# Q2 Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Q2 Holdings, Inc.](/companies/qtwo.md) (CIK 1410384)
- Form: 10-Q
- Filed: 2022-11-07
- Accepted by EDGAR: Nov 7, 2022, 16:31 ET
- Period: 2022-09-30
- Accession: 0001410384-22-000071
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1410384/000141038422000071/qtwo-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1410384/000141038422000071/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $144.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $419.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $77.9m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $229.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $66.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $190.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $33.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $96.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$27.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$72.3m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $469.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $2.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$27.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$76.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$1.34 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$1.34 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 57,362,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 57,205,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$8.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $8.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $192.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $499.3m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $1.33bn | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $166.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $903.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $430.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 88,957 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in our other SEC filings, including the audited consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2021, which are included in our Annual Report on Form 10-K, filed with the SEC on February 16, 2022. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially and adversely from those anticipated in the forward-looking statements. Please see the section entitled “Special Note Regarding Forward Looking Statements” above and the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of the uncertainties, risks and assumptions associated with these statements. The following discussion and analysis also includes a discussion of certain non-GAAP financial measures. For a description and reconciliation of the non-GAAP measures discussed in this section, see "Non-GAAP Financial Measures."*

### Overview

We are a leading provider of secure, cloud-based digital solutions that transform the ways in which financial institutions and other financial services providers engage with account holders and end users, or End Users. We offer our solutions to financial institutions, FinTechs, alternative finance companies, or Alt-FIs, and other innovative companies, or Brands, wishing to incorporate banking into their customer engagement and servicing strategies. Our solutions include a broad and deep portfolio of digital banking solutions; lending solutions; an open technology platform, the Q2 Innovation Studio, that accelerates innovation by enabling a partnership ecosystem on the Q2 platform in which FinTechs and other digital solution providers can embed their offerings and customers can develop their own applications; and a comprehensive banking as a service, or BaaS, solution, which we re-branded as Helix in February 2022, that enables innovative companies to incorporate banking directly into their products. We purpose-build our platforms and solutions to enable success for our customers and technology partners by allowing them to digitize their operations and offerings, differentiate their brands, and integrate traditional and emerging financial services, ultimately enhancing End-User acquisition, engagement and retention and improving operational efficiencies and profitability.

The effective delivery and management of secure and advanced digital solutions in the complex and heavily regulated financial services industry requires significant resources, personnel and expertise. We provide digital solutions that are designed to be highly configurable, scalable and adaptable to the specific needs of our customers. We design and develop our solutions with an open platform approach intended to provide comprehensive integration among our solution offerings and our customers' internal and third-party systems. This integrated approach allows our customers to deliver unified and robust financial experiences across digital channels. Our solutions provide our customers the flexibility to configure their digital services in a manner that is consistent with each customer's specific workflows, processes and controls. Our solutions also allow our customers to personalize the digital experiences they deliver to their End Users by extending their individual services and brand requirements across digital channels. Our solutions and our data center infrastructure and resources are designed to comply with the stringent security and technical regulations applicable to financial institutions and financial services providers and to safeguard our customers' data and that of their End Users.

We have deep domain expertise in developing and delivering secure, advanced digital solutions designed to help our customers and technology partners compete in the complex and heavily regulated financial services industry. Over 17 years ago, Q2 began by providing digital banking solutions to regional and community financial institutions. We have rapidly grown since then through a combination of broad market acceptance of our award-winning solutions and relentless innovation, investment and acquisitions. Our portfolio of solutions now spans digital banking, lending, lending profitability, onboarding, security, and we now serve account holders and borrowers across retail, small business and commercial segments, in addition to our open technology platform and BaaS offerings. While we remain focused on our founding mission of building stronger and more diverse communities by strengthening their financial institutions, we intend to draw on our broad solution portfolio, deep domain expertise and robust customer base to lead the transformation into a new frontier of financial services.

The financial services industry is undergoing tremendous change, influenced by three major factors. First, financial institutions demand now, more than ever, to digitize their operations and offerings, and the COVID-19 pandemic has further accelerated this digital transformation. Second, the continued growth in the number of FinTechs and the innovation they bring to the market is increasing End-User demand and expectations for new, more engaging and meaningful digital financial experiences. And third, major innovative Brands recognize that incorporating banking into their strategy is an opportunity to leverage the trust that their End Users place in them, driving deeper engagement with those End Users. These three forces are converging to create what we believe is a new frontier in financial services in which financial institutions, FinTechs and Brands will have new roles and interdependencies, and which will require new technology, new partners, and new business models. We believe that lasting value creation in financial services will be achieved by those companies that can support and enhance the convergence of these forces. In addition, we have built a broad set of solutions that we believe equips us to accelerate and optimize this convergence – from digitizing the entire bank, to facilitating partnerships among financial institutions and FinTechs, to enabling Brands to incorporate banking into their products and customer relationships.

We deliver our solutions to most of our customers using a software-as-a-service, or SaaS, model under which our customers pay subscription fees for the use of our solutions. Our digital banking platform customers have numerous End Users, and those End Users can represent one or more account holders registered to use one or more of our solutions on our digital banking platform. We generally price our digital banking platform solutions based on the number of solutions purchased by our customers and the number of Registered Users or commercial account holders utilizing our solutions. We generally earn additional revenues from our digital banking platform customers based on the number of transactions that End Users perform on our solutions in excess of the levels included in our standard subscription fee. As a result, our revenues from digital banking platform customers grow as our customers buy more solutions from us and increase the number of End Users utilizing our solutions and as those users increase their number of transactions on our solutions. The structure and terms of our newer lending arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements. The structure and terms of our Helix arrangements with FinTechs and Brands vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred.

We have achieved significant growth since our inception. During each of the past nine years, our average number of Registered Users (as defined below) per installed customer on our digital banking platform, or Installed Customer, has grown, and in many instances we have been able to sell additional solutions to existing customers. Our revenues per Installed Customer and per Registered User vary period-to-period based on the length and timing of customer implementations, changes in the average number of Registered Users per customer, sales of additional solutions to existing customers, changes in the number of transactions on our solutions by Registered Users and variations among existing customers and new customers with respect to the mix of purchased solutions and related pricing. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Measures" for additional detail on how we define "Installed Customers" and "Registered Users."

We believe we have a significant opportunity to continue to grow our business, and the investments we are making are positioning us to realize revenue growth and improve our operating efficiencies. These investments will increase our costs on an absolute dollar basis, but the timing and amount of these investments will vary based on the rate at which we expect to add new customers, the implementation and support needs of our customers, our software development plans, our technology and physical infrastructure requirements and the internal needs of our organization. Many of these investments will occur in advance of any associated benefit which at times may make it difficult to determine if we are effectively allocating our resources. If we are successful in growing our revenues by increasing the number of customers and scope of our customer relationships, we anticipate that greater economies of scale and increased operating leverage will improve our margins over the long term.

We sell our solutions primarily through our professional sales organization. While the financial institutions market is well-defined due to the regulatory classifications of those financial institutions, markets for FinTechs, Alt-FIs and brands are broader and more difficult to define due to the changing number of providers in each market. Over the long term, we intend to continue to invest in additional sales representatives to identify and address opportunities in the financial institution, FinTech, Alt-FI and Brand markets across the U.S. and internationally and to increase our number of sales support and marketing personnel, as well as our investment in marketing initiatives designed to increase awareness of our solutions and generate new customer opportunities.

We have continuously invested in expanding and improving our digital banking platform since its introduction in 2005, and we intend to continue investing both organically and inorganically through acquisitions to expand our portfolio of solutions. Additionally, over the past several years we have acquired or developed new solutions and additional functionality that serve a broader range of needs of financial institutions as well as the needs of FinTechs, Alt-FIs and Brands. Our integrated, end-to-end collection of solutions includes retail, small business and commercial banking, regulatory and compliance, digital lending, relationship pricing, BaaS, digital account opening, account switching and data-driven sales enablement and portfolio management solutions among others. We have also introduced the Q2 Innovation Studio, an API-based and SDK-based open technology platform that allows our financial institution customers and other technology partners to develop unique extensions of and integrations to our digital banking platform, allowing financial institutions to quickly and easily deploy customized experiences and the latest financial services expected by End Users.

We believe that financial services providers are best served by a broad integrated portfolio of digital solutions that provide rapid, flexible and comprehensive integration with internal and third-party solutions allowing them to provide modern, intuitive digital financial services in a secure, regulatory-compliant manner. We also believe that the breadth and depth of our solution offerings and customer base, our open and flexible platform approach, our position as a leading provider of digital banking solutions to a large network of financial institutions, and our expertise in delivering new, innovative, secure and regulatory-compliant digital solutions uniquely position us to capitalize on the new frontier in financial services. We currently intend to increase investments in technology innovation and software development as we enhance our solutions and platforms and increase or expand the number of solutions that we offer.

We believe that delivery of consistent, high-quality customer support is a significant driver of purchasing and renewal decisions of our prospects and customers. To develop and maintain a reputation for high-quality service, we seek to build deep relationships with our customers through our customer service organization, which we staff with personnel who are motivated by our common mission of using technology to help our customers succeed and who are knowledgeable with respect to the regulated and complex nature of the financial services industry. As our business grows, we intend to continue to invest in and grow our services and delivery organization to support our customers' needs, help them through their digital transformation, deliver our solutions in a timely manner and maintain our strong reputation.

### Recent Events

The COVID-19 pandemic continues to impact the global economy. While there has been significant economic recovery in certain markets, and demand for our solutions has rebounded, the recovery is characterized by additional uncertainty as a result of the disruption caused by the pandemic, including supply chain constraints in many industries, significant price increases for certain goods and services, rapid increases in demand as economies re-open, rising interest rates, increased employee attrition, skilled labor shortages, wage inflation and businesses and labor markets navigating how they will operate post-pandemic. This disruption to the macroeconomic environment has been exacerbated by the general economic and geopolitical uncertainties caused by Russia's invasion of Ukraine, including increased inflation partially driven by increased energy costs and disruption, instability and volatility in the global markets. In an effort to rein in inflation, the Federal Reserve has raised interest rates multiple times since January 1, 2022, and has signaled openness to future interest rate increases in 2022 and beyond if heightened inflation continues to persist. These interest rate increases in turn have caused increasing concerns of a potential recession as higher interest rates slow down the U.S. and global economy. This volatility in interest rates and associated recession concerns can create challenges for financial institutions in assessing risk in their existing loan portfolios and in making new lending decisions. Rising interest rates and recession fears, or an actual recession, also can reduce account holder demand for loans and can reduce the creditworthiness of existing borrowers, resulting in higher credit losses for financial institutions. Financial institutions may respond to this challenging operating environment by reducing or delaying purchases of digital solutions and associated services. During the three months ended September 30, 2022, we observed a decline in customer demand for discretionary aspects of our solutions, namely professional services, which we believe may be related to the challenging macroeconomic environment. We also observed a decline in transactional revenue from our Helix and payment solutions, resulting from decreased usage. We expect continued pressure on our professional services and transactional revenue into 2023 and until the macroeconomic environment stabilizes or improves. As a result of the continued macroeconomic uncertainty, during the three months ended September 30, 2022, we implemented certain measures to further manage our expenses, which we expect to continue into the fourth quarter of 2022 and in 2023. The duration and severity of these events, general economic conditions and their long-term effects on us and our customers remain uncertain and difficult to predict. Refer to "Special Note Regarding Forward Looking Statements" above and "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021 and in our other SEC filings for further discussion of the impact and possible future impacts of the COVID-19 pandemic and general macroeconomic uncertainty on our business.

### Key Operating Measures

In addition to the U.S. generally accepted accounting principles, or GAAP, measures described below in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Components of Operating Results," we monitor the following operating measures to evaluate growth trends, plan investments and measure the effectiveness of our sales and marketing efforts.

### Installed Customers

We define Installed Customers as the number of customers on live implementations (or installations) of our digital banking platforms. The average size of our Installed Customers, measured in both Registered Users per Installed Customer and revenues per Installed Customer, has increased over time as our existing Installed Customers continue to add Registered Users and commercial account holders, buy more solutions from us, and as we add larger financial institutions to our Installed Customer base. The net rate at which we add Installed Customers varies based on our implementation capacity, the size and unique needs of our customers, the readiness of our customers to implement our solutions and customer attrition, including as a result of merger and acquisition activity among financial institutions. We had 448, 450 and 414 Installed Customers on our digital banking platform as of December 31, 2021, 2020 and 2019, respectively.

### Registered Users

We define a Registered User as an individual related to an account holder of an Installed Customer on our consumer digital banking platform who has registered to use one or more of our digital banking solutions and has current access to use those solutions as of the last day of the reporting period presented. We generally price our consumer digital banking platform solutions based on the number of Registered Users, while our commercial digital banking platform solutions are based on the number of commercial account holders. As the number of Registered Users of our solutions increases, our revenues generally tend to grow. Our average number of Registered Users per Installed Customer grows as our existing digital banking platform customers add more Registered Users and as we add larger financial institutions to our Installed Customer base. We anticipate that the number of Registered Users will grow at a faster rate than our number of Installed Customers. The rate at which our customers add Registered Users vary significantly period-to-period based on the timing of our implementations of new customers, the timing of registration of new End Users and customers performing inactive account clean-up. We add new Registered Users through both organic growth from existing customers and from the addition of End Users from new Installed Customers. Our aggregate number of Registered Users is negatively impacted to the extent Installed Customers terminate all or a portion of their arrangements with us. Our Installed Customers had approximately 19.2 million, 17.8 million and 14.6 million Registered Users as of December 31, 2021, 2020 and 2019, respectively. Registered Users as of September 30, 2022 were 20.9 million compared to 19.2 million as of September 30, 2021.

### Net Revenue Retention Rate

We believe that our ability to retain our customers and expand their use of our products and services over time is an indicator of the stability of our revenue base and the long-term value of our customer relationships. We assess our performance in this area using a metric we refer to as our net revenue retention rate, which we previously referred to as our revenue retention rate. We calculate our net revenue retention rate as the total revenues in a calendar year, excluding any revenues from acquired customers during such year, from customers who were implemented on any of our solutions as of December 31 of the prior year, expressed as a percentage of the total revenues during the prior year from the same group of customers. Our net revenue retention rate provides insight into the impact on current year revenues of: the number of new customers implemented on any of our solutions during the prior year; the timing of our implementation of those new customers in the prior year; growth in the number of End Users on such solutions and changes in their usage of such solutions; sales of new products and services to our existing customers during the current year, excluding any products or services resulting from businesses acquired during such year and customer attrition. The most significant drivers of changes in our net revenue retention rate each year have historically been the number of new customers in the prior year and the timing of our implementation of those new customers. The timing of our implementation of new customers in the prior year is significant because we do not start recognizing revenues from new customers until they are implemented. If implementations are weighted more heavily in the first or second half of the prior year, our net revenue retention rate will be lower or higher, respectively. In the first half of 2021, our implementations were weighted more heavily, and we expect to see a lower net revenue retention rate in 2022 as a result. Our use of net revenue retention rate has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate net revenue retention rate differently, which reduces its usefulness as a comparative measure. Our net revenue retention rate was 119%, 122% and 120% for the years ended December 31, 2021, 2020 and 2019, respectively.

### Annualized Recurring Revenue

We believe Annualized Recurring Revenue, or ARR, provides important information about our future revenue potential, our ability to acquire new clients, and our ability to maintain and expand our relationship with existing clients. We calculate ARR as the annualized value of all recurring revenue recognized in the last month of the reporting period, with the exception of variable revenue in excess of contracted amounts for which we instead take the average monthly run rate of the trailing three months within that reporting period. Our ARR also includes the contracted minimums associated with all contracts in place at the end of the quarter that have not yet commenced, and revenue generated from Premier Services. Premier Services revenue is generated from select established customer relationships where we have engaged with the customer for more tailored, premium professional services resulting in a deeper and ongoing level of engagement with them, which we deem to be recurring in nature. ARR does not include revenue from professional services or other sources of revenue that are not deemed to be recurring in nature. ARR is not a forecast of future revenue, which can be impacted by contract start and end dates and renewal rates. ARR should be viewed independently of revenue and deferred revenue as ARR is an operating metric and is not intended to be combined with or replace these items. Our use of ARR has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate ARR differently, which reduces its usefulness as a comparative measure. Our ARR was $574.2 million, $464.2 million and $400.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. ARR as of September 30, 2022 was $633.7 million compared to $537.7 million as of September 30, 2021.

### Revenue Churn

We utilize revenue churn, which we previously have referred to simply as churn, to monitor the satisfaction of our customers and evaluate the effectiveness of our business strategies. We define revenue churn as the amount of any monthly recurring revenue losses due to customer cancellations and downgrades, net of upgrades and additions of new solutions, during a year, divided by our monthly recurring revenue at the beginning of the year. Cancellations refer to customers that have either stopped using our services completely or remained a customer but terminated a particular service. Downgrades are a result of customers taking less of a particular service or renewing their contract for identical services at a lower price. We had annual revenue churn of 5.4%, 5.9% and 5.1% for the years ended December 31, 2021, 2020 and 2019, respectively. Our use of revenue churn has limitations as an analytical tool, and investors should not consider it in isolation. Other companies in our industry may calculate revenue churn differently, which reduces its usefulness as a comparative measure.

### Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with GAAP, we use certain non-GAAP financial measures to clarify and enhance our understanding, and aid in the period-to-period comparison, of our performance. We believe that these non-GAAP financial measures provide supplemental information that is meaningful when assessing our operating performance because they exclude the impact of certain categories that our management and board of directors do not consider part of core operating results when assessing our operational performance, allocating resources, preparing annual budgets and determining compensation. Accordingly, these non-GAAP financial measures may provide insight to investors into the motivation and decision-making of management in operating the business. Set forth in the tables below are the corresponding GAAP financial measures for each non-GAAP financial measure. Investors are encouraged to review the reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure included below. While we believe that these non-GAAP financial measures provide useful supplemental information, non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, their most comparable GAAP measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be comparable to similarly titled measures of other companies due to potential differences in their financing and accounting methods, the book value of their assets, their capital structures, the method by which their assets were acquired and the manner in which they define non-GAAP measures. Items such as the deferred revenue reduction from purchase accounting, stock-based compensation, acquisition related costs, amortization of acquired technology, amortization of acquired intangible assets and lease and other restructuring charges can have a material impact on our GAAP financial results.

### Non-GAAP Revenue

We define non-GAAP revenue as total revenue excluding the impact of purchase accounting. We monitor these measures to assess our performance because we believe our revenue growth rates would be understated without these adjustments. We believe presenting non-GAAP revenue aids in the comparability between periods and in assessing our overall operating performance.

| Revenue: | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| GAAP revenue | $144,751 | $126,736 | $419,131 | $366,829 |
| Deferred revenue reduction from purchase accounting | 104 | 554 | 515 | 1,677 |
| Total Non-GAAP revenue | $144,855 | $127,290 | $419,646 | $368,506 |

### Non-GAAP Operating Income

We provide non-GAAP operating income excluding such items as deferred revenue reduction from purchase accounting, stock-based compensation, acquisition related costs, amortization of acquired technology, amortization of acquired intangible assets and lease and other restructuring charges. We believe excluding these items is useful for the following reasons:

- *Deferred revenue reduction from purchase accounting.* We provide non-GAAP information that excludes the deferred revenue reduction from purchase accounting. We believe that the exclusion of deferred revenue reduction from purchase accounting allows users of our financial statements to better review and understand the historical and current results of our continuing operations.
- *Amortization of acquired technology and intangible assets.* We provide non-GAAP information that excludes expenses related to purchased technology and intangible assets associated with our acquisitions. We believe that eliminating these expenses from our non-GAAP measures is useful to investors, because the amortization of acquired technology and intangible assets can be inconsistent in amount and frequency and significantly impacted by the timing and magnitude of our acquisition transactions, which also vary in frequency from period to period. Accordingly, we analyze the performance of our operations in each period without regard to such expenses.
- *Stock-based compensation.* We provide non-GAAP information that excludes expenses related to stock-based compensation. We believe that the exclusion of stock-based compensation expense provides for a better comparison of our operating results to prior periods and to our peer companies as the calculations of stock-based compensation vary from period to period and company to company due to different valuation methodologies, subjective assumptions and the variety of award types. Because of these unique characteristics of stock-based compensation, we exclude these expenses when analyzing the organization's business performance.
- *Acquisition related costs.* We exclude certain expense items resulting from our evaluation and completion of merger and acquisition opportunities, such as related legal, accounting and consulting fees, as well as changes in fair value of contingent consideration and retention expense. We consider these adjustments, to some extent, to be unpredictable and dependent on a significant number of factors that are outside of our control. Furthermore, merger and acquisition activities result in operating expenses that would not otherwise have been incurred by us in the normal course of our organic business operations. We believe that providing these non-GAAP measures that exclude acquisition related costs, allows users of our financial statements to better review and understand the historical and current results of our continuing operations, and also facilitates comparisons to our historical results and results of less acquisitive peer companies, both with and without such adjustments.
- *Lease and other restructuring charges*. We provide non-GAAP information that excludes restructuring charges related to the estimated costs of exiting and terminating facility lease commitments, partially offset by anticipated sublease income, any related impairments of the right of use assets as they relate to corporate restructuring and exit activities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with these initiatives to optimally align our resources to the businesses that will drive the most long-term value. These charges are inconsistent in amount and are significantly impacted by the timing and nature of these events. Therefore, although we may incur these types of expenses in the future, we believe that eliminating these charges for purposes of calculating the non-GAAP financial measures facilitates a more meaningful evaluation of our operating performance and comparisons to our past operating performance.

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| GAAP operating loss | $(27,091) | $(22,972) | $(72,274) | $(60,428) |
| Deferred revenue reduction from purchase accounting | 104 | 554 | 515 | 1,677 |
| Stock-based compensation | 16,764 | 14,069 | 48,300 | 40,791 |
| Acquisition related costs | 352 | 581 | 882 | 2,841 |
| Amortization of acquired technology | 5,603 | 5,604 | 16,810 | 16,365 |
| Amortization of acquired intangibles | 4,422 | 4,483 | 13,266 | 13,465 |
| Lease and other restructuring charges | 5,494 | 1,244 | 6,031 | 2,056 |
| Non-GAAP operating income | $5,648 | $3,563 | $13,530 | $16,767 |

### Adjusted EBITDA

We define adjusted EBITDA as net loss before depreciation, amortization, stock-based compensation, acquisition related costs, provision for income taxes, interest and other (income) expense, net, deferred revenue reduction from purchase accounting, loss on extinguishment of debt, and lease and other restructuring charges. We believe that adjusted EBITDA provides useful information to 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;
- 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; and
- our investor and analyst presentations include adjusted EBITDA as a supplemental measure of our overall operating performance.

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;
- 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 and other limitations, you should consider adjusted EBITDA together with our GAAP financial measures including cash flow from operations and net loss. The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated (in thousands):

| Reconciliation of net loss to adjusted EBITDA: | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(27,791) | $(31,583) | $(76,572) | $(87,365) |
| Deferred revenue reduction from purchase accounting | 104 | 554 | 515 | 1,677 |
| Stock-based compensation | 16,764 | 14,069 | 48,300 | 40,791 |
| Acquisition related costs | 352 | 581 | 882 | 2,841 |
| Depreciation and amortization | 15,291 | 14,082 | 45,237 | 40,580 |
| Lease and other restructuring charges | 5,494 | 1,244 | 6,031 | 2,056 |
| Provision for income taxes | 469 | 596 | 2,173 | 909 |
| Loss on extinguishment of debt | — | — | — | 1,513 |
| Interest and other (income) expense, net | 137 | 7,761 | 1,975 | 24,056 |
| Adjusted EBITDA | $10,820 | $7,304 | $28,541 | $27,058 |

### Components of Operating Results

### Revenues

Revenue-generating activities directly relate to the sale, implementation and support of our solutions within a single operating segment. We derive the majority of our revenues from subscription fees for the use of our solutions hosted in either our data centers or with cloud-based services, transactional revenue from bill-pay solutions, and revenues for customer support and implementation services related to our solutions. We recognize the corresponding revenues over time on a ratable basis over the customer agreement term. A small portion of our revenues are derived from customers which host and manage our solutions on-premises or in third-party data centers under term license and maintenance agreements. We recognize the software license revenue once the customer obtains control of the license and the remaining arrangement consideration for maintenance revenue over time on a ratable basis over the term of the software license.

Subscription fees are based on the number of solutions purchased by our customers, the number of End Users using the solutions and the number of bill-pay and certain other transactions those users conduct using our solutions in excess of the levels included in our standard subscription fee. Subscription fees are billed monthly, quarterly or annually and are recognized monthly over the term of our customer agreements. The initial term of our digital banking platform agreements averages over five years, although it varies by customer. The structure and terms of our newer lending arrangements vary, but generally are also sold on a subscription basis through our direct sales organization, and the related revenues are recognized over the terms of the customer agreements. The structure and terms of our Helix arrangements with FinTechs and Brands vary, but typically involve relatively lower contracted minimum revenues and instead emphasize usage-based revenue, with such revenue recognized as it is incurred. We begin recognizing subscription fees when the control of the service transfers to the customer, generally when the solution is implemented and made available to the customer. We recognize revenue for bill-pay transaction services generated when End Users utilize debit cards integrated with its Q2 CorePro API or Q2 Biller Direct products in the month incurred based on actual or estimated transactions. The timing of our implementations varies period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions. We recognize any related implementation services revenues ratably over the initial customer agreement term beginning on the date we commence recognizing subscription fees. Contract asset balances arise primarily when we provide services in advance of billing for those services. Amounts that have been invoiced but not paid are recorded in accounts receivable or other long-term assets, depending on the timing of expected billing, and in revenues or deferred revenues, depending on when control of the service transfers to the customer.

We continue to monitor the impacts the current inflationary environment and a potential global macroeconomic slowdown may have on our business for the remainder of 2022 and into 2023. During the three months ended September 30, 2022, we observed a decline in customer demand for discretionary aspects of our solutions, namely professional services, which we believe may be related to the challenging macroeconomic environment. We also observed a decline in transactional revenue from our Helix and payment solutions, resulting from decreased usage. We expect continued pressure on our professional services and transactional revenue into 2023 and until the macroeconomic environment stabilizes or improves. However, we believe that our subscription revenue will grow at a faster rate in 2023 compared to its growth in 2022. The duration and impacts of the COVID-19 pandemic and associated macroeconomic impacts, including rising interest rates and historically high inflation, and the geopolitical uncertainties caused by Russia's invasion of Ukraine continue to be highly unpredictable and may continue to disrupt any seasonality trends that may otherwise typically be inherent in our historical operating results.

### Cost of Revenues

Cost of revenues is comprised primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, for employees providing services to our customers. This includes the costs of our personnel performing implementation, customer support, data center and customer training activities. Cost of revenues also includes the direct costs of bill-pay and other third-party intellectual property included in our solutions, the amortization of deferred solution and services costs, amortization of certain software development costs, co-location facility costs and depreciation of our data center assets, debit card related pass-through fees, cloud-based hosting services, an allocation of general overhead costs, the amortization of acquired technology intangibles, and referral fees. We allocate general overhead expenses to all departments based on the number of employees in each department, which we consider to be a fair and representative means of allocation.

We capitalize certain personnel costs directly related to the implementation of our solutions to the extent those costs are recoverable from future revenues. We amortize the costs for an implementation once revenue recognition commences, and we amortize those implementation costs to cost of revenues over the expected period of customer benefit, which has been determined to be the estimated life of the technology. Other costs not directly recoverable from future revenues are expensed in the period incurred.

We capitalize certain software development costs for those employees who are directly associated with and who devote time to developing our software solutions on an individual product basis, including those related to programmers, software engineers and quality control teams, as well as third-party development costs. Software development costs are amortized to cost of revenues when products and enhancements are released or made available over the products' estimated economic lives.

We intend to continue to increase our investments in our implementation and customer support teams and technology infrastructure to serve our customers and support our growth. Over the long-term, we expect cost of revenues to continue to grow in absolute dollars as we grow our business, but to fluctuate as a percentage of revenues based principally on the level and timing of implementation support activities, timing of capitalized software development costs, debit card related pass-through fees, and other related costs.

### Operating Expenses

Operating expenses primarily consist of sales and marketing, research and development and general and administrative expenses. They also include costs related to our acquisitions and the resulting amortization of acquired intangible assets from those acquisitions. Over the long term, we intend to continue to hire new employees and make other investments to support our anticipated growth. As a result, we expect our operating expenses to increase in absolute dollars but to decrease as a percentage of revenues over the long term as we grow our business.

Throughout 2021 and into 2022, we experienced an exceptionally challenging hiring environment, and we have seen and expect continued intense competition for technical talent in the remainder of 2022, which has and may continue to have the potential to drive increased inflation in the wages we have to pay to hire and retain qualified employees and the incremental expenses related to the initial hiring process including an increased utilization of paid third parties to identify and hire talent. Additionally, while throughout 2021 most of our employees continued to work remotely from home and we suspended most non-essential business travel and conference participation, during 2022 some of these activities, including costs associated with onsite attendance, resumed. As a result, we anticipate that we will continue to see a gradual increase in certain costs associated with operating physical locations and facilitating employee travel during the remainder of 2022. Additionally, we believe employee preferences between remote, hybrid and onsite attendance are likely to change over time, and we will continue to adapt our physical facilities and IT infrastructure to accommodate a safe and successful work experience for our onsite, hybrid and remote employees. As a result of the continued macroeconomic uncertainty, during the three months ended September 30, 2022, we implemented certain measures to further manage our expenses, which we expect to continue into the fourth quarter of 2022 and in 2023.

#### Sales and Marketing

Sales and marketing expenses consist primarily of salaries and other personnel-related costs, including commissions, employee benefits, bonuses and stock-based compensation. Sales and marketing expenses also include expenses related to advertising, lead generation, promotional events, corporate communications, travel and allocated overhead.

Sales and marketing expenses as a percentage of total revenues will change in any given period based on several factors including the addition of newly hired sales professionals, the number and timing of newly-installed customers and the amount of sales commissions expense amortized related to those customers. Commissions are generally capitalized and then amortized over the expected period of customer benefit.

#### Research and Development

We believe that continuing to improve and enhance our solutions is essential to maintaining our reputation for innovation and growing our customer base and revenues. Research and development expenses include salaries and personnel-related costs, including employee benefits, bonuses and stock-based compensation, third-party contractor expenses, software development costs, allocated overhead and other related expenses incurred in developing new solutions and enhancing existing solutions.

Certain research and development costs that are related to our software development, which include salaries and other personnel-related costs, including employee benefits, stock-based compensation and bonuses attributed to programmers, software engineers and quality control teams working on our software solutions, are capitalized and are included in intangible assets, net on the condensed consolidated balance sheets. We intend to continue our investments in our software development teams and the associated technology in order to serve our customers and support our growth.

#### General and Administrative

General and administrative expenses consist primarily of salaries and other personnel-related costs, including employee benefits, bonuses and stock-based compensation, of our administrative, finance and accounting, information systems, legal and human resources employees. General and administrative expenses also include consulting and professional fees, insurance and travel. We expect to continue to incur incremental expenses associated with the growth of our business and to meet increased compliance requirements associated with operating as a regulated, public company. These expenses include costs to comply with Section 404 of the Sarbanes-Oxley Act and other regulations governing public companies, increased costs of directors' and officers' liability insurance and investor relations activities.

#### Acquisition Related Costs

Acquisition related costs include compensation expenses related to milestone provisions and retention agreements with certain former shareholders and employees of acquired businesses, which are recognized as earned, changes in fair value of the contingent consideration related to potential acquisition earnout payments and various legal and professional service expenses incurred in connection with merger and acquisition related matters, which are recognized when incurred.

#### Amortization of Acquired Intangibles

Amortization of acquired intangibles represents the amortization of intangibles recorded in connection with our business acquisitions which are amortized on a straight-line basis over the estimated useful lives of the related assets.

#### Lease and other restructuring charges

Lease and other restructuring charges include costs related to the early vacating of certain facilities, any related impairment of the right of use assets and ongoing expenses of other vacated facilities, partially offset by anticipated sublease income from the associated facilities, as well as severance and other related compensation charges associated with eliminating certain positions in connection with these initiatives to optimally align our resources to the businesses that will drive the most long-term value.

### Total Other Income (Expense), Net

Total other income (expense), net, consists primarily of interest income and expense, other non-operating income and expense, loss on disposal of long-lived assets, foreign currency translation adjustment and loss on extinguishment of debt. We earn interest income on our cash, cash equivalents and investments. Interest expense consists primarily of the interest from the amortization of debt discount prior to the adoption of ASU 2020-06, issuance costs, and coupon interest attributable to our convertible notes issued in February 2018, or 2023 Notes, our convertible notes issued in June 2019, or 2026 Notes, and our convertible notes issued in November 2020, or 2025 Notes, as well as fees and interest associated with the letter of credit issued to our landlord for the security deposit for our corporate headquarters.

### Provision for Income Taxes

As a result of our current net operating loss position, current income tax expenses and benefits consist primarily of state income tax expense, deferred income tax expense relating to the tax amortization of recently acquired goodwill and income tax expense from foreign operations.

### Results of Operations

### Condensed Consolidated Statements of Operations

The following table sets forth our condensed consolidated statements of operations data for each of the periods indicated (in thousands):

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Revenues(1) | $144,751 | $126,736 | $419,131 | $366,829 |
| Cost of revenues(2) | 77,895 | 69,726 | 228,988 | 201,278 |
| Gross profit | 66,856 | 57,010 | 190,143 | 165,551 |
| Operating expenses: |  |  |  |  |
| Sales and marketing | 27,966 | 22,664 | 79,709 | 63,067 |
| Research and development | 33,099 | 30,763 | 96,062 | 86,987 |
| General and administrative | 22,614 | 20,352 | 66,467 | 57,890 |
| Acquisition related costs | 352 | 476 | 882 | 2,514 |
| Amortization of acquired intangibles | 4,422 | 4,483 | 13,266 | 13,465 |
| Lease and other restructuring charges(3) | 5,494 | 1,244 | 6,031 | 2,056 |
| Total operating expenses | 93,947 | 79,982 | 262,417 | 225,979 |
| Loss from operations | (27,091) | (22,972) | (72,274) | (60,428) |
| Total other income (expense), net | (231) | (8,015) | (2,125) | (26,028) |
| Loss before income taxes | (27,322) | (30,987) | (74,399) | (86,456) |
| Provision for income taxes | (469) | (596) | (2,173) | (909) |
| Net loss | $(27,791) | $(31,583) | $(76,572) | $(87,365) |

(1) Includes deferred revenue reduction from purchase accounting of $0.1 million and $0.6 million for the three months ended September 30, 2022 and 2021, respectively, and $0.5 million and $1.7 million for the nine months ended September 30, 2022 and 2021, respectively.

(2) Includes amortization of acquired technology of $5.6 million for each of the three months ended September 30, 2022 and 2021, and $16.8 million and $16.4 million for the nine months ended September 30, 2022 and 2021, respectively.

(3) Lease and other restructuring charges include costs related to the early vacating of various facilities and any related impairment of the right of use assets, partially offset by anticipated sublease income from these facilities and severance and other related compensation charges.

The following table sets forth our condensed consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

|  | Three Months Ended September 30, 2022 | 2021 | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Revenues(1) | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of revenues(2) | 53.8 | 55.0 | 54.6 | 54.9 |
| Gross profit | 46.2 | 45.0 | 45.4 | 45.1 |
| Operating expenses: |  |  |  |  |
| Sales and marketing | 19.3 | 17.9 | 19.0 | 17.2 |
| Research and development | 22.9 | 24.3 | 22.9 | 23.7 |
| General and administrative | 15.6 | 16.1 | 15.9 | 15.8 |
| Acquisition related costs | 0.2 | 0.4 | 0.2 | 0.7 |
| Amortization of acquired intangibles | 3.1 | 3.5 | 3.2 | 3.7 |
| Lease and other restructuring charges(3) | 3.8 | 1.0 | 1.4 | 0.6 |
| Total operating expenses | 64.9 | 63.1 | 62.6 | 61.6 |
| Loss from operations | (18.7) | (18.1) | (17.2) | (16.5) |
| Total other income (expense), net | (0.2) | (6.3) | (0.5) | (7.1) |
| Loss before income taxes | (18.9) | (24.5) | (17.8) | (23.6) |
| Provision for income taxes | (0.3) | (0.5) | (0.5) | (0.2) |
| Net loss | (19.2)% | (24.9)% | (18.3)% | (23.8)% |

(1) Includes deferred revenue reduction from purchase accounting of 0.1% and 0.4% for the three months ended September 30, 2022 and 2021, respectively, and 0.1% and 0.5% for the nine months ended September 30, 2022 and 2021, respectively.

(2) Includes amortization of acquired technology of 3.9% and 4.4% for the three months ended September 30, 2022 and 2021, respectively, and 4.0% and 4.5% for the nine months ended September 30, 2022 and 2021, respectively.

(3) Lease and other restructuring charges include costs related to the early vacating of various facilities and any related impairment of the right of use assets, partially offset by anticipated sublease income from these facilities and severance and other related compensation charges.

Due to rounding, totals may not equal the sum of the line items in the tables above.

### Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

### Revenues

The following table presents our revenues for each of the periods indicated (dollars in thousands):

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Revenues | $144,751 | $126,736 | $18,015 | 14.2% | $419,131 | $366,829 | $52,302 | 14.3% |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Revenues increased by $18.0 million, or 14.2%, from $126.7 million for the three months ended September 30, 2021 to $144.8 million for the three months ended September 30, 2022. This increase in revenue was primarily attributable to the delivery of additional solutions to new and existing customers, growth in Registered Users from new and existing customers, and an increase in debit card related pass-through fees.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Revenues increased by $52.3 million, or 14.3%, from $366.8 million for the nine months ended September 30, 2021 to $419.1 million for the nine months ended September 30, 2022. This increase in revenue was primarily attributable to the delivery of additional solutions to new and existing customers, growth in Registered Users from new and existing customers, and an increase in debit card related pass-through fees.

### Cost of Revenues

The following table presents our cost of revenues for each of the periods indicated (dollars in thousands):

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of revenues | $77,895 | $69,726 | $8,169 | 11.7% | $228,988 | $201,278 | $27,710 | 13.8% |
| Percentage of revenues | 53.8% | 55.0% |  |  | 54.6% | 54.9% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Cost of revenues increased by $8.2 million, or 11.7%, from $69.7 million for the three months ended September 30, 2021 to $77.9 million for the three months ended September 30, 2022. This increase was primarily attributable to a $2.8 million increase in third-party costs related to intellectual property included in our solutions, transaction processing costs incurred as a result of the increase in End Users from new and existing customers, as well as a higher mix of debit card related pass-through fees, a $2.5 million increase in personnel costs due to an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $1.6 million increase in co-location facility costs and depreciation for our data center assets resulting from the increased infrastructure necessary to support our growing customer base, a $0.8 million increase from amortization of capitalized implementation services and a $0.4 million increase in overhead costs and other discretionary and travel-related expenses.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Cost of revenues increased by $27.7 million, or 13.8%, from $201.3 million for the nine months ended September 30, 2021 to $229.0 million for the nine months ended September 30, 2022. This increase was primarily attributable to a $10.2 million increase in third-party costs related to intellectual property included in our solutions, transaction processing costs incurred as a result of the increase in End Users from new and existing customers, as well as a higher mix of debit card related pass-through fees, a $7.6 million increase in personnel and hiring costs due to an increase in the number of personnel who provide implementation and customer support services and maintain our data centers and other technical infrastructure, a $5.4 million increase in co-location facility costs and depreciation for our data center assets resulting from the increased infrastructure necessary to support our growing customer base, a $2.0 million increase in overhead costs and other discretionary and travel-related expenses, a $1.8 million increase from amortization of capitalized implementation services and a $0.4 million increase from amortization of acquired customer technology resulting from the ClickSWITCH business acquired in the second quarter of 2021.

We defer certain personnel and other costs directly related to the implementation of our solutions to the extent those costs are recoverable from future revenues. However, a substantial portion of our implementation costs are not eligible for deferral and, as a result, are expensed in the period incurred. Costs related to implementations that have been deferred are amortized over the expected period of customer benefit. Additionally, we invest in personnel, business processes and systems infrastructure to standardize our business processes and drive future efficiency in our implementations, customer support and data center operations. We expect these investments will increase cost of revenues in absolute dollars as we continue to make investments in capacity, process improvement and systems infrastructure, and we expect such expenses to decline as a percentage of revenue as our operations continue to scale and revenues grow.

### Operating Expenses

The following tables present our operating expenses for each of the periods indicated (dollars in thousands):

#### Sales and Marketing

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing | $27,966 | $22,664 | $5,302 | 23.4% | $79,709 | $63,067 | $16,642 | 26.4% |
| Percentage of revenues | 19.3% | 17.9% |  |  | 19.0% | 17.2% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Sales and marketing expenses increased by $5.3 million, or 23.4%, from $22.7 million for the three months ended September 30, 2021 to $28.0 million for the three months ended September 30, 2022. This increase was primarily attributable to a $4.4 million increase in personnel costs due to the growth of our sales and marketing organizations to support current and projected bookings and revenue growth, a $0.4 million increase in travel-related expenses and a $0.2 million increase in overhead costs.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Sales and marketing expenses increased by $16.6 million, or 26.4%, from $63.1 million for the nine months ended September 30, 2021 to $79.7 million for the nine months ended September 30, 2022. This increase was primarily attributable to an $11.3 million increase in personnel and hiring costs due to the growth of our sales and marketing organizations to support current and projected bookings and revenue growth, a $2.5 million increase in other discretionary expenses, including stadium sponsorship expenses, a $1.4 million increase in travel-related expenses and a $1.1 million increase in overhead costs.

We anticipate that sales and marketing expenses will continue to increase in absolute dollars in the future as we add personnel to support our revenue growth and as we increase marketing spend to attract new customers, retain and grow existing customers, build brand awareness, and as we continue to return to in-person sales formats and experiences for future user conferences. While we anticipate sales and marketing expenses as a percentage of revenue may fluctuate on a quarter-over-quarter basis, we expect such expenses to decline as a percentage of our revenues over the longer-term as our revenues grow.

#### Research and Development

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $33,099 | $30,763 | $2,336 | 7.6% | $96,062 | $86,987 | $9,075 | 10.4% |
| Percentage of revenues | 22.9% | 24.3% |  |  | 22.9% | 23.7% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Research and development expenses increased by $2.3 million, or 7.6%, from $30.8 million for the three months ended September 30, 2021 to $33.1 million for the three months ended September 30, 2022. This increase was primarily attributable to a $5.3 million increase in personnel costs as a result of the growth in our research and development organization to support continued enhancements to our solutions and a $0.4 million increase in overhead and other discretionary and travel-related expenses. These increases were partially offset by a $3.5 million decrease as a result of increased capitalized software development costs.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Research and development expenses increased by $9.1 million, or 10.4%, from $87.0 million for the nine months ended September 30, 2021 to $96.1 million for the nine months ended September 30, 2022. This increase was primarily attributable to a $15.8 million increase in personnel and hiring costs as a result of the growth in our research and development organization to support continued enhancements to our solutions and a $2.4 million increase in overhead and other discretionary and travel-related expenses. These increases were partially offset by a $9.5 million decrease as a result of increased capitalized software development costs.

We anticipate that research and development expenses will increase in absolute dollars in the future as we continue to support and expand our platform and enhance our existing solutions, as we believe existing customers will have an increased focus on maintaining and improving their digital banking offerings, including functionality such as digital account opening and online lending.

#### General and Administrative

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $22,614 | $20,352 | $2,262 | 11.1% | $66,467 | $57,890 | $8,577 | 14.8% |
| Percentage of revenues | 15.6% | 16.1% |  |  | 15.9% | 15.8% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* General and administrative expenses increased by $2.3 million, or 11.1%, from $20.4 million for the three months ended September 30, 2021 to $22.6 million for the three months ended September 30, 2022. The increase in general and administrative expenses was primarily attributable to a $2.0 million increase in personnel costs to support the growth of our business and a $0.2 million increase in overhead and other discretionary and travel-related expenses.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* General and administrative expenses increased by $8.6 million, or 14.8%, from $57.9 million for the nine months ended September 30, 2021 to $66.5 million for the nine months ended September 30, 2022. The increase in general and administrative expenses was primarily attributable to a $6.1 million increase in personnel and hiring costs to support the growth of our business, a $1.5 million increase in overhead and other discretionary and travel-related expenses and a $0.7 million increase in bad debt expense.

General and administrative expenses consist primarily of salaries and other personnel-related costs of our administrative, finance and accounting, information systems, legal and human resources employees. General and administrative expenses also include costs to comply with regulations governing public companies and financial institutions, costs of directors' and officers' liability insurance, investor relations activities and costs to comply with Section 404 of the Sarbanes-Oxley Act, or SOX. Over the long term, we anticipate that general and administrative expenses will continue to increase in absolute dollars as we continue to incur both increased external audit fees as well as additional spending to ensure continued regulatory and SOX compliance. We expect such expenses to decline as a percentage of our revenues over the longer term as our revenues grow.

#### Acquisition Related Costs

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Acquisition related costs | $352 | $476 | $(124) | (26.1)% | $882 | $2,514 | $(1,632) | (64.9)% |
| Percentage of revenues | 0.2% | 0.4% |  |  | 0.2% | 0.7% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Acquisition related costs decreased by $0.1 million, or 26.1%, from $0.5 million for the three months ended September 30, 2021 to $0.4 million for the three months ended September 30, 2022. Acquisition related costs for the three months ended September 30, 2022 consisted of various legal and professional expenses incurred in connection with merger and acquisition activities. Acquisition related costs for the three months ended September 30, 2021 included compensation expense related to the retention bonuses for employees of previous acquisitions.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Acquisition related costs decreased by $1.6 million, or 64.9%, from $2.5 million for the nine months ended September 30, 2021 to $0.9 million for the nine months ended September 30, 2022. Acquisition related costs for the nine months ended September 30, 2022 consisted of various legal and professional expenses incurred in connection with merger and acquisition activities. Acquisition related costs for the nine months ended September 30, 2021 included $1.4 million of compensation expense related to the retention bonuses for employees of previous acquisitions and $1.1 million of legal, professional services and other costs related to our acquisition of ClickSWITCH on April 1, 2021.

#### Amortization of Acquired Intangibles

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Amortization of acquired intangibles | $4,422 | $4,483 | $(61) | (1.4)% | $13,266 | $13,465 | $(199) | (1.5)% |
| Percentage of revenues | 3.1% | 3.5% |  |  | 3.2% | 3.7% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Amortization of acquired intangibles decreased by $0.1 million, or 1.4%, from the three months ended September 30, 2021 to the three months ended September 30, 2022. The acquired intangible assets are related to previously disclosed business combinations. The decrease was due to elimination of amortization of intangible assets that became fully amortized.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Amortization of acquired intangibles decreased by $0.2 million, or 1.5%, from the nine months ended September 30, 2021 to the nine months ended September 30, 2022. The acquired intangible assets are related to previously disclosed business combinations. The decrease was due to elimination of amortization of intangible assets that became fully amortized.

#### Lease and Other Restructuring Charges

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Lease and other restructuring charges | $5,494 | $1,244 | $4,250 | 341.6% | $6,031 | $2,056 | $3,975 | 193.3% |
| Percentage of revenues | 3.8% | 1.0% |  |  | 1.4% | 0.6% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Lease and other restructuring charges increased by $4.3 million, or 341.6%, from $1.2 million for the three months ended September 30, 2021 to $5.5 million for the three months ended September 30, 2022. During the three months ended September 30, 2022, the charges included $5.2 million primarily related to the vacating of a facility in Texas, including the associated impairment of the right of use asset, updated assessments and ongoing expenses of other vacated facilities, as well as $0.3 million related to severance and other related compensation charges associated with eliminating certain positions in connection with these initiatives to optimally align our resources to the businesses that will drive the most long-term value. During the three months ended September 30, 2021, the charges included costs related to an updated assessment and vacating of facilities, partially offset by anticipated sublease income from these facilities.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Lease and other restructuring charges increased by $4.0 million or 193.3%, from $2.1 million for the nine months ended September 30, 2021 to $6.0 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the charges included $5.7 million primarily related to the vacating of a facility in Texas, including the associated impairment of the right of use asset, updated assessments and ongoing expenses of other vacated facilities, as well as $0.3 million related to severance and other related compensation charges associated with eliminating certain positions in connection with these initiatives to optimally align our resources to the businesses that will drive the most long-term value. During the nine months ended September 30, 2021, the charges included costs related to an updated assessment and vacating of facilities, partially offset by anticipated sublease income from these facilities.

#### Total Other Income (Expense), Net

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total other income (expense), net | $(231) | $(8,015) | $7,784 | 97.1% | $(2,125) | $(26,028) | $23,903 | 91.8% |
| Percentage of revenues | (0.2)% | (6.3)% |  |  | (0.5)% | (7.1)% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Total other income (expense), net represented a net expense of $0.2 million for the three months ended September 30, 2022 compared to a net expense of $8.0 million for the three months ended September 30, 2021. The change was primarily due to a $6.3 million decrease in non-cash interest expense related to our convertible notes as a result of the adoption of ASU No. 2020-06 on January 1, 2022. Under ASU No. 2020-06, convertible notes will no longer be separated into a debt and equity component, thereby eliminating the discount associated with the equity component and the interest expense associated with such a discount. We also had a $1.2 million increase in income from cash and investments.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Total other income (expense), net represented a net expense of $2.1 million for the nine months ended September 30, 2022 compared to a net expense of $26.0 million for the nine months ended September 30, 2021. The change was primarily due to a $19.3 million decrease in non-cash interest expense related to our convertible notes as a result of the aforementioned adoption of ASU No. 2020-06 on January 1, 2022, a $1.6 million increase in income from cash and investments and a $0.7 million increase in other income related to a gain resulting from a favorable settlement of an ordinary course dispute. Additional increases resulted from a $1.5 million loss from the early extinguishment of a portion of our 2023 Notes and a $0.3 million decrease in loss on disposal of long-lived assets during the comparable period ended September 30, 2021.

#### Provision for income taxes

|  | Three Months Ended September 30, 2022 | 2021 | Change $(%) |  | Nine Months Ended September 30, 2022 | 2021 | Change $(%) |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Provision for income taxes | $(469) | $(596) | $127 | (21.3)% | $(2,173) | $(909) | $(1,264) | 139.1% |
| Percentage of revenues | (0.3)% | (0.5)% |  |  | (0.5)% | (0.2)% |  |  |

*Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021.* Total provision for income taxes represented an expense of $0.5 million for the three months ended September 30, 2022 compared to an expense of $0.6 million for the three months ended September 30, 2021. As a result of our current net operating loss position, income tax expense for the three months ended September 30, 2022 consisted primarily of $0.2 million in federal income tax relating to the tax amortization of recently acquired goodwill, $0.2 million in foreign income tax and $0.1 million in state income tax. The income tax expense for three months ended September 30, 2021 consisted primarily of $0.4 million in foreign and state income tax expense and $0.2 million in federal income tax relating to the tax amortization of recently acquired goodwill.

*Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021.* Total provision for income taxes represented an expense of $2.2 million for the nine months ended September 30, 2022 compared to an expense of $0.9 million for the nine months ended September 30, 2021. As a result of our current net operating loss position, income tax expense for the nine months ended September 30, 2022 consisted primarily of $1.1 million in state income tax which includes $0.5 million related to uncertain tax positions, $0.6 million in federal income tax relating to tax amortization of recently acquired goodwill and $0.5 million in foreign income tax. The income tax expense for the nine months ended September 30, 2021 consist primarily of federal income taxes of $0.7 million in income tax expense from foreign operations and $0.6 million relating to the tax amortization of recently acquired goodwill, partially offset by $0.3 million in state income tax benefit and $0.1 million in income tax benefit for the acquisition of ClickSWITCH.

### Seasonality and Quarterly Results

Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, including the timing of investments to grow our business. The timing of our implementation activities and corresponding revenues from new customers are subject to fluctuations based on the timing of our sales. Historically, sales have tended to be lower in the first half of the year, but any resulting impact on our results of operation has been difficult to measure due to the timing of our implementations and overall growth in our business. The timing of our implementations also varies period-to-period based on our implementation capacity, the number of solutions purchased by our customers, the size and unique needs of our customers and the readiness of our customers to implement our solutions.

We continue to monitor the impacts the current inflationary environment and a potential global macroeconomic slowdown may have on our business for the remainder of 2022 and in 2023. The duration and impacts of the COVID-19 pandemic and associated macroeconomic impacts, including rising interest rates and historically high inflation, and the geopolitical uncertainties caused by Russia's invasion of Ukraine continue to be highly unpredictable and may continue to disrupt any seasonality trends that may otherwise typically be inherent in our historical operating results.

Our quarterly results of operations may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future results.

### Liquidity and Capital Resources

### Sources of Liquidity

We have financed our operations primarily through the proceeds from the issuance of common stock from our initial public offering in March 2014, additional registered common stock offerings, including our June 2019 and May 2020 common stock offerings, our February 2018 convertible note offering, our June 2019 convertible note offering, our November 2020 convertible note offering, and cash flows from operations. As of September 30, 2022, our principal sources of liquidity were cash, cash equivalents and investments of $395.7 million. Based upon our current levels of operations, we believe that our cash flow from operations along with our other sources of liquidity are adequate to meet our cash requirements for the next twelve months. However, if we determine the need for additional short-term liquidity, there is no assurance that such financing, if pursued, would be adequate or available on terms acceptable to us.

### Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

| Net cash provided by (used in): | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Operating activities | $(8,246) | $(8,386) |
| Investing activities | (125,523) | (53,826) |
| Financing activities | 3,254 | (51,230) |
| Net decrease in cash, cash equivalents, and restricted cash | $(130,515) | $(113,442) |

#### Cash Flows from Operating Activities

Our operating activities are primarily influenced by net loss less non-cash items, the amount and timing of customer receipts and vendor payments, and by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business and increase in the number of installed customers.

For the nine months ended September 30, 2022, our net cash and cash equivalents used in operating activities was $8.2 million, which consisted of a net loss of $76.6 million and cash outflows from changes in operating assets and liabilities of $54.8 million, partially offset by non-cash adjustments of $123.1 million. The primary drivers of the changes in operating assets and liabilities were a $15.0 million decrease in accounts payable and accrued liabilities due to timing of payments in support of our expanding customer base and related growth in our technical infrastructure and payment of annual bonuses during the first quarter and a $18.0 million increase in deferred solution and implementation costs due to our increased customer growth and new and existing customers undergoing implementations during the period. Non-cash adjustments primarily consisted of stock-based compensation, depreciation and amortization, amortization of deferred implementation and deferred solution, lease and other restructuring charges and amortization of debt issuance costs.

For the nine months ended September 30, 2021, our net cash and cash equivalents used in operating activities was $8.4 million, which consisted of a net loss of $87.4 million and cash outflows from changes in operating assets and liabilities of $46.6 million, offset by non-cash adjustments of $125.6 million. The primary drivers of the changes in operating assets and liabilities related to a $19.9 million increase in deferred solution and implementation costs due to our increased customer growth and new and existing customers undergoing implementations during the period and a $16.7 million increase in accounts receivable primarily due to the timing of annual customer billings at the end of the period. Non-cash adjustments primarily consisted of stock-based compensation, depreciation and amortization, amortization of deferred implementation and deferred solution and other costs and amortization of debt discount and debt issuance costs.

#### Cash Flows from Investing Activities

Our investing activities have consisted primarily of purchases and maturities of investments, acquisitions of businesses, purchases of property and equipment to support our growth and costs incurred for the development of capitalized software. Purchases of property and equipment may vary period-to-period due to the timing of the expansion of our operations, data center and other technical infrastructure.

For the nine months ended September 30, 2022, our net cash used in investing activities was $125.5 million, consisting of $214.1 million from purchases of investments, $15.7 million from capitalized software development costs and $8.9 million for the purchase of property and equipment, partially offset by $113.2 million from maturities of investments.

For the nine months ended September 30, 2021, our net cash used in investing activities was $53.8 million, consisting of $88.9 million from purchases of investments, $64.7 million for the acquisition of ClickSWITCH, net of cash acquired, $16.1 million for the purchase of property and equipment and $3.9 million from capitalized software development costs, partially offset by $119.7 million from maturities of investments.

#### Cash Flows from Financing Activities

Our financing activities for the nine months ended September 30, 2022 consisted solely of cash received from exercises of stock options and contributions to our Employee Stock Purchase Plan, or ESPP, to purchase our common stock of $3.3 million.

For the nine months ended September 30, 2021, our net cash used in financing activities was $51.2 million, consisting of $63.7 million for the partial repurchase of the 2023 Notes, partially offset by $6.6 million of net proceeds received in connection with the early termination of bond hedges and warrants related to the 2023 Notes and $5.8 million of cash received from the exercise of stock options.

### Contractual Obligations and Commitments

Our principal commitments consist of the 2023 Notes, 2025 Notes, 2026 Notes, non-cancelable operating leases related to our facilities, minimum purchase commitments for sponsorship obligations, third-party products, co-location fees and other product costs. Our obligations under our convertible senior notes are described in Note 7 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Information regarding our non-cancellable lease and other purchase commitments as of the nine months ended September 30, 2022 can be found in Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

### Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies contained in the Notes to Condensed Consolidated Financial Statements included in this report, regarding the impact of certain recent accounting pronouncements.

### Critical Accounting Policies and Estimates

The preparation of our interim unaudited condensed consolidated financial statements in accordance with GAAP requires estimates, judgments and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses and the related disclosures of contingent liabilities in our interim unaudited condensed consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the following critical accounting policies and estimates:

- Revenue recognition;
- Contract balances;
- Accounts receivable;
- Deferred revenues;
- Deferred implementation costs;
- Deferred solution and other costs;
- Stock-based compensation;
- Convertible senior notes;
- Purchase price allocation, intangible assets and goodwill;
- Software development costs; and
- Income taxes.

We have other key accounting policies which involve the use of estimates, judgments and assumptions that are significant to understanding our results. See Note 2 - Summary of Significant Accounting Policies to the interim unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Of those policies, we believe that the accounting policies enumerated above involve the greatest degree of complexity and exercise of judgment by our management.

During the nine months ended September 30, 2022, except for the adoption of ASU 2020-06 and implementation of our ESPP program, there were no significant changes in our critical accounting policies or estimates, which were included in the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2021, which are included in our Annual Report on Form 10-K, filed with the SEC on February 16, 2022.

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.

## Market risk

As filed, 2,955 characters.

Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument might change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We do not use derivative financial instruments for speculative, hedging or trading purposes, although in the future we might enter into exchange rate hedging arrangements to manage the risks described below.

### Interest Rate Risk

We have cash and cash equivalents held primarily in cash and money market funds. In addition, we have marketable securities which typically include U.S. government securities, corporate bonds and commercial paper and certificates of deposit. Cash and cash equivalents are held for working capital purposes. Marketable securities are held and invested with capital preservation as the primary objective. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. Any declines in interest rates will reduce future interest income. If overall interest rates fell by 10% in 2022 or 2021, our interest income would not have been materially affected. As of September 30, 2022, we had an outstanding principal amount of $327.2 million of 2023 Notes and 2026 Notes, which each have a fixed annual interest rate of 0.75% and an outstanding principal amount of $350.0 million of 2025 Notes with a fixed annual interest rate of 0.125%.

### Foreign Currency Risk

During 2018, we commenced international operations. As a result, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. As of September 30, 2022, our most significant currency exposures were the Indian rupee, British pound, and Australian dollar. As of September 30, 2022, we had operating subsidiaries in India, the United Kingdom and Australia. Due to the relatively low volume of payments made by us through these foreign subsidiaries, we do not believe we have significant exposure to foreign currency exchange risks. However, fluctuations in currency exchange rates could harm our results of operations in the future.

We currently do not use derivative financial instruments to mitigate foreign currency exchange risks. We will continue to review this matter and may consider hedging certain foreign exchange risks in future years.

### Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

## Controls and procedures

As filed, 1,700 characters.

### 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, 2022, 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.

### Changes in Internal Control over Financial Reporting

There were no material changes in our internal control over financial reporting during the three-month period covered by this Quarterly Report on Form 10-Q, which were identified in connection with management's evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 478 characters.

Reference is made to the factors set forth under the caption "Special Note Regarding Forward-Looking Statements" above in this Quarterly Report on Form 10-Q and other risk factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which are incorporated herein by reference. There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Filed Nov 7, 2022.
Source: SEC EDGAR, the filing index for accession 0001410384-22-000071. Last ingested by Listed: Nov 12, 2026, 18:06 ET. No prices; not investment advice.