Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), the financial statements and related notes included in our prospectus dated June 10, 2021 (the “prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on June 14, 2021 (the “prospectus”) and the information included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the prospectus. In addition to historical data, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in our forward-looking statements as a result of various factors, including but not limited to those discussed under “Cautionary Statement Regarding Forward-Looking Statements” in this Quarterly Report and under “Risk Factors” in the Quarterly Report and the prospectus.
This
Quarterly
Report
includes
certain
historical
consol
i
dated
financial
and
other
data
for
Tas
k
Us, Inc.
(“we,”
“us,” “our”
or
the
“Company”). The
following
discussion
provides
a
narrative
of
our
results
of op
e
rations
and
financial
condition
for
the
three
and
six
months
ended
June
30,
2021
and
2
0
20.
21
Table of Contents
Overview
We are a digital outsourcer, focused on serving high-growth technology companies to represent, protect and grow their brands. We support some of the world’s most disruptive brands such as Zoom, Netflix, Uber, Coinbase and Oscar .
Our global, omni-channel delivery model is focused on providing our clients three key services – Digital Customer Experience, Content Security and artificial intelligence (“AI”) Operations.
We have designed our platform to enable us to rapidly scale and benefit from our clients’ growth. We believe our ability to deliver “ridiculously good” outsourcing will enable us to continue to grow our client base.
At TaskUs, culture is at the heart of everything we do. Many of the companies operating in the Digital Economy are well-known for their obsession with creating a world-class employee experience. We believe clients choose TaskUs in part because they view our company culture as aligned with their own, which enables us to act as a natural extension of their brands and gives us an advantage in the recruitment of highly engaged frontline teammates who produce better results.
Recent Financial Highlights
For the three months ended June 30, 2021, we recorded service revenues of $180.0 million, or a 57.4% increase from $114.4 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, we recorded service revenues of $332.9 million, or a 53.5% increase from $216.8 million for the six months ended June 30, 2020.
Net (loss) income for the three months ended June 30, 2021 decreased to $(105.9) million from $8.0 million for the three months ended June 30, 2020. This decrease included expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of $133.7 million. Adjusted Net Income for the three months ended June 30, 2021 increased 84.9% to $31.4 million from $17.0 million for the three months ended June 30, 2020. Adjusted EBITDA for the three months ended June 30, 2021 increased 67.3% to $44.1 million from $26.4 million for the three months ended June 30, 2020.
Net (loss) income for the six months ended June 30, 2021 decreased to $(89.4) million from $9.5 million for the six months ended June 30, 2020. This decrease included expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of $133.7 million. Adjusted Net Income for the six months ended June 30, 2021 increased 119.6% to $59.6 million from $27.1 million for the six months ended June 30, 2020. Adjusted EBITDA for the six months ended June 30, 2021 increased 90.9% to $83.7 million from $43.8 million for the six months ended June 30, 2020.
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The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
2021 Developments
Initial Public Offering
On June 10, 2021, our registration statement on Form S-1
relating to our initial public offering (“IPO”) was declared effective by the U.S. Securities and Exchange Commission, and our Class A common stock began trading on the NASDAQ on June 11, 2021. Our IPO closed on June 15, 2021.
TaskUs, Inc. issued and sold 5,553,154 shares of Class A common stock (the “primary” offering) and selling stockholders sold 9,626,846 shares (the “secondary” offering), including shares sold by the selling stockholders pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a public offering price of $23 per share. The Company received net proceeds of $120.7 million after deducting underwriting discounts and commissions, but before deducting offering expenses. The Company used the proceeds from the issuance, together with cash on hand, to satisfy payments of approximately $127.5 million in respect of vested phantom shares.
As a result of becoming a public company, we expect to incur additional costs related to audit, legal, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with being a public company.
Amendment and Restatement of Certificate of Incorporation
Prior to the completion of the IPO, we amended and restated our certificate of incorporation to effect a ten-for-one
forward stock split of our outstanding common stock and authorized three classes of ownership interests: (i) 250,000,000 shares of Preferred Stock, par value $0.01 per share, (ii) 2,500,000,000 shares of Class A common stock, par value $0.01 per share, and (iii) 250,000,000 shares of Class B common stock, par value $0.01 per share. After giving effect to the ten-for-one
stock split, all then outstanding shares of common stock were reclassified into an equal number of shares of Class B common stock (the “Class B Reclassification”).
Equity Incentive Plans
At the IPO date, we concluded that our public offering represents a qualifying liquidity event that would cause the performance conditions of stock options issued under our 2019 Stock Incentive Plan to be probable of occurring. As such, we started to recognize stock-based compensation expense in relation to the stock options issued under the 2019 Stock Incentive Plan.
In connection with the IPO, we adopted the 2021 Omnibus Incentive Plan, which became effective on the date our registration statement was declared effective. Under the 2021 Omnibus Incentive Plan, we granted time-based restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and time-based stock options, in each case relating to shares of our Class A common stock.
For additional information, see Note 9, “Employee Compensation” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Quarterly Report.
COVID-19
During the first quarter of 2020, there was a global outbreak of COVID-19,
which has spread to over 200 countries and territories, including all states in the United States. The global impact of the outbreak has been rapidly evolving and many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of non-essential
businesses. Such actions created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries.
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The outbreak could have a continued adverse impact on economic and market conditions, and the full extent of the impact and effects of the COVID-19
pandemic will depend on future developments, including, among other factors, the duration and spread of the outbreak, including new strains and variants of the virus, and the success of vaccination programs, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown. We continue to closely monitor the outbreak and the impact on our operations and liquidity. As events continue to evolve and additional information becomes available, our estimates may change materially in the future.
As a result of the unpredictable and evolving impact of the pandemic and measures being taken around the world to combat its spread, the timing and trajectory of the recovery remain unclear at this time, and the adverse impact of the pandemic on our operations could be material. See “Risk Factors—Risks Related to Our Business and Industry—The ongoing COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in response to the pandemic, has adversely impacted our business, financial condition and results of operations, especially in the first half of 2020, and may continue to do so” in our prospectus.
Operational Enablement
In early March 2020, in response to the COVID-19 pandemic, we implemented a virtual operating model to protect the health and safety of our employees, and ensure continued service for our clients. As part of the transition to working virtually, we made additional investments in our employees in the form of internet and Wi-Fi connectivity to their homes as well as hotel and shuttle costs for employees who were displaced by the pandemic.
In February 2021, we announced the continuation of our company-wide work from home policy through October 2021. However, where there have been specific client requirements to return to our facilities and, where it has been safe to do so, we have begun transitioning some of our employees back to the office. We continued to incur operational enablement costs, however, during the three and six months ended June 30, 2021.
Revenue and Sales Generation
While we initially saw a reduction in spend from some clients, including ride sharing, live event ticketing, movie ticketing, travel and retail companies, our business performance rebounded in the second half of 2020 despite the uncertainty and initial impact of the pandemic. Our strong market position within our industry verticals as well as our operational agility enabled us to act as a key partner to clients in industry segments such as social media, e-commerce, streaming media, gaming, food delivery and FinTech, which saw an increase in demand driven by a surge in online commerce and content consumption. This trend has continued through the first half of 2021.
Cash and Cost Management
Throughout 2020 and the first half of 2021 we were able to meet our liquidity needs with cash generated from operations and we do not have significant liquidity or operational concerns. We continue to closely monitor the outbreak and the impact on our operations and liquidity.
Subsequent Events
For a description of subsequent events, see Note 14, “Subsequent Events” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.
Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020
The following tables set forth certain historical consolidated financial information for the three months ended June 30, 2021 and 2020.
Three
months
ended
June 30,
2021
Three
months
ended
June 30,
2020
Period over
Period
Change ($)
Period
Over
Period
Change
(%)
Service revenue
$
180,022
$
114,400
$
65,622
57.4
%
Operating expenses:
Cost of services
103,798
64,135
39,663
61.8
%
Selling, general, and administrative expense
177,810
25,709
152,101
591.6
%
Depreciation
6,729
5,815
914
15.7
%
Amortization of intangible assets
4,712
4,712
—
—
Loss on disposal of assets
1
—
1
100.0
%
Contingent consideration
—
3,570
(3,570
)
(100.0
)%
Total operating expenses
293,050
103,941
189,109
181.9
%
Operating (loss) income
(113,028
)
10,459
(123,487
)
(1,180.7
)%
Other income
(1,659
)
(1,137
)
(522
)
45.9
%
Financing expenses
1,594
1,959
(365
)
(18.6
)%
(Loss) income before taxes
(112,963
)
9,637
(122,600
)
(1,272.2
)%
(Benefit from) provision for income taxes
(7,020
)
1,629
(8,649
)
(530.9
)%
Net (loss) income
$
(105,943
)
$
8,008
$
(113,951
)
(1,423.0
)%
Service revenue
Service revenue for the three months ended June 30, 2021 and 2020 was $180.0 million and $114.4 million, respectively. Service revenue for the three months ended June 30, 2021 increased by $65.6 million or 57.4% when compared to the three months ended June 30, 2020. The period over period growth in Digital Customer Experience, Content Security and AI Operations contributed 37.0%, 10.4%, and 10.0%, respectively, of the total increase of 57.4% for the three months ended June 30, 2021. The 59.2% growth in Digital Customer Experience was primarily driven by an increase in volume of services to our existing customers and new customer wins. The 38.4% growth in Content Security was primarily driven by an increase in the volume of services to our existing customers. Our AI Operations service offering experienced year over year growth of 95.9% during the three months ended June 30, 2021 which was driven by an increase in the volume of services to our existing customers and new customer wins.
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Table of Contents
The following table shows service revenues by service offering for each period.
(in thousands)
Three Months
Ended
June 30, 2021
Three Months
Ended
June 30, 2020
Period over
Period
Change ($)
Period over
Period
Change (%)
Digital Customer Experience
$
113,566
$
71,345
$
42,221
59.2
%
Content Security
42,995
31,076
11,919
38.4
%
AI Operations
23,461
11,979
11,482
95.9
%
Service revenue
$
180,022
$
114,400
$
65,622
57.4
%
Service revenues by delivery geography
The majority of our service revenues are derived from contracts with clients who are either located in the United States, or with clients who are located outside of the United States but whereby the contract specifies payment in United States dollars. However, we deliver our services from multiple locations around the world.
The following table presents the breakdown of our service revenues by geographical location, based on where the services are provided.
(in thousands)
Three Months
Ended
June 30, 2021
Three Months
Ended
June 30, 2020
Period over
Period
Change ($)
Period over
Period
Change
(%)
Philippines
$
95,681
$
62,842
$
32,839
52.3
%
United States
58,930
43,429
15,501
35.7
%
Rest of World
25,411
8,129
17,282
212.6
%
Service revenue
$
180,022
$
114,400
$
65,622
57.4
%
Revenues generated from services provided from our delivery sites in the Philippines grew from expansion in all three of our service offerings, Digital Customer Experience, Content Security and AI Operations, which contributed 32.0%, 14.7%, and 5.6% of the total increase of 52.3% in the Philippines, respectively.
Revenues generated from services provided from the United States grew primarily from expansion in two of our service offerings, Digital Customer Experience and AI Operations, which contributed 28.8% and 13.6% of the total increase of 35.7% in the United States, respectively, partially offset by a 6.7% decrease contributed by Content Security due to the shift in revenues to the Philippines and Rest of World.
Revenues generated from services provided from the Rest of World grew primarily from expansion in all three of our service offerings in India and Mexico.
Operating expenses
Cost of services
Cost of services for the three months ended June 30, 2021 and 2020 was $103.8 million and $64.1 million, respectively. Cost of services for the three months ended June 30, 2021 increased by $39.7 million, or 61.8%, when compared to the three months ended June 30, 2020. The change was primarily driven by an increase in personnel costs of $35.7 million related to an increase in headcount to meet the demand in services from our customers. The remaining increase included operational enablement costs incurred in response to the COVID pandemic.
Selling, general, and administrative expense
Selling, general, and administrative expense for the three months ended June 30, 2021 and 2020 was $177.8 million and $25.7 million, respectively. Selling, general, and administrative expense for the three
25
Table of Contents
months ended June 30, 2021 increased by $152.1 million, or 591.6%, when compared to the three months ended June 30, 2020. The increase was primarily driven by higher personnel costs of $146.3 million due primarily to expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of $133.7 million, as well as increased costs across functions in support of our growth in revenue and stock-based compensation expense for equity-classified awards of $5.8 million. The remaining increase included professional fees of $2.8 million primarily related to third parties who were engaged to assist with preparation for the IPO. We expect our stock-based compensation expense for equity-classified awards to increase in future periods as we recognize expense for the full periods, as well as future grants.
Depreciation
Depreciation for the three months ended June 30, 2021 and 2020 was $6.7 million and $5.8 million, respectively. The increase in depreciation is a result of capital expenditures for additional technology and computers in support of our company-wide work-from-home policy.
Amortization of intangible assets
Amortization of intangible assets for the three months ended June 30, 2021 and 2020 was $4.7 million. Amortization can be attributed to the recognition of client relationship and trade name intangible assets recognized in connection with the October 2018 transaction in which we were formed by affiliates of Blackstone as a vehicle for the acquisition of TaskUs Holdings, Inc. (the “Blackstone Acquisition”) that are being amortized on a straight-line basis.
Contingent consideration
We recognized expense related to the increase in the value of a contingent consideration liability of $3.6 million for cash payments due to the sellers in the Blackstone Acquisition as a result of tax benefits that became receivable by the Company during the three months ended June 30, 2020. See Note 8(b), “Contingent Consideration” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for additional information.
Other income
Other income for the three months ended June 30, 2021 and 2020 was $1.7 million and $1.1 million, respectively. Changes in other income are driven by our exposure to foreign currency exchange risk resulting from our operations in foreign geographies, primarily the Philippines, offset by economic hedges using foreign currency exchange rate forward contracts.
Financing expense
Financing expense for the three months ended June 30, 2021 and 2020 was $1.6 million and $2.0 million, respectively. The decrease in financing expense is primarily driven by the decrease in the rate of LIBOR used to calculate the interest rate of the term loan. See “—Liquidity and Capital Resources—Indebtedness—2019 Credit Agreement” for additional discussion on term loan.
(Benefit from) provision for income taxes
(Benefit from) provision for income taxes for the three months ended June 30, 2021 and 2020 was $(7.0) million and $1.6 million, respectively. The effective tax rate for the three months ended June 30, 2021 and 2020 was 6.2% and 16.9%, respectively. There are certain items included within the (benefit from) provision for income taxes calculation which are directly related to the IPO and not expected to r
ecur in future periods, including certain phantom s hares bonuses and equity awards made to officers which are not deductible under Section 162(m) of the Internal Revenue Code. Additionally, there are costs related to the issuance of stock-based compensation included within the (benefit from) provision for income taxes calculation. If those costs directly related to the IPO and stock-based compensation are removed, the provision for income taxes would have been $4.4 million and the effective tax rate would have been 19.5% for the three months ended June 30, 2021.
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Table of Contents
The effective tax rate in the future will depend upon the proportion of income before provision for income taxes earned in the United states and in jurisdictions with a tax rate lower than the U.S. statutory rate, as well as a number of other factors, including the impact of new legislation.
Comparison of the Six Months Ended June 30, 2021 and 2020
The following tables set forth certain historical consolidated financial information for the six months ended June 30, 2021 and 2020.
Six
months
ended
June 30,
2021
Six months
ended
June 30,
2020
Period over
Period
Change ($)
Period Over
Period
Change (%)
Service revenue
$
332,893
$
216,829
$
116,064
53.5
%
Operating expenses:
Cost of services
191,828
125,918
65,910
52.3
%
Selling, general, and administrative expense
209,308
51,440
157,868
306.9
%
Depreciation
12,932
10,529
2,403
22.8
%
Amortization of intangible assets
9,424
9,424
—
—
Loss (gain) on disposal of assets
28
(5
)
33
(660.0
)%
Contingent consideration
—
3,570
(3,570
)
(100.0
)%
Total operating expenses
423,520
200,876
222,644
110.8
%
Operating (loss) income
(90,627
)
15,953
(106,580
)
(668.1
)%
Other (income) expense
(905
)
260
(1,165
)
(448.1
)%
Financing expenses
3,175
4,202
(1,027
)
(24.4
)%
(Loss) income before taxes
(92,897
)
11,491
(104,388
)
(908.4
)%
(Benefit from) provision for income taxes
(3,461
)
1,968
(5,429
)
(275.9
)%
Net (loss) income
$
(89,436
)
$
9,523
$
(98,959
)
(1,039.2
)%
Service revenue
Service revenue for the six months ended June 30, 2021 and 2020 was $332.9 million and $216.8 million, respectively. Service revenue for the six months ended June 30, 2021 increased by $116.1 million or 53.5% when compared to the six months ended June 30, 2020. The year over year growth in Digital Customer Experience, Content Security and AI Operations contributed 35.4%, 9.9%, and 8.2%, respectively, of the total increase of 53.5% for the six months ended June 30, 2021. The 56.2% growth in Digital Customer Experience was primarily driven by an increase in volume of services to our existing customers and new customer wins. The 37.3% growth in Content Security was primarily driven by an increase in volume of services to our existing customers. Our AI Operations service offering experienced growth of 78.8% during the six months ended June 30, 2021 which was driven by an increase in volume of services to our existing customers and new customer wins.
The following table shows service revenues by service offering for each period.
(in thousands)
Six Months
Ended
June 30,
2021
Six Months
Ended
June 30,
2020
Period over
Period
Change ($)
Period over
Period
Change (%)
Digital Customer Experience
$
213,277
$
136,562
$
76,715
56.2
%
Content Security
79,122
57,614
21,508
37.3
%
AI Operations
40,494
22,653
17,841
78.8
%
Service revenue
$
332,893
$
216,829
$
116,064
53.5
%
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Table of Contents
Service revenues by delivery geography
The majority of our service revenues are derived from contracts with clients who are either located in the United States, or with clients who are located outside of the United States but whereby the contract specifies payment in United States dollars. However, we deliver our services from multiple locations around the world.
The following table presents the breakdown of our service revenues by geographical location, based on where the services are provided.
(in thousands)
Six Months
Ended June 30,
2021
Six Months
Ended June 30,
2020
Period over
Period
Change ($)
Period over
Period
Change (%)
Philippines
$
180,259
$
118,716
$
61,543
51.8
%
United States
109,687
84,074
25,613
30.5
%
Rest of World
42,947
14,039
28,908
205.9
%
Service revenue
$
332,893
$
216,829
$
116,064
53.5
%
Revenues generated from services provided from our delivery sites in the Philippines grew from expansion in all three of our service offerings, Digital Customer Experience, Content Security and AI Operations, which contributed 30.2%, 15.2%, and 6.4% of the total increase of 51.8% in the Philippines, respectively.
Revenues generated from services provided from the United States growth resulted primarily from expansion in two of our service offerings, Digital Customer Experience and AI Operations, which contributed 26.0% and 9.3% of the total increase of 30.5% in the United States, respectively, partially offset by a 4.8% decrease contributed by Content Security due to the shift in revenues to the Philippines.
Revenues generated from services provided from the Rest of World growth was primarily driven by expansion in all three of our service offerings in India and Mexico.
Operating expenses
Cost of services
Cost of services for the six months ended June 30, 2021 and 2020 was $191.8 million and $125.9 million, respectively. Cost of services for the six months ended June 30, 2021 increased by $65.9 million, or 52.3%, when compared to the six months ended June 30, 2020. The change was primarily driven by an increase in personnel costs of $60.0 million related to an increase in headcount to meet the demand in services from our customers. The remaining increase included operational enablement costs incurred in response to the COVID pandemic.
Selling, general, and administrative expense
Selling, general, and administrative expense for the six months ended June 30, 2021 and 2020 was $209.3 million and $51.4 million, respectively. Selling, general, and administrative expense for the six months ended June 30, 2021 increased by $157.9 million, or 306.9%, when compared to the six months ended June 30, 2020. The increase was primarily driven by higher personnel costs of $148.5 million due primarily to expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of $133.7 million, as well as increased costs across functions in support of our growth in revenue and stock-based compensation expense for equity-classified awards of $5.8 million. The remaining increase included professional fees of $6.7 million due primarily to third parties who were engaged to assist with preparation for the IPO. We expect our stock-based compensation expense for equity-classified awards to increase in future periods as we recognize expense for the full periods, as well as any future grants.
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Table of Contents
Depreciation
Depreciation for the six months ended June 30, 2021 and 2020 was $12.9 million and $10.5 million, respectively. The increase in depreciation is a result of capital expenditures for additional technology and computers in support of our company-wide work-from-home policy.
Amortization of intangible assets
Amortization of intangible assets for the six months ended June 30, 2021 and 2020 was $9.4 million. Amortization can be attributed to the recognition of client relationship and trade name intangible assets recognized in connection with the Blackstone Acquisition that are being amortized on a straight-line basis.
Contingent consideration
We recognized expense related to the increase in the value of a contingent consideration liability of $3.6 million for cash payments due to the sellers in the Blackstone Acquisition as a result of tax benefits that became receivable by the Company during the six months ended June 30, 2020. See Note 8(b), “Contingent Consideration” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for additional information.
Other (income) expense
Other (income) expense for the six months ended June 30, 2021 and 2020 was $(0.9) million and $0.3 million, respectively. Changes in other income are driven by our exposure to foreign currency exchange risk resulting from our operations in foreign geographies, primarily the Philippines, offset by economic hedges using foreign currency exchange rate forward contracts.
Financing expense
Financing expense for the six months ended June 30, 2021 and 2020 was $3.2 million and $4.2 million, respectively. The decrease in financing expense is primarily driven by the decrease in the rate of LIBOR used to calculate the interest rate of the term loan. See “—Liquidity and Capital Resources—Indebtedness—2019 Credit Agreement” for additional discussion on term loan.
(Benefit from) provision for income taxes
(Benefit from) provision for income taxes for the six months ended June 30, 2021 and 2020 was $(3.5) million and $2.0 million, respectively. Our effective tax rate for the six months ended June 30, 2021 and 2020 was 3.7% and 17.1%, respectively. There are certain items included within the provision for income taxes calculation which are directly related to the IPO and not expected to r
ecur in future periods, including certain phantom s hares bonuses and equity awards made to officers which are not deductible under Section 162(m) of the Internal Revenue Code. Additionally, there are costs related to the issuance of stock-based compensation included within the (benefit from) provision for income taxes calculation. If those costs directly related to the IPO and stock-based compensation expense are removed, the provision for income taxes would have been $8.0 million and the effective tax rate would have been 18.7% for the six months ended June 30, 2021.
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Revenue by Top Clients
The table below sets forth the percentage of our total service revenues derived from our largest clients for the three months and six months ended June 30, 2021 and 2020:
Percentage of Total Service Revenue
Three Months
Ended June 30,
2021
Three Months
Ended June 30,
2020
Six Months
Ended June 30,
2021
Six Months
Ended June 30,
2020
Top ten clients
63
%
73
%
64
%
74
%
Top twenty clients
77
%
85
%
78
%
84
%
Our clients are part of the rapidly growing Digital Economy and they rely on our suite of digital solutions to drive their continued success. For our existing clients, we benefit from our ability to grow as they grow and to cross sell new solutions, further deepening our entrenchment.
For the three months ended June 30, 2021 and 2020, we generated 27% and 33%, respectively, of our service revenue from Facebook, our largest client, and we generated 12% and 16%, respectively, of our service revenue from our second largest client, DoorDash. For the six months ended June 30, 2021 and 2020, we generated 28% and 32%, respectively, of our service revenue from Facebook, our largest client, and we generated 12% and 14%, respectively, of our service revenue from our second largest client, DoorDash.
We continue to identify and target high growth industry verticals and clients. Our strategy is to acquire new clients and further grow with our existing ones in order to achieve meaningful client and revenue diversification over time.
Foreign Currency
As a global company, we face exposure to movements in foreign currency exchange rates. Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenue, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. See “Quantitative and Qualitative Disclosures About Market Risk” for additional information on how foreign currency impacts our financial results.
Non-GAAP
Financial Measures
We use Adjusted Net Income, Adjusted Earnings Per Share (“EPS”), EBITDA and Adjusted EBITDA as key profitability measures to assess the performance of our business.
Each of the profitability measures described below are not recognized under GAAP and do not purport to be an alternative to net income as a measure of our performance. Such measures have limitations as analytical tools, and you should not consider any of such measures in isolation or as substitutes for our results as reported under GAAP. Adjusted Net Income, EBITDA, and Adjusted EBITDA exclude items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with profit or loss for the period. Our management compensates for the limitations of using non-GAAP
financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, these measures may not be comparable to other similarly titled measures of other companies.
Adjusted Net Income
Adjusted Net Income is a non-GAAP
profitability measure that represents net income or loss for the period before the impact of amortization of intangible assets and certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, we exclude from Adjusted Net Income amortization of intangible assets, offering costs, the effect of foreign currency gains and losses, losses on disposals of assets, COVID-19
related expenses, severance costs, natural disaster costs, contingent consideration, one-time
payments associated with the IPO, stock-based compensation expense associated with equity-classified awards and the related effect on income taxes of certain pre-tax adjustments, which include costs that are required to be expensed in accordance with GAAP.
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Our management believes that the inclusion of supplementary adjustments to net income applied in presenting Adjusted Net Income are appropriate to provide additional information to investors about certain material non-cash
items and about unusual items that we do not expect to continue at the same level in the future.
The following table reconciles net income, the most directly comparable GAAP measure, to Adjusted Net Income for the three months ended June 30, 2021 and 2020:
Three months
ended June 30,
2021
Three months
ended June 30,
2020
Period over
Period Change
($)
Period over
Period Change
(%)
(in thousands, except margin amounts)
Net (loss) income
$
(105,943
)
$
8,008
$
(113,951
)
(1,423.0
)%
Amortization of intangible assets
4,712
4,712
—
—
Offering costs (1)
2,432
—
2,432
100.0
%
Foreign currency gains (2)
(1,595
)
(1,114
)
(481
)
43.2
%
Loss on disposal of assets
1
—
1
100.0
%
COVID-19
related expenses (3)
3,711
1,320
2,391
181.1
%
Severance costs (4)
—
472
(472
)
(100.0
)%
Contingent consideration
—
3,570
(3,570
)
(100.0
)%
Phantom shares bonus (5)
129,362
—
129,362
100.0
%
Teammate IPO bonus (6)
4,361
—
4,361
100.0
%
Stock-based compensation expense (7)
5,771
—
5,771
100.0
%
Tax impacts of adjustments (8)
(11,440
)
—
(11,440
)
(100.0
)%
Adjusted Net Income
$
31,372
$
16,968
$
14,404
84.9
%
Net (Loss) Income Margin (9)
(58.9
)%
7.0
%
Adjusted Net Income Margin (9)
17.4
%
14.8
%
(1)
Represents one-time
professional service fees related to the preparation for the IPO that have been expensed during the period.
(2)
Realized and unrealized foreign currency gains include the effect of fair market value changes of forward contracts and remeasurement of U.S. dollar-denominated accounts to foreign currency.
(3)
Represents incremental expenses incurred that relate to the transition to a virtual operating model and incentive and leave pay granted to employees that are directly attributable to the COVID-19
pandemic.
(4)
Represents severance payments as a result of certain cost optimization measures we undertook during the period.
(5)
Represents expense for one-time
non-recurring
payments of $127.5 million to vested phantom shareholders in connection with the completion of the IPO, as well as associated payroll tax and 401(k) contributions.
(6)
Represents expense for non-recurring bonus payments to certain employees in connection with the completion of the IPO.
(7)
Represents stock-based compensation expense associated with equity-classified awards.
(8)
Represents tax impacts of adjustments to net (loss) income which resulted in a tax benefit during the period. These adjustments include phantom shares bonus related to the IPO and stock-based compensation expense after the IPO.
(9)
Net (Loss) Income Margin represents net (loss) income divided by service revenue and Adjusted Net Income Margin represents Adjusted Net Income divided by service revenue.
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The following table reconciles net income, the most directly comparable GAAP measure, to Adjusted Net Income for the six months ended June 30, 2021 and 2020:
Six months
ended June 30,
2021
Six months
ended June 30,
2020
Period over
Period Change
($)
Period over
Period Change
(%)
(in thousands, except margin amounts)
Net (loss) income
$
(89,436
)
$
9,523
$
(98,959
)
(1,039.2
)%
Amortization of intangible assets
9,424
9,424
—
—
Offering costs (1)
5,761
—
5,761
100.0
%
Foreign currency (gains) losses (2)
(808
)
290
(1,098
)
(378.6
)%
Loss (gain) on disposal of assets
28
(5
)
33
(660.0
)%
COVID-19
related expenses (3)
6,105
3,759
2,346
62.4
%
Severance costs (4)
—
570
(570
)
(100.0
)%
Natural disaster costs (5)
442
—
442
100.0
%
Contingent consideration
—
3,570
(3,570
)
(100.0
)%
Phantom shares bonus (6)
129,362
—
129,362
100.0
%
Teammate IPO bonus (7)
4,361
—
4,361
100.0
%
Stock-based compensation expense (8)
5,771
—
5,771
100.0
%
Tax impacts of adjustments (9)
(11,440
)
—
(11,440
)
(100.0
)%
Adjusted Net Income
$
59,570
$
27,131
$
32,439
119.6
%
Net (Loss) Income Margin (10)
(26.9
)%
4.4
%
Adjusted Net Income Margin (10)
17.9
%
12.5
%
(1)
Represents one-time
professional service fees related to the preparation for the IPO that have been expensed during the period.
(2)
Realized and unrealized foreign currency (gains) losses include the effect of fair market value changes of forward contracts and remeasurement of U.S. dollar-denominated accounts to foreign currency.
(3)
Represents incremental expenses incurred that relate to the transition to a virtual operating model and incentive and leave pay granted to employees that are directly attributable to the COVID-19
pandemic.
(4)
Represents severance payments as a result of certain cost optimization measures we undertook during the year.
(5)
Represents one-time
costs associated with emergency housing, transportation costs and bonuses for our employees in connection with the natural disaster related to the severe winter storm in Texas in February 2021.
(6)
Represents expense for one-time
non-recurring
payments of $127.5 million to vested phantom shareholders in connection with the completion of the IPO, as well as associated payroll tax and 401(k) contributions.
(7)
Represents expense for non-recurring bonus payments to certain employees in connection with the completion of the IPO.
(8)
Represents stock-based compensation expense associated with equity-classified awards.
(9)
Represents tax impacts of adjustments to net (loss) income which resulted in a tax benefit during the period. These adjustments include phantom shares bonus related to the IPO and stock-based compensation expense after the IPO.
(10)
Net (Loss) Income Margin represents net (loss) income divided by service revenue and Adjusted Net Income Margin represents Adjusted Net Income divided by service revenue.
Adjusted
EPS
Adjusted EPS is a non-GAAP profitability measure that represents earnings available to shareholders excluding the impact of certain items that are considered to hinder comparison of the performance of our business on a period-over-period basis or with other businesses. Adjusted EPS is calculated as Adjusted Net income divided by our diluted weighted-average number of shares outstanding, including the impact of any potentially dilutive common stock equivalents that are anti-dilutive to GAAP net (loss) income per share – diluted (“GAAP diluted EPS”) but dilutive to Adjusted EPS. Our management believes that the inclusion of supplementary adjustments to earnings per share applied in presenting Adjusted EPS are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future.
The following table reconciles GAAP diluted EPS, the most directly comparable GAAP measure, to Adjusted EPS for the three and six months ended June 30, 2021 and 2020:
Three months
ended June 30,
2021
Three months
ended June 30,
2020
Six months
ended June 30,
2021
Six months
ended June 30,
2020
GAAP diluted EPS
$
(1.14
)
$
0.09
$
(0.97
)
$
0.10
Per share adjustments to net (loss) income (1)
1.48
0.09
1.61
0.20
Per share adjustments for GAAP anti-dilutive shares (2)
(0.02
)
—
(0.01
)
—
Adjusted EPS
$
0.32
$
0.18
$
0.63
$
0.30
Weighted-average common stock outstanding – Diluted
92,957,493
91,737,020
92,347,257
91,737,020
GAAP anti-dilutive shares (2)
4,599,736
—
2,299,868
—
Adjusted weighted-average shares outstanding
97,557,229
91,737,020
94,647,125
91,737,020
(1)
Reflects the aggregate adjustments made to reconcile Net (loss) income to Adjusted Net Income, as noted in the above table, divided by the GAAP diluted weighted-average number of shares outstanding for the relevant period.
(2)
Reflects the impact of awards that were anti-dilutive to GAAP diluted EPS since we were in a net loss position, and therefore not included in the calculation, but would be dilutive to Adjusted EPS and are therefore included in the calculation.
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP
profitability measure that represents net income or loss for the period before the impact of the benefit from or provision for income taxes, financing expenses, depreciation, and amortization of intangible assets. EBITDA eliminates potential differences in performance caused by variations in capital structures (affecting financing expenses), tax positions (such as the availability of net operating losses against which to relieve taxable profits), the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense).
Adjusted EBITDA is a non-GAAP
profitability measure that represents EBITDA before certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, we exclude from Adjusted EBITDA offering costs, the effect of foreign currency gains and losses, losses on disposals of assets, COVID-19
related expenses, severance costs, natural disaster costs, contingent consideration, one-time payments associated with the IPO and stock-based compensation expense associated with equity-classified awards, which include costs that are required to be expensed in accordance with GAAP. Our management believes that the
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inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash
items and about unusual items that we do not expect to continue at the same level in the future.
The following table reconciles net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the three months ended June 30, 2021 and 2020:
Three months
ended June 30,
2021
Three months
ended June 30,
2020
Period over
Period Change
($)
Period over
Period Change
(%)
(in thousands, except margin amounts)
Net (loss) income
$
(105,943
)
$
8,008
$
(113,951
)
(1,423.0
)%
(Benefit from) provision for income taxes
(7,020
)
1,629
(8,649
)
(530.9
)%
Financing expenses
1,594
1,959
(365
)
(18.6
)%
Depreciation
6,729
5,815
914
15.7
%
Amortization of intangible assets
4,712
4,712
—
—
EBITDA
$
(99,928
)
$
22,123
$
(122,051
)
(551.7
)%
Offering costs (1)
2,432
—
2,432
100.0
%
Foreign currency gains (2)
(1,595
)
(1,114
)
(481
)
43.2
%
Loss on disposal of assets
1
—
1
100.0
%
COVID-19
related expenses (3)
3,711
1,320
2,391
181.1
%
Severance costs (4)
—
472
(472
)
(100.0
)%
Contingent consideration
—
3,570
(3,570
)
(100.0
)%
Phantom shares bonus (5)
129,362
—
129,362
100.0
%
Teammate IPO bonus (6)
4,361
—
4,361
100.0
%
Stock-based compensation expense (7)
5,771
—
5,771
100.0
%
Adjusted EBITDA
$
44,115
$
26,371
$
17,744
67.3
%
Net (Loss) Income Margin (8)
(58.9
)%
7.0
%
Adjusted EBITDA Margin (8)
24.5
%
23.1
%
(1)
Represents one-time
professional service fees related to the preparation for the IPO that have been expensed during the period.
(2)
Realized and unrealized foreign currency gains include the effect of fair market value changes of forward contracts and remeasurement of U.S. dollar-denominated accounts to foreign currency.
(3)
Represents incremental expenses incurred that relate to the transition to a virtual operating model and incentive and leave pay granted to employees that are directly attributable to the COVID-19
pandemic.
(4)
Represents severance payments as a result of certain cost optimization measures we undertook during the period.
(5)
Represents expense for one-time
non-recurring
payments of $127.5 million to vested phantom shareholders in connection with the completion of the IPO, as well as associated payroll tax and 401(k) contributions.
(6)
Represents expense for non-recurring bonus payments to certain employees in connection with the IPO.
(7)
Represents stock-based compensation expense associated with equity-classified awards.
(8)
Net (Loss) Income Margin represents net (loss) income divided by service revenue and Adjusted EBITDA Margin represents Adjusted EBITDA divided by service revenue.
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The following table reconciles net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the six months ended June 30, 2021 and 2020:
Six months
ended June 30,
2021
Six months
ended June 30,
2020
Period over
Period Change
($)
Period over
Period Change
(%)
(in thousands, except margin amounts)
Net income
$
(89,436
)
$
9,523
$
(98,959
)
(1,039.2
)%
Provision for income taxes
(3,461
)
1,968
(5,429
)
(275.9
)%
Financing expenses
3,175
4,202
(1,027
)
(24.4
)%
Depreciation
12,932
10,529
2,403
22.8
%
Amortization of intangible assets
9,424
9,424
—
—
EBITDA
$
(67,366
)
$
35,646
$
(103,012
)
(289.0
)%
Offering costs (1)
5,761
—
5,761
100.0
%
Foreign currency (gains) losses (2)
(808
)
290
(1,098
)
(378.6
)%
Loss (gain) on disposal of assets
28
(5
)
33
(660.0
)%
COVID-19
related expenses (3)
6,105
3,759
2,346
62.4
%
Severance costs (4)
—
570
(570
)
(100.0
)%
Natural disaster costs (5)
442
—
442
100.0
%
Contingent consideration
—
3,570
(3,570
)
(100.0
)%
Phantom shares bonus (6)
129,362
—
129,362
100.0
%
Teammate IPO bonus (7)
4,361
—
4,361
100.0
%
Stock-based compensation expense (8)
5,771
—
5,771
100.0
%
Adjusted EBITDA
$
83,656
$
43,830
$
39,826
90.9
%
Net (Loss) Income Margin (9)
(26.9
)%
4.4
%
Adjusted EBITDA Margin (9)
25.1
%
20.2
%
(1)
Represents one-time
professional service fees related to the preparation for the IPO that have been expensed during the period.
(2)
Realized and unrealized foreign currency gains include the effect of fair market value changes of forward contracts and remeasurement of U.S. dollar-denominated accounts to foreign currency.
(3)
Represents one time expenses related to the transition to a virtual operating model and incentive and leave pay granted to employees that are directly attributable to the COVID-19
pandemic.
(4)
Represents severance payments as a result of certain cost optimization measures we undertook during the year.
(5)
Represents one-time
costs associated with emergency housing, transportation costs and bonuses for our employees in connection with the natural disaster related to the severe winter storm in Texas in February 2021.
(6)
Represents expense for one-time non-recurring
payments of $127.5 million to vested phantom shareholders in connection with the completion of the IPO, as well as associated payroll tax and 401(k) contributions.
(7)
Represents expense for non-recurring bonus payments to certain employees in connection with the IPO.
(8)
Represents stock-based compensation expense associated with equity-classified awards.
(9)
Net (Loss) Income Margin represents net (loss) income divided by service revenue and Adjusted EBITDA Margin represents Adjusted EBITDA divided by service revenue.
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Liquidity and Capital Resources
As of June 30, 2021, our principal sources of liquidity were cash and cash equivalents totaling $195.9 million, which were held for working capital purposes, as well as the available balance of our 2019 Credit Facilities, described further below. We used the proceeds from the primary offering, together with cash on hand, to satisfy payments of approximately $127.5 million in respect of vested phantom shares in the third quarter of 2021. Historically, we have made investments in supporting the growth of our business, which were enabled in part by our positive cash flows from operations during these periods. We expect to continue to make similar investments in the future.
We have financed our operations primarily through cash received from operations. We believe our existing cash and cash equivalents and our 2019 Credit Facilities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our 2019 Credit Facilities, our revenue growth rate, timing of client billing and collections, the timing of expansion into new geographies, variability in the cost of delivering services in our geographies, the timing and extent of spending on technology innovation, the extent of our sales and marketing activities, and the introduction of new and enhanced service offerings and the continuing market adoption of our platform.
To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the widespread COVID-19
pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected.
Although we are not currently a party to any material definitive agreement regarding potential investments in, or acquisitions of, complementary businesses, applications or technologies, we may enter into these types of arrangements, which could reduce our cash and cash equivalents, require us to seek additional equity or debt financing or repatriate cash generated by our international operations that could cause us to incur withholding taxes on any distributions. Additional funds from financing arrangements may not be available on terms favorable to us or at all.
As market conditions warrant, we and certain of our equity holders, including Blackstone and their respective affiliates, may from time to time seek to purchase our outstanding debt securities or loans, including the notes and borrowings under our 2019 Credit Facilities, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at prices below the “adjusted issue price” (as defined for U.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us.
Indebtedness
As of June 30, 2021, our total indebtedness was $242.0 million, including outstanding borrowings under our Revolving Credit Facility (as defined below) of $39.9 million.
2019 Credit Agreement
On September 25, 2019, we entered into a credit agreement (the “2019 Credit Agreement”) that included a $210 million term loan (the “Term Loan Facility”) and a $40 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “2019 Credit Facilities”). On April 30, 2021, the Company entered into Amendment No. 1 to our 2019 Credit Agreement with the existing lenders providing for $50.0 million incremental revolving credit commitments on the same terms as our existing revolving credit facility. We accounted for this amendment as a debt modification and recorded $0.3 million of debt financing fees which will be amortized, along with previously deferred fees, over the remaining term of the facility.
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The Term Loan Facility matures on September 24, 2024 and requires quarterly principal payments of 0.25% of the original principal amount per quarter through September 30, 2020, 0.625% of the original principal amount through September 30, 2021, 1.25% of the original principal amount through September 30, 2022, 1.875% of the original principal amount through September 30, 2023 and 2.50% of the original principal amount thereafter, with any remaining principal due in a lump sum at the maturity date. As of June 30, 2021, $204.0 million was outstanding under the Term Loan Facility. The interest rate in effect for the Term Loan facility was 2.345% as of June 30, 2021.
The Revolving Credit Facility matures on September 24, 2024 and requires a commitment fee of 0.4% on undrawn commitments paid quarterly in arrears. As of June 30, 2021, the interest rate in effect was 2.345% on $39.9 million of outstanding borrowings under the Revolving Credit Facility. As of June 30, 2021, we had $50.1 million of borrowing availability under the Revolving Credit Facility.
The 2019 Credit Agreement contains certain affirmative and negative covenants applicable to us and our restricted subsidiaries, including, among other things, limitations on our Consolidated Total Net Leverage Ratio (as defined in the 2019 Credit Agreement) and restrictions on changes in the nature of our business, acquisitions and other investments, indebtedness, liens, fundamental changes, dispositions, prepayment of other indebtedness, repurchases of stock, cash dividends, and other distributions. The 2019 Credit Facilities are guaranteed by our material domestic subsidiaries and are secured by substantially all of our tangible and intangible assets, including our intellectual property, and the equity interests of our subsidiaries, subject to certain exceptions.
See Note 7, “Long-Term Debt” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our debt.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the periods indicated.
Six Months
ended June 30,
2021
Six Months
ended June 30,
2020
(in thousands)
Net cash provided by operating activities
$
45,677
$
22,603
Net cash used in investing activities
(23,453
)
(18,815
)
Net cash provided by financing activities
67,733
39,353
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Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2021 was $45.7 million compared to net cash provided by operating activities of $22.6 million for the six months ended June 30, 2020. Net cash provided by operating activities for the six months ended June 30, 2021 reflects changes in operating assets and liabilities of $115.0 million primarily driven by a $150.5 million change in accrued payroll and employee-related liabilities due primarily to the one-time phantom shares bonuses that were accrued but not yet paid, partially offset by a $41.2 million change in accounts receivable. These changes were partially offset by the net loss of $89.4 million, reduced by the add back for non-cash
charges totaling $20.1 million primarily driven by $12.9 million in depreciation, $9.4 million of amortization related to intangibles recognized as a result of the Blackstone Acquisition, and $5.8 million of stock-based compensation expense, partially offset by deferred taxes of $10.5 million.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 was $23.5 million compared to net cash used in investing activities of $18.8 million for the six months ended June 30, 2020. Net cash used in investing activities primarily consisted of investments in technology and computers.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2021 was $67.7 million compared to net cash provided by financing activities of $39.4 million for the six months ended June 30, 2020. Net cash provided by financing activities for the six months ended June 30, 2021 consisted of proceeds from the IPO, net of underwriters’ fees, partially offset by distribution of dividends and payments on long-term debt. Net cash provided by financing activities for the six months ended June 30, 2020 consisted primarily of cash proceeds from our Revolving Credit Facility of $39.9 million.
JOBS Act Accounting Election
We qualify as an emerging growth company pursuant to the provisions of the JOBS Act. The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies.
Critical Accounting Policies and Estimates
Except as described in Note 2, “Summary of Significant Accounting Policies in the Notes to Unaudited Condensed Consolidated Financial Statements, and discussed below, there have been no material changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies as reported in the prospectus.
Upon completion of the IPO, a public trading market for our common stock was established, and as a result, it is no longer necessary for our board of directors or management to estimate the fair value of our common stock in connection with our accounting for granted stock options, as the fair value of our common stock will be determined based on its trading price on Nasdaq. See Note 9, “Employee Compensation” in the Notes to Unaudited Condensed Consolidated Financial Statements, for additional information.
Recent Accounting Pronouncements
For additional information regarding recent accounting pronouncements adopted and under evaluation, refer to Note 2, “Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements.
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