What changed in this filing

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Item 1. Financial Statements

2023-06-07 compared with 2022-12-08 · 89 added, 134 removed, 322 unchanged (41% of the section changed)

3 unchanged sentences

Condensed consolidated balance sheets

(in thousands, except par value) October 31, 2022 January 31, 2022

(in thousands, except par value) April 30, 2023 January 31, 2023

Current assets

Cash and cash equivalents $ 225,642 $ 254,266

Accounts receivable, net of allowance for doubtful accounts of $ 6,045 and $ 6,228 as of October 31, 2022 and January 31, 2022, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 4,722 and $ 4,989 as of April 30, 2023 and January 31, 2023, respectively

98,414 96,835

16 unchanged sentences

Long-term liabilities

Long-term debt, net 911,406 922,077

Long-term debt, net of issuance costs 872,902 907,838

Operating lease liabilities, non-current 58,625 58,988

5 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 84,636 and 83,780 shares issued and outstanding as of October 31, 2022 and January 31, 2022, respectively

Preferred stock, $ 0.0001 par value, 100,000 shares authorized, no shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively

Common stock, $ 0.0001 par value, 900,000 shares authorized, 85,470 and 84,758 shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively

Additional paid-in capital 1,764,573 1,745,716

6 unchanged sentences

Condensed consolidated statements of operations and

comprehensive loss (unaudited)

Three months ended October 31, Nine months ended October 31,

comprehensive income (loss) (unaudited)

Three months ended April 30,

(in thousands, except per share data) 2023 2022

21 unchanged sentences

Total other expense ( 13,169 ) ( 10,762 )

Loss before income taxes ( 6,180 ) ( 9,125 ) ( 38,104 ) ( 22,976 )

Income tax benefit ( 4,539 ) ( 4,087 ) ( 12,170 ) ( 11,505 )

Net loss and comprehensive loss $ ( 1,641 ) $ ( 5,038 ) $ ( 25,934 ) $ ( 11,471 )

Net loss per share:

Income (loss) before income taxes 10,012 ( 18,051 )

Income tax provision (benefit) 5,918 ( 4,412 )

Net income (loss) and comprehensive income (loss) $ 4,094 $ ( 13,639 )

Net income (loss) per share:

Basic $ 0.05 $ ( 0.16 )

Diluted $ 0.05 $ ( 0.16 )

Weighted-average number of shares used in computing net loss per share:

Weighted-average number of shares used in computing net income (loss) per share:

Basic 85,030 84,022

4 unchanged sentences

Condensed consolidated statements of stockholders’ equity (unaudited)

Three months ended October 31, Nine months ended October 31,

Three months ended April 30,

(in thousands) 2023 2022

3 unchanged sentences

Issuance of common stock upon exercise of stock options, and for restricted stock 1 —

Other issuance of common stock — — — —

Ending balance 9 8

2 unchanged sentences

Issuance of common stock upon exercise of stock options, and for restricted stock 653 2,341

Other issuance of common stock — — — 456,640

Stock-based compensation 18,204 13,986

2 unchanged sentences

Beginning balance 149,916 176,059

Net loss ( 1,641 ) ( 5,038 ) ( 25,934 ) ( 11,471 )

Net income (loss) 4,094 ( 13,639 )

Ending balance 154,010 162,420

4 unchanged sentences

Condensed consolidated statements of cash flows (unaudited)

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2023 2022

Cash flows from operating activities:

Net loss $ ( 25,934 ) $ ( 11,471 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss) $ 4,094 $ ( 13,639 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 39,041 39,486

2 unchanged sentences

Loss on extinguishment of debt 1,157 —

Change in fair value of contingent consideration — ( 2,147 )

Other non-cash items 269 ( 750 )

Deferred taxes ( 738 ) ( 4,470 )

11 unchanged sentences

Purchases of property and equipment ( 132 ) ( 1,155 )

Acquisition of intangible member assets ( 70,574 ) ( 64,463 )

Acquisitions, net of cash acquired — ( 49,533 )

Proceeds from sale of equity securities — 2,367

Acquisitions of HSA portfolios — ( 59,413 )

Net cash used in investing activities ( 9,135 ) ( 74,203 )

3 unchanged sentences

Proceeds from exercise of common stock options 916 2,811

Proceeds from issuance of long-term debt — 950,000

Payment of debt issuance costs — ( 11,846 )

Proceeds from follow-on equity offering, net of payments for offering costs — 456,642

Net cash provided by (used in) financing activities ( 51,027 ) 2,959

Increase (decrease) in cash and cash equivalents ( 15,217 ) 320,326

Decrease in cash and cash equivalents ( 28,624 ) ( 64,167 )

Beginning cash and cash equivalents 254,266 225,414

4 unchanged sentences

Condensed consolidated statements of cash flows (unaudited) (continued)

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2023 2022

5 unchanged sentences

Purchases of property and equipment included in accounts payable or accrued liabilities 119 1,165

Purchases of intangible member assets included in accounts payable or accrued liabilities — 2,281

Contingent consideration recognized at acquisition — 8,147

Acquisitions of HSA portfolios included in accounts payable or accrued liabilities — 1,305

Exercise of common stock options receivable 120 —

Decrease in goodwill due to measurement period adjustments, net 77 19

See accompanying notes to condensed consolidated financial statements.

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Basis of presentation

The accompanying condensed consolidated financial statements as of October 31, 2022 and for the three and nine months ended October 31, 2022 and 2021 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

In the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods.

The accompanying condensed consolidated financial statements as of April 30, 2023 and for the three months ended April 30, 2023 and 2022 are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") regarding interim financial reporting.

In the opinion of management, the interim data includes all adjustments necessary for a fair presentation of the results for the interim periods.

Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

5 unchanged sentences

Recently issued accounting pronouncements not yet adopted

Net loss per share

The following table sets forth the computation of basic and diluted net loss per share:

Three months ended October 31, Nine months ended October 31,

Net income (loss) per share

The following table sets forth the computation of basic and diluted net income (loss) per share:

Three months ended April 30,

(in thousands, except per share data) 2023 2022

Numerator (basic and diluted):

Net loss $ ( 1,641 ) $ ( 5,038 ) $ ( 25,934 ) $ ( 11,471 )

Net income (loss) $ 4,094 $ ( 13,639 )

Denominator (basic):

4 unchanged sentences

Diluted weighted-average common shares outstanding 86,102 84,022

Net loss per share:

Net income (loss) per share:

Basic $ 0.05 $ ( 0.16 )

Diluted $ 0.05 $ ( 0.16 )

For the three months ended October 31, 2022 and 2021, approximately 2.0 million and 1.6 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net loss per share as their inclusion would have been anti-dilutive.

For the nine months ended October 31, 2022 and 2021, approximately 2.4 million and 1.9 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net loss per share as their inclusion would have been anti-dilutive.

Business combinations

Luum acquisition

On March 8, 2021, the Company acquired 100 % of the outstanding capital stock of Fort Effect Corp, d/b/a Luum (the "Luum Acquisition").

The aggregate purchase price for the acquisition consisted of $ 56.2 million in cash, which reflects a $ 2.1 million reduction in the fair value of contingent consideration during the fiscal year ended January 31, 2022.

The Luum Acquisition was accounted for under the acquisition method of accounting for business combinations.

The consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The initial allocation of the consideration paid was based on a preliminary valuation and was subject to adjustment during the measurement period (up to one year from the acquisition date).

The purchase price allocation was finalized in the three months ended April 30, 2022.

The following table summarizes the Company's allocation of the consideration paid:

(in thousands) Estimated fair value Adjustments Updated Allocation

Cash and cash equivalents $ 626 $ — $ 626

Other current assets 1,469 — 1,469

Intangible assets 23,900 — 23,900

Goodwill 36,374 ( 19 ) 36,355

Other assets 100 — 100

Current liabilities ( 597 ) — ( 597 )

Deferred tax liability ( 3,566 ) 19 ( 3,547 )

Total consideration paid $ 58,306 $ — $ 58,306

The adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired, liabilities assumed, and tax-related matters.

The goodwill created in the Luum Acquisition is no t expected to be deductible for tax purposes.

Further acquisition

On November 1, 2021, the Company completed its acquisition of the Further business (other than Further's voluntary employee beneficiary association business) for $ 455 million (the "Further Acquisition").

The Further Acquisition was accounted for under the acquisition method of accounting for business combinations.

The consideration paid was allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair values as of the acquisition date.

The initial allocation of the consideration paid was based on a preliminary valuation and is subject to adjustment during the measurement period (up to one year from the acquisition date).

Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible) and liabilities assumed, as well as tax-related matters.

The Company expects the allocation of the consideration transferred to be finalized within the measurement period.

The following table summarizes the Company's current allocation of the consideration paid:

(in thousands) Estimated fair value Adjustments Updated Allocation

Current assets $ 2,667 $ ( 163 ) $ 2,504

Intangible assets 172,183 — 172,183

Goodwill 282,287 ( 77 ) 282,210

Current liabilities ( 2,137 ) 240 ( 1,897 )

Total consideration paid $ 455,000 $ — $ 455,000

The adjustments to the initial allocation were based on more detailed information obtained about the specific assets acquired, liabilities assumed, and tax-related matters.

The goodwill created in the Further Acquisition is expected to be deductible over a period of 15 years for tax purposes.

For the three months ended April 30, 2023 and 2022, approximately 1.0 million and 2.0 million shares, respectively, attributable to outstanding stock options and restricted stock units were excluded from the calculation of diluted net income (loss) per share as their inclusion would have been anti-dilutive.

Supplemental financial statement information

Selected condensed consolidated balance sheet and condensed consolidated statement of operations and comprehensive loss components consisted of the following:

Selected condensed consolidated balance sheet and condensed consolidated statement of operations and comprehensive income (loss) components consisted of the following:

Property and equipment

Property and equipment consisted of the following:

(in thousands) October 31, 2022 January 31, 2022

(in thousands) April 30, 2023 January 31, 2023

Leasehold improvements $ 18,072 $ 18,269

4 unchanged sentences

Property and equipment, net $ 10,532 $ 12,862

Depreciation expense for the three months ended October 31, 2022 and 2021 was $ 2.9 million and $ 3.5 million, respectively, and $ 9.4 million and $ 10.9 million for the nine months ended October 31, 2022 and 2021, respectively.

Depreciation expense for the three months ended April 30, 2023 and 2022 was $ 2.5 million and $ 3.3 million, respectively.

Contract balances

2 unchanged sentences

Alternatively, when payment precedes the related services, the Company records a contract liability, or deferred revenue, until its performance obligations are satisfied.

As of October 31, 2022 and January 31, 2022, the balance of deferred revenue was $ 7.4 million and $ 10.5 million, respectively.

As of April 30, 2023 and January 31, 2023, the balance of deferred revenue was $ 7.8 million and $ 8.3 million, respectively.

The balances are related to cash received in advance for interchange and custodial revenue arrangements, other up-front fees and other commuter deferred revenue.

The Company expects to recognize approximately 62 % of its balance of deferred revenue as revenue over the next 12 months and the remainder thereafter.

During the three and nine months ended October 31, 2022, approximately $ 1.0 million and $ 4.2 million, respectively, of revenue was recognized that was included in the balance of deferred revenue as of January 31, 2022.

During the three months ended April 30, 2023, approximately $ 1.5 million of revenue was recognized that was included in the balance of deferred revenue as of January 31, 2023.

The Company expects to satisfy its remaining obligations for these arrangements.

The components of operating lease costs were as follows:

Three months ended October 31, Nine months ended October 31,

Three months ended April 30,

(in thousands)

2022 2021 2022 2021

Operating lease expense $ 2,601 $ 2,859

3 unchanged sentences

Other income (expense), net, consisted of the following:

Three months ended October 31, Nine months ended October 31,

Three months ended April 30,

(in thousands) 2023 2022

Interest income $ 1,598 $ 52

Gain on equity securities — — — 1,677

Acquisition gains (costs), net — 2,687 ( 53 ) ( 4,917 )

Acquisition costs — ( 6 )

Other income (expense), net 230 ( 347 )

Total other income (expense), net $ 1,828 $ ( 301 )

Interest expense

Based on the application of Accounting Standards Codification ("ASC") 470-50, Debt - Modifications and Extinguishments , the Company recorded a $ 1.2 million loss on extinguishment of debt due to the prepayment of $ 50.0 million under the Company's Term Loan Facility (as defined in Note 6—Indebtedness) during the three months ended April 30, 2023, which is included within interest expense in the condensed consolidated statement of operations and comprehensive income for the three months ended April 30, 2023.

Supplemental cash flow information

Supplemental cash flow information related to the Company's operating leases was as follows:

Nine months ended October 31,

Three months ended April 30,

(in thousands) 2023 2022

5 unchanged sentences

The gross carrying amount and associated accumulated amortization of intangible assets were as follows:

October 31, 2022

April 30, 2023

(in thousands) Gross carrying amount Accumulated amortization Net carrying amount

15 unchanged sentences

Total amortizable intangible assets $ 1,399,889 $ ( 463,530 ) $ 936,359

Amortization expense for the three months ended October 31, 2022 and 2021 was $ 37.6 million and $ 30.0 million, respectively, and $ 111.4 million and $ 87.5 million for the nine months ended October 31, 2022 and 2021, respectively.

During the three and nine months ended October 31, 2022, goodwill decreased by $ 0.2 million and $ 0.1 million, respectively, due to measurement period adjustments.

For further information, see Note 3—Business combinations.

There were no additional changes to the carrying value of goodwill during the nine months ended October 31, 2022.

Amortization expense for the three months ended April 30, 2023 and 2022 was $ 36.5 million and $ 36.2 million, respectively.

There were no changes to the carrying value of goodwill during the three months ended April 30, 2023.

Commitments and contingencies

The Company’s principal commitments consist of long-term debt, operating lease obligations for office space and data storage facilities, processing services agreements, telephony services, and other contractual commitments.

On March 2, 2022, the Company completed its acquisition of the Health Savings Administrators, L.L.C.

("HealthSavings") HSA portfolio for $ 60 million in cash.

There were no other material changes during the nine months ended October 31, 2022, outside of the ordinary course of business, in the Company's commitments from those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2022.

The Company’s principal commitments consist of long-term debt, operating lease obligations for office space and data storage facilities, processing services agreements, software subscriptions, telephony services, and other contractual commitments.

During the three months ended April 30, 2023, the Company used $ 50.0 million of cash to prepay, in direct order of maturity, principal due under its Term Loan Facility.

There were no other material changes during the three months ended April 30, 2023, outside of the ordinary course of business, in the Company's commitments from those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 31, 2023.

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of covenants, representations, and warranties and provide for general indemnifications.

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.

The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made.

1 unchanged sentence

Legal matters

In April 2021, the Company's wholly owned subsidiary WageWorks, Inc.

("WageWorks") exercised its right to terminate a lease for office space in Mesa, Arizona that had not yet commenced, with aggregate lease payments of $ 63.1 million and a term of approximately 11 years, following the landlord's failure to fulfill its obligations under the lease agreement.

In April 2021, WageWorks, Inc.

("WageWorks"), a wholly owned subsidiary of the Company, exercised its right to terminate a lease for office space in Mesa, Arizona that had not yet commenced, with aggregate lease payments of $ 63.1 million and a term of approximately 11 years, following the landlord's failure to fulfill its obligations under the lease agreement.

Because the lease had not yet commenced, the Company had not recognized a right-of-use asset, operating lease liability, or any rent expense associated with the lease.

7 unchanged sentences

On May 19, 2022, Union Mesa filed an amended complaint and counterclaim seeking the same recourse.

On June 29, 2022, Union Mesa filed a second amended answer and counterclaim, which names the Company as a

counter-defendant.

On June 29, 2022, Union Mesa filed a second amended answer and counterclaim, which names the Company as a counter-defendant.

On July 21, 2022, WageWorks and the Company filed an answer to the counterclaims.

On April 26, 2023, Union Mesa filed a motion for partial summary judgment, and the Company expects to file its response in due course.

The parties are currently engaged in discovery.

5 unchanged sentences

Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations and cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

The Company follows Accounting Standards Codification 740-270, Income Taxes - Interim Reporting , for the computation and presentation of its interim period tax provision.

Accordingly, management estimated the effective annual tax rate and applied this rate to the pre-tax book loss through the end of the latest fiscal quarter to determine the interim income tax benefit.

For the three and nine months ended October 31, 2022, the Company recorded an income tax benefit of $ 4.5 million and $ 12.2 million, respectively.

This resulted in an effective income tax benefit rate of 73.4 % and 31.9 % for the three and nine months ended October 31, 2022, respectively, compared with an effective income tax benefit rate of 44.8 % and 50.1 % for the three and nine months ended October 31, 2021, respectively.

For the three and nine months ended October 31, 2022, discrete tax items had an effective tax rate benefit of 66.2 % and 14.3 %, respectively, compared with an effective tax rate benefit of 7.7 % and 20.5 % for the three and nine months ended October 31, 2021, respectively, primarily due to a release of uncertain tax positions and a change in excess tax benefits on stock-based compensation expense recognized in the provision for income taxes.

As of October 31, 2022 and January 31, 2022, the Company’s total gross unrecognized tax benefit was $ 8.8 million and $ 11.7 million, respectively.

If recognized, $ 5.4 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of October 31, 2022.

The Company files income tax returns with U.S.

federal and state taxing jurisdictions and is currently under examination by the IRS and the state of Texas.

These examinations may lead to ordinary course adjustments or proposed adjustments to the Company's taxes, net operating losses, and/or tax credit carryforwards.

As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2006.

Long-term debt consisted of the following:

(in thousands) October 31, 2022 January 31, 2022

(in thousands) April 30, 2023 January 31, 2023

4.50 % Senior Notes due 2029

6 unchanged sentences

Long-term debt, net $ 872,902 $ 907,838

(1) In addition to the $ 16.7 million and $ 19.2 million of unamortized discount and issuance costs related to long-term debt as of October 31, 2022 and January 31, 2022, respectively, $ 3.7 million and $ 4.4 million of unamortized issuance costs related to the Company's Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of October 31, 2022 and January 31, 2022, respectively.

(1) In addition to the $ 14.0 million and $ 15.9 million of unamortized discount and issuance costs related to long-term debt as of April 30, 2023 and January 31, 2023, respectively, $ 3.2 million and $ 3.4 million of unamortized issuance costs related to the Company's Revolving Credit Facility (as defined below) are included within other assets on the condensed consolidated balance sheets as of April 30, 2023 and January 31, 2023, respectively.

4.50 % Senior Notes due 2029

4 unchanged sentences

Interest on the Notes is payable on April 1 and October 1 of each year.

As of October 31, 2022 and January 31, 2022, $ 2.3 million and $ 8.7 million, respectively, of accrued interest on the Notes is included within accrued liabilities on the Company's condensed consolidated balance sheets.

As of April 30, 2023 and January 31, 2023, $ 2.3 million and $ 9.0 million, respectively, of accrued interest on the Notes is included within accrued liabilities on the Company's condensed consolidated balance sheets.

The effective interest rate on the Notes is 4.72 %.

12 unchanged sentences

Subject to the terms and conditions set forth in the Credit Agreement (including obtaining additional commitments from one or more new or existing lenders), the Company may in the future incur additional loans or commitments under the Credit Agreement in an aggregate principal amount of up to $ 300 million, plus an additional amount so long as the Company’s pro forma First Lien Net Leverage Ratio (as defined in the Credit Agreement) would not exceed 3.85 to 1.00 as of the date such loans or commitments are incurred.

Borrowings under the Credit Facilities bear interest at an annual rate equal to, at the option of the Company, either (i) LIBOR (adjusted for reserves) plus a margin ranging from 1.25 % to 2.25 % or (ii) an alternate base rate plus a margin ranging from 0.25 % to 1.25 %, with the applicable margin determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

As of October 31, 2022, the stated interest rate was 5.56 % and the effective interest rate was 6.38 %.

The Company is also required to pay certain fees to the Lenders, including, among others, a quarterly commitment fee on the average unused amount of the Revolving Credit Facility at a rate

ranging from 0.20 % to 0.40 %, with the applicable rate also determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

No amounts have been drawn under the Revolving Credit Facility.

Borrowings under the Credit Facilities as of April 30, 2023 bear interest at an annual rate equal to, at the option of the Company, either (i) LIBOR (adjusted for reserves) plus a margin ranging from 1.25 % to 2.25 % or (ii) an alternate base rate plus a margin ranging from 0.25 % to 1.25 %, with the applicable margin determined in either scenario by reference to a leverage-based pricing grid set forth in the Credit Agreement.

As of April 30, 2023, the stated interest rate was 6.56 % and the effective interest rate was 7.32 %.

On June 1, 2023, the Company entered into an amendment to the Credit Agreement (“Amendment No.

1”) which replaced interest rate provisions based on LIBOR with the forward-looking term rate based on the secured overnight financing rate published by the CME Group Benchmark Administration Limited (“Term SOFR”).

As a result, borrowings under the Credit Agreement as so amended by Amendment No.

1 will bear interest at an annual rate equal to, at the option of the Company, either (i) Term SOFR, plus a 0.10 % credit spread adjustment, plus a margin ranging from 1.25 % to 2.25 %, or (ii) an alternate base rate, plus a margin ranging from 0.25 % to 1.25 %, with the applicable margin determined in either scenario by reference to a leverage-based pricing grid set forth in the Credit Agreement (as amended by Amendment No.

The Company is also required to pay certain fees to the Lenders, including, among others, a quarterly commitment fee on the average unused amount of the Revolving Credit Facility at a rate ranging from 0.20 % to 0.40 %, with the applicable rate also determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

As of April 30, 2023, no amounts have been drawn under the Revolving Credit Facility.

The loans made under the Term Loan Facility amortize in equal quarterly installments in an aggregate annual amount equal to the following percentage of the original principal amount of the Term Loan Facility:

4 unchanged sentences

In addition, the Term Loan Facility is required to be mandatorily prepaid with 100 % of the net cash proceeds of all asset sales, insurance and condemnation recoveries, subject to customary exceptions and thresholds, including to the extent such proceeds are reinvested in assets useful in the business of the Company and its subsidiaries within 450 days following receipt (or committed to be reinvested within such 450 -day period and reinvested within 180 days after the end of such 450 -day period).

The Credit Agreement contains significant customary affirmative and negative covenants, including covenants that limit, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, create liens, merge or dissolve, make investments, dispose of assets, engage in sale and leaseback transactions, make distributions and dividends and prepayments of junior indebtedness, engage in transactions with affiliates, enter into restrictive agreements, amend documentation governing junior indebtedness, modify its fiscal year and modify its organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 5.00 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The Company was in compliance with all covenants under the Credit Agreement as of October 31, 2022, and for the period then ended.

The loans under the Credit Facilities may be prepaid, and the commitments thereunder may be reduced, by the Company without penalty or premium, subject to the reimbursement of customary “breakage costs.” During the three months ended April 30, 2023, the Company used $ 50.0 million of cash to prepay, in direct order of maturity, principal due under its Term Loan Facility.

organizational documents, in each case, subject to customary exceptions, thresholds, qualifications and “baskets.” In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 5.00 to 1.00 and (ii) a minimum consolidated interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The Company was in compliance with all covenants under the Credit Agreement as of April 30, 2023, and for the period then ended.

The repayment obligation under the Credit Agreement may be accelerated upon the occurrence of an event of default thereunder, including, among other things, failure to pay principal, interest or fees on a timely basis, material inaccuracy of any representation or warranty, failure to comply with covenants, cross-default to other material debt, material judgments, change of control and certain insolvency or bankruptcy-related events, in each case, subject to any certain grace and/or cure periods.

The obligations of the Company under the Credit Agreement are required to be unconditionally guaranteed by each of the Company’s existing or subsequently acquired or organized domestic subsidiaries and are secured by security interests in substantially all assets of the Company and the guarantors, in each case, subject to certain customary exceptions.

The Company follows ASC 740-270, Income Taxes - Interim Reporting , for the computation and presentation of its interim period tax provision.

Accordingly, management estimated the effective annual tax rate and applied this rate to pre-tax income through the end of the latest fiscal quarter to determine the interim income tax provision.

For the three months ended April 30, 2023 and 2022, the Company recorded an income tax provision of $ 5.9 million and an income tax benefit of $ 4.4 million, respectively.

This resulted in an effective income tax provision rate of 59.1 % and an income tax benefit rate of 24.4 % for the three months ended April 30, 2023 and 2022, respectively.

For the three months ended April 30, 2023 and 2022, discrete tax items impacting the effective tax rate were primarily due to differences in tax deductible stock-based compensation expense compared to GAAP stock-based compensation expense.

As of April 30, 2023 and January 31, 2023, the Company’s total gross unrecognized tax benefit was $ 8.8 million and $ 8.7 million, respectively.

If recognized, $ 5.4 million of the total gross unrecognized tax benefits would affect the Company's effective tax rate as of April 30, 2023.

As of April 30, 2023, $ 6.9 million of federal income tax payable is included within accrued liabilities on the Company's condensed consolidated balance sheet.

The Company files income tax returns with U.S.

federal and state taxing jurisdictions and is currently under examination by the IRS and the state of Texas.

These examinations may lead to ordinary course adjustments or proposed adjustments to the Company's taxes, net operating losses, and/or tax credit carryforwards.

As a result of the Company's net operating loss carryforwards and tax credit carryforwards, the Company remains subject to examination by one or more jurisdictions for tax years after 2003.

Stock-based compensation

The following table shows a summary of stock-based compensation in the Company's condensed consolidated statements of operations and comprehensive loss during the periods presented:

Three months ended October 31, Nine months ended October 31,

The following table shows a summary of stock-based compensation in the Company's condensed consolidated statements of operations and comprehensive income (loss) during the periods presented:

Three months ended April 30,

(in thousands) 2023 2022

3 unchanged sentences

General and administrative 6,698 5,585

Other expense, net (1) — — — 342

Total stock-based compensation expense $ 18,204 $ 13,986

(1) Equity-based awards exchanged for cash in connection with the Luum Acquisition.

Stock award plans

3 unchanged sentences

In addition, under the Incentive Plan, the number of shares of common stock reserved for issuance under the Incentive Plan automatically increases on February 1 of each year, beginning as of February 1, 2015 and continuing through and including February 1, 2024, by 3 % of the total number of shares of the Company’s capital stock outstanding on January 31 of the preceding fiscal year, or a lesser number of shares determined by the board of directors.

As of October 31, 2022, 9.4 million shares were available for grant under the Incentive Plan.

As of April 30, 2023, 11.4 million shares were available for grant under the Incentive Plan.

Stock options

10 unchanged sentences

Forfeited ( 2 ) $ 44.53 - 44.53

Outstanding as of October 31, 2022 1,039 $ 14.00 - 82.39

Outstanding as of April 30, 2023 999 $ 14.00 - 82.39

$ 36.10 2.9 $ 20,970

Vested and expected to vest as of October 31, 2022 1,039 $ 36.24 3.7 $ 43,426

Exercisable as of October 31, 2022 1,007 $ 35.12 3.6 $ 43,196

Vested and expected to vest as of April 30, 2023 999 $ 36.10 2.9 $ 20,970

Exercisable as of April 30, 2023 999 $ 36.10 2.9 $ 20,970

Restricted stock units

6 unchanged sentences

Forfeited ( 89 ) 70.13

Outstanding as of October 31, 2022 3,270 $ 70.02

Outstanding as of April 30, 2023 3,813 $ 68.60

Performance restricted stock units.

15 unchanged sentences

The Notes are valued based upon quoted market prices and are considered Level 2 instruments because the markets in which the Notes trade are not considered active markets.

As of October 31, 2022, the fair value of the Notes was $ 528.5 million.

As of April 30, 2023, the fair value of the Notes was $ 536.6 million.

The Term Loan Facility is considered a Level 2 instrument and recorded at book value in the Company's condensed consolidated financial statements.

1 unchanged sentence

As a result, the fair value of the Term Loan Facility approximates carrying value.

Subsequent events

Except for Amendment No.

1 to the Credit Agreement, as described in Note 6—Indebtedness, there were no subsequent events that required recognition or disclosure.

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 1. Financial Statements