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, 2021, filed on February 24, 2022. 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 expectations with regard to revenue from perpetual licenses and professional services; • 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; • 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; • the growth of demand for cloud-based, digital transformation applications; • 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 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, 2021, filed with the SEC on February 24, 2022, 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 You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Overview Upland provides cloud-based software applications that enable our customers to drive digital transformation in the following business functions: • 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 customer experience, or CXM-focused organizations across a variety of use cases including mobile messaging, mobile application marketing, Voice of Customer engagement, or VoC, email marketing, knowledge management and call center productivity. We also offer customer data platform, or CDP, solutions that provide organizations the ability to unify customer data stored across diverse systems to drive more personalized omnichannel campaigns. • 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. We also offer 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. We also provide products that deliver knowledge-based, guided workflows for customer service environments supporting complex products in strict regulatory requirements. 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 Project Management Offices, or 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 information tech 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 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. 26 Table of Contents • Business Operations . Multiple functional departments use our applications to streamline operations and accelerate business performance across their value chains. Our solutions in this area range from supply chain collaboration and factory management, back office document and vendor management, to applications that improve sales responsiveness. In addition, our products help operations teams compose, automate and exchange documents based on content from existing back-office systems to produce interactive business communications, while maintaining compliance and reducing production costs. • Human Resources and Legal . Human resources, or 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 digital transformation 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 library of diverse, cloud-based software applications under the Upland brand that support the business functions listed above and address specific digital transformation needs. Our revenue has grown from $98.0 million in 2017 to $302.0 million in 2021, representing a compound annual growth rate of 33%. During the six months ended June 30, 2022 foreign revenue as a percent of total revenue increased to 31% compared to 28% during the six months ended June 30, 2021. 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 library, customer base, and market access resulting in increased benefits of scale. Consistent with our growth strategy, we have made 31 acquisitions from February 2012 through June 30, 2022. 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. The ongoing spread of COVID-19 remains a global pandemic, compounded with the discovery of new COVID-19 variants (such as Delta and Omicron). However, with the gradual easing of COVID-19 lockdown restrictions globally and progress made in the development and distribution of vaccines and boosters, stability in the markets have continued to improve. As such, the Company gradually picked up acquisition activity in 2021 and continued into the first quarter of 2022. 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. The persistence of COVID-19 and the preventative measures implemented to help limit the spread of the illness, have impacted, and will continue to impact, our ability to operate our business and may materially and adversely impact our business, financial condition, and results of operations. The health and well-being of our employees, customers, partners and communities continues to be our main priority. As such, we support and continue the remote working arrangements for our employees. 27 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, 2022 2021 2022 2021 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 $ 75,017 94 % $ 72,405 95 % $ 148,644 94 % $ 143,058 95 % Perpetual license 1,858 2 % 415 1 % 3,636 2 % 767 1 % Total product revenue 76,875 96 % 72,820 96 % 152,280 96 % 143,825 96 % Professional services 3,352 4 % 3,444 4 % 6,663 4 % 6,408 4 % Total revenue 80,227 100 % 76,264 100 % 158,943 100 % 150,233 100 % Cost of revenue: Subscription and support (1)(3) 24,125 30 % 23,161 30 % 46,194 29 % 45,843 31 % Professional services and other (1) 2,428 3 % 1,851 3 % 5,114 3 % 3,596 2 % Total cost of revenue 26,553 33 % 25,012 33 % 51,308 32 % 49,439 33 % Gross profit 53,674 67 % 51,252 67 % 107,635 68 % 100,794 67 % Operating expenses: Sales and marketing (1) 15,331 19 % 14,298 19 % 30,924 19 % 26,730 18 % Research and development (1) 11,676 15 % 11,113 15 % 23,743 15 % 22,053 15 % General and administrative (1)(2) 21,828 27 % 19,192 25 % 41,442 26 % 43,561 29 % Depreciation and amortization 10,802 13 % 10,278 13 % 21,853 14 % 20,021 13 % Acquisition-related expenses 4,925 6 % 5,534 7 % 15,338 10 % 15,120 10 % Total operating expenses 64,562 80 % 60,415 79 % 133,300 84 % 127,485 85 % Loss from operations (10,888) (13) % (9,163) (12) % (25,665) (16) % (26,691) (18) % Other Expense: Interest expense, net (7,754) (10) % (7,942) (10) % (15,516) (10) % (15,729) (10) % Other income (expense), net 1,777 2 % (399) (1) % 1,359 1 % (162) (1) % Total other expense (5,977) (8) % (8,341) (11) % (14,157) (9) % (15,891) (11) % Loss before provision for income taxes (16,865) (21) % (17,504) (23) % (39,822) (25) % (42,582) (29) % Benefit from (provision for) income taxes 472 1 % (1,538) (2) % 598 — % 2,856 3 % Net loss $ (16,393) (20) % $ (19,042) (25) % $ (39,224) (25) % $ (39,726) (26) % Net loss per common share, basic and diluted $ (0.52) $ (0.63) $ (1.25) $ (1.32) Weighted-average common shares outstanding, basic and diluted 31,380,505 30,097,749 31,272,489 30,034,252 (1) Includes stock-based compensation detailed under Share-based Compensation in “ Item 1. Financial Statements—Note 9. Stockholders' Equity” . (2) Includes General and administrative stock-based compensation of $12.1 million and $10.4 million for the three months June 30, 2022 and June 30, 2021, respectively, and $21.1 million and $26.0 million for the six months ended June 30, 2022 and June 30, 2021, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 12% and 11% for the three months ended June 30, 2022 and June 30, 2021, respectively, and 13% and 12% for the six months ended June 30, 2022 and June 30, 2021, respectively. (3) Includes depreciation and amortization of $3.1 million and $2.9 million for the three months ended June 30, 2022 and June 30, 2021, respectively, and $6.3 million and $5.6 million for the six months ended June 30, 2022 and June 30, 2021, respectively. 28 Table of Contents Comparison of the Three and Six Months Ended June 30, 2022 and 2021 Revenue Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Revenue: Subscription and support $ 75,017 $ 72,405 4 % $ 148,644 $ 143,058 4 % Perpetual license 1,858 415 348 % 3,636 767 374 % Total product revenue 76,875 72,820 6 % 152,280 143,825 6 % Professional services 3,352 3,444 (3) % 6,663 6,408 4 % Total revenue $ 80,227 $ 76,264 5 % $ 158,943 $ 150,233 6 % Percentage of revenue: Subscription and support 94% 95% 94% 95% Perpetual license 2% 1% 2% 1% Total product revenue 96% 96% 96% 96% Professional services 4% 4% 4% 4% Total revenue 100% 100% 100% 100% Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (dollars in thousands) Reconciliation of Total revenue to Non-GAAP Core Organic Revenue: Total revenue (1) $ 80,227 $ 76,264 $ 158,943 $ 150,233 Less: Subscription and support revenue from acquisitions not fully in the prior year comparative period 7,297 104 23,215 9,152 Perpetual license revenue 1,858 415 3,636 767 Professional services revenue 3,352 3,444 6,663 6,408 Subscription and support revenue from Sunset Assets (2) 160 353 342 747 Overage Charges (3) 3,005 4,181 5,649 8,879 Political Revenue (4) — 233 — 984 Non-GAAP Core Organic Revenue (5) $ 64,555 $ 67,534 $ 119,438 $ 123,296 (1) After the reduction of $1.7 million and $3.6 million purchase accounting deferred revenue discount for the three and six months ended June 30, 2022, respectively. (2) Subscription and support revenue from Sunset Assets is revenue related to the divestiture and sunset of certain minor non-strategic customer contracts (collectively referred to as “Sunset Assets”). (3) Overage Charges are amounts paid to the Company by a customer (in addition to such customer’s contractual minimum payment commitments) as a result of such customer’s number of users or level of usage of services including text and e-mail messaging and third party pass-through costs exceeding the levels stipulated in such customer’s license or related purchase agreements with the Company. (4) Political Revenue is CXM usage revenue from US presidential campaigns. (5) Non-GAAP Core Organic Revenue excludes revenues from acquisitions closed during or subsequent to the prior year comparable period, Perpetual license revenues, Professional services revenues, Revenue from Sunset Assets, Overage Charges and Political Revenue. 29 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 (dollars in thousands) Reconciliation of Subscription and support revenue to Non-GAAP Core Organic Revenue: Subscription and support revenue (1) $ 75,017 0 $ 72,405 $ 148,644 $ 143,058 Less: Subscription and support revenue from acquisitions not fully in the prior year comparative period 7,297 104 23,215 9,152 Subscription and support revenue from Sunset Assets (2) 160 353 342 747 Overage Charges (3) 3,005 4,181 5,649 8,879 Political Revenue (4) — 233 — 984 Non-GAAP Core Organic Revenue (5) $ 64,555 $ 67,534 $ 119,438 $ 123,296 (1) After the reduction of $1.6 million and $3.6 million purchase accounting deferred revenue discount for the three and six months ended June 30, 2022, respectively. (2) Subscription and support revenue from Sunset Assets is revenue related to the divestiture and sunset of certain minor non-strategic customer contracts (collectively referred to as “Sunset Assets”). (3) Overage Charges are amounts paid to the Company by a customer (in addition to such customer’s contractual minimum payment commitments) as a result of such customer’s number of users or level of usage of services including text and e-mail messaging and third party pass-through costs exceeding the levels stipulated in such customer’s license or related purchase agreements with the Company. (4) Political Revenue is CXM usage revenue from US presidential campaigns. (5) Non-GAAP Core Organic Revenue excludes revenues from acquisitions closed during or subsequent to the prior year comparable period, Revenue from Sunset Assets, Overage Charges and Political Revenue. For the Three Months Ended June 30, 2022 Total revenue was $80.2 million in the three months ended June 30, 2022, compared to $76.3 million in the three months ended June 30, 2021, an increase of $3.9 million, or 5%. Total revenue growth includes a negative impact of 3 percentage points from changes in foreign currency exchange rates (“FX”). Our organic business excludes acquisitions closed during or subsequent to the prior year comparable period and business operations related to Sunset Assets (the “Organic Business”). The acquisitions not fully in the comparable period contributed $10.0 million to the increase in the three months ended June 30, 2022. Total revenue related to Perpetual license and Professional services related to our Organic Business declined by $1.4 million. Total revenue from Sunset Assets declined by $0.3 million in the quarter as a result of decreased sales and marketing focus on those Sunset Assets. Total revenue related to Overage Charges declined by $1.2 million as a result of variable demand in the quarter. The three months ended June 30, 2021 included $0.2 million of Political Revenue which did not repeat in the current quarter and will not repeat for the remainder of 2022. Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $3.0 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $1.7 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Subscription and support revenue was $75.0 million in the three months ended June 30, 2022, compared to $72.4 million in the three months ended June 30, 2021, an increase of $2.6 million, or 4%. Subscription and support revenue growth includes a negative impact of 2 percentage points from changes in FX. The acquisitions not fully in the comparable period contributed $7.2 million to the increase in subscription and support revenue in the three months ended June 30, 2022. Subscription and support revenue related to our Sunset Assets decreased $0.3 million in the quarter as a result of decreased sales and marketing focus on those Sunset Assets. Subscription and support revenue related to Overage Charges declined by $1.2 million as a result of variable demand in the quarter. The three months ended June 30, 2021 included $0.2 million of Political Revenue which did not repeat in the current quarter and will not repeat for the remainder of 2022. Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $3.0 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $1.7 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021. 30 Table of Contents Perpetual license revenue was $1.9 million in the three months ended June 30, 2022, compared to $0.4 million in the three months ended June 30, 2021. The acquisitions not fully in the comparable period contributed $1.5 million to the increase in perpetual license revenue in the three months ended June 30, 2022 primarily from the acquisition of Objectif Lune. Therefore, perpetual license revenue for our Organic Business for the three months ended June 30, 2022 was flat compared to the three months ended June 30, 2021. Professional services revenue was relatively flat at $3.4 million in both the three months ended June 30, 2022 as well as in the three months ended June 30, 2021. The acquisitions not fully in the comparable period contributed $1.3 million to the increase in professional services revenue in the three months ended June 30, 2022. Therefore, professional services revenue for our Organic Business decreased by $1.3 million in the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily related to our discipline around not accepting unprofitable professional services projects. For the Six Months Ended June 30, 2022 Total revenue was $158.9 million in the six months ended June 30, 2022, compared to $150.2 million in the six months ended June 30, 2021, an increase of $8.7 million, or 6%. Total revenue growth includes a negative impact of 1.5 percentage points from changes in FX. The acquisitions not fully in the comparable period contributed $18.4 million to the increase in the six months ended June 30, 2022. Total revenue related to Perpetual license and Professional services related to our Organic Business declined by $1.1 million. Total revenue related to Sunset Assets decreased by $0.5 million as a result of decreased sales and marketing focus on those Sunset Assets. Total revenues related to Overage Charges declined by $3.2 million as a result of variable demand during the first half of 2022. The six months ended June 30, 2021 included $1.0 million in Political Revenue, which did not repeat in the first half of 2022 and will not repeat for the remainder of 2022. Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $3.9 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $2.6 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Subscription and support revenue was $148.6 million in the six months ended June 30, 2022, compared to $143.1 million in the six months ended June 30, 2021, an increase of $5.5 million, or 4%. Subscription and support revenue growth includes a negative impact of 1.6 percentage points from changes in FX. The acquisitions not fully in the comparable period contributed $14.0 million to the increase in subscription and support revenue in the six months ended June 30, 2022. 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 revenues related to Overage Charges declined by $3.2 million as a result of variable demand in the six months ended June 30, 2022. The six months ended June 30, 2021 included $1.0 million of Political Revenues which did not repeat in the first half of 2022 and will not repeat for the remainder of 2022. Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $3.9 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $2.6 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Perpetual license revenue was $3.6 million in the six months ended June 30, 2022, compared to $0.8 million in the six months ended June 30, 2021, an increase of $2.8 million, or 374%. Perpetual license revenue related to our Sunset Assets decreased by $0.1 million as a result of decreased sales and marketing focus on those Sunset Assets. The acquisitions not fully in the comparable period contributed $3.0 million to the increase in perpetual license revenue in the six months ended June 30, 2022. Therefore, perpetual license revenue from our Organic Business decreased by $0.1 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Professional services revenue was $6.7 million in the six months ended June 30, 2022, compared to $6.4 million in the six months ended June 30, 2021, an increase of $0.3 million, or 4%. The acquisitions not fully in the comparable period contributed $1.4 million to the increase in professional services revenue in the six months ended June 30, 2022. Professional services revenue related to our Sunset Assets decreased by $0.1 million as a result of decreased sales and marketing focus on those Sunset Assets. Therefore, professional services revenue from our Organic Business decreased by $1.1 million in the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily related to our discipline around not accepting unprofitable professional services projects. Cost of Revenue and Gross Profit Percentage 31 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Cost of revenue: Subscription and support (1) $ 24,125 $ 23,161 4 % $ 46,194 $ 45,843 1 % Professional services and other 2,428 1,851 31 % 5,114 3,596 42 % Total cost of revenue 26,553 25,012 6 % 51,308 49,439 4 % Gross profit $ 53,674 $ 51,252 $ 107,635 $ 100,794 Percentage of total revenue: Subscription and support (1) 30% 30% 29% 31% Professional services and other 3% 3% 3% 2% Total cost of revenue 33% 33% 32% 33% Gross profit 67% 67% 68% 67% (1) Includes depreciation, amortization and stock compensation expense as follows: Depreciation $ 2 $ 11 $ 4 $ 22 Amortization $ 3,127 $ 2,912 $ 6,336 $ 5,626 Stock Compensation $ 575 $ 563 $ 977 $ 1,005 For the Three Months Ended June 30, 2022 Cost of subscription and support revenue was $24.1 million in the three months ended June 30, 2022, compared to $23.2 million in the three months ended June 30, 2021, an increase of $0.9 million, or 4%. The acquisitions not fully in the comparable period contributed $1.6 million to cost of subscription and support revenue, primarily related to costs associated with the delivery of the newly acquired products. Cost of subscription and support revenue related to our Sunset Assets decreased $0.1 million. Therefore, cost of subscription and support revenue for our Organic Business decreased by $0.6 million, primarily related to a decrease in telecom messaging costs related to a year over year reduction in CXM usage as a result of cyclical highs in 2021 related to US presidential campaigns. Cost of professional services and other revenue was $2.4 million in the three months ended June 30, 2022, compared to $1.9 million in the three months ended June 30, 2021, an increase of $0.6 million, or 31%. The acquisitions not fully in the comparable period contributed $0.7 million in the cost of professional services revenue. Therefore, the cost of professional services for our Organic Business decreased by $0.1 million. For the Six Months Ended June 30, 2022 Cost of subscription and support revenue was $46.2 million in the six months ended June 30, 2022, compared to $45.8 million in the six months ended June 30, 2021, an increase of $0.4 million, or 1%. The acquisitions not fully in the comparable 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 BA Insight, Objectif Lune, Panviva and BlueVenn products. Cost of subscription and support revenue related to our Sunset Assets decreased $0.1 million primarily related to decreased hosting and infrastructure costs. Therefore, cost of subscription and support revenue for the organic portion of our business decreased by $3.2 million, primarily related to decreases in personnel and related costs and messaging costs related to an increase in CXM usage from US presidential campaigns, partially offset by an increase in hosting and infrastructure costs. Cost of professional services revenue was $5.1 million in the six months ended June 30, 2022, compared to $3.6 million in the six months ended June 30, 2021, an increase of $1.5 million, or 42%. The acquisitions not fully in the comparable period contributed $1.6 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 $0.1 million. 32 Table of Contents Operating Expenses Sales and Marketing Expense Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Sales and marketing (1) $ 15,331 $ 14,298 7 % $ 30,924 $ 26,730 16 % Percentage of total revenue 19% 19% 19% 18% (1) Includes stock compensation expense as follows: Stock Compensation $ 1,498 $ 1,619 $ 2,972 $ 2,756 For the Three Months Ended June 30, 2022 Sales and marketing expense was $15.3 million in the three months ended June 30, 2022, compared to $14.3 million in the three months ended June 30, 2021, an increase of $1.0 million, or 7%. The acquisitions not fully in the comparable period contributed $1.8 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs. Therefore, sales and marketing expense for our Organic Business decreased $0.8 million primarily attributable to decreases in personnel and related costs, partially offset by increases related to sales commissions expense associated with our continued go-to-market investments. For the Six Months Ended June 30, 2022 Sales and marketing expense was $30.9 million in the six months ended June 30, 2022, compared to $26.7 million in the six months ended June 30, 2021, an increase of $4.2 million, or 16%. The acquisitions not fully in the comparable period contributed $3.9 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs. Therefore, sales and marketing expense for our Organic Business increased by $0.3 million, primarily attributable to sales commission expense associated with our ongoing go-to-market investments. Research and Development Expense Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Research and development (1) $ 11,676 $ 11,113 5 % $ 23,743 $ 22,053 8 % Percentage of total revenue 15% 15% 15% 15% (1) Includes stock compensation expense as follows: Stock Compensation $ 658 $ 942 $ 1,406 $ 1,656 For the Three Months Ended June 30, 2022 Research and development expense was $11.7 million in the three months ended June 30, 2022, compared to $11.1 million in the three months ended June 30, 2021, an increase of $0.6 million, or 5%. The acquisitions not fully in the comparable period contributed $2.0 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 decreased by $1.4 million primarily related to personnel and related costs. For the Six Months Ended June 30, 2022 Research and development expense was $23.7 million in the six months ended June 30, 2022, compared to $22.1 million in the 33 Table of Contents six months ended June 30, 2021, an increase of $1.6 million, or 8%. The acquisitions not fully in the comparable period contributed $3.9 million to the increase in research and development expense primarily consisting of personnel and related costs. Research and development expense related to our Sunset Assets decreased by $0.1 million primarily due to reductions in personnel costs. Therefore, research and development costs for our Organic Business decreased by $2.2 million primarily related to personnel and related costs. General and Administrative Expense Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) General and administrative (1) $ 21,828 $ 19,192 14 % $ 41,442 $ 43,561 (5) % Percentage of total revenue 27% 25% 26% 29% (1) Includes stock compensation expense as follows: Stock Compensation $ 12,146 $ 10,426 $ 21,141 $ 25,957 For the Three Months Ended June 30, 2022 General and administrative expense was $21.8 million in the three months ended June 30, 2022, compared to $19.2 million in the three months ended June 30, 2021, an increase of $2.6 million, or 14%. An increase in general administrative expense of $0.7 million was due to the acquisitions not fully in the comparable period. In addition, general and administrative expense increased incrementally by $1.9 million, which was driven primarily by higher non-cash stock compensation expense, primarily as a result of the acceleration of stock-based compensation expense. See “ Note 9. Stockholders' Equity—Stock-Based Compensation ”, for further details. For the Six Months Ended June 30, 2022 General and administrative expense was $41.4 million in the six months ended June 30, 2022, compared to $43.6 million in the six months ended June 30, 2021, a decrease of $2.2 million, or 5%. An increase in general administrative expense of $1.7 million was due to the acquisitions not fully in the comparable period, which consisted primarily of personnel and related costs and administrative expenses. Therefore, general and administrative expense decreased by $3.9 million, which was driven primarily by overall decrease in non-cash stock compensation expense and personnel and related costs. Depreciation and Amortization Expense Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Depreciation and amortization: Depreciation $ 393 $ 458 (14) % $ 828 $ 902 (8) % Amortization 10,409 9,820 6 % 21,025 19,119 10 % Total depreciation and amortization $ 10,802 $ 10,278 5 % $ 21,853 $ 20,021 9 % Percentage of total revenue: Depreciation —% —% 1% —% Amortization 13% 13% 13% 13% Total depreciation and amortization 13% 13% 14% 13% For the Three Months Ended June 30, 2022 Depreciation and amortization expense was $10.8 million in the three months ended June 30, 2022, compared to $10.3 million in the three months ended June 30, 2021, an increase of $0.5 million, or 5%. The acquisitions not fully in the comparable period increased depreciation and amortization expense by $1.5 million, primarily related to acquired intangible assets such as 34 Table of Contents customer relationships, developed technology and tradenames. This increase was partially offset by a decrease of $1.0 million in depreciation and amortization expense from assets becoming fully depreciated and amortized. For the Six Months Ended June 30, 2022 Depreciation and amortization expense was $21.9 million in the six months ended June 30, 2022, compared to $20.0 million in the six months ended June 30, 2021, an increase of $1.9 million, or 9%. The acquisitions not fully in the comparable period increased depreciation and amortization expense by $3.3 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 $1.4 million in the comparative periods. Acquisition-related Expenses Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Acquisition-related expenses $ 4,925 $ 5,534 (11) % $ 15,338 $ 15,120 1 % Percentage of total revenue 6% 7% 10% 10% Acquisition-related expenses are typically one-time expenses 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, 2022 Acquisition-related expense was $4.9 million in the three months ended June 30, 2022, compared to $5.5 million in the three months ended June 30, 2021, a decrease of $0.6 million, or 11%. During the three months ended June 30, 2022 and June 30, 2021 transaction related expenses were $0.4 million and $2.0 million, respectively, and transformational expenses were $4.5 million and $3.5 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. We had no new acquisitions during the three months ended June 30, 2022 and closed one acquisition during the three months ended June 30, 2021. Transformation expenses in the three months ended June 30, 2022 include expenses related to acquisitions closed in 2022 as well the three acquisitions closed in 2021 compared to transformation expenses in the three months ended June 30, 2021, which included expenses related to the two acquisitions closed as of March 31, 2021 and one acquisition from 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, 2022 Acquisition related expense was $15.3 million the six months ended June 30, 2022, compared to $15.1 million in the six months ended June 30, 2021 an increase of $0.2 million, or 1%. During the six months ended June 30, 2022 and June 30, 2021 transaction related expenses were $4.9 million and $6.1 million, respectively, and transformational expenses were $10.4 million and $9.0 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. These accelerated rent related expenses decreased $3.5 million to $1.2 million during the six months ended June 30, 2022 from $4.8 million during the same period in 2021. In addition, 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. 35 Table of Contents Other Income (Expense) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Other expense: Interest expense, net $ (7,754) $ (7,942) (2) % $ (15,516) $ (15,729) (1) % Other income (expense), net 1,777 (399) (545) % 1,359 (162) (939) % Total other expense $ (5,977) $ (8,341) (28) % $ (14,157) $ (15,891) (11) % Percentage of total revenue: Interest expense, net (10)% (10)% (10)% (10)% Other income (expense), net 2% (1)% 1% (1)% Total other expense (8)% (11)% (9)% (11)% For the Three Months Ended June 30, 2022 Interest expense, net was $7.8 million in the three months ended June 30, 2022 compared to $7.9 million in the three months ended June 30, 2021 a decrease in interest expense of $0.1 million or 2%. Other income was $1.8 million in the three months ended June 30, 2022, compared to other expense of $0.4 million in the three months ended June 30, 2021. Other income recognized during the three months ended June 30, 2022 were related primarily to currency exchange gains. For the Six Months Ended June 30, 2022 Interest expense was $15.5 million in the six months ended June 30, 2022, compared to $15.7 million in the six months ended June 30, 2021, a decrease in interest expense of $0.2 million, or 1%. Other income was $1.4 million in the six months ended June 30, 2022, compared to other expense of $0.2 million in the six months ended June 30, 2021. Other income recognized during the six months ended June 30, 2022 were related primarily to currency exchange gains. Benefit from (Provision for) Income Taxes Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Benefit from (provision for) income taxes $ 472 $ (1,538) (131) % $ 598 $ 2,856 (79) % Percentage of total revenue 1% (2)% —% 3% For the Three Months Ended June 30, 2022 Benefit from income taxes was $0.5 million in the three months ended June 30, 2022, compared to a provision for income taxes of $1.5 million in the three months ended June 30, 2021, resulting in a decrease in provision for income taxes of $2.0 million. The benefit from income taxes for the three months ended June 30, 2022 related primarily to foreign income taxes associated with our combined non-U.S. operations. These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss. The expense for the three months ended June 30, 2021 related 36 Table of Contents primarily to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with business combinations completed during the period. For the Six Months Ended June 30, 2022 The benefit from income taxes was $0.6 million in the six months ended June 30, 2022, compared to a benefit from income taxes of $2.9 million in the six months ended June 30, 2021, resulting in a decrease of benefit from income taxes of $2.3 million. This decrease was due primarily to decreased benefits recognized during the current period attributable to the release of valuation allowances associated with acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allow us to recognize certain deferred tax assets that had previously been offset by a valuation allowances. Key Metrics In addition to the GAAP financial measures described in “Results of Operations,” 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 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, 2022 2021 2022 2021 (dollars in thousands) Reconciliation of net loss to Adjusted EBITDA: Net loss $ (16,393) $ (19,042) $ (39,224) $ (39,726) Add: Depreciation and amortization expense 13,931 13,201 28,193 25,669 Interest expense, net 7,754 7,942 15,516 15,729 Other expense (income), net (1,777) 399 (1,359) 162 Provision for (benefit from) income taxes (472) 1,538 (598) (2,856) Stock-based compensation expense 14,877 13,550 26,496 31,374 Acquisition-related expense 4,925 5,534 15,338 15,120 Purchase accounting deferred revenue discount 1,663 606 3,592 1,100 Adjusted EBITDA $ 24,508 $ 23,728 $ 47,954 $ 46,572 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; 37 Table of Contents • 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; • 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. 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, and borrowings under our credit facility. 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, 2022, we had cash and cash equivalents of $138.3 million, $60.0 million of available borrowings under our credit facility, as discussed below, and $525.2 million of borrowings outstanding under our credit facility. As of December 31, 2021, we had cash and cash equivalents of $189.2 million, $60.0 million of available borrowings under our Credit Facility, and $527.9 million of borrowings outstanding under our credit facility. The $50.9 million decrease in cash and cash equivalents from December 31, 2021 to June 30, 2022 includes $62.4 million in cash paid for our two acquisitions completed during 2022, net of $0.7 million in cash acquired. Non-cash acquisition date consideration to be paid in future periods related to these acquisitions includes $5.9 million in holdback payments and that are due within 12 to 15 months of the closing dates of the underlying acquisitions. Our cash and cash equivalents held by our foreign subsidiaries was $24.5 million as of June 30, 2022 and $24.8 million as of December 31, 2021. If these funds held by our foreign subsidiaries are needed for our domestic operations, a repatriation of these funds may 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, 2022 and December 31, 2021, we had a working capital surplus of $35.3 million and surplus of $106.5 million, respectively, which includes $103.4 million and $102.8 million of deferred revenue recorded as a current liability as of June 30, 2022 and December 31, 2021, respectively. This deferred revenue will be recognized as revenue in future periods in accordance with our revenue recognition policy. Securities Purchase Agreement The Securities Purchase Agreement as discussed in “ Note 12. Subsequent Events ” will provide us an additional $115.0 million in liquidity, which we intend to use for (a) for general corporate purposes and (b) for transaction-related fees and expenses. The closing is expected promptly following the satisfaction of customary terms and conditions, including the expiration of the 38 Table of Contents Hart-Scott-Rodino Act notice period. However, we can provide no assurances that the transaction will close on the expected timeline or at all. The holders of Series A Preferred Stock will be entitled to dividends (i) at the rate of 4.5% per annum until but excluding the seven year anniversary of the closing, and (ii) at the rate of 7% per annum on and after the seven year anniversary of the closing, and are also entitled to fully participate in any dividends or other distributions declared or paid on our common stock on an as-converted basis. Dividends will be payable quarterly in arrears, and may be paid, at our option, in cash or by paying dividends in kind . Our ability to pay cash dividends is subject to the restrictions under the Credit Facility (as defined below). The Series A Preferred Stock will rank senior to our common stock with respect to distribution rights and rights upon our liquidation, dissolution or winding up (“Liquidation”), on parity with any class or series of our capital stock expressly designated as ranking on parity with the Series A Preferred Stock with respect to distribution rights and rights upon Liquidation, junior to any class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock with respect to distribution rights and rights upon Liquidation and junior in right of payment to our existing and future indebtedness, including the Credit Facility. 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, 2022. 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, 2022 we were in compliance with all covenants under the Credit Facility. See “ Note 6. Debt—Credit Facility ” for more information regarding our Credit Facility and outstanding debt as of June 30, 2022. 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, 2022, the fair value of the interest rate swap was a $26.0 million asset. The increase in the fair 39 Table of Contents value of the interest rate swap assets during the six months ended June 30, 2022 is the result of an increase in short term interest rates compared to December 31, 2021. 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, 2022 2021 (dollars in thousands) Consolidated Statements of Cash Flow Data: Net cash provided by operating activities $ 22,260 $ 23,308 Net cash used in investing activities (62,653) (92,924) Net cash used in financing activities (6,608) (3,381) Effect of exchange rate fluctuations on cash (3,873) (493) Change in cash and cash equivalents (50,874) (73,490) Cash and cash equivalents, beginning of period 189,158 250,029 Cash and cash equivalents, end of period $ 138,284 $ 176,539 Cash Flows from Operating Activities Cash provided by 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 $22.3 million for the six months ended June 30, 2022 compared to cash provided by operating activities of $23.3 million for the six months ended June 30, 2021, a decrease of $1.0 million. Working capital sources of cash for the six months ended June 30, 2022 included a $22.1 million decrease in accounts receivable related to the timing of collections. Working capital uses of cash for the six months ended June 30, 2022 included a decrease of $0.9 million in accounts payable related to timing of payments, a decrease of $9.2 million in deferred revenue, a $4.6 million increase in prepaid expenses and other current assets and a $5.2 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 library of cloud-based software applications and infrastructure and support additional personnel. For the six months ended June 30, 2022, cash used in investing activities consisted of $62.4 million associated with the Company’s 2022 acquisitions, and the purchases of property and equipment of $0.3 million. Cash used in investing activities decreased $30.3 million for the six months ended June 30, 2022 compared to the same period in 2021 primarily as a result of the two acquisitions closed during the period compared to the three acquisitions in the comparable prior year period. 40 Table of Contents 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 $3.2 million for the six months ended June 30, 2022 compared to the same period in 2021. The increase in cash used in financing activities relates primarily to a $2.3 million increase in additional consideration paid to sellers (i.e. holdbacks) and a $1.0 million increase in net share employee payroll tax settlement payments compared to the same period in 2021. 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 (“GAAP”). 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; • income taxes; • deferred sales commissions and sales commission expense; • business combinations and the recoverability of goodwill and long-lived assets; and • stock-based compensation. 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 9, 2022, 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, 2022, as presented herein and in “ Item 1. Financial Statements ” to this Quarterly Report on Form 10-Q, reflect 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, 2021 filed with the SEC on February 24, 2022 (the “Annual Report”). Please refer to our 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. 41 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. Basis of Presentation and Summary of Significant Accounting Policies—Recent Accounting Pronouncements” to our condensed consolidated financial statements. 42 Table of Contents