Zeta Global Holdings Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those anticipated and discussed in the forward-looking statements as a result of various factors, including those set forth under the heading “Risk Factors” in the Prospectus filed with the SEC on June 14, 2021 pursuant to Rule 424(b)(4) under the Securities Act. Overview Zeta develops and markets a leading omnichannel data-driven cloud platform that provides enterprises with consumer intelligence and marketing automation software. We empower our customers to target, connect and engage consumers through software that delivers personalized marketing across all addressable channels, including email, social media, web, chat, connected TV (“CTV”) and video, among others. We believe our actionable insights derived from consumer intent enable our customers to acquire, grow and retain consumer relationships more efficiently and effectively than the alternative solutions available in the market. Our top-rated Zeta Marketing Platform (the “ZMP”) is the largest omnichannel marketing platform with identity data at its core. The ZMP analyzes billions of structured and unstructured data points to predict consumer intent by leveraging sophisticated machine learning algorithms and the industry’s largest opted-in data set for omnichannel marketing. The ZMP connects with consumers through native integration of marketing channels and API integration with third parties. The ZMP’s data-driven algorithms and processes learn and optimize each customer’s marketing program producing a ‘flywheel effect’ that enables our customers to test, learn and improve their marketing programs in real time. Over time, this continuous learning loop provides greater efficiency and effectiveness for our customers and creates a competitive advantage for Zeta. The ZMP empowers our customers to personalize consumer experiences at scale across multiple touchpoints. Marketing programs are created and orchestrated by our customers through automated workflows and sophisticated dashboards. Our CDP+ ingests, analyzes, and distills disparate data points to generate a single view of a consumer, encompassing identity, profile characteristics, behaviors and purchase intent, which is then made accessible through a single console. Our Opportunity Explorer synthesizes Zeta’s proprietary data and data generated by our customers to uncover consumer insights that are translated into marketing programs designed for highly targeted audiences across digital channels, including email, SMS, websites, applications, social media, CTV and chat. Recent Developments Initial Public Offering On June 14, 2021, we completed our initial public offering (“IPO”) in which we sold 14,773,939 shares of our Class A common stock, and certain selling stockholders sold an additional 6,726,061 shares of Class A common stock, at a public offering price of $10.00 per share. We received net proceeds of approximately $132.7 million, after deducting underwriters’ discounts and commissions (but excluding other offering expenses and reimbursements of $6.2 million), from sales of our shares in the IPO. We did not receive any of the proceeds from any sale of shares by the selling stockholders. COVID-19 Update During the first half of 2021, some of our scaled customers in industries that experience negative effects from the COVID-19 pandemic, such as travel and hospitality and financial services, reduced or paused their levels of business with us. This resulted in a reduction of total scaled customers that has continued through the three months ended September 30, 2021 relative to the prior-year period, as we saw a decrease in our total scaled customers, from 354 customers to 347 customers. However, during the three months ended September 30, 2021, we experienced an increase in scaled customer ARPU, which resulted in our revenue increasing for the three months ended September 30, 2021 compared to the prior-year period. Our scaled customer ARPU growth resulted primarily from the initial effects of transitioning our sales team model to focus a dedicated team on new business development and a separate team on training and educating new and existing users on our platform capabilities. Our transition to this hunter/farmer sales model has included focusing more of our sales team on growth of existing scaled customers and aligning scaled customers with sellers that have specific industry expertise. In addition, scaled customer ARPU also benefitted from increased levels of business from customers in industries that experienced positive effects from the COVID-19 pandemic, such as insurance, automotive and telecom. In future periods, as the post-pandemic recovery continues and pandemic-related restrictions subside, we expect that our customers in industries such as travel and hospitality and financial services will return to levels of spending comparable to or greater than their historical spending. Although the pandemic-related growth levels we have experienced may decrease in the future, we expect that the success of our new sales team model will continue to drive new business. As a result, we expect customer spending in industries where we saw strength during the COVID-19 pandemic to continue to increase even as the growth effects of the COVID-19 pandemic on some industries may tend to be moderate. 23 Table of Contents Factors Affecting Results of Operations For a discussion of the factors affecting our results of operations, please see “Factors Affecting Results of Operations” in the Management’s Discussion and Analysis section and the “Risk Factors” section of our Prospectus. Key Business Metrics For a list of the key performance metrics we use to evaluate our business, track performance, identify trends, formulate plans and make strategic decisions, please see “Key Business Metrics” in the Management’s Discussion and Analysis section and the “Risk, Factors” section of our Prospectus. Description of Certain Components of Financial Data Revenues Our revenue is primarily derived from subscription fees, volume-based utilization fees and fees for professional services related to customers’ use of our marketing platform. Our revenue is comprised from a mix of direct platform revenue and integrated platform revenue, which leverages application programming interface (“API”) integrations with third parties. For the nine months ended September 30, 2021 and 2020, we derived 75% and 71% of our revenues from direct platform revenue, and 25% and 29% of our revenues from integrated platform revenue, respectively. Revenues are recognized when control of these products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products and services. Sales and other taxes collected by us are excluded from revenue. Our revenue recognition policies are discussed in more detail under “Critical Accounting Policies and Estimates.” Cost of revenues (excluding depreciation and amortization) Cost of revenue excludes depreciation and amortization and consists primarily of media and marketing costs and certain personnel costs. Media and marketing costs consist primarily of fees paid to third-party publishers, media owners or managers, or to strategic partners that are directly related to a revenue-generating event. We pay these third-party publishers, media owners or managers and strategic partners on a revenue-share, a cost-per-lead, cost-per-click, or cost-per-thousand-impressions basis. Personnel costs included in cost of revenues include salaries, bonuses, commissions and employee benefit costs primarily related to individuals directly associated with providing services to our customers. We expect costs of revenues as a percentage of revenue will generally decrease from current levels over the long term. General and administrative expenses General and administrative expenses primarily consist of computer and telecom expenses, personnel costs, including salaries, bonuses and employee benefits costs associated with our executive, finance, legal, human resources and other administrative personnel, as well as accounting and legal professional services fees. We expect general and administrative expenses to increase in absolute dollars in future periods. We expect that general and administrative expenses will stay consistent as a percentage of revenue over the long term. 24 Table of Contents Selling and marketing expenses Selling and marketing expenses primarily consist of personnel costs, including salaries, bonuses, employee benefits costs and commission costs, for our sales and marketing personnel. Selling and marketing expenses also include costs for market development programs, advertising, promotional and other marketing activities. We intend to continue to invest in marketing initiatives and as a result we expect selling and marketing expenses to increase in absolute dollars in future periods. Selling and marketing expense as a percentage of revenue may fluctuate from period to period based on revenue levels and the timing of our investments in these functions over the long term. Research and development expenses Research and development expenses primarily consist of personnel costs, including salaries, bonuses and employee benefit costs, engineering and IT services associated with the ongoing research and maintenance of internal use software, including platform and related infrastructure. We expect to continue to invest in research and development in order to develop our technology platform to drive incremental value and growth and as a result we expect that research and development expenses will increase as a percentage of revenue in the long term. Depreciation and amortization Depreciation and amortization relate to property and equipment, website and software development costs as well as intangible assets. We record depreciation and amortization when appropriate using straight-line method over the estimated useful life of the assets. Acquisition related expenses Acquisition related expenses primarily consist of legal fees associated with certain business combinations and addressing disputes related to those transactions. It also includes retention bonuses agreed to be paid to employees related to one-time events such as an acquisition or a significant transaction. We expect that acquisition related expenses will be correlated with future acquisitions (if any), which could be greater than or less than our historic levels. Restructuring expenses Restructuring expenses primarily consist of employee termination costs due to internal restructuring. We expect that restructuring expenses will be correlated with future restructuring activities (if any), which could be greater than or less than our historic levels. Interest expense Interest expense primarily consists of interest paid on long-term borrowings. Other (income) / expense Other (income) / expense primarily consists of changes in fair value of acquisition related liabilities, gains and losses on sale of assets, gains and losses on extinguishment of acquisition related liabilities and foreign exchange gains and losses. We expect that the magnitude of other income and expenses will depend on external factors such as foreign exchange rate, which could be greater than or less than our historic levels. Change in fair value of warrants and derivative liabilities Change in fair value of warrants and derivative liabilities primarily relates to warrants to purchase shares of our common stock that we issued in connection with previous financing rounds. The change in fair value of warrants and derivative liabilities depends on external valuation-related factors. As of September 30, 2021, the Company does not have any warrants and derivative liabilities on its condensed unaudited consolidated balance sheets. 25 Table of Contents Income tax provision The Company’s income tax provision consists of federal, foreign, and state taxes necessary to align the Company’s year-to-date tax provision with the annual effective rate that it expects to achieve for the full year. At each interim period, the Company updates its estimate of the annual effective tax rate and records cumulative adjustments, as necessary. For the interim period ended September 30, 2020, the Company utilized the annual effective tax rate methodology to determine its income tax provision. For the interim period ended September 30, 2021, the Company departed from the annual effective tax rate methodology and computed its income tax provision using a discrete method. The use of the discrete method was made in accordance with authoritative accounting guidance which allows for the use of a discrete method when there are significant changes to the projected annual effective tax rate as a result of minor adjustments to projected pre-tax earnings. Non-GAAP Financial Measures We use the following non-GAAP financial information, collectively, to evaluate our ongoing operations and for internal planning and forecasting purposes. Non-GAAP financial information is presented for supplemental informational purposes only, should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from similarly titled non-GAAP measures used by other companies. Whenever we use a non-GAAP financial measure, a reconciliation is provided to the most closely applicable financial measure stated in accordance with generally accepted accounting principles. Adjusted EBITDA and adjusted EBITDA margin Adjusted EBITDA is a non-GAAP financial measure defined as net loss adjusted for interest expense, depreciation and amortization, stock-based compensation, income tax provision / (benefit), acquisition related expenses, restructuring expenses, change in fair value of warrants and derivative liabilities, certain dispute settlement expense, certain non-recurring IPO related expenses and other expenses / (income). Acquisition related expenses and restructuring expenses primarily consist of severance and other personnel-related costs which we do not expect to incur in the future as acquisitions of businesses may distort the comparability of the results of operations. Change in fair value of warrants and derivative liabilities is a non-cash expense related to periodically recording “mark-to-market” changes in the valuation of derivatives and warrants. Other expenses / (income) consists of non-cash expenses such as changes in fair value of acquisition related liabilities, gains and losses on extinguishment of acquisition-related liabilities, gains and losses on sales of assets and foreign exchange gains and losses. In particular, we believe that the exclusion of stock-based compensation, certain dispute settlement expenses and non-recurring IPO related expenses that are not related to our core operations provides measures for period-to-period comparisons of our business and provides additional insight into our core controllable costs. Adjusted EBITDA margin is a non-GAAP metric defined as adjusted EBITDA divided by the total revenues for the same period. Adjusted EBITDA and adjusted EBITDA margin provide us with a useful measure for period-to-period comparisons of our business as well as comparison to our peers. We believe that these non-GAAP financial measures are useful to investors in analyzing our financial and operational performance. Our use of adjusted EBITDA and adjusted EBITDA margin has limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial performance measures, including revenues and net loss. 26 Table of Contents The following table reconciles adjusted EBITDA and adjusted EBITDA margin to net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP. Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Net loss $ (69,129) $ (13,003) $ (188,425) $ (44,437) Net loss margin (60.0)% (13.6)% (58.2)% (17.5)% Add back: Interest expense 1,342 3,823 5,705 12,548 Income tax provision / (benefit) 428 301 (565 ) 1,319 Depreciation and amortization 11,783 10,133 33,135 30,171 Stock-based compensation 69,343 26 188,613 79 IPO related expenses — — 2,705 — Gain on extinguishment of debt — — (10,000) — Acquisition related expenses 480 1,230 1,516 4,321 Restructuring expenses 30 259 467 1,950 Change in fair value of warrants and derivative liabilities — 9,700 5,000 16,400 Dispute settlement expense 1,196 — 1,196 — Other expenses / (income) 496 (188) 1,031 (546) Adjusted EBITDA $ 15,969 $ 12,281 $ 40,378 $ 21,805 Adjusted EBITDA margin 13.9% 12.9% 12.5% 8.6% 27 Table of Contents Results of Operations We operate as a single reportable segment to reflect the way our Chief Operating Decision Officer (“CODM”) reviews and assesses the performance of the business. The Company’s CODM is the Chief Executive Officer. Three months ended September 30, Nine months ended September 30, 2021 2020 2021 2020 Condensed Consolidated Statements of Operations Data: Revenues $ 115,133 $ 95,284 $ 323,492 $ 253,674 Operating expenses: Cost of revenues (excluding depreciation and amortization) 44,525 40,705 125,709 100,530 General and administrative expenses 50,643 17,150 135,682 53,270 Selling and marketing expenses 60,537 18,269 163,952 54,359 Research and development expenses 13,998 6,905 50,285 23,789 Depreciation and amortization 11,783 10,133 33,135 30,171 Acquisition related expenses 480 1,230 1,516 4,321 Restructuring expenses 30 259 467 1,950 Total operating expenses $ 181,996 $ 94,651 $ 510,746 $ 268,390 (Loss) / income from operations (66,863) 633 (187,254) (14,716) Interest expense 1,342 3,823 5,705 12,548 Other expenses / (income), net 496 (188) 1,031 (546) Gain on extinguishment of debt — — (10,000) — Change in fair value of warrants and derivative liabilities — 9,700 5,000 16,400 Total other expenses $ 1,838 $ 13,335 $ 1,736 $ 28,402 Loss before income taxes (68,701) (12,702) (188,990) (43,118) Income tax provision / (benefit) 428 301 (565) 1,319 Net loss available to common stockholders $ (69,129) $ (13,003) $ (188,425) $ (44,437) Comparison of the Three Months Ended September 30, 2021 and 2020 Revenues Three months ended September 30, Change 2021 2020 Amount % Revenues $ 115,133 $ 95,284 $ 19,849 20.8% Revenues increased by $19.8 million, or 20.8%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase in revenues is attributable to incremental revenues of $6.2 million from existing customers and $13.6 million from new customers. Cost of revenues (excluding depreciation and amortization) Three months ended September 30, Change 2021 2020 Amount % Cost of revenues (excluding depreciation and amortization) $ 44,525 $ 40,705 $ 3,820 9.4% 28 Table of Contents Cost of revenues (excluding depreciation and amortization) increased by $3.8 million, or 9.4%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. This increase was primarily driven by $1.9 million in incremental media costs and other direct fulfillment costs of $1.6 million. General and administrative expenses Three months ended September 30, Change 2021 2020 Amount % General and administrative expenses $ 50,643 $ 17,150 $ 33,493 195.3% General and administrative expenses increased by $33.5 million, or 195.3%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by stock-based compensation of $28.2 million, higher employee related costs of $3.1 million, higher legal and professional fees of $1.7 million and shares issued in the settlement of a dispute of $1.2 million, this increase was partially offset by reduction in the rent and facility expenses of $0.4 million and computer and telecom expenses of $0.4 million. Selling and marketing expenses Three months ended September 30, Change 2021 2020 Amount % Selling and marketing expenses $ 60,537 $ 18,269 $ 42,268 231.4% Selling and marketing expenses increased by $42.3 million, or 231.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by stock-based compensation of $35.1 million, higher employee related costs of $6.5 million and other marketing related expenses of $0.8 million. Research and development expenses Three months ended September 30, Change 2021 2020 Amount % Research and development expenses $ 13,998 $ 6,905 $ 7,093 102.7% Research and development expenses increased by $7.1 million, or 102.7%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by stock-based compensation of $4.8 million and higher employee related costs of $2.1 million. Depreciation and amortization Three months ended September 30, Change 2021 2020 Amount % Depreciation and amortization $ 11,783 $ 10,133 $ 1,650 16.3% Depreciation and amortization increased by $1.7 million, or 16.3%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by amortization of intangibles of $1.1 million and depreciation expense of $0.5 million. 29 Table of Contents Acquisition related expenses Three months ended September 30, Change 2021 2020 Amount % Acquisition related expenses $ 480 $ 1,230 $ (750) (61.0)% Acquisition related expenses decreased by $0.8 million, or 61.0%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This decrease was primarily driven by lower retention bonuses and professional fees compared with those incurred during the three months ended September 30, 2020, in conjunction with acquisitions completed in 2019. Restructuring expenses Three months ended September 30, Change 2021 2020 Amount % Restructuring expenses $ 30 $ 259 $ (229) (88.4)% Restructuring expenses decreased by $0.2 million, or 88.4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This decrease was primarily driven by lower employee severance cost. Interest expense Three months ended September 30, Change 2021 2020 Amount % Interest expense $ 1,342 $ 3,823 $ (2,481) (64.9)% Interest expense decreased by $2.5 million, or 64.9%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This decrease was primarily driven by a lower interest rate on the new debt facility entered into during 2021. Other expenses / (income) Three months ended September 30, Change 2021 2020 Amount % Other expenses / (income) $ 496 $ (188) $ 684 (363.8)% Other expenses increased by $0.7 million or 363.8% for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This increase was primarily driven by a foreign currency loss of $0.4 million and change in the fair value of acquisition related liabilities of $0.2 million. Change in fair value of warrants and derivative liabilities Three months ended September 30, Change 2021 2020 Amount % Change in fair value of warrants and derivative liabilities $ — $ 9,700 $ (9,700) (100)% Change in fair value of warrants and derivative liabilities expense decreased by $9.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. This loss during the three months September 30, 2020 was primarily driven by a change in our estimates and assumptions specifically as it relates to the price of our underlying stock used to calculate the fair value of our warrants and derivatives. The warrants and derivative liabilities were extinguished upon the Company’s IPO on June 14, 2021 and as such there are no such changes in the liabilities recorded during the three months ended September 30, 2021. 30 Table of Contents Income tax provision Three months ended September 30, Change 2021 2020 Amount % Income tax provision $ 428 $ 301 $ 127 42.2% For the three months ended September 30, 2021, the Company recorded an income tax provision of $0.4 million yielding an effective tax rate of (0.62)%. For the three months ended September 30, 2020, the Company recorded an income tax provision of $0.3 million yielding an effective tax rate of (2.37)%. The effective tax rate for both interim periods was different than the U.S. statutory rate primarily related to limited tax benefit being recording for U.S. operating losses as the Company maintains a full valuation allowance against its U.S. deferred tax assets. Comparison of the Nine Months Ended September 30, 2021 and 2020 Revenues Nine months ended September 30, Change 2021 2020 Amount % Revenues $ 323,492 $ 253,674 $ 69,818 27.5 % Revenues increased by $69.8 million, or 27.5%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase in revenues is attributable to incremental revenues of $30.8 million from existing customers and $38.9 million from new customers. Cost of revenues (excluding depreciation and amortization) Nine months ended September 30, Change 2021 2020 Amount % Cost of revenues (excluding depreciation and amortization) $ 125,709 $ 100,530 $ 25,179 25.0 % Cost of revenues (excluding depreciation and amortization) increased by $25.2 million, or 25.0%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. This increase was primarily driven by $20.0 million in incremental media costs, other direct fulfillment costs of $3.5 million and stock-based compensation of $1.5 million. General and administrative expenses Nine months ended September 30, Change 2021 2020 Amount % General and administrative expenses $ 135,682 $ 53,270 $ 82,412 154.7 % General and administrative expenses increased by $82.4 million, or 154.7%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was driven by stock-based compensation of $70.9 million, employee related costs of $9.3 million, non-recurring IPO related expenses of $1.5 million, legal and professional fees of $2.0 million and shares issued in the settlement of a dispute of $1.2 million, this increase was partially offset by reduction in the rent and facility expenses of $1.4 million and computer and telecom expenses of $1.0 million. 31 Table of Contents Selling and marketing expenses Nine months ended September 30, Change 2021 2020 Amount % Selling and marketing expenses $ 163,952 $ 54,359 $ 109,593 201.6% Selling and marketing expenses increased by $109.6 million, or 201.6%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily driven by stock-based compensation of $94.6 million, higher employee related costs of $14.2 million and non-recurring IPO related expense of $0.8 million. Research and development expenses Nine months ended September 30, Change 2021 2020 Amount % Research and development expenses $ 50,285 $ 23,789 $ 26,496 111.4% Research and development expenses increased by $26.5 million, or 111.4%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily driven by stock-based compensation of $21.7 million, higher employee related costs and professional and consulting fees of $4.5 million and non-recurring IPO related expenses of $0.4 million. Depreciation and amortization Nine months ended September 30, Change 2021 2020 Amount % Depreciation and amortization $ 33,135 $ 30,171 $ 2,964 9.8% Depreciation and amortization increased by $3.0 million, or 9.8%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily driven by an increase in amortization of intangibles of $2.3 million and depreciation expense of $0.6 million. Acquisition related expenses Nine months ended September 30, Change 2021 2020 Amount % Acquisition related expenses $ 1,516 $ 4,321 $ (2,805) (64.9)% Acquisition related expenses decreased by $2.8 million, or 64.9%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This decrease was primarily driven by lower retention bonuses and professional fees compared to those incurred during the nine months ended on September 30, 2020 in conjunction with acquisitions completed in 2019. Restructuring expenses Nine months ended September 30, Change 2021 2020 Amount % Restructuring expenses $ 467 $ 1,950 $ (1,483) (76.1)% Restructuring expenses decreased by $1.5 million, or 76.1%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This decrease was primarily driven by lower employee severance cost during the nine months ending September 30, 2021 compared with September 30, 2020. 32 Table of Contents Interest expense Nine months ended September 30, Change 2021 2020 Amount % Interest expense $ 5,705 $ 12,548 $ (6,843) (54.5)% Interest expense decreased by $6.8 million, or 54.5%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This decrease was primarily driven by a lower interest rate on the new debt facility entered into during 2021. Other expenses / (income) Nine months ended September 30, Change 2021 2020 Amount % Other expenses / (income) $ 1,031 $ (546) $ 1,577 (288.8)% Other expense increased by $1.6 million, or 288.8% for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. This increase was primarily driven by an increase in loss on sale of assets of $0.7 million, and an increase in foreign currency loss of $0.8 million. Change in fair value of warrants and derivative liabilities Nine months ended September 30, Change 2021 2020 Amount % Change in fair value of warrants and derivative liabilities $ 5,000 $ 16,400 $ (11,400) (69.5)% Change in fair value of warrants and derivative liabilities expense decreased by $11.4 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These losses during the nine months ended September 30, 2021 and 2020 were primarily driven by a change in our estimates and assumptions specifically as it relates to the price of our underlying stock used to calculate the fair value of our warrants and derivatives. The warrants and derivative liabilities were extinguished upon the Company’s IPO on June 14, 2021 and as such there are no such changes in the liabilities recorded during the three months ended September 30, 2021, and the losses in the nine months ended September 30, 2021 are much smaller compared to the nine months ended September 30, 2020, Income tax (benefit) / provision Nine months ended September 30, Change 2021 2020 Amount % Income tax (benefit) / provision $ (565) $ 1,319 $ (1,884) (142.8)% For the nine months ended September 30, 2021, the Company recorded an income tax benefit of $0.6 million yielding an effective tax rate of 0.3%. For the nine months ended September 30, 2020, the Company recorded an income tax provision of $1.3 million yielding an effective tax rate of (3.06)%. The effective tax rate for both interim periods was different than the U.S. statutory rate primarily related to limited tax benefit being recording for U.S. operating losses as the Company maintains a full valuation allowance against its U.S. deferred tax assets. Liquidity and Capital Resources We have financed our operations and capital expenditures primarily through utilization of cash generated from operations, as well as borrowings under our credit facilities. As of September 30, 2021, we had cash and cash equivalents of $116.2 million. The net working capital, consisting of current assets less current liabilities, as of September 30, 2021 was $95.4 million. As of September 30, 2021, we had an accumulated deficit of $430.7 million. 33 Table of Contents We believe our existing cash and anticipated net cash provided by operating activities, together with available borrowings under our credit facility, will be sufficient to meet our working capital requirements for at least the next 12 months. However, if our operating performance during the next 12 months is below our expectations, our liquidity and ability to operate our business could be adversely affected. Cash flows The following table summarizes our cash flows: Nine months ended September 30, 2021 2020 Net cash provided by / (used for): Cash provided by operating activities $ 23,366 $ 16,642 Cash used in investing activities (22,463) (19,408) Cash provided by financing activities 64,682 6,004 Effect of exchange rate changes on cash and cash equivalents (130) (102) Net increase in cash and cash equivalents $ 65,455 $ 3,136 Cash Flows from Operating Activities For the nine months ended September 30, 2021, net cash provided by operating activities of $23.4 million resulted primarily from adjusted non-cash items of $217.6 million, more than offsetting our net loss of $188.4 million and resulting in a net cash income of $29.2 million. Changes in working capital were primarily driven by a decrease in accounts receivable of $7.4 million, decrease in prepaid and other current assets of $2.4 million and increase in accrued expenses and other current liabilities of $2.8 million, offset by a decrease in accounts payable of $18.0 million and deferred revenues of $1.3 million, for net decrease in working capital of $5.8 million. For the nine months ended September 30, 2020, net cash provided by operating activities of $16.6 million resulted primarily from changes in working capital driven by a decrease in accounts receivable of $29.0 million, partially offset by a decrease in accounts payable, accrued expenses and other current liabilities of $19.7 million, for net increase in working capital of $11.7 million. This increase was partially offset by net loss of $44.4 million adjusted for non-cash items of $49.4 million, resulting in a net cash loss of $5.0 million. Cash Flows from Investing Activities For the nine months ended September 30, 2021, we used $22.5 million of cash in investing activities, primarily consisting of website and software development costs of $13.4 million, capital expenditure of $6.9 million and business and asset acquisitions of $2.2 million. For the nine months ended September 30, 2020, we used $19.4 million of cash in investing activities, primarily consisting of website and software development costs of $17.5 million and capital expenditure of $1.9 million. Cash Flows from Financing Activities For the nine months ended September 30, 2021, net cash provided by financing activities of $64.7 million was primarily due to IPO proceeds (net of issuance cost) of $126.5 million, new credit facility of $183.3 million (net of financing cost), partially offset by repayments against credit facilities of $180.7 million. Further, in connection with our IPO, we repurchased and cancelled certain stock, including restricted stock and restricted stock units with a total repurchase amount of $64.5 million. For the nine months ended September 30, 2020, net cash provided by financing activities of $6.0 million was primarily due to $10.0 million in proceeds from the PPP loan, partially offset by repayments of $3.5 million under our credit facilities and cash paid for acquisition related liabilities amounting to $0.5 million. 34 Table of Contents Debt As of September 30, 2021, we have $183.5 million (net of $1.5 million of unamortized debt acquisition costs) of outstanding long-term borrowings. On February 3, 2021 we completed our debt refinancing and as a result of such debt refinancing, we entered into a $222.5 million Senior Secured Credit Facility. The Senior Secured Credit Facility was used to fully repay and terminate our existing credit agreement. Borrowings under the debt are expected to be in an amount of $185.0 million and bear interest payable quarterly ranging from LIBOR plus 2.125% to LIBOR plus 2.625% based on our consolidated net leverage ratio stated in the credit agreement. We are required to repay the principal balance and any unpaid accrued interest on the Senior Secured Credit Facility on February 3, 2026. We do not expect any other significant changes in liquidity as a result of this refinancing. We are currently in compliance with our financial maintenance covenants under the Senior Secured Credit Facility and, based upon our current expectations, believe that we will continue to comply with our financial maintenance covenants for the next 12 months. The Senior Secured Credit Facility contains restrictive covenants that place restrictions on us and may limit our ability to, among other things, incur additional debt and liens, purchase our securities, undertake transactions with affiliates, make other investments, pay dividends or distribute excess cash flow. On April 23, 2020, we entered into a promissory note evidencing an unsecured $10,000 loan under the Paycheck Protection Program (“PPP Loan”) of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The loan was made through Radius Bank. We accounted for the loan as a financial liability in accordance with ASC Topic 470, Debt. Accordingly, the loan was recognized within long-term debt. We used the proceeds from the loan for payroll, rent and utilities and certain other approved expenses during the eight-week period commencing on the loan effective date. On June 10, 2021, the Company received a notice from SBA stating full forgiveness of the principal amount of $10 million and the related interest therein. Contractual obligations There have been no material changes to our contractual obligations as compared to the contractual obligations described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Prospectus related to our recent IPO. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with U.S. GAAP. The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates are based on management’s judgment and the best available information, and as such actual results could differ from those estimates. There have been no material changes to our critical accounting policies and estimates as compared to the critical policies and estimates described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Prospectus related to our recent IPO. JOBS Act Accounting Election We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities. 35 Table of Contents