Amendment: SEC Form 10-K/A filed by Upland Software Inc.
$UPLD
Computer Software: Prepackaged Software
Technology
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
For the fiscal year ended December 31 , 2023
OR
Commission File Number 001-36720
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||
(512 ) 960-1010
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | x | |||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $108.9 million based upon the closing price of $3.60 of such common stock on the Nasdaq Global Market on June 30, 2023 (the last business day of the registrant’s most recently completed second fiscal quarter). Shares of common stock held as of June 30, 2023 by each director and executive officer of the registrant, as well as shares held by each holder of 10% of the common stock known to the registrant, have been excluded for purposes of the foregoing calculation. This determination of affiliate status is not a conclusive determination for other purposes.
As of February 20, 2024, 28,855,055 shares of the registrant’s Common Stock were outstanding.
Documents incorporated by reference:
Explanatory Note
This Amendment No. 1 on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K for the year ended December 31, 2023, filed by Upland Software, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”) on February 22, 2024 (the “Original Form 10-K”). Unless otherwise indicated or unless the context requires otherwise, all references herein to this Annual Report on Form 10-K, this Form 10-K, this Annual Report and similar names refer to the Original Form 10-K, as amended by this Amendment.
Subsequent to the Original Form 10-K filing, Ernst & Young LLP (“EY”), our external auditor, conducted a routine internal quality review and communicated a previously unidentified deficiency existed 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. Solely as a result of this deficiency, the Company concluded that it had a material weakness in internal controls over financial reporting as of December 31, 2023.
The material weakness did not result in any misstatement of our consolidated financial statements for the year ended December 31, 2023 included in our Original Form 10-K, and accordingly, we have concluded that the consolidated financial statements and other financial information included in our Original Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented.
This Amendment is being filed to (i) amend Part II, Item 9A—Controls and Procedures to address management's re-evaluation of disclosure controls and procedures and reflect the identification of a material weakness in internal control over financial reporting, (ii) amend EY’s opinion on our internal control over financial reporting, and (iii) amend EY’s opinion on the consolidated financial statements included in Part II, Item 8—Financial Statements and Supplementary Data of the Original Form 10-K solely to include a reference to EY’s updated report on internal control over financial reporting.
Part IV, Item 15—Exhibits and Financial Statement Schedules also has been amended to include currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer as required by sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications are attached to this Amendment as Exhibits 31.1, 31.2, 32.1 and 32.2. We are also filing an updated Consent of Independent Registered Public Accounting Firm, attached as Exhibit 23.1.
This Amendment is limited in scope to the portions of this Amendment set forth above, and does not modify, amend, or update in any way the any other items or disclosures contained in the Original Form 10-K, including the consolidated financial statements set forth in the Original Form 10-K.
Except as noted above, this Amendment has not been updated for other events or information subsequent to the date of the filing of the Original Form 10-K and should be read in conjunction with the Original Form 10-K and our other filings with the SEC.
TABLE OF CONTENTS
| PART II | ||||||||
| PART IV | ||||||||
1
Item 8. Financial Statements and Supplementary Data
UPLAND SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Upland Software, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Upland Software, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2024, except for the effect of the material weakness described in the third paragraph of that report, as to which the date is November 7, 2024, expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
3
| Evaluation of goodwill for impairment | |||||
Description of the Matter | At December 31, 2023, the Company’s goodwill balance was $354 million. As discussed in Note 2 to the consolidated financial statements, goodwill is tested at least annually for impairment and more frequently when indicators of impairment are identified. Estimating fair values in connection with this impairment evaluation involves the utilization of the discounted cash flow and guideline public company approaches. As described in Note 5 to the consolidated financial statements, the Company recorded a goodwill impairment charge of $129 million during the year ended December 31, 2023. | ||||
Auditing management’s goodwill impairment assessment was complex and required auditor judgment because the estimation of fair values involves subjective management assumptions, including estimation of future cash flows, the long-term rate of growth for the Company’s business and weighted average cost of capital. Assumptions used in these valuation models are forward-looking, and changes in these assumptions can have a material effect on the determination of fair value. | |||||
How We Addressed the Matter in Our Audit | To test the Company’s impairment evaluation, our audit procedures included, among others, assessing the valuation methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its evaluation. For example, we compared the significant assumptions to current industry, market, and economic trends, to historical results of the Company and to other guideline companies within the same industry. We also performed independent sensitivity analyses to evaluate the changes in the fair value of the reporting unit that would result from changes in the significant assumptions. We involved our valuation specialists to assist in evaluating the methodologies and auditing the significant assumptions used to calculate the estimated fair values. | ||||
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
February 22, 2024, except for the effect of the material weakness described in the second paragraph above, as to which the date is November 7, 2024.
4
Upland Software, Inc.
Consolidated Balance Sheets
| (in thousands, except share and per share amounts) | December 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Accounts receivable, net of allowance for credit losses | ||||||||||||||
| Deferred commissions, current | ||||||||||||||
| Unbilled receivables | ||||||||||||||
| Income tax receivable, current | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||
| Total current assets | ||||||||||||||
| Tax credits receivable | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Operating lease right-of-use asset | ||||||||||||||
| Intangible assets, net | ||||||||||||||
| Goodwill | ||||||||||||||
| Deferred commissions, noncurrent | ||||||||||||||
| Interest rate swap assets | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued compensation | ||||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||||
| Deferred revenue | ||||||||||||||
| Liabilities due to sellers of businesses | ||||||||||||||
| Operating lease liabilities, current | ||||||||||||||
Current maturities of notes payable (includes unamortized discount of $ | ||||||||||||||
| Total current liabilities | ||||||||||||||
Notes payable, less current maturities (includes unamortized discount of $ | ||||||||||||||
| Deferred revenue, noncurrent | ||||||||||||||
| Operating lease liabilities, noncurrent | ||||||||||||||
| Noncurrent deferred tax liability, net | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
Series A Convertible Preferred stock, | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
Accumulated other comprehensive income | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
| Total stockholders’ equity | ||||||||||||||
| Total liabilities, convertible preferred stock and stockholders’ equity | $ | $ | ||||||||||||
See accompanying notes.
5
Upland Software, Inc.
Consolidated Statements of Operations
| (in thousands, except share and per share amounts) | Year Ended December 31, | |||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Subscription and support | $ | $ | $ | |||||||||||||||||
| Perpetual license | ||||||||||||||||||||
| Total product revenue | ||||||||||||||||||||
| Professional services | ||||||||||||||||||||
| Total revenue | ||||||||||||||||||||
| Cost of revenue: | ||||||||||||||||||||
| Subscription and support | ||||||||||||||||||||
| Professional services | ||||||||||||||||||||
| Total cost of revenue | ||||||||||||||||||||
| Gross profit | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||
| Research and development | ||||||||||||||||||||
| General and administrative | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Acquisition-related expenses | ||||||||||||||||||||
| Impairment of goodwill | ||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||
| Loss from operations | ( | ( | ( | |||||||||||||||||
| Other expense: | ||||||||||||||||||||
| Interest expense, net | ( | ( | ( | |||||||||||||||||
Other income (expense), net | ( | ( | ||||||||||||||||||
| Total other expense | ( | ( | ( | |||||||||||||||||
| Loss before benefit from income taxes | ( | ( | ( | |||||||||||||||||
| Benefit from income taxes | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Preferred stock dividends | ( | ( | ||||||||||||||||||
| Net loss attributable to common shareholders | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Net loss per common share: | ||||||||||||||||||||
Net loss per common share, basic and diluted | $ | ( | $ | ( | $ | ( | ||||||||||||||
Weighted-average common shares outstanding, basic and diluted | ||||||||||||||||||||
See accompanying notes.
6
Upland Software, Inc.
Consolidated Statements of Comprehensive Loss
| (in thousands) | Year Ended December 31, | |||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Foreign currency gain (loss) translation adjustment | ( | ( | ||||||||||||||||||
| Unrealized translation gain (loss) on intercompany loans with foreign subsidiaries | ( | ( | ||||||||||||||||||
| Interest rate swaps | ( | |||||||||||||||||||
| Other comprehensive income (loss): | $ | ( | $ | $ | ||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | ||||||||||||||
See accompanying notes.
7
Upland Software, Inc.
Consolidated Statements of Equity
(in thousands, except share amount)
| 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, 2020 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under Company plans, net of shares withheld for tax | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Unrealized translation loss on foreign currency denominated intercompany loans | — | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of Convertible Preferred Stock | $ | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued - Convertible Preferred Stock | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under Company plans, net of shares withheld for tax | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized translation loss on intercompany loans with foreign subsidiaries | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
| Dividends accrued - Convertible Preferred Stock | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of stock under Company plans, net of shares withheld for tax | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Stock repurchases and retirements | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Unrealized translation loss on foreign currency denominated intercompany loans | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes.
8
Upland Software, Inc.
Consolidated Statements of Cash Flows
| (in thousands) | Year Ended December 31, | |||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Operating activities | ||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Change in fair value of liabilities due to sellers of businesses | ( | ( | ||||||||||||||||||
| Deferred income taxes | ( | ( | ( | |||||||||||||||||
| Amortization of deferred costs | ||||||||||||||||||||
| Foreign currency re-measurement loss | ( | ( | ||||||||||||||||||
| Non-cash interest, net and other income, net | ( | |||||||||||||||||||
| Non-cash stock-based compensation expense | ||||||||||||||||||||
| Non-cash loss on impairment of goodwill | ||||||||||||||||||||
| Non-cash loss on retirement of fixed assets | ||||||||||||||||||||
| Changes in operating assets and liabilities, net of purchase business combinations: | ||||||||||||||||||||
| Accounts receivable | ( | |||||||||||||||||||
| Prepaid expenses and other current assets | ( | |||||||||||||||||||
| Other assets | ( | ( | ||||||||||||||||||
| Accounts payable | ( | ( | ||||||||||||||||||
| Accrued expenses and other liabilities | ( | ( | ( | |||||||||||||||||
| Deferred revenue | ( | ( | ||||||||||||||||||
| Net cash provided by operating activities | ||||||||||||||||||||
| Investing activities | ||||||||||||||||||||
| Purchase of property and equipment | ( | ( | ( | |||||||||||||||||
| Purchase business combinations, net of cash acquired | ( | ( | ||||||||||||||||||
| Net cash used in investing activities | ( | ( | ( | |||||||||||||||||
| Financing activities | ||||||||||||||||||||
| Payments on finance leases | ( | |||||||||||||||||||
| Payments of debt costs | ( | ( | ( | |||||||||||||||||
| Payments on notes payable | ( | ( | ( | |||||||||||||||||
| Stock repurchases and retirement | ( | |||||||||||||||||||
| Issuance of Series A Convertible Preferred stock, net of issuance costs | ||||||||||||||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | ( | |||||||||||||||||
| Issuance of common stock, net of issuance costs | ||||||||||||||||||||
| Additional consideration paid to sellers of businesses | ( | ( | ( | |||||||||||||||||
| Net cash provided by (used in) financing activities | ( | ( | ||||||||||||||||||
| Effect of exchange rate fluctuations on cash | ( | ( | ||||||||||||||||||
| Change in cash and cash equivalents | ( | ( | ||||||||||||||||||
| Cash and cash equivalents, beginning of period | ||||||||||||||||||||
| Cash and cash equivalents, end of period | $ | $ | $ | |||||||||||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||||||||
| Cash paid for interest, net of interest rate swaps | $ | $ | $ | |||||||||||||||||
| Cash paid for taxes | $ | $ | $ | |||||||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||||||||
Business combination consideration including holdbacks and earnouts | $ | $ | $ | |||||||||||||||||
See accompanying notes.
9
Upland Software, Inc.
Notes to Consolidated Financial Statements
1. Organization and Nature of Operations
Upland Software, Inc. (“Upland,” “we,” “us,” “our,” or the “Company”), a Delaware corporation, is a provider of cloud-based software that enables organizations to plan, manage and execute projects and work. Upland’s cloud offerings address a broad range of software needs, from strategic planning to task execution in the following functional areas: Sales, Marketing, Contact Center, Knowledge Management, Project Management, Information Technology, Business Operations, and Human Resources and Legal.
To support continued growth, Upland intends to pursue acquisitions within its cloud offerings of complementary technologies and businesses. Upland expects that this will expand its product offerings, customer base and market access, resulting in increased benefits of scale. Consistent with Upland’s growth strategy, Upland has made a total of 31 acquisitions in the 12 years ended December 31, 2023.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make, on an ongoing basis, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the 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, the useful lives of intangible assets and property and equipment, 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 February 22, 2024, the date of issuance of this Annual Report on Form 10-K. 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and liquid investments with original maturities of three months or less when purchased. Cash equivalents are stated at cost, which approximates market value, because of the short maturity of these instruments.
Accounts Receivable and Allowance for Credit Losses
The Company extends credit to the majority of its customers. Issuance of credit is based on ongoing credit evaluations by the Company of customers’ financial condition and generally requires no collateral. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Invoices generally require payment due upon receipt of invoice. The Company generally does not charge interest on past due payments, although the Company's contracts with its customers usually allow it to do so.
10
The following table presents the changes in the allowance for credit losses (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance at beginning of year | $ | $ | $ | ||||||||||||||
| Provision for credit losses | ( | ||||||||||||||||
| Writeoffs, net of recoveries and other | ( | ( | ( | ||||||||||||||
| Balance at end of year | $ | $ | $ | ||||||||||||||
Concentration of Credit Risk and Significant Customers
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation of property and equipment is computed using the straight-line method over each asset’s useful life. Leasehold improvements are amortized over the shorter of the lease term or of the estimated useful lives of the related assets. Upon retirement or disposal, the cost of each asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to income. Repairs, maintenance, and minor replacements are expensed as incurred. The estimated useful lives of property and equipment are as follows:
| Computer hardware and equipment | |||||
| Purchased software and licenses | |||||
| Furniture and fixtures | |||||
| Leasehold improvements | Lesser of estimated useful life or lease term | ||||
Business Combinations
We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations, in accounting for our acquisitions which requires the acquisition purchase price to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition dates. The excess of the purchase price over these estimated fair values is recorded to goodwill.
Significant estimates and assumptions, including fair value estimates, are used to determine the fair value of assets acquired, liabilities assumed, and contingent consideration transferred as well as the useful lives of long-lived assets acquired. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill based on changes to our initial estimates and assumptions. Upon conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to Acquisition-related expenses on our consolidated statement of operations.
Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value. The valuation of identifiable intangible assets reflects management’s estimates based on, among other factors, use of established valuation methods. Customer relationships are valued using the multi-period excess earnings method income approach, which estimates fair value based on the earnings and cash flow capacity of the subject asset. Developed technology and trade names are valued using the relief-from-royalty method, which estimates fair value based on the value the owner of the asset receives from not having to pay a royalty to use the asset.
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The purchase price transferred in our acquisitions often contain holdback and contingent consideration provisions. Holdbacks are subject to reduction for indemnification claims and are typically payable within 12 to 18 months of the acquisition date and are recorded in Liabilities due to sellers of businesses on our consolidated balance sheets. Contingent consideration typically includes earnout payments payable within 6 to 18 months of the date of acquisition based on attainment of certain performance goals. Contingent consideration liabilities are recorded at fair value on the acquisition date and are remeasured periodically based on the then assessed fair value and adjusted, if necessary. Holdback and contingent consideration liabilities are recorded in Liabilities due to sellers of businesses on our consolidated balance sheet based on their estimated fair values. The estimated fair value of contingent consideration related to potential earnout payments is calculated utilizing a binary option model, and this amount is recorded in Liabilities due to sellers of businesses on our consolidated balance sheets. The fair value of contingent consideration is estimated on a quarterly basis through a collaborative effort by our sales and finance departments. Changes in the fair value of contingent consideration subsequent to the purchase price finalization are recorded as Acquisition-related expenses or Other income (expense), net on our consolidated statements of operations based on management’s assessment of the nature of the liability. In the event a holdback is reduced subsequent to the finalization of purchase accounting, the reduction is recorded as a gain in Acquisition-related expenses or Other income (expense), net on our consolidated statements of operations based on management’s assessment of the nature of the liability.
Goodwill Intangible Assets and Impairment Assessments
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. We assess Goodwill for impairment annually on October 1st, or more frequently when events or circumstances occur which could cause the Carrying Value (or GAAP basis book value) of our Company to exceed the estimated fair value of our Company.
As we operate as one reporting unit, the Goodwill impairment evaluation is performed at the consolidated entity level by comparing the estimated fair value of the Company to its Carrying Value. We first assess qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its Carrying Value. Based on the qualitative assessment, if it is determined that it is more likely than not that the Company's fair value is less than its Carrying Value, then we perform a quantitative analysis using a fair-value-based approach to determine if the fair value of our reporting unit is less than its Carrying Value. See “Note 5. Goodwill and Other Intangible Assets” for more information regarding our 2023 and 2022 Goodwill impairments.
Identifiable intangible assets consist of customer relationships, marketing-related intangible assets and developed technology. Intangible assets with definite lives are amortized over their estimated useful lives on a straight-line basis. The straight-line method of amortization represents the Company’s best estimate of the distribution of the economic value of the identifiable intangible assets. Each period the Company evaluates the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of intangible assets may not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. The Company evaluates the recoverability of intangible assets by comparing their carrying amounts to the future net undiscounted cash flows expected to be generated by the intangible assets. If such intangible assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the intangible assets exceeds the fair value of the assets.
Long-Lived Assets
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Software Development Costs
Software development costs for software to be sold are expensed as incurred until the point the Company establishes technological feasibility. Technological feasibility is established upon the completion of a working model. Costs incurred by the Company between establishment of technological feasibility and the point at which the product is ready for general release are capitalized, subject to their recoverability, and amortized over the economic life of the related products. Because the Company believes its current process for developing its software products essentially results in the completion of a working product concurrent with the establishment of technological feasibility, no software development costs have been capitalized to date. There were no software development costs required to be capitalized under ASC 985-20, Costs of Software to be Sold, Leased or Marketed. Software development costs associated with internal use software are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Eligible internal and external costs associated with significant upgrades and enhancements incurred during the application development stage are capitalized as property and equipment. During the years ended December 31, 2023, 2022 or 2021, there were no
ASC 350-40 also requires hosting arrangements that are service contracts to follow the guidance for internal-use software to determine which implementation costs can be capitalized. In accordance with ASC 350-40, (i) capitalized implementation costs are classified in the same balance sheet line item as the amounts prepaid for the related hosting arrangement; (ii) amortization of capitalized implementation costs are presented in the same income statement line item as the service fees for the related hosting arrangement; and (iii) cash flows related to capitalized implementation costs are presented within the same category of cash flow activity as the cash flows for the related hosting arrangement (i.e. operating activity).
As of December 31, 2023 and 2022, the net carrying value of capitalized implementation costs related to hosting arrangements that were incurred during the application development stage were not
Debt Issuance Costs
Derivatives
In 2019, the Company entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt. Until the termination of a portion of the interest rate swaps as described in “Note 7. Debt”, these interest rate swaps effectively converted $258.5 million and $522.5 million of our term loans as of December 31, 2023 and 2022, respectively, from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4 %, for the remaining term of the debt.
ASC 815, Derivatives and Hedging, requires entities to recognize derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. The Company assessed the effectiveness of the hedging relationship under the hypothetical derivative method and noted that all of the critical terms of the hypothetical derivative and hedging instrument were the same. The hedging relationship continues to limit the Company’s exposure to the variability in interest rates under the Company’s term loans and related cash outflows. As such, the Company has deemed this hedging relationship as highly effective in offsetting cash flows attributable to hedged risk (variability in forecasted monthly interest payments) for the term of the term loans and interest rate swap agreements. All derivative financial instruments are recorded at fair value as a net asset or liability on our consolidated balance sheets. As of December 31, 2023, the fair value of interest rate swaps included in Interest rate swap assets on our consolidated balance sheets was $14.3 million. As of December 31, 2022, the fair value of interest rate swaps included in Interest rate swap assets was $41.2 million.
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The change in the fair value of the hedging instruments is recorded in Interest Rate Swaps on our consolidated statements of comprehensive loss. Amounts deferred on interest rate swaps in our consolidated statements of comprehensive income will be reclassified to Interest expense, net on our consolidated statements of operations in the period in which the hedged item affects earnings. Cash flows from hedging instruments are classified in the same category as the cash flows for the underlying item being hedged within "Net cash provided by operating activities" on the consolidated statements of cash flows.
Fair Value of Financial Instruments
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.
Preferred Stock
In August 2022, the Company closed on the issuance and sale of its Series A Convertible Preferred Stock (the “Series A Preferred Stock”). The Company issued 115,000 0.0001 1,000 per share, for an initial investment amount of $115.0 million. Pursuant to the Certification of Designation, cumulative preferred dividends accrue quarterly on the Series A Preferred Stock at a rate of (i) 4.5 % per annum until but excluding the seven year anniversary of the closing, and (ii) 7.0 % per annum on and after the seven year anniversary of the closing. See “Note 12. Series A Convertible Preferred Stock—Series A Convertible Preferred Stock” for further details.
Revenue Recognition
Refer to “Note 14 Revenue Recognition” for a detailed discussion of accounting policies related to revenue recognition, including deferred revenue and deferred commissions.
Cost of Revenue
Cost of revenue primarily consists of salaries and related expenses (e.g. bonuses, employee benefits, and payroll taxes) for personnel directly involved in the delivery of services and products directly to customers. Cost of revenue also includes the amortization of acquired technology, and hosting and infrastructure costs related to the delivery of the Company’s products and services.
Customer Relationship Acquisition Costs
Advertising Costs
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date.
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A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized.
The Company has adopted a permanent reinvestment position whereby foreign earnings for foreign subsidiaries are expected to be reinvested and future earnings are not expected to be repatriated. As a result of this policy, no tax liability has been accrued in anticipation of future dividends from foreign subsidiaries.
The Company accounts for uncertainty of income taxes based on a “more likely than not” threshold for the recognition and derecognition of tax positions. Interest and penalties are recorded as a component of income tax expense.
Leases
The Company determines if an arrangement is a lease at inception. This determination includes the review of contracts with third parties to identify the existence of potential embedded leases. Operating leases are included in operating lease right-of-use (“ROU”) assets, current and noncurrent operating lease liabilities on the Company’s consolidated balance sheets. Finance leases are included in property and equipment, accrued expenses and other liabilities, and other noncurrent liabilities on the Company’s consolidated balance sheets.
Stock-Based Compensation
We measure all share-based payments, including grants of options to purchase common stock and the issuance of restricted stock or restricted stock units to employees, service providers and board members, using the fair-value at grant date. We record forfeitures as they occur. The cost of services received from employees and non-employees in exchange for awards of equity instruments is recognized on our consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period. We value restricted stock and restricted stock units at the closing price of our common stock on the grant date. We value stock option awards using the Black-Scholes option-pricing model. For the years ended December 31, 2023, 2022 and 2021, stock-based compensation awards consisted primarily of restricted stock and restricted stock units.
From time to time, we grant restricted stock units that also include performance or market-based conditions (“PRSUs”). For PRSUs granted with a market condition, we use a Monte Carlo simulation analysis to value the award. Compensation expense for awards with marked-based conditions is recognized over the required service period of the grant based on the grant date fair value of the award and is not subject to fluctuation due to achievement of the underlying market-based condition.
Comprehensive Income (Loss)
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Foreign Currency Transactions
We have foreign currency denominated intercompany loans that were used to fund the acquisition of foreign subsidiaries. Due to the long-term nature of the loans, the foreign currency gains (losses) resulting from remeasurement are recognized as a separate component of the Company’s consolidated statements of stockholders' equity in accumulated other comprehensive loss. During the years ended December 31, 2023, 2022 and 2021, a translation gain of $4.1 million, loss of $10.0 million, and loss of $0.6 million, respectively, were recognized as a component of accumulated other comprehensive income (loss) in the Company’s statements of stockholders’ equity, related to long-term intercompany loans.
Recent Accounting Pronouncements
Recently issued accounting pronouncements - Adopted
In March 2020, the Financial Standards Accounting Board (“FASB”) issued accounting standards update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offer Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We adopted ASU 2020-04 during the first quarter of 2023. On February 21, 2023, the Company entered into an amended and restated credit agreement to, among other things, provide for the replacement of LIBOR with the Secured Overnight Financing Rate (“SOFR”), an index measuring the cost of borrowing cash overnight collateralized by Treasury securities. The Company elected to apply the debt agreement modification expedients related to changes to the reference rate from LIBOR to SOFR in the Company's Credit Agreement, which it completed during the three months ended March 31, 2023. Application of these expedients allowed the Company to account for the modification as not substantial. As a result, the debt agreement modification was accounted for by prospectively adjusting the Credit Agreement’s effective interest rate, any existing unamortized debt discount was carried forward and continued to be amortized and no remeasurement of the Credit Agreement at the modification date was required.
The Company has also elected to apply the hedge accounting expedients and exceptions related to changes to the reference rate from LIBOR to SOFR in the Company's interest rate swaps, which it completed during the three months ended March 31, 2023. Application of these exceptions preserves the cash flow hedge designation of the interest rate swaps and the related accounting and presentation consistent with past presentation. The replacement of LIBOR with SOFR in the credit agreement did not have a material impact on the Company’s consolidated financial statements and related disclosures. See “Note—7. Debt” for additional information.
In August 2020, the FASB issued accounting standards update ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (the “ASU 2020-06). ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. The update also requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The guidance is effective for interim and annual periods beginning after December 15, 2021. The Company adopted this guidance in the first quarter of fiscal 2022 with an immaterial impact to the consolidated financial statements.
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In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2021-08 on January 1, 2023 and our adoption did not have a material impact on our consolidated financial statements.
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. The Company is currently evaluating the impact of adopting ASU 2023-07.
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. The Company is currently evaluating the impact of adopting ASU 2023-09.
3. Acquisitions
The Company performs quantitative and qualitative analyses to determine the significance of each acquisition to its consolidated financial statements. As such, the acquisitions below were deemed to be insignificant on an individual and cumulative basis.
2023 Acquisitions
The Company had no acquisitions during the year ended December 31, 2023.
2022 Acquisitions
Acquisitions completed during the year ended December 31, 2022 include the following:
•BA Insight - On February 22, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BA Insight Inc., (“BA Insight”), a cloud-based enterprise knowledge management solution.
•Objectif Lune - On January 07, 2022, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Objectif Lune Inc., a Quebec proprietary company (“Objectif Lune”), cloud-based document workflow product.
2021 Acquisitions
Acquisitions completed during the year ended December 31, 2021 include the following:
•Panviva - On June 24, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Panviva Pty Ltd, an Australian proprietary company (“Panviva”), a cloud-based enterprise knowledge management solution.
•BlueVenn - On February 28, 2021 the Company entered into an agreement to purchase the shares comprising the entire issued share capital of BlueVenn Group Limited, a company limited by shares organized and existing under the laws of England and Wales (“BlueVenn”), a cloud-based customer data platform.
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•Second Street - On January 19, 2021, the Company entered into an agreement to purchase the shares comprising the entire issued share capital of Second Street Media, Inc., a Missouri corporation (“Second Street”), an audience engagement platform.
Consideration
The following table summarizes the consideration transferred for the acquisitions described above (in thousands):
| BA Insight | Objectif Lune | Panviva | BlueVenn | Second Street | ||||||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Holdback(1) | ||||||||||||||||||||||||||||||||
Contingent consideration(2) | ||||||||||||||||||||||||||||||||
Working capital and other adjustments | ( | ( | ||||||||||||||||||||||||||||||
| Total consideration | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
(1)Represents cash holdbacks subject to indemnification claims that are payable 12 15 months following closing for BA Insight and 18 months following the closing of BlueVenn. As of December 31, 2023, all of the holdbacks had been paid.
(2)Represents the acquisition date fair value of anticipated earnout payments which are based on the estimated probability of attainment of the underlying future performance-based conditions at the time of acquisition. The maximum potential payout for the BlueVenn and Second Street were $21.7 million and $3.0 million, respectively. As of March 31, 2022, the earnout payments for BlueVenn and Second Street were finalized resulting in no payments made. Refer to “Note 4. Fair Value Measurements” for further discussion regarding the calculation of fair value of acquisition related earnouts and subsequent payouts.
Fair Value of Assets Acquired and Liabilities Assumed
The Company recorded the purchase of the acquisitions described above using the acquisition method of accounting, and has recognized the assets acquired and liabilities assumed at their fair values as of the date of the acquisition.
The following condensed table presents the finalized acquisition-date fair value of the assets acquired and liabilities assumed for the acquisitions closed in 2022 and 2021 (in thousands):
| Final | |||||||||||||||||||||||||||||
| BA Insight | Objectif Lune | Panviva | BlueVenn | Second Street | |||||||||||||||||||||||||
| Year Acquired | 2022 | 2022 | 2021 | 2021 | 2021 | ||||||||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accounts receivable | |||||||||||||||||||||||||||||
| Other current assets | |||||||||||||||||||||||||||||
| Operating lease right-of-use asset | |||||||||||||||||||||||||||||
| Property and equipment | |||||||||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||||||||
| Trade name | |||||||||||||||||||||||||||||
| Technology | |||||||||||||||||||||||||||||
| Favorable leases | |||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||
Total assets acquired | |||||||||||||||||||||||||||||
| Accounts payable | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Accrued expense and other | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Deferred tax liabilities | ( | ( | ( | ( | |||||||||||||||||||||||||
| Deferred revenue | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Operating lease liabilities | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
Total liabilities assumed | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Total consideration | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
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The Company uses third party valuation consultants to determine the fair values of assets acquired and liabilities assumed. Tangible assets are valued at their respective carrying amounts, which approximates their estimated fair value. The valuation of identifiable intangible assets reflects management’s estimates based on, among other factors, use of established valuation methods. Customer relationships are valued using the multi-period excess earnings method. Developed technology and trade names are valued using the relief-from-royalty method.
The following table summarizes the weighted-average useful lives, by major finite-lived intangible asset class, for intangibles acquired during the year ended December 31, 2022 (in years):
| Customer relationships | ||||||||
| Trade name | ||||||||
| Developed technology | ||||||||
| Favorable Leases | ||||||||
| Total weighted-average useful life | ||||||||
The $127.4 million goodwill for the above acquisitions is primarily attributable to the synergies expected to arise after the acquisition. Goodwill deductible for tax purposes related to the above acquisitions was $6.6 million.
Total transaction costs incurred with respect to acquisition activity in the years ended December 31, 2023, 2022 and 2021 were nil , $4.6 million and $6.6 million, respectively. These costs are included in Acquisition-related expenses on our consolidated statement of operations.
4. Fair Value Measurements
Assets measured at fair value on a recurring basis are summarized below (in thousands):
| Fair Value Measurements at December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents - money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate swaps | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Fair Value Measurements at December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents - money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The Company’s cash equivalents - money market funds are measured at fair value using quoted market prices and active markets, therefore are categorized as Level 1.
In connection with entering into, and expanding, the Company's credit facility, as discussed further in “Note 7. Debt”, the Company entered into interest rate swaps. The fair value of these 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. As of December 31, 2023, the fair value of the interest rate swaps is included in the “Interest rate swap assets” on the Company's consolidated balance sheets.
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The Company’s other financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, and long–term debt. The carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value, primarily due to short maturities. The Company believes the carrying value of its long-term debt at December 31, 2023 approximates its fair value based on its variable interest rate feature and interest rates currently available to the Company. The estimated fair value and carrying value of the Company's debt, before debt discount, at December 31, 2023 and December 31, 2022 are $482.1 million and $522.5 million, respectively, based on valuation methodologies using interest rates currently available to the Company which are Level 2 inputs.
5. Goodwill and Other Intangible Assets
Changes in the Company’s Goodwill balance for each of the two years in the period ended December 31, 2023 are summarized in the table below (in thousands):
| Balance at December 31, 2021 | $ | |||||||
| Acquired in business combinations | ||||||||
Adjustment related to prior year business combinations | ||||||||
| Adjustment related to finalization of current year business combinations | ||||||||
Impairment of goodwill | ( | |||||||
| Foreign currency translation adjustment | ( | |||||||
| Balance at December 31, 2022 | $ | |||||||
| Adjustment related to prior year business combinations | ||||||||
Impairment of goodwill | ( | |||||||
| Foreign currency translation adjustment | ||||||||
| Balance at December 31, 2023 | $ | |||||||
We performed a qualitative annual goodwill impairment test in October 2023 and concluded there was no impairment of Goodwill.
As a result of the decline of our stock price impacting our market capitalization during the quarters ended March 31, 2023 and December 31, 2022, we performed quantitative impairment evaluations, which resulted in a goodwill impairments of $128.8 million and $12.5 million during the quarters ended March 31, 2023 and December 31, 2022, respectively. 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 generated similar results and indicated that the fair value of the Company was less than its carrying value. The discounted cash flow method requires 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 estimate 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 did not record a goodwill impairment charge for the year ended December 31, 2021.
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 purchases and from acquisitions of customer relationships. 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 | ||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Customer relationships | $ | $ | $ | ||||||||||||||||||||
| Trade name | |||||||||||||||||||||||
| Developed technology | |||||||||||||||||||||||
| Favorable leases | $ | $ | $ | ||||||||||||||||||||
| Total intangible assets | $ | $ | $ | ||||||||||||||||||||
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| Estimated Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Customer relationships | $ | $ | $ | ||||||||||||||||||||
| Trade name | |||||||||||||||||||||||
| Developed technology | |||||||||||||||||||||||
| Favorable leases | |||||||||||||||||||||||
| Total intangible assets | $ | $ | $ | ||||||||||||||||||||
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 $70.6 million, $54.6 million, and $50.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.
No impairment of intangible assets were recorded during the years ended December 31, 2023, 2022 and 2021.
As of December 31, 2023, the estimated annual amortization expense for the next five years and thereafter is as follows (in thousands):
| Year ending December 31: | Amortization Expense | |||||||
| 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
6. Income Taxes
The Company's loss from continuing operations before income taxes was as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Loss before provision for income taxes: | |||||||||||||||||
| United States | $ | ( | $ | ( | $ | ( | |||||||||||
| Foreign | ( | ( | ( | ||||||||||||||
| $ | ( | $ | ( | $ | ( | ||||||||||||
21
The components of the provision (benefit) for income taxes attributable to continuing operations are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | $ | $ | ||||||||||||||
| State | |||||||||||||||||
| Foreign | |||||||||||||||||
| Total Current | $ | $ | $ | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | $ | ( | $ | $ | ( | ||||||||||||
| State | ( | ( | |||||||||||||||
| Foreign | ( | ( | ( | ||||||||||||||
| Total Deferred | ( | ( | ( | ||||||||||||||
| (Benefit from) provision for income taxes | $ | ( | $ | ( | $ | ( | |||||||||||
As of December 31, 2023 the Company had total net operating loss carryforwards of approximately $304.2 million consisting of $256.0 million and $48.2 million related to the U.S federal and foreign net operating loss carryforwards, respectively. $200.0 million of the U.S. federal net operating loss carryforwards are related to year prior to 2018 and begin to expire in 2024. The remaining $56.0 million carryforward indefinitely. In addition, $48.0 million of foreign net operating loss carryforwards carry forward indefinitely, and the remainder will expire beginning in 2041. In addition, as of December 31, 2023, the Company had research and development credit carryforwards of approximately $4.0 million which will expire beginning in 2024, if not utilized. Utilization of the U.S. federal net operating losses and tax credits may be subject to substantial annual limitation due to the “change of ownership” provisions of the Internal Revenue Code of 1986. The annual limitation will result in the expiration of approximately $155.0 million of U.S. federal net operating losses and $4.0 million of credit carryforwards before utilization.
22
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes are as follows (in thousands):
| As of December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Deferred tax assets: | |||||||||||||||||
| Accrued expenses and allowances | $ | $ | $ | ||||||||||||||
| Deferred revenue | |||||||||||||||||
| Stock compensation | |||||||||||||||||
| Net operating loss and tax credit carryforwards | |||||||||||||||||
| Disallowed interest expense carryforwards | |||||||||||||||||
| Capital expenses | |||||||||||||||||
| Tax credit carryforwards | |||||||||||||||||
| Lease liability | |||||||||||||||||
| Unrealized losses | |||||||||||||||||
| Research and development expenses | |||||||||||||||||
| Other | |||||||||||||||||
| Valuation allowance | ( | ( | ( | ||||||||||||||
| Net deferred tax assets | $ | $ | $ | ||||||||||||||
| Deferred tax liabilities: | |||||||||||||||||
| Prepaid expenses | $ | $ | ( | $ | ( | ||||||||||||
| Intangible assets | ( | ( | ( | ||||||||||||||
| Goodwill | ( | ( | ( | ||||||||||||||
| Tax credit carryforwards | ( | ( | |||||||||||||||
| Right of use asset | ( | ( | ( | ||||||||||||||
| Unrealized gains | ( | ( | |||||||||||||||
| Deferred commissions | ( | ( | ( | ||||||||||||||
| Net deferred tax liabilities | $ | ( | $ | ( | $ | ( | |||||||||||
| Net deferred taxes | $ | ( | $ | ( | $ | ( | |||||||||||
Due to the uncertainty surrounding the timing of realizing the benefits of its favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net deferred tax assets, exclusive of goodwill. During the year ended December 31, 2023, the valuation allowance increased by $20.8 million and during the year ended December 31, 2022 the valuation allowance decreased by $8.1 million. The valuation allowance for the year ended December 31, 2023 increased $7.1 million due to the tax effect of items recorded in other comprehensive income with the remaining increase of $13.7 million related primarily to current U.S., U.K. and Australia operations, which have current year losses. The valuation allowance for the year ended December 31, 2022 decreased by $13.0 million due to the tax effect of items recorded in other comprehensive income which is partially offset with the remaining increase of approximately $4.9 million related primarily to current operations.
At December 31, 2023, we did not provide deferred income taxes on temporary differences resulting from earnings of certain foreign subsidiaries which are indefinitely reinvested. The reversal of these temporary differences could result in additional tax; however, it is not practicable to estimate the amount of any unrecognized deferred income tax liabilities at this time. Deferred income taxes are provided as necessary with respect to earnings that are not indefinitely reinvested.
23
The Company’s provision for income taxes differs from the expected tax expense (benefit) computed by applying the statutory federal income tax rate to income before taxes due to the following:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Federal statutory rate | % | % | % | ||||||||||||||
| State taxes, net of federal benefit | % | ( | % | % | |||||||||||||
| Tax credits | % | % | % | ||||||||||||||
| Effect of foreign operations | ( | % | % | ( | % | ||||||||||||
| Stock compensation | ( | % | ( | % | ( | % | |||||||||||
| Disallowed excess executive compensation | % | ( | % | ( | % | ||||||||||||
| Goodwill impairment | ( | % | ( | % | % | ||||||||||||
| Permanent items and other | ( | % | ( | % | % | ||||||||||||
| Change in valuation allowance | ( | % | ( | % | % | ||||||||||||
| Change in tax rates | % | % | ( | % | |||||||||||||
| Australia tax basis uplift | % | % | % | ||||||||||||||
| % | % | % | |||||||||||||||
Under ASC 740-10, Income Taxes - Overall, the Company periodically reviews the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. The Company uses a “more likely than not” criterion for recognizing an asset for unrecognized income tax benefits or a liability for uncertain tax positions. The Company has determined it has an immaterial exposure related to uncertain tax positions as of December 31, 2023. The $0.8 million exposure at December 31, 2022 was released in 2023 due to a lapse in the statute of limitations for a Canadian exposure. To the extent the Company is required to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as an accrued liability.
A reconciliation of the beginning and ending amount of unrecognized tax exposure is as follows (in thousands):
| Balance at December 31, 2021 | $ | ||||
| Additions for tax positions of prior years | |||||
| Balance at December 31, 2022 | $ | ||||
| Reductions for tax positions of prior years | ( | ||||
| Balance at December 31, 2023 | $ | ||||
The Company’s assessment of its unrecognized tax benefits is subject to change as a function of the Company’s financial statement audit.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, the Company has not accrued any interest or penalties related to uncertain tax positions.
The Company and its subsidiaries file tax returns in the U.S. federal jurisdiction and in several state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for years ending before December 31, 2019 and is no longer subject to state and local or foreign income tax examinations by tax authorities for years ending before December 31, 2018. The Company is not currently under audit for federal, state or any foreign jurisdictions. US operating losses generated in years prior to 2019 remain open to adjustment until the statute of limitations closes for the tax year in which the net operating losses are utilized.
24
7. Debt
Long-term debt consisted of the following at December 31, 2023 and December 31, 2022 (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
Senior secured loans (includes unamortized discount of $ | $ | $ | |||||||||
| Less current maturities | ( | ( | |||||||||
| Total long-term debt | $ | $ | |||||||||
Credit Facility
In 2019, the Company entered into a credit agreement (the “Credit Facility”) which provided for (i) a fully-drawn $350 million, 7 year, senior secured term loan facility (the “Term Loan”) and (ii) a term loan facility to be established under the Credit Facility in an aggregate principal amount of $190.0 million (the “2019 Incremental Term Loan” and together with the Term Loan, the “Term Loans”) and (iii) a $60 million, 5 year, revolving credit facility (the “Revolver”) that was fully available as of December 31, 2023.
Revolver
Loans under the Revolver are available up to $60 million, of which none is currently outstanding. The Revolver provides a sub facility whereby the Company may request letters of credit (the “Letters of Credit”) in an aggregate amount not to exceed, at any one time outstanding, $10.0 million for the Company. The aggregate amount of outstanding Letters of Credit are reserved against the credit availability under the Maximum Revolver Amount. The Company incurs a 0.50 % per annum unused line fee on the unborrowed balance of the Revolver which is paid quarterly.
Loans under the Revolver may be borrowed, repaid and reborrowed until August 6, 2024 (the “Maturity Date”), at which time all amounts borrowed under the Revolver must be repaid. As of December 31, 2023, the Company had no borrowings outstanding under the Revolver or related sub facility.
Payment terms
The Term Loans are repayable on a quarterly basis beginning on December 31, 2019 by an amount equal to 0.25 % (1.00 % per annum) of the aggregate principal amount of such loan. Any amount remaining unpaid is due and payable in full on August 6, 2026 (the “Term Loan Maturity Date”).
Initially, at the option of the Company, the Term Loans (including the 2019 Incremental Term Loan) accrued interest at a per annum rate based on (i) the Base Rate plus a margin of 2.75 % or (ii) the rate (not less than 0.00 %) for Eurodollar deposits quoted on the LIBOR01 or LIBOR02 pages on the Reuters Screen, 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 was 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 (ii) the Eurodollar rate for a one month interest period beginning on such day plus 1.00 %. On February 21, 2023, the Company entered into an amendment to its Credit Facility. The amendment amended the interest rate benchmark from LIBOR to SOFR. Other than the foregoing, the material terms of the Credit Agreement remain unchanged. After giving effect to the interest rate swaps described below, $258.5 million of the Term Loans has an effective annualized fixed interest rate of 5.4 %, and the remaining principal outstanding at December 31, 2023 has a floating interest rate of 9.2 %
Accrued interest is paid quarterly or, with respect to Term Loans that are accruing interest based on the Federal Funds Effective Rate, at the end of the applicable interest rate period.
On August 31, 2023, the Company prepaid $35.0 million of the Term Loans.
25
Interest rate swaps
In 2019, the Company entered into floating-to-fixed interest rate swap agreements to limit exposure to interest rate risk related to our debt. Until the termination of a portion of the interest rate swaps as described below, these interest rate swaps effectively converted the entire balance of the Company's $540.0 million original principal Term Loans from variable interest payments to fixed interest rate payments, based on an annualized fixed rate of 5.4 %, for the 7 -year term of debt. The interest rate associated with our undrawn $60 million Revolver remains floating.
In August 2023, the Company sold $259.9 million of the notional amount of its interest rate swap assets back to the counterparties for $20.5 million, reducing the total notional amount of the interest rate swap assets to $259.9 million. The $20.5 million gain in accumulated other comprehensive income related to the $259.9 million amount sold is being released to interest expense, net as interest is accrued on the Company’s variable-rate debt over the remaining term of the Term Loans as a decrease to interest expense, net, the amortization of which totaled $2.5 million for the year ended December 31, 2023.
As discussed above, on September 1, 2023, the Company prepaid $35.0 million of the Term Loans. As a result of this prepayment, $2.8 million of the deferred gain in accumulated comprehensive income was released immediately into earnings as interest expense, net.
In the next twelve months, the Company estimates that $5.9 million will be reclassified from Accumulated other comprehensive income (loss) to Interest expense, net on our consolidated statement of operations.
Amounts reported in accumulated other comprehensive income related to the Company's derivatives are reclassified to interest expense, net as interest is accrued on the Company’s variable-rate debt. The impact of the Company’s derivative financial instruments on its consolidated statements of comprehensive loss was as follows (in thousands):
| Year Ended December 31 | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Unrealized gain (loss) recognized in Other comprehensive income (loss) on interest rate swaps | $ | ( | $ | $ | ||||||||||||||||
| Amounts reclassified from Accumulated other comprehensive income (loss) to interest expense, net | ( | |||||||||||||||||||
Total Other comprehensive income (loss) on interest rate swaps | $ | ( | $ | $ | ||||||||||||||||
Cash interest costs averaged 7.2 %, 5.4 %, and 5.4 % for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, the Company had $5.4 million of unamortized debt issuance costs associated with the Credit Facility. These issuance costs will be amortized to Interest expense, net on our consolidated statement of operations, over the term of the Credit Facility.
Covenants
The Credit Facility contains customary affirmative and negative covenants. The negative covenants limit the ability of the Loan Parties to, among other things (in each case subject to customary exceptions for a credit facility of this size and type):
•Incur additional indebtedness or guarantee indebtedness of others;
•Create liens on our assets;
•Make investments, including certain acquisitions;
•Enter into mergers or consolidations;
•Dispose of assets;
•Pay dividends and make other distributions on the Company’s capital stock, and redeem and repurchase the Company’s capital stock;
•Enter into transactions with affiliates; and
•Prepay indebtedness or make changes to certain agreements.
The Credit Facility has no financial covenants as long as less than 35 % of the Revolver is drawn as of the last day of any fiscal quarter. If 35 % of the Revolver is drawn as of the last day of a given fiscal quarter, the Company will be required to maintain a Total Leverage Ratio (the ratio of funded indebtedness as of such date less the amount of unrestricted cash and cash equivalents of the Company and its guarantors in an amount not to exceed $50.0 million, to Adjusted EBITDA (calculated on a pro forma basis including giving effect to any acquisition)), measured on a quarter-end basis for each four consecutive fiscal quarters then ended, of not greater than 6.00 to 1.00.
26
The Credit Facility contains customary events of default subject to customary cure periods for certain defaults that include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain other material indebtedness, change in control, bankruptcy and insolvency defaults and material judgment defaults. The occurrence of an event of default could result in the acceleration of Term Loans and Revolver and a right by the agent and lenders to exercise remedies. At the election of the lenders, a default interest rate shall apply on all obligations during an event of default, at a rate per annum equal to 2.00 % above the applicable interest rate. The Term Loan and Revolver are secured by substantially all of the Company's assets.
As of December 31, 2023 the Company was in compliance with all covenants under the Credit Facility.
Debt Maturities
Under the terms of the Credit Facility, future debt maturities of long-term debt excluding debt discounts at December 31, 2023 are as follows (in thousands):
| Year ending December 31: | Amount | |||||||
| 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total debt outstanding | $ | |||||||
| Less unamortized discount | ||||||||
| Total debt outstanding, net of discount | $ | |||||||
8. Net Loss Per Share
We compute loss per share of our Common Stock and Series A Preferred Stock using the two-class method. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. We consider our Series A Preferred Stock to be a participating security, as its holders are entitled to fully participate in any dividends or other distributions declared or paid on our Common Stock on an as-converted basis.
The following table sets for the computations of net loss per share:
| Year Ended December 31, | ||||||||||||||||||||
| (In thousands, except share and per share amounts) | 2023 | 2022 | 2021 | |||||||||||||||||
| Numerators: | ||||||||||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Preferred stock dividends and accretion | ( | ( | ||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Denominator: | ||||||||||||||||||||
| Weighted–average common shares outstanding, basic and diluted | ||||||||||||||||||||
Net loss per common share, basic and diluted | $ | ( | $ | ( | $ | ( | ||||||||||||||
Due to the net losses incurred for the years ended December 31, 2023, 2022 and 2021, basic and diluted loss per share were the same, as the effect of all potentially dilutive securities would have been anti-dilutive. The Company adopted ASU 2020-06 on January 1, 2022 as detailed in “Note 2. Basis of Presentation and Summary of Significant Accounting Policies—Recent Accounting Pronouncements—Recently issued accounting pronouncements - Adopted.” As such, the Company is required to use 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 awards, restricted stock units and performance restricted stock units.
27
The following table sets forth the anti-dilutive common share equivalents excluded from the weighted-average shares used to calculate diluted net loss per common share:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Stock options | |||||||||||||||||
| Restricted stock units | |||||||||||||||||
| Performance restricted stock units | |||||||||||||||||
Series A Preferred Stock on an as-converted basis(1) | |||||||||||||||||
| Total anti–dilutive common share equivalents | |||||||||||||||||
(1) Per ASU 2020-06, the Company is applying the if-converted method to calculated diluted earnings per share. As of December 31, 2023, the Series A Preferred Stock plus accumulated dividends totaled $122.2 million. The Series A Preferred Stock has a conversion price of $17.50 per share, as detailed in “Note 12. Series A Convertible Preferred Stock”
9. Leases
Operating Leases
The Company leases office space under operating leases that expire between 2024 and 2029. The terms of the Company's non-cancelable operating lease arrangements typically contain fixed rent increases over the term of the lease, rent holidays and provide for additional renewal periods. Rent expense on these operating leases is recognized over the term of the lease on a straight-line basis.
Finance Leases
The current and long-term portion of finance lease obligations are included in Accrued expenses and other current liabilities and Other long-term liabilities line items on the consolidated balance sheet, respectively. The Company has had no finance lease agreements since December 31, 2021.
Lease Expense
Total office rent expense for the years ended December 31, 2023, 2022 and 2021 were approximately $1.4 million, $2.5 million and $6.2 million, respectively. The $2.5 million office rent expense in 2022 includes approximately $1.1 million of transformation charges in conjunction with the closures of the BA Insight and Objectif Lune offices as we continue to consolidate and integrate these acquisitions. The $6.2 million office rent expense in 2021 includes approximately $4.4 million of transformation charges in conjunction with the closures of the the Panviva, BlueVenn, Second Street and Localytics offices as we continue to consolidate and integrate these acquisitions.
The Company has entered into sublease agreements related to excess office space as a result of the Company's transformation activities related to its acquisitions. The Company’s current sublease agreements terminate in 2027. For the years ended December 31, 2023, 2022 and 2021, the Company recognized rental income on subleases, as offsets to rental expense, of $1.8 million, $1.4 million and $1.1 million, respectively. Operating lease obligations in the future minimum payments table below do not include the impact of future rental income of $2.5 million related to these subleases as of December 31, 2023.
The components of lease expense were as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating lease cost | $ | ||||||||||
| Sublease income | ( | ( | |||||||||
| Total lease expense | $ | ||||||||||
28
Other information about lease amounts recognized on our consolidated financial statements is summarized as follows:
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
Cash paid for amounts included in the measurement of lease liabilities (in thousands): | |||||||||||
Operating cash flows from operating leases | $ | $ | |||||||||
Right-of-use assets obtained in exchange for lease obligations (in thousands): | |||||||||||
Operating leases | $ | $ | |||||||||
| Weighted average remaining lease term (in years): | |||||||||||
Operating leases | |||||||||||
| Weighted average discount rate | |||||||||||
Operating leases | % | % | |||||||||
As of December 31, 2023, the Company no longer had any finance lease agreements. Future minimum payments for operating lease obligations and purchase commitments are as follows (in thousands):
| Operating Leases | ||||||||
| 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total minimum lease payments | ||||||||
| Less amount representing interest | ( | |||||||
| Present value of lease liabilities | $ | |||||||
| Operating lease liabilities, current | ||||||||
| Operating lease liabilities, noncurrent | ||||||||
| Total lease liabilities | $ | |||||||
10. 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.
Future minimum payments for purchase commitments are as follows (in thousands):
| Year | Purchase Commitments | |||||||
| 2024 | $ | |||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total minimum payments | $ | |||||||
29
Litigation
In the normal course of business, the Company may become involved in various lawsuits and legal proceedings. As of December 31, 2023, the Company is not involved in any current or pending legal proceedings that it believes may have a material adverse effect on its consolidated financial position or results of operations.
In addition, when we acquire companies, we require that the sellers provide industry standard indemnification for breaches of representations and warranties contained in the acquisition agreement and we will withhold payment of a portion of the purchase price for a period of time in order to satisfy any claims that we may make for indemnification. In certain transactions, we agree with the sellers to purchase a representation and warranty insurance policy that will pay such claims for indemnification. From time to time we may have one or more claims for indemnification pending. Similarly, we may have one or more ongoing negotiations related to the amount of an earnout. Gain contingencies related to indemnification claims are not recognized on our consolidated financial statements until realized.
11. Property and Equipment, Net
Property and equipment consisted of the following (in thousands) at:
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Equipment | $ | $ | |||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
Amortization of assets recorded under finance leases is included with depreciation expense. Depreciation and amortization expense on Property and equipment, net was $1.4 million, $1.5 million and $2.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company recorded no 47.0 thousand, $79.0 thousand and nil losses on disposal of assets related primarily to leasehold improvements associated with the consolidation and integration of prior year acquisitions.
12. Series A Convertible Preferred Stock
On July 14, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Ulysses Aggregator, LP (the “Purchaser”), an affiliate of HGGC, LLC, to issue and sell at closing 115,000 shares of Series A Preferred Stock of the Company, par value $0.0001 per share, at a price of $1,000 per share (the “Initial Liquidation Preference”) for an aggregate purchase price of $115.0 million (the “Investment”). The Company is using the proceeds of the Investment for general corporate purposes and transaction-related fees and expenses.
On August 23, 2022 (the “Closing Date”), the closing of the Investment (the “Closing”) occurred, and the Series A Preferred Stock was issued to the Purchaser. In connection with the issuance of the Series A Preferred Stock, the Company incurred direct and incremental expenses comprised of transaction fees, and financial advisory and legal expenses (the “Series A Preferred Stock Issuance Costs”), which reduced the carrying value of the Series A Preferred Stock. Total Series A Preferred Stock Issuance Costs totaled $4.6 million.
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.
30
Dividend Provisions
The Series A Preferred Stock rank 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 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 $7.2 million as of December 31, 2023.
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 December 31, 2023, the Liquidation Preference of the Series A Preferred Stock was $122.2 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-if-converted basis.
The holders of the Series A Preferred Stock will have the right to elect one member of 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.
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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 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).
13. Stockholders' Equity
Common and Preferred Stock
At the Company’s annual meeting on June 7, 2023, the stockholders of the Company adopted a Certificate of Amendment (the “Certificate of Amendment”) to the Amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”). Among other things, the Certificate of Amendment amended the Certificate of Incorporation to increase the number of authorized shares of the Company’s Common Stock, from 50,000,000 to 75,000,000 .
The common stock has a par value of $0.0001 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.
See “Note 12. Series A Convertible Preferred Stock” for a description of our Series A Preferred Stock, which is the only class of preferred stock outstanding.
Registration Statements
2022 S-3
On October 21, 2022 we filed a resale registration statement on Form S-3 (File No. 333-267973) (the “2022 S-3”), on behalf of the Purchaser and pursuant to the Registration Rights Agreement, which became effective on November 1, 2022 and covers (i) the issued Series A Preferred Stock and (ii) the number of shares of the Company’s common stock issuable upon conversion of such Series A Preferred Stock, which amount includes and assumes that dividends on the Series A Preferred Stock are paid by increasing the Liquidation Preference of the Series A Preferred Stock for a period of sixteen dividend payment periods from the initial issuance date. See “Note 12. Series A Convertible Preferred Stock” for further details.
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Share repurchase program
On September 1, 2023, the Board of Directors authorized a stock repurchase program (the “Share Repurchase Plan”) in the aggregate amount of up to $15.0 million. In October 2023, the Board of Directors authorized an increase to the Share Repurchase Plan to allow the Company to repurchase up to an additional $10 million of shares. The Share Repurchase Plan allows the Company to repurchase shares of its issued and outstanding Common Stock, from time to time in the open market or otherwise (including in negotiated transactions, open market transactions, through accelerated share repurchase, through indirect purchases of Common Stock such as by using derivatives or in other transactions) in each case in accordance with applicable securities laws, so long as the aggregate purchase price paid for such transactions does not exceed $25 million for all such purchases. The Share Repurchase Plan does not have a specified expiration date. Accordingly, unless terminated earlier by resolution of the Board, the Share Repurchase Plan will expire when the Company has repurchased all shares authorized for repurchase.
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 consolidated statements of stockholders equity. Total accrued excise tax of $0.1 million is included in total cost of shares repurchases, excluded from average cost per share and excluded from total cash paid during the year ended December 31, 2023 as amounts were unpaid at year end.
During the year ended December 31, 2023, the Company repurchased and subsequently retired 3,245,100 shares of Common Stock, for a total of $14.2 million under the Share Repurchase Plan, inclusive of excise tax and other costs directly related to the repurchased shares. As of December 31, 2023, approximately $10.8 million remained available for additional share repurchases. The Company is not obligated to acquire any particular amount of Common Stock and may modify or suspend the repurchases at any time in the Company’s discretion.
Tax Benefit Preservation Plan and Preferred Stock Purchase Rights
On May 2, 2023, our Board of Directors authorized and declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of Common Stock of the Company as of May 12, 2023 (the “Record Date”). 32,441,010 Rights were issued to the holders of record of shares of Common Stock. The description and terms of the Rights are set forth in a Tax Benefit Preservation Plan, dated as of May 2, 2023, as the same may be amended from time to time (the “Plan”), between the Company and Broadridge Corporate Issuer Solutions, LLC, as Rights Agent.
By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its net operating loss carryforwards (“NOLs”) and other tax attributes to offset potential future income tax liabilities. The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code (the “Code”). Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more “five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last “ownership change” experienced by the Company. The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.9 % or more of the outstanding shares of stock without the approval of the Board of Directors. The Board of Directors believes it is in the best interest of the Company and its stockholders to reduce the likelihood of an ownership change, which could harm the Company’s future operating results by effectively increasing the Company future tax liabilities.
The Rights trade with, and are inseparable from, the Common Stock, and the record holders of shares of Common Stock are the record holders of the Rights. The Rights are evidenced only by certificates (or, in the case of uncertificated shares, by notations in the book-entry account system) that represent shares of Common Stock. Rights will also be issued in respect of any shares of Common Stock that shall become outstanding after the Record Date (including upon conversion of any shares of Series A Preferred Stock of the Company) and, subject to certain exceptions specified in the Plan, prior to the earlier of the Distribution Date (as defined below) and the Expiration Date (as defined below).
The Rights are not exercisable until the Distribution Date. After the Distribution Date, each Right will be exercisable to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock, par value $0.0001 per share, of the Company (the “Series B Preferred”), at a purchase price of $18.00 per one one-thousandth of a share of Series B Preferred (the “Purchase Price”), subject to adjustment as provided in the Plan.
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The “Distribution Date” is the earlier of (i) the close of business on the tenth day after the public announcement that a person or group has become an Acquiring Person (as defined below) or that discloses information which reveals the existence of an Acquiring Person or such earlier date as a majority of the Board shall become aware of the existence of an Acquiring Person (the date described in this clause (i), the “Stock Acquisition Date”) and (ii) the close of business on the tenth business day (or such later date as the Board of Directors shall determine prior to such time as any person or group becomes an Acquiring Person) after the date that a tender or exchange offer by any person is commenced, the consummation of which would result in such person becoming an Acquiring Person. A person or group becomes an “Acquiring Person” upon acquiring beneficial ownership of 4.9 % or more of the outstanding shares of Common Stock, except in certain situations specified in the Plan.
The Rights will expire on the earliest of (a) the close of business on May 1, 2024, (b) the time at which the Rights are redeemed or exchanged pursuant to the Plan, or (c) the time at which the Board of Directors determines that the Tax Benefits are utilized in all material respects or that an ownership change under Section 382 of the Code would not adversely impact in any material respect the time period in which the Company could use the Tax Benefits, or materially impair the amount of the Tax Benefits that could be used by the Company in any particular time period, for applicable tax purposes (such earliest date, the “Expiration Date”).
Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company by virtue of holding such Right, including, without limitation, the right to vote and to receive dividends.
The Board of Directors may adjust the Purchase Price, the number of shares of Series B Preferred issuable and the number of outstanding Rights to prevent dilution that may occur from a stock dividend, a stock split, a reclassification of the Series B Preferred or Common Stock or certain other specified transactions. No adjustments to the Purchase Price of less than 1 % are required to be made.
In connection with the adoption of the Plan, the Board of Directors approved a Certificate of Designations of the Series B Junior Participating Preferred Stock (the “Certificate of Designations”). The Certificate of Designations was filed with the Secretary of State of the State of Delaware on May 2, 2023.
Each one one-thousandth of a share of Series B Preferred, if issued:
•Will not be redeemable.
•Will entitle holders to quarterly dividend payments of $0.001 per one one-thousandth of a share of Series B Preferred, or an amount equal to the dividend paid on one share of Common Stock, whichever is greater.
•Will entitle holders upon liquidation either to receive $0.001 per one one-thousandth of a share of Series B Preferred, or an amount equal to the payment made on one share of Common Stock, whichever is greater.
•Will have the same voting power as one share of Common Stock.
•If shares of Common Stock are exchanged as a result of a merger, consolidation, or a similar transaction, will entitle holders to a per share payment equal to the payment made on one share of Common Stock.
Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) consists of two elements, net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) items are recorded in the stockholders’ equity section on our consolidated balance sheets and excluded from net income (loss). Other comprehensive income (loss) consists primarily of foreign currency translation adjustments for subsidiaries with functional currencies other than the USD, unrealized translation gains (losses) on intercompany loans with foreign subsidiaries, and unrealized gains (losses) on interest rate swaps.
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The following table shows the ending balance of the components of accumulated other comprehensive loss, net of income taxes, in the stockholders’ equity section on our consolidated balance sheets at the dates indicated (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Other comprehensive income (loss) | |||||||||||
| Foreign currency translation adjustment | $ | ( | $ | ( | |||||||
| Unrealized translation loss on intercompany loans with foreign subsidiaries, net of taxes | ( | ( | |||||||||
| Unrealized gain on interest rate swaps | |||||||||||
Realized gain on interest rate swap sale, net of amounts reclassified into interest expense, net | |||||||||||
| Total accumulated other comprehensive income (loss) | $ | $ | |||||||||
The Unrealized translation gain on intercompany loans with foreign subsidiaries as of December 31, 2023 is net of unrealized income tax expense of $1.6 million. The income tax expense (benefit) allocated to each component of other comprehensive income (loss) for all other periods and components was not material.
Stock Compensation Plans
The Company maintains two stock-based compensation plans, the 2010 Stock Option Plan (the “2010 Plan”) and the 2014 Stock Option Plan (the “2014 Plan”), which are described below.
2010 Plan
At December 31, 2023, there were 27,939 options outstanding under the 2010 Plan. Following the effectiveness of the Company’s 2014 Plan in November 2014, no further awards have been made under the 2010 Plan, although each option previously granted under the 2010 Plan will remain outstanding subject to its terms. Any such shares of common stock that are subject to awards under the 2010 Plan which are forfeited or lapse unexercised and would otherwise have been returned to the share reserve under the 2010 Plan instead will be available for issuance under the 2014 Plan.
2014 Plan
In November 2014, the Company adopted the 2014 Plan, providing for the granting of incentive stock options, as defined by the Internal Revenue Code, to employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to employees, directors and consultants. The 2014 Plan also provides for the automatic grant of option awards to our non-employee directors. As of December 31, 2023, there were 121,975 options outstanding under the 2014 Plan, and 737,581 shares of common stock reserved for issuance under the 2014 Plan. The number of shares available for issuance under the 2014 Plan will be increased annually through 2024 in an amount equal to the least of (i) 4 % of the outstanding Shares on the last day of the immediately preceding Fiscal Year or (ii) such number of Shares determined by the Board. At December 31, 2023, there were 1,758,847 restricted stock units and 100,000 performance based restricted stock units outstanding under the 2014 Plan.
Under both the 2010 Plan and 2014 Plan, options granted to date generally vest over a or four year period, with a maximum term of ten years . Shares issued upon any stock option exercise and restricted under the 2010 Plan or 2014 Plan will be issued from the Company's authorized but unissued shares.
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Share-based Compensation
The Company recognized share-based compensation expense from all awards in the following expense categories (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cost of revenue | $ | $ | $ | ||||||||||||||
| Research and development | |||||||||||||||||
| Sales and marketing | |||||||||||||||||
General and administrative (1) | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
(1)For the year ended December 31, 2021, a former executive resigned from his positions that resulted in stock-based compensation of $6.3 million related to the acceleration and deemed modification of the unvested portion of grants held at the time of transition. In accordance with ASC 718, Compensation—Stock Compensation, the fair value of these awards were modified and all related expense accelerated on the date of modification as a result of the reduction in required service.
Our income tax benefits recognized from stock-based compensation arrangements in each of the periods presented were immaterial due to cumulative losses and valuation allowances.
Restricted Stock Units (“RSU”)
During the year ended December 31, 2023 the Company granted restricted stock units under its 2014 Stock Incentive Plan, in lieu of restricted stock awards, primarily for stock plan administrative purposes.
Performance-Based Restricted Stock Units (“PRSU”)
In 2023 and 2022, fifty 0 300 no units granted.
The following table summarizes PRSU and RSU activity during the year ended December 31, 2023 :
| Number of Units | Weighted-Average Grant Date Fair Value | |||||||||||||
| Unvested restricted units outstanding as of December 31, 2022 | $ | |||||||||||||
| Granted | ||||||||||||||
| Vested | ( | |||||||||||||
Forfeited(1) | ( | |||||||||||||
| Unvested restricted units outstanding as of December 31, 2023 | $ | |||||||||||||
(1)Includes forfeited awards related to the 2022 PRSUs. At June 30, 2023, or the end of the performance period for the 2022 PRSUs, none of the awards vested.
The total fair value of the RSUs vested during the years ended December 31, 2023, 2022 and 2021 was approximately $5.0 million, $13.9 million and $28.2 million, respectively. As of December 31, 2023, $16.0 million of unrecognized compensation cost related to unvested restricted stock units (including performance based awards) is expected to be recognized over a weighted-average period of 1.77 years.
The PRSU and RSU activity table above includes PRSU units granted that are based on a 100 % target payout.
The total fair value of PRSUs vested during the years ended December 31, 2023, 2022 and 2021 was nil , nil and $5.6 million, respectively.
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Significant assumptions used in the Monte Carlo simulation model for the PRSUs granted during the year ended December 31, 2023 and year ended December 31, 2022 are as follows:
| December 31, 2023 | December 31, 2022 | |||||||||||||
| Expected volatility | ||||||||||||||
| Risk-free interest rate | ||||||||||||||
| Remaining performance period (in years) | ||||||||||||||
| Dividend yield | ||||||||||||||
Stock Option Activity
Stock option activity during the year ended December 31, 2023 is as follows:
| Number of Options Outstanding | Weighted– Average Exercise Price | Weighted– Average Remaining Contractual Term (in Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at December 31, 2022 | $ | ||||||||||||||||||||||
| Options granted | |||||||||||||||||||||||
| Options exercised | ( | ||||||||||||||||||||||
| Options forfeited | |||||||||||||||||||||||
| Options expired | ( | ||||||||||||||||||||||
| Outstanding at December 31, 2023 | $ | $ | |||||||||||||||||||||
| Options vested and expected to vest at December 31, 2023 | $ | $ | |||||||||||||||||||||
| Options vested and exercisable at December 31, 2023 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of options exercised at December 31, 2023, 2022, and 2021, was approximately nil , $0.6 million, and $1.1 million, respectively. All of the Company’s outstanding stock options were fully vested as of December 31, 2019.
As of December 31, 2022, there was no remaining unrecognized compensation cost related to stock options.
14. 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 revenue within a single operating segment.
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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 is 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 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 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.
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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 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 consolidated balance sheets at the end of each reporting period.
Deferred revenue primarily consist 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 December 31, 2023 and 2022 unbilled receivables were $2.7 million and $5.3 million, respectively.
Deferred Commissions
Sales commissions earned by our sales force, and related payroll taxes, are considered incremental and recoverable costs of obtaining a contract with a customer. Deferred commissions and other costs for new customer contracts are capitalized upon contract signing and amortized on a systematic basis that is consistent with the transfer of goods and services over the expected life of the customer relationships, which has been determined to be approximately 6 years. The expected life of our customer relationships is based on historical data and management estimates, including estimated renewal terms and the useful life of the associated underlying technology. Commissions paid on renewal contracts are not commensurate with commissions paid on new customer contracts, as such, deferred commissions related to renewals are capitalized and amortized over the estimated contractual renewal term of 18 months. We utilized the 'portfolio approach' practical expedient, 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 as Deferred commissions, current, and the remainder is recorded as Deferred commissions, noncurrent, in our consolidated balance sheets. Amortization expense is included in sales and marketing expenses on our 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 as described in “Note 2. Basis of Presentation and Summary of Significant Accounting Policies”. No indicators of impairment of deferred commissions were identified during the years ended December 31, 2023, 2022 or 2021.
The following table presents the activity impacting deferred commissions for the year ended December 31, 2023 (in thousands):
| Deferred Commissions | ||||||||
| Deferred commissions balance at December 31, 2022 | $ | |||||||
| Capitalized deferred commissions | ||||||||
| Amortization of deferred commissions | ( | |||||||
| Deferred commissions balance at December 31, 2023 | $ | |||||||
Amortization of deferred commissions in excess of amounts capitalized for the year ended December 31, 2023 was $1.8 million.
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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 year ended December 31, 2023, we recognized $102.3 million and $3.7 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 December 31, 2023, approximately $268.6 million of revenue is expected to be recognized from remaining performance obligations. We expect to recognize revenue on approximately 68 % 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 U.S., United Kingdom and Canada. Information about these operations is presented below (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Revenues: | |||||||||||||||||
| Subscription and support: | |||||||||||||||||
| United States | $ | $ | $ | ||||||||||||||
| United Kingdom | |||||||||||||||||
| Canada | |||||||||||||||||
| Other International | |||||||||||||||||
| Total subscription and support revenue | |||||||||||||||||
| Perpetual license: | |||||||||||||||||
| United States | |||||||||||||||||
| United Kingdom | |||||||||||||||||
| Canada | |||||||||||||||||
| Other International | |||||||||||||||||
| Total perpetual license revenue | |||||||||||||||||
| Professional services: | |||||||||||||||||
| United States | |||||||||||||||||
| United Kingdom | |||||||||||||||||
| Canada | |||||||||||||||||
| Other International | |||||||||||||||||
| Total professional service revenue | |||||||||||||||||
| Total revenue | $ | $ | $ | ||||||||||||||
15. Employee Benefit Plans
The Company has established various international defined contribution plans and one voluntary defined contribution retirement plan qualifying under Section 401(k) of the Internal Revenue Code. The Company made no
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16. Segment and Geographic Information
ASC 280, Segment Reporting, establishes standards for reporting information about operating segments. It defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer is considered to be our CODM. Our CODM manages the business as a multi-product business that utilizes its model to deliver software products to customers regardless of their geography or IT environment. Operating results are reviewed by the CODM primarily at the consolidated entity level for purposes of making resource allocation decisions and for evaluating financial performance. Accordingly, we considered ourselves to be in a single operating and reporting segment structure.
Revenue
See “Note 14 Revenue Recognition—Disaggregated Revenue” for a detail of revenue by geography.
Identifiable Long-Lived Assets
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Identifiable long-lived assets: | |||||||||||
| United States | $ | $ | |||||||||
| United Kingdom | |||||||||||
| Canada | |||||||||||
| Other International | |||||||||||
| Total identifiable long-lived assets | $ | $ | |||||||||
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) of the Exchange Act, our management, including our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), has evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2023.
At the time our Original Form 10-K was filed, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2023. Subsequent to the Original Form 10-K filing, our management, including our Chief Executive Officer and Chief Financial Officer, reevaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such reevaluation, the Company’s management, under the oversight of the Chief Executive Officer and Chief Financial Officer, determined that the Company’s internal control over financial reporting was not effective as of that date due to the identification of a material weakness as described below.
Notwithstanding the identified material weakness, our Chief Executive Officer and Chief Financial Officer concluded that our consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of the Original Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in conformity with U.S. GAAP.
Management Report on Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Prior to the Original Form 10-K filing, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, using the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO framework”). Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our internal audit and finance personnel utilizing the 2013 COSO framework. Based on that assessment of those established criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2023.
Subsequent to the Original Form 10-K filing, management, including our Chief Executive Officer and Chief Financial Officer, reevaluated the effectiveness of our internal control over financial reporting using the 2013 COSO framework. Based on such reevaluation, the Company’s management, under the oversight of the Chief Executive Officer and Chief Financial Officer, determined that the Company’s internal control over financial reporting was not effective as of December 31, 2023 due to 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.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness did not result in any misstatement of our consolidated financial statements or disclosures for the year ended December 31, 2023, included in our Original Form 10-K, and accordingly, we have concluded that the consolidated financial statements and other financial information included in our Original Form 10-K present fairly in all material respects the Company’s financial position, results of operations, and cash flows. This material weakness therefore does not require any adjustments to those consolidated financial statements.
The independent registered public accounting firm of Ernst & Young LLP, as auditors of the Company’s consolidated financial statements, has issued a revised attestation report on the effectiveness of the Company’s internal control over financial reporting, included in this Amendment.
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Remediation Plan
Our management is committed to maintaining a strong internal control environment. In response to the material weakness identified above, 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 as 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 year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Upland Software, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Upland Software, Inc.’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Upland Software, Inc. (the Company) has not maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
In our report dated February 22, 2024, we expressed an unqualified opinion that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria. Management has subsequently identified a deficiency in controls over prospective financial information used in the Company’s goodwill impairment assessment, and has further concluded that such deficiency represented a material weakness as of December 31, 2023. As a result, management has revised its assessment, as presented in the accompanying Management's Report on Internal Control over Financial Reporting, to conclude that the Company’s internal control over financial reporting was not effective as of December 31, 2023. Accordingly, our present opinion on the effectiveness of internal control over financial reporting as of December 31, 2023, as expressed herein, is different from that expressed in our previous report.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's assessment. Management has identified a material weakness in the design and operation of a management review control over prospective financial information used in the goodwill impairment assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated February 22, 2024, except for the effect of the material weakness described in the second paragraph above, as to which the date is November 7, 2024, which expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
/s/ Ernst & Young LLP
Austin, Texas
February 22, 2024, except for the effect of the material weakness described in the third paragraph above, as to which the date is November 7, 2024.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
The financial statements filed as part of this Annual Report on Form 10-K are listed on the “Index to Consolidated Financial Statements” included in “Item 8. Financial Statements and Supplementary Data” herein.
(b) Financial Statement Schedules
All schedules have been omitted because they are not required or because the required information is otherwise included in the consolidated financial statements or notes thereto set forth under Item 8 above.
(c) Exhibits
See Exhibit Index at the end of this Annual Report on Form 10-K, which is incorporated by reference.
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EXHIBIT INDEX
| Exhibit No. | Description of Exhibit | ||||
| 101* | Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. | ||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
* Filed herewith.
(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the Company specifically incorporates it by reference.
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SIGNATURES
Pursuant to the requirement of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Upland Software, Inc. | ||||||||
| Date: November 7, 2024 | By: | /s/ John T. McDonald | ||||||
| John T. McDonald | ||||||||
| Chief Executive Officer and Chairman | ||||||||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John T. McDonald and Michael D. Hill and each of them, as his true and lawful attorney-in-fact and agent with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent the full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| Signature | Title | Date | ||||||||||||
/s/ John T. McDonald | Chief Executive Officer and Chairman | November 7, 2024 | ||||||||||||
John T. McDonald | (Principal Executive Officer) | |||||||||||||
/s/ Michael D. Hill | Chief Financial Officer and Treasurer | November 7, 2024 | ||||||||||||
Michael D. Hill | (Principal Financial Officer and Principal Accounting Officer) | |||||||||||||
/s/Timothy W. Mattox | Director | November 7, 2024 | ||||||||||||
Timothy W. Mattox | ||||||||||||||
/s/ David D. May | Director | November 7, 2024 | ||||||||||||
David D. May | ||||||||||||||
/s/ Stephen E. Courter | Director | November 7, 2024 | ||||||||||||
Stephen E. Courter | ||||||||||||||
/s/ Teresa M. Walsh | Director | November 7, 2024 | ||||||||||||
Teresa M. Walsh | ||||||||||||||
/s/ David H.S. Chung | Director | November 7, 2024 | ||||||||||||
David H.S. Chung | ||||||||||||||
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