 

204

 

 

 

439

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

12,782

 

 

 

5,734

 

Deferred contract acquisition costs

 

(12,080

)

 

 

(10,866

)

Prepaid expenses and other assets

 

(7,985

)

 

 

(2,355

)

Accounts payable

 

177

 

 

 

839

 

Accrued expenses and other liabilities

 

(22,853

)

 

 

1,433

 

Operating lease liabilities

 

(2,497

)

 

 

(2,721

)

Deferred revenue

 

19,207

 

 

 

9,565

 

Net cash used in operating activities

 

(55,031

)

 

 

(19,989

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Capitalization of internal-use software costs

 

(2,509

)

 

 

(596

)

Purchases of marketable securities

 

(403,883

)

 

 

(41,688

)

Maturities of marketable securities

 

95,545

 

 

 

56,763

 

Purchases of property and equipment

 

(887

)

 

 

(643

)

Other

 

-

 

 

 

9

 

Net cash (used in) provided by investing activities

 

(311,734

)

 

 

13,845

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of vested options

 

16,436

 

 

 

6,215

 

Proceeds from issuance of common stock upon early exercise of unvested options, net of repurchases

 

333

 

 

 

7,398

 

Payments of deferred offering costs

 

-

 

 

 

(153

)

Payments of debt issuance costs for convertible senior notes

 

(786

)

 

 

-

 

Proceeds from issuance of common stock under employee stock purchase plan

 

22,485

 

 

 

-

 

Net cash provided by financing activities

 

38,468

 

 

 

13,460

 

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

(46

)

 

 

(8

)

Net (decrease) increase in cash, cash equivalents, and restricted cash

 

(328,343

)

 

 

7,308

 

Cash, cash equivalents, and restricted cash at beginning of period

 

1,376,682

 

 

 

37,806

 

Cash, cash equivalents, and restricted cash at end of period

$

1,048,339

 

 

$

45,114

 

 

 

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Table of Contents

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the amounts shown above:

 

 

 

 

 

Cash and cash equivalents

$

1,047,589

 

 

$

44,097

 

Restricted cash included in other assets, current and non-current

 

750

 

 

 

1,017

 

Total cash, cash equivalents, and restricted cash

$

1,048,339

 

 

$

45,114

 

Supplementary cash flow disclosures:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Income taxes

$

712

 

 

$

524

 

Non-cash investing and financing activities:

 

 

 

 

 

Stock-based compensation capitalized as internal-use software costs

$

1,527

 

 

$

98

 

Vesting of early exercised stock options

$

5,701

 

 

$

1,208

 

Unpaid deferred offering costs

$

-

 

 

$

1,340

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

 

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 $38.1 million and $32.3 million as of March 31, 2022 and December 31, 2021, respectively.

 

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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 not material as of March 31, 2022 and December 31, 2021. Additions to and write-offs against the allowance for expected credit losses were not material for the three months ended March 31, 2022 and 2021.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

 

Credit Losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including the Company’s accounts receivable and certain other financial instruments, with multiple codification improvement amendments issued more recently. Credit losses related to available-for-sale debt securities are required to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company for the year beginning January 1, 2023, though early adoption is permitted. The Company early adopted this guidance effective January 1, 2022 on a modified retrospective basis, and the adoption did not result in any cumulative effect adjustment to its opening accumulated deficit balance.

3. Marketable Securities

The following tables summarize the fair values of the Company’s marketable securities (in thousands):

 

 

March 31, 2022

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

U.S. treasury securities

$

699,057

 

 

$

-

 

 

$

(2,548