The following discussion and analysis of our financial condition and results of
operations is provided as a supplement to and should be read in conjunction with
our unaudited condensed consolidated financial statements and related notes for
the three and nine months ended September 30, 2021. This discussion contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from the results described in or implied by the
forward-looking statements. Factors that could cause or contribute to those
differences include, but are not limited to, those identified below and those
discussed in the sections titled "Risk Factors" included in the IPO Prospectus
and "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in
this report.
BASIS OF PRESENTATION
As used in this report, unless the context otherwise requires, references to
"Sterling," "we," "us," "our," the "Company,"
and similar references refer to Sterling Check Corp.
Numerical figures included in this report have been subject to rounding
adjustments. Accordingly, numerical figures shown as totals in various tables
may not be arithmetic aggregations of the figures that precede them. In
addition, we round certain percentages presented in this report to the nearest
whole number. As a result, figures expressed as percentages in the text may not
total 100% or, when aggregated, may not be the arithmetic aggregation of the
percentages that precede them.
On September 10, 2021, our board of directors authorized a stock split and we
filed an amendment to our certificate of incorporation to effectuate a
1,198-for-1
split of our outstanding common stock. The stock split was effectuated such that
(i) each then outstanding share of common stock was increased to 1,198; (ii) the
number of shares of common stock into which then-outstanding options to purchase
common stock is exercisable was proportionately increased; and (iii) the
exercise price of each then-outstanding option to purchase common stock was
proportionately reduced. The accompanying discussion gives retroactive effect as
though the
1,198-for-1
stock split of our common stock occurred for all periods presented.
Overview
We are a leading global provider of technology-enabled background and identity
verification services. We provide the foundation of trust and safety that our
clients need to create great environments for their most essential
resource-people. We offer a comprehensive hiring and risk management solution
that begins with identity verification, followed by criminal background
screening, credential verification, drug and health screening, processing of
employee documentation required for onboarding and ongoing risk monitoring. Our
services are delivered through our purpose-built, proprietary, cloud-based
technology platform that empowers organizations with real-time and data-driven
insights to conduct and manage their employment screening programs efficiently
and effectively. Our interfaces are supported by our powerful artificial
intelligence ("AI")-driven fulfillment platform, which leverages more than 3,300
automation integrations, including Application Programming Interfaces and
Robotic Process Automation bots. This enables 90% of United States ("U.S.")
criminal searches to be automated and allows us to complete 70% of U.S. criminal
searches within the first hour and 90% within the first day. As of September 30,
2021, 95% of our revenue is processed through platforms hosted in the cloud,
which allows us to consistently maintain 99.9% platform availability while being
prepared to scale into the future.
Our client-centric approach underpins everything we do. We serve a diverse and
global client base in a wide range of industries, such as healthcare, gig
economy, financial and business services, industrials, retail, contingent,
technology, media and entertainment, transportation and logistics, hospitality,
education and government. Employers are facing numerous challenges, including
complex and changing legal and regulatory requirements, a rise in fraudulent job
applications, a growing spotlight on reputation and more complex global
workforces. Successfully navigating these challenges requires an
industry-specific perspective, given differing candidate profiles, economics,
competitive dynamics and regulatory demands. To serve these differing needs, our
sales and support delivery model is organized around industry-specific teams
("Verticals") and geographic markets ("Regions"). Experienced client success,
sales, product and operations teams dedicated to individual Verticals
collaborate with our clients to address their unique challenges and compliance
requirements while providing industry best practice guidance. Our delivery model
provides our clients with both the personal touch and consultative partnership
of a small boutique firm and the global reach, scale, innovation and resources
of an industry leader; all of which benefit small- and
mid-sized
businesses, global multinational enterprises and everyone in between.
Additionally, this delivery model supports our principle of "Compliance by
Design", enabling clients to maintain compliance globally. Our clients face a
dynamic and rapidly evolving global labor market with increasing complexity and
regulatory requirements. As a result, we believe our solutions are
mission-critical to their core human resources, risk management and compliance
functions. During the twelve months ended September 30, 2021, we completed over
75 million searches for over 40,000 clients, including over 50% of the Fortune
100 and over 45% of the Fortune 500. We believe the combination of our deep
market expertise from our sales and support combined with the flexibility of our
proprietary technology platform enable us to deliver industry-relevant, highly
specialized solutions to our clients in a scalable manner, driving growth and
differentiating us from our competitors.

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Throughout our
45-year
operating history, innovation and self-disruption have been at the core of what
we do every day. Our history of unique, industry-oriented market insights allows
us to be at the forefront of innovation which includes multiple industry-leading
solutions. For example, we pioneered criminal fulfilment technology
(CourtDirect), arrest record and incarceration alert products, post-hire
monitoring capabilities,
AI-enhanced
record review and validation process and the industry's only proprietary
technology in a single-sourced U.S.-nationwide fingerprint network. Our
commitment to innovation has continued with the recent development and
introduction of enhanced global language support capabilities, a cloud-based
operating platform and a comprehensive identity verification solution. Enabled
by our market leadership and platform investments, we have established a
foundation and roadmap for future innovation which includes industry-specific
products, growing our
Identity-as-a-Service
capabilities and further geographic expansion.
Recent Developments
Initial Public Offering
On September 27, 2021, we completed our initial public offering ("IPO") in which
we and certain selling stockholders sold an aggregate of 16,427,750 shares of
our common stock, $0.01 par value per share, consisting of 4,760,000 newly
issued shares that we sold, 9,525,000 secondary shares that the selling
stockholders sold and 2,142,750 shares that the selling stockholders sold
pursuant to the full exercise of the underwriters' option to purchase additional
shares at an offering price of $23.00 per share, resulting in net proceeds to us
of $94.5 million, after deducting the underwriting discount of $6.8 million and
offering expenses of $8.1 million, of which $2.0 million was unpaid as of
September 30, 2021.
Impact of the
COVID-19
Pandemic
Since the onset of the
COVID-19
pandemic, we have been focused on keeping our employees safe and maintaining our
clients' uninterrupted access to our services. We have implemented a series of
measures to protect the health and safety of our employees. The global impact of
the outbreak has continued to evolve rapidly. Many countries reacted by
instituting quarantines and restrictions on travel and limiting operations
of non-essential businesses.
Such actions created disruption in global supply chains, increased rates of
unemployment and adversely impacted many industries. While some governmentally
and institutionally mandated restrictions and limitations have been relaxed as
local populations have been vaccinated or the outbreak has locally subsided, the
outbreak has continued to spread globally and the
COVID-19
virus has mutated into new strains. The
COVID-19
pandemic could have a continued adverse impact on economic and market
conditions, and the full extent of the impact and duration of
the COVID-19 pandemic
will depend on future developments, including, among other factors, spread of
the outbreak and the success of vaccination programs, along with related travel
advisories, quarantines and restrictions, the recovery times of disrupted supply
chains and industries, the impact of labor market interruptions, the impact of
government interventions, and uncertainty with respect to the duration of the
global economic slowdown.
Our financial performance in 2020 was impacted by the general economic downturn
experienced as a result of the COVID-19 pandemic. In response to the COVID-19
pandemic, many of our clients froze headcount, furloughed and terminated
employees, deferred hiring and partially or completely shut down their business
operations and as a result, we experienced reduced demand for our products and
services, particularly in industries impacted severely by the COVID-19 pandemic
such as brick-and-mortar retail, entertainment, and hospitality. However, we saw
increased demand for our products and services in industries such as healthcare
and gig, both in the U.S. and internationally, which we believe is attributable
to changing consumer behavior. Our lack of industry concentration with a highly
diversified client base provided a natural hedge against industry-specific
effects of the COVID-19 pandemic. Additionally, due to our increased investment
in automation, we were able to fulfill searches in at least 98% of U.S.
jurisdictions throughout the COVID-19 pandemic, while certain competitors
struggled to operate. Beginning in the third quarter of 2020, as
shelter-in-place policies were relaxed, businesses began to reopen and general
economic conditions began to improve, we experienced an increase in the demand
for our products and services. This increase in demand continued through the end
of 2020 with the business moving into year-over-year revenue growth for November
and December. In June 2020, we expanded our services to include COVID-19 testing
and in September 2021, we expanded our services to include vaccination tracking.
We are also pursuing new opportunities in antigen testing for our clients. Our
comprehensive suite of COVID-19 products has resulted in an increase in demand
for our services. In 2021, we have executed on our growth playbook, supported by
the broader macroeconomic recovery from the COVID-19 pandemic and increased
operating leverage resulting from the cost optimization measures we implemented
during the pandemic.
As the
COVID-19
pandemic continues, it may also have the effect of heightening many of the risks
described under "Risk Factors" in our IPO Prospectus, including, but not limited
to, those relating to changes in economic, political, social and market
conditions; systems failures, interruptions, delays in services, cybersecurity
incidents, unforeseen or catastrophic events and any resulting interruptions;
our international operations; and our dependence on our senior management team
and other qualified personnel.
Emerging Growth Company
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") permits us, as
an "emerging growth company," to take advantage of an extended transition period
to comply with new or revised accounting standards applicable to public
companies. We have elected to use this extended transition period and, as a
result, we will adopt new or revised accounting standards on the relevant dates
on which adoption of such standards is required for private companies.

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Recent Accounting Standards Updates
Refer to Note 3, "Recent Accounting Standards Updates" of the condensed
consolidated financial statements included elsewhere in this report for
information about recent accounting pronouncements.
Components of our Results of Operations
The following discussion summarizes the key components of our consolidated
statements of operations. We have one operating and reporting segment.
Revenues
We generate revenue by providing background and identity verification services
to our clients. We have an attractive business model underpinned by stable and
highly recurring transactional revenues, significant operating leverage and low
capital requirements that contribute to strong cash flow generation. We
recognize revenue under the Financial Accounting Standards Board's Accounting
Standards Codification Topic No. 606, "Revenue from Contracts with Customers"
("ASC 606"). Under ASC 606, we recognize revenue when control of the promised
goods or services is transferred to clients, generally at a point in time, in an
amount that reflects the consideration that we are entitled to for those goods
or services. A majority of our U.S. enterprise client contracts are exclusive to
Sterling or require Sterling to be used as the primary provider. Additionally,
they are typically multi-year agreements with automatic renewal terms, no
termination for convenience clauses and set pricing with Sterling's right to
increase prices upon notice. The strength of our contracts combined with our
high levels of client retention results in a high degree of revenue visibility.
Our revenue drivers are acquiring new clients (which we measure by new client
growth, calculated as discussed in the following paragraph), retaining existing
clients (which we measure by gross retention rate, calculated as discussed in
the following paragraph), and growing our existing client relationships through
upselling, cross-selling, and organic and inorganic growth in our client's
operations that lead to an increase in hiring (which we measure by base growth,
calculated as discussed in the following paragraph).
New client growth for the relevant period is calculated as revenues from clients
that are in the first twelve months of billing with Sterling divided by total
revenues from the prior period, expressed as a percentage. Base growth is
defined as growth in revenues in the current period, from clients that have been
billing with us for longer than twelve calendar months divided by total revenues
from the prior period, expressed as a percentage. Gross retention rate is a
percentage, the numerator of which is prior period revenues less the revenue
impact from accounts considered lost and the denominator is prior period
revenues. The revenue impact is calculated as revenue decline of lost accounts
in the relevant period from the prior period for the months after they were
considered lost. Therefore, the attrition impact of clients lost in the current
year may be partially captured in both the current and following period's
retention rates depending on what point during the period they are lost. Our
gross retention rate does not factor in revenue impact, whether growth or
decline, attributable to existing clients, inclusive of cross-sell and
up-sell
of products, or the incremental revenue impact of new clients.
In addition to organic growth through the drivers mentioned above, we may from
time to time consider acquisitions that drive growth in our business. In those
instances, inorganic growth will refer to the revenue from acquisitions for the
twelve months following an acquisition. Any incremental revenue generation
thereafter will be considered organic growth.
Our revenues come from the following services which are sold as a bundle or
individually, with revenue recognized at the time of delivery of background
screening reports.

• Identity Verification-Leveraging innovative technologies in


          fingerprinting, facial recognition and ID validation to verify that
          candidates are who they say they are.


• Background Checks-County, state and federal criminal checks fulfilled

through proprietary automation technology enabling global criminal

screening capabilities in over 240 countries and territories. Other

services include credit checks, civil checks, motor vehicle registration


          confirmation and social media checks.


• Credential Verification-Thorough employment and education verification

services and licensing certification backed by a powerful fulfillment


          engine.



     •    Drug and Health Screening-Comprehensive, accurate and fast drug and
          health screening services through a network of over 15,000 U.S.
          Department of Transportation-compliant collection sites.



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• Onboarding-Custom forms including

I-9
          and eVerify employment eligibility, tax withholding forms and Equal
          Employment Opportunity disclosure forms, with
          built-in
          compliance and dynamic validation.


• Post-hire Monitoring-Continuous screening allowing for greater mobility

and safety for remote, onsite and contingent jobs and also ensuring

prompt risk warnings on any changes to an employee's profile.




Operating Expenses
Our cost structure is flexible and provides us with operational leverage to be
able to effectively adapt to changing client needs and broader economic events.
Additionally, in 2020, we implemented strategic structural changes in our
business to improve operating leverage and accelerate modernizing our
technological infrastructure including leveraging robotics process automation.
We moved to a virtual-first strategy and closed or reduced the size of eight
offices globally and began reducing our data center footprint as we executed
moving our revenue to the cloud and streamlined our sales and operations
organization for greater operational efficiency. In any given period, operating
expenses are driven by the amount of revenue, mix of clients and products, and
impact of automation, productivity and procurement initiatives. While we expect
operating expenses to increase in absolute dollars to support our continued
growth, we believe that operating expenses will decline gradually as a
percentage of total revenues in the future as our business grows and our
operating scale continues to improve.
Operating expenses include the following costs:
Cost of Revenues
Cost of revenues includes costs related to delivery of services and includes
third-party vendor costs associated with acquisition of data and to a lesser
extent, costs related to our onshore and offshore fulfillment teams, associated
stock-based compensation expense and cost of facilities. Our ability to grow
profitably depends on our ability to manage our cost structure. Our costs are
affected by third-party costs including government fees and data vendor costs,
as these third parties have discretion to adjust pricing.
Third-party data costs include amounts paid to third parties for access to
government records, other third-party data and services, as well as costs
related to our court runner network. Third-party costs of services are largely
variable in nature. Where applicable, these are typically invoiced to our
clients as direct pass-through costs. Additional vendor costs are third-party
costs for robotics process automation related to fulfillment related to hosting
our fulfillment platforms in the cloud. Cost of services also includes salaries
and benefits expense for personnel involved in the processing and fulfilment of
our screening products and solutions, as well as our client care organization,
and facilities costs for our onshore and offshore fulfillment centers. We do not
allocate depreciation and amortization to cost of revenues.
Corporate Technology and Production Systems
Included in this line item are costs related to maintaining our corporate
information technology infrastructure and
non-capitalizable
costs to develop and maintain our production systems. Corporate information
technology expenses consist of personnel costs supporting internal operations
such as information technology support and the maintenance of our information
security and business continuity functions. Also included are third-party costs
including cloud computing costs that support our corporate internal systems,
software licensing and maintenance, telecommunications and other technology
infrastructure costs.
Production systems costs consist of
non-capitalizable
personnel costs including contractor costs incurred for the development of
platform and product initiatives, and production support and maintenance.
Platform and product initiatives facilitate the development of our technology
platform and the launch of new screening products. Production support and
maintenance includes costs to support and maintain the technology underlying our
existing screening products, and to enhance the ease of use for our cloud
applications. Certain personnel costs related to new products and features are
capitalized and amortization of these capitalized costs is included in the
depreciation and amortization line item.

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Included within corporate technology and production systems are
non-capitalizable
production system and corporate information technology expenses related to
Project Ignite, a three-phase strategic investment initiative. Phase one of
Project Ignite modernized client and candidate experiences and is complete.
Phase two of Project Ignite focused on decommissioning our
on-premises
data centers and migrating our production systems and corporate information
technological infrastructure to a managed service provider in the cloud. As of
June 30, 2021, we completed phase two related to the migration of our production
and fulfillment systems to the cloud, and as a result, 95% of our revenue is
processed through platforms hosted in the cloud. The remaining expense to
complete phase two is the decommissioning of our
on-premises
data centers for our internal corporate technology infrastructure and migration
to the cloud. This final component will be completed by June 30, 2022. Phase
three of Project Ignite is decommissioning of platforms purchased over the prior
ten years and the migration of the clients to one global platform. This third
and final phase, which we expect to complete in 2022, will unify our clients
onto a single global platform. The future costs related to completing these
initiatives will be included in our corporate technology and production systems
expense.
Selling, General and Administrative
Selling expenses consist of personnel costs, travel expenses and other expenses
for our client success, sales and marketing teams. Additionally, selling
expenses include the cost of marketing and promotional events, corporate
communications and other brand-building activities. General and administrative
expenses consist of personnel and related expenses for human resources, legal
and compliance, finance, global shared services and executives. Additional costs
include professional fees, stock-based compensation, insurance premiums and
other corporate expenses.
Depreciation and Amortization
Definite-lived intangible assets consist of intangibles acquired through
acquisition and the costs of developing
internal-use
software. They are amortized using a straight-line basis over their estimated
useful lives except for client lists to which we apply an accelerated method of
amortization. The costs of developing
internal-use
software are capitalized during the application development stage. Amortization
commences when the software is placed into service and is computed using the
straight-line method over the useful life of the underlying software of three
years.
Depreciation of our property and equipment is computed on the straight-line
basis over the estimated useful life of the assets, generally three to five
years or, for leasehold improvements, the shorter of seven years or the term of
the lease.
Impairment of Long-Lived Assets
Long-lived assets, such as property, equipment and capitalized internal use
software subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, such as (i) a significant adverse change in the extent or manner
in which it is being used or in its physical condition, (ii) a significant
adverse change in legal factors or in business climate that could affect its
value, or (iii) a current-period operation or cash flow loss combined with a
history of operating or cash flow losses or a projection or forecast that
demonstrates continuing losses associated with its use. An asset is considered
impaired if the carrying amount exceeds the undiscounted future net cash flows
the asset is expected to generate. An impairment charge is recognized for the
amount by which the carrying amount of the assets exceeds its fair value. The
adjusted carrying amount of the asset becomes its new cost basis. For a
depreciable long-lived asset, the new cost basis will be depreciated or
amortized over the remaining useful life of that asset. Assets held for sale are
reported at the lower of the carrying amount or fair value, less selling costs.
Interest Expense, Net
Interest expense consists of interest and the amortization discount on the First
Lien Term Loan (as defined under "Liquidity and Capital Resources-Credit
Facility.")
(Gain) Loss on Interest Rate Swaps
(Gain) loss on interest rate swaps consists of realized and unrealized gains and
losses on our interest rate swaps, which we enter into to reduce our exposure to
variability in expected future cash flows on the First Lien Term Loan, which
bears interest at a variable rate. Unrealized gains and losses result from
changes in the fair value of the swaps and realized gains and losses reflect the
amounts payable or receivable between the fixed rate on the swap and LIBOR. Our
interest rate swaps expire in June 2022 and do not qualify for hedge accounting
treatment.

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Income Tax Provision (Benefit)
Income tax provision (benefit) consists of domestic and foreign corporate income
taxes related to earnings from our sale of services, with statutory tax rates
that differ by jurisdiction. We expect the income earned by our international
entities to grow over time as a percentage of total income, which may impact our
effective income tax rate. However, our effective tax rate will be affected by
many other factors including changes in tax laws, regulations or rates, new
interpretations of existing laws or regulations, shifts in the allocation of
income earned throughout the world and changes in overall levels of income
before tax. The computation of the provision for or benefit from income taxes
for interim periods is determined by applying the estimated annual effective tax
rate to
year-to-date
loss before income taxes and adjusting for discrete tax items recorded in the
period, if any.
Results of Operations
Three Months Ended September 30, 2020 compared to the Three Months Ended
September 30, 2021
The following table sets forth certain historical consolidated financial
performance for the three months ended September 30, 2020 compared to the three
months ended September 30, 2021.

                                                     Three Months                         Increase/

                                                 Ended September 30,                     (Decrease)
                                               2020                2021               $               %
                                                   (dollars in thousands, except per share amounts)
Revenues                                    $   117,602         $  169,557        $  51,955            44.2 %
Cost of revenues (exclusive of
depreciation and amortization below)             55,112             82,638           27,526            49.9 %
Corporate technology and production
systems                                          10,842             12,084            1,241            11.5 %
Selling, general and administrative              25,391             84,983           59,592           234.7 %
Depreciation and amortization                    22,863             20,346           (2,517 )         (11.0 )%
Impairments of long-lived assets                    621                 15             (606 )         (97.6 )%
Total operating expenses                        114,829            200,066           85,237            74.2 %
Operating income (loss)                           2,773            (30,509 )        (33,282 )       (1200.2 )%
Interest expense, net                             7,817              7,668             (148 )          (1.9 )%
(Gain) loss on interest rate swaps                  (49 )              112              161          (327.5 )%
Other income                                       (336 )             (400 )            (64 )          19.0 %
Total other expense, net                          7,432              7,380              (52 )          (0.7 )%
Loss before income taxes                         (4,659 )          (37,889 )        (33,230 )         713.2 %
Income tax provision (benefit)                    5,727            (12,633 )        (18,360 )        (320.6 )%
Net loss                                    $   (10,386 )       $  (25,256 )      $ (14,870 )         143.2 %
Net loss margin                                    (8.8 )%           (14.9 )%                          (6.1 )%
Net loss per share                          $     (0.12 )       $    (0.28 )      $   (0.16 )         140.2 %



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Revenues
Revenues
increased by 44.2%, or $52.0 million, from $117.6 million for the three months
ended September 30, 2020 to $169.6 million for the three months ended
September 30, 2021. Of the growth, 43.2% was organic constant currency revenue
growth and 1.0% was due to the impact of fluctuations in foreign exchange
currency rates. Year over year revenue growth was driven primarily by
$13.5 million of new customer revenue and $38.5 million of base growth, net of
attrition. Pricing was relatively stable across the periods and not meaningful
to the change in revenues.
In our U.S. business, we saw double-digit revenue growth in all our industry
verticals, with particularly exceptional results in our healthcare and financial
and business services verticals, as we executed our growth playbook and the U.S.
economy continued its recovery from the impact of the COVID-19 pandemic. Our
international business also grew, as our international gig business continued
its growth trajectory, primarily driven by our large market share of the United
Kingdom food delivery industry, as well as robust growth in the Asia Pacific
("APAC") and Canada.
Cost of Revenues
Cost of revenues increased by 49.9%, or $27.5 million, from $55.1 million for
the three months ended September 30, 2020 to $82.6 million for the three months
ended September 30, 2021. The increase in costs was primarily due to servicing
increased volume. The remaining increase was due to stock-based compensation
expense resulting from the accelerated vesting of outstanding options upon
completion of the IPO. Cost of revenues as a percentage of revenue was 46.9% for
the three months ended September 30, 2020 and 48.7% for the three months ended
September 30, 2021.
Corporate Technology and Production Systems Expense
Corporate technology and production systems expense increased by 11.5%, or
$1.2 million, from $10.8 million for the three months ended September 30, 2020
to $12.1 million for the three months ended September 30, 2021, primarily due to
$1.5 million of stock-based compensation expense associated with the accelerated
vesting of options upon completion of the IPO.
Included in corporate technology and production systems expense are costs
related to maintaining our corporate information technology infrastructure and
non-capitalizable
costs to develop and maintain our production systems. Costs related to
maintaining our corporate information technology infrastructure increased by
$1.4 million from $4.7 million for the three months ended September 30, 2020 to
$6.1 million for the three months ended September 30, 2021, primarily driven by
stock-based compensation expense resulting from the accelerated vesting of
options upon completion of the IPO. Costs to develop platform and product
initiatives decreased by $0.2 million from $4.1 million for the three months
ended September 30, 2020 to $3.9 million for the three months ended
September 30, 2021. Costs related to maintaining our production systems remained
relatively flat at $2.0 million for the three months ended September 30, 2020 to
$2.1 million for the three months ended September 30, 2021.
These expenses also include
non-capitalizable
costs related to Project Ignite. We incurred $0.8 million related to phase one,
$1.1 million related to phase two and $1.3 million related to phase three in the
three months ended September 30, 2020, and nothing related to phase one,
$1.4 million related to phase two and $1.7 million related to phase three in the
three months ended September 30, 2021. For more information about Project
Ignite, including information related to the anticipated completion and
treatment of noncapitalizable expenses in future periods, please see
"-Components of our Results of Operations-Operating Expenses-Corporate
Technology and Production Systems."
Selling, General and Administrative
Selling, general and administrative expenses increased by 234.7%, or
$59.6 million, from $25.4 million for the three months ended September 30, 2020
to $85.0 million for the three months ended September 30, 2021. The
year-over-year increase was primarily driven by costs related to the IPO of
$30.5 million and an increase in stock-based compensation expense of
$22.6 million due to the accelerated vesting of outstanding options and the
forgiveness of promissory notes exchanged for common stock in connection with
the IPO. For the three months ended September 30, 2021, IPO related costs of
$30.5 million included $16.8 million of contractual compensation payments to
former executives (of which, $15.6 million was funded by certain stockholders),
$7.5 million associated with the final settlement of fees in connection with the
Fourth Amended and Restated Management Services Agreement, and $6.2 million of
professional fees and other related expenses. The remaining increase was
primarily due to normalized bonus related expenses driven by an increase in the
annual bonus pool accrual over the prior year's pool which was reduced due to
the impact of the
COVID-19
pandemic.

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Depreciation and Amortization
Depreciation and amortization expense decreased by 11.0%, or $2.5 million, from
$22.9 million for the three months ended September 30, 2020 to $20.3 million for
the three months ended September 30, 2021, primarily due to $2.0 million of
lower intangible asset amortization, as new intangible assets were added at a
lower rate compared to those which became fully depreciated in the interim
period. Fixed asset depreciation decreased by approximately $0.5 million,
primarily due to reduced fixed asset additions to offset fully depreciated
assets.
Impairments of Long-Lived Assets
Impairments of long-lived assets decreased by $0.6 million for the three months
ended September 30, 2020 compared to the three months ended September 30, 2021,
primarily due to the
write-off
of fixed assets in exited offices and capitalized software costs during the
three months ended September 30, 2020.
Interest Expense, Net
Interest expense decreased by 1.9%, or $0.1 million, from $7.8 million for the
three months ended September 30, 2020 to $7.7 million for the three months ended
September 30, 2021 due to the reduction in the interest rate on our First Lien
Term Loan resulting from a reduction in LIBOR as well as a lower principal
balance due to a mandatory principal prepayment during the second quarter of
2021. Amortization of the debt discount and deferred issuance costs was
$0.6 million for each of the three months ended September 30, 2020 and 2021.
(Gain) Loss on Interest Rate Swaps
(Gain) loss on interest rate swaps decreased by $0.2 million from a gain of less
than $0.1 million for the three months ended September 30, 2020 to a loss of
$0.1 million for the three months ended September 30, 2021 due to a realized
loss of $2.2 million offset by a mark to market ("MTM") gain of $2.1 million.
Income Tax Provision (Benefit)
Income tax provision (benefit) decreased by 320.6%, or $18.4 million, from a
provision of $5.7 million for the three months ended September 30, 2020 to a
benefit of $12.6 million for the three months ended September 30, 2021,
primarily due to permanent differences and the increase in the net loss for the
period resulting from the additional expenses incurred with the IPO. Loss before
income taxes increased from a loss of $4.7 million for the three months ended
September 30, 2020 to a loss of $37.9 million for the three months ended
September 30, 2021.
Net Loss, Net Loss per Share and Net Loss Margin
Net loss increased from a loss of $10.4 million, or a loss per share of $0.12,
for the three months ended September 30, 2020 to a net loss of $25.3 million, or
a loss per share of $0.28, for the three months ended September 30, 2021. Net
loss margin increased from (8.8)% for the three months ended September 30, 2020
to (14.9)% for the three months ended September 30, 2021. The increase in both
net loss and net loss margin resulted primarily from incremental expenses in
connection with our IPO, partially offset by increased revenue.

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Nine Months Ended September 30, 2020 compared to the Nine Months Ended
September 30, 2021
The following table sets forth certain historical consolidated financial
performance for the nine months ended September 30, 2020 compared to the nine
months ended September 30, 2021.

                                                     Nine Months                          Increase/

                                                 Ended September 30,                     (Decrease)
                                               2020                2021               $               %
                                                   (dollars in thousands, except per share amounts)
Revenues                                    $   325,550         $  468,255        $ 142,705            43.8 %
Cost of revenues (exclusive of
depreciation and amortization below)            153,458            225,798           72,340            47.1 %
Corporate technology and production
systems                                          32,922             32,435             (488 )          (1.5 )%
Selling, general and administrative              86,848            153,194           66,346            76.4 %
Depreciation and amortization                    68,441             61,193           (7,247 )         (10.6 )%
Impairments of long-lived assets                    680              2,940            2,260           332.4 %
Total operating expenses                        342,349            475,560          133,211            38.9 %
Operating income (loss)                         (16,799 )           (7,305 )          9,494           (56.5 )%
Interest expense, net                            25,110             22,841           (2,269 )          (9.0 )%
(Gain) loss on interest rate swaps                9,604                199           (9,405 )         (97.9 )%
Other income                                       (998 )           (1,034 )            (36 )           3.6 %
Total other expense, net                         33,716             22,006          (11,710 )         (34.7 )%
Loss before income taxes                        (50,515 )          (29,311 )         21,204           (42.0 )%
Income tax provision (benefit)                      718             (8,080 )         (8,798 )       (1225.6 )%
Net loss                                    $   (51,233 )       $  (21,231 )      $  30,002           (58.6 )%
Net loss margin                                   (15.7 )%            (4.5 )%                          11.2 %
Net loss per share                          $     (0.58 )       $    (0.24 )      $    0.34           (58.9 )%



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Revenues
Revenues
increased by 43.8%, or $142.7 million, from $325.6 million for the nine months
ended September 30, 2020 to $468.3 million for the nine months ended
September 30, 2021. Of the growth, 41.6% was organic constant currency revenue
growth and 2.2% was due to the impact of fluctuations in foreign exchange
currency rates. Year over year was driven by $43.3 million of new customer
revenue and $99.4 million of base growth, net of attrition. Our gross retention
rate for the nine months ended September 30, 2020 was 95% compared to 96% for
the nine months ended September 30, 2021. Pricing was relatively stable across
the periods and not meaningful to the change in revenues.
In our U.S. business, we saw double-digit revenue growth in all our industry
verticals, with particularly exceptional results in our healthcare and financial
and business services verticals, as we executed our growth playbook and the U.S.
economy continued its recovery from the impact of the COVID-19 pandemic. Our
international business also grew, as our international gig business continued
its growth trajectory, primarily driven by our large market share of the United
Kingdom food delivery industry, as well as robust growth in APAC and Canada.
Cost of Revenues
Cost of revenues increased by 47.1%, or $72.3 million, from $153.5 million for
the nine months ended September 30, 2020 to $225.8 million for the nine months
ended September 30, 2021. The increase in costs was primarily due to servicing
increased volume. The remaining increase was due to stock-based compensation
expense resulting from the accelerated vesting of outstanding options upon
completion of the IPO. Cost of revenues as a percentage of revenue was 47.1% for
the nine months ended September 30, 2020 and 48.2% for the nine months ended
September 30, 2021.
Corporate Technology and Production Systems Expense
Corporate technology and production systems expense decreased by 1.5%, or
$0.5 million, from $32.9 million for the nine months ended September 30, 2020 to
$32.4 million for the nine months ended September 30, 2021, primarily due to
lower headcount compared to the same period of the prior year partially offset
by higher bonus expense due to normalized bonus related expenses driven by an
increase in the annual bonus pool accrual over the prior year's pool which was
reduced due to the impact of the COVID-19 pandemic and stock-based compensation
expense associated with the accelerated vesting of options upon completion of
the IPO.
Costs related to maintaining our corporate information technology infrastructure
increased by $0.7 million from $14.9 million for the nine months ended
September 30, 2020 to $15.6 million for the nine months ended September 30,
2021. Costs to develop platform and product initiatives decreased by
$0.9 million from $12.2 million for the nine months ended September 30, 2020 to
$11.3 million for the nine months ended September 30, 2021. Costs related to
maintaining our production systems decreased by $0.3 million from $5.9 million
for the nine months ended September 30, 2020 to $5.6 million for the nine months
ended September 30, 2021.
These expenses also include
non-capitalizable
costs related to Project Ignite. We incurred $2.3 million related to phase one,
$3.0 million related to phase two and $3.6 million related to phase three in the
nine months ended September 30, 2020, and $0.9 million related to phase one,
$4.6 million related to phase two and $4.5 million related to phase three in the
nine months ended September 30, 2021.
Selling, General and Administrative
Selling, general and administrative expenses increased by 76.4%, or
$66.3 million, from $86.8 million for the nine months ended September 30, 2020
to $153.2 million for the nine months ended September 30, 2021. The
year-over-year increase was primarily driven by costs related to the IPO of
$35.9 million and an increase in stock-based compensation expense of
$23.0 million due to the accelerated vesting of outstanding options and the
forgiveness of promissory notes exchanged for common stock in connection with
the IPO. For the nine months ended September 30, 2021, IPO related expenses of
$35.9 million included $16.8 million of contractual compensation payments to
former executives (of which, $15.6 million was funded by certain stockholders),
$7.5 million associated with the final settlement of fees in connection with the
Fourth Amended and Restated Management Services Agreement, and $11.6 million of
professional fees and other related expenses. The remaining increase was
primarily due to normalized bonus related expenses driven by an increase in the
annual bonus pool accrual over the prior year's pool which was reduced due to
the impact of the
COVID-19
pandemic partially offset by savings related to reduced rent due to our
virtual-first strategy and other operating savings.

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Depreciation and Amortization
Depreciation and amortization expense decreased by 10.6%, or $7.2 million, from
$68.4 million for the nine months ended September 30, 2020 to $61.2 million for
the nine months ended September 30, 2021, primarily due to $5.2 million lower
intangible asset amortization, as new intangible assets were added at a lower
rate compared to those which became fully depreciated in the interim period.
Fixed asset depreciation decreased by approximately $2.0 million, primarily as a
result of fixed asset impairments associated with exited office locations.
Impairments of Long-Lived Assets
Impairments of long-lived assets increased by $2.3 million from $0.7 million for
the nine months ended September 30, 2020 to $2.9 million for the nine months
ended September 30, 2021, primarily due to the
write-off
of fixed assets in our exited office in Bellevue, Washington.
Interest Expense, Net
Interest expense decreased by 9.0%, or $2.3 million, from $25.1 million for the
nine months ended September 30, 2020 to $22.8 million for the nine months ended
September 30, 2021 due to the reduction in the interest rate on our First Lien
Term Loan resulting from a reduction in LIBOR as well as a lower principal
balance due to a mandatory principal payment during the second quarter of 2021.
Amortization of the loan discount was $1.8 million and $1.7 million for the nine
months ended September 30, 2020 and 2021, respectively.
Loss on Interest Rate Swaps
Loss on interest rate swaps decreased by $9.4 million from $9.6 million for the
nine months ended September 30, 2020 to $0.2 million for the nine months ended
September 30, 2021. The reduction in LIBOR during the nine months ended June 30,
2020 resulted in a MTM loss recorded in that period. As LIBOR was relatively
stable for the nine months ended September 30, 2021, the MTM loss and resulting
expense was significantly lower than the prior year period.
Income Tax Provision (Benefit)
Income tax provision decreased from an expense of $0.7 million for the nine
months ended September 30, 2020 to a benefit of $8.1 million for the nine months
ended September 30, 2021. Loss before income taxes decreased from a loss of
$50.5 million for the nine months ended September 30, 2020 to a loss of
$29.3 million for the nine months ended September 30, 2021, driven primarily by
increased revenue partially offset by expenses related to the IPO, including
additional stock-based compensation expense. The increase in income tax benefit
notwithstanding the decrease in Loss before income taxes is due to the
jurisdictional mix of earnings with losses in the U.S. and income in the foreign
jurisdictions.
Net Loss, Net Loss per Share and Net Loss Margin
Net loss decreased from a loss of $51.2 million, or a loss per share of $0.58,
for the nine months ended September 30, 2020 to a loss of $21.2 million, or a
loss per share of $0.24, for the nine months ended September 30, 2021. Net loss
margin improved from (15.7)% for the nine months ended September 30, 2020 to
(4.5)% for the nine months ended September 30, 2021. The decrease in both net
loss and net loss margin resulted from improved operating leverage, as revenues
increased by 43.8% while operating expenses grew by only 38.9% for the nine
months ended September 30, 2020 compared to the nine months ended September 30,
2021, notwithstanding IPO related expenses in 2021.
Non-GAAP
Financial Measures
This report contains
"non-GAAP
financial measures," which are financial measures that are not calculated and
presented in accordance with US GAAP.
Specifically, we make use of the
non-GAAP
financial measures "organic constant currency revenue growth", "Adjusted
EBITDA," "Adjusted EBITDA Margin," "Adjusted Net Income," "Adjusted Earnings Per
Share" and "Adjusted Free Cash Flow" to assess the performance of our business.

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Organic constant currency revenue growth is calculated by adjusting for any
merger and acquisition ("M&A") activity that contributed revenue in the current
period, which was not present in the prior period, and converting the current
period revenue at foreign currency exchange rates consistent with the prior
period. There was no impact of M&A activity on our revenue in the three and nine
months ended September 30, 2021 or in the three and nine months ended September
30, 2020. We present organic constant currency revenue growth because we believe
it assists investors and analysts in comparing our operating performance across
reporting periods on a consistent basis by excluding items that we do not
believe are indicative of our core operating performance; however, it has
limitations as an analytical tool, and you should not consider such a measure
either in isolation or as a substitute for analyzing our results as reported
under US GAAP. In particular, organic constant currency revenue growth does not
reflect M&A activity or the impact of foreign currency exchange rate
fluctuations.
Adjusted EBITDA is defined as net loss adjusted for provision for income taxes,
interest expense, depreciation and amortization, stock-based compensation, costs
related to M&A activity, optimization and restructuring, technology
transformation costs, foreign currency (gains) and losses and other costs
affecting comparability. Adjusted EBITDA Margin is defined as Adjusted EBITDA
divided by revenue for the applicable period. We present Adjusted EBITDA and
Adjusted EBITDA Margin because we believe they assist investors and analysts in
comparing our operating performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of our core
operating performance. Management and our board of directors use Adjusted EBITDA
to evaluate the factors and trends affecting our business to assess our
financial performance and in preparing and approving our annual budget and
believe it is helpful in highlighting trends in our core operating performance.
Further, our executive incentive compensation is based in part on components of
Adjusted EBITDA. Adjusted EBITDA and Adjusted EBITDA Margin have limitations as
analytical tools and should not be considered in isolation or as substitutes for
our results as reported under US GAAP. Adjusted EBITDA excludes items that can
have a significant effect on our profit or loss and should, therefore, be
considered only in conjunction with net income (loss) for the period. Our
management uses Adjusted EBITDA to supplement US GAAP results to evaluate the
factors and trends affecting the business to assess our financial performance
and in preparing and approving our annual budget and believe it is helpful in
highlighting trends in our core operating performance. Because not all companies
use identical calculations, these measures may not be comparable to other
similarly titled measures of other companies.
Adjusted Net Income is a
non-GAAP
profitability measure. Adjusted Net Income is defined as net income adjusted for
amortization of acquired intangible assets, stock-based compensation, costs
related to M&A, optimization and restructuring, technology transformation costs,
and certain other costs affecting comparability, adjusted for the applicable tax
rate. Adjusted Earnings Per Share is defined as Adjusted Net Income divided by
diluted weighted average shares for the applicable period. We present Adjusted
Net Income and Adjusted Earnings Per Share because we believe they assist
investors and analysts in comparing our operating performance across reporting
periods on a consistent basis by excluding certain material
non-cash
items and unusual items that we do not expect to continue at the same level in
the future. Our management believes that the inclusion of supplementary
adjustments to net income (loss) applied in presenting Adjusted Net Income
provide additional information to investors about certain material
non-cash
items and about items that we do not expect to continue at the same level in the
future. Adjusted Net Income and Adjusted Earnings Per Share have limitations as
analytical tools, and you should not consider such measures either in isolation
or as substitutes for analyzing our results as reported under US GAAP.
Adjusted Free Cash Flow is defined as Net Cash provided by (used in) Operating
Activities minus purchases of property and equipment and purchases of intangible
assets and capitalized software. For the nine months ended September 30, 2021,
we have adjusted Adjusted Free Cash Flow for one-time, non-operating cash
charges related to the IPO. We present Adjusted Free Cash Flow because we
believe it assists investors and analysts in comparing our operating performance
across reporting periods on a consistent basis by excluding certain material
non-recurring, non-operating cash items that we do not expect to continue at the
same level in the future. Adjusted Free Cash Flow has limitations as an
analytical tool, and you should not consider such measure either in isolation or
as a substitute for analyzing our results as reported under US GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA increased by 68.7%, or $20.9 million, from $30.4 million for the
three months ended September 30, 2020 to $51.3 million for the three months
ended September 30, 2021. Adjusted EBITDA Margin increased by 440 basis points
year-over-year from 25.9% for the three months ended September 30, 2020 to 30.3%
for the three months ended September 30, 2021. This improvement was due to
increased revenue and improved operating leverage.
Adjusted EBITDA increased by 87.9%, or $63.2 million, from $71.9 million for the
nine months ended September 30, 2020 to $135.1 million for the nine months ended
September 30, 2021. Adjusted EBITDA Margin increased by 680 basis points from
22.1% for the nine months ended September 30, 2020 to 28.9% in the corresponding
period in 2021. This improvement was due to increased revenue and improved
operating leverage.

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The following table reconciles revenue growth, the most directly comparable GAAP
measure, to organic constant currency revenue growth for the three and nine
months ended September 30, 2020 and 2021.

                                              Three Months Ended               Nine Months Ended
                                                September 30,                    September 30,
                                                     2021                            2021
Reported revenue growth                                      44.2 %                          43.8 %
Impact from M&A activity(1)                                   0.0 %                           0.0 %
Impact from foreign currency
exchange(2)                                                   1.0 %                           2.2 %

Organic constant currency revenue
growth                                                       43.2 %                          41.6 %



(1) Impact to revenue growth in the current period from acquisitions and

dispositions that have occurred over the past twelve months.

(2) Impact to revenue growth in the current period from fluctuations in foreign

currency exchange rates.




The following table reconciles net income (loss), the most directly comparable
GAAP measure, to Adjusted EBITDA for the three and nine months ended
September 30, 2020 and 2021.

                                                Three Months Ended               Nine Months Ended
                                                   September 30,                   September 30,
                                               2020            2021            2020            2021
                                                              (dollars in thousands)
Net loss                                     $ (10,386 )     $ (25,256 )     $ (51,233 )     $ (21,231 )
Income tax provision (benefit)                   5,727         (12,633 )           718          (8,080 )
Interest expense, net                            7,817           7,668          25,110          22,841
Depreciation and amortization                   22,863          20,346          68,441          61,193
Stock-based compensation                           570          25,582           1,756          27,236
Transaction expenses(1)                            539          31,513           1,624          38,771
Restructuring(2)                                 1,060             634           7,070           4,243
Technology Transformation(3)                     2,581           3,137           8,048           9,138
Settlements impacting comparability(4)             120              -              260              -
(Gain) loss on interest rate swaps(5)              (49 )           112           9,604             199
Other(6)                                          (439 )           196             535             826
Adjusted EBITDA                              $  30,403       $  51,300       $  71,933       $ 135,136
Adjusted EBITDA Margin                            25.9 %          30.3 %          22.1 %          28.9 %


(1) Consists of transaction expenses related to mergers and acquisitions,

associated earn-outs, investor management fees in connection with the Fourth

Amended and Restated Management Services Agreement and costs related to

preparation of the IPO. For the three months ended September 30, 2020, the

costs consisted primarily of $0.5 million of investor management fees. For

the three months ended September 30, 2021, costs consisted primarily of IPO

related expenses of $30.5 million, including $16.8 million of contractual

compensation payments to former executives (of which, $15.6 million was

funded by certain stockholders), $7.5 million in final settlement of investor

management fees, and $6.2 million of professional fees and other related

expenses. The period also included $0.6 million of

earn-out

and performance-based incentive payments associated with an acquisition in

2018 and $0.3 million of investor management fees in connection with the

Fourth Amended and Restated Management Services Agreement, associated with

the terms prior to the final settlement. For the nine months ended

September 30, 2020, the costs consisted primarily of $1.5 million of investor

management fees. For the nine months ended September 30, 2021, the costs

consisted primarily of IPO related expenses of $35.9 million, including

$16.8 million of contractual compensation payments to former executives (of

which, $15.6 million was funded by certain stockholders), $7.5 million of

investor management fees, including the final settlement of fees in

connection with the Fourth Amended and Restated Management Services

Agreement, and $11.6 million of professional fees and related expenses. The

period also included $1.4 million of

earn-out

and performance-based incentive payments associated with an acquisition in

2018 and $1.4 million of investor management fees in connection with the

Fourth Amended and Restated Management Services Agreement, associated with

the terms prior to the final settlement.

(2) Consists of restructuring-related costs, including executive recruiting and

severance charges, and lease termination costs and disposal of fixed assets

related to our real estate consolidation efforts. During 2019 and 2020, we

executed an extensive restructuring program, significantly strengthening our

management team and creating a client-facing industry-specific Vertical

organization. This program was completed by the end of 2020 and the final

costs related to this program were incurred through the first quarter of

2021. Beginning in 2020, we began executing a virtual-first strategy, closing

offices and reducing office space globally. We expect this real estate

consolidation effort to be completed by the end of 2021. For the three months

ended September 30, 2020, the costs primarily comprised of $0.5 million of

restructuring-related executive recruiting and severance charges, and

$0.6 million related to our real estate consolidation program. For the three

months ended September 30, 2021, the costs comprised $0.6 million related to

our real estate consolidation program. For the nine months ended

September 30, 2020, these costs include approximately $5.8 million of

restructuring-related executive recruiting and severance charges, including

the elimination of the vice-chairman position, and approximately $1.3 million

of expenses related to our real estate consolidation program. For the nine

months ended September 30, 2021, the costs primarily comprised $3.7 million

related to the real estate consolidation program, due largely to the

write-off

on disposal of fixed assets for our exited facility in Bellevue, Washington.





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Table of Contents (3) Includes costs related to technology modernization efforts. We believe that


    these costs are discrete and
    non-recurring
    in nature, as they relate to a
    one-time
    restructuring and decommissioning of our
    on-premise

production systems and corporate technological infrastructure and the move to

a managed service provider, decommissioning redundant fulfillment systems and

modernizing internal functional systems. As such, they are not normal,

recurring operating expenses and are not reflective of ongoing trends in the

cost of doing business. The significant majority of these are related to the

last two phases of Project Ignite, with the remainder related to an

investment made to modernize internal functional systems in preparation for

our public company infrastructure. For the three months ended September 30,

2020, investment related to Project Ignite was $2.4 million, and additional

investment made to modernize internal functional systems was $0.2 million.

For the three months ended September 30, 2021, investment related to Project

Ignite was $3.1 million. For the nine months ended September 30, 2020,

investment related to Project Ignite was $6.6 million, and additional

investment made to modernize internal functional systems was $1.4 million.

For the nine months ended September 30, 2021, investment related to Project

Ignite was $9.1 million.

(4) Consists of

non-recurring

settlements impacting comparability. For the three months ended September 30,

2020, the cost of $0.1 million was primarily related to the 2019 settlement

with the Consumer Financial Protection Bureau ("CFPB"). For the nine months

ended September 30, 2020, the cost of $0.3 million primarily related to the

2019 settlement with the CFPB.

(5) Consists of (gain) loss on interest rate swaps. See "-Part I. Item 3.

Quantitative and Qualitative Disclosures about Market Risk-Interest Rate

Risk" for additional information on interest rate swaps.

(6) Consists of costs related to a local government mandate in India, (gain) loss

on foreign currency transactions, impairment of capitalized software and

other costs outside of the ordinary course of business.




The following table summarizes these costs for the three and nine months ended
September 30, 2020 and 2021.

                                                      Three Months Ended           Nine Months Ended
                                                         September 30,               September 30,
                                                      2020            2021         2020          2021
                                                                      (in thousands)
Other
Government mandate                                  $      -         $   -       $   1,291      $    -
(Gain) Loss on foreign currency transactions             (439 )         196           (120 )      1,316
Impairment of capitalized software                         -             -              73           30
Duplicate fulfillment charges                              -             -            (709 )       (521 )

Total                                               $    (439 )      $  196      $     535      $   825



The following table presents the calculation of Net Loss Margin and Adjusted
EBITDA Margin for the three and nine months ended September 30, 2020 and 2021.

                            Three Months Ended               Nine Months Ended
                               September 30,                   September 30,
                           2020            2021            2020            2021
                                          (dollars in thousands)
Net loss                 $ (10,386 )     $ (25,256 )     $ (51,233 )     $ (21,231 )
Adjusted EBITDA             30,403          51,300          71,933         135,136
Revenues                   117,602         169,557         325,550         468,255
Net loss margin               (8.8 )%        (14.9 )%        (15.7 )%         (4.5 )%
Adjusted EBITDA margin        25.9 %          30.3 %          22.1 %          28.9 %


Adjusted Net Income and Adjusted Earnings Per Share
Adjusted Net Income increased by 187%, or $20.6 million, from $11.0 million for
the three months ended September 30, 2020 to $31.6 million for the three months
ended September 30, 2021. The increase was primarily driven by an increase in
revenues and improved operating leverage.

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Adjusted Net Income increased by 298%, or $52.1 million, from $17.5 million for
the nine months ended September 30, 2020 to $69.6 million for the nine months
ended September 30, 2021. The increase was primarily driven by an increase in
revenues and improved operating leverage.
Adjusted Earnings Per Share-basic increased by 184%, or $0.23 per share from
$0.12 per share for the three months ended September 30, 2020 to $0.35 per share
for the three months ended September 30, 2021. Adjusted Earnings Per
Share-diluted increased by 168%, or $0.21 per share from $0.12 per share for the
three months ended September 30, 2020 to $0.33 per share for the three months
ended September 30, 2021. The increase in Earnings Per Share-basic and Earnings
Per Share-diluted was primarily due to the increase in Adjusted Net Income.
Adjusted Earnings Per Share-basic increased by 295%, or $0.58 per share, from
$0.20 per share for the nine months ended September 30, 2020 to $0.78 per share
for the nine months ended September 30, 2021, and Adjusted Earnings Per
Share-diluted increased by 270%, or $0.54 per share, from $0.20 per share for
the nine months ended September 30, 2020 to $0.74 per share for the nine months
ended September 30, 2021, primarily due to the increase in adjusted net income.
The following tables reconcile operating income (loss), or net income (loss),
the most directly comparable GAAP measures, to Adjusted Net Income and Adjusted
Earnings Per Share for the three and nine months ended September 30, 2020 and
2021.

                                                   Three Months Ended               Nine Months Ended
                                                      September 30,                   September 30,
                                                  2020            2021            2020            2021
                                                        (in thousands, except per share amounts)
Net (loss) income                               $ (10,386 )     $ (25,256 )     $ (51,233 )     $ (21,231 )
Income tax (benefit) expense                        5,727         (12,633 )           718          (8,080 )
(Loss) income before income taxes                  (4,659 )       (37,889 )       (50,515 )       (29,311 )
Amortization of acquired intangible assets         15,119          12,962          45,289          39,232
Stock-based compensation                              570          25,582           1,756          27,236
Transaction expenses(1)                               539          31,513           1,624          38,771
Restructuring(2)                                    1,060             634           7,070           4,194
Technology Transformation(3)                        2,581           3,137           8,048           9,138
Settlements impacting comparability(4)                120              -              260              -
(Gain) loss on interest rate swaps(5)                 (49 )           112           9,604             199
Other(6)                                             (439 )           196             535             826

Adjusted Net Income before income tax effect 14,842 36,248


       23,671          90,333
Income tax effect(7)                                3,859           4,672           6,154          20,686
Adjusted Net Income                                10,983          31,575          17,517          69,646
Net Loss per share-diluted                          (0.12 )         (0.28 )         (0.58 )         (0.24 )
Adjusted Earnings Per Share-basic                    0.12            0.35            0.20            0.78
Adjusted Earnings Per Share-diluted                  0.12            0.33            0.20            0.74



(1) Consists of transaction expenses related to mergers and acquisitions,

associated earn-outs, investor management fees, and costs related to

preparation of the IPO.

(2) Consists of restructuring-related costs, including executive recruiting and

severance charges, and lease termination costs and disposal of fixed assets

related to our real estate consolidation efforts. During 2019 and 2020, we

executed an extensive restructuring program, significantly strengthening our

management team and creating a client-facing industry-specific Vertical

organization. This program was completed by the end of 2020 and the final

costs related to this program were incurred through the first quarter of

2021. Beginning in 2020, we began executing a virtual-first strategy, closing

offices and reducing office space globally. We expect this real estate

consolidation effort to be completed by the end of 2021.

(3) Includes costs related to technology modernization efforts. We believe that


    these costs are discrete and
    non-recurring
    in nature, as they relate to a
    one-time
    restructuring and decommissioning of our
    on-premise

production systems and corporate technological infrastructure and the move to

a managed service provider, decommissioning redundant fulfillment systems and

modernizing internal functional systems. As such, they are not normal,

recurring operating expenses and are not reflective of ongoing trends in the

cost of doing business. The significant majority of these are related to the

last two phases of Project Ignite, with the remainder related to an

investment made to modernize internal functional systems in preparation for


    our public company infrastructure.



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(4) Consists of

non-recurring

settlements impacting comparability.

(5) Consists of (gain) loss on interest rate swaps. See "-Quantitative and

Qualitative Disclosures about Market Risk-Interest Rate Risk" for additional

information on interest rate swaps.

(6) Consists of costs related to a local government mandate in India, (gain) loss

on foreign currency transactions, impairment of capitalized software and

other costs outside of the ordinary course of business.




The following table summarizes these costs for the three and nine months ended
September 30, 2021.

                                                      Three Months Ended           Nine Months Ended
                                                         September 30,               September 30,
                                                      2020            2021         2020          2021
                                                                      (in thousands)
Other
Government mandate                                  $      -         $   -       $   1,291      $    -
(Gain) Loss on foreign currency transactions             (439 )         196           (120 )      1,316
Impairment of capitalized software                         -             -              73           30
Duplicate fulfillment charges                              -             -            (709 )       (521 )

Total                                               $    (439 )      $  196      $     535      $   825

(7) Effective tax rates of 26%, 13%, and 23% have been used to compute Adjusted

Net Income for the 2020 periods, the three months ended September 30, 2021

and the nine months ended September 30, 2021, respectively. As of

December 31, 2020, we had net operating loss carryforwards of approximately

$120.6 million for federal, state, and foreign income tax purposes available

to reduce future income subject to income taxes. The amount of actual cash

taxes we pay for federal, state, and foreign income taxes differs

significantly from the effective income tax rate computed in accordance with

GAAP, and from the normalized rate shown above.




The following table reconciles net loss per share, the most directly comparable
GAAP measure, to Adjusted Earnings Per Share for the three months ended
September 30, 2020 and 2021 and for the nine months ended September 30, 2020 and
2021.

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                                           Three Months Ended                       Nine Months Ended
                                              September 30,                           September 30,
                                        2020                2021                 2020                2021
                                               (in thousands, except share and per share amounts)
Net income (loss)                   $    (10,386 )      $     (25,256 )      $    (51,233 )      $    (21,231 )
Less: Undistributed amounts
allocated to participating
securities                                    -                    -                   -                   -

Undistributed (losses) earnings
allocated to stockholders           $    (10,386 )      $     (25,256 )

$ (51,233 ) $ (21,231 )



Weighted average number of
shares outstanding - basic            88,332,134           89,431,022          88,325,838          88,956,388
Weighted average number of
shares outstanding - diluted          88,332,134           89,431,022          88,325,838          88,956,388
Net income (loss) per share -
basic                               $      (0.12 )      $       (0.28 )      $      (0.58 )      $      (0.24 )
Net income (loss) per share -
diluted                                    (0.12 )              (0.28 )             (0.58 )             (0.24 )
Adjusted Net Income                 $     10,983        $      31,575        $     17,517        $     69,646
Less: Undistributed amounts
allocated to participating
securities                                    -                    -                   -                   -

Undistributed (losses) earnings
allocated to stockholders           $     10,983        $      31,575        $     17,517        $     69,646
Weighted average number of
shares outstanding - basic            88,332,134           89,431,022          88,325,838          88,956,388
Weighted average number of
shares outstanding - diluted          88,410,918          95,008, 310          88,377,154          93,532,785
Adjusted earnings per share -
basic                               $       0.12        $        0.35        $       0.20        $       0.78
Adjusted earnings per share -
diluted                                     0.12                 0.33                0.20                0.74


The following table presents the calculation of Adjusted Diluted Earnings Per Share for the periods presented.



                                             Three Months Ended                      Nine Months Ended
                                               September 30,                           September 30,
                                          2020                2021                2020                2021
Net income (loss) per share -
diluted                               $      (0.12 )      $      (0.28 )      $      (0.58 )      $      (0.24 )
Adjusted Net Income adjustments
per share
Income tax (benefit) expense                  0.06               (0.12 )              0.01               (0.08 )
Amortization of acquired
intangible assets                             0.17                0.14                0.51                0.42
Stock-based compensation                      0.01                0.27                0.02                0.29
Transaction expenses(1)                       0.01                0.33                0.02                0.41
Restructuring(2)                              0.01                0.01                0.08                0.05
Technology Transformation(3)                  0.03                0.03                0.09                0.10
Settlements impacting
comparability(4)                                -                   -                   -                   -
Loss/Gain on interest Swap(5)                   -                   -                 0.11                  -
Other(6)                                        -                   -                 0.01                0.01
Income tax effect(7)                         (0.04 )             (0.05 )             (0.07 )             (0.22 )

Adjusted earnings per share -
diluted                               $       0.12        $       0.33

$ 0.20 $ 0.74



Weighted average number of shares
outstanding used in computation
of Adjusted Diluted Earnings Per
Share:
Weighted average number of shares
outstanding - diluted (GAAP)            88,332,134          89,431,022          88,325,838          88,956,388
Options not included in weighted
average number of shares
outstanding - diluted (GAAP)
(using treasury stock method)               78,784           5,577,288              51,316           4,576,397

Weighted average number of shares
outstanding - diluted (non-GAAP)
(using treasury stock method)           88,410,918          95,008,310          88,377,154          93,532,785



(1) Consists of transaction expenses related to mergers and acquisitions,

associated earn-outs, investor management fees, and costs related to

preparation of the IPO.

(2) Consists of restructuring-related costs, including executive recruiting and

severance charges, and lease termination costs and disposal of fixed assets

related to our real estate consolidation efforts. During 2019 and 2020, we

executed an extensive restructuring program, significantly strengthening our

management team and creating a client-facing industry-specific Vertical

organization. This program was completed by the end of 2020 and the final

costs related to this program were incurred through the first quarter of

2021. Beginning in 2020, we began executing a virtual-first strategy, closing

offices and reducing office space globally. We expect this real estate

consolidation effort to be completed by the end of 2021.

(3) Includes costs related to technology modernization efforts. We believe that

these costs are discrete and non-recurring in nature, as they relate to a

one-time restructuring and decommissioning of our on-premise production

systems and corporate technological infrastructure and the move to a managed

service provider, decommissioning redundant fulfillment systems and

modernizing internal functional systems. As such, they are not normal,

recurring operating expenses and are not reflective of ongoing trends in the

cost of doing business. The significant majority of these are related to the

last two phases of Project Ignite, with the remainder related to an

investment made to modernize internal functional systems in preparation for

our public company infrastructure.

(4) Consists of non-recurring settlements impacting comparability.

(5) Consists of (gain) loss on interest rate swaps. See "-Quantitative and

Qualitative Disclosures about Market Risk-Interest Rate Risk" for additional

information on interest rate swaps.

(6) Consists of costs related to a local government mandate in India, (gain) loss

on foreign currency transactions, impairment of capitalized software and

other costs outside of the ordinary course of business.




The following table summarizes these costs for the three and nine months ended
September 30, 2021.
                                                      Three Months Ended           Nine Months Ended
                                                         September 30,               September 30,
                                                      2020            2021         2020          2021
                                                                      (in thousands)
Other
Government mandate                                  $       -        $    -      $   1,291      $     -
(Gain) Loss on foreign currency transactions             (439 )         196           (120 )      1,316
Impairment of capitalized software                          -             -             73           30
Duplicate fulfillment charges                               -             -           (709 )       (521 )

Total                                               $    (439 )      $  196      $     535      $   825

(7) Effective tax rates of 26%, 13%, and 23% have been used to compute Adjusted

Net Income for the 2020 periods, the three months ended September 30, 2021

and the nine months ended September 30, 2021, respectively. As of December

31, 2020, we had net operating loss carryforwards of approximately $120.6

million for federal, state, and foreign income tax purposes available to

reduce future income subject to income taxes. The amount of actual cash taxes

we pay for federal, state, and foreign income taxes differs significantly

from the effective income tax rate computed in accordance with GAAP, and from

the normalized rate shown above.




Liquidity and Capital Resources
Overview
Liquidity describes the ability of a company to generate sufficient cash flows
to meet the cash requirements of its business operations, including working
capital needs to meet operating expenses, debt service, acquisitions, capital
expenditures, other commitments and contractual obligations. We consider
liquidity in terms of cash flows from operations and their sufficiency to fund
our operating and investing activities.

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Our primary cash needs are for
day-to-day
operations, working capital requirements, capital expenditures for ongoing
development of our technological offering and other mandatory payments such as
taxes, and debt principal and interest obligations. Our liquidity needs are met
primarily through cash flows from operations, which include cash received from
customers less cash costs related to our operations.
Our capital expenditures can vary depending on the timing of the development of
new products and services and technological enhancement-related investments.
Capital expenditures for the nine months ended September 30, 2020 and 2021 were
approximately $13.1 million and $14.6 million, respectively, primarily related
to capitalizable software development.
We believe that our projected cash position and cash flows from operations will
be sufficient to fund our liquidity requirements for at least the next twelve
months. However, our future liquidity requirements could be higher than we
currently expect as a result of various factors. For example, any future
investments, acquisitions, joint ventures or other similar transactions may
require additional capital. In addition, our ability to continue to meet our
future liquidity requirements will depend on, among other things, our ability to
achieve anticipated levels of revenues and cash flows from operations and our
ability to manage costs and working capital successfully, all of which are
subject to general economic, financial, competitive and other factors beyond our
control. In the event we require any additional capital, it will take the form
of equity or debt financing, or both, and there can be no assurance that we will
be able to raise any such financing on terms acceptable to us or at all.
As of September 30, 2021, we had cash and cash equivalents of approximately
$192.4 million. On November 1, 2021, the Company utilized the net proceeds from
the IPO and cash on hand to repay $100.0 million of outstanding borrowings under
the First Lien Term Loan. As of December 31, 2020, we had cash and cash
equivalents of $66.6 million. This amount includes $6.7 million accrued at
year-end
2020 for our 2020 excess cash flow payment paid to lenders under the Credit
Agreement (as defined below) in April 2021. All cash and cash equivalents are
held with independent financial institutions with a minimum credit rating of A
as defined by the three main credit rating agencies. As of September 30, 2021,
all cash and cash equivalents were held in accounts with banks such that the
funds are immediately available or in fixed term deposits with a maximum
maturity of three months.
Credit Facility
In June 2015, our subsidiary Sterling Midco Holdings, Inc. (predecessor to
Sterling Infosystems, Inc.) entered into a first lien credit agreement as
borrower (as most recently amended by the Sixth Amendment thereto dated
August 11, 2021, the "Credit Agreement") with KeyBank National Association, as
administrative agent (the "Administrative Agent"), certain guarantors party
thereto and various lenders, including Goldman Sachs Lending Partners LLC, as
lenders. The Credit Agreement provides for aggregate principal borrowings of
$795.0 million (subject to the increase described below), comprising a
$655.0 million original principal amount of term loan (the "First Lien Term
Loan") which matures in June 2024 and a $140.0 million revolving credit facility
(the "Revolver"), which matures the earlier of (a) August 11, 2026 or(b)
December 31, 2023 unless, on or prior to December 31, 2023, the First Lien Term
Loan has been (i) refinanced with the proceeds of indebtedness with a final
maturity date that is no earlier than February 11, 2027 or (ii) amended,
modified or waived, such that the final maturity date of the First Lien Term
Loan is no earlier than February 11, 2027.
Amounts outstanding under the First Lien Term Loan bear interest under either of
the following two rates, elected in advance quarterly by the borrower for
periods of either one month, two months, three months or six months: (1) an
applicable rate of 2.5% plus a base rate (equal to the greater of (a) the prime
rate (b) the federal funds rate plus
1
/
2
of 1% or
(c) the one-month LIBOR
plus 1%, subject to a 2% floor); or (2) an applicable rate of 3.5%
plus one-month LIBOR
which is subject to a 1% floor. Interest on LIBOR borrowings is payable on the
last business day of the interest period selected except in the case of
a six-month election,
in which case it is payable on the last day of the third and sixth month. The
interest rate in effect for the First Lien Term Loan as of September 30, 2021
was 4.5%. The First Lien Term Loan requires $1.6 million repayment of principal
on the last business day of each March, June, September and December. Under the
Credit Agreement, we must also make a mandatory prepayment of principal in the
amount of 50% of the excess cash, as defined in the Credit Agreement, generated
in any given year, if our Net Leverage Ratio (as defined in the Credit
Agreement) is greater than or equal to 2.95:1.00. In 2020, the mandatory
prepayment was $6.7 million and was paid in April 2021. On November 1, 2021, the
Company utilized the net proceeds from the IPO and cash on hand to repay $100.0
million of outstanding borrowings under the First Lien Term Loan. All remaining
outstanding principal is due at maturity in June 2024. We have been in
compliance with all covenants under the Credit Agreement since origination.

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Pursuant to the Sixth Amendment to the Credit Agreement, the $85.0 million
Revolver automatically increased an additional $55.0 million to $140.0 million
upon the consummation of the IPO on September 23, 2021.
Amounts outstanding under the Revolver bear interest at a tiered floating
interest rate based on the net leverage ratio of the borrower. The rate may be
chosen periodically in advance of each interest period at the election of the
borrower, as follows: (1) an applicable rate of 2.5% plus the greater of (a) the
prime rate (b) the federal funds rate plus
1
/
2
of 1% (c) the
one-month
LIBOR plus 1% or (d) a 2% floor or (2) an applicable rate of 3.5% plus
one-month
LIBOR. In addition, there is a quarterly fee of 0.50% or 0.375% on the unused
portion of the commitments based on the first lien net leverage ratio. Unused
and therefore available borrowings under the Revolver, net of letters of credit,
were $84.0 million and $139.3 million as of December 31, 2020 and September 30,
2021, respectively. The Revolver matures on the earlier of August 11, 2026 or
December 31, 2023 unless, on or prior to December 31, 2023, the First Lien Term
Loan has been refinanced with a final maturity date that is no earlier than
February 11, 2027 or amended, modified or waived, such that the final maturity
date of the First Lien Term Loan is no earlier than February 11, 2027. We can
use available funding capacity under the Revolver to satisfy letters of credit
related to leased office space and other obligations, subject to a sublimit
equal to the lesser of $20.0 million or aggregate amounts available for
borrowing under the Revolver. The issuance of letters of credit reduce the
available capacity under the Revolver. We had outstanding letters of credit
totaling $1.0 million as of December 31, 2020 and $0.7 million as of
September 30, 2021 and additional availability for letters of credit of
$19.0 million and $19.3 million, respectively.
The Credit Agreement contains covenants that, among other things restrict our
ability to: incur certain additional indebtedness; transfer money between our
various subsidiaries; pay dividends on, repurchase or make distributions with
respect to our subsidiaries' capital stock or make other restricted payments;
issue stock of subsidiaries; make certain investments, loans or advances;
transfer and sell certain assets; create or permit liens on assets; consolidate,
merge, sell or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates; and amend certain
documents. The Credit Agreement also contains financial covenants that require
us to maintain a total specified leverage ratio of less than 6.75:1.00 for so
long as we have borrowed at least 35% or more of the total availability under
the Revolver. Compliance with the financial covenants may be waived by lenders
holding a majority of the Revolver. We were in compliance with all financial
covenants under the Credit Agreement as of September 30, 2021.
Obligations under the Credit Agreement are collateralized by a first lien on
substantially all the assets and outstanding capital stock of the Company
subject to exceptions. The Credit Agreement also contains various events of
default, including, without limitation, the failure to pay interest or principal
when the same is due, cross default and cross acceleration provisions, the
failure of representations and warranties contained in the agreements to be true
and certain insolvency events. If an event of default occurs and is continuing,
the principal amounts outstanding under the Credit Agreement, together with all
accrued and unpaid interest and other amounts owed thereunder, may be declared
immediately due and payable by the lenders.
Cash Flows
The following table presents a summary of our consolidated cash flows from
operating, investing and financing activities for the nine months ended
September 30, 2020 compared to the nine months ended September 30, 2021.

                                                          Nine Months Ended
                                                            September 30,
                                                         2020           2021
                                                            (in thousands)
Net cash provided by operating activities              $  25,853      $  

38,926


Net cash used in investing activities                    (12,849 )      (14,599 )
Net cash (used in) provided by financing activities       (3,651 )      102,300
Increase in cash and cash equivalents                      9,353        

126,627


Effect of exchange rate changes on cash                   (2,194 )         

(863 ) Cash and cash equivalents at beginning of the period 50,299 66,633

Cash and cash equivalents at end of the period $ 57,458 $ 192,397






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Operating Activities
Net cash provided by operating activities for the nine months ended
September 30, 2020 and 2021 was $25.9 million and $38.9 million, respectively.
The increase year-over-year was driven primarily by the reduction in net loss
resulting from increased revenue.
Net cash provided by operating activities for the nine months ended
September 30, 2020 reflects the adjustment to net loss for
non-cash
charges totaling $76.3 million, primarily driven by $68.4 million in
depreciation and amortization, a $7.4 million change in fair value of
derivatives, $1.8 million of stock-based compensation, $1.8 million of debt
discount amortization and $1.1 million of other charges, partially offset by
$4.1 million in deferred income taxes. Changes in operating assets and
liabilities provided an additional $0.7 million of operating cash flow primarily
due to an $8.0 million increase in other liabilities and a $2.8 million decrease
in prepaid expenses, partially offset by an $8.0 million decrease in accrued
expenses and a $2.4 million decrease in other assets.
Net cash provided by operating activities for the nine months ended
September 30, 2021 reflects the adjustment to net income for
non-cash
charges totaling $73.1 million primarily driven by $61.2 million of depreciation
and amortization, $27.2 million of stock-based compensation, driven by the
accelerated vesting of options due to the IPO, $2.9 million of impairments of
long-lived assets, $1.7 million of amortization of debt discount and
$0.9 million of other charges, partially offset by $13.3 million of deferred
income taxes, a $5.0 million change in the fair value of derivatives, a
$1.3 million credit to deferred rent and $1.2 million excess payment on
contingent consideration related an acquisition made in 2018. Changes in
operating assets and liabilities for the nine months ended September 30, 2021
decreased cash flow from operating activities by $13.1 million. An increase in
accounts receivable of $40.4 million, due to increased revenue, and an increase
in prepaid expenses of $1.4 million were largely offset by a $12.1 increase in
accounts payable and a $15.6 million increase in accrued expenses.
Investing Activities
Net cash used in investing activities for the nine months ended September 30,
2020 and 2021 was $12.8 million and $14.6 million, respectively. Net cash used
in investing activities for the nine months ended September 30, 2020 consisted
of a $11.3 million investment in capitalized software and $1.8 million in
purchases of computer hardware and other property, plant and equipment,
partially offset by $0.2 million in proceeds from disposal of property, plant
and equipment. Net cash used in investing activities for the nine months ended
September 30, 2021 consisted of a $12.0 million investment in capitalized
software and $2.6 million in purchases of computer hardware and other property,
plant and equipment.
Financing Activities
Net cash used in financing activities for the nine months ended September 30,
2020 was $3.7 million. Net cash provided by financing activities for the nine
months ended September 30, 2021 was $102.3 million. The increase year-over-year
is primarily due to proceeds from the issuance of common stock in connection
with the IPO in September 2021. Net cash used in financing activities for the
nine months ended September 30, 2020 was comprised of $4.8 million in principal
payments on our long-term debt offset by $1.2 million of proceeds received from
the issuance of common stock.
Net cash provided by financing activities for the nine months ended
September 30, 2021 was comprised of $102.6 million of proceeds from the issuance
of common stock in our IPO, net of underwriting discounts and commissions,
$2.5 million of proceeds from the issuance of common stock and a $15.6 million
received from certain stockholders related to a
one-time
payment to a former executive as a result of the IPO. The one-time payment is
reflected in cash flows from operating activities. Net cash provided by
financing activities for the nine months ended September 30, 2021 was partially
offset by $6.1 million of IPO issuance costs, $11.5 million in principal
payments on our long-term debt, including the $6.7 million mandatory payment on
excess cash as required by our Credit Agreement and $0.7 million in payment of
earn-out
contingent consideration related to an acquisition in 2018.
Adjusted Free Cash Flow
For the nine months ended September 30, 2021, the Company generated $58.3
million of Adjusted Free Cash Flow, adjusted for one-time, cash, non-operating
expenses related to the IPO, compared to $12.8 million in the previous period.
The following table reconciles net cash flow provided by operating activities,
the most directly comparable GAAP measure, to Adjusted Free Cash Flow for the
nine months ended September 30, 2020 and 2021.

                                                             Nine Months Ended
                                                               September 30,
(in thousands)                                              2020           2021
Net Cash provided by Operating Activities                 $  25,853      $  38,926

Total IPO adjustments (1)                                        -          34,003

Purchases of intangible assets and capitalized software (11,250 ) (11,987 ) Purchases of property and equipment

                          (1,835 )       (2,619 )

Adjusted Free Cash Flow                                   $  12,768      $  58,323

(1) Includes one-time, cash, non-operating charges related to the IPO. Costs

included are $16.8 million of contractual compensation payments to former

executives, of which, $15.6 million was funded by certain stockholders, $9.3

million final settlement of investor management fees in connection with the

Fourth Amended and Restated Management Services Agreement, and $7.9 million

related primarily to professional fees and other expenses.




Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with US
GAAP requires us to use estimates and make judgments and assumptions about
future events that affect the reported amounts of assets, liabilities, revenue
and expenses and the related disclosures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies and Estimates" in our IPO Prospectus for a description of our critical
accounting estimates and Note 2 to our 2020 consolidated financial statements in
our IPO Prospectus for our significant accounting policies. There were no
changes to our critical accounting estimates in the nine months ended
September 30, 2021. See Note 3 to our unaudited condensed consolidated financial
statements in this Quarterly Report for a discussion of new accounting guidance
adopted during the first nine months of 2021.

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