# WORKIVA INC (WK) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from WORKIVA INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1445305/000144530522000041/wk-20211231.htm
Accession: 0001445305-22-000041
Filing date: 2022-02-22
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/WK/
All MD&A years: /company/WK/mda/
Next year: /company/WK/mda/fy2022/ (FY 2022)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of our operations should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. In addition to historical consolidated financial information, this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to these differences include, but are not limited to, those identified below, and those discussed in “Section 1A. Risk Factors” included elsewhere in this Annual Report.

Overview

Workiva simplifies complex work for thousands of organizations worldwide. We are a leading provider of cloud-based compliance and regulatory reporting solutions that are designed to solve business challenges at the intersection of data, process and people.

Workiva changes the way enterprises manage and report business data. Our open, intelligent and intuitive platform is based on single instance, multi-tenant software applications deployed in the cloud. Our platform connects data, documents and teams, which results in improved efficiency, greater transparency and reduced risk of errors. We offer customers controlled collaboration, data linking, data integrations, granular permissions, process management and a full audit trail on our proprietary platform.

Customers use our platform to create, review and publish data-linked documents and reports with greater control, consistency, accuracy and productivity. Customers collaborate in the same document simultaneously, which improves efficiency and version control. Our platform is flexible and scalable, so customers can easily adapt it to define, automate and change their business processes in real time.

Our platform lets our customers connect data from Enterprise Resource Planning (“ERP”), Governance Risk and Compliance (“GRC”), Human Capital Management (“HCM”) and Customer Relationship Management (“CRM”) systems, as well as other third-party cloud and on-premise applications.

While our customers use our platform for dozens of different use cases, our sales and marketing resources are organized into four solution groups: Regulatory Reporting, Non-Regulatory Reporting, Financial Services and Integrated Risk.

We operate our business on a Software-as-a-Service (“SaaS”) model. Customers enter into annual and multi-year subscription contracts to gain access to our platform. Our subscription fee includes the use of our software and technical support. Our subscription pricing is based primarily on a solution-based licensing model. Under this model, operating metrics related to a customer’s expected use of each solution determine the price. We charge customers additional fees primarily for document setup and XBRL tagging services.

We generate sales primarily through our direct sales force and, to a lesser extent, our customer success and professional services teams. In addition, we augment our direct sales channel with partnerships. Our advisory and service partners offer a wider range of domain and functional expertise that broadens the capabilities of our platform, bringing scale and support to customers and prospects. Our technology partners enable more data and process integrations to help customers connect critical transactional systems directly to our platform.

We continue to invest in the development of our solutions, infrastructure and sales and marketing to drive long-term growth. Our full-time employee headcount expanded to 2,106 at December 31, 2021 from 1,718 at December 31, 2020, an increase of 22.6%.

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We have achieved significant revenue growth in recent periods. Our revenue grew to $443.3 million in 2021 from $351.6 million in 2020, an increase of 26.1%. We incurred net losses of $37.7 million and $48.4 million in 2021 and 2020, respectively.

Recent Business Developments

On December 29, 2021, we acquired all of the equity interest in Mark V Systems Limited, a California corporation (“Mark V Systems”) and owner of Arelle, the leading open-source XBRL validation engine. As the global standard, Arelle is used by a community of over 50 global regulators, banks and technology companies that depend on it for data quality and comparison. Workiva is committed to working with the XBRL community to keep Arelle open-sourced and collaborating for the advancement of this important validation engine.

On December 10, 2021, we acquired all of the membership interests in AuditNet, LLC (“AuditNet”), a global audit content and services provider, which strengthens Workiva’s risk and assurance offerings.

On July 30, 2021, we acquired all of the equity interest in OneCloud, Inc., an integration platform as a service iPaaS company, in order to extend our integration and data preparation capabilities. See Note 12 to the condensed consolidated financial statements for more information on our acquisitions.

Impact of COVID-19

Although the COVD-19 pandemic persists, we do not believe that it has adversely affected our business. We have been able to maintain business continuity and have experienced no pandemic-related employee furloughs or layoffs. We have remote-work options available for most employees, while permitting in-person collaboration at our various offices for employees who are vaccinated. We continue to monitor and update our practices in response to changes in the COVID-19 workplace safety and health standards established by the Occupational Safety and Health Administration (“OSHA”) and guidance provided by the Centers for Disease Control and Prevention (“CDC”).

Should COVID-19 variants continue to develop and spread, there is the possibility of future disruption to Workiva’s operations. The impact of any disruption is dependent upon a number of factors including the duration and severity of any COVID-19 resurgence, its impact on the overall economy and specific industry sectors, vaccination rates and the longer-term efficacy of vaccinations. We will continue to evaluate and refine our return-to-work and related policies in accordance with OSHA and CDC guidance.

Key Factors Affecting Our Performance

Generate Growth From Existing Customers. The Workiva platform can exhibit a powerful network effect within an enterprise, meaning that the usefulness of our platform attracts additional users. Since solution-based licensing offers our customers an unlimited number of seats for each solution purchased, we expect customers to add more seats over time. As more employees in an enterprise use our platform, additional opportunities for collaboration and automation drive demand among their colleagues for additional solutions.

Pursue New Customers. We sell to organizations that manage large, complex processes with many contributors and disparate sets of business data. We market our platform to professionals in the areas of: finance and accounting, regulatory reporting, management and performance reporting, integrated risk management, and global statutory reporting. We intend to continue to build our sales and marketing organization and leverage our brand equity to attract new customers.

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Offer More Solutions. We intend to introduce new solutions to continue to meet growing demand for our platform. Our close and trusted relationships with our customers are a source for new use cases, features and solutions. We have a disciplined process for tracking, developing and releasing new solutions that are designed to have immediate, broad applicability; a strong value proposition; and a high return on investment for both Workiva and our customers. Our advance planning team assesses customer needs, conducts industry-based research and defines new markets. This vetting process involves our sales, product marketing, customer success, professional services, research and development, finance and senior management teams.

Expand Across Enterprises. Our success in delivering multiple solutions has created demand from customers for a broader-based, enterprise-wide Workiva platform. In response, we have been improving our technology and realigning sales and marketing to capitalize on our growing enterprise-wide opportunities. We believe this expansion will add seats and revenue and continue to support our high revenue retention rates. However, we expect that enterprise-wide deals will be larger and more complex, which tend to lengthen the sales cycle.

Add Partners. We continue to expand and deepen our relationships with global and regional partners, including consulting firms, system integrators, large and mid-sized independent software vendors, and implementation partners. Our advisory and service partners offer a wider range of domain and functional expertise that broadens our platform’s capabilities and promotes Workiva as part of the digital transformation projects they drive for their customers. Our technology partners enable powerful data and process integrations to help customers connect critical transactional systems directly to our platform, with powerful linking, auditability and control features. We believe that our partner ecosystem extends our global reach, accelerates the usage and adoption of our platform, and enables more efficient delivery of professional services.

Investment in growth. We plan to continue to invest in the development of our platform, fit-for-purpose solutions and application marketplace to enhance our current offerings and build new features. In addition, we expect to continue to invest in our sales, marketing, professional services and customer success organizations to drive additional revenue and support the needs of our growing customer base and to take advantage of opportunities that we have identified in EMEA and APAC.

Seasonality. Our revenue from professional services has some degree of seasonality. Many of our customers employ our professional services just before they file their Form 10-K, often in the first calendar quarter. As of December 31, 2021, the majority of our SEC customers reported their financials on a calendar-year basis. Sales and marketing expense is generally higher in the third quarter since we hold our annual user conference in September. Our transition to a virtual event in September 2020 and September 2021 has mostly mitigated this trend, although we currently intend to sponsor a hybrid virtual and in-person event in 2022. In addition, the timing of the payments of cash bonuses to employees during the first and fourth calendar quarters may result in some seasonality in operating cash flow.

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Key Performance Indicators

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(dollars in thousands)"],["Financial metrics"],["Total revenue","$","443,285","","","$","351,594","","","$","297,891"],["Year-over-year percentage increase in total revenue","26.1%","","","18.0%","","","21.9%"],["Subscription and support revenue","$","379,340","","","$","295,877","","","$","245,765"],["Year-over-year percentage increase in subscription and support revenue","28.2%","","","20.4%","","","22.6%"],["Subscription and support as a percent of total revenue","85.6%","","","84.2%","","","82.5%"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2021","","2020","","2019"],["Operating metrics"],["Number of customers","4,315","","","3,723","","","3,510"],["Subscription and support revenue retention rate","97.0%","","","95.0%","","","94.7%"],["Subscription and support revenue retention rate including add-ons","110.0%","","","109.5%","","","113.0%"],["Number of customers with annual contract value $100k+","1,121","","","847","","","652"],["Number of customers with annual contract value $150k+","578","","","419","","","285"],["Number of customers with annual contract value $300k+","183","","","119","","","71"]]
[[/GREPCENT_TABLE]]

Total customers. We believe total number of customers is a key indicator of our financial success and future revenue potential. We define a customer as an entity with an active subscription contract as of the measurement date. Our customer is typically a parent company or, in a few cases, a significant subsidiary that works with us directly. Companies with publicly-listed securities account for a substantial majority of our customers.

Subscription and support revenue retention rate. We calculate our subscription and support revenue retention rate based on all customers that were active at the end of the same calendar quarter of the prior year (“base customers”). We begin by annualizing the subscription and support revenue recorded in the same calendar quarter of the prior year for those base customers who are still active at the end of the current quarter. We divide the result by the annualized subscription and support revenue in the same quarter of the prior year for all base customers.

Our subscription and support revenue retention rate was 97.0% as of December 31, 2021, up from 95.0% as of December 31, 2020. We believe that our success in maintaining a high rate of revenue retention is attributable primarily to our robust technology platform and strong customer service. Customers whose securities were deregistered due to merger or acquisition, or financial distress accounted for just over half of our revenue attrition in the latest quarter.

Subscription and support revenue retention rate including add-ons. Add-on revenue includes the change in both solutions and pricing for existing customers. We calculate our subscription and support revenue retention rate including add-ons by annualizing the subscription and support revenue recorded in the current quarter for our base customers that were active at the end of the current quarter. We divide the result by the annualized subscription and support revenue in the same quarter of the prior year for all base customers.

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Our subscription and support revenue retention rate including add-ons was 110.0% as of the year ended December 31, 2021, up slightly from 109.5% as of December 31, 2020. It is possible that as customers that purchased higher priced capital markets solutions throughout 2021 transition to more moderately priced ongoing solutions in 2022, there could be downward pressure on this key performance indicator.

Annual contract value. Our annual contract value (“ACV”) for each customer is calculated by annualizing the subscription and support revenue recognized during each quarter. We believe the increase in the number of larger contracts shows our progress in expanding our customers’ adoption of our platform.

Components of Results of Operations

Revenue

We generate revenue through the sale of subscriptions to our cloud-based software and the delivery of professional services. We serve a wide range of customers in many industries, and our revenue is not concentrated with any single customer or small group of customers. For each of the years ended December 31, 2021, 2020 and 2019, no single customer represented more than 1% of our revenue, and our largest 10 customers accounted for less than 5% of our revenue in the aggregate.

We generate sales directly through our sales force and partners. We also identify some sales opportunities with existing customers through our customer success and professional services teams.

Our customer contracts typically range in length from twelve to 36 months. We typically invoice our customers for subscription fees annually in advance. For contracts with a two or three year term, customers sometimes elect to pay the entire multi-year subscription term in advance. Our arrangements do not contain general rights of return.

Subscription and Support Revenue. We recognize subscription and support revenue on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Amounts that are invoiced are initially recorded as deferred revenue.

Professional Services Revenue. We believe our professional services facilitate the sale of our subscription service to certain customers. To date, most of our professional services have consisted of document set up, XBRL tagging, and consulting to help our customers with business processes and best practices for using our platform. Our professional services are not required for customers to utilize our solution. We recognize revenue for document set ups when the service is complete and control has transferred to the customer. Revenues from XBRL tagging and consulting services are recognized as the services are performed.        

Cost of Revenue

Cost of revenue consists primarily of personnel and related costs directly associated with our professional services, customer success teams and training personnel, including salaries, benefits, bonuses, and stock-based compensation; the costs of contracted third-party vendors; the costs of server usage by our customers; information technology costs; and facility costs. Costs of server usage are comprised primarily of fees paid to Amazon Web Services.

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Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, commissions, travel, and stock-based compensation. Other costs included in this expense are marketing and promotional events, our annual user conference, online marketing, product marketing, information technology costs, and facility costs. We pay sales commissions for initial contracts and expansions of existing customer contracts. When the relevant amortization period is one year or less, we expense sales commissions as incurred. All other sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized on a straight-line basis over a period of benefit that we have determined to be three years.

Research and Development Expenses

Research and development expenses consist primarily of personnel and related costs, including salaries, benefits, bonuses, and stock-based compensation; costs of server usage by our developers; information technology costs; and facility costs.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related costs for our executive, finance and accounting, legal, human resources, and administrative personnel, including salaries, benefits, bonuses, and stock-based compensation; legal, accounting, and other professional service fees; other corporate expenses; information technology costs; and facility costs.

Results of Operations

The following table sets forth selected consolidated statement of operations data for each of the periods indicated:

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[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in thousands)"],["Revenue"],["Subscription and support","$","379,340","","","$","295,877","","","$","245,765"],["Professional services","63,945","","","55,717","","","52,126"],["Total revenue","443,285","","","351,594","","","297,891"],["Cost of revenue"],["Subscription and support(1)","60,551","","","49,503","","","42,881"],["Professional services(1)","43,282","","","40,674","","","42,131"],["Total cost of revenue","103,833","","","90,177","","","85,012"],["Gross profit","339,452","","","261,417","","","212,879"],["Operating expenses"],["Research and development(1)","115,735","","","94,844","","","89,921"],["Sales and marketing(1)","178,785","","","144,687","","","120,300"],["General and administrative(1)","74,287","","","59,688","","","48,064"],["Total operating expenses","368,807","","","299,219","","","258,285"],["Loss from operations","(29,355)","","","(37,802)","","","(45,406)"],["Interest income","1,041","","","3,282","","","4,657"],["Interest expense","(14,015)","","","(13,964)","","","(6,027)"],["Other income and (expense), net","3,229","","","(205)","","","(564)"],["Loss before provision for income taxes","(39,100)","","","(48,689)","","","(47,340)"],["(Benefit) provision for income taxes","(1,370)","","","(291)","","","139"],["Net loss","$","(37,730)","","","$","(48,398)","","","$","(47,479)"]]
[[/GREPCENT_TABLE]]

(1) Stock-based compensation expense included in these line items was as follows:

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["","(in thousands)"],["Cost of revenue"],["Subscription and support","$","2,868","","","$","1,709","","","$","1,554"],["Professional services","1,729","","","1,434","","","1,725"],["Operating expenses"],["Research and development","9,590","","","8,100","","","8,006"],["Sales and marketing","13,901","","","11,062","","","8,792"],["General and administrative","20,545","","","23,466","","","15,707"],["Total stock-based compensation expense","$","48,633","","","$","45,771","","","$","35,784"]]
[[/GREPCENT_TABLE]]

The following table sets forth our consolidated statement of operations data as a percentage of revenue for each of the periods indicated:

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[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["Revenue"],["Subscription and support","85.6%","","","84.2%","","","82.5%"],["Professional services","14.4","","","15.8","","","17.5"],["Total revenue","100.0","","","100.0","","","100.0"],["Cost of revenue"],["Subscription and support","13.7","","","14.1","","","14.4"],["Professional services","9.8","","","11.6","","","14.1"],["Total cost of revenue","23.5","","","25.7","","","28.5"],["Gross profit","76.5","","","74.3","","","71.5"],["Operating expenses"],["Research and development","26.1","","","27.0","","","30.2"],["Sales and marketing","40.3","","","41.2","","","40.4"],["General and administrative","16.8","","","17.0","","","16.1"],["Total operating expenses","83.2","","","85.2","","","86.7"],["Loss from operations","(6.7)","","","(10.9)","","","(15.2)"],["Interest income","0.2","","","0.9","","","1.6"],["Interest expense","(3.2)","","","(4.0)","","","(2.0)"],["Other (expense) income, net","0.7","","","(0.1)","","","(0.2)"],["Loss before provision for income taxes","(9.0)","","","(14.1)","","","(15.8)"],["Provision (benefit) for income taxes","(0.3)","","","(0.1)","","","\u2014"],["Net loss","(8.7)","%","","(14.0)","%","","(15.8)","%"]]
[[/GREPCENT_TABLE]]

Revenue

Comparison of Years Ended December 31, 2021 and 2020

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Period-to-period change"],["","2021","","2020","","Amount","","% Change"],["","(dollars in thousands)"],["Revenue"],["Subscription and support","$","379,340","","","$","295,877","","","$","83,463","","","28.2%"],["Professional services","63,945","","","55,717","","","8,228","","","14.8%"],["Total revenue","$","443,285","","","$","351,594","","","$","91,691","","","26.1%"]]
[[/GREPCENT_TABLE]]

Total revenue increased $91.7 million in 2021 compared to 2020 due primarily to the increase in subscription and support revenue of $83.5 million. Growth in subscription and support revenue in 2021 was attributable mainly to strong demand and better pricing for a broad range of use cases. The total number of our customers increased 15.9% from December 31, 2020 to December 31, 2021. Professional services revenue increased $8.2 million due primarily to growth in revenue from XBRL professional services.

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Cost of Revenue

Comparison of Years Ended December 31, 2021 and 2020

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Period-to-period change"],["","2021","","2020","","Amount","","% Change"],["","(dollars in thousands)"],["Cost of revenue"],["Subscription and support","$","60,551","","","$","49,503","","","$","11,048","","","22.3%"],["Professional services","43,282","","","40,674","","","2,608","","","6.4%"],["Total cost of revenue","$","103,833","","","$","90,177","","","$","13,656","","","15.1%"]]
[[/GREPCENT_TABLE]]

Cost of revenue increased $13.7 million in 2021 compared to 2020. Subscription and support cost of revenue increased $11.0 million due primarily to $8.5 million higher cash-based compensation and benefits and $1.2 million higher stock-based compensation due to increased headcount, as well as a $1.2 million increase in software and server expense. The increase in cash-based compensation and benefits, stock-based compensation and software and server expense resulted from our continued investment in and support of our platform and solutions. Professional services cost of revenue increased $2.6 million due primarily to $2.2 million in higher cash-based compensation and benefits due to increased headcount.

Operating Expenses

Comparison of Years Ended December 31, 2021 and 2020

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Period-to-period change"],["","2021","","2020","","Amount","","% Change"],["","(dollars in thousands)"],["Operating expenses"],["Research and development","$","115,735","","","$","94,844","","","$","20,891","","","22.0%"],["Sales and marketing","178,785","","","144,687","","","34,098","","","23.6%"],["General and administrative","74,287","","","59,688","","","14,599","","","24.5%"],["Total operating expenses","$","368,807","","","$","299,219","","","$","69,588","","","23.3%"]]
[[/GREPCENT_TABLE]]

Research and Development

Research and development expenses increased $20.9 million in 2021 compared to 2020 due primarily to higher cash-based compensation and benefits costs of $16.4 million, a $1.5 million increase in stock-based compensation, a $1.8 million increase in professional service fees and a $0.9 million increase in the cost of software and cloud infrastructure services. The increases in compensation were due to increased headcount. The increases in professional service fees and software and cloud infrastructure services reflect continued investment in and support of our platform and solutions.

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Sales and Marketing

Sales and marketing expenses increased $34.1 million in 2021 compared to 2020 due primarily to $27.8 million in higher cash-based compensation and benefits, an additional $2.8 million in stock-based compensation, a $1.9 million increase in marketing and advertising expense and $2.6 million in software expense. These increases were partially offset by $1.2 million in savings from reduced travel by our sales and marketing employees due to the COVID-19 pandemic. The increase in cash-based compensation was due to an increase in employee headcount. During 2021, we recognized an additional $1.9 million in stock-based compensation pursuant to severance obligations. The increases in marketing and advertising costs and software expense supports our continued investment in and support of our platform and solutions.

General and Administrative

General and administrative expenses increased $14.6 million in 2021 compared to 2020, due primarily to $12.6 million in higher cash-based compensation and benefits, a $1.7 million increase in software and cloud infrastructure services, a $1.5 million increase in professional services fees and a $1.3 million increase in rent expense. These increases were partially offset by a $2.1 million decrease in stock-based compensation. In the second quarter of 2020, we recorded an additional $1.5 million and $5.5 million of cash-based and equity-based compensation, respectively, pursuant to certain separation agreements with former executives and managers. The increases in software and professional services fees are the result of our continued investment in and support of our platform and solutions. The increase in rent expense was our investment in office space for our expanding worldwide footprint.

Non-Operating Income (Expenses)

Comparison of Years Ended December 31, 2021 and 2020

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Period-to-period change"],["","2021","","2020","","Amount"],["","(dollars in thousands)"],["Interest income","$","1,041","","","$","3,282","","","$","(2,241)"],["Interest expense","(14,015)","","","(13,964)","","","(51)"],["Other income (expense), net","3,229","","","(205)","","","3,434"]]
[[/GREPCENT_TABLE]]

Interest Income, Interest Expense and Other Income (Expense), Net

Interest income fell $2.2 million in 2021 compared to 2020 due to decreased interest rates in our investment accounts. Interest expense remained relatively flat in 2021 compared to 2020. Other expense decreased $3.4 million in 2021 compared to 2020 due primarily to a $3.7 million gain recognized upon the settlement of our equity interest in OneCloud offset by losses on foreign currency transactions.

Results of Operations for Fiscal 2020 Compared to 2019

For a comparison of our results of operations for the fiscal years ended December 31, 2020 and 2019, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 17, 2021.

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Liquidity and Capital Resources

Overview of Sources and Uses of Cash

As of December 31, 2021, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $530.4 million, which were held for working capital purposes. We have financed our operations primarily through the proceeds of offerings of equity, convertible debt, and cash from operating activities. We have generated significant operating losses and negative cash flows from operating activities as reflected in our accumulated deficit and consolidated statements of cash flows. While we expect to continue to incur operating losses and may incur negative cash flows from operations in the future, we believe that current cash and cash equivalents and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months from the date of the issuance of the audited consolidated financial statements.

Convertible Debt

In August 2019, we issued $345.0 million aggregate principal amount of 1.125% convertible senior notes due 2026, including the exercise in full by the initial purchasers of their option to purchase an additional $45.0 million principal amount. The Notes are senior, unsecured obligations and bear interest at a fixed rate of 1.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2020. Proceeds from the issuance of the Notes totaled $335.9 million, net of initial purchaser discounts and issuance costs.

During the third and fourth quarters of 2021 one of the conversion conditions was met and the Notes are now convertible at the option of the holders through March 31, 2022. Specifically, the last reported sale price of our Class A common stock exceeded 130% of the conversion price of the Notes for more than 20 trading days during the 30 consecutive trading days ended September 30, 2021 and December 31, 2021. Upon conversion, we will pay or deliver, as the case may be, cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture. As of December 31, 2021, and through the date of this filing, we have not received any conversion requests for the Notes.

Cash Flows

The following table summarizes cash flow activity during the years ended December 31, 2021, 2020 and 2019 (in thousands):

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2021","","2020","","2019"],["Cash flow provided by operating activities","$","49,844","","","$","33,243","","","$","30,918"],["Cash flow used in investing activities","(68,631)","","","(103,750)","","","(90,065)"],["Cash flow (used in) provided by financing activities","(3,388)","","","11,118","","","363,018"],["Net (decrease) increase in cash and cash equivalents, net of impact of exchange rates","$","(22,445)","","","$","(58,911)","","","$","304,158"]]
[[/GREPCENT_TABLE]]

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Operating Activities

For the year ended December 31, 2021, cash provided by operating activities was $49.8 million. The primary factors affecting our operating cash flows during the period were our net loss of $37.7 million, adjusted for non-cash charges of $5.2 million for depreciation and amortization of our property and equipment and intangible assets, $48.6 million of stock-based compensation, $9.2 million for the amortization of our debt discount and issuance costs, $3.0 million for the amortization of premiums and discounts on marketable securities, a $27.3 million net change in operating assets and liabilities partially offset by a gain on the settlement of equity securities of $3.7 million and deferred income tax of $2.0 million. The primary drivers of the changes in operating assets and liabilities were a $19.2 million increase in deferred contract costs, a $7.7 million increase in accounts receivable, and a $6.5 million increase in prepaid expenses and other, offset by a $47.4 million increase in deferred revenue and a $14.7 million increase in accrued expenses and other liabilities. Customer growth as well as the prior year impact of the COVID-19 pandemic accounted for most of the increase in deferred revenue. We offer limited incentives for customers to enter into contract terms for more than one year. The increases in accounts receivable and accrued expenses and other liabilities were attributable primarily to the timing of our billings, cash collections, and cash payments. The increase in prepaid expenses was attributable primarily to the timing of annual contracts. The increase in deferred contract costs was primarily due to additional payments made to our sales force related to the direct and incremental costs of obtaining a customer contract.

For the year ended December 31, 2020, cash provided by operating activities was $33.2 million. The primary factors affecting our operating cash flows during the period were our net loss of $48.4 million, adjusted for non-cash charges of $4.3 million for depreciation and amortization of our property and equipment and intangible assets, $45.8 million of stock-based compensation, $8.9 million for the amortization of our debt discount and issuance costs and a $22.2 million net change in operating assets and liabilities. The primary drivers of the changes in operating assets and liabilities were a $16.0 million increase in deferred contract costs, an $8.0 million increase in accounts receivable, a $2.5 million increase in prepaid expenses and other, and a $4.1 million decrease in accounts payable, offset by a $37.5 million increase in deferred revenue and a $16.8 million increase in accrued expenses and other liabilities. Customer growth and contract renewals for longer terms accounted for most of the increase in deferred revenue. We offer limited incentives for customers to enter into contract terms for more than one year. The decrease in accounts payable and increases in accounts receivable and accrued expenses and other liabilities were attributable primarily to the timing of our billings, cash collections, and cash payments. The increase in prepaid expenses was attributable primarily to the timing of annual contracts. The increase in deferred contract costs was primarily due to additional payments made to our sales force related to the direct and incremental costs of obtaining a customer contract.

Investing Activities

Cash used in investing activities of $68.6 million for the year ended December 31, 2021 was due primarily to $170.1 million for the purchase of marketable securities, $37.5 million for acquisitions, net of cash acquired, and $3.5 million of capital expenditures, partially offset by $143.2 million from the maturities of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

Cash used in investing activities of $103.8 million for the year ended December 31, 2020 was due primarily to $175.9 million for the purchase of marketable securities and $1.9 million of capital expenditures, partially offset by $62.9 million from the maturities of marketable securities and $11.4 million from the sale of marketable securities. Our capital expenditures were associated primarily with computer equipment in support of expanding our infrastructure and work force.

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Financing Activities

Cash used in financing activities of $3.4 million for the year ended December 31, 2021 was due primarily to $16.6 million in proceeds from option exercises and $8.9 million in proceeds from shares issued in connection with our employee stock purchase plan, offset by $27.1 million in taxes withheld related to net share settlement of our stock-based compensation awards and an aggregate $1.7 million in payments on finance lease obligations.

Cash provided by financing activities of $11.1 million for the year ended December 31, 2020 was due primarily to $19.2 million in proceeds from option exercises and $7.2 million in proceeds from shares issued in connection with our employee stock purchase plan, partially offset by $13.7 million in taxes withheld related to net share settlement of our stock-based compensation awards and an aggregate $1.6 million in payments on finance lease obligations.

Contractual Obligations and Commitments

The following table represents our contractual obligations as of December 31, 2021, aggregated by type:

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[["","","","","Payments due by period"],["","","Total","","Less than 1 year","","1-3 years","","3-5 years","","More than 5 years"],["","","(in thousands)"],["Convertible senior notes","","$","364,407","","","$","3,881","","","$","7,763","","","$","352,763","","","$","\u2014"],["Operating leases including imputed interest","","26,301","","","6,946","","","9,808","","","4,108","","","5,439"],["Finance leases, including interest","","26,357","","","2,436","","","2,630","","","2,630","","","18,661"],["Other contractual commitments","","38,287","","","13,740","","","24,547","","","\u2014","","","\u2014"],["Total contractual obligations","","$","455,352","","","$","27,003","","","$","44,748","","","$","359,501","","","$","24,100"]]
[[/GREPCENT_TABLE]]

Total future payments related to our Convertible Senior Notes due 2026 shown in the table above includes $345.0 million principal amount and future interest payments of $19.4 million. For more information on our convertible senior notes, refer to Note 8 of our accompanying Notes to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

We have entered into a lease agreement for land and an office building in Ames, Iowa, which was constructed in two phases. The lease term includes an initial 15-year term and three five-year extensions at our option because renewal was determined to be reasonably assured at the inception of the lease. The lease contains purchase options to acquire the landlord’s interest in the land lease and building at any time beginning three years from June 2014 (the commencement date of the second phase of the lease). In addition, the lease requires us to purchase the building from the landlord upon certain events, such as a change in control.

We enter into certain non-cancelable agreements with third-party providers in the ordinary course of business. Under these agreements, we are committed to purchase $31.1 million for cloud infrastructure services and $7.2 million primarily for cloud services. These amounts are included in the table above under “other contractual commitments”.

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Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, provision for income taxes and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 1 to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.

Revenue Recognition

We generate revenue through the sale of our cloud-based software and the delivery of professional services. Revenues are recognized when control of these services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

We determine revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, we satisfy a performance obligation

Subscription and Support Revenue 

We recognize subscription and support revenue on a ratable basis over the contract term beginning on the date that our service is made available to the customer. Our subscription contracts are generally twelve to 36 months in duration, are billed either annually or in advance and are non-cancelable. We consider the access to our platform and related support services in a customer contract to be a series of distinct services which comprise a single performance obligation because they are substantially the same and have the same pattern of transfer.

Professional Services Revenue and Customer Options

Professional services revenues primarily consist of fees for document set up, XBRL tagging, and consulting with our customers on business processes and best practices for using our platform. We have determined that an agreement to purchase these professional services constitutes an option to purchase services in accordance with ASC 606 rather than an agreement that creates enforceable rights and obligations because of the customer’s contractual right to cancel services that have not yet been used. In the limited case of agreements where we determined that the option provides the customer with a material right, we allocate a portion of the transaction price to the material right based upon the relative standalone selling price. Professional service agreements that do not contain a material right are accounted for when the customer exercises its option to purchase additional services.

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Revenue is recognized for document set ups when the service is complete and control has transferred to the customer. Revenues from XBRL tagging and consulting services are recognized as the services are performed.

Our professional services revenue is higher in the first calendar quarter because many of our customers employ our professional services just before they file their Form 10-K.

Contracts with Multiple Performance Obligations

Some of our contracts with customers contain multiple performance obligations. For these contracts, we account for the individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. We determine the standalone selling prices based on our overall pricing objectives, taking into consideration market conditions and entity-specific factors, including the value of our arrangements, length of term, customer demographics and the numbers and types of users within our arrangements.

While changes in assumptions or judgments or changes to the elements of the arrangement could cause an increase or decrease in the amount of revenue that we report in a particular period, these changes have not historically been significant because our recurring revenue is primarily subscription and support revenue.

Recent Accounting Pronouncements

Refer to Note 1 of the notes to consolidated financial statements for a full description of recent accounting pronouncements.

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