Upland Software, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission ( “ SEC ” ), including our Annual Report on Form 10-K for the year ended December 31, 2020, filed on February 25, 2021. In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements concerning the following: • our financial performance and our ability to achieve or sustain profitability or predict future results; • our plans regarding future acquisitions and our ability to consummate and integrate acquisitions; • our ability to expand our go to market operations, including our marketing and sales organization, and successfully increase sales of our products; • our ability to obtain financing in the future on acceptable terms or at all; • our expectations with respect to revenue, cost of revenue and operating expenses in future periods; • our ability to adapt to the impacts on the global economy associated with the ongoing COVID-19 pandemic; • our ability to attract and retain customers; • our ability to successfully enter new markets and manage our international expansion; • our ability to comply with privacy laws and regulations; • our ability to deliver high-quality customer service; • the growth of demand for enterprise work management applications; • our plans regarding, and our ability to effectively manage, our growth; • maintaining our senior management team and key personnel; • the performance of our resellers; • our ability to adapt to changing market conditions and competition; • our ability to adapt to technological change and continue to innovate; • economic and financial conditions; • our ability to integrate our applications with other software applications; • maintaining and expanding our relationships with third parties; • costs associated with defending intellectual property infringement and other claims; • our ability to maintain, protect and enhance our brand and intellectual property; • our expectations with regard to trends, such as seasonality, which affect our business; • our expectations with regard to revenue from perpetual licenses and professional services; • our plans with respect to foreign currency exchange risk and inflation; • our beliefs regarding how our applications benefit customers and what our competitive strengths are; • the operation, reliability and security of our third-party data centers; • the risk that we did not consider another contingency included in this list; • our expectations as to the payment of dividends; and • other risk factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 25, 2021, as updated by this Quarterly Report on Form 10-Q and periodically updated as necessary in our future quarterly reports on Form 10-Q and other filings that we make with the SEC. 25 Table of Contents The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from our forward-looking statements, including risks and uncertainties detailed in this and our other reports and filings with the SEC. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. Overview We provide cloud-based enterprise work management software. We define enterprise work management software as software applications that enable organizations to plan, manage and execute projects and work. Our family of applications enables users to manage their projects, professional workforce and IT investments, automate document-intensive business processes, and effectively engage with their customers, prospects, and community via the web and mobile technologies. The continued growth of an information-based economy has given rise to a large and growing group of knowledge workers who operate in dynamic work environments as part of geographically dispersed and virtual teams. We believe that manual processes and legacy on- premise enterprise systems are insufficient to address the needs of the modern work environment. In order for knowledge workers to be successful, they need to interact with intuitive enterprise work systems in a collaborative way, including real-time access. Today, legacy processes and systems are being disrupted and replaced by cloud-based enterprise work management software that improves visibility, collaboration and productivity. In response to these changes, we are providing organizations and their knowledge workers with software applications that better align resources with business objectives and increase visibility, governance, collaboration, quality of customer experience, and responsiveness to changes in the business environment. This results in increased work capacity, higher productivity, better execution, and greater levels of customer engagement. Our applications are easy-to-use, scalable, and offer real-time collaboration for knowledge workers distributed on a local or global scale. Our software applications address diverse enterprise work challenges and our customers currently use our applications in the following functional areas: • Marketing . Digital marketing, e-commerce, and customer service teams use our applications to interact with consumers across multiple channels to acquire new customers, drive product and service utilization, resolve issues, and build brand loyalty. Our applications deliver value to CX-focused organizations across a variety of use cases including mobile messaging, mobile application marketing, VoC, email marketing, knowledge management and call center productivity. Our teams bring deep industry experience in orchestrating campaigns and interactions that consumers want and value. • Sales . Sales teams employ our applications to drive growth through deeper customer engagement, reduced sales cycle times, and overall improved collaboration between sales, marketing, and other customer-facing functions. We offer applications that help organizations optimize their sales opportunity and account management processes, coordinate proposal and reference activities, collaborate on the creation and publication of digital content, and gain increased control over key sales and marketing workflows, activities, and budgets. • Contact Center . Customer service and support environments use our applications to enable agents to resolve issues and engage customers. We offer applications that improve customer experience and reduce call volume and cycle times through customer self-service products and VoC technology that captures customer sentiment in real-time. Upland also offers products that improve call center agent productivity by providing more direct access to knowledge and to customer sentiment thereby improving both inbound call outcomes and proactive outbound success. Additional solutions help call center leadership to manage agent performance and measure real-time performance relative to call resolution and customer sentiment, improve performance through gamification, and gather agent feedback to keep employee engagement high. • Project Management. Business leaders and PMOs use our applications to optimize project portfolios, balance capacity against demand, improve financial-based decision making, align execution of projects to strategy across large organizations, and manage the entire project delivery lifecycle. Our applications deliver value to project management across a variety of use cases including continuous improvement, enterprise IT, new product development, and services departments along with industry depth in higher education, public sector, and healthcare IT. • Information Technology . IT departments use our applications to manage a variety of IT activities and resources across the enterprise. Our applications help information technology departments ensure they are delivering against the objectives of the business by helping them select and prioritize the right investments, gain greater control of resource 26 Table of Contents demand and allocation, and track and report benefit realization. Our applications enable executives to gain better insight into IT spending to help prevent cost overruns and understand the nature of consumption. • Business Operations . Multiple functional departments use our applications to streamline operations and accelerate business performance across their value chains. Upland solutions in this area range from supply chain collaboration and factory management, back office document and vendor management, to applications that improve sales responsiveness. • Human Resources and Legal . HR, legal departments, and law firms use our applications to improve collaboration and operational control and streamline routine processes. We offer applications that automate document management and workflow including, contracts, records, and other documentation that require enhanced security and compliance requirements. Other applications support HR-specific workflows including onboarding, employee management, termination, HR support, and time and expense management. We sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel. In addition to our direct sales organization, we have an indirect sales organization, which sells to distributors and value-added resellers. We employ a land-and-expand go-to-market strategy. After we demonstrate the value of an initial application to a customer, our sales and account management teams work to expand the adoption of that initial application across the customer, as well as cross-sell additional applications to address other enterprise work management needs of the customer. Our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle. Our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears, depending on the application being sold. We service customers ranging from large global corporations and government agencies to small- and medium-sized businesses. We have more than 10,000 customers with over 1,000,000 users across a broad range of industries, including financial services, retail, technology, manufacturing, legal, education, consumer goods, media, telecommunications, government, non-profit, food and beverage, healthcare and life sciences. Through a series of acquisitions and integrations, we have established a diverse family of software applications under the Upland brand and in the product solution categories listed above, each of which addresses a specific enterprise work management need. Our revenue has grown from $98.0 million in 2017 to $291.8 million in 2020, representing a compound annual growth rate of 44%. During the six months ended June 30, 2021 foreign revenue as a percent of total revenue increased to 28% compared to 26% during the year ended December 31, 2020. See Note 10. Revenue Recognition in the notes to our unaudited condensed consolidated financial statements for more information regarding our revenue as it relates to domestic and foreign operations. To support continued growth, we intend to pursue acquisitions within our core enterprise solution suites of complementary technologies and businesses. This will expand our product families, customer base, and market access resulting in increased benefits of scale. Consistent with our growth strategy, we have made twenty-nine acquisitions from February 2012 through June 30, 2021. COVID-19 Impact In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which has created significant economic uncertainty across the globe and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. As the administration of vaccine programs progresses and cases decline, we continue to evaluate our plans to reopen our facilities and resume business travel for our employees. We cannot predict the extent to which the COVID-19 outbreak will continue to impact our business or operating results, which is highly dependent on inherently uncertain future developments, including the severity of COVID-19 and the actions taken by governments and private businesses in relation to COVID-19 containment. As our platform is offered as a subscription-based service, the effect of the outbreak may not be fully reflected in our operating results until future periods, if at all. While we have limited exposure to the industry verticals that have been hardest hit by the pandemic (including the travel, transportation, entertainment and retail industries) we have seen an impact to new bookings and churn which we attribute to COVID-19. The continued impact to bookings and churn is uncertain. In 2020, the impact to new bookings and churn attributable to Covid-19 was more than offset by strength in our cloud offerings that enable our customers to digitally transform their organizations at a time when they must adapt to remote work and digital engagement even more quickly and strong sales into political campaigns in the US in 2020 due to an increase in US presidential year related campaign activity. Generally, the campaign related increase experienced in 2020 is not repeating in 2021. During the second, third and fourth quarters of 2020 we paused our acquisition activity in order to gauge the overall economic impact of the pandemic and focus on evaluating our pipeline of opportunities. This resulted in a steady decrease in acquisition 27 Table of Contents related expenses over this period. With acquisition activity picking up again starting in the first quarter of 2021, including the acquisitions of Panviva, BlueVenn and Second Street to date in 2021, acquisition-related expenses picked up again starting in the first quarter of 2021 and these quarterly acquisition related expenses will vary quarter to quarter in proportion to the size, timing and complexity of future acquisitions. Key Metrics In addition to the GAAP financial measures described below in “Components of Operating Results,” we regularly review the following key metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions. Adjusted EBITDA We monitor our Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, plus depreciation and amortization expense, interest expense, net, other expense (income), net, provision for (benefit from) income taxes, stock-based compensation expense, acquisition-related expenses, and purchase accounting adjustments for deferred revenue. The following table represents a reconciliation of net loss from continuing operations, the most comparable GAAP measure, to Adjusted EBITDA for each of the periods indicated. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (dollars in thousands) Reconciliation of net loss to Adjusted EBITDA: Net loss $ (19,042) $ (14,159) $ (39,726) $ (34,240) Add: Depreciation and amortization expense 13,201 11,658 25,669 23,395 Interest expense, net 7,942 7,873 15,729 15,516 Other expense (income), net 399 15 162 1,417 Benefit from income taxes 1,538 (673) (2,856) (4,960) Stock-based compensation expense 13,550 10,980 31,374 20,300 Acquisition-related expense 5,534 5,781 15,120 20,939 Purchase accounting deferred revenue discount 606 2,272 1,100 5,973 Adjusted EBITDA $ 23,728 $ 23,747 $ 46,572 $ 48,340 We believe that Adjusted EBITDA provides useful information to management, investors and others in understanding and evaluating our operating results for the following reasons: • Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired; • Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance because Adjusted EBITDA eliminates the impact of items that we do not consider indicative of our core operating performance; • Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of Adjusted EBITDA as an analytical tool has limitations such as: • Depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization currently reflected relates to amortization of acquired intangible assets as a result of business combination purchase accounting adjustments, which will not need to be replaced in the future; 28 Table of Contents • Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; • Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation; • Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and, • Other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA together with other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. 29 Table of Contents Results of Operations Consolidated Statements of Operations Data The following tables set forth our results of operations for the specified periods, as well as our results of operations for the specified periods as a percentage of revenue. The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Amount Percent of Revenue Amount Percent of Revenue Amount Percent of Revenue Amount Percent of Revenue (dollars in thousands, except share and per share data) Revenue: Subscription and support $ 72,405 95 % $ 67,699 95 % $ 143,058 95 % $ 131,590 94 % Perpetual license 415 1 % 491 1 % 767 1 % 852 1 % Total product revenue 72,820 96 % 68,190 96 % 143,825 96 % 132,442 95 % Professional services 3,444 4 % 3,125 4 % 6,408 4 % 6,905 5 % Total revenue 76,264 100 % 71,315 100 % 150,233 100 % 139,347 100 % Cost of revenue: Subscription and support (1)(3) 23,161 30 % 21,200 30 % 45,843 31 % 41,139 30 % Professional services and other (1) 1,851 3 % 2,472 3 % 3,596 2 % 4,734 3 % Total cost of revenue 25,012 33 % 23,672 33 % 49,439 33 % 45,873 33 % Gross profit 51,252 67 % 47,643 67 % 100,794 67 % 93,474 67 % Operating expenses: Sales and marketing (1) 14,298 19 % 11,820 17 % 26,730 18 % 22,751 16 % Research and development (1) 11,113 15 % 10,294 14 % 22,053 15 % 19,412 14 % General and administrative (1)(2) 19,192 25 % 17,655 25 % 43,561 29 % 34,331 25 % Depreciation and amortization 10,278 13 % 9,037 13 % 20,021 13 % 18,308 13 % Acquisition-related expenses 5,534 7 % 5,781 8 % 15,120 10 % 20,939 15 % Total operating expenses 60,415 79 % 54,587 77 % 127,485 85 % 115,741 83 % Loss from operations (9,163) (12) % (6,944) (10) % (26,691) (18) % (22,267) (16) % Other Expense: Interest expense, net (7,942) (10) % (7,873) (11) % (15,729) (10) % (15,516) (11) % Other income (expense), net (399) (1) % (15) — % (162) (1) % (1,417) (1) % Total other expense (8,341) (11) % (7,888) (11) % (15,891) (11) % (16,933) (12) % Loss before provision for income taxes (17,504) (23) % (14,832) (21) % (42,582) (29) % (39,200) (28) % Benefit from (provision for) income taxes (1,538) (2) % 673 1 % 2,856 3 % 4,960 3 % Net loss $ (19,042) (25) % $ (14,159) (20) % $ (39,726) (26) % $ (34,240) (25) % Net loss per common share, basic and diluted $ (0.63) $ (0.57) $ (1.32) $ (1.37) Weighted-average common shares outstanding, basic and diluted 30,097,749 25,032,996 30,034,252 25,057,715 (1) Includes stock-based compensation detailed under Share-based Compensation in Note 9 — Stockholders' Equity. (2) Includes General and administrative stock-based compensation of $10.4 million and $8.5 million for the three months June 30, 2021 and June 30, 2020, respectively, and $26.0 million and $16.3 million for the six months ended June 30, 2021 and June 30, 2020, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 11% and 13% for the three months ended June 30, 2021 and June 30, 2020, respectively, and 12% and 13% for the six months ended June 30, 2021 and June 30, 2020, respectively. (3) Includes depreciation and amortization of $2.9 million and $2.6 million for the three months ended June 30, 2021 and June 30, 2020, respectively, and $5.6 million and $5.1 million for the six months ended June 30, 2021 and June 30, 2020, respectively. 30 Table of Contents Comparison of the Three and Six Months Ended June 30, 2021 and 2020 Revenue Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Revenue: Subscription and support $ 72,405 $ 67,699 7 % $ 143,058 $ 131,590 9 % Perpetual license 415 491 (15) % 767 852 (10) % Total product revenue 72,820 68,190 7 % 143,825 132,442 9 % Professional services 3,444 3,125 10 % 6,408 6,905 (7) % Total revenue $ 76,264 $ 71,315 7 % $ 150,233 $ 139,347 8 % Percentage of revenue: Subscription and support 95% 95% 95% 94% Perpetual license 1% 1% 1% 1% Total product revenue 96% 96% 96% 95% Professional services 4% 4% 4% 5% Total revenue 100% 100% 100% 100% For the Three Months Ended June 30, 2021 Total revenue was $76.3 million in the three months ended June 30, 2021, compared to $71.3 million in the three months ended June 30, 2020, an increase of $5.0 million, or 7%. The acquisitions not fully in the comparative period contributed $7.2 million to the increase after the reduction of $0.6 million purchase accounting deferred revenue discount in the three months ended June 30, 2021. Total revenue related to the divestiture and sunset of certain minor non-strategic customer contracts and related website management and analytics assets (collectively referred to as “Sunset Assets”) declined by $0.4 million as a result of decreased sales and marketing focus on those Sunset Assets. Our organic business (the “Organic Business”) excludes acquisitions closed during or subsequent to the prior year comparable period and business operations related to Sunset Assets. Therefore, total revenue for our Organic Business decreased by $1.8 million. The three months ended June 30, 2020 included $3.6 million of CXM usage revenue from US election-year presidential campaigns which did not repeat in the current period and will not repeat for the remainder of 2021. Subscription and support revenue was $72.4 million in the three months ended June 30, 2021, compared to $67.7 million in the three months ended June 30, 2020, an increase of $4.7 million, or 7%. The acquisitions not fully in the comparative period contributed $6.3 million to the increase in subscription and support revenue after the reduction of $0.6 million purchase accounting deferred revenue discount in the three months ended June 30, 2021. Subscription and support revenue related to our Sunset Assets decreased $0.4 million as a result of decreased sales and marketing focus on those Sunset Assets. Subscription and support revenue for our Organic Business decreased to $65.7 million from a basis of $66.9 million for the three months ended June 30, 2020. The three months ended June 30, 2020 included $3.6 million of CXM usage revenue from US election-year presidential campaigns which did not repeat in the current period and will not repeat for the remainder of 2021. Perpetual license revenue was $0.4 million in the three months ended June 30, 2021, compared to $0.5 million in the three months ended June 30, 2020. Professional services revenue was $3.4 million in the three months ended June 30, 2021, compared to $3.1 million in the three months ended June 30, 2020, an increase of $0.3 million, or 10%. The acquisitions not fully in the comparative period contributed $0.9 million to the increase in professional services revenue in the three months ended June 30, 2021. Professional services revenue for our Organic Business decreased by $0.6 million. 31 Table of Contents For the Six Months Ended June 30, 2021 Total revenue was $150.2 million in the six months ended June 30, 2021, compared to $139.3 million in the six months ended June 30, 2020, an increase of $10.9 million, or 8%. The acquisitions not fully in the comparative period contributed $12.7 million to the increase after the reduction of $1.0 million purchase accounting deferred revenue discount in the six months ended June 30, 2021. Total Revenue related to Sunset Assets decreased by $0.9 million as a result of decreased sales and marketing focus on those Sunset Assets. Therefore, total revenue for the Organic Business decreased by $0.9 million. The six months ended June 30, 2020 included $5.7 million of CXM usage revenue from US election-year presidential campaigns which did not repeat in the current period and will not repeat for the remainder of 2021. Subscription and support revenue was $143.1 million in the six months ended June 30, 2021, compared to $131.6 million in the six months ended June 30, 2020, an increase of $11.5 million, or 9%. The acquisitions not fully in the comparative period contributed $11.8 million to the increase in subscription and support revenue after the reduction of $1.0 million purchase accounting deferred revenue discount in the six months ended June 30, 2021. Subscription and support revenue related to our Sunset Assets decreased $1.0 million as a result of decreased sales and marketing focus on those Sunset Assets. Subscription and support revenue for our Organic Business increased to $123.6 million from a basis of $122.9 million for the six months ended June 30, 2020. The six months ended June 30, 2020 included $5.7 million of CXM usage revenue from US election-year presidential campaigns which did not repeat in the current period and will not repeat for the remainder of 2021. Perpetual license revenue was $0.8 million in the six months ended June 30, 2021, compared to $0.9 million in the six months ended June 30, 2020, a decrease of $0.1 million. Professional services revenue was $6.4 million in the six months ended June 30, 2021, compared to $6.9 million in the six months ended June 30, 2020, a decrease of $0.5 million, or 7%. The acquisitions not fully in the comparative period contributed $1.0 million to the increase in professional services revenue in the six months ended June 30, 2021. Therefore, professional services revenue from our Organic Business decreased by $1.5 million due primarily to COVID-19 related travel impacts. Cost of Revenue and Gross Profit Percentage Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Cost of revenue: Subscription and support (1) $ 23,161 $ 21,200 9 % $ 45,843 $ 41,139 11 % Professional services and other 1,851 2,472 (25) % 3,596 4,734 (24) % Total cost of revenue 25,012 23,672 6 % 49,439 45,873 8 % Gross profit $ 51,252 $ 47,643 $ 100,794 $ 93,474 Percentage of total revenue: Subscription and support (1) 30% 30% 31% 30% Professional services and other 3% 3% 2% 3% Total cost of revenue 33% 33% 33% 33% Gross profit 67% 67% 67% 67% (1) Includes depreciation, amortization and stock compensation expense as follows: Depreciation $ 11 $ 45 $ 22 $ 116 Amortization $ 2,912 $ 2,576 $ 5,626 $ 4,971 Stock Compensation $ 563 $ 570 $ 1,005 $ 888 For the Three Months Ended June 30, 2021 Cost of subscription and support revenue was $23.2 million in the three months ended June 30, 2021, compared to $21.2 million in the three months ended June 30, 2020, an increase of $2.0 million, or 9%. The acquisitions not fully in the comparative period contributed $1.8 million to the increase to cost of subscription and support revenue, primarily related to 32 Table of Contents costs associated with the delivery of the Second Street, BlueVenn, & Panviva products. Cost of subscription and support revenue related to our Sunset Assets decreased $0.2 million. Therefore, cost of subscription and support revenue for our Organic Business increased by $0.4 million, primarily related to personnel and related expenses and infrastructure and hosting costs, which were partially offset by a decrease in telecom messaging costs related to a year over year reduction in CXM usage as a result of cyclical highs in 2020 related to US election-year presidential campaigns. Cost of professional services and other revenue was $1.9 million in the three months ended June 30, 2021, compared to $2.5 million in the three months ended June 30, 2020, a decrease of $0.6 million, or 25%. The acquisitions not fully in the comparative period contributed $0.4 million to the increase in the cost of professional services revenue. Therefore, cost of professional services revenue for our Organic Business decreased by $1.0 million, primarily related to personnel and related costs, most of which were the result of our planned operating efficiencies. For the Six Months Ended June 30, 2021 Cost of subscription and support revenue was $45.8 million in the six months ended June 30, 2021, compared to $41.1 million in the six months ended June 30, 2020, an increase of $4.7 million, or 11%. The acquisitions not fully in the comparative period contributed $3.7 million to the increase to cost of subscription and support revenue, primarily related to costs associated with the delivery of the Localytics, Second Street, BlueVenn, and Panviva products. Cost of subscription and support revenue related to our Sunset Assets decreased $0.3 million primarily related to hosting and infrastructure costs. Therefore, cost of subscription and support revenue for the organic portion of our business increased by $1.3 million, primarily related to personnel and related costs and infrastructure and hosting costs, which were partially offset by a decrease in telecom messaging costs related to a year over year reduction in CXM usage as a result of cyclical highs in 2020 related to US election-year presidential campaigns. Cost of professional services revenue was $3.6 million in the six months ended June 30, 2021, compared to $4.7 million in the six months ended June 30, 2020, a decrease of $1.1 million, or 24%. The acquisitions not fully in the comparative period contributed $0.4 million to the increase to cost of professional services revenue, primarily related to an increase in personnel and related costs. Therefore, cost of professional services revenue for our Organic Business decreased by $1.5 million, primarily related to personnel and related costs, most of which were the result of our planned operating efficiencies. Operating Expenses Sales and Marketing Expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Sales and marketing (1) $ 14,298 $ 11,820 21 % $ 26,730 $ 22,751 17 % Percentage of total revenue 19% 17% 18% 16% (1) Includes stock compensation expense as follows: Stock Compensation $ 1,619 $ 898 $ 2,756 $ 1,447 For the Three Months Ended June 30, 2021 Sales and marketing expense was $14.3 million in the three months ended June 30, 2021, compared to $11.8 million in the three months ended June 30, 2020, an increase of $2.5 million, or 21%. The acquisitions not fully in the comparative period contributed $1.0 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs. Sales and marketing expense for our Organic Business increased $1.5 million in the comparative periods, primarily attributable to personnel and related costs associated with our continued go-to-market investments. 33 Table of Contents For the Six Months Ended June 30, 2021 Sales and marketing expense was $26.7 million in the six months ended June 30, 2021, compared to $22.8 million in the six months ended June 30, 2020, an increase of $3.9 million, or 17%. The acquisitions not fully in the comparative period contributed $1.0 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs in the six months ended June 30, 2021. Therefore, sales and marketing expense for the organic portion of our business increased by $2.9 million, primarily attributable to personnel and related costs associated with our continued go-to-market investments. Research and Development Expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Research and development (1) $ 11,113 $ 10,294 8 % $ 22,053 $ 19,412 14 % Percentage of total revenue 15% 14% 15% 14% (1) Includes stock compensation expense as follows: Stock Compensation $ 942 $ 1,019 $ 1,656 $ 1,634 For the Three Months Ended June 30, 2021 Research and development expense was $11.1 million in the three months ended June 30, 2021, compared to $10.3 million in the three months ended June 30, 2020, an increase of $0.8 million, or 8%. The acquisitions not fully in the comparative period contributed $0.8 million to the increase in research and development expense primarily consisting of personnel and related costs. Therefore, research and development expense related to our Organic Business remained flat. For the Six Months Ended June 30, 2021 Research and development expense was $22.1 million in the six months ended June 30, 2021, compared to $19.4 million in the six months ended June 30, 2020, an increase of $2.7 million, or 14%. The acquisitions not fully in the comparative period contributed $1.5 million to the increase in research and development expense primarily consisting of personnel and related costs. Therefore, research and development costs for our Organic Business increased by $1.2 million primarily related to personnel and related costs. General and Administrative Expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) General and administrative (1) $ 19,192 $ 17,655 9 % $ 43,561 $ 34,331 27 % Percentage of total revenue 25% 25% 29% 25% (1) Includes stock compensation expense as follows: Stock Compensation $ 10,426 $ 8,493 $ 25,957 $ 16,331 For the Three Months Ended June 30, 2021 General and administrative expense was $19.2 million in the three months ended June 30, 2021, compared to $17.7 million in the three months ended June 30, 2020, an increase of $1.5 million, or 9%. An increase in general administrative expense of $0.1 million was due to the acquisitions not fully in the comparative period Therefore, general and administrative expense for our Organic Business increased by $1.4 million, which was driven primarily by increased non-cash stock compensation expense. For the Six Months Ended June 30, 2021 34 Table of Contents General and administrative expense was $43.6 million in the six months ended June 30, 2021, compared to $34.3 million in the six months ended June 30, 2020, an increase of $9.3 million, or 27%. An increase in general administrative expense of $0.3 million was due to the acquisitions not fully in the comparative period. Therefore, general and administrative expense for our Organic Business increased by $9.0 million, which was driven primarily by increased non-cash stock compensation expense, including a one-time increase in non-cash stock compensation expense related to the departure of our former co-President and Chief Operating Officer, and also includes investment in our new go-to-market leadership team and other personnel related costs. Depreciation and Amortization Expense Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Depreciation and amortization: Depreciation $ 458 $ 453 1 % $ 902 $ 914 (1) % Amortization 9,820 8,584 14 % 19,119 17,394 10 % Total depreciation and amortization $ 10,278 $ 9,037 14 % $ 20,021 $ 18,308 9 % Percentage of total revenue: Depreciation —% 1% —% 1% Amortization 13% 12% 13% 12% Total depreciation and amortization 13% 13% 13% 13% For the Three Months Ended June 30, 2021 Depreciation and amortization expense was $10.3 million in the three months ended June 30, 2021, compared to $9.0 million in the three months ended June 30, 2020, an increase of $1.3 million, or 14%. The acquisitions not fully in the comparative period increased depreciation and amortization expense by $1.3 million, primarily related to acquired intangible assets such as customer relationships, developed technology and tradenames. For the Six Months Ended June 30, 2021 Depreciation and amortization expense was $20.0 million in the six months ended June 30, 2021, compared to $18.3 million in the six months ended June 30, 2020, an increase of $1.7 million, or 9%. The acquisitions not fully in the comparative period increased depreciation and amortization expense by $2.3 million, primarily related to acquired intangible assets such as customer relationships, developed technology and tradenames. Therefore, depreciation and amortization expense for our Organic Business decreased by $0.6 million in the comparative periods. Acquisition-related Expenses Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Acquisition-related expenses $ 5,534 $ 5,781 (4) % $ 15,120 $ 20,939 (28) % Percentage of total revenue 7% 8% 10% 15% Acquisition-related expenses are one-time expenses typically incurred for up to four quarters after each acquisition, with the majority of these costs being incurred within 6 to 9 months, to transform the acquired business into the Company's unified operating platform. These expenses can vary based on the size, timing and location of each acquisition. These acquisition-related expenses include transaction related expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses. These acquisition-related expenses also include transformational expenses such as severance, compensation for transitional personnel, office lease terminations, vendor cancellations, and adjustments to the fair value of earnouts due to sellers. Generally, without new acquisition activity, acquisition related expenses decline in subsequent sequential quarters and are no longer incurred after the first anniversary of the last closed acquisition. For the Three Months Ended June 30, 2021 35 Table of Contents Acquisition-related expense was $5.5 million in the three months ended June 30, 2021, compared to $5.8 million in the three months ended June 30, 2020, a decrease of $0.3 million, or 4%. During the three months ended June 30, 2021 and June 30, 2020 transaction related expenses were $2.0 million and $0.2 million, respectively, and transformational expenses were $3.5 million and $5.6 million, respectively. Transaction costs increased compared to the same period in 2020 as a result of the resumption of our acquisition activity in 2021 after halting acquisitions activity beginning in early 2021 as a result of the COVID-19 pandemic. We closed one transaction during the three months ended June 30, 2021 compared to zero transactions during the same period in prior year. The transformational expenses in both the current and year ago periods were primarily related to temporary transitional personnel and related costs along with accelerated rent related expenses incurred in conjunction with the closures of offices of our acquired companies as we consolidate and integrate these acquisitions. Transformation expenses in 2020 include expenses related to the five acquisitions closed in 2019 as well as the one acquisition closed in 2020 compared to transformation expenses in 2021 related to the three acquisitions closed in 2021 and one acquisition closed in 2020. In addition, Acquisition-related expense for the three months ended June 30, 2021 includes a gain of $2.7 million related to a decrease in the fair value of earnout liabilities due to sellers related to the BlueVenn and Second Street acquisitions which was partially offset by a loss on sublease of $1.9 million related to the change in underlying assumptions related to a subtenant. For the Six Months Ended June 30, 2021 Acquisition related expense was $15.1 million the six months ended June 30, 2021, compared to $20.9 million in the six months ended June 30, 2020 a decrease of $5.8 million, or 28%. During the six months ended June 30, 2021 and June 30, 2020 transaction related expenses were $6.1 million and $3.5 million, respectively, and transformational expenses were $9.0 million and $17.4 million, respectively. The transformational expenses in both the current and year ago periods were primarily related to temporary transitional personnel and related costs along with accelerated rent related expenses incurred in conjunction with the closures of offices of our acquired companies as we consolidate and integrate these acquisitions. Acquisition-related expense for the six months ended June 30, 2021 includes a gain of $2.7 million related to a decrease in the fair value of earnout liabilities due to sellers related to the BlueVenn and Second Street acquisitions which was partially offset by a loss on sublease of $1.9 million related to the change in underlying assumptions related to a subtenant. Other Income (Expense) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Other expense: Interest expense, net $ (7,942) $ (7,873) 1 % $ (15,729) $ (15,516) 1 % Other income (expense), net (399) (15) 2,560 % (162) (1,417) (89) % Total other expense $ (8,341) $ (7,888) 6 % $ (15,891) $ (16,933) (6) % Percentage of total revenue: Interest expense, net (10)% (11)% (10)% (11)% Other income (expense), net (1)% —% (1)% (1)% Total other expense (11)% (11)% (11)% (12)% For the Three Months Ended June 30, 2021 Interest expense was $7.9 million in the three months ended June 30, 2021, compared to $7.9 million in the three months ended June 30, 2020. Other expense was $0.4 million in the three months ended June 30, 2021, compared to other expense of $0.0 million in the three months ended June 30, 2020. Other expense recognized during the three months ended June 30, 2021 related primarily to currency exchange gains (losses) in our foreign entities. For the Six Months Ended June 30, 2021 Interest expense was $15.7 million in the six months ended June 30, 2021, compared to $15.5 million in the six months ended June 30, 2020, an increase in interest expense of $0.2 million, or 1%. 36 Table of Contents Other expense was $0.2 million in the six months ended June 30, 2021, compared to other expense of $1.4 million in the six months ended June 30, 2020. Other expense recognized in the six months ended June 30, 2021 and June 30, 2020 related primarily to foreign currency exchange losses in our UK entities. Benefit from (Provision for) Income Taxes Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Benefit from (provision for) income taxes $ (1,538) $ 673 (329) % $ 2,856 $ 4,960 (42) % Percentage of total revenue (2)% 1% 3% 3% For the Three Months Ended June 30, 2021 Provision for income taxes was $1.5 million in the three months ended June 30, 2021, compared to a benefit from income taxes of $0.7 million in the three months ended June 30, 2020, an increase of $2.2 million. The provision for income taxes for the three months ended June 30, 2021 related primarily to the impact of expected future changes in UK tax rates on the balance of deferred tax assets and liabilities per tax law enacted during the three months ended June 30, 2021, and was partially offset by income tax benefits associated with our combined non-U.S. operations. The benefit for the three months ended June 30, 2020 related primarily to deferred tax benefits attributable to the release of valuation allowance related to the acquisitions of deferred tax liabilities associated with business combinations. For the Six Months Ended June 30, 2021 The benefit from income taxes was $2.9 million in the six months ended June 30, 2021, compared to a benefit from income taxes of $5.0 million in the six months ended June 30, 2020, a decrease of $2.1 million. The benefits for each period are due primarily to deferred tax benefits attributable to the release of valuation allowance related to the acquisitions of deferred tax liabilities associated with business combinations completed during the respective periods. The tax benefit for the six months ended June 30, 2021 is primarily offset by the impact of expected future changes in UK tax rates on the balance of deferred tax assets and liabilities per tax law enacted during the three months ended June 30, 2021. 37 Table of Contents Liquidity and Capital Resources To date, we have financed our operations primarily through the raising of capital including sales of our common stock, cash from operating activities, borrowing under our credit facility, and the issuance of notes to sellers in some of our acquisitions. We believe that current cash and cash equivalents, cash flows from operating activities, availability under our existing credit facility, as discussed below, and the ability to offer and sell securities pursuant to our registration statement, as discussed below, will be sufficient to fund our operations for at least the next twelve months. In addition, we intend to utilize the sources of capital available to us under our Credit Facility and registration statement to support our continued growth via acquisitions within our core enterprise solution suites of complementary technologies and businesses. As of June 30, 2021, we had cash and cash equivalents of $176.5 million, $60.0 million of available borrowings under our credit facility, as discussed below, and $530.6 million of borrowings outstanding under our credit facility. As of December 31, 2020, we had cash and cash equivalents of $250.0 million, $60.0 million of available borrowings under our Credit Facility, and $533.3 million of borrowings outstanding under our credit facility. The $73.5 million decrease in cash and cash equivalents from December 31, 2020 to June 30, 2021 includes $97.7 million in cash paid for our three acquisitions completed during 2021, net of $1.2 million in cash acquired, which was partially offset by a $5.2 million settlement in total consideration for Localytics related to a representation and warranty insurance settlement. Non-cash acquisition date consideration to be paid in future periods related to these acquisitions includes $10.9 million in holdback payments and $4.2 million in earnout payments that are due within 12 to 18 months of the closing dates of the underlying acquisitions. The earnouts are subject to attainment of future performance-based conditions. Our cash and cash equivalents held by our foreign subsidiaries was $19.3 million as of June 30, 2021 and $15.3 million as of December 31, 2020. If these funds held by our foreign subsidiaries are needed for our domestic operations, a repatriation of these funds would require us to accrue and pay dividend withholding taxes in the foreign jurisdictions where applicable and accrue and pay U.S. taxes to the extent such dividend income exceeds our ability to utilize net operating losses. However, our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries. As of June 30, 2021 and December 31, 2020, we had a working capital surplus of $85.3 million and surplus of $196.1 million, respectively, which includes $95.2 million and $87.6 million of deferred revenue recorded as a current liability as of June 30, 2021 and December 31, 2020, respectively. This deferred revenue will be recognized as revenue in future periods in accordance with our revenue recognition policy. Credit Facility On August 6, 2019, we entered into a credit agreement (the “Credit Facility”) which provides for (i) a fully-drawn $350 million, 7 year, senior secured term loan B facility (the “Term Loan”) and (ii) a $60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of June 30, 2021. The Credit Facility replaced our previous credit facility. All outstanding balances under our previous credit facility were paid off using proceeds from our current Credit Facility. On November 26, 2019, the Company entered into a First Incremental Assumption Agreement (the “Incremental Assumption Agreement”) which provides for a term loan facility to be established under the Credit Facility in an aggregate principal amount of $190 million (the “2019 Incremental Term Loan”) which is in addition to the existing $350 million term loans outstanding under the Credit Facility and the $60 million Revolver under the Credit Facility. The Credit Facility has no financial covenants as long as less than 35% of the Revolver is drawn as of the last day of any fiscal quarter. The credit facility is secured by a security interest in substantially all of our assets and requires us to maintain certain financial covenants. The Credit Facility contains certain non-financial restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, pay dividends, incur additional indebtedness and liens, effect changes in management and enter into new businesses. As of June 30, 2021 we were in compliance with all covenants under the Credit Facility. See Note 6. Debt for more information regarding our Credit Facility and outstanding debt as of June 30, 2021. On August 6, 2019, the Company entered into an interest rate hedge instrument for the full 7 year term, effectively fixing our interest rate at 5.4% for the Term Loan. In addition, on November 26, 2019, the Company entered into interest rate swap agreements to hedge the interest rate risk associated with the Company’s floating rate obligations under the 2019 Incremental Term Loan. These interest rate swaps fix the Company's interest rate (including the hedge premium) at 5.4% for the term of the Credit Facility. The interest rate associated with our $60 million, 5 year, Revolver remains floating. The interest rate swap has been designated as a cash flow hedge and is valued using a market approach, which is a Level 2 valuation technique. At June 30, 2021, the fair value of the interest rate swap was a $17.8 million liability as a result of a decline in short term interest rates since entering into the swap agreements. The decrease in the fair value of the interest rate 38 Table of Contents swap liability during the three months ended June 30, 2021 is the result of an increase in short term interest rates compared to December 31, 2020. Registration Statements On August 10, 2020, we filed a registration statement on Form S-3 (File No. 333-243728) (the “2020 S-3”), which became effective automatically upon its filing and covers an unlimited amount of securities. The 2020 S-3, will remain effective through August 2023. The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2021 2020 (dollars in thousands) Consolidated Statements of Cash Flow Data: Net cash provided by (used in) operating activities $ 23,308 $ (4,504) Net cash used in investing activities (92,924) (68,548) Net cash used in financing activities (3,381) (14,604) Effect of exchange rate fluctuations on cash (493) 542 Change in cash and cash equivalents (73,490) (87,114) Cash and cash equivalents, beginning of period 250,029 175,024 Cash and cash equivalents, end of period $ 176,539 $ 87,910 Cash Flows from Operating Activities Cash provided by (used in) operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Included in net cash provided by operations are one-time acquisition related expenses incurred for up to four quarters after each acquisition to transact and transform the acquired business into the Company's unified operating platform. Additionally, operating cash flows includes the impact of earn-outs payments in excess of original purchase accounting estimates. Our working capital consists primarily of cash, receivables from customers, prepaid assets, unbilled professional services, deferred commissions, accounts payable, accrued compensation and other accrued expenses, acquisition related earnout and holdback liabilities, lease liabilities, and deferred revenues. The volume of professional services rendered, the volume and timing of customer bookings and contract renewals, and the related timing of collections on those bookings and renewals, as well as the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances. Cash provided by operating activities was $23.3 million for the six months ended June 30, 2021 compared to a use of $4.5 million of cash for the six months ended June 30, 2020, an increase of $27.8 million. This increase in operating cash flow is generally attributable to the Company’s increased size and scale. Working capital sources of cash for the six months ended June 30, 2021 included a $10.2 million decrease in accounts receivable related to the timing of collections, and an increase of $5.9 million in accounts payable related to timing of payments. Working capital uses of cash for the six months ended June 30, 2021 included a $3.6 million increase in prepaids and other related primarily to an increase in deferred commissions, a decrease of $2.9 million in deferred revenue, and a $2.4 million decrease in accrued expenses. A substantial source of cash is invoicing for subscriptions and support fees in advance, which is recorded as deferred revenue, and is included on our condensed consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of booked fees for our software subscriptions and support, which is amortized into revenue in accordance with our revenue recognition policy. We assess our liquidity, in part, through an analysis of new subscriptions invoiced, expected cash receipts on new and existing subscriptions, and our ongoing operating expense requirements. Cash Flows from Investing Activities Our primary investing activities have consisted of acquisitions of complementary technologies, products and businesses. As our business grows, we expect our primary investing activities to continue to further expand our family of software applications and infrastructure and support additional personnel. For the six months ended June 30, 2021, cash used in investing activities consisted of $97.7 million associated with the Company’s 2021 acquisitions, partially offset by a $5.2 million settlement in total consideration for Localytics related to a representation and warranty insurance settlement, and the purchases of property and equipment of $0.5 million. Cash used in 39 Table of Contents investing activities increased $24.4 million for the six months ended June 30, 2021 compared to the same period in 2020 primarily as a result of closing three acquisitions during the period compared to one acquisition in the comparable prior year period. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced applications and professional service offerings, and acquisitions of complementary technologies, products and businesses. Cash Flows from Financing Activities Our primary financing activities have consisted of capital raised to fund our acquisitions, proceeds from debt obligations incurred to finance our acquisitions, repayments of our debt obligations, and share based employee payroll tax payment activity. Cash used in financing activities increased $11.2 million for the six months ended June 30, 2021 compared to the same period in 2020. The increase relates primarily to a $8.8 million decrease in additional consideration paid to sellers (i.e. holdbacks and earnouts) compared to the same period in 2020. In addition, net share employee payroll tax settlement payments decreased $2.1 million during the six months ended June 30, 2021 compared to the same period in 2020 as a result of the employee payroll tax election in mid-2020 to sell shares to cover employee payroll taxes on stock compensation vestings. Critical Accounting Policies and the Use of Estimates We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. The following critical accounting policies reflect significant judgments and estimates used in the preparation of our condensed consolidated financial statements: • revenue recognition and deferred revenue; • stock-based compensation; • deferred sales commissions and sales commission expense; • income taxes; and • business combinations and the recoverability of goodwill and long-lived assets. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of August 4, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. Other Key Accounting Policies Our unaudited interim financial statements and other financial information for the three and six months ended June 30, 2021, as presented herein and in Item 1 to this Quarterly Report on Form 10-Q, reflects no material changes in our critical accounting policies and estimates as set forth in our Annual report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 25, 2021. Please refer to this Annual Report for a detailed description of our critical accounting policies that involve significant management judgment. We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. 40 Table of Contents Recent Accounting Pronouncements For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, refer to Note 1. Significant Accounting Policies to our condensed consolidated financial statements. 41 Table of Contents