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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-24 · 283 added, 239 removed, 373 unchanged (58% of the section changed)

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Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

For a comparison of the years ended December 31, 2021 and 2020 refer to “Item 7.

Management’s Discussion and Analysis” in the Company’s Annual Report on Form 10-K for the years ended December 31, 2021 filed with the SEC on February 24 , 2022.

All information presented herein is based on our fiscal calendar.

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We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

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 CXM-focused organizations across a variety of use cases including mobile messaging, mobile application marketing, 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 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.

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 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 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.

In addition, our products help operations team 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 .

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, consulting services, technology, manufacturing, media, telecommunications, government, political, non-profit, healthcare, life sciences, retail and hospitality.

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 $302.0 million in 2021, representing a cumulative annual growth rate of 33%.

During the year ended December 31, 2021 domestic revenue as a percent of total revenue decreased to 71% compared to 74% during the year ended December 31, 2020.

See “Note 13 Revenue Recognition” in the notes to the consolidated financial statements for more information regarding our revenue as it relates to domestic and foreign operations.

Our revenue has grown from $149.9 million in the year ended December 31, 2018 to $317.3 million in the year ended December 31, 2022, representing a compound annual growth rate of 21%.

During the year ended December 31, 2022, domestic revenue as a percent of total revenue decreased to 70% compared to 71% in the year ended December 31, 2021.

Our operating results in a given period can fluctuate based on the mix of subscription and support, perpetual license and professional services revenue.

For the years ended December 31, 2021, 2020 and 2019, our subscription and support revenue represented 95% , 95% and 92%, respectively of our total revenue.

For the years ended December 31, 2022, 2021 and 2020, our subscription and support revenue represented 94% , 95% and 95% of our total revenue, respectively.

Historically, we have sold certain of our applications under perpetual licenses, which also are paid in advance.

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Professional services revenue consists of fees related to implementation, data extraction, integration and configuration and training on our applications.

For the years ended December 31, 2021, 2020 and 2019, our professional services revenue accounted for 4% , 4% and 5%, respectively.

For each of the years ended December 31, 2022, 2021 and 2020, our professional services revenue accounted for 4% of our total revenue .

To support continued growth, we intend to pursue acquisitions of complementary technologies, products and businesses.

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2022 Acquisitions

• BA Insight - On February 22, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BA Insight Inc., (“BA Insight”), a cloud-based enterprise knowledge management solution.

Revenues recorded since the acquisition date through December 31, 2022 were approximately $7.6 million.

• Objectif Lune - On January 7, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Objectif Lune Inc., a Quebec proprietary company (“Objectif Lune”), a cloud-based document workflow product.

Revenues recorded since the acquisition date through December 31, 2022 were approximately $20.9 million.

2021 Acquisitions

• Panviva - On June 24, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Panviva Pty Ltd, an Australian proprietary company (“Panviva”), a cloud-based enterprise knowledge management solution.

Revenue recorded since the acquisition date through December 31, 2021 were approximately $3.9 million.

• BlueVenn - On February 28, 2021 the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BlueVenn Group Limited, a company limited by shares organized and existing under the laws of England and Wales (“BlueVenn”), a cloud-based customer data platform.

Revenue recorded since the acquisition date through December 31, 2021 were approximately $12.6 million.

• Second Street - On January 19, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Second Street Media, Inc., a Missouri corporation (“Second Street”), an audience engagement platform.

Revenue recorded since the acquisition date through December 31, 2021 were approximately $10.2 million.

2020 Acquisitions

• Localytics - On February 6, 2020, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Char Software, Inc (dba Localytics), a Delaware corporation (“Localytics”), a provider of mobile app personalization and analytics solutions.

2019 Acquisitions

• Postup - On April 18, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of Postup Holdings, LLC, a Texas limited liability company (“Postup Holdings”), and Postup Digital, LLC, a Texas limited liability company (“Postup Digital”), an Austin-based company providing email and audience development solutions for publishing & media brands.

• Kapost - On May 24, 2019, the Company completed of its purchase of the shares comprising the entire issued share capital of Daily Inches, Inc., d/b/a Kapost, a Delaware corporation (“Kapost”), a content operations platform provider for sales and marketing.

• Cimpl - On August 21, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of Cimpl, Inc., a Canadian corporation (“Cimpl”), a cloud-based telecom expense management platform.

• InGenius - On October 1, 2019, the Company completed its purchase of the shares comprising the entire issued share capital of InGenius Software Inc., a Canadian corporation (“InGenius”), a Computer Telephony Integration (CTI) solution for enterprise contact centers.

• Altify - On October 4, 2019, the Company’s wholly owned subsidiary, PowerSteering Software Limited, a limited company incorporated under the laws of England and Wales (“PowerSteering UK”), entered into an agreement to purchase the shares comprising the entire issued share capital of Altify Ireland Limited, a private company limited by shares organized and existing under the laws of Ireland (“Altify”), a customer revenue optimization (CRO) cloud solution for sales and the extended revenue teams.

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 a result, beginning in the second quarter 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 related expenses during 2020.

The ongoing spread of COVID-19 remains a global pandemic, compounded with the discovery of new COVID-19 variants (such as the 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, with the acquisitions of Second Street, BlueVenn and Panviva.

In addition, acquisition-related expenses picked up again starting in the first quarter of 2021.

These acquisition related expenses will vary quarter to quarter in proportion to the size, timing and complexity of current and future acquisitions.

While we generally 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 continued impact to new bookings and churn in 2021, which we attribute to COVID-19.

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.

We support the health and well-being of our employees, customers, partners and communities.

As such, we are continuing our remote working arrangements and limiting non-essential business travel for our employees.

We are currently evaluating our plans to reopen our facilities and resume business travel for our employees.

We expect that current cash and cash equivalent balances and cash flows generated from operations will be sufficient to meet our domestic and international working capital needs for at least the next 12 months.

In addition to the GAAP financial measures described in “—Components of Operating Results” below, 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 (in thousands, except %):

Year Ended December 31,

2021 2020 2019

Other Financial Data:

Annualized recurring revenue value at year-end (1)

$ 257,056 $ 220,535 $ 209,700

Annual net dollar retention rate (2)

94 % 94 % 97 %

Adjusted EBITDA (3)

$ 96,657 $ 99,903 $ 82,520

(1) Annualized recurring revenue value at year-end .

We define annualized recurring revenue value (“ARR”) as the value as of December 31 that equals the monthly value of our recurring revenue contracts measured as of December 31 multiplied by 12.

This measure excludes the revenue value of uncontracted overage fees, on-demand service fees and certain divested and/or sunseted minor non-strategic customer contracts and related website management and analytics assets (collectively referred to as the “Sunset Assets”).

Refer to “Note 3 Acquisitions” and “Note 5 Goodwill and Other Intangible Assets” in the notes to the consolidated financial statements for further discussion.

(2) Annual net dollar retention rate .

We define annual net dollar retention rate as of December 31 as the aggregate ARR at December 31 from those customers that were also customers as of December 31 of the prior fiscal year, divided by the aggregate ARR value from all customers as of December 31 of the prior fiscal year.

This measure excludes the revenue value of uncontracted overage fees, on-demand service fees and our Sunset Assets.

(3) Adjusted EBITDA .

We monitor 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, loss on debt extinguishment, other expense, net, benefit from income taxes, stock-based compensation expense, acquisition-related expense and purchase accounting deferred revenue discount.

Non-GAAP Financial Measures

Adjusted EBITDA

The following table presents a reconciliation of GAAP Net loss from continuing operations to Adjusted EBITDA for each of the periods indicated (in thousands).

Year Ended December 31,

2021 2020 2019

Net loss $ (58,212) $ (51,219) $ (45,371)

Depreciation and amortization expense 52,928 47,164 34,621

Interest expense, net 31,626 31,529 22,313

Loss on debt extinguishment — — 2,317

Other expense, net 253 111 3,240

Benefit from income taxes (8,344) (4,234) (6,805)

Stock-based compensation expense 53,873 41,692 25,754

Acquisition-related expense 21,234 27,075 39,657

Purchase accounting deferred revenue discount 3,299 7,785 6,794

Adjusted EBITDA $ 96,657 $ 99,903 $ 82,520

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 our 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, which contribute to the generation of revenue, 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;

• 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.

Sunset Assets

During the fourth quarter of 2022, in connection with the periodic review of its business, the Company decided to sunset certain non-strategic product offerings and customer contracts (collectively referred to as “Sunset Assets”).

Refer to “Adjusted Operating Measures” detail located in this section for further breakdown for adjusted amounts.

Components of Operating Results

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We recognize the revenue associated with subscription agreements ratably over the term of the agreement as the customer receives and consumes the benefits of the cloud services through the contract period.

Our subscription agreements are typically one to three years.

Our subscription agreements typically have terms of one to three years.

Our support revenue consists of maintenance fees associated with our perpetual licenses and hosting fees paid to us by our customers.

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Cost of product revenue .

Cost of product revenue consists primarily of hosting costs, personnel and related costs of our customer success and cloud operations teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, and allocated overhead, as well as software license fees, internet connectivity, depreciation expenses and pass-through costs directly related to delivering our applications.

Cost of product revenue consists primarily of hosting costs, personnel related costs of our customer success and cloud operations teams, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, and allocated overhead, as well as software license fees, internet connectivity, depreciation expenses, amortization of acquired intangible assets, specifically developed technology, as a result of business combination purchase accounting adjustments and pass-through costs directly related to delivering our applications.

We expect that cost of revenues may increase in the future depending on the growth rate of our new customers and billings and our need to support the implementation, hosting and support of those new customers.

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Our cost of product revenue is generally expensed as the costs are incurred.

Developed technology is valued using a cost-to-recreate approach and is generally amortized over a four- to nine-year period.

Cost of professional services revenue .

Cost of professional services revenue consists primarily of personnel and related costs, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as the costs of contracted third-party vendors and reimbursable expenses.

Cost of professional services revenue consists primarily of personnel related costs, including salaries, benefits, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as the costs of contracted third-party vendors and reimbursable expenses.

As most of our personnel are employed on a full-time basis, our cost of professional services revenue is largely fixed in the short-term, while our professional services revenue may fluctuate, leading to fluctuations in professional services gross profit.

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Operating Expenses

Our operating expenses are classified into five categories:

sales and marketing, research and development, general and administrative, depreciation and amortization and acquisition-related expenses.

For each category, other than depreciation and amortization, the largest expense component is primarily personnel and related costs, which includes salaries, employee benefit costs, bonuses, commissions, stock-based compensation, and payroll taxes.

Our operating expenses are classified into six categories:

sales and marketing, research and development, general and administrative, depreciation and amortization, acquisition-related expenses and impairment of goodwill.

For each category, other than depreciation and amortization and impairment of goodwill, the largest expense component is primarily personnel related costs, which includes salaries, employee benefit costs, bonuses, commissions, stock-based compensation, and payroll taxes.

Operating expenses also include allocated overhead costs for facilities, which are allocated to each department based on relative department headcount.

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Sales and marketing .

Sales and marketing expenses primarily consist of personnel and related costs for our sales and marketing staff, including salaries, benefits, deferred commission amortization, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as costs of promotional events, corporate communications, online marketing, product marketing and other brand-building activities.

Sales and marketing expenses primarily consist of personnel related costs for our sales and marketing staff, including salaries, benefits, deferred commission amortization, bonuses, payroll taxes, stock-based compensation and allocated overhead, as well as costs of promotional events, corporate communications, online marketing, product marketing and other brand-building activities.

Sales commissions earned by our sales force, and related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer.

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Sales commissions, and related payroll taxes, are earned when the initial customer contract is signed and upon any renewal as our obligation to pay a sales commission arises at these times.

Sales and marketing expenses may fluctuate as a percentage of total revenues for a variety of reasons including due to the timing of such expenses, in any particular quarterly or annual period.

Sales and marketing expenses may fluctuate as a percentage of total revenues for a variety of reasons including the timing of such expenses, in any particular quarter or annual period.

Research and development .

Research and development expenses primarily consist of personnel and related costs of our research and development staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, allocated overhead and costs of certain third-party contractors.

Research and development expenses primarily consist of personnel related costs of our research and development staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, allocated overhead and costs of certain third-party contractors.

Research and development costs related to the development of our software applications are generally recognized as incurred.

For example, we are parties to a technology services agreement pursuant to which we generally recognize expenses for services as they are received.

See “Note 16 Related Party Transactions”, in the notes to the consolidated financial statements for more information regarding how expenses under such agreement are recognized.

We have devoted our product development efforts primarily to enhancing the functionality, and expanding the capabilities, of our applications.

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General and administrative .

General and administrative expenses primarily consist of personnel and related costs for our executive, administrative, finance, information technology, legal, accounting and human resource staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, allocated overhead, professional fees and other corporate expenses.

General and administrative expenses primarily consist of personnel related costs for our executive, administrative, accounting and finance, information technology, legal, accounting and human resource staff, including salaries, benefits, bonuses, payroll taxes, stock-based compensation, allocated overhead, professional fees and other corporate expenses.

We have recently incurred, and expect to continue to incur, additional expenses as we grow our operations, including potentially higher legal, corporate insurance, accounting and auditing expenses and the additional costs of enhancing and maintaining our internal control environment.

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Depreciation and amortization .

Depreciation and amortization expenses primarily consist of depreciation and amortization of acquired intangible assets as a result of business combination purchase accounting adjustments.

Depreciation and amortization expenses primarily consist of depreciation and amortization of acquired intangible assets, specifically customer relationships and trade names, as a result of business combination purchase accounting adjustments.

The valuation of identifiable intangible assets reflects management’s estimates based on, among other factors, use of established valuation methods.

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The value of the trade name intangibles are determined using a relief from royalty method, which estimates fair value based on the value the owner of the asset receives from not having to pay a royalty to use the asset and are amortized over mostly a three-year period.

Developed technology is valued using a cost-to-recreate approach and is amortized over a four- to nine-year period.

Acquisition-related expenses .

Acquisition-related expenses are typically incurred for up to four quarters after each acquisition, with the majority of these costs being incurred within six to nine 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.

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These acquisition-related expenses also include transformational expenses such as severance, compensation for transitional personnel, office lease terminations and vendor cancellations.

Generally, if the Company ceased acquisition activity today, within a year, these acquisition-related expenses should no longer be incurred.

Generally these acquisition-related expenses should no longer be material if the Company has done no acquisitions after one year.

Impairment of Goodwill .

Goodwill impairment is recognized on a non-recurring basis when the Carrying Value (or GAAP basis book value) of our Company (which is our only reporting unit) exceeds the estimated fair value of our Company as determined by reference to a number of factors and assumptions, including the spot closing price of our Common Stock as of a certain reporting or measurement date.

We assess Goodwill for impairment annually on October 1st, or more frequently when an event occurs which could cause the Carrying Value of our Company to exceed the estimated fair value of our Company.

As a result of the decline of our stock price during the quarter ended December 31, 2022, we performed a Goodwill impairment evaluation as of December 31, 2022, which resulted in a Goodwill impairment of $12.5 million.

See “ Note 5.

Goodwill and Other Intangible Assets ” in the notes to our consolidated financial statements for more information regarding our fourth quarter 2022 Goodwill impairment.

We will continue to evaluate Goodwill impairment in future periods.

Total Other Expense

Total other expense consists primarily of amortization of debt issuance costs over the term of the related term loan, revaluation of contingent consideration, and interest expense on outstanding debt, including amortization of debt issuance costs.

We participate in interest rate swap agreements for the purpose of reducing variability in interest rate payments the Company’s term loans.

Total other expense consists primarily of amortization of debt issuance costs over the term of the related term loan, revaluation of foreign subsidiaries, interest expense on outstanding debt, partially offset by interest income on our interest-

bearing cash balances held in money market accounts.

We participate in interest rate swap agreements for the purpose of reducing variability in interest rate payments on the Company’s outstanding term loans.

These interest rate swaps fix the Company's interest rate (including the hedge premium) at 5.4% for the term of the Credit Facility (as hereinafter defined in “ —Liquidity and Capital Resources—Credit Facility ”).

gains/losses on divested assets that meet the definition of a business under ASC 805-10, Business Combination—Overall , are included in Total other expense.

In addition, gains/losses on divested assets that meet the definition of a business under ASC 805-10, Business Combination—Overall , are included in Total other expense.

Because we have not generated domestic net income in any period to date, we have recorded a full valuation allowance against our domestic net deferred tax assets, exclusive of tax deductible goodwill.

We have historically not recorded any material provision for federal or state income taxes, other than deferred taxes related to tax deductible goodwill and current taxes in certain separate company filing states.

The balance of the tax benefit for the years ended December 31, 2021, 2020 and 2019, outside of tax deductible goodwill and current taxes in separate filing states, is related to foreign income taxes, primarily operations of our Australian, Canadian, Ireland, and United Kingdom subsidiaries, and to the release of valuation allowances associated with acquisitions of domestic entities with deferred tax liabilities.

Realization of any of our domestic deferred tax assets depends u pon future earnings, the timing and amount of which are uncertain.

The balance of the tax benefit for the years ended December 31, 2022, 2021 and 2020, outside of tax deductible goodwill and current taxes in separate filing states, is related to foreign income taxes, primarily operations of our subsidiaries in Australia, Canada, Ireland and the United Kingdom, and to the release of valuation allowances associated with acquisitions of domestic entities with deferred tax liabilities.

Realization of any of our domestic deferred tax assets depends upon future earnings, the timing and amount of which are uncertain.

Based on analysis of acquired net operating losses, utilization of our net operating losses will be subject to annual limitations due to the ownership change rules under the Internal Revenue Code of 1986, as amended, or the Code, and similar state provisions.

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Acquisition-related expenses 21,556 6% 21,234 8% 27,075 9%

Impairment of goodwill 12,500 4% — —% — —%

Total operating expenses 253,790 80% 237,240 79% 217,145 74%

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Interest expense, net (29,145) (9)% (31,626) (10)% (31,529) (11)%

Loss on debt extinguishment — —% — —% (2,317) (1)%

Other expense, net (781) —% (253) (1)% (111) —%

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Net loss (68,413) (22)% (58,212) (19)% (51,219) (18)%

Preferred stock dividends and accretion (1,846) (1)% — —% — —%

Net loss attributable to common stockholders (3) $ (70,259) (22)% $ (58,212) (19)% $ (51,219) (18)%

Net loss per common share:

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See table below for stock-based compensation by operating expense line item.

(2) Includes depreciation and amortization of $11.6 million, $10.2 million and $8.7 million in 2021, 2020 and 2019, respectively.

(3) See “Note 8 Net Loss Per Share”, in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discu ssion and a reconciliation of historical net loss attributable to common stockholders and weighted average shares outstanding for historical basic and diluted net loss per share calculations.

Stock-based compensation

The following tables present stock-based compensation included in the respective line items on our Consolidated Statement of Operations:

Year Ended December 31,

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Total $ 41,602 $ 53,873 $ 41,692

(2) Includes depreciation and amortization of $12.5 million, $11.6 million and $10.2 million in the years ended December 31, 2022, 2021 and 2020, respectively.

(3) See “ Note 8 Net Loss Per Share ”, in the notes to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discu ssion and a reconciliation of historical net loss attributable to common stockholders and weighted average shares outstanding for historical basic and diluted net loss per share calculations.

Adjusted Operating Measures

In the following discussion of results of operations, we refer to “Core Organic Revenue” and “Organic Revenue” as non-GAAP financial measures.

We believe that, in addition to our financial results determined in accordance with GAAP, these non-GAAP financial measures are useful in evaluating our business, results of operations, and financial condition.

However, our use of non-GAAP financial measures may vary from that of others in our industry.

Non-GAAP financial measures should not be considered as an alternative to the performance measures derived in accordance with GAAP.

There are limitations to the use of non-GAAP measures, as non-GAAP measures may not present complete financial results.

We compensate for these limitations by using these non-GAAP financial measures along with other comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance.

Such GAAP measurements include revenue, gross profit, net loss, net loss per share and other performance measures.

In evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in the presentation of our non-GAAP financial measures.

Our presentation of non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

When evaluating our performance, you should consider these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable GAAP measures set forth in the reconciliation tables below and our other GAAP results.

See “—Non-GAAP Financial Measures” for the definitions of the non-GAAP financial measures included herein, as well as a statement disclosing the reasons management believes certain non-GAAP financial measures provide useful information to investors regarding the Company’s financial condition and results of operations.

The following table presents a reconciliation of Total revenue to Core Organic Revenue for each of the periods indicated.

Years Ended December 31,

(dollars in thousands)

Reconciliation of Total revenue to Core Organic Revenue:

Total revenue $ 317,303 $ 302,016

Subscription and support revenue from acquisitions not fully in the prior year comparative period (1)

49,624 24,943

Perpetual license revenue 6,948 2,150

Professional services revenue 12,468 12,246

Subscription and support revenue from Sunset Assets (2)

29,958 35,782

Overage Charges (3)

12,287 16,124

Political Revenue (4)

Core Organic Revenue (5)

$ 206,018 $ 209,791

(1) After the reduction of $5.5 million purchase accounting deferred revenue discount for the year ended December 31, 2022.

(2) Subscription and support revenue from Sunset Assets is revenue related to Sunset Assets.

This excludes Overage Charges, Professional services revenue, Perpetual license revenue and subscription and support revenue from acquisitions not fully in the prior year comparative period all shown separately.

(3) Overage Charges are subscription and support revenue representing 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 subscription and support usage revenue from US presidential campaigns.

(5) 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.

The following table presents a reconciliation of Subscription and support revenue to Core Organic Revenue for each of the periods indicated.

Years Ended December 31,

(dollars in thousands)

Reconciliation of Subscription and support revenue to Core Organic Revenue:

Subscription and support revenue $ 297,887 $ 287,621

Subscription and support revenue from acquisitions not fully in the prior year comparative period (1)

49,624 24,943

Subscription and support revenue from Sunset Assets (2)

29,958 35,782

Overage Charges (3)

12,287 16,124

Political Revenue (4)

Core Organic Revenue (5)

$ 206,018 $ 209,791

(1) After the reduction of $5.5 million purchase accounting deferred revenue discount for the year ended December 31, 2022 .

(2) Subscription and support revenue from Sunset Assets is revenue related to Sunset Assets.

(3) Overage Charges are subscription and support revenue representing 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 volume of usage 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 subscription and support usage revenue from US presidential campaigns.

(5) 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.

Comparison of Years Ended December 31, 2022 and December 31, 2021

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Total revenue $ 317,303 100% $ 302,016 100% $ 15,287 5%

Total revenue was $302.0 million in 2021, compared to $291.8 million in 2020, an increase of $10.2 million, or 4%.

The acquisitions not fully in the comparative period contributed $27.7 million to the increase after the reduction of $3.3 million purchase accounting deferred revenue discount in 2021.

Total Revenue related to Sunset Assets decreased by $1.3 million as a result of decreased sales and marketing focus on those Sunset Assets.

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”).

Therefore, total revenue for the Organic Business decreased by $16.2 million.

The year ended December 31, 2020 included $18.2 million of CXM usage revenue from US election-year presidential campaigns in 2020 which did not repeat in 2021.

Subscription and support revenue was $287.6 million in 2021, compared to $277.5 million in 2020, an increase of $10.1 million, or 4%.

The acquisitions not fully in the comparative period contributed $26.1 million to the increase in subscription and support revenue after the reduction of $3.3 million purchase accounting deferred revenue discount in 2021.

Total revenue was $317.3 million in the year ended December 31, 2022, compared to $302.0 million in the year ended December 31, 2021, an increase of $15.3 million, or 5%.

Total revenue growth includes a negative impact of 2% from changes in foreign currency exchange rates.

Our organic revenue excludes acquisitions closed during or subsequent to the prior year comparable period and business operations related to Sunset Assets (the “Organic Revenue”).

The acquisitions not fully in the comparable period contributed $32.8 million to the increase in total revenue for the year ended December 31, 2022.

Total revenue related to Perpetual license and Professional services related to our Organic Business decreased by $3.0 million.

Subscription and support revenue related to Sunset Assets decreased by $5.8 million as a result of decreased sales and marketing focus on those Sunset Assets.

Total revenues related to Overage Charges decreased by $3.8 million as a result of variable demand in the year ended December 31, 2022.

The year ended December 31, 2021 included $1.0 million in Political Revenue, which did not repeat in the year ended December 31, 2022.

Therefore, net of these non-core revenues, our Core Organic Revenue decreased by $3.8 million in the year ended December 31, 2022 compared to the year ended December 31, 2021.

After removing the negative foreign currency exchange impact on our revenue, net of these non-core revenues, our Core Organic Revenue decreased by $2.6 million in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Subscription and support revenue was $297.9 million in the year ended December 31, 2022, compared to $287.6 million in the year ended December 31, 2021, an increase of $10.3 million, or 4%.

Subscription and support revenue growth includes a negative impact of 2% from changes in foreign currency exchange rates.

The acquisitions not fully in the comparable period contributed $24.7 million to the increase in subscription and support revenue in the year ended December 31, 2022.

Subscription and support revenue related to our Sunset Assets decreased $5.8 million as a result of decreased sales and marketing focus on those Sunset Assets.

Subscription and support revenue for our Organic Business decreased to $243.9 million from a basis of $258.6 million for the year ended December 31, 2020.

The year ended December 31, 2020 included $18.2 million of CXM usage revenue from US election-year presidential campaigns in 2020 which did not repeat in 2021.

Perpetual license revenue was $2.2 million in 2021, compared to $1.9 million in 2020, an increase of $0.3 million.

Professional services revenue was $12.2 million in 2021, compared to $12.4 million in 2020, a decrease of $0.2 million, or 1%.

The acquisitions not fully in the comparative period contributed to a $1.7 million increase in professional services revenue in 2021.

Therefore, professional services revenue from our Organic Business decreased by $1.9 million due primarily to COVID-19 related travel impacts and a higher proportion of expansion bookings versus new bookings which tend to have more professional services associated with them.

Subscription and support revenues related to Overage Charges decreased by $3.8 million as a result of variable demand in the year ended December 31, 2022.

The year ended December 31, 2021 included $1.0 million of subscription and support Political Revenues which did not repeat in the year ended December 31, 2022.

Therefore, net of these non-core revenues, our Core Organic Revenue decreased by $3.8 million in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Perpetual license revenue was $6.9 million in the year ended December 31, 2022, compared to $2.2 million in the year ended December 31, 2021, an increase of $4.7 million, or 223%.

The acquisitions not fully in the comparable period contributed $5.0 million to the increase in perpetual license revenue in the year ended December 31, 2022.

Perpetual license revenue related to our Sunset Assets was nil.

Therefore, perpetual license revenue from our Organic Business decreased by $0.3 million in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Professional services revenue was $12.5 million in the year ended December 31, 2022, compared to $12.2 million in the year ended December 31, 2021, an increase of $0.3 million, or 2%.

The acquisitions not fully in the comparable period contributed $3.1 million to the increase in professional services revenue in the year ended December 31, 2022.

Professional services revenue related to our Sunset Assets decreased by $0.1 million.

Therefore, professional services revenue from our Organic Business decreased by $2.7 million in the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily related to our discipline around not accepting unprofitable professional services projects.

Cost of Revenue and Gross Profit Margin

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Amortization $ 12,469 4% $ 11,583 4% $ 886 8%

Cost of subscription and support revenue was $92.2 million in 2021, compared to $89.9 million in 2020, an increase of $2.3 million, or 3%.

The acquisitions not fully in the comparative period contributed $8.7 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 was $93.9 million in the year ended December 31, 2022, compared to $92.2 million in the year ended December 31, 2021, an increase of $1.7 million, or 2%.

The acquisitions not fully in the comparable period contributed $5.4 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 and Panviva products.

Cost of subscription and support revenue related to our Sunset Assets decreased $2.6 million, primarily related to hosting and infrastructure costs.

Therefore, cost of subscription and support revenue for our Organic Business decreased by $5.6 million, primarily related to a year over year reduction in pass-through telecom messaging costs associated with the CXM usage revenue from US election-year presidential campaigns in 2020 which did not repeat in 2021, partially offset by an increase in infrastructure and hosting costs.

Cost of professional services revenue was $7.3 million in 2021, compared to $8.6 million in 2020, a decrease of $1.3 million, or 15%.

The acquisitions not fully in the comparative period contributed $0.9 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 $2.2 million which corresponds with the reduction in professional services revenue as a result of COVID-19 related travel impacts.

Therefore, cost of subscription and support revenue for our Organic Business decreased by $1.1 million mainly due to decreased messaging costs.

Cost of professional services revenue was $9.8 million in the year ended December 31, 2022, compared to $7.3 million in the year ended December 31, 2021, an increase of $2.5 million, or 34%.

The acquisitions not fully in the comparable period contributed $3.2 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 $0.7 million primarily related to a decrease in personnel related costs.

Operating Expenses

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Sales and marketing $ 59,416 19% $ 55,097 18% $ 4,319 8%

Sales and marketing expense was $55.1 million in 2021, compared to $46.1 million in 2020, an increase of $9.0 million, or 20%.

Sales and marketing expense for our Organic Business increased by $5.4 million, primarily as a result of increased commission costs which were partially offset by decreased travel and discretionary marketing expenses.

In addition, the acquisitions not fully in the comparative period contributed $3.6 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs in 2021.

Sales and marketing expense was $59.4 million in the year ended December 31, 2022, compared to $55.1 million in the year ended December 31, 2021, an increase of $4.3 million, or 8%.

The acquisitions not fully completed in the comparable period contributed $6.6 million to the increase in sales and marketing expense, primarily consisting of increased headcount and personnel related costs in the year ended December 31, 2022.

Sales and marketing expense for our Sunset Assets decreased by $1.1 million primarily as a result of decreased personnel related costs.

Sales and marketing expense for our Organic Business decreased by $1.2 million, primarily as a result of a reduction in personnel related costs which were partially offset by increased commission costs.

We expect to see an increase in sales and marketing expense in 2023 as we increase our go to market investments.

Research and Development Expense

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Research and development expense was $46.2 million in 2022, compared to $42.7 million in 2021, an increase of $3.5 million, or 8%.

The acquisitions not fully in the comparative period contributed $3.6 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 $0.2 million primarily due to reductions in personnel costs.

Therefore, research and development costs for our Organic Business increased by $0.3 million primarily related to an increase in non-cash stock compensation expense and outsourced technology services costs.

The acquisitions not fully in the comparable period contributed $7.5 million to the increase in research and development expense primarily consisting of personnel related costs.

Research and development expense related to our Sunset Assets decreased by $0.7 million primarily due to reductions in personnel related costs.

Therefore, research and development expense for our Organic Business decreased by $3.3 million primarily related to a decrease in non-cash stock compensation expense coupled with lower outsourced technology services costs as we shift more resources to our India Center of Excellence.

We expect to see an increase in research and development expenses in 2023 due to increased product investments.

General and Administrative Expense

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General and administrative $ 70,462 22% $ 76,901 25% $ (6,439) (8)%

General and administrative expense was $76.9 million in 2021, compared to $68.1 million in 2020, an increase of $8.8 million, or 13%.

General and administrative expense for our Organic Business increased by $6.2 million, which was driven primarily by increased non-cash stock compensation expense largely due to the issuance of restricted stock units in 2021 and a one-time increase in non-cash stock compensation expense related to the departure of our former co-President and Chief Operating Officer in March 2021.

In addition, an increase in general administrative expense of $2.6 million was due to the acquisitions not fully in the comparative period, which consisted primarily of personnel and related costs and administrative expenses.

General and administrative expense was $70.5 million in 2022, compared to $76.9 million in 2021, a decrease of $6.4 million, or 8%.

General and administrative expense for our Organic Business decreased by $9.8 million, which was driven primarily by lower non-cash stock compensation expense due primarily to lower grant date fair values in 2022 as well as the absence of a one-time non-cash stock compensation charge taken in 2021 of $6.3 million related to the departure of a former executive.

General and administrative expense for our Sunset Assets decreased by $0.9 million.

This was partially offset by an increase in general administrative expense of $4.3 million due to costs related to the acquisitions not fully in the comparable period, which consisted primarily of higher personnel related costs and administrative expenses.

Depreciation and Amortization Expense

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Depreciation and amortization expense was $43.7 million in 2022, compared to $41.3 million in 2021, an increase of $2.4 million, or 6%.

The acquisitions not fully in the comparative period increased depreciation and amortization expense by $5.8 million, primarily related to acquired intangible assets such as customer relationships, developed technology and tradenames.

The acquisitions not fully in the comparable period increased depreciation and amortization expense by $6.0 million, primarily related to acquired intangible assets such as customer relationships and tradenames.

Therefore, depreciation and amortization expense for our Organic Business decreased by $3.6 million in the comparative periods due to assets becoming fully depreciated or amortized during the period.

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These acquisition-related expenses also include transformational expenses such as severance, compensation for transitional personnel, office lease terminations, and vendor cancellations.

Absent new acquisition activity, acquisition-related expenses decline in subsequent, sequential quarters and are generally no longer incurred after the first anniversary of the last closed acquisition.

Acquisition-related expense was $21.2 million in 2021, compared to $27.1 million for 2020, a decrease of $5.9 million, or 22%.

The decrease was primarily attributable to a $4.5 million gain recognized in 2021 related to a decrease in the fair value of earnout liabilities due to sellers related to our 2021 acquisitions and a reduction in holdback liabilities subsequent to the closing of purchase accounting.

In addition, we completed one acquisition in 2020 and incurred the majority of its transformational expense in 2021.

This is in contrast to the five acquisitions completed in 2019 for which the majority of transformational expenses were incurred in 2020.

Absent new acquisition activity, acquisition-related expenses are no longer material if the Company has done no acquisitions after one year.

Acquisition-related expense was $21.6 million in 2022, compared to $21.2 million for 2021, a marginal increase of $0.4 million, or 2%.

The Company had two acquisitions in 2022 compared to three acquisitions in 2021.

The 2022 acquisitions were larger and had complex organizational and tax structures, which resulted in slightly higher acquisition-related expenses compared to 2021.

Impairment of goodwill

Year Ended December 31,

2022 2021 Change

Amount Percent of Revenue Amount Percent of Revenue Amount % Change

(dollars in thousands)

Impairment of goodwill $ 12,500 4% $ — —% $ 12,500 NA

See “ Note 5.

Goodwill and Other Intangible Assets ” in the notes to our consolidated financial statements for more information regarding our fourth quarter 2022 Goodwill impairment.

Other Expense, net

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Total other expense $ (29,926) (9)% $ (31,879) (11)% $ 1,953 (6)%

Interest expense, net was $31.6 million in 2021, compared to $31.5 million for 2020, an increase of $0.1 million, or 0%.

The marginal increase in interest expense was primarily attributable to the average borrowing on our Credit Facility being largely unchanged.

Interest expense, net was $29.1 million in 2022, compared to $31.6 million for 2021, a decrease of $2.5 million, or 8%, due primarily to higher interest income on our interest-bearing cash balances as well as a decrease in outstanding borrowings on our Credit Facility.

Other expense, net was $0.8 million in 2022, compared to other expense of $0.3 million in 2021, an increase of $0.5 million, or 209%.

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Effective income tax rate (2.5) % (12.5) %

Benefit from income taxes was $8.3 million in 2021, compared to a benefit for income taxes of $4.2 million in 2020, an increase in the benefit from income taxes of $4.1 million, or 97%.

This increase was due primarily to increased benefits recognized during the year 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.

Benefit from income taxes was $1.7 million in 2022, compared to a benefit for income taxes of $8.3 million in 2021, a decrease in the benefit from income taxes of $6.6 million, or 79%.

This decrease was due primarily to decreased benefits recognized during the year 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.

Because we have not generated domestic net income in any period to date, we have recorded a full valuation allowance against our domestic net deferred tax assets, exclusive of any remaining tax deductible goodwill after application of indefinite life deferred tax assets.

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Comparison of Years Ended December 31, 2021 and December 31, 2020

For a comparison of years ended December 31, 2020 and 2019 refer to “Item 7.

Management’s Discussion and Analysis” in the Company’s Annual Report on Form 10-K for the years ended December 31, 2020 filed with the SEC on February 25 , 2021 (the “2020 Annual Report”).

For a comparison of the years ended December 31, 2021 and 2020 refer to “ Item 7.

Management’s Discussion and Analysis ” in the Company’s Annual Report on Form 10-K for the years ended December 31, 2021 filed with the SEC on February 24 , 2022.

Non-GAAP Financial Measures

In addition to the GAAP and non-GAAP financial measures described in “ —Results of Operations ” above, 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 (in thousands, except percentages):

As of December 31,

2022 2021 2020

Other Financial Data (unaudited):

Annualized recurring revenue value at year-end $ 266,278 $ 257,056 $ 220,535

Annual net dollar retention rate 95 % 94 % 94 %

Adjusted EBITDA (1)

$ 97,105 $ 96,657 $ 99,903

(1) Adjusted EBITDA is presented for the years ended December 31, 2022, 2021 and 2020.

Annualized recurring revenue value at year-end

We define annualized recurring revenue (“ARR”) as the value as of December 31 that equals the monthly value of our recurring revenue under support and subscription contracts excluding month-to-month contracts measured as of December 31 multiplied by 12.

This measure excludes the revenue value of uncontracted overage fees, on-demand or monthly usage service fees and Sunset Assets.

As a metric, ARR mitigates fluctuations in revenue recognition due to certain factors, including contract term and the sales mix of recurring revenue contracts and perpetual licenses.

ARR does not have any standardized meaning and may not be comparable to similarly titled measures presented by other companies.

ARR should be viewed independently of revenues and deferred revenues and is not intended to be combined with or to replace either of those elements of our financial statements.

ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our clients.

Refer to “ Note 3 Acquisitions ” and “ Note 5 Goodwill and Other Intangible Assets ” in the notes to the consolidated financial statements for further discussion.

Our ARR was $266.3 million, $257.1 million and $220.5 million as of December 31, 2022, 2021 and 2020.

Annual net dollar retention rate

We measure our ability to grow and retain ARR from existing clients using a metric we refer to as our annual net dollar retention rate.

We define annual net dollar retention rate as of December 31 as the aggregate ARR as of December 31 from those customers that were also customers as of December 31 of the prior fiscal year, divided by the aggregate ARR value from all customers as of December 31 of the prior fiscal year.

This measure excludes the revenue value of uncontracted overage fees, on-demand service fees and our Sunset Assets.

Our annual net dollar retention rate was 95%, 94% and 94% as of December 31, 2022, 2021 and 2020.

Adjusted EBITDA

We monitor Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations.

We define Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, adjusted for depreciation and amortization expense, net interest expense, loss on debt extinguishment, net other expense, benefit from income taxes, stock-based compensation expense, acquisition-related expense, purchase accounting deferred revenue discount and impairment of goodwill.

Adjusted EBITDA is a non-GAAP financial measure that our management believes provides useful information to management, investors and others in understanding and evaluating our operating results for the following reasons:

• 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:

• 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.

• Impairment of goodwill and depreciation and amortization are non-cash charges, and the assets being depreciated or amortized, which contribute to the generation of revenue, 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 relates to amortization of acquired intangible assets as well as the goodwill 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;

• 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.

The following table presents a reconciliation of Net loss from continuing operations to Adjusted EBITDA for each of the periods indicated (in thousands).

Year Ended December 31,

2022 2021 2020

Net loss $ (68,413) $ (58,212) $ (51,219)

Depreciation and amortization expense 56,146 52,928 47,164

Interest expense, net 29,145 31,626 31,529

Other expense, net 781 253 111

Benefit from income taxes (1,741) (8,344) (4,234)

Stock-based compensation expense 41,602 53,873 41,692

Acquisition-related expense 21,556 21,234 27,075

Non-recurring litigation costs 33 — —

Purchase accounting deferred revenue discount 5,496 3,299 7,785

Impairment of goodwill 12,500 — —

Adjusted EBITDA $ 97,105 $ 96,657 $ 99,903

Core Organic Revenue

Core Organic Revenue is defined as total revenue, less revenue 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.

For reconciliations of total revenue to Core Organic Revenue and subscription and support revenue to Core Organic Revenue, see “ —Results of Operations—Adjusted Operating Measures.

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, borrowings 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 Credit Facility (as hereinafter defined), and the ability to offer and sell securities pursuant to our registration statement, as discussed under “—Registration Statement” below, will be sufficient to fund our operations for at least the next twelve months.

To date, we have financed our operations primarily through the raising of capital including sales of our common stock and preferred stock or our convertible preferred stock, cash from operating activities and borrowings under our Credit Facility (as hereinafter defined).

We believe that current cash and cash equivalents, cash flows from operating activities and availability under our existing Credit Facility 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.

We do not intend to offer for sale any common stock at current market prices.

The following table summarizes our liquidity for the periods indicated:

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Cash and cash equivalents $ 248,653 $ 189,158

Available borrowings from our Credit Facility 60,000 60,000

Available borrowings from our Revolving Credit Facility 60,000 60,000

Total Liquidity $ 308,653 $ 249,158

The $60.9 million decrease in cash and cash equivalents from December 31, 2020 to December 31, 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.

The $59.5 million increase in cash and cash equivalents from December 31, 2021 to December 31, 2022 includes $110.4 million in cash proceeds related to our Series A Preferred Stock, net of issuance costs which closed in August 2022.

This was partially offset by $62.4 million in cash paid for our two acquisitions closed in January and February 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 18 months of the closing dates of the underlying acquisitions.

Our cash and cash equivalents held by our foreign subsidiaries was $34.8 million as of December 31, 2022.

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As of December 31, 2022 and 2021, we had a working capital surplus of $170.1 million and $106.5 million, respectively.

Series A Preferred Stock

The Series A Preferred Stock as discussed in “ Note 12.

Series A Preferred Stock ” provided us an additional $115.0 million in liquidity during the year ended December 31, 2022, which we intend to use for (a) for general corporate purposes and (b) for transaction-related fees and expenses.

As of December 31, 2022, the Series A Preferred Stock Issuance Costs totaled $4.6 million.

The holders of Series A Convertible Preferred Stock are 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 7.0% 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 had accrued unpaid dividends of $1.8 million as of December 31, 2022.

The Series A Preferred Stock ranks 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

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As of December 31, 2022, we were in compliance with all covenants under the Credit Facility.

See “ Note 7.

Debt ” in the notes to the consolidated financial statements for more information regarding our Credit Facility and outstanding debt as of December 31, 2022.

Registration Statement

On August 10, 2020, the Company 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.

On August 14, 2020, we completed a registered underwritten public offering pursuant to the 2020 S-3 of 3,500,000 shares of the Company's $0.0001 par value common stock for an offering price to the public of $34.00 per share.

In addition, on August 27, 2020 we closed the sale of an additional 525,000 shares issuable pursuant to a fully exercised option to purchase additional shares granted to the underwriters of the offering.

The total net proceeds of the offering, including shares issued pursuant to the fully exercised option, of $130.1 million, net of issuance costs of $6.8 million, will be used for general business purposes, including the funding of future acquisitions.

There are no open outstanding security offerings at this time.

On February 21, 2023, the Company entered into an amendment to its Credit Facility.

The amendment amended the interest rate benchmark from LIBOR to SOFR.

Other than the foregoing, the material terms of the Credit Agreement remains unchanged.

On October 21, 2022 we filed a resale registration statement on Form S-3 (File No.

333-267973) (the “2022 S-3”), on behalf of the Purchaser and pursuant to the Registration Rights Agreement, which became effective on November 1, 2022 and covers (i) the issued Series A Preferred Stock and (ii) the number of shares of the Company’s common stock issuable upon conversion of such Series A Preferred Stock, which amount includes and assumes that dividends on the Series A Preferred Stock are paid by increasing the Liquidation Preference of the Series A Preferred Stock for a period of sixteen dividend payment periods from the initial issuance date.

See “ Note 12.

Series A Preferred Stock ” for further details.

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

2021 2020 2019

(dollars in thousands)

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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 o f earnout payments in excess of original purchase accounting estimates.

Additionally, operating cash flows includes the impact of earnout 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 and renewals on those bookings, 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 $41.7 million for 2021 compared to $35.6 million for 2020, an increase of $6.1 million.

This increase in operating cash flow is generally attributable to the Company’s increased size and scale.

Working capital sources of cash for 2021 included an increase of $10.9 million in accounts payable related to timing of payments, and an increase of $5.6 million in deferred revenue.

Working capital uses of cash for the twelve months ended December 31, 2021 included a $1.7 million increase in accounts receivable related to the timing of collections, a $7.5 million increase in prepaids and other related primarily to an increase in deferred sales commissions, and a $9.7 million decrease in accrued expenses.

Cash provided by operating activities was $30.0 million for 2022 compared to $41.7 million for 2021, a decrease of $11.8 million.

This decrease in operating cash flow is generally attributable to the working capital uses of cash outweighing the working capital sources of cash outlined below.

Working capital uses of cash for the year ended December 31, 2022 included a $14.0 million decrease in accrued expenses, a decrease of $7.2 million in accounts payable related to timing of payments, a $2.7 million increase in prepaids and other related primarily to an increase in deferred sales commission and a decrease of $5.0 million in deferred revenue.

Working capital sources of cash for 2022 included a decrease of $9.7 million decrease in accounts receivable related to the timing of collections.

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 consolidated balance sheet as a liability.

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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 2021, cash used in investing activities consisted of $97.7 million associated with the Company’s 2021 acquisitions, and the purchases of property and equipment of $1.1 million, partially offset by a $5.2 million settlement in total consideration for Localytics related to a representation and warranty insurance settlement.

Cash used in investing activities increased $24.6 million in 2021 compared to 2020 primarily as a result of closing three acquisitions during the period compared to one acquisition in the comparable prior year period.

For 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 $0.9 million.

Cash used in investing activities decreased $30.3 million in 2022 compared to 2021 primarily as a result of closing two acquisitions during the period compared to three acquisition in the comparable prior year period.

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 tax payment activity.

Cash provided by financing activities decreased $116.1 million in 2021 compared to 2020.

The decrease relates primarily to a decrease in cash generated from issuance of our common stock as the Company received net proceeds of $130.1 million related to a secondary stock offering completed in August 2020.

This decrease in cash provided by financing activities was partially offset by a $12.8 million decrease in additional consideration paid to sellers (i.e.

holdbacks and earnouts) compared to 2020.

In addition, net share employee payroll tax settlement payments decreased $1.2 million during 2021 compared to 2020 as a result of the payroll tax election in mid-2020 to sell shares to cover employee payroll taxes on stock compensation vestings.

Cash provided by financing activities increased $102.3 million in 2022 compared to 2021.

The increase in cash provided by financing activities relates primarily to a $110.4 million in cash proceeds related to our Series A Preferred Stock, net of issuance costs, partially offset by a $7.4 million increase in additional consideration paid to sellers (i.e.

holdbacks) and a $0.6 million increase in net share employee payroll tax settlement payments compared to the same period in 2021.

Contractual Payment Obligations

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These interest rate swaps effectively converted the entire balance of the Company’s $540 million original principal term loans from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4%, for the 7 year term of the debt.

In conjunction with our new $350 million, 7 year, Credit Facility and our $190 million 2019 Incremental Term Loan, we entered into interest rate hedge instruments for the full 7 year term, effectively fixing our interest rate at 5.4%.

In conjunction with our $350 million, 7-year, Credit Facility and our $190 million 2019 Incremental Term Loan, we entered into interest rate hedge instruments for the full 7 year term, effectively fixing our interest rate at 5.4%.

However, the interest rate associated with our $60 million, 5 year, undrawn Revolver remains floating.

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In certain cases these arrangements require a minimum annual purchase commitment.

Includes an outstanding purchase commitment in 2022 for software development services from DevFactory FZ-LLC (“DevFactory”) pursuant to a technology services agreement in the amount of $10.0 million.

The agreement provides for annual renewal by either party to the contract.

See “Note 16.

Related Party Transactions” in the notes to consolidated financial statements for more information regarding this purchase commitment.

Critical Accounting Policies and the Use of Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).

We prepare our consolidated financial statements in accordance with GAAP.

The preparation of 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.

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While our significant accounting policies are more fully described in “ Note 2.

Summary of Significant Accounting Policies” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K , 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.

Basis of Presentation and Summary of Significant Accounting Policies ” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K , 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.

Revenue Recognition

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In this assessment, we consider if we obtain control of the specified goods or services before they are transferred to the customer.

In reaching conclusions on gross versus net revenue recognition, we place the most weight on the analysis of whether or not it is the primary obligor in the arrangement.

In reaching conclusions on gross versus net revenue recognition, we place the most weight on the analysis of whether or not we are the primary obligor in the arrangement.

Generally, we report revenue from vendor reseller agreements on a gross basis, meaning the amounts billed to customers are recorded as revenue, and expenses incurred are recorded as cost of revenue.

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Deferred Commissions

Sales commissions for new customer contracts are capitalized upon contract signing and amortized over the expected life of the customer relationships, which has been determined to be approximately 6 years, consistent with prior year.

Sales commissions paid on renewal contracts are deferred and amortized over the average renewal term, which was determined to be approximately 18 months, consistent with prior year.

Sales commissions paid on renewal contracts are deferred and amortized over the average renewal term, which was determined to

be approximately 18 months, consistent with the prior year.

Determining the period of expected life of customer relationships and average renewal term requires judgment for which we take into consideration our customer contracts, our technology life cycle and other factors.

See “ Note 14.

Revenue Recognition—Deferred Commissions” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a detailed description of our deferred commission.

Revenue Recognition—Deferred Commissions ” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a detailed description of our deferred commissions.

We are subject to income taxes in the United States and several foreign jurisdictions.

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We make significant estimates in determining the value of our deferred tax assets.

These estimates included, but are not limited to, the expected reversal periods of deferred tax assets and liabilities, the availability of net operating losses and other carryovers and consideration of the future ability to generate taxable income.

These estimates include, but are not limited to, the expected reversal periods of deferred tax assets and liabilities, the availability of net operating losses and other carryovers and consideration of the future ability to generate taxable income.

These estimates are inherently uncertain and unpredictable, and if different estimates were used, it would impact the value of our deferred tax assets and the income tax benefit recognized in fiscal 2022 and in future periods when the deferred taxes are realized.

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The excess of the purchase price over these estimated fair values is recorded to goodwill.

Estimated fair values of acquired assets and assumed liabilities that are separately identifiable from goodwill are generally based on available historical information, future expectations, available market data, and assumptions determined to be reasonable, but inherently uncertain, with respect to future events, including economic conditions, competition, technological obsolescence, the useful life of the acquired assets, and other factors.

Significant estimates and assumptions, including fair value estimates, are used to determine the fair value of assets acquired, liabilities assumed, and contingent consideration transferred as well as the useful lives of long-lived assets acquired.

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The Company utilizes a third-party valuation specialist to estimate the acquisition date fair value of potential earnout payments.

Subsequent remeasurements of potential earnout payments require significant judgements and estimates including, but not limited to, (and if applicable in the circumstances) customer renewals, new customers, ARR growth, forecasted bookings, forecasted churn and other factors.

Summary of Significant Accounting Policies—Business Combinations” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a detailed description of business combinations.

Subsequent remeasurements of potential earnout payments require significant judgements and estimates including, but not limited to, (and if applicable in the

circumstances) customer renewals, new customers, ARR growth, forecasted bookings, forecasted churn and other factors.

See “ Note 2.

Basis of Presentation and Summary of Significant Accounting Policies—Business Combinations ” in the notes to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a detailed description of business combinations.

Stock-Based Compensation

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Goodwill and Other Intangibles

Goodwill is evaluated for impairment annually in October or more frequently when a triggering event occurs or circumstances change that indicate the carrying value may not be recoverable.

We assess goodwill for impairment by comparing the estimated fair value of the Company to the its carrying value.

If the fair value of the reporting unit is less than its carrying amount, we recognize an impairment loss equal to that excess amount.

We apply both qualitative and quantitative assessments to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying value.

Although several fair value methodologies are allowed, we use the fair-value-based approach based on market capitalization, which generates the best evidence of fair value since the approach uses quoted market prices (a Level 1 fair-value hierarchy).

We assess Goodwill for impairment annually on October 1st, or more frequently when an event occurs which could cause the Carrying Value (or GAAP basis book value) of our Company to exceed the estimated fair value of our Company.

The Company adopted ASU 2017-04, Intangibles - Goodwill and Other:

Simplifying the Test for Goodwill Impairment during the first quarter of 2018.

As we operate as one reporting unit, the Goodwill impairment evaluation is performed at the consolidated entity level by comparing the estimated fair value of the Company to its Carrying Value.

We first assess qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its Carrying Value.

Based on the qualitative assessment, if it is determined that it is more likely than not that the Company's fair value is less than its Carrying Value, then we perform a quantitative analysis using a fair-value-based approach to determine if the fair value of our reporting unit is less than its Carrying Value.

See “ Note 5.

Goodwill and Other Intangible Assets ” for more information regarding our fourth quarter 2022 Goodwill impairment.

Identifiable intangible assets

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For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, refer to “ Note 2.

Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in “Part II—Item 8.

Basis of Presentation and Summary of Significant Accounting Policies ” in the notes to the consolidated financial statements included in “ Part II—Item 8.

Financial Statements and Supplementary Data ” of this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis