What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-06 · 159 added, 159 removed, 313 unchanged (50% of the section changed)

8 unchanged sentences

Biopharmaceutical companies use our proprietary biosimulation software throughout drug discovery and development to inform critical decisions that not only save significant time and money but also advance drug safety and efficacy, improving millions of lives each year.

As a global leader in biosimulation based on 2020 revenue, we provide an integrated, end-to-end platform used by more than 1,650 biopharmaceutical companies and academic institutions across 61 countries, including all of the top 35 biopharmaceutical companies by R&D spend in 2019.

biopharmaceutical companies by R&D spend in 2019.

Since 2014, customers who use our biosimulation software and technology-enabled services have received over 90% of all new drug approvals by the U.S.

26 unchanged sentences

The Company incurred cost of $1.1 million in relation to the secondary public offering.

Other Public Offering

On September 13, 2021, the Company completed another public offering, at a public offering price of $31.00 per share, pursuant to which the Company sold 4,500,000 shares of its common stock, and certain selling stockholders sold 18,500,000 shares of the Company’s common stock, including an additional 3,000,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares.

The Company received net proceeds of $134.1 million, after deducting underwriters' discounts and commissions.

In addition, $0.7 million of legal, accounting and other offering costs incurred in connection with the sale of the Company's common stock in the public offering, were capitalized and offset against the proceeds received.

Key Factors Affecting Our Performance

33 unchanged sentences

In some standard biosimulation services, and in regulatory and market access, we also compete with contract research organizations.

Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D, and

other resources.

Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D, and other resources.

Some of our competitors offer products and services directed at more specific markets than those we target, enabling these competitors to focus a greater proportion of their efforts and resources on those specific markets.

7 unchanged sentences

In addition, a recession or a prolonged period of depressed economic activity related to COVID-19 and measures taken to mitigate its spread could have a material adverse effect on our business, financial condition and results of operations.

As of June 30, 2021, there have been no material adverse impacts on the Company’s financial condition, results of operations or cash flows.

As of September 30, 2021, there have been no material adverse impacts on the Company’s financial condition, results of operations or cash flows.

Non-GAAP Measures

4 unchanged sentences

In addition, this measure is frequently used by analysts, investors, and other interested parties to evaluate and assess performance.

Adjusted EBITDA is a non-GAAP measure and is presented for supplemental purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP.

Adjusted EBITDA has certain limitations in that it does not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business.

Other companies, including other companies in our industry, may not use this measure and may calculate it differently than as presented on this report, limiting the usefulness as a comparative measure.

Adjusted EBITDA and adjusted net income are non-GAAP measure and are presented for supplemental purposes only and should not be considered as an alternative or substitute to financial information presented in accordance with GAAP.

Adjusted EBITDA and adjusted net income have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business.

Other companies, including other companies in our industry, may not use these measures and may calculate it differently than as presented on this report, limiting the usefulness as comparative measures.

The following table reconciles Net income (loss) to Adjusted EBITDA:

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

3 unchanged sentences

Interest income (a)

Provision for income taxes (a)

(Benefit) provision for income taxes (a)

Depreciation and amortization expense (a)

3 unchanged sentences

Acquisition-related expenses (c)

Transaction-related expenses (d)

Severance expense (e)

Reorganization expense (f)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

Integration expense (d)

Transaction-related expenses (e)

Severance expense (f)

Reorganization expense (g)

Loss on disposal of fixed assets (h)

Executive recruiting expense (i)

First-year Sarbanes-Oxley implementation costs (j)

Adjusted EBITDA

The following table reconciles Net income (loss) to Adjusted Net Income:

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

4 unchanged sentences

Acquisition-related expenses (c)

Transaction-related expenses (d)

Severance expense (e)

Reorganization expense (f)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

Income tax expense impact of adjustments (j)

Integration expense (d)

Transaction-related expenses (e)

Severance expense (f)

Reorganization expense (g)

Loss on disposal of fixed assets (h)

Executive recruiting expense (i)

First-year Sarbanes-Oxley implementation costs (j)

Income tax expense impact of adjustments (k)

Adjusted Net Income

The following table reconciles Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share:

THREE MONTHS ENDED JUNE 30,

SIX MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

3 unchanged sentences

Acquisition-related expenses (c)

Transaction-related expenses (d)

Severance expense (e)

Reorganization expense (f)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

Income tax expense impact of adjustments (j)

Integration expense (d)

Transaction-related expenses (e)

Severance expense (f)

Reorganization expense (g)

Loss on disposal of fixed assets (h)

Executive recruiting expense (i)

First-year Sarbanes-Oxley implementation costs (j)

Income tax expense impact of adjustments (k)

Adjusted Diluted Earnings Per Share

Diluted weighted average common shares outstanding

Effect of potentially dilutive shares outstanding (k)

Effect of potentially dilutive shares outstanding (l)

Diluted weighted average common shares outstanding

3 unchanged sentences

(d) Represents costs associated with directly expensed costs from the secondary offerings and debt modification.

(e) Represents charges for severance provided to former executives and non-executives.

(f) Represents expense related to reorganization, including legal entity reorganization.

(g) Represents the gain/loss related to disposal of fixed assets.

(h) Represents recruiting and relocation expenses related to hiring senior executives.

(i) Represents the first year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act in 2021.

(j) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(k) Represents potentially dilutive shares that were excluded from the Company's GAAP diluted weighted average common shares outstanding because the Company had a reported net loss and therefore including these shares would have been anti-dilutive.

(d) Represents integration costs related to post-acquisition integration activities.

(e) Represents costs associated with directly expensed costs from the stock offerings and debt modification.

(f) Represents charges for severance provided to former executives and non-executives.

(g) Represents expense related to reorganization, including legal entity reorganization.

(h) Represents the gain/loss related to disposal of fixed assets.

(i) Represents recruiting and relocation expenses related to hiring senior executives.

(j) Represents the first-year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act in 2021.

(k) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(l) Represents potentially dilutive shares that were excluded from the Company's GAAP diluted weighted average common shares outstanding because the Company had a reported net loss and therefore including these shares would have been anti-dilutive.

Components of Results of Operations

11 unchanged sentences

Our services business generates revenues primarily from technology-enabled services and professional services, which include software implementation services.

Our service arrangements are time and materials, fixed fee, or prepaid.

Our service arrangements are time and materials, fixed

fee, or prepaid.

Revenues are recognized over the time services are performed for time and materials, and over time by estimating progress to completion for fixed fee and prepaid services.

17 unchanged sentences

Those costs include additional director and officer liability insurance expense, as well as third-party and internal resources related to accounting, auditing, SOX compliance, legal, and investor and public relations expenses.

As a result, we expect

the amount of our general and administrative expense to increase for the foreseeable future.

As a result, we expect the amount of our general and administrative expense to increase for the foreseeable future.

Excluding public company expenses, we expect general and administrative expense to grow at a rate lower than revenues.

16 unchanged sentences

Based on the Company’s preliminary purchase price allocation, approximately $1.2 million, $0.1 million and $1.1 million of the purchase price was assigned to customer relationships, non-compete agreements and goodwill, respectively.

On June 7, 2021, the Company completed a transaction which qualified as a business combination.

On June 7, 2021, we completed a transaction which qualified as a business combination.

The business combination was not material to our condensed consolidated financial statements.

Based on the Company’s preliminary purchase price allocation, approximately $7.4 million and $4.7 million of the purchase price was assigned to customer relationships and goodwill, respectively.

Subsequent to the quarter end, on October 1, 2021, we completed our acquisition of Pinnacle 21, LLC (“Pinnacle”), a company that develops advanced software for standards-based data management for regulatory submissions, for total consideration of $250.0 million cash and 2,239,717 shares of restricted common stock of the Company.

We expect to complete the initial accounting for the acquisition of Pinnacle 21, LLC, including the allocation of purchase consideration, in the fourth quarter of 2021.

Results of Operations

We have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three and six months ended June 30, 2021 to the three and six months ended June 30, 2020.

Three Months Ended June 30, 2021 Versus Three Months Ended June 30, 2020

The following table summarizes our unaudited statements of operations data for the three months ended June 30, 2021 and 2020:

THREE MONTHS ENDED JUNE 30,

We have included the results of operations of acquired companies in our consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three and nine months ended September 30, 2021 to the three and nine months ended September 30, 2020.

Three Months Ended September 30, 2021 Versus Three Months Ended September 30, 2020

The following table summarizes our unaudited statements of operations data for the three months ended September 30, 2021 and 2020:

THREE MONTHS ENDED SEPTEMBER 30,

( in thousands)

Total revenues

Revenues increased $9.0 million, or 15%, to $70.1 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in revenues was due to growth in both our services and software product offerings, primarily related to client expansions in both our technology-enabled service product lines and software.

Software revenue increased by $2.2 million, or 12%, to $20.1 million for the three months ended June 30, 2021 as compared to the same period in 2020, driven primarily by growth in renewal of software subscriptions of 10%, or $1.5 million.

The remaining increase was primarily due to growth in the subscription products from new clients.

Services revenue increased by $6.8 million, or 16%, to $50.0 million for the three months ended June 30, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled services, primarily in biosimulation offerings.

Revenues increased $13.6 million, or 23%, to $73.9 million for the three months ended September 30, 2021 as compared to the same period in 2020.

The increase in revenues was due to growth in our technology-enabled services and software product offerings from strong renewal rates, client expansion and new customers.

Software revenue increased $1.6 million, or 9%, to $19.3 million for the three months ended September 30, 2021 as compared to the same period in 2020, driven primarily by $1.5 million growth in the revenues attributable to maintaining high net revenue retention rates, renewal rates and new customers for our core software products.

Services revenue increased by $12.1 million, or 28%, to $54.7 million for the three months ended September 30, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled services which resulted from strong growth in biosimulation and regulatory services.

Cost of Revenues

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Cost of revenues

Cost of revenues increased by $6.9 million, or 33%, to $27.5 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase was primarily due to a $3.9 million increase in employee-related costs resulting from head count growth and a $1.4 million increase in stock-based compensation costs.

Cost of revenues increased by $5.7 million, or 25%, to $28.8 million for the three months ended September 30, 2021 as compared to the same period in 2020.

The increase was primarily due to a $4.0 million increase in employee-related costs resulting from billable head count growth and a $1.4 million increase in stock-based compensation costs.

The remaining increase is primarily due to consulting costs.

Sales and Marketing Expenses

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Sales and marketing expenses increased by $1.9 million, or 68%, to $4.6 million for the three months ended June 30, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased by $2.0 million, or 64%, to $5.1 million for the three months ended September 30, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased primarily due to a $1.1 million increase in employee-related costs resulting from head count growth and a $0.6 million increase in stock-based compensation costs.

Research and Development Expenses

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Research and development expenses increased by $1.7 million, or 56%, to $4.6 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $1.3 million net increases in employee-related costs resulting from head count growth and a $0.5 million increase in stock-based compensation costs.

The increase was partially offset by higher R&D credits and decrease in consulting costs.

Research and development expenses increased by $1.2 million, or 37%, to $4.5 million for the three months ended September 30, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $0.9 million increases in employee-related costs primarily resulting from head count growth and a $0.5 million increase in stock-based compensation costs.

General and Administrative Expenses

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

General and administrative expenses increased by $6.9 million, or 61%, to $18.0 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in general and administrative expenses was primarily due to a $4.4 million increase in stock-based compensation costs, $0.7 million increase in insurance expenses, and $0.5 million increase in business acquisition cost.

The remaining increases are primarily due to increases in secondary offering costs.

and public company costs.

The increases were partially offset by decreases in consulting related costs.

General and administrative expenses increased by $12.8 million, or 95%, to $26.2 million for the three months ended September 30, 2021 as compared to the same period in 2020.

The increase in general and administrative expenses was primarily due to a $7.5 million increase in business acquisition costs, a $4.6 million increase in stock-based compensation costs, a $0.7 million increase in insurance expenses, and a $0.3 milllion increase in employee related costs.

Intangible Asset Amortization

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Intangible asset amortization expense increased by $0.2 million, or 2%, to $9.5 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The increase in intangible asset amortization expense is due to increased capitalized software development costs.

Intangible asset amortization expense increased by $0.2 million, or 2%, to $9.6 million for the three months ended September 30, 2021 as compared to the same period in 2020.

The increase in intangible asset amortization expense is primarily due to increased amortization cost from the acquired intangible assets.

Depreciation and Amortization Expense

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Depreciation and amortization expense decreased $0.1 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The decrease was primarily due to decrease in depreciation from computer equipment and lease improvement for the three months ended June 30, 2021 as compared to the same period in 2020.

Depreciation and amortization expense of $0.5 million was relatively flat for the three months ended September 30, 2021 as compared to the same period in 2020.

Interest Expense

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Interest expense decreased $0.7 million, or 10%, to $6.3 million for the three months ended June 30, 2021 as compared to the same period in 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in the second quarter of 2021 compared to the same period in 2020.

The decrease in interest

expense was partially offset by interest expense reclassed in from other comprehensive income due to hedge ineffectiveness.

Interest expense decreased $2.6 million, or 45%, to $3.3 million for the three months ended September 30, 2021 as compared to the same period in 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in the third quarter of 2021 compared to the same period in 2020.

Miscellaneous, net

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Miscellaneous expense was $0.3 million for the three months ended June 30, 2021 as compared to miscellaneous expenses of $0.1 million for the same period in 2020.

The change was primarily due to $0.3 million loss on disposal of fixed assets.

Miscellaneous income was $0.7 million for the three months ended September 30, 2021 as compared to miscellaneous expenses of $0.0 million for the same period in 2020.

The change was primarily due to $0.6 million currency translation gains.

Provision for Income Taxes

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

( in thousands)

1 unchanged sentence

Effective income tax rate

Our income tax expense was $1.5 million, resulting in an effective income tax rate of (103) % for the three months ended June 30, 2021 as compared to income tax expense of $3.7 million, or an effective income tax rate of 57%, for the same period in 2020.

Our income tax expense for the three months ended June 30, 2021 was primarily due to the discrete tax effect of certain prior period swap losses that are required to be excluded from the EAETR calculation, thereby resulting in the tax benefit from such losses being measured at the statutory tax rate, which is much lower than the EAETR applied to all other components of pre-tax book income.

Our income tax expense for the three months ended June 30, 2020 was primarily due to the tax effects of U.S.

Our income tax benefit was $1.6 million, resulting in an effective income tax rate of 48% for the three months ended September 30, 2021 as compared to income tax expense of $0.4 million, or an effective income tax rate of 22%, for the same period in 2020.

Our income tax expense for the three months ended September 30, 2021 was primarily due to the discrete tax effect of certain prior period swap losses that are required to be excluded from the EAETR calculation and the overall increase in pre-tax book loss.

Our income tax expense for the three months ended September 30, 2020 was primarily due to the tax effects of U.S.

pre-tax income, the impact of non-deductible items, the effects of tax elections made for U.K.

1 unchanged sentence

Net Income (loss)

THREE MONTHS ENDED JUNE 30,

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Net income (loss)

Net loss was $2.9 million for the three months ended June 30, 2021 as compared to net income of $2.8 million for the same period in 2020.

The loss was primarily due to $7.0 million increase in stock based compensation expense for the three months ended June 30, 2021 compared to the same period last year.

Six Months Ended June 30, 2021 Versus Six Months Ended June 30, 2020

The following table summarizes our unaudited statements of operations data for the six months ended June 30, 2021 and 2020:

SIX MONTHS ENDED JUNE 30,

Net loss for the third quarter of 2021 was $1.8 million, compared to a net income of $1.2 million in the third quarter of 2020.

The loss was primarily due to a $7.0 million increase in stock-based compensation expense, a $7.5 million increase in acquisition cost, and other employee related costs.

The loss was partially offset by higher revenues and lower interest expense in the third quarter of 2021.

Nine Months Ended September 30, 2021 Versus Nine Months Ended September 30, 2020

The following table summarizes our unaudited statements of operations data for the nine months ended September 30, 2021 and 2020:

NINE MONTHS ENDED SEPTEMBER 30,

( in thousands)

Total revenues

Revenues increased $18.2 million, or 15%, to $136.8 million for the six months ended June 30, 2021 as compared to the same period in 2020.

Software revenue increased by $3.8 million, or 10%, to $42.0 million for the six months ended June 30, 2021 as compared to the same period in 2020, driven primarily by growth in our renewal subscriptions revenue of 10%, or $3.0 million.

The remaining increase is primarily due to growth in the subscriptions products from new clients.

Services revenue increased by $14.4 million, or 18%, to $94.8 million for the six months ended June 30, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled services, primarily in biosimulation offerings.

Revenues increased $31.9 million, or 18%, to $210.8 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase in revenues was due to growth in both our services and software product offerings, primarily related to strong renewal rates, client expansions and new customers in both our technology-enabled service product lines and software.

Software revenue increased by $5.4 million, or 10%, to $61.3 million for the nine months ended September 30, 2021 as compared to the same period in 2020, driven primarily by 10% or $5.2 million growth in revenue from subscriptions and license products offerings.

The revenue growth was driven by strong renewal rates and new customers from software products.

Services revenue increased by $26.5 million, or 22%, to $149.5 million for the nine months ended September 30, 2021 as compared to the same period in 2020, driven by growth in our technology-enabled biosimulation and regulatory services.

Cost of Revenues

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Cost of revenues

Cost of revenues increased by $10.7 million, or 25%, to $53.6 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase was primarily due to a $6.4 million increase in employee-related costs resulting from head count growth and a $2.2 million increase in stock-based compensation costs.

The remaining increase is primarily due to increase in consulting costs.

Cost of revenues increased by $16.5 million, or 25%, to $82.3 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase was primarily due to a $10.4 million increase in employee-related costs resulting from billable head count growth, a $3.6 million increase in stock-based compensation costs, and a $2.3 million increase in consulting costs.

Sales and Marketing Expenses

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Sales and marketing expenses increased by $2.7 million, or 47%, to $8.3 million for the six months ended June 30, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased primarily due to a $1.8 million increase in employee-related costs resulting from head count growth and a $1.0 million increase in stock-based compensation costs, partially offset by decreases in travel related costs, marketing costs.

Sales and marketing expenses increased by $4.7 million, or 53%, to $13.4 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

Sales and marketing expenses increased primarily due to a $2.9 million increase in employee-related costs resulting from head count growth and a $1.5 million increase in stock-based compensation costs.

Research and Development Expenses

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Research and development expenses increased by $3.5 million, or 60%, to $9.3 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $2.1 million net increases in employee-related costs resulting from head count growth and a $0.9 million increase in stock-based compensation costs.

The remaining increases are primarily due to lower software capitalization.

The increase was partially offset by higher R&D credits.

Research and development expenses increased by $4.7 million, or 52%, to $13.9 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase in R&D expenses was primarily due to a $2.9 million increases in employee-related costs resulting from head count growth and a $1.4 million increase in stock-based compensation costs.

The remaining increases were primarily due to an increase in consulting costs and an increase in cost due to lower software capitalization.

General and Administrative Expenses

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

General and administrative expenses increased by $11.9 million, or 52%, to $34.6 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in general and administrative expenses was primarily due to a $7.4 million increase in stock-based compensation costs.

The remaining increases are due to increases in secondary offering costs, acquisition related costs, employee related costs, D&O insurance and public company costs.

The increases were partially offset by decreases in restructuring, reorganization, consulting travel related costs, office supplies and facilities costs.

General and administrative expenses increased by $24.7 million, or 68%, to $60.8 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase in general and administrative expenses was primarily due to a $12.0 million increase in stock-based compensation costs, $9.4 million increase in acquisition costs, and $2.1 million increase in insurance costs.

The remaining increases are due to increases in public company costs, stock

offering costs, first-year Sarbanes-Oxley implementation costs, and executive recruiting costs.

The increases were partially offset by decreases in consulting cost, travel and entertainment related costs, office supplies and facilities costs.

Intangible Asset Amortization Expense

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Intangible asset amortization expense increased by $0.3 million, or 1%, to $18.9 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The increase in intangible asset amortization expense is due to increased capitalized software development costs.

Intangible asset amortization expense increased by $0.5 million, or 2%, to $28.5 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

The increase in intangible asset amortization expense is due to $0.3 million in amortization cost in acquired intangibles and $0.2 million increase in amortization cost in capitalized software development.

Depreciation and Amortization Expense

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Depreciation and amortization expense of $1.2 million was relatively flat for the six months ended June 30, 2021 as compared to the same period in 2020.

Depreciation and amortization expense was $1.7 million for the nine months ended September 30, 2021, a decrease of $0.1 million, or 8% as compared to the same period in 2020.

The decrease was primarily due to decrease in depreciation in leasehold improvement and computer equipment.

Interest Expense

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Interest expense decreased by $3.6 million, or 26%, to $10.3 million for the six months ended June 30, 2021 as compared to the same period in 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in the first six months of 2021 compared to the same period in 2020.

Interest expense decreased by $6.3 million, or 32%, to $13.5 million for the nine months ended September 30, 2021 as compared to the same period in 2020.

The decrease in interest expense was primarily due to lower average outstanding principal balances on our credit facilities in the first nine months of 2021 compared to the same period in 2020.

The decrease in interest expense was partially offset by interest expense reclassed in from other comprehensive income due to hedge ineffectiveness.

Miscellaneous, net

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Miscellaneous expense, net increased by $0.9 million for the six months ended June 30, 2021 as compared for the same period in 2020.

The increase was primarily due to loss from foreign currency exchange rate fluctuations and loss from disposal of fixed assets.

Miscellaneous incomes decreased by $0.3 million for the nine months ended September 30, 2021 as compared for the same period in 2020.

The decrease was primarily due to $0.3 million loss recorded in the current period for disposal of fixed assets.

Provision for Income Taxes

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

( in thousands)

1 unchanged sentence

Effective income tax rate

Our income tax expense was $2.0 million, resulting in an effective income tax rate of 1,131% for the six months ended June 30, 2021 as compared to income tax expense of $4.3 million, or an effective income tax rate of 53%, for the same period in 2020.

Our income tax expense for the six months ended June 30, 2021 was primarily due to the discrete tax effect of certain prior period swap losses that are required to be excluded from the EAETR calculation, thereby resulting in the tax benefit from such losses being measured at the statutory tax rate, which is much lower than the EAETR applied to all other components of pre-tax book income.

Our income tax expense for the six months ended June 30, 2020 was primarily due to the tax effects of U.S.

Our income tax expense was $0.3 million, resulting in an effective income tax rate of (11)% for the nine months ended September 30, 2021 as compared to income tax expense of $4.7 million, or an effective income tax rate of 48%, for the same period in 2020.

Our income tax expense for the nine months ended September 30, 2021 was primarily due to the discrete tax effect of certain prior period swap losses that are required to be excluded from the EAETR calculation and the overall increase in pre-tax book loss.

Our income tax expense for the nine months ended September 30, 2020 was primarily due to the tax effects of U.S.

pre-tax income, the impact of non-deductible items, the effects of tax elections made for U.K.

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Net Income (loss)

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Net income (loss)

Net loss was $1.8 million for the six months ended June 30, 2021 as compared to net income of $3.8 million for the same period in 2020.

The loss was primarily due to $11.6 million increase in stock based compensation expense for the first six months of 2021 compared to the same period last year.

The expense increase was partially offset by increased gross profits.

Net loss was $3.6 million for the nine months ended September 30, 2021 as compared to net income of $5.1 million for the same period in 2020.

The loss was primarily due to $18.6 million increase in stock based compensation expense, $15.7 million increase in employee related costs, and $9.4 million increase in acquisition costs.

The loss was partially offset by increased revenue and lower interest expense in the first nine months of 2021.

Liquidity and Capital Resources

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We hold our cash balances in the United States and numerous locations in the rest of the world.

As of June 30, 2021, we had cash and cash equivalents $267.8 million, of which $30.6 million represents cash and cash equivalents held outside of the United States.

As of September 30, 2021, we had cash and cash equivalents $416.9 million, of which $35.6 million represents cash and cash equivalents held outside of the United States.

The following table presents a summary of our cash flows for the periods shown:

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

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Operating Activities

During the six months ended June 30, 2021, operating activities provided approximately $19.6 million of cash and cash equivalents, primarily resulting from net loss of $1.8 million adjusted by $35.4 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, provision for doubtful accounts, loss on retirement of assets, equity-based compensation costs, unrealized loss on hedge and deferred income taxes.

Changes in our operating assets and liabilities used cash and cash equivalents of approximately $14.1million primarily due to payments of interest, taxes, accrued bonuses and other operational payments related to business acquisition.

During the six months ended June 30, 2020, operating activities provided approximately $16.6 million of cash and cash equivalents, primarily resulting from net income of $3.8 million, adjusted by $24.8 million of non-cash operating expenses inclusive of depreciation and amortization, amortization of debt issuance costs, equity-based compensation costs and deferred income taxes.

Changes in our operating assets and liabilities used cash and cash equivalents of approximately $12.0 million.

Cash provided by operating activities in the first nine months of 2021 was $39.6 million, compared to $32.1 million in the same period of 2020.

The $7.4 million increase in cash from operating activities was primarily due to decreased interest payments for the current period and higher cash collected from revenue generated sales activities, partially offset by cash outflow from higher employee related expenses.

Investing Activities

During the six months ended June 30, 2021, investing activities used approximately $18.0 million of cash, primarily for investing in business acquisitions, capitalized software development, and capital expenditures to support our growth.

During the six months ended June 30, 2020, investing activities used approximately $5.2 million of cash, primarily for investing in capitalized software development, business acquisition, and capital expenditures to support our growth.

Cash used by investing activities in the first nine months of 2021 was $20.6 million, an increase of $13.4 million, compared to $7.2 million in the same period of 2020.

During the nine months ended September 30, 2021, investing activities used cash primarily for investing in business acquisitions, capitalized software development, and capital expenditures to support our growth.

Financing Activities

During the six months ended June 30, 2021, financing activities used approximately $5.2 million of cash, primarily attributable to payments on long-term debt and capital lease obligations as well as payments related to the cost of debt modification.

During the six months ended June 30, 2020, financing activities provided approximately $17.2 million of cash, primarily due to proceeds from borrowings on our line of credit, partially offset by payments on long-term debt and capital lease obligations.

Cash provided by financing activities in the first nine months of 2021 was $127.0 million, compared to $24.1million cash used in the same period of 2020.

The $151.1 million increase in cash from financing activities was primarily due to cash received from stock offerings in September 2021 and the principal portion payment on a term loan debt during first nine months in 2020.

Funding Requirements

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We may also use existing cash and cash flows from operations to pay down long-term debt from time to time.

While we believe we have sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by factors described under “Risk Factors” elsewhere in this Quarterly Report.

While we believe we have sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by various factors, such as changes to the U.S.

economic condition, market interest rates, the Federal Reserve monetary policy, other government policies, etc.

We are a party to a Credit Agreement that originally provided for a $250.0 million senior secured term loan and commitments under a revolving credit facility in an aggregate principal amount of $20.0 million, with a sub-commitment for issuance of letters of credit of $10.0 million.

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In January 2018, we and the lenders amended the Credit Agreement to add incremental term loans in the amount of $25.0 million to be used for our general corporate purposes.

Additionally, in April 2018, we and the lender amended the Credit Agreement to (i) add incremental term loans in the amount of $40.0 million to be used for our general corporate purposes and (ii) provide a reduction of 50 basis points in the margin under the term loan.

Additionally, in April 2018, we and the lenders amended the Credit Agreement to (i) add incremental term loans in the amount of $40.0 million to be used for our general corporate purposes and (ii) provide a reduction of 50 basis points in the margin under the term loan.

The terms of such incremental term loans were the same as the terms of our existing term loans, including in respect of maturity, and are considered an increase in the aggregate principal amount of the existing term loans outstanding under the Credit Agreement and are part of the existing term loan.

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All obligations under the Credit Agreement are unconditionally guaranteed by our wholly owned direct and indirect subsidiaries, subject to certain exceptions.

All obligations under the Credit Agreement, and the guarantees of those

obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors.

As of June 30, 2021, we had $302.0 million of outstanding borrowings on the term loan, and $99.9 million of availability under the revolving credit facility, and outstanding letters of credit of $0.1 million under the Credit Agreement.

As of June 30, 2021, we were in compliance with the covenants of each of the Credit Agreement.

All obligations under the Credit Agreement, and the guarantees of those obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors.

As of September 30, 2021, we had $301.2 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement.

As of September 30, 2021, we were in compliance with the covenants of the Credit Agreement.

Contractual Obligations and Commercial Commitments

There have been no material changes to our contractual obligations during the six months ended June 30, 2021 from those disclosed in our Annual Report on Form 10-K, except for payment made in the ordinary course of business.

We recorded income tax expense of $1.5 million and $2.0 million for the three and six months ended June 30, 2021, respectively, and income tax expense of $3.7 million and $4.3 million for the three and six months ended June 30, 2020, respectively.

As of June 30, 2021, we had federal and state NOLs of approximately $3.3 million and $3.0 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2038, respectively.

There have been no material changes to our contractual obligations during the nine months ended September 30, 2021 from those disclosed in our Annual Report on Form 10-K, except for payment made in the ordinary course of business.

We recorded income tax benefit of $1.6 million and income tax expense $0.3 million for the three and nine months ended September 30, 2021, respectively, and income tax expense of $0.4 million and $4.7 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, we had federal and state NOLs of approximately $3.3 million and $3.0 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2038, respectively.

We had federal and state R&D tax credit carryforwards of approximately $2.3 million and $0.6 million, respectively, to offset future income taxes, which expire between 2024 and 2040.

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As a result, a valuation allowance of $16.7 million was recorded at December 31, 2020.

As of June 30, 2021, the valuation allowance remained unchanged from December 31, 2020.

As of September 30, 2021, the valuation allowance remained unchanged from December 31, 2020.

Off-Balance Sheet Arrangements

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We monitor estimates and assumptions on a continuous basis and update these estimates and assumptions as facts and circumstances change and new information is obtained.

Actual results could differ materially

from those estimates and assumptions.

Actual results could differ materially from those estimates and assumptions.

We discussed the accounting policies that we believe are most critical to the portrayal of our results of operations and financial condition and require management’s most difficult, subjective and complex judgments in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on 2020 Form 10-K for the year ended December 31, 2020.

There were no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2021.

There were no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2021.

Recently Adopted and Issued Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis