DOXIMITY, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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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, dated
June 23, 2021, filed with the SEC 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 is March
31. Our fiscal quarters end on June 30, September 30, December 31, and March
31st. Fiscal 2022, our current fiscal year, will end on March 31, 2022.
Overview
We are the leading digital platform for U.S. medical professionals, as measured
by the number of U.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 enabled
Doximity 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 the U.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 ended December 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 ended December 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 ended December 31, 2021
and 2020 and was $118.1 million and $28.7 million for the nine months ended
December 31, 2021 and 2020. For the three months ended December 31, 2021 and
2020, we generated Adjusted EBITDA of $47.0 million and $21.5 million. For the
nine months ended December 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.

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Impact of COVID-19
The COVID-19 pandemic has had, and continues to have, a significant impact on
the U.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 ended December 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 ended December 31, 2021.
                                                               December 31,
                                                           2021             2020

Number of customers with at least $100,000 of turnover 258

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  %




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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.


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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              

$3,671


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 the Doximity 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 targeted Doximity members during the subscription period. Pricing is
based on the number and composition of the targeted Doximity 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 ended December 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
dated June 23, 2021 and filed with the SEC on June 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

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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 in
U.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 the U.S. statutory tax rate of 21.0% primarily
due to U.S. federal and state research and development tax credits, state income
taxes, and stock-based compensation related tax benefits.

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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 $9,834 $2,220

        $   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  %




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Comparison of the three and nine months ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 the U.S. News warrant
granted in October 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 ended December 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 the U.S. News warrant granted in October 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.

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The gross margin for the three and nine months ended December 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 ended December 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 ended December 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 ended December 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 ended December 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.


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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 ended December 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 ended December 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 ended December 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 ended December 31,
2021 was primarily driven by a gain that was recognized in October 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 ended December 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 ended
December 31, 2020, respectively. This change was primarily driven by increased
tax deductions from stock option activities following our initial public
offering in June 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 of
December 31, 2021, our principal sources of liquidity were cash and cash
equivalents and marketable securities of $765.6 million. Our marketable
securities consist of U.S. government and agency securities, corporate notes and
bonds, commercial paper, certificates of deposit, asset-backed securities, and
sovereign bonds.

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In June 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              

$3,671


Net cash provided by operating activities
Cash provided by operating activities was $79.6 million for the nine months
ended December 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
ended December 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 ended
December 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 ended
December 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.

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Net cash provided by financing activities
Cash provided by financing activities was $556.0 million for the nine months
ended December 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 ended
December 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
In June 2021, we entered into an 8-year lease for office space in Irving, Texas.
This operating lease will commence on or around June 1, 2022, with total
undiscounted lease payments of $17.9 million.
Minimum Guarantees
On October 8, 2021, the Company signed an amended agreement to revise and extend
the existing partnership with the U.S. News for six years. This agreement can be
terminated after three years by either party. Under this amended agreement, the
Company pays the U.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
In December 2021, the Company entered into a 3-year web hosting arrangement with
an annual commitment of $5.2 million, starting January 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 dated June 23, 2021 and filed with the SEC on
June 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

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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 within the 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 of
December 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 of December 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 the SEC'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.

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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.

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