upld-20240930

美國

證券交易委員會

華盛頓特區20549

表格 10-Q

☒ 根據美國證券交易法第13或15(d)條規定提交的季度報告

截至季度結束日期的財務報告2024年9月30日

或者

☐ 根據美國證券交易法第13或15(d)條規定的過渡報告

過渡期從到

委員會文件編號001-36720

UPLAND SOFTWARE, INC.

(根據其章程規定的註冊人準確名稱)


特拉華州			27-2992077
（國家或其他管轄區的公司成立或組織）			（IRS僱主唯一識別號碼）

401 Congress Ave.，1850套房

奧斯汀, 得克薩斯州 78701

(公司註冊人主要營業地址，包括郵政編碼)

(512) 960-1010

(註冊人電話號碼，包括區號)

在法案第12(b)條的規定下注冊的證券：

每一類的名稱

交易代碼

在其上註冊的交易所的名稱

普通股，每股面值爲$0.0001

upland software

納斯達克全球市場

優先股票購買權

納斯達克全球市場

請勾選以下內容。申報人是否（1）在過去12個月內（或申報人需要報告這些報告的時間較短的期間內）已提交證券交易法規定的第13或15（d）條要求提交的所有報告；以及（2）過去90天內已被要求提交此類報告。 Yes ☒否☐

請用√符號指示該註冊人在過去12個月內(或該註冊人被要求提交和發佈此類文件的較短期間內)是否已按照S-t條例405規定提交併發佈每個互動數據文件。Yes ☒否☐

請用複選標記指示註冊公司是大型加速記錄者，加速記錄者，非加速記錄者，較小的報告公司，還是新興成長公司。請參閱《交易所法》120億.2條中「大型加速記錄者」，「加速記錄者」，「較小的報告公司」和「新興成長公司」的定義。

大型加速報告人

☐

加速文件提交人

☒

非加速文件提交人

☐

（如果是較小的報告公司，請勿選中）

更小的報告公司

☐

新興成長公司

☐

如果是新興成長型企業，請勾選複選標記，表明註冊者已選擇不使用延長過渡期來符合根據證券交易法第13(a)條規定提供的任何新財務會計準則。 ☐

請用複選標記表示註冊人是否爲殼公司（根據《交易所法案》第120億.2條規定）。是 ☐No ☒

請指出最近一次實際日期後，每個發行人普通股的流通情況。

截至2024年11月5日， 27,440,968 註冊股票的普通股已發行。

Upland Software, Inc



第I部分	財務信息
項目1。	基本報表
	截至2024年9月30日和2023年12月31日的精簡合併資產負債表	1
	2024年9月30日和2023年9月30日三個月和九個月合併簡明綜合經營利潤表	2
	截至2024年9月30日和2023年9月30日三個月及九個月的綜合損益簡明綜合收支表	3
	截至2024年9月30日和2023年9月30日三個月及九個月的權益簡明綜合收支表	4
	截至2024年9月30日和2023年9月30日九個月的現金流量簡明綜合收支表	6
	簡明合併財務報表註釋	7
項目2。	分銷計劃	21
項目3。	有關市場風險的定量和定性披露	35
項目4。	控制和程序	36
第II部分。	其他信息	37
項目1A。	風險因素	37

項目5。	其他信息	37
項目6。	展示資料	37
展覽索引		38
簽名		39

Upland Software，Inc。

簡明合併資產負債表

（以千爲單位，股份和每股金額除外）

項目1.基本報表




	2024年9月30日		2023年12月31日

資產	(未經審計)
流動資產：
現金及現金等價物	$	59,739	$	236,559
應收賬款（扣除截至2023年12月31日的$385 和 $572 於2024年9月30日和2023年12月31日分別）	31,849		38,765
待結轉佣金，流動	9,192		10,429
未計費應收賬款	3,505		2,701
應收所得稅，流動	2,931		3,775
預付費用和其他流動資產	10,731		8,004
總流動資產	117,947		300,233
應收稅款抵免	1,319		1,657
資產和設備，淨值	1,559		1,932
經營租賃資產使用權	1,595		2,929
無形資產, 淨額	142,652		182,349
商譽	269,010		353,778
遞延佣金，非流動負債	11,866		12,568
利率掉期資產	8,576		14,270
其他	414		308
資產總額	$	554,938	$	870,024
負債、可轉換優先股和股東權益
流動負債:
應付賬款	$	8,788	$	8,137
應計的薪資	6,707		7,174
應計費用及其他流動負債	6,085		7,050
遞延收入	92,740		102,763

經營租賃負債，流動負債	1,278		2,351
應付票據的流動部分（包括$的未攤銷折扣2,022 和 $2,228 於2024年9月30日和2023年12月31日分別	3,378		3,172
流動負債合計	118,976		130,647

應付票據，減少流動部分（包括未攤銷折讓的$1,688 和 $3,148 於2024年9月30日和2023年12月31日分別	293,912		473,502
非流動遞延收入	3,296		3,860
非流動營業租賃負債	843		1,597
非流動遞延所得稅負債，淨額	14,706		16,025

其他長期負債	489		461
負債合計	432,222		626,092
次級股權:
A系列可轉換優先股，每股面值$0.0001每股面值; 5,000,000 115,000 截至2024年9月30日和2023年12月31日分別發行並流通的股份	121,809		117,638
股東權益:
普通股，每股面值爲 $0.0001；0.0001每股面值; 75,000,000 27,440,968 和 29,908,407 截至2024年9月30日和2023年12月31日分別發行並流通的股份	3		3
額外實收資本	605,353		608,995
累計其他綜合收益(虧損)	(6,275)		6,168
累積赤字	(598,174)		(488,872)
股東權益總額	907		126,294
總負債、可轉換優先股和股東權益	$	554,938	$	870,024

隨附註釋是這些未經審計的簡明合併財務報表的組成部分。

Upland Software，Inc。

簡明合併利潤表

(未經審計)

（以千爲單位，股份和每股金額除外）



	截止到9月30日的三個月				截止到9月30日的九個月
	2024		2023		2024		2023
營業收入：
訂閱和支持	$	63,771	$	69,962	$	196,353	$	213,370
永久許可證	1,106		1,494		4,306		4,317
總產品收入	64,877		71,456		200,659		217,687
專業服務	1,815		2,665		6,108		7,987
總收入	66,692		74,121		206,767		225,674
營業成本：
訂閱和支持	18,449		20,853		57,525		66,411
專業服務和其他	1,256		2,085		3,703		6,241
營業成本總額	19,705		22,938		61,228		72,652
毛利潤	46,987		51,183		145,539		153,022
營業費用：
銷售及營銷費用	16,325		16,860		50,134		46,904
研發	11,432		12,740		36,072		37,713

一般行政	11,051		14,597		38,163		47,369
折舊和攤銷	11,490		14,262		34,266		44,209
收購相關費用	—		443		—		2,609
商譽減值	—		—		87,227		128,755
營業費用總計	50,298		58,902		245,862		307,559
經營虧損	(3,311)		(7,719)		(100,323)		(154,537)
其他收入（支出）：
利息收益（費用），淨額	2,337		(2,525)		(7,677)		(13,362)

其他收入（費用）淨額	(229)		103		(109)		911
其他收入（費用）總額	2,108		(2,422)		(7,786)		(12,451)
稅前損失	(1,203)		(10,141)		(108,109)		(166,988)
因（預提）所得稅受益	(530)		1,471		(1,193)		3,126


淨損失	$	(1,733)	$	(8,670)	$	(109,302)	$	(163,862)
優先股股利	(1,406)		(1,344)		(4,171)		(3,988)
歸屬於普通股股東的淨虧損	$	(3,139)	$	(10,014)	$	(113,473)	$	(167,850)
每股普通股淨虧損：
普通股每股淨虧損，基本和稀釋	$	(0.12)	$	(0.31)	$	(4.07)	$	(5.17)


基本和稀釋加權普通股份	27,292,410		32,579,544		27,850,947		32,438,682

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

Upland Software, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net loss	$	(1,733)	$	(8,670)	$	(109,302)	$	(163,862)
Other comprehensive income (loss):
Foreign currency translation adjustment	4,615		(4,103)		1,796		(3,248)
Unrealized translation gain (loss) on foreign currency denominated intercompany loans, net of taxes	4,138		(2,588)		2,468		1,111
Interest rate swaps	(14,428)		(3,496)		(16,707)		(3,745)
Other comprehensive income (loss):	$	(5,675)	$	(10,187)	$	(12,443)	$	(5,882)
Comprehensive loss	$	(7,408)	$	(18,857)	$	(121,745)	$	(169,744)

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

Upland Software, Inc.

Condensed Consolidated Statements of Equity

(unaudited)

(in thousands, except share amounts)


	Three Months Ended September 30, 2024
	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at June 30, 2024	115,000	$	120,403	27,265,746	$	3	$	603,526	$	(600)	$	(596,441)	$	6,488



Dividends accrued - Convertible Preferred Stock	—	1,406		—	—		(1,406)		—		—		(1,406)
Issuance of stock under Company plans, net of shares withheld for tax	—	—		175,222	—		(190)		—		—		(190)


Stock-based compensation	—	—		—	—		3,423		—		—		3,423


Foreign currency translation adjustment	—	—		—	—		—		4,615		—		4,615
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries	—	—		—	—		—		4,138		—		4,138
Interest rate swaps	—	—		—	—		—		(14,428)		—		(14,428)
Net loss				—	—		—		—		(1,733)		(1,733)
Balance at September 30, 2024	115,000	$	121,809	27,440,968	$	3	$	605,353	$	(6,275)	$	(598,174)	$	907



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





Dividends accrued - Convertible Preferred Stock	—	1,344		—	—		(1,344)		—		—		(1,344)
Issuance of stock under Company plans, net of shares withheld for tax	—	—		269,754	—		(353)		—		—		(353)

Stock repurchases and retirements	—	—		(783,356)	—		(3,215)		—		—		(3,215)
Stock-based compensation	—	—		—	—		5,360		—		—		5,360

Foreign currency translation adjustment	—	—		—	—		—		(4,103)		—		(4,103)
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries	—	—		—	—		—		(2,588)		—		(2,588)
Interest rate swaps	—	—		—	—		—		(3,496)		—		(3,496)
Net loss	—	—		—	—		—		—		(8,670)		(8,670)
Balance at September 30, 2023	115,000	$	116,279	32,141,013	$	3	$	617,004	$	5,228	$	(472,860)	$	149,375

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

Upland Software, Inc.

Condensed Consolidated Statements of Equity - continued

(unaudited)

(in thousands, except share amounts)


	Nine Months Ended September 30, 2024
	Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2023	115,000	$	117,638	29,908,407	$	3	$	608,995	$	6,168	$	(488,872)	$	126,294



Dividends accrued - Convertible Preferred Stock	—	4,171		—	—		$	(4,171)	—		—		(4,171)
Issuance of stock under Company plans, net of shares withheld for tax	—	—		741,266	—		(753)		—		—		(753)

Stock repurchases and retirements	—	—		(3,208,705)	—		(10,796)		—		—		(10,796)
Stock-based compensation	—	—		—	—		12,078		—		—		12,078


Foreign currency translation adjustment	—	—		—	—		—		1,796		—		1,796
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries	—	—		—	—		—		2,468		—		2,468
Interest rate swaps	—	—		—	—		—		(16,707)		—		(16,707)
Net loss	—	—		—	—		—		—		(109,302)		(109,302)
Balance at September 30, 2024	115,000	$	121,809	27,440,968	$	3	$	605,353	$	(6,275)	$	(598,174)	$	907


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


Dividends accrued - Convertible Preferred Stock	—	3,988		—	—		(3,988)		—		—		(3,988)
Issuance of stock under Company plans, net of shares withheld for tax	—	—		702,514	—		(740)		—		—		(740)

Stock repurchases and retirements	—	—		(783,356)	—		(3,215)		—		—		(3,215)
Stock-based compensation	—	—		—	—		18,192		—		—		18,192


Foreign currency translation adjustment	—	—		—	—		—		(3,248)		—		(3,248)
Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries, net of taxes	—	—		—	—		—		1,111		—		1,111
Interest rate swaps	—	—		—	—		—		(3,745)		—		(3,745)
Net loss	—	—		—	—		—		—		(163,862)		(163,862)
Balance at September 30, 2023	115,000	$	116,279	32,141,013	$	3	$	617,004	$	5,228	$	(472,860)	$	149,375

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


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

	Nine Months Ended September 30,
(In thousands)	2024		2023
Operating activities
Net loss	$	(109,302)	$	(163,862)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	41,406		54,475

Deferred income taxes	(1,265)		(2,651)
Amortization of deferred costs	9,152		9,909
Foreign currency re-measurement gain	(759)		(983)
Non-cash interest, net and other income, net	(9,268)		(2,080)
Non-cash stock-based compensation expense	12,078		18,192
Non-cash loss on impairment of goodwill	87,227		128,755


Non-cash loss on retirement of fixed assets	18		46

Changes in operating assets and liabilities, net of purchase business combinations:
Accounts receivable	7,093		10,168
Prepaid expenses and other current assets	(2,705)		(5,405)
Other assets	(7,159)		12,259
Accounts payable	641		(871)
Accrued expenses and other liabilities	(1,396)		(4,729)
Deferred revenue	(10,863)		(12,069)
Net cash provided by operating activities	14,898		41,154
Investing activities
Purchase of property and equipment	(562)		(1,034)



Net cash used in investing activities	(562)		(1,034)
Financing activities

Payments of debt costs	(77)		(190)
Payments on notes payable	(181,050)		(39,050)

Stock repurchases and retirement	(10,958)		(3,215)


Taxes paid related to net share settlement of equity awards	(753)		(742)
Issuance of common stock, net of issuance costs	—		2

Additional consideration paid to sellers of businesses	—		(5,550)
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
Supplemental disclosures of cash flow information:
Cash paid for interest, net of interest rate swaps	$	24,409	$	23,147
Cash paid (received) for taxes, net of refunds	$	1,802	$	6,227

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

Upland Software, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Nature of Operations

Upland Software, Inc. (“Upland,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, enables global businesses to work smarter with over 25 cloud software products that help increase revenue, reduce costs, and deliver business value. Upland's solutions offer many integrated AI capabilities and cover digital marketing, knowledge management, contact center service, sales productivity, and content lifecycle automation. Upland services over 10,000 customers ranging from large global corporations and various government agencies to small and medium-sized businesses. The Company's 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, the Company has established a library of diverse software applications under the Upland brand that address specific digital transformation needs. In addition to its strategy to increase core organic growth, Upland may pursue acquisitions within its cloud offerings of complementary technologies and businesses.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of Upland Software, Inc. and its wholly owned subsidiaries (collectively referred to as “Upland”, the “Company”, “we”, “us” or “our”). All intercompany accounts and transactions have been eliminated in consolidation. No material changes have been made to the Company’s significant accounting policies disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in our Annual Report.

The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. In the opinion of management of the Company, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements, in all material respects, and include all adjustments of a normal recurring nature necessary for a fair presentation. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other period.

The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K.

Use of Estimates

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

Upland is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of November 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.

Concentrations of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents, accounts receivable and the Company’s interest rate swaps. The Company’s cash and cash equivalents are placed with high quality financial institutions, which, at times, may exceed federally insured limits. The Company has not experienced any losses in these accounts, and the Company does not believe it is exposed to any significant credit risk related to cash and cash equivalents. The Company provides credit, in the normal course of business, to a number of its customers and generally does not require collateral. To manage accounts receivable credit risk, the Company performs periodic credit evaluations of its customers and maintains current expected credit losses which considers such factors as historical loss information, geographic location of customers, current market conditions, and reasonable and supportable forecasts.

No individual customer represented more than 10% of total revenues for the nine months ended September 30, 2024, or more than 10% of accounts receivable as of September 30, 2024 or December 31, 2023.

Recent Accounting Pronouncements

Recently issued accounting pronouncements - Not Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments' significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 should be applied on a retrospective basis. The Company is currently evaluating the impact of adopting ASU 2023-07 on its disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 should be applied on a prospective basis, and retrospective application is permitted. The Company is currently evaluating the impact of adopting ASU 2023-09 on its disclosures.

3. Fair Value Measurements

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

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

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

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


	Fair Value Measurements at September 30, 2024
	(unaudited)
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds included in cash and cash equivalents	$	37,364	$	—	$	—	$	37,364
Interest rate swaps	—		8,576		—		8,576
Total	$	37,364	$	8,576	$	—	$	45,940


	Fair Value Measurements at December 31, 2023

	Level 1		Level 2		Level 3		Total
Assets:
Money market funds included in cash and cash equivalents	$	211,661	$	—	$	—	$	211,661
Interest rate swaps	—		14,270		—		14,270
Total	$	211,661	$	14,270	$	—	$	225,931

Money market funds included in cash and cash equivalents are highly-liquid investments and are measured at fair value using quoted market prices and active markets, therefore are categorized as Level 1.

The fair value of the Company's interest rate swaps are measured at the end of each interim reporting period based on the then assessed fair value and adjusted if necessary. As the fair value measure is based on the market approach, they are categorized as Level 2.

Debt

The Company believes the carrying value of its long-term debt at September 30, 2024 approximates its fair value based on its variable interest rate feature and interest rates currently available to the Company. The estimated fair value of the Company's debt, before debt discount, at September 30, 2024 and December 31, 2023 was $301.0 million and $482.1 million, respectively, based on valuation methodologies using interest rates currently available to the Company which are Level 2 inputs.

4. Goodwill and Other Intangible Assets

Changes in the Company’s goodwill balance for the nine months ended September 30, 2024 are summarized in the table below (in thousands):


Balance at December 31, 2023	$	353,778




Impairment of goodwill	(87,227)
Foreign currency translation adjustment	2,459
Balance at September 30, 2024	$	269,010

As a result of the decline of our stock price impacting our market capitalization during the quarter ended March 31, 2024, we performed a quantitative impairment evaluation, which resulted in a goodwill impairment of $87.2 million. Our quantitative goodwill impairment analysis applied two methodologies to estimate the Company’s fair value which were: a) a discounted cash flow method and b) a guideline public company method. The two methods indicated that the fair value of the Company was less than its carrying value. The discounted cash flow method required significant judgments, including estimation of future cash flows, which is dependent on internally developed forecasts, estimation of the long-term rate of growth for our business, and determination of our weighted average cost of capital. Under the guideline public company method, we estimated fair value based on a market multiple of revenues and earnings derived for comparable publicly traded companies with similar operating characteristics as the Company. We will continue to evaluate Goodwill for impairment and adjust as indicators arise.

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

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


	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
September 30, 2024:		(unaudited)
Customer relationships	1-10	$	360,045	$	235,505	$	124,540
Trade name	1.5-10	9,636		8,010		1,626
Developed technology	4-9	88,154		71,823		16,331

Favorable Leases	6.3	274		119		155
Total intangible assets		$	458,109	$	315,457	$	142,652


	Estimated Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
December 31, 2023:
Customer relationships	1-10	$	378,923	$	222,436	$	156,487
Trade name	1.5-10	10,012		7,862		2,150
Developed technology	4-9	94,103		70,582		23,521

Favorable Leases	6.3	280		89		191
Total intangible assets		$	483,318	$	300,969	$	182,349

Management recorded no impairments of intangible assets during the three and nine months ended September 30, 2024 and September 30, 2023.

The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life.

Total amortization expense was $13.5 million and $40.5 million during the three and nine months ended September 30, 2024, respectively and $17.2 million and $53.4 million for the three and nine months ended September 30, 2023, respectively.

5. Income Taxes

The Company’s income tax expense (benefit) for the three and nine months ended September 30, 2024 and September 30, 2023 reflects its estimate of the effective tax rates expected to be applicable for the full years, adjusted for any discrete events that are recorded in the period in which they occur. The estimates are re-evaluated each quarter based on the estimated tax expense for the full year.

The income tax expense of $0.5 million and $1.2 million for the three and nine months ended September 30, 2024, respectively, is largely comprised of foreign income taxes associated with our combined non-U.S. operations which is partially offset for nine months ended September 30, 2024 by the non-cash impact of deferred taxes related to the goodwill impairment recorded in the first quarter of 2024.

The income tax benefit of $1.5 million and $3.1 million for the three and nine months ended September 30, 2023, respectively, is primarily related to foreign income taxes associated with our combined non U.S. operations , the reduction of uncertain tax position due to expiration of related statutes of limitation specific to the quarter ended September 30, 2023 and the non-cash impact of deferred taxes related to the goodwill impairment recorded during the first quarter of 2023 impacting the year-to-date balance. These tax benefits are offset by changes in deferred tax liabilities associated with amortization of United States tax deductible goodwill and state taxes in certain states in which the Company does not file on a consolidated basis or have net operating loss carryforwards.

The Company historically incurred operating losses in the United States prior to 2021 and, given its cumulative losses and limited history of profits, has recorded a valuation allowance against its United States net deferred tax assets, exclusive of tax deductible goodwill, at September 30, 2024 and December 31, 2023, respectively. The company has also recorded valuation allowances in Germany, Australia and the United Kingdom to offset larger losses in those jurisdictions.

The Company has reflected uncertain tax positions primarily within its long-term taxes payable and a portion within deferred tax assets for which the balance is immaterial at September 30, 2024. The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction, several U.S. state jurisdictions and several foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before December 31, 2020 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, 2019, other than where cross-border transactions extend the statute of limitations. U.S. operating losses generated in years prior to 2020 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.

6. Debt

Long-term debt consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):



	September 30, 2024		December 31, 2023
Senior secured loans (includes unamortized discount of $3,710 and $5,376 based on an imputed interest rate of 6.7% and 7.6%, at September 30, 2024 and December 31, 2023, respectively)	$	297,290	$	476,674





Less current maturities	(3,378)		(3,172)
Total long-term debt	$	293,912	$	473,502

In August 2019, the Company entered into a credit agreement (the “Credit Facility”) which provided for (i) fully-drawn, 7 year, senior secured term loans (the “Term Loans”) and (ii) a $60 million, 5 year, revolving credit facility (the “Revolver”).

The Term Loans are repayable on a quarterly basis by an amount equal to 0.25% (1.00% per annum) of the aggregate principal amount of such loan. Any amount remaining unpaid is due and payable in full on August 6, 2026. The Revolver matured August 6, 2024. No amounts were drawn on the Revolver at the time of its maturity.

On August 15, 2024, the Company prepaid $175.0 million of the Term Loans and on September 30, 2024, prepaid an additional $2.0 million principal payment.

At the option of the Company, the Term Loans accrue interest at a per annum rate based on (i) the Base Rate (as defined below) plus a margin of 2.75% or (ii) the rate (not less than 0.00%) published by CME Group Benchmark Administration Limited (CBA), or as otherwise determined in accordance with the Credit Facility (based on a period equal to 1, 2, 3 or 6 months or, if available and agreed to by all relevant Lenders and the Agent, 12 months or such period of less than 1 month) plus a margin of 3.75%. The Base Rate for any day is a rate per annum equal to the greatest of (i) the prime rate in effect on such day, (ii) the Federal Funds Effective Rate (not less than 0.00%) in effect on such day plus ½ of 1.00%, and (iii) the Federal Funds Effective Rate for a one month interest period beginning on such day plus 1.00%. Accrued interest is paid quarterly or, with respect to Term Loans that are accruing interest based on the Federal Funds Effective Rate, at the end of the applicable interest rate period. At September 30, 2024, the floating interest rate was 9.1%.

Covenants

The Credit Facility contains customary affirmative and negative covenants. The Term Loans are secured by substantially all of the Company's assets.

As of September 30, 2024, the Company was in compliance with all covenants under the Credit Facility.

Interest rate swaps

In August 2019, the Company entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt, effectively converting the entire balance of the Company's Term Loans from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4%, for the 7-year term of debt. At the time the Company entered into the interest rate swap agreements, the Company designated all of the swaps as cash flow hedges and as such changes in fair value were recorded to accumulated other comprehensive income (loss) and reclassified to interest expense, net when the underlying transaction affected earnings.

In August 2023, the Company sold a portion of the notional amount of its interest rate swap assets back to the counterparties for $20.5 million. At that time, a $20.5 million gain was recorded in accumulated other comprehensive income related to the notional amount sold. That gain is being released to interest expense, net as interest is accrued on the Company’s variable-rate debt over the remaining term of the Term Loans as a decrease to interest expense, net. In August 2024, the Company prepaid $175 million of the Term Loans and as a result, $9.0 million of the deferred gain was released to interest expense, net.

In August 2024, the Company de-designated all of the interest rate swaps in conjunction with the August 2024 debt prepayment. The amount remaining in accumulated other comprehensive loss at the de-designation date was $11.4 million and is being amortized to interest expense, net over the effective period of the original interest rate swap agreements. Subsequent to the de-designation, changes in the fair value of the interest rate swaps are recorded to interest expense, net. For the three and nine months ended September 30, 2024, a decrease in the interest rate swaps fair value of $2.8 million was recognized in interest expense, net.

The impact of the Company’s derivative financial instruments on its condensed consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2024 and September 30, 2023 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Unrealized gain (loss) recognized in Other comprehensive income (loss) on interest rate swaps	(3,580)		$	316	(2,917)		$	67
Amounts reclassified from Accumulated other comprehensive income (loss) to interest expense, net	(10,848)		(3,812)		(13,790)		(3,812)
Total Other comprehensive income (loss) on interest rate swaps	$	(14,428)	$	(3,496)	$	(16,707)	$	(3,745)

Cash interest costs averaged 6.9% and 5.7% for the nine months ended September 30, 2024 and 2023, respectively.

7. Net Loss Per Share

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Numerator:
Net Loss	$	(1,733)	$	(8,670)	$	(109,302)	$	(163,862)

Preferred stock dividends and accretion	(1,406)		(1,344)		(4,171)		(3,988)
Net loss attributable to common stockholders	$	(3,139)	$	(10,014)	$	(113,473)	$	(167,850)
Denominator:
Weighted–average common shares outstanding, basic and diluted	27,292,410		32,579,544		27,850,947		32,438,682
Net loss per common share, basic and diluted	$	(0.12)	$	(0.31)	$	(4.07)	$	(5.17)

Due to the net losses for the three and nine months ended September 30, 2024 and September 30, 2023, respectively, basic and diluted loss per share were the same. The Company uses the application of the if-converted method for calculating diluted earnings per share on our Series A Preferred Stock. The Company applies the treasury stock method for calculating diluted earnings per share on our stock options, restricted stock units and performance-based restricted stock units.

Potential shares of common stock are excluded from the computation of diluted earnings per share when their effect would be antidilutive. Performance-based restricted stock units are considered dilutive when the related performance criteria have been met assuming the end of the reporting period represents the end of the performance period. All potential shares of common stock are antidilutive in periods of net loss. Potential shares of common stock not included in the computation of earnings per share because their effect would have been antidilutive or because the performance criterion was not met were as follows (in thousands):

Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.


	September 30,
	2024	2023

Stock options	103,561	151,718

Restricted stock units	2,416,050	2,063,895
Performance restricted stock units	350,000	193,750
Series A Preferred Stock on an if-converted basis(1)	7,220,813	6,904,813
Total anti–dilutive common share equivalents	10,090,424	9,314,176

(1) As of September 30, 2024, the Series A Preferred Stock plus accumulated dividends totaled $126.4 million. The Series A Preferred Stock has a conversion price of $17.50 per share, as detailed in “Note 9. Mezzanine Equity”.

8. Commitments and Contingencies

Purchase Commitments

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

Litigation

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

9. Mezzanine Equity

Series A Convertible Preferred Stock

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

On August 23, 2022 (the “Closing Date”), the closing of the Investment (the “Closing”) occurred, and the Series A Preferred Stock was issued to the Purchaser. In connection with the issuance of the Series A Preferred Stock, the Company incurred direct and incremental expenses of $4.6 million comprised of transaction fees, and financial advisory and legal expenses which reduced the carrying value of the Series A Preferred Stock.

Contemporaneous with the Closing Date, the Company and the Purchaser entered into a Registration Rights Agreement (the “Registration Rights Agreement”) and the Company filed a Certificate of Designation (the “Certificate of Designation”) setting out the powers, designations, preferences, and other rights of the Series A Preferred Stock with the Secretary of State of the State of Delaware in connection with the Closing. Pursuant to the Registration Rights Agreement, the Purchaser has certain customary registration rights with respect to any shares of Series A Preferred Stock or the Common Stock of the Company issuable upon conversion of the Series A Preferred Stock, including rights with respect to the filing of a shelf registration statement, underwritten offering rights and piggy back rights.

Dividend Provisions

The Series A Preferred Stock ranks senior to the Company’s Common Stock with respect to payment of dividends and rights on the distribution of assets on any liquidation, dissolution or winding up of the affairs of the Company. The Series A Preferred Stock has an Initial Liquidation Preference of $1,000 per share, representing an aggregate Liquidation Preference (as defined below) of $1,000 upon issuance. Holders of the Series A Preferred Stock are entitled to the dividend at the rate of 4.5% per annum, within the first seven years after the Closing Date regardless of whether declared or assets are legally available for the payment. Such dividends shall accrue and compound quarterly in arrears from the date of issuance of the shares. The dividend rate will increase to 7.0% on the seven-year anniversary of the Closing Date. The dividend can be paid, in the Company’s sole discretion, in cash or dividend in kind by adding to the Liquidation Preference of each share of Series A Preferred Stock outstanding. On June 7, 2023, the stockholders of the Company authorized, for purposes of complying with Nasdaq Listing Rules 5635(b) and (d), the issuance of shares of Common Stock underlying shares of Series A Preferred Stock in an amount equal to or in excess of 20% of the Common Stock outstanding immediately prior to the issuance of such Series A Preferred Stock (including upon the operation of anti-dilution provisions contained in the Certificate of Designation designating the terms of such Series A Preferred Stock). The Series A Preferred Stock is also entitled to fully participate in any dividends paid to the holders of Common Stock in cash, in stock or otherwise, on an as-converted basis. The Series A Preferred Stock had accrued unpaid dividends of $11.4 million as of September 30, 2024, representing 649,384 Common Stock shares upon conversion at $17.50 per share.

Liquidation Rights

In the event of any Liquidation, holders of the Series A Preferred Stock are entitled to receive an amount per share equal to the greater of (1) the Initial Liquidation Preference per share plus any accrued or declared but unpaid dividends on such shares (the “Liquidation Preference”) or (2) the amount payable if the Series A Preferred Stock were converted into Common Stock. The Series A Preferred Stock will have distribution and liquidation rights senior to all other equity interests of the Company. As of September 30, 2024, the Liquidation Preference of the Series A Preferred Stock was $126.4 million.

Optional Redemption

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

Deemed Liquidation Event Redemption

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

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

Voting Rights

The Series A Preferred Stock will vote together with the common shares on all matters and not as a separate class (except as specifically provided in the Certificate of Designation or as otherwise required by law) on an as-converted basis. The holders of the Series A Preferred Stock will have the right to elect one member of the Board of Directors of the Company (the “Board of Directors”) for so long as holders of the Series A Preferred Stock own in the aggregate at least 5% of the shares of Common Stock on a fully diluted basis. In addition, the holders of the Series A Preferred Stock will have the right to elect one non-voting observer to the Board of Directors for so long as they hold at least 10% of the shares of Convertible Preferred Stock outstanding as of the date of the issue date.

Conversion Feature

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

•Stock splits and combinations

•Tender offers or exchange offers

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

•Spin-offs and other distributed property

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

Anti-Dilution Provisions

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

10. Stockholders' Equity

Common Stock

The common stock has a par value of 0.0001 per share. Each share of common stock is entitled to one vote at all meetings of stockholders. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of shares of capital stock of the Company representing a majority of the votes represented by all outstanding shares of capital stock of the Company entitled to vote. The holders of common stock are also entitled to receive dividends, when, if and as declared by our board of directors, whenever funds are legally available therefore, subject to the priority rights of any outstanding preferred stock.

Share repurchase program

In September 2023, the Board of Directors authorized a stock repurchase program (the “Share Repurchase Plan”) in the aggregate amount of up to $25 million that allowed the Company to repurchase shares of its issued and outstanding Common Stock. The Share Repurchase Plan expired in May 2024 when the Company had repurchased all shares authorized for repurchase. 6,453,805 total shares were repurchased under the Share Repurchase Plan from September 2023 through its completion in May 2024.

In fiscal year 2024, the Company’s net stock repurchases are subject to a 1 percent excise tax under the Inflation Reduction Act. The excise tax is included as a reduction to accumulated deficit in the condensed consolidated statements of equity. Total accrued excise tax of $0.2 million is included in total cost of shares repurchased, excluded from average cost per share and excluded from total cash paid during the nine month period ended September 30, 2024 as the amount was unpaid at period end.

No stock repurchases were made during the three months ended September 30, 2024. During the nine months ended September 30, 2024, the Company repurchased and subsequently retired 3,208,705 shares of Common Stock, for a total of $11.0 million cash paid under the Share Repurchase Plan.

As of September 30, 2024, the Share Repurchase Plan was complete and no further amounts are available for share repurchases.

Tax Benefit Preservation Plan and Preferred Stock Purchase Rights

Effective June 5, 2024, after approval of the Board and the Companys’ stockholders, the Company entered into the 2024 Tax Benefit Preservation Plan with Broadridge Corporate Issuer Solutions, LLC, as Rights Agent (the “2024 Tax Benefit Preservation Plan”). By adopting the 2024 Tax Benefit Preservation Plan, the Company is seeking to protect its ability to use its net operating loss carryforwards (“NOLs”) and other tax attributes to offset potential future income tax liabilities. The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code. The 2024 Tax Benefit Preservation Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.9% or more of the outstanding shares of stock without the approval of the Board of Directors.

As part of the 2024 Tax Benefit Preservation Plan, the Board declared a dividend of one preferred stock purchase right (a “2024 Right”) for each outstanding share of Common Stock payable as of June 15, 2024. 27,030,605 2024 Rights were issued to the holders of record of shares of Common Stock. The description and terms of the 2024 Rights are set forth in the 2024 Tax Benefit Preservation Plan. The 2024 Rights trade with, and are inseparable from, the Common Stock, and the record holders of shares of Common Stock are the record holders of the 2024 Rights. The 2024 Rights are not exercisable until the Distribution Date, as defined in the 2024 Tax Benefit Preservation Plan.

After the Distribution Date, each 2024 Right will be exercisable to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.0001 per share, of the Company (the “Series B Preferred”), at a purchase price of $15.25 per one one-thousandth of a share of Series B Preferred, subject to adjustment as provided in the 2024 Tax Benefit Preservation Plan. Until a 2024 Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company by virtue of holding such Right, including, without limitation, the right to vote and to receive dividends. The Board may adjust the Purchase Price, the number of shares of Series B Preferred issuable and the number of outstanding 2024 Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Series B Preferred or Common Stock or certain other specified transactions. No adjustments to the Purchase Price of less than 1% are required to be made.

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

•Will not be redeemable.

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

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

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

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

Accumulated Other Comprehensive Income (Loss)

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

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


	September 30, 2024		December 31, 2023
Foreign currency translation adjustment	$	(18,151)	$	(19,947)
Unrealized translation loss on intercompany loans with foreign subsidiaries, net of taxes	(862)		(3,330)
Unrealized gain on interest rate swaps, net of amounts reclassified into interest expense, net	11,353		14,270
Realized gain on interest rate swap sale, net of amounts reclassified into interest expense, net	1,385		15,175
Total accumulated other comprehensive income (loss)	$	(6,275)	$	6,168

The Company has intercompany loans that were used to fund the acquisitions of foreign subsidiaries. Due to the long-term nature of the loans, the unrealized translation gains (losses) resulting from re-measurement are recognized as a component of AOCI. The unrealized translation gains (losses) on intercompany loans with foreign subsidiaries as of September 30, 2024 is net of income tax expense of $3.2 million. The tax impact related to unrealized translation gains (losses) on intercompany loans for the three and nine months ended September 30, 2024 was $0.1 million expense and $0.3 million benefit, respectively. The tax impact related to unrealized translation gains (losses) on intercompany loans for the three and nine months ended September 30, 2023 was a $0.8 million benefit and a $0.2 million provision, respectively. The income tax expense/benefit allocated to each component of other comprehensive income for all other periods and components is not material. The Company reclassifies taxes from AOCI to earnings as the items to which the tax effects relate are similarly reclassified.

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

Stock-Based Compensation

The Company’s stock-based compensation generally includes awards of restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”). Key employees, officers and directors of the Company and its consultants or advisors are eligible to receive awards.

The following table summarizes PSU and RSU activity during the nine months ended September 30, 2024:


	Number of Units	Weighted-Average Grant Date Fair Value
Unvested restricted units outstanding as of December 31, 2023	1,858,847	$	9.76
Granted	2,142,687	4.12
Vested	(1,050,597)	9.03
Forfeited	(184,887)	8.71
Unvested restricted units outstanding as of September 30, 2024	2,766,050	$	5.73

The PSU and RSU activity table above includes 100,000 PSUs granted in 2023 and 250,000 PSUs granted in 2024 based on a 100% target payout.

Compensation cost related to awards is based on the fair market value at the time of the grant. The fair value of the RSUs is determined based on the grant date fair value of the award. Compensation expense for RSUs is recognized over the required service period of the grant. The PSUs vest upon the achievement of specified market performance thresholds. The PSUs have a vesting condition that is tied to the Company’s total shareholder return based on the Company’s stock performance up to a maximum of 200% and 300%, depending on the specified performance condition and the level of achievement obtained, for the 2023 PSUs and 2024 PSUs, respectively. The fair value of PSUs is determined using the Monte Carlo simulation model. Compensation expense for PSUs is recognized over the requisite service period and is not subject to adjustment regardless of whether the PSUs meet the performance metric.

The range of significant assumptions used in the Monte Carlo simulation model for the PSUs granted during the nine months ended September 30, 2024 was as follows:


Expected volatility						74.6% - 62.06%
Risk-free interest rate						4.4% - 4.0%
Remaining performance period (in years)						2.73 - 3.08
Dividend yield						—

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of revenue	$	199	$	246	$	584	$	850
Research and development	470		608		1,714		1,911
Sales and marketing	398		429		1,156		1,563
General and administrative	2,356		4,077		8,624		13,868
Total	$	3,423	$	5,360	$	12,078	$	18,192

11. Revenue Recognition

Revenue Recognition Policy

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

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

•Identification of the contract with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

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

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

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

Subscription and Support Revenue

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

Perpetual License Revenue

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

Professional Services Revenue

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

Performance Obligations and Standalone Selling Price

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of accounting. The Company has contracts with customers that often include multiple performance obligations, usually including professional services sold with either individual or multiple subscriptions or perpetual licenses. For these contracts, the Company records individual performance obligations separately if they are distinct by allocating the contract's total transaction price to each performance obligation in an amount based on the relative standalone selling price (“SSP”), of each distinct good or service in the contract. We only include estimated amounts of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when, or as, the performance obligation is satisfied. We determine the SSP based on our overall pricing objectives, taking into consideration market conditions and other factors, including the value of our contracts, historical standalone sales, customer demographics, geographic locations, and the number and types of users within our contracts.

Principal vs. Agent Considerations

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

Generally, the Company reports revenue from vendor reseller agreements on a gross basis, meaning the amounts billed to customers are recorded as revenue, and expenses incurred are recorded as cost of revenue. As the Company is primarily obligated in its messaging-related subscription contracts, has latitude in establishing prices associated with its messaging program management services, is responsible for fulfillment of the transaction, and has credit risk, we have concluded it is appropriate to record revenue on

a gross basis with related pass-through telecom messaging costs incurred from third parties recorded as cost of revenue. Revenue provided from agreements in which the Company is an agent are immaterial.

Contract Balances

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

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

Unbilled Receivables

Unbilled receivables represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for software licenses already delivered and professional services already performed, but invoiced in arrears and for which the Company believes it has an unconditional right to payment. As of September 30, 2024 and December 31, 2023, unbilled receivables were $3.5 million and $2.7 million, respectively.

Deferred Commissions

Sales commissions earned by our sales force, and related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer. Deferred commissions and other costs for new customer contracts are capitalized upon contract signing and amortized on a systematic basis that is consistent with the transfer of goods and services over the expected life of the customer relationships, which has been determined to be approximately 6 years. The expected life of our customer relationships is based on historical data and management estimates, including estimated renewal terms and the useful life of the associated underlying technology. Commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts, as such, deferred commissions related to renewals are capitalized and amortized over the estimated average contractual renewal term of 18 months. We utilize the 'portfolio approach' practical expedient permitted under ASC 606-10-10-4, which allows entities to apply the guidance to a portfolio of contracts with similar characteristics as the effects on the financial statements of this approach would not differ materially from applying the guidance to individual contracts. The portion of capitalized costs expected to be amortized during the succeeding twelve-month period is recorded in current assets as deferred commissions, current, and the remainder is recorded in long-term assets as deferred commissions, net of current portion. Amortization expense is included in sales and marketing expenses in the accompanying condensed consolidated statements of operations. Deferred commissions are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable consistent with the Company's long-lived assets policy. No indicators of impairment were identified during the nine months ended September 30, 2024.

Amortization of deferred commissions in excess of commissions capitalized for the three and nine months ended September 30, 2024 was $0.9 million and $1.9 million, respectively.

Deferred Revenue

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

Deferred revenue is mainly unearned revenue related to subscription services and support services. During the nine months ended September 30, 2024, we recognized $90.2 million and $2.0 million of subscription services and professional services revenue, respectively, that was included in the deferred revenue balances at the beginning of the period.

Remaining Performance Obligations

As of September 30, 2024, approximately $242.7 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 70% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

Disaggregated Revenue

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues:
Subscription and support:
United States	$	45,829	$	49,884	$	140,894	$	152,287
United Kingdom	8,185		9,371		25,657		28,205
Canada	3,241		3,348		9,786		10,281
Other International	6,516		7,359		20,016		22,597
Total subscription and support revenue	63,771		69,962		196,353		213,370
Perpetual license:
United States	501		409		2,072		1,786
United Kingdom	100		222		255		514
Canada	35		38		186		94
Other International	470		825		1,793		1,923
Total perpetual license revenue	1,106		1,494		4,306		4,317

Professional services:
United States	1,089		1,522		3,534		4,676
United Kingdom	211		336		725		1,046
Canada	139		225		473		684
Other International	376		582		1,376		1,581
Total professional service revenue	1,815		2,665		6,108		7,987
Total revenue	$	66,692	$	74,121	$	206,767	$	225,674


			UPLAND SOFTWARE, INC.
Dated: November 7, 2024			/s/ Michael D. Hill
			Michael D. Hill
			Chief Financial Officer