What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-03 · 207 added, 227 removed, 594 unchanged (42% of the section changed)

Financial Statements

Upland Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share and per share information) September 30, 2022 December 31, 2021

(in thousands, except for share and per share information) March 31, 2023 December 31, 2022

ASSETS (unaudited)

1 unchanged sentence

Cash and cash equivalents $ 257,720 $ 248,653

Accounts receivable (net of allowance of $ 1,119 and $ 1,107 at September 30, 2022 and December 31, 2021, respectively)

Accounts receivable (net of allowance of $ 772 and $ 1,158 at March 31, 2023 and December 31, 2022, respectively)

40,475 47,594

20 unchanged sentences

Operating lease liabilities, current 2,822 3,205

Current maturities of notes payable (includes unamortized discount of $ 2,269 and $ 2,233 at September 30, 2022 and December 31, 2021, respectively)

Current maturities of notes payable (includes unamortized discount of $ 2,291 and $ 2,264 at March 31, 2023 and December 31, 2022, respectively)

Total current liabilities 145,330 151,211

Notes payable, less current maturities (includes unamortized discount of $ 5,765 and $ 7,287 at September 30, 2022 and December 31, 2021, respectively)

Notes payable, less current maturities (includes unamortized discount of $ 4,733 and $ 5,203 at March 31, 2023 and December 31, 2022, respectively)

510,967 511,847

2 unchanged sentences

Noncurrent deferred tax liability, net 18,691 18,416

Interest rate swap liabilities — 8,409

Other long-term liabilities 1,237 1,170

2 unchanged sentences

5,000,000 shares authorized:

115,000 shares issued and outstanding as of September 30, 2022;

no shares issued and outstanding as of December 31, 2021, respectively.

115,000 shares issued and outstanding as of March 31, 2023;

115,000 shares issued and outstanding as of December 31, 2022, respectively.

113,606 112,291

Stockholders’ equity:

1 unchanged sentence

50,000,000 shares authorized:

31,777,122 and 31,096,548 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively)

32,441,010 and 32,221,855 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively)

Additional paid-in capital 611,667 606,755

Accumulated other comprehensive loss ( 5,640 ) ( 11,514 )

Accumulated other comprehensive income 4,206 11,110

Accumulated deficit ( 449,043 ) ( 308,998 )

5 unchanged sentences

(in thousands, except for share and per share information)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Subscription and support $ 72,914 $ 73,627

14 unchanged sentences

Acquisition-related expenses 1,094 10,413

Impairment of goodwill 128,755 —

Total operating expenses 188,951 68,738

14 unchanged sentences

Upland Software, Inc.

Condensed Consolidated Statements of Comprehensive Loss

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net loss $ ( 140,045 ) $ ( 22,831 )

1 unchanged sentence

Foreign currency translation adjustment 15 ( 1,047 )

Unrealized translation loss on intercompany loans with foreign subsidiaries ( 7,415 ) ( 2,664 ) ( 14,211 ) ( 884 )

Unrealized gain on interest rate swaps 17,988 2,112 52,357 14,391

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries 1,235 ( 1,293 )

Unrealized gain (loss) on interest rate swaps ( 8,154 ) 26,213

Other comprehensive income (loss):

$ ( 6,904 ) $ 23,873

Comprehensive loss $ ( 9,809 ) $ ( 16,115 ) $ ( 39,863 ) $ ( 42,845 )

Comprehensive income (loss) $ ( 146,949 ) $ 1,042

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except share amounts)

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

Preferred Stock Common Stock Additional

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Shares Amount Shares Amount

Balance at June 30, 2022 — $ — 31,632,628 $ 3 $ 594,080 $ ( 2,344 ) $ ( 279,809 ) $ 311,930

Issuance of Convertible Preferred Stock 115,000 110,520 — — — — — —

Balance at December 31, 2022 115,000 $ 112,291 32,221,855 $ 3 $ 606,755 $ 11,110 $ ( 308,998 ) $ 308,870

Dividends accrued - Convertible Preferred Stock — 1,315 — — ( 1,315 ) — — ( 1,315 )

2 unchanged sentences

Foreign currency translation adjustment — — — — — 15 — 15

Unrealized translation loss on foreign currency denominated intercompany loans — — — — — ( 7,415 ) — ( 7,415 )

Unrealized gain on interest rate swaps — — — — — 17,988 — 17,988

Net loss — — — — — — ( 6,513 ) ( 6,513 )

Balance at September 30, 2022 115,000 $ 111,066 31,777,122 $ 3 $ 600,892 $ ( 5,640 ) $ ( 286,322 ) $ 308,933

Three Months Ended September 30, 2021

Preferred Stock Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount Shares Amount

Balance at June 30, 2021 — $ — 30,413,246 $ 3 $ 546,771 $ ( 13,238 ) $ ( 222,099 ) $ 311,437

Issuance of stock under Company plans, net of shares withheld for tax — — 103,104 — ( 323 ) — — ( 323 )

Stock-based compensation — — — — 12,047 — — 12,047

Foreign currency translation adjustment — — — — — ( 4,548 ) — ( 4,548 )

Unrealized translation gain on foreign currency denominated intercompany loans — — — — — 1,235 — 1,235

1 unchanged sentence

Net loss — — — — — — ( 140,045 ) ( 140,045 )

Balance at September 30, 2021 — $ — 30,516,350 $ 3 $ 558,495 $ ( 18,338 ) $ ( 233,114 ) $ 307,046

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Nine Months Ended September 30, 2022

Preferred Stock Common Stock Additional

Capital Accumulated

Comprehensive

Loss Accumulated

Deficit Total

Stockholders’

Shares Amount Shares Amount

Balance at December 31, 2021 — 31,096,548 $ 3 $ 568,384 $ ( 11,514 ) $ ( 240,585 ) $ 316,288

Issuance of Convertible Preferred Stock 115,000 110,520 — — — — — —

Dividends accrued - Convertible Preferred Stock — 546 — — ( 546 ) — — ( 546 )

Issuance of stock under Company plans, net of shares withheld for tax — — 680,574 — ( 969 ) — — ( 969 )

Stock-based compensation — — — — 34,023 — — 34,023

Foreign currency translation adjustment — — — — — ( 32,272 ) — ( 32,272 )

Unrealized translation loss on intercompany loans with foreign subsidiaries — — — — — ( 14,211 ) — ( 14,211 )

Unrealized gain on interest rate swaps — — — — — 52,357 — 52,357

Net loss — — — — — — ( 45,737 ) ( 45,737 )

Balance at September 30, 2022 115,000 $ 111,066 31,777,122 $ 3 $ 600,892 $ ( 5,640 ) $ ( 286,322 ) $ 308,933

Nine Months Ended September 30, 2021

Balance at March 31, 2023 115,000 $ 113,606 32,441,010 $ 3 $ 611,667 $ 4,206 $ ( 449,043 ) $ 166,833

Three Months Ended March 31, 2022

Preferred Stock Common Stock Additional

1 unchanged sentence

Comprehensive

Loss Accumulated

Income (Loss) Accumulated

Deficit Total

5 unchanged sentences

Foreign currency translation adjustment — — — — — ( 1,047 ) — ( 1,047 )

Unrealized translation loss on intercompany loans with foreign subsidiaries — — — — — ( 884 ) — ( 884 )

Unrealized translation loss on foreign currency denominated intercompany loans — — — — — ( 1,293 ) — ( 1,293 )

Unrealized gain on interest rate swaps — — — — — 26,213 — 26,213

Net loss — — — — — — ( 22,831 ) ( 22,831 )

Balance at September 30, 2021 — $ — 30,516,350 $ 3 $ 558,495 $ ( 18,338 ) $ ( 233,114 ) $ 307,046

Balance at March 31, 2022 — $ — 31,320,765 $ 3 $ 579,638 $ 12,359 $ ( 263,416 ) $ 328,584

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

(In thousands) 2023 2022

Nine Months Ended September 30,

Operating activities

8 unchanged sentences

Non-cash stock compensation expense 6,462 11,619

Non-cash loss on retirement of fixed assets 26 2

Non-cash loss on impairment of goodwill 128,755 —

Changes in operating assets and liabilities, net of purchase business combinations:

10 unchanged sentences

Financing activities

Payments on finance leases — ( 12 )

Proceeds from notes payable, net of issuance costs ( 130 ) ( 3 )

Payments on notes payable ( 1,350 ) ( 1,350 )

Issuance of Series A Convertible Preferred stock, net of issuance costs 110,520 —

Taxes paid related to net share settlement of equity awards ( 235 ) ( 547 )

1 unchanged sentence

Additional consideration paid to sellers of businesses ( 5,066 ) ( 2,493 )

Net cash provided by (used in) financing activities 97,127 ( 5,096 )

Net cash used in financing activities ( 6,781 ) ( 4,211 )

Effect of exchange rate fluctuations on cash 238 ( 217 )

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Notes to Unaudited Condensed Consolidated Financial Statements

Organization and Nature of Operations

Upland Software, Inc.

(“Upland,” “we,” “us,” or the “Company”), a Delaware corporation, is a provider of cloud-based software that enables organizations to drive digital transformation in the following business functions:

Marketing, Sales, Contact Center, Knowledge Management, Project Management, Information Technology, Business Operations, Human Resources and Legal.

To support continued growth, Upland intends to pursue acquisitions within its cloud offerings of complementary technologies and businesses.

Upland expects that this will expand its product offerings, customer base and market access, resulting in increased benefits of scale.

Basis of Presentation and Summary of Significant Accounting Policies

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In the opinion of management of the Company, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, in all material respects, and include all adjustments of a normal recurring nature necessary for a fair presentation.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any other period.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other period.

The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2022 Annual Report on Form 10-K filed with the SEC on February 28, 2023.

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however, actual results could differ from those estimates.

We assessed the impact of COVID-19 on the estimates and assumptions and determined there was no material impact.

Upland is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of November 3, 2022, the date of issuance of this Quarterly Report on Form 10-Q.

Upland is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of May 9, 2023, the date of issuance of this Quarterly Report on Form 10-Q.

These estimates may change as new events occur and additional information is obtained.

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Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable and the Company’s interest rate swap hedges.

The Company’s cash and cash equivalents are placed with high-quality financial institutions, which, at times, may exceed federally insured limits.

The Company’s cash and cash equivalents are

placed with high-quality financial institutions, which, at times, may exceed federally insured limits.

The Company has not experienced any losses in these accounts, and the Company does not believe it is exposed to any significant credit risk related to cash and cash equivalents.

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To manage accounts receivable credit risk, the Company performs periodic credit evaluations of its customers and maintains current expected credit losses which considers such factors as historical loss information, geographic location of customers, current market conditions, and reasonable and supportable forecasts.

No individual customer represented more than 10% of total revenues for the nine months ended September 30, 2022, or more than 10% of accounts receivable as of September 30, 2022 or December 31, 2021.

No individual customer represented more than 10% of total revenues for the three months ended March 31, 2023, or more than 10% of accounts receivable as of March 31, 2023 or December 31, 2022.

Cash Flow Hedges— Interest Rate Swap Agreements

7 unchanged sentences

All derivative financial instruments are recorded at fair value as a net asset or liability in the accompanying condensed consolidated balance sheets.

As of September 30, 2022, the fair value of the interest rate swaps included in assets in the Company's condensed consolidated balance sheets was $ 43.9 million.

As of December 31, 2021, the fair value of the interest rate swaps included in liabilities in the Company's condensed consolidated balance sheets was $ 8.4 million.

As of March 31, 2023 and December 31, 2022, the fair value of the interest rate swaps included in assets in the Company's condensed consolidated balance sheets was $ 33.0 million and $ 41.2 million, respectively.

The interest rate swap has been designated as a cash flow hedge.

14 unchanged sentences

The Company issued 115,000 shares of Series A Preferred Stock, par value $ 0.0001 per share, at a price of $ 1,000 per share, for an initial investment amount of $ 115.0 million.

Pursuant to the Certification of Designation, cumulative preferred dividends accrue quarterly on the Series A Preferred Stock at a rate of (i) 4.5 % per annum until but excluding the seven year anniversary of the closing, and (ii) 7 % per annum on and after the seven year anniversary of the closing .

Pursuant to the Certificate of Designation, cumulative preferred dividends accrue quarterly on the Series A Preferred Stock at a rate of (i) 4.5 % per annum until but excluding the seven year anniversary of the closing, and (ii) 7 % per annum on and after the seven year anniversary of the closing .

See “ Note 10.

Series A Preferred Stock—Series A Convertible Preferred Stock” for further details.

The Series A Preferred Stock and cumulative preferred dividends, net of preferred issuance costs, is presented as Mezzanine Equity of $ 111.1 million as of September 30, 2022 in the Company’s condensed consolidated balance sheets.

The Series A Preferred Stock and cumulative preferred dividends, net of preferred issuance costs, is presented as Mezzanine Equity of $ 113.6 million as of March 31, 2023 in the Company’s condensed consolidated balance sheets.

The Series A Preferred Stock is classified as Mezzanine Equity because it is redeemable at the option of its holders (upon a deemed liquidation event as defined in “ Note 10.

Series A Preferred Stock—Series A Convertible Preferred Stock—Deemed Liquidation Event Redemption” ) and has a condition for redemption that is not solely within the control of the issuer.

Goodwill and Other Intangibles

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 first quarter 2023 Goodwill impairment.

Identifiable intangible assets consist of customer relationships, marketing-related intangible assets and developed technology.

Intangible assets with definite lives are amortized over their estimated useful lives on a straight-line basis.

The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets.

Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of intangible assets may not be recoverable.

Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable.

The Company evaluates the recoverability of intangible assets by comparing their carrying amounts to the future net undiscounted cash flows expected to be generated by the intangible assets.

If such intangible assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the intangible assets exceeds the fair value of the assets.

Recent Accounting Pronouncements

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The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.

The guidance is effective for interim and annual periods beginning after December 15, 2021.

guidance is effective for interim and annual periods beginning after December 15, 2021.

The Company adopted this guidance in the first quarter of fiscal 2022.

Recently issued accounting pronouncements - Not yet adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

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The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The amendments apply only to contracts and hedging relationships that reference the London Interbank Offer Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

The Company evaluated the impact of this standard and determined it did not have a material impact on on our consolidated financial statements.

We adopted Topic 848 during the first quarter of 2023.

On February 21, 2023, the Company entered into an amended and restated credit agreement to, among other things, provide for the replacement of LIBOR with the Secured Overnight Financing Rate (“SOFR”), an index measuring the cost of borrowing cash overnight collateralized by Treasury securities.

The Company has elected to apply the debt agreement modification expedients related to changes to the reference rate from LIBOR to SOFR in the Company's Credit Agreement, which it completed during the three months ended March 31, 2023.

Application of these expedients allows the Company to account for the modification as not substantial.

As a result, the debt agreement modification will be accounted for by prospectively adjusting the Credit Agreement’s effective interest rate, any existing unamortized debt discount will carry forward and continue to be amortized and no remeasurement of the Credit Agreement at the modification date is required.

The Company has also elected to apply the hedge accounting expedients and exceptions related to changes to the reference rate from LIBOR to SOFR in the Company's interest rate swaps, which it completed during the three months ended March 31, 2023.

Application of these exceptions preserves the cash flow hedge designation of the interest rate swaps and the related accounting and presentation consistent with past presentation.

The replacement of LIBOR with SOFR in the credit agreement did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

See “ Note—7.

Debt ” for additional information.

In October 2021, the FASB issued ASU 2021-08 , Business Combinations (Topic 805):

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These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted.

The Company is evaluating the impact of this standard on our consolidated financial statements.

We adopted ASU 2021-08 on January 1, 2023 and our adoption did not have a material impact on our condensed consolidated financial statements.

The Company performs quantitative and qualitative analyses to determine the significance of each acquisition to the financial statements the Company.

1 unchanged sentence

2023 Acquisitions

Acquisitions completed during the nine months ended September 30, 2022 include the following:

• 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 September 30, 2022 were approximately $ 5.2 million.

Revenues recorded for BA Insight for the quarter ended September 30, 2022 were approximately $ 2.4 million.

• Objectif Lune - On January 07, 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”), cloud-based document workflow product.

Revenues recorded since the acquisition date through September 30, 2022 were approximately $ 15.5 million.

Revenues recorded for Objectif Lune for the quarter ended September 30, 2022 were approximately $ 5.1 million.

The Company had no acquisitions during the three months ended March 31, 2023.

2022 Acquisition

The acquisition completed during the year ended December 31, 2021 were:

• 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.

• 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.

• 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.

The acquisitions completed during the year ended December 31, 2022 were:

• 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., a Delaware corporation (“BA Insight”).

Consideration

The following table summarizes the consideration transferred for the acquisitions described above (in thousands):

BA Insight Objectif Lune Panviva BlueVenn Second Street

BA Insight Objectif Lune

Cash $ 33,355 $ 29,750

645 5,250 3,517 2,429 5,000

Contingent consideration (2)

— — — 2,535 1,650

Working capital and other adjustments 1,587 644

Total consideration $ 35,587 $ 35,644

(1) Represents the cash holdbacks subject to indemnification claims that are payable 12 months following closing for Objectif Lune, Panviva and Second Street, 15 months following closing for BA Insight and 18 months following closing for BlueVenn.

(2) Represents the acquisition date fair value of anticipated earnout payments, which are based on the estimated probability of attainment of the underlying future performance-based conditions at the time of acquisition.

The maximum potential payout for the BlueVenn and Second Street earn-outs were $ 21.7 million and $ 3.0 million, respectively.

As of March 31, 2022, the earnout payments for BlueVenn and Second Street were finalized resulting in no payments made.

(1) Represents the cash holdbacks subject to indemnification claims that are payable 12 months following closing for Objectif Lune, and 15 months following closing for BA Insight.

As of March 31, 2023, $ 0.4 million of the holdback remains outstanding, which is related to BA Insight.

Fair Value of Assets Acquired and Liabilities Assumed

The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting, and has recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition.

The purchase accounting for the 2022 acquisitions of BA Insight and Objectif Lune are preliminary as the Company has not finalized the overall impact of these acquisitions.

Management has recorded the purchase price allocations based upon acquired company information that is currently available.

Management expects to complete the purchase accounting for BA Insight and Objectif Lune no later than the first quarter of 2023.

The following condensed table presents the preliminary and finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions during the year ended December 31, 2021 and through the nine months ended September 30, 2022, (in thousands):

Preliminary Final

BA Insight Objectif Lune Panviva BlueVenn Second Street

Management completed the purchase accounting for BA Insight and Objectif Lune during the first quarter of 2023.

The following condensed table presents the finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions during the year ended December 31, 2022 and through the three months ended March 31, 2023 (in thousands):

BA Insight Objectif Lune

Year Acquired 2022 2022

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Developed technology and trade names are valued using the relief-from-royalty method.

The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the nine months ended September 30, 2022 and the year ended December 31, 2021 (in years):

September 30, 2022 December 31, 2021

The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the three months ended March 31, 2023 and the year ended December 31, 2022 (in years):

Customer relationships 7.0

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Goodwill that is deductible for tax purposes at the time of the acquisitions was $ 4.6 million.

Total transaction related expenses incurred with respect to acquisition activity during the three months ended September 30, 2022 and September 30, 2021 was a gain of $ 0.3 million and an expense of $ 0.1 million, respectively.

During the nine months ended September 30, 2022 and September 30, 2021, total transaction related expenses were $ 4.6 million and $ 6.2 million,

respectively.

Total transaction related expenses incurred with respect to acquisition activity during the three months ended March 31, 2023 and March 31, 2022 was nil and $ 4.5 million, respectively.

Transaction related expenses, excluding transformation costs, include expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses.

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From time to time we may purchase or sell customer relationships that meet certain criteria.

We had no purchase or sale of customer relationships during the three and nine months ended September 30, 2022 and September 30, 2021 .

We had no purchase or sale of customer relationships during the three months ended March 31, 2023 and March 31, 2022 .

Fair Value Measurements

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and Level 3, defined as unobservable inputs in which little or no market data exists, which therefore requires an entity to develop its own assumptions.

As of September 30, 2022 and December 31, 2021, the Company had no accrued earnout business acquisition contingent consideration liabilities for which fair values are measured as Level 3 instruments.

As of March 31, 2023 and December 31, 2022, the Company had no accrued earnout business acquisition contingent consideration liabilities for which fair values are measured as Level 3 instruments.

These contingent consideration liabilities were recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted if necessary.

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Earnout consideration liabilities are reported in “Due to sellers in businesses” in the Company's condensed consolidated balance sheets.

As of March 31, 2022, the earnout payments for BlueVenn and Second Street were finalized resulting in no payments made.

In connection with entering into, and expanding, the Company's current credit facility, as discussed further in “ Note 7.

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As the fair value measure is based on the market approach, they are categorized as Level 2.

As of September 30, 2022 the fair value of the interest rate swap is included in the “Interest rate swap assets” section compared to December 31, 2021 in which the fair value of the interest rate swaps included in the liabilities section on the Company's condensed consolidated balance sheets.

Liabilities measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements at September 30, 2022

As of March 31, 2023 the fair value of the interest rate swap is included in the “Interest rate swap assets” section on the Company's condensed consolidated balance sheets as well as in December 31, 2022.

Assets measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements at March 31, 2023

Level 1 Level 2 Level 3 Total

Interest rate swap assets $ — $ 43,947 $ — $ 43,947

Cash equivalents - money market funds $ 202,707 $ — $ — $ 202,707

Interest rate swap asset $ — $ 33,014 $ — $ 33,014

$ 202,707 $ 33,014 $ — $ 235,721

Fair Value Measurements at December 31, 2022

Level 1 Level 2 Level 3 Total

Interest rate swap liabilities $ — $ 8,409 $ — $ 8,409

The Company believes the carrying value of its long-term debt at September 30, 2022 approximates its fair value based on the variable interest rate feature or based upon interest rates currently available to the Company.

The estimated fair value of the Company's debt, before debt discount, at September 30, 2022 and December 31, 2021 are $ 523.8 million and $ 527.9 million, respectively.

Cash equivalents - money market funds $ 172,849 $ — $ — $ 172,849

Interest rate swap asset $ — $ 41,168 $ — $ 41,168

$ 172,849 $ 41,168 $ — $ 214,017

Money market funds are highly-liquid investments and are included in cash and cash equivalents on the consolidated balance sheets.

The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date.

This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

The Company believes the carrying value of its long-term debt at March 31, 2023 approximates its fair value based on the variable interest rate feature or based upon interest rates currently available to the Company.

The estimated fair value of the Company's debt, before debt discount, at March 31, 2023 and December 31, 2022 are $ 521.1 million and $ 522.5 million, respectively.

Goodwill and Other Intangible Assets

Changes in the Company’s goodwill balance for the nine months ended September 30, 2022 are summarized in the table below:

Changes in the Company’s goodwill balance for the three months ended March 31, 2023 are summarized in the table below:

($ in thousands) Goodwill

3 unchanged sentences

Adjustment related to finalization of current year business combinations —

Impairment of goodwill ( 128,755 )

Foreign currency translation adjustment and other 1,287

Balance at September 30, 2022 $ 479,642

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

The events and circumstances considered by the Company include the business climate, legal factors, operating performance indicators and competition.

Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions including, without limitation, use of estimates of future prices and volumes for our products, capital needs, economic trends and other factors which are inherently difficult to forecast.

If actual results, or the plans and estimates used in future impairment analyses are lower than the original estimates used to assess the recoverability of these assets, we could incur impairment charges in a future period.

Net intangible assets include the estimated acquisition-date fair values of customer relationships, marketing-related assets, developed technology, and non-compete agreements that the Company recorded as part of its business acquisitions.

Balance at March 31, 2023 $ 349,990

We performed the annual goodwill impairment test, as of October 1, 2022 and did not identify an impairment;

however, during the fourth quarter of 2022, an indicator did exist and we recorded a $ 12.5 million impairment.

As a result of the continued decline of our stock price impacting our market capitalization during the quarter ended March 31, 2023, we performed another quantitative impairment evaluation as of March 31, 2023, which resulted in a Goodwill impairment of $ 128.8 million.

This quantitative goodwill impairment analysis applied two methodologies to estimate the Company’s fair value which were:

a) a discounted cash flow method and b) a guideline public company method.

The two methods generated similar results and indicated that the fair value of the Company was less than its carrying value.

The discounted cash flow method requires significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, and determination of our weighted average cost of capital.

Under the guideline public company method, we estimate fair value based on a market multiple of revenues and earnings derived for comparable publicly traded companies with similar operating characteristics as the Company.

We will continue to evaluate Goodwill for impairment.

Intangible assets, net include the estimated acquisition-date fair values of customer relationships, marketing-related assets, developed technology, and non-compete agreements that the Company recorded as part of its business acquisitions.

The following is a summary of the Company’s intangible assets, net (in thousands):

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Amortization Net Carrying

September 30, 2022:

March 31, 2023:

Customer relationships 1 - 10

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92,585 56,240 36,345

Non-compete agreements 3

1,148 1,148 —

Favorable Leases 6.3 $ 273 $ 43 $ 230

Total intangible assets $ 474,857 $ 226,006 $ 248,851

The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life.

Management recorded no impairments of intangible assets or goodwill during the three and nine months ended September 30, 2022 or the year ended December 31, 2021.

Total amortization expense was $ 12.8 million and $ 13.2 million during the three months ended September 30, 2022 and September 30, 2021, respectively, and $ 40.1 million and $ 37.9 million during the nine months ended September 30, 2022 and September 30, 2021, respectively.

As of September 30, 2022, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Management recorded no impairments of intangible assets during the three months ended March 31, 2023 and March 31, 2022.

Total amortization expense was $ 18.2 million and $ 13.8 million during the three months ended March 31, 2023 and March 31, 2022, respectively.

As of March 31, 2023, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Year ending December 31:

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Total $ 232,368

The Company’s income tax benefit for the three and nine months ended September 30, 2022 and September 30, 2021 reflects its estimate of the effective tax rates expected to be applicable for the full years, adjusted for any discrete events that are recorded in the period in which they occur.

The Company’s income tax benefit for the three months ended March 31, 2023 and March 31, 2022 reflects its estimate of the effective tax rates expected to be applicable for the full years, adjusted for any discrete events that are recorded in the period in which they occur.

The estimates are re-evaluated each quarter based on the estimated tax expense for the full year.

The tax benefit from income taxes of $ 1.1 million and $ 1.7 million for the three and nine months ended September 30, 2022 is primarily related to foreign income taxes associated with our combined non-U.S.

operations and the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the Company’s business combination occurring during the nine months ended September 30, 2022, as discussed in “ Note 2.

Acquisitions .” These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards and the impact, recorded as discrete for the three months ended March 31, 2022, of the deferred tax provision attributable to the tax gain associated with the transfer of goodwill between foreign and domestic jurisdictions.

The tax benefit for incomes taxes of $ 3.3 million and benefit from income taxes of $ 6.2 million for the three and nine months ended September 30, 2021 is primarily related to the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the Second Street business combination, as discussed in “ Note 2.

Acquisitions ”, and foreign income taxes associated with our combined non-U.S.

These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill, state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards.

The release of valuation allowance is attributable to ASC 805-740-30-3 and acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allowed us to recognize certain deferred tax assets of approximately $ 4.3 million during the three months ended March 31, 2021 that had previously been offset by a valuation allowance.

The Company has historically incurred operating losses in the United States and, given its cumulative losses and limited history of profits, has recorded a valuation allowance against its United States net deferred tax assets, exclusive of tax deductible goodwill, at September 30, 2022 and September 30, 2021, respectively.

The tax benefit from income taxes of $ 1.4 million for the three months ended March 31, 2023 is primarily related to the deferred tax impact of the goodwill impairment booked during the first quarter of 2023.

This tax benefit is offset by the foreign income taxes associated with our combined non U.S.

operations, changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill, and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards.

The tax benefit for incomes taxes of $ 0.1 million for the three months ended March 31, 2022 is primarily related to foreign income taxes associated with our combined non-U.S.

These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards and the impact, recorded as discrete, of the deferred tax provision attributable to the tax gain associated with the transfer of goodwill between foreign and domestic jurisdictions.

The Company historically incurred operating losses in the United States prior to 2021 and, given its cumulative losses and limited history of profits, has recorded a valuation allowance against its United States net deferred tax assets, exclusive of tax deductible goodwill, at March 31, 2023 and March 31, 2022, respectively.

The Company has reflected any uncertain tax positions primarily within its long-term taxes payable and a portion within deferred tax assets.

The Company and its subsidiaries file tax returns in the U.S.

federal jurisdiction and in several state and foreign jurisdictions.

federal jurisdiction and in several U.S.

state and foreign jurisdictions.

The Company is no longer subject to U.S.

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operating losses generated in years prior to 2019 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.

Long-term debt consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022 December 31, 2021

Senior secured loans (includes unamortized discount of $ 8,034 and $ 9,520 based on an imputed interest rate of 5.8 % and 5.8 %, at September 30, 2022 and December 31, 2021, respectively)

Long-term debt consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

Senior secured loans (includes unamortized discount of $ 7,024 and $ 7,467 based on an imputed interest rate of 5.8 % and 5.8 %, at March 31, 2023 and December 31, 2022, respectively)

$ 514,076 $ 514,983

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Total long-term debt $ 510,967 $ 511,847

Amendment No.

1 to the Credit Agreement

On February 21, 2023, the Company entered into that certain Amendment No.1 to the Credit Facility (as herein defined below) (the “Amendment”), which amends the Credit Facility.

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

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

Credit Facility

On August 6, 2019, the Company entered into a credit agreement (the “Credit Facility”) which provides for (i) a fully-drawn $ 350 million, 7 year, senior secured term loan B facility (the “Term Loan”) and (ii) a new $ 60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of September 30, 2022.

The Credit Facility replaced the Company's previous credit agreement.

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Any amount remaining unpaid is due and payable in full on August 6, 2026 (the “Term Loan Maturity Date”).

At the option of the Company, the Term Loans (including the 2019 Incremental Term Loan) accrue interest at a per annum rate based on (i) the Base Rate plus a margin of 2.75 % or (ii) the rate (not less than 0.00 %) for Eurodollar deposits quoted on the LIBOR01 or LIBOR02 pages on the Reuters Screen, or as otherwise determined in accordance with the Credit Facility (based on a period equal to 1, 2, 3 or 6 months or, if available and agreed to by all relevant Lenders and the Agent, 12 months or such period of less than 1 month) plus a margin of 3.75 %.

The Base Rate for any day is a rate per annum equal to the greatest of (i) the prime rate in effect on such day, (ii) the federal funds effective rate (not less than 0.00 %) in effect on such day plus ½ of 1.00%, and (ii) the Eurodollar rate for a one month interest period beginning on such day plus 1.00 %.

Accrued interest on the loans will be paid quarterly or, with respect to loans that are accruing interest based on the Eurodollar rate, at the end of the applicable interest rate period.

At the option of the Company, the Term Loans (including the 2019 Incremental Term Loan) accrue interest at a per annum rate based on (i) the Base Rate plus a margin of 2.75 % or (ii) the rate (not less than 0.00 %) published by CME Group Benchmark Administration Limited (CBA), or as otherwise determined in accordance with the Credit Facility (based on a period equal to 1, 2, 3 or 6 months or, if available and agreed to by all relevant Lenders and the Agent, 12 months or such period of less than 1 month) plus a margin of 3.75 %.

The Base Rate for any day is a rate per annum equal to the greatest of (i) the prime rate in effect on such day, (ii) the federal funds effective rate (not less than 0.00 %) in effect on such day plus ½ of 1.00%, and (iii) the Federal Funds Effective Rate for a one month interest period beginning on such day plus 1.00 %.

Accrued interest on the loans will be paid quarterly or, with respect to loans that are accruing interest based on the Federal Funds Effective Rate, at the end of the applicable interest rate period.

Interest rate swaps

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The interest rate swap has been designated as a cash flow hedge and is valued using a market approach, which is a Level 2 valuation technique.

At September 30, 2022, the fair value of the interest rate swap was a $ 43.9 million asset as a result of an increase in short term interest rates since entering into the swap agreements.

The increase in the fair value of the interest rate swap asset during the three months ended September 30, 2022 is the result of an increase in short term interest rates during the respective periods.

In the next twelve months, the Company estimates that $ 11.5 million will be reclassified from Accumulated other comprehensive income (loss) to Interest expense, net on our condensed consolidated statement of

At March 31, 2023, the fair value of the interest rate swap was a $ 33.0 million asset as a result of a decrease in short term interest rates since December 31, 2022.

In the next twelve months, the Company estimates that $ 9.9 million will be reclassified from Accumulated other comprehensive income to Interest expense, net on our condensed

consolidated statement of operations.

Increases/decreases in cash paid for interest as a result of the Company’s interest rate swaps are included cash flows from operations.

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Unrealized Gain recognized in Other comprehensive income on derivative financial instruments $ 17,988 $ 2,112 $ 52,357 $ 14,391

Three Months Ended March 31,

Unrealized gain (loss) recognized in Other comprehensive income on derivative financial instruments $ ( 8,154 ) $ 26,213

Gain (loss) on interest rate swap (included in Interest expense on our consolidated statement of operations) $ 3,831 $ ( 1,972 )

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Loans under the Revolver may be borrowed, repaid and reborrowed until August 6, 2024 (the “Maturity Date”), at which time all amounts borrowed under the Revolver must be repaid.

As of September 30, 2022, the Company had no borrowings outstanding under the Revolver or related sub-facility.

As of March 31, 2023, the Company had no borrowings outstanding under the Revolver or related sub-facility.

The Credit Facility contains customary affirmative and negative covenants.

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The Term Loan and Revolver are secured by substantially all of the Company's assets.

As of September 30, 2022 the Company was in compliance with all covenants under the Credit Facility.

Cash interest costs averaged 5.4 % and 5.4 % for the nine months ended September 30, 2022 and 2021, respectively.

In addition, as of September 30, 2022 and December 31, 2021 the Company had $ 8.0 million and $ 9.5 million, respectively, of unamortized deferred financing costs associated with the Credit Facility.

As of March 31, 2023 the Company was in compliance with all covenants under the Credit Facility.

Cash interest costs averaged 5.4 % and 5.4 % for the three months ended March 31, 2023 and 2022, respectively.

In addition, as of March 31, 2023 and December 31, 2022 the Company had $ 7.0 million and $ 7.5 million, respectively, of unamortized deferred financing costs associated with the Credit Facility.

These financing costs will be amortized to non-cash interest expense over the remaining term of the Credit Facility.

Net Loss Per Share

We compute loss per share of our Common Stock and Series A Preferred Stock using the two-class method.

We compute loss per share of our common stock, par value $ 0.0001 per share (“Common Stock”) and Series A Preferred Stock using the two-class method.

The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

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The following table sets forth the computations of loss per share (in thousands, except share and per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Net Loss $ ( 140,045 ) $ ( 22,831 )

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Net loss per common share, basic and diluted $ ( 4.38 ) $ ( 0.73 )

Due to the net losses for the three and nine months ended September 30, 2022 and September 30, 2021, respectively, basic and diluted loss per share were the same.

Due to the net losses for the three months ended March 31, 2023 and March 31, 2022, respectively, basic and diluted loss per share were the same.

The Company adopted ASU 2020-06 on January 1, 2022 as detailed in “Note 2.

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The Company applies the treasury stock method for calculating diluted earnings per share on our stock options, restricted stock awards, restricted stock units and performance restricted stock units.

The following table sets forth the anti–dilutive common share equivalents as of September 30, 2022 and September 30, 2021:

September 30,

The following table sets forth the anti–dilutive common share equivalents as of March 31, 2023 and March 31, 2022:

Stock options 152,683 191,212

Restricted stock awards (1)

Restricted stock units

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Total anti–dilutive common share equivalents 9,606,160 2,664,488

(1) All outstanding restricted stock awards became fully vested as of December 31, 2021.

(1) Per ASU 2020-06, the Company is applying the if-converted method to calculated diluted earnings per share.

As of September 30, 2022 , the Series A Preferred Stock plus accumulated dividends totaled $ 115.5 million.

As of March 31, 2023 , the Series A Preferred Stock plus accumulated dividends totaled $ 118.2 million.

The Series A Preferred Stock has a conversion price of $ 17.50 per share, as detailed in “ Note 10.

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In connection with the issuance of the Series A Preferred Stock, the Company incurred direct and incremental expenses comprised of transaction fees, and financial advisory and legal expenses (the “Series A Preferred Stock Issuance Costs”), which reduced the carrying value of the Series A Preferred Stock.

As of September 30, 2022, the Series A Preferred Stock Issuance Costs totaled $ 4.5 million.

As of March 31, 2023, the Series A Preferred Stock Issuance Costs totaled $ 4.6 million.

Cumulative preferred dividends accrue quarterly on the Series A Preferred Stock at a rate of 4.5 % per year within the first seven years after the Closing Date regardless of whether declared or assets are legally available for the payment.

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The dividend rate will increase to 7.0 % on the seven-year anniversary of the Closing Date.

The Series A Preferred Stock had accrued unpaid dividends of $ 0.5 million as of September 30, 2022.

The Series A Preferred Stock had accrued unpaid dividends of $ 3.2 million as of March 31, 2023.

Contemporaneous with the Closing Date, the Company and the Purchaser entered into a Registration Rights Agreement (the “Registration Rights Agreement”) and the Company filed a Certificate of Designation (the “Certificate of Designation”) setting out the powers, designations, preferences, and other rights of the Series A Preferred Stock with the Secretary of State of the State of Delaware in connection with the Closing.

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The Series A Preferred Stock has an Initial Liquidation Preference of $ 1,000 per share, representing an aggregate Liquidation Preference (as defined below) of $ 1,000 upon issuance.

Holders of the Series A Preferred Stock are entitled to the dividend at the rate of 4.5 % per annum, within first seven years after the Closing Date regardless of whether declared or assets are legally available for the payment.

Holders of the Series A Preferred Stock are entitled to the dividend at the rate of 4.5 % per annum, within the first seven years after the Closing Date regardless of whether declared or assets are legally available for the payment.

Such dividends shall accrue and compound quarterly in arrears from the date of issuance of the shares.

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The Series A Preferred Stock will have distribution and liquidation rights senior to all other equity interests of the Company.

As of September 30, 2022, the Liquidation Preference of the Series A Preferred Stock was $ 115.5 million.

As of March 31, 2023, the Liquidation Preference of the Series A Preferred Stock was $ 118.2 million.

Optional Redemption

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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.

On August 10, 2020, we filed a registration statement on Form S-3 (File No.

333-243728) (the “2020 S-3”), which became effective automatically upon its filing and covers an unlimited amount of securities.

The 2020 S-3, will remain effective through August 2023.

Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income (loss).

See “ Note—10.

Series A Preferred Stock ” for further details.

Accumulated Other Comprehensive Income

Comprehensive income consists of two elements, net income (loss) and other comprehensive income (loss).

Other comprehensive income (loss) items are recorded in the stockholders’ equity section of our condensed consolidated balance sheets and are excluded from net loss.

Our other comprehensive income (loss) consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S.

dollar, unrealized translation gains (losses) on intercompany loans with foreign subsidiaries, and unrealized gains (losses) on interest rate swaps.

Our other comprehensive income consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S.

dollar, unrealized translation gains on intercompany loans with foreign subsidiaries, and unrealized gains on interest rate swaps.

The following table shows the components of accumulated other comprehensive income (loss), net of income taxes, (“AOCI”) in the stockholders’ equity section of our condensed consolidated balance sheets at the dates indicated (in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Foreign currency translation adjustment $ ( 22,617 ) $ ( 22,632 )

Unrealized translation gain on intercompany loans with foreign subsidiaries ( 11,658 ) 2,552

Unrealized gain (loss) on interest rate swaps 43,947 ( 8,409 )

Total accumulated other comprehensive loss $ ( 5,640 ) $ ( 11,514 )

The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of September 30, 2022 is net of income tax expense of $ 2.3 million.

The tax provision to unrealized translation gains (losses) on intercompany loans for the three and nine months ended September 30, 2022 was $ 1.9 million and $ 0.4 million, respectively.

The tax expense related to unrealized translation gains on intercompany loans for the three and nine months ended September 30, 2021 was $ 0.5 million and $ 0.2 million, respectively.

The income tax expense/benefit allocated to each component of other comprehensive income (loss) for all other periods and components is not material.

Unrealized translation loss on intercompany loans with foreign subsidiaries ( 6,191 ) ( 7,426 )

Unrealized gain on interest rate swaps 33,014 41,168

Total accumulated other comprehensive income $ 4,206 $ 11,110

The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of March 31, 2023 is net of income tax expense of $ 0.9 million.

The tax provision to unrealized translation gains (losses) on intercompany loans for the three months ended March 31, 2023 was $ 0.5 million.

The tax benefit related to unrealized translation gains on intercompany loans for the three months ended March 31, 2022 was $ 0.5 million.

The income tax expense/benefit allocated to each component of other comprehensive income for all other periods and components is not material.

The Company reclassifies taxes from AOCI to earnings as the items to which the tax effects relate are similarly reclassified.

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The assets and liabilities of those subsidiaries are translated into USD using the exchange rates in effect at the balance sheet date.

The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive income (loss).

The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive income.

The Company has intercompany loans that were used to fund the acquisitions of foreign subsidiaries.

Due to the long-term nature of the loans, the unrealized translation gains (losses) resulting from re-measurement are recognized as a component of accumulated other comprehensive income (loss).

Due to the long-term nature of the loans, the unrealized translation gains (losses) resulting from re-measurement are recognized as a component of accumulated other comprehensive income.

Stock-Based Compensation

The Company recognizes stock-based compensation expense from all awards in the following expense categories included in our condensed consolidated statements of income were as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Cost of revenue $ 302 $ 402

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2014 Equity Incentive Plan

Beginning in 2019, the Company began granting restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) under its 2014 Equity Incentive Plan (the “2014 EIP”), in lieu of restricted stock awards, primarily for stock plan administrative purposes.

Performance-Based Restricted Stock Units (“PRSU”)

In 2022 and 2021, fifty percent of the awards granted to our Chief Executive Officer were PRSUs.

The 2022 and 2021 PRSU agreements provide that the quantity of units subject to vesting may range from 0 % to 300 % of the units granted per the table below based on the Company's absolute total shareholder return (“TSR”) at the end of the eighteen month performance periods.

At the end of the performance period, the 2021 PRSU resulted in no units granted.

The following table summarizes PRSU and RSU activity during the nine months ended September 30, 2022 :

Beginning in 2019, the Company began granting restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) under its 2014 Equity Incentive Plan (the “2014 EIP”), in lieu of restricted stock awards, primarily for stock plan administrative purposes.

Restricted Stock Units (“RSU”) and Performance-Based Restricted Stock Units (“PSU”)

In 2023 and 2022, fifty percent of the awards granted to our Chief Executive Officer were PSUs.

The 2023 and 2022 PSU agreements provide that the quantity of units subject to vesting may range from 0 % to 200 % and 0 % to 300 %, respectively, of the units granted per the table below based on the Company's absolute total shareholder return (“TSR”) at the end of the performance periods of thirty-four months and eighteen months , respectively.

The following table summarizes PSU and RSU activity during the three months ended March 31, 2023:

Number of Units Weighted-Average Grant Date Fair Value

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Forfeited ( 29,867 ) 22.99

( 644,190 ) 35.28

Unvested restricted units outstanding as of September 30, 2022 1,536,636 $ 30.25

(1) Includes forfeited awards related to the 2021 PRSUs.

At June 30, 2022, or the end of the performance period for the 2021 PRSUs, none of the awards vested.

The PRSU and RSU activity table above includes PRSU units granted that are based on a 100 % target payout.

Unvested restricted units outstanding as of March 31, 2023 2,701,439 $ 14.99

The PSU and RSU activity table above includes PSU units granted that are based on a 100 % target payout.

Compensation expense is recognized over the required service period of the grant.

The fair value of the RSUs is determined based on the grant date fair value of the award.

The fair value of the PRSUs is determined using the Monte Carlo simulation model and is not subject to fluctuation due to achievement of the underlying market-based target.

Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the nine months ended September 30, 2022 and year ended December 31, 2021 are as follows:

September 30, 2022 December 31, 2021

The fair value of the PSUs is determined using the Monte Carlo simulation model and is not subject to fluctuation due to achievement of the underlying market-based target.

Significant assumptions used in the Monte Carlo simulation model for the PSUs granted during the three months ended March 31, 2023 and year ended December 31, 2022 are as follows:

March 31, 2023 December 31, 2022

Expected volatility 55.5 % 49.5 %

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Stock Option Activity

Stock option activity during the nine months ended September 30, 2022 was as follows:

Stock option activity during the three months ended March 31, 2023 was as follows:

Outstanding Weighted–

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Options expired ( 819 ) 6.23

Outstanding at September 30, 2022 155,895 $ 11.09

Outstanding at March 31, 2023 152,683 $ 11.27

Revenue Recognition

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Additional fees for monthly usage above the levels included in the standard subscription fee are recognized as subscription and support revenue at the end of each month and is invoiced concurrently.

Subscription and support revenue includes revenue related to the Company’s digital engagement application which provides short code connectivity for its two-way short message service (“SMS”) programs and campaigns.

Subscription and support revenue includes revenue related to the Company’s digital engagement application which provides short code connectivity for its two-way short message service

(“SMS”) programs and campaigns.

As discussed further in the “Principal vs.

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Generally, the Company reports 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.

As the Company is primarily

obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, revenue is recorded on a gross basis with related telecom messaging costs incurred from third parties recorded as cost of revenue.

As the Company is primarily obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, revenue is recorded on a gross basis with related telecom messaging costs incurred from third parties recorded as cost of revenue.

Revenue provided from agreements in which the Company is an agent are immaterial.

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Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in unbilled receivables, which are expected to be billed during the succeeding twelve-month period and are recorded in Unbilled receivables in our condensed consolidated balance sheets.

A contract liability results when we receive prepayments or deposits from customers in advance for implementation, maintenance and other services, as well as subscription fees.

A contract liability results when we receive

prepayments or deposits from customers in advance for implementation, maintenance and other services, as well as subscription fees.

Customer prepayments are generally applied against invoices issued to customers when services are performed and billed.

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Unbilled receivables represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for software licenses already delivered and professional services already performed, but invoiced in arrears and for which the Company believes it has an unconditional right to payment.

As of September 30, 2022 and December 31, 2021, unbilled receivables were $ 6.0 million and $ 4.8 million, respectively.

As of March 31, 2023 and December 31, 2022, unbilled receivables were $ 6.2 million and $ 5.3 million, respectively.

Deferred Commissions

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Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations.

Deferred commissions are reviewed for impairment whenever events or circumstances

indicate their carrying value may not be recoverable consistent with the Company's long-lived assets policy.

No indicators of impairment were identified during the nine months ended September 30, 2022.

The following table presents the activity impacting deferred commissions for the nine months ended September 30, 2022 :

Deferred commissions are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable consistent with the Company's long-lived assets policy.

No indicators of impairment were identified during the three months ended March 31, 2023.

The following table presents the activity impacting deferred commissions for the three months ended March 31, 2023 :

($ in thousands) Deferred Commissions

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Amortization of deferred commissions ( 3,289 )

Balance at September 30, 2022 $ 24,412

Amortization of deferred commissions in excess of commissions capitalized for the three and nine months ended September 30, 2022 were $ 1.5 million and $ 0.2 million, respectively.

Balance at March 31, 2023 $ 24,453

Amortization of deferred commissions in excess of commissions capitalized for the three months ended March 31, 2023 was $ 0.3 million.

Deferred Revenue

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Deferred revenue is mainly unearned revenue related to subscription services and support services.

During the nine months ended September 30, 2022, we recognized $ 89.1 million and $ 2.7 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

In addition, during the nine months ended September 30, 2022 we recognized $ 9.2 million in revenue that was included in the acquired deferred revenue balance of our 2022 acquisitions as disclosed in “ Note 2.

Acquisitions .”

During the three months ended March 31, 2023, we recognized $ 48.2 million and $ 1.5 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

Remaining Performance Obligations

As of September 30, 2022, approximately $ 263.6 million of revenue is expected to be recognized from remaining performance obligations.

As of March 31, 2023, approximately $ 275.1 million of revenue is expected to be recognized from remaining performance obligations.

We expect to recognize revenue on approximately 69 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

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Information about these operations is presented below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Subscription and support:

7 unchanged sentences

United Kingdom 223 129

Canada 10 1 187 53

Other International 650 836

8 unchanged sentences

Related Party Transactions

The Company does not have any material related party transactions to report for the three and nine months ended September 30, 2022.

The Company does not have any material related party transactions to report for the three months ended March 31, 2023 and March 31, 2022 .

Subsequent Events

On May 2, 2023, the Board of Directors (the “Board of Directors”) of the Company, authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock.

The dividend is payable on May 12, 2023 (the “Record Date”), to the holders of record of shares of Common Stock as of 5:00 P.M., New York City time, on the Record Date.

The description and terms of the Rights are set forth in a Tax Benefit Preservation Plan, dated as of May 2, 2023, as the same may be amended from time to time (the “Plan”), between the Company and Broadridge Corporate Issuer Solutions, LLC, as Rights Agent.

By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its net operating loss carryforwards (“NOLs”) and other tax attributes to offset potential future income tax liabilities.

The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code (the “Code”).

Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company.

The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.9% or more of the outstanding shares of stock without the approval of the Board of Directors.

The Board of Directors believes it is in the best interest of the Company and its stockholders to reduce the likelihood of an ownership change, which could harm the Company’s future operating results by effectively increasing the Company future tax liabilities.

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

What changed 10-Q

Item 1. Financial Statements