What changed in this filing

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Item 1. Financial Statements

2023-08-03 compared with 2023-05-09 · 252 added, 247 removed, 554 unchanged (47% of the section changed)

Financial Statements

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

June 30, 2023 December 31, 2022

ASSETS (unaudited)

1 unchanged sentence

Cash and cash equivalents $ 262,556 $ 248,653

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

Accounts receivable (net of allowance of $ 565 and $ 1,158 at June 30, 2023 and December 31, 2022, respectively)

34,434 47,594

20 unchanged sentences

Operating lease liabilities, current 2,243 3,205

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

Current maturities of notes payable (includes unamortized discount of $ 2,306 and $ 2,264 at June 30, 2023 and December 31, 2022, respectively)

Total current liabilities 136,355 151,211

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

Notes payable, less current maturities (includes unamortized discount of $ 4,187 and $ 5,203 at June 30, 2023 and December 31, 2022, respectively)

510,163 511,847

4 unchanged sentences

Total liabilities 673,259 692,298

Mezzanine Equity

Series A Convertible Preferred stock, $ 0.0001 par value;

5,000,000 shares authorized;

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

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

115,000 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

114,935 112,291

1 unchanged sentence

Common stock, $ 0.0001 par value;

50,000,000 shares authorized:

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

75,000,000 and 50,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively ;

32,654,615 and 32,221,855 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 616,556 606,755

7 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Subscription and support $ 70,494 $ 75,017 $ 143,408 $ 148,644

33 unchanged sentences

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net loss $ ( 15,147 ) $ ( 16,393 ) $ ( 155,192 ) $ ( 39,224 )

5 unchanged sentences

$ 11,209 $ ( 14,703 ) $ 4,305 $ 9,170

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

Comprehensive loss $ ( 3,938 ) $ ( 31,096 ) $ ( 150,887 ) $ ( 30,054 )

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 March 31, 2023

Three Months Ended June 30, 2023

Preferred Stock Common Stock Additional

5 unchanged sentences

Shares Amount Shares Amount

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

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

Dividends accrued - Convertible Preferred Stock — 1,329 — — ( 1,329 ) — — ( 1,329 )

2 unchanged sentences

Foreign currency translation adjustment — — — — — 840 — 840

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

Unrealized loss on interest rate swaps — — — — — ( 8,154 ) — ( 8,154 )

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — 2,464 — 2,464

Unrealized gain (loss) on interest rate swaps — — — — — 7,905 — 7,905

Net loss — — — — — — ( 15,147 ) ( 15,147 )

Balance at June 30, 2023 115,000 $ 114,935 32,654,615 $ 3 $ 616,556 $ 15,415 $ ( 464,190 ) $ 167,784

Three Months Ended June 30, 2022

Preferred Stock Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount Shares Amount

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

Three Months Ended March 31, 2022

Issuance of stock under Company plans, net of shares withheld for tax — — 311,863 — ( 435 ) — — ( 435 )

Stock-based compensation — — — — 14,877 — — 14,877

Foreign currency translation adjustment — — — — — ( 17,356 ) — ( 17,356 )

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — ( 5,503 ) — ( 5,503 )

Unrealized gain (loss) on interest rate swaps — — — — — 8,156 — 8,156

Net loss — — — — — — ( 16,393 ) ( 16,393 )

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

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

Six Months Ended June 30, 2023

Preferred Stock Common Stock Additional

6 unchanged sentences

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 — 2,644 — — $ ( 2,644 ) — — ( 2,644 )

Issuance of stock under Company plans, net of shares withheld for tax — — 432,760 — ( 387 ) — — ( 387 )

1 unchanged sentence

Foreign currency translation adjustment — — — — — 855 — 855

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

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

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — 3,699 — 3,699

Unrealized gain (loss) on interest rate swaps — — — — — ( 249 ) — ( 249 )

Net loss — — — — — — ( 155,192 ) ( 155,192 )

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

Balance at June 30, 2023 115,000 $ 114,935 32,654,615 $ 3 $ 616,556 $ 15,415 $ ( 464,190 ) $ 167,784

Six Months Ended June 30, 2022

Preferred Stock Common Stock Additional

Capital Accumulated

Comprehensive

Income (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 stock under Company plans, net of shares withheld for tax — — 536,080 — ( 800 ) — — ( 800 )

Stock-based compensation — — — — 26,496 — — 26,496

Foreign currency translation adjustment — — — — — ( 18,403 ) — ( 18,403 )

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — ( 6,796 ) — ( 6,796 )

Unrealized gain (loss) on interest rate swaps — — — — — 34,369 — 34,369

Net loss — — — — — — ( 39,224 ) ( 39,224 )

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

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,

Six Months Ended June 30,

(In thousands) 2023 2022

10 unchanged sentences

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

Non-cash loss on retirement of fixed assets 34 —

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

10 unchanged sentences

Financing activities

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

Payments of debt costs ( 177 ) ( 20 )

Payments on notes payable ( 2,700 ) ( 2,700 )

17 unchanged sentences

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:

(“Upland,” “we,” “us,” “our,” 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.

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All intercompany accounts and transactions have been eliminated in consolidation.

Certain prior period amounts have been reclassified to conform to the current period presentation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting.

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 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 results of operations for the six months ended June 30, 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.

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.

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 August 3, 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.

Actual results could differ materially from these estimates under different assumptions or conditions.

No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies , in our Annual Report.

Concentrations of Credit Risk and Significant Customers

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 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.

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 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

The Company provides credit, in the normal course of business, to a number of its customers.

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 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

In August 2019 and in connection with borrowing funds under the Company’s credit facility, the Company entered into a floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt.

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

ASC 815, Derivatives and Hedging , requires entities to recognize derivative instruments as either assets or liabilities in the statement of financial position at fair value.

The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.

The Company assessed the effectiveness of the hedging relationship under the hypothetical derivative method and noted that all of the critical terms of the hypothetical derivative and hedging instrument were the same.

The hedging relationship continues to limit the Company’s exposure to the variability in interest rates under the Company’s term loans and related cash outflows.

As such, the Company has deemed this hedging relationship as highly effective in offsetting cash flows attributable to hedged risk (variability in forecasted monthly interest payments) for the term of the term loans and interest rate swap agreements.

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

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.

As such, the change in the fair value of the hedging instruments is recorded in Other comprehensive income (loss) in the accompanying condensed consolidated statements of comprehensive income (loss).

Amounts deferred in Other comprehensive income (loss) will be reclassified to Interest expense in the accompanying condensed consolidated statements of operations in the period in which the hedged item affects earnings.

Fair Value of Financial Instruments

The Company recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities.

This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.

The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

These tiers include Level 1, defined as observable inputs, such as quoted prices in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;

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

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable and debt.

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, primarily due to short maturities.

The carrying values of the Company’s debt instruments approximated their fair value based on rates currently available to the Company.

Preferred Stock

In August 2022, the Company closed on the issuance and sale of its Series A Convertible Preferred Stock (the “Series A Preferred Stock”).

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 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 $ 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.

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 six months ended June 30, 2023, or more than

10% of accounts receivable as of June 30, 2023 or December 31, 2022.

Recent Accounting Pronouncements

Recently issued accounting pronouncements - Adopted

In August 2020, the Financial Standards Accounting Board (“FASB”) issued accounting standards update (“ASU”) 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.

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.

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.

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

In March 2020, the Financial Standards Accounting Board (“FASB”) issued accounting standards update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform.

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Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination.

The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination.

Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date.

The new guidance requires companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination.

Under prior GAAP, an acquirer in a business combination was generally required to recognize and measure the assets it acquired and the liabilities it assumed at fair value on the acquisition date.

The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606.

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

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

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

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

ASU 2020-06 simplified the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock.

This update also amended the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

ASU 2020-06 amended the diluted earnings per share guidance, including the

requirement to use the if-converted method for all convertible instruments.

The update also required 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 was effective for interim and annual periods beginning after December 15, 2021.

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

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

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

2022 Acquisition

The Company had no acquisitions during the six months ended June 30, 2023.

2022 Acquisitions

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

8 unchanged sentences

(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.

As of June 30, 2023, all of the holdbacks had been paid.

Fair Value of Assets Acquired and Liabilities Assumed

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

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):

Management completed the purchase accounting for BA Insight in December 2022 and Objectif Lune during the first quarter of 2023.

BA Insight Objectif Lune

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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 three months ended March 31, 2023 and the year ended December 31, 2022 (in years):

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

Customer relationships 7.0

4 unchanged sentences

During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to management's estimates and assumptions.

The goodwill of $ 49.3 million for the above acquisitions is primarily attributable to the synergies expected to arise after the acquisition and the value of the acquired workforce.

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 March 31, 2023 and March 31, 2022 was nil and $ 4.5 million, respectively.

The goodwill of $ 49.3 million for the above acquisitions was primarily attributable to the synergies expected to arise after the acquisition and the value of the acquired workforce.

Goodwill that was 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 six months ended June 30, 2023 and June 30, 2022 were nil and $ 0.4 million, respectively.

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

Transaction costs are included in acquisition-related expenses in our condensed consolidated statement of operations.

Other Acquisitions and Divestitures

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 months ended March 31, 2023 and March 31, 2022 .

Fair Value Measurements

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

GAAP sets forth a three–tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

The three tiers are Level 1, defined as observable inputs, such as quoted market prices in active markets;

The Company recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities.

This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements.

The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

These tiers include Level 1, defined as observable inputs, such as quoted prices in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable;

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 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.

The increases or decreases in the fair value of contingent consideration payable can result from changes in anticipated revenue levels, changes in assumed discount periods and rates and changes in foreign exchange rates.

As the fair value measure is based on significant inputs that are not observable in the market, they are categorized as Level 3.

Any adjustment related to subsequent changes in the fair value of contingent consideration is recorded in acquisition-related expense or other income (expense) in the Company's condensed consolidated statement of operations based on management's assessment of the nature of the liability.

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

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

Debt—Credit Facility ”, the Company entered into interest rate swaps for the full 7 year term of the Company's term loans, effectively fixing our interest rate at 5.4 % for the full value $ 540 million of the original principal term loans.

The fair value of the Company's swaps are measured at the end of each interim reporting period based on the then assessed fair value and adjusted if necessary.

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

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.

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

The Company’s financial instruments consist principally of cash and cash equivalents, money market funds, accounts receivable, accounts payable, interest rate swap assets, and debt.

The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, primarily due to short maturities.

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

Fair Value Measurements at March 31, 2023

Fair Value Measurements at June 30, 2023

Level 1 Level 2 Level 3 Total

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

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

$ 202,707 $ 33,014 $ — $ 235,721

Money market funds included in cash and cash equivalents $ 229,861 $ — $ — $ 229,861

Interest rate swap assets $ — $ 40,919 $ — $ 40,919

Total $ 229,861 $ 40,919 $ — $ 270,780

Fair Value Measurements at December 31, 2022

Level 1 Level 2 Level 3 Total

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

Money market funds included in cash and cash equivalents $ 172,849 $ — $ — $ 172,849

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

$ 172,849 $ 41,168 $ — $ 214,017

Total $ 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.

1 unchanged sentence

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.

The fair value of the Company's interest rate swap assets are measured at the end of each interim reporting period based on the then assessed fair value and adjusted if necessary.

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

The Company believes the carrying value of its long-term debt at June 30, 2023 approximates its fair value based on the interest rates currently available to the Company.

The estimated fair value of the Company's debt, before debt discount, at June 30, 2023 and December 31, 2022 was $ 519.8 million and $ 522.5 million, respectively.

Goodwill and Other Intangible Assets

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

($ in thousands) Goodwill

Changes in the Company’s goodwill balance for the six months ended June 30, 2023 are summarized in the table below (in thousands):

Balance at December 31, 2022 $ 477,043

Acquired in business combinations —

Adjustment related to prior year business combinations 415

Adjustment related to finalization of current year business combinations —

Impairment of goodwill ( 128,755 )

Foreign currency translation adjustment and other 3,868

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.

Balance at June 30, 2023 $ 352,571

As a result of the decline of our stock price impacting our market capitalization during the quarter ended March 31, 2023, we performed a 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:

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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.

The discounted cash flow method required significant judgments, including estimation of future cash flows, which are 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 estimated 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 and adjust as indicators arise.

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.

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Amortization Net Carrying

March 31, 2023:

June 30, 2023:

Customer relationships 1 - 10

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

Management recorded no impairments of intangible assets during the three and six months ended June 30, 2023 and June 30, 2022.

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 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):

During the three months ended June 30, 2023, the Company adjusted the estimated useful life for certain intangible assets as a result of the continued evaluation of our products.

Total amortization expense was $ 18.0 million and $ 13.5 million during the three months ended June 30, 2023 and June 30, 2022, respectively, and $ 36.1 million and $ 27.4 million during the six months ended June 30, 2023 and June 30, 2022, respectively.

As of June 30, 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 $ 215,946

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 Company’s income tax benefit for the three and six months ended June 30, 2023 and June 30, 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 $ 1.4 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.

The income tax benefit of $ 0.2 million and $ 1.7 million for the three and six months ended June 30, 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 income tax benefit of $ 0.5 million and $ 0.6 million for the three and six months ended June 30, 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 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 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 U.S.

state and foreign jurisdictions.

federal jurisdiction, several U.S.

state jurisdictions and several foreign jurisdictions.

The Company is no longer subject to U.S.

federal income tax examinations for years ending before December 31, 2019 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, 2018, other than where cross-border transactions extend the statute of limitations.

The Company is not currently under audit for federal, state or any foreign jurisdictions.

The Company is not currently under audit in any federal, state or any foreign jurisdictions.

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 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)

Long-term debt consisted of the following at June 30, 2023 and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Senior secured loans (includes unamortized discount of $ 6,493 and $ 7,467 based on an imputed interest rate of 5.9 % and 5.8 %, at June 30, 2023 and December 31, 2022, respectively)

$ 513,257 $ 514,983

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Total long-term debt $ 510,163 $ 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 March 31, 2023.

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

All outstanding balances under our previous credit facility were paid off using proceeds from our new Credit Facility.

On November 26, 2019 (the “Closing Date”), 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 $ 190.0 million (the “2019 Incremental Term Loan”) which is in addition to the existing $ 350.0 million term loans outstanding under the Credit Facility and the $ 60.0 million revolving credit facility under the Credit Facility.

Payment terms

The Term Loans (including the 2019 Incremental Term Loan) are repayable on a quarterly basis beginning on December 31, 2019 by an amount equal to 0.25 % ( 1.00 % per annum) of the aggregate principal amount of such loan.

In 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 facility (the “Term Loan”) and (ii) a term loan facility to be established under the Credit Facility in an aggregate principal amount of $ 190.0 million (the “2019 Incremental Term Loan” and together with the Term Loan, the “Term Loans”) and (iii) a $ 60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of June 30, 2023.

The Term Loans are repayable on a quarterly basis beginning on December 31, 2019 by an amount equal to 0.25 % ( 1.00 % per annum) of the aggregate principal amount of such loan.

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 %) 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

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

In addition, on November 26, 2019, the Company entered into interest rate swap agreements to hedge the interest rate risk associated with the Company’s floating rate obligations under the 2019 Incremental Term Loan.

These interest rate swaps fix the Company's interest rate (including the hedge premium) at 5.4 % for the term of the Credit Facility.

The interest rate associated with our new $ 60 million, 5 year, Revolver remains floating.

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

At 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 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 )

Loans under the Revolver are available up to $ 60 million.

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

As of June 30, 2023, the Company had no borrowings outstanding under the Revolver or related sub-facility.

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.

At the option of the Company, the Term Loans 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 %.

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.

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 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.

As of June 30, 2023 the Company was in compliance with all covenants under the Credit Facility.

Interest rate swaps

The Company has entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt.

These interest rate swaps effectively convert the entire balance of the Company's $ 540.0 million original principal term loans from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4 %, for the 7 -year term of debt.

The interest rate associated with our undrawn $ 60 million Revolver remains floating.

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

At June 30, 2023, the fair value of the interest rate swap was a $ 40.9 million asset as a result of the change in the yield curve for our interest rate swaps 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 or 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 June 30, Six Months Ended June 30,

2023 2022 2023 2022

Unrealized gain (loss) recognized in Other comprehensive income on derivative financial instruments $ 7,905 $ 8,156 $ ( 249 ) $ 34,369

Gain (loss) on interest rate swap (included in Interest expense on our consolidated statement of operations) $ 4,471 $ ( 1,159 ) $ 8,303 $ ( 3,131 )

Cash interest costs averaged 5.4 % and 5.4 % for the six months ended June 30, 2023 and 2022, respectively.

In addition, as of June 30, 2023 and December 31, 2022 the Company had $ 6.5 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.

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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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net Loss $ ( 15,147 ) $ ( 16,393 ) $ ( 155,192 ) $ ( 39,224 )

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Net loss per common share, basic and diluted $ ( 0.51 ) $ ( 0.52 ) $ ( 4.88 ) $ ( 1.25 )

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.

Basis of Presentation and Summary of Significant Accounting Policies—Recent Accounting Pronouncements—Recently issued accounting pronouncements - Adopted.” As such, the Company is required to use the application of the if-converted method for calculating diluted earnings per share on our Series A Preferred Stock.

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 March 31, 2023 and March 31, 2022:

Due to the net losses for the six months ended June 30, 2023 and June 30, 2022, respectively, basic and diluted loss per share were the same.

The Company uses the application of the if-converted method for calculating diluted earnings per share on our Series A Preferred Stock.

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

The following table sets forth the anti–dilutive common share equivalents as of:

Stock options 152,683 190,894

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Performance restricted stock units 193,750 93,750

Series A Preferred Stock on an as-converted basis (1)

Series A Preferred Stock on an if-converted basis (1)

Total anti–dilutive common share equivalents 9,416,485 2,177,104

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

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

(1) As of June 30, 2023 , the Series A Preferred Stock plus accumulated dividends totaled $ 119.5 million.

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

Series A Preferred Stock ”

Series A Convertible Preferred Stock ”

Commitments and Contingencies

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Gain contingencies related to indemnification claims are not recognized in our condensed consolidated financial statements until realized.

Series A Preferred Stock

Series A Convertible Preferred Stock

On July 14, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Ulysses Aggregator, LP (the “Purchaser”), an affiliate of HGGC, LLC, to issue and sell at closing 115,000 shares of Series A Preferred Stock of the Company, par value $ 0.0001 per share, at a price of $ 1,000 per share (the “Initial Liquidation Preference”) for an aggregate purchase price of $ 115.0 million (the “Investment”).

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

As of June 30, 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 $ 3.2 million as of March 31, 2023.

The Series A Preferred Stock had accrued unpaid dividends of $ 4.5 million as of June 30, 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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Dividend Provisions

The Series A Preferred Stock rank senior to the Company’s Common Stock with respect to payment of dividends and rights on the distribution of assets on any liquidation, dissolution or winding up of the affairs of the Company.

The Series A Preferred Stock ranks senior to the Company’s Common Stock with respect to payment of dividends and rights on the distribution of assets on any liquidation, dissolution or winding up of the affairs of the Company.

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.

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The dividend can be paid, in the Company’s sole discretion, in cash or dividend in kind by adding to the Liquidation Preference of each share of Series A Preferred Stock outstanding.

provided that, until the stockholder approvals contemplated by Nasdaq Global Market Listing Standard Rules 5635(a), (b) and (d) are obtained, as applicable, the Company may not pay in kind if doing so would cause the common shares issuable upon conversion of the Preferred Stock to exceed 19.9 % of the total outstanding Common Stock as of the Closing Date.

On June 7, 2023, the stockholders of the Company authorized, for purposes of complying

with Nasdaq Listing Rules 5635(b) and (d), the issuance of shares of Common Stock underlying shares of Series A Preferred

Stock in an amount equal to or in excess of 20% of the Common Stock outstanding immediately prior to the issuance of such

Series A Preferred Stock (including upon the operation of anti-dilution provisions contained in the Certificate of Designation

designating the terms of such Series A Preferred Stock).

The Series A Preferred Stock is also entitled to fully participate in any dividends paid to the holders of common stock in cash, in stock or otherwise, on an as-converted basis.

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

As of June 30, 2023, the Liquidation Preference of the Series A Preferred Stock was $ 119.5 million.

Optional Redemption

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The Series A Preferred Stock will vote together with the Common Shares on all matters and not as a separate class (except as specifically provided in the Certificate of Designation or as otherwise required by law) on an as-if-converted basis.

The holders of the Series A Preferred Stock will have the right to elect one member of the Board of Directors for so long as holders of the Series A Preferred Stock own in the aggregate at least 5 % of the shares of Common Stock on a fully diluted basis.

The holders of the Series A Preferred Stock will have the right to elect one member of the Board of Directors of the Company

(the “Board of Directors”) for so long as holders of the Series A Preferred Stock own in the aggregate at least 5 % of the shares of Common Stock on a fully diluted basis.

In addition, the holders of the Series A Preferred Stock will have the right to elect one non-voting observer to the Board of Directors for so long as they hold at least 10 % of the shares of Convertible Preferred Stock outstanding as of the date of the issue date.

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Anti-Dilution Provisions

The Series A Preferred Stock has customary anti-dilution provisions for stock splits, stock dividends, mergers, sales of significant assets, and reorganization events and recapitalization transactions or similar events, and weighted average anti-dilution protection, subject to customary exceptions for issuances pursuant to current or future equity-based incentive plans or arrangements (including upon the exercise of employee stock options).

dilution protection, subject to customary exceptions for issuances pursuant to current or future equity-based incentive plans or arrangements (including upon the exercise of employee stock options).

Stockholders' Equity

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See “ Note—10.

Series A Preferred Stock ” for further details.

Series A Convertible Preferred Stock ” for further details.

Increase in Authorized Shares of Common Stock

At the Company’s annual meeting on June 7, 2023, the stockholders of the Company adopted a Certificate of Amendment (the “Certificate of Amendment”) to the Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”).

Among other things, the Certificate of Amendment amended the Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock, from 50,000,000 to 75,000,000 .

Tax Benefit Preservation Plan and Preferred Stock Purchase Rights

On May 2, 2023, our Board of Directors authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock of the Company as of May 12, 2023 (the “Record Date”).

32,441,010 Rights were issued to the holders of record of shares of Common Stock.

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.

The Rights trade with, and are inseparable from, the Common Stock, and the record holders of shares of Common Stock are the record holders of the Rights.

The Rights are evidenced only by certificates (or, in the case of uncertificated shares, by notations in the book-entry account system) that represent shares of Common Stock.

Rights will also be issued in respect of any shares of Common Stock that shall become outstanding after the Record Date (including upon conversion of any shares of Series A Preferred Stock of the Company) and, subject to certain exceptions specified in the Plan, prior to the earlier of the Distribution Date (as defined below) and the Expiration Date (as defined below).

The Rights are not exercisable until the Distribution Date.

After the Distribution Date, each Right will be exercisable to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $ 0.0001 per share, of the Company (the “Series B Preferred”), at a purchase price of $18.00 per one one-thousandth of a share of Series B Preferred (the “Purchase Price”), subject to adjustment as provided in the Plan.

The “Distribution Date” is the earlier of (i) the close of business on the tenth day after the public announcement that a person or group has become an Acquiring Person (as defined below) or that discloses information which reveals the existence of an Acquiring Person or such earlier date as a majority of the Board shall become aware of the existence of an Acquiring Person (the date described in this clause (i), the “Stock Acquisition Date”) and (ii) the close of business on the tenth business day (or such later date as the Board of Directors shall determine prior to such time as any person or group becomes an Acquiring

Person) after the date that a tender or exchange offer by any person is commenced, the consummation of which would result in such person becoming an Acquiring Person.

A person or group becomes an “Acquiring Person” upon acquiring beneficial ownership of 4.9 % or more of the outstanding shares of Common Stock, except in certain situations specified in the Plan.

The Rights will expire on the earliest of (a) the close of business on May 1, 2024, (b) the time at which the Rights are redeemed or exchanged pursuant to the Plan, or (c) the time at which the Board of Directors determines that the Tax Benefits are utilized in all material respects or that an ownership change under Section 382 of the Code would not adversely impact in any material respect the time period in which the Company could use the Tax Benefits, or materially impair the amount of the Tax Benefits that could be used by the Company in any particular time period, for applicable tax purposes (such earliest date, the “Expiration Date”).

Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company by virtue of holding such Right, including, without limitation, the right to vote and to receive dividends.

The Board of Directors may adjust the Purchase Price, the number of shares of Series B Preferred issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Series B Preferred or Common Stock or certain other specified transactions.

No adjustments to the Purchase Price of less than 1 % are required to be made.

In connection with the adoption of the Plan, the Board of Directors approved a Certificate of Designations of the Series B Junior Participating Preferred Stock (the “Certificate of Designations”).

The Certificate of Designations was filed with the Secretary of State of the State of Delaware on May 2, 2023.

Each one one-thousandth of a share of Series B Preferred, if issued:

• Will not be redeemable.

• Will entitle holders to quarterly dividend payments of $ 0.001 per one one-thousandth of a share of Series B Preferred, or an amount equal to the dividend paid on one share of Common Stock, whichever is greater.

• Will entitle holders upon liquidation either to receive $ 0.001 per one one-thousandth of a share of Series B Preferred, or an amount equal to the payment made on one share of Common Stock, whichever is greater.

• Will have the same voting power as one share of Common Stock.

• If shares of Common Stock are exchanged as a result of a merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of Common Stock.

Accumulated Other Comprehensive Income

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

Comprehensive income consists of two elements, net 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.

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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):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Foreign currency translation adjustment $ ( 21,777 ) $ ( 22,632 )

2 unchanged sentences

Total accumulated other comprehensive income $ 15,415 $ 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 unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of June 30, 2023 is net of income tax expense of $ 1.4 million.

The tax provision to unrealized translation gains (losses) on intercompany loans for the three and six months ended June 30, 2023 was $ 0.5 million and $ 1.0 million, respectively.

The tax benefit related to unrealized translation gains on intercompany loans for the three and six months ended June 30, 2022 was $ 1.0 million and $ 1.5 million, respectively.

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.

The functional currency of our foreign subsidiaries are primarily the local currencies.

The functional currency of our foreign subsidiaries are the local currencies.

Results of operations for foreign subsidiaries are translated into United States dollars (“USD”) using the average exchange rates on a monthly basis during the year.

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.

The related translation adjustments are recorded in a separate component of stockholders' equity in AOCI.

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.

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

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Cost of revenue $ 301 $ 575 $ 604 $ 977

2 unchanged sentences

General and administrative (1)

4,863 12,146 9,791 21,141

Total $ 6,370 $ 14,877 $ 12,832 $ 26,496

(1) Includes accelerated stock-based compensation expense of $ 4.4 million for the three months and six months ended June 30, 2022, respectively, in accordance with ASC 718, Compensation—Stock Compensation .

2014 Equity Incentive Plan

3 unchanged sentences

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:

The following table summarizes PSU and RSU activity during the six months ended June 30, 2023:

Number of Units Weighted-Average Grant Date Fair Value

3 unchanged sentences

Forfeited ( 73,430 ) 19.18

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

Unvested restricted units outstanding as of June 30, 2023 2,435,804 $ 14.07

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

2 unchanged sentences

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

Significant assumptions used in the Monte Carlo simulation model for the PSUs granted during the six months ended June 30, 2023 and year ended December 31, 2022 are as follows:

June 30, 2023 December 31, 2022

Expected volatility 55.5 % 49.5 %

3 unchanged sentences

Stock Option Activity

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

Stock option activity during the six months ended June 30, 2023 was as follows:

Outstanding Weighted–

3 unchanged sentences

Options expired ( 819 ) 6.23

Outstanding at March 31, 2023 152,683 $ 11.27

Outstanding at June 30, 2023 152,683 $ 11.27

Revenue Recognition

17 unchanged sentences

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or subscription and support revenue, depending on whether the revenue recognition criteria have been met.

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.

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 are 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.

As discussed further in the “Principal vs.

3 unchanged sentences

Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer.

The Company’s products do not require significant customization.

The majority of the Company’s products do not require significant customization.

Professional Services Revenue

7 unchanged sentences

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting.

Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.

Determining whether products and services are considered distinct performance obligations that should be evaluated separately versus together may require significant judgment.

The Company has contracts with customers that often include multiple performance obligations, usually including professional services sold with either individual or multiple subscriptions or perpetual licenses.

2 unchanged sentences

A residual approach is only applied in limited circumstances when a particular performance obligation has highly variable and uncertain SSP and is bundled with other performance obligations that have observable SSP.

A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied.

We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, historical standalone sales, customer demographics, geographic locations, and the number and types of users within our contracts.

11 unchanged sentences

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.

9 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, unbilled receivables were $ 3.6 million and $ 5.3 million, respectively.

Deferred Commissions

3 unchanged sentences

Commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts, as such, deferred commissions related to renewals are capitalized and amortized over the estimated average contractual renewal term of 18 months.

We utilized the 'portfolio approach' practical expedient permitted under ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics as the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts.

We utilize the 'portfolio approach' practical expedient permitted under ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics as the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts.

The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred commissions, current, and the remainder is recorded in long-term assets as deferred commissions, net of current portion.

1 unchanged sentence

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

No indicators of impairment were identified during the six months ended June 30, 2023.

The following table presents the activity impacting deferred commissions for the six months ended June 30, 2023 (in thousands:

Deferred Commissions

Balance at December 31, 2022 $ 24,755

1 unchanged sentence

Amortization of deferred commissions ( 6,606 )

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.

Balance at June 30, 2023 $ 24,308

Amortization of deferred commissions in excess of commissions capitalized for the three and six months ended June 30, 2023 was $ 0.1 million and $ 0.4 million, respectively.

Deferred Revenue

1 unchanged sentence

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

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.

During the six months ended June 30, 2023, we recognized $ 82.3 million and $ 2.8 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 March 31, 2023, approximately $ 275.1 million of revenue is expected to be recognized from remaining performance obligations.

As of June 30, 2023, approximately $ 266.1 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.

5 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Subscription and support:

7 unchanged sentences

United Kingdom 69 162 292 291

Canada 14 101 56 177

Other International 448 861 1,098 1,697

8 unchanged sentences

Related Party Transactions

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 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 Company does not have any material related party transactions to report for the three and six months ended June 30, 2023 .

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