What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2022-08-09 · 163 added, 154 removed, 330 unchanged (49% of the section changed)

1 unchanged sentence

The following discussion summarizes the significant factors affecting the operating results, financial condition, liquidity, and cash flows of our Company as of and for the periods presented below.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly in the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” of this Quarterly Report.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our consolidated Financial Statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated Financial Statements.

Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly in the sections “Special Note Regarding Forward-Looking Statements” and “Risk Factors” of this Quarterly Report.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our condensed consolidated Financial Statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our condensed consolidated Financial Statements.

Executive Overview

32 unchanged sentences

We incurred costs of $0.6 million, recorded in general and administrative expenses, in relation to the secondary public offering.

On August 11, 2022, the Company completed another secondary public offering in which certain selling stockholders, including EQT, sold 7,000,000 shares of the Company’s common stock.

The Company did not offer any common stock in this transaction and did not receive any proceeds form the sale of the shares of common stock by the selling stockholders.

The Company incurred costs of $0.6 million, recorded in general and administrative expenses, in relation to the secondary public offering.

Key Factors Affecting Our Performance

14 unchanged sentences

Investments in Growth

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through

acquisitions and international expansion.

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and international expansion.

We expect to continue to invest (i) in scientific talent to expand our ability to deliver solutions across the drug development spectrum;

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Support for the use of biosimulation in discovery and development from regulatory bodies, such as the FDA and EMA, has been critical to its rapid adoption by the biopharmaceutical industry.

There has been a steady increase in the recognition by regulatory and academic institutions of the role that modeling and simulation can play in the biopharmaceutical development and approval process, as demonstrated by new regulations and guidance documents describing and encouraging the use of modeling and simulation in the biopharmaceutical discovery, development, testing, and approval process, which has directly led to an increase in the demand for our services.

Changes in government or regulatory policy, or a reversal in the trend toward increasing the acceptance of and reliance upon in silico data in the drug approval process, could decrease the demand for our products and services or lead regulatory authorities to cease use of, or to recommend against the use of, our products and services.

been a steady increase in the recognition by regulatory and academic institutions of the role that modeling and simulation can play in the biopharmaceutical development and approval process, as demonstrated by new regulations and guidance documents describing and encouraging the use of modeling and simulation in the biopharmaceutical discovery, development, testing, and approval process, which has directly led to an increase in the demand for our services.

Changes in government or regulatory policy, or a reversal in the trend toward increasing the acceptance of and reliance upon in silico data in the drug approval process, could decrease the demand for our products and services or lead regulatory authorities to cease use of, or recommend against the use of, our products and services.

Governmental agencies throughout the world, but particularly in the United States where the majority of our customers are based, strictly regulate the biopharmaceutical development process.

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Impact of COVID-19

The continued spread of COVID-19 may adversely impact our business, financial condition or results of operations As of June 30, 2022, we believe there have been and will be short-term impacts on our business due to new variants of COVID-19.

The continued spread of COVID-19 may adversely impact our business, financial condition or results of operations.

As of September 30, 2022, we believe there have been and will be short-term impacts on our business due to new variants of COVID-19.

The presence of these new variants has caused a slowdown in closing out clinical trials and delays in regulatory services projects.

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We believe that presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business.

Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

asset amortization, equity-based compensation expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

Management also measures operating performance based on adjusted net income defined for a particular period as net income (loss) excluding, equity-based compensation expense, amortization of acquisition-related intangible assets, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

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

THREE MONTHS ENDED JUNE 30,

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THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

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Interest income (a)

Provision for income taxes (a)

(Benefit from) provision for income taxes(a)

Depreciation and amortization expense (a)

4 unchanged sentences

Transaction-related expenses (e)

Loss on disposal of fixed assets (f)

Executive recruiting expense (g)

First-year Sarbanes-Oxley implementation costs (h)

Severance expense (f)

Loss on disposal of fixed assets (g)

Executive recruiting expense (h)

First-year Sarbanes-Oxley implementation costs (i)

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)

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Transaction-related expenses (e)

Loss on disposal of fixed assets (f)

Executive recruiting expense (g)

First-year Sarbanes-Oxley implementation costs (h)

Income tax expense impact of adjustments (i)

Severance 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)

Adjusted Net Income

The following table reconciles diluted earnings per share to Adjusted Diluted Earnings Per Share:

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SIX MONTHS ENDED JUNE 30,

(in thousands)

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands except share and per share data)

Diluted earnings per share (a)

4 unchanged sentences

Transaction-related expenses (e)

Loss on disposal of fixed assets (f)

Executive recruiting expense (g)

First-year Sarbanes-Oxley implementation costs (h)

Income tax expense impact of adjustments (i)

Severance 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)

Adjusted Diluted Earnings Per Share

Diluted weighted average common shares outstanding

Effect of potentially dilutive shares outstanding (j)

Effect of potentially dilutive shares outstanding (k)

Diluted weighted average common shares outstanding

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(e) Represents costs associated with our public offerings that are not capitalized.

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

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

(h) 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, as well as implementing cost of ASC 842.

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

(j) Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding.

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

(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, as well as implementing cost of ASC 842.

(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 included from our GAAP diluted weighted average common shares outstanding.

Components of Results of Operations

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We recognize expenses as incurred.

Research and development expenses consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits.

R&D expenses consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits.

We plan to continue to invest in our R&D efforts to enhance and scale our software product offerings by development of new features and increased functionality.

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General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation.

General and administrative

expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

We expect to increase the size of our general and administrative staff to support the anticipated growth of our business.

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This acquisition, for a total consideration of $8.0 million, qualified as a business combination.

The business combination was not significant to our condensed consolidated

financial statements.

Based on the our purchase price allocation, approximately $2.4 million, $1.0 million, $0.1 million, and $2.9 million of the purchase price was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively

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

Based on the purchase price allocation, approximately $2.4 million, $1.0 million, $0.1 million, and $2.9 million of the purchase price was assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively

For more information about our acquisitions, see Note 5.

1 unchanged sentence

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, 2022 to the three and six months ended June 30, 2021.

Three Months Ended June 30, 2022 Versus Three Months Ended June 30, 2021

The following table summarizes our unaudited statements of operations data for the three months ended June 30, 2022 and 2021:

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, 2022 to the three and nine months ended September 30, 2021.

Three Months Ended September 30, 2022 Versus Three Months Ended September 30, 2021

The following table summarizes our unaudited statements of operations data for the three months ended September 30, 2022 and 2021:

THREE MONTHS ENDED SEPTEMBER 30,

( in thousands)

Total revenues

Revenues increased $12.7 million, or 18%, to $82.8 million for the three months ended June 30, 2022 as compared to the same period in 2021.

Revenues increased $10.8 million, or 15%, to $84.7 million for the three months ended September 30, 2022 as compared to the same period in 2021.

Excluding $7.7 million revenue from Pinnacle, which was acquired in late 2021, the revenues increased $3.0 million, or 4%.

The overall increase in revenues was primarily due to growth in our technology-driven services and software product offerings from strong renewal rates, client expansion, and new customers as well as business acquisition.

The increase was partially offset by the negative impact on our revenue from fluctuation of the foreign currency exchange rates.

Software revenues increased $8.6 million, or 43%, to $28.7 million for the three months ended June 30, 2022 as compared to the same period in 2021.

Software revenues increased $9.1 million, or 47%, to $28.4 million for the three months ended September 30, 2022 as compared to the same period in 2021.

Excluding $7.3 million revenue from Pinnacle, the revenues from software increased $1.9 million, or 10%.

1 unchanged sentence

The increase was partially offset by the negative impact on our revenue from fluctuation of the foreign currency exchange rates.

Services revenues increased $4.1 million, or 8%, to $54.0 million for the three months ended June 30, 2022 as compared to the same period in 2021.

Services revenues increased $1.6 million, or 3%, to $56.3 million for the three months ended September 30, 2022, as compared to the same period in 2021.

The growth in overall services revenue is primarily attributable to continued growth in biosimulation.

1 unchanged sentence

Cost of Revenues

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THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Cost of revenues

Cost of revenues increased by $7.7 million, or 28%, to $35.2 million for the three months ended June 30, 2022 as compared to the same period in 2021.

The increase was primarily due to a $4.2 million increase in employee-related costs resulting from billable headcount growth, a $1.7 million increase in intangible assets amortization, a $1.2 million increase in stock-based compensation cost, and a $0.5 million increase related to cost of licenses.

Cost of revenues increased by $4.0 million, or 14%, to $32.8 million for the three months ended September 30, 2022 as compared to the same period in 2021.

The increase was primarily due to a $1.6 million increase in intangible assets amortization, a $1.0 million increase in stock-based compensation costs, a $0.4 million increase in employee-related costs, a $0.4 million increase in equipment and travel expenses, and a $0.5 million increase related to cost of licenses.

Sales and Marketing Expenses

THREE MONTHS ENDED JUNE 30,

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(in thousands)

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% of total revenues

Sales and marketing expenses increased by $2.5 million, or 55%, to $7.1 million for the three months ended June 30, 2022 as compared to the same period in 2021.

Sales and marketing expenses increased primarily due to a $1.6 million increase in employee-related costs resulting from head count growth, a $0.2 million increase in stock based compensation cost, and a $0.5 million increase in marketing and travel costs.

Sales and marketing expenses increased by $1.3 million, or 25%, to $6.4 million for the three months ended September 30, 2022 as compared to the same period in 2021.

Sales and marketing expenses increased primarily due to a $1.1 million increase in employee-related costs resulting from head count growth, and a $0.5 million increase in marketing, consulting and travel costs, partially offset by a $0.4 million decrease 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 $3.1 million, or 67%, to $7.7 million for the three months ended June 30, 2022 as compared to the same period in 2021.

The increase in research and development expenses was primarily due to a $2.6 million increases in employee-related costs primarily resulting from head count growth and a $1.2 million increase in stock-based compensation cost, partially offset by a $0.8 million increase in capitalized cost in research and development.

Research and development expenses increased by $1.8 million, or 39%, to $6.3 million for the three months ended September 30, 2022, as compared to the same period in 2021.

The increase in research and development expenses was

primarily due to a $2.3 million increases in employee-related costs primarily resulting from head count growth and a $0.4 million increase in stock-based compensation cost, partially offset by a $0.9 million increase in capitalized cost in R&D.

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 decreased by $0.3 million, or 1%, to $17.8 million for the three months ended June 30, 2022 as compared to the same period in 2021.

The decrease in general and administrative expenses was primarily due to a $0.7 million decrease in transaction cost related to public offerings, 0.6 million decrease in stock-based compensation costs, a $0.4 million decrease in acquisition related costs, and $0.3 million decrease in executive recruiting expense,

partially offset by a $1.0 million increase in employee-related costs resulting from head count growth, a $0.6 million increase in professional and consulting expenses.

General and administrative expenses decreased by $8.9 million, or 34%, to $17.3 million for the three months ended September 30, 2022 as compared to the same period in 2021.

The decrease in general and administrative expenses was primarily due to a $7.5 million decrease in business acquisition costs, $2.4 million decrease in stock-based compensation costs, partially offset by a $0.5 million increase in employee-related costs, and a $0.4 million increase in transaction cost.

Intangible Asset Amortization

THREE MONTHS ENDED JUNE 30,

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(in thousands)

1 unchanged sentence

% of total revenues

Intangible asset amortization expense increased by $0.9 million, or 9%, to $10.4 million for the three months ended June 30, 2022 as compared to the same period in 2021.

Intangible asset amortization expense increased by $1.0 million, or 10%, to $10.6 million for the three months ended September 30, 2022, as compared to the same period in 2021.

The increase in intangible asset amortization expense was 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 by $0.1 million, or 24%, to $0.4 million for the three months ended June 30, 2022 as compared to the same period in 2021.

The decrease was primarily due to decrease in depreciation from computer equipment and furniture for the three months ended June 30, 2022 as compared to the same period in 2021.

Depreciation and amortization expense decreased by $0.1 million, or 22%, to $0.4 million for the three months ended September 30, 2022, as compared to the same period in 2021.

The decrease was primarily due to a decrease in depreciation from computer equipment and furniture for the three months ended September 30, 2022, as compared to the same period in 2021.

Interest Expense

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THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Interest expense decreased by $2.5 million, or 39%, to $3.9 million for the three months ended June 30, 2022 as compared to the same period in 2021.

The decrease in interest expense was primarily due to interest expense reclassed in from other comprehensive income due to hedge ineffectiveness in second quarter 2021, partially offset by an increase in interest expense on the Company’s term loan in the second quarter 2022 as compared to the same period in 2021.

THREE MONTHS ENDED JUNE 30,

Interest expense increased by $1.9 million, or 59%, to $5.2 million for the three months ended September 30, 2022 as compared to the same period in 2021.

The increase in interest expense was primarily due to increased interest on term loan debt due to market interest rates increase reflected on the debt interest.

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

% of total revenues

Net of other income increased by $2.9 million, to $2.5 million for the three months ended June 30, 2022 as compared to the same period in 2021.

The increase in other income was primarily due to $2.7 million increase in remeasurement gains related to the fluctuation of foreign currency exchange rates.

Net other income increased by $2.2 million, to $2.9 million for the three months ended September 30, 2022 as compared to the same period in 2021.

The increase in other income was primarily due to a $2.0 million increase in remeasurement gains related to the fluctuation of foreign currency exchange rates and a $0.2 million increase in interest income.

Provision for Income Taxes

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( in thousands)

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Effective income tax rate

Our income tax expense was $3.4 million, resulting in an effective income tax rate of 121% for the three months ended June 30, 2022 as compared to income tax expense of $1.5 million, or an effective income tax rate of (103)%, for the same period in 2021.

Our income tax expense for the three months ended June 30, 2022 and 2021 was primarily due to the tax effects of U.S.

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

earnings, and the relative mix of domestic and international earnings.

THREE MONTHS ENDED JUNE 30,

Income tax expense was $4.6 million, resulting in an effective income tax rate of 54% for the three months ended September 30, 2022 as compared to income tax benefit of $1.6 million, or an effective income tax rate of 48%, for the same period in 2021.

Our income tax expense for the three months ended September 30, 2022 and 2021 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.

earnings, the relative mix of domestic and international earnings, and discrete tax items including $1.4 million corporate income taxes and interest assessed by the Portuguese Tax Authority (“PTA”) for 2012, 2014, and 2019.

Net Income (loss)

THREE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Net income grew 79%, representing a $2.3 million increase in net income, to a net loss $0.6 million for the three months ended June 30, 2022 as compared to a net loss of $2.9 million in the same period of 2021.

The $2.3 million decrease in net loss was primarily due to a $12.7 million increase in total revenue, $2.7 million currency gain, and $2.5 million decrease in interest expense, partially offset by a $7.7 million increase in cost of revenue, a $6.1 million increase in operating expenses, and $1.9 million increase in tax expense.

Six Months Ended June 30, 2022 Versus Six Months Ended June 30, 2021

The following table summarizes our unaudited statements of operations data for the six months ended June 30, 2022 and 2021:

SIX MONTHS ENDED JUNE 30,

Net income (loss)

Net income was $3.9 million, representing a $5.7 million increase in net income for the three months ended September 30, 2022 as compared to a net loss of $1.8 million in the same period of 2021.

The increase in net income was primarily due to a $10.8 million increase in total revenue, a $4.9 million decrease in operating expenses, and a $2.0 million currency gain, partially offset by a $4.0 million increase in cost of revenue, a $6.2 million increase in tax expense, and a $1.9 million increase in interest expense.

Nine Months Ended September 30, 2022 Versus Nine Months Ended September 30, 2021

The following table summarizes our unaudited statements of operations data for the nine months ended September 30, 2022 and 2021:

NINE MONTHS ENDED SEPTEMBER 30,

( in thousands)

Total revenues

Revenues increased $27.5 million, or 20%, to $164.3 million for the six months ended June 30, 2022 as compared to the same period in 2021.

Revenues increased $38.3 million, or 18%, to $249.0 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

Excluding $20.7 million revenue from Pinnacle, which was acquired in late 2021, the revenues increased $17.6 million, or 8%.

acquisitions.

The increase was partially offset by the negative impact on our revenue from fluctuation of the foreign currency exchange rates.

Software revenues increased $15.9 million, or 38%, to $57.9 million for the six months ended June 30, 2022 as compared to the same period in 2021.

Excluding $12.1 million revenue from Pinnacle, the revenues from software increased $3.8 million, or 9%.

Software revenues increased $25.0 million, or 41%, to $86.3 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

Excluding $19.3 million in revenue from Pinnacle, the revenues from software increased $5.7 million, or 9%.

The overall growth is primarily attributable to maintaining high net revenue retention rates and renewal rates for our core software products, growth from acquisitions and new customers.

The increase was partially offset by the negative impact on our revenue from fluctuation of the foreign currency exchange rates.

Services revenues increased $11.6 million, or 12%, to $106.4 million for the six months s ended June 30, 2022 as compared to the same period in 2021.

Services revenues increased $13.2 million, or 9%, to $162.7 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

The growth in overall services revenue is primarily attributable to continued growth in biosimulation.

1 unchanged sentence

Cost of Revenues

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NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Cost of revenues

Cost of revenues increased by $14.4 million, or 27%, to $68.0 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The increase was primarily due to a $8.8 million increase in employee-related costs resulting from billable head count growth, a $3.4 million increase in intangible assets amortization, a $2.1 million increase in stock-based compensation cost, a $0.8 million increase related to cost of licenses and other operating expenses, and $0.8 million increase in travel, equipment and other miscellaneous expenses, partially offset by a $1.6 million decrease in consulting and professional services.

Cost of revenues increased by $18.5 million, or 22%, to $100.8 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

The increase was primarily due to a $9.2 million increase in employee-related costs resulting from billable head count growth, a $5.0 million increase in intangible assets amortization, a $3.1 million increase in stock-based compensation cost, a $1.3 million increase related to cost of licenses, and a $1.4 million increase in travel, equipment and other miscellaneous operating expenses, partially offset by a $1.7 million decrease in consulting and professional services.

Sales and Marketing Expenses

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NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Sales and marketing expenses increased by $4.9 million, or 59%, to $13.2 million for the six months ended June 30, 2022 as compared to the same period in 2021.

Sales and marketing expenses increased primarily due to a $3.4 million increase in employee-related costs resulting from head count growth, a $0.5 million increase in stock based compensation cost, and a $0.7 million increase in marketing and travel costs.

Sales and marketing expenses increased by $6.2 million, or 46%, to $19.6 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

Sales and marketing expenses increased primarily due to a $4.5 million increase in employee-related costs resulting from head count growth, a $1.6 million increase in travel, consulting and professional services, marketing, equipment, and other miscellaneous operating expenses.

Research and Development Expenses

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(in thousands)

1 unchanged sentence

% of total revenues

Research and development expenses increased by $6.0 million, or 64%, to $15.3 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The increase in research and development expenses was primarily due

to a $5.3 million increases in employee-related costs primarily resulting from headcount growth and a $2.1 million increase in stock-based compensation cost, partially offset by a $1.8 million increase in capitalized cost in research and development.

Research and development expenses increased by $7.7 million, or 56%, to $21.6 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

The increase in research and development expenses was primarily due to a $7.6 million increase in employee-related costs primarily resulting from headcount growth and a $2.6 million increase in stock-based compensation cost, partially offset by a $2.7 million increase in capitalized cost in R&D.

General and Administrative Expenses

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NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

General and administrative expenses increased by $1.5 million, or 4%, to $36.1 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The increase in general and administrative expenses was primarily due to a $2.5 million increase in employee-related costs resulting from head count growth, a $1.4 million increase in professional and consulting expenses, and a $0.7 million increase in equipment and software as well as travel expenses, partially offset by a $1.4 million decrease in acquisition related costs, a $1.5 million decrease in transaction cost related to public offerings, and a $0.4 million decrease in stock-based compensation costs.

General and administrative expenses decreased by $7.4 million, or 12%, to $53.4 million for the nine months ended September 30, 2022, as compared to the same period in 2021.

The decrease in general and administrative expenses was primarily due to a $8.9 million decrease in acquisition-related costs, a $2.7 million decrease in stock-based compensation costs, and a $1.1 million decrease in transaction costs, partially offset by a $3.0 million increase in employee-related costs resulting from head count growth, and a $1.8 million increase in professional and consulting expenses.

Intangible Asset Amortization

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NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

1 unchanged sentence

% of total revenues

Intangible asset amortization expense increased by $1.6 million, or 8%, to $20.5 million for the six months ended June 30, 2022 as compared to the same period in 2021.

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

Intangible asset amortization expense increased by $2.6 million, or 9%, to $31.1 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

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

Depreciation and Amortization Expense

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NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

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% of total revenues

Depreciation and amortization expense decreased by $0.3 million, or 22%, to $0.9 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The decrease was primarily due to decrease in depreciation from computer equipment and furniture for the six months ended June 30, 2022 as compared to the same period in 2021.

Depreciation and amortization expense decreased by $0.4 million, or 22%, to $1.3 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

The decrease was primarily due to a decrease in depreciation from computer equipment and furniture for the nine months ended September 30, 2022 as compared to the same period in 2021.

Interest Expense

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

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% of total revenues

Interest expense decreased by $3.2 million, or 31%, to $7.1 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The decrease in interest expense was primarily due to interest expense reclassed in from other comprehensive income due to hedge ineffectiveness in second quarter 2021.

SIX MONTHS ENDED JUNE 30,

Interest expense decreased by $1.2 million, or 9%, to $12.3 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

The decrease in interest expense was primarily due to $3.3 million of interest expense reclassed in from other comprehensive income due to hedge ineffectiveness in 2021, and partially offset by a $1.9 million interest increase on term loan debt.

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

% of total revenues

Net of other income increased by $3.8 million to $3.4 million for the six months ended June 30, 2022 as compared to the same period in 2021.

The increase in other income was primarily due to $3.6 million increase in remeasurement gains related to the fluctuation of foreign currency exchange rates.

Net of other income increased by $6.0 million to $6.2 million for the nine months ended September 30, 2022 as compared to the same period in 2021.

The increase in other income was primarily due to a $5.3 million increase in remeasurement gains related to the fluctuation of foreign currency exchange rates, a $0.3 million increase in other foreign currency transactions, and a $0.2 million decrease in losses from fixed asset disposal.

Provision for Income Taxes

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

( in thousands)

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Effective income tax rate

Our income tax expense was $4.9 million, resulting in an effective income tax rate of 75% for the six months ended June 30, 2022 as compared to income tax expense of $2.0 million, or an effective income tax rate of 1,131%, for the same period in 2021.

Our income tax expense for the six months ended June 30, 2022 and 2021 was primarily due to the tax effects of U.S.

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

earnings, and the relative mix of domestic and international earnings.

Income tax expense was $9.5 million, resulting in an effective income tax rate of 63% for the nine months ended September 30, 2022 as compared to an income tax expense of $0.3 million, or an effective income tax rate of (11)%, for the same period in 2021.

Our income tax expense for the nine months ended September 30, 2022 and 2021 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.

and the relative mix of domestic and international earnings and discrete tax items including $1.4 million for corporate income taxes and interest assessed by the Portuguese Tax Authority (“PTA”) for 2012, 2014, and 2019.

Net Income (loss)

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

Net income (loss)

Net income increased by $3.4 million, or 190%, to $1.6 million for the six months ended June 30, 2022 as compared to a net loss of $1.8 million in the same period of 2021.

The $3.4 increase in net income was primarily due to a $27.5 million increase in total revenue, a $3.6 million foreign currency gain, and $3.2 million decrease in interest expense, partially

offset by a $14.4 million increase in cost of revenue, a $13.7 million increase in operating expenses, and $2.9 million increase in tax expense.

Net income increased by a $9.1 million, or 256%, to $5.6 million for the nine months ended September 30, 2022, as compared to a net loss of $3.6 million in the same period of 2021.

The $9.1 increase in net income was primarily due to a $38.3 million increase in total revenue, a $5.7 million foreign currency gains related to remeasurement and other currency gains, and a $1.2 million decrease in interest expense, partially offset by a $18.5 million increase in cost of revenue, an $8.8 million increase in operating expenses, and a $9.1 million increase in tax expense.

Liquidity and Capital Resources

We have consistently generated positive cash flow from operations, providing $33.1 million and $19.6 million as a source of funds for the six month ended June 30, 2022 and 2021.

We have consistently generated positive cash flow from operations, providing $57.1 million and $39.6 million as a source of funds for the nine months ended September 30, 2022 and 2021, respectively.

Our additional liquidity comes from several sources:

maintaining adequate balances of cash and cash equivalents, issuing common stock, and accessing credit facilities and revolving line of credit.

The following table provides a summary of the major sources of liquidity for period ended and as of June 30, 2022 and December 31, 2021.

June 30, 2022

maintaining adequate balances of cash and cash equivalents, issuing common stock, and accessing credit facilities and revolving lines of credit.

The following table provides a summary of the major sources of liquidity for periods ended at September 30, 2022 and December 31, 2021 and as of September 30, 2022 and December 31, 2021.

September 30, 2022

December 31, 2021

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Revolving line of credit

(1) Cash balance as of June 30 , 2022 inclu ded $43.9 million cash a nd cash equivalents held outside of the United States.

(1) Cash balance as of September 30 , 2022 inclu ded $46.0 million ca sh a nd cash equivalents held outside of the United States.

Our material cash requirements from known contractual obligations are principal and interest payments of long-term debt.

We also have future cash obligations of $13.8 million for lease contracts, which have remaining terms from one to six years.

The principal amount of long-term debt outstanding as of June 30, 2022 matures in the following years:

We also have future cash obligations of $12.6 million for lease contracts, which have remaining terms of one to six years.

The principal amount of long-term debt outstanding as of September 30, 2022 matures in the following years:

Remainder of 2022

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We believe our existing sources of liquidity will be sufficient to meet our working capital, capital expenditures, and contractual obligations for the foreseeable future.

Our expected primary uses on a short-term and long-term basis are for repayment of debt, interest payments, working capital, capital expenditures, geographic or service offering expansion, acquisitions, investments, and other general corporate purposes.

investments, and other general corporate purposes.

We believe we will meet short and longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions.

Our future capital requirements, however, will depend on many factors, including funding for potential acquisitions, investments, and other growth and strategic opportunities, which could increase our cash requirements.

While we believe we have, and will be able to generate, sufficient liquidity to fund our operations for the foreseeable future, our sources of liquidity could be affected by factors described under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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

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(in thousands)

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Effect of foreign exchange rate changes on cash and cash equivalents, and restricted cash

Net (decrease) increase in cash and cash equivalents, and restricted cash

Net increase in cash and cash equivalents, and restricted cash

Cash paid for interest

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Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions for credit losses, depreciation and amortization, stock-based compensation, deferred taxes and other non-cash items and (ii) changes in the balances of operating assets and liabilities.

Net cash provided by operating activities in the first six months of 2022 was $33.1 million, compared to $19.6 million in the same period of 2021.

The $13.5 million increase in cash from operating activities was primarily due to higher revenue, higher inflows of cash from higher deferred revenues, less cash used on prepaid assets, accounts payable, and other liabilities, partially offset by the increase in accounts receivable.

Net cash provided by operating activities in the first nine months of 2022 was $57.1 million, compared to $39.6 million in the same period of 2021.

The $17.5 million increase in cash from operating activities was primarily due to cash collected from higher revenues and less cash used for prepaid and other assets, partially offset by the increase in cash utilized for accounts payable and other liabilities.

Investing Activities

Net cash used by investing activities in the first six months of 2022 was $11.9 million, a decrease of $6.1 million, compared to $18.0 million in the same period of 2021.

The change in investing activities was primarily due to $8.2 million decrease in cash payments in connection with business acquisitions, $1.8 million increase in cash utilized in capitalized software development to support our growth.

Net cash used by investing activities in the first nine months of 2022 was $15.2 million, a decrease of $5.4 million, compared to $20.6 million in the same period of 2021.

The change in investing activities was primarily due to an $8.2 million decrease in cash payments in connection with business acquisitions, partially offset by a $2.9 million increase in cash utilized in capitalized development costs and capital expenditures to support our growth.

Financing Activities

Net cash used by financing activities in the first six months of 2022 was $5.1 million, compared to $5.2 million cash used in the same period of 2021.

The cash used was relatively flat for the six months ended June 30, 2022, as compared to the same period in 2021.

For the first six months of 2022, we paid $2.3 million on our employees’ behalf in connection with share awards vested and withheld for payroll tax, and paid $1.1 million on derivative contracts.

Compared to the same period of 2021, the prepayment on long term debt and payment on finance lease obligation decreased $0.7 million.

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.

Net cash used by financing activities in the first nine months of 2022 was $6.4 million, compared to $127.0 million cash provided in the same period of 2021.

The $133.4 million change in cash flow in financing activities was primarily due to the $133.4 million cash proceeds received in the third quarter of 2021 from issuing common stock of the Company.

In addition, in comparing the first nine months of 2022 with the same period of 2021, cash payments increased $2.7 million in connection with share awards vested and withheld for payroll tax, and offset by a $2.9 million decrease related to debt issuance costs.

The term loan was originally scheduled to mature on August 14, 2024, and the commitments under the revolving credit facility were originally scheduled to mature on August 14, 2022.

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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.

The terms of such incremental term loans were the same as the terms of our existing term loans, including in respect of maturity, and they 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.

We entered into a third restated and amended loan agreement on June 17, 2021 (“Third Amendment”), which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments under the Credit Agreement to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $80.0 million in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $100.0 million).

7 unchanged sentences

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, 2022, we had $299.0 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement, and outstanding letters of credit of $0.1 million under the Credit Agreement.

As of June 30, 2022, we were in compliance with the covenants of the Credit Agreement.

As of September 30, 2022, we had $298.2 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement, and outstanding letters of credit of $0.1 million under the Credit Agreement.

As of September 30, 2022, 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, 2022 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 21, 2021, except for payment made in the ordinary course of business.

We recorded income tax expense of $4.9 million for the six months ended June 30, 2022 and income tax expense of $2.0 million for the six months ended June 30, 2021.

As of June 30, 2022, we had federal and state NOLs of approximately $2.4 million and $2.6 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2040 and 2029 and 2039, respectively.

There have been no material changes to our contractual obligations during the nine months ended September 30, 2022 from those disclosed in our 2021Annual Report, except for payments made in the ordinary course of business.

We recorded income tax expense of $9.5 million for the nine months ended September 30, 2022, and income tax expense of $0.3 million for the nine months ended September 30, 2021.

As of September 30, 2022, we had federal and state net operating losses(“NOLs”) of approximately $2.4 million and $2.6 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2040 and 2029 and 2039, respectively.

We had federal and state R&D tax credit carryforwards of approximately $1.5 million and $0.4 million, respectively, to offset future income taxes, which expire between 2038 and 2041.

7 unchanged sentences

As a result, a valuation allowance of $18.2 million was recorded at December 31, 2021.

As of June 30, 2022, the valuation allowance remained unchanged from December 31, 2021.

As of September 30, 2022, the valuation allowance remained unchanged from December 31, 2021.

Off-Balance Sheet Arrangements

1 unchanged sentence

Critical Accounting Estimates

Our accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Our accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” in our audited consolidated financial statements included in our 2021 Annual Report.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

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.

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 Form 10-K for the fiscal year ended December 31, 2021.

There were no significant changes to our critical accounting estimates during the six months ended June 30, 2022.

and Analysis of Financial Condition and Results of Operations,” in our 2021 Annual Report.

There were no significant changes to our critical accounting estimates during the nine months ended September 30, 2022.

Recently Adopted and Issued Accounting Standards

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report, such standards will not have a material impact on our condensed consolidated financial statements or do not otherwise apply to our operations.

Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s 2021 Annual Report.

There were no material changes to the Company’s market risk exposure during the nine months ended September 30, 2022.

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