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

- Company: [Upland Software, Inc.](/companies/upld.md) (CIK 1505155)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 16:17 ET
- Period: 2024-09-30
- Accession: 0001505155-24-000108
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1505155/000150515524000108/upld-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1505155/000150515524000108/

## Figures reported in this filing

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

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $66.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $206.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $19.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $61.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $47.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $145.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-07-01 to 2024-09-30 | $11.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2024-01-01 to 2024-09-30 | $36.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$3.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$100.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | −$2.3m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $7.7m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $530.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$1.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$109.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$4.07 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$4.07 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 27,292,410 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 27,850,947 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $14.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $562.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-09-30 | $59.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $117.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $554.9m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $119.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $432.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | $907.0k | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,415 characters.

### Forward Looking Statements

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2023.. In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements concerning the following:*

- our financial performance and our ability to achieve or sustain profitability or predict future results;
- our plans regarding future acquisitions and our ability to consummate and integrate acquisitions;
- our ability to expand our go to market operations, including our marketing and sales organization, and successfully increase sales of our products;
- our ability to obtain financing in the future on acceptable terms or at all;
- our expectations with respect to revenue, cost of revenue and operating expenses in future periods;
- our expectations with regard to revenue from perpetual licenses, usage fees, and professional services;
- our ability to adapt to macroeconomic factors impacting the global economy, including foreign currency exchange risk, inflation and supply chain constraints;
- our ability to attract and retain customers;
- our ability to successfully enter new markets and manage our international expansion;
- our ability to comply with privacy laws and regulations;
- our ability to incorporate and deliver artificial intelligence (“AI”) functionality into our products and services;
- our ability to deliver high-quality customer service;
- our plans regarding, and our ability to effectively manage, our growth, including with respect to our growth investments;
- maintaining our senior management team and key personnel;
- the performance of our resellers;
- our ability to adapt to changing market conditions and competition;
- our ability to adapt to technological change and continue to innovate;
- global economic and financial market conditions and uncertainties;
- the growth of demand for cloud-based, digital transformation applications;
- our ability to integrate our applications with other software applications;
- maintaining and expanding our relationships with third parties;
- costs associated with defending intellectual property infringement and other claims;
- our ability to maintain, protect and enhance our brand and intellectual property;
- our expectations with regard to trends, such as seasonality, which affect our business;
- impairments to goodwill and other intangible assets;
- our beliefs regarding how our applications benefit customers and what our competitive strengths are;
- the operation, reliability and security of our third-party data centers;
- our expectations as to the timing of the discontinuation of any Sunset Assets, as well as the composition of Sunset Assets (as defined below);
- our expectations as to the payment of dividends;
- our current level of indebtedness, including our exposure to variable interest rate risk;
- potential elimination or limitation of tax incentives or tax losses and/or reduction of U.S. federal net operating loss carryforwards (“NOLs”); and
- other risk factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated by this Quarterly Report on Form 10-Q and periodically updated as necessary in our future quarterly reports on Form 10-Q and other filings that we make with the SEC.

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

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

### Overview

We enable global businesses to work smarter with over 25 cloud software products that help increase revenue, reduce costs, and deliver business value. Our solutions offer many integrated AI capabilities and cover digital marketing, knowledge management, contact center service, sales productivity, and content lifecycle automation. We service over 10,000 customers ranging from large global corporations and various government agencies as well as small and medium-sized businesses. Our customers operate in a wide variety of industries, including financial services, consulting services, technology, manufacturing, media, telecommunications, government, insurance, non-profit, healthcare, life sciences, retail and hospitality.

Through a series of acquisitions and integrations, we have established a library of diverse software applications under the Upland brand that address specific digital transformation needs. Our revenue has grown from $149.9 million in the year ended December 31, 2018 to $297.9 million in the year ended December 31, 2023, representing a compound annual growth rate of 15%. During the nine months ended September 30, 2024 and 2023, foreign revenue as a percent of total revenue was 29% and 30%, respectively.

To support continued growth, we may pursue acquisitions of complementary technologies and businesses. This may expand our product library, customer base, and market access resulting in increased benefits of scale.

### Key Metrics and Non-GAAP Financial Measures

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

### Core Organic Growth Rate

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

For the three-month period ended September 30, 2024, our Core Organic Growth Rate was negative 2.3%.

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

#### Related Defined Terms

In connection with periodic reviews of our business, we have decided to discontinue the availability of certain non-strategic product offerings and a limited number of non-strategic customer contracts (collectively referred to as “Sunset Assets”). It is possible that during future periodic reviews of our business we may determine to add additional non-strategic product offerings or non-strategic customer contracts to Sunset Assets or remove certain product offerings or customer contracts from the classification of Sunset Assets. In either case, we will adjust the revenues attributable to Sunset Assets and properly reflect the year over year change for such addition or removal.

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

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

*(dollars in thousands)*

| Reconciliation of total revenue to core organic revenue: | Three Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Total revenue | $66,692 | $74,121 |
| Less: |  |  |
| Perpetual license revenue | 1,106 | 1,494 |
| Professional services revenue | 1,815 | 2,665 |
| Subscription and support revenue from Sunset Assets | 6,838 | 11,525 |
| Overage Charges | 1,007 | 1,217 |
| Core organic revenue | $55,926 | $57,220 |

### Adjusted EBITDA

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

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

*(dollars in thousands)*

| Reconciliation of Net Loss to Adjusted EBITDA: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net loss | $(1,733) | $(8,670) | $(109,302) | $(163,862) |
| Add: |  |  |  |  |
| Depreciation and amortization expense | 13,807 | 17,692 | 41,406 | 54,475 |
| Interest expense (income), net | (2,337) | 2,525 | 7,677 | 13,362 |
| Other expense (income), net | 229 | (103) | 109 | (911) |
| Provision for (benefit from) income taxes | 530 | (1,471) | 1,193 | (3,126) |
| Stock-based compensation expense | 3,423 | 5,360 | 12,078 | 18,192 |
| Acquisition-related expense | — | 443 | — | 2,609 |
| Non-recurring litigation costs | 24 | 277 | 152 | 427 |
| Purchase accounting deferred revenue discount | 57 | 106 | 198 | 465 |
| Impairment of goodwill | — | — | 87,227 | 128,755 |
| Adjusted EBITDA | $14,000 | $16,159 | $40,738 | $50,386 |

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

- Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired;
- Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance because Adjusted EBITDA eliminates the impact of items that we do not consider indicative of our core operating performance;
- Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

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

- Impairment of goodwill and depreciation and amortization are non-cash charges, and the assets being depreciated or amortized, which contribute to the generation of revenue, will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization relates to amortization of acquired intangible assets as well as the goodwill as a result of business combination purchase accounting adjustments, which will not need to be replaced in the future;
- Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;
- Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation;
- Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and
- Other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures.

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

### Results of Operations

### Consolidated Statements of Operations Data

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

*(dollars in thousands, except share and per share data)*

| Revenue: | Three Months Ended September 30, 2024 Amount | Percent of Revenue | 2023 Amount | Percent of Revenue | Nine Months Ended September 30, 2024 Amount | Percent of Revenue | 2023 Amount | Percent of Revenue |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription and support | $63,771 | 96% | $69,962 | 94% | $196,353 | 95% | $213,370 | 95% |
| Perpetual license | 1,106 | 2% | 1,494 | 2% | 4,306 | 2% | 4,317 | 2% |
| Total product revenue | 64,877 | 98% | 71,456 | 96% | 200,659 | 97% | 217,687 | 97% |
| Professional services | 1,815 | 2% | 2,665 | 4% | 6,108 | 3% | 7,987 | 3% |
| Total revenue | 66,692 | 100% | 74,121 | 100% | 206,767 | 100% | 225,674 | 100% |
| Cost of revenue: |  |  |  |  |  |  |  |  |
| Subscription and support (1)(3) | 18,449 | 28% | 20,853 | 28% | 57,525 | 28% | 66,411 | 29% |
| Professional services and other (1) | 1,256 | 2% | 2,085 | 3% | 3,703 | 2% | 6,241 | 3% |
| Total cost of revenue | 19,705 | 30% | 22,938 | 31% | 61,228 | 30% | 72,652 | 32% |
| Gross profit | 46,987 | 70% | 51,183 | 69% | 145,539 | 70% | 153,022 | 68% |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Sales and marketing (1) | 16,325 | 24% | 16,860 | 23% | 50,134 | 24% | 46,904 | 21% |
| Research and development (1) | 11,432 | 17% | 12,740 | 17% | 36,072 | 17% | 37,713 | 17% |
| General and administrative (1)(2) | 11,051 | 17% | 14,597 | 20% | 38,163 | 19% | 47,369 | 21% |
| Depreciation and amortization | 11,490 | 17% | 14,262 | 19% | 34,266 | 17% | 44,209 | 20% |
| Acquisition-related expenses | — | —% | 443 | —% | — | —% | 2,609 | —% |
| Impairment of goodwill | — | —% | — | —% | 87,227 | 42% | 128,755 | 57% |
| Total operating expenses | 50,298 | 75% | 58,902 | 79% | 245,862 | 119% | 307,559 | 136% |
| Loss from operations | (3,311) | (5)% | (7,719) | (10)% | (100,323) | (49)% | (154,537) | (68)% |
| Other Expense: |  |  |  |  |  |  |  |  |
| Interest expense, net | 2,337 | 4% | (2,525) | (3)% | (7,677) | (4)% | (13,362) | (6)% |
| Other income (expense), net | (229) | —% | 103 | —% | (109) | —% | 911 | —% |
| Total other expense | 2,108 | 4% | (2,422) | (3)% | (7,786) | (4)% | (12,451) | (6)% |
| Loss before provision for income taxes | (1,203) | (1)% | (10,141) | (13)% | (108,109) | (53)% | (166,988) | (74)% |
| Benefit from (provision for) income taxes | (530) | (2)% | 1,471 | 1% | (1,193) | —% | 3,126 | 1% |
| Net loss | (1,733) | (3)% | (8,670) | (12)% | (109,302) | (53)% | (163,862) | (73)% |
| Preferred stock dividends and accretion | (1,406) | (2)% | (1,344) | (2)% | (4,171) | (2)% | (3,988) | (2)% |
| Net loss attributable to common shareholders | $(3,139) | (5)% | $(10,014) | (14)% | $(113,473) | (55)% | $(167,850) | (74)% |
| Net loss per common share: |  |  |  |  |  |  |  |  |
| Net loss per common share, basic and diluted | $(0.12) |  | $(0.31) |  | $(4.07) |  | $(5.17) |  |
| Weighted-average common shares outstanding, basic and diluted | 27,292,410 |  | 32,579,544 |  | 27,850,947 |  | 32,438,682 |  |
| (1) Includes stock-based compensation detailed under Share-based Compensation in “Item 1. Financial Statements—Note 10. Stockholders' Equity”. |  |  |  |  |  |  |  |  |
| (2) Includes general and administrative stock-based compensation of $2.4 million and $4.1 million for the three months September 30, 2024 and September 30, 2023, respectively, and $8.6 million and $13.9 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 13% and 14% for the three months ended September 30, 2024 and September 30, 2023, respectively, and 14% and 15% for the nine months ended September 30, 2024 and September 30, 2023. |  |  |  |  |  |  |  |  |
| (3) Includes depreciation and amortization of $2.3 million and $3.4 million for the three months ended September 30, 2024 and September 30, 2023, respectively, and $7.1 million and $10.3 million for the nine months ended September 30, 2024 and September 30, 2023, respectively. |  |  |  |  |  |  |  |  |

25

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

### Revenue

*(dollars in thousands)*

| Revenue: | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription and support | $63,771 | $69,962 | (9)% | $196,353 | $213,370 | (8)% |
| Perpetual license | 1,106 | 1,494 | (26)% | 4,306 | 4,317 | —% |
| Total product revenue | 64,877 | 71,456 | (9)% | 200,659 | 217,687 | (8)% |
| Professional services | 1,815 | 2,665 | (32)% | 6,108 | 7,987 | (24)% |
| Total revenue | $66,692 | $74,121 | (10)% | $206,767 | $225,674 | (8)% |
| Percentage of revenue: |  |  |  |  |  |  |
| Subscription and support | 96% | 94% |  | 95% | 95% |  |
| Perpetual license | 2% | 2% |  | 2% | 2% |  |
| Total product revenue | 98% | 96% |  | 97% | 97% |  |
| Professional services | 2% | 4% |  | 3% | 3% |  |
| Total revenue | 100% | 100% |  | 100% | 100% |  |

#### For the Three Months Ended September 30, 2024

Total revenue was $66.7 million in the three months ended September 30, 2024, compared to $74.1 million in the three months ended September 30, 2023, a decrease of $7.4 million, or 10%. This decrease is primarily due to the expected decline in revenue from Sunset Assets of $4.7 million. The remaining decrease results from declines in core subscription and support revenue of $1.3 million, declines in overage charges related to core products of $0.1 million, declines in total professional services revenue of $0.9 million, and total perpetual license revenue of $0.4 million.

#### For the Nine Months Ended September 30, 2024

Total revenue was $206.8 million in the nine months ended September 30, 2024, compared to $225.7 million in the nine months ended September 30, 2023, a decrease of $18.9 million, or 8%. This decrease is due to expected decline in revenue from Sunset Assets of $13.7 million. The remaining decrease results from declines in core subscription and support revenue of $2.3 million, declines in overage charges related to core products of $1.0 million, and declines in total professional services revenue of $1.9 million due to fewer implementation projects.

### Cost of Revenue

*(dollars in thousands)*

| Cost of revenue: | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Subscription and support (1) | $18,449 | $20,853 | (12)% | $57,525 | $66,411 | (13)% |
| Professional services and other | 1,256 | 2,085 | (40)% | 3,703 | 6,241 | (41)% |
| Total cost of revenue | 19,705 | 22,938 | (14)% | 61,228 | 72,652 | (16)% |
| Gross profit | $46,987 | $51,183 |  | $145,539 | $153,022 |  |
| Percentage of total revenue: |  |  |  |  |  |  |
| Subscription and support (1) | 28% | 28% |  | 28% | 29% |  |
| Professional services and other | 2% | 3% |  | 2% | 3% |  |
| Total cost of revenue | 30% | 31% |  | 30% | 32% |  |
| Gross profit | 70% | 69% |  | 70% | 68% |  |
| (1) Includes depreciation, amortization and stock compensation expense as follows: |  |  |  |  |  |  |
| Depreciation | $— | $1 |  | $— | $5 |  |
| Amortization | $2,317 | $3,429 |  | $7,140 | $10,261 |  |
| Stock Compensation | $199 | $246 |  | $584 | $850 |  |

#### For the Three Months Ended September 30, 2024

Cost of subscription and support revenue was $18.4 million in the three months ended September 30, 2024, compared to $20.9 million in the three months ended September 30, 2023, a decrease of $2.5 million, or 12%. The decrease in cost of subscription and support revenue is primarily related to a decrease of $0.3 million in infrastructure costs, a $0.3 million decrease in variable telecom carrier costs, a $0.8 million decrease in personnel costs and a $1.1 million decrease in amortization of intangible assets related to our Sunset Assets.

Cost of professional services and other revenue was $1.3 million in the three months ended September 30, 2024, compared to $2.1 million in the three months ended September 30, 2023, a decrease of $0.8 million, or 40%. The decrease in cost of professional services was related to a decrease in personnel-related expenses.

#### For the Nine Months Ended September 30, 2024

Cost of subscription and support revenue was $57.5 million in the nine months ended September 30, 2024, compared to $66.4 million in the nine months ended September 30, 2023, a decrease of $8.9 million, or 13%. The decrease in cost of subscription and support revenue is primarily related to a decrease of $2.5 million in infrastructure costs, a $1.2 million decrease in variable telecom carrier costs, a decrease of $2.1 million in personnel-related costs, and a $3.1 million decrease in amortization of intangible assets related to our Sunset Assets.

Cost of professional services and other revenue was $3.7 million in the nine months ended September 30, 2024, compared to $6.2 million in the nine months ended September 30, 2023, a decrease of $2.5 million, or 41%. The decrease in cost of professional services was related to a decrease in personnel-related expenses.

### Operating Expenses

### Sales and Marketing Expense

*(dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing (1) | $16,325 | $16,860 | (3)% | $50,134 | $46,904 | 7% |
| Percentage of total revenue | 24% | 23% |  | 24% | 21% |  |
| (1) Includes stock compensation expense as follows: |  |  |  |  |  |  |
| Stock Compensation | $398 | $429 |  | $1,156 | $1,563 |  |

#### For the Three Months Ended September 30, 2024

Sales and marketing expense was $16.3 million in the three months ended September 30, 2024, compared to $16.9 million in the three months ended September 30, 2023, a decrease of $0.6 million, or 3%. The decrease in sales and marketing expense is attributable to decreases in personnel costs of $0.6 million related to our Sunset Assets.

#### For the Nine Months Ended September 30, 2024

Sales and marketing expense was $50.1 million in the nine months ended September 30, 2024, compared to $46.9 million in the nine months ended September 30, 2023, an increase of $3.2 million, or 7%. The increase in sales and marketing expense is attributable to an increase of $3.0 million in personnel costs and $1.0 million in marketing expense related to our core products and associated with the previously announced investments in our growth plan. Partially offsetting these growth plan investments are decreases in sales and marketing costs related to our Sunset Assets.

### Research and Development Expense

*(dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development (1) | $11,432 | $12,740 | (10)% | $36,072 | $37,713 | (4)% |
| Percentage of total revenue | 17% | 17% |  | 17% | 17% |  |
| (1) Includes stock compensation expense as follows: |  |  |  |  |  |  |
| Stock Compensation | $470 | $608 |  | $1,714 | $1,911 |  |

#### For the Three Months Ended September 30, 2024

Research and development expense was $11.4 million in the three months ended September 30, 2024, compared to $12.7 million in the three months ended September 30, 2023, a decrease of $1.3 million, or 10.3%. The decline in research and development expense is attributable to a $0.9 million decrease in personnel-related costs as we continue to shift our spending focus to our India Center of Excellence, as well as a $0.4 million decline in expenses related to our Sunset Assets.

#### For the Nine Months Ended September 30, 2024

Research and development expense was $36.1 million in the nine months ended September 30, 2024, compared to $37.7 million in the nine months ended September 30, 2023 a decrease of $1.6 million, or 4.4%. The decline in research and development expense is attributable to a $0.3 million decrease in personnel-related costs as we continue to shift our spending focus to our India Center of Excellence, as well as a $1.3 million decline in expenses related to our Sunset Assets.

### General and Administrative Expense

*(dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative (1) | $11,051 | $14,597 | (24)% | $38,163 | $47,369 | (19)% |
| Percentage of total revenue | 17% | 20% |  | 19% | 21% |  |
| (1) Includes stock compensation expense as follows: |  |  |  |  |  |  |
| Stock compensation | $2,356 | $4,077 |  | $8,624 | $13,868 |  |

#### For the Three Months Ended September 30, 2024

General and administrative expense was $11.1 million in the three months ended September 30, 2024, compared to $14.6 million in the three months ended September 30, 2023, a decrease of $3.5 million, or 24%. This decrease is primarily due to a decrease of $2.8 million in personnel-related costs including a decrease of $1.7 million in non-cash stock compensation expense. Decreases in non-recurring litigation costs and tax-related professional fees also contributed $0.7 million to the decline in general and administrative expense.

#### For the Nine Months Ended September 30, 2024

General and administrative expense was $38.2 million in the nine months ended September 30, 2024, compared to $47.4 million in the nine months ended September 30, 2023, a decrease of $9.2 million, or 19%. This decrease is primarily due to reductions of $7.0 million in personnel-related costs including a decrease of $5.2 million in non-cash stock compensation expense. Decreases in non-recurring ligitation costs, legal-related professional fees and tax-related professional fees also contributed $1.7 million to the decline while decreases in other expenses comprised the remaining $0.5 million decrease in general and administrative expense.

### Depreciation and Amortization Expense

*(dollars in thousands)*

| Depreciation and amortization: | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Depreciation | $332 | $451 | (26)% | $909 | $1,088 | (16)% |
| Amortization | 11,158 | 13,811 | (19)% | 33,357 | 43,121 | (23)% |
| Total depreciation and amortization | $11,490 | $14,262 | (19)% | $34,266 | $44,209 | (22)% |
| Percentage of total revenue: |  |  |  |  |  |  |
| Depreciation | —% | —% |  | 1% | 1% |  |
| Amortization | 17% | 19% |  | 16% | 19% |  |
| Total depreciation and amortization | 17% | 19% |  | 17% | 20% |  |

#### For the Three Months Ended September 30, 2024

Depreciation and amortization expense was $11.5 million in the three months ended September 30, 2024, compared to $14.3 million in the three months ended September 30, 2023, a decrease of $2.8 million, or 19%. This decrease resulted from certain intangible assets becoming fully amortized.

#### For the Nine Months Ended September 30, 2024

Depreciation and amortization expense was $34.3 million in the nine months ended September 30, 2024, compared to $44.2 million in the nine months ended September 30, 2023, a decrease of $9.9 million, or 22%. This decrease resulted from certain intangible assets becoming fully amortized.

### Acquisition-related Expenses

*(dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Acquisition-related expenses | $— | $443 | (100)% | $— | $2,609 | (100)% |
| Percentage of total revenue | —% | —% |  | —% | —% |  |

#### For the Three Months Ended September 30, 2024

Acquisition-related expense was nil in the three months ended September 30, 2024, compared to $0.4 million in the three months ended September 30, 2023. We have had no new acquisitions since our two acquisitions during 2022. Acquisition-related expenses in the three months ended September 30, 2023 include expenses related to acquisitions closed in 2022.

#### For the Nine Months Ended September 30, 2024

Acquisition-related expense was nil in the nine months ended September 30, 2024, compared to $2.6 million in the nine months ended September 30, 2023. We have had no new acquisitions since our two acquisitions during 2022. Acquisition-related expenses in the nine months ended September 30, 2023 include expenses related to acquisitions closed in 2022.

### Impairment of goodwill

*(dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | --- | ---: | ---: | ---: |
| Impairment of goodwill | $— | $— | N/A | $87,227 | $128,755 | (32)% |

Goodwill impairment is recognized on a non-recurring basis when the carrying value (or GAAP basis book value) of our Company (which is our only reporting unit) exceeds the estimated fair value of our Company as determined by reference to a number of factors and assumptions, including the trends in the stock price of our Common Stock. We assess goodwill for impairment annually on October 1st, or more frequently when an event occurs which could cause the carrying value of our Company to exceed the estimated fair value of our Company. As a result of declines in our stock price during the three months ended March 31, 2024 and the three months ended March 31, 2023, we performed a goodwill impairment evaluations in each quarter, which resulted in a goodwill impairments of $87.2 million and $128.8 million for the three months ended March 31, 2024 and 2023, respectively. See *Note 4. Goodwill and Other Intangible Assets* in the notes to our condensed consolidated financial statements for more information regarding our first quarter 2024 goodwill impairment. We will continue to evaluate goodwill for impairment in 2024 and future impairments of goodwill could occur if our stock price declines.

### Other Income (Expense)

*(dollars in thousands)*

| Other expense: | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income (expense), net | $2,337 | $(2,525) | (193)% | $(7,677) | $(13,362) | (43)% |
| Other income (expense), net | (229) | 103 | (322)% | (109) | 911 | (112)% |
| Total other expense | $2,108 | $(2,422) | (187)% | $(7,786) | $(12,451) | (37)% |
| Percentage of total revenue: |  |  |  |  |  |  |
| Interest income (expense), net | 4% | (3)% |  | (4)% | (6)% |  |
| Other income (expense), net | —% | —% |  | —% | —% |  |
| Total other expense | 4% | (3)% |  | (4)% | (6)% |  |

#### For the Three Months Ended September 30, 2024

Interest expense, net of interest income, was $2.3 million of net interest income in the three months ended September 30, 2024 compared to $2.5 million of net interest expense in the three months ended September 30, 2023, a change of $4.8 million or 193%. This was due primarily to prepayments on the Company’s Term Loans during the three months ended September 30, 2024, which resulted in an additional $9.0 million of the realized deferred gain from August 2023 being released from accumulated other comprehensive income to interest expense, net. In addition to this non-cash interest income, an additional $1.8 million of the deferred gain was amortized as a benefit to interest expense, net in the three months ended September 30, 2024. These interest income amounts were partially offset by interest expense, net of amounts received from interest rate swaps.

Other income (expense), net recognized during the three months ended September 30, 2024 and 2023 were related primarily to foreign currency exchange fluctuations.

#### For the Nine Months Ended September 30, 2024

Interest expense, net of interest income was $7.7 million in the nine months ended September 30, 2024, compared to $13.4 million in the nine months ended September 30, 2023, a decrease of $5.7 million, or 43%. The decrease in interest expense is primarily attributable to the recognition of $9.0 million of the realized deferred gain from August 2023 being released from accumulated other comprehensive income to interest expense, net due to prepayments on the Company’s Term Loans in August and September 2024. In addition to this non-cash interest income, an additional $4.8 million of the deferred gain was amortized as a credit to interest expense, net in the nine months ended September 30, 2024. These interest income amounts were offset by interest expense, net of amounts received from interest rate swaps.

Other expense, net was $0.1 million in the nine months ended September 30, 2024, compared to other income, net of $0.9 million in the nine months ended September 30, 2023. Other income (expense), net recognized in the nine months ended September 30, 2024 and September 30, 2023 related primarily to foreign currency exchange fluctuations.

### Benefit from Income Taxes

*(dollars in thousands)*

|  | Three Months Ended September 30, 2024 | 2023 | % Change | Nine Months Ended September 30, 2024 | 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Benefit from (provision for) income taxes | $(530) | $1,471 | (136)% | $(1,193) | $3,126 | (138)% |
| Percentage of total revenue | (2)% | 1% |  | —% | 1% |  |

#### For the Three Months Ended September 30, 2024

Provision for income taxes was $0.5 million in the three months ended September 30, 2024, compared to a benefit from income taxes of $1.5 million in the three months ended September 30, 2023, resulting in an increase in expense from income taxes of $2.0 million. The increase for the three months ended September 30, 2024 related primarily to the foreign income taxes associated with our combined non-U.S. operations.

#### For the Nine Months Ended September 30, 2024

The provision for income taxes was $1.2 million in the nine months ended September 30, 2024, compared to a benefit from income taxes of $3.1 million in the nine months ended September 30, 2023, an increase in the provision of $4.3 million. This increase was largely comprised of foreign taxes associated with our combined non-U.S. operations, and was partially offset by the non-cash impact of deferred taxes related to the goodwill impairment recorded in the first quarter of 2024.

### Liquidity and Capital Resources

We have financed our operations primarily through cash generated from operating activities, the raising of capital including sales of our Common Stock or our convertible preferred stock, and borrowings under our Credit Facility. We believe that current cash and cash equivalents, and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months.

As of September 30, 2024, we had cash and cash equivalents of $59.7 million and $301.0 million of borrowings outstanding under our Term Loans that mature August 6, 2026. As of December 31, 2023, we had cash and cash equivalents of $236.6 million and $482.1 million of borrowings outstanding under our Term Loans. The $176.8 million decrease in cash and cash equivalents from December 31, 2023 to September 30, 2024 was due primarily to $11.0 million paid to repurchase shares of the Company’s Common Stock, and $181.1 million in debt repayment which includes $177.0 million of prepayments made in the current quarter, offset by $14.9 million in cash flows from operations.

Our cash and cash equivalents held by our foreign subsidiaries was $33.8 million as of September 30, 2024 and $34.8 million as of December 31, 2023. Our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries.

As of September 30, 2024 and December 31, 2023, we had a working capital deficit of $1.0 million and a working capital surplus of $169.6 million, respectively.

### Credit Facility

As described in “*Note 6. Debt—Credit Facility”*, the Company has a Credit Facility which includes the fully drawn Term Loans as of September 30, 2024. The Term Loans mature on August 6, 2026. The $60 million revolver under our Credit Facility expired in August 2024 with no amounts outstanding at the time of maturity.

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

*(dollars in thousands)*

| Consolidated Statements of Cash Flow data: | Nine Months Ended September 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $14,898 | $41,154 |
| Net cash used in investing activities | (562) | (1,034) |
| Net cash used in financing activities | (192,838) | (48,745) |
| Effect of exchange rate fluctuations on cash | 1,682 | (437) |
| Change in cash and cash equivalents | (176,820) | (9,062) |
| Cash and cash equivalents, beginning of period | 236,559 | 248,653 |
| Cash and cash equivalents, end of period | $59,739 | $239,591 |

### Cash Flows from Operating Activities

Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Our working capital consists primarily of cash, receivables from customers, prepaid assets, unbilled professional services, deferred commissions, accounts payable, accrued compensation and other accrued expenses, lease liabilities, and deferred revenues. The volume of professional services rendered, the volume and timing of customer bookings and contract renewals, and the related timing of collections on those bookings and renewals, as well as the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances.

Cash provided by operating activities was $14.9 million for the nine months ended September 30, 2024 compared to cash provided by operating activities of $41.2 million for the nine months ended September 30, 2023, a decrease of approximately $26.3 million driven by the $54.6 million decrease in net loss, and offset by the one-time $20.5 million cash gain on the sale of a portion of our interest rate swaps in the nine months ended September 30, 2023. Other changes in cash provided by operating activities were due to a decrease in non-cash interest expense, net related to the $9.0 million deferred gain that was released to interest expense, net, upon the prepayment of $175 million of the Company’s debt in August 2024 as compared to the $2.8 million deferred gain that was released to interest expense, net upon prepayment of $35 million of the Company’s debt in August 2023 as well as changes in working capital for the nine months ended September 30, 2024 which include collections on accounts receivable, increases in prepaid and other current assets, payments of current liabilities and decreases in deferred revenue.

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

### Cash Flows from Investing Activities

Historically, our primary investing activities have consisted of acquisitions of complementary technologies and businesses. As our business grows and evolves, we expect our primary investing activities to continue to expand and refine our product library, customer base, and market access, as well as routine purchases of office equipment.

For the nine months ended September 30, 2024, cash used in investing activities consisted of purchases of property and equipment of $0.6 million compared to $1.0 million of purchases of property and equipment for the nine months ended September 30, 2023. The decrease in purchases of property and equipment was related to a one-time purchase of office software during the nine months ended September 30, 2023.

### Cash Flows from Financing Activities

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

Cash used in financing activities was $192.8 million for the nine months ended September 30, 2024 compared to $48.7 million for the nine months ended September 30, 2023, an increase of $144.1 million of cash used due to $142.0 million in additional payments on the Company’s Term Loans in the nine months ended September 30, 2024 over payments made in the nine months ended September 30, 2023, and an additional $7.7 million used for Common Stock repurchases in the nine months ended September 30, 2024 over the nine months ended September 30, 2024. These increases in cash used were offset by $5.6 million less cash used in nine months ended

September 30, 2024 for payments for additional consideration to sellers of businesses than in the nine months ended September 30, 2023.

### Critical Accounting Policies and the Use of Estimates

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

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

- income taxes; and
- goodwill and other intangibles.

We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of November 7, 2024, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

### Other Key Accounting Policies

Our unaudited interim financial statements and other financial information for the three and nine months ended September 30, 2024, as presented herein and in “*Item 1. Financial Statements”* to this Quarterly Report on Form 10-Q, reflect no material changes in our critical accounting policies and estimates as set forth in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). Please refer to our Annual Report for a detailed description of our critical accounting policies that involve significant management judgment.

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

### Recent Accounting Pronouncements

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

## Market risk

As filed, 4,295 characters.

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

### Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily relates to our cash equivalents and variable rate indebtedness.

The primary objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. This objective is accomplished currently by making diversified investments, consisting only of money market mutual funds and FDIC insured institutional liquid deposit accounts.

The Company has floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt with an annualized fixed rate of 5.4% through the maturity of the Term Loans. The total notional value of the interest rate swap agreements was $256.5 million at September 30, 2024. The Company’s Term Loans have a floating interest rate of 9.1% based on the interest rate as described in “*Note 6. Debt.* The effective cash interest rate for the nine months ended September 30, 2024 was 6.9%.

As of September 30, 2024, we had an outstanding balance of $301.0 million under our Term Loans that mature August 6, 2026. Based on the Company’s outstanding balance of variable rate debt at September 30, 2024, a hypothetical change of 100 basis points could have resulted in a $1.5 million increase to total interest expense for the nine months ended September 30, 2024.

### Foreign Currency Exchange Risk

Our customers are generally invoiced in the currency of the country in which they are located. In addition to the United States dollar, we incur a portion of our operating expenses in foreign currencies, including Australian dollars, Canadian dollars, Indian Rupees, British pounds, Euros, and Israeli New Shekels and in the future as we expand into other foreign countries, we expect to incur operating expenses in other foreign currencies. As a result, we are exposed to foreign exchange rate fluctuations as the financial results of our international operations and our revenue and operating results could be adversely affected. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business could have resulted in a change in revenue of $4.6 million for the nine months ended September 30, 2024. We have not previously engaged in any currency hedging strategies. If we decide to hedge our foreign currency exchange rate exposure, we may not be able to hedge effectively due to lack of experience, unreasonable costs, or illiquid markets. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in foreign currency exchange rates.

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

## Controls and procedures

As filed, 4,311 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, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024, the end of the period covered by this Quarterly Report on Form 10-Q. As of December 31, 2023, management identified a material weakness in the design and operation of a management review control over prospective financial information used in the Company’s goodwill impairment assessment, and specifically, not sufficiently performing and documenting the reasonableness of significant assumptions used therein. Our remediation efforts with respect to this material weakness are continuing, and we have determined that this material weakness is continuing as of September 30, 2024. As a result, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures were not effective as of September 30, 2024 due to the material weakness.

Notwithstanding the identified material weakness, management has concluded that the condensed consolidated financial statements included in this quarterly report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with GAAP.

### Remediation Plan

Management, with the oversight of the Audit Committee of the Board of Directors, has evaluated the material weakness described above and designed a remediation plan to enhance our internal control environment. To remediate the material weakness, we plan to enhance the design, including the precision, of management’s review control over prospective financial information used in the Company’s goodwill impairment assessment, and specifically, the evaluation of significant assumptions utilized in the development of that prospective financial information. In addition, we will retain incremental evidence of the execution of such procedures.

### Changes in Internal Control over Financial Reporting

Except for the material weakness described above, there were no changes to our internal control over financial reporting (as defined in Rules 13a- 15(f) and 15d- 15(f) of the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

### Inherent Limitations on Effectiveness of Controls

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

## Risk factors

As filed, 3,560 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2023 Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. There have been no material changes during 2024 to the risk factors that were included in the Company's Annual Report on Form 10-K, except as shown below.

***We have identified a material weakness in our internal control over financial reporting. If we fail to properly remediate this material weakness or if we are otherwise unable to maintain an effective system of internal control over financial reporting, material misstatements in our financial statements could occur and we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us, our business, results of operations and financial condition, the trading price of our common stock, and our ability to remain listed on Nasdaq.***

We identified a material weakness in our internal control over financial reporting related to a management review control over prospective financial information used in the Company’s goodwill impairment assessment, and specifically, not sufficiently performing and documenting the reasonableness of significant assumptions used therein. See Part I, Item 4 “Controls and Procedures” of this quarterly report for additional information about this material weakness and our remediation efforts.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

Effective internal controls are necessary to provide reliable financial reporting and prevent fraud. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or regulatory investigations. We continue to evaluate and implement steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects. The material weakness in our internal control over financial reporting will not be considered remediated until the management review control operates for a sufficient period of time and management concludes, through testing, that the control operates effectively. If we do not successfully remediate the material weakness, or if other material weaknesses or other deficiencies arise in the future, we may be unable to accurately report our financial results, specifically potential goodwill impairments, which could cause our financial results to be materially misstated. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports, which could adversely affect investor confidence in us, our business, results of operations and financial condition, the trading price of our common stock, and our ability to remain listed on Nasdaq.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001505155-24-000108. Last ingested by Listed: Nov 10, 2026, 04:30 ET. No prices; not investment advice.