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Item 1. Financial Statements

2023-11-02 compared with 2023-08-03 · 167 added, 139 removed, 667 unchanged (31% of the section changed)

Financial Statements

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

ASSETS (unaudited)

1 unchanged sentence

Cash and cash equivalents $ 239,591 $ 248,653

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

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

37,178 47,594

1 unchanged sentence

Unbilled receivables 4,112 5,313

Income tax receivable, current 4,823 542

Prepaid expenses and other current assets 10,379 8,232

17 unchanged sentences

Operating lease liabilities, current 2,284 3,205

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

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

Total current liabilities 128,568 151,211

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

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

474,370 511,847

7 unchanged sentences

5,000,000 shares authorized;

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

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

116,279 112,291

1 unchanged sentence

Common stock, $ 0.0001 par value;

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

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

Additional paid-in capital 617,004 606,755

7 unchanged sentences

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

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

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

2023 2022 2023 2022

20 unchanged sentences

Interest expense, net ( 2,525 ) ( 7,354 ) ( 13,362 ) ( 22,870 )

Other income (expense), net ( 617 ) 1,777 808 1,359

Other income, net 103 339 911 1,698

Total other expense ( 2,422 ) ( 7,015 ) ( 12,451 ) ( 21,172 )

11 unchanged sentences

(in thousands)

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

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

2023 2022 2023 2022

2 unchanged sentences

Foreign currency translation adjustment ( 4,103 ) ( 13,869 ) ( 3,248 ) ( 32,272 )

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries 2,464 ( 5,503 ) 3,699 ( 6,796 )

Unrealized gain (loss) on interest rate swaps 7,905 8,156 ( 249 ) 34,369

Unrealized translation gain (loss) on foreign currency denominated intercompany loans, net of taxes ( 2,588 ) ( 7,415 ) 1,111 ( 14,211 )

Interest rate swaps ( 3,496 ) 17,988 ( 3,745 ) 52,357

Other comprehensive income (loss):

5 unchanged sentences

(in thousands, except share amounts)

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Preferred Stock Common Stock Additional

5 unchanged sentences

Shares Amount Shares Amount

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

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

Dividends accrued - Convertible Preferred Stock — 1,344 — — ( 1,344 ) — — ( 1,344 )

Issuance of stock under Company plans, net of shares withheld for tax — — 269,754 — ( 353 ) — — ( 353 )

Stock repurchases and retirements

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

Stock-based compensation — — — — 5,360 — — 5,360

1 unchanged sentence

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — ( 2,588 ) — ( 2,588 )

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

Interest rate swaps

— — — — — ( 3,496 ) — ( 3,496 )

Net loss — — — — — — ( 8,670 ) ( 8,670 )

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

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

5 unchanged sentences

Shares Amount Shares Amount

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

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 )

2 unchanged sentences

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

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

Interest rate swaps

— — — — — 17,988 — 17,988

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

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

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.

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Preferred Stock Common Stock Additional

8 unchanged sentences

Issuance of stock under Company plans, net of shares withheld for tax — — 702,514 — ( 740 ) — — ( 740 )

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

Stock-based compensation — — — — 18,192 — — 18,192

1 unchanged sentence

Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries — — — — — 1,111 — 1,111

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

Interest rate swaps

— — — — — ( 3,745 ) — ( 3,745 )

Net loss — — — — — — ( 163,862 ) ( 163,862 )

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

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

6 unchanged sentences

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 )

1 unchanged sentence

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

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

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

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.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands) 2023 2022

7 unchanged sentences

Foreign currency re-measurement loss ( 983 ) 40

Non-cash interest and other expense 1,152 1,115

Non-cash stock compensation expense 12,832 26,496

Non-cash interest, net and other income, net ( 2,080 ) 1,687

Non-cash stock-based compensation expense 18,192 34,023

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

3 unchanged sentences

Prepaid expenses and other current assets ( 5,405 ) 5,148

Other assets 12,259 ( 10,203 )

Accounts payable ( 871 ) ( 1,464 )

9 unchanged sentences

Payments on notes payable ( 39,050 ) ( 4,050 )

Stock repurchases and retirement ( 3,215 ) —

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

Taxes paid related to net share settlement of equity awards ( 742 ) ( 1,159 )

1 unchanged sentence

Additional consideration paid to sellers of businesses ( 5,550 ) ( 8,174 )

Net cash used in financing activities ( 8,814 ) ( 6,608 )

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

Effect of exchange rate fluctuations on cash ( 437 ) ( 5,629 )

24 unchanged sentences

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 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 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 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.

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

4 unchanged sentences

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 August 3, 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 November 2, 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.

10 unchanged sentences

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.

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.

Recent Accounting Pronouncements

5 unchanged sentences

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 Topic 848 during the first quarter of 2023.

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.

15 unchanged sentences

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 .

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.

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.

4 unchanged sentences

2023 Acquisitions

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

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

2022 Acquisitions

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

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

Fair Value of Assets Acquired and Liabilities Assumed

2 unchanged sentences

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 six months ended June 30, 2023 (in thousands):

BA Insight Objectif Lune

33 unchanged sentences

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.

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.

Fair Value Measurements

8 unchanged sentences

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

Fair Value Measurements at June 30, 2023

Fair Value Measurements at September 30, 2023

Level 1 Level 2 Level 3 Total

Money market funds included in cash and cash equivalents $ 218,598 $ — $ — $ 218,598

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

Interest rate swaps — 20,771 — 20,771

Total $ 218,598 $ 20,771 $ — $ 239,369

2 unchanged sentences

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

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

Interest rate swaps — 41,168 — 41,168

Total $ 172,849 $ 41,168 $ — $ 214,017

2 unchanged sentences

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

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.

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 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.

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.

Goodwill and Other Intangible Assets

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

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

Balance at December 31, 2022 $ 477,043

2 unchanged sentences

Foreign currency translation adjustment and other ( 531 )

Balance at June 30, 2023 $ 352,571

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.

11 unchanged sentences

Amortization Net Carrying

June 30, 2023:

September 30, 2023:

Customer relationships 1- 10

19 unchanged sentences

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.

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

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):

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):

Year ending December 31:

2 unchanged sentences

Total $ 195,717

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

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 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 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 June 30, 2023 and December 31, 2022, respectively.

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.

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

3 unchanged sentences

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, 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 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 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)

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)

$ 477,473 $ 514,983

1 unchanged sentence

Total long-term debt $ 474,370 $ 511,847

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.

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.

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.

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

3 unchanged sentences

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 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.

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.

1 unchanged sentence

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.

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.

The negative covenants limit the ability of the Loan Parties to, among other things (in each case subject to customary exceptions for a credit facility of this size and type):

• Incur additional indebtedness or guarantee indebtedness of others;

• Create liens on their assets;

• Make investments, including certain acquisitions;

• Enter into mergers or consolidations;

• Dispose of assets;

• Pay dividends and make other distributions on the Company’s capital stock, and redeem and repurchase the Company’s capital stock;

• Enter into transactions with affiliates;

• Prepay indebtedness or make changes to certain agreements.

The Credit Facility has no financial covenants as long as less than 35 % of the Revolver is drawn as of the last day of any fiscal quarter.

If 35 % of the Revolver is drawn as of the last day of a given fiscal quarter the Company will be required to maintain a Total Leverage Ratio (the ratio of funded indebtedness as of such date less the amount of unrestricted cash and cash equivalents of the Company and its guarantors in an amount not to exceed $ 50.0 million, to adjusted EBITDA (calculated on a pro forma basis including giving effect to any acquisition)), measured on a quarter-end basis for each four consecutive fiscal quarters then ended, of not greater than 6.00 to 1.00.

In addition, the Credit Facility contains customary events of default subject to customary cure periods for certain defaults that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, change in control, bankruptcy and insolvency defaults and material judgment defaults.

The occurrence of an event of default could result in the acceleration of Term Loans and Revolver and a right by the agent and lenders to exercise remedies.

In addition, the Credit Facility contains customary events of default subject to customary cure periods.

The occurrence of an event of default could result in the acceleration of the Term Loans and Revolver and a right by the agent and lenders to exercise remedies.

At the election of the lenders, a default interest rate shall apply on all obligations during an event of default, at a rate per annum equal to 2.00 % above the applicable interest rate.

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

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

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.

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.

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.

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,

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

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.

Unrealized gain (loss) recognized in Other comprehensive income (loss) on interest rate swaps $ 316 $ 17,988 67 $ 52,357

Amounts reclassified from Accumulated other comprehensive income (loss) to interest expense, net ( 3,812 ) — ( 3,812 ) —

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.

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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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Net loss per common share, basic and diluted $ ( 0.31 ) $ ( 0.22 ) $ ( 5.17 ) $ ( 1.47 )

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.

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.

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 151,718 155,895

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

6,904,813 6,602,643

Total anti–dilutive common share equivalents 9,314,176 8,295,174

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

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

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

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

At this time, the Company is not involved in any current or pending legal proceedings, and does not anticipate any legal proceedings, that may have a material adverse effect on the Company's condensed consolidated balances sheets or condensed consolidated statement of operations.

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.

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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 June 30, 2023, the Series A Preferred Stock Issuance Costs totaled $ 4.6 million.

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.

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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 $ 4.5 million as of June 30, 2023.

The Series A Preferred Stock had accrued unpaid dividends of $ 5.8 million as of September 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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The Series A Preferred Stock will have distribution and liquidation rights senior to all other equity interests of the Company.

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

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

Optional Redemption

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Voting Rights

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 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

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Anti-Dilution Provisions

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).

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).

Stockholders' Equity

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Series A Convertible Preferred Stock ” for further details.

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.

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.

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

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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.

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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):

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Foreign currency translation adjustment $ ( 25,880 ) $ ( 22,632 )

Unrealized translation loss on intercompany loans with foreign subsidiaries ( 3,727 ) ( 7,426 )

Unrealized translation loss on intercompany loans with foreign subsidiaries, net of taxes ( 6,315 ) ( 7,426 )

Unrealized gain on interest rate swaps 20,771 41,168

Realized gain on interest rate swap sale, net of amounts reclassified into interest expense, net 16,652 —

Total accumulated other comprehensive income $ 5,228 $ 11,110

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

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

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The 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

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General and administrative 4,077 5,704 13,868 26,845

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

Total $ 5,360 $ 7,527 $ 18,192 $ 34,023

(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

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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 six months ended June 30, 2023:

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

Number of Units Weighted-Average Grant Date Fair Value

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Forfeited ( 234,612 ) 14.05

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

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

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 six months ended June 30, 2023 and year ended December 31, 2022 are as follows:

June 30, 2023 December 31, 2022

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

Expected volatility 55.5 % 49.5 %

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Stock Option Activity

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

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

Outstanding Weighted–

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Options exercised ( 1,784 ) 1.77

Options forfeited — —

Options expired ( 819 ) 6.23

Outstanding at June 30, 2023 152,683 $ 11.27

Outstanding at September 30, 2023 151,718 $ 11.33

Revenue Recognition

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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 are invoiced concurrently.

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.

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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.

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

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

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

Deferred Commissions

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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 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:

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

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Amortization of deferred commissions ( 9,846 )

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.

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.

Deferred Revenue

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

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.

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.

Remaining Performance Obligations

As of June 30, 2023, approximately $ 266.1 million of revenue is expected to be recognized from remaining performance obligations.

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

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

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

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

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

2023 2022 2023 2022

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Related Party Transactions

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

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