What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-03 · 157 added, 265 removed, 271 unchanged (61% of the section changed)

12 unchanged sentences

• our expectations with regard to revenue from perpetual licenses and professional services;

• our ability to adapt to the impacts on the global economy associated with the ongoing COVID-19 pandemic;

• our ability to adapt to macroeconomic factors impacting the global economy, including foreign currency exchange risk, inflation and supply chain constraints;

• our ability to attract and retain customers;

14 unchanged sentences

• our expectations with regard to trends, such as seasonality, which affect our business;

• our plans with respect to foreign currency exchange risk and inflation;

• impairments to goodwill and other intangible assets;

14 unchanged sentences

Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

We sell our software applications primarily through a direct sales organization comprised of inside sales and field sales personnel.

In addition to our direct sales organization, we have an indirect sales organization, which sells to distributors and value-added resellers.

We employ a land-and-expand go-to-market strategy.

After we demonstrate the value of an initial application to a customer, our sales and account management teams work to expand the adoption of that initial application across the customer, as well as cross-sell additional applications to address other digital transformation needs of the customer.

Our customer success organization supports our direct sales efforts by managing the post-sale customer lifecycle.

Our subscription agreements are typically sold either on a per-seat basis or on a minimum contracted volume basis with overage fees billed in arrears, depending on the application being sold.

We service customers ranging from large global corporations and government agencies to small- and medium-sized businesses.

We have more than 10,000 customers with over 1,000,000 users across a broad range of industries, including financial services, retail, technology, manufacturing, legal, education, consumer goods, media, telecommunications, government, non-profit, food and beverage, healthcare and life sciences.

Through a series of acquisitions and integrations, we have established a library of diverse, cloud-based software applications under the Upland brand that support the business functions listed above and address specific digital transformation needs.

Our revenue has grown from $98.0 million in 2017 to $302.0 million in 2021, representing a compound annual growth rate of 33%.

During the nine months ended September 30, 2022 foreign revenue as a percent of total revenue increased to 30% compared to 28% during the nine months ended September 30, 2021.

Through a series of acquisitions and integrations, we have established a library of diverse, cloud-based software applications that address specific digital transformation needs.

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 three months ended March 31, 2023 foreign revenue as a percent of total revenue decreased to 29% compared to 32% during the three months ended March 31, 2022.

See “ Note 12.

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

To support continued growth, we intend to pursue acquisitions within our core enterprise solution suites of complementary technologies and businesses.

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

This will expand our product library, customer base, and market access resulting in increased benefits of scale.

Consistent with our growth strategy, we have made 31 acquisitions from February 2012 through September 30, 2022.

COVID-19 Impact

We cannot predict the extent to which the COVID-19 outbreak will continue to impact our business or operating results, which is highly dependent on inherently uncertain future developments, including the severity of COVID-19 and the actions taken by governments and private businesses in relation to COVID-19 containment.

As our platform is offered as a subscription-based service, the effect of the outbreak may not be fully reflected in our operating results until future periods, if at all.

The persistence of COVID-19 and the preventative measures implemented to help limit the spread of the illness, have impacted, and will continue to impact, our ability to operate our business and may materially and adversely impact our business, financial condition, and results of operations.

The health and well-being of our employees, customers, partners and communities continues to be our main priority.

As such, we support and continue the remote working arrangements for our employees.

Consistent with our growth strategy, we have made 31 acquisitions from February 2012 through March 31, 2023.

Recent Developments

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.

See “ Note 14.

Subsequent Events ” for further details.

2022 Acquisitions

During the three months ended March 31, 2022, we completed the two acquisitions summarized below.

As a result, the impact of these two acquisitions are fully reflected in our results of operations for the three months ended March 31, 2023 but are not fully reflected in our results of operations for the three months ended March 31, 2022.

• 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.

• 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.

Results of Operations

2 unchanged sentences

The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods.

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

2022 2021 2022 2021

Amount Percent of Revenue Amount Percent of Revenue Amount Percent of Revenue Amount Percent of Revenue

Three Months Ended March 31,

Amount Percent of Revenue Amount Percent of Revenue

(dollars in thousands, except share and per share data)

20 unchanged sentences

Acquisition-related expenses 1,094 1 % 10,413 13 %

Impairment of goodwill 128,755 167 % — — %

Total operating expenses 188,951 245 % 68,738 87 %

15 unchanged sentences

Stockholders' Equity” .

(2) Includes General and administrative stock-based compensation of $5.7 million and $9.2 million for the three months September 30, 2022 and September 30, 2021, respectively, and $26.8 million and $35.2 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

General and administrative expense excluding stock-based compensation as a percentage of total revenues was 11% and 11% for the three months ended September 30, 2022 and September 30, 2021, respectively, and 12% and 12% for the nine months ended September 30, 2022 and September 30, 2021, respectively.

(3) Includes depreciation and amortization of $3.0 million and $3.0 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $9.4 million and $8.6 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

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

2022 2021 % Change 2022 2021 % Change

(2) Includes General and administrative stock-based compensation of $4.9 million and $9.0 million for the three months March 31, 2023 and March 31, 2022, respectively.

General and administrative expense excluding stock-based compensation as a percentage of total revenues was 16% and 13% for the three months ended March 31, 2023 and March 31, 2022.

(3) Includes depreciation and amortization of $3.4 million and $3.2 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

Comparison of the Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

10 unchanged sentences

Total revenue 100% 100%

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

2022 2021 2022 2021

(dollars in thousands)

Reconciliation of Total revenue to Non-GAAP Core Organic Revenue:

Total revenue $ 79,549 $ 76,053 $ 238,492 $ 226,286

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

5,819 — 36,946 16,937

Perpetual license revenue 1,684 685 5,320 1,452

Professional services revenue 2,770 3,105 9,434 9,513

Subscription and support revenue from Sunset Assets (2)

107 325 450 1,067

Overage Charges (3)

2,769 3,575 8,345 12,388

Political Revenue (4)

Non-GAAP Core Organic Revenue (5)

$ 66,400 $ 68,363 $ 177,997 $ 183,949

(1) After the reduction of $1.2 million and $4.8 million purchase accounting deferred revenue discount for the three and nine months ended September 30, 2022, respectively.

(2) Subscription and support revenue from Sunset Assets is revenue related to the divestiture and sunset of certain minor non-strategic customer contracts (collectively referred to as “Sunset Assets”).

(3) Overage Charges are amounts paid to the Company by a customer (in addition to such customer’s contractual minimum payment commitments) as a result of such customer’s number of users or level of usage of services including text and e-mail messaging and third party pass-through costs exceeding the levels stipulated in such customer’s license or related purchase agreements with the Company.

(4) Political Revenue is CXM usage revenue from US presidential campaigns.

(5) Non-GAAP Core Organic Revenue excludes revenues from acquisitions closed during or subsequent to the prior year comparable period, Perpetual license revenues, Professional services revenues, Revenue from Sunset Assets, Overage Charges and Political Revenue.

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

2022 2021 2022 2021

(dollars in thousands)

Reconciliation of Subscription and support revenue to Non-GAAP Core Organic Revenue:

Subscription and support revenue $ 75,095 $ 72,264 $ 223,739 $ 215,322

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

5,819 — 36,946 16,937

Subscription and support revenue from Sunset Assets (2)

107 325 450 1,067

Overage Charges (3)

2,769 3,575 8,345 12,388

Political Revenue (4)

Non-GAAP Core Organic Revenue (5)

$ 66,400 $ 68,363 $ 177,997 $ 183,949

(1) After the reduction of $1.2 million and $4.8 million purchase accounting deferred revenue discount for the three and nine months ended September 30, 2022, respectively.

(4) Political Revenue is CXM usage revenue from US presidential campaigns.

(5) Non-GAAP Core Organic Revenue excludes revenues from acquisitions closed during or subsequent to the prior year comparable period, Revenue from Sunset Assets, Overage Charges and Political Revenue.

For the Three Months Ended September 30, 2022

Total revenue was $79.5 million in the three months ended September 30, 2022, compared to $76.1 million in the three months ended September 30, 2021, an increase of $3.5 million, or 5%.

Total revenue growth includes a negative impact of 3% from changes in foreign currency exchange rates (“FX”).

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

The acquisitions not fully in the comparable period contributed $7.5 million to the increase in the three months ended September 30, 2022.

Total revenue related to Perpetual license and Professional services related to our Organic Business declined by $1.0 million.

Total revenue from Sunset Assets declined by $0.2 million in the quarter as a result of decreased sales and marketing focus on those Sunset Assets.

Total revenue related to Overage Charges declined by $0.8 million as a result of variable demand in the quarter.

Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $2.0 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $0.5 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021.

Subscription and support revenue was $75.1 million in the three months ended September 30, 2022, compared to $72.3 million in the three months ended September 30, 2021, an increase of $2.8 million, or 4%.

Subscription and support revenue growth includes a negative impact of 3% from changes in FX.

The acquisitions not fully in the comparable period contributed $5.8 million to the increase in subscription and support revenue in the three months ended September 30, 2022.

Subscription and support revenue related to our Sunset Assets decreased $0.2 million in the quarter as a result of decreased sales and marketing focus on those Sunset Assets.

Subscription and support revenue related to Overage Charges declined by $0.8 million as a result of variable demand in the quarter.

Perpetual license revenue was $1.7 million in the three months ended September 30, 2022, compared to $0.7 million in the three months ended September 30, 2021.

The acquisitions not fully in the comparable period contributed $0.9 million to the increase in perpetual license revenue in the three months ended September 30, 2022 primarily from the acquisition of Objectif Lune.

Therefore, perpetual license revenue for our Organic Business for the three months ended September 30, 2022 increased by $0.1 million compared to the three months ended September 30, 2021.

Professional services revenue was $2.8 million in the three months ended September 30, 2022 compared to $3.1 million in the three months ended September 30, 2021.

The acquisitions not fully in the comparable period contributed $0.8 million to the increase in professional services revenue in the three months ended September 30, 2022.

Therefore, professional services revenue for our Organic Business decreased by $1.1 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021 primarily related to our discipline around not accepting unprofitable professional services projects.

For the Nine Months Ended September 30, 2022

Total revenue was $238.5 million in the nine months ended September 30, 2022, compared to $226.3 million in the nine months ended September 30, 2021, an increase of $12.2 million, or 5%.

Total revenue growth includes a negative impact of 2% from changes in FX.

The acquisitions not fully in the comparable period contributed $25.8 million to the increase in the nine months ended September 30, 2022.

Total revenue related to Perpetual license and Professional services related to our Organic Business declined by $1.9 million.

Total revenue related to Sunset Assets decreased by $0.7 million as a result of decreased sales and marketing focus on those Sunset Assets.

Total revenues related to Overage Charges declined by $4.0 million as a result of variable demand during the first nine months of 2022.

The nine months ended September 30, 2021 included $1.0 million in Political Revenue, which did not repeat in the first nine months of 2022 and will not repeat for the remainder of 2022.

Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $6.0 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $4.0 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Subscription and support revenue was $223.7 million in the nine months ended September 30, 2022, compared to $215.3 million in the nine months ended September 30, 2021, an increase of $8.4 million, or 4%.

Subscription and support revenue growth includes a negative impact of 1% from changes in FX.

The acquisitions not fully in the comparable period contributed $20.0 million to the increase in subscription and support revenue in the nine months ended September 30, 2022.

Subscription and support revenue related to our Sunset Assets decreased $0.6 million as a result of decreased sales and marketing focus on those Sunset Assets.

Subscription and support revenues related to Overage Charges declined by $4.0 million as a result of variable demand in the nine months ended September 30, 2022.

The nine months ended September 30, 2021 included $1.0 million of Political Revenues which did not repeat in the first nine months of 2022 and will not repeat for the remainder of 2022.

Therefore, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $6.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

After removing the negative FX impact on our revenue, net of these non-core revenues, our Non-GAAP Core Organic Revenue decreased by $4.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Perpetual license revenue was $5.3 million in the nine months ended September 30, 2022, compared to $1.5 million in the nine months ended September 30, 2021, an increase of $3.8 million, or 267%.

Perpetual license revenue related to our Sunset Assets decreased by $0.1 million as a result of decreased sales and marketing focus on those Sunset Assets.

The acquisitions not fully in the comparable period contributed $3.9 million to the increase in perpetual license revenue in the nine months ended September 30, 2022.

Therefore, perpetual license revenue from our Organic Business for the nine months ended September 30, 2022 was flat compared to the nine months ended September 30, 2021.

Professional services revenue was $9.4 million in the nine months ended September 30, 2022, compared to $9.5 million in the nine months ended September 30, 2021, a decrease of $0.1 million, or 1%.

The acquisitions not fully in the comparable period contributed $1.9 million to the increase in professional services revenue in the nine months ended September 30, 2022.

Therefore, professional services revenue from our Organic Business decreased by $2.0 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily related to our discipline around not accepting unprofitable professional services projects.

Cost of Revenue and Gross Profit Percentage

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

2022 2021 % Change 2022 2021 % Change

Total revenue was $77.1 million in the three months ended March 31, 2023, compared to $78.7 million in the three months ended March 31, 2022, a decrease of $1.6 million, or 2%.

This decrease is attributable to a decline of $0.7 million in subscription and support revenue, a decline of $0.2 million in perpetual license revenue, and a decline of $0.7 million in professional services revenue.

The table below details the $0.7 million decrease in subscription and support revenue for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Increase from acquisition not fully in the prior year comparative period (1)

Decrease related to Sunset Assets (2)

Increase related to overage charges (3)

Remaining decrease related to core organic business (4)

Total decrease in Subscription and support revenue $ (713)

(1) Subscription and support revenue related to our acquisition not fully in the prior year comparative period was $2.4 million for the three months ended March 31, 2023, after the reduction of $0.1 million purchase accounting deferred revenue discount for the three months ended March 31, 2023.

(2) 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”).

Subscription and support revenue related to these Sunset Assets was $8.9 million for the three months ended March 31, 2023.

During future periodic reviews of our business we may determine to add additional non-strategic product offerings or customer contracts to Sunset Assets.

Similarly, we may determine that a product offering or customer contract previously determined to be non-strategic in fact does have a strategic value to the Company and therefore we may remove that product offering or customer contract from the classification of Sunset Assets.

In either case, we will adjust the revenues attributable to Sunset Assets for the then current period and properly reflect the year over year change for such addition or removal.

(3) Overage Charges are revenue earned in addition to contractual minimum customer commitments as a result of the usage volume of services including text and e-mail messaging and third party pass-through costs that exceed the levels stipulated in contracts with the Company.

Subscription and support revenue related to Overage Charges was $2.4 million for the three months ended March 31, 2023.

(4) Subscription and support revenue for the three months ended March 31, 2022 excluding revenue from acquisitions not fully in the prior year comparative period, revenue from Sunset Assets and revenue from overage charges (all as disclosed in this table and footnotes) referred to here as subscription and support revenue from the core organic business declined by $0.3 million to $59.2 million for the three months ended March 31, 2023.

However, using constant currency foreign exchange rates from the three months ended March 31, 2022, subscription and support revenue from the core organic business grew by $0.4 million to $59.9 million for the three months ended March 31, 2023.

The $0.2 million decrease in perpetual license revenue is normal quarterly variation as we do not expect an ongoing downtrend in perpetual license revenue.

The $0.7 million decrease in professional services revenue is related to the typical decline of professional services revenue of acquired businesses where we de-emphasize low margin or negative margin professional service projects along with the decline of professional service revenue from Sunset Assets.

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

7 unchanged sentences

Subscription and support (1)

30% 30% 29% 30%

Professional services and other 3% 3%

5 unchanged sentences

Stock Compensation $ 302 $ 402

For the Three Months Ended September 30, 2022

Cost of subscription and support revenue was $23.6 million in the three months ended September 30, 2022, compared to $23.0 million in the three months ended September 30, 2021, an increase of $0.6 million, or 3%.

Cost of subscription and support revenue was $23.5 million in the three months ended March 31, 2023, compared to $22.1 million in the three months ended March 31, 2022, an increase of $1.4 million, or 6%.

The acquisitions not fully in the comparable period contributed $0.2 million to cost of subscription and support revenue, primarily related to costs associated with the delivery of the newly acquired products.

Therefore, cost of subscription and support revenue for our Organic Business decreased by $0.3 million, primarily related to a decrease in telecom messaging costs.

Cost of professional services and other revenue was $2.2 million in the three months ended September 30, 2022, compared to $1.8 million in the three months ended September 30, 2021, an increase of $0.4 million, or 18%.

The acquisitions not fully in the comparable period contributed $0.7 million in the cost of professional services revenue.

Therefore, the cost of professional services for our Organic Business decreased by $0.3 million.

For the Nine Months Ended September 30, 2022

Cost of subscription and support revenue was $69.7 million in the nine months ended September 30, 2022, compared to $68.8 million in the nine months ended September 30, 2021, an increase of $0.9 million, or 1%.

The acquisitions not fully in the comparable period contributed $4.5 million to the increase to cost of subscription and support revenue, primarily related to costs associated with the delivery of the BA Insight, Objectif Lune, Panviva and BlueVenn products.

Cost of subscription and support revenue related to our Sunset Assets decreased $0.2 million primarily related to decreased hosting and infrastructure costs.

Therefore, cost of subscription and support revenue for the organic portion of our Organic Business decreased by $3.4 million, primarily related to decreases in personnel and related costs and telecom messaging costs.

Cost of professional services revenue was $7.3 million in the nine months ended September 30, 2022, compared to $5.4 million in the nine months ended September 30, 2021, an increase of $1.9 million, or 34%.

The acquisitions not fully in the comparable period contributed $2.2 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 $0.3 million.

Cost of subscription and support revenue related to our Sunset Assets decreased by $1.2 million as a result of decreased sales and marketing focus on those Sunset Assets.

The remaining increase in cost of subscription and support revenue of $2.4 million is primarily related to an increase in personnel related costs, carrier pass-through costs, hosting costs and amortization partially offset by a decrease in stock compensation.

Cost of professional services and other revenue was $2.1 million in the three months ended March 31, 2023, compared to $2.7 million in the three months ended March 31, 2022, a decrease of $0.6 million, or 24%.

Cost of professional services related to our Sunset Assets decreased by $0.4 million as a result of decreased sales and marketing focus on those Sunset Assets.

The remaining decrease in cost of professional services of $0.2 million was related to a decrease in personnel related costs.

Operating Expenses

Sales and Marketing Expense

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

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

4 unchanged sentences

Stock Compensation $ 576 $ 1,474

For the Three Months Ended September 30, 2022

Sales and marketing expense was flat of $14.4 million in the three months ended September 30, 2022, compared to $14.4 million in the three months ended September 30, 2021.

The acquisitions not fully in the comparable period contributed $1.2 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs.

Therefore, sales and marketing expense for our Organic Business decreased $1.2 million primarily attributable to decreases in personnel and related costs.

For the Nine Months Ended September 30, 2022

Sales and marketing expense was $45.3 million in the nine months ended September 30, 2022, compared to $41.1 million in the nine months ended September 30, 2021, an increase of $4.2 million, or 10%.

The acquisitions not fully in the comparable period contributed $5.4 million to the increase in sales and marketing expense, primarily consisting of personnel and related costs.

Therefore, sales and marketing expense for our Organic Business decreased by $1.1 million, primarily attributable to decreases in personnel and related costs.

Sales and marketing expense was $14.3 million in the three months ended March 31, 2023, compared to $15.6 million in the three months ended March 31, 2022, a decrease of $1.3 million, or 8%.

The acquisitions not fully in the comparable period contributed an increase of $0.2 million to sales and marketing expense, primarily consisting of personnel related costs.

Sales and marketing expense related to our Sunset Assets decreased by $1.0 million as a result of decreased sales and marketing focus on those Sunset Assets.

A decrease in sales and marketing expense of $0.9 million is attributable to a reduction in non-cash stock compensation expense.

The remaining increase in sales and marketing expense of $0.4 million is primarily attributable to increased personnel related costs associated with our growth investments.

Research and Development Expense

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

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

4 unchanged sentences

Stock Compensation $ 655 $ 748

For the Three Months Ended September 30, 2022

Research and development expense was $11.6 million in the three months ended September 30, 2022, compared to $10.4 million in the three months ended September 30, 2021, an increase of $1.2 million, or 12%.

The acquisitions not fully in the comparable period contributed $1.6 million to the increase in research and development expense primarily consisting of personnel and related costs.

Therefore, research and development expense related to our Organic Business decreased by $0.4 million primarily related to personnel and related costs.

For the Nine Months Ended September 30, 2022

Research and development expense was $35.4 million in the nine months ended September 30, 2022, compared to $32.5 million in the nine months ended September 30, 2021, an increase of $2.9 million, or 9%.

The acquisitions not fully in the comparable period contributed $5.5 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 decreased by $2.4 million primarily related to personnel and related costs.

Research and development expense was $12.5 million in the three months ended March 31, 2023, compared to $12.1 million in the three months ended March 31, 2022, an increase of $0.4 million, or 4%.

The acquisitions not fully in the comparable period contributed $0.1 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 $0.9 million as a result of decreased engineering focus on those Sunset Assets.

The remaining increase of $1.2 million in research and development expense is primarily related to personnel related costs associated with our growth investments.

General and Administrative Expense

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

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

4 unchanged sentences

Stock Compensation $ 4,929 $ 8,995

For the Three Months Ended September 30, 2022

General and administrative expense was $14.7 million in the three months ended September 30, 2022, compared to $17.7 million in the three months ended September 30, 2021, a decrease of $3.0 million, or 17%.

An increase in general administrative expense of $0.6 million was due to the acquisitions not fully in the comparable period.

In addition, general and administrative expense decreased by $3.6 million, which was driven primarily by lower non-cash stock compensation expense.

For the Nine Months Ended September 30, 2022

General and administrative expense was $56.1 million in the nine months ended September 30, 2022, compared to $61.3 million in the nine months ended September 30, 2021, a decrease of $5.2 million, or 8%.

An increase in general administrative expense of $2.3 million was due to the acquisitions not fully in the comparable period, which consisted primarily of personnel and related costs and administrative expenses.

Therefore, general and administrative expense decreased by $7.5 million, which was driven primarily by overall decrease in non-cash stock compensation expense and personnel and related costs.

General and administrative expense was $17.2 million in the three months ended March 31, 2023, compared to $19.6 million in the three months ended March 31, 2022, a decrease of $2.4 million, or 12%.

General and administrative expense decreased by $0.2 million due to lower personnel related expenses related to our Sunset Assets.

In addition, general and administrative expense decreased by $4.1 million due to lower non-cash stock compensation expense, which was partially offset by a $1.9 million increase in personnel related expenses and outside professional expenses.

Depreciation and Amortization Expense

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

2022 2021 % Change 2022 2021 % Change

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

7 unchanged sentences

Total depreciation and amortization 20% 14%

For the Three Months Ended September 30, 2022

Depreciation and amortization expense was $10.1 million in the three months ended September 30, 2022, compared to $10.8 million in the three months ended September 30, 2021, a decrease of $0.7 million, or 6%.

The acquisitions not fully in the comparable period increased depreciation and amortization expense by $1.1 million, primarily related to acquired intangible assets such as customer relationships, developed technology and tradenames.

Depreciation and amortization expense related to our Sunset Assets decreased by $0.1 million.

Therefore, depreciation and amortization expense from our Organic Business decreased by $1.7 million from assets becoming fully depreciated and amortized.

For the Nine Months Ended September 30, 2022

Depreciation and amortization expense was $32.0 million in the nine months ended September 30, 2022, compared to $30.8 million in the nine months ended September 30, 2021, an increase of $1.2 million, or 4%.

Depreciation and amortization expense was $15.1 million in the three months ended March 31, 2023, compared to $11.1 million in the three months ended March 31, 2022, an increase of $4.0 million, or 37%.

The acquisitions not fully in the comparable period increased depreciation and amortization expense by $0.2 million, primarily related to acquired intangible assets such as customer relationships, developed technology and tradenames.

Depreciation and amortization expense related to our Sunset Assets decreased by $0.1 million.

Therefore, depreciation and amortization expense for our Organic Business decreased by $2.9 million from assets becoming fully depreciated and amortized.

Depreciation and amortization expense related to our Sunset Assets increased by $4.6 million.

The remaining decrease in depreciation and amortization expense of $0.8 million resulted from assets becoming fully depreciated and amortized.

Acquisition-related Expenses

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

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Three Months Ended March 31,

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(dollars in thousands)

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These acquisition-related expenses also include transformational expenses such as severance, compensation for transitional personnel, office lease terminations, vendor cancellations, and adjustments to the fair value of earnouts due to sellers.

Generally, without new acquisition activity, acquisition related expenses decline in subsequent sequential quarters and are no longer incurred after the first anniversary of the last closed acquisition.

For the Three Months Ended September 30, 2022

Acquisition-related expense was $3.6 million in the three months ended September 30, 2022, compared to $3.7 million in the three months ended September 30, 2021, a decrease of $0.1 million, or 3%.

During the three months ended September 30, 2022, transaction related expense was a gain of $0.3 million compared to and an expense of $0.1 million for the three months ended September 30, 2021.

Transformational expenses were $3.9 million and $3.6 million during the three months ended September 30, 2022 and 2021, respectively.

The transformational expenses in both the current and year ago periods were primarily related to temporary transitional personnel and related costs along with accelerated rent related expenses incurred in conjunction with the closures of offices of our acquired companies as we consolidate and integrate these acquisitions.

We had no new acquisitions during the three months ended September 30, 2022 and 2021, respectively.

Transformation expenses in the three months ended September 30, 2022 include expenses related to acquisitions closed in 2022.

In addition, Acquisition-related expense for the three months ended September 30, 2021 includes a gain of $0.8 million related to a decrease in the fair value of earnout liabilities due to sellers related to the BlueVenn and Second Street acquisitions.

For the Nine Months Ended September 30, 2022

Acquisition related expense was $18.9 million the nine months ended September 30, 2022, compared to $18.8 million in the nine months ended September 30, 2021 an increase of $0.1 million, or 1%.

During the nine months ended September 30, 2022 and September 30, 2021 transaction related expenses were $4.6 million and $6.2 million, respectively, and transformational expenses were $14.3 million and $12.6 million, respectively.

These accelerated rent related expenses decreased $4.0 million to $0.9 million during the nine months ended September 30, 2022 from $4.9 million during the same period in 2021.

Transformation expenses in 2021 include expenses related to the three acquisitions closed in 2021 as well as the one acquisition closed in 2020 compared to transformation expenses in 2022 related to the two acquisitions closed in 2022 and three acquisitions closed in 2021.

In addition, Acquisition-related expense for the nine months ended September 30, 2021 includes a gain of $3.5 million related to a decrease in the fair value of earnout liabilities due to sellers related to the BlueVenn and Second Street acquisitions.

Generally, without new acquisition activity, acquisition related expenses decline in subsequent sequential quarters and may no longer be incurred after the first anniversary of the last closed acquisition.

Acquisition-related expense was $1.1 million in the three months ended March 31, 2023, compared to $10.4 million in the three months ended March 31, 2022, a decrease of $9.3 million, or 89%.

During the three months ended March 31, 2023, transaction related expense was nil compared to $4.5 million for the three months ended March 31, 2022.

Transformational expenses were $1.1 million and $5.9 million during the three months ended March 31, 2023 and 2022, respectively.

The transformational expenses in both the current and year ago periods were primarily related to temporary transitional personnel related costs along with accelerated rent related expenses incurred in conjunction with the closures of offices of our acquired companies as we consolidate and integrate these acquisitions.

We have had no new acquisitions since our two acquisitions during the three months ended March 31, 2022.

Transformation expenses in the three months ended March 31, 2022 include expenses related to acquisitions closed in the three months ended March 31, 2022 as well the three acquisitions closed in 2021.

Impairment of goodwill

Three Months Ended March 31,

2023 2022 % Change

(dollars in thousands)

Impairment of goodwill $ 128,755 $ — NA

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 three months ended March 31, 2023, we performed a Goodwill impairment evaluation, which resulted in a Goodwill impairment of $128.8 million.

Goodwill and Other Intangible Assets” in the notes to our condensed consolidated financial statements for more information regarding our first quarter 2023 Goodwill impairment.

We will continue to evaluate Goodwill for impairment in 2023 and future impairments of Goodwill could occur if our stock price continues to decline.

Other Income (Expense)

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2023 2022 % Change

(dollars in thousands)

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Total other expense (5)% (11)%

For the Three Months Ended September 30, 2022

Interest expense, net was $7.4 million in the three months ended September 30, 2022 compared to $8.0 million in the three months ended September 30, 2021 a decrease in interest expense of $0.6 million or 8%, due to an increase in interest income on our idle cash and a decrease in outstanding borrowings on our Credit Facility.

Other income was $0.3 million in the three months ended September 30, 2022, compared to other expense of $0.7 million in the three months ended September 30, 2021.

Other income recognized during the three months ended September 30, 2022 was related primarily to currency exchange gains.

For the Nine Months Ended September 30, 2022

Interest expense was $22.9 million in the nine months ended September 30, 2022, compared to $23.7 million in the nine months ended September 30, 2021, a decrease in interest expense of $0.8 million, or 4%, due to an increase in interest income on our idle cash and a decrease in outstanding borrowings on our Credit Facility.

Other income was $1.7 million in the nine months ended September 30, 2022, compared to other expense of $0.8 million in the nine months ended September 30, 2021.

Other income recognized during the nine months ended September 30, 2022 were related primarily to currency exchange gains.

Interest expense, net was $5.5 million in the three months ended March 31, 2023 compared to $7.8 million in the three months ended March 31, 2022 a decrease in interest expense of $2.3 million or 30%, due primarily to higher interest income on our interest-bearing cash balances as well as a decrease in interest expense due to scheduled principal payments lowering outstanding borrowings on our Credit Facility.

Other income was $1.4 million in the three months ended March 31, 2023, compared to other expense of $0.4 million in the three months ended March 31, 2022.

Other income recognized during the three months ended March 31, 2023 was related primarily to foreign currency exchange gains.

Benefit from Income Taxes

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Percentage of total revenue 1% —%

For the Three Months Ended September 30, 2022

Benefit from income taxes was $1.1 million in the three months ended September 30, 2022, compared to a benefit for income taxes of $3.3 million in the three months ended September 30, 2021, resulting in a decrease in benefit from income taxes of $2.2 million.

The benefit from income taxes for the three months ended September 30, 2022 related primarily 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 business combinations occurring during the nine months ended September 30, 2022.

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

The benefit from income taxes for the three months ended September 30, 2021

related primarily to deferred tax benefits attributable to the release of valuation allowance related to acquired deferred tax liabilities associated with business combinations, the deferred tax benefit attributable to the reduction in deferred tax liabilities associated with the transfer of intangibles between foreign and domestic jurisdictions, and income tax benefits associated with our combined non-U.S.

For the Nine Months Ended September 30, 2022

The benefit from income taxes was $1.7 million in the nine months ended September 30, 2022, compared to a benefit from income taxes of $6.2 million in the nine months ended September 30, 2021, resulting in a decrease of benefit from income taxes of $4.6 million.

This decrease was due primarily to decreased benefits recognized during the current period attributable to the release of valuation allowances associated with acquisitions of domestic entities with deferred tax liabilities that, upon acquisition, allow us to recognize certain deferred tax assets that had previously been offset by a valuation allowances.

Benefit from income taxes was $1.4 million in the three months ended March 31, 2023, compared to a benefit for income taxes of $0.1 million in the three months ended March 31, 2022, resulting in an increase in benefit from income taxes of $1.3 million.

The benefit from income taxes for the three months ended March 31, 2023 related 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 U.S.

state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards.

The benefit from income taxes for the three months ended March 31, 2022 related primarily to foreign income taxes associated with our combined non-U.S.

These tax benefits were offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain U.S.

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.

Inflation may further effect our business, financial condition or results of operations.

If our costs were to continue to become subject to significant inflationary pressures, we may be further challenged in our ability to offset such higher costs through price increases.

Our inability or failure to do so could further harm our business, financial condition and results of operations.

Non-GAAP Financial Measures

In addition to the GAAP financial measures described in “Results of Operations,” we regularly review the following key metrics to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions.

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The following table represents a reconciliation of net loss from continuing operations, the most comparable GAAP measure, to Adjusted EBITDA for each of the periods indicated.

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

2022 2021 2022 2021

Three Months Ended March 31,

(dollars in thousands)

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Acquisition-related expense 1,086 10,413

Non-recurring litigation costs 15 — 15 —

Purchase accounting deferred revenue discount 228 1,929

Impairment of goodwill 128,755 —

Adjusted EBITDA $ 17,600 $ 23,446

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To date, we have financed our operations primarily through the raising of capital including sales of our common stock or our convertible preferred stock, cash from operating activities, and borrowings under our credit facility.

We believe that current cash and cash equivalents, cash flows from operating activities, availability under our existing credit facility, as discussed below, and the ability to offer and sell securities pursuant to our registration statement, as discussed below, will be sufficient to fund our operations for at least the next twelve months.

In addition, we intend to utilize the sources of capital available to us under our Credit Facility and registration statement to support our continued growth via acquisitions within our core enterprise solution suites of complementary technologies and businesses.

As of September 30, 2022, we had cash and cash equivalents of $241.7 million, $60.0 million of available borrowings under our credit facility, as discussed below, and $523.8 million of borrowings outstanding under our credit facility.

We believe that current cash and cash equivalents, cash flows from operating activities, availability under our existing credit facility will be sufficient to fund our operations for at least the next twelve months.

In addition, we may utilize the sources of capital available to us under our Credit Facility to support our continued growth via acquisitions.

As of March 31, 2023, we had cash and cash equivalents of $257.7 million, $60.0 million of available borrowings under our credit facility, as discussed below, and $521.1 million of borrowings outstanding under our credit facility.

As of December 31, 2022, we had cash and cash equivalents of $248.7 million, $60.0 million of available borrowings under our Credit Facility, and $522.5 million of borrowings outstanding under our credit facility.

The $52.6 million increase in cash and cash equivalents from December 31, 2021 to September 30, 2022 includes $110.5 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 that are due within 12 to 15 months of the closing dates of the underlying acquisitions.

Our cash and cash equivalents held by our foreign subsidiaries was $36.0 million as of September 30, 2022 and $24.8 million as of December 31, 2021.

The $9.1 million increase in cash and cash equivalents from December 31, 2022 to March 31, 2023 was due primarily to the seasonality of our customer cash receipts in the three months ended March 31, 2023 from our customer contract renewals in the three months ended December 31, 2022.

Our cash and cash equivalents held by our foreign subsidiaries was $53.5 million as of March 31, 2023 and $34.8 million as of December 31, 2022.

If these funds held by our foreign subsidiaries are needed for our domestic operations, a repatriation of these funds may require us to accrue and pay dividend withholding taxes in the foreign jurisdictions where applicable and accrue and pay U.S.

taxes to the extent such dividend income exceeds our ability to utilize net operating losses.

taxes to the extent such dividend income exceeds our ability to utilize our net operating loss carryforwards.

However, our intent is to permanently reinvest these funds outside the U.S.

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We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries.

As of September 30, 2022 and December 31, 2021, we had a working capital surplus of $156.4 million and surplus of $106.5 million, respectively, which includes $98.7 million and $102.8 million of deferred revenue recorded as a current liability as of September 30, 2022 and December 31, 2021, respectively.

This deferred revenue will be recognized as revenue in future periods in accordance with our revenue recognition policy.

As of March 31, 2023 and December 31, 2022, we had a working capital surplus of $180.2 million and surplus of $170.1 million, respectively.

Series A Preferred Stock

The Series A Preferred Stock as discussed in “ Note 10.

Series A Preferred Stock ” provided us an additional $115.0 million in liquidity during the three months ended September 30, 2022, which we intend to use for (a) for general corporate purposes and (b) for transaction-related fees and expenses.

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

Series A Preferred Stock ” provided us an additional $115.0 million in liquidity during the three months ended March 31, 2023, which we intend to use for (a) for general corporate purposes and (b) for transaction-related fees and expenses.

As of March 31, 2023, 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.

1 unchanged sentence

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 $0.5 million as of September 30, 2022.

The Series A Preferred Stock will rank senior to our common stock with respect to distribution rights and rights upon our liquidation, dissolution or winding up (“Liquidation”), on parity with any class or series of our capital stock expressly designated as ranking on parity with the Series A Preferred Stock with respect to distribution rights and rights upon Liquidation, junior to any class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock with respect to distribution rights and rights upon Liquidation and junior in right of payment to our existing and future indebtedness, including the Credit Facility.

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

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.

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

333-267973), on behalf of Ulysses Aggregator, LP (the “Purchaser”) and pursuant to the Registration Rights Agreement between us and the Purchaser, 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—10.

Series A Preferred Stock ” in the notes to our consolidated financial statements for more information regarding our Series A Preferred Stock.

Credit Facility

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

On November 26, 2019, the Company entered into a First Incremental Assumption Agreement (the “Incremental Assumption Agreement”) which provides for a term loan facility to be established under the Credit Facility in an aggregate principal amount of $190 million (the “2019 Incremental Term Loan”) which is in addition to the existing $350 million term loans outstanding under the Credit Facility and the $60 million Revolver under the Credit Facility.

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The Credit Facility contains certain non-financial restrictive covenants that limit our ability to transfer or dispose of assets, merge with other companies or consummate certain changes of control, acquire other companies, pay dividends, incur additional indebtedness and liens, effect changes in management and enter into new businesses.

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

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

See “ Note 7.

Debt—Credit Facility ” for more information regarding our Credit Facility and outstanding debt as of September 30, 2022.

Debt—Credit Facility ” for more information regarding our Credit Facility and outstanding debt as of March 31, 2023.

On August 6, 2019, the Company entered into an interest rate hedge instrument for the full 7 year term, effectively fixing our interest rate at 5.4% for the Term Loan.

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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.

The increase in

the fair value of the interest rate swap assets during the nine months ended September 30, 2022 is the result of an increase in interest rates compared to December 31, 2021.

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

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.

At March 31, 2023, the fair value of the interest rate swap was a $33.0 million asset.

The decrease in the fair value of the interest rate swap assets during the three months ended March 31, 2023 is the result of the change in the yield curve for our interest rate swaps compared to December 31, 2022.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(dollars in thousands)

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Net cash used in investing activities (215) (62,509)

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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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.

Included in net cash provided by operations are one-time

acquisition related expenses incurred after each acquisition to transact and transform the acquired business into the Company's unified operating platform.

Additionally, operating cash flows includes the impact of earn-outs payments in excess of original purchase accounting estimates.

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The volume of professional services rendered, the volume and timing of customer bookings and contract renewals, and the related timing of collections on those bookings and renewals, as well as the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.

Cash provided by operating activities was $24.1 million for the nine months ended September 30, 2022 compared to cash provided by operating activities of $28.6 million for the nine months ended September 30, 2021, a decrease of $4.5 million.

Working capital sources of cash for the nine months ended September 30, 2022 included a $18.2 million decrease in accounts receivable related to the timing of collections.

Working capital uses of cash for the nine months ended September 30, 2022 included a decrease of $1.5 million in accounts payable related to timing of payments, a decrease of $13.3 million in deferred revenue, a $5.1 million increase in prepaid expenses and other current assets and a $11.3 million decrease in accrued expenses.

Cash provided by operating activities was $15.8 million for the three months ended March 31, 2023 compared to cash provided by operating activities of $8.2 million for the three months ended March 31, 2022, an increase of $7.6 million.

Working capital sources of cash for the three months ended March 31, 2023 included a $7.0 million decrease in accounts receivable related to the timing of collections.

Working capital uses of cash for the three months ended March 31, 2023 included a $4.8 million increase in prepaid expenses and other current assets, partially offset by amortization of previously deferred costs of $3.4 million.

In addition, working capital uses of cash for the three months ended March 31, 2023 included a $0.9 million decrease in accrued expenses and a $0.2 million decrease in accounts payable.

A substantial source of cash is invoicing for subscriptions and support fees in advance, which is recorded as deferred revenue, and is included on our condensed consolidated balance sheets as a liability.

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Cash Flows from Investing Activities

Our primary investing activities have consisted of acquisitions of complementary technologies, products and businesses.

As our business grows, we expect our primary investing activities to continue to further expand our library of cloud-based software applications and infrastructure and support additional personnel.

For the nine months ended September 30, 2022, cash used in investing activities consisted of $62.4 million associated with the Company’s 2022 acquisitions, and the purchases of property and equipment of $0.7 million.

Cash used in investing activities decreased $30.3 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily as a result of the two acquisitions closed during the period compared to the three acquisitions in the comparable prior year period.

Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced applications and professional service offerings, and acquisitions of complementary technologies, products and businesses.

Our primary investing activities have consisted of acquisitions of complementary technologies and businesses.

As our business grows, we expect our primary investing activities to continue to expand our product library, customer base, and market access.

For the three months ended March 31, 2023, cash used in investing activities consisted of purchases of property and equipment of $0.2 million.

Cash used in investing activities decreased $62.3 million for the three months ended March 31, 2023 compared to the same period in 2022 primarily as a result of no acquisitions closed during the period compared to the two acquisitions 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 employee payroll tax payment activity.

Cash provided by financing activities increased $102.2 million for the nine months ended September 30, 2022 compared to the same period in 2021.

The increase in cash provided by financing activities relates primarily to $110.5 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 $0.8 million increase in net share employee payroll tax settlement payments compared to the same period in 2021.

Cash used in financing activities increased $2.6 million for the three months ended March 31, 2023 compared to the same period in 2022 due to a $2.6 million increase in additional consideration paid to sellers (i.e.

acquisition holdbacks).

Critical Accounting Policies and the Use of Estimates

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• deferred sales commissions and sales commission expense;

• business combinations and the recoverability of goodwill and long-lived assets;

• business combinations;

• goodwill and other intangibles;

• stock-based compensation.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets.

We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of November 3, 2022, the date of issuance of this Quarterly Report on Form 10-Q.

We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of 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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Other Key Accounting Policies

Our unaudited interim financial statements and other financial information for the three and nine months ended September 30, 2022, as presented herein and in “ Item 1.

Financial Statements ” to this Quarterly Report on Form 10-Q, reflect no material changes in our critical accounting policies and estimates as set forth in our Annual Report on Form 10-K for the year ended

December 31, 2021 filed with the SEC on February 24, 2022 (the “Annual Report”).

Our unaudited interim financial statements and other financial information for the three months ended March 31, 2023, as presented herein and in “ Item 1.

Please refer to our Annual Report for a detailed description of our critical accounting policies that involve significant management judgment.

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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 2. Management’s Discussion and Analysis