UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to
CCC INTELLIGENT SOLUTIONS HOLDINGS INCINC..
(Exact name of registrant as specified in its charter)
Delaware | 001-39447 | 98-1546280 | ||
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) |
167 N. Green Street, 9th Floor Chicago | ||||
Illinois (Address Of Principal Executive Offices) | 60607 (Zip Code) |
(800) 621-8070
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Trading Symbol(s) |
on which registered | ||
Common stock, par value $0.0001 per share | CCCS | The New York Stock Exchange | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation(§ (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
Large accelerated filer | ☐ | Accelerated filer | ☒ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
As of November5, 2021, 603,696,825October 28, 2022, 620,711,455 shares of common stock, $0.0001 par value per share, were issued and outstanding.
CCC INTELLIGENT SOLUTIONS HOLDINGS INC.
Form
For the Quarter Ended September 30, 2021
Table of Contents
Page | |||||
` | |||||
3 | |||||
5 | |||||
5 | |||||
6 | |||||
7 | |||||
10 | |||||
11 | |||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | ||||
46 | |||||
46 | |||||
1. | 47 | ||||
Item 1A. | 47 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities | 47 | |||
47 | |||||
4. | 47 | ||||
Item 5. | 47 | ||||
Item 6. | 47 | ||||
In this Quarterly Report on(the “Closing Date”), Dragoneer Growth Opportunities Corp., a Cayman Islands exempted company (“Dragoneer” ),), consummated a business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated as of February 2, 2021 (the “Business Combination Agreement”), as amended, by and among Dragoneer and Cypress Holdings Inc., a Delaware corporation (“CCCIS”). Immediately upon the consummation of the Business Combination and the other transactions contemplated by the Business Combination Agreement (collectively, the “Transactions”, and such completion the “Closing”), CCCIS merged with and into Chariot Merger Sub, a wholly-owned direct subsidiary of Dragoneer, with CCCIS surviving the Business Combination as a wholly-owned direct subsidiary of Dragoneer (the “Merger”). In connection with the Transactions, Dragoneer changed its name to “CCC Intelligent Solutions Holdings Inc.”
2
FORWARD-LOOKING STATEMENTS
The section titled “in this Quarterly Reportmay include information concerning our possible or assumed future results of operations, client demand, business strategies, technology developments, financing and investment plans, competitive position, our industry and regulatory environment, potential growth opportunities and the effects of competition.
Important factors that could cause actual results to differ materially from our expectations include:
3
The forward-looking statements contained in this Quarterly Report on FormSome of these risks and uncertainties may in the future be amplified bythe COVID-19 outbreakand there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, 2021 (Unaudited) | December 31, 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 160,465 | $ | 162,118 | ||||
Accounts receivable—Net of allowances of $3,972 and $4,224 for September 30, 2021 and December 31, 2020, respectively | 82,367 | 74,107 | ||||||
Income taxes receivable | 6,915 | 2,037 | ||||||
Deferred contract costs | 13,833 | 11,917 | ||||||
Other current assets | 36,261 | 31,586 | ||||||
Total current assets | 299,841 | 281,765 | ||||||
SOFTWARE, EQUIPMENT, AND PROPERTY—Net | 121,018 | 101,438 | ||||||
OPERATING LEASE ASSETS | 38,774 | — | ||||||
INTANGIBLE ASSETS—Net | 1,237,950 | 1,311,917 | ||||||
GOODWILL | 1,466,884 | 1,466,884 | ||||||
DEFERRED FINANCING FEES, REVOLVER—Net | 3,053 | 746 | ||||||
DEFERRED CONTRACT COSTS | 18,893 | 14,389 | ||||||
EQUITY METHOD INVESTMENT | 10,228 | — | ||||||
OTHER ASSETS | 21,584 | 18,416 | ||||||
TOTAL | $ | 3,218,225 | $ | 3,195,555 | ||||
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | 16,083 | $ | 13,164 | ||||
Accrued expenses | 81,771 | 52,987 | ||||||
Income taxes payable | 7,161 | 5,129 | ||||||
Current portion of long-term debt | 8,000 | 25,381 | ||||||
Current portion of long-term licensing agreement—Net | 2,661 | 2,540 | ||||||
Operating lease liabilities | 8,855 | — | ||||||
Deferred revenues | 29,384 | 26,514 | ||||||
Total current liabilities | 153,915 | 125,715 | ||||||
LONG-TERM DEBT: | ||||||||
First Lien Term Loan—Net | — | 1,292,597 | ||||||
Term B Loan—Net | 780,218 | — | ||||||
Total long-term debt | 780,218 | 1,292,597 | ||||||
DEFERRED INCOME TAXES—Net | 255,849 | 322,348 | ||||||
LONG-TERM LICENSING AGREEMENT—Net | 34,320 | 36,331 | ||||||
OPERATING LEASE LIABILITIES | 50,550 | — | ||||||
WARRANT LIABILITIES | 85,348 | — | ||||||
OTHER LIABILITIES | 6,808 | 32,770 | ||||||
Total liabilities | 1,367,008 | 1,809,761 | ||||||
COMMITMENTS AND CONTINGENCIES (Notes 22 and 23) | 0 | 0 | ||||||
MEZZANINE EQUITY: | ||||||||
Redeemable non-controlling interest | 14,179 | 14,179 | ||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Preferred stock, $0.0001 par; 100,000,000 shares authorized; 0 shares issued or outstanding | 0— | 0— | ||||||
Common stock—$0.0001 par; 5,000,000,000 shares authorized; 603,170,380 and 504,274,890 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 60 | 50 | ||||||
Additional paid-in capital | 2,525,750 | 1,501,206 | ||||||
Accumulated deficit | (688,483 | ) | (129,370 | ) | ||||
Accumulated other comprehensive loss | (289 | ) | (271 | ) | ||||
Total stockholders’ equity | 1,837,038 | 1,371,615 | ||||||
TOTAL | $ | 3,218,225 | $ | 3,195,555 | ||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
CURRENT ASSETS: |
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| 248,153 |
|
|
| 182,544 |
|
Accounts receivable—Net of allowances of $4,690 and $3,791 as of September 30, 2022 and |
|
| 98,194 |
|
|
| 78,793 |
|
Income taxes receivable |
|
| 71 |
|
|
| 318 |
|
Deferred contract costs |
|
| 15,788 |
|
|
| 15,069 |
|
Other current assets |
|
| 33,898 |
|
|
| 46,181 |
|
Total current assets |
|
| 396,104 |
|
|
| 322,905 |
|
SOFTWARE, EQUIPMENT, AND PROPERTY—Net |
|
| 147,531 |
|
|
| 135,845 |
|
OPERATING LEASE ASSETS |
|
| 34,901 |
|
|
| 37,234 |
|
INTANGIBLE ASSETS—Net |
|
| 1,143,630 |
|
|
| 1,213,249 |
|
GOODWILL |
|
| 1,494,267 |
|
|
| 1,466,884 |
|
DEFERRED FINANCING FEES, REVOLVER—Net |
|
| 2,439 |
|
|
| 2,899 |
|
DEFERRED CONTRACT COSTS |
|
| 18,818 |
|
|
| 22,117 |
|
EQUITY METHOD INVESTMENT |
|
| 10,228 |
|
|
| 10,228 |
|
OTHER ASSETS |
|
| 49,999 |
|
|
| 26,165 |
|
TOTAL |
|
| 3,297,917 |
|
|
| 3,237,526 |
|
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
| ||
CURRENT LIABILITIES: |
|
|
|
|
|
| ||
Accounts payable |
|
| 14,579 |
|
|
| 12,918 |
|
Accrued expenses |
|
| 63,873 |
|
|
| 66,691 |
|
Income taxes payable |
|
| 17,025 |
|
|
| 7,243 |
|
Current portion of long-term debt |
|
| 8,000 |
|
|
| 8,000 |
|
Current portion of long-term licensing agreement—Net |
|
| 2,832 |
|
|
| 2,703 |
|
Operating lease liabilities |
|
| 3,713 |
|
|
| 8,052 |
|
Deferred revenues |
|
| 33,602 |
|
|
| 31,042 |
|
Total current liabilities |
|
| 143,624 |
|
|
| 136,649 |
|
LONG-TERM DEBT—Net |
|
| 775,770 |
|
|
| 780,610 |
|
DEFERRED INCOME TAXES—Net |
|
| 222,370 |
|
|
| 275,745 |
|
LONG-TERM LICENSING AGREEMENT—Net |
|
| 31,488 |
|
|
| 33,629 |
|
OPERATING LEASE LIABILITIES |
|
| 58,111 |
|
|
| 56,133 |
|
WARRANT LIABILITIES |
|
| 39,026 |
|
|
| 62,478 |
|
OTHER LIABILITIES |
|
| 2,729 |
|
|
| 5,785 |
|
Total liabilities |
|
| 1,273,118 |
|
|
| 1,351,029 |
|
COMMITMENTS AND CONTINGENCIES (Notes 19 and 20) |
|
|
|
|
|
| ||
MEZZANINE EQUITY: |
|
|
|
|
|
| ||
Redeemable non-controlling interest |
|
| 14,179 |
|
|
| 14,179 |
|
STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
| ||
Preferred stock—$0.0001 par; 100,000,000 shares authorized; no shares issued or outstanding |
|
| — |
|
|
| — |
|
Common stock—$0.0001 par; 5,000,000,000 shares authorized; 620,117,025 and |
|
| 62 |
|
|
| 61 |
|
Additional paid-in capital |
|
| 2,720,695 |
|
|
| 2,618,924 |
|
Accumulated deficit |
|
| (709,018 | ) |
|
| (746,352 | ) |
Accumulated other comprehensive loss |
|
| (1,119 | ) |
|
| (315 | ) |
Total stockholders’ equity |
|
| 2,010,620 |
|
|
| 1,872,318 |
|
TOTAL |
|
| 3,297,917 |
|
|
| 3,237,526 |
|
See notes to condensed consolidated financial statements.
5
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) INCOME
(In thousands, except share and per share data)
(Unaudited)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
REVENUES | $ | 176,628 | $ | 157,754 | $ | 501,205 | $ | 467,677 | ||||||||
COST OF REVENUES | ||||||||||||||||
Cost of revenues, exclusive of amortization of acquired technologies | 51,273 | 43,879 | 128,218 | 135,674 | ||||||||||||
Amortization of acquired technologies | 6,580 | 6,576 | 19,740 | 19,725 | ||||||||||||
Total cost of revenues | 57,853 | 50,455 | 147,958 | 155,399 | ||||||||||||
GROSS PROFIT | 118,775 | 107,299 | 353,247 | 312,278 | ||||||||||||
OPERATING EXPENSES: | ||||||||||||||||
Research and development | 67,016 | 26,816 | 128,894 | 82,131 | ||||||||||||
Selling and marketing | 80,382 | 17,427 | 121,350 | 56,608 | ||||||||||||
General and administrative | 142,511 | 21,893 | 208,745 | 66,460 | ||||||||||||
Amortization of intangible assets | 18,078 | 18,078 | 54,232 | 54,232 | ||||||||||||
Total operating expenses | 307,987 | 84,214 | 513,221 | 259,431 | ||||||||||||
OPERATING (LOSS) INCOME | (189,212 | ) | 23,085 | (159,974 | ) | 52,847 | ||||||||||
INTEREST EXPENSE | (13,878 | ) | (19,788 | ) | (51,548 | ) | (57,588 | ) | ||||||||
GAIN (LOSS) ON CHANGE IN FAIR VALUE OF INTEREST RATE SWAPS | 2,007 | 3,894 | 8,373 | (16,633 | ) | |||||||||||
CHANGE IN FAIR VALUE OF WARRANT LIABILITIES | (26,889 | ) | — | (26,889 | ) | — | ||||||||||
LOSS ON EARLY EXINGUISHMENT OF DEBT | (15,240 | ) | — | (15,240 | ) | (8,615 | ) | |||||||||
OTHER (EXPENSE) INCOME—Net | (93 | ) | 49 | 1 | 304 | |||||||||||
PRETAX (LOSS) INCOME | (243,305 | ) | 7,240 | (245,277 | ) | (29,685 | ) | |||||||||
INCOME TAX BENEFIT (PROVISION) | 53,523 | (2,520 | ) | 54,227 | 7,191 | |||||||||||
NET (LOSS) INCOME INCLUDING NON-CONTROLLING INTEREST | (189,782 | ) | 4,720 | (191,050 | ) | (22,494 | ) | |||||||||
Less: net (loss) income attributable to non-controlling interest | 0 | 0 | 0 | 0 | ||||||||||||
NET (LOSS) INCOME ATTRIBUTABLE TO CCC INTELLIGENT SOLUTIONS HOLDINGS INC. | $ | (189,782 | ) | $ | 4,720 | $ | (191,050 | ) | $ | (22,494 | ) | |||||
Net (loss) income per share attributable to common stockholders: | ||||||||||||||||
Basic | $ | (0.34 | ) | $ | 0.01 | $ | (0.36 | ) | $ | (0.04 | ) | |||||
Diluted | $ | (0.34 | ) | $ | 0.01 | $ | (0.36 | ) | $ | (0.04 | ) | |||||
Weighted-average shares used in computing net (loss) income per share attributable to common stockholders: | ||||||||||||||||
Basic | 566,454,782 | 504,212,021 | 525,877,533 | 504,062,587 | ||||||||||||
Diluted | 566,454,782 | 510,694,493 | 525,877,533 | 504,062,587 | ||||||||||||
COMPREHENSIVE (LOSS) INCOME: | ||||||||||||||||
Net (loss) income including non-controlling interest | (189,782 | ) | 4,720 | (191,050 | ) | (22,494 | ) | |||||||||
Other comprehensive income (loss)—Foreign currency translation adjustment | 11 | 83 | (18 | ) | 65 | |||||||||||
COMPREHENSIVE (LOSS) INCOME INCLUDING NON-CONTROLLING INTEREST | (189,771 | ) | 4,803 | (191,068 | ) | (22,429 | ) | |||||||||
Less: comprehensive (loss) income attributable to non-controlling interest | 0 | 0 | 0 | 0 | ||||||||||||
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO CCC INTELLIGENT SOLUTIONS HOLDINGS INC. | $ | (189,771 | ) | $ | 4,803 | $ | (191,068 | ) | $ | (22,429 | ) | |||||
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
REVENUES |
| $ | 198,734 |
|
| $ | 176,628 |
|
| $ | 578,342 |
|
| $ | 501,205 |
|
COST OF REVENUES |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenues, exclusive of amortization of acquired technologies |
|
| 46,379 |
|
|
| 51,273 |
|
|
| 135,174 |
|
|
| 128,218 |
|
Amortization of acquired technologies |
|
| 6,748 |
|
|
| 6,580 |
|
|
| 20,193 |
|
|
| 19,740 |
|
Total cost of revenues |
|
| 53,127 |
|
|
| 57,853 |
|
|
| 155,367 |
|
|
| 147,958 |
|
GROSS PROFIT |
|
| 145,607 |
|
|
| 118,775 |
|
|
| 422,975 |
|
|
| 353,247 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
|
| 40,273 |
|
|
| 67,016 |
|
|
| 114,711 |
|
|
| 128,894 |
|
Selling and marketing |
|
| 30,838 |
|
|
| 80,382 |
|
|
| 88,731 |
|
|
| 121,350 |
|
General and administrative |
|
| 39,376 |
|
|
| 142,511 |
|
|
| 123,093 |
|
|
| 208,745 |
|
Amortization of intangible assets |
|
| 18,066 |
|
|
| 18,078 |
|
|
| 54,212 |
|
|
| 54,232 |
|
Total operating expenses |
|
| 128,553 |
|
|
| 307,987 |
|
|
| 380,747 |
|
|
| 513,221 |
|
OPERATING INCOME (LOSS) |
|
| 17,054 |
|
|
| (189,212 | ) |
|
| 42,228 |
|
|
| (159,974 | ) |
INTEREST EXPENSE |
|
| (10,501 | ) |
|
| (13,878 | ) |
|
| (25,786 | ) |
|
| (51,548 | ) |
CHANGE IN FAIR VALUE OF DERIVATIVE INSTRUMENTS |
|
| 5,991 |
|
|
| 2,007 |
|
|
| 5,991 |
|
|
| 8,373 |
|
CHANGE IN FAIR VALUE OF WARRANT LIABILITIES |
|
| 312 |
|
|
| (26,889 | ) |
|
| 23,452 |
|
|
| (26,889 | ) |
GAIN ON SALE OF COST METHOD INVESTMENT |
|
| 9 |
|
|
| — |
|
|
| 3,587 |
|
|
| — |
|
LOSS ON EARLY EXTINGUISHMENT OF DEBT |
|
| — |
|
|
| (15,240 | ) |
|
| — |
|
|
| (15,240 | ) |
OTHER INCOME (LOSS)—Net |
|
| 382 |
|
|
| (93 | ) |
|
| 576 |
|
|
| 1 |
|
PRETAX INCOME (LOSS) |
|
| 13,247 |
|
|
| (243,305 | ) |
|
| 50,048 |
|
|
| (245,277 | ) |
INCOME TAX (PROVISION) BENEFIT |
|
| (3,452 | ) |
|
| 53,523 |
|
|
| (12,714 | ) |
|
| 54,227 |
|
NET INCOME (LOSS) INCLUDING NON-CONTROLLING |
|
| 9,795 |
|
|
| (189,782 | ) |
|
| 37,334 |
|
|
| (191,050 | ) |
Less: net income (loss) attributable to non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
NET INCOME (LOSS) ATTRIBUTABLE TO CCC INTELLIGENT |
| $ | 9,795 |
|
| $ | (189,782 | ) |
| $ | 37,334 |
|
| $ | (191,050 | ) |
Net income (loss) per share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.02 |
|
| $ | (0.34 | ) |
| $ | 0.06 |
|
| $ | (0.36 | ) |
Diluted |
| $ | 0.02 |
|
| $ | (0.34 | ) |
| $ | 0.06 |
|
| $ | (0.36 | ) |
Weighted-average shares used in computing net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 609,421,073 |
|
|
| 566,454,782 |
|
|
| 606,181,316 |
|
|
| 525,877,533 |
|
Diluted |
|
| 643,582,922 |
|
|
| 566,454,782 |
|
|
| 642,208,622 |
|
|
| 525,877,533 |
|
COMPREHENSIVE INCOME (LOSS): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) including non-controlling interest |
|
| 9,795 |
|
|
| (189,782 | ) |
|
| 37,334 |
|
|
| (191,050 | ) |
Other comprehensive income (loss)—Foreign currency translation |
|
| (510 | ) |
|
| 11 |
|
|
| (804 | ) |
|
| (18 | ) |
COMPREHENSIVE INCOME (LOSS) INCLUDING |
|
| 9,285 |
|
|
| (189,771 | ) |
|
| 36,530 |
|
|
| (191,068 | ) |
Less: comprehensive income (loss) attributable to non-controlling |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CCC |
| $ | 9,285 |
|
| $ | (189,771 | ) |
| $ | 36,530 |
|
| $ | (191,068 | ) |
See notes to condensed consolidated financial statements.
6
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)
Redeemable | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-Controlling | Issued Preferred Stock | CCCIS Issued Common Stock | Retained | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest | Series A | Series B | Common Stock | Additional | Earnings | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||
Number of | Par | Number of | Par | Number of | Par | Number of | Par | Paid-In | (Accumulated | Comprehensive | Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Deficit) | Loss | Equity | |||||||||||||||||||||||||||||||||||||||||
BALANCE—December 31, 2020 (as previously reported) | 14,179 | 0 | $ | 0 | 1,450,978 | $ | 1 | 29,785 | $ | 0 | 0 | $ | 0 | $ | 1,501,255 | $ | (129,370 | ) | $ | (271 | ) | $ | 1,371,615 | |||||||||||||||||||||||||||||
Retrospective application of the recapitalization due to Business Combination (Note 3) | — | — | — | (1,450,978 | ) | (1 | ) | (29,785 | ) | — | 504,274,890 | 50 | (49 | ) | — | — | — | |||||||||||||||||||||||||||||||||||
BALANCE—December 31, 2020, effect of Business Combination (Note 3) | 14,179 | — | — | — | — | — | — | 504,274,890 | 50 | 1,501,206 | (129,370 | ) | (271 | ) | 1,371,615 | |||||||||||||||||||||||||||||||||||||
Issuance of common stock | — | — | — | — | — | — | — | 110,679 | — | 1,007 | — | — | 1,007 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | 883,729 | — | 11,838 | — | — | 11,838 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options—net of tax | — | — | — | — | — | — | — | 161,080 | — | 444 | — | — | 444 | |||||||||||||||||||||||||||||||||||||||
Dividend to CCCIS stockholders | — | — | — | — | — | — | — | — | — | — | (134,551 | ) | — | (134,551 | ) | |||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | 7 | 7 | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (5,084 | ) | — | (5,084 | ) | |||||||||||||||||||||||||||||||||||||
BALANCE—March 31, 2021 | 14,179 | 0 | 0 | 0 | 0 | 0 | 0 | 505,430,378 | 50 | 1,514,495 | (269,005 | ) | (264 | ) | 1,245,276 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | 2,579 | — | — | 2,579 | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | (36 | ) | (36 | ) | |||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | — | — | 3,816 | — | 3,816 | |||||||||||||||||||||||||||||||||||||||
BALANCE—June 30, 2021 | 14,179 | 0 | 0 | 0 | 0 | 0 | 0 | 505,430,378 | 50 | 1,517,074 | (265,189 | ) | (300 | ) | 1,251,635 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | 213,966 | — | — | 213,966 | |||||||||||||||||||||||||||||||||||||||
Net equity infusion from the Business Combination | — | — | — | — | — | — | — | 97,740,002 | 10 | 704,831 | — | — | 704,841 | |||||||||||||||||||||||||||||||||||||||
Dividend to CCCIS stockholders | — | — | — | — | — | — | — | — | — | — | (134,627 | ) | — | (134,627 | ) | |||||||||||||||||||||||||||||||||||||
Deemed distribution to CCCIS option holders | — | — | — | — | — | — | — | — | — | (9,006 | ) | — | — | (9,006 | ) | |||||||||||||||||||||||||||||||||||||
Company Vesting Shares granted to CCCIS stockholders | — | — | — | — | — | — | — | — | — | 98,885 | (98,885 | ) | — | — | ||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | 11 | 11 | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (189,782 | ) | — | (189,782 | ) | |||||||||||||||||||||||||||||||||||||
BALANCE—September 30, 2021 | $ | 14,179 | 0 | $ | 0 | 0 | $ | 0 | 0 | $ | 0 | 603,170,380 | $ | 60 | $ | 2,525,750 | $ | (688,483 | ) | $ | (289 | ) | $ | 1,837,038 | ||||||||||||||||||||||||||||
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Non-Controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||||||
|
| Interest |
|
|
| Preferred Stock—Issued and Outstanding |
|
| Common Stock—Issued and Outstanding |
|
| Additional |
|
|
|
|
| Other |
|
| Total |
| |||||||||||||||
|
|
|
|
|
| Number of |
|
| Par |
|
| Number of |
|
| Par |
|
| Paid-In |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| |||||||||
|
|
|
|
|
| Shares |
|
| Value |
|
| Shares |
|
| Value |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| |||||||||
BALANCE—December 31, 2021 |
| $ | 14,179 |
|
|
|
| — |
|
| $ | — |
|
|
| 609,768,296 |
|
| $ | 61 |
|
| $ | 2,618,924 |
|
| $ | (746,352 | ) |
| $ | (315 | ) |
| $ | 1,872,318 |
|
Stock-based compensation expense |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,644 |
|
|
| — |
|
|
| — |
|
|
| 23,644 |
|
Exercise of stock options—net of tax |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 3,961,270 |
|
|
| — |
|
|
| 10,633 |
|
|
| — |
|
|
| — |
|
|
| 10,633 |
|
Exercise of warrants—net |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1,246 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock upon |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 27,314 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| 9 |
|
Net income |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,975 |
|
|
| — |
|
|
| 11,975 |
|
BALANCE—March 31, 2022 |
|
| 14,179 |
|
|
|
| — |
|
|
| — |
|
|
| 613,758,126 |
|
|
| 61 |
|
|
| 2,653,201 |
|
|
| (734,377 | ) |
|
| (306 | ) |
|
| 1,918,579 |
|
Stock-based compensation expense |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,403 |
|
|
| — |
|
|
| — |
|
|
| 28,403 |
|
Exercise of stock options—net of tax |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1,713,991 |
|
|
| 1 |
|
|
| 4,722 |
|
|
| — |
|
|
| — |
|
|
| 4,723 |
|
Issuance of common stock upon |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 29,834 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Foreign currency translation |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (303 | ) |
|
| (303 | ) |
Net income |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,564 |
|
|
| — |
|
|
| 15,564 |
|
BALANCE—June 30, 2022 |
|
| 14,179 |
|
|
|
| — |
|
|
| — |
|
|
| 615,501,951 |
|
|
| 62 |
|
|
| 2,686,326 |
|
|
| (718,813 | ) |
|
| (609 | ) |
|
| 1,966,966 |
|
Stock-based compensation expense |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 28,722 |
|
|
| — |
|
|
| — |
|
|
| 28,722 |
|
Exercise of stock options—net of tax |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 2,685,029 |
|
|
| — |
|
|
| 7,455 |
|
|
| — |
|
|
| — |
|
|
| 7,455 |
|
Issuance of common stock under |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 408,879 |
|
|
| — |
|
|
| 3,197 |
|
|
| — |
|
|
| — |
|
|
| 3,197 |
|
Issuance of common stock upon |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1,521,166 |
|
|
| — |
|
|
| (5,005 | ) |
|
| — |
|
|
| — |
|
|
| (5,005 | ) |
Foreign currency translation |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (510 | ) |
|
| (510 | ) |
Net income |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,795 |
|
|
| — |
|
|
| 9,795 |
|
BALANCE—September 30, 2022 |
| $ | 14,179 |
|
|
|
| — |
|
| $ | — |
|
|
| 620,117,025 |
|
| $ | 62 |
|
| $ | 2,720,695 |
|
| $ | (709,018 | ) |
| $ | (1,119 | ) |
| $ | 2,010,620 |
|
See notes to condensed consolidated financial statements.
7
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
(In thousands, except number of shares)
(Unaudited)
Redeemable Non-Controlling | Issued Preferred Stock | CCCIS Issued Common Stock | Retained Earnings | Accumulated Other | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest | Series A | Series B | Common Stock | Additional Paid-In | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||
Number of | Par | Number of | Par | Number of | Par | Number of | Par | (Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||||||||||
Shares | Value | Shares | Value | Shares | Value | Shares | Value | Capital | Deficit) | Loss | Equity | |||||||||||||||||||||||||||||||||||||||||
BALANCE—December 31, 2019 | 0 | 0 | $ | 0 | 1,450,978 | $ | 1 | 27,967 | $ | 0 | 0 | $ | 0 | $ | 1,491,753 | $ | (112,494 | ) | $ | (397 | ) | $ | 1,378,863 | |||||||||||||||||||||||||||||
Retrospective application of the recapitalization due to Business Combination (Note 3) | — | — | — | (1,450,978 | ) | (1 | ) | (27,967 | ) | — | 503,655,768 | 50 | (49 | ) | — | — | — | |||||||||||||||||||||||||||||||||||
BALANCE—December 31, 20 19 , effect of Business Combination (Note 3) | 0 | — | — | — | — | — | — | 503,655,768 | 50 | 1,491,704 | (112,494 | ) | (397 | ) | 1,378,863 | |||||||||||||||||||||||||||||||||||||
Issuance of non-controlling interest in subsidiary | 14,179 | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock | — | — | — | — | — | — | — | 340,551 | — | 1,560 | — | — | 1,560 | |||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | 1,629 | — | — | 1,629 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options—net of tax | — | — | — | — | — | — | — | 127,025 | — | 268 | — | — | 268 | |||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | — | — | — | — | — | — | — | (18,730 | ) | — | (86 | ) | — | — | (86 | ) | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | (17 | ) | (17 | ) | |||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (25,252 | ) | — | (25,252 | ) | |||||||||||||||||||||||||||||||||||||
BALANCE—March 31, 2020 | 14,179 | 0 | 0 | 0 | 0 | 0 | 0 | 504,104,614 | 50 | 1,495,075 | (137,746 | ) | (414 | ) | 1,356,965 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | 2,272 | — | — | 2,272 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options—net of tax | — | — | — | — | — | — | 65,386 | — | 29 | — | — | 29 | ||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | — | — | — | — | — | — | (28,266 | ) | — | (127 | ) | — | — | (127 | ) | |||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | (1 | ) | (1 | ) | |||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,962 | ) | — | (1,962 | ) | |||||||||||||||||||||||||||||||||||||
BALANCE—June 30, 2020 | 14,179 | 0 | 0 | 0 | 0 | 0 | 0 | 504,141,734 | 50 | 1,497,249 | (139,708 | ) | (415 | ) | 1,357,176 | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | — | 1,799 | — | — | 1,799 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options—net of tax | — | — | — | — | — | — | — | 138,264 | — | 395 | — | — | 395 | |||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | — | — | — | — | — | — | — | (5,108 | ) | — | (23 | ) | — | — | (23 | ) | ||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | — | — | 83 | 83 | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | 4,720 | — | 4,720 | |||||||||||||||||||||||||||||||||||||||
BALANCE—September 30, 2020 | $ | 14,179 | 0 | $ | 0 | 0 | $ | 0 | 0 | $ | 0 | 504,274,890 | $ | 50 | $ | 1,499,420 | $ | (134,988 | ) | $ | (332 | ) | $ | 1,364,150 | ||||||||||||||||||||||||||||
|
| Redeemable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Non-Controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||||||
|
| Interest |
|
|
| Preferred Stock—Issued and Outstanding |
|
| Common Stock—Issued and Outstanding |
|
| Additional |
|
|
|
|
| Other |
|
| Total |
| |||||||||||||||
|
|
|
|
|
| Number of |
|
| Par |
|
| Number of |
|
| Par |
|
| Paid-In |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| |||||||||
|
|
|
|
|
| Shares |
|
| Value |
|
| Shares |
|
| Value |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| |||||||||
BALANCE—December 31, 2020 |
| $ | 14,179 |
|
|
|
| — |
|
| $ | — |
|
|
| 504,274,890 |
|
| $ | 50 |
|
|
| 1,501,206 |
|
|
| (129,370 | ) |
| $ | (271 | ) |
| $ | 1,371,615 |
|
Issuance of common stock |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 110,679 |
|
|
| — |
|
|
| 1,007 |
|
|
| — |
|
|
| — |
|
|
| 1,007 |
|
Stock-based compensation expense |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 883,729 |
|
|
| — |
|
|
| 11,838 |
|
|
| — |
|
|
| — |
|
|
| 11,838 |
|
Exercise of stock options—net of tax |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 161,080 |
|
|
| — |
|
|
| 444 |
|
|
| — |
|
|
| — |
|
|
| 444 |
|
Dividend to CCCIS stockholders |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (134,551 | ) |
|
| — |
|
|
| (134,551 | ) |
Foreign currency translation |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 7 |
|
Net loss |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,084 | ) |
|
| — |
|
|
| (5,084 | ) |
BALANCE—March 31, 2021 |
|
| 14,179 |
|
|
|
| — |
|
|
| — |
|
|
| 505,430,378 |
|
|
| 50 |
|
|
| 1,514,495 |
|
|
| (269,005 | ) |
|
| (264 | ) |
|
| 1,245,276 |
|
Stock-based compensation expense |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,579 |
|
|
| — |
|
|
| — |
|
|
| 2,579 |
|
Foreign currency translation |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36 | ) |
|
| (36 | ) |
Net income |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,816 |
|
|
| — |
|
|
| 3,816 |
|
BALANCE—June 30, 2021 |
|
| 14,179 |
|
|
|
| — |
|
|
| — |
|
|
| 505,430,378 |
|
|
| 50 |
|
|
| 1,517,074 |
|
|
| (265,189 | ) |
|
| (300 | ) |
|
| 1,251,635 |
|
Stock-based compensation expense |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 213,966 |
|
|
|
|
|
|
| — |
|
|
| 213,966 |
|
Net equity infusion from the Business |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 97,740,002 |
|
|
| 10 |
|
|
| 704,831 |
|
|
| — |
|
|
| — |
|
|
| 704,841 |
|
Dividend to CCCIS stockholders |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (134,627 | ) |
|
| — |
|
|
| (134,627 | ) |
Deemed distribution to CCCIS option |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,006 | ) |
|
| — |
|
|
| — |
|
|
| (9,006 | ) |
Company Vesting Shares granted to |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 98,885 |
|
|
| (98,885 | ) |
|
| — |
|
|
| — |
|
Foreign currency translation |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
Net loss |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (189,782 | ) |
|
| — |
|
|
| (189,782 | ) |
BALANCE—September 30, 2021 |
| $ | 14,179 |
|
|
|
| — |
|
| $ | — |
|
|
| 603,170,380 |
|
| $ | 60 |
|
| $ | 2,525,750 |
|
| $ | (688,483 | ) |
| $ | (289 | ) |
| $ | 1,837,038 |
|
See notes to condensed consolidated financial statements.
8
9
CCC INTELLIGENT SOLUTIONS HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (191,050 | ) | $ | (22,494 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization of software, equipment, and property | 18,161 | 13,039 | ||||||
Amortization of intangible assets | 73,972 | 73,957 | ||||||
Deferred income taxes | (66,499 | ) | (18,018 | ) | ||||
Stock-based compensation | 235,413 | 7,471 | ||||||
Amortization of deferred financing fees | 3,204 | 3,475 | ||||||
Amortization of discount on debt | 537 | 553 | ||||||
Change in fair value of interest rate swaps | (8,373 | ) | 16,633 | |||||
Change in fair value of warrant liabilities | 26,889 | — | ||||||
Loss on early extinguishment of debt | 15,240 | 8,615 | ||||||
Non-cash lease expense | 5,029 | — | ||||||
Other | 54 | 42 | ||||||
Changes in: | ||||||||
Accounts receivable—Net | (8,332 | ) | (12,644 | ) | ||||
Deferred contract costs | (1,916 | ) | (507 | ) | ||||
Other current assets | (4,673 | ) | (755 | ) | ||||
Deferred contract costs—Non-current | (4,504 | ) | (1,246 | ) | ||||
Other assets | (3,221 | ) | (10,795 | ) | ||||
Operating lease assets | 5,133 | — | ||||||
Income taxes | (2,846 | ) | 11,597 | |||||
Accounts payable | 1,399 | 2,080 | ||||||
Accrued expenses | 17,051 | (5,183 | ) | |||||
Operating lease liabilities | (5,935 | ) | — | |||||
Deferred revenues | 2,861 | 580 | ||||||
Extinguishment of interest rate swap liability | (9,987 | ) | — | |||||
Other liabilities | (882 | ) | 389 | |||||
Net cash provided by operating activities | 96,725 | 66,789 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of software, equipment, and property | (25,022 | ) | (23,815 | ) | ||||
Purchase of equity method investment | (10,228 | ) | — | |||||
Purchase of intangible asset | (49 | ) | (560 | ) | ||||
Net cash used in investing activities | (35,299 | ) | (24,375 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of non-controlling interest in subsidiary | — | 14,179 | ||||||
Deemed distribution to CCCIS option holders | (9,006 | ) | — | |||||
Net proceeds from equity infusion from the Business Combination | 763,300 | — | ||||||
Principal payments on long-term debt | (1,336,154 | ) | (385,385 | ) | ||||
Proceeds from issuance of long-term debt, net of fees paid to lender | 789,927 | 369,792 | ||||||
Proceeds from borrowings on revolving lines of credit | — | 65,000 | ||||||
Repayment of borrowings on revolving lines of credit | — | (65,000 | ) | |||||
Proceeds from issuance of common stock | 1,007 | — | ||||||
Payment of fees associated with early extinguishment of long-term debt | (3,320 | ) | (29 | ) | ||||
Proceeds from exercise of stock options | 503 | 618 | ||||||
Repurchases of common stock | — | (123 | ) | |||||
Dividends to CCCIS stockholders | (269,174 | ) | — | |||||
Net cash used in financing activities | (62,917 | ) | (948 | ) | ||||
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (162 | ) | 108 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (1,653 | ) | 41,574 | |||||
CASH AND CASH EQUIVALENTS: | ||||||||
Beginning of period | 162,118 | 93,201 | ||||||
End of period | $ | 160,465 | $ | 134,775 | ||||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Unpaid liability related to software, equipment, and property | $ | 4,054 | $ | — | ||||
Leasehold improvements acquired by tenant improvement allowance | $ | 10,556 | $ | — | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest, excluding extinguishment of interest rate swap liability | $ | 47,312 | $ | 52,217 | ||||
Cash received (paid) for income taxes—Net | $ | (15,119 | ) | $ | 770 | |||
|
| For the Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | 37,334 |
|
| $ | (191,050 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization of software, equipment, and property |
|
| 20,155 |
|
|
| 18,161 |
|
Amortization of intangible assets |
|
| 74,405 |
|
|
| 73,972 |
|
Deferred income taxes |
|
| (53,061 | ) |
|
| (66,499 | ) |
Stock-based compensation |
|
| 80,769 |
|
|
| 235,413 |
|
Amortization of deferred financing fees |
|
| 1,424 |
|
|
| 3,204 |
|
Amortization of discount on debt |
|
| 196 |
|
|
| 537 |
|
Change in fair value of derivative instruments |
|
| (5,991 | ) |
|
| (8,373 | ) |
Change in fair value of warrant liabilities |
|
| (23,452 | ) |
|
| 26,889 |
|
Loss on early extinguishment of debt |
|
| — |
|
|
| 15,240 |
|
Non-cash lease expense |
|
| 3,076 |
|
|
| 5,029 |
|
Loss on disposal of software, equipment and property |
|
| 795 |
|
|
| — |
|
Gain on sale of cost method investment |
|
| (3,587 | ) |
|
| — |
|
Other |
|
| 101 |
|
|
| 54 |
|
Changes in: |
|
|
|
|
|
| ||
Accounts receivable—Net |
|
| (19,532 | ) |
|
| (8,332 | ) |
Deferred contract costs |
|
| (719 | ) |
|
| (1,916 | ) |
Other current assets |
|
| 12,321 |
|
|
| (4,673 | ) |
Deferred contract costs—Non-current |
|
| 3,299 |
|
|
| (4,504 | ) |
Other assets |
|
| (18,227 | ) |
|
| (3,221 | ) |
Operating lease assets |
|
| 1,623 |
|
|
| 5,133 |
|
Income taxes |
|
| 10,029 |
|
|
| (2,846 | ) |
Accounts payable |
|
| 2,466 |
|
|
| 1,399 |
|
Accrued expenses |
|
| (2,664 | ) |
|
| 17,051 |
|
Operating lease liabilities |
|
| (4,687 | ) |
|
| (5,935 | ) |
Deferred revenues |
|
| 2,557 |
|
|
| 2,861 |
|
Extinguishment of interest rate swap liability |
|
| — |
|
|
| (9,987 | ) |
Other liabilities |
|
| (192 | ) |
|
| (882 | ) |
Net cash provided by operating activities |
|
| 118,438 |
|
|
| 96,725 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| ||
Purchases of software, equipment, and property |
|
| (38,844 | ) |
|
| (25,022 | ) |
Acquisition of Safekeep, Inc., net of cash acquired |
|
| (32,242 | ) |
|
|
|
|
Purchase of equity method investment |
|
| — |
|
|
| (10,228 | ) |
Proceeds from sale of cost method investment |
|
| 3,901 |
|
|
|
|
|
Purchase of intangible asset |
|
| — |
|
|
| (49 | ) |
Net cash used in investing activities |
|
| (67,185 | ) |
|
| (35,299 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
Proceeds from exercise of stock options |
|
| 22,814 |
|
|
| 503 |
|
Proceeds from employee stock purchase plan |
|
| 3,197 |
|
|
| — |
|
Payments for employee taxes withheld upon vesting of equity awards |
|
| (5,005 | ) |
|
| — |
|
Principal payments on long-term debt |
|
| (6,000 | ) |
|
| (1,336,154 | ) |
Deemed distribution to CCCIS option holders |
|
| — |
|
|
| (9,006 | ) |
Net proceeds from equity infusion from the Business Combination |
|
| — |
|
|
| 763,300 |
|
Proceeds from issuance of long-term debt, net of fees paid to lender |
|
| — |
|
|
| 789,927 |
|
Proceeds from issuance of common stock |
|
| — |
|
|
| 1,007 |
|
Payment of fees associated with early extinguishment of long-term debt |
|
| — |
|
|
| (3,320 | ) |
Dividends to CCCIS stockholders |
|
| — |
|
|
| (269,174 | ) |
Net cash provided by (used in) financing activities |
|
| 15,006 |
|
|
| (62,917 | ) |
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
|
| (650 | ) |
|
| (162 | ) |
NET CHANGE IN CASH AND CASH EQUIVALENTS |
|
| 65,609 |
|
|
| (1,653 | ) |
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
| ||
Beginning of period |
|
| 182,544 |
|
|
| 162,118 |
|
End of period |
| $ | 248,153 |
|
| $ | 160,465 |
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
Noncash purchases of software, equipment, and property |
| $ | — |
|
| $ | 4,054 |
|
Leasehold improvements acquired by tenant improvement allowance |
| $ | — |
|
| $ | 10,556 |
|
Contingent consideration related to business acquisition |
| $ | 200 |
|
| $ | — |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 24,150 |
|
| $ | 47,312 |
|
Cash paid for income taxes—Net |
| $ | 55,526 |
|
| $ | 15,119 |
|
See notes to condensed consolidated financial statements.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CCC Intelligent Solutions Holdings Inc..
The Company is headquartered in Chicago, Illinois. The Company’s primary operations are in the United States (“US”) and it also has operations in China.
The Company was originally incorporated as a Cayman Islands exempted company on July 3, 2020 as a special purpose acquisition company under the name Dragoneer Growth Opportunities Corp. On February 2, 2021, CCCIS entered into the Business Combination Agreement with Dragoneer. In connection with the closing of the Business Combination (see Note 3), Dragoneer changed its jurisdiction of incorporation by deregistering as an exempted company in the Cayman Islands and continuing and domesticating as a Delaware corporation on July 30, 2021, upon which Dragoneer changed its name to CCC Intelligent Solutions Holdings Inc.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAPgenerally accepted accounting principles (“GAAP”) for interim financial information and in accordance with the instructions to Form(the “SEC”(“SEC”). The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles (“GAAP”)GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, the condensed consolidated financial statements may not include all the information and footnotes necessary for a complete presentation of financial position, results of operations or cash flows. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Proxy Statement/Prospectus filedCompany's Annual Report on July 6,Form 10-K for the year ended December 31, 2021.
The Business Combination (seeCompany's significant accounting policies are described in Note 3) was accounted for as a reverse recapitalization in accordance with GAAP with Dragoneer treated as the acquired company and CCCIS treated as the acquirer.
Basis of Accounting
Use of Estimates
11
results could differ from those estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from management’s estimates if past experience or other assumptions are not substantially accurate. Significant estimates in these condensed consolidated financial statements include the estimation of contract transaction prices, the determination of the amortization period for contract assets, the valuation of goodwill and intangible assets, the valuation of the warrant liabilities, and the estimates and assumptions associated with stock incentive plans, and the fair valuemeasurement of common stock.
Business Combinations—The Company is potentially subjectallocates the purchase consideration of acquired companies to concentration of credit risk primarily through its accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses which, when realized, have been within the range of management’s expectations. The Company generally does not require collateral. Credit risk on accounts receivables is minimized as a result of the large and diverse nature of the Company’s customer base.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Customer A | * | * | * | * | ||||||||||||
Customer B | * | 11 | % | * | 11 | % |
September 30, 2021 | December 31, 2020 | |||||||
Customer A | 11 | % | 12 | % | ||||
Customer B | 11 | % | * |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Software subscriptions | $ | 169,958 | $ | 143,761 | $ | 481,822 | $ | 422,799 | ||||||||
Other | 6,670 | 13,993 | 19,383 | 44,878 | ||||||||||||
Total revenues | $ | 176,628 | $ | 157,754 | $ | 501,205 | $ | 467,677 | ||||||||
The Company’s investmentCompany estimates the fair value of contingent consideration related to business combinations on the date of acquisition (see Note 4). The fair value of the contingent consideration is initially recognized at cost and adjusted thereafter for the post acquisition changesremeasured each reporting period, with any change in the Company’s share offair value recorded within the investee’s earnings.
Recently Adopted Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASUaffected by reference rate reform ifsubject to meeting certain criteria, are met. Adoption ofthat reference the expedients and exceptionsLondon Interbank Offered Rate ("LIBOR"), or another rate that is permittedexpected to be discontinued. ASU 2020-04 was effective upon issuance of ASU2020-04The Company is evaluating the impact of the adoption of this guidance on itsWhile there has been no material effect to our condensed consolidated financial statements.statements, the guidance will potentially be applicable when we modify the current reference rate of LIBOR to another reference rate in our First Lien Credit Agreement and related interest rate cap (see Note 15).
On July 30, 2021, noting the Company has reflected the reverse recapitalization pursuant to the Business Combination for all periods presented within the unaudited condensed consolidated balance sheets and condensed consolidated statements of mezzanine equity and stockholders’ equity. These reclassifications had no effect on reported net (loss) income and comprehensive (loss) income, cash flows, total assets or stockholders’ equity as previously reported.
Immediately upon the consummation of the Business Combination and the Transactions, Chariot Merger Sub, a wholly-owned direct subsidiary of Dragoneer, merged with and into CCCIS, with CCCIS surviving the Business Combination as a wholly-owned direct subsidiary of Dragoneer (the “Merger”(“Merger”). In connection with the Transactions, Dragoneer changed its name to “CCC Intelligent Solutions Holdings Inc.”
The Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Dragoneer was treated as the acquired company for accounting purposes and the Business Combination was treated as the equivalent of CCCIS issuing stock for the net assets of Dragoneer, accompanied by a recapitalization.
The net assets of Dragoneer are stated at historical cost, with no goodwill or other intangible assets recorded. Reported shares and earnings per share available to holders of CCCIS’s capital stock and equity awards prior to the Business Combination have been retroactively restated reflecting the exchange ratio of 1:340.5507 ("Exchange Ratio.
12
Pursuant to the Merger, at the Effective Time of the Merger (the “Effective Time”):
Concurrently with the execution of the Business Combination Agreement, the Company entered into subscription agreements with certain institutional investors (the “PIPE Investors”), pursuant to which the PIPE Investors purchased, immediately prior to the Closing, an aggregate of 15,000,000 shares of the Company’s common stock at a purchase price of $10.00$10.00 per share.
Prior to the Closing, the Company entered into forward purchase agreements with Dragoneer Funding LLC and Willett Advisors LLC, pursuant to which the Company issued an aggregate of 17,500,000 forward purchase units, each consisting of one common share andwarrantPublic Warrant to purchase one common share for $11.50$11.50 per share, for a purchase price of $10.00$10.00 per unit.
Effective upon Closing, 8,625,000 shares issued and held by Dragoneer Growth Opportunities Holdings (the “Sponsor Vesting Shares”) became$13.00$13.00 per share for any twenty trading days within any thirty consecutive trading day period beginning after Closing, or (b) a change in control as defined in the Business Combination Agreement. The Sponsor Vesting Shares do not meet the criteria to be classified as a liability and are presented within stockholders’ equity.
As part of the Business Combination, 15,000,00015.0 million shares of the Company’s common stock (the “Company Earnout Shares”) shall be issued to CCCIS shareholders existing as of immediately prior to Closing and holders of vested and unvested equity awards of CCCIS as of the date of the Business Combination Agreement (subject to continued employment), following a triggering event (“CCC Triggering Event”). A CCC Triggering Event is defined as the earlier of (a) the first date on which the shares of the Company’s common stock have traded for greater than or equal to $15.00$15.00 per share for any twenty trading days within any thirty consecutive trading day period commencing after the Closingclosing or (b) a change in control as defined in the Business Combination Agreement. If a CCC Triggering Event does not occur within ten years after Closing, the CCC Earnout Shares arewill be forfeited.
Of the 15.0 million Company Earnout Shares, 13.5 million shares are reserved for issuance to CCCIS shareholders. The Company Earnout Shares do not meet the criteria to be classified as a liability and the fair value of the shares reserved for shareholders of $98.9$98.9 million was charged to additionalholders (see Note 20).
The Company Earnout Shares are not issued shares and are excluded from the tableCompany's issued and outstanding shares within its condensed consolidated statements of common stock outstanding below.
In connection with the Business Combination, the Company incurred underwriting fees and other costs considered direct and incremental to the transaction totaling $11.1$11.1 million (before tax), consisting of legal, accounting, financial advisory and other professional fees. These amounts arewere treated as a reduction of the cash proceeds and are deducted from the Company’s additional paid-in capital.
The following table reconciles the elements of the Business Combination to the condensed consolidated statement of cash flows for the nine months ended September 30, 2021 and the condensed consolidated statement of mezzanine equity and stockholders’ equity for the periodthree and nine months ended September 30, 2021 (in thousands):
13
Cash - Dragoneer trust and cash |
| $ | 449,441 |
|
Cash - PIPE Financing |
|
| 150,000 |
|
Cash - Forward Purchase Agreements |
|
| 175,000 |
|
Less: transaction costs and advisory fees |
|
| (11,141 | ) |
Net cash contributions from Business Combination |
|
| 763,300 |
|
Less: non-cash fair value of Public Warrants and Private Warrants |
|
| (58,459 | ) |
Net equity infusion from Business Combination |
| $ | 704,841 |
|
On February 8, 2022, the Company completed its acquisition of Safekeep, Inc. (“Safekeep”), a privately held company that leverages AI to streamline and improve subrogation management across auto, property, workers’ compensation and other insurance lines of business. Leveraging Safekeep’s AI-enabled subrogation solutions, the acquisition will broaden the Company’s portfolio of cloud-based solutions available to its insurance customers.
In exchange for all the outstanding shares of Safekeep, the Company paid total cash consideration of $32.3 million upon closing. In accordance with the acquisition agreement, the Company placed $6.0 million in escrow for a general indemnity holdback to be paid to the sellers within 15 months of closing subject to reduction for certain indemnifications and other potential obligations of the selling shareholders.
As additional consideration for the shares, the acquisition agreement includes a contingent earnout for additional cash consideration. The potential amount of the earnout is calculated as a multiple of revenue, above a defined floor, during the 12-month measurement period ending December 31, 2024 and is not to exceed $90.0 million. The fair value of the contingent consideration as of the acquisition date of $0.2 million was estimated using a Monte Carlo simulation model that relies on unobservable inputs, including management estimates and assumptions. Thus, the contingent earnout is a Level 3 measurement.
The acquisition date fair value of the consideration transferred was $32.5 million, which consisted of the following (in thousands):
Cash paid through closing |
| $ | 32,300 |
|
Fair value of contingent earnout consideration |
|
| 200 |
|
Total acquisition date fair value of the consideration transferred |
| $ | 32,500 |
|
The acquisition was accounted for as a business combination and reflects the application of acquisition accounting in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations. The total purchase consideration was allocated to the assets acquired and liabilities assumed based on their fair values as of the acquisition date with the excess purchase price assigned to goodwill. The goodwill was primarily attributable to the expected synergies from the combined service offerings and the value of the acquired workforce. The goodwill is not deductible for tax purposes.
The Company’s estimates of the fair values of the assets acquired, liabilities assumed and contingent consideration are based on information that was available at the date of the acquisition and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of acquisition. There have been no material changes to the preliminary purchase price allocation.
The following table summarizes the allocation of the consideration to the fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Assets acquired: |
|
|
| |
Current assets |
| $ | 150 |
|
Intangible asset - acquired technology |
|
| 4,800 |
|
Deferred tax assets |
|
| 314 |
|
Total assets acquired |
|
| 5,264 |
|
Liabilities assumed: |
|
|
| |
Current liabilities |
|
| 147 |
|
Total liabilities assumed |
|
| 147 |
|
Net assets acquired |
|
| 5,117 |
|
Goodwill |
|
| 27,383 |
|
Total purchase price |
| $ | 32,500 |
|
14
The acquired technology intangible asset has an estimated useful life of seven years and is being amortized on a straight-line basis.
The fair value of the acquired technology intangible asset was determined by a valuation model based on estimates of future operating projections as well as judgments on the discount rate and other variables. This fair value measurement is based on significant unobservable inputs, including management estimates and assumptions and thus represents a Level 3 measurement.
The transaction costs associated with the acquisition were $1.2 million and are included in general and administrative expenses within the condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended September 30, 2022.
Cash - Dragoneer trust and cash | $ | 449,441 | ||
Cash - PIPE Financing | 150,000 | |||
Cash - Forward Purchase Agreements | 175,000 | |||
Less: transaction costs and advisory fees | (11,141 | ) | ||
Net cash contibutions from Business Combination | 763,300 | |||
Less: non-cash fair value of Public Warrants and Private Warrants | (58,459 | ) | ||
Net equity infusion from Business Combination | $ | 704,841 | ||
Disaggregation of Revenue—The Company provides disaggregation of revenue based on type of service as it believes these categories best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following table summarizes revenue by type of service for the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Software subscriptions |
| $ | 191,154 |
|
| $ | 169,958 |
|
| $ | 556,470 |
|
| $ | 481,822 |
|
Other |
|
| 7,580 |
|
|
| 6,670 |
|
|
| 21,872 |
|
|
| 19,383 |
|
Total revenues |
| $ | 198,734 |
|
| $ | 176,628 |
|
| $ | 578,342 |
|
| $ | 501,205 |
|
Transaction Price Allocated to the Remaining Performance Obligations—Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. As of September 30, 2022, approximately $1,345 million of revenue is expected to be recognized from remaining performance obligations in the amount of approximately $529 million during the following twelve months, and approximately $816 million thereafter. The estimated revenues do not include unexercised contract renewals. The remaining performance obligations exclude future transaction revenue where revenue is recognized as the services are rendered and in the amount to which the Company has the right to invoice.
Deferred Revenue—Revenue recognized for the three months ended September 30, 2022 from amounts in deferred revenue as of June 30, 2022 was $32.2 million. Revenue recognized for the three months ended September 30, 2021 from amounts in deferred revenue as of June 30, 2021 was $27.5 million.
Revenue recognized for the nine months ended September 30, 2022 from amounts in deferred revenue as of December 31, 2021 was $30.7 million. Revenue recognized for the nine months ended September 30, 2021 from amounts in deferred revenue as of December 31, 2020 was $26.6 million.
Contract Assets and Liabilities—The opening and closing balances of the Company’s receivables, contract assets and contract liabilities from contracts with customers are as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Accounts receivables-net of allowances |
| $ | 98,194 |
|
| $ | 78,793 |
|
Deferred contract costs |
|
| 15,788 |
|
|
| 15,069 |
|
Long-term deferred contract costs |
|
| 18,818 |
|
|
| 22,117 |
|
Other assets (accounts receivable, non-current) |
|
| 17,091 |
|
|
| 8,622 |
|
Deferred revenues |
|
| 33,602 |
|
|
| 31,042 |
|
Other liabilities (deferred revenues, non-current) |
|
| 1,340 |
|
|
| 1,574 |
|
15
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Accounts receivables-Net of allowances | $ | 82,367 | $ | 74,107 | ||||
Deferred contract costs | 13,833 | 11,917 | ||||||
Long-term deferred contract costs | 18,893 | 14,389 | ||||||
Deferred revenues | 29,384 | 26,514 | ||||||
Other liabilities (deferred revenues, non-current) | 1,739 | 2,001 |
A summary of the activity impacting deferred revenue balances during the three and nine months ended September 30, 20212022 and 2020,2021, is presented below (in thousands):
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Balance at beginning of period | $ | 30,756 | $ | 28,678 | $ | 28,515 | $ | 26,256 | ||||||||
Revenue recognized 1 | (87,649 | ) | (76,376 | ) | (250,379 | ) | (225,902 | ) | ||||||||
Additional amounts deferred 1 | 88,016 | 75,539 | 252,987 | 227,487 | ||||||||||||
Balance at end of period | $ | 31,123 | $ | 27,841 | $ | 31,123 | $ | 27,841 | ||||||||
Classified as: | ||||||||||||||||
Current | $ | 29,384 | $ | 25,693 | $ | 29,384 | $ | 25,693 | ||||||||
Non-current | 1,739 | 2,148 | 1,739 | 2,148 | ||||||||||||
Total deferred revenue | $ | 31,123 | $ | 27,841 | $ | 31,123 | $ | 27,841 | ||||||||
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
| September 30, |
|
| September 30, |
| ||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period | $ | 34,742 |
|
| $ | 30,756 |
|
| $ | 32,616 |
|
| $ | 28,515 |
|
Revenue recognized1 |
| (94,997 | ) |
|
| (87,649 | ) |
|
| (277,250 | ) |
|
| (250,379 | ) |
Additional amounts deferred1 |
| 95,197 |
|
|
| 88,016 |
|
|
| 279,576 |
|
|
| 252,987 |
|
Balance at end of period | $ | 34,942 |
|
| $ | 31,123 |
|
| $ | 34,942 |
|
| $ | 31,123 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
| ||||
Current | $ | 33,602 |
|
| $ | 29,384 |
|
| $ | 33,602 |
|
| $ | 29,384 |
|
Non-current |
| 1,340 |
|
|
| 1,739 |
|
|
| 1,340 |
|
|
| 1,739 |
|
Total deferred revenue | $ | 34,942 |
|
| $ | 31,123 |
|
| $ | 34,942 |
|
| $ | 31,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1
A summary of the activity impacting the deferred contractcosts during the three and nine months ended September 30, 20212022 and 20202021 is presented below (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 35,890 |
|
| $ | 28,667 |
|
| $ | 37,186 |
|
| $ | 26,361 |
|
Costs amortized |
|
| (4,444 | ) |
|
| (4,164 | ) |
|
| (13,072 | ) |
|
| (11,481 | ) |
Additional amounts deferred |
|
| 3,160 |
|
|
| 8,223 |
|
|
| 10,492 |
|
|
| 17,846 |
|
Balance at end of period |
| $ | 34,606 |
|
| $ | 32,726 |
|
| $ | 34,606 |
|
| $ | 32,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current |
| $ | 15,788 |
|
| $ | 13,833 |
|
| $ | 15,788 |
|
| $ | 13,833 |
|
Non-current |
|
| 18,818 |
|
|
| 18,893 |
|
|
| 18,818 |
|
|
| 18,893 |
|
Total deferred contract costs |
| $ | 34,606 |
|
| $ | 32,726 |
|
| $ | 34,606 |
|
| $ | 32,726 |
|
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Balance at beginning of period | $ | 28,667 | $ | 24,084 | $ | 26,361 | $ | 23,270 | ||||||||
Costs amortized | (4,164 | ) | (3,132 | ) | (11,481 | ) | (9,184 | ) | ||||||||
Additional amounts deferred | 8,223 | 4,070 | 17,846 | 10,936 | ||||||||||||
Balance at end of period | $ | 32,726 | $ | 25,022 | $ | 32,726 | $ | 25,022 | ||||||||
Classified as: | ||||||||||||||||
Current | $ | 13,833 | $ | 11,314 | $ | 13,833 | $ | 11,314 | ||||||||
Non-current | 18,893 | 13,708 | 18,893 | 13,708 | ||||||||||||
Total deferred contract costs | $ | 32,726 | $ | 25,022 | $ | 32,726 | $ | 25,022 | ||||||||
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Private Warrants—As of September 30, 2021,2022, the Company had PublicCompany's Private Warrants and Private Warrants recognized ascontingent consideration liability related to a liability andbusiness acquisition are measured at fair value on a recurring basis.
The Private Placement Warrants are valued using Level 1 and Level 2 inputs within the Black-Scholes option-pricing model. The assumptions utilized under the Black ScholesBlack-Scholes option pricing model require judgments and estimates. Changes in these inputs and assumptions could affect the measurement of the estimated fair value of the Private Warrants. Accordingly, the Private Warrants are classified within Level 2 of the fair value hierarchy.
The valuation of the Private Warrants as of September 30, 2022 and December 31, 2021 was determined using the Black-Scholes option valuationpricing model using the following assumptions:
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Expected term (in years) |
|
| 3.8 |
|
|
| 4.6 |
|
Expected volatility |
|
| 35 | % |
|
| 35 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
Risk-free interest rate |
|
| 4.17 | % |
|
| 1.20 | % |
The estimated fair value of each Private Warrant using the Company's stock price on the valuation date and above assumptions was $2.19 and $3.51 as of September 30, 2022 and December 31, 2021, respectively.
16
Contingent Consideration Liability—The contingent consideration liability related to the acquisition of Safekeep (see Note 4), recognized within other liabilities on the condensed consolidated balance sheet, is adjusted each reporting period for changes in fair value, which can result from changes in anticipated payments and changes in assumed discount rates. These inputs are unobservable in the market and therefore categorized as Level 3 inputs.
The estimated fair value of the contingent consideration at the date of acquisition was determined using probability-weighted discounted cash flows and a Monte Carlo simulation model. The discount rate, based on the Company's estimated cost of debt, was 9.0%.
Since the date of the business acquisition of Safekeep, there has been no change in the estimated fair value of the Company's contingent consideration liability and the Company has not recognized any gain or loss for a change in the estimated fair value of contingent consideration since the date of acquisition.
Interest Rate Cap—In August 2022, the Company entered into two interest rate cap agreements to reduce its exposure to increases in interest rates applicable to its floating rate long-term debt (See Note 15). The fair value of the interest rate cap agreements was estimated using inputs that were observable or that could be corroborated by observable market data and therefore, was classified within Level 2 of the fair value hierarchy as of September 30, 2022.
The Company did not designate its interest rate cap agreements as hedging instruments and records the changes in fair value within earnings. As of September 30, 2022, the interest rate cap agreements had a fair value of $12.3 million, classified within other assets in the accompanying condensed consolidated balance sheet.
Expected term (in years) | 4.8 | |||
Expected volatility | 30 | % | ||
Expected dividend yield | 0 | % | ||
Risk-free interest rate | 0.94 | % | ||
Fair value at valuation date | $ | 2.54 |
The following table presents the fair value of the assets and liabilities measured at fair value on a recurring basis atas of September 30, 20212022 (in thousands):
Liabilities | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Public warrants | $ | 40,136 | $ | 40,136 | $ | — | $ | — | ||||||||
Private warrants | 45,212 | — | 45,212 | 0 | ||||||||||||
Total | $ | 85,348 | $ | 40,136 | $ | 45,212 | $ | 0 | ||||||||
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest rate cap |
|
| 12,279 |
|
|
| — |
|
|
| 12,279 |
|
|
| — |
|
Total Assets |
| $ | 12,279 |
|
| $ | — |
|
| $ | 12,279 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent consideration related to business acquisition |
| $ | 200 |
|
| $ | — |
|
| $ | — |
|
| $ | 200 |
|
Private warrants |
|
| 39,026 |
|
|
| — |
|
|
| 39,026 |
|
|
| — |
|
Total Liabilities |
| $ | 39,226 |
|
| $ | — |
|
| $ | 39,026 |
|
| $ | 200 |
|
The following table presents the fair value of the assets and liabilities measured at fair value on a recurring basis atas of December 31, 20202021 (in thousands):
Liabilities |
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Private warrants |
| $ | 62,478 |
|
| $ | — |
|
| $ | 62,478 |
|
| $ | — |
|
Total |
| $ | 62,478 |
|
| $ | — |
|
| $ | 62,478 |
|
| $ | — |
|
Liabilities | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
Interest rate swaps | $ | 18,359 | $ | 0 | $ | 18,359 | $ | 0 | ||||||||
Total | $ | 18,359 | $ | 0 | $ | 18,359 | $ | 0 | ||||||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair Value of Other Financial Instruments
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Carrying |
|
| Estimated |
|
| Carrying |
|
| Estimated |
| ||||
Description |
| Amount |
|
| Fair Value |
|
| Amount |
|
| Fair Value |
| ||||
Term B Loan, including current portion |
| $ | 792,270 |
|
| $ | 768,195 |
|
| $ | 798,073 |
|
| $ | 799,000 |
|
September 30, 2021 | December 31, 2020 | |||||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||||
Description | Amount | Fair Value | Amount | Fair Value | ||||||||||||
Term B Loan, including current portion | $ | 798,007 | $ | 799,000 | $ | — | $ | — | ||||||||
First Lien Term Loan, including current portion | — | — | 1,333,366 | 1,332,433 |
The fair value of the Company’s long-term debt, including current maturities, was estimated based on the quoted market prices for the same or similar instruments and fluctuates with changes in applicable interest rates among other factors. The fair value of long-term debt is classified as a Level 2 measurement in the fair value hierarchy and is established based on observable inputs in less active markets.
17
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law. The IRA contains several revisions to the Internal Revenue Code, including a 15% corporate minimum income tax and a 1% excise tax on corporate stock repurchases in tax years beginning after December 31, 2022. While these tax law changes have no immediate effect on our results of operations and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate its impact as further information becomes available.
The Company’s effective tax rate for the three months ended September 30, 2022 and 2021 was 22.0% compared to26.1% and 22.0%, respectively. The effective tax rate for the three months ended September 30, 2022 was higher than the effective tax rate for the three months ended September 30, 2020 of 34.8%.
The Company's effective tax rate for the nine months ended September 30, 2022 and 2021 was 25.4% and 22.1%, respectively. The effective tax rate for the threenine months ended September 30, 2022 was higher than the effective tax rate for the nine months ended September 30, 2021 was lower than the September 30, 2020 effective tax rate primarily due to the increase in stocknon-deductible executive compensation, expense in the current quarter which diluted the effects of permanent differences on the tax rate, partially offset by the prior period benefit being limitedrelated to the amount that would be recognized ifyear-to-date ordinaryloss were the anticipated ordinary lossCompany's deferred tax liability for the fiscal year.
The Company made income tax payments of $4.7$16.6 million and $8.5$4.7 million for the three months ended September 30, 20212022 and 2020,2021, respectively. The Company received negligible refunds from the Internal Revenue Service ("IRS") and various states for the three months ended September 30, 2021,2022 and $9.0 million for the three months ended September 30, 2020.
The Company made income tax payments of $15.1$55.5 million and $9.6$15.1 million for the nine months ended September 30, 20212022 and 2020,2021, respectively. The Company received negligible refunds from the Internal Revenue ServiceIRS and various states totaling $16 thousand and $10.4 million for the nine months ended September 30, 2021,2022 and 2020, respectively.
As of September 30, 2021,2022, unrecognized tax benefits were materially consistent with the amount atas of December 31, 2020.2021. We anticipate this amount will decrease from $3.6 million to $3.5 million over the following twelve months, as the increase related to $3.6 millionfiscal year 2022 is offset by December 31, 2021.decreases related to statute expirations.
Accounts receivable–netNet as of September 30, 20212022 and December 31, 2020,2021, consists of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Accounts receivable |
| $ | 102,884 |
|
| $ | 82,584 |
|
Allowance for doubtful accounts and sales reserves |
|
| (4,690 | ) |
|
| (3,791 | ) |
Accounts receivable–net |
| $ | 98,194 |
|
| $ | 78,793 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Accounts receivable | $ | 86,339 | $ | 78,331 | ||||
Allowance for doubtful accounts and sales reserves | (3,972 | ) | (4,224 | ) | ||||
Accounts receivable–net | $ | 82,367 | $ | 74,107 | ||||
Changes to the allowance for doubtful accounts and sales reserves during the three and nine months ended September 30, 2022 and 2021, and 2020, consistsconsist of the following (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Balance at beginning of period |
| $ | 4,296 |
|
| $ | 4,218 |
|
| $ | 3,791 |
|
| $ | 4,224 |
|
Charges to bad debt and sales reserves |
|
| 1,100 |
|
|
| 818 |
|
|
| 3,036 |
|
|
| 2,524 |
|
Write-offs, net |
|
| (706 | ) |
|
| (1,064 | ) |
|
| (2,137 | ) |
|
| (2,776 | ) |
Balance at end of period |
| $ | 4,690 |
|
| $ | 3,972 |
|
| $ | 4,690 |
|
| $ | 3,972 |
|
18
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Balance at beginning of period | $ | 4,218 | $ | 3,918 | $ | 4,224 | $ | 3,970 | ||||||||
Charges to bad debt and sales reserves | 818 | 1,328 | 2,524 | 3,191 | ||||||||||||
Write-offs, net | (1,064 | ) | (906 | ) | (2,776 | ) | (2,821 | ) | ||||||||
Balance at end of period | $ | 3,972 | $ | 4,340 | $ | 3,972 | $ | 4,340 | ||||||||
Other current assets as of September 30, 20212022 and December 31, 2020,2021, consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Prepaid SaaS costs |
|
| 6,606 |
|
|
| 5,909 |
|
Prepaid insurance |
|
| 5,820 |
|
|
| 4,416 |
|
Prepaid service fees |
|
| 5,113 |
|
|
| 8,623 |
|
Prepaid software and equipment maintenance |
|
| 3,912 |
|
|
| 7,593 |
|
Non-trade receivables |
|
| 1,109 |
|
|
| 8,321 |
|
Other |
|
| 11,338 |
|
|
| 11,319 |
|
Total |
| $ | 33,898 |
|
| $ | 46,181 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Prepaid software and equipment maintenance | $ | 3,981 | $ | 7,499 | ||||
Prepaid SaaS costs | 7,600 | 4,290 | ||||||
Prepaid service fees | 4,114 | 3,969 | ||||||
Prepaid insurance | 6,379 | 517 | ||||||
Non-trade receivables | 5,901 | 9,095 | ||||||
Other | 8,286 | 6,216 | ||||||
Total | $ | 36,261 | $ | 31,586 | ||||
Software, equipment, and property as of September 30, 20212022 and December 31, 2020,2021, consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Software, licenses and database |
| $ | 167,235 |
|
| $ | 140,692 |
|
Leasehold improvements |
|
| 33,102 |
|
|
| 34,880 |
|
Computer equipment |
|
| 32,948 |
|
|
| 31,635 |
|
Building and land |
|
| 4,910 |
|
|
| 4,910 |
|
Furniture and other equipment |
|
| 2,780 |
|
|
| 5,343 |
|
Total software, equipment, and property |
|
| 240,975 |
|
|
| 217,460 |
|
Less accumulated depreciation and amortization |
|
| (93,444 | ) |
|
| (81,615 | ) |
Software, equipment, and property—Net |
| $ | 147,531 |
|
| $ | 135,845 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Software, licenses and database | $ | 131,493 | $ | 109,967 | ||||
Computer equipment | 29,897 | 27,733 | ||||||
Leasehold improvements | 24,278 | 13,397 | ||||||
Furniture and other equipment | 5,347 | 5,000 | ||||||
Building and land | 4,910 | 4,910 | ||||||
Total software, equipment, and property | 195,925 | 161,007 | ||||||
Less accumulated depreciation and amortization | (74,907 | ) | (59,569 | ) | ||||
Net software, equipment, and property | $ | 121,018 | $ | 101,438 | ||||
Depreciation and amortization expense related to software, equipment and property was $7.7$6.7 million and $4.5$7.7 million for the three months ended September 30, 20212022 and 2020,2021, respectively. Depreciation and amortization expense related to software, equipment and property was $18.2$20.2 million and $13.0$18.2 million for the nine months ended September 30, 2022 and 2021, and 2020, respectively.
The Company leases real estate in the form of office space and data center facilities. The Company additionally leases equipment inGenerally, at the forminception of information technology equipment. Generally,the contract, the term for real estate leases ranges from 1 to 17 years at inception of the contract. Generally,and the term for equipment leases is 1 to 3 years at inception of the contract.years. Some real estate leases include options to renew that can extend the original term by 3 to 5 to 10 years.
The components of lease expense for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating lease costs |
| $ | 1,871 |
|
| $ | 4,043 |
|
| $ | 7,545 |
|
| $ | 13,179 |
|
Variable lease costs |
|
| 585 |
|
|
| 552 |
|
|
| 1,996 |
|
|
| 1,615 |
|
Total lease costs |
| $ | 2,456 |
|
| $ | 4,595 |
|
| $ | 9,541 |
|
| $ | 14,794 |
|
19
For the Three Months Ended | For the Nine Months Ended | |||||||
September 30, 2021 | September 30, 2021 | |||||||
Operating lease costs | $ | 4,043 | $ | 13,179 | ||||
Variable lease costs | 552 | 1,615 | ||||||
Total lease costs | $ | 4,595 | $ | 14,794 | ||||
Supplemental cash flow and other information related to leases for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cash payments for operating leases |
| $ | 1,287 |
|
| $ | 2,872 |
|
| $ | 7,033 |
|
| $ | 8,870 |
|
Operating lease assets obtained in exchange for lease liabilities |
|
| 2,257 |
|
|
| — |
|
|
| 2,366 |
|
|
| 2,365 |
|
For the Three Months Ended | For the Nine Months Ended | |||||||
September 30, 2021 | September 30, 2021 | |||||||
Cash payments for operating leases | $ | 2,872 | $ | 8,870 | ||||
Operating lease assets obtained in exchange for lease liabilities | 0 | 2,365 |
Years Ending December 31: | ||||
Remainder of 2021 | $ | 2,575 | ||
2022 | 8,599 | |||
2023 | 6,092 | |||
2024 | 7,195 | |||
2025 | 7,243 | |||
Thereafter | 68,416 | |||
Total Lease Payments | 100,120 | |||
Less: Interest | (34,403 | ) | ||
Less: Lease incentive recognized as offset to lease liability | (6,312 | ) | ||
Total | $ | 59,405 | ||
Years Ending December 31: | ||||
2021 | $ | 7,143 | ||
2022 | 6,090 | |||
2023 | 5,180 | |||
2024 | 7,059 | |||
2025 | 7,243 | |||
Thereafter | 68,415 | |||
Total | $ | 101,130 | ||
Goodwill
No goodwill impairments were recorded during the three and nine months ended September 30, 20212022 and 2020.
The Company performs its annual impairment assessment as of September 30 of each fiscal year. As of September 30, 2021 and 2020,2022, the annual impairment assessment indicated 0no impairment and there was no change to the carrying amount of goodwill.
Based on the quantitative assessment as of September 30, 2022, the Company determined that its China reporting unit had an estimated fair value that was not significantly in excess of its carrying value. While it was concluded that the goodwill assigned to the China reporting unit was not impaired, it could be at risk of future impairment if the Company's long-term financial objectives are not achieved or if there are changes to estimates and assumptions from a number of factors, many of which are outside the Company's control. As a result of the assessment, the Company did not recognize an impairment charge related to the China reporting unit.
As of September 30, 2021, the annual impairment assessment indicated no impairment and there was no change to the carrying amount of goodwill due to impairment.
Changes in the net carrying amount of goodwill during the nine months ended September 30, 2022 were as follows (in thousands):
|
| Net |
| |
|
| Carrying |
| |
|
| Amount |
| |
|
|
|
| |
Balance as of December 31, 2021 |
| $ | 1,466,884 |
|
Acquisition of Safekeep, Inc. |
|
| 27,383 |
|
Balance as of September 30, 2022 |
| $ | 1,494,267 |
|
Intangible Assets
During the three and nine months ended September 30, 20212022 and 2020,2021, the Company did 0tnot record an impairment charge.
20
The Company performs its annual impairment assessment of indefinite life intangible assets as of September 30 of each fiscal year. As of September 30, 2022 and 2021, the annual impairment assessment indicated no impairment.
During February 2022, the Company recorded $4.8 million of acquired technology intangible assets as a result of the acquisition of Safekeep (see Note 4).
The intangible assets balance as of September 30, 2021,2022, is reflected below (in thousands):
Weighted- | ||||||||||||||||||||
Average | ||||||||||||||||||||
Estimated | Remaining | Gross | Net | |||||||||||||||||
Useful Life | Useful Life | Carrying | Accumulated | Carrying | ||||||||||||||||
(Years) | (Years) | Amount | Amortization | Amount | ||||||||||||||||
Intangible assets: | ||||||||||||||||||||
Customer relationships | 16–18 | 13.5 | $ | 1,299,750 | $ | (319,764 | ) | $ | 979,986 | |||||||||||
Acquired technologies | 3–7 | 2.5 | 183,159 | (115,738 | ) | 67,421 | ||||||||||||||
Favorable lease terms | 6 | 1.5 | 280 | (207 | ) | 73 | ||||||||||||||
Subtotal | 1,483,189 | (435,709 | ) | 1,047,480 | ||||||||||||||||
Trademarks—indefinite life | 190,470 | — | 190,470 | |||||||||||||||||
Total intangible assets | $ | 1,673,659 | $ | (435,709 | ) | $ | 1,237,950 | |||||||||||||
|
|
|
| Weighted- |
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
| ||||
|
| Estimated |
| Remaining |
|
| Gross |
|
|
|
|
| Net |
| ||||
|
| Useful Life |
| Useful Life |
|
| Carrying |
|
| Accumulated |
|
| Carrying |
| ||||
|
| (Years) |
| (Years) |
|
| Amount |
|
| Amortization |
|
| Amount |
| ||||
Customer relationships |
| 16–18 |
|
| 12.6 |
|
| $ | 1,299,750 |
|
| $ | (392,029 | ) |
| $ | 907,721 |
|
Acquired technologies |
| 3–7 |
|
| 2.0 |
|
|
| 187,950 |
|
|
| (142,511 | ) |
|
| 45,439 |
|
Subtotal |
|
|
|
|
|
|
| 1,487,700 |
|
|
| (534,540 | ) |
|
| 953,160 |
| |
Trademarks—indefinite life |
|
|
|
|
|
|
| 190,470 |
|
|
| — |
|
|
| 190,470 |
| |
Total intangible assets |
|
|
|
|
|
| $ | 1,678,170 |
|
| $ | (534,540 | ) |
| $ | 1,143,630 |
|
The intangible assets balance as of December 31, 2020,2021, is reflected below (in thousands):
|
|
|
|
| Weighted- |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
| Average |
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Estimated |
|
| Remaining |
|
| Gross |
|
|
|
|
|
| Net |
| ||||||
|
| Useful Life |
|
| Useful Life |
|
| Carrying |
|
|
| Accumulated |
|
| Carrying |
| ||||||
|
| (Years) |
|
| (Years) |
|
| Amount |
|
|
| Amortization |
|
| Amount |
| ||||||
Customer relationships |
| 16–18 |
|
|
| 13.3 |
|
| $ | 1,299,750 |
|
|
| $ | (337,831 | ) |
| $ | 961,919 |
| ||
Acquired technologies |
| 3–7 |
|
| 2.3 |
|
|
| 183,164 |
|
|
|
| (122,318 | ) |
|
| 60,846 |
| |||
Favorable lease terms |
| 6 |
|
|
| 0.3 |
|
|
| 280 |
|
|
|
|
| (266 | ) |
|
| 14 |
| |
Subtotal |
|
|
|
|
|
|
|
| 1,483,194 |
|
|
|
| (460,415 | ) |
|
| 1,022,779 |
| |||
Trademarks—indefinite life |
|
|
|
|
|
|
|
| 190,470 |
|
|
|
| — |
|
|
| 190,470 |
| |||
Total intangible assets |
|
|
|
|
|
|
| $ | 1,673,664 |
|
|
| $ | (460,415 | ) |
| $ | 1,213,249 |
|
Weighted- | ||||||||||||||||||||
Average | ||||||||||||||||||||
Estimated | Remaining | Gross | Net | |||||||||||||||||
Useful Life | Useful Life | Carrying | Accumulated | Carrying | ||||||||||||||||
(Years) | (Years) | Amount | Amortization | Amount | ||||||||||||||||
Intangible assets: | ||||||||||||||||||||
Customer relationships | 16–18 | 14.3 | $ | 1,299,750 | $ | (265,567 | ) | $ | 1,034,183 | |||||||||||
Acquired technologies | 3–7 | 3.3 | 183,154 | (95,998 | ) | 87,156 | ||||||||||||||
Favorable lease terms | 6 | 2.3 | 280 | (172 | ) | 108 | ||||||||||||||
Subtotal | 1,483,184 | (361,737 | ) | 1,121,447 | ||||||||||||||||
Trademarks—indefinite life | 190,470 | — | 190,470 | |||||||||||||||||
Total intangible assets | $ | 1,673,654 | $ | (361,737 | ) | $ | 1,311,917 | |||||||||||||
Amortization expense for intangible assets was $24.7$24.8 million and $24.7 million for the three months ended September 30, 2022 and 2021, and 2020.respectively. Amortization expense for intangible assets was $74.0$74.4 million and $74.0 million for the nine months ended September 30, 2022 and 2021, and 2020.
Future amortization expense for the remainder of the year ended December 31, 20212022 and the following four years ended December 31 and thereafter for intangible assets as of September 30, 2021,2022, is as follows (in thousands):
Years Ending December 31: |
|
|
| |
2022 |
| $ | 24,818 |
|
2023 |
|
| 99,003 |
|
2024 |
|
| 81,417 |
|
2025 |
|
| 72,949 |
|
2026 |
|
| 72,949 |
|
Thereafter |
|
| 602,024 |
|
Total |
| $ | 953,160 |
|
21
Years Ending December 31: | ||||
2021 | $ | 24,660 | ||
2022 | 98,627 | |||
2023 | 98,333 | |||
2024 | 80,731 | |||
2025 | 72,263 | |||
Thereafter | 672,866 | |||
Total | $ | 1,047,480 | ||
Equity Method | ||||
Investment | ||||
Equity method investment carrying value at December 31, 2020 | $ | 0 | ||
Cash contributions | 10,228 | |||
Share of net income (loss) from the Investee | — | |||
Equity method investment carrying value at September 30, 2021 | $ | 10,228 | ||
Accrued expenses as of September 30, 20212022 and December 31, 2020,2021, consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Compensation |
| $ | 43,263 |
|
| $ | 49,510 |
|
Professional services |
|
| 4,178 |
|
|
| 2,371 |
|
Software license agreement |
|
| 2,567 |
|
|
| 3,265 |
|
Royalties and licenses |
|
| 4,543 |
|
|
| 2,640 |
|
Employee insurance benefits |
|
| 3,586 |
|
|
| 2,443 |
|
Sales tax |
|
| 2,411 |
|
|
| 2,296 |
|
Other |
|
| 3,325 |
|
|
| 4,166 |
|
Total |
| $ | 63,873 |
|
| $ | 66,691 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Compensation | $ | 45,940 | $ | 37,696 | ||||
Professional services | 12,262 | 2,753 | ||||||
Phantom stock incentive plan | 10,220 | — | ||||||
Royalties and licenses | 2,777 | 2,301 | ||||||
Sales tax | 2,404 | 2,294 | ||||||
Employee insurance benefits | 2,035 | 1,979 | ||||||
Software license agreement | 2,304 | — | ||||||
Other | 3,829 | 5,964 | ||||||
Total | $ | 81,771 | $ | 52,987 | ||||
Other liabilities as of September 30, 20212022 and December 31, 2020,2021, consist of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Deferred revenue-non-current |
| $ | 1,340 |
|
| $ | 1,574 |
|
Software license agreement |
|
| 1,189 |
|
|
| 4,211 |
|
Contingent consideration |
|
| 200 |
|
|
| — |
|
Total |
| $ | 2,729 |
|
| $ | 5,785 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Payroll tax deferment | $ | 3,152 | $ | 3,152 | ||||
Software license agreement | 1,917 | 234 | ||||||
Deferred revenue-non-current | 1,739 | 2,001 | ||||||
Deferred rent | — | 4,461 | ||||||
Phantom stock incentive plan | — | 3,217 | ||||||
Fair value of interest rate swaps | — | 18,359 | ||||||
Other | — | 1,346 | ||||||
Total | $ | 6,808 | $ | 32,770 | ||||
On September 21, 2021, CCC Intelligent Solutions Inc., an indirect wholly ownedwholly-owned subsidiary of the Company, together with certain of the Company’s subsidiaries acting as guarantors entered into a credit agreement (the “2021 Credit Agreement”).
The 2021 Credit Agreement replacesreplaced the Company’s 2017 First Lien Credit Agreement (the “First Lien Credit Agreement”), dated as of April 27, 2017, as amended as of February 14, 2020.
The proceeds of the 2021 Credit Agreement were used to repay all outstanding borrowings under the First Lien Credit Agreement.
2021 Credit Agreement
The Company incurred $9.8
The Company incurred $3.1$3.1 million in financing costs related to the 2021 Revolving Credit Facility. These costs were recorded to thea deferred financing fees asset account and are being amortized to interest expense over the term of the 2021 Revolving Credit Facility using the effective interest method. AtAs of September 30, 2022 and December 31, 2021, the unamortized deferred financing fees asset balance was $3.1 million.
Beginning with the quarter ended March 31, 2022, the Term B Loan requires quarterly principal payments of $2.0$2.0 million until June 30, 2028, with the remaining outstanding principal amount required to be paid on the maturity date, September 21, 2028. Beginning with fiscalthe year ending December 31, 2022, the Term B Loan requires a prepayment of principal, subject to certain exceptions, in connection with the receipt of proceeds from certain asset sales, casualty events, and debt issuances by the Company, and up to 50%50% of annual excess cash flow, as defined in and as further set forth in the 2021 Credit Agreement. When a principal prepayment is required, the prepayment offsets the future quarterly principal payments of the same amount. TheAs of
22
September 30, 2022, the Company iswas not subject to the annual excess cash flow calculation in fiscal year 2021 and 0no such principal prepayments are required.
As of September 30, 2022 and December 31, 2021, the amount outstanding on the Term B Loan is $800.0$794.0 million and $800.0 million, respectively. As of September 30, 2022 and December 31, 2021, $8.0 million of which, $8.0 millionthe amount outstanding on the Term B Loan is classified as current in the accompanying condensed consolidated balance sheet.
Borrowings under the 2021 Credit AgreementFacility bear interest at a variable raterates based on the ratio of the London Interbank Offer Rate (“LIBOR”), plus upCompany’s and its subsidiaries’ consolidated first lien net indebtedness to 2.50% per annum based upon the Company’s leverage ratio, as definedand its subsidiaries’ consolidated EBITDA for applicable periods specified in the 2021 Credit Agreement. The applicable interest rate for amounts outstanding under the Term B Loan are subject to a 0.50% per annum floor.Facility. A quarterly commitment fee of up to 0.50%0.50% is payable on the unused portion of the 2021 Revolving Credit Facility.
During the three months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.0%.4.6% and 3.0%, respectively. The Company did 0t make anymade interest payments of $9.2 million during the three months ended September 30, 2022. There were no interest payments made during the three months ended September 30, 2021.
During the nine months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.6% and 3.0%, respectively. The Company made interest payments of $21.6 million during the nine months ended September 30, 2022. There were no interest payments made during the nine months ended September 30, 2021.
The Company issued a standby letter of credit for $0.7$0.7 million during the three months ended September 30, 2021 which reduces the amount available to be borrowed under the 2021 Revolving Credit Facility and atas of September 30, 2022 and December 31, 2021, $249.3$249.3 million was available to be borrowed.
In addition, beginning with the fiscal quarter endingthree months ended March 31, 2022, the terms of the 2021 Credit Agreement include a financial covenant which requires that, at the end of each fiscal quarter, if the aggregate amount of borrowings under the 2021 Revolving Credit Facility over the prior four fiscal quarters exceeds 35%35% of the aggregate commitments, the Company’s leverage ratio cannot exceed 6.25 to 1.00.1.00. As of September 30, 2021,2022, the Company was not subject to the financial covenant.
First Lien Credit Agreement
The First Lien Credit Agreement consisted of a $1.0 billion term loan (“First Lien Term Loan”) and revolving credit facilities for an aggregate principal amount of $100.0 million (the “First Lien Revolvers”), with a sublimit of $30.0 million for letters of credit under the First Lien Revolvers. The Company received proceeds of $997.5 million, net of debt discount of $2.5 million, related to the First Lien Term Loan.
In February 2020, the Company refinanced its long-term debt (“2020 Refinancing”) and entered into the First Amendment to the First Lien Credit Agreement (“First Lien Amendment”). The First Lien Amendment provided an incremental term loan, amended the amount of commitments and the maturity dates of the First Lien Credit Agreement’s revolving credit facilities. The proceeds of the incremental term loanrefinance were used to repay allthe outstanding borrowings underbalance of the Company's Second Lien Credit Agreement, (“Second Lien Credit Agreement”).
The First Lien Amendment provided an incremental term loan in the amount of $375.0$375.0 million. The Company received proceeds from the incremental term loan of $373.1$373.1 million, net of debt discount of $1.9$1.9 million. At December 31, 2020, the unamortized debt discount was $2.8 million.
In addition, the First Lien Amendment reduced the amount of commitments under each of the Dollar Revolver and the Multicurrency Revolver to $59.3 million and $32.0 million, respectively, and extended the maturity of a portion of the commitments under each revolving credit facility. Pursuant to the First Lien Amendment, thenon-extendedDollar Revolver andnon-extendedMulticurrency Revolver consistedRevolvers to an aggregate principal amount of commitments of $8.1 million and $4.4 million, respectively, which were scheduled to mature on $April 27, 202291.3. The extended Dollar Revolver and extended Multicurrency Revolver consisted of commitments of $51.2 million and $27.6
The Company incurred $27.6$27.6 million and $3.4$3.4 million in financing costs related to the First Lien Credit Agreement and First Lien Amendment, respectively. These costs were recorded to a contra debt account and were being amortized to interest expense over the term of the First Lien Credit Agreement using the effective interest method. The unamortized costs at the time of extinguishment of the First Lien Credit Agreement were recognized as a loss on early extinguishment of debt in the condensed consolidated statement operations and comprehensive (loss) income during the three months ended September 30, 2021.
The First Lien Term Loan required (after giving effect to the First Lien Amendment) quarterly principal payments of approximately $3.5$3.5 million until March 31, 2024,, with the remaining outstanding principal amount required to be paid on the maturity date, April 27, 2024.2024. The First Lien Term Loan required a prepayment of principal, subject to certain exceptions, in connection with the receipt of proceeds from certain asset sales, casualty events, and debt issuances by the Company, and up to 50%50% of annual excess cash flow, as defined in and as further set forth in the First Lien Credit Agreement. When a principal prepayment was required, the prepayment offset the future quarterly principal payments of the same amount. As of December 31, 2020, subject to the request of the lenders of the First Lien Term Loan, a principal prepayment of $1.5up to $21.9 million was required and paid inrequired. In April 2021.
Using a portion of the proceeds of the Business Combination, the Company made a principal prepayment of $525.0 million on July 30, 2021. In conjunction with the prepayment, the Company recognized a loss on early extinguishment of debt of $6.0 millionSubsequently, in the condensed consolidated statement of operations and comprehensive (loss) income during the three months ended September 30, 2021.
23
Amounts outstanding under the First Lien Credit Agreement bore interest at a variable rate of LIBOR, plus up to 3.00%3.00% per annum based upon the Company’s leverage ratio, as defined in the First Lien Credit Agreement. A quarterly commitment fee of up to 0.50%0.50% was payable on the unused portion of the First Lien Revolvers.
During the three months ended September 30, 2021, and 2020, the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1% and 4.0%, respectively.4.1%. The Company made interest payments of $9.3 million and $13.7$9.3 million during the three months ended September 30, 2021 and 2020, respectively.
During the nine months ended September 30, 2021, and 2020, the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1% and 4.2%, respectively.4.1%. The Company made interest payments of $36.1 million and $40.0$36.1 million during the nine months ended September 30, 2021 and 2020, respectively.
Long-term debt as of September 30, 20212022 and December 31, 2020,2021, consists of the following (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Term B Loan |
| $ | 794,000 |
|
| $ | 800,000 |
|
Term B Loan—discount |
|
| (1,730 | ) |
|
| (1,926 | ) |
Term B Loan—deferred financing fees |
|
| (8,500 | ) |
|
| (9,464 | ) |
Term B Loan—net of discount & fees |
|
| 783,770 |
|
|
| 788,610 |
|
Less: Current portion |
|
| (8,000 | ) |
|
| (8,000 | ) |
Total long-term debt—net of current portion |
| $ | 775,770 |
|
| $ | 780,610 |
|
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Term B Loan | $ | 800,000 | $ | — | ||||
Term B Loan—discount | (1,992 | ) | — | |||||
Term B Loan—deferred financing fees | (9,790 | ) | — | |||||
Term B Loan—net of discount & fees | 788,218 | — | ||||||
First Lien Term Loan | — | 1,336,154 | ||||||
First Lien Term Loan—discount | — | (2,788 | ) | |||||
First Lien Term Loan—deferred financing fees | — | (15,388 | ) | |||||
First Lien Term Loan—net of discount & fees | — | 1,317,978 | ||||||
Less: Current portion | (8,000 | ) | (25,381 | ) | ||||
Total long-term debt—net of current portion | $ | 780,218 | $ | 1,292,597 | ||||
Interest Rate Cap—In August 2022, the Company entered into two interest rate cap agreements to reduce its exposure to increases in interest rates applicable to its floating rate long-term debt. The aggregate notional value of the interest rate cap agreements is $600.0 million with a cap rate of 4.0% and an expiration date of July 31, 2025. The premium paid for the interest rate cap agreements was $6.3 million and recognized in cash flows from operating activities in the accompanying condensed consolidated statement of cash flows. As of September 30, 2021,2022, the deferred financing fees asset balance includes $3.1 million in relation to the 2021 Revolving Credit Facility. As of December 31, 2020, the deferred financing fees asset balance included $0.7 million in relation to the First Lien Revolvers. The deferred financing fees are amortized to interest expense over the termsaggregate fair value of the underlying agreements.
Interest Rate Swaps
Preferred Stock in CCCIS Cayman Holdings Limited (“CCC Cayman”), the parent of the Company’s China operations. On the Close Date, CCC Cayman, a subsidiary of the Company, issued 1,818 shares of Series A Preferred Stock (the “Preferred Shares”) at $7,854 per share to the Investor for net proceeds of $14.2 million. On anas-convertedbasis, the Preferred Shares represent an aggregate 10.7% initial ownership interest of the issued and outstanding capital stock of CCC Cayman, or 9.1% on a fully-diluted basis if all shares reserved for issuance under the Company’s CCC Cayman employee incentive plan were issued and outstanding.
Common Stock
There were 603,170,380620,117,025 and 504,274,890609,768,296 shares of common stock issued and outstanding as of September 30, 20212022 and December 31, 2020,2021, respectively.
During April 2022, certain existing shareholders completed a secondary offering where the selling shareholders sold 20,000,000 shares of common stock at a price to the Business Combination
Dividends
24
In March 2021, the board of directors of CCCIS declared a cash dividend on its common stock. The aggregate cash dividend of $134.5$134.5 million was paid on March 17, 2021.
In connection with the dividends paid in March 2021 and August 2021, certainCCCIS option holders received a strike price reduction of $66.40 per option to compensate for a reduction in the fair value of the underlying shares. The strike price reduction did not result in any incremental fair value and thus no additional stock-based compensation expense was recognized and the aggregate payment to the option holders of $9.0 million was recorded as a deemed distribution.
Prior to the Business Combination, the Company maintained its 2017 Stock Option Plan (the “2017 Plan”).
Upon the adoption and approval of the 2021 Plan, the 2017 Plan was terminated and each outstanding vested or unvested option, as required under the 2017 Plan, was converted to the 2021 Plan, multiplied by the Exchange Ratio, with the same key terms and vesting requirements. All stock option activity prior to the closing of the Business Combination on July 30, 2021 has been retroactively restated to reflect the Exchange Ratio.
Awards granted under the plan.
The exercise priceboard of all stock options granted during the nine months ended September 30, 2021 is equal to the fair valuedirectors of the underlying shares at the grant date.
Expected term (in years) | 6.5 | |||
Expected volatility | 40 | % | ||
Expected dividend yield | 0 | % | ||
Risk-free interest rate | 0.62 -0.67 | % | ||
Fair value at valuation date | $ | 3.67 |
Stock Options—The table below summarizes the option activity for the nine monthsended September 30, 2021:2022:
|
|
|
|
|
|
|
| Weighted- |
|
|
|
| ||||
|
|
|
|
|
|
|
| Average |
|
|
|
| ||||
|
|
|
|
| Weighted- |
|
| Remaining |
|
| Aggregate |
| ||||
|
|
|
|
| Average |
|
| Contractual |
|
| Intrinsic |
| ||||
|
|
|
|
| Exercise |
|
| Life |
|
| Value |
| ||||
|
| Shares |
|
| Price |
|
| (in years) |
|
| (in thousands) |
| ||||
Options outstanding—December 31, 2021 |
|
| 55,644,495 |
|
| $ | 2.95 |
|
|
| 6.0 |
|
| $ | 469,591 |
|
Exercised |
|
| (8,367,100 | ) |
|
| 2.73 |
|
|
|
|
|
|
| ||
Forfeited and canceled |
|
| (272,295 | ) |
|
| 4.64 |
|
|
|
|
|
|
| ||
Options outstanding—September 30, 2022 |
|
| 47,005,100 |
|
| $ | 2.98 |
|
|
| 5.2 |
|
| $ | 287,659 |
|
Options exercisable—September 30, 2022 |
|
| 43,168,788 |
|
| $ | 2.73 |
|
|
| 4.9 |
|
| $ | 274,947 |
|
Options vested and expected to vest—September 30, 2022 |
|
| 46,752,866 |
|
| $ | 2.96 |
|
|
| 5.1 |
|
| $ | 286,840 |
|
Weighted- | Weighted-Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual Life | Intrinsic Value | ||||||||||||||
Shares | Price | (in years) | (in thousands) | |||||||||||||
Options outstanding—December 31, 2020 | 55,570,039 | $ | 3.03 | 6.9 | 337,358 | |||||||||||
Granted | 2,822,484 | 8.58 | ||||||||||||||
Exercised | (163,124 | ) | 2.85 | |||||||||||||
Forfeited and canceled | (614,012 | ) | 3.58 | |||||||||||||
Options outstanding—September 30, 2021 | 57,615,387 | 2.95 | 6.2 | 435,840 | ||||||||||||
Options exercisable—September 30, 2021 | 47,590,596 | 2.68 | 6.0 | 372,485 | ||||||||||||
Options vested and expected to vest—September 30, 2021 | 57,038,128 | 2.93 | 6.2 | 432,717 | ||||||||||||
The fair value of the options vested during the nine months ended September 30, 20212022 was $213.0 million,$8.4 million.
Restricted Stock Units—Restricted Stock Units (“RSUs”) are convertible into shares of the Company’s common stock upon vesting.
During the nine months ended September 30, 2022, the Company granted 15,824,517 RSUs, of which $203.9 million was attributable to the modified awards that vested upon the Closing14,445,917 have time-based vesting requirements, 689,325 have performance-based vesting requirements and 689,275 have performance-based with a market condition vesting requirements.
The valuation of the Business Combination.performance-based RSUs with a market condition granted during the nine months ended September 30, 2022 was determined using a Monte Carlo simulation model using the following assumptions:
Expected term (in years) | 2.8 | |
Expected volatility | 35% | |
Expected dividend yield | 0% | |
Risk-free interest rate | 2.28% |
The estimated fair value of the performance-based RSUs with a market condition granted during the nine months ended September 30, 2022 was $7.42.
The table below summarizes the RSU activity for the nine months ended September 30, 2022:
25
|
|
|
|
| Weighted- |
| ||
|
|
|
|
| Average |
| ||
|
| Shares |
|
| Fair Value |
| ||
Non-vested RSUs—December 31, 2021 |
|
| 18,558,211 |
|
| $ | 10.74 |
|
Granted |
|
| 15,824,517 |
|
|
| 10.13 |
|
Vested |
|
| (2,081,478 | ) |
|
| 11.36 |
|
Forfeited |
|
| (963,556 | ) |
|
| 11.02 |
|
Non-vested RSUs—September 30, 2022 |
|
| 31,337,694 |
|
|
| 10.38 |
|
Employee Stock Purchase Plan—As of September 30, 2022, 6,031,714 shares of common stock are reserved for sale under the Employee Stock Purchase Plan ("ESPP"). The aggregate number of shares reserved for sale under the ESPP increases on January 1 by the lesser of 1% of the total numbers of shares outstanding or a lesser amount as determined by the board of directors.
As of September 30, 2022, 408,879 shares had been sold under the ESPP.
The fair value of ESPP purchase rights sold during the nine months ended September 30, 2022 was estimated using the Black Scholes option pricing model with the following assumptions:
Expected term (in years) | 0.5 | |
Expected volatility | 47% | |
Expected dividend yield | 0% | |
Risk-free interest rate | 0.2% |
Company Earnout Shares
The fair value of the Company Earnout Shares was estimated on the date of the grant, using the Monte Carlo simulation method. Compensation expense on the shares granted to option holders iswas recorded ratably over the implied service period of five months beginning on July 30,30. 2021. During the three months ended September 30, 2021, the Company recognized
Stock-Based Compensation
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cost of revenues |
| $ | 1,657 |
|
| $ | 12,169 |
|
| $ | 4,167 |
|
| $ | 12,563 |
|
Research and development |
|
| 5,373 |
|
|
| 35,472 |
|
|
| 14,433 |
|
|
| 36,748 |
|
Sales and marketing |
|
| 6,890 |
|
|
| 58,770 |
|
|
| 18,331 |
|
|
| 60,060 |
|
General and administrative |
|
| 14,802 |
|
|
| 113,465 |
|
|
| 43,838 |
|
|
| 126,042 |
|
Total stock-based compensation expense |
| $ | 28,722 |
|
| $ | 219,876 |
|
| $ | 80,769 |
|
| $ | 235,413 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Cost of revenues | $ | 12,169 | $ | 141 | $ | 12,563 | $ | 380 | ||||||||
Research and development | 35,472 | 274 | 36,748 | 895 | ||||||||||||
Sales and marketing | 58,770 | 480 | 60,060 | 1,554 | ||||||||||||
General and administrative | 113,465 | 975 | 126,042 | 4,641 | ||||||||||||
Total stock-based compensation expense | $ | 219,876 | $ | 1,870 | $ | 235,413 | $ | 7,470 | ||||||||
As of September 30, 2021,2022, there was $15.5$185.6 million of unrecognized stock compensation expense related to
Upon consummation of the Business Combination (see Note 3), the Company had 86,500,000 Public Warrants and 17,800,000 Private Warrants outstanding.
Public Warrants were only able to be exercised for a whole number of shares of the Company’s common stock. No fractional shares will be issued upon exercise of theAll Public Warrants. Each whole Public Warrant entitles the registered holder to purchase1-fifthof 1 share of the Company’s common stock, and each whole Private Warrant entitles the registered holder to purchase one share of the Company’s common stock. All warrants haveWarrants had an exercise price of $11.50$11.50 per share, subject to adjustment, beginning on August 29, 2021, and willwere to expire on July 30, 2026 or earlier upon redemption or liquidation.
26
On November 29, 2021, the Company mayannounced that it had elected to redeem not less than all of the outstanding warrants (except as described with respect to the Private Warrants):
Of the option to require any holder that wishes to exercise the17,299,983 Public Warrants to do sothat were outstanding as of the closing of the Business Combination, 10,638 warrants were exercised for cash proceeds of $0.1 million and 15,876,341 were exercised on a cashless basis as described in the warrant agreement. The exercise price and numberexchange for an aggregate of 4,826,339 shares of common shares issuable upon exercisestock. The Company paid $0.1 million to redeem the remaining 1,413,004 unexercised Public Warrants. As of theDecember 31, 2021, there were no Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. The Public Warrants will not be adjusted for issuances of the common stock at a price below its exercise price and in no event will the Company be required to net cash settle the Public Warrants.
The Private Warrants are identical to the Public Warrants underlying the shares sold in Dragoneer’s initial public offering. Additionally, the Private Warrants are exercisable on a cashless basis and areexcept as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Private Warrants may only be exercised for a whole number of shares of the Company’s common stock. Each whole Private Warrant entitles the registered holder to purchase one share of the Company’s common stock. All warrants have an exercise price of $11.50 per share, subject to adjustment, beginning on August 29, 2021, and will expire on July 30, 2026 or earlier upon redemption or liquidation.
There were no exercises or redemptions of the Public Warrants or Private Warrants during the periodthree and nine months ended September 30, 2021.
The Company recognized an expenseincome of $26.9$0.3 million and $23.5 million as a change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive income (loss) income for each of the three and nine months ended September 30, 2021. At2022, respectively.
The Company recognized an expense of $26.9 million as a change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2021.
As of September 30, 2022 and December 31, 2021, the Company’s warrant liability was $85.3 million.
Purchase Obligations
Guarantees—The Company’s services and solutions are typically warranted to perform in a manner consistent with general industry standards that are reasonably applicable and substantially in accordance with the Company’s services and solutions documentation under normal use and circumstances. The Company’s services and solutions are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in the related customer contract. The Company’s arrangements also include certain provisions for indemnifying customers against liabilities if its services and solutions infringe a third party’s intellectual property rights.
To date, the Company has not incurred any material costs as a result of such indemnifications or commitments and has not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
Employment Agreements
In the ordinary course of business, the Company is from time to time, involved in various pending or threatened legal actions. The litigation process is inherently uncertain, and it is possible that the resolution of such matters might have a material adverse effect upon the Company’s consolidated financial condition and/or results of operations. The Company’s management believes, based on current information, matters currently pending or threatened are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
27
The Company has engaged in transactions within the ordinary course of business with entities affiliated with its principal equity owners.
The following table summarizes revenues and incurred expenses with entities affiliated with one of its principal equity owners. The Company incurred expensesowners for human resource support services of $0.1 million and $0.2 million during the three and nine months ended September 30, 2022 and 2021 (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Credit card processing |
| $ | 233 |
|
| $ | 122 |
|
| $ | 574 |
|
| $ | 269 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employee health insurance benefits |
|
| 716 |
|
|
| 755 |
|
|
| 2,353 |
|
|
| 2,190 |
|
Human resources support services |
|
| 59 |
|
|
| 53 |
|
|
| 196 |
|
|
| 194 |
|
Sales tax processing and license fees for tax information |
|
| 245 |
|
| * |
|
|
| 443 |
|
| * |
|
*Not material
The following table summarizes amounts receivable and 2020, respectively. The associated payable for the human resource support services was de minimis at September 30, 2021 and December 31, 2020.
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Receivables |
|
|
|
|
|
| ||
Credit card processing |
| * |
|
| * |
| ||
Payables |
|
|
|
|
|
| ||
Employee health insurance benefits |
| $ | 208 |
|
| $ | 232 |
|
Human resources support services |
| * |
|
| * |
| ||
Sales tax processing and license fees for tax information |
| * |
|
| * |
|
*Not material
The Company calculates basic earnings per share by dividing the net income (loss) income by the weighted average number of shares of common stock outstanding for the period. The diluted earnings per share is computed by assuming the exercise, settlement and vesting of all potential dilutive common stock equivalents outstanding for the period using the treasury stock method. We excludeThe Company excludes common stock equivalent shares from the calculation if their effect is anti-dilutive. In a period where the Company is in a net loss position, the diluted loss per share is calculated using the basic share count.
The 8,625,000 Sponsor Vesting Shares that are issued and outstanding atas of September 30, 20212022 are excluded from the weighted average number of shares of common stock outstanding until the vesting requirement is met and the restriction is removed.
The following table sets forth a reconciliation of the numerator and denominator used to compute basic and diluted earnings per share of common stock (in thousands, except for share and per share data).
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 9,795 |
|
| $ | (189,782 | ) |
| $ | 37,334 |
|
| $ | (191,050 | ) |
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares of common stock - basic |
|
| 609,421,073 |
|
|
| 566,454,782 |
|
|
| 606,181,316 |
|
|
| 525,877,533 |
|
Dilutive effect of stock-based awards |
|
| 34,161,849 |
|
|
| — |
|
|
| 36,027,306 |
|
|
| — |
|
Weighted average shares of common stock - diluted |
|
| 643,582,922 |
|
|
| 566,454,782 |
|
|
| 642,208,622 |
|
|
| 525,877,533 |
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.02 |
|
| $ | (0.34 | ) |
| $ | 0.06 |
|
| $ | (0.36 | ) |
Diluted |
| $ | 0.02 |
|
| $ | (0.34 | ) |
| $ | 0.06 |
|
| $ | (0.36 | ) |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Numerator | ||||||||||||||||
Net (loss) income | $ | (189,782 | ) | $ | 4,720 | $ | (191,050 | ) | $ | (22,494) | ||||||
Denominator | ||||||||||||||||
Weighted average shares of common stock - basic | 566,454,782 | 504,212,021 | 525,877,533 | 504,062,587 | ||||||||||||
Dilutive effect of stock options | 0 | 6,482,472 | 0 | 0 | ||||||||||||
Weighted average shares of common stock - diluted | 566,454,782 | 510,694,493 | 525,877,533 | 504,062,587 | ||||||||||||
Net (loss) income per share: | ||||||||||||||||
Basic | $ | (0.34) | $ | 0.01 | $ | (0.36) | $ | (0.04) | ||||||||
Diluted | $ | (0.34) | $ | 0.01 | $ | (0.36) | $ | (0.04) |
Approximately 8,224,561 and 33,220,634 were excluded from the computation of diluted per share amounts for the three months ended September 30, 2021, because their effect was anti-dilutive. NaN common stock equivalent shares were excluded from the computation of diluted per share amounts for the three months ended September 30, 2020.
28
Approximately 8,250,431 and 28,940,767 common stock equivalent shares of approximately 28,940,767 and 6,189,883 were excluded from the computation of diluted per share amounts for the nine months ended September 30, 20212022 and 2020,2021, respectively, because their effect was anti-dilutive.
The Company operates in 1one operating segment. The chief operating decision maker for the Company is the chief executive officer. The chief executive officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by type of service and geographic region, for purposes of allocating resources and evaluating financial performance.
Revenues by geographic area, presented based upon the location of the customer are as follows (in thousands):
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
United States |
| $ | 196,727 |
|
| $ | 175,297 |
|
| $ | 572,417 |
|
| $ | 496,784 |
|
China |
|
| 2,007 |
|
|
| 1,331 |
|
|
| 5,925 |
|
|
| 4,421 |
|
Total revenues |
| $ | 198,734 |
|
| $ | 176,628 |
|
| $ | 578,342 |
|
| $ | 501,205 |
|
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
United States | $ | 175,297 | $ | 156,062 | $ | 496,784 | $ | 462,483 | ||||||||
China | 1,331 | 1,692 | 4,421 | 5,194 | ||||||||||||
Total revenues | $ | 176,628 | $ | 157,754 | $ | 501,205 | $ | 467,677 | ||||||||
Software, equipment and property, net by geographic area are as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
United States |
| $ | 147,477 |
|
| $ | 135,784 |
|
China |
|
| 54 |
|
|
| 61 |
|
Total software, equipment and property-net |
| $ | 147,531 |
|
| $ | 135,845 |
|
September 30, 2021 | December 31, 2020 | |||||||
United States | $ | 120,953 | $ | 101,370 | ||||
China | 65 | 68 | ||||||
Total software, equipment and property-net | $ | 121,018 | $ | 101,438 | ||||
During February 2022, the Company closedreceived cash proceeds of $3.9 million in exchange for its equity interest in an Asset Purchase Agreement withinvestee as a third-party buyer (the “Buyer”) to transfer its obligationresult of providing certain services and related assets and liabilities to the Buyer for total considerationacquisition of $3.8 million, including $1.8 million of contingent consideration.the investee. The Company has received aggregate payments fromhad been accounting for its investment using the Buyer of $2.9 million through September 30, 2021.
29
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form
Unless otherwise indicated or the context otherwise requires, references to “CCC,” the “Company,” “we,” “us,” “our” and other similar terms refer to Cypress Holdings Inc. and its consolidated subsidiaries prior to the Business Combination and to CCC Intelligent Solutions Holdings Inc. and its consolidated subsidiaries after giving effect to the Business Combination.
Business Overview
Founded in 1980, CCC is a leading provider of innovative cloud, mobile, AI, telematics, hyperscale technologies and applications for the property and casualty (“P&C”) insurance economy. Our SaaS platform connects trading partners, facilitates commerce, and supports mission-critical,31,50030,000 companies across the P&C insurance economy, including insurance carriers, collision repairers, parts suppliers, automotive manufacturers, financial institutions and others.
Our business has been built upon two foundational pillars: automotive insurance claims and automotive collision repair. For decades we have delivered leading software solutions to both the insurance and repair industries, including pioneering Direct Repair Programs (“DRP”) in the United States (“U.S.”) beginning in 1992. Direct Repair Programs connect auto insurers and collision repair shops to create business value for both parties, and require digital tools to facilitate interactions and manage partner programs.
We believe we have become a leading insurance and repair SaaS provider in the U.S. by increasing the depth and breadth of our SaaS offerings over many years. Our insurance solutions help insurance carriers manage mission-critical workflows, from claims to underwriting, while building smart, dynamic experiences for their own customers. Our software integrates seamlessly with both legacy and modern systems alike and enables insurers to rapidly innovate on our platform. Our repair solutions help collision repair facilities achieve better performance throughout the collision repair cycle by digitizing processes to drive business growth, streamline operations, and improve repair quality. We have more than 300 insurers on our network, connecting with over 26,50027,500 repair facilities through our multi-tenant cloud platform. We believe our software is the architectural backbone of insurance DRP programs and is the primary driver of material revenue for our collision shop customers and a source of material efficiencies for our insurance carrier customers.
Our platform is designed to solve the
We have processed more than $1 trillion of historical data across our network, allowing us to build proprietary data assets that leverage insurance claims, vehicle repair, automotive parts and other vehicle-specific information. We are uniquely positioned to provide data-driven insights, analytics, andSmart Suitesuite of AI solutions increases automation across existing insurer processes including vehicle damage detection, claim triage, repair estimating, and intelligent claims review.review, and subrogation. We deliver real-world AI solutions, and havewith more than 300 AI models deployed95 U.S. auto insurers actively using AI-powered solutions in production environments acrossenvironments. We have processed more than 75 insurers.
30
One of the primary obstacles facing the P&C insurance economy is increasing complexity. Complexity in the P&C insurance economy is driven by technological advancements, Internet of Things (“IoT”) data, new business models, and changing customer expectations. We believe digitization plays a critical role in managing this growing complexity while meeting customer expectations. Our technology investments are focused on digitizing complex processes and interactions across our ecosystem, and we believe we are well positioned to power the P&C insurance economy of the future with our data, network, and platform.
While our position in the P&C insurance economy is grounded in the automotive insurance sector, the largest insurance sector in the U.S. representing nearly half of Direct Written Premiums (“DWP”), we believe our integrations and cloud platform are capable of driving innovation across the entire P&C insurance economy. Our customers are increasingly looking for CCC to expand its solutions to other parts of their business where they can benefit from our technology, service, and partnership. In response, we are investing in new solutions that we believe will enable us to digitize the entire automotive claims lifecycle, and over time expand into adjacencies including other insurance lines.
We have strong customer relationships in the31,50030,000 total customers, including over 26,50027,500 automotive collision repair facilities (including repairers and other entities that estimate damaged vehicles), thousands of automotive dealers, 13 of the top 15 automotive manufacturers, based on new vehicle sales, and numerous other companies that participate in the P&C insurance economy.
Key Performance Measures and Operating Metrics
In addition to our GAAP and
Software NDR
We believe that Software NDR provides our management and our investors with insight into our ability to retain and grow revenue from our existing customers, as well as their potential long-term value to us. We also believe the results shown by this metric reflect the stability of our revenue base, which is one of our core competitive strengths. We calculate Software NDR by dividing (a) annualized software revenue recorded in the last month of the measurement period, for example, SeptemberMarch for a quarter ending September 30,March 31, for unique billing accounts that generated revenue during the corresponding month of the prior year by (b) annualized software revenue as of the corresponding month of the prior year. The calculation includes changes for these billing accounts, such as change in the solutions purchased, changes in pricing and transaction volume, but does not reflect revenue for new customers added. The calculation excludes: (a) changes in estimates related to the timing of
Quarter Ending | 2021 | 2020 | ||||||||
Software NDR | March 31 | 106 | % | 105 | % | |||||
June 30 | 110 | % | 103 | % | ||||||
September 30 | 113 | % | 103 | % | ||||||
December 31 | 103 | % |
|
| Quarter Ending |
| 2022 |
| 2021 |
Software NDR |
| March 31 |
| 114% |
| 106% |
|
| June 30 |
| 111% |
| 110% |
|
| September 30 |
| 110% |
| 113% |
|
| December 31 |
|
|
| 115% |
Software GDR
We believe that Software GDR provides our management and our investors with insight into the value our solutions provide to our customers as represented by our ability to retain our existing customer base. We believe the results shown by this metric reflect the strength and stability of our revenue base, which is one of our core competitive strengths. We calculate Software GDR by dividing (a) annualized software revenue recorded in the last month of the measurement period in the prior year, reduced by annualized software
31
revenue for unique billing accounts that are no longer customers as of the current period end by (b) annualized software revenue as of the corresponding month of the prior year. The calculation reflects only customer losses and does not reflect customer expansion or contraction for these billing accounts and does not reflect revenue for new customer billing accounts added. Our Software GDR calculation represents our annualized software revenue that is retained from the prior year and demonstrates that the vast majority of our customers continue to use our solutions and renew their subscriptions. The calculation excludes: (a) changes in estimates related to the timing of
Quarter Ending | 2021 | 2020 | ||||||||
Software GDR | March 31 | 98 | % | 98 | % | |||||
June 30 | 98 | % | 98 | % | ||||||
September 30 | 98 | % | 98 | % | ||||||
December 31 | 98 | % |
|
| Quarter Ending |
| 2022 |
| 2021 |
Software GDR |
| March 31 |
| 99% |
| 98% |
|
| June 30 |
| 99% |
| 98% |
|
| September 30 |
| 99% |
| 98% |
|
| December 31 |
|
|
| 98% |
Results of Operations
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021
32
|
| Three Months Ended September 30, |
|
|
|
| ||||||||||
(dollar amounts in thousands, except share and per share data) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Revenues |
| $ | 198,734 |
|
| $ | 176,628 |
|
| $ | 22,106 |
|
|
| 12.5 | % |
Cost of revenues, exclusive of amortization of |
|
| 46,379 |
|
|
| 51,273 |
|
|
| (4,894 | ) |
|
| -9.5 | % |
Amortization of acquired technologies |
|
| 6,748 |
|
|
| 6,580 |
|
|
| 168 |
|
|
| 2.6 | % |
Cost of revenues(1) |
|
| 53,127 |
|
|
| 57,853 |
|
|
| (4,726 | ) |
|
| -8.2 | % |
Gross profit |
|
| 145,607 |
|
|
| 118,775 |
|
|
| 26,832 |
|
|
| 22.6 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development(1) |
|
| 40,273 |
|
|
| 67,016 |
|
|
| (26,743 | ) |
|
| -39.9 | % |
Selling and marketing(1) |
|
| 30,838 |
|
|
| 80,382 |
|
|
| (49,544 | ) |
|
| -61.6 | % |
General and administrative(1) |
|
| 39,376 |
|
|
| 142,511 |
|
|
| (103,135 | ) |
|
| -72.4 | % |
Amortization of intangible assets |
|
| 18,066 |
|
|
| 18,078 |
|
|
| (12 | ) |
|
| -0.1 | % |
Total operating expenses |
|
| 128,553 |
|
|
| 307,987 |
|
|
| (179,434 | ) |
|
| -58.3 | % |
Operating income (loss) |
|
| 17,054 |
|
|
| (189,212 | ) |
|
| 206,266 |
|
| NM |
| |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (10,501 | ) |
|
| (13,878 | ) |
|
| 3,377 |
|
|
| 24.3 | % |
Change in fair value of derivative instruments |
|
| 5,991 |
|
|
| 2,007 |
|
|
| 3,984 |
|
|
| 198.5 | % |
Change in fair value of warrant liabilities |
|
| 312 |
|
|
| (26,889 | ) |
|
| 27,201 |
|
| NM |
| |
Loss on early extinguishment of debt |
|
| — |
|
|
| (15,240 | ) |
|
| 15,240 |
|
| NM |
| |
Gain on sale of cost method investment |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
| NM |
| |
Other income (loss), net |
|
| 382 |
|
|
| (93 | ) |
|
| 475 |
|
| NM |
| |
Total other income (expense) |
|
| (3,807 | ) |
|
| (54,093 | ) |
|
| 50,286 |
|
|
| 93.0 | % |
Income (loss) before income taxes |
|
| 13,247 |
|
|
| (243,305 | ) |
|
| 256,552 |
|
| NM |
| |
Income tax (provision) benefit |
|
| (3,452 | ) |
|
| 53,523 |
|
|
| (56,975 | ) |
| NM |
| |
Net income (loss) |
| $ | 9,795 |
|
| $ | (189,782 | ) |
| $ | 199,577 |
|
| NM |
| |
Net income (loss) per share attributable to common |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.02 |
|
| $ | (0.34 | ) |
|
|
|
|
|
| ||
Diluted |
| $ | 0.02 |
|
| $ | (0.34 | ) |
|
|
|
|
|
| ||
Weighted-average shares used in computing net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 609,421,073 |
|
|
| 566,454,782 |
|
|
|
|
|
|
| ||
Diluted |
|
| 643,582,922 |
|
|
| 566,454,782 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Includes stock-based compensation expense as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Three Months Ended September 30, |
|
|
|
|
|
|
| |||||||
|
| 2022 |
|
| 2021 |
|
|
|
|
|
|
| ||||
Cost of revenues |
| $ | 1,657 |
|
| $ | 12,169 |
|
|
|
|
|
|
| ||
Research and development |
|
| 5,373 |
|
|
| 35,472 |
|
|
|
|
|
|
| ||
Sales and marketing |
|
| 6,890 |
|
|
| 58,770 |
|
|
|
|
|
|
| ||
General and administrative |
|
| 14,802 |
|
|
| 113,465 |
|
|
|
|
|
|
| ||
Total stock-based compensation expense |
| $ | 28,722 |
|
| $ | 219,876 |
|
|
|
|
|
|
|
NM—Not Meaningful
Revenues
Revenue is derived fromincreased by $22.1 million to $198.7 million, or 12.5%, for the sale ofthree months ended September 30, 2022, compared to the three months ended September 30, 2021. The Company's software subscriptions and other revenue, primarily professional services. Software subscription revenues are comprised of fees from customers for the right to use the hosted software over the contract period without taking possession of the software. These revenues are billed on either a subscription or transactional basis with subscription revenue recognized ratably over the contract period and transactional revenue recognized when the transaction for the related service occurs. We generally invoice software subscription agreements monthly either in advance or in arrears, over the subscription period. Software subscription revenue accounted for $170.0$191.2 million and $143.8$170.0 million, or 96% and 91%96%, of total revenue during the three months ended September 30, 2022 and 2021, respectively.
33
The increase in revenue was primarily a result of 10% growth from existing customer upgrades and 2020, respectively. Softwareexpanding solution offerings to these existing customers as well as 3% growth from new customers.
Cost of Revenues
Cost of revenues decreased by $4.7 million to $53.1 million, or 8.2%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Cost of Revenues, exclusive of amortization of acquired technologies
Cost of revenues, exclusive of amortization of acquired technologies, decreased by $4.9 million to $46.4 million, or 9.5%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a $10.5 million reduction in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, partially offset by a $1.1 million increase in personnel-related costs, a $2.2 million increase in third party license and royalty fees, a $1.6 million increase in depreciation expense related to additional investments in platform and infrastructure enhancements and a $0.5 million increase in consulting and other professional service costs.
Amortization of Acquired Technologies
Amortization of acquired technologies was $6.7 million for the three months ended September 30, 2022, compared to $6.6 million for the three months ended September 30, 2021.
Gross Profit
Gross profit increased by $26.8 million to $145.6 million, or 22.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Our gross profit margin was 73.3% for the three months ended September 30, 2022 compared to 67.2% for the three months ended September 30, 2021. The increase in gross profit was due to a reduction in stock-based compensation, increased software subscription revenuerevenues and economies of scale resulting from fixed cost arrangements.
Research and Development
Research and development expense decreased by $26.7 million to $40.3 million, or 39.9%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a reduction of $30.1 million in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year and a $4.3 million increase in the amount of capitalized time on development projects, partially offset by a $6.8 million increase in resource costs.
Selling and Marketing
Selling and marketing expense decreased by $49.5 million to $30.8 million, or 61.6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a reduction of $51.9 million in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, partially offset by a $2.1 million increase in personnel-related costs, including sales incentives and travel costs.
General and Administrative
General and administrative expense decreased by $103.1 million to $39.4 million, or 72.4%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily due to a reduction of $98.7 million in stock-based compensation, mainly from the vesting term modification completed in conjunction with the Business Combination in the prior year, a $1.6 million decrease in the Company's facilities costs due to the closure of the Company's previous headquarters in March 2022 and a $0.8 million decrease in consulting and other professional service costs.
Amortization of Intangible Assets
Amortization of intangible assets was $18.1 million for the three months ended September 30, 2022 and 2021.
34
Interest Expense
Interest expense decreased by $3.4 million to $10.5 million, or 24.3%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to less outstanding long-term debt, partially offset by higher interest rates during the three months ended September 30, 2022.
Change in Fair Value of Derivative Instruments
Change in fair value of derivative instruments was $6.0 million for the three months ended September 30, 2022, compared to $2.0 million for the three months ended September 30, 2021. The $6.0 million change in fair value recognized for the three months ended September 30, 2022 is related to the interest rate cap agreement entered into in August 2022 and driven by the increase in the forward yield curve since the inception of the agreement. The $2.0 million change in fair value of derivative instruments for the three months ended September 30, 2021 is related to the interest rate swap agreements in effect during the prior year. The interest rate swap agreements were extinguished in September 2021.
Change in Fair Value of Warrant Liabilities
We recognized income of $0.3 million from a change in fair value of warrant liabilities for the three months ended September 30, 2022, compared to expense of $26.9 million for the three months ended September 30, 2021. The income recognized for the three months ended September 30, 2022 was due to the decrease in the estimated fair value of the Private Warrants, primarily from the lower price of the Company's common stock as of September 30, 2022, compared to June 30, 2022. The expense for the three months ended September 30, 2021 was due to the increase in the estimated fair value of the Public Warrants and Private Warrants.
Loss on Early Extinguishment of Debt
There was no loss on early extinguishment of debt during the three months ended September 30, 2022. Loss on early extinguishment of debt for the three months ended September 30, 2021 was $15.2 million due to the early repayments of the total balance outstanding under the Company's First Lien Term Loan.
Income Tax (Provision) Benefit
Income tax provision was $3.5 million for the three months ended September 30, 2022, compared to a benefit of $53.5 million for the three months ended September 30, 2021. The income tax provision was due to the Company having pretax income during the three months ended September 30, 2022 compared to a pretax loss during the three months ended September 30, 2021.
Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021
35
|
| Nine Months Ended September 30, |
|
|
|
| ||||||||||
(dollar amounts in thousands, except share and per share data) |
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Revenue |
| $ | 578,342 |
|
| $ | 501,205 |
|
| $ | 77,137 |
|
|
| 15.4 | % |
Cost of revenue, exclusive of amortization of |
|
| 135,174 |
|
|
| 128,218 |
|
|
| 6,956 |
|
|
| 5.4 | % |
Amortization of acquired technologies |
|
| 20,193 |
|
|
| 19,740 |
|
|
| 453 |
|
|
| 2.3 | % |
Cost of revenues(1) |
|
| 155,367 |
|
|
| 147,958 |
|
|
| 7,409 |
|
|
| 5.0 | % |
Gross profit |
|
| 422,975 |
|
|
| 353,247 |
|
|
| 69,728 |
|
|
| 19.7 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development(1) |
|
| 114,711 |
|
|
| 128,894 |
|
|
| (14,183 | ) |
|
| -11.0 | % |
Selling and marketing(1) |
|
| 88,731 |
|
|
| 121,350 |
|
|
| (32,619 | ) |
|
| -26.9 | % |
General and administrative(1) |
|
| 123,093 |
|
|
| 208,745 |
|
|
| (85,652 | ) |
|
| -41.0 | % |
Amortization of intangible assets |
|
| 54,212 |
|
|
| 54,232 |
|
|
| (20 | ) |
|
| 0.0 | % |
Total operating expenses |
|
| 380,747 |
|
|
| 513,221 |
|
|
| (132,474 | ) |
|
| -25.8 | % |
Operating income (loss) |
|
| 42,228 |
|
|
| (159,974 | ) |
|
| 202,202 |
|
| NM |
| |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (25,786 | ) |
|
| (51,548 | ) |
|
| 25,762 |
|
|
| 50.0 | % |
Change in fair value of derivative instruments |
|
| 5,991 |
|
|
| 8,373 |
|
|
| (2,382 | ) |
|
| -28.4 | % |
Change in fair value of warrant liabilities |
|
| 23,452 |
|
|
| (26,889 | ) |
|
| 50,341 |
|
| NM |
| |
Loss on early extinguishment of debt |
|
| — |
|
|
| (15,240 | ) |
|
| 15,240 |
|
| NM |
| |
Gain on sale of cost method investment |
|
| 3,587 |
|
|
| — |
|
|
| 3,587 |
|
| NM |
| |
Other income, net |
|
| 576 |
|
|
| 1 |
|
|
| 575 |
|
| NM |
| |
Total other income (expense) |
|
| 7,820 |
|
|
| (85,303 | ) |
|
| 93,123 |
|
| NM |
| |
Income (loss) before income taxes |
|
| 50,048 |
|
|
| (245,277 | ) |
|
| 295,325 |
|
| NM |
| |
Income tax (provision) benefit |
|
| (12,714 | ) |
|
| 54,227 |
|
|
| (66,941 | ) |
| NM |
| |
Net income (loss) |
| $ | 37,334 |
|
| $ | (191,050 | ) |
| $ | 228,384 |
|
| NM |
| |
Net income (loss) per share attributable to common |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.06 |
|
| $ | (0.36 | ) |
|
|
|
|
|
| ||
Diluted |
| $ | 0.06 |
|
| $ | (0.36 | ) |
|
|
|
|
|
| ||
Weighted-average shares used in computing net |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 606,181,316 |
|
|
| 525,877,533 |
|
|
|
|
|
|
| ||
Diluted |
|
| 642,208,622 |
|
|
| 525,877,533 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
(1) Includes stock-based compensation expense as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Nine Months Ended September 30, |
|
|
|
|
|
|
| |||||||
|
| 2022 |
|
| 2021 |
|
|
|
|
|
|
| ||||
Cost of revenues |
| $ | 4,167 |
|
| $ | 12,563 |
|
|
|
|
|
|
| ||
Research and development |
|
| 14,433 |
|
|
| 36,748 |
|
|
|
|
|
|
| ||
Sales and marketing |
|
| 18,331 |
|
|
| 60,060 |
|
|
|
|
|
|
| ||
General and administrative |
|
| 43,838 |
|
|
| 126,042 |
|
|
|
|
|
|
| ||
Total stock-based compensation expense |
| $ | 80,769 |
|
| $ | 235,413 |
|
|
|
|
|
|
|
NM—Not Meaningful
Revenues
Revenue increased by $77.1 million to $578.3 million, or 15.4%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The Company's software subscription revenues accounted for $481.8$556.5 million and $422.8$481.8 million, or 96% and 90%96%, of total revenue during the nine months ended September 30, 2022 and 2021, and 2020, respectively.
Three Months Ended September 30, | Change | |||||||||||||||
(dollar amounts in thousands, except share and per share data) | 2021 | 2020 | $ | % | ||||||||||||
Revenue | $ | 176,628 | $ | 157,754 | $ | 18,874 | 12.0 | % | ||||||||
Cost of revenue, exclusive of amortization of acquired technologies | 51,273 | 43,879 | 7,394 | 16.9 | % | |||||||||||
Amortization of acquired technologies | 6,580 | 6,576 | 4 | 0.1 | % | |||||||||||
Cost of revenue | 57,853 | 50,455 | 7,398 | 14.7 | % | |||||||||||
Gross profit | 118,775 | 107,299 | 11,476 | 10.7 | % | |||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 67,016 | 26,816 | 40,200 | 149.9 | % | |||||||||||
Selling and marketing | 80,382 | 17,427 | 62,955 | 361.2 | % | |||||||||||
General and administrative | 142,511 | 21,893 | 120,618 | 550.9 | % | |||||||||||
Amortization of intangible assets | 18,078 | 18,078 | — | 0.0 | % | |||||||||||
Total operating expenses | 307,987 | 84,214 | 223,773 | 265.7 | % | |||||||||||
Operating (loss) income | (189,212 | ) | 23,085 | (212,297 | ) | NM | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (13,878 | ) | (19,788 | ) | 5,910 | 29.9 | % | |||||||||
Gain on change in fair value of interest rate swaps | 2,007 | 3,894 | (1,887 | ) | -48.5 | % | ||||||||||
Change in fair value of warrant liabilities | (26,889 | ) | — | (26,889 | ) | NM | ||||||||||
Loss on early extinguishment of debt | (15,240 | ) | — | (15,240 | ) | NM | ||||||||||
Other (expense) income, net | (93 | ) | 49 | (142 | ) | NM | ||||||||||
Total other income (expense) | (54,093 | ) | (15,845 | ) | (38,248 | ) | -241.4 | % | ||||||||
(Loss) income before income taxes | (243,305 | ) | 7,240 | (250,545 | ) | NM | ||||||||||
Income tax benefit (provision) | 53,523 | (2,520 | ) | 56,043 | NM | |||||||||||
Net (loss) income | $ | (189,782 | ) | $ | 4,720 | $ | (194,502 | ) | NM | |||||||
Net (loss) income per share attributable to common stockholders: | ||||||||||||||||
Basic | $ | (0.34 | ) | $ | 0.01 | |||||||||||
Diluted | $ | (0.34 | ) | $ | 0.01 | |||||||||||
Weighted-average shares used in computing net (loss) income per share attributable to common stockholders: | ||||||||||||||||
Basic | 566,454,782 | 504,212,021 | ||||||||||||||
Diluted | 566,454,782 | 510,694,493 |
The increase in revenue was primarily a result of 12% growth from existing customer upgrades and expanding solution offerings to these existing customers as well as 5%3% growth from new customers and 1% increase in other transaction revenue, partially offset by a 5% impact in professional services revenues due to the divestiture of the First Party Clinical Services in December 2020.
36
Cost of Revenue
Cost of revenuerevenues increased by $7.4 million to $57.9$155.4 million, or 14.7%5.0%, for the threenine months ended September 30, 2021,2022, compared to the threenine months ended September 30, 2020.
Cost of Revenue,Revenues, exclusive of amortization of acquired technologies
Cost of revenue,revenues, exclusive of amortization of acquired technologies, increased $7.4by $7.0 million to $51.3$135.2 million, or 16.9%5.4%, for the threenine months ended September 30, 2021,2022, compared to the threenine months ended September 30, 2020.2021. The increase was due to a $12.0$6.1 million increase in third party license and royalty fees, a $3.3 million increase in depreciation expense related to additional investments in platform and infrastructure enhancements, a $2.6 million increase in consulting and other professional service costs and a $3.9 million increase in personnel-related costs, partially offset by a $8.4 million reduction in stock-based compensation, mainly from athe vesting term modification of outstanding stock options completed in conjunction with the Business Combination and a $2.7 million increase in personnel costs, partially offset by a decrease of $7.2 million of costs related to the divestiture of First Party Clinical Services in December 2020.
Amortization of Acquired Technologies
Amortization of acquired technologies was $6.6$20.2 million for each of the threenine months ended September 30, 2021 and 2020.
Gross Profit
Gross profit increased by $11.5$69.7 million to $118.8$423.0 million, or 10.7%19.7%, for the threenine months ended September 30, 2021,2022, compared to the threenine months ended September 30, 2020.2021. Our gross profit margin increased to 73.1% for the nine months ended September 30, 2022 compared to 70.5% for the nine months ended September 30, 2021. The increase in absolute dollarsboth gross profit and gross profit margin was primarily due to a reduction in stock-based compensation, increased software subscription revenues and economies of scale resulting from fixed cost arrangements. Our gross profit margin
Research and Development
Research and development expense decreased by $14.2 million to 67.2%$114.7 million, or 11.0%, for the threenine months ended September 30, 20212022, compared to 68.0% for the threenine months ended September 30, 2020.2021. The decrease in gross profit margin was due to a $12.0$22.3 million or 6.8%, increasereduction in stock-based compensation, expensemainly from the vesting term modification completed in conjunction with the Business Combination offset by increased software subscription revenues and economies of scale resulting from fixed cost arrangements.
Selling and Marketing
Selling and marketing expense increaseddecreased by $63.0$32.6 million to $80.4$88.7 million, or 361.2%26.9%, for the threenine months ended September 30, 2021,2022, compared to the threenine months ended September 30, 2020.2021. The increasedecrease was primarily due to a $58.4$41.7 million increasereduction in stock-based compensation, mainly from athe vesting term modification of outstanding stock options completed in conjunction with the Business Combination in the prior year, partially offset by a $3.6$6.7 million increase in personnelof personnel-related costs including sales incentives and travel costs and a $0.5$1.1 million increase in employee travel costs.
General and Administrative
General and administrative expense increaseddecreased by $120.6$85.7 million to $142.5$123.1 million, or 550.9%41.0%, for the threenine months ended September 30, 2021,2022, compared to the threenine months ended September 30, 2020.2021. The increasedecrease was primarily due to a $112.5$82.2 million increasereduction in stock-based compensation, mainly from athe vesting term modification of outstanding stock options completed in conjunction with the Business Combination in the prior year, a $1.3$4.5 million decrease in consulting and other professional service costs and a $3.9 million decrease in in the Company's facilities costs due to the Company's closure of its previous headquarters in March 2022, partially offset by a $3.8 million increase in insurance costs, a $1.6 million increase in personnel costs and a $1.0 million increase in technology and communication costs. Additionally, the Company recognized $2.5 million of additional depreciation expense during the three months ended September 30, 2021 primarily related to the acceleration of depreciation on leasehold improvements at the Company’s corporate headquarters and facilities costs increased $1.1 million due to the Company’s overlapping corporate headquarters leases and due to the acceleration of rent expense from the planned move from its current to its new headquarters in the fourth quarter of 2021.
Amortization of Intangible Assets
Amortization of intangible assets was $18.1$54.2 million duringfor the threenine months ended September 30, 20212022 and 2020.
37
Interest Expense
Interest expense decreased by $5.9$25.8 million to $13.9$25.8 million, or 29.9%50.0%, for the threenine months ended September 30, 2022, compared to the nine months ended September 30, 2021 compared to the three months ended September 30, 2020 primarily due to less outstanding long-term debt and a lower variable interest rate during the threenine months ended September 30, 2021.
Change in Fair Value of Interest Rate Swaps
The change in fair value of interest rate swaps decreased by $1.9derivative instruments was $6.0 million for the threenine months ended September 30, 2021,2022, compared to $8.4 million for the threenine months ended September 30, 2020.2021. The decrease$6.0 million change in fair value recognized for the nine months ended September 30, 2022 was attributablerelated to the proximity of the maturity date of the swap agreements and the timing of the extinguishment of the interest rate swapscap agreement the Company entered into in August 2022 and driven by the changes in the forward yield curve. The $8.4 million change in fair value of derivative instruments in the prior year was related to the interest rate swap agreements in effect during the prior year. The interest rate swap agreements were extinguished in September 2021.
Change in Fair Value of Warrant Liabilities
We recognized income of $23.5 million from a change in fair value of warrant liabilities wasfor the nine months ended September 30, 2022, compared to expense of $26.9 million for the threenine months ended September 30, 2021. The warrant liabilities were recorded as partincome from the change in fair value was due to the decrease in the estimated fair value of the Business Combination and therefore did not exist inPrivate Warrants, primarily from the prior year.lower price of the Company's common stock as of September 30, 2022, compared to December 31, 2021. The expense for the nine months ended September 30, 2021 was due to the increase in the estimated fair value of the Public Warrants and Private Warrants between July 30, 2021, the closing date of the Business Combination and September 30, 2021.
Loss on Early Extinguishment of Debt
There was no loss on early extinguishment of debt during the threenine months ended September 30, 2022. Loss on early extinguishment of debt for the nine months ended September 30, 2021 was $15.2 million due to the early repayments of the total balance outstanding under the Company’sCompany's First Lien Term Loan. There
Gain on Sale of Cost Method Investment
Gain on sale of cost method investment was no loss on early extinguishment of debt during the three months ended September 30, 2020.
Nine Months Ended September 30, | Change | |||||||||||||||
(dollar amounts in thousands, except share and per share data) | 2021 | 2020 | $ | % | ||||||||||||
Revenue | $ | 501,205 | $ | 467,677 | $ | 33,528 | 7.2 | % | ||||||||
Cost of revenue, exclusive of amortization of acquired technologies | 128,218 | 135,674 | (7,456 | ) | -5.5 | % | ||||||||||
Amortization of acquired technologies | 19,740 | 19,725 | 15 | 0.1 | % | |||||||||||
Cost of revenue | 147,958 | 155,399 | (7,441 | ) | -4.8 | % | ||||||||||
Gross profit | 353,247 | 312,278 | 40,969 | 13.1 | % | |||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 128,894 | 82,131 | 46,763 | 56.9 | % | |||||||||||
Selling and marketing | 121,350 | 56,608 | 64,742 | 114.4 | % | |||||||||||
General and administrative | 208,745 | 66,460 | 142,285 | 214.1 | % | |||||||||||
Amortization of intangible assets | 54,232 | 54,232 | — | 0.0 | % | |||||||||||
Total operating expenses | 513,221 | 259,431 | 253,790 | 97.8 | % | |||||||||||
Operating (loss) income | (159,974 | ) | 52,847 | (212,821 | ) | NM | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (51,548 | ) | (57,588 | ) | 6,040 | 10.5 | % | |||||||||
Gain (loss) on change in fair value of interest rate swaps | 8,373 | (16,633 | ) | 25,006 | NM | |||||||||||
Change in fair value of warrant liabilities | (26,889 | ) | — | (26,889 | ) | NM | ||||||||||
Loss on early extinguishment of debt | (15,240 | ) | (8,615 | ) | (6,625 | ) | -76.9 | % | ||||||||
Other (expense) income, net | 1 | 304 | (303 | ) | -99.7 | % | ||||||||||
Total other income (expense) | (85,303 | ) | (82,532 | ) | (2,771 | ) | -3.4 | % | ||||||||
Loss before income taxes | (245,277 | ) | (29,685 | ) | (215,592 | ) | -726.3 | % | ||||||||
Income tax benefit | 54,227 | 7,191 | 47,036 | 654.1 | % | |||||||||||
Net loss | $ | (191,050 | ) | $ | (22,494 | ) | $ | (168,556 | ) | -749.3 | % | |||||
Net loss per share attributable to common stockholders—basic and diluted | $ | (0.36 | ) | $ | (0.04 | ) | ||||||||||
Weighted-average shares used in computing net loss per share attributable to common stockholders—basic and diluted | 525,877,533 | 504,062,587 |
Income Tax (Provision) Benefit
Income tax provision was $54.2 million during the nine months ended September 30, 2021 and 2020.
Non-GAAP
In addition to our results determined in accordance with U.S. GAAP, we believe that Adjusted Gross Profit, andAdjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted EBITDA,Earnings Per Share, and Free Cash Flow which are eachstarting in 2021, for setting management bonus programs. We believe that
38
Adjusted Gross Profit
Adjusted Gross Profit is defined as gross profit, adjusted for the gross profit associated with First Party Clinical Services which was divested as of December 31, 2020, amortization of acquired technologies, business combination transaction costs and stock-based compensation and related employer payroll tax, which are not indicative of our recurring core business operating results. The Adjusted Gross Profit Margin is defined as Adjusted Gross Profit divided by Revenue, less First Party Clinical Services divested revenue of $0 and $7,830 for the three months ended September 30, 2021 and 2020, respectively, and $0 and $26,057 for the nine months ended September 30, 2021 and 2020 (amounts in thousands). Gross profit is the most directly comparable GAAP measure to Adjusted Gross Profit, and you should review the reconciliation of Gross Profit to Adjusted Gross Profit below and not rely on any single financial measure to evaluate our business.
The following table reconciles Gross Profit to Adjusted Gross Profit for the three and nine months ended September 30, 20212022 and 2020, respectively:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(amounts in thousands, except percentages) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Gross Profit | $ | 118,775 | $ | 107,299 | $ | 353,247 | $ | 312,278 | ||||||||
First Party Clinical Services—Gross Profit | — | (645 | ) | — | (3,035 | ) | ||||||||||
Amortization of acquired technologies | 6,580 | 6,576 | 19,740 | 19,725 | ||||||||||||
Business combination transaction costs | 905 | — | 905 | — | ||||||||||||
Stock-based compensation | 12,169 | 141 | 12,563 | 380 | ||||||||||||
Adjusted Gross Profit | $ | 138,429 | $ | 113,371 | $ | 386,455 | $ | 329,348 | ||||||||
Gross Profit Margin | 67 | % | 68 | % | 70 | % | 67 | % | ||||||||
Adjusted Gross Profit Margin | 78 | % | 76 | % | 77 | % | 75 | % |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(amounts in thousands, except percentages) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Gross Profit |
| $ | 145,607 |
|
| $ | 118,775 |
|
| $ | 422,975 |
|
| $ | 353,247 |
|
Amortization of acquired technologies |
|
| 6,748 |
|
|
| 6,580 |
|
|
| 20,193 |
|
|
| 19,740 |
|
Business combination transaction costs |
|
| — |
|
|
| 905 |
|
|
| — |
|
|
| 905 |
|
Stock-based compensation and related employer payroll |
|
| 1,765 |
|
|
| 12,169 |
|
|
| 4,378 |
|
|
| 12,563 |
|
Adjusted Gross Profit |
| $ | 154,120 |
|
| $ | 138,429 |
|
| $ | 447,546 |
|
| $ | 386,455 |
|
Gross Profit Margin |
|
| 73 | % |
|
| 67 | % |
|
| 73 | % |
|
| 70 | % |
Adjusted Gross Profit Margin |
|
| 78 | % |
|
| 78 | % |
|
| 77 | % |
|
| 77 | % |
Adjusted Operating Expenses
Adjusted Operating Expenses is defined as operating expenses adjusted for amortization, stock-based compensation expense and related employer payroll tax, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net income (costs) related to divestiture and merger and acquisition ("M&A") and integration costs.
The following table reconciles operating expenses to Adjusted Operating Expenses for the three months ended September 30, 2021, Adjusted Gross Profit increased $25.1 million or 22.1%, while Adjusted Gross Profit Margin increased 2% to 78%. For theand nine months ended September 30, 2021, 2022 and 2021:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(dollar amounts in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating expenses |
| $ | 128,553 |
|
| $ | 307,987 |
|
| $ | 380,747 |
|
| $ | 513,221 |
|
Stock-based compensation expense and related |
|
| (27,800 | ) |
|
| (207,707 | ) |
|
| (78,496 | ) |
|
| (222,850 | ) |
Lease abandonment |
|
| — |
|
|
| (438 | ) |
|
| (1,222 | ) |
|
| (2,256 | ) |
Lease overlap costs |
|
| — |
|
|
| (924 | ) |
|
| (1,338 | ) |
|
| (2,773 | ) |
Net income (costs) related to divestiture |
|
| 471 |
|
|
| (338 | ) |
|
| 418 |
|
|
| (2,605 | ) |
Business combination transaction and related costs |
|
| (101 | ) |
|
| (5,516 | ) |
|
| (1,156 | ) |
|
| (10,471 | ) |
M&A and integration costs |
|
| (6 | ) |
|
| — |
|
|
| (1,761 | ) |
|
| — |
|
Amortization of intangible assets |
|
| (18,066 | ) |
|
| (18,078 | ) |
|
| (54,212 | ) |
|
| (54,232 | ) |
Adjusted operating expenses |
| $ | 83,051 |
|
| $ | 74,986 |
|
| $ | 242,980 |
|
| $ | 218,034 |
|
Adjusted Gross Profit increased $57.1 million or 17.3%, while Operating Income
Adjusted Gross Profit Margin increased 2%Operating Income is defined as operating income (loss) adjusted for amortization, stock-based compensation expense and related employer payroll tax, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to 77%. Eachtermination of these increases inits then existing headquarters’ lease, net (income) costs related to divestiture and M&A and integration costs.
39
The following table reconciles operating income (loss) to Adjusted Gross ProfitOperating Income for the three and Adjusted Gross Profit Margin were primarily due to an increase in software subscription revenuenine months ended September 30, 2022 and economies of scale resulting from fixed cost arrangements.
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
|
|
|
|
|
| ||||||||||
(dollar amounts in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating income (loss) |
| $ | 17,054 |
|
| $ | (189,212 | ) |
| $ | 42,228 |
|
| $ | (159,974 | ) |
Stock-based compensation expense and related employer |
|
| 29,565 |
|
|
| 219,876 |
|
|
| 82,874 |
|
|
| 235,413 |
|
Lease abandonment |
|
| — |
|
|
| 438 |
|
|
| 1,222 |
|
|
| 2,256 |
|
Lease overlap costs |
|
| — |
|
|
| 924 |
|
|
| 1,338 |
|
|
| 2,773 |
|
Net (income) costs related to divestiture |
|
| (471 | ) |
|
| 338 |
|
|
| (418 | ) |
|
| 2,605 |
|
Business combination transaction and related costs |
|
| 101 |
|
|
| 5,516 |
|
|
| 1,156 |
|
|
| 10,471 |
|
M&A and integration costs |
|
| 6 |
|
|
| — |
|
|
| 1,761 |
|
|
| — |
|
Amortization of intangible assets |
|
| 18,066 |
|
|
| 18,078 |
|
|
| 54,212 |
|
|
| 54,232 |
|
Amortization of acquired technologies—Cost of revenue |
|
| 6,748 |
|
|
| 6,580 |
|
|
| 20,193 |
|
|
| 19,740 |
|
Adjusted operating income |
| $ | 71,069 |
|
| $ | 62,538 |
|
| $ | 204,566 |
|
| $ | 167,516 |
|
Adjusted EBITDA
Adjusted EBITDA, as defined below, are useful in evaluating our operational performance distinct and apart from financing costs, certain expenses andnon-operationalexpenses. EBITDA is defined as net income (loss) income adjusted for interest, taxes, depreciation, and amortization. Adjusted EBITDA is EBITDA adjusted for (gain) loss onamortization, change in fair value of interest rate swaps,derivative instruments, change in fair value of warrant liabilities, stock-based compensation expense and related employer payroll tax, loss on early extinguishment of debt, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net (income) costs related to divestiture, M&A and less revenueintegration costs and relatedgain on sale of cost of revenue associated with First Party Clinical Services, which was divested as of December 31, 2020. Net (loss) income is the most directly comparable GAAP measure tomethod investment. Adjusted EBITDA and you should review the reconciliation of net (loss) income to adjusted EBITDA below and not rely on any single financial measure to evaluate our business.
The following table reconciles net income (loss) income to Adjusted EBITDA for the three and nine months ended September 30, 20212022 and 2020, respectively:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(dollar amounts in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Net (loss) income | $ | (189,782 | ) | $ | 4,720 | $ | (191,050 | ) | $ | (22,494 | ) | |||||
Interest expense | 13,878 | 19,788 | 51,548 | 57,588 | ||||||||||||
Income tax provision (benefit) | (53,523 | ) | 2,520 | (54,227 | ) | (7,191 | ) | |||||||||
Amortization of intangible assets | 18,078 | 18,078 | 54,232 | 54,232 | ||||||||||||
Amortization of acquired technologies—Cost of revenue | 6,580 | 6,576 | 19,740 | 19,725 | ||||||||||||
Depreciation and amortization related to software, equipment and property | 7,694 | 4,496 | 18,161 | 13,039 | ||||||||||||
EBITDA | (197,075 | ) | 56,178 | (101,596 | ) | 114,899 | ||||||||||
(Gain) loss on change in fair value of interest rate swaps | (2,007 | ) | (3,894 | ) | (8,373 | ) | 16,633 | |||||||||
Change in fair value of warrant liabilities | 26,889 | — | 26,889 | — | ||||||||||||
Stock-based compensation expense | 219,876 | 1,869 | 235,413 | 7,471 | ||||||||||||
Loss on early extinguishment of debt | 15,240 | — | 15,240 | 8,615 | ||||||||||||
Business combination transaction costs | 5,516 | 93 | 10,471 | 93 | ||||||||||||
Lease abandonment | 438 | — | 2,256 | — | ||||||||||||
Lease overlap costs | 924 | — | 2,773 | — | ||||||||||||
Net costs related to divestiture | 338 | — | 2,605 | — | ||||||||||||
First Party Clinical Services—Revenue | — | (7,830 | ) | — | (26,083 | ) | ||||||||||
First Party Clinical Services—Cost of revenue | — | 7,185 | — | 23,048 | ||||||||||||
Adjusted EBITDA | $ | 70,139 | $ | 53,601 | $ | 185,678 | $ | 144,676 | ||||||||
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(dollar amounts in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income (loss) |
| $ | 9,795 |
|
| $ | (189,782 | ) |
| $ | 37,334 |
|
| $ | (191,050 | ) |
Interest expense |
|
| 10,501 |
|
|
| 13,878 |
|
|
| 25,786 |
|
|
| 51,548 |
|
Income tax provision (benefit) |
|
| 3,452 |
|
|
| (53,523 | ) |
|
| 12,714 |
|
|
| (54,227 | ) |
Amortization of intangible assets |
|
| 18,066 |
|
|
| 18,078 |
|
|
| 54,212 |
|
|
| 54,232 |
|
Amortization of acquired technologies—Cost of |
|
| 6,748 |
|
|
| 6,580 |
|
|
| 20,193 |
|
|
| 19,740 |
|
Depreciation and amortization of software, |
|
| 6,665 |
|
|
| 7,694 |
|
|
| 20,155 |
|
|
| 18,161 |
|
EBITDA |
|
| 55,227 |
|
|
| (197,075 | ) |
|
| 170,394 |
|
|
| (101,596 | ) |
Change in fair value of derivative |
|
| (5,991 | ) |
|
| (2,007 | ) |
|
| (5,991 | ) |
|
| (8,373 | ) |
Change in fair value of warrant liabilities |
|
| (312 | ) |
|
| 26,889 |
|
|
| (23,452 | ) |
|
| 26,889 |
|
Loss on early extinguishment of debt |
|
| — |
|
|
| 15,240 |
|
|
| — |
|
|
| 15,240 |
|
Stock-based compensation expense and related employer |
|
| 29,565 |
|
|
| 219,876 |
|
|
| 82,874 |
|
|
| 235,413 |
|
Business combination transaction and related costs |
|
| 101 |
|
|
| 5,516 |
|
|
| 1,156 |
|
|
| 10,471 |
|
Lease abandonment |
|
| — |
|
|
| 438 |
|
|
| 1,338 |
|
|
| 2,256 |
|
Lease overlap costs |
|
| — |
|
|
| 924 |
|
|
| 1,222 |
|
|
| 2,773 |
|
Net (income) costs related to divestiture |
|
| (471 | ) |
|
| 338 |
|
|
| (418 | ) |
|
| 2,605 |
|
M&A and integration costs |
|
| 6 |
|
|
| — |
|
|
| 1,761 |
|
|
| — |
|
Gain on sale of cost method investment |
|
| (9 | ) |
|
| — |
|
|
| (3,587 | ) |
|
| — |
|
Adjusted EBITDA |
| $ | 78,116 |
|
| $ | 70,139 |
|
| $ | 225,297 |
|
| $ | 185,678 |
|
Adjusted EBITDA Margin |
|
| 39.3 | % |
|
| 39.7 | % |
|
| 39.0 | % |
|
| 37.0 | % |
40
Adjusted Net Income and Adjusted Earnings Per Share
Adjusted Net Income is defined as net income (loss) income adjusted for the (gain) loss on change in fair value of interest rate swaps,derivative instruments, change in fair value of warrant liabilities, stock-based compensation expense and related employer payroll tax, loss on early extinguishment of debt, business combination transaction costs, lease abandonment charges, lease overlap costs for the incremental expenses associated with the Company’s new corporate headquarters prior to termination of its then existing headquarters’ lease, net (income) costs related to divestiture, less revenueM&A and relatedintegration costs and gain on sale of cost of revenue associated with First Party Clinical Services, which was divested as of December 31, 2020. Net (loss) income is the most directly comparable GAAP measure to Adjusted Net Income, and you should review the reconciliation of net (loss) income to Adjusted Net Income below and not rely on any single financial measure to evaluate our business.
The following table reconciles net (loss) income and GAAP basic and diluted earnings per share(loss) to Adjusted Net Income and Adjusted Earnings per Share for the three and nine months ended September 30, 20212022 and 2020, respectively.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
(dollar amounts in thousands) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Net (loss) income | $ | (189,782 | ) | $ | 4,720 | $ | (191,050 | ) | $ | (22,494 | ) | |||||
Amortization of intangible assets | 18,078 | 18,078 | 54,232 | 54,232 | ||||||||||||
Amortization of acquired technologies—Cost of revenue | 6,580 | 6,576 | 19,740 | 19,725 | ||||||||||||
(Gain) loss on change in fair value of interest rate swaps | (2,007 | ) | (3,894 | ) | (8,373 | ) | 16,633 | |||||||||
Change in fair value of warrant liabilities | 26,889 | — | 26,889 | — | ||||||||||||
Stock-based compensation expense | 219,876 | 1,869 | 235,413 | 7,471 | ||||||||||||
Loss on early extinguishment of debt | 15,240 | — | 15,240 | 8,615 | ||||||||||||
Business combination transaction costs | 5,516 | 93 | 10,471 | 93 | ||||||||||||
Lease abandonment | 438 | — | 2,256 | — | ||||||||||||
Lease overlap costs | 924 | — | 2,773 | — | ||||||||||||
Net costs related to divestiture | 338 | — | 2,605 | — | ||||||||||||
First Party Clinical Services—Revenue | — | (7,830 | ) | — | (26,083 | ) | ||||||||||
First Party Clinical Services—Cost of revenue | — | 7,185 | — | 23,048 | ||||||||||||
Tax effect of adjustments | (72,360 | ) | (5,716 | ) | (89,134 | ) | (26,947 | ) | ||||||||
Adjusted net income | $ | 29,730 | $ | 21,081 | $ | 81,062 | $ | 54,293 | ||||||||
Adjusted net income per share attributable to common stockholders | ||||||||||||||||
Basic | $ | 0.05 | $ | 0.04 | $ | 0.15 | $ | 0.11 | ||||||||
Diluted | $ | 0.05 | $ | 0.04 | $ | 0.15 | $ | 0.11 | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 566,454,782 | 504,212,021 | 525,877,533 | 504,062,587 | ||||||||||||
Diluted | 599,675,416 | 510,694,493 | 554,818,300 | 510,252,470 |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(dollar amounts in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income (loss) |
| $ | 9,795 |
|
| $ | (189,782 | ) |
| $ | 37,334 |
|
| $ | (191,050 | ) |
Amortization of intangible assets |
|
| 18,066 |
|
|
| 18,078 |
|
|
| 54,212 |
|
|
| 54,232 |
|
Amortization of acquired technologies— |
|
| 6,748 |
|
|
| 6,580 |
|
|
| 20,193 |
|
|
| 19,740 |
|
Change in fair value of |
|
| (5,991 | ) |
|
| (2,007 | ) |
|
| (5,991 | ) |
|
| (8,373 | ) |
Change in fair value of warrant liabilities |
|
| (312 | ) |
|
| 26,889 |
|
|
| (23,452 | ) |
|
| 26,889 |
|
Loss on early extinguishment of debt |
|
| — |
|
|
| 15,240 |
|
|
| — |
|
|
| 15,240 |
|
Stock-based compensation expense and related employer |
|
| 29,565 |
|
|
| 219,876 |
|
|
| 82,874 |
|
|
| 235,413 |
|
Business combination transaction and related costs |
|
| 101 |
|
|
| 5,516 |
|
|
| 1,156 |
|
|
| 10,471 |
|
Lease abandonment |
|
| — |
|
|
| 438 |
|
|
| 1,222 |
|
|
| 2,256 |
|
Lease overlap costs |
|
| — |
|
|
| 924 |
|
|
| 1,338 |
|
|
| 2,773 |
|
Net (income) costs related to divestiture |
|
| (471 | ) |
|
| 338 |
|
|
| (418 | ) |
|
| 2,605 |
|
M&A and integration costs |
|
| 6 |
|
|
| — |
|
|
| 1,761 |
|
|
| — |
|
Gain on sale of cost method investment |
|
| (9 | ) |
|
| — |
|
|
| (3,587 | ) |
|
| — |
|
Tax effect of adjustments |
|
| (10,894 | ) |
|
| (72,360 | ) |
|
| (34,193 | ) |
|
| (89,134 | ) |
Adjusted net income |
| $ | 46,604 |
|
| $ | 29,730 |
|
| $ | 132,449 |
|
| $ | 81,062 |
|
Adjusted net income per share attributable to |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.08 |
|
| $ | 0.05 |
|
| $ | 0.22 |
|
| $ | 0.15 |
|
Diluted |
| $ | 0.07 |
|
| $ | 0.05 |
|
| $ | 0.21 |
|
| $ | 0.15 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 609,421,073 |
|
|
| 566,454,782 |
|
|
| 606,181,316 |
|
|
| 525,877,533 |
|
Diluted |
|
| 643,582,922 |
|
|
| 599,675,416 |
|
|
| 642,208,622 |
|
|
| 554,818,300 |
|
Free Cash Flow
Free Cash Flow is defined as net cash provided by operating activities less cash used for the purchases of software, equipment and property, and purchase of intangible assets.
The following table reconciles net cash provided by operating activities to Free Cash Flow for the three and nine months ended September 30, 2021, compared to the three months ended September 30, 2020. Adjusted Net Income increased $26.82022 and 2021:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(dollar amounts in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net cash provided by operating activities |
| $ | 30,753 |
|
| $ | 36,905 |
|
| $ | 118,438 |
|
| $ | 96,725 |
|
Less: Purchases of software, equipment, and property |
|
| (13,375 | ) |
|
| (11,864 | ) |
|
| (38,844 | ) |
|
| (25,022 | ) |
Less: Purchase of intangible assets |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (49 | ) |
Free Cash Flow |
| $ | 17,378 |
|
| $ | 25,041 |
|
| $ | 79,594 |
|
| $ | 71,654 |
|
41
Liquidity and Capital Resources
We have financed our operations with cash flows from operations. The Company generated $118.4 million or 49.3% forof cash flows from operating activities during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. These increases were driven primarily by increased software subscription revenues from expanding solution adoption among existing customers, existing customer upgrades and sales to new customers and economies of scale resulting from fixed cost arrangements.
We believe that our existing cash and cash equivalents, our cash flows from operating activities and our borrowing capacity under our revolving credit facility2021 Revolving Credit Facility will be sufficient to fund our operations, fund required long-term debt repayments and meet our commitments for capital expenditures for at least the next twelve months.
Although we are not currently a party to any material definitive agreement regarding potential investments in, or acquisitions of, complementary business,businesses, applications or technologies, we may enter into these types of arrangements, which could reduce our cash and cash equivalents or require us to seek additional equity or debt financing. Additional funds from financing arrangements may not be available on terms favorable to us or at all.
Debt
On September 21, 2021, CCC Intelligent Solutions Inc., an indirect wholly owned subsidiary of the Company, together with certain of the Company’s subsidiaries acting as guarantors entered into the 2021a credit agreement (the "2021 Credit Agreement, dated as of September 21, 2021.
The 2021 Credit Agreement replacesreplaced the Company’s 2017 First Lien Credit Agreement (the “First Lien Credit Agreement”), dated as of April 27, 2017, as amended as of February 14, 2020.
The proceeds of the 2021 Credit Agreement were used to repay all outstanding borrowings under the First Lien Credit Agreement.
2021 Credit Agreement—The 2021 Credit Agreement consists of the $800.0 million Term B Loan for an aggregate principal amount of $800.0 million and the 2021 Revolving Credit Facility for an aggregate principal amount of $250.0 million. The 2021 Revolving Credit Facility has a sublimit of $75.0 million for letters of credit. The Company received proceeds of $798.0 million, net of debt discount of $2.0 million, related to the Term B Loan.
Beginning with the Term B Loan, we repaidquarter ending March 31, 2022, the outstanding borrowings under our First Lien Credit Agreement. The repayment was determined to be a debt extinguishment and we recognized a $9.2 million loss on early extinguishment of debt during the three months ended September 30, 2021.
Beginning with fiscalthe year ending December 31, 2022, the Term B Loan requires a prepayment of principal, subject to certain exceptions, in connection with the receipt of proceeds from certain asset sales, casualty events, and debt issuances by the Company, and up to 50% of annual excess cash flow, as defined in and as further set forth in the 2021 Credit Agreement. When a principal prepayment is required, the prepayment offsets the future quarterly principal payments of the same amount. As of September 30, 2021,2022, the Company is not subject to the annual excess cash flow calculation and no such principal prepayments are required.
As of September 30, 2021,2022, the amount outstanding underon the Term B Loans was $800.0$794.0 million, and there were no amounts outstanding on the Company’s 2021 Revolving Credit Facility.
Borrowings under the 2021 Credit AgreementFacility bear interest at a variable raterates based on the ratio of LIBOR, plus up to 2.50% per annum based upon the Company’s leverage ratio, as definedand its subsidiaries’ consolidated first lien net indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA for applicable periods specified in the 2021 Credit Agreement. Facility.
A quarterly commitment fee of up to 0.50% is payable on the unused portion of the 2021 Revolving Credit Facility.
During the three months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.0%.
During the nine months ended September 30, 2022 and 2021, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.6% and 3.0%, respectively. The Company made interest payments of $21.6 million during the nine months ended September 30, 2022. There were no interest payments made during the nine months ended September 30, 2021.
The Company has an outstanding standby letter of credit for $0.7 million which reduces the amount available to be borrowed under the 2021 Revolving Credit Facility. As of September 30, 2022, $249.3 million was available to be borrowed under the 2021 Revolving Credit Facility.
42
In addition, beginning with the fiscal quarter endingthree months ended March 31, 2022, the Company is subject to a springing first lien leverage test underterms of the 2021 Credit Agreement with respect to the Revolving Credit Facility, tested quarterly, only ifinclude a minimum of 35.0% of the Revolving Credit Facility borrowings (subject to certain exclusions set forth in the 2021 Credit Agreement) are outstandingfinancial covenant which requires that, at the end of aeach fiscal quarter. Thequarter, if the aggregate amount of borrowings under the 2021 Revolving Credit Facility exceeds 35% of the aggregate commitments, the Company’s leverage ratio cannot exceed 6.25 to 1.00. As of September 30, 2022, the Company iswas not subject to the first lien leverage test as of September 30, 2021.
First Lien Credit Agreement—In April 2017, the 2021Company entered into the First Lien Credit Agreement in September 2021, our long-term debt was provided through ourAgreement.
The First Lien Credit Agreement initially consisted of a $1.0 billion term loan and Secondrevolving credit facilities for an aggregate principal amount of $100.0 million, with a sublimit of $30.0 million for letters of credit under the First Lien Credit Agreement, each entered into in April 2017.
In February 14, 2020, wethe Company refinanced ourits long-term debt and entered into the First Amendment to the First Lien Amendment.Credit Agreement. The First Lien Amendment provided an incremental term loan, amended the amount of commitments and the maturity dates of the First Lien Credit Agreement’s revolving credit facilities. The proceeds of the incremental term loan were used to repay all outstanding borrowings under the Second Lien Credit Agreement.
The First Lien Amendment provided an incremental term loan in the amount of $375.0 million. We received proceeds from the incremental term loan of $373.1 million net of debt discount of $1.9 million. The First Lien Amendmentand reduced the amount of commitments under each of the Dollar Revolver and the Multicurrency Revolver to $59.3 million and $32.0 million, respectively, and extended the maturity of a portion of the commitments under each revolving credit facility. Pursuant to the First Lien Amendment, thenon-extendedDollar Revolver andnon-extendedMulticurrency Revolver consistedRevolvers to an aggregate principal amount of commitments$91.3 million. The First Lien Revolvers continued to have a sublimit of $8.1$30.0 million and $4.4 million, respectively, which were scheduled to mature on April 27, 2022. The extended Dollar Revolver and extended Multicurrency Revolver consistedfor letters of commitments of $51.2 million and $27.6 million, respectively, which were scheduled to mature on October 27, 2023.
The First Lien Term Loan required (after giving effect to the First Lien Amendment) quarterly principal payments of approximately $3.5 million until March 31, 2024, with the remaining outstanding principal amount required to be paid on the maturity date, April 27, 2024. The First Lien Term Loan required a prepayment of principal, subject to certain exceptions, in connection with the receipt of proceeds from certain asset sales, casualty events, and debt issuances by us,the Company, and up to 50% of annual excess cash flow, as defined in and as further set forth in the First Lien Credit Agreement. When a principal prepayment iswas required, the prepayment offsetsoffset the future quarterly principal payments of the same amount. The annual excess cash flow calculation for the year endedAs of December 31, 2020, requiredsubject to the request of the lenders of the First Lien Term Loan, a principal prepayment of up to $21.9 million was required. In April 2021, the Company made a principal prepayment of $1.5 million which was paid in April 2021. to those lenders who made such a request.
The annual excess cash flow calculation for the year ended December 31, 2019 did not requireCompany made a principal prepayment.
Amounts outstanding under the First Lien Term LoanCredit Agreement bore interest at a variable rate of LIBOR, plus up to 3.00% per annum based upon the Company’s first lien leverage ratio.ratio, as defined in the First Lien Credit Agreement. A quarterly commitment fee of up to 0.50% based upon the Company’s first lien leverage ratio (as defined in and as further set forth in the First Lien Credit Agreement) was payable on the unused portion of the First Lien Revolver.
During the three months ended September 30, 2021 and 2020 the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1% and 4.0%, respectively. . The Company made interest payments of $9.3 million during the three months ended September 30, 2021.
During the nine months ended September 30, 2021 and 2020, the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1% and 4.2%, respectively.
Interest Rate Cap—In August 2022, the weighted-averageCompany entered into an interest rate oncap agreement to reduce its exposure to increases in interest rates applicable to its floating rate long-term debt. The aggregate notional value of the Second Lien Term Loan was 8.6%.
Interest Rate Swap Agreements.
43
Cash Flows
The following table provides a summary of cash flow data for the nine months ended September 30, 20212022 and 2020:
Nine months ended September 30, | ||||||||
(dollar amounts in thousands) | 2021 | 2020 | ||||||
Net cash provided by operating activities | $ | 96,725 | $ | 66,789 | ||||
Net cash used in investing activities | (35,299 | ) | (24,375 | ) | ||||
Net cash used in financing activities | (62,917 | ) | (948 | ) | ||||
Net effect of exchange rate change | (162 | ) | 108 | |||||
Change in cash and cash equivalents | $ | (1,653 | ) | $ | 41,574 | |||
|
| Nine Months Ended September 30, |
| |||||
(dollar amounts in thousands) |
| 2022 |
|
| 2021 |
| ||
Net cash provided by operating activities |
| $ | 118,438 |
|
| $ | 96,725 |
|
Net cash used in investing activities |
|
| (67,185 | ) |
|
| (35,299 | ) |
Net cash provided by (used in) financing activities |
|
| 15,006 |
|
|
| (62,917 | ) |
Net effect of exchange rate change |
|
| (650 | ) |
|
| (162 | ) |
Change in cash and cash equivalents |
| $ | 65,609 |
|
| $ | (1,653 | ) |
Net cash provided by operating activities was $96.7$118.4 million for the nine months ended September 30, 2021.2022. Net cash provided by operating activities consists of net lossincome of $191.1$37.3 million, adjusted for $303.6$94.8 million of$3.5 $4.5 million for changes in working capital and ($19.3)18.2) million for the effect of changes in other operating assets and liabilities.Non-cash Significant non-cash adjustments$235.4$80.8 million, depreciationnon-cash lease expense of $3.1 million, deferred income tax benefits of ($53.1), a change in fair value of derivative instruments of ($6.0) million and amortization of $92.1 million,a change in fair value of warrant liabilities of $26.9 million, a loss on early extinguishment of debt of $15.2 million, $5.0 million innon-cashlease expense, amortization of deferred financing fees and debt discount of $3.7 million, deferred income tax benefits of ($66.4) million and a change in fair value of interest rate swaps of ($8.4) million, .23.5) million. The change in net operating assets and liabilities was primarily a result of an increase in accounts receivable of $8.3$19.5 million due to timing of receipts of payments from customers and an increase in prepayments and other current assets of $7.9$18.2 million due to timing of payments for prepaid and other deferred costs an increase in deferred contract costs of $6.4including the $6.3 million due to higher employee sales incentives, an increase in income taxes of $2.9 million due to timing of payments and a $10.0 million payment for the early extinguishment of the Company’s interest rate swap agreements,cap premium payment, partially offset by an increasea decrease in accounts payableother current assets of $1.4$12.4 million due to timing of cash disbursements, an increase in accrued expensesreceipts of $17.1 million due tonon-trade receivables and timing of cash disbursements and employee incentive plan accruals and an increase inpayments for other deferred revenue of $2.9 million due to timing of customer receipts and revenue recognition.
Net cash used in investing activities was $35.3$67.2 million for the nine months ended September 30, 2021.2022. Net cash used in investing activities is primarily relatedwas due to $38.8 million of capitalized time on internally developed software projects and purchases of software, equipment and property and $32.2 million for a business acquisition, partially offset by $3.9 million of $25.0 million and an investment inproceeds from the sale of a limited partnership of $10.2 million.
Net cash used inprovided by financing activities was $62.9$15.0 million for the nine months ended September 30, 2021.2022. Net cash used inprovided by financing activities was primarily relateddue to $22.8 million of proceeds from stock option exercises and $3.2 million of proceeds from shares purchased through the Company's ESPP, partially offset by $6.0 million of principal payments of long-term debt and $5.0 million of $1,336.2 million, dividends to shareholders priortax payments related to the Business Combinationnet share settlement of $269.2 million and a deemed distribution of $9.0 million, partially offset by additional borrowings from the Term B Loans, net of fees paid to the lender, of $789.9 million, and net proceeds from the Business Combination of $763.3 million.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. Our estimates are based on our historical experience, trends and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material.
Except as described below, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the CCCISour audited consolidated financial statements and notes thereto for the year ended December 31, 20202021, included in our Annual Report on Form 10-K.
Valuation of Goodwill and Intangible Assets
We perform an annual assessment for impairment of goodwill and indefinite-lived intangible assets as of September 30 each fiscal year, or whenever events occur or circumstances indicate that it is more likely than not that the Proxy Statement/Prospectus filedfair value of a reporting unit or indefinite-lived intangible asset is below its carrying value. For the three and nine months ended September 30, 2022 and 2021, our annual impairment analysis performed indicated no impairments of goodwill or changes in carrying values due to impairment.
The September 30, 2022 quantitative goodwill impairment test performed primarily uses an income approach based on July 6, 2021 by Dragoneer Growth Opportunities Corp.
44
cash flows. The discount rates are based on the estimated weighted average cost of Warrant Liabilities
The warrant liabilities were recorded as partprocess of evaluating the Business Combination completedpotential impairment of goodwill is subjective and requires significant judgment. In estimating the fair value of a reporting unit for the purposes of our annual or periodic impairment analyses, we make estimates and significant judgments about the future cash flows of that reporting unit. Our cash flow forecasts are based on July 30, 2021assumptions that represent the highest and therefore did not exist in the prior year and were not identified as a critical accounting policy and estimate in the Proxy Statement/Prospectus filed on July 6, 2021 by Dragoneer Growth Opportunities Corp.
We have two reporting units, Domestic and China, for purposes of analyzing goodwill. As of September 30, 2022, the criteriaannual impairment assessment indicated no impairment for equity treatment and must be recorded as liabilities. Accordingly, we classifyour China reporting unit. The quantitative assessment for the warrants as liabilities at theirChina reporting unit had an estimated fair value and adjustthat exceeded its carrying value by approximately 10%. Key financial assumptions utilized to determine the warrants to fair value at each reporting period. This liability is subject tore-measurementat each balance sheet date until exercised, and any change in fair value is recognized in our condensed consolidated statement of operations and comprehensive (loss) income. The fair value of the Public Warrants was determined usingreporting unit included revenue growth levels that reflect the quotedrollout of new services and solutions, improving profit margins and a 13.5% discount rate. The reporting unit’s fair value would approximate its carrying value with a 60 basis point increase in the discount rate.
As noted above, a considerable amount of management judgment and assumptions are required in performing the annual goodwill impairment assessment. While we believe our judgments and assumptions are reasonable, different assumptions could change the estimated fair values. A number of factors, many of which we have no ability to control, could cause actual results to differ from the estimates and assumptions we employed. These factors include:
If management's estimates of future operating results change or if there are changes to other assumptions due to these factors, the estimate of the valuation date.fair value may change significantly. Such change could result in impairment charges in future periods, which could have a significant impact on our operating results and financial condition.
Intangible assets with finite lives and software, equipment and property are amortized or depreciated over their estimated useful life on a straight-line basis. We monitor conditions related to these assets to determine whether events and circumstances warrant a revision to the remaining amortization or depreciation period. We test these assets for potential impairment whenever our management concludes events or changes in circumstances indicate that the carrying amount may not be recoverable. The original estimate of an asset’s useful life and the impact of an event or circumstance on either an asset’s useful life or carrying value involve significant judgment regarding estimates of the future cash flows associated with each asset.
There was no impairment charge related to intangible assets recorded during the three and nine months ended September 30, 2022 and 2021.
Fair Value of Contingent Consideration
Earnout liabilities arising from business acquisitions represent contingent consideration that may be payable in cash and recorded as a liability at fair value upon acquisition and re-measured at fair value in each subsequent reporting period. Changes in fair value are recorded in the consolidated statements of operations.
Determining the fair value of contingent consideration requires us to make assumptions and judgments. We estimate the fair value of contingent consideration using a Monte Carlo simulation model. These estimates involve inherent uncertainties and if different assumptions had been used, including but not limited to forecast inputs and discount rates, the fair value of contingent consideration could have been materially different from the amounts recorded. We have estimated the fair value of the Private Warrants was determined usingcontingent consideration associated with the Black-Scholes option pricing model.
45
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in interest rates, and inflation, as well as risksour market risk compared to the availability of funding sources, hazard events, and specific asset risks.
Item 4. Controls and cash flows. If market interest rates rise, our earnings and cash flows could be adversely affected by an increase in interest expense. In contrast, lower interest rates may reduce our borrowing costs and improve our operational results.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Ruleshashave concluded that during the period covered by this report,as of September 30, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarterthree months ended September 30, 20212022 identified in management’s evaluation pursuant to in Rules
46
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the ordinary course of business, the Company is from time to time, involved in various pending or threatened legal actions. The litigation process is inherently uncertain, and it is possible that the resolution of such matters might have a material adverse effect upon the Company’s consolidated financial condition and/or results of operations. The Company’s management believes, based on current information, matters currently pending or threatened are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.
Item 1A. Risk Factors
For risk factors relating to our business, following the Business Combination, please refer to the section entitled “Risk Factors” in our Proxy Statement/Prospectus filedAnnual Report on July 6,Form 10-K for the year ended December 31, 2021. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form
__________
* Filed herewith
** Furnished herewith
47
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: November | CCC INTELLIGENT SOLUTIONS HOLDINGS INC. | ||||||
By: | /s/ Githesh Ramamurthy | ||||||
Name: | Githesh Ramamurthy | ||||||
Title: | Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer) | ||||||
Dated: November 4, 2022 | |||||||
By: | |||||||
/s/ Brian Herb | |||||||
Name: | Brian Herb | ||||||
Title: | Executive Vice President, Chief Financial and Administrative Officer (Principal Financial Officer) |
48