What changed in this filing

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Item 1. Financial Statements

2024-05-02 compared with 2023-11-02 · 142 added, 330 removed, 504 unchanged (48% of the section changed)

Financial Statements

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

ASSETS (unaudited)

1 unchanged sentence

Cash and cash equivalents $ 231,614 $ 236,559

Accounts receivable (net of allowance of $ 605 and $ 1,158 at September 30, 2023, and December 31, 2022, respectively)

Accounts receivable (net of allowance of $ 389 and $ 572 at March 31, 2024, and December 31, 2023, respectively)

29,253 38,765

19 unchanged sentences

Deferred revenue 99,550 102,763

Liabilities due to sellers of businesses — 5,429

Operating lease liabilities, current 2,073 2,351

Current maturities of notes payable (includes unamortized discount of $ 2,297 and $ 2,264 at September 30, 2023, and December 31, 2022, respectively)

Current maturities of notes payable (includes unamortized discount of $ 2,143 and $ 2,228 at March 31, 2024, and December 31, 2023, respectively)

Total current liabilities 123,375 130,647

Notes payable, less current maturities (includes unamortized discount of $ 3,630 and $ 5,203 at September 30, 2023, and December 31, 2022, respectively)

Notes payable, less current maturities (includes unamortized discount of $ 2,657 and $ 3,148 at March 31, 2024, and December 31, 2023, respectively)

472,642 473,502

7 unchanged sentences

5,000,000 shares authorized;

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

115,000 shares issued and outstanding as of March 31, 2024, and December 31, 2023, respectively

119,013 117,638

1 unchanged sentence

Common stock, $ 0.0001 par value;

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

32,141,013 and 32,221,855 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively

75,000,000 shares authorized;

27,996,656 and 29,908,407 shares issued and outstanding as of March 31, 2024, and December 31, 2023, respectively

Additional paid-in capital 602,813 608,995

6 unchanged sentences

Condensed Consolidated Statements of Operations

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

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

2023 2022 2023 2022

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

Three Months Ended March 31,

Subscription and support $ 67,078 $ 72,914

19 unchanged sentences

Interest expense, net ( 4,958 ) ( 5,461 )

Other income, net 103 339 911 1,698

Other income (expense), net ( 78 ) 1,425

Total other expense ( 5,036 ) ( 4,036 )

9 unchanged sentences

Upland Software, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

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

2023 2022 2023 2022

Three Months Ended March 31,

Net loss $ ( 96,130 ) $ ( 140,045 )

3 unchanged sentences

Interest rate swaps 162 ( 8,154 )

Other comprehensive income (loss):

Other comprehensive loss:

$ ( 3,861 ) $ ( 6,904 )

4 unchanged sentences

(in thousands, except share amounts)

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Preferred Stock Common Stock Additional

5 unchanged sentences

Shares Amount Shares Amount

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

Balance at December 31, 2023 115,000 $ 117,638 29,908,407 $ 3 $ 608,995 $ 6,168 $ ( 488,872 ) $ 126,294

Dividends accrued - Convertible Preferred Stock 1,375 — — ( 1,375 ) — — ( 1,375 )

1 unchanged sentence

Stock repurchases and retirements ( 2,242,654 ) ( 7,998 ) ( 7,998 )

( 783,356 ) ( 3,215 ) ( 3,215 )

Stock-based compensation — — 3,522 — — 3,522

2 unchanged sentences

Interest rate swaps — — — — — 162 — 162

— — — — — ( 3,496 ) — ( 3,496 )

Net loss — — — — ( 96,130 ) ( 96,130 )

Balance at September 30, 2023 115,000 $ 116,279 32,141,013 $ 3 $ 617,004 $ 5,228 $ ( 472,860 ) $ 149,375

Three Months Ended September 30, 2022

Preferred Stock Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Shares Amount Shares Amount

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

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

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

Issuance of stock under Company plans, net of shares withheld for tax — — 144,494 — ( 169 ) — — ( 169 )

Stock-based compensation — — — — 7,527 — — 7,527

Foreign currency translation adjustment — — — — — ( 13,869 ) — ( 13,869 )

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — ( 7,415 ) — ( 7,415 )

Interest rate swaps

— — — — — 17,988 — 17,988

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

Balance at September 30, 2022 115,000

$ 111,066 31,777,122 $ 3 $ 600,892 $ ( 5,640 ) $ ( 286,322 ) $ 308,933

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

Nine Months Ended September 30, 2023

Balance at March 31, 2024 115,000 $ 119,013 27,996,656 $ 3 $ 602,813 $ 2,307 $ ( 585,002 ) $ 20,121

Three Months Ended March 31, 2023

Preferred Stock Common Stock Additional

8 unchanged sentences

Issuance of stock under Company plans, net of shares withheld for tax — — 219,155 — ( 235 ) — — ( 235 )

Stock repurchase and retirement ( 783,356 ) ( 3,215 ) ( 3,215 )

Stock-based compensation — — — — 6,462 — — 6,462

2 unchanged sentences

Interest rate swaps — — — — — ( 8,154 ) — ( 8,154 )

— — — — — ( 3,745 ) — ( 3,745 )

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

Balance at September 30, 2023 115,000 $ 116,279 32,141,013 $ 3 $ 617,004 $ 5,228 $ ( 472,860 ) $ 149,375

Nine Months Ended September 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 Convertible Preferred Stock 115,000 110,520 — — — — — —

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

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

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

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

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries, net of taxes

— — — — — ( 14,211 ) — ( 14,211 )

Interest rate swaps

— — — — — 52,357 — 52,357

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

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

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

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands) 2024 2023

3 unchanged sentences

Depreciation and amortization 13,802 18,500

Change in fair value of liabilities due to sellers of businesses — ( 75 )

Deferred income taxes ( 1,057 ) ( 1,975 )

4 unchanged sentences

Non-cash loss on impairment of goodwill 87,227 128,755

Non-cash loss on retirement of fixed assets 46 26

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

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Purchase of property and equipment ( 183 ) ( 215 )

Purchase business combinations, net of cash acquired — ( 62,356 )

Net cash used in investing activities ( 183 ) ( 215 )

3 unchanged sentences

Stock repurchases and retirement ( 7,918 ) —

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

Taxes paid related to net share settlement of equity awards ( 331 ) ( 235 )

Issuance of common stock, net of issuance costs 2 190

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

Net cash provided by (used in) financing activities ( 48,745 ) 97,127

Net cash used in financing activities ( 9,599 ) ( 6,781 )

Effect of exchange rate fluctuations on cash ( 284 ) 238

5 unchanged sentences

Cash paid for taxes $ 2,114 $ 2,507

Non-cash investing and financing activities:

Business combination consideration including holdbacks and earnouts $ — $ 7,820

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

3 unchanged sentences

Upland Software, Inc.

(“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.

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

(“Upland,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, enables global businesses to work smarter with over 25 cloud software products that help increase revenue, reduce costs, and deliver business value.

Upland's solutions cover digital marketing, knowledge management, contact center service, sales productivity, and content lifecycle automation.

Upland services over 10,000 customers ranging from large global corporations and various government agencies to small and medium-sized businesses.

The Company's customers operate in a wide variety of industries, including financial services, consulting services, technology, manufacturing, media, telecommunications, government, insurance, non-profit, healthcare, life sciences, retail, and hospitality.

Through a series of acquisitions and integrations, the Company has established a library of diverse software applications under the Upland brand that address specific digital transformation needs.

In addition to its strategy to increase core organic growth, Upland intends to pursue acquisitions within its cloud offerings of complementary technologies and businesses.

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

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All intercompany accounts and transactions have been eliminated in consolidation.

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.

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 nine months ended September 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 results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 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 2023 Annual Report on Form 10-K filed with the SEC on February 22, 2024.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year.

These reclassifications had no impact on net loss, shareholders' equity or cash flows as previously reported.

Use of Estimates

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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 November 2, 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 May 2, 2024, 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.

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.

accounts receivable credit risk, the Company performs periodic credit evaluations of its customers and maintains current

expected credit losses which considers such factors as historical loss information, geographic location of customers, current

market conditions, and reasonable and supportable forecasts.

No individual customer represented more than 10% of total revenues for the nine months ended September 30, 2023, or more than 10% of accounts receivable as of September 30, 2023 or December 31, 2022.

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.

The Company provides credit, in the normal course of business, to a number of its customers and generally does not require collateral.

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, 2024, or more than 10% of accounts receivable as of March 31, 2024 or December 31, 2023.

Recent Accounting Pronouncements

Recently issued accounting pronouncements - Adopted

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.

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

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

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

We adopted ASU 2020-04 during the first quarter of 2023.

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

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

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

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

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

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

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

See “ Note—7.

Debt ” for additional information.

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

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 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 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.

Based on these analyses the below acquisitions were deemed to be insignificant on an individual and cumulative basis.

2023 Acquisitions

The Company had no acquisitions during the nine months ended September 30, 2023.

2022 Acquisitions

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

• BA Insight - On February 22, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BA Insight Inc., a Delaware corporation (“BA Insight”).

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

Consideration

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

BA Insight Objectif Lune

Cash $ 33,355 $ 29,750

Working capital and other adjustments 1,587 644

Total consideration $ 35,587 $ 35,644

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

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

Fair Value of Assets Acquired and Liabilities Assumed

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

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

Management completed the purchase accounting for BA Insight in December 2022 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 nine months ended September 30, 2023 (in thousands):

BA Insight Objectif Lune

Year Acquired 2022 2022

Cash $ 4 $ 745

Accounts receivable 2,466 5,677

Other current assets 4,080 7,183

Operating lease right-of-use asset 110 1,905

Property and equipment 3 248

Customer relationships 10,500 17,717

Trade name 150 362

Technology 2,000 5,512

Favorable Leases — 291

Goodwill 25,495 23,797

Other assets 25 744

Total assets acquired 44,833 64,181

Accounts payable ( 236 ) ( 2,001 )

Accrued expense and other ( 4,083 ) ( 9,431 )

Deferred tax liabilities — ( 6,353 )

Deferred revenue ( 4,817 ) ( 8,847 )

Operating lease liabilities ( 110 ) ( 1,905 )

Total liabilities assumed ( 9,246 ) ( 28,537 )

Total consideration $ 35,587 $ 35,644

The Company uses third party valuation consultants to determine the fair values of assets acquired and liabilities assumed.

Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value.

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

Customer relationships are valued using the multi-period excess earnings method.

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 year ended December 31, 2022 (in years):

Customer relationships 7.0

Trade name 2.0

Developed technology 6.2

Favorable Leases 6.3

Total weighted-average useful life 6.8

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 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.

Acquisition-related expenses are typically one-time expenses incurred through four full quarters after each acquisition, with the majority of these costs being incurred within 6 to 9 months, to transform the acquired business into the Company's unified operating platform.

These expenses can vary based on the size, timing and location of each acquisition.

Acquisition-related expenses include transaction related expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses.

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.

Recently issued accounting pronouncements - Not Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which requires public entities to disclose information about their reportable segments' significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

ASU 2023-07 should be applied on a retrospective basis.

The Company is currently evaluating the impact of adopting ASU 2023-07 on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

ASU 2023-09 should be applied on a prospective basis, and retrospective application is permitted.

The Company is currently evaluating the impact of adopting ASU 2023-09 on its disclosures.

Fair Value Measurements

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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 Company’s financial instruments consist principally of cash and cash equivalents, money market funds, accounts receivable, accounts payable, interest rate swap hedges, 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 September 30, 2023

Fair Value Measurements at March 31, 2024

Level 1 Level 2 Level 3 Total

7 unchanged sentences

Total $ 211,661 $ 14,270 $ — $ 225,931

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

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

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

Money market funds included in cash and cash equivalents are highly-liquid investments and are measured at fair value using quoted market prices and active markets, therefore are categorized as Level 1.

The fair value of the Company's interest rate 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.

The Company believes the carrying value of its long-term debt at September 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 September 30, 2023 and December 31, 2022 was $ 483.4 million and $ 522.5 million, respectively.

The Company believes the carrying value of its long-term debt at March 31, 2024 approximates its fair value based on its variable interest rate feature and interest rates currently available to the Company.

The estimated fair value of the Company's debt, before debt discount, at March 31, 2024 and December 31, 2023 was $ 480.7 million and $ 482.1 million, respectively, based on valuation methodologies using interest rates currently available to the Company which are Level 2 inputs..

Goodwill and Other Intangible Assets

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

Changes in the Company’s goodwill balance for the three months ended March 31, 2024 are summarized in the table below (in thousands):

Balance at December 31, 2023 $ 353,778

Adjustment related to prior year business combinations 415

Impairment of goodwill ( 87,227 )

Foreign currency translation adjustment and other ( 531 )

Balance at September 30, 2023 $ 348,172

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:

Foreign currency translation adjustment ( 2,539 )

Balance at March 31, 2024 $ 264,012

As a result of the decline of our stock price impacting our market capitalization during the quarters ended March 31, 2024 and March 31, 2023, we performed quantitative impairment evaluations, which resulted in goodwill impairments of $ 87.2 million and $ 128.8 million, respectively.

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

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

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

The discounted cash flow method 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.

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

The discounted cash flow method required 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 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.

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

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

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Amortization Net Carrying

September 30, 2023:

March 31, 2024:

Customer relationships 1 - 10

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Total intangible assets $ 483,318 $ 300,969 $ 182,349

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

Management recorded no impairments of intangible assets during the three months ended March 31, 2024 and March 31, 2023.

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.

Total amortization expense was $ 17.2 million and $ 12.8 million during the three months ended September 30, 2023 and September 30, 2022, respectively, and $ 53.4 million and $ 40.1 million during the nine months ended September 30, 2023 and September 30, 2022, respectively.

As of September 30, 2023, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Total amortization expense was $ 13.5 million and $ 18.2 million during the three months ended March 31, 2024 and March 31, 2023, respectively.

As of March 31, 2024, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):

Year ending December 31:

2 unchanged sentences

Total $ 166,988

The Company’s income tax benefit for the three and nine months ended September 30, 2023 and September 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 Company’s income tax benefit for the three months ended March 31, 2024 and March 31, 2023 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 income tax benefit of $ 1.5 million and $ 3.1 million for the three and nine months ended September 30, 2023, respectively, is primarily related to the deferred tax impact of the goodwill impairment booked during the first quarter of 2023, the reduction of uncertain tax positions due to expiration of related statutes of limitation, and foreign income taxes associated with our combined non U.S.

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

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

operations and the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the Company’s business combination occurring during the three and nine months ended September 30, 2022, as discussed in “ Note 3.

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

The 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 September 30, 2023 and December 31, 2022, respectively.

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

The income tax benefit of $ 0.5 million and $ 1.4 million for the three months ended March 31, 2024 and March 31, 2023, respectively, is primarily related to the deferred tax impacts of the goodwill impairments booked during the first quarter of 2024 and 2023, respectively.

The 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 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, 2024 and December 31, 2023, respectively.

The Company has reflected uncertain tax positions primarily within its long-term taxes payable and a portion within deferred tax assets for which the balance is immaterial at March 31, 2024.

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

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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.

federal income tax examinations for years ending before December 31, 2020 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, 2019, other than where cross-border transactions extend the statute of limitations.

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

operating losses generated in years prior to 2020 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.

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

September 30, 2023 December 31, 2022

Senior secured loans (includes unamortized discount of $ 5,927 and $ 7,467 based on an imputed interest rate of 7.6 % and 5.8 %, at September 30, 2023 and December 31, 2022, respectively)

Long-term debt consisted of the following at March 31, 2024 and December 31, 2023 (in thousands):

March 31, 2024 December 31, 2023

Senior secured loans (includes unamortized discount of $ 4,800 and $ 5,376 based on an imputed interest rate of 7.6 % and 7.6 %, at March 31, 2024 and December 31, 2023, respectively)

$ 475,899 $ 476,674

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Total long-term debt $ 472,642 $ 473,502

In 2019, the Company entered into a credit agreement (the “Credit Facility”) which provided 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 September 30, 2023.

In 2019, the Company entered into a credit agreement (the “Credit Facility”) which provides for (i) fully-drawn, 7 year, senior secured term loans (the “Term Loans”) and (ii) a $ 60 million, 5 year, revolving credit facility (the “Revolver”) that was undrawn as of March 31, 2024.

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”).

On August 31, 2023, the Company prepaid $ 35.0 million of the Term Loans.

At the option of the Company, the Term Loans accrue interest at a per annum rate based on (i) the Base Rate (as defined below) 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 %.

After giving effect to the interest rate swaps described below, $ 257.9 million of the Term Loans outstanding at March 31, 2024 has an effective annualized fixed interest rate of 5.4 %, and the remaining principal outstanding at March 31, 2024 has a floating interest rate of 9.2 % .

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

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

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The aggregate amount of outstanding Letters of Credit are reserved against the credit availability under the Maximum Revolver Amount.

As of March 31, 2024, the Company had no borrowings outstanding under the Revolver or related sub-facility.

The Company incurs a 0.50 % per annum unused line fee on the unborrowed balance of the Revolver which is paid quarterly.

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

As of September 30, 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 (the “Amendment”), which amended the Credit Facility.

The Amendment updated 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 %.

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 %.

After giving effect to the interest rate swaps described below, $ 259.9 million of the Term Loans has an effective annualized fixed interest rate of 5.4 %, and the remaining principal outstanding at September 30, 2023 has a floating interest rate of 9.2 % .

Accrued interest is paid quarterly or, with respect to Term 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 Loans and Revolver are secured by substantially all of the Company's assets.

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

As of March 31, 2024 the Company was in compliance with all covenants under the Credit Facility.

Interest rate swaps

In 2019, the Company entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt.

Until the termination of a portion of the interest rate swaps as described below, these interest rate swaps effectively converted 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.

In 2019, the Company entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt, effectively converting the entire balance of the Company's 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.

In August 2023, the Company sold $ 259.9 million of the notional amount of its interest rate swap assets back to the counterparties for $ 20.5 million , reducing the total notional amount of the interest rate swap assets to $ 259.9 million .

The $ 20.5 million gain in accumulated other comprehensive income related to the $ 259.9 million amount sold is being released to interest expense, net as interest is accrued on the Company’s variable-rate debt over the remaining term of the Term Loans as a decrease to interest expense, net, the amortization of which totaled $ 1.1 million for the three and nine months ended September 30, 2023, respectively.

As discussed above, on September 1, 2023, the Company prepaid $ 35.0 million of the Term Loans.

As a result of this prepayment, $ 2.8 million of the deferred gain in accumulated comprehensive income was released immediately into earnings as interest expense, net.

After giving effect to the notional amount of the sold interest rate swap assets, $ 259.9 million of the Term Loans has an effective annualized fixed interest rat e of 5.4 % , and the remaining principal has a floating interest rate as described above.

Amounts reported in accumulated other comprehensive income related to the Company's derivative are reclassified to interest expense, net as interest is accrued on the Company’s variable-rate debt.

The impact of the Company’s derivative financial instruments on its condensed consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2023 and September 30, 2022 was as follows (in thousands):

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

2023 2022 2023 2022

In August 2023, the Company sold a portion of the notional amount of its interest rate swap assets back to the counterparties for $ 20.5 million.

At that time, a $ 20.5 million gain was recorded in accumulated other comprehensive income related to the notional amount sold.

That gain is being released to interest expense, net as interest is accrued on the Company’s variable-rate debt over the remaining term of the Term Loans as a decrease to interest expense, net, the amortization of which totaled $ 1.5 million for the three months ended March 31, 2024.

As of March 31, 2024, $ 257.9 million of the Term Loans have an effective annualized fixed interest rate of 5.4 % due to the floating-to-fixed interest rate swaps, and the remaining principal has a floating interest rate as described above.

Amounts reported in accumulated other comprehensive income related to the Company's derivatives are reclassified to interest expense, net as interest is accrued on the Company’s variable-rate debt.

The impact of the Company’s derivative financial instruments on its condensed consolidated statements of comprehensive (loss) income for the three months ended March 31, 2024 and March 31, 2023 was as follows (in thousands):

Three Months Ended March 31,

Unrealized gain (loss) recognized in Other comprehensive income (loss) on interest rate swaps 1,619 $ ( 8,154 )

Amounts reclassified from Accumulated other comprehensive income (loss) to interest expense, net ( 1,457 ) —

Total Other comprehensive income on interest rate swaps $ ( 3,496 ) $ 17,988 $ ( 3,745 ) $ 52,357

Cash interest costs averaged 5.7 % and 5.4 % for the nine months ended September 30, 2023 and 2022, respectively.

In addition, as of September 30, 2023 and December 31, 2022 the Company had $ 5.9 million and $ 7.5 million, respectively, of unamortized deferred financing costs associated with the Credit Facility.

Total Other comprehensive income (loss) on interest rate swaps $ 162 $ ( 8,154 )

Cash interest costs averaged 7.2 % and 5.4 % for the three months ended March 31, 2024 and 2023, respectively.

In addition, as of March 31, 2024 and December 31, 2023 the Company had $ 4.8 million and $ 5.4 million, respectively, of unamortized deferred financing costs associated with the Credit Facility.

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

Net Loss Per Share

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

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

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

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Net Loss $ ( 96,130 ) $ ( 140,045 )

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Net loss per common share, basic and diluted $ ( 3.37 ) $ ( 4.38 )

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

Due to the net losses for the three months ended March 31, 2024 and March 31, 2023, 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.

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

September 30,

Stock options 141,699 152,683

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Total anti–dilutive common share equivalents 10,490,082 9,606,160

(1) As of September 30, 2023 , the Series A Preferred Stock plus accumulated dividends totaled $ 120.8 million.

(1) As of March 31, 2024 , the Series A Preferred Stock plus accumulated dividends totaled $ 123.6 million.

The Series A Preferred Stock has a conversion price of $ 17.50 per share, as detailed in “ Note 9.

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

In the normal course of business, the Company may become involved in various lawsuits and legal proceedings.

The Company does not anticipate that any legal proceedings will have a material adverse effect on the Company's condensed consolidated balances sheets or condensed consolidated statement of operations.

In addition, when we acquire companies, we require that the sellers provide industry standard indemnification for breaches of representations and warranties contained in the acquisition agreement and we will withhold payment of a portion of the purchase price for a period of time in order to satisfy any claims that we may make for indemnification.

In certain transactions, we agree with the sellers to purchase a representation and warranty insurance policy that will pay such claims for indemnification.

From time to time we may have one or more claims for indemnification pending.

Similarly, we may have one or more ongoing negotiations related to the amount of an earnout.

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

In the normal course of business, the Company is involved in various lawsuits and legal proceedings.

The Company does not anticipate that any current or pending legal proceedings will have a material adverse effect on the Company's condensed consolidated balances sheets or condensed consolidated statements of operations.

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”).

The Company will use the proceeds of the Investment (a) for general corporate purposes and (b) for transaction-related fees and expenses.

The Company is using the proceeds of the Investment for general corporate purposes and for transaction-related fees and expenses.

On August 23, 2022 (the “Closing Date”), the closing of the Investment (the “Closing”) occurred, and the Series A Preferred Stock was issued to the Purchaser.

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

As of September 30, 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.

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

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 $ 5.8 million as of September 30, 2023.

As of March 31, 2024, the Series A Preferred Stock Issuance Costs totaled $ 4.6 million.

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

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The 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.

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).

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.

The Series A Preferred Stock had accrued unpaid dividends of $ 8.6 million as of March 31, 2024, representing 489,617 Common Stock shares upon conversion at $ 17.50 per share.

Liquidation Rights

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

As of September 30, 2023, the Liquidation Preference of the Series A Preferred Stock was $ 120.8 million.

As of March 31, 2024, the Liquidation Preference of the Series A Preferred Stock was $ 123.6 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-converted 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.

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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Stockholders' Equity

Registration Statements

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

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

Common and Preferred Stock

The common stock has a par value of 0.0001 per share.

Each share of common stock is entitled to one vote at all meetings of stockholders.

The number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Company representing a majority of the votes represented by all outstanding shares of capital stock of the Company entitled to vote.

The holders of common stock are also entitled to receive dividends, when, if and as declared by our board of directors, whenever funds are legally available therefore, subject to the priority rights of any outstanding preferred stock.

See “ Note 9.

Series A Convertible Preferred Stock ” for further details.

Series A Convertible Preferred Stock ” for a description of our Series A Preferred Stock, which is the only class of preferred stock outstanding.

Share repurchase program

On September 1, 2023, the Board of Directors authorized a stock repurchase program (the “Share Repurchase Plan”) in the aggregate amount of up to $ 15.0 million that would allow the Company to repurchase shares of its issued and outstanding Common Stock, from time to time in the open market or otherwise (including in negotiated transactions, open market transactions, through accelerated share repurchase, through indirect purchases of Common Stock such as by using derivatives or in other transactions) in each case in accordance with applicable securities laws so long as the aggregate purchase price paid for such transactions does not exceed $ 15.0 million for all such purchases.

In 2023, the Board of Directors authorized a stock repurchase program (the “Share Repurchase Plan”) in the aggregate amount of up to $ 25 million that would allow the Company to repurchase shares of its issued and outstanding Common Stock, from time to time in the open market or otherwise including pursuant to a Rule 10b5-1 trading plan and in compliance with Rule10b-18 under the Exchange Act so long as the aggregate purchase price paid for such transactions does not exceed $ 25 million for all such purchases.

The authorization does not have a specified expiration date.

Accordingly, unless terminated earlier by resolution of the Board, the Share Repurchase Plan will expire when the Company has repurchased all shares authorized for repurchase.

During the three and nine months ended September 30, 2023, the Company repurchased and subsequently retired 783,356 shares of Common Stock, for a total of $ 3.2 million under the Share Repurchase Plan.

As of September 30, 2023, approximately $ 11.8 million remained available for additional share repurchases.

In fiscal year 2024, the Company’s net stock repurchases are subject to a 1 percent excise tax under the Inflation Reduction Act.

The excise tax is included as a reduction to accumulated deficit in the condensed consolidated statements of stockholders equity.

Total accrued excise tax of $ 0.2 million is included in total cost of shares repurchases, excluded from average cost per share and excluded from total cash paid during the three months ended March 31, 2024 as amounts were unpaid at period end.

During the three months ended March 31, 2024, the Company repurchased and subsequently retired 2,242,654 shares of Common Stock, for a total of $ 7.9 million cash paid under the Share Repurchase Plan.

As of March 31, 2024, approximately $ 2.8 million remained available for additional share repurchases.

The Company is not obligated to acquire any particular amount of Common Stock and may modify or suspend the repurchases at any time in the Company’s discretion.

In October 2023, the Board of Directors authorized an increase to the Share Repurchase Plan to allow the Company to repurchase up to an additional $ 10 million of shares.

See “ Note - 14.

Subsequent Events” for further information.

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

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

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

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

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Foreign currency translation adjustment $ ( 22,558 ) $ ( 19,947 )

3 unchanged sentences

Total accumulated other comprehensive income $ 2,307 $ 6,168

The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of September 30, 2023 is net of income tax expense of $ 0.6 million.

The tax provision (benefit) to unrealized translation gains (losses) on intercompany loans for the three and nine months ended September 30, 2023 was $( 0.8 ) million and $ 0.2 million, respectively.

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

The 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 AOCI.

The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of March 31, 2024 is net of income tax expense of $ 3.2 million.

The tax provision (benefit) to unrealized translation gains (losses) on intercompany three months ended March 31, 2024 and March 31, 2023 was $ 0.1 million benefit and $ 0.5 million detriment, respectively.

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

4 unchanged sentences

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 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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Cost of revenue $ 186 $ 302

3 unchanged sentences

Total $ 3,522 $ 6,462

2014 Equity Incentive Plan

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

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

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

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

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

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

Since 2022, fifty percent of the equity awards granted to our Chief Executive Officer were PSUs.

The 2024 and 2023 PSU agreements provide that the quantity of units subject to vesting may range from 0 % to 300 % and 0 % to 200 %, respectively, of the units granted based on the Company's absolute total shareholder return (“TSR”) at the end of the 36 month performance periods.

The following table summarizes PSU and RSU activity during the three months ended March 31, 2024:

Number of Units Weighted-Average Grant Date Fair Value

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Forfeited ( 121,673 ) 9.92

Unvested restricted units outstanding as of September 30, 2023 2,257,645 $ 12.66

Unvested restricted units outstanding as of March 31, 2024 3,287,337 $ 6.51

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

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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 nine months ended September 30, 2023 and year ended December 31, 2022 are as follows:

September 30, 2023 December 31, 2022

Significant assumptions used in the Monte Carlo simulation model for the PSUs granted during the three months ended March 31, 2024 and year ended December 31, 2023 are as follows:

March 31, 2024 December 31, 2023

Expected volatility 62.1 % 55.5 %

3 unchanged sentences

Stock Option Activity

Stock option activity during the nine months ended September 30, 2023 was as follows:

Stock option activity during the three months ended March 31, 2024 was as follows:

Outstanding Weighted–

Outstanding at December 31, 2023 149,914 $ 11.44

Options exercised ( 1,784 ) 1.77

Options expired ( 8,215 ) 6.22

Outstanding at September 30, 2023 151,718 $ 11.33

Outstanding at March 31, 2024 141,699 $ 11.72

Revenue Recognition

27 unchanged sentences

Professional services provided with subscription and support licenses and perpetual licenses consist of implementation fees, data extraction, configuration, and training.

The Company’s implementation and configuration services do not involve significant customization of the software and are not considered essential to the functionality.

The Company’s implementation and configuration services do not involve

significant customization of the software and are not considered essential to the functionality.

Revenue from professional services are recognized over time as such services are performed.

1 unchanged sentence

Revenue for consumption-based services are generally recognized as the services are performed.

Significant Judgments

Performance Obligations and Standalone Selling Price

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 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.

For these contracts, the Company records individual performance obligations separately if they are distinct by allocating the contract's total transaction price to each performance obligation in an amount based on the relative standalone selling price (“SSP”), of each distinct good or service in the contract.

Judgment is required to determine the SSP for each distinct performance obligation.

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.

We only include estimated amounts of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

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.

7 unchanged sentences

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

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

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

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

3 unchanged sentences

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.

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

We recognize contract liabilities as revenue upon satisfaction of the underlying performance obligations.

8 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 September 30, 2023 and December 31, 2022, unbilled receivables were $ 4.1 million and $ 5.3 million, respectively.

As of March 31, 2024 and December 31, 2023, unbilled receivables were $ 3.2 million and $ 2.7 million, respectively.

Deferred Commissions

7 unchanged sentences

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

No indicators of impairment were identified during the nine months ended September 30, 2023.

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

Deferred Commissions

Balance at December 31, 2022 $ 24,755

Capitalized deferred commissions 8,814

Amortization of deferred commissions ( 9,846 )

Balance at September 30, 2023 $ 23,723

Amortization of deferred commissions in excess of commissions capitalized for the three and nine months ended September 30, 2023 was $ 0.6 million and $ 1.0 million, respectively.

No indicators of impairment were identified during the three months ended March 31, 2024.

Amortization of deferred commissions in excess of commissions capitalized for the three months ended March 31, 2024 was $ 0.7 million.

Deferred Revenue

1 unchanged sentence

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

During the nine months ended September 30, 2023, we recognized $ 97.7 million and $ 3.4 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 three months ended March 31, 2024, we recognized $ 45.5 million and $ 1.2 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

Remaining Performance Obligations

As of September 30, 2023, approximately $ 257.0 million of revenue is expected to be recognized from remaining performance obligations.

As of March 31, 2024, approximately $ 258.4 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 September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Subscription and support:

7 unchanged sentences

United Kingdom 98 223

Canada 38 10 94 187

Other International 622 650

7 unchanged sentences

Total revenue $ 70,736 $ 77,056

Related Party Transactions

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

Subsequent Events

On October 31, 2023, the Board of Directors authorized a $ 10 million increase to its previously announced Share Repurchase Plan.

The Company may continue to repurchase shares from time to time in the open market or otherwise (including in negotiated transactions, open market transactions, through accelerated share repurchase, through indirect purchases of Common Stock such as by using derivatives or in other transactions) in each case in accordance with applicable securities laws so long as the aggregate purchase price paid for such transactions does not exceed the authorized amount for all such purchases after the date of these resolutions.

The authorization does not have a specified expiration date.

Accordingly, unless terminated earlier by resolution of the Board, the Share Repurchase Plan will expire when the Company has repurchased all shares authorized for repurchase thereunder.

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