The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2022 or for any other period.

There have been no significant changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes.

The Company has financed its operations and capital expenditures through cash flows from operationoperations as well as from the proceeds of the issuance of convertible senior notes in 2017. As of JuneSeptember 30, 2022 its principal source of liquidity was cash and cash equivalents of $214.9$208.4 million, which was held for working capital purposes. The Company's cash equivalents are comprised primarily of money market funds.

The Company provides digital promotions, including digital coupons, and/or media programs to its customers, which consist of advertisers, retail partners and advertising agencies. The Company uses its proprietary technology platforms to create, target, deliver and analyze these programs for customers. The Company typically generates revenue, derived from customer use of these programs, on a cost-per-click, cost-per-impression, or cost-per-acquisition basis, and customers are typically billed monthly. Duration-based campaigns are generally billed prior to campaign launch.

The pricing of digital promotions programs typically includes both promotion setup fees and promotion campaign fees. Promotion setup fees are related to the creation of digital promotions and set up of the underlying campaign on Quotient’s proprietary platforms for tracking of the related clicks. The Company recognizes revenues related to promotion setup fees over time, proportionally, on a per click basis using the number of authorized clicks, per insertion order, commencing on the date of the first click. A click refers to the consumer's action of activating a digital promotion through the Company’s proprietary technology platforms by either saving it to a retailer’s loyalty account for automatic digital redemption, or printing it for physical redemption at a retailer. Promotion campaign fees are usually determined on a per clickper-click basis. The Company typically recognizes revenues for digital promotion campaign fees as clicks occur.

The Company also has a duration-based National Promotions offering, as part of its National Promotion business. This offering provides advertisers access to the Company’s proprietary platforms for a specific period of time (the campaign period) in exchange for a fixed fee. The Company provides a single service consisting of making the advertiser’s promotions available for use on its network each day during the campaign period, which generally is between seven and twenty-eight days. The Company has a stand-ready performance obligation that is satisfied over time; therefore, the Company recognizes revenue ratably over the campaign period.

The Company’s media programs enable advertisers and retailers to distribute digital media to promote their brands and products on its retailers’ websites and mobile applications, and through a network of affiliate publishers and non-publisher third parties that display its media offerings on their websites or mobile applications. Pricing for media campaigns is usually determined on a cost-per-click, cost-per-impression, or cost-per-acquisition basis. The Company recognizes revenue each time a digital media ad is displayed or each time a user clicks on the media ad displayed on the Company’s websites, mobile applications or on third-party websites.  

In other cases (e.g., sponsored search and DOOH offerings), the Company reports revenues on a net basis, that is, the costs for digital advertising inventory and third-party data paid to suppliers are deducted from gross revenues to arrive at net revenues. The Company’s performance obligation in these arrangements is to provide the use of its platforms that enables customers to bid on real-time digital advertising inventory, use of data, and other add-on features in designing and executing their campaigns. The Company charges its customers a platform fee based on a percentage of the digital advertising inventory and data costs purchased through the use of its platforms. The platform fee is not contingent on the results of a digital media advertising campaign. The Company

The Company’s payment terms vary by the type and size of its customers. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The valuation technique used to measure the fair value of money market funds includes using quoted prices in active markets. The money market funds have a fixed net asset value

As of $1.0.

The Company recorded a charge of zero during the three and sixnine months ended JuneSeptember 30, 2022, respectively, and $0.2 million and $0.5$0.8 million during the three and sixnine months ended JuneSeptember 30, 2021, respectively, for the re-measurement of the fair values of contingent consideration related to acquisitions, as a component of operating expenses in the accompanying condensed consolidated statements of operations.

During the sixnine months ended JuneSeptember 30, 2022, the Company paid $22.3 million related to Ubimo's achievement of financial metrics subject to contingent consideration during the measurement period ending December 31, 2021, and as a result, no liability existed as of JuneSeptember 30, 2022. Out of the total consideration paid, $5.7 million was originally measured and recorded on the acquisition date, and $16.6 million was recorded subsequent to the acquisition date through changes in fair value of contingent consideration within the condensed consolidated statements of operations.

Property and Equipment, Net

Depreciation and amortization expense related to property and equipment was $2.1$2.5 million and $4.0$6.5 million for the three and sixnine months ended JuneSeptember 30, 2022, respectively, and $1.5$2.1 million and $3.5$5.6 million for the three and sixnine months ended JuneSeptember 30, 2021, respectively.

The Company capitalized internal useinternal-use software development and enhancement costs of $5.7$5.5 million and $8.2$13.7 million during the three and sixnine months ended JuneSeptember 30, 2022, respectively, and $2.1$2.2 million and $4.4$6.6 million during the three and sixnine months ended JuneSeptember 30, 2021, respectively. During the three and sixnine months ended JuneSeptember 30, 2022, the Company had $1.3$1.8 million and $2.3$4.1 million, respectively, and $0.7$1.1 million and $1.8$2.9 million during the three and sixnine months ended JuneSeptember 30, 2021, respectively, in amortization expense related to internal useinternal-use software, which is included in property and equipment depreciation and amortization expense, and which is recorded as cost of revenues. Once theCapitalized internal-use software is placed into service, the asset isdevelopment costs are included in softwareSoftware within "property"Property and equipment, net". The unamortized capitalized development costs were $16.0$19.8 million and $11.6 million as of JuneSeptember 30, 2022 and December 31, 2021, respectively.

During the secondthird quarter of 2022, the Company performed an interim assessment of its long-lived assets to determine if any indicators of impairment existed. In performing its assessment, the Companyexisted and determined that there were changes in circumstances that indicated that the carrying amountno indicators of a long-lived asset group was not recoverable.impairment. During the three and sixnine months ended JuneSeptember 30, 2022, the Company recorded an impairment charge of zero and $1.4 million, respectively, related to capitalized software.

Other Current Liabilities  

The total acquisition consideration of $20.7 million consisted of $15.0 million in cash and contingent consideration of up to $24.8 million payable in cash with an estimated fair value of $5.7 million as of the acquisition date. The contingent consideration payout was based on Ubimo achieving certain financial metrics between the date of the acquisition through December 31, 2021. The acquisition date fair value was determined using an option pricing model. As of December 31, 2021, the date that the contingent consideration period ended, Ubimo achieved certain financial metrics. During the sixnine months ended JuneSeptember 30, 2022, the Company paid $24.7 million, of which $22.3 million related to contingent consideration and $2.4 million related to certain bonuses; and as a result, no liability existed as of JuneSeptember 30, 2022. Of the total $24.7 million that was paid, $5.7 million was classified within financing activity and the remaining $19.0 million was classified within operating activity on the Company's condensed consolidated statements of cash flows.

 

As of JuneSeptember 30, 2022 and December 31, 2021, the Company has a domain name with a gross value of $0.4 million with an indefinite useful life that is not subject to amortization.

The conversion rate for the notes is initially 57.6037 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $17.36 per share of common stock, subject to adjustment upon the occurrence of specified events.

HoldersThe terms of the notes mayprovide that the holders of the notes were entitled to convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the 5-businessfive-business day period after any 5five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the notes on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. OnThe terms of the notes further provide that, on or after September 1, 2022, holders mayare entitled to convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The Company intends to settle the principal amount of the notes with cash.

The terms of the notes provide that the Company maywas not entitled to redeem the notes prior to December 5, 2020. ItThe terms of the notes further provide that the Company may redeem for cash all or any portion of the notes, at its option, on or after December 5, 2020 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than 3three trading days preceding the date on which it provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.

If the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to

In accounting for the issuance of the notes, prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the notes into liability and equity components. The carrying amount of the liability component of $149.3 million was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component of $50.7 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) was amortized to interest expense over the term of the notes at an effective interest rate of 5.8%.

Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total debt issuance costs incurred of $6.2 million to the liability and equity components of the notes in proportion to the respective values. Issuance costs attributable to the liability component of $4.6 million were amortized to interest expense using the effective interest method over the contractual terms of the notes. Issuance costs attributable to the equity component of $1.6 million were netted with the equity component in additional paid-in capital.

Subsequent to the adoption of ASU 2020-06 on January 1, 2022, which the Company elected to adopt using the modified retrospective method, the Company removed the impact of recognizing the equity component of the notes (at issuance and subsequent accounting impact of additional interest expense from debt discount amortization). The cumulative effect of the accounting change as of January 1, 2022 was an increase to the carrying amount of the convertible notes of $10.4 million, an increase to beginning retained earnings of $38.7 million, and a reduction to additional paid-in capital of $49.1 million.

The net carrying amount of the liability component of the notes recorded in convertible senior notes, net on the condensed consolidated balance sheets was as follows (in thousands):

The following table sets forth the interest expense related to the notes recognized in interest expense on the condensed consolidated statements of operations (in thousands):

ThePrior to the First Amendment and Limited Waiver to Loan, Guaranty and Security Agreement dated August 5, 2022 (the "First Amendment"), (as more fully described below), the ABL Credit Agreement providesprovided for an asset-based revolving credit facility (the "ABL Facility") for available borrowings up to $100.0 million with the actual amount dependent on a "borrowing base" number consisting of the sum of various categories of eligible accounts receivable (the lesser of such number and $100.0 million, the "Line Cap"). ThePrior to the First Amendment, the ABL Credit Agreement provided that the ABL Facility matureswas to mature and all outstanding amounts, if any, become due and payable on November 17, 2026 ("fixed ABL maturity date"), except that the maturity date shall be accelerated to the date that is 91 days prior to the maturity of the Company’s outstanding 1.75% Convertible Senior Notes due 2022

ThePrior to the First Amendment, the ABL Credit Agreement includesincluded conditions to borrowings, representations and warranties, affirmative and negative covenants and events of default customary for financings of this type and size. Insize, and provided that, in the event of default, all obligations will be automatically due and payable and all commitments will terminate. ThePrior to the First Amendment, the ABL Credit Agreement requiresrequired the Company to maintain a minimum fixed charge coverage ratio at all times. The ABL Credit Agreement limitstimes and limited the Company’s and its subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on any assets, pay dividends or make certain restricted payments, consummate certain assets sales and merge, consolidate and/or sell or dispose of certain assets. ThePrior to the First Amendment, the ABL Credit Agreement also requiresrequired that if the Company's Excess Availability (defined as the Line Cap less borrowed amounts or issued letters of credit) iswere less than the greater of (i) the Line Cap and (ii) $10.0 million, the Company willw maintain a fixed coverage charge ratio of at least 1.00 to 1.00. In addition, the ABL Credit Agreement includesincluded customary events of default, which may requirewould possibly have required the Company to pay an additional 2% interest on the outstanding loans under the ABL Credit Agreement. As set forth inPrior to the ABL Credit Agreement,First Amendment, borrowings under the ABL Facility initially willwould bear interest at a rate equal to, for BSBY Loans, the BSBY Rate plus the Applicable Margin or, for Base Rate Loans, the Base Rate plus the Applicable Margin. The Applicable Margin iswas to be determined based on average daily borrowing availability. As of June 30, 2022, there were no borrowings or repayments under the ABL Facility.

As of June 30, 2022, the Company was not in compliance with the above covenants; however, on August 5, 2022, the Company entered into athe First Amendment and Limited Waiver to Loan, Guaranty and Security Agreement (the "First Amendment").Amendment. Pursuant to the First Amendment, the Company was provided a waiver of a covenant violation for the quarter ended June 30, 2022. In addition, the terms of the ABL Facility were amended to reduce the aggregate value of the credit facility to $50.0 million, modify the fixed charge coverage ratio ("FCCR") covenant conditions for the next three fiscal quarters, revise the springing maturity date, and impose a temporary reduction of $5.0 million in funding available based on the Company's FCCR. Refer

On September 1, 2022, the ABL Credit Agreement, as modified by the First Amendment, terminated pursuant to Note 16 for further details.its own terms. As of September 30, 2022, there had been no borrowings or repayments under the ABL Facility.

Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance-based stock units ("PSUs") to employees, directors and consultants. The shares available will be increased at the beginning of each year by the lesser of (i) 4% of outstanding common stock on the last day of the immediately preceding year, or (ii) such number determined by the Board of Directors and subject to additional restrictions relating to the maximum number of shares issuable pursuant to incentive stock options. Under the 2013 Plan, both the incentive stock options (ISOs) and non-qualified stock options (NSOs) are granted at a price per share not less than 100% of the fair market value on the effective date of the grant. The Board of Directors determines the vesting period for each option award on the grant date, and the options generally expire 10 years from the grant date or such shorter term as may be determined by the Board of Directors.

The fair value of each option was estimated using the Black-Scholes model on the date of grant for the periods presented using the following assumptions: