QUALYS, INC. This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, should be read in conjunction with (1) our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report, and (2) the audited consolidated financial statements and the related notes and section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . In addition to historical information, this Quarterly Report on Form 10-Q contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, it is possible to identify forward-looking statements because they contain words such as "anticipates," "believes," "contemplates," "continue," "could," "estimates," "expects," "future," "intends," "likely," "may," "plans," "potential," "predicts," "projects," "seek," "should," "target," or "will," or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
• our financial performance, including our revenues, costs, expenditures,
growth rates, operating expenses and ability to generate positive cash flow
to fund our operations and sustain profitability;
• anticipated technology trends, such as the use of cloud solutions;
• our ability to adapt to changing market conditions;
• the impact of the ongoing COVID-19 pandemic on our business;
• economic and financial conditions, including volatility in foreign exchange
rates, inflation concerns, rising interest rates, recessionary fears, supply
chain disruption, and global labor shortage;
• our ability to diversify our sources of revenues, including sellingadditional solutions to our existing customers and our ability to pursue new
customers;
• the effects of increased competition in our market;
• our ability to innovate and enhance our cloud solutions and platform and
introduce new solutions;
• our ability to effectively manage our growth;
• our anticipated investments in sales and marketing, our infrastructure, new
solutions, research and development, and acquisitions;
• maintaining and expanding our relationships with channel partners;
• our ability to maintain, protect and enhance our brand and intellectual property;
• costs associated with defending intellectual property infringement and other
claims;
• our ability to attract and retain qualified employees and key personnel,
including sales and marketing personnel;
• our ability to successfully enter new markets and manage our international
expansion;
• our expectations, assumptions and conclusions related to our income tax
provision, our deferred tax assets and our effective tax rate; and
• other factors discussed in this Quarterly Report on Form 10-Q in thesections titled "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We have based the forward-looking statements contained in this Quarterly Report
on Form 10-Q primarily on our current expectations and projections about future
events and trends that we believe may affect our business, financial condition,
results of operations and prospects. The results, events and circumstances
reflected in these forward-looking statements are subject to risks,
uncertainties, assumptions, and other factors including those described in Part
II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q and those
discussed in other documents we file with the U.S. Securities and Exchange
Commission (SEC). Moreover, we operate in a very competitive and rapidly
changing environment. New risks and uncertainties emerge from time to time, and
it is not possible for us to predict all risks and uncertainties that could have
an impact on the forward-looking statements used herein. We cannot provide
assurance that the results, events, and circumstances reflected in the
forward-looking statements will be achieved or occur, and actual results, events
or circumstances could differ materially from those described in the
forward-looking statements.
26--------------------------------------------------------------------------------
Table of Contents Overview We are a leading provider of a cloud-based platform delivering information technology (IT), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations. Our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external IT infrastructures and web environments, the rapid adoption of cloud computing, containers and serverless IT models, and the proliferation of geographically dispersed IT assets. Our integrated suite of IT, security and compliance solutions delivered on our Qualys Cloud Platform enables our customers to identify and manage their IT assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, recommend and implement remediation actions and verify the implementation of such actions. Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their IT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams. We were founded and incorporated inDecember 1999 with a vision of transforming the way organizations secure and protect their IT infrastructure and applications and initially launched our first cloud solution, Vulnerability Management (VM), in 2000. As VM gained acceptance, we introduced additional solutions to help customers manage increasing IT, security and compliance requirements. Today, the suite of solutions that we offer on our cloud platform and refer to as the Qualys Cloud Apps helps our customers protect a range of assets across on-premises, endpoints, cloud, containers, and mobile environments. TheseCloud Apps address and include:
• IT Security: Vulnerability Management (VM), Vulnerability Management,
Detection and Response (VMDR), Threat Protection (TP), Continuous Monitoring
(CM), Patch Management (PM), Multi-Vector Endpoint Detection and Response
(EDR), Certificate Assessment (CRA), SaaS Detection and Response (SaaSDR),
Secure Enterprise Mobility (SEM), VMDR Operational Technology (VMDR-OT),
Custom Assessment and Response (CAR), Extended Detection and Response
(XDR);
• Compliance: Policy Compliance (PC), Security Configuration Assessment (SCA),
PCI Compliance (PCI), File Integrity Monitoring (FIM), Security Assessment
Questionnaire (SAQ), Out-of-Band Configuration Assessment (OCA);
• Web Application Security: Web Application Scanning (WAS), Web Application
Firewall (WAF);
• Asset Management: Global Asset View (GAV), Cybersecurity Asset
Management (CSAM), Certificate Inventory (CRI); and
• Cloud/Container Security: Cloud Inventory (CI), Cloud Security Assessment
(CSA), Container Security (CS).
We provide our solutions through a software-as-a-service model, primarily with
renewable annual subscriptions. These subscriptions require customers to pay a
fee in order to access each of our cloud solutions. We generally invoice our
customers for the entire subscription amount at the start of the subscription
term, and the invoiced amounts are treated as deferred revenues and are
recognized ratably over the term of each subscription. We continue to experience
revenue growth from our existing customers as they renew and purchase additional
subscriptions, as well as from the addition of new customers to our cloud
platform.
We market and sell our solutions to enterprises, government entities and small
and medium-sized businesses across a broad range of industries, including
education, financial services, government, healthcare, insurance, manufacturing,
media, retail, technology and utilities. For the nine months ended September 30,
2022 and 2021, approximately 60% and 61%, respectively, of our revenues were
derived from customers in the United States based on our customers' billing
addresses. We sell our solutions to enterprises and government entities
primarily through our field sales force and to small and medium-sized businesses
through our inside sales force. We generate a significant portion of sales
through our channel partners, including managed security service providers,
cloud providers, value-added resellers and consulting firms in the United States
and internationally.
27--------------------------------------------------------------------------------
Table of Contents
Impacts of COVID-19 and Current Macroeconomic Environment
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic. As a result of COVID-19, we temporarily modified certain aspects of our business, including restricting employee travel, requiring employees to work from home, and canceling certain events and meetings, among other modifications. While we have resumed in-office work, employee travel, and in-person events and meetings, we will continue to actively monitor the situation and may take actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, partners, suppliers and stockholders. While we have not incurred significant disruptions from the ongoing COVID-19 pandemic to date and do not expect the pandemic will have a significant impact on our business throughout the remainder of 2022, we are unable to accurately predict the full impact that the ongoing effects of COVID-19 will have on our business due to numerous uncertainties, including the duration of the outbreak, actions that may be taken by governmental authorities and the impact to the business of the Company's customers and partners. We continue to evaluate the nature and extent of the impact to our business, financial position, results of operations and cash flows. Additionally, the uncertainty surrounding macroeconomic factors in theU.S. and globally characterized by the supply chain environment, inflationary pressure, rising interest rates, labor shortages, significant volatility of global markets and geopolitical conflicts could have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security.
Key Components of Results of Operations
Revenues We derive revenues from the sale of subscriptions to our IT, security and compliance solutions, which are delivered on our cloud platform. Subscriptions to our solutions allow customers to access our cloud-based IT, security and compliance solutions through a unified, web-based interface. Customers generally enter into one-year renewable subscriptions. The subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and, if requested by a customer as part of their subscription, a specified number of physical or virtual scanner appliances. Our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan IT infrastructures within their firewalls and do not function without, and are not sold separately from, subscriptions for our solutions. In some cases, we also provide certain computer equipment used to extend our Qualys Cloud Platform into our customers' private cloud environment. Customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions. We typically invoice our customers for the entire subscription amount at the start of the subscription term. Invoiced amounts are reflected on our condensed consolidated balance sheets as accounts receivable or as cash when collected, and as deferred revenues until earned and recognized ratably over the subscription period. Accordingly, deferred revenues represent the amount billed to customers that has not yet been earned or recognized as revenues, pursuant to subscriptions entered into in current and prior periods. Cost of Revenues Cost of revenues consists primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for employeeswho operate our data centers and provide support services to our customers. Other expenses include depreciation of data center equipment, physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions, expenses related to the use of shared cloud platforms, amortization of software and license fees, amortization of intangibles related to acquisitions, maintenance support, fees paid to contractorswho supplement or support our operations center personnel and overhead allocations. We expect to continue to expand our shared cloud platform infrastructures and hire additional employees to support our operations, which will increase the cost of revenues in absolute dollars. Operating Expenses Research and Development Research and development expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for our research and development teams. Other expenses include third-party contractor fees, software and license fees, amortization of intangibles related to acquisitions and overhead allocations. We expect to continue to invest in additional research and development activities, including hiring engineers and incur outside services, which will increase the research and development expenses in absolute dollars. 28
--------------------------------------------------------------------------------
Table of Contents Sales and Marketing Sales and marketing expenses consist primarily of personnel expenses, comprised of salaries, benefits, sales commissions, performance-based compensation and stock-based compensation for our worldwide sales and marketing teams. Other expenses include marketing and promotional events, lead-generation marketing programs, public relations, travel, software licenses and overhead allocations. Sales commissions related to new business and upsells are capitalized as an asset. We amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years. We expense sales commissions related to contract renewals as incurred. Our new sales personnel are typically not immediately productive, and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive. The timing of our hiring of sales personnel, or the participation in new marketing events or programs, and the rate at which these generate incremental revenues, may affect our future operating results. We expect to continue to significantly invest in additional sales personnel worldwide and also in more marketing programs to support new solutions on our platform, which will increase sales and marketing expenses in absolute dollars. General and Administrative General and administrative expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation for our executive, finance and accounting, IT, legal and human resources teams, as well as professional services, fees, software licenses and overhead allocations. We expect that general and administrative expenses will increase in absolute dollars, as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements. Other Income (Expense), Net
Our other income (expense), net consists primarily of interest and investment
income from our short-term and long-term marketable securities and foreign
exchange gains and losses, the majority of which result from fluctuations
between the
Income Tax Provision We are subject to federal, state and foreign income taxes for jurisdictions in which we operate, and we use estimates in determining our income tax provision and deferred tax assets. Earnings from our non-U.S. activities are subject to income taxes in the local countries at rates which were generally similar to theU.S. statutory tax rate. 29
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
The following table sets forth selected condensed consolidated statements of
operations data for each of the periods presented as a percentage of revenues.
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenues 100 % 100 % 100 % 100 %
Cost of revenues 21 21 21 22
Gross profit 79 79 79 78
Operating expenses:
Research and development 20 21 20 20
Sales and marketing 20 18 19
18
General and administrative 13 10 12 21 Total operating expenses 53 49 51 59 Income from operations 26 30 27 19 Total other income (expense), net 1 - - 1 Income before income taxes 27 30 27 20 Income tax provision 5 4 5 4 Net income 22 % 26 % 22 % 16 %
Comparison of Three and Nine Months Ended
Revenues
Three Months Ended NineMonths Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Revenues $ 125,561 $ 104,934 $ 20,627 19.7 % $ 358,874 $ 301,392 $ 57,482 19.1 %
Revenues increased by $20.6 million for the three months ended September 30,
2022 compared to the same period in 2021, due to an increase in IT Security,
Compliance, Web Application Security, Asset Management, Cloud and Container
Security, and Vulnerability Management subscriptions. The revenue growth was
primarily from an increase in renewal and expansion business to existing
customers in the three months ended September 30, 2022 compared to the same
period in 2021. Of the total increase of $20.6 million , $11.6 million was from
customers in the United States and $9.0 million was from customers in foreign
countries. Of the total increase of $20.6 million , $11.7 million was from direct
customers and $8.9 million was from partners. In the three months ended
September 30, 2022 , 58% of total revenue was direct and 42% of total revenue was
through partners. In the three months ended September 30, 2021 , 59% of total
revenue was direct and 41% of total revenue was through partners.
Revenues increased by $57.5 million for the nine months ended September 30, 2022
compared to the same period in 2021, due to an increase in IT Security,
Compliance, Web Application Security, Asset Management, Cloud and Container
Security, and Vulnerability Management subscriptions. The revenue growth was
primarily from an increase in renewal and expansion business to existing
customers in the nine months ended September 30, 2022 compared to the same
period in 2021. Of the total increase of $57.5 million , $29.6 million was from
customers in the United States and $27.9 million was from customers in foreign
countries. Of the total increase of $57.5 million , $31.6 million was from direct
customers and $25.9 million was from partners. In the nine months ended
September 30, 2022 , 58% of total revenue was direct and 42% of total revenue was
through partners. In the nine months ended September 30, 2021 , 59% of total
revenue was direct and 41% of total revenue was through partners. With our
strong market position driving further demand for our solutions, we expect
revenue growth from new and existing customers to continue.
Cost of Revenues
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Cost of revenues
Cost of revenues increased by$3.5 million for the three months endedSeptember 30, 2022 compared to the same period in 2021, due to an increase in personnel costs, including stock-based compensation, of$2.5 million , driven by additional employees hired to support the growth of our business, an increase in shared cloud platform cost of$0.8 million and an increase in subscribed license and software costs of$0.6 million , offset by an decrease in amortization expense of intangible assets of$0.4 million . Cost of revenues increased by$9.3 million for the nine months endedSeptember 30, 2022 compared to the same period in 2021, due to an increase in personnel costs, including stock-based compensation, of$7.2 million , driven by additional employees hired to support the growth of our business, an increase in subscribed license and software costs of$1.1 million and an increase in professional service expense of$0.9 million . 30
--------------------------------------------------------------------------------
Table of Contents
Research and Development Expenses
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Research and
development
Research and development expenses increased by$4.1 million for the three months endedSeptember 30, 2022 compared to the same period in 2021, due to an increase in personnel costs, including stock-based compensation, of$3.7 million , driven by increased headcount, and an increase in subscribed license and software costs of$0.3 million , driven by a higher level of research and development efforts. Research and development expenses increased by$14.5 million for the nine months endedSeptember 30, 2022 compared to the same period in 2021, due to an increase in personnel costs, including stock-based compensation, of$12.8 million , driven by increased headcount, an increase in professional service expense of$0.6 million , an increase in subscribed license and software costs of$0.6 million and an increase in travel and entertainment cost of$0.4 million , driven by a higher level of research and development efforts.
Sales and Marketing Expenses
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Sales and marketing $ 25,047 $ 18,569 $ 6,478 34.9 % $ 68,919 $ 54,328 $ 14,591 26.9 %
Sales and marketing expenses increased by $6.5 million for the three months
ended September 30, 2022 compared to the same period in 2021, primarily due to
an increase in personnel costs, including stock-based compensation, of
$3.7 million , driven by increased headcount including hiring in senior
management, an increase in marketing expense of $1.2 million , an increase in
professional service expense of $1.0 million and an increase in travel and
entertainment cost of $0.5 million , driven by an increased level of sales and
marketing efforts such as trade shows and advertising.
Sales and marketing expenses increased by $14.6 million for the nine months
ended September 30, 2022 compared to the same period in 2021, primarily due to
an increase in personnel costs, including stock-based compensation, of
$6.0 million , driven by increased headcount including hiring in senior
management, an increase in marketing related expense of $4.9 million , an
increase in professional service expense of $1.6 million , an increase in travel
and entertainment cost of $1.3 million and an increase in subscribed
licensing costs of $0.8 million , driven by an increased level of sales and
marketing efforts.
General and Administrative Expenses
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
General and
administrative
General and administrative expenses increased by$5.1 million for the three months endedSeptember 30, 2022 compared to the same period in 2021, primarily due to an increase in personnel costs, including stock-based compensation, of$2.6 million , driven by increased headcount, an increase in professional service expense of$0.9 million , an increase in legal expense of$0.6 million , an increase in travel and entertainment cost of$0.4 million and an increase in subscribed license and software costs of$0.4 million . General and administrative expenses decreased by$22.2 million for the nine months endedSeptember 30, 2022 compared to the same period in 2021, primarily due to a decrease in stock-based compensation expense of$24.4 million , primarily related to the accelerated vesting ofMr. Courtot's equity awards in the first quarter of 2021, offset by an increase in subscribed license and software costs of$1.0 million , and an increase in professional service expense of$0.8 million .
Total other income (expense), net
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Total other
income
(expense), net $ 492 $ 74 $ 418 564.9 % $ (571 ) $ 1,059 $ (1,630 ) (153.9 )%
Total other income (expense), net increased by $0.4 million for the three months
ended September 30, 2022 , compared to the same periods in 2021, mainly due
to an increase in interest income driven by an increase of market interest rate,
partially offset by foreign exchange loss driven by the appreciation of the U.S.
Dollar against the EUR and GBP in the three months ended September 30, 2022 .
Total other income (expense), net decreased by $1.6 million for the nine months
ended September 30, 2022 , compared to the same periods in 2021, mainly due to an
increase in foreign exchange loss driven by the appreciation of the U.S. Dollar
against the EUR and GBP, partially offset by an increase in interest
income driven by an increase of market interest rates in the nine months ended
September 30, 2022 .
31--------------------------------------------------------------------------------
Table of Contents
Income tax provision
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
(in thousands, except percentages)
Income tax provision $ 6,178 $ 4,282 $ 1,896 44.3 % $ 19,637 $ 10,554 $ 9,083 86.1 %
Effective tax rate 18.3 % 13.4 % 19.8 % 17.7 %
Income tax provision increased by
Income tax provision increased by$9.1 million for the nine months endedSeptember 30, 2022 compared to the same period in 2021, primarily due to an increase in pre-tax income and the effects of a tax law change related to mandatory capitalization of research and development expenses startingJanuary 1, 2022 , offset by an increase in excess tax benefits arising from stock-based compensation. In the nine months endedSeptember 30, 2021 , pre-tax income was lower due to the accelerated vesting ofMr. Courtot's equity awards. Key Non-GAAP Metric
In addition to measures of financial performance presented in our condensed consolidated financial statements, we monitor the non-GAAP key metric set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies.
Adjusted EBITDA We monitor Adjusted EBITDA, a non-GAAP financial measure, to analyze our financial results and believe that it is useful to investors, as a supplement toU.S. GAAP measures, in evaluating our ongoing operational performance and enhancing an overall understanding of our past financial performance. We believe that Adjusted EBITDA helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that we exclude in Adjusted EBITDA. Furthermore, we use this measure to establish budgets and operational goals for managing our business and evaluating our performance. We also believe that Adjusted EBITDA provides an additional tool for investors to use in comparing our recurring core business operating results over multiple periods with other companies in our industry. Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance withU.S. GAAP. We calculate Adjusted EBITDA as net income before (1) other (income) expense, net, which includes interest income, interest expense and other income and expense, (2) income tax provision (benefit), (3) depreciation and amortization of property and equipment, (4) amortization of intangible assets, (5) stock-based compensation and (6) non-recurring expenses that do not reflect ongoing costs of operating the business.
Adjusted EBITDA has limitations as an analytical tool and should not be
considered in isolation from or as a substitute for the measures presented in
accordance with
• Adjusted EBITDA does not reflect certain cash and non-cash charges that are
recurring;
• Adjusted EBITDA does not reflect income tax payments that reduce cash
available to us;
• Adjusted EBITDA excludes depreciation and amortization of property and
equipment and amortization of intangible assets, although these are non-cash
charges, the assets being depreciated and amortized may have to be replaced in
the future; and
• Other companies, including companies in our industry, may calculate Adjusted
EBITDA differently or not at all, which reduces its usefulness as a
comparative measure.
Because of these limitations, Adjusted EBITDA should be considered alongside
other financial performance measures, including revenues, net income, cash flows
from operating activities and our financial results presented in accordance with
U.S. GAAP. The following unaudited table presents the reconciliation of net
income to Adjusted EBITDA for the three and nine months ended September 30, 2022
and 2021:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands)
Net income $ 27,660 $ 27,769 $ 79,666 $ 49,139
Depreciation and amortization of
property and equipment 6,875 7,218 21,248 21,796
Amortization of intangible assets 1,346 1,665 4,525 4,956
Income tax provision 6,178 4,282 19,637 10,554
Stock-based compensation 13,291 9,463 37,856 56,218
Total other income (expense), net (492 ) (74 ) 571 (1,059 )
Adjusted EBITDA $ 54,858 $ 50,323 $ 163,503 $ 141,604
Percentage of revenues 44 % 48 % 46 % 47 %
32--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
As ofSeptember 30, 2022 , our principal source of liquidity was cash, cash equivalents and marketable securities of$456.3 million , including$42.2 million of cash held outside ofthe United States . The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this report: Nine Months Ended September 30, 2022 2021 (in thousands) Cash provided by operating activities$ 155,010 $ 160,741 Cash provided by investing activities 99,650
19,122
Cash used in financing activities (198,086 ) (108,255 ) Net increase in cash, cash equivalents and restricted cash$ 56,574 $ 71,608 Operating Activities During the nine months endedSeptember 30, 2022 , we generated$129.3 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to$119.4 million during the nine months endedSeptember 30, 2021 . In addition, we also generated$25.7 million of cash from changes in working capital during the nine months endedSeptember 30, 2022 , of which$22.3 million was related to a net increase in deferred revenue and a net decrease in accounts receivable as a result of our continued growth in billing and collection and$4.8 million was due to an increase in payables and accrued liabilities in line with our business growth, partially offset by$1.4 million higher prepaid expenses. During the nine months endedSeptember 30, 2021 , we generated$41.4 million of cash from changes in working capital, of which$36.7 million was related to a net increase in deferred revenue and a net decrease in accounts receivable as a result of our continued growth in billing and collection and$10.1 million was due to an increase in payables and accrued liabilities in line with our business growth, partially offset by$5.5 million higher prepaid expenses. Net cash taxes paid during the nine months endedSeptember 30, 2022 were higher by approximately$8.1 million compared to the same period in 2021, primarily due to the new tax law requiring mandatory capitalization and amortization of research and development expenses effectiveJanuary 1, 2022 . Previously, these expenses could be deducted in the year incurred. The near term increase in cash tax will be offset by a decrease in cash taxes in future years when the capitalized expenses are amortized for tax purposes. Investing Activities During the nine months endedSeptember 30, 2022 , we generated$112.2 million of cash in sales and maturities of marketable securities net of purchases, and used$12.5 million of cash in capital expenditures mainly related to purchases of computer equipment to support our growth and development, as compared to$40.3 million of cash provided by sales and maturity of marketable securities investments net of purchases offset by$21.1 million of cash used in capital expenditures and acquisition of intangible assets during the nine months endedSeptember 30, 2021 . Financing Activities During the nine months endedSeptember 30, 2022 , we used$212.8 million of cash for share repurchases and$12.9 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, and received$23.2 million of proceeds from employee exercise of stock options and$4.4 million of proceeds from issuance of common stock through our ESPP, as compared to$94.9 million of cash used for share repurchases,$24.2 million of cash used in payment of employee withholding taxes upon vesting of restricted stock units, and$11.0 million of cash received from employee exercise of stock options during the nine months endedSeptember 30, 2021 . We believe our existing cash and cash equivalents, marketable securities and our expected cash flow generated from operations will be sufficient to fund our operations for the next twelve months and beyond. We do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. However, if we repatriate these funds, we could be subject to foreign withholding taxes. Share Repurchases We expect to continue to use cash to repurchase shares under our share repurchase program authorized by our board of directors onFebruary 5, 2018 . OnMay 4, 2022 , we announced that our board of directors authorized an additional$200.0 million to the share repurchase program authorization, increasing the total amount of authorized repurchase to$900.0 million . As ofSeptember 30, 2022 , approximately$259.0 million remained available under our share repurchase program. Shares will be repurchased from time to time on the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act. Purchase Commitments As ofSeptember 30, 2022 , there have been no other material changes to our cash requirements for purchase commitments as described in "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Quarterly Report on Form 10-Q for the fiscal quarter endedMarch 31, 2022 .
Recent Accounting Pronouncements
See Note 1 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
33
--------------------------------------------------------------------------------
Table of Contents Critical Accounting Estimates
There have been no material changes to our critical accounting estimates as
described in our Annual Report on Form 10-K for the fiscal year ended
34--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
