BOTTOMLINE TECHNOLOGIES, INC. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Without limiting the foregoing, the words may, will, should, could, expects, plans, intends, anticipates, believes, estimates, predicts, potential and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us up to and including the date of this report, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below under Management's Discussion and Analysis of Financial Condition and Results of Operations and Part II. Item 1A. Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with theSecurities and Exchange Commission (SEC), including Part II. Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 , as filed with theSEC onAugust 30, 2021 . In the management discussion that follows, we have highlighted those changes and operating events that were the primary factors affecting period to period fluctuations. The remainder of the change in period to period fluctuations from that which is specifically discussed arises from various individually insignificant items.
Pending Merger
OnDecember 16, 2021 , we entered into a Merger Agreement (See Note 2 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q) to be acquired by the private equity investment firm Thoma Bravo for$57.00 in cash per outstanding common share. Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments.
Overview
We help make complex business payments simple, smart and secure. We provide solutions that are helping to accelerate the digital transformation of business payments. Corporations and banks rely on us for domestic and international payments, efficient cash management, automated workflows for payment processing and bill review, and fraud detection, behavioral analytics and regulatory compliance solutions. We operate payment platforms that facilitate electronic payment and transaction settlement between businesses and their vendors. We offer solutions that banks use to provide payment, cash management and treasury capabilities to their business customers, as well as solutions that financial institutions use to engage intelligently with customers and acquire, deepen and grow profitable relationships. Our legal spend management solutions help determine the right amount to pay for legal services and claims for insurance companies and other large consumers of outside legal services and provide related tools and analytics for law firms themselves. Corporate customers rely on our solutions to automate payment and accounts payable processes and to streamline and manage the production and retention of electronic documents. Our fraud and risk management solutions are designed to non-invasively monitor and analyze user behavior and payment transactions to flag behavioral and data anomalies and other suspicious activity to gain protection from internal fraud and external financial crime. Our solutions are designed to complement, leverage and extend our customers' existing information systems, accounting applications and banking relationships so that the solutions can be deployed quickly and efficiently. To help our customers realize the maximum value from our products and meet their specific business requirements, we also provide professional services for training, consulting and product enhancement. Financial Highlights For the nine months endedMarch 31, 2022 , our revenue increased to$384.2 million from$349.3 million in the same period of the prior fiscal year. Our revenue for the nine months endedMarch 31, 2022 was favorably impacted by$1.3 million due to the impact of foreign currency exchange rates primarily related to the British Pound Sterling, which appreciated against theU.S. Dollar as compared to the same period of the prior fiscal year. The overall revenue increase was attributable to revenue increases in our Payment Platforms, Banking Solutions and Legal Spend Management segments of$25.7 million ,$12.1 million , and$1.9 million , respectively, partially offset by a$5.1 million revenue decrease in our Traditional Solutions segment. The increase in revenue in our Payment Platforms and Legal Spend Management segments was driven by increased subscription revenue driven by increased transactional volumes and the impact of new customers using these solutions. The increased revenue in our Banking Solutions segment was primarily due to new customer engagements and platform go-lives, as customers continue to transition to our hosted solutions. The decrease in revenue in our Traditional Solutions segment was due to decreased professional services, maintenance revenue and software revenue, as customers transitioned to our newer hosted and subscription based solutions. We incurred a net loss of$29.1 million in the nine months endedMarch 31, 2022 compared to net loss of$9.0 million in the same period of the prior fiscal year. Our net loss for the nine months endedMarch 31, 2022 was driven by an increase in costs of subscription revenue of$22.9 million attributable to our Payment Platforms, Banking Solutions and Legal Spend Management segments and an increase in operating expenses of$40.9 million . The increase in operating expenses was driven by an increase in 24
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sales and marketing costs of$19.3 million and product development and engineering costs of$8.4 million , as we continued to invest in our sales channel and new product innovation. General and administrative costs increased by$13.3 million , of which$8.3 million was related to our pending Merger and shareholder engagement initiatives. The increase in costs were partially offset by the$35.0 million revenue increase discussed above and a$3.9 million reduction in cost of professional services and maintenance revenues.
In the nine months ended
On periodic basis, we continue to make strategic investments in innovative new technology offerings that we believe will enhance our competitive position, help us win new business, drive subscription revenue growth and expand our operating margins. We expect to continue to make investments in our suite of products so that we can continue to offer innovative, feature-rich technology solutions to our customers. COVID-19The United States and the global communities in which we operate continue to face challenges posed by the COVID-19 pandemic. Earlier in the fiscal year, restrictions were re-implemented by government bodies and private businesses as disease variants became more prevalent, most notably the omicron variant. There remains significant uncertainty over the duration of the pandemic itself, particularly as the virus continues to evolve. SinceMarch 2020 we have continued to suspend virtually all travel for employees, our offices generally remain closed and our employees have continued to work remotely in most geographies. While we continue to operate effectively during this challenging period, the full impact of the COVID-19 pandemic on our business and the global economy remains uncertain. The ultimate consequences will depend on many factors outside of our control, including the availability and effectiveness of vaccines and therapeutics and the ultimate duration and severity of the pandemic itself, including the impact of the COVID variants that have emerged or that may emerge in the future.
Certain of our transactional revenue streams, specifically those arising through Paymode-X and Legal Spend Management, were the most significantly impacted during the prior fiscal year. We have continued to observe that transaction volumes for Paymode-X have continued to return to more normalized levels.
Critical Accounting Policies and Significant Judgments and Estimates
We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because they involve areas of financial reporting that require us to make judgments and estimates about matters that are uncertain at the time we make the estimate and different estimates - which also would have been reasonable - could have been used. The critical accounting policies and estimates we identified in our most recent Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 related to revenue recognition, the valuation of goodwill and intangible assets, the valuation of acquired deferred revenue, capitalized software costs and income taxes. There have been no changes to the critical accounting policies and estimates from those we disclosed in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 , as filed with theSEC onAugust 30, 2021 . It is important that the discussion of our operating results that follows be read in conjunction with the critical accounting policies and estimates disclosed in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 , as filed with theSEC onAugust 30, 2021 .
Recent Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, please refer to Note 3 Recent Accounting Pronouncements to our unaudited consolidated financial statements included in Part I. Item 1 of this Quarterly Report on Form 10-Q. Results of Operations
Three and Nine Months Ended
Segment Information
Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Our chief operating decision maker is our chief executive officer.
During the quarter endedSeptember 30, 2021 we realigned our internal financial reporting to provide for more specific visibility into key product lines which resulted in a change to our externally reportable segments. Specifically, our prior Cloud Solutions segment was renamed Payment Platforms and includes the revenue and operating results of our Paymode-X and PTX payment platforms. Our Legal Spend Management Solutions is presented as a stand-alone operating segment, having previously been a component of our Cloud Solutions segment. Finally, our Financial Messaging solutions, previously a component of our Cloud 25
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Solutions segment, is included as a component of our Banking Solutions segment.
Our prior Payments and Documents segment has been renamed to Traditional
Solutions, with no change to the composition of the revenue and operating
activity included in this segment. These changes are reflected for all financial
periods presented.
The following tables represent our segment revenues and our measure of segment
profit (loss):
Increase (Decrease) Increase (Decrease)
Three Months Ended March 31, Between Periods Nine Months Ended March 31, Between Periods
$ Change Inc % Change $ Change Inc % Change
2022 2021 (Dec) Inc (Dec) 2022 2021 (Dec) Inc (Dec)
(in thousands)
Segment
revenue:
Payment
Platforms $ 37,994 $ 29,163 $ 8,831 30.3 % $ 107,773 $ 82,072 $ 25,701 31.3 %
Banking
Solutions 51,181 47,211 3,970 8.4 % 148,821 136,689 12,132 8.9 %
Legal Spend
Management 21,957 22,147 (190) (0.9) % 66,476 64,546 1,930 3.0 %
Traditional
Solutions 16,444 18,810 (2,366) (12.6) % 48,320 53,384 (5,064) (9.5) %
Other 4,260 3,554 706 19.9 % 12,838 12,583 255 2.0 %
Total segment
revenue $ 131,836 $ 120,885 $ 10,951 9.1 % $ 384,228 $ 349,274 $ 34,954 10.0 %
Segment
measure of
profit
(loss):
Payment
Platforms $ 3,986 $ 4,267 $ (281) (6.6) % $ 15,632 $ 16,037 $ (405) (2.5) %
Banking
Solutions 4,787 4,641 146 3.1 % 12,237 15,744 (3,507) (22.3) %
Legal Spend
Management 3,820 5,550 (1,730) (31.2) % 13,496 15,792 (2,296) (14.5) %
Traditional
Solutions 4,828 5,213 (385) (7.4) % 11,513 13,400 (1,887) (14.1) %
Other (4,101) (3,842) (259) (6.7) % (11,625) (8,894) (2,731) (30.7) %
Total measure
of segment
profit $ 13,320 $ 15,829 $ (2,509) (15.9) % $ 41,253 $ 52,079 $ (10,826) (20.8) %
A reconciliation of the total measure of segment profit to our GAAP loss before
income taxes is as follows:
Three Months Ended March 31, Nine Months Ended March 31,
2022 2021 2022 2021
(in thousands)
Total measure of segment profit
41,253
Less:
Amortization of acquisition-related
intangible assets (5,255) (5,443)
(15,506) (15,614)
Stock-based compensation plan
expense (14,279) (11,498)
(41,848) (33,644)
Acquisition and integration-related
expenses (24) (738)
(367) (2,078)
Restructuring income (expense) 70 4
(288) (987)
Excess depreciation, including
associated with restructuring
events - - (357) (528) Other non-core expense (217) (52) (608) (148) Shareholder engagement fees - - (1,779) - Asset write-off - - (71) -
Costs associated with pending
Merger (2,990) - (6,497) -
Other income (expense), net of
pension adjustments 1,994 (1,536) 56 (3,701) Loss before income taxes$ (7,381) $ (3,434) $ (26,012) $ (4,621) Payment Platforms Revenue from our Payment Platforms segment increased$8.8 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year due to increased subscription revenue of$8.7 million driven by both increased transactional volumes and the impact of new customers that adopted our platforms since the corresponding quarter of the prior fiscal year. Segment 26
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profit decreased$0.3 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year as the revenue increases described above were offset by increased cost of subscription revenue of$3.3 million and operating expenses of$5.9 million which related primarily to increased sales and marketing expenses and product development expenses of$4.4 million and$1.3 million , respectively. Revenues from our Payment Platforms segment increased$25.7 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to increased subscription revenue of$25.2 million driven by both increased transactional volumes and the impact of new customers that have adopted our platform since the corresponding period of the prior fiscal year. Segment profit decreased$0.4 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, as the increase in revenue described above was offset in part by an increase in operating expenses of$17.1 million primarily related to sales and marketing expenses of$11.6 million , product development expenses of$4.2 million , and general and administrative expenses of$1.3 million and increased cost of revenues of$9.0 million primarily related to subscriptions costs.
Banking Solutions
Revenues from our Banking Solutions segment increased$4.0 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to increased subscriptions revenue of$3.9 million . The increase in subscriptions revenue was primarily related to our existing customer base expanding on or converting to our newer, more technologically advanced SaaS platforms and as a result of the continued deployment of our newer banking solutions to new and existing customers. The increase in revenue described above was partially offset by increased cost of revenues of$1.2 million , primarily related to subscription costs, and operating expenses of$2.7 million . The increase in operating expenses was primarily due to increased sales and marketing expenses, product development expenses, and general and administrative expenses of$1.4 million ,$0.8 million and$0.5 million , respectively. Segment profit increased$0.1 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year due to the increases in revenue and expenses described above. Revenues from our Banking Solutions segment increased$12.1 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to increased subscriptions revenue and service revenue of 12.7 million and$2.3 million , respectively, partially offset by decreased maintenance revenue of$2.8 million . The increase in subscriptions revenue was primarily related to our existing customer base expanding on or converting to our newer, more technologically advanced SaaS platforms and as a result of the continued deployment of our newer banking solutions to new and existing customers. The increase in revenue described above was offset by increased cost of revenues of$6.5 million , primarily related to subscription costs, and operating expenses of$9.1 million . The increase in operating expenses was primarily due to increased sales and marketing expenses of$4.8 million , product development and engineering costs of$2.3 million and general and administrative expenses of$2.1 million . Segment profit decreased$3.5 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year due to the increases in revenue and expenses described above.
Legal Spend Management
Revenues from our Legal Spend Management segment decreased$0.2 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, due to a decreased in subscription revenue driven by lower transactional volumes during the quarter. Segment profit decreased$1.7 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year due to an increase in cost of revenues of$1.0 million , primarily related to subscription costs and an increase in operating expenses of$0.6 million , primarily due to$0.2 million in product development and engineering costs and$0.2 million in general and administrative expenses. Revenues from our Legal Spend Management segment increased$1.9 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, due to increased subscription revenue driven by increased transactional volumes and the impact of new customers using these solutions since the corresponding period of the prior fiscal year. Segment profit decreased$2.3 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, as the increase in revenue discussed above was offset by an increase in cost of revenues of$2.4 million , primarily related to subscriptions, and operating expenses of$1.8 million , primarily related to sales and marketing expenses of$0.4 million , product development expenses of$0.4 million and general and administrative expense of$1.0 million .
Traditional Solutions
Revenues from our Traditional Solutions segment decreased$2.4 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to decreased professional service and maintenance revenue of$1.6 million and subscriptions revenue of$0.6 million . The decrease in professional service and maintenance revenue was driven by the continued conversion of our customers to our hosted and subscription based solutions rather than deployed, perpetual license solutions. The decrease in subscription revenue was due to lower transactional volume in the quarter. Segment profit decreased$0.4 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, as the decrease in revenues discussed above was partially offset by a decrease in cost of revenue of$0.8 million related primarily to subscription and professional service and maintenance costs, and a decrease in operating costs of$1.2 million , primarily related to sales and marketing expenses. Revenues from our Traditional Solutions segment decreased$5.1 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to decreased professional service and maintenance revenue of$4.4 27
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million and software revenue of$0.7 million , partially offset by increased subscriptions revenue of$0.2 million . The decrease in professional service and maintenance revenue and software revenue was driven by the continued conversion of our customers to our hosted and subscription based solutions rather than deployed, perpetual license solutions. Segment profit decreased$1.9 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, as the decrease in revenues discussed above were partially offset by a decrease in costs of revenue of$2.3 million primarily associated with professional service and maintenance costs, and a decrease in operating expenses of$0.8 million , primarily related to sales and marketing expenses.
Other
Revenues from our Other segment increased$0.7 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to increased subscription revenue and software revenue of$0.4 and$0.2 million , respectively. Segment profit decreased$0.3 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year primarily due to an increase in cost of revenue of$0.5 million primarily related to professional services and maintenance costs, and increased operating expenses of$0.5 million primarily related to product development expenses, partially offset by the increase in revenue discussed above. Revenues from our Other segment increased$0.3 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to an increase in subscription revenue. Segment profit decreased$2.7 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year primarily due to an increase in cost of revenue of$1.3 million primarily related to subscriptions, professional service and maintenance costs, and increased operating expenses of$1.7 million primarily related to sales and marketing and product development expenses, partially offset by the increase in revenue discussed above. Revenues by category Increase (Decrease) Increase (Decrease) Three Months Ended March 31, Between Periods Nine Months Ended March 31, Between Periods % Change Inc % Change 2022 2021 $ Change Inc (Dec) (Dec) 2022 2021 $ Change Inc (Dec) Inc (Dec) (in thousands) Revenues: Subscriptions $ 112,135$ 99,939 $ 12,196 12.2 % $ 324,113$ 283,721 $ 40,392 14.2 % Software licenses 1,006 1,092 (86) (7.9) % 3,086 3,871 (785) (20.3) % Service and maintenance 18,138 19,292 (1,154) (6.0) % 55,478 59,878 (4,400) (7.3) % Other 557 562 (5) (0.9) % 1,551 1,804 (253) (14.0) % Total revenues $ 131,836$ 120,885 $ 10,951 9.1 % $ 384,228$ 349,274 $ 34,954 10.0 % As % of total revenues: Subscriptions 85.1 % 82.7 % 84.4 % 81.2 % Software licenses 0.7 % 0.9 % 0.8 % 1.1 % Service and maintenance 13.8 % 16.0 % 14.4 % 17.1 % Other 0.4 % 0.4 % 0.4 % 0.6 % Total revenues 100.0 % 100.0 % 100.0 % 100.0 % Subscriptions Revenues from subscriptions increased$12.2 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year. The overall revenue increase was driven by an increase in subscriptions revenue from our Payment Platforms and Banking Solutions segments of$8.7 million and$3.9 million , respectively, due to the impact of customers going live on or expanding their use of our hosted solutions and the continued impact of customers converting to our newer, subscription based solutions. Revenues from subscriptions increased$40.4 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year. The overall revenue increase was driven by an increase in subscriptions revenue from our Payment Platforms, Banking Solutions and Legal Spend Management segments of$25.2 million ,$12.7 million , and$1.9 million , respectively, due to the impact of customers going live on or expanding their use of our hosted solutions and the continued impact of customers converting to our newer subscription based solutions. 28
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Software Licenses
Revenues from software licenses remained relatively consistent for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year. We anticipate that software license arrangements will continue to be de-emphasized in order to focus on the continued conversion of our customers to our hosted and subscription based solutions. Revenues from software licenses slightly decreased for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to decreased revenue from our Traditional Solutions segment of$0.7 million . The decrease in software license revenue was driven by the continued conversion of our customers to our hosted and subscription based solutions and our continued de-emphasis of deployed, perpetual license solutions.
Service and Maintenance
Revenues from service and maintenance decreased$1.2 million for the three months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to decreased revenue from our Traditional Solutions segment of$1.6 million driven by the continued conversion of our customers to our hosted and subscription based solutions rather than deployed, perpetual license solutions. Revenues from service and maintenance decreased$4.4 million for the nine months endedMarch 31, 2022 as compared to the same period in the prior fiscal year, primarily due to decreased revenue from our Traditional Solutions and Banking Solutions segments of$4.4 million and$0.5 million , respectively, driven by the continued conversion of our customers to our hosted and subscription based solutions rather than deployed, perpetual license solutions, partially offset by an increase in revenue in our Payment Platforms segment of$0.5 million .
Other
Our other revenues consist principally of equipment and supplies sales, which remained and are expected to remain minor components of our overall revenue.
Cost of revenues by category
Three Months Ended March 31, Increase (Decrease) Nine Months Ended March 31, Increase (Decrease)
Between Periods Between Periods
$ Change Inc % Change $ Change Inc % Change
2022 2021 (Dec) Inc (Dec) 2022 2021 (Dec) Inc (Dec)
(in thousands)
Cost of revenues:
Subscriptions $ 45,792 $ 39,194 $ 6,598 16.8 % $ 134,515 $ 111,607 $ 22,908 20.5 %
Software licenses 142 116 26 22.4 % 283 332 (49) (14.8) %
Service and maintenance 9,362 10,450 (1,088) (10.4) % 27,856 31,752 (3,896) (12.3) %
Other 364 375 (11) (2.9) % 989 1,235 (246) (19.9) %
Total cost of revenues $ 55,660 $ 50,135 $ 5,525 11.0 % $ 163,643 $ 144,926 $ 18,717 12.9 %
Gross Profit ($) $ 76,176 $ 70,750 $ 5,426 7.7 % $ 220,585 $ 204,348 $ 16,237 7.9 %
Gross Profit (%) 57.8 % 58.5 % 57.4 % 58.5 %
Subscriptions
Subscriptions costs include salaries and other related costs for our
professional services teams as well as costs related to our hosting
infrastructure such as depreciation and facilities related expenses.
Subscriptions costs increased slightly to 41% as a percentage of subscriptions
revenues in the three months ended
Subscriptions costs increased to 42% as a percentage of subscriptions revenues in the nine months endedMarch 31, 2022 as compared to 39% in the nine months endedMarch 31, 2021 due to year-over-year cost of revenue increases as we continued to grow our subscription revenue streams.
Software Licenses
Software license costs consist of expenses incurred to distribute our software products and related documentation and costs of licensing third party software that is incorporated into or sold with certain of our products. Software license costs remained a minor component of our overall cost of revenue for both the three and nine months endingMarch 31, 2022 and 2021.
Service and Maintenance
Service and maintenance costs include salaries and other related costs for our
customer service, maintenance and help desk support staffs, as well as third
party contractor expenses used to complement our professional services team.
Service and maintenance
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costs as a percentage of service and maintenance revenues decreased to 52% in the three months endedMarch 31, 2022 as compared to 54% in the three months endedMarch 31, 2021 , reflecting a shift in resources to our hosted and subscription based products, the costs of which are included in subscriptions costs of revenues. Service and maintenance costs as a percentage of service and maintenance revenues decreased to 50% in the nine months endedMarch 31, 2022 as compared to 53% in the nine months endedMarch 31, 2021 , reflecting a shift in resources to our hosted and subscription based products, the costs of which are included in subscriptions costs of revenue.
Other
Other costs include the costs associated with equipment and supplies that we resell, as well as freight, shipping and postage costs associated with the delivery of our products. These remain minor cost components of our business.
Operating Expenses
Three Months Ended March 31, Increase (Decrease) Nine Months Ended March 31, Increase (Decrease)
Between Periods Between Periods
% Change % Change
$ Change Inc Inc $ Change Inc Inc
2022 2021 (Dec) (Dec) 2022 2021 (Dec) (Dec)
(in thousands)
Operating expenses:
Sales and marketing $ 37,346 $ 31,525 $ 5,821 18.5 % $ 105,815 $ 86,505 $ 19,310 22.3 %
Product development
and engineering 23,095 20,224 2,871 14.2 % 66,312 57,906 8,406 14.5 %
General and
administrative 19,925 15,678 4,247 27.1 % 59,291 45,962 13,329 29.0 %
Amortization of
acquisition-related
intangible assets 5,255 5,443 (188) (3.5) % 15,506 15,614 (108) (0.7) %
Total operating
expenses $ 85,621 $ 72,870 $ 12,751 17.5 % $ 246,924 $ 205,987 $ 40,937 19.9 %
As % of total
revenues:
Sales and marketing 28.3 % 26.1 % 27.5 % 24.8 %
Product development
and engineering 17.5 % 16.7 % 17.3 % 16.6 %
General and
administrative 15.1 % 13.0 % 15.4 % 13.2 %
Amortization of
acquisition-related
intangible assets 4.0 % 4.5 % 4.0 % 4.5 %
Total operating
expenses 64.9 % 60.3 % 64.2 % 59.1 %
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and other related
costs for sales and marketing personnel, sales commissions, travel, public
relations and marketing materials and trade show participation. Sales and
marketing expenses increased $5.8 million in the three months ended March 31,
2022 as compared to the three months ended March 31, 2021 , primarily due to an
increase in employee related costs of $4.4 million , marketing expense of $0.9
million and travel costs of $0.2 million .
Sales and marketing expenses increased $19.3 million in the nine months ended
March 31, 2022 as compared to the nine months ended March 31, 2021 , primarily
due to an increase in employee related costs of $14.8 million , marketing expense
of $2.3 million , equipment related costs of $0.4 million , third party services
of $0.4 million and travel costs of $0.5 million .
Product Development and Engineering
Product development and engineering expenses consist primarily of personnel costs to support product development, which consists of enhancements and revisions to our products as well as initiatives related to new product development. Product development and engineering expenses increased$2.9 million in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily due to an increase in headcount related costs of$2.3 million . Product development and engineering expenses increased$8.4 million in the nine months endedMarch 31, 2022 as compared to the nine months endedMarch 31, 2021 , primarily due to an increase in headcount related costs of$6.9 million and an increase in third party technology costs and depreciation expense of$0.4 million .
General and Administrative
General and administrative expenses consist primarily of salaries and other related costs for operations and finance employees and legal and accounting services. General and administrative expenses increased$4.2 million in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 , primarily due to Merger related costs of$3.0 million and to a lesser extent, employee related costs. 30
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General and administrative expenses increased$13.3 million in the nine months endedMarch 31, 2022 as compared to the nine months endedMarch 31, 2021 , primarily due to Merger related costs of$6.5 million , costs associated with shareholder engagement initiatives of$1.8 million and to a lesser extent, employee related costs.
Other Expense, Net
Three Months Ended March Increase (Decrease) Increase (Decrease)
31, Between Periods Nine Months Ended March 31, Between Periods
$ Change Inc % Change $ Change Inc % Change
2022 2021 (Dec) Inc (Dec) 2022 2021 (Dec) Inc (Dec)
(Dollars in thousands)
Interest
income $ 33 $ 37 $ (4) (10.8) % $ 78 $ 232 $ (154) (66.4) %
Interest
expense (941) (993) 52 5.2 % (3,028) (3,574) 546 15.3 %
Other income
(expense),
net 2,972 (358) 3,330 930.2 % 3,277 360 2,917 810.3 %
Other
expense, net $ 2,064 $ (1,314) $ 3,378 257.1 % $ 327 $ (2,982) $ 3,309 111.0 %
The components of other expense, net are as depicted above. The slight decrease
in interest expense in the three and nine months ended March 31, 2022 as
compared to the three and nine months ended March 31, 2021 , respectively, is a
result of a decrease in borrowings under our line of credit arrangement during
the three and nine months ended March 31, 2022 as compared to the three and nine
months ended March 31, 2021 . The increase in other income in the three and nine
month period ended March 31, 2022 is due to a $2.5 million unrealized gain on an
equity investment we hold.
Provision for Income Taxes
We recorded an income tax provision of $0.1 million and $1.3 million for the
three months ended March 31, 2022 and 2021, respectively. We recorded an income
tax provision of $3.1 million and $4.4 million for the nine months ended March
31, 2022 and 2021, respectively. Please refer to Note 9 Income Taxes to our
unaudited condensed consolidated financial statements included in Part I. Item 1
of this Quarterly Report on Form 10-Q for further discussion.
Liquidity and Capital Resources
We are party to a credit agreement withBank of America, N.A . and certain other lenders that provides for a credit facility in the amount of up to$300 million (the Credit Facility). We have the right to request an increase to the aggregate commitments to the Credit Facility of up to an additional$150 million , subject to specified conditions. The Credit Facility expires inJuly 2023 . AtMarch 31, 2022 , borrowings were$130 million and we were in compliance with all covenants. We have financed our operations primarily from cash provided by operating activities, the sale of our common stock and debt proceeds. We have consistently generated positive operating cash flows. We believe that the cash generated from our operations and the cash and cash equivalents we have on hand will be sufficient to meet our operating requirements for the foreseeable future. If our existing cash resources along with cash generated from operations is insufficient to satisfy our operating requirements, we may need to sell additional equity or debt securities or seek other financing arrangements. One of our financial goals is to maintain and improve our capital structure. The key metrics we focus on in assessing the strength of our liquidity for the periods endedMarch 31, 2022 andJune 30, 2021 and a summary of our cash activity for the nine months endedMarch 31, 2022 and 2021 are summarized in the tables below: March 31, June 30, 2022 2021 (in thousands) Cash and cash equivalents$ 117,605 $ 133,932 Marketable securities 964 10,216 Borrowings under credit facility 130,000 130,000 31
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Nine Months Ended March 31,
2022 2021
(in thousands)
Cash provided by operating activities $ 63,250 $ 61,397
Cash used in investing activities (35,088) (75,472)
Cash used in financing activities (45,240) (56,166)
Effect of exchange rates on cash (2,278) 5,849
Cash, cash equivalents and marketable securities. At March 31, 2022 , our cash
and cash equivalents of $117.6 million consisted primarily of cash deposits held
at major banks and money market funds. The $16.3 million decrease in cash and
cash equivalents at March 31, 2022 from June 30, 2021 was primarily due to cash
used to repurchase common stock of $50.0 million , to fund capital expenditures,
including capitalization of software costs of $29.2 million , to fund business
and asset acquisitions, net of cash acquired of $15.1 million , partially offset
by cash generated from operations of $63.3 million , proceeds from the sale of
available for sale securities of $10.1 million and proceeds from our employee
stock purchase plan of $4.8 million .
Cash, cash equivalents and marketable securities included approximately $72.3
million held by our foreign subsidiaries as of March 31, 2022 . We continue to
permanently reinvest the earnings, if any, of our international subsidiaries
other than the UK , Switzerland and India ; therefore we do not provide for
U.S. income taxes that could result from the distribution of foreign earnings
from our international subsidiaries other than the aforementioned. If our
reinvestment plans were to change based on future events and we decided to
repatriate amounts from other international subsidiaries, those amounts would
generally become subject to state tax in the U.S. to the extent there were
cumulative profits in the foreign subsidiary from which the distribution to the
U.S. was made and we could be further subject to withholding tax.
Cash and cash equivalents held by our foreign subsidiaries are denominated in
currencies other than U.S. Dollars. Decreases primarily in the foreign currency
exchange rate of the British Pound Sterling to the U.S. Dollar decreased our
overall cash balances by approximately $2.3 million for the nine months ended
March 31, 2022 . Further changes in the foreign currency exchange rates of the
British Pound Sterling and other currencies could have a significant effect on
our overall cash balances, however, we continue to believe that our existing
cash balances, even in light of the foreign currency volatility we frequently
experience, are adequate to meet our operating requirements for the foreseeable
future.
At March 31, 2022 , our deferred tax assets have been fully reserved since, given
the available evidence, it was deemed more likely than not that these deferred
tax assets would not be realized.
Operating Activities. Operating cash flow is derived by adjusting our net income
or loss for non-cash operating items, such as depreciation and amortization,
stock-based compensation plan expense, deferred income tax benefits or expenses
and changes in operating assets and liabilities, which reflect timing
differences between the receipt and payment of cash associated with transactions
and when they are recognized in our results of operations. Cash generated from
operations increased by $1.9 million in the nine months ended March 31, 2022 as
compared to the same period in the prior fiscal year, primarily due to an
increase in cash provided by changes in accounts payable and accrued expenses of
$10.0 million , prepaid and current assets of $2.3 million and other assets of
$4.4 million , deferred revenue of $4.0 million , partially offset by the increase
in our net loss for the nine months ended March 31, 2022 of $20.1 million .
Investing Activities. Investing cash flows consist primarily of capital
expenditures, inclusive of capitalized software costs, investment purchases and
sales, and cash used for the acquisition of businesses and assets. The $40.4
million decrease in net cash used in investing activities for the nine months
ended March 31, 2022 as compared to the same period in the prior fiscal year was
primarily due to a decrease in cash used to fund business and asset
acquisitions, net of cash acquired, of $26.2 million and notes receivable of
$2.6 million , a decrease in cash used to purchase available for sale securities
of $9.3 million and to purchase other investments of $7.0 million , partially
offset by an increase in cash used to fund capital expenditures, inclusive of
software costs of $4.9 million .
Financing Activities. Financing cash flows consist primarily of cash inflows as
a result of borrowings under our revolving credit facility and proceeds from the
sale of shares of common stock through employee equity incentive plans, offset
by repurchases of our common stock. The decrease in cash used in financing
activities of $10.9 million was due to a decrease in cash used to repay debt of
$50.0 million , offset by an increase in cash used to repurchase common stock of
$39.2 million during the nine months ended March 31, 2022 .
Contractual Obligations
During the nine months endedMarch 31, 2022 , we entered into new facility leases inIndia and renewed leases for data centers in the US,UK andSwitzerland , increasing our contractual obligations by$6.2 million . Other than these new leases, there have been no other material changes to the contractual obligations from that which was disclosed in Item 7 of our Annual Report on Form 10-K for the fiscal year endedJune 30, 2021 , as filed with theSEC onAugust 30, 2021 . 32
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Our estimate of unrecognized tax benefits for which cash settlement may be required is$2.4 million . As ofMarch 31, 2022 , we are unable to estimate the timing of future cash outflows, if any, associated with these liabilities as we do not currently anticipate settling any of these tax positions with cash payment in the foreseeable future.
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