# Paymentus Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [Paymentus Holdings, Inc.](/companies/pay.md) (CIK 1841156)
- Form: 10-Q
- Filed: 2024-11-12
- Accepted by EDGAR: Nov 12, 2024, 16:35 ET
- Period: 2024-09-30
- Accession: 0000950170-24-125544
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1841156/000095017024125544/pay-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1841156/000095017024125544/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $231.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $613.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $170.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $441.7m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $60.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $172.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $13.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $37.8m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $12.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $30.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $5.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $6.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $14.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $31.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.24 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.25 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 127,614,115 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 127,254,611 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $35.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $376.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $187.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $320.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $552.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $74.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $84.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $468.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,761 characters.

### Overview

We are a leading provider of cloud-based bill payment technology and solutions. We deliver our next-generation product suite through a modern technology stack to more than 2,200 biller business and financial institution clients. Our platform was used by approximately 34 million consumers and businesses in North America in December 2023 to pay their bills, make money movements and engage with our clients. We serve billers of all sizes that primarily provide non-discretionary services across a variety of industry verticals, including utilities, financial services, insurance, government, telecommunications, real estate management, healthcare and education. We also serve financial institutions by providing them with a modern platform that their customers use for bill payment, account-to-account transfers and person-to-person transfers. By powering this comprehensive network of billers and financial institutions, each with their own set of bill payment requirements, we believe we have created an enviable feedback loop that enables us to continuously drive innovation, grow our business and uniquely improve the electronic bill payment experience for participants in the bill payment ecosystem.

Our platform provides our clients with easy-to-use, flexible and secure electronic bill payment experiences powered by an omni-channel payment infrastructure that allows consumers to pay their bills using their preferred payment type and channel. Because our biller platform is developed on a single code base and leverages a SaaS infrastructure, we can rapidly deploy new features and tools to our entire biller base simultaneously. Through a single point of integration to our billers’ core financial and operating systems, our mission-critical solutions provide our billers with a payments operating system that helps them collect revenue faster and more profitably and empower their consumers with the information and transparency needed to control their finances.

### Transactions Processed

*(in millions)*

*(in millions)*

|  | Three Months Ended September 30, 2024 | 2023 | % Growth | Nine Months Ended September 30, 2024 | 2023 | % Growth |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Transactions processed | 155.3 | 115.4 | 34.6% | 431.0 | 333.4 | 29.3% |

We define transactions processed as the number of revenue generating payment transactions, such as checks, credit card and debit card transactions, automated clearing house, or ACH, items and emerging payment types, which are initiated and generally processed through our platform during a period. The number of transactions also includes account-to-account and person-to-person transfers. The increase in the number of transactions processed during the three and nine months ended September 30, 2024 as compared to the same periods in 2023 was primarily driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.

### Other Key Factors and Trends Affecting Our Operating Results

The discussion below includes a number of forward-looking statements regarding our future performance. For a discussion of important factors, including the continuing development of our business and other factors which could cause actual results to differ materially from matters referred to below, see the discussions under “Risk Factors” and “Special Note Regarding Forward-Looking Statements” herein and in our Form 10-K for the year ended December 31, 2023 or, the "2023 Form 10-K".

#### Impact of Economic and Inflationary Trends

Inflationary pressures have moderated, with price increases occurring at a reduced pace, and current expectations indicate further deceleration in inflation. However, economic uncertainty persists and may continue to present challenges to our performance for the remainder of 2024 and into 2025. While inflationary conditions have stabilized, elevated costs, particularly in the utility sector, and higher interchange fees remain impactful. We are proactively adjusting pricing to mitigate these pressures; however, the timing of our adjustments typically lags the inflationary effects experienced by our clients. We will remain vigilant in monitoring the economic landscape and will implement further pricing adjustments as necessary to address ongoing market dynamics.

### Non-GAAP Measures

We use supplemental measures of our performance that are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles, or GAAP. These supplemental non-GAAP measures include contribution profit, adjusted gross profit, adjusted EBITDA and free cash flow.

#### Contribution Profit

We calculate contribution profit as gross profit plus other cost of revenue. Other cost of revenue equals cost of revenue less interchange and assessment fees paid by us to our payment processors.

#### Adjusted Gross Profit

We calculate adjusted gross profit as gross profit adjusted for non-cash items, primarily stock-based compensation and amortization of acquisition-related intangible assets and capitalized software development costs.

#### Adjusted EBITDA

We calculate adjusted EBITDA as net income before interest income, net, other income (expense), depreciation and amortization of acquisition-related intangible assets and capitalized software development costs, and income taxes, adjusted to exclude the effects of foreign exchange gains (losses), stock-based compensation expense and certain nonrecurring expenses that management believes are not indicative of ongoing operations.

#### Free Cash Flow

We calculate free cash flow as net cash provided by (used in) operating activities less capital expenditures, other intangible assets acquired, and capitalized internal-use software development costs.

#### How we use Non-GAAP Measures

We use non-GAAP measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management and our board of directors to more fully understand our consolidated financial performance from period to period and helps management project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP measures provide our investors with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period-to-period comparisons. In particular, we exclude interchange and assessment fees in the presentation of contribution profit because we believe inclusion is less directly reflective of our operating performance as we do not control the payment product or channel used by consumers, which is the primary determinant of the amount of interchange and assessment fees. We use contribution profit to measure the amount available to fund our operations after interchange and assessment fees, which are directly linked to the number of transactions we process and thus our revenue and gross profit. There are limitations to the use of the non-GAAP measures presented in this report. Our non-GAAP measures may not be comparable to similarly titled measures of other companies; other companies, including companies in our industry, may calculate non-GAAP measures differently than we do, limiting the usefulness of those measures for comparative purposes. These non-GAAP measures should not be considered in isolation from or as a substitute for financial measures prepared in accordance with GAAP.

We also urge you to review the reconciliation of these non-GAAP financial measures included below. To properly and prudently evaluate our business, we encourage you to review the condensed consolidated financial statements and related notes included elsewhere in this report and to not rely on any single financial measure to evaluate our business.

#### Contribution Profit

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Gross profit | $60,665 | $46,910 | $172,141 | $132,850 |
| Plus: other cost of revenue | 19,339 | 14,583 | 53,711 | 41,764 |
| **Contribution profit** | **$80,004** | **$61,493** | **$225,852** | **$174,614** |

In general, contribution profit is driven by the number of transactions we process offset by network fees associated with processing those transactions. The amount of contribution profit per transaction may vary due to a variety of factors substantially outside of our control, including client size, type and industry as well as whether the client is a biller, financial institution or other partner. Contribution profit for the three and nine months ended September 30, 2024 increased approximately 30.1%, and 29.3%, respectively, as compared to the same periods in 2023. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions.

#### Adjusted Gross Profit

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Gross profit** | $60,665 | $46,910 | $172,141 | $132,850 |
| Stock-based compensation | 67 | 36 | 184 | 110 |
| Amortization of capitalized software development costs | 4,627 | 3,493 | 13,022 | 9,473 |
| Amortization of acquisition-related intangibles | 829 | 829 | 2,486 | 2,486 |
| **Adjusted gross profit** | **$66,188** | **$51,268** | **$187,833** | **$144,919** |

Adjusted gross profit for the three and nine months ended September 30, 2024 increased 29.1% and 29.6%, respectively, as compared to the same periods in 2023. Adjusted gross profit improved in line with contribution profit. Adjusted gross profit as a percentage of contribution profit remained consistent for the three and nine months ended September 30, 2024. Adjusted gross profit is driven primarily by the same factors that impact gross profit with the exception of excluding the amortization and stock-based compensation recorded in cost of revenue. The increase in amortization was driven by additional capitalization of software costs.

#### Adjusted EBITDA

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net income — GAAP | $14,430 | $6,377 | 31,020 | $12,920 |
| Interest income, net | (2,342) | (1,905) | (6,722) | (5,003) |
| Other income (1) | — | — | (213) | — |
| Provision for income taxes | 5 | 822 | 6,644 | 1,004 |
| Amortization of capitalized software development costs | 7,097 | 5,473 | 20,147 | 15,286 |
| Amortization of acquisition-related intangibles | 2,020 | 2,095 | 6,061 | 6,359 |
| Depreciation | 204 | 204 | 619 | 669 |
| **EBITDA** | **$21,414** | **$13,066** | **$57,556** | **$31,235** |
| Adjustments |  |  |  |  |
| Foreign exchange (gain) loss | (4) | 17 | (61) | 32 |
| Stock-based compensation | 3,168 | 2,456 | 9,424 | 6,891 |
| **Adjusted EBITDA** | **$24,578** | **$15,539** | **$66,919** | **$38,158** |

(1) Other income consists of a remeasurement adjustment relating to the purchase price of a prior acquisition.

Adjusted EBITDA is a measure of profitability and generally is expected to move in line with revenue, contribution profit, gross profit and adjusted gross profit. Adjusted EBITDA increased 58.2% and 75.4% in the three and nine months ended September 30, 2024, respectively, as compared to the same periods in 2023. The increase was primarily driven by growth in transaction count and volume driven by the addition of new billers and financial institutions and increased transactions from our existing billers and financial institutions and the implementation of certain cost improvement measures.

#### Free Cash Flow

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net cash provided by operating activities | $6,737 | $13,143 | $35,721 | $44,387 |
| Purchases of property and equipment and software | (72) | (158) | (376) | (511) |
| Capitalized internal-use software development costs | (8,876) | (8,728) | (27,238) | (25,339) |
| **Free cash flow** | **$(2,211)** | **$4,257** | **$8,107** | **$18,537** |
| Net cash used in investing activities | $(8,828) | $(8,886) | $(27,617) | $(25,850) |
| Net cash provided by (used in) financing activities | $(20) | $234 | $(389) | $(1,376) |

The decrease in free cash flow for the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to decreases in cash generated from operations.

### Results of Operations

The following table sets forth our condensed consolidated statements of operations for the periods presented:

*(in thousands)*

*(in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | Change $% |  | Nine Months Ended September 30, 2024 | 2023 | Change $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenue | $231,571 | $152,423 | $79,148 | 51.9% | $613,868 | $449,690 | $164,178 | 36.5% |
| Cost of revenue | 170,906 | 105,513 | 65,393 | 62.0% | 441,727 | 316,840 | 124,887 | 39.4% |
| Gross profit | 60,665 | 46,910 | 13,755 | 29.3% | 172,141 | 132,850 | 39,291 | 29.6% |
| Gross margin (1) | 26.2% | 30.8% |  |  | 28.0% | 29.5% |  |  |
| Operating expenses |  |  |  |  |  |  |  |  |
| Research and development | 13,187 | 11,035 | 2,152 | 19.5% | 37,773 | 33,595 | 4,178 | 12.4% |
| Sales and marketing | 26,451 | 21,481 | 4,970 | 23.1% | 76,456 | 63,344 | 13,112 | 20.7% |
| General and administrative | 8,939 | 9,083 | (144) | (1.6)% | 27,245 | 26,958 | 287 | 1.1% |
| Total operating expenses | 48,577 | 41,599 | 6,978 | 16.8% | 141,474 | 123,897 | 17,577 | 14.2% |
| Income from operations | 12,088 | 5,311 | 6,777 | n/m | 30,667 | 8,953 | 21,714 | n/m |
| Interest income, net | 2,342 | 1,905 | 437 | 22.9% | 6,722 | 5,003 | 1,719 | 34.4% |
| Other income (expense) (2) | 5 | (17) | 22 | n/m | 275 | (32) | 307 | n/m |
| Income before income taxes | 14,435 | 7,199 | 7,236 | n/m | 37,664 | 13,924 | 23,740 | n/m |
| Provision for income taxes | (5) | (822) | 817 | (99.4)% | (6,644) | (1,004) | (5,640) | n/m |
| Net income | $14,430 | $6,377 | $8,053 | n/m | $31,020 | $12,920 | $18,100 | n/m |

n/m - not meaningful

(1) Gross margin is calculated as gross profit divided by revenue.

(2) Other income (expense) includes a remeasurement adjustment relating to the purchase price of a prior acquisition.

The following table presents the components of our condensed consolidated statements of operations for the periods presented as a percentage of revenue:

|  | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Revenue | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of revenue | 73.8% | 69.2% | 72.0% | 70.5% |
| Gross profit | 26.2% | 30.8% | 28.0% | 29.5% |
| Operating expenses |  |  |  |  |
| Research and development | 5.7% | 7.2% | 6.20% | 7.5% |
| Sales and marketing | 11.4% | 14.1% | 12.50% | 14.1% |
| General and administrative | 3.9% | 6.0% | 4.40% | 6.0% |
| Total operating expenses | 21.0% | 27.3% | 23.1% | 27.6% |
| Income from operations | 5.2% | 3.5% | 5.0% | 1.9% |
| Interest income, net | 1.0% | 1.2% | 1.1% | 1.1% |
| Other income (expense) | 0.0% | 0.0% | 0.0% | 0.0% |
| Income before income taxes | 6.2% | 4.7% | 6.1% | 3.0% |
| Provision for income taxes | — | (0.5)% | (1.1)% | (0.2)% |
| Net income | 6.2% | 4.2% | 5.0% | 2.8% |

### Comparison of the Three Months Ended September 30, 2024 and 2023

#### Revenue

The increase in revenue was primarily driven by an increase in the number of transactions processed, which was driven by the implementation of new billers, the early launch of certain large enterprise billers and increased transactions from our existing billers.

#### Cost of Revenue, Gross Profit and Gross Margin

The increase in cost of revenue was driven by the increase in revenue and transactions processed, as it consists primarily of interchange fees and processor costs, as well as other direct costs associated with making our platform available to our billers.

Gross margin decreased due to changes in customer mix resulting primarily from the addition of large high volume enterprise billers with lower margins to our customer base.

#### Research and Development Expenses

The increase in research and development expenses was primarily due to increased amortization of capitalized internal-use software development costs and an increase in employee-related costs, including an increase in stock-based compensation expenses.

#### Sales and Marketing Expenses

The increase in sales and marketing expenses was primarily due to increased employee-related costs as a result of increased hiring, including higher stock-based compensation expenses, and reseller commissions including amortization of warrants.

#### General and Administrative Expenses

The marginal decrease in general and administrative expenses was primarily due to lower cost of insurance premiums of certain business policies and stock-based compensation expenses, which were offset by an increase in legal fees.

#### Interest Income, net

The increase in interest income, net was a result of higher cash balances held with banks for the three months ended September 30, 2024 compared to the same period in 2023.

#### Income Taxes

For the three months ended September 30, 2024, the Company’s effective tax rate was 0.03%, lower than the 11.41% in the same period of 2023. The primary driver for the lower rate in 2024 was the release of a valuation allowance on U.S. deferred tax assets, while the 2023 rate was influenced by a full valuation allowance. Additionally, in 2024, the Company recognized discrete benefits related to stock-based compensation and finalized research and development credit claims, further lowering the effective tax rate.

### Comparison of the Nine Months Ended September 30, 2024 and 2023

#### Revenue

The increase in revenue was primarily driven by an increase in the number of transactions processed, which was driven by the implementation of new billers and increased transactions from our existing billers. Revenue increase was also driven by pricing improvements.

#### Cost of Revenue, Gross Profit and Gross Margin

The increase in cost of revenue was driven by the increase in revenue and transactions processed, as it consists primarily of interchange fees and processor costs, as well as other direct costs associated with making our platform available to our billers.

Gross margin experienced a slight decrease, driven by changes in customer mix resulting primarily from the addition of large, high-volume enterprise billers with lower margins in our biller mix. This decline was partially offset by cost improvement initiatives and the realization of economies of scale.

#### Research and Development Expenses

The increase in research and development expenses was primarily due to increased amortization of capitalized internal-use software development costs and an increase in employee-related costs, including an increase in stock-based compensation.

#### Sales and Marketing Expenses

The increase in sales and marketing expenses was primarily due to increased employee-related costs as a result of increased hiring, including higher stock-based compensation expenses, and reseller commissions including amortization of warrants.

#### General and Administrative Expenses

The marginal increase in general and administrative expenses was primarily due to increases in professional fees, legal fees and lease expenses, which were offset by lower cost of insurance premiums of certain business policies.

#### Interest income, net

The increase in interest income, net was a result of higher cash balances held with banks for the nine months ended September 30, 2024 compared to the same period in 2023, together with increases in the Federal Reserve rates.

#### Income Taxes

The change in provision for income taxes as well as the increase in the Company's effective tax rate, which was 17.6% for the nine months ended September 30, 2024 as compared to 7.2% for the same period in the prior year, was primarily due to an increase in income before income taxes as well as the results of permanent differences for disallowed stock-based compensation pursuant to IRC Section 162(m) and state taxes, offset by the release of the valuation allowance. In 2023, it was primarily the result of near break-even pre-tax income from operations, state taxes, the impact of the full valuation allowance and other permanent adjustments in addition to a return to provision benefit recorded in connection with a change in estimate of costs required to be capitalized under IRC Section 174.

### Liquidity and Capital Resources

### Sources and Uses of Funds

As of September 30, 2024, we had $187.5 million of unrestricted cash and cash equivalents. We believe that existing unrestricted cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Since inception, we have financed operations primarily through the sale of equity securities and revenue from payment transaction fees and subscriptions. Our principal uses of cash are funding operations and capital expenditures.

From time to time, we may explore additional financing sources and means to lower our cost of capital, which could include equity, equity-linked and debt financing. We cannot assure you that any additional financing will be available to us on acceptable terms, or at all. The inability to raise capital would adversely affect our ability to achieve our business objectives. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of indebtedness, we may be subject to increased fixed payment obligations and could be subject to additional restrictive covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business or execute our growth strategy. Any future indebtedness we incur may result in terms that could be unfavorable to equity investors.

### Historical Cash Flows

The following table summarizes our condensed consolidated cash flows.

*(in thousands)*

| Net cash provided by (used in): | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | $35,721 | $44,387 |
| Investing activities | (27,617) | (25,850) |
| Financing activities | (389) | (1,376) |
| Effects of foreign exchange on cash | (125) | 46 |
| Net increase in cash, cash equivalents and Restricted cash | $7,590 | $17,207 |

#### Net Cash Provided by Operating Activities

Our primary source of operating cash is revenue from payment transaction fees. Our primary uses of operating cash are personnel-related costs, payments to third parties to fulfill our payment transactions and payments to sales and marketing partners. Net cash provided by operating activities for the nine months ended September 30, 2024 was $35.7 million. Net income was $31.0 million, adjusted for non-cash charges of $38.0 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to cash provided from operating activities. This was decreased by net cash outflows of $33.3 million for changes in our operating assets and liabilities.

Net cash provided by operating activities for the nine months ended September 30, 2023 was $44.4 million. Net income was $12.9 million, adjusted for non-cash charges of $32.9 million consisting primarily of depreciation and amortization, stock-based compensation, amortization of contract assets and non-cash lease expense, which contributed positively to cash provided from operating activities. This was decreased by net cash outflows of $1.4 million for changes in our operating assets and liabilities.

#### Net Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 consisted of $27.2 million of capitalized software development costs and $0.4 million of purchases of property and equipment.

Net cash used in investing activities for the nine months ended September 30, 2023 consisted of $25.3 million of capitalized internal-use software development costs and $0.5 million of purchases of property and equipment.

#### Net Cash Used in Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2024 consisted of $0.6 million of settlement of holdback liability relating to a prior acquisition, which was offset by $0.2 million of proceeds from exercise of stock-based awards by employees.

Net cash used in financing activities for the nine months ended September 30, 2023 consisted of $1.7 million of payments on other financing obligations, $0.1 million of payments on finance leases and $0.4 million of proceeds from exercise of stock-based awards by employees.

### Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosures of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our significant accounting policies are described in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies” to our consolidated financial statements included in our 2023 Form 10-K. There have been no material changes in our critical accounting policies and estimates since December 31, 2023.

### Recent Accounting Pronouncements

See Note 2 “Basis of Presentation and Summary of Significant Accounting Policies” in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for a full description of recent accounting pronouncements, including the respective dates of adoption or expected adoption and effects on our condensed consolidated financial statements contained in Item 1 of this Quarterly Report.

## Market risk

As filed, 289 characters.

There have been no material changes in our exposures to market risk since December 31, 2023. For details on the Company’s interest rate, foreign currency exchange, and inflation risks, see Part I, Item 7A. “Quantitative and Qualitative Information About Market Risk” in our 2023 Form 10-K.

## Controls and procedures

As filed, 6,063 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on that evaluation, and as a result of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were not effective at the reasonable assurance level. In light of this fact, our management has performed additional analyses, reconciliations, and other post-closing procedures and has concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the unaudited condensed consolidated financial statements for the periods covered by and included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

### Material Weaknesses in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. As of September 30, 2024, our material weaknesses were as follows:

- We lacked a sufficient number of trained professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters, including accounting for capitalized internal-use software development costs, identification of reporting units, translation of foreign currency in consolidation, accounting for deferred compensation, calculation of earnings per share and classification of accounts in the financial statements. Additionally, we did not design and maintain effective controls over verifying the appropriate review and approval of journal entries.
- We did not design and maintain effective controls relevant to the preparation of our financial statements with respect to certain IT general controls for information systems. Specifically, we did not design and maintain (1) program change management controls to ensure that IT program and data changes affecting certain IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately; and (2) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs and data to appropriate company personnel.

### Status of Remediation Plan

We believe we have made significant progress towards remediation of the material weaknesses described above. As previously disclosed, we have completed the following remediation measures:

- onboarded experienced finance and accounting professionals at various senior roles;
- updated the design of our general ledger accounting system to allow for effective restricted access and segregation of duties to govern the preparation and review of journal entries;
- implemented management review controls over journal entries and the identification and review of complex transactions;
- secured the general ledger accounting system by implementing single sign-on (SSO); and
- implemented additional change management and access controls for our relevant IT applications to further restrict privileged access and implemented controls to review activities, which may materially affect our financial statements, for those users who have privileged access.

In addition to the aforementioned actions that have been completed to date, during the third quarter, we continued to enhance the design and implementation of certain IT general controls for information systems. While we believe that these actions will remediate the material weaknesses, the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period of time, and management has concluded, through testing, that these controls are designed and operating effectively.

### Changes in Internal Control over Financial Reporting

Other than continuing to make progress on the ongoing remediation efforts described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Filed Nov 12, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-125544. Last ingested by Listed: Nov 2, 2026, 16:51 ET. No prices; not investment advice.