The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and accompanying notes that are included elsewhere in this Quarterly Report on Form 10-Q and our final prospectus, or the Final Prospectus, datedJune 23, 2021 , filed with theSEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, or the Securities Act. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. You should review the section titled "Special Note Regarding Forward-Looking Statements" for a discussion of forward-looking statements and the section titled "Risk Factors" for a discussion of factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our historical results are not necessarily indicative of the results that may be expected for any period in the future, and our interim results are not necessarily indicative of the results we expect for the full fiscal year or any other period. The last day of our fiscal year isMarch 31 . Our fiscal quarters end onJune 30 ,September 30 ,December 31 , andMarch 31st . Fiscal 2022, our current fiscal year, will end onMarch 31, 2022 . Overview We are the leading digital platform forU.S. medical professionals, as measured by the number ofU.S. physician members. Our members include more than 80% of physicians across all 50 states and every medical specialty. Our mission is to help every physician be more productive and provide better care for their patients. We are physicians-first, putting technology to work for doctors instead of the other way around. That guiding principle has enabledDoximity to become an essential and trusted professional platform for physicians. Our cloud-based platform provides our members with tools specifically built for medical professionals, enabling them to collaborate with their colleagues, securely coordinate patient care, conduct virtual patient visits, stay up-to-date with the latest medical news and research, and manage their careers.Doximity membership is free for physicians. Our revenue-generating customers, primarily pharmaceutical manufacturers and healthcare systems, have access to a suite of commercial solutions that benefit from broad physician usage. At the core of our platform is the largest medical professional network in the nation, which creates proximity within our community of doctors and hundreds of thousands of other medical professionals. Verified members can search and connect with colleagues and specialists, which allows them to better coordinate patient care and streamline referrals. Our newsfeed addresses the ever increasing sub-specialization of medical expertise and volume of medical research by delivering news and information that is relevant to each physician's clinical practice. We also support physicians in their day-to-day practice of medicine with mobile-friendly and easy-to-use clinical workflow tools such as voice and video dialer, secure messaging, and digital faxing. As the COVID-19 pandemic placed unprecedented strain on theU.S. healthcare delivery system, and healthcare providers and patients increasingly needed access to effective and easy-to-use virtual care tools, we launched our enterprise-level Telehealth Solutions for health systems, with a beta version available in April and a full launch in May of 2020. Our Telehealth Solutions, which are software tools that include voice and video Dialer, are designed to easily connect patients with care providers. Our business model has delivered high revenue growth at scale, while increasing profitability. For the three months endedDecember 31, 2021 and 2020, we recorded revenue of$97.9 million and$58.7 million , respectively, representing a year-over-year growth rate of 67%. For the nine months endedDecember 31, 2021 and 2020, we recorded revenue of$249.9 million , and$140.2 million , respectively, representing a year-over-year growth rate of 78%. Our net income was$55.6 million and$17.2 million for the three months endedDecember 31, 2021 and 2020 and was$118.1 million and$28.7 million for the nine months endedDecember 31, 2021 and 2020. For the three months endedDecember 31, 2021 and 2020, we generated Adjusted EBITDA of$47.0 million and$21.5 million . For the nine months endedDecember 31, 2021 and 2020, we generated Adjusted EBITDA of$110.9 million and$38.0 million , respectively. We have accomplished this while focusing on our core mission to help every physician be more productive and provide better care for their patients. 26 -------------------------------------------------------------------------------- Table of Contents Impact of COVID-19 The COVID-19 pandemic has had, and continues to have, a significant impact on theU.S. economy and the markets in which we operate.Doximity has been privileged to play an important role in supporting physicians, medical professionals, and health systems nationwide during this time. Our business has performed strongly, demonstrating the value and effectiveness of our platform to both our members and customers. While certain of the COVID-19 pandemic-related trends underlying our positive performance may not continue after the pandemic eases, we believe that certain key underlying trends have been accelerated and will persist long after the pandemic ends. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business. While the COVID-19 pandemic has not had a material adverse impact on our financial condition and results of operations to date, the extent to which the outbreak of COVID-19 will impact our business, results of operations and financial condition in the future is still unknown and will depend on future developments, which are highly uncertain and cannot be predicted. For additional information, see "Risk Factors-Risks Related to Our Business-The COVID-19 pandemic and any other future pandemic, epidemic, or outbreak of an infectious disease may adversely affect our business, financial condition, and results of operations." Key Factors Affecting Our Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. For discussion of these factors, please see "Key Factors Affecting Our Performance" in the Management's Discussion and Analysis section of the Final Prospectus and "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q for the quarter endedDecember 31, 2021 . Key Business and Financial Metrics We monitor a number of key business and financial metrics to determine the health and success of our business, including: Customers with Trailing 12-Month Subscription Revenue Greater than$100,000 . The number of customers with trailing 12-month ("TTM") product revenue greater than$100,000 is calculated by counting the number of customers that contributed more than$100,000 in subscription revenue in the TTM period. The number of customers with TTM subscription-based revenue of at least$100,000 is a key indicator of the scale of our business. Our customer count is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. The number of customers with at least$100,000 of revenue has grown steadily in recent years as we have engaged new customers and expanded within existing ones. This cohort of customers accounted for approximately 89% of our revenue for the TTM endedDecember 31, 2021 .December 31, 2021 2020
Number of customers with at least
172
Net Revenue Retention Rate. Net revenue retention rate is calculated by taking the TTM subscription-based revenue from our customers that had revenue in the prior TTM period and dividing that by the total subscription-based revenue for the prior TTM period. Our net revenue retention rate compares our subscription revenue from the same set of customers across comparable periods, and reflects customer renewals, expansion, contraction, and churn. December 31, 2021 2020 Net revenue retention rate 171 % 145 % 27
-------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures We use adjusted EBITDA and free cash flow to measure our performance and identify trends, to formulate financial projections, and to make strategic decisions. Adjusted EBITDA We define adjusted EBITDA as net income before interest, income taxes, depreciation, and amortization, and as further adjusted for acquisition and other related expenses, stock-based compensation expense, and other income, net. Net income margin represents net income as a percentage of revenue and adjusted EBITDA margin represents adjusted EBITDA as a percentage of revenue. Adjusted EBITDA is a key measure we use to assess our financial performance and is also used for internal planning and forecasting purposes. We believe adjusted EBITDA is helpful to investors, analysts, and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. Adjusted EBITDA and adjusted EBITDA margin are non-GAAP measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to the financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statement of operations that are necessary to run our business. Other companies, including other companies in our industry, may not use these measures or may calculate these measures differently than as presented in this Quarterly Report on Form 10-Q, limiting their usefulness as comparative measures. Adjusted EBITDA and adjusted EBITDA Margin increased year-over-year primarily due to higher net income as a result of increased subscription revenue. A reconciliation of net income to adjusted EBITDA and adjusted EBITDA margin is set forth below along with net income margin: Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 (unaudited) (in thousands, except percentages) Net income$ 55,647 $ 17,231 $ 118,057 $ 28,727 Adjusted to exclude the following: Acquisition and other related expenses - 326 - 470 Stock-based compensation 9,834 2,220 21,633 4,382 Depreciation and amortization 1,361 1,015 3,672 2,711 Provision for (benefit from) income taxes (19,838) 5,306 (31,957) 6,157 Other income, net (20) (4,601) (485) (4,428) Adjusted EBITDA$ 46,984 $ 21,497 $ 110,920 $ 38,019 Revenue$ 97,876 $ 58,709 $ 249,895 $ 140,210 Net income margin 57 % 29 % 47 % 20 % Adjusted EBITDA margin 48 % 37 % 44 % 27 % Free Cash Flow Free cash flow is a key performance measure that our management uses to assess our overall performance. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening our financial position. We calculate free cash flow as cash flow from operating activities less purchases of property and equipment and capitalized internal-use software development costs. 28 -------------------------------------------------------------------------------- Table of Contents The following table presents a reconciliation of our free cash flow to the most comparable GAAP measure, net cash provided by operating activities, for each of the periods indicated: Nine Months Ended December 31, 2021 2020 (in thousands) Net cash provided by operating activities $ 79,611$ 45,422 Purchases of property and equipment (852)
(98)
Capitalized internal-use software (2,736)
(3,599)
Free cash flow $ 76,023$ 41,725 Other cash flow components: Net cash used in investing activities$ (616,948) $ (27,548) Net cash provided by financing activities $ 556,023
Although we believe free cash flow is a useful indicator of business performance, free cash flow is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. Free cash flow has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other GAAP financial measures, such as cash provided by operating activities. Some of the limitations of free cash flow are that it may not properly reflect capital commitments to creators that need to be paid in the future or future contractual commitments that have not been realized in the current period. Our free cash flow may not be comparable to similarly titled measures of other companies because they may not calculate free cash flow in the same manner as we calculate the measure, limiting its usefulness as a comparative measure. Components of Results of Operations Revenue Marketing Solutions. Our customers pay for a subscription to our Marketing Solutions, either directly or through their relationships with media buying agencies, for the ability to share tailored content on theDoximity platform via a variety of modules for defined time periods. We generally bill customers ahead of the service period. Subscriptions to Marketing Solutions include the following contractual arrangements: •Subscriptions for specific modules delivered on a monthly basis to a consistent number of targetedDoximity members during the subscription period. Pricing is based on the number and composition of the targetedDoximity members, and on the specific modules purchased. •Integrated subscriptions for a fixed subscription fee that are not tied to a single module but allow customers to utilize any combination of modules during the subscription period. For all of these subscription contractual arrangements, we recognize revenue over time as control of the service is transferred to the customer. Hiring Solutions. We provide customers access to our platform which enables them to post job openings or deliver a fixed number of monthly messages to our network of medical professionals. We bill ahead of the service period and recognize revenue ratably over the contractual term. Through our acquisition of Curative Talent, completed in fiscal 2021, we also generate revenue from temporary and permanent medical recruiting services which we charge on an hourly-fee and placement-fee basis, respectively. Revenue for temporary placement services is recognized net of third-party contractor fees. For the three and nine months endedDecember 31, 2021 and 2020, the revenue from temporary and permanent medical recruiting services was not significant to our total revenue. For a description of our revenue accounting policies, see the section titled "Critical Accounting Policies and Estimates" set forth in our Final Prospectus datedJune 23, 2021 and filed with theSEC onJune 25, 2021 . Cost of Revenue Cost of revenue is primarily comprised of expenses related to cloud hosting, personnel-related expenses for our customer success team, costs for third-party platform access, software services and contractors, and other services used in connection with delivery and support of our platform. Our cost of revenue also includes the amortization of capitalized internal-use 29 -------------------------------------------------------------------------------- Table of Contents software development costs, editorial and other content-related expenses, and allocated overhead. Cost of revenue is also driven by the growth of our member network and utilization of our telehealth tools. We intend to continue to invest additional resources in our cloud infrastructure and our customer support organizations to support the growth of our business and expect these expenses will increase on an absolute dollar basis. 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. Gross profit and gross margin has been and will continue to be affected by a number of factors, including the timing of our acquisition of new customers and sales of additional solutions to our existing customers, the timing and extent of our investments in our operations, cloud hosting costs, growth in our customer success team, and the timing of amortization of capitalized internal-use software development costs. We expect our gross margin to remain relatively steady over the near term, although our quarterly gross margin is expected to fluctuate from period to period depending on the interplay of these and other factors. Operating Expenses Our operating expenses consist of sales and marketing, research and development, and general and administrative expenses. Research and Development Research and development expense is primarily comprised of personnel-related expenses associated with our engineering and product teams who are responsible for building new products and improving existing products. Research and development expense also includes costs for third-party services and contractors, information technology and software-related costs, and allocated overhead. Other than internal-use software development costs that qualify for capitalization, research and development costs are expensed as incurred. We expect research and development expenses will increase on an absolute dollar basis as we continue to grow our platform and product offerings. Sales and Marketing Sales and marketing expense is primarily comprised of personnel-related expenses, sales commissions, travel, and other event expenses. Sales and marketing expense also includes costs for third-party services and contractors, information technology and software-related costs, and allocated overhead. We capitalize the sales commissions that are considered to be incremental and recoverable costs of obtaining a contract with a customer. These sales commissions are amortized over the period of benefit. We expect sales and marketing expense to increase on an absolute basis and to be our largest expense on an absolute basis. General and Administrative General and administrative expense is primarily comprised of personnel-related expenses associated with our executive, finance, legal, human resources, information technology, and facilities employees. General and administrative expense includes fees for third-party legal and accounting services, recruitment fees, information technology and software-related costs, and allocated overhead. We expect that general and administrative expense will increase on an absolute dollar basis as we incur compliance costs associated with being a publicly-traded company, including legal, audit, and consulting fees. Other income, net Other income, net consists primarily of administrative fees and penalties and interest income earned on our cash equivalents and marketable securities. Provision for (Benefit from) Income Taxes Provision for (benefit from) income taxes consists primarily of income taxes inU.S. federal, state, and local jurisdictions in which we conduct business. We calculate income taxes in interim periods by applying an estimated annual effective tax rate to income (loss) before income taxes and by calculating the tax effect of discrete items recognized during the period. Our effective income tax rate generally differs from theU.S. statutory tax rate of 21.0% primarily due toU.S. federal and state research and development tax credits, state income taxes, and stock-based compensation related tax benefits. 30 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following tables set forth our condensed consolidated results of operations data and such data as a percentage of revenue for the periods presented. The period-to-period comparisons of our historical results are not necessarily indicative of the results that may be expected in the future. Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 (in thousands) Revenue$ 97,876 $ 58,709 $ 249,895 $ 140,210 Cost of revenue(1) 11,085 7,872 28,022 23,203 Gross profit 86,791 50,837 221,873 117,007 Operating expenses: Research and development(1) 16,225 11,406 44,926 31,315 Sales and marketing(1) 25,698 17,017 66,230 44,447 General and administrative(1) 9,079 4,478 25,102 10,789 Total operating expenses 51,002 32,901 136,258 86,551 Income from operations 35,789 17,936 85,615 30,456 Other income, net 20 4,601 485 4,428 Income before income taxes 35,809 22,537 86,100 34,884 Provision for (benefit from) income taxes (19,838) 5,306 (31,957) 6,157 Net income$ 55,647 $ 17,231 $ 118,057 $ 28,727 _______________
(1)Includes stock-based compensation expense as follows:
Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 (in thousands) Cost of revenue$ 1,912 $ 179 $ 2,973 $ 368 Research and development 2,035 634 4,864 1,179 Sales and marketing 2,681 633 5,575 1,304 General and administrative 3,206 774 8,221 1,531
Total stock-based compensation expense
$ 21,633 $ 4,382 Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 (percentages of revenue) Revenue 100 % 100 % 100 % 100 % Cost of revenue 11 13 11 17 Gross profit 89 87 89 83 Operating expenses: Research and development 17 19 18 22 Sales and marketing 26 29 27 31 General and administrative 9 8 10 8 Total operating expenses 52 56 55 61 Income from operations 37 31 34 22 Other income, net - 7 - 2 Income before income taxes 37 38 34 24 Provision for (benefit from) income taxes (20) 9 (13) 4 Net income 57 % 29 % 47 % 20 % 31
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Table of Contents Comparison of the three and nine months endedDecember 31, 2021 and 2020. Revenue Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Revenue$ 97,876 $ 58,709 $ 39,167 67 %$ 249,895 $ 140,210 $ 109,685 78 % Revenue for the three months endedDecember 31, 2021 increased$39.2 million as compared to the same period in 2020. The increase was primarily driven by a$35.9 million increase in subscription revenue1. Of the increase in subscription revenue,$7.0 million was driven by the addition of new subscription customers2 and$28.7 million was the result of expansion of existing customers by adding new brands and service lines, growing existing brands and service lines, and upselling additional modules. For our existing Marketing Solutions customers, the average revenue per customer increased 60% as compared to the same period in the prior year driven by the average number of modules and average number of brands per customer increasing 13% and 11%, respectively. Approximately 93% of our revenue for the three months endedDecember 31, 2021 was derived from subscription customers. The remaining increase in revenue was driven by an increase in medical recruiting services. Revenue for the nine months endedDecember 31, 2021 increased$109.7 million as compared to the same period in 2020. The increase was primarily driven by a$104.2 million increase in subscription revenue1. Of the increase in subscription revenue,$14.4 million was driven by the addition of new subscription customers2 and$89.5 million was the result of expansion of existing customers by adding new brands and service lines, growing existing brands and service lines, and upselling additional modules. For our Marketing Solutions customers, the average revenue per customer increased 74% as compared to the same period in the prior year driven by the average number of modules and average number of brands per customer increasing 16% and 10%, respectively. Approximately 93% of our revenue for the nine months endedDecember 31, 2021 was derived from subscription customers. The remaining increase in revenue was driven by an increase in medical recruiting services. Cost of revenue, gross profit and gross margin Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Cost of revenue$ 11,085 $ 7,872 $ 3,213 41 %$ 28,022 $ 23,203 $ 4,819 21 % Gross profit$ 86,791 $ 50,837 $ 35,954 71 %$ 221,873 $ 117,007 $ 104,866 90 % Gross margin 89 % 87 % 89 % 83 % Cost of revenue for the three months endedDecember 31, 2021 increased$3.2 million as compared to the same period in 2020. The increase in cost of revenue was primarily due to$1.2 million expense from theU.S. News warrant granted inOctober 2021 and a$1.5 million increase in personnel-related costs as a result of headcount growth of approximately 36%. These increases were partially offset by a$0.8 million decrease in third-party software costs as a result of renegotiating our pricing terms with our vendors due to increasing scale as well as a lower volume of virtual visits as compared to the prior year period when our Dialer tool was available to all members for free. The remaining increase was due to the growth of our business. Cost of revenue for the nine months endedDecember 31, 2021 increased$4.8 million as compared to the same period in 2020. The increase was largely due to$1.2 million expense from theU.S. News warrant granted inOctober 2021 and a$4.1 million increase in personnel-related costs as a result of headcount growth of approximately 36%. In addition, there was a$0.9 million increase in consulting services and a$0.9 million increase in amortization of capitalized internal-use software. These increases were partially offset by a$2.9 million decrease in third-party software costs as a result of renegotiating our pricing terms with our vendors due to increasing scale as well as a lower volume of virtual visits when compared to the prior year period when our Dialer tool was available to all members for free. The remaining increase was due to the growth of our business. 1 A de minimis amount of the change in subscription revenue was generated from Dialer Pro subscriptions for individuals and small practices and other non-recurring items. 2 We define new subscription customers as revenue generating subscription customers in the current fiscal period who did not contribute any revenue for the same period in the prior fiscal year. 32 -------------------------------------------------------------------------------- Table of Contents The gross margin for the three and nine months endedDecember 31, 2021 increased due to the growth in our revenue outpacing the growth in our cost of revenue. Operating Expenses Research and development Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Research and development$ 16,225 $ 11,406 $ 4,819 42 %$ 44,926 $ 31,315 $ 13,611 43 % Research and development expense for the three months endedDecember 31, 2021 increased$4.8 million as compared to the same period in 2020. The increase in research and development expense was primarily driven by a$2.1 million increase in personnel-related costs as a result of headcount growth of 28% and a$1.4 million increase in stock-based compensation expense as a result of an increase in the weighted average grant date fair values of our equity grants as well as headcount growth. The remaining increase was primarily related to a$0.7 million increase in third-party software subscription and license costs as a result of headcount growth. Research and development expense for the nine months endedDecember 31, 2021 increased$13.6 million as compared to the same period in 2020. The increase in research and development expense was primarily driven by a$6.8 million increase in personnel-related costs as a result of headcount growth of 26% and a$3.7 million increase in stock-based compensation expense which was attributable to an increase in the weighted-average grant date fair values of our equity grants as well as headcount growth. The remaining increase was primarily related to a$1.8 million increase in third-party software subscription and license costs as a result of headcount growth and a$0.9 million increase in employee events and travel-related expenses as we resumed certain in-person events. Sales and marketing Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Sales and marketing$ 25,698 $ 17,017 $ 8,681 51 %$ 66,230 $ 44,447 $ 21,783 49 % Sales and marketing expense for the three months endedDecember 31, 2021 increased$8.7 million as compared to the same period in 2020. The increase in sales and marketing expense was a result of the growth in our business, specifically driven by a$2.9 million increase in personnel-related costs due to headcount growth of 24%. The increase was also driven by a$2.0 million increase in stock-based compensation expense mainly due to headcount growth and an increase in the weighted-average grant date fair values of our equity grants. In addition, there was a$1.6 million increase in commissions and incentive compensation primarily driven by an increase in sales activity. Sales and marketing expense for the nine months endedDecember 31, 2021 increased$21.8 million as compared to the same period in 2020. The increase in sales and marketing expense was a result of the growth in our business, specifically driven by a$7.6 million increase in personnel-related costs due to headcount growth of 23% as well as a$4.4 million increase in incentive compensation due to an increase in sales activity. The increase was also driven by a$4.3 million increase in stock-based compensation expense mainly due to headcount growth and an increase in the weighted-average grant date fair values of our equity grants. Additionally, there was a$2.4 million increase in deferred contract costs amortization due to higher sales volume, a$0.8 million increase in marketing expenses, and a$0.7 million increase in employee events and travel-related expenses as we resumed certain in-person events. The remaining increase in sales and marketing expense primarily related to a$0.6 million increase in third-party software subscription and license costs as a result of headcount growth. 33
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Table of Contents General and administrative Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) General and administrative$ 9,079 $ 4,478 $ 4,601 103 %$ 25,102 $ 10,789 $ 14,313 133 % General and administrative expense for the three months endedDecember 31, 2021 increased$4.6 million as compared to the same period in 2020. The increase in general and administrative expense was primarily driven by a$2.4 million increase in stock-based compensation expense, of which$1.6 million related to the increase in the weighted-average grant date fair values of our equity instruments, with the remaining$0.8 million related to performance-based options that became probable of achievement during the third quarter of fiscal 2022. The remaining increase in general and administrative expenses was primarily related to a$1.0 million increase in insurance premiums as a result of becoming a public company and a$0.7 million increase in personnel expenses as a result of headcount growth of 54%. General and administrative expense for the nine months endedDecember 31, 2021 increased$14.3 million as compared to the same period in 2020. The increase in general and administrative expense was primarily driven by a$6.7 million increase in stock-based compensation, of which$4.3 million related to the increase in headcount and the weighted-average grant date fair values of our equity grants and$2.4 million related to performance grants where the performance conditions were met or became probable during fiscal 2022. This increase was also driven by a$2.2 million increase in personnel-related costs as a result of headcount growth of approximately 51%, a$2.1 million increase in insurance expense and a$1.8 million increase in accounting and legal services as we incurred additional expenses as a result of becoming a public company. Other income, net Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages)
Other income, net $ 20$ 4,601 $ (4,581) (100) % $ 485$ 4,428 $ (3,943) (89) % Other income, net for the three and nine months endedDecember 31, 2021 decreased$4.6 million and$3.9 million , respectively, as compared to the same period in 2020. The decrease for the three and nine months endedDecember 31, 2021 was primarily driven by a gain that was recognized inOctober 2020 upon the sale of a portion of the Curative Talent business. Provision for (benefit from) income taxes Three Months Ended December 31, Change Nine Months Ended December 31, Change 2021 2020 $ % 2021 2020 $ % (in thousands, except percentages) Provision for (benefit from) income taxes$ (19,838) $ 5,306 $ (25,144) NM$ (31,957) $ 6,157 $ (38,114)
NM
___________________
NM: Percentage not meaningful. For the three and nine months endedDecember 31, 2021 , we had income tax benefits of$19.8 million and$32.0 million , respectively, as compared to income tax expense of$5.3 million and$6.2 million for the three and nine months endedDecember 31, 2020 , respectively. This change was primarily driven by increased tax deductions from stock option activities following our initial public offering inJune 2021 . Liquidity and Capital Resources Since inception, we have financed operations primarily through proceeds received from sales of equity securities and payments received from our customers. As ofDecember 31, 2021 , our principal sources of liquidity were cash and cash equivalents and marketable securities of$765.6 million . Our marketable securities consist ofU.S. government and agency securities, corporate notes and bonds, commercial paper, certificates of deposit, asset-backed securities, and sovereign bonds. 34 -------------------------------------------------------------------------------- Table of Contents InJune 2021 , we completed our IPO, in which we issued and sold 22,505,750 shares of our Class A common stock at$26.00 per share, including 3,495,000 shares issued upon the exercise of the underwriters' option to purchase additional shares. We received proceeds of$548.5 million after deducting underwriting discounts and commissions as well as deferred offering costs. We believe that our existing cash and cash equivalents and marketable securities will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, and the timing and extent of spending to support research and development efforts. Further, we may in the future enter into arrangements to acquire or invest in businesses and technologies. 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 when desired, our business, financial condition, and results of operations could be adversely affected. Cash Flows Nine Months Ended December 31, 2021 2020 (in thousands) Net cash provided by operating activities $ 79,611$ 45,422 Net cash used in investing activities$ (616,948) $ (27,548) Net cash provided by financing activities $ 556,023
Net cash provided by operating activities Cash provided by operating activities was$79.6 million for the nine months endedDecember 31, 2021 . This consisted of net income of$118.1 million , adjusted for non-cash items of$5.1 million and a net decrease in operating assets and liabilities of$43.5 million . Non-cash items primarily consisted of stock-based compensation expense of$21.6 million , amortization of deferred contract costs of$7.4 million , depreciation and amortization expense of$3.7 million , amortization of the premium on marketable securities of$2.9 million , offset by a negative non-cash adjustment for deferred tax benefit of$32.0 million . The net decrease in operating assets and liabilities was driven by$19.6 million increase in accounts receivable due to the growth of our business and the timing of collections, a$17.5 million decrease in deferred revenue due to the timing of customer billings and program launches, and a$6.7 million increase in deferred contract costs due to increased sales activity. These decreases were partially offset by an increase of$8.0 million in accrued expenses and other current liabilities, which was primarily a result of increased accrued incentive compensation due to higher sales and timing of payments. Cash provided by operating activities was$45.4 million for the nine months endedDecember 31, 2020 . This consisted of net income of$28.7 million , adjusted for non-cash items of$13.0 million and a net increase in operating assets and liabilities of$3.7 million . Non-cash items primarily consisted of amortization of deferred contract costs of$4.7 million , stock-based compensation expense of$4.4 million , and deferred income taxes of$4.1 million . The net increase in operating assets and liabilities was primarily driven by an increase of$19.4 million in deferred revenue due to the addition of new customers and expansion from existing customers and the timing of customer billings, partially offset by an increase of$14.5 million in accounts receivable due to the growth of our business and the timing of collections. Net cash used in investing activities Cash used in investing activities was$616.9 million for the nine months endedDecember 31, 2021 , which primarily consisted of purchases of marketable securities of$1.3 billion , partially offset by proceeds from the sale of marketable securities of$616.9 million and proceeds from the maturities of marketable securities of$41.6 million . Cash used in investing activities was$27.5 million for the nine months endedDecember 31, 2020 , which primarily consisted of purchases of marketable securities of$34.4 million and cash paid for the acquisition of Curative Talent of$31.7 million , partially offset by proceeds from the maturities of marketable securities of$38.0 million . 35 -------------------------------------------------------------------------------- Table of Contents Net cash provided by financing activities Cash provided by financing activities was$556.0 million for the nine months endedDecember 31, 2021 , which primarily consisted of$553.9 million of proceeds from the issuance of common stock upon our initial public offering after deducting underwriting fees and commissions and$9.2 million of net proceeds from the exercise of stock options. These proceeds were partially offset by$4.0 million in payments for deferred offering costs and$2.7 million in payments from the repurchase and retirement of common stock. Cash provided by financing activities was$3.7 million for the nine months endedDecember 31, 2020 , primarily from proceeds from the exercise of stock options. Contractual Obligations and Commitments Except for those disclosed below, there have been no material changes outside the ordinary course of business to our contractual obligations disclosed in our Final Prospectus. Operating Leases InJune 2021 , we entered into an 8-year lease for office space inIrving, Texas . This operating lease will commence on or aroundJune 1, 2022 , with total undiscounted lease payments of$17.9 million . Minimum Guarantees OnOctober 8, 2021 , the Company signed an amended agreement to revise and extend the existing partnership with theU.S. News for six years. This agreement can be terminated after three years by either party. Under this amended agreement, the Company pays theU.S. News a portion of the revenue generated with the end customers, with an annual minimum guarantee amount ranging from$2.5 million to$6.2 million . The total minimum guarantee amount for the initial noncancelable period of three years is$9.1 million . Other Contractual Commitments InDecember 2021 , the Company entered into a 3-year web hosting arrangement with an annual commitment of$5.2 million , startingJanuary 1, 2022 . Off Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical Accounting Policies and Estimates Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of our financial statements also requires us to make estimates and assumptions that affect the amounts stated in the condensed consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ significantly from the estimates made by management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations, and cash flows will be affected. There have been no material changes to our critical accounting policies and estimates as compared to those described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in our Final Prospectus datedJune 23, 2021 and filed with theSEC onJune 25, 2021 . Recent Accounting Pronouncements Refer to Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted. Jumpstart Our Business Startups Act of 2012 36 -------------------------------------------------------------------------------- Table of Contents We are an emerging growth company, as defined in the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act for the adoption of certain accounting standards until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Item 3. Quantitative and Qualitative Disclosures about Market Risk Substantially all of our operations are withinthe United States and we do not have any foreign currency exposure. We are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and inflation. Interest Rate Risk Our cash and cash equivalents and marketable securities primarily consist of cash on hand and highly liquid investments in money market funds, corporate notes and bonds, asset-backed securities, certificates of deposit, commercial paper,U.S. government and agency securities, and sovereign bonds. As ofDecember 31, 2021 , we had cash and cash equivalents of$85.1 million and marketable securities of$680.5 million . We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair value of our investments. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. A hypothetical 100 basis point increase in interest rates would have resulted in a decrease of$12.6 million in the market value of our cash equivalents and marketable securities as ofDecember 31, 2021 . Fluctuations in the value of our investments caused by a change in interest rates are recorded in other comprehensive income and are realized only if we sell the underlying securities. Impact of Inflation We do not believe that inflation has had a material effect on our business, results of operations, or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, financial condition, and results of operations. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in theSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 37 -------------------------------------------------------------------------------- Table of Contents Inherent Limitations on Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 38
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