Upland Software, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-36720

UPLAND SOFTWARE, INC.

(Exact name of registrant as specified in its charter)


Delaware			27-2992077
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

401 Congress Ave., Suite 1850

Austin, Texas 78701

(Address, including zip code, of registrant’s principal executive offices)

(512) 960-1010

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

UPLD

The Nasdaq Global Market

Preferred Stock Purchase Rights

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

(Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of October 31, 2023, 31,389,287 shares of the registrant’s Common Stock were outstanding.

Table of Contents

Upland Software, Inc.

Table of Contents


		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and September 30, 2022	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and September 30, 2022	3
	Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and September 30, 2022	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and September 30, 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45
Part II.	OTHER INFORMATION	46
Item1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
Exhibit Index		49
Signature		50

Table of Contents

Upland Software, Inc.

Condensed Consolidated Balance Sheets

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

Item 1. Financial Statements




	September 30, 2023		December 31, 2022

ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	239,591	$	248,653
Accounts receivable (net of allowance of $605 and $1,158 at September 30, 2023, and December 31, 2022, respectively)	37,178		47,594
Deferred commissions, current	10,594		10,961
Unbilled receivables	4,112		5,313
Income tax receivable, current	4,823		542
Prepaid expenses and other current assets	10,379		8,232
Total current assets	306,677		321,295
Tax credits receivable	1,412		2,411
Property and equipment, net	2,044		1,830
Operating lease right-of-use asset	3,800		5,719
Intangible assets, net	195,717		248,851
Goodwill	348,172		477,043
Deferred commissions, noncurrent	13,129		13,794
Interest rate swap assets	20,771		41,168
Other assets	2,123		1,348
Total assets	$	893,845	$	1,113,459
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	14,060	$	14,939
Accrued compensation	7,473		7,393
Accrued expenses and other current liabilities	6,947		10,644
Deferred revenue	94,701		106,465
Liabilities due to sellers of businesses	—		5,429
Operating lease liabilities, current	2,284		3,205
Current maturities of notes payable (includes unamortized discount of $2,297 and $2,264 at September 30, 2023, and December 31, 2022, respectively)	3,103		3,136
Total current liabilities	128,568		151,211

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
Deferred revenue, noncurrent	4,266		4,707
Operating lease liabilities, noncurrent	3,064		4,947
Noncurrent deferred tax liability, net	17,513		18,416

Other long-term liabilities	410		1,170
Total liabilities	628,191		692,298
Mezzanine Equity
Series A Convertible Preferred stock, $0.0001 par value; 5,000,000 shares authorized; 115,000 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively	116,279		112,291
Stockholders’ equity:
Common stock, $0.0001 par value; 75,000,000 and 50,000,000 shares authorized as of September 30, 2023, and December 31, 2022, respectively; 32,141,013 and 32,221,855 shares issued and outstanding as of September 30, 2023, and December 31, 2022, respectively	3		3
Additional paid-in capital	617,004		606,755
Accumulated other comprehensive income	5,228		11,110
Accumulated deficit	(472,860)		(308,998)
Total stockholders’ equity	149,375		308,870
Total liabilities, convertible preferred stock and stockholders’ equity	$	893,845	$	1,113,459

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

Upland Software, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Subscription and support	$	69,962	$	75,095	$	213,370	$	223,739
Perpetual license	1,494		1,684		4,317		5,320
Total product revenue	71,456		76,779		217,687		229,059
Professional services	2,665		2,770		7,987		9,433
Total revenue	74,121		79,549		225,674		238,492
Cost of revenue:
Subscription and support	20,853		23,553		66,411		69,747
Professional services and other	2,085		2,173		6,241		7,287
Total cost of revenue	22,938		25,726		72,652		77,034
Gross profit	51,183		53,823		153,022		161,458
Operating expenses:
Sales and marketing	16,860		14,361		46,904		45,285
Research and development	12,740		11,645		37,713		35,388

General and administrative	14,597		14,668		47,369		56,110
Depreciation and amortization	14,262		10,117		44,209		31,970
Acquisition-related expenses	443		3,586		2,609		18,924
Impairment of goodwill	—		—		128,755		—
Total operating expenses	58,902		54,377		307,559		187,677
Loss from operations	(7,719)		(554)		(154,537)		(26,219)
Other expense:
Interest expense, net	(2,525)		(7,354)		(13,362)		(22,870)

Other income, net	103		339		911		1,698
Total other expense	(2,422)		(7,015)		(12,451)		(21,172)
Loss before benefit from income taxes	(10,141)		(7,569)		(166,988)		(47,391)
Benefit from income taxes	1,471		1,056		3,126		1,654


Net loss	$	(8,670)	$	(6,513)	$	(163,862)	$	(45,737)
Preferred stock dividends	(1,344)		(546)		(3,988)		(546)
Net loss attributable to common stockholders	$	(10,014)	$	(7,059)	$	(167,850)	$	(46,283)
Net loss per common share:
Net loss per common share, basic and diluted	$	(0.31)	$	(0.22)	$	(5.17)	$	(1.47)


Weighted-average common shares outstanding, basic and diluted	32,579,544		31,655,206		32,438,682		31,401,463

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

Upland Software, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(8,670)	$	(6,513)	$	(163,862)	$	(45,737)
Other comprehensive income (loss):
Foreign currency translation adjustment	(4,103)		(13,869)		(3,248)		(32,272)
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):	$	(10,187)	$	(3,296)	$	(5,882)	$	5,874
Comprehensive loss	$	(18,857)	$	(9,809)	$	(169,744)	$	(39,863)

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

Upland Software, Inc.

Condensed Consolidated Statements of Equity

(unaudited)

(in thousands, except share amounts)


	Three Months Ended September 30, 2023
	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2023	115,000	$	114,935	32,654,615	$	3	$	616,556	$	15,415	$	(464,190)	$	167,784



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


Foreign currency translation adjustment	—	—		—	—		—		(4,103)		—		(4,103)
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries	—	—		—	—		—		(2,588)		—		(2,588)
Interest rate swaps	—	—		—	—		—		(3,496)		—		(3,496)
Net loss	—	—		—	—		—		—		(8,670)		(8,670)
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 Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2022	—	$	—	31,632,628	$	3	$	594,080	$	(2,344)	$	(279,809)	$	311,930




Issuance of Convertible Preferred Stock	115,000	110,520		—	—		—		—		—		—
Dividends accrued - Convertible Preferred Stock	—	546		—	—		(546)		—		—		(546)
Issuance of stock under Company plans, net of shares withheld for tax	—	—		144,494	—		(169)		—		—		(169)


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

Foreign currency translation adjustment	—	—		—	—		—		(13,869)		—		(13,869)
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries	—	—		—	—		—		(7,415)		—		(7,415)
Interest rate swaps	—	—		—	—		—		17,988		—		17,988
Net loss	—	—		—	—		—		—		(6,513)		(6,513)
Balance at September 30, 2022	115,000	$	111,066	31,777,122	$	3	$	600,892	$	(5,640)	$	(286,322)	$	308,933

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


	Nine Months Ended September 30, 2023
	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	115,000	$	112,291	32,221,855	$	3	$	606,755	$	11,110	$	(308,998)	$	308,870



Dividends accrued - Convertible Preferred Stock	—	3,988		—	—		$	(3,988)	—		—		(3,988)
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


Foreign currency translation adjustment	—	—		—	—		—		(3,248)		—		(3,248)
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries	—	—		—	—		—		1,111		—		1,111
Interest rate swaps	—	—		—	—		—		(3,745)		—		(3,745)
Net loss	—	—		—	—		—		—		(163,862)		(163,862)
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 Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	—	$	—	31,096,548	$	3	$	568,384	$	(11,514)	$	(240,585)	$	316,288

Issuance of Convertible Preferred Stock	115,000	110,520		—	—		—		—		—		—
Dividends accrued - Convertible Preferred Stock	—	546		—	—		(546)		—		—		(546)
Issuance of stock under Company plans, net of shares withheld for tax	—	—		680,574	—		(969)		—		—		(969)

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


Foreign currency translation adjustment	—	—		—	—		—		(32,272)		—		(32,272)
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries, net of taxes	—	—		—	—		—		(14,211)		—		(14,211)
Interest rate swaps	—	—		—	—		—		52,357		—		52,357
Net loss	—	—		—	—		—		—		(45,737)		(45,737)
Balance at September 30, 2022	115,000	$	111,066	31,777,122	$	3	$	600,892	$	(5,640)	$	(286,322)	$	308,933

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


Upland Software, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)

	Nine Months Ended September 30,
(In thousands)	2023		2022
Operating activities
Net loss	$	(163,862)	$	(45,737)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	54,475		41,333
Change in fair value of liabilities due to sellers of businesses	—		(75)
Deferred income taxes	(2,651)		(3,291)
Amortization of deferred costs	9,909		9,041
Foreign currency re-measurement loss	(983)		40
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		—


Non-cash loss on retirement of fixed assets	46		26

Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable	10,168		18,187
Prepaid expenses and other current assets	(5,405)		5,148
Other assets	12,259		(10,203)
Accounts payable	(871)		(1,464)
Accrued expenses and other liabilities	(4,729)		(11,256)
Deferred revenue	(12,069)		(13,321)
Net cash provided by operating activities	41,154		24,138
Investing activities
Purchase of property and equipment	(1,034)		(718)

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

Net cash used in investing activities	(1,034)		(63,074)
Financing activities

Payments of debt costs	(190)		(200)
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)
Issuance of common stock, net of issuance costs	2		190

Additional consideration paid to sellers of businesses	(5,550)		(8,174)
Net cash provided by (used in) financing activities	(48,745)		97,127
Effect of exchange rate fluctuations on cash	(437)		(5,629)
Change in cash and cash equivalents	(9,062)		52,562
Cash and cash equivalents, beginning of period	248,653		189,158
Cash and cash equivalents, end of period	$	239,591	$	241,720
Supplemental disclosures of cash flow information:
Cash paid for interest, net of interest rate swaps	$	23,147	$	21,804
Cash paid for taxes	$	6,227	$	3,163

Non-cash investing and financing activities:
Business combination consideration including holdbacks and earnouts	$	—	$	7,820

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

Upland Software, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Nature of Operations

Upland Software, Inc. (“Upland,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, is a provider of cloud-based software that enables organizations to drive digital transformation in the following business functions: Marketing, Sales, Contact Center, Knowledge Management, Project Management, Information Technology, Business Operations, Human Resources and Legal.

To support continued growth, Upland intends to pursue acquisitions within its cloud offerings of complementary technologies and businesses. Upland expects that this will expand its product offerings, customer base and market access, resulting in increased benefits of scale.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of Upland Software, Inc. and its wholly owned subsidiaries (collectively referred to as “Upland”, the “Company”, “we”, “us” or “our”). All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. In the opinion of management of the Company, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, in all material respects, and include all adjustments of a normal recurring nature necessary for a fair presentation. The results of operations for the nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other period.

The 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

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses. Significant items subject to such estimates include those related to revenue recognition, deferred commissions, allowance for credit losses, stock-based compensation, contingent consideration, acquired intangible assets, impairment of goodwill, intangibles and long-lived assets, the useful lives of intangible assets and property and equipment, the fair value of the Company’s interest rate swaps and income taxes. In accordance with GAAP, management bases its estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ from those estimates.

Upland is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of November 2, 2023, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in our Annual Report.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts

receivable and the Company’s interest rate swap hedges. The Company’s cash and cash equivalents are placed with high quality financial institutions, which, at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts, and the Company does not believe it is exposed to any significant credit risk related to cash and cash

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

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

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

market conditions, and reasonable and supportable forecasts.

No individual customer represented more than 10% of total revenues for the 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

Recently issued accounting pronouncements - Adopted

In March 2020, the Financial Standards Accounting Board (“FASB”) issued accounting standards update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offer Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We adopted ASU 2020-04 during the first quarter of 2023. On February 21, 2023, the Company entered into an amended and restated credit agreement to, among other things, provide for the replacement of LIBOR with the Secured Overnight Financing Rate (“SOFR”), an index measuring the cost of borrowing cash overnight collateralized by Treasury securities. The Company has elected to apply the debt agreement modification expedients related to changes to the reference rate from LIBOR to SOFR in the Company's Credit Agreement, which it completed during the three months ended March 31, 2023. Application of these expedients allows the Company to account for the modification as not substantial. As a result, the debt agreement modification will be accounted for by prospectively adjusting the Credit Agreement’s effective interest rate, any existing unamortized debt discount will carry forward and continue to be amortized and no remeasurement of the Credit Agreement at the modification date is required.

The Company has also elected to apply the hedge accounting expedients and exceptions related to changes to the reference rate from LIBOR to SOFR in the Company's interest rate swaps, which it completed during the three months ended March 31, 2023. Application of these exceptions preserves the cash flow hedge designation of the interest rate swaps and the related accounting and presentation consistent with past presentation. The replacement of LIBOR with SOFR in the credit agreement did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures. See “Note—7. Debt” for additional information.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance requires companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under prior GAAP, an acquirer in a business combination was generally required to recognize and measure the assets it acquired and the liabilities it assumed at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments were effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 on January 1, 2023 and our adoption did not have a material impact on our condensed consolidated financial statements.

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

Contracts in an Entity’s Own Equity. ASU 2020-06 simplified the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amended the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 amended the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The update also required entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The guidance was effective for interim and annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2022.

3. Acquisitions

The Company performs quantitative and qualitative analyses to determine the significance of each acquisition to the financial statements the Company. Based on these analyses the below acquisitions were deemed to be insignificant on an individual and cumulative basis.

2023 Acquisitions

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

2022 Acquisitions

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

Consideration

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


	BA Insight		Objectif Lune
Cash	$	33,355	$	29,750
Holdback (1)	645		5,250




Working capital and other adjustments	1,587		644
Total consideration	$	35,587	$	35,644

(1)Represents the cash holdbacks subject to indemnification claims that are payable 12 months following closing for Objectif Lune, and 15 months following closing for BA Insight. As of September 30, 2023, all of the holdbacks had been paid.

Fair Value of Assets Acquired and Liabilities Assumed

The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting, and has recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition. Management has recorded the purchase price allocations based upon acquired company information that is currently available. Management completed the purchase accounting for BA Insight in December 2022 and Objectif Lune during the first quarter of 2023.

The following condensed table presents the finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions during the year ended December 31, 2022 and through the nine months ended September 30, 2023 (in thousands):


	Final
	BA Insight		Objectif Lune
Year Acquired	2022		2022
Cash	$	4	$	745
Accounts receivable	2,466		5,677
Other current assets	4,080		7,183

Operating lease right-of-use asset	110		1,905
Property and equipment	3		248
Customer relationships	10,500		17,717
Trade name	150		362
Technology	2,000		5,512
Favorable Leases	—		291
Goodwill	25,495		23,797
Other assets	25		744
Total assets acquired	44,833		64,181
Accounts payable	(236)		(2,001)
Accrued expense and other	(4,083)		(9,431)
Deferred tax liabilities	—		(6,353)
Deferred revenue	(4,817)		(8,847)
Operating lease liabilities	(110)		(1,905)

Total liabilities assumed	(9,246)		(28,537)
Total consideration	$	35,587	$	35,644

The Company uses third party valuation consultants to determine the fair values of assets acquired and liabilities assumed. Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value. The valuation of identifiable intangible assets reflects management’s estimates based on, among other factors, the use of established valuation methods. Customer relationships are valued using the multi-period excess earnings method. Developed technology and trade names are valued using the relief-from-royalty method.

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


	Useful Life

Customer relationships		7.0
Trade name		2.0
Developed technology		6.2
Favorable Leases		6.3
Total weighted-average useful life		6.8

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

The goodwill of $49.3 million for the above acquisitions was primarily attributable to the synergies expected to arise after the acquisition and the value of the acquired workforce. Goodwill that was deductible for tax purposes at the time of the acquisitions was $4.6 million.

Acquisition-related expenses are typically one-time expenses incurred through four full quarters after each acquisition, with the majority of these costs being incurred within 6 to 9 months, to transform the acquired business into the Company's unified operating platform. These expenses can vary based on the size, timing and location of each acquisition. Acquisition-related expenses include transaction related expenses such as banker fees, legal and professional fees, insurance costs, and deal bonuses. Acquisition-related expenses also include transformational expenses such as severance, compensation for transitional personnel, office lease terminations, vendor cancellations, and adjustments to the fair value of earnouts due to sellers.

4. Fair Value Measurements

The Company recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

These tiers include Level 1, defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

The Company’s financial instruments consist principally of cash and cash equivalents, money market funds, accounts receivable, accounts payable, interest rate swap assets, and debt. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, primarily due to short maturities.

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


	Fair Value Measurements at September 30, 2023
	(unaudited)
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds included in cash and cash equivalents	$	218,598	$	—	$	—	$	218,598
Interest rate swaps	—		20,771		—		20,771
Total	$	218,598	$	20,771	$	—	$	239,369


	Fair Value Measurements at December 31, 2022

	Level 1		Level 2		Level 3		Total
Assets:
Money market funds included in cash and cash equivalents	$	172,849	$	—	$	—	$	172,849
Interest rate swaps	—		41,168		—		41,168
Total	$	172,849	$	41,168	$	—	$	214,017

Money market funds are highly-liquid investments and are included in cash and cash equivalents on the consolidated balance sheets. The pricing information on these investment instruments is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

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.

Debt

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.

5. Goodwill and Other Intangible Assets

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


Balance at December 31, 2022	$	477,043


Adjustment related to prior year business combinations	415

Impairment of goodwill	(128,755)
Foreign currency translation adjustment and other	(531)
Balance at September 30, 2023	$	348,172

As a result of the decline of our stock price impacting our market capitalization during the quarter ended March 31, 2023, we performed a quantitative impairment evaluation as of March 31, 2023, which resulted in a goodwill impairment of $128.8 million. This quantitative goodwill impairment analysis applied two methodologies to estimate the Company’s fair value which were: a) a discounted cash flow method and b) a guideline public company method. The two methods generated similar results and indicated that the fair value of the Company was less than its carrying value. The discounted cash flow method required significant judgments, including estimation of future cash flows, which are dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, and determination of our weighted average cost of capital. Under the guideline public company method, we estimated fair value based on a market multiple of revenues and earnings derived for comparable publicly traded companies with similar operating characteristics as the Company. We will continue to evaluate Goodwill for impairment and adjust as indicators arise.

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

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


	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
September 30, 2023:		(unaudited)
Customer relationships	1-10	$	371,784	$	204,741	$	167,043
Trade name	1.5-10	9,830		7,503		2,327
Developed technology	4-9	92,540		66,389		26,151

Favorable Leases	6.3	272		76		196
Total intangible assets		$	474,426	$	278,709	$	195,717


	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
December 31, 2022:
Customer relationships	1-10	$	372,162	$	162,995	$	209,167
Trade name	1.5-10	9,837		6,728		3,109
Developed technology	4-9	92,585		56,240		36,345

Favorable Leases	6.3	273		43		230
Total intangible assets		$	474,857	$	226,006	$	248,851

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.

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):


	Amortization Expense
Year ending December 31:
Remainder of 2023	$	16,587
2024	51,497
2025	36,543
2026	34,327
2027	30,092
2028 and thereafter	26,671
Total	$	195,717

6. Income Taxes

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

The income tax benefit of $1.1 million and $1.7 million for the three and nine months ended September 30, 2022, respectively, is primarily related to foreign income taxes associated with our combined non-U.S. operations and the deferred tax benefit attributable to the release of valuation allowance related to the acquisition of deferred tax liabilities associated with the Company’s business combination occurring during the three and nine months ended September 30, 2022, as discussed in “Note 3. Acquisitions.” These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards and the impact, recorded as discrete for the three months ended March 31, 2022, of the deferred tax provision attributable to the tax gain associated with the transfer of goodwill between foreign and domestic jurisdictions.

The Company historically incurred operating losses in the United States prior to 2021 and, given its cumulative losses and limited history of profits, has recorded a valuation allowance against its United States net deferred tax assets, exclusive of tax deductible goodwill, at September 30, 2023 and December 31, 2022, respectively.

The Company has reflected any uncertain tax positions primarily within its long-term taxes payable and a portion within deferred tax assets. The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction, several U.S. state jurisdictions and several foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for

years ending before December 31, 2019 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, 2018, other than where cross-border transactions extend the statute of limitations. The Company is not currently under audit in any federal, state or any foreign jurisdictions. U.S. 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.

7. Debt

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





Less current maturities	(3,103)		(3,136)
Total long-term debt	$	474,370	$	511,847

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. The Revolver provides a sub-facility whereby the Company may request letters of credit (the “Letters of Credit”) in an aggregate amount not to exceed, at any one time outstanding, $10 million for the Company. The aggregate amount of outstanding Letters of Credit are reserved against the credit availability under the Maximum Revolver Amount. The Company incurs a 0.50% per annum unused line fee on the unborrowed balance of the Revolver which is paid quarterly.

Loans under the Revolver may be borrowed, repaid and reborrowed until August 6, 2024 (the “Maturity Date”), at which time all amounts borrowed under the Revolver must be repaid. As of September 30, 2023, the Company had no borrowings outstanding under the Revolver or related sub-facility.

On February 21, 2023, the Company entered into that certain Amendment No.1 to the Credit Facility (the “Amendment”), which amended the Credit Facility. The Amendment updated the interest rate benchmark from LIBOR to SOFR. Other than the foregoing, the material terms of the Credit Agreement remain unchanged.

At the option of the Company, the Term Loans accrue interest at a per annum rate based on (i) the Base Rate plus a margin of 2.75% or (ii) the rate (not less than 0.00%) published by CME Group Benchmark Administration Limited (CBA), or as otherwise determined in accordance with the Credit Facility (based on a period equal to 1, 2, 3 or 6 months or, if available and agreed to by all relevant Lenders and the Agent, 12 months or such period of less than 1 month) plus a margin of 3.75%. The Base Rate for any day is a rate per annum equal to the greatest of (i) the prime rate in effect on such day, (ii) the federal funds effective rate (not less than 0.00%) in effect on such day plus ½ of 1.00%, and (iii) the Federal Funds Effective Rate for a one month interest period beginning on such day plus 1.00%. After giving effect to the interest rate swaps described below, $259.9 million of the Term Loans has an effective annualized fixed interest rate of 5.4%, and the remaining principal outstanding at September 30, 2023 has a floating interest rate of 9.2%.

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

Covenants

The Credit Facility contains customary affirmative and negative covenants.

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. 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 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

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.

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 rate 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 (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.

8. Net Loss Per Share

We compute loss per share of our common stock, par value $0.0001 per share (“Common Stock”) and Series A Preferred Stock using the two-class method. The two-class method requires income available to common stockholders for the period to be allocated between Common Stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. We consider our Series A Preferred Stock to be a participating security, as its holders are entitled to fully participate in any dividends or other distributions declared or paid on our Common Stock on an as-converted basis.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Numerator:
Net Loss	$	(8,670)	$	(6,513)	$	(163,862)	$	(45,737)

Preferred stock dividends and accretion	(1,344)		(546)		(3,988)		(546)
Net loss attributable to common stockholders	$	(10,014)	$	(7,059)	$	(167,850)	$	(46,283)
Denominator:
Weighted–average common shares outstanding, basic and diluted	32,579,544		31,655,206		32,438,682		31,401,463
Net loss per common share, basic and diluted	$	(0.31)	$	(0.22)	$	(5.17)	$	(1.47)

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

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


	September 30,
	2023	2022

Stock options	151,718	155,895

Restricted stock units	2,063,895	1,442,886
Performance restricted stock units	193,750	93,750
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 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. Series A Convertible Preferred Stock”

9. Commitments and Contingencies

Purchase Commitments

The Company has purchase commitments related to hosting services, third-party technology used in the Company's solutions and for other services the Company purchases as part of normal operations. In certain cases these arrangements require a minimum annual purchase commitment.

Litigation

In the normal course of business, the Company may become involved in various lawsuits and legal proceedings. The Company does not anticipate that any legal proceedings will have a material adverse effect on the Company's condensed consolidated balances sheets or condensed consolidated statement of operations.

In addition, when we acquire companies, we require that the sellers provide industry standard indemnification for breaches of representations and warranties contained in the acquisition agreement and we will withhold payment of a portion of the purchase price for a period of time in order to satisfy any claims that we may make for indemnification. In certain transactions, we agree with the sellers to purchase a representation and warranty insurance policy that will pay such claims for indemnification. From time to time we may have one or more claims for indemnification pending. Similarly, we may have one or more ongoing negotiations related to the amount of an earnout. Gain contingencies related to indemnification claims are not recognized in our condensed consolidated financial statements until realized.

10. Series A Convertible Preferred Stock

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

On August 23, 2022 (the “Closing Date”), the closing of the Investment (the “Closing”) occurred, and the Series A Preferred Stock was issued to the Purchaser. In connection with the issuance of the Series A Preferred Stock, the Company incurred direct and incremental expenses comprised of transaction fees, and financial advisory and legal expenses (the “Series A Preferred Stock Issuance Costs”), which reduced the carrying value of the Series A Preferred Stock. As of September 30, 2023, the Series A Preferred Stock Issuance Costs totaled $4.6 million. Cumulative preferred dividends accrue quarterly on the Series A Preferred Stock at a rate of 4.5% per year within the first seven years after the Closing Date regardless of whether declared or assets are legally available for the payment. Such dividends shall accrue and compound quarterly in arrears from the date of issuance of the shares. The dividend rate will increase to 7.0% on the seven-year anniversary of the Closing Date. The Series A Preferred Stock had accrued unpaid dividends of $5.8 million as of September 30, 2023.

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. Pursuant to the Registration Rights Agreement, the Purchaser has certain customary registration rights with respect to any shares of Series A Preferred Stock or the Common Stock of the Company issuable upon conversion of the Series A Preferred Stock, including rights with respect to the filing of a shelf registration statement, underwritten offering rights and piggy back rights.

Dividend Provisions

The Series A Preferred Stock ranks senior to the Company’s Common Stock with respect to payment of dividends and rights on the distribution of assets on any liquidation, dissolution or winding up of the affairs of the Company. The Series A Preferred Stock has an Initial Liquidation Preference of $1,000 per share, representing an aggregate Liquidation Preference (as defined below) of $1,000 upon issuance. Holders of the Series A Preferred Stock are entitled to the dividend at the rate of 4.5% per annum, within the first seven years after the Closing Date regardless of whether declared or assets are legally available for the payment. Such dividends shall accrue and compound quarterly in arrears from the date of issuance of the shares. The dividend rate will increase to 7.0% on the seven-year anniversary of the Closing Date. The dividend can be paid, in the Company’s sole discretion, in cash or dividend in kind by adding to the Liquidation Preference of each share of Series A Preferred Stock outstanding. On June 7, 2023, the stockholders of the Company authorized, for purposes of complying

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

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

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

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

Liquidation Rights

In the event of any Liquidation, holders of the Series A Preferred Stock are entitled to receive an amount per share equal to the greater of (1) the Initial Liquidation Preference per share plus any accrued or declared but unpaid dividends on such shares (the “Liquidation Preference”) or (2) the amount payable if the Series A Preferred Stock were converted into Common Stock. The Series A Preferred Stock will have distribution and liquidation rights senior to all other equity interests of the Company. As of September 30, 2023, the Liquidation Preference of the Series A Preferred Stock was $120.8 million.

Optional Redemption

On or after the 7th anniversary of the original issue date of the Series A Preferred Stock, the Company has the right to redeem any outstanding shares of the Series A Preferred Stock for a cash purchase price equal to 105% of the Liquidation Preference plus accrued and unpaid dividends as of the date of redemption.

Deemed Liquidation Event Redemption

Upon a fundamental change, holders of the Series A Preferred Stock have the right to require the Company to repurchase any or all of its Series A Preferred Stock for cash equal to the greater of (1) 105% of the Liquidation Preference plus the present value of the dividend payments the holders would have been entitled to through the fifth anniversary of the issue date and (2) the amount that such Preferred Stock would have been entitled to receive as if converted into common shares immediately prior to the fundamental change.

A fundamental change (“Deemed Liquidation Event”) is defined as either the direct or indirect sale, lease, transfer, conveyance or other disposition of all or substantially all the properties or assets of the Company and its subsidiaries to any third party or the consummation of any transaction, the result of which is that any third party or group of third parties become the beneficial owner of more than 50% of the voting power of the Company.

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-converted basis.

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

(the “Board of Directors”) for so long as holders of the Series A Preferred Stock own in the aggregate at least 5% of the shares of Common Stock on a fully diluted basis. In addition, the holders of the Series A Preferred Stock will have the right to elect one non-voting observer to the Board of Directors for so long as they hold at least 10% of the shares of Convertible Preferred Stock outstanding as of the date of the issue date.

Conversion Feature

The Series A Preferred Stock may be converted, at any time in whole or in part at the option of the holder into a number of shares of Common Stock equal to the quotient obtained by dividing the sum of the Liquidation Preference plus all accrued and unpaid dividends by the conversion price of $17.50 (the “Conversion Price”). The Conversion Price is subject to adjustment in the following events:

•Stock splits and combinations

•Tender offers or exchange offers

•Distribution of rights, options, or warrants at a price per share that is less than the average of the last reported sale prices per share of Common Stock for the ten consecutive trading days

•Spin-offs and other distributed property

•Issuance of equity-linked securities at a price per share less than the conversion price

Anti-Dilution Provisions

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

11. Stockholders' Equity

Registration Statements

On October 21, 2022 we filed a resale registration statement on Form S-3 (File No. 333-267973) (the “2022 S-3”), on behalf of the Purchaser and pursuant to the Registration Rights Agreement, which became effective on November 1, 2022 and covers (i) the issued Series A Preferred Stock and (ii) the number of shares of the Company’s Common Stock issuable upon conversion of such Series A Preferred Stock, which amount includes and assumes that dividends on the Series A Preferred Stock are paid by increasing the Liquidation Preference of the Series A Preferred Stock for a period of sixteen dividend payment periods from the initial issuance date. See “Note—10. 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

At the Company’s annual meeting on June 7, 2023, the stockholders of the Company adopted a Certificate of Amendment (the “Certificate of Amendment”) to the Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”). Among other things, the Certificate of Amendment amended the Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock, from 50,000,000 to 75,000,000.

Tax Benefit Preservation Plan and Preferred Stock Purchase Rights

On May 2, 2023, our Board of Directors authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock of the Company as of May 12, 2023 (the “Record Date”). 32,441,010 Rights were issued to the holders of record of shares of Common Stock. The description and terms of the Rights are set forth in a Tax Benefit Preservation Plan, dated as of May 2, 2023, as the same may be amended from time to time (the “Plan”), between the Company and Broadridge Corporate Issuer Solutions, LLC, as Rights Agent.

By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its net operating loss carryforwards (“NOLs”) and other tax attributes to offset potential future income tax liabilities. The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code (the “Code”). Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company. The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.9% or more of the outstanding shares of stock without the approval of the Board of Directors. The Board of Directors believes it is in the best interest of the Company and its stockholders to reduce the likelihood of an ownership change, which could harm the Company’s future operating results by effectively increasing the Company future tax liabilities.

The Rights trade with, and are inseparable from, the Common Stock, and the record holders of shares of Common Stock are the record holders of the Rights. The Rights are evidenced only by certificates (or, in the case of uncertificated shares, by notations in the book-entry account system) that represent shares of Common Stock. Rights will also be issued in respect of any shares of Common Stock that shall become outstanding after the Record Date (including upon conversion of any shares of Series A Preferred Stock of the Company) and, subject to certain exceptions specified in the Plan, prior to the earlier of the Distribution Date (as defined below) and the Expiration Date (as defined below).

The Rights are not exercisable until the Distribution Date. After the Distribution Date, each Right will be exercisable to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.0001 per share, of the Company (the “Series B Preferred”), at a purchase price of $18.00 per one one-thousandth of a share of Series B Preferred (the “Purchase Price”), subject to adjustment as provided in the Plan.

The “Distribution Date” is the earlier of (i) the close of business on the tenth day after the public announcement that a person or group has become an Acquiring Person (as defined below) or that discloses information which reveals the existence of an Acquiring Person or such earlier date as a majority of the Board shall become aware of the existence of an Acquiring Person (the date described in this clause (i), the “Stock Acquisition Date”) and (ii) the close of business on the tenth business day (or such later date as the Board of Directors shall determine prior to such time as any person or group becomes an Acquiring Person) after the date that a tender or exchange offer by any person is commenced, the consummation of which would result in such person becoming an Acquiring Person. A person or group becomes an “Acquiring Person” upon acquiring beneficial ownership of 4.9% or more of the outstanding shares of Common Stock, except in certain situations specified in the Plan.

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

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

The Board of Directors may adjust the Purchase Price, the number of shares of Series B Preferred issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Series B Preferred or Common Stock or certain other specified transactions. No adjustments to the Purchase Price of less than 1% are required to be made.

In connection with the adoption of the Plan, the Board of Directors approved a Certificate of Designations of the Series B Junior Participating Preferred Stock (the “Certificate of Designations”). The Certificate of Designations was filed with the Secretary of State of the State of Delaware on May 2, 2023.

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

•Will not be redeemable.

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

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

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

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

Accumulated Other Comprehensive Income

Comprehensive income consists of two elements, net loss and other comprehensive income (loss). Other comprehensive income (loss) items are recorded in the stockholders’ equity section of our condensed consolidated balance sheets and are excluded from net loss. Our other comprehensive income consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the U.S. dollar, unrealized translation gains on intercompany loans with foreign subsidiaries, and unrealized gains on interest rate swaps.

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


	September 30, 2023		December 31, 2022
Foreign currency translation adjustment	$	(25,880)	$	(22,632)
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 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.

The functional currency of our foreign subsidiaries are the local currencies. Results of operations for foreign subsidiaries are translated into United States dollars (“USD”) using the average exchange rates on a monthly basis during the year. The assets and liabilities of those subsidiaries are translated into USD using the exchange rates in effect at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' equity in AOCI.

The Company has intercompany loans that were used to fund the acquisitions of foreign subsidiaries. Due to the long-term nature of the loans, the unrealized translation gains (losses) resulting from re-measurement are recognized as a component of AOCI.

Stock-Based Compensation

The Company recognizes stock-based compensation expense from all awards in the following expense categories included in our condensed consolidated statements of income were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of revenue	$	246	$	510	$	850	$	1,487
Research and development	608		701		1,911		2,107
Sales and marketing	429		612		1,563		3,584
General and administrative	4,077		5,704		13,868		26,845
Total	$	5,360	$	7,527	$	18,192	$	34,023

2014 Equity Incentive Plan

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

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

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

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


	Number of Units	Weighted-Average Grant Date Fair Value
Unvested restricted units outstanding as of December 31, 2022	1,603,023	$	21.33
Granted	1,775,357	7.85
Vested	(886,123)	18.34
Forfeited	(234,612)	14.05
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. Compensation expense is recognized over the required service period of the grant. The fair value of the RSUs is determined based on the grant date fair value of the award. The fair value of the PSUs is determined using the Monte Carlo simulation model and is not subject to fluctuation due to achievement of the underlying market-based target.

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


	September 30, 2023	December 31, 2022
Expected volatility	55.5%	49.5%
Risk-free interest rate	4.4%	0.7%
Remaining performance period (in years)	2.86	1.46
Dividend yield	—	—

Stock Option Activity

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


	Number of Options Outstanding	Weighted– Average Exercise Price
Outstanding at December 31, 2022	154,321	$	11.19

Options exercised	(1,784)	1.77

Options expired	(819)	6.23
Outstanding at September 30, 2023	151,718	$	11.33

12. Revenue Recognition

Revenue Recognition Policy

Revenue is recognized when control of the promised goods or services is transferred to the Company's customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services over the term of the agreement, generally when made available to the customers. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of sales credits and allowances. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Revenue is recognized based on the following five step model in accordance with ASC 606, Revenue from Contracts with Customers:

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, the Company satisfies a performance obligation

Performance obligations under our contracts consist of subscription and support, perpetual licenses, and professional services revenues within a single operating segment.

Subscription and Support Revenue

The Company's software solutions are available for use as hosted application arrangements under subscription fee agreements without licensing perpetual rights to the software. Subscription fees from these applications are recognized over time on a ratable basis over the customer agreement term beginning on the date the Company's solution is made available to the customer. As our customers have access to use our solutions over the term of the contract agreement we believe this method of revenue recognition provides a faithful depiction of the transfer of services provided. Our subscription contracts are generally 1 to 3 years in length. 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. Subscription and support revenue includes revenue related to the Company’s digital engagement application which provides short code connectivity for its two-way short message service (“SMS”) programs and campaigns. As discussed further in the “Principal vs. Agent Considerations” section below, the Company recognizes revenue related to these messaging-related subscription contracts on a gross basis.

Perpetual License Revenue

The Company also records revenue from the sales of proprietary software products under perpetual licenses. Revenue from distinct on-premises licenses is recognized upfront at the point in time when the software is made available to the customer. The majority of the Company’s products do not require significant customization.

Professional Services Revenue

Professional services provided with subscription and support licenses and perpetual licenses consist of implementation fees, data extraction, configuration, and training. The Company’s implementation and configuration services do not involve significant customization of the software and are not considered essential to the functionality. Revenue from professional services are recognized over time as such services are performed. Revenue for fixed price services are generally recognized over time applying input methods to estimate progress to completion. Revenue for consumption-based services are generally recognized as the services are performed.

Significant Judgments

Performance Obligations and Standalone Selling Price

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting. Determining whether products and services are considered distinct performance obligations that should be evaluated separately versus together may require significant judgment. The Company has contracts with customers that often include multiple performance obligations, usually including professional services sold with either individual or multiple subscriptions or perpetual licenses. For these contracts, the Company records individual performance obligations separately if they are distinct by allocating the contract's total transaction price to each performance obligation in an amount based on the relative standalone selling price (“SSP”), of each distinct good or service in the contract.

Judgment is required to determine the SSP for each distinct performance obligation. A residual approach is only applied in limited circumstances when a particular performance obligation has highly variable and uncertain SSP and is bundled with other performance obligations that have observable SSP. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, historical standalone sales, customer demographics, geographic locations, and the number and types of users within our contracts.

Principal vs. Agent Considerations

The Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) for vendor reseller agreements and messaging-related subscription agreements. Where the Company is the principal, it first obtains control of the inputs to the specific good or service and directs their use to create the combined output. The Company's control is evidenced by its involvement in the integration of the good or service on its platform before it is transferred to its customers, and is further supported by the Company being primarily responsible to its customers and having a level of discretion in establishing pricing. While none of the factors individually are considered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, the Company places the most weight on the analysis of whether or not it is the primary obligor in the arrangement.

Generally, the Company reports revenue from vendor reseller agreements on a gross basis, meaning the amounts billed to customers are recorded as revenue, and expenses incurred are recorded as cost of revenue. As the Company is primarily obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, revenue is recorded on a gross basis with related telecom messaging costs incurred from third parties recorded as cost of revenue. Revenue provided from agreements in which the Company is an agent are immaterial.

Contract Balances

The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables, and deferred revenue. Billings scheduled to occur after the performance obligation has been satisfied and revenue recognition has occurred result in unbilled receivables, which are expected to be billed during the succeeding twelve-month period and are recorded in Unbilled receivables in our condensed consolidated balance sheets. A contract liability results when we receive prepayments or deposits from customers in advance for implementation, maintenance and other services, as well as subscription fees. 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. Contract liabilities that are expected to be recognized as revenue during the succeeding twelve-month period are recorded in Deferred revenue and the remaining portion is recorded in Deferred revenue noncurrent on the accompanying condensed consolidated balance sheets at the end of each reporting period.

Deferred revenue primarily consists of amounts that have been billed to or received from customers in advance of revenue recognition and prepayments received from customers in advance for maintenance and other services, as well as initial subscription fees. We recognize deferred revenue as revenue when the services are performed, and the corresponding revenue recognition criteria are met. Customer prepayments are generally applied against invoices issued to customers when services are performed and billed. Our payment terms vary by the type and location of our customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, we require payment before the products or services are delivered to the customer.

Unbilled Receivables

Unbilled receivables represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for software licenses already delivered and professional services already performed, but invoiced in arrears and for which the Company believes it has an unconditional right to payment. As of September 30, 2023 and December 31, 2022, unbilled receivables were $4.1 million and $5.3 million, respectively.

Deferred Commissions

Sales commissions earned by our sales force, and related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer. Deferred commissions and other costs for new customer contracts are capitalized upon contract signing and amortized on a systematic basis that is consistent with the transfer of goods and services over the expected life of the customer relationships, which has been determined to be approximately 6 years. The expected life of our customer relationships is based on historical data and management estimates, including estimated renewal terms and the useful life of the associated underlying technology. Commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts, as such, deferred commissions related to renewals are capitalized and amortized over the estimated average contractual renewal term of 18 months. We utilize the 'portfolio approach' practical expedient permitted under ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics as the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts. The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred commissions, current, and the remainder is recorded in long-term assets as deferred commissions, net of current portion. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. Deferred commissions are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable consistent with the Company's long-lived assets policy. No indicators of impairment were identified during the nine months ended September 30, 2023.

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


	Deferred Commissions
Balance at December 31, 2022	$	24,755


Capitalized deferred commissions	8,814
Amortization of deferred commissions	(9,846)
Balance at September 30, 2023	$	23,723

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

Deferred Revenue

Deferred revenue represents either customer advance payments or billings for which the aforementioned revenue recognition criteria have not yet been met.

Deferred revenue is mainly unearned revenue related to subscription services and support services. During the nine months ended September 30, 2023, we recognized $97.7 million and $3.4 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

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.

Disaggregated Revenue

The Company disaggregates revenue from contracts with customers by geography and revenue generating activity, as it believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Revenue by geography is based on the ship-to address of the customer, which is intended to approximate where the customers' users are located. The ship-to country is generally the same as the billing country. The Company has operations primarily in the United States, United Kingdom and Canada. Information about these operations is presented below (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues:
Subscription and support:
United States	$	49,884	$	54,054	$	152,287	$	158,394
United Kingdom	9,371		9,939		28,205		31,649
Canada	3,348		4,625		10,281		13,520
Other International	7,359		6,477		22,597		20,176
Total subscription and support revenue	69,962		75,095		213,370		223,739
Perpetual license:
United States	409		1,110		1,786		2,581
United Kingdom	222		51		514		342
Canada	38		10		94		187
Other International	825		513		1,923		2,210
Total perpetual license revenue	1,494		1,684		4,317		5,320

Professional services:
United States	1,522		1,673		4,676		5,121
United Kingdom	336		442		1,046		1,901
Canada	225		189		684		647
Other International	582		466		1,581		1,764
Total professional service revenue	2,665		2,770		7,987		9,433
Total revenue	$	74,121	$	79,549	$	225,674	$	238,492

13. Related Party Transactions

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

14. 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 28, 2023. In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements concerning the following:

•our financial performance and our ability to achieve or sustain profitability or predict future results;

•our plans regarding future acquisitions and our ability to consummate and integrate acquisitions;

•our ability to expand our go to market operations, including our marketing and sales organization, and successfully increase sales of our products;

•our ability to obtain financing in the future on acceptable terms or at all;

•our expectations with respect to revenue, cost of revenue and operating expenses in future periods;

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

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

•our ability to attract and retain customers;

•our ability to successfully enter new markets and manage our international expansion;

•our ability to comply with privacy laws and regulations;

•our ability to deliver high-quality customer service;

•our plans regarding, and our ability to effectively manage, our growth;

•maintaining our senior management team and key personnel;

•the performance of our resellers;

•our ability to adapt to changing market conditions and competition;

•our ability to adapt to technological change and continue to innovate;

•global economic and financial market conditions and uncertainties;

•the growth of demand for cloud-based, digital transformation applications;

•our ability to integrate our applications with other software applications;

•maintaining and expanding our relationships with third parties;

•costs associated with defending intellectual property infringement and other claims;

•our ability to maintain, protect and enhance our brand and intellectual property;

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

•impairments to goodwill and other intangible assets;

•our beliefs regarding how our applications benefit customers and what our competitive strengths are;

•the operation, reliability and security of our third-party data centers;

•the risk that we did not consider another contingency included in this list;

•our expectations as to the payment of dividends;

•our Share Repurchase Plan (as defined in Note 11. Stockholders’ Equity), including expectations regarding the timing and manner of repurchases made under the Share Repurchase Plan;

•our current level of indebtedness, including our exposure to variable interest rate risk;

•potential elimination or limitation of tax incentives or tax losses and/or reduction of U.S. federal net operating loss carryforwards (“NOLs”); and

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•other risk factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023, as updated by this Quarterly Report on Form 10-Q and periodically updated as necessary in our future quarterly reports on Form 10-Q and other filings that we make with the SEC.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

Overview

We service customers ranging from large global corporations and government agencies to small- and medium-sized businesses. We have more than 10,000 customers with over 1,000,000 users across a broad range of industries, including financial services, retail, technology, manufacturing, legal, education, consumer goods, media, telecommunications, government, non-profit, food and beverage, healthcare and life sciences.

Through a series of acquisitions and integrations, we have established a library of diverse, cloud-based software applications that address specific digital transformation needs. Our revenue has grown from $149.9 million in the year ended December 31, 2018 to $317.3 million in the year ended December 31, 2022, representing a compound annual growth rate of 21%. During the nine months ended September 30, 2023 and 2022, foreign revenue as a percent of total revenue was 30%. See “Note 12. Revenue Recognition” in the notes to our unaudited condensed consolidated financial statements for more information regarding our revenue as it relates to domestic and foreign operations.

To support continued growth, we intend to pursue acquisitions of complementary technologies and businesses. This will expand our product library, customer base, and market access resulting in increased benefits of scale. Consistent with our growth strategy, we have made 31 acquisitions from February 2012 through September 30, 2023.

Acquisitions

2022 Acquisitions

During the nine months ended September 30, 2022, we completed the two acquisitions summarized below.

•BA Insight - On February 22, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BA Insight Inc., a Delaware corporation. As a result of the February 22, 2022 purchase date, the impact of this acquisition is fully reflected in our results of operations for the nine months ended September 30, 2023 but is not fully reflected in our results of operations for the nine months ended September 30, 2022.

•Objectif Lune - On January 7, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Objectif Lune Inc., a Quebec proprietary company. The purchase was recorded using a convenience date of January 1, 2022, therefore the impact of this acquisition is fully reflected in our results of operations for the nine months ended September 30, 2023 and the nine months ended September 30, 2022.

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Key Metrics and Non-GAAP Financial Measures

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

Core Organic Growth Rate

Beginning with the three months ended June 30, 2023, we began disclosing our Core Organic Growth Rate, a non-GAAP financial measure. We use Core Organic Growth Rate as a key performance measure to assess our consolidated operating performance over time and for planning and forecasting purposes. Core Organic Growth Rate is the percentage change between two reported periods in subscription and support revenue, excluding subscription and support revenue from Sunset Assets and Overage Charges, each as defined below. We calculate our year-over-year Core Organic Growth Rate as though all acquisitions or dispositions closed as of the end of the latest period were closed as of the first day of the prior year period presented. Core Organic Growth Rate does not represent actual organic revenue generated by our business as it stood at the beginning of the respective period.

For the three-month period ended September 30, 2023, our Core Organic Growth Rate was negative 1.9%.

Core Organic Growth Rates are not necessarily indicative of either future results of operations or actual results that might have been achieved had certain Sunset Asset classifications not been made or had certain acquisitions or dispositions been consummated on the first day of the prior year period presented. We believe that this metric is useful to management and investors in analyzing our financial and operational performance period-over-period along with evaluating the growth of our business normalized for the impact of acquisitions and dispositions, as well as adjusting for the exclusion of non-core Sunset Assets and non-committed Overage Charges. For example, by including pre-acquisition revenue, Core Organic Growth Rate allows us to measure the underlying revenue growth of our business as of the end of the period presented, which we believe provides insight into our current performance.

Related Defined Terms

In connection with periodic reviews of our business, we have decided to sunset certain non-strategic product offerings and customer contracts (collectively referred to as “Sunset Assets”). During the three months ended December 31, 2022, as part of the first phase of a major strategic review of our business, we decided to classify as Sunset Assets certain non-strategic product offerings representing an estimated $27.9 million of 2023 annual total revenue. Subsequently, during the second quarter of 2023, in connection with the completion of that review of our business, we determined that certain product offerings that had been placed in Sunset Assets did have use cases that would be strategic and, as a result, we removed them from our Sunset Assets. At the same time we identified other product offerings to include in Sunset Assets. The net effect of these actions resulted in the estimated addition of approximately $5.0 million in 2023 annual total revenues to our Sunset Assets.

It is possible that during future periodic reviews of our business we may determine to add additional non-strategic product offerings or customer contracts to Sunset Assets or remove certain product offerings or customer contracts from the classification of Sunset Assets. In either case, we will adjust the revenues attributable to Sunset Assets for the then current period and properly reflect the year over year change for such addition or removal.

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

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The following table represents a reconciliation of total revenue, the most comparable GAAP measure, to core organic revenue for each of the periods indicated.


	Three Months Ended September 30,
	2023		2022

	(dollars in thousands)
Reconciliation of total revenue to core organic revenue:
Total revenue	$	74,121	$	79,549
Less:
Perpetual license revenue	1,494		1,684
Professional services revenue	2,665		2,770
Subscription and support revenue from Sunset Assets	8,269		11,775
Overage Charges	1,258		1,711
Core organic revenue	$	60,435	$	61,609

Adjusted EBITDA

We monitor our Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net loss, calculated in accordance with GAAP, plus depreciation and amortization expense, interest expense, net, other expense (income), net, provision for (benefit from) income taxes, stock-based compensation expense, acquisition-related expenses, and purchase accounting adjustments for deferred revenue.

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(dollars in thousands)
Reconciliation of net loss to Adjusted EBITDA:
Net loss	$	(8,670)	$	(6,513)	$	(163,862)	$	(45,737)
Add:

Depreciation and amortization expense	17,692		13,140		54,475		41,333
Interest expense, net	2,525		7,354		13,362		22,870

Other expense (income), net	(103)		(339)		(911)		(1,698)
Benefit from income taxes	(1,471)		(1,056)		(3,126)		(1,654)
Stock-based compensation expense	5,360		7,527		18,192		34,023
Acquisition-related expense	443		3,586		2,609		18,924

Non-recurring litigation costs	277		15		427		15
Purchase accounting deferred revenue discount	106		1,174		465		4,766
Impairment of goodwill	—		—		128,755		—
Adjusted EBITDA	$	16,159	$	24,888	$	50,386	$	72,842

We believe that Adjusted EBITDA provides useful information to management, investors and others in understanding and evaluating our operating results for the following reasons:

•Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;

•Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance because

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Adjusted EBITDA eliminates the impact of items that we do not consider indicative of our core operating performance;

•Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of Adjusted EBITDA as an analytical tool has limitations such as:

•Depreciation and amortization are non-cash charges, and the assets being depreciated or amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization currently reflected relates to amortization of acquired intangible assets as a result of business combination purchase accounting adjustments, which will not need to be replaced in the future;

•Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;

•Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation;

•Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and

•Other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider Adjusted EBITDA together with other financial performance measures, including various cash flow metrics, net loss and our other GAAP results.

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Results of Operations

Consolidated Statements of Operations Data

The following tables set forth our results of operations for the specified periods, as well as our results of operations for the specified periods as a percentage of revenue. The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2023				2022				2023				2022
	Amount		Percent of Revenue		Amount		Percent of Revenue		Amount		Percent of Revenue		Amount		Percent of Revenue

	(dollars in thousands, except share and per share data)
Revenue:
Subscription and support	$	69,962	94	%	$	75,095	94	%	$	213,370	95	%	$	223,739	94	%
Perpetual license	1,494		2	%	1,684		2	%	4,317		2	%	5,320		2	%
Total product revenue	71,456		96	%	76,779		96	%	217,687		97	%	229,059		96	%
Professional services	2,665		4	%	2,770		4	%	7,987		3	%	9,433		4	%
Total revenue	74,121		100	%	79,549		100	%	225,674		100	%	238,492		100	%
Cost of revenue:
Subscription and support (1)(3)	20,853		28	%	23,553		30	%	66,411		29	%	69,747		29	%
Professional services and other (1)	2,085		3	%	2,173		2	%	6,241		3	%	7,287		3	%
Total cost of revenue	22,938		31	%	25,726		32	%	72,652		32	%	77,034		32	%
Gross profit	51,183		69	%	53,823		68	%	153,022		68	%	161,458		68	%
Operating expenses:
Sales and marketing (1)	16,860		23	%	14,361		18	%	46,904		21	%	45,285		19	%
Research and development (1)	12,740		17	%	11,645		15	%	37,713		17	%	35,388		15	%

General and administrative (1)(2)	14,597		20	%	14,668		18	%	47,369		21	%	56,110		24	%
Depreciation and amortization	14,262		19	%	10,117		13	%	44,209		20	%	31,970		13	%
Acquisition-related expenses	443		—	%	3,586		4	%	2,609		—	%	18,924		8	%
Impairment of goodwill	—		—	%	—		—	%	128,755		57	%	—		—	%
Total operating expenses	58,902		79	%	54,377		68	%	307,559		136	%	187,677		79	%
Loss from operations	(7,719)		(10)	%	(554)		—	%	(154,537)		(68)	%	(26,219)		(11)	%
Other Expense:
Interest expense, net	(2,525)		(3)	%	(7,354)		(9)	%	(13,362)		(6)	%	(22,870)		(10)	%

Other income (expense), net	103		—	%	339		—	%	911		—	%	1,698		1	%
Total other expense	(2,422)		(3)	%	(7,015)		(9)	%	(12,451)		(6)	%	(21,172)		(9)	%
Loss before provision for income taxes	(10,141)		(13)	%	(7,569)		(9)	%	(166,988)		(74)	%	(47,391)		(20)	%
Benefit from income taxes	1,471		1	%	1,056		1	%	3,126		1	%	1,654		1	%
Net loss	(8,670)		(12)	%	(6,513)		(8)	%	(163,862)		(73)	%	(45,737)		(19)	%


Preferred stock dividends and accretion	(1,344)		(2)	%	(546)		(1)	%	(3,988)		(2)	%	(546)		—	%
Net loss attributable to common shareholders	$	(10,014)	(14)	%	$	(7,059)	(9)	%	$	(167,850)	(74)	%	$	(46,283)	(19)	%
Net loss per common share:


Net loss per common share, basic and diluted	$	(0.31)			$	(0.22)			$	(5.17)			$	(1.47)
Weighted-average common shares outstanding, basic and diluted	32,579,544				31,655,206				32,438,682				31,401,463

(1) Includes stock-based compensation detailed under Share-based Compensation in “Item 1. Financial Statements—Note 11. Stockholders' Equity”.

(2) Includes general and administrative stock-based compensation of $4.1 million and $5.7 million for the three months September 30, 2023 and September 30, 2022, respectively, and $13.9 million and $26.8 million for the nine months ended September 30, 2023 and September 30, 2022, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 14% and 11% for the three months ended September 30, 2023 and September 30, 2022, respectively, and 15% and 12% for the nine months ended September 30, 2023 and September 30, 2022, respectively.


(3) Includes depreciation and amortization of $3.4 million and $3.0 million for the three months ended September 30, 2023 and September 30, 2022, respectively, and $10.3 million and $9.4 million for the nine months ended September 30, 2023 and September 30, 2022, respectively.

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Comparison of the Three and Nine Months Ended September 30, 2023 and 2022

Revenue


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Revenue:
Subscription and support	$	69,962	$	75,095	(7)	%	$	213,370	$	223,739	(5)	%
Perpetual license	1,494		1,684		(11)	%	4,317		5,320		(19)	%
Total product revenue	71,456		76,779		(7)	%	217,687		229,059		(5)	%
Professional services	2,665		2,770		(4)	%	7,987		9,433		(15)	%
Total revenue	$	74,121	$	79,549	(7)	%	$	225,674	$	238,492	(5)	%

Percentage of revenue:
Subscription and support	94%		94%				95%		94%
Perpetual license	2%		2%				2%		2%
Total product revenue	96%		96%				97%		96%
Professional services	4%		4%				3%		4%
Total revenue	100%		100%				100%		100%

For the Three Months Ended September 30, 2023

Total revenue was $74.1 million in the three months ended September 30, 2023, compared to $79.5 million in the three months ended September 30, 2022, a decrease of $5.4 million, or 7%. This decrease is attributable to a $3.6 million decrease in revenue from Sunset Assets as a result of decreased sales focus on these products, a $2.8 million decrease in other recurring revenue products and variable Overage Charges, a $0.1 million decline in perpetual license revenue, a $0.2 million decline in professional services revenue offset by a $0.5 million positive effect from foreign currency fluctuations and an increase of $0.8 million in revenue from acquisitions not fully reflected in the comparable prior period.

For the Nine Months Ended September 30, 2023

Total revenue was $225.7 million in the nine months ended September 30, 2023, compared to $238.5 million in the nine months ended September 30, 2022, a decrease of $12.8 million, or 5%. This decrease is attributable to a $9.3 million decrease in revenue from Sunset Assets as a result of decreased sales focus on these products, a $6.4 million decrease in other recurring revenue products and variable Overage Charges, a $1.0 million decline in perpetual license revenue, a $1.5 million decline in professional services revenue and a $1.0 million negative effect from foreign currency fluctuations. This was offset by an increase of $6.4 million in revenue from acquisitions not fully reflected in the comparable prior period.

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Cost of Revenue


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Cost of revenue:
Subscription and support (1)	$	20,853	$	23,553	(11)	%	$	66,411	$	69,747	(5)	%
Professional services and other	2,085		2,173		(4)	%	6,241		7,287		(14)	%
Total cost of revenue	22,938		25,726		(11)	%	72,652		77,034		(6)	%
Gross profit	$	51,183	$	53,823			$	153,022	$	161,458

Percentage of total revenue:
Subscription and support (1)	28%		30%				29%		29%
Professional services and other	3%		2%				3%		3%
Total cost of revenue	31%		32%				32%		32%
Gross profit	69%		68%				68%		68%

(1) Includes depreciation, amortization and stock compensation expense as follows:
Depreciation	$	1	$	2			$	5	$	7
Amortization	$	3,429	$	3,021			$	10,261	$	9,356
Stock Compensation	$	246	$	510			$	850	$	1,487

For the Three Months Ended September 30, 2023

Cost of subscription and support revenue was $20.9 million in the three months ended September 30, 2023, compared to $23.6 million in the three months ended September 30, 2022, a decrease of $2.7 million, or 11%. The decrease in cost of subscription and support revenue is primarily related to a $1.3 million decrease in our variable telecom carrier costs, combined with a decrease of $0.7 million in personnel related expenses and a decrease of $0.3 million in non-cash stock compensation offset by an increase of $0.4 million in amortization expense.

Cost of professional services and other revenue was $2.1 million in the three months ended September 30, 2023, compared to $2.2 million in the three months ended September 30, 2022, a decrease of $0.1 million, or 4%. The decrease in cost of professional services was related to a decrease in personnel related expenses.

For the Nine Months Ended September 30, 2023

Cost of subscription and support revenue was $66.4 million in the nine months ended September 30, 2023, compared to $69.7 million in the nine months ended September 30, 2022, a decrease of $3.3 million, or 5%. Cost of subscription and support revenue decreased by $3.3 million primarily due to a $3.9 million decrease in our variable telecom carrier costs, a decrease of $0.5 million in personnel related expenses and a decrease of $0.6 million in non-cash stock compensation offset with increases of $0.3 million in hosting expenses and $1.2 million in amortization expense.

Cost of professional services revenue was $6.2 million in the nine months ended September 30, 2023, compared to $7.3 million in the nine months ended September 30, 2022, a decrease of $1.1 million, or 14%, which reflects a decrease in personnel related expenses.

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Operating Expenses

Sales and Marketing Expense


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Sales and marketing (1)	$	16,860	$	14,361	17	%	$	46,904	$	45,285	4	%
Percentage of total revenue	23%		18%				21%		19%

(1) Includes stock compensation expense as follows:
Stock Compensation	$	429	$	612			$	1,563	$	3,584

For the Three Months Ended September 30, 2023

Sales and marketing expense was $16.9 million in the three months ended September 30, 2023, compared to $14.4 million in the three months ended September 30, 2022, an increase of $2.5 million, or 17%. The increase in sales and marketing expense is primarily attributable to increase in personnel related expenses and marketing expenses associated with the announced investment in our go to market strategy partially offset by a decrease in non-cash stock compensation expense of $0.2 million.

For the Nine Months Ended September 30, 2023

Sales and marketing expense was $46.9 million in the nine months ended September 30, 2023, compared to $45.3 million in the nine months ended September 30, 2022, an increase of $1.6 million, or 4% attributable to a decrease of $1.5 million in sales and marketing costs for our Sunset Assets, a decrease of $2.0 million in non-cash stock based compensation, offset by an increase in personnel related expenses and marketing expenses associated with the announced investment in our go to market strategy.

Research and Development Expense


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Research and development (1)	$	12,740	$	11,645	9	%	$	37,713	$	35,388	7	%




Percentage of total revenue	17%		15%				17%		15%



(1) Includes stock compensation expense as follows:
Stock Compensation	$	608	$	701			$	1,911	$	2,107

For the Three Months Ended September 30, 2023

Research and development expense was $12.7 million in the three months ended September 30, 2023, compared to $11.6 million in the three months ended September 30, 2022, an increase of $1.1 million, or 9%. Research and development expense increased $1.7 million driven by personnel related expenses associated with the continued growth in our India operations offset by a decrease of $0.6 million in expenses for our Sunset Assets.

For the Nine Months Ended September 30, 2023

Research and development expense was $37.7 million in the nine months ended September 30, 2023, compared to $35.4 million in the nine months ended September 30, 2022, an increase of $2.3 million, or 7%. The increase was driven by $4.2 million increased personnel related expenses associated with the continued growth in our India operations offset by a decrease of $1.9 million in expenses related to our Sunset Assets.

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General and Administrative Expense


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
General and administrative (1)	$	14,597	$	14,668	—	%	$	47,369	$	56,110	(16)	%
Percentage of total revenue	20%		18%				21%		24%

(1) Includes stock compensation expense as follows:
Stock compensation	$	4,077	$	5,704			$	13,868	$	26,845

For the Three Months Ended September 30, 2023

General and administrative expense was $14.6 million in the three months ended September 30, 2023, compared to $14.7 million in the three months ended September 30, 2022, a decrease of $0.1 million, or nil%. Non-cash stock compensation expense decreased $1.6 million due to additional expense recognized in the three months ended September 30, 2022 related to stock award modifications that did not reoccur. This was partially offset by a $1.5 million increase in personnel related expenses and outside professional expenses.

For the Nine Months Ended September 30, 2023

General and administrative expense was $47.4 million in the nine months ended September 30, 2023, compared to $56.1 million in the nine months ended September 30, 2022, a decrease of $8.7 million, or 16%. Non-cash stock compensation expense decreased $13.0 million due to additional expense recognized in the nine months ended September 30, 2022 related to stock award modifications that did not reoccur. General administrative expense increased $4.3 million primarily due to personnel related expenses and outside professional expenses.

Depreciation and Amortization Expense


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Depreciation and amortization:
Depreciation	$	451	$	363	24	%	$	1,088	$	1,191	(9)	%
Amortization	13,811		9,754		42	%	43,121		30,779		40	%
Total depreciation and amortization	$	14,262	$	10,117	41	%	$	44,209	$	31,970	38	%


Percentage of total revenue:
Depreciation	—%		1%				1%		—%
Amortization	19%		12%				19%		13%
Total depreciation and amortization	19%		13%				20%		13%

For the Three Months Ended September 30, 2023

Depreciation and amortization expense was $14.3 million in the three months ended September 30, 2023, compared to $10.1 million in the three months ended September 30, 2022, an increase of $4.2 million, or 41%. This increase was primarily due to the adjustment of the estimated useful lives of certain intangible assets.

For the Nine Months Ended September 30, 2023

Depreciation and amortization expense was $44.2 million in the nine months ended September 30, 2023, compared to $32.0 million in the nine months ended September 30, 2022, an increase of $12.2 million, or 38%. This increase was primarily due to the adjustment of the estimated useful lives of certain intangible assets.

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Acquisition-related Expenses


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Acquisition-related expenses	$	443	$	3,586	(88)	%	$	2,609	$	18,924	(86)	%
Percentage of total revenue	—%		4%				—%		8%

For the Three Months Ended September 30, 2023

Acquisition-related expense was $0.4 million in the three months ended September 30, 2023, compared to $3.6 million in the three months ended September 30, 2022, a decrease of $3.2 million, or 88%. We have had no new acquisitions since our two acquisitions during the three months ended March 31, 2022. The transformational expenses in both the current and year ago periods were primarily related to temporary transitional personnel related expenses incurred as we consolidate and integrate these acquisitions.Transformation expenses in the three months ended September 30, 2022 include expenses related to acquisitions closed in the three months ended March 31, 2022 as well the residual expenses related to the three acquisitions closed in 2021.

For the Nine Months Ended September 30, 2023

Acquisition related expense was $2.6 million the nine months ended September 30, 2023, compared to $18.9 million in the nine months ended September 30, 2022 a decrease of $16.3 million, or 86%. The transformational expenses in both the current and year ago periods were primarily related to temporary transitional personnel and related costs along with accelerated rent related expenses incurred in conjunction with the closures of offices of our acquired companies as we consolidate and integrate these acquisitions. These accelerated rent related expenses were nil and $0.9 million during the nine months ended September 30, 2023 and September 30, 2022, respectively.

Impairment of goodwill


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023		2022		% Change	2023		2022		% Change

	(dollars in thousands)
Impairment of goodwill	$	—	$	—	NA	$	128,755	$	—	NA

Goodwill impairment is recognized on a non-recurring basis when the carrying value (or GAAP basis book value) of our Company (which is our only reporting unit) exceeds the estimated fair value of our Company as determined by reference to a number of factors and assumptions, including the spot closing price of our Common Stock as of a certain reporting or measurement date. We assess goodwill for impairment annually on October 1st, or more frequently when an event occurs which could cause the carrying value of our Company to exceed the estimated fair value of our Company. As a result of the decline of our stock price during the three months ended March 31, 2023, we performed a goodwill impairment evaluation, which resulted in a goodwill impairment of $128.8 million for the three months ended March 31, 2023. See “Note 5. Goodwill and Other Intangible Assets” in the notes to our condensed consolidated financial statements for more information regarding our first quarter 2023 goodwill impairment. We will continue to evaluate goodwill for impairment in 2023 and future impairments of goodwill could occur if our stock price continues to decline.

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Other Income (Expense)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Other expense:
Interest expense, net	$	(2,525)	$	(7,354)	(66)	%	$	(13,362)	$	(22,870)	(42)	%

Other income (expense), net	103		339		(70)	%	911		1,698		(46)	%
Total other expense	$	(2,422)	$	(7,015)	(65)	%	$	(12,451)	$	(21,172)	(41)	%

Percentage of total revenue:
Interest expense, net	(3)%		(9)%				(6)%		(10)%

Other income (expense), net	—%		—%				—%		1%
Total other expense	(3)%		(9)%				(6)%		(9)%

For the Three Months Ended September 30, 2023

Interest expense, net of interest income was $2.5 million in the three months ended September 30, 2023 compared to $7.4 million in the three months ended September 30, 2022, a decrease of $4.9 million or 66%, due primarily to the $1.1 million amortization of the deferred gain on the liquidation of a portion of our interest rate swaps as well as a $2.8 million benefit related to the deferred gain recognized immediately into earnings upon the $35 million prepayment on our Term Loans combined with higher interest income on our interest-bearing cash accounts..

Other income, net was $0.1 million in the three months ended September 30, 2023, compared to other income, net of $0.3 million in the three months ended September 30, 2022. Other income (expense), net recognized during the three months ended September 30, 2023 was related primarily to foreign currency exchange fluctuations.

For the Nine Months Ended September 30, 2023

Interest expense, net of interest income was $13.4 million in the nine months ended September 30, 2023, compared to $22.9 million in the nine months ended September 30, 2022, a decrease of $9.5 million, or 42%. The decrease is primarily attributable to the $1.1 million amortization of the deferred gain on the liquidation of a portion of our interest rate swaps as well as a $2.8 million benefit related to the deferred gain recognized immediately into earnings upon the $35 million prepayment on our Term Loans combined with higher interest income on our interest-bearing cash accounts.

Other income, net was $0.9 million in the nine months ended September 30, 2023, compared to other income, net of $1.7 million in the nine months ended September 30, 2022. Other income (expense), net recognized in the nine months ended September 30, 2023 and September 30, 2022 related primarily to foreign currency exchange fluctuations.

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Benefit from Income Taxes


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		% Change		2023		2022		% Change

	(dollars in thousands)
Benefit from income taxes	$	1,471	$	1,056	39	%	$	3,126	$	1,654	89	%
Percentage of total revenue	1%		1%				1%		1%

For the Three Months Ended September 30, 2023

Benefit from income taxes was $1.5 million in the three months ended September 30, 2023, compared to a benefit for income taxes of $1.1 million in the three months ended September 30, 2022, resulting in an increase in benefit from income taxes of $0.4 million. The benefit from income taxes for the three months ended September 30, 2023 related primarily to 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. operations. This tax benefit is offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and U.S. state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards

For the Nine Months Ended September 30, 2023

The benefit from income taxes was $3.1 million in the nine months ended September 30, 2023, compared to a benefit from income taxes of $1.7 million in the nine months ended September 30, 2022, an increase of $1.4 million. This increase was due primarily 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. operations. 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.

Liquidity and Capital Resources

To date, we have financed our operations primarily through cash generated from operating activities, the raising of capital including sales of our Common Stock or our convertible preferred stock, and borrowings under our credit facility. We believe that current cash and cash equivalents, cash flows from operating activities, and availability under our existing credit facility will be sufficient to fund our operations for at least the next twelve months. In addition, we may utilize the sources of capital available to us under our Revolver to support our continued growth via acquisitions.

As of September 30, 2023, we had cash and cash equivalents of $239.6 million, $60.0 million of available borrowings under our Revolver, as discussed below, and $483.4 million of borrowings outstanding under our Term Loans. As of December 31, 2022, we had cash and cash equivalents of $248.7 million, $60.0 million of available borrowings under our Revolver, and $522.5 million of borrowings outstanding under our Term Loans. The $9.1 million decrease in cash and cash equivalents from December 31, 2022 to September 30, 2023 was due primarily to the $35 million pay down on our outstanding borrowings and the $3.2 million paid to repurchase shares of the Company’s Common Stock, offset by the cash gain of $20.5 million from the sale of a portion of our interest rate swaps and other cash flows from operations.

Our cash and cash equivalents held by our foreign subsidiaries was $22.5 million as of September 30, 2023 and $34.8 million as of December 31, 2022. Our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries.

As of September 30, 2023 and December 31, 2022, we had working capital surpluses of $178.1 million and $170.1 million, respectively.

Series A Preferred Stock Proceeds

In August of 2022, we issued Series A Preferred Stock as discussed in “Note 10. Series A Convertible Preferred Stock” which provided us an additional $110.4 million in liquidity, net of issuance costs of $4.6 million, that we intend to use for general corporate purposes including acquisitions.

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Credit Facility

As described in “Note 7. Debt—Credit Facility”, the Company has a Credit Facility which includes the fully drawn Term Loans as of September 30, 2023, and a $60 million Revolver which was fully available as of September 30, 2023.

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


	Nine Months Ended September 30,
	2023		2022

	(dollars in thousands)
Consolidated Statements of Cash Flow data:
Net cash provided by operating activities	$	41,154	$	24,138
Net cash used in investing activities	(1,034)		(63,074)
Net cash provided by (used in) financing activities	(48,745)		97,127
Effect of exchange rate fluctuations on cash	(437)		(5,629)
Change in cash and cash equivalents	(9,062)		52,562
Cash and cash equivalents, beginning of period	248,653		189,158
Cash and cash equivalents, end of period	$	239,591	$	241,720

Cash Flows from Operating Activities

Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Included in net cash provided by operations are one-time acquisition related expenses incurred after each acquisition to transact and transform the acquired business into the Company's unified operating platform. Additionally, operating cash flows include the impact of earn-outs payments in excess of original purchase accounting estimates. Our working capital consists primarily of cash, receivables from customers, prepaid assets, unbilled professional services, deferred commissions, accounts payable, accrued compensation and other accrued expenses, acquisition related earnout and holdback liabilities, lease liabilities, and deferred revenues. The volume of professional services rendered, the volume and timing of customer bookings and contract renewals, and the related timing of collections on those bookings and renewals, as well as the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.

Cash provided by operating activities was $41.2 million for the nine months ended September 30, 2023 compared to cash provided by operating activities of $24.1 million for the nine months ended September 30, 2022, an increase of $17.0 million. Working capital sources of cash for the nine months ended September 30, 2023 included a one-time $20.5 million cash gain on the sale of a portion of our interest rate swaps offset by working capital uses of cash for the nine months ended September 30, 2023.

A substantial source of cash is invoicing for subscriptions and support fees in advance, which is recorded as deferred revenue, and is included on our condensed consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of booked fees for our software subscriptions and support, which is amortized into revenue in accordance with our revenue recognition policy. We assess our liquidity, in part, through an analysis of new subscriptions invoiced, expected cash receipts on new and existing subscriptions, and our ongoing operating expense requirements.

Cash Flows from Investing Activities

Our primary investing activities have consisted of acquisitions of complementary technologies and businesses. As our business grows, we expect our primary investing activities to continue to expand our product library, customer base, and market access.

For the nine months ended September 30, 2023, cash used in investing activities consisted of purchases of property and equipment of $1.0 million. Cash used in investing activities decreased $62.0 million for the nine months ended September 30, 2023 compared to the same period in 2022 primarily as a result of no acquisitions closed during the current period compared to the two acquisitions in the comparable prior year period.

Cash Flows from Financing Activities

Our primary financing activities have consisted of capital raised to fund our acquisitions, proceeds from debt obligations incurred to finance our acquisitions, repayments and servicing of our debt obligations, share repurchases and share based employee payroll tax payment activity.

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Cash used in financing activities changed by $145.9 million for the nine months ended September 30, 2023 compared to the same period in 2022 due to the use of $35 million used to pay down our Credit Facility in 2023, $3.2 million used for Common Stock repurchases and a $2.6 million decrease in consideration paid to sellers (i.e. acquisition holdbacks) combined with the $110.5 million received from the issuance of preferred stock in 2022 which was not recurring in 2023.

Critical Accounting Policies and the Use of Estimates

We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

The following critical accounting policies reflect significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

•revenue recognition and deferred revenue;

•income taxes;

•deferred sales commissions and sales commission expense;

•business combinations;

•goodwill and other intangibles; and

•stock-based compensation.

We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of November 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. Actual results could differ materially from these estimates under different assumptions or conditions.

Other Key Accounting Policies

Our unaudited interim financial statements and other financial information for the three and nine months ended September 30, 2023, as presented herein and in “Item 1. Financial Statements” to this Quarterly Report on Form 10-Q, reflect no material changes in our critical accounting policies and estimates as set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023 (the “Annual Report”). Please refer to our Annual Report for a detailed description of our critical accounting policies that involve significant management judgment.

We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, refer to “Note 2. Basis of Presentation and Summary of Significant Accounting Policies—Recent Accounting Pronouncements” to our condensed consolidated financial statements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. Any impact on our statement of operations is mitigated by having an offsetting liability in deferred revenue to partially or completely offset against the outstanding receivable if an account should become uncollectible. Our cash balances are kept in customary operating accounts, a portion of which are insured by the Federal Deposit Insurance Corporation, and uninsured money market accounts. The majority of our cash balances in money market accounts are with the lender under our Credit Facility. To date, we have not used derivative instruments to mitigate the impact of our market risk exposures. We also have not used, nor do we intend to use, derivatives for trading or speculative purposes.

Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily relates to our cash equivalents and variable rate indebtedness. The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This objective is accomplished currently by making diversified investments, consisting only of money market mutual funds and certificates of deposit.

In conjunction with our Term Loans under the Credit Facility, we had entered into interest rate swaps with a total notional amount of $540 million for the full seven-year term, effectively fixing the interest rate of our Term Loans at 5.4% prior to August 2023. On August 24, 2023, the Company sold a portion of their interest rate swaps with a total notional amount of $259.9 million and received $20.5 million of net cash proceeds. After giving effect to such sale, $260 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% based on the interest rate as described in “Note 7. Debt.

The interest rate associated with our $60 million, 5 year, revolving credit facility remains floating.

As of September 30, 2023, we had an outstanding balance of $483.4 under our Credit Facility. Based on the Company’s outstanding balance of variable rate debt at September 30, 2023, a hypothetical change of 100 basis points could have resulted in a $0.4 million increase to total interest expense for the nine months ended September 30, 2023.

Foreign Currency Exchange Risk

Our customers are generally invoiced in the currency of the country in which they are located. In addition, we incur a portion of our operating expenses in foreign currencies, including Australian dollars, Canadian dollars, British pounds, and Euros, and in the future as we expand into other foreign countries, we expect to incur operating expenses in other foreign currencies. As a result, we are exposed to foreign exchange rate fluctuations as the financial results of our international operations and our revenue and operating results could be adversely affected. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business could have resulted in a change in revenue of $5.7 million for the nine months ended September 30, 2023. To date, we have not engaged in any currency hedging strategies. If we decide to hedge our foreign currency exchange rate exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs, or illiquid markets. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency exchange rates.

The non-financial assets and liabilities of our foreign subsidiaries are translated into United States dollars using the exchange rates in effect at the balance sheet date. The related translation adjustments are recorded in a separate component of stockholders' equity in accumulated other comprehensive income (loss). In addition, we have intercompany loans that are used to fund the acquisition of foreign subsidiaries. Due to the long-term nature of these loans, the foreign currency gains (losses) resulting from remeasurement are recognized as a component of accumulated other comprehensive income (loss).

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date. Our management has concluded that the condensed consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with GAAP.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a- 15(f) and 15d- 15(f) of the Exchange Act) during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. Except as set forth below, there have been no material changes during 2023 to the risk factors that were included in the Company's Annual Report on Form 10-K filed with the SEC on February 28, 2023.

Our Board has adopted a Tax Benefit Preservation Plan, which may not protect the future availability of the Company’s tax assets in all circumstances and which could delay or discourage takeover attempts that some shareholders may consider favorable.

As of March 31, 2023, we had approximately $147 million of NOLs as well as other tax attributes that could be available in certain circumstances to reduce future U.S. corporate income tax liabilities. Pursuant to Section 382 (“Section 382”) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), and the Treasury Regulations issued thereunder, a corporation that undergoes an “ownership change” is subject to limitations on its use of its existing NOL and interest expense carryforwards and certain other tax attributes (collectively, “Tax Assets”), which can be utilized in certain circumstances to offset future U.S. tax liabilities. Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company. In the event of such an “ownership change,” Section 382 imposes an annual limitation on the amount of post-change taxable income a corporation may offset with pre-change Tax Assets. Similar rules apply in various U.S. state and local jurisdictions. However, with respect to the substantial majority of our Tax Assets, while we have in recent years experienced significant changes in the ownership of our stock, we do not believe we have undergone an “ownership change” that would limit our ability to use these Tax Assets. However, there can be no assurance that the Internal Revenue Service will not challenge this position.

On May 2, 2023, our Board of Directors authorized and declared a dividend of one preferred stock purchase right for each outstanding share of Common Stock. See “Note 11. Stockholders' Equity" for additional information on the terms and operation of the Plan. By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its NOLs and other tax attributes to offset potential future income tax liabilities. The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382. The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.9% or more of the outstanding shares of stock without the approval of the Board of Directors. However, there can be no assurance that the Plan will prevent an “ownership change” from occurring for purposes of Section 382, and events outside of our control and which may not be subject to the Plan, such as sales of our stock by certain existing shareholders, may result in such an “ownership change” in the future. While we currently have a full valuation allowance against our NOLs and other historic Tax Assets for financial accounting purposes, if we have undergone or in the future undergo an ownership change that applies to our Tax Assets, our ability to use these Tax Assets could be substantially limited after the ownership change, and this limit could have a substantial adverse effect on our cash flows and financial position.

While the Plan is not principally intended to prevent a takeover, it may have an anti-takeover effect because an “acquiring person” thereunder may be diluted upon the occurrence of a triggering event. Accordingly, the Plan may complicate or discourage a merger, tender offer, accumulations of substantial blocks of our stock, or assumption of control by a substantial holder of our securities. The Plan should not interfere with any merger or other business combination approved by the Board of Directors. Because the Board of Directors may consent to certain transactions, the Plan gives our Board of Directors significant discretion to act in the best interests of shareholders.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information about purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act during the three months ended September 30, 2023 (in thousands, except share and per share data).


Period	Total number of shares purchased (1)	Average price paid per share (2)		Total number of shares purchased as part of the publicly announced plan (3)	Maximum approximate dollar value of shares that may yet be purchased under the plan
9/1/2023 - 9/30/2023	875,624	$	4.10	783,356	$	11,784,771
Total	875,624	$	4.10	783,356	$	11,784,771

(1) The total number of shares repurchased includes 92,268 shares withheld from employees to satisfy either the exercise price of stock options or the statutory withholding tax liability upon the vesting of share-based awards.

(2) Average price paid per share excludes costs associated with the above mentioned repurchases.

(3) On September 1, 2023, the Board of Directors authorized the Stock Repurchase Plan (as defined in Note 11. Stockholders’ Equity) in the aggregate amount of up to $15,000,000 that would allow the Company to repurchase shares of its issued and outstanding Common Stock, from time to time in the open market or otherwise including pursuant to a Rule 10b5-1 trading plan and in compliance with Rule10b-18 under the Exchange Act. The authorization does not have a specified expiration date. Accordingly, unless terminated earlier by resolution of the Board, the stock repurchase program will expire when the Company has repurchased all shares authorized for repurchase. 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. See Note 14. Subsequent Events regarding an authorized increase to the Share Repurchase Plan subsequent to September 30, 2023.

Item 5. Other Information

Rule 10b5-1 Trading Plans

On August 24, 2023, Karen Cummings, our Executive Vice President and Senior General Manager, adopted a written plan for the sale of up to 46,049 shares of the Company’s Common Stock that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) of the Exchange Act. The written plan will expire on August 23, 2024, or on any earlier date on which all of the shares have been sold.

During the three months ended September 30, 2023, none of our executive officers or directors adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement”.

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Item 6. Exhibits

See the Exhibit Index immediately following this page, which is incorporated herein by reference.

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EXHIBIT INDEX

Exhibit Number

Exhibit Description

31.1*

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2**

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101*

Inline XBRL (Extensible Business Reporting Language). The following materials from this Quarterly Report on Form 10-Q for the periods ended September 30, 2023, formatted in Inline XBRL: (i) condensed consolidated balance sheets of Upland Software, Inc., (ii) condensed consolidated statements of operations of Upland Software, Inc., (iii) condensed consolidated statements of comprehensive income/(loss) of Upland Software, Inc., (iv) condensed consolidated statement of stockholders’ equity of Upland Software, Inc., (v) condensed consolidated statements of cash flows of Upland Software, Inc. and (vi) notes to unaudited condensed consolidated financial statements of Upland Software, Inc. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

104*

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			UPLAND SOFTWARE, INC.
Dated: November 2, 2023			/s/ Michael D. Hill
			Michael D. Hill
			Chief Financial Officer