Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:____________ to __________

Commission File Number: 001-39709

 

CVENT HOLDING CORP.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware	98-1560055
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1765 Greensboro Station Place, 7th Floor Tysons, VA	22102
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: [phone]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.0001 per share		CVT		The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☐		Accelerated filer		☒
Non-accelerated filer		☐		Smaller reporting company		☐
Emerging growth company		☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 1, 2023, the registrant had 491,620,840 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

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Table of Contents

 

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		32

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CVENT HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

		March 31, 2023				December 31, 2022
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	102,220			$	99,108
Restricted cash			2,535				815
Short-term investments			53,872				40,925
Accounts receivable, net of allowance of $1.8 million and $2.6 million, respectively			97,018				120,362
Capitalized commission, net			27,473				26,685
Prepaid expenses and other current assets			24,759				17,819
Total current assets			307,877				305,714
Property and equipment, net			14,577				15,250
Capitalized software development costs, net			92,759				96,959
Intangible assets, net			161,076				172,781
Goodwill			1,620,270				1,620,312
Operating lease-right-of-use assets			28,453				20,398
Capitalized commission, non-current, net			23,828				23,477
Deferred tax assets, non-current			2,440				2,425
Other assets, non-current, net			5,493				8,617
Total assets		$	2,256,773			$	2,265,933
Liabilities and stockholders’ equity
Current liabilities:
Current portion of long-term debt		$	-			$	-
Accounts payable			2,804				2,147
Accrued expenses and other current liabilities			88,993				82,249
Fees payable to customers			63,589				38,379
Operating lease liabilities, current			11,121				11,070
Deferred revenue			302,216				267,882
Total current liabilities			468,723				401,727
Deferred tax liabilities, non-current			18,126				18,103
Long-term debt, net			138,000				208,000
Operating lease liabilities, non-current			26,790				19,712
Other liabilities, non-current			6,413				7,526
Total liabilities			658,052				655,068
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock, $0.0001 par value, 1,500,000,000 shares authorized at March 31, 2023 and December 31, 2022, respectively; 491,358,090 and 488,296,792 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively			49				49
Additional paid-in capital			2,591,042				2,571,424
Accumulated other comprehensive loss			(7,850	)			(8,731	)
Accumulated deficit			(984,520	)			(951,877	)
Total stockholders’ equity			1,598,721				1,610,865
Total liabilities and stockholders’ equity		$	2,256,773			$	2,265,933

 

See accompanying notes to the unaudited condensed consolidated financial statements

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CVENT HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

		Three Months Ended March 31,
		2023				2022
Revenue		$	166,205			$	137,356
Cost of revenue			60,691				56,200
Gross profit			105,514				81,156
Operating expenses:
Sales and marketing			44,960				40,091
Research and development			35,973				31,406
General and administrative			39,768				24,951
Intangible asset amortization, exclusive of amounts included in cost of revenue			11,713				12,154
Total operating expenses			132,414				108,602
Loss from operations			(26,900	)			(27,446	)
Interest expense			(2,647	)			(2,592	)
Amortization of deferred financing costs and debt discount			(158	)			(320	)
Other income, net			1,169				260
Loss before income taxes			(28,536	)			(30,098	)
Provision for income taxes			4,107				1,291
Net loss		$	(32,643	)		$	(31,389	)
Other comprehensive income:
Other comprehensive income			881				131
Comprehensive loss		$	(31,762	)		$	(31,258	)
Basic and diluted net loss per common share		$	(0.07	)		$	(0.07	)
Basic and diluted weighted-average common shares outstanding			488,983,183				481,144,118

 

See accompanying notes to the unaudited condensed consolidated financial statements

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CVENT HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)

 

		Common Stock								Amount								Accumulated
		Shares				Amount				Additional paid-in capital				Accumulated deficit				other comprehensive income / (loss)				Total stockholders’ equity
Balance as of December 31, 2022			488,296,792			$	49			$	2,571,424			$	(951,877	)		$	(8,731	)		$	1,610,865
Stock-based compensation expense			-				-				14,574				-				-				14,574
Net loss			-				-				-				(32,643	)			-				(32,643	)
Common stock issued under share-based compensation plans			3,061,298				-				5,044				-				-				5,044
Other comprehensive income			-				-				-				-				881				881
Balance as of March 31, 2023			491,358,090			$	49			$	2,591,042			$	(984,520	)		$	(7,850	)		$	1,598,721

 

		Common Stock								Amount								Accumulated
		Shares				Amount				Additional paid-in capital				Accumulated deficit				other comprehensive income / (loss)				Total stockholders’ equity
Balance as of December 31, 2021			481,121,695			$	48			$	2,483,761			$	(851,607	)		$	(2,746	)		$	1,629,456
Stock-based compensation expense			-				-				9,768				-				-				9,768
Net loss			-				-				-				(31,389	)			-				(31,389	)
Common stock issued under share-based compensation plans			144,701				-				443				-				-				443
Other comprehensive income			-				-				-				-				131				131
Balance as of March 31, 2022			481,266,396			$	48			$	2,493,972			$	(882,996	)		$	(2,615	)		$	1,608,409

 

See accompanying notes to the unaudited condensed consolidated financial statements

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CVENT HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

		Three Months Ended March 31,
		2023				2022
Operating activities:
Net loss		$	(32,643	)		$	(31,389	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			30,582				30,187
Amortization of the right-of-use assets			2,231				2,077
Allowance for expected credit losses, net			(462	)			279
Amortization of deferred financing costs and debt discount			158				320
Amortization of capitalized commission			8,924				7,948
Unrealized foreign currency transaction (gain)/loss			(1,020	)			287
Stock-based compensation			14,556				9,768
Change in deferred taxes			7				2
Change in operating assets and liabilities
Accounts receivable			23,932				18,968
Prepaid expenses and other assets			(17,840	)			(7,021	)
Capitalized commission, net			(13,700	)			(13,581	)
Accounts payable, accrued expenses and other liabilities			47,168				16,783
Operating lease liability			(3,158	)			(2,864	)
Deferred revenue			33,790				48,160
Net cash provided by operating activities			92,525				79,924
Investing activities:
Purchase of property and equipment			(2,356	)			(1,375	)
Capitalized software development costs			(12,725	)			(11,891	)
Purchase of investments			(56,051	)			(21,238	)
Maturities of investments			46,127				16,824
Net cash used in investing activities			(25,005	)			(17,680	)
Financing activities:
Principal repayments of revolving credit facility			(115,000	)			—
Proceeds from revolving credit facility			45,000				—
Proceeds from exercise of stock options			5,127				510
Net cash (used in) provided by financing activities			(64,873	)			510
Effect of exchange rate changes on cash, cash equivalents and restricted cash			2,185				(1,209	)
Change in cash, cash equivalents, and restricted cash			4,832				61,545
Cash, cash equivalents, and restricted cash, beginning of period			99,923				126,629
Cash, cash equivalents, and restricted cash, end of period		$	104,755			$	188,174
Supplemental cash flow information:
Interest paid		$	2,448			$	2,584
Income taxes paid		$	455			$	1,743
Supplemental disclosure of non-cash investing and financing activities:
Outstanding payments for purchase of property and equipment at period end		$	153			$	382
Outstanding payments for capitalized software development costs at period end		$	883			$	887

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

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CVENT HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business

Cvent Holding Corp. (together with its subsidiaries, the “Company”) is the indirect parent company of Cvent, Inc. (“Cvent”).

The Company provides a cloud-based platform of enterprise event marketing and management and hospitality solutions with capabilities for both sides of the meetings and events ecosystem: (i) for marketers and meeting and event planners, through its Event Cloud offering and (ii) for hoteliers and venues, through its Hospitality Cloud. The Company’s integrated event marketing and management platform powers the event lifecycle by enabling marketers and event planners to automate and streamline the process of creating, promoting, managing, and measuring events for organizations of all sizes. Cvent solutions empower customers to deliver and maximize engagement across their event programs helping to forge deeper relationships with attendees, build brand advocacy and increase demand for their products and services. It also helps organizations more efficiently manage critical event processes, control spend and reduce meetings costs. The Company’s Hospitality Cloud provides hoteliers and venues with an integrated platform that enables properties to increase group and business transient revenue through a combination of cloud-based software products and targeted advertising to organizations that run events while they are in the process of sourcing their events. Hospitality Cloud solutions also improve purchasing intelligence through innovative demand management and business intelligence. By connecting event organizers to venues, the Company powers an entire ecosystem that increases Cvent’s “stickiness” and drives sales of its software offerings across its Event and Hospitality Cloud businesses.

Agreement and Plan of Merger

On March 14, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Capstone Borrower, Inc. (“Capstone Parent”), and Capstone Merger Sub, Inc., a wholly owned subsidiary of Capstone Parent (“Merger Sub”). Capstone Parent and Merger Sub are affiliates of investment funds affiliated with or managed by affiliates of Blackstone Inc. Pursuant to the Merger Agreement and subject to the satisfaction of customary closing conditions, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Capstone Parent (the “Merger”). If the Merger is consummated, the Company’s common stock (the “Company Common Stock”) will be delisted from the Nasdaq Global Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
 

The Merger Agreement provides, among other things, that upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Company Common Stock that is issued and outstanding as of immediately prior to the Effective Time (other than any shares of Company Common Stock that may be held by the Company as treasury stock or that are owned by Capstone Parent, Merger Sub or any other subsidiaries thereof, or any shares of common stock as to which appraisal rights have been properly exercised in accordance with Delaware law), will be automatically cancelled, extinguished and converted into the right to receive $8.50 per share, without interest thereon.

In connection with the Merger, the Company expects to incur significant expenses. An estimate of those expenses cannot be made at this time. During the three months ended March 31, 2023, the company incurred $13.5 million of expenses related to the Merger, which are recorded as part of general and administrative expenses on the Company's condensed consolidated financial statements.

The closing of the proposed Merger is subject to certain conditions, including the adoption of the Merger Agreement by stockholders representing a majority of the outstanding shares of Company Common Stock and the receipt of applicable regulatory approvals. The proposed Merger is expected to close mid-year 2023.

Trends and Economic Conditions

Global events, such as recent geopolitical instability, inflation and the COVID-19 pandemic have created or contributed to uncertainty in macroeconomic conditions, including changes in interest rates, supply chain disruptions, labor shortages and increased labor costs, which, in turn, could decrease overall economic activity, hinder economic growth or cause a recession in the United States or in the global economy. Negative macroeconomic conditions may affect the businesses of the Company's clients, which could result in reduced demand for the Company's services or cancellations, increased demands for pricing accommodations or higher rates of delays in collection of, or losses on, the Company's accounts receivable, which could adversely affect its results of operations. If the Company is unable to offset any decrease in revenue by increasing sales to new or existing customers, or offset higher costs through price increases, its revenues may decline or grow at lower rates. The extent of the impact of ongoing macroeconomic conditions on the Company’s operational and financial performance is uncertain and will depend on political, social, economic and regulatory factors that are outside of the Company's control, including but not limited to the incidence and severity of additional COVID-19 virus variants and actions that may be taken by regulators and businesses (including customers) in response to macroeconomic uncertainty. The Company considered the impact of the current economic environment and COVID-19 on its estimates and assumptions and determined that there were no material adverse impacts on the consolidated financial statements as of March 31, 2023 and

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December 31, 2022 and for the three months ended March 31, 2023 and 2022, respectively. As events continue to evolve and additional information becomes available, the Company’s estimates and assumptions may change materially in future periods.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair statement of the financial position as of March 31, 2023, the results of operations for the three months ended March 31, 2023 and 2022, and cash flows for the three months ended March 31, 2023 and 2022. The condensed consolidated balance sheet at December 31, 2022 was derived from audited annual financial statements and does not contain all of the footnote disclosures from the annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Restricted Cash

Restricted cash represents amounts required to be held as collateral in a money market account for treasury management service agreements as well as payroll deductions from employees associated with the 2021 Employee Stock Purchase Plan (see Note 10). The Company held $2.5 million and $0.8 million of restricted cash as of March 31, 2023 and December 31, 2022, respectively.

The following table presents the Company’s cash, cash equivalents and restricted cash by category in the Company’s condensed consolidated balance sheets (in thousands):

 

		March 31, 2023				December 31, 2022
Cash and cash equivalents		$	102,220			$	99,108
Restricted cash			2,535				815
Cash, cash equivalents, and restricted cash		$	104,755			$	99,923

 

Revenue Recognition

The Company derives revenue from two primary sources: Event Cloud subscription-based solutions and Hospitality Cloud marketing and subscription-based solutions. Subscription services revenue consists primarily of fees to provide the Company’s customers with access to its cloud-based platform. Subscription service contracts do not provide customers with the right to take possession of the software, are non-cancellable, and do not contain rights of return. Hospitality Cloud marketing solutions primarily relate to digital advertising on the Company’s hosted venue sourcing networks. Revenue is recognized when control of these services is transferred to a customer. A time-elapsed method is used to measure progress for subscription contracts because control is transferred evenly over the contract term. For the three months ended March 31, 2023, the Company recognized approximately 81.1% of its revenue from services transferred to the customer over time, with the remaining 18.9% of revenue recognized at a point in time upon delivery, generally when an event occurred. The Company’s services are generally provided under annual and multi-year contracts with invoicing occurring in annual or quarterly installments at the beginning of each year, or quarter, as applicable, in the contract period. Revenue is presented net of sales and other taxes the Company collects on behalf of governmental authorities.

Certain contracts may include multiple distinct performance obligations which may consist of some or all of subscription services, marketing packages, and professional services. When an arrangement includes multiple performance obligations relating to SaaS subscriptions, which are concurrently delivered and have the same pattern of transfer to the customer (the services transfer to the customer ratably over the contract period), the entire contract value is recognized on a straight-line basis over the contract term. When an arrangement includes multiple performance obligations that do not have the same pattern of transfer to the customer, revenue is recognized at each performance obligation’s respective standalone selling price (“SSP”), when the performance obligations are satisfied. The SSP is the price at which the Company would sell a promised good or service separately to a customer. The Company estimates SSP based on internal margin analysis, competitor data, and other industry standards for SaaS-based companies.

Segment and Geographic Data

 

Net Loss per Share of Common Stock

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings per share adjusts basic earnings per share for the potentially dilutive impact of stock options. As the Company has reported losses for all periods presented, all potentially dilutive securities, including stock options, are antidilutive and accordingly not considered, therefore basic net loss per share equals diluted net loss per share.

For the three months ended March 31, 2023 and 2022, 48,782,589 and 55,354,536 stock options, respectively, were excluded from the computation of diluted net loss per share of common stock because including them would have been antidilutive.

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Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates in one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.

Property and equipment outside North America geographic locations represented 32.9% and 35.5% of total property and equipment, net as of March 31, 2023 and December 31, 2022, respectively, and are located primarily in India. The composition of the Company’s property and equipment between North America and locations outside of North America is set forth below (in thousands):

 

		March 31, 2023				December 31, 2022
North America		$	9,785			$	9,829
Outside North America			4,792				5,421
Total		$	14,577			$	15,250

3. Revenue

Disaggregation of Revenue

The Company derives revenue from two primary sources: Event Cloud subscription-based solutions and Hospitality Cloud marketing and subscription-based solutions. They are principally generated from North America, which comprises the United States and Canada, with Canada representing 2.3% and 2.4% of total revenue for the three months ended March 31, 2023 and 2022, respectively. Revenue from sources outside North America represented 13.7% and 12.0% of total revenue for three months ended March 31, 2023 and 2022, respectively. The Company’s disaggregation of revenue by primary geographic region is as follows (in thousands):

 

		Three Months Ended March 31,
		2023				2022
North America		$	143,364			$	120,823
Outside North America			22,841				16,533
Revenue		$	166,205			$	137,356

 

The Company’s disaggregation of revenue by major business activity is as follows (in thousands):

 

		Three Months Ended March 31,
		2023				2022
Event Cloud		$	114,686			$	94,988
Hospitality Cloud			51,519				42,368
Revenue		$	166,205			$	137,356

 

Deferred Revenue

Deferred revenue represents billings under signed contracts before the related products or services are transferred to customers. The portion of deferred revenue that is expected to be recognized as revenue during the subsequent 12-month period is recorded as deferred revenue in current liabilities and the remaining portion is recorded as other liabilities, non-current, which is not material. Deferred revenue was $302.2 million and $267.9 million as of March 31, 2023 and December 31, 2022, respectively. During the three

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months ended March 31, 2023, the Company recognized $108.5 million of revenue that was included in the deferred revenue balance at the beginning of 2023.

Remaining Performance Obligations

For multiple-year agreements for either Event Cloud or Hospitality Cloud, the Company typically invoices the amount for the first year of the contract at signing followed by subsequent annual invoices at the anniversary of each year. Since the Company bills most of its customers in advance, there can be amounts that contractually the Company is not yet able to invoice. Until such time as these amounts are invoiced or recognized in revenue, they are considered by the Company to be unbilled contract value, and together with deferred revenue, remaining performance obligations. As of March 31, 2023 and December 31, 2022, the Company's total current deferred revenue was $302.2 million and $267.9 million, respectively, which amount does not include unbilled contract value for contracts of approximately $532.1 million and $539.7 million, respectively. The Company expects that the amount of unbilled contract value relative to the total value of our contracts will change from year to year for several reasons, including the amount of cash collected early in the contract term, the specific timing and duration of customer agreements, varying invoicing cycles of agreements, the specific timing of customer renewals, changes in customer financial circumstances and foreign currency fluctuations. The Company expects to recognize 71.5% of our remaining performance obligations as revenue over the subsequent 24 months, and the remainder thereafter.

Sales Commission

The current portion of capitalized commissions, net was $27.5 million and $26.7 million and the noncurrent portion of capitalized commissions, net was $23.8 million and $23.5 million as of March 31, 2023 and December 31, 2022, respectively. During the three months ended March 31, 2023 and 2022, $8.9 million and $7.9 million of capitalized commissions, respectively, were amortized to sales and marketing expense in the accompanying condensed consolidated statements of operations and comprehensive loss.

Allowance for Expected Credit Losses

The change in the Company’s allowance for expected credit losses is as follows (in thousands):

 

		March 31, 2023				December 31, 2022
Allowance for expected credit losses, beginning of period		$	2,644			$	4,547
Credit loss (recovery)/expense			(461	)			1,316
Write-offs and adjustments			(336	)			(3,219	)
Allowance for expected credit losses, end of period		$	1,847			$	2,644

 

4. Property and Equipment

Property and equipment are summarized as follows (in thousands):

 

		March 31,				December 31,
		2023				2022
Computer equipment, purchased software and software developed for internal-use		$	20,100			$	18,190
Leasehold improvements			21,954				21,906
Furniture and equipment			8,213				8,048
Rentable onsite solutions equipment			6,531				6,531
Other			349				1,231
Property and equipment, gross			57,147				55,906
Less accumulated depreciation			(42,570	)			(40,656	)
Property and equipment, net		$	14,577			$	15,250

 

Depreciation of property and equipment was $1.8 million and $2.0 million for the three months ended March 31, 2023 and 2022, respectively.

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5. Capitalized Software Development Costs

Capitalized software for the Company’s software platforms was developed either internally or was acquired through acquisitions. Capitalized software development costs and acquired software technology are summarized as follows (in thousands):

 

		March 31, 2023				December 31, 2022
Capitalized software development costs, gross		$	398,644			$	385,717
Less, accumulated amortization			(305,885	)			(288,758	)
Capitalized software development costs, net		$	92,759			$	96,959

 

Amortization of capitalized software development costs, recorded as cost of revenue, was $17.0 million and $16.0 million during the three months ended March 31, 2023 and 2022, respectively.

 

6. Goodwill and Intangible Assets

 

The change in carrying amount of goodwill is summarized as follows (in thousands):

 

Goodwill as of January 1, 2023		$	1,620,312
Foreign currency translation adjustments			67
Measurement period adjustments			(109	)
Goodwill as of March 31, 2023		$	1,620,270

 

Intangible assets are amortized based on a pattern in which the asset’s economic benefits are consumed, or if not reliably determined, amortized on a straight-line basis over their estimated useful lives between two and fifteen years.

 

Intangible assets consisted of the following as of March 31, 2023 (in thousands):

 

		Intangible Assets, Gross				Accumulated Amortization				Intangible Assets, Net				Weighted average remaining life as of March 31, 2023
Customer relationships		$	433,832			$	(302,540	)		$	131,292			3.2 years
Trademarks			82,235				(52,513	)			29,722			3.5 years
Intangible assets subject to amortization			516,067				(355,053	)			161,014
Indefinite-lived assets			62				-				62
Intangible assets, net		$	516,129			$	(355,053	)		$	161,076

 

Intangible assets consisted of the following as of December 31, 2022 (in thousands):

 

		Intangible Assets, Gross				Accumulated Amortization				Intangible Assets, Net				Weighted average remaining life as of December 31, 2022
Customer relationships		$	433,825			$	(292,935	)		$	140,890			3.4 years
Trademarks			82,234				(50,405	)			31,829			3.8 years
Intangible assets subject to amortization			516,059				(343,340	)			172,719
Indefinite-lived assets			62				-				62
Intangible assets, net		$	516,121			$	(343,340	)		$	172,781

 

The total amount of amortization expense related to intangible assets, recorded as intangible asset amortization, exclusive of amounts included in cost of revenue, was $11.7 million and $12.2 million during the three months ended March 31, 2023 and 2022, respectively. The intangible asset balance remaining as of March 31, 2023 will be amortized into expense in future years as follows (in thousands):

 

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2023 (remaining nine months)		$	35,017
2024			45,164
2025			39,322
2026			35,540
2027			3,997
2028 and thereafter			1,974
Total amortization expense related to acquired intangible assets		$	161,014

 

7. Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of accrued compensation, such as bonuses, commissions, and payroll taxes, sales and other tax liabilities. The following table summarizes the Company’s accrued expenses and other current liabilities as of the dates indicated (in thousands):

 

		March 31, 2023				December 31, 2022
Accrued compensation		$	39,482			$	49,219
Sales and other tax liabilities			13,960				11,877
Other			35,551				21,153
Accrued expenses and other current liabilities		$	88,993			$	82,249

 

8. Income Taxes

 

The effective tax rate for the three months ended March 31, 2023 and 2022 was (14.39%) and (4.29%), respectively. The difference between the Company’s effective tax rates for the 2023 and 2022 periods and the U.S. statutory tax rate of 21% related primarily to U.S. taxes on foreign earnings, foreign tax rate differentials, and valuation allowance.

 

The Company evaluates its tax positions on a quarterly basis. There were no material changes to the Company’s uncertain tax positions, interest, or penalties during the three months ended March 31, 2023 and 2022.

9. Stockholders’ Equity

The Company’s Certificate of Incorporation authorizes 1,500,000,000 shares of common stock and 1,000,000 of preferred stock, each $0.0001 par value per share. As of March 31, 2023 and 2022, 491,358,090 and 481,266,396 shares of common stock were outstanding, respectively, and no shares of preferred stock were outstanding. The holders of the common stock are entitled to dividends only when declared by the Board of Directors ratably on a per share basis. Each share of common stock has one vote under the Company’s Certificate of Incorporation.

Stock-based Compensation

The weighted-average assumptions used in the valuation of stock option awards granted under the Black-Scholes model are summarized as follows:

 

		Three Months Ended March 31,
		2023		2022
Dividend yield		N/A			0.0	%
Volatility		N/A			45.30	%
Expected term (years)		N/A		5.92
Risk-free interest rate		N/A			1.85	%

 

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Stock Option Activity Rollforward

 

Stock options		Number of shares subject to option				Weighted average exercise price per share				Weighted average remaining contractual term (years)				Aggregate intrinsic value (in thousands)				Unrecognized compensation expense (in thousands)
Balance as of December 31, 2022			50,013,426			$	4.45				5.61			$	58,326			$	19,997
Granted			-				-
Exercised			(1,181,835	)			4.35
Forfeited			(49,002	)			7.83
Expired			-				-
Balance as of March 31, 2023			48,782,589			$	4.45				5.35			$	190,657			$	13,043
Vested and exercisable as of December 31, 2022			35,321,479			$	3.85				4.42			$	54,842
Vested and exercisable as of March 31, 2023			43,963,138			$	4.11				4.97			$	186,839

The Company did not grant any options during the three months ended March 31, 2023.

The total intrinsic value of options that were exercised during the three months ended March 31, 2023 was $3.9 million. During the three months ended March 31, 2023, 1,181,835 options were exercised.

As of March 31, 2023, the $13.0 million in unrecognized compensation cost related to stock options will be recognized over a weighted-average period of 1.83 years.

The following table summarizes RSU activity for the three months ended March 31, 2023.

 

Restricted Stock Units		Number of shares				Weighted Average Grant Date Fair Value
Balance at December 31, 2022			13,685,748			$	7.56
Granted			-
Vested			(1,879,277	)			7.28
Forfeited			(169,765	)			7.74
Balance at March 31, 2023			11,636,706			$	7.61

The Company did not grant any RSUs during the three months ended March 31, 2023.

As of March 31, 2023, $73.2 million in unrecognized compensation cost related to RSUs will be recognized over a weighted-average period of 1.88 years.

Stock-based Compensation Expense

Stock-based compensation expense for equity and liability classified awards is recognized using the straight-line attribution method. In addition, the Company ensures that it has fully recognized expense for at least the option and RSU tranches that have fully vested in the period in which they vest.

Stock-based compensation expense is summarized as follows (in thousands):

 

		Three Months Ended March 31,
		2023				2022
Cost of revenue		$	1,231			$	590
Sales and marketing			4,938				2,980
Research and development			3,829				2,588
General and administrative			4,557				3,610
Total stock-based compensation		$	14,555			$	9,768

 

2021 Employee Stock Purchase Plan

 

The Cvent Holding Corp. 2021 Employee Stock Purchase Plan (the “ESPP”) permits employees to purchase common stock through payroll deductions during biannual offering periods, or during such other offering periods as the Board of Directors may determine. Participants may authorize payroll deductions of a specific percentage of compensation not to exceed 15%, with such deductions being accumulated for biannual purchase periods beginning on the first business day of each offering period and ending on the last business day of each offering period.

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The ESPP provides that 11,500,000 shares of common stock may be made available for sale under the ESPP (the “ESPP Reserve”). The ESPP Reserve automatically increases on each January 1 of each year, by an amount equal to 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number as may be determined by the Board of Directors. The Board of Directors waived the automatic increase that would have taken effect on January 1, 2022 under the ESPP. Under the terms of the ESPP, the purchase price per share will equal 85% of the fair market value of a share of common stock on the first day of an offering period or the last date of an offering period, whichever is lower, although the Board of Directors has discretion to change the purchase price with respect to future offering periods. An employee may not purchase more than $25,000 of stock during any calendar year. Payroll deductions from employees related to the ESPP are classified as restricted cash on the condensed consolidated balance sheets.

 

At March 31, 2023, there were 15,060,931 shares available for issuance under the ESPP. As of March 31, 2023, the Company had $0.2 million of unrecognized compensation cost related to the offering period beginning on December 1, 2022. The last date for the current offering period is May 31, 2023.

10. Debt

The outstanding principal amount and related unamortized debt issuance costs, net, are summarized as follows (in thousands):

 

		March 31, 2023				December 31, 2022
Senior Secured Revolving Credit Facility		$	138,000			$	208,000
Less: unamortized deferred financing costs			(2,609	)			(2,766	)
Total principal amount and related unamortized debt issuance costs, net		$	135,391			$	205,234

Senior Secured Revolving Credit Facility

On May 27, 2022, Cvent, as borrower, entered into a five-year $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) pursuant to the Credit Agreement, dated as of May 27, 2022, by and among Cvent, Holdings (as defined below) and the other loan parties party thereto, the lenders party thereto, and PNC Bank, National Association, as administrative agent (the “Credit Agreement”).

A portion of the Revolving Credit Facility, not to exceed $35.0 million, will be available for the issuance of letters of credit, and Cvent has the option to increase borrowing capacity under the Revolving Credit Facility or to incur incremental term loans, subject to certain provisions outlined in the Credit Agreement. The Revolving Credit Facility has a maturity date of May 27, 2027.

The interest rate on outstanding borrowings under the Revolving Credit Facility was 6.47% as of March 31, 2023. The carrying value of variable rate debt approximates fair value due to the short-term nature of the Company's interest rate elections.

As of March 31, 2023, the Company had $138.0 million outstanding borrowings under the Revolving Credit Facility. The Company had $362.0 million available for borrowing under the Revolving Credit Facility based on the outstanding balance as of March 31, 2023. The Company is in compliance with all covenants outlined in the Credit Agreement as of March 31, 2023 and currently has no required prepayments with respect to borrowings made under the Revolving Credit Facility prior to the maturity date of May 27, 2027.

 

11. Leases

 

The Company enters into lease arrangements for office facilities under non-cancellable operating leases with various expiration dates.

 

As of March 31, 2023, the Company’s right-of-use (“ROU”) assets and total operating lease liabilities were $28.5 million and $37.9 million, respectively. As of December 31, 2022, the Company’s ROU assets and total operating lease liabilities were $20.4 million and $30.8 million, respectively. During the three months ended March 31, 2023, $10.1 million of ROU assets were obtained in exchange for new operating lease liabilities related to a new office lease in Australia as well as the renewal and expansion of certain office leases in India. During the three months ended March 31, 2022, no ROU assets were obtained in exchange for new operating lease liabilities.

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12. Commitments and Contingencies

Legal Proceedings, Regulatory Matters and Other Contingencies

The Company is, and from time to time may become, involved in legal proceedings, regulatory matters or other contingencies in the ordinary course of its business. In its opinion, the Company is not presently involved in any legal proceeding, regulatory matter or other contingency that, if determined adversely to it, would individually or in the aggregate have a material adverse effect on its business, operating results, financial condition or cash flows.

Purchase Commitments

In the ordinary course of business, the Company enters into various purchase commitments primarily related to third-party cloud hosting, technology operations and data services. Total non-cancellable purchase commitments as of March 31, 2023 were approximately $31.1 million expiring at various dates through 2026.

13. Related-Party Transactions

The Company did not incur any consulting fees from Vista Equity Partners Management, LLC (“Vista”) during the three months ended March 31, 2023 and incurred less than $0.1 million for consulting fees from Vista the three months ended March 31, 2022, which is recorded in general and administrative expenses. As of March 31, 2023 and December 31, 2022, respectively, less than $0.1 million was included in accrued expenses in the condensed consolidated balance sheet.

The Company also entered into transactions during the three months ended March 31, 2023 and 2022 to sell services to other Vista controlled entities. The Company recognized $0.4 million and $0.2 million in revenue related to these transactions for the three months ended March 31, 2023 and 2022, respectively. Cvent also purchased software subscription and other services from Vista affiliates. The Company recognized $0.7 million and $0.6 million in expenses related to these transactions for the three months ended March 31, 2023 and 2022, respectively.

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report, including, statements that reflect our current views with respect to future events and financial performance, business strategies, and expectations for our business; statements regarding our or our management’s expectations, hopes, beliefs, intentions, plans or strategies regarding the future and statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “can,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “ongoing,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would,” “will,” “approximately,” “likely,” “shall” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

In this Quarterly Report, the terms the “Company,” “Cvent,” “we,” “us,” and “our” refer to Cvent Holding Corp. and its subsidiaries, unless the context indicates otherwise.

These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to:

 

 

•

our proposed acquisition by an affiliate of Blackstone Capital Partners VIII L.P. (“Blackstone”), including the occurrence of any event, change or other circumstance that could give rise to our right or the right of Blackstone or both of us to terminate the Merger Agreement, including circumstances requiring us to pay Blackstone a termination fee pursuant to the Merger Agreement;

•

the risk that the acquisition may not close in the anticipated timeframe or at all due to one or more of the closing conditions to the acquisition not being satisfied or, to the extent permitted by applicable law, waived, including due to the failure to obtain applicable regulatory approvals or the approval of our stockholders in a timely manner or otherwise;

•

the risk that the proposed acquisition disrupts our current plans and operations;

•

the risk that there may be unexpected costs, charges or expenses resulting from the proposed acquisition;

•

risks related to disruption of management's time and attention from ongoing business operations due to the proposed acquisition;

•

the risk that any announcements related to the proposed acquisition could have adverse effects on our ability to retain and hire key personnel and to maintain relationships with business partners, suppliers and customers and on our operating results and business generally;

•

the risk that certain restrictions during the pendency of the proposed acquisition may impact our ability to pursue certain business opportunities or strategic transactions;

•

the risk of litigation and/or regulatory actions related to the proposed acquisition, including the effects of any outcomes related thereto;

•

the impact of the global COVID-19 pandemic and other geopolitical, macroeconomic and market conditions on our industry, business and customers, and our susceptibility to declines or disruptions in the demand for meetings and events;

•

our ability to sell additional solutions to our customers;

•

our ability to retain our existing customer base and to attract and retain new customers;

•

our ability to maintain and expand relationships with hotels and venues;

•

the impact of a data breach or other security incident involving our or our customers’ confidential or personal information stored in our or our third-party service providers’ systems;

•

risks associated with indemnity provisions in some of our agreements;

•

the competitiveness of the market in which we operate;

•

the impact of a disruption of our operations, infrastructure or systems, or disruption of the operations, infrastructure or systems of the third parties on which we rely;

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•

our ability to maintain access to third-party licenses and comply with our obligations under license or technology agreements with third parties;

•

our ability to expand our sales force;

•

risks and uncertainties associated with potential and completed acquisitions and divestitures;

•

our ability to operate offices located outside of the United States, including India;

•

the impact of declines or disruptions in the demand for events and meetings;

•

the impact of any significant reduction in spending by advertisers on our platforms;

•

our history of losses and ability to achieve profitability in the future;

•

our ability to develop, introduce and market new and enhanced versions of our solutions to meet customer needs and expectations;

•

the impact of delays in product and service development, including delays beyond our control;

•

our ability to fund our research and development efforts;

•

the impact of our lengthy and unpredictable sales cycle;

•

our ability to retain, hire and integrate skilled personnel, including our senior management team;

•

the fluctuations due to seasonality of our sales, billings, cash flow, operating expenses and operating results;

•

our ability to offer high-quality customer support;

•

the impact of contractual disputes with our customers;

•

our ability to maintain, enhance and protect our brand;

•

our ability to maintain and develop the compatibility of our solutions with third-party applications;

•

risks related to incorrect or improper use of our solutions or our failure to properly train customers on how to utilize our solutions;

•

the impact of our reliance on data provided by third parties;

•

risks associated with privacy concerns and end users’ acceptance of Internet behavior tracking;

•

our ability to maintain our corporate culture as we grow;

•

our ability to comply with legal requirements, contractual obligations and industry standards relating to security, data protection and privacy;

•

our ability to comply with the rules and regulations adopted by the payment card networks;

•

our ability to obtain, maintain, protect and enforce our intellectual property and proprietary rights;

•

risks associated with lawsuits by third parties for alleged infringement, misappropriation or other violation of their intellectual property and proprietary rights;

•

risks associated with our use of open source software in certain of our solutions;

•

risks associated with changes in tax laws;

•

the impact of third-party or government claims, including regulatory claims or claims regarding the content and advertising distributed by our customers through our service;

•

risks associated with changes in financial accounting standards;

•

risks associated with fluctuations in currency exchange rates;

•

our ability to raise additional capital or generate cash flows necessary to expand our operations, consummate acquisitions and invest in new technologies in the future;

•

our ability to maintain proper and effective internal control over financial reporting;

•

changes in applicable laws or regulations;

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•

other factors discussed in Part I, Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 and included elsewhere in this Quarterly Report; and

•

other factors beyond our control.

We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report may not, in fact, occur. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors. Accordingly, you should not place undue reliance on those statements. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. You should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

 

The Company was founded in 1999 in the Washington, D.C. metro area as a provider of event registration software to meeting and event organizers. Since that time, we have continually innovated to develop a comprehensive platform of event marketing and management solutions and hospitality solutions. We believe that since inception, we have demonstrated an entrepreneurial spirit, culture of teamwork and sense of resilience, particularly in moments of crisis. This is best evidenced by the Company’s continued progress and innovation in the midst of challenges like the recessions of 2001 and 2008 and the global COVID-19 pandemic.

 

The Company is a leading cloud-based platform of enterprise event marketing and management and hospitality solutions. We power the marketing and management of meetings and events through our Event Cloud and Hospitality Cloud solutions. Our Event Cloud consists of tools to enable event organizers to manage the entire event lifecycle and deliver engaging experiences across every type of event and all event formats: in-person, virtual and hybrid. Event Cloud serves as the system of record for event and engagement data collected across an organization’s total event program, which comprises every internal and external event an organization hosts or attends (its “Total Event Program”). Our Hospitality Cloud offers a marketplace that connects event organizers looking for the appropriate event space for their in-person and hybrid events with hoteliers and venue operators through a vertical search engine built on our proprietary database of detailed event space information. In addition, our Hospitality Cloud provides marketing and software solutions that hotels and venues leverage to digitally showcase their event space to attract valuable leads and grow their businesses. This combination of our Event Cloud and Hospitality Cloud offerings results in an integrated solution.

Proposed Merger

On March 14, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Capstone Borrower, Inc. (“Capstone Parent”), and Capstone Merger Sub, Inc., a wholly owned subsidiary of Capstone Parent (“Merger Sub”). Capstone Parent and Merger Sub are affiliates of investment funds affiliated with or managed by affiliates of Blackstone Inc. Pursuant to the Merger Agreement and subject to the satisfaction of customary closing conditions, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Capstone Parent (the “Merger”). If the Merger is consummated, the Company’s common stock (the “Company Common Stock”) will be delisted from the Nasdaq Global Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

The closing of the proposed Merger is subject to certain conditions, including the adoption of the Merger Agreement by stockholders representing a majority of the outstanding shares of Company Common Stock and the receipt of applicable regulatory approvals. The proposed Merger is expected to close mid-year 2023.

Trends and Economic Conditions

 

Global events, such as recent geopolitical instability, inflation and the COVID-19 pandemic, have created or contributed to uncertainty in macroeconomic conditions, including changes in interest rates, supply chain disruptions, labor shortages and increased labor costs, which, in turn, could decrease overall economic activity, hinder economic growth or cause a recession in the United States or in the global economy. Negative macroeconomic conditions may affect our clients’ businesses, which could result in reduced demand for our services or cancellations, increased demands for pricing accommodations or higher rates of delays in collection of, or losses on, our accounts receivable, which could adversely affect our results of operations. If we are unable to offset any decrease in revenue by increasing sales to new or existing customers, or otherwise offset higher costs through price increases, our revenues may decline or grow at lower rates. The extent of the impact of ongoing macroeconomic conditions on our operational and financial performance is uncertain and will depend on political, social, economic and regulatory factors that are outside of our control, including but not limited to the incidence and severity of additional COVID-19 virus variants and actions that may be taken by regulators and businesses (including customers) in response to macroeconomic uncertainty. We considered the impact of the current economic environment and COVID-19 on our estimates and assumptions and determined that there were no material adverse impacts on the consolidated financial statements as of March 31, 2023. As events continue to evolve and additional information becomes available, our estimates and assumptions may change materially in future periods.

 

Key Business Metric

 

In addition to our GAAP financial information, we review the following key business metric to measure our performance, identify trends, formulate business plans and make strategic decisions.

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Net Dollar Retention Rate

 

To evaluate the efficacy of our land and expand model, we examine the rate at which our customers increase their spend with us for our solutions. Our net dollar retention rate measures our ability to retain and increase spend across our existing customer base through expanded use of our platform, offset by customers who choose to stop using our solutions or spend less with us.

 

We calculate our net dollar retention rate as a quotient of the following:

•

Denominator: Revenue from customers whose revenue existed in the twelve months ending on the day twelve months prior to the date as of which the retention rate is being reported.

•

Numerator: Revenue in the last twelve months from the customers whose revenue is reflected in the denominator.

 

In the Event Cloud, we define a customer as a party who has entered into an active subscription contract with us. The majority of our customers are parties who are separate organizations. In certain instances, separate business units of an organization that have each entered into separate subscription agreements with us are considered separate customers. In the Hospitality Cloud, we define a customer as an entity with an active account with the Company, where the customer pays for the account or the account has been paid for by the customer’s parent company. For example, a corporate brand’s individual hotel properties whose accounts are paid for by that property’s corporate brand would be considered separate customers.

 

The calculation excludes transactional revenue associated with our Cvent CONNECT client conference and revenue associated with acquisitions whereby client revenue is not available. This revenue comprised 1.7% and 3.6% of revenue for three months ended March 31, 2023 and 2022, respectively.

 

We believe our ability to not only retain, but upsell and cross-sell additional features and products to, our existing customers will continue to support our net dollar retention rate. As of March 31, 2023 and 2022, our net dollar retention rate was 115.1% and 108.7%, respectively. The year-over-year increase in our net dollar retention rate is primarily due to the lessening impact of the global COVID-19 pandemic in 2022 and 2023 on both the Event Cloud and Hospitality Cloud, resulting in increased spend on products supporting in-person events, in addition to the adoption of Attendee Hub, our solution for ongoing engagement and virtual events. With in-person meetings and events continuing to quickly return, our net dollar retention rate currently exceeds pre-pandemic levels. In the near-term, we believe our net dollar retention rate will return to pre-pandemic levels as the rate of growth of in-person meetings and events continues to normalize. Longer-term, we believe our net dollar retention rate may exceed pre-pandemic levels as a result of the market opportunity created by virtual and hybrid events and the accelerated digitization of the meetings and events industry.

 

Our net dollar retention rate may fluctuate as a result of a number of factors, including the growing level of our revenue base, the level of penetration within our customer base, expansion of products and features, our ability to retain our customers and our ability to upsell and cross-sell to our customers. Our calculation of net dollar retention rate may differ from similarly titled metrics presented by other companies.

 

Components of Operating Results

 

Revenue

 

We generate revenue from two primary sources: Event Cloud subscription-based solutions and Hospitality Cloud marketing-based and subscription-based solutions. Subscription-based solution revenue consists primarily of fees to provide our customers with access to our cloud-based software platform. Marketing-based solution revenue consists primarily of fees for digital advertising on the Cvent Supplier Network (“CSN”) or one of our other online advertising platforms.

 

Event Cloud

 

We generate the majority of our Event Cloud revenue from subscriptions for our event marketing and management software solution. Subscription revenue is driven primarily by the number of registrations purchased and the number and complexity of mobile applications, onsite events and virtual events purchased in addition to additional modules that enhance the functionality of the software solution. In some cases, the subscription price is based on the number of subscriptions being purchased by the customer.

 

The terms of our Event Cloud contracts are typically non-cancellable, have annual or multi-year terms, and are billed in advance on an annual or quarterly basis, as applicable. In the case of multi-year agreements, the agreement sometimes includes annual price increases over the contract term. Our agreements are sum-certain and not pay-as-you-go. Generally, if a customer exceeds their purchased number of registrations, the customer will incur an overage fee. We recognize revenue associated with Event Cloud

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subscription agreements ratably over the term of the contract. Certain revenue associated with Onsite Solutions and Attendee Hub products is recognized at a point in time as the services are performed and the performance obligations are satisfied.

 

Hospitality Cloud

 

We generate our Hospitality Cloud revenue from marketing and subscription-based software solutions. Marketing solutions revenue is primarily driven by the number of advertisements purchased on CSN. The advertisement price is primarily determined by the term, targeted geography, market tier, number and prominence of the advertising placement. Subscription revenue is driven primarily by the number of licenses purchased for our lead scoring solution to prioritize group RFPs, three-dimensional hotel tours, event diagramming to collaborate with event organizers on designing optimal event layouts and viewing three-dimensional renderings, room block management to enable event attendees to reserve hotel rooms, business transient solutions and business intelligence solutions to benchmark against internal and targeted competitive metrics. In some cases, the subscription price is based on the number of subscriptions being purchased by the customer.

 

The terms of our subscription and marketing contracts are typically non-cancellable, annual or multi-year terms, and are typically billed in advance on an annual or quarterly basis, as applicable. In the case of multi-year agreements, the agreement sometimes includes annual price increases over the contract term. Our agreements are typically sum-certain and not based on usage. We recognize revenue associated with these agreements ratably over the term of the subscription or advertising period. For both Event Cloud and Hospitality Cloud, amounts that have been contractually invoiced are initially recorded as deferred revenue and are recognized as revenue ratably over the subscription or advertising period. We refer to contractual amounts that have not been invoiced as unbilled contract value, and together with deferred revenue, remaining performance obligations. Unbilled contract value is not reflected in our consolidated financial statements. See “Key Factors Affecting Our Performance —Seasonality” included in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022 for the effects of seasonality on our Hospitality Cloud revenue.

 

For multi-year agreements for either Event Cloud or Hospitality Cloud solutions, we typically invoice the amount for the first year of the contract at signing, followed by subsequent annual invoices at the anniversary of each year. Since we bill most of our customers in advance, there can be amounts that we have not yet been contractually able to invoice. Until such time as these amounts are invoiced or recognized in revenue, they are considered by us to be unbilled contract value, and together with deferred revenue, remaining performance obligations. As of March 31, 2023 and December 31, 2022 our total current deferred revenue was $302.2 million and $267.9 million, which amounts do not include unbilled contract value for contracts not yet billed of $532.1 million and $539.7 million, respectively. We expect that the amount of unbilled contract value relative to the total value of our contracts will change from year to year for several reasons, including the amount of cash collected early in the contract term, the specific timing and duration of customer agreements, varying invoicing cycles of agreements, the specific timing of customer renewals, changes in customer financial circumstances and foreign currency fluctuations. We expect to recognize approximately 71.5% of our remaining performance obligations as revenue over the subsequent 24 months, and the remainder thereafter.

 

Cost of Revenue

 

Cost of revenue primarily consists of employee-related expenses, such as salaries, benefits, bonuses and stock-based compensation, related to providing support and hosting our solutions, costs of cloud-based data center capacity, software license fees, costs to support our onsite, virtual and hybrid solutions, interchange fees related to merchant services and amortization expense associated with capitalized software. In addition, we allocate a portion of overhead, such as rent and depreciation and amortization to cost of revenue based on headcount.

 

Although we break out revenue by solution, we do not track or manage the business by cost of revenue by solution. Rather, we manage cost of revenue by type of direct cost, and a significant portion of these direct costs are shared costs to support both Event Cloud and Hospitality Cloud solutions. This is consistent with our approach to management of the business as one comprehensive solution for the entire event management lifecycle.

 

We are invested in our customers’ success and as such, we will continue to invest in providing support, expanding our capacity to support our growth and developing new features to support virtual, hybrid and in-person events and enhance our existing products, which in the near-term is expected to result in higher cost of revenue in absolute dollars.

 

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Gross Profit and Gross Margin

 

Gross profit is total revenue less total cost of revenue. Gross margin is gross profit expressed as a percentage of total revenue. We expect that our gross margin may fluctuate from period to period as a result of seasonality related to our onsite, virtual and hybrid solutions and merchant services products in the near-term, and additional costs associated with potential future acquisitions.

 

Operating Expenses

 

Our operating expenses include selling and marketing expenses, research and development expenses, general and administrative expenses and intangible asset amortization, exclusive of amounts included in cost of revenue.

 

Sales and Marketing

 

Sales and marketing expenses primarily consist of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. We capitalize commissions when they are earned by staff, which is when the customer contract is signed. We amortize capitalized commissions over the average historic customer contract life. In addition to staff costs, our cost of marketing includes product marketing and other brand-building and lead generation tactics such as webinars, trade shows, product seminars, content marketing, digital marketing, third-party content distribution and our annual client conference, Cvent CONNECT. In addition, we also allocate a portion of overhead, such as rent and depreciation to sales and marketing based on headcount.

 

We intend to continue to invest in sales and marketing and expect expenses to increase in absolute dollars in the near-term as we continue to expand our business both domestically and internationally and take advantage of the growing need for virtual and hybrid events. Although we expect sales and marketing expenses to continue to be among the most significant components of our operating expenses, we expect sales and marketing expenses as a percentage of revenue to decrease in the near-term.

 

Research and Development

 

Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation and the cost of third-party contractors. Research and development expenses, other than software development costs that qualify for capitalization, are expensed as incurred. In addition, we allocate a portion of overhead, such as rent and depreciation to research and development based on headcount.

 

With the exception of software developed by companies we have acquired, we maintain a unified software code base for our entire platform, which we believe improves the efficiency of our research and development activities. We expect research and development expenses to increase in absolute dollars in the near-term as we continue to expand our product offerings, including our virtual and hybrid event functionality, and integrate and support potential future acquired businesses and technologies. However, we expect research and development expenses as a percentage of revenue to decrease in the near-term.

 

General and Administrative

 

General and administrative expenses consist primarily of personnel and related expenses for administrative, internal information technology operations, finance, legal, corporate development, strategy and human resource staff, including salaries, benefits, bonuses and stock-based compensation, as well as professional fees, insurance premiums and other corporate expenses, including expenses associated with the Merger. In addition, we allocate a portion of overhead, such as rent and depreciation to general and administrative based on headcount.

 

We expect our general and administrative expenses to increase in absolute dollars in the near-term, primarily due to incremental expenses in connection with the Merger.

 

Intangible Asset Amortization, Exclusive of Amounts Included in Cost of Revenue

 

Intangible asset amortization, exclusive of amounts included in cost of revenue, consists entirely of amortization expenses related to acquired customer relationship and trademark intangible assets. This line item excludes intangible asset amortization related to cost of revenue, which is defined as acquired developed technology and capitalized software intangible asset amortization.

 

We expect to continue to pursue strategic acquisition opportunities, subject to any restrictions under the Merger Agreement, and if successful, we expect that our intangible asset amortization expenses will increase in absolute dollars.

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Other

 

Our other income/expense items include interest expense, amortization of deferred financing costs and debt discount and other income, net.

 

Interest Expense

 

Interest expense relates primarily to interest payments on our outstanding borrowings under our credit facilities as further described in Note 10. “Debt” to the consolidated financial statements included in Part I, Item 1 of this Quarterly Report. As of March 31, 2023, we had outstanding borrowings of $138.0 million under our five-year, $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”).

 

Amortization of Deferred Financing Costs and Debt Discount

 

Amortization of deferred financing costs and debt discount consists of the amortization of up-front fees paid at the inception of our credit facilities.

 

Other Income, Net

 

Other income, net consists primarily of interest income and foreign currency gains or losses.

 

Provision for Income Taxes

Provision for income taxes consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.

 

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Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table sets forth our consolidated statement of operations for the periods indicated:

 

		Three Months Ended March 31,
		2023				2022
		(in thousands)
Consolidated Statement of Operations Data:
Revenue:
Event Cloud		$	114,686			$	94,988
Hospitality Cloud			51,519				42,368
Total revenue			166,205				137,356
Cost of revenue			60,691				56,200
Gross profit			105,514				81,156
Operating expenses:
Sales and marketing			44,960				40,091
Research and development			35,973				31,406
General and administrative			39,768				24,951
Intangible asset amortization, exclusive of amounts included in cost of revenue			11,713				12,154
Total operating expenses			132,414				108,602
Loss from operations			(26,900	)			(27,446	)
Interest expense			(2,647	)			(2,592	)
Amortization of deferred financial costs and debt discount			(158	)			(320	)
Other income, net			1,169				260
Loss before income taxes			(28,536	)			(30,098	)
Provision for income taxes			4,107				1,291
Net loss		$	(32,643	)		$	(31,389	)

 

The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:

 

		Three Months Ended March 31,
		2023				2022
Consolidated Statement of Operations Data:
Revenue:
Event Cloud			69.0	%			69.2	%
Hospitality Cloud			31.0	%			30.8	%
Total revenue			100.0	%			100.0	%
Cost of revenue			36.5	%			40.9	%
Gross profit			63.5	%			59.1	%
Operating expenses:
Sales and marketing			27.1	%			29.2	%
Research and development			21.6	%			22.9	%
General and administrative			23.9	%			18.2	%
Intangible asset amortization, exclusive of amounts included in cost of revenue			7.0	%			8.8	%
Total operating expenses			79.7	%			79.1	%
Loss from operations			(16.2	%)			(20.0	%)
Interest expense			(1.6	%)			(1.9	%)
Amortization of deferred financial costs and debt discount			(0.1	%)			(0.2	%)
Other income, net			0.7	%			0.2	%
Loss before income taxes			(17.2	%)			(21.9	%)
Provision for income taxes			2.5	%			0.9	%
Net loss			(19.6	%)			(22.9	%)

 

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Revenue

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Revenue:
Event Cloud		$	114,686			$	94,988			$	19,698				20.7	%
Hospitality Cloud			51,519				42,368				9,151				21.6	%
Total revenue		$	166,205			$	137,356			$	28,849				21.0	%

 

Total revenue for the three months ended March 31, 2023 was $166.2 million, an increase of $28.8 million, or 21.0% compared to the three months ended March 31, 2022. Event Cloud revenue accounted for $114.7 million, or 69.0% of total revenue, and Hospitality Cloud revenue accounted for $51.5 million, or 31.0% of total revenue, for three months ended March 31, 2023.

Event Cloud revenue for the three months ended March 31, 2023 was $114.7 million, an increase of $19.7 million, or 20.7%, compared to the three months ended March 31, 2022. The increase was due to the strong performance of products that support in-person meetings and events because of the lessening impact of the global COVID-19 pandemic between the first quarter of 2022 and the first quarter of 2023.

Hospitality Cloud revenue for the three months ended March 31, 2023 was $51.5 million, an increase of $9.2 million, or 21.6%, compared to the three months ended March 31, 2022. The increase was primarily due to increased demand of our advertising and software solutions driven by the sustained return of in-person meetings.

We generate the majority of our revenue from North America. Revenue from outside North America accounted for 13.7% and 12.0% of total revenue for the three months ended March 31, 2023 and 2022, respectively. In the near-term, in absolute dollars, we expect that total revenue from outside North America will increase at the same rate as the rest of our business, and as such, we expect total revenue from outside of North America as proportion of total revenue will not substantially change.

Cost of Revenue

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Cost of revenue		$	60,691			$	56,200			$	4,491				8.0	%

 

Cost of revenue for the three months ended March 31, 2023 was $60.7 million, an increase of $4.5 million, or 8.0%, compared to the three months ended March 31, 2022. This increase was primarily driven by a $2.0 million increase in employee expense due to an 8.2% increase in average headcount, a $1.0 million increase in amortization of capitalized software development costs and a $0.6 million increase in stock-based compensation. Additionally, third-party costs related to supporting virtual, in-person, and hybrid events increased $1.6 million and credit card interchange fees related to our merchant services business increased $1.5 million, primarily driven by the sustained return of in-person meetings and events. These cost increases were partially offset by a $1.7 million decrease in hosting expense related to cost optimization and higher credits received in the first quarter of 2023 compared to the first quarter of 2022.

Operating Expenses

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Sales and marketing		$	44,960			$	40,091			$	4,869				12.1	%
Research and development			35,973				31,406				4,567				14.5	%
General and administrative			39,768				24,951				14,817				59.4	%
Intangible asset amortization, exclusive of amounts included in cost of revenue			11,713				12,154				(441	)			(3.6	%)
Total operating expenses		$	132,414			$	108,602			$	23,812				21.9	%

 

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Sales and Marketing. Sales and marketing expenses for the three months ended March 31, 2023 were $45.0 million, an increase of $4.9 million, or 12.1%, compared to the three months ended March 31, 2022. This increase was primarily driven by a $3.6 million increase in employee expense due to a 10.4% increase in average headcount, and a $2.0 million increase in stock-based compensation. These increases were partially offset by $0.9 million in lower marketing program spend.

Research and Development. Research and development expenses for the three months ended March 31, 2023 were $36.0 million, an increase of $4.6 million, or 14.5%, compared to the three months ended March 31, 2022. This increase was primarily driven by a $3.1 million increase in employee expense due to a 11.2% increase in average headcount, and a $1.2 million increase in stock-based compensation.

General and Administrative. General and administrative expenses for the three months ended March 31, 2023 were $39.8 million, an increase of $14.8 million, or 59.4%, compared to the three months ended March 31, 2022. This increase was driven by $13.5 million in transaction costs related to the Merger, a $0.9 million increase in stock-based compensation, and a $0.7 million increase in travel related expense. These increases were partially offset by $0.7 million decrease in bad debt expense.

Intangible Asset Amortization, Exclusive of Amounts Included in Cost of Revenue. Intangible asset amortization, exclusive of amounts included in cost of revenue for the three months ended March 31, 2023 was $11.7 million, a decrease of $0.4 million, or 3.6%, compared to the three months ended March 31, 2022. This decrease was driven primarily by the scheduled decline in the amortization of intangible assets acquired in past years and no business acquisitions occurring in the first quarter of 2023.

Interest Expense

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Interest expense		$	(2,647	)		$	(2,592	)		$	(55	)			2.1	%

 

Interest expense for the three months ended March 31, 2023 was $2.6 million, an increase of $0.1 million, or 2.1%, compared to the three months ended March 31, 2022. This increase was driven by higher interest rates in the three months ended March 31, 2023 as compared to the same period in 2022, partially offset by lower long-term debt balances during the three months ended March 31, 2023 as compared to prior year.

Amortization of Deferred Financing Costs and Debt Discount

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Amortization of deferred financing costs and debt discount		$	(158	)		$	(320	)		$	162				(50.6	%)

 

Amortization of deferred financing costs and debt discount for the three months ended March 31, 2023 was $0.2 million, a decrease of $0.2 million, or 50.6%, compared to the three months ended March 31, 2022 due to the acceleration of amortization of deferred financing costs and debt discount associated with the prepayment of the outstanding principal balance under the Company's variable rate first lien loan in May 2022.

Other Income, Net

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Other income, net		$	1,169			$	260			$	909				349.6	%

 

Other income, net for the three months ended March 31, 2023 was $1.2 million, an increase of $0.9 million, or 349.6%, compared to the three months ended March 31, 2022. Other income for the three months ended March 31, 2023 and 2022 consisted primarily of interest income of $0.8 million in each period from short-term investments.

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Provision for Income Taxes

 

		Three Months Ended March 31,
		2023				2022				$ Change				% Change
		(in thousands)
Provision for income taxes		$	4,107			$	1,291			$	2,816				218.1	%

 

Provision for income taxes for the three months ended March 31, 2023 was $4.1 million, an increase of $2.8 million, or 218.1%, compared to the three months ended March 31, 2022. The increase primarily resulted from the recording of higher pre-tax book income in high tax foreign jurisdictions and an increase in state tax expense due to the prior year utilization of net operating losses in certain states.

 

Non-GAAP Financial Measures

 

In addition to our results determined in accordance with GAAP, we believe the non-GAAP measures of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are useful in evaluating our operating performance. We believe that non-GAAP financial information, when considered collectively with the corresponding GAAP measures, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.

 

Adjusted EBITDA and Adjusted EBITDA Margin

 

Adjusted EBITDA and Adjusted EBITDA margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, an alternative to net loss or net loss margin, as determined by GAAP. We define Adjusted EBITDA as net loss adjusted for interest expense, amortization of deferred financing costs and debt discount, gain/(loss) on extinguishment of debt, gain/(loss) on divestitures, net, other income/(expense), net, provision for/(benefit from) income taxes, depreciation, amortization of software development costs, intangible asset amortization, stock-based compensation expense, restructuring expense, cost related to acquisitions, and other items. Adjusted EBITDA margin represents Adjusted EBITDA divided by revenue. We use Adjusted EBITDA and Adjusted EBITDA margin to understand and evaluate our core operating performance and trends. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods.

 

Adjusted EBITDA and Adjusted EBITDA margin have limitations as analytical tools, and you should not consider either in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA and Adjusted EBITDA margin alongside other financial performance measures, including net loss, net loss margin and our other GAAP results. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted EBITDA and Adjusted EBITDA margin. Adjusted EBITDA and Adjusted EBITDA margin are not a presentation made in accordance with GAAP and the use of the terms may vary from others in our industry.

 

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A reconciliation of Adjusted EBITDA to net loss and of Adjusted EBITDA margin to net loss margin (defined as net loss divided by revenue), the most directly comparable GAAP measure, respectively, is as follows:

 

		Three Months Ended March 31,
		2023				2022
		(in thousands)
Adjusted EBITDA:
Net loss		$	(32,643	)		$	(31,389	)
Adjustments
Interest expense			2,647				2,592
Amortization of deferred financing costs and debt discount			158				320
Other income, net			(1,169	)			(260	)
Provision for income taxes			4,107				1,291
Depreciation			1,816				2,038
Amortization of software development costs			17,008				15,961
Intangible asset amortization			11,713				12,154
Stock-based compensation expense			14,556				9,768
Restructuring (income) expense (1)			(4	)			277
Cost related to acquisitions (2)			13,585				187
Other items (3)			660				(180	)
Adjusted EBITDA		$	32,434			$	12,759
Adjusted EBITDA Margin:
Revenue		$	166,205			$	137,356
Net loss margin (4)			(19.6	%)			(22.9	%)
Adjusted EBITDA margin (4)			19.5	%			9.3	%

 

(1)

Restructuring expense includes retention bonuses to employees of acquired entities and costs to discontinue use of a back-office system and closing of office space.

(2)

Represents costs incurred in association with acquisition activity, including due diligence and post-acquisition earn out payments, and costs incurred in relation to the Merger.

(3)

Includes other costs associated with prosecuting a trade secret misappropriation claim, private equity management fees, and credit facility fees, net of the gain from government subsidies related to the global COVID-19 pandemic.

(4)

Net loss margin represents net loss divided by revenue and Adjusted EBITDA margin represents Adjusted EBITDA divided by revenue.

Liquidity and Capital Resources

 

Our principal sources of liquidity are cash and cash equivalents, on-going collection of our accounts receivable and borrowings under our Revolving Credit Facility (see Note 10. Debt to the consolidated financial statements included in Part I1, Item 1 of this Quarterly Report). Outstanding borrowings under the Revolving Credit Facility may fluctuate on a quarterly basis due to the seasonality of the Company’s operating cash flows, and the Company’s desire to minimize interest expense. Cash and cash equivalents may include holdings in bank demand deposits, money market instruments and certificates of deposit. We also periodically invest a portion of our excess cash in short-term investments with stated maturity dates between three months and one year from the purchase date.

 

Our U.S. entities held $33.3 million and $40.2 million in cash and cash equivalents and short-term investments as of March 31, 2023 and December 31, 2022, respectively. Our non-U.S. entities held $122.8 million and $99.9 million in cash and cash equivalents and short-term investments as of March 31, 2023 and December 31, 2022, respectively.

 

We believe that existing cash and cash equivalents and short-term investments held by us, cash and cash equivalents anticipated to be generated by us and borrowing capacity under our Revolving Credit Facility are sufficient to meet working capital requirements, anticipated capital expenditures, and contractual obligations for at least the next 12 months and beyond. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our Revolving Credit Facility, our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions, the continuing market adoption of our platform and our level of acquisition activity or other strategic transactions. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.

 

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We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.

 

Cash Flows

 

The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the three months ended March 31, 2023 and 2022:

 

		Three Months Ended March 31,
		2023				2022
		(in thousands)
Net cash provided by operating activities		$	92,525			$	79,924
Net cash used in investing activities			(25,005	)			(17,680	)
Net cash (used in) provided by financing activities			(64,873	)			510
Effect of exchange rate changes on cash, cash equivalents and restricted cash			2,185				(1,209	)
Change in cash, cash equivalents, and restricted cash			4,832				61,545
Cash, cash equivalents, and restricted cash at beginning of period			99,923				126,629
Cash, cash equivalents, and restricted cash at end of period		$	104,755			$	188,174
Cash paid for interest		$	2,448			$	2,584

 

Operating Activities

 

Net cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and the amount and timing of customer payments. Cash provided by operations in the three months ended March 31, 2023 and 2022 is primarily attributable to net loss adjusted for non-cash items. Cash provided by operations is also attributable to the change in accounts receivable and deferred revenue, which is driven by the seasonality of our business and our collections process. Our cash flows from operating activities are generally reflective of our ability to invoice annual subscription fees upfront with payments due 30 days after the customer’s receipt of the invoice. We experience seasonality in our accounts receivable. The first and fourth quarters historically include a higher level of cash collections, which is a result of higher levels of invoicing in the first and fourth quarters.

 

For the three months ended March 31, 2023, net cash provided by operating activities was $92.5 million, which was primarily driven by net loss adjusted for non-cash items, increased fees payable to customers related to registration fees collected on behalf of our customers for meetings and events in the future, and cash collections and increased deferred revenue related to calendar year contracts, partially offset by a right-of-use asset associated with a lease we renewed for our India office. For the three months ended March 31, 2022, net cash provided by operating activities was $79.9 million, which was primarily driven by net loss adjusted for non-cash items, increased fees payable to customers related to registration fees collected on behalf of our customers for meetings and events in the future, and cash collections and increased deferred revenue related to calendar year contracts.

Investing Activities

 

Our investing activities have consisted primarily of costs related to software developed for internal use, purchases of computer equipment and leasehold improvements, purchases and sales of investments and business acquisitions. Investments in software developed for internal use, computer equipment and leasehold improvements and business acquisitions are intended to enable sales growth in new, existing, and expanding markets, help us meet product demand, and increase our product offerings across multiple platforms, while the purchases of investments are intended to maximize returns from our existing cash balances.

 

For the three months ended March 31, 2023, net cash used in investing activities was $25.0 million, reflecting $12.7 million in capitalized software development, $9.9 million in net purchases of short-term investments and $2.4 million in purchases of property and equipment. For the three months ended March 31, 2022, net cash used in investing activities was $17.7 million, reflecting $11.9 million in capitalized software development, $4.4 million in net purchases of short-term investments and $1.4 million in purchases of property and equipment.

Financing Activities

 

Our financing activities have consisted primarily of proceeds from and principal payments on the Company’s Revolving Credit Facility and proceeds from the exercise of stock options. Our practice has been to minimize interest expense while maintaining reasonable liquidity. For the three months ended March 31, 2023, net cash used in financing activities was $64.9 million, consisting

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primarily of $115.0 million of principal repayments on the Company's Revolving Credit Facility, partially offset by $45.0 million in proceeds from the Company's Revolving Credit Facility and $5.1 million of proceeds from the exercise of stock options. For the three months ended March 31, 2022, net cash provided by financing activities was $0.5 million, consisting of proceeds from the exercise of stock options.

 

Adjusted Free Cash Flow and Adjusted Free Cash Flow Margin

 

Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, an alternative to our consolidated cash flow statement, as determined by GAAP. We define Adjusted Free Cash Flow as our net cash provided by operating activities adjusted to: (i) include purchases of property and equipment, (ii) include capitalized software development costs, (iii) include the changes in fees payable to customers, and (iv) exclude cash payments for interest. Adjusted Free Cash Flow margin represents Adjusted Free Cash Flow divided by revenue. We use Adjusted Free Cash Flow and Adjusted Free Cash Flow margin to understand and evaluate our core operating performance and trends. We believe Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods.

 

Adjusted Free Cash Flow and Adjusted Free Cash Flow margin have limitations as analytical tools, and you should not consider either in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider Adjusted Free Cash Flow and Adjusted Free Cash Flow margin alongside other financial performance measures, including operating cash flows, investing cash flows and our other GAAP results. In evaluating Adjusted Free Cash Flow and Adjusted Free Cash Flow margin, you should be aware that in the future we may incur cash flow activities that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted Free Cash Flow and Adjusted Free Cash Flow margin should not be construed to imply that our future results will be unaffected by the types of items excluded from the calculation of Adjusted Free Cash Flow and Adjusted Free Cash Flow margin. Adjusted Free Cash Flow and Adjusted Free Cash Flow margin are not a presentation made in accordance with GAAP and the use of the terms may vary from others in our industry.

 

The following table presents a summary of our Adjusted Free Cash Flow for each of the three months ended March 31, 2023 and 2022:

 

 

		Three Months Ended March 31,
		2023				2022
		(in thousands)
Adjusted Free Cash Flow:
Net cash provided by operating activities:		$	92,525			$	79,924
Adjustments
Purchase of property and equipment			(2,356	)			(1,375	)
Capitalized software development costs			(12,725	)			(11,891	)
Change in fees payable to customers			(25,210	)			(24,493	)
Interest paid			2,448				2,584
Adjusted Free Cash Flow		$	54,682			$	44,749
Adjusted Free Cash Flow margin:
Revenue		$	166,205			$	137,356
Adjusted Free Cash Flow margin			32.9	%			32.6	%

 

Adjusted Free Cash Flow for the three months ended March 31, 2023 increased $9.9 million compared to the three months ended March 31, 2022 primarily as a result of an increase in cash provided by operating activities driven by increased fees payable to customers in the first quarter of 2023 as in-person meetings and events continue to return, net of decreased deferred revenue due to the timing of contract renewals and a right-of-use asset created in the first quarter of 2023.

Commitments and Contingencies

 

See the information set forth in Note 12. “Commitments and Contingencies” to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

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Indemnification Agreements

 

In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses related to breach of confidentiality and claims by third parties of intellectual property infringement, misappropriation or other violation. In addition, we have entered into indemnification agreements with each of our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. There are no indemnification claims that we are currently aware of that could have a material adverse effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.

 

Critical Accounting Estimates

 

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 2. “Summary of Significant Accounting Policies” to the condensed consolidated Financial Statements in Part I, Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022 describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since our Annual Report on Form 10-K for the year ended December 31, 2022.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency rates, although we also have some exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or Rule 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, and that information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting during the period ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are involved in legal proceedings, regulatory matters or other contingencies arising in the ordinary course of our business. We are not presently involved in any legal proceeding, regulatory matter or other contingency that, if determined adversely to the Company, in our opinion, would individually or in the aggregate have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors.

The risks described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023, remain current in all material respects. Those risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. If any of the identified risks or others not specified in our SEC filings materialize, our business, financial condition or results of operations could be materially adversely affected. In these circumstances, the market price of our common stock could decline.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index attached hereto are filed or incorporated by reference (as stated therein) as part of this Quarterly Report.

 

 

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EXHIBIT INDEX

 

Exhibit Number		Description
2.1		Agreement and Plan of Merger, by and among the Company, Capstone Borrower, Inc. and Capstone Merger Sub, Inc., dated as of March 14, 2023 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on March 14, 2023).
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* Filed herewith.

** Furnished herewith.

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	CVENT HOLDING CORP.
Date: May 5, 2023	By:	/s/ William J. Newman, III
		William J. Newman, III
		SVP and Chief Financial Officer

 

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