Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the forward-looking statements included herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” as set forth elsewhere in this Quarterly Report on Form 10-Q.
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, AI-enabled digital workflows. Leveraging decades of deep domain experience, our industry-leading platform processes more than $100 billion in annual transaction value across this ecosystem, digitizing workflows and connecting more than 30,000 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. Insurer-to-shop DRP connections have created a strong network effect for CCC’s platform, as insurers and repairers both benefit by joining the largest network to maximize opportunities. This has led to a virtuous cycle in which more insurers on the platform drives more value for the collision shops on the platform, and vice versa.
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 27,500 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 many-to-many problem faced by the insurance economy. There are numerous internally and externally developed insurance software solutions in the market today, with the vast majority of applications focused on insurance-only use cases and not on serving the broader insurance ecosystem. We have prioritized building a leading network around our automotive insurance and collision repair pillars to further digitize interactions and maximize value for our customers. We have tens of thousands of companies on our platform that participate in the insurance economy, including insurers, repairers, parts suppliers, automotive manufacturers, and financial institutions. Our solutions create value for each of these parties by enabling them to connect to our vast network to collaborate with other companies, streamline operations, and reduce processing costs and dollars lost through claims management inefficiencies, or claims leakage. Expanding our platform has added new layers of network effects, further accelerating the adoption of our software solutions.
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, and AI-enhanced workflows that strengthen our solutions and improve business outcomes for our customers. Our suite of AI solutions increases automation across existing insurer processes including vehicle damage detection, claim triage, repair estimating, intelligent claims review, and subrogation. We deliver real-world AI with more than 95 U.S. auto insurers actively using AI-powered solutions in production environments. We have processed more than 9 million unique claims using CCC deep learning AI as of December 31, 2021, an increase of more than 80 percent over December 31, 2020.
28
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 the end-markets we serve, and these relationships are a key component of our success given the long-term nature of our contracts and the interconnectedness of our network. We have customer agreements with more than 300 insurers (including carriers, self-insurers and other entities processing insurance claims), including 18 of the top 20 automotive insurance carriers in the U.S., based on DWP, and hundreds of regional carriers. We have more than 30,000 total customers, including over 27,500 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 non-GAAP financial measures, we rely on Software Net Dollar Retention Rate (“Software NDR”) and Software Gross Dollar Retention Rate (“Software GDR”) to measure and evaluate our business to make strategic decisions. Software NDR and Software GDR may not be comparable to or calculated in the same way as other similarly titled measures used by other companies.
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, March for a quarter ending 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 one-time revenue and other revenue, including professional services, and (b) annualized software revenue for smaller customers with annualized software revenue below the threshold of $100,000 for carriers and $4,000 for shops. The customers that do not meet the revenue threshold are small carriers and shops that tend to have different buying behaviors, with a narrower solution focus, and different tenure compared to our core customers (excluded small carriers and shops represent less than 5% of total revenue within these sales channels). Our Software NDR includes carriers and shops who subscribe to our auto physical damage solutions, which account for most of the Company’s revenue, and excludes revenue from diagnostic providers, smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and also excludes CCC Casualty which are largely usage and professional service based solutions.
|
|
|
|
|
|
|
|
|
Quarter Ending |
|
2022 |
|
2021 |
Software NDR |
|
March 31 |
|
114% |
|
106% |
|
|
June 30 |
|
111% |
|
110% |
|
|
September 30 |
|
|
|
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
29
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 one-time revenue and other revenue, including professional services, and (b) annualized software revenue for smaller customers with annualized software revenue below the threshold of $100,000 for carriers and $4,000 for shops. The customers that do not meet the revenue threshold are small carriers and shops that tend to have different buying behaviors, with a narrower solution focus, and different tenure compared to our core customers (excluded small carriers and shops which represent less than 5% of total revenue within these sales channels). Our Software GDR includes carriers and shops who subscribe to our auto physical damage solutions, which account for most of the Company’s revenue, and excludes revenue from diagnostic providers, smaller emerging solutions with international subsidiaries or other ecosystem solutions, such as parts suppliers and other automotive manufacturers, and excludes CCC’s casualty solutions which are largely usage and professional service based solutions.
|
|
|
|
|
|
|
|
|
Quarter Ending |
|
2022 |
|
2021 |
Software GDR |
|
March 31 |
|
99% |
|
98% |
|
|
June 30 |
|
99% |
|
98% |
|
|
September 30 |
|
|
|
98% |
|
|
December 31 |
|
|
|
98% |
Results of Operations
Comparison of the three months ended June 30, 2022 to the three months ended June 30, 2021
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
(dollar amounts in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
Revenues |
|
$ |
192,786 |
|
|
$ |
166,789 |
|
|
$ |
25,997 |
|
|
|
15.6 |
% |
Cost of revenues, exclusive of amortization of
acquired technologies |
|
|
46,095 |
|
|
|
38,932 |
|
|
|
7,163 |
|
|
|
18.4 |
% |
Amortization of acquired technologies |
|
|
6,750 |
|
|
|
6,580 |
|
|
|
170 |
|
|
|
2.6 |
% |
Cost of revenues(1) |
|
|
52,845 |
|
|
|
45,512 |
|
|
|
7,333 |
|
|
|
16.1 |
% |
Gross profit |
|
|
139,941 |
|
|
|
121,277 |
|
|
|
18,664 |
|
|
|
15.4 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1) |
|
|
38,758 |
|
|
|
31,253 |
|
|
|
7,505 |
|
|
|
24.0 |
% |
Selling and marketing(1) |
|
|
31,091 |
|
|
|
21,551 |
|
|
|
9,540 |
|
|
|
44.3 |
% |
General and administrative(1) |
|
|
39,509 |
|
|
|
28,394 |
|
|
|
11,115 |
|
|
|
39.1 |
% |
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
(12 |
) |
|
|
-0.1 |
% |
Total operating expenses |
|
|
127,424 |
|
|
|
99,276 |
|
|
|
28,148 |
|
|
|
28.4 |
% |
Operating income |
|
|
12,517 |
|
|
|
22,001 |
|
|
|
(9,484 |
) |
|
|
-43.1 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(7,944 |
) |
|
|
(18,903 |
) |
|
|
10,959 |
|
|
|
58.0 |
% |
Change in fair value of interest rate
swaps |
|
|
— |
|
|
|
3,089 |
|
|
|
(3,089 |
) |
|
NM |
|
Change in fair value of warrant liabilities |
|
|
21,004 |
|
|
|
— |
|
|
|
21,004 |
|
|
NM |
|
Other income, net |
|
|
112 |
|
|
|
4 |
|
|
|
108 |
|
|
NM |
|
Total other income (expense) |
|
|
13,172 |
|
|
|
(15,810 |
) |
|
|
28,982 |
|
|
NM |
|
Income before income taxes |
|
|
25,689 |
|
|
|
6,191 |
|
|
|
19,498 |
|
|
|
314.9 |
% |
Income tax provision |
|
|
(10,125 |
) |
|
|
(2,375 |
) |
|
|
(7,750 |
) |
|
|
-326.3 |
% |
Net income |
|
$ |
15,564 |
|
|
$ |
3,816 |
|
|
$ |
11,748 |
|
|
|
307.9 |
% |
Net income per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
Diluted |
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
Weighted-average shares used in computing net
income per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
605,948,628 |
|
|
|
505,430,380 |
|
|
|
|
|
|
|
Diluted |
|
|
639,964,696 |
|
|
|
523,687,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
Cost of revenues |
|
$ |
1,661 |
|
|
$ |
176 |
|
|
|
|
|
|
|
Research and development |
|
|
5,530 |
|
|
|
700 |
|
|
|
|
|
|
|
Sales and marketing |
|
|
6,611 |
|
|
|
735 |
|
|
|
|
|
|
|
General and administrative |
|
|
14,601 |
|
|
|
1,272 |
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
28,403 |
|
|
$ |
2,883 |
|
|
|
|
|
|
|
NM—Not Meaningful
Revenues
Revenue increased by $26.0 million to $192.8 million, or 15.6%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The Company's software subscription revenues accounted for $185.5 million and $159.8 million, or 96% and 96%, of total revenue during the three months ended June 30, 2022 and 2021, respectively.
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 4% growth from new customers.
31
Cost of Revenues
Cost of revenues increased by $7.3 million to $52.8 million, or 16.1%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021.
Cost of Revenues, exclusive of amortization of acquired technologies
Cost of revenues, exclusive of amortization of acquired technologies, increased by $7.2 million to $46.1 million, or 18.4%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The increase was due to a $3.3 million increase in personnel costs, including an increase of $1.5 million in stock-based compensation, a $2.0 million increase in third party license and royalty fees and a $1.3 million increase in consulting and other professional service costs.
Amortization of Acquired Technologies
Amortization of acquired technologies was $6.8 million for the three months ended June 30, 2022, compared to a $6.6 million for the three months ended June 30, 2021.
Gross Profit
Gross profit increased by $18.7 million to $139.9 million, or 15.4%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Our gross profit margin was 72.6% for the three months ended June 30, 2022 compared to 72.7% for the three months ended June 30, 2021. The increase in gross profit was due to increased software subscription revenues and economies of scale resulting from fixed cost arrangements.
Research and Development
Research and development expense increased by $7.5 million to $38.8 million, or 24.0%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The increase was primarily due to an $8.9 million increase in personnel costs, including an increase of $4.8 million in stock-based compensation, and a $1.6 million increase in consulting and other professional service costs, partially offset by a $3.9 million increase in the amount of capitalized time on development projects.
Selling and Marketing
Selling and marketing expense increased by $9.5 million to $31.1 million, or 44.3%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The increase was primarily due to an $8.3 million increase in personnel costs, including an increase of $5.9 million in stock-based compensation, and a $0.7 million increase in marketing and event costs, mainly from the Company's annual Industry Conference, held in person in 2022 while held virtually in 2021.
General and Administrative
General and administrative expense increased by $11.1 million to $39.5 million, or 39.1%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. The increase was primarily due to a $13.9 million increase in personnel costs, including an increase of $13.3 million in stock-based compensation, and a $1.7 million increase in insurance costs, partially offset by a $3.4 million decrease in consulting and other professional service costs and a $1.9 million decrease in the Company's facilities costs due to the closure of the Company's previous headquarters in March 2022.
Amortization of Intangible Assets
Amortization of intangible assets was $18.1 million for the three months ended June 30, 2022 and 2021.
Interest Expense
Interest expense decreased by $11.0 million to $7.9 million, or 58.0%, for the three months ended June 30, 2022, compared to the three months ended June 30, 2021 primarily due to less outstanding long-term debt and a lower variable interest rate during the three months ended June 30, 2022.
32
Change in Fair Value of Interest Rate Swaps
The change in fair value of interest rate swaps recognized during the three months ended June 30, 2021 was due to the proximity of the maturity date of the swap agreements prior to the extinguishment of the interest rate swaps in September 2021. The Company did not recognize any change in fair value of interest rate swaps during the three months ended June 30, 2022.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities was $21.0 million for the three months ended June 30, 2022. The warrant liabilities were recorded as part of the Business Combination and therefore did not exist during the three months ended June 30, 2021. The income from the change in fair value 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 at June 30, 2022, compared to March 31, 2022.
Income Tax Provision
Income tax provision was $10.1 million for the three months ended June 30, 2022, compared to $2.4 million for the three months ended June 30, 2021. The increase in the income tax provision was primarily due to the Company having higher pretax income during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
(dollar amounts in thousands, except share and per share data) |
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
Revenue |
|
$ |
379,609 |
|
|
$ |
324,578 |
|
|
$ |
55,031 |
|
|
|
17.0 |
% |
Cost of revenue, exclusive of amortization of
acquired technologies |
|
|
88,795 |
|
|
|
76,945 |
|
|
|
11,850 |
|
|
|
15.4 |
% |
Amortization of acquired technologies |
|
|
13,445 |
|
|
|
13,160 |
|
|
|
285 |
|
|
|
2.2 |
% |
Cost of revenues(1) |
|
|
102,240 |
|
|
|
90,105 |
|
|
|
12,135 |
|
|
|
13.5 |
% |
Gross profit |
|
|
277,369 |
|
|
|
234,473 |
|
|
|
42,896 |
|
|
|
18.3 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development(1) |
|
|
74,438 |
|
|
|
61,877 |
|
|
|
12,561 |
|
|
|
20.3 |
% |
Selling and marketing(1) |
|
|
57,894 |
|
|
|
40,968 |
|
|
|
16,926 |
|
|
|
41.3 |
% |
General and administrative(1) |
|
|
83,717 |
|
|
|
66,233 |
|
|
|
17,484 |
|
|
|
26.4 |
% |
Amortization of intangible assets |
|
|
36,146 |
|
|
|
36,155 |
|
|
|
(9 |
) |
|
|
0.0 |
% |
Total operating expenses |
|
|
252,195 |
|
|
|
205,233 |
|
|
|
46,962 |
|
|
|
22.9 |
% |
Operating income |
|
|
25,174 |
|
|
|
29,240 |
|
|
|
(4,066 |
) |
|
|
-13.9 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(15,285 |
) |
|
|
(37,669 |
) |
|
|
22,384 |
|
|
|
59.4 |
% |
Change in fair value of interest rate
swaps |
|
|
— |
|
|
|
6,366 |
|
|
|
(6,366 |
) |
|
NM |
|
Change in fair value of warrant liabilities |
|
|
23,140 |
|
|
|
— |
|
|
|
23,140 |
|
|
NM |
|
Gain on sale of cost method investment |
|
|
3,578 |
|
|
|
— |
|
|
|
3,578 |
|
|
NM |
|
Other income, net |
|
|
194 |
|
|
|
91 |
|
|
|
103 |
|
|
|
113.2 |
% |
Total other income (expense) |
|
|
11,627 |
|
|
|
(31,212 |
) |
|
|
42,839 |
|
|
NM |
|
Income (loss) before income taxes |
|
|
36,801 |
|
|
|
(1,972 |
) |
|
|
38,773 |
|
|
NM |
|
Income tax (provision) benefit |
|
|
(9,262 |
) |
|
|
704 |
|
|
|
(9,966 |
) |
|
NM |
|
Net income (loss) |
|
$ |
27,539 |
|
|
$ |
(1,268 |
) |
|
$ |
28,807 |
|
|
NM |
|
Net income (loss) per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.05 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
Diluted |
|
$ |
0.04 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
Weighted-average shares used in computing net
income (loss) per share attributable to common
stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
604,534,589 |
|
|
|
505,252,635 |
|
|
|
|
|
|
|
Diluted |
|
|
640,650,297 |
|
|
|
505,252,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock-based compensation expense as follows (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
Cost of revenues |
|
$ |
2,510 |
|
|
$ |
394 |
|
|
|
|
|
|
|
Research and development |
|
|
9,060 |
|
|
|
1,275 |
|
|
|
|
|
|
|
Sales and marketing |
|
|
11,441 |
|
|
|
1,289 |
|
|
|
|
|
|
|
General and administrative |
|
|
29,036 |
|
|
|
12,579 |
|
|
|
|
|
|
|
Total stock-based compensation expense |
|
$ |
52,047 |
|
|
$ |
15,537 |
|
|
|
|
|
|
|
NM—Not Meaningful
Revenues
Revenue increased by $55.0 million to $379.6 million, or 17.0%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The Company's software subscription revenues accounted for $365.3 million and $311.9 million, or 96% and 96%, of total revenue during the six months ended June 30, 2022 and 2021.
The increase in revenue was primarily a result of 14% growth from existing customer upgrades and expanding solution offerings to these existing customers as well as 3% growth from new customers.
34
Cost of Revenues
Cost of revenues increased by $12.1 million to $102.2 million, or 13.5%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.
Cost of Revenues, exclusive of amortization of acquired technologies
Cost of revenues, exclusive of amortization of acquired technologies, increased by $11.9 million to $88.8 million, or 15.4%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was due to a $4.9 million increase in personnel costs, including an increase of $2.1 million in stock-based compensation, a $3.9 million increase in third party license and royalty fees and a $2.1 million increase in consulting and other professional service costs.
Amortization of Acquired Technologies
Amortization of acquired technologies was $13.4 million for the six months ended June 30, 2022, compared to a $13.2 million for the six months ended June 30, 2021.
Gross Profit
Gross profit increased by $42.9 million to $277.4 million, or 18.3%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. Our gross profit margin increased to 73.1% for the six months ended June 30, 2022 compared to 72.2% for the six months ended June 30, 2021. The increase in both gross profit and gross profit margin was due to increased software subscription revenues and economies of scale resulting from fixed cost arrangements.
Research and Development
Research and development expense increased by $12.6 million to $74.4 million, or 20.3%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was due to a $15.4 million increase in personnel costs, including an increase of $7.8 million in stock-based compensation, a $2.6 million increase in consulting costs, and a $1.3 million increase in IT costs, partially offset by a $7.6 million increase in the amount of capitalized time on development projects.
Selling and Marketing
Selling and marketing expense increased by $16.9 million to $57.9 million, or 41.3%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was primarily due to a $14.8 million increase in personnel-related costs, including sales incentives and travel costs, and including an increase of $10.2 million in stock-based compensation, and a $0.9 million increase in marketing and event costs mainly due to the Company's annual Industry Conference, held in person in 2022 while held virtually in 2021.
General and Administrative
General and administrative expense increased by $17.5 million to $83.7 million, or 26.4%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021. The increase was primarily due to a $17.7 million increase in personnel costs, including an increase of $16.5 million in stock-based compensation, and a $3.5 million increase in insurance costs, partially offset by a $3.7 million decrease in consulting and other professional service costs.
Amortization of Intangible Assets
Amortization of intangible assets was $36.1 million for the six months ended June 30, 2022, compared to a $36.2 million for the six months ended June 30, 2021.
Interest Expense
Interest expense decreased by $22.4 million to $15.3 million, or 59.4%, for the six months ended June 30, 2022, compared to the six months ended June 30, 2021 primarily due to less outstanding long-term debt and a lower variable interest rate during the six months ended June 30, 2022.
35
Change in Fair Value of Interest Rate Swaps
The change in fair value of interest rate swaps recognized during the six months ended June 30, 2021 was due to the proximity of the maturity date of the swap agreements prior to the extinguishment of the interest rate swaps in September 2021. The Company did not recognize any change in fair value of interest rate swaps during the six months ended June 30, 2022.
Gain on Sale of Cost Method Investment
Gain on sale of cost method investment was $3.6 million for the six months ended June 30, 2022. The gain recognized was due to the $3.9 million payment received in exchange for its equity interest in an investee as a result of the acquisition of the investee. The Company did not recognize any gain or loss on sale of cost method investment during the six months ended June 30, 2021.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities was $23.1 million for the six months ended June 30, 2022. The warrant liabilities were recorded as part of the Business Combination and therefore did not exist during the six months ended June 30, 2021. The income from the change in fair value 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 at June 30, 2022, compared to December 31, 2021.
Income Tax (Provision) Benefit
Income tax provision was $9.3 million for the six months ended June 30, 2022, compared to an income tax benefit of $0.7 million for the six months ended June 30, 2021. The change was primarily due to the Company having pretax income during the six months ended June 30, 2022, compared to a pretax loss during the six months ended June 30, 2021.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe that Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share, and Free Cash Flow which are each non-GAAP measures, are useful in evaluating our operational performance. We use this non-GAAP financial information to evaluate our ongoing operations and for internal planning, budgeting and forecasting purposes and setting management bonus programs. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance and comparing our performance with competitors and other comparable companies, which may present similar non-GAAP financial measures to investors. Our computation of these non-GAAP measures may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate these measures in the same fashion. We endeavor to compensate for the limitation of the non-GAAP measure presented by also providing the most directly comparable GAAP measure and a description of the reconciling items and adjustments to derive the non-GAAP measure. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures on a supplemental basis.
Adjusted Gross Profit
Adjusted Gross Profit is defined as gross profit, adjusted for amortization of acquired technologies and stock-based compensation and related employer payroll tax, which are not indicative of our recurring core business operating results. Adjusted Gross Profit Margin is defined as Adjusted Gross Profit divided by Revenue.
The following table reconciles Gross Profit to Adjusted Gross Profit for the three and six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(amounts in thousands, except percentages) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Gross Profit |
|
$ |
139,941 |
|
|
$ |
121,277 |
|
|
$ |
277,369 |
|
|
$ |
234,473 |
|
Amortization of acquired technologies |
|
|
6,750 |
|
|
|
6,580 |
|
|
|
13,445 |
|
|
|
13,160 |
|
Stock-based compensation and related employer payroll tax |
|
|
1,680 |
|
|
|
176 |
|
|
|
2,613 |
|
|
|
394 |
|
Adjusted Gross Profit |
|
$ |
148,371 |
|
|
$ |
128,033 |
|
|
$ |
293,427 |
|
|
$ |
248,027 |
|
Gross Profit Margin |
|
|
73 |
% |
|
|
73 |
% |
|
|
73 |
% |
|
|
72 |
% |
Adjusted Gross Profit Margin |
|
|
77 |
% |
|
|
77 |
% |
|
|
77 |
% |
|
|
76 |
% |
36
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 existing headquarters’ lease, net 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 and six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Operating expenses |
|
$ |
127,424 |
|
|
$ |
99,276 |
|
|
$ |
252,195 |
|
|
$ |
205,233 |
|
Stock-based compensation expense and related employer payroll tax |
|
|
(26,973 |
) |
|
|
(2,707 |
) |
|
|
(50,695 |
) |
|
|
(15,143 |
) |
Lease abandonment |
|
|
— |
|
|
|
(925 |
) |
|
|
(1,338 |
) |
|
|
(1,850 |
) |
Lease overlap costs |
|
|
— |
|
|
|
(909 |
) |
|
|
(1,222 |
) |
|
|
(1,817 |
) |
Net income (costs) related to divestiture |
|
|
6 |
|
|
|
(1,494 |
) |
|
|
(53 |
) |
|
|
(2,266 |
) |
Business combination transaction and related costs |
|
|
(324 |
) |
|
|
(1,953 |
) |
|
|
(1,056 |
) |
|
|
(4,955 |
) |
M&A and integration costs |
|
|
(348 |
) |
|
|
— |
|
|
|
(1,756 |
) |
|
|
— |
|
Amortization of intangible assets |
|
|
(18,066 |
) |
|
|
(18,078 |
) |
|
|
(36,146 |
) |
|
|
(36,155 |
) |
Adjusted operating expenses |
|
$ |
81,719 |
|
|
$ |
73,210 |
|
|
$ |
159,929 |
|
|
$ |
143,047 |
|
Adjusted Operating Income
Adjusted Operating Income is defined as operating income 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 existing headquarters’ lease, net costs related to divestiture and M&A and integration costs.
The following table reconciles operating income to Adjusted Operating Income for the three and six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Operating income |
|
$ |
12,517 |
|
|
$ |
22,001 |
|
|
$ |
25,174 |
|
|
$ |
29,240 |
|
Stock-based compensation expense and related employer payroll tax |
|
|
28,653 |
|
|
|
2,883 |
|
|
|
53,308 |
|
|
|
15,537 |
|
Lease abandonment |
|
|
— |
|
|
|
925 |
|
|
|
1,338 |
|
|
|
1,850 |
|
Lease overlap costs |
|
|
— |
|
|
|
909 |
|
|
|
1,222 |
|
|
|
1,817 |
|
Net (income) costs related to divestiture |
|
|
(6 |
) |
|
|
1,494 |
|
|
|
53 |
|
|
|
2,266 |
|
Business combination transaction and related costs |
|
|
324 |
|
|
|
1,953 |
|
|
|
1,056 |
|
|
|
4,955 |
|
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
36,146 |
|
|
|
36,155 |
|
M&A and integration costs |
|
|
348 |
|
|
|
— |
|
|
|
1,756 |
|
|
|
— |
|
Amortization of acquired technologies—Cost of revenue |
|
|
6,750 |
|
|
|
6,580 |
|
|
|
13,445 |
|
|
|
13,160 |
|
Adjusted operating income |
|
$ |
66,652 |
|
|
$ |
54,823 |
|
|
$ |
133,498 |
|
|
$ |
104,980 |
|
Adjusted EBITDA
Adjusted EBITDA is defined as net income (loss) adjusted for interest, taxes, depreciation, amortization, gain on change in fair value of interest rate swaps, change in fair value of warrant liabilities, 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 existing headquarters’ lease, net costs related to divestiture, M&A and integration costs and gain on sale of cost method investment.
37
The following table reconciles net income (loss) to Adjusted EBITDA for the three and six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income (loss) |
|
$ |
15,564 |
|
|
$ |
3,816 |
|
|
$ |
27,539 |
|
|
$ |
(1,268 |
) |
Interest expense |
|
|
7,944 |
|
|
|
18,903 |
|
|
|
15,285 |
|
|
|
37,669 |
|
Income tax provision (benefit) |
|
|
10,125 |
|
|
|
2,375 |
|
|
|
9,262 |
|
|
|
(704 |
) |
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
36,146 |
|
|
|
36,155 |
|
Amortization of acquired technologies—Cost of
revenue |
|
|
6,750 |
|
|
|
6,580 |
|
|
|
13,445 |
|
|
|
13,160 |
|
Depreciation and amortization of software,
equipment and property |
|
|
6,683 |
|
|
|
5,314 |
|
|
|
13,490 |
|
|
|
10,467 |
|
EBITDA |
|
|
65,132 |
|
|
|
55,066 |
|
|
|
115,167 |
|
|
|
95,479 |
|
Change in fair value of interest rate
swaps |
|
|
— |
|
|
|
(3,089 |
) |
|
|
— |
|
|
|
(6,366 |
) |
Change in fair value of warrant liabilities |
|
|
(21,004 |
) |
|
|
— |
|
|
|
(23,140 |
) |
|
|
— |
|
Stock-based compensation expense and related employer payroll tax |
|
|
28,653 |
|
|
|
2,883 |
|
|
|
53,308 |
|
|
|
15,537 |
|
Business combination transaction and related costs |
|
|
324 |
|
|
|
1,953 |
|
|
|
1,056 |
|
|
|
4,955 |
|
Lease abandonment |
|
|
— |
|
|
|
925 |
|
|
|
1,338 |
|
|
|
1,850 |
|
Lease overlap costs |
|
|
— |
|
|
|
909 |
|
|
|
1,222 |
|
|
|
1,817 |
|
Net (income) costs related to divestiture |
|
|
(6 |
) |
|
|
1,494 |
|
|
|
53 |
|
|
|
2,266 |
|
M&A and integration costs |
|
|
348 |
|
|
|
— |
|
|
|
1,756 |
|
|
|
— |
|
Gain on sale of cost method investment |
|
|
— |
|
|
|
— |
|
|
|
(3,578 |
) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
73,447 |
|
|
$ |
60,141 |
|
|
$ |
147,182 |
|
|
$ |
115,538 |
|
Adjusted EBITDA Margin |
|
|
38.1 |
% |
|
|
36.1 |
% |
|
|
38.8 |
% |
|
|
35.6 |
% |
Adjusted Net Income and Adjusted Earnings Per Share
Adjusted Net Income is defined as net income (loss) adjusted for the after-tax effects of amortization, gain on change in fair value of interest rate swaps, change in fair value of warrant liabilities, 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 existing headquarters’ lease, net costs related to divestiture, M&A and integration costs and gain on sale of cost method investment.
38
The following table reconciles net income (loss) to Adjusted Net Income and Adjusted Earnings per Share for the three and six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income (loss) |
|
$ |
15,564 |
|
|
$ |
3,816 |
|
|
$ |
27,539 |
|
|
$ |
(1,268 |
) |
Amortization of intangible assets |
|
|
18,066 |
|
|
|
18,078 |
|
|
|
36,146 |
|
|
|
36,155 |
|
Amortization of acquired technologies—
Cost of revenue |
|
|
6,750 |
|
|
|
6,580 |
|
|
|
13,445 |
|
|
|
13,160 |
|
Change in fair value of
interest rate swaps |
|
|
— |
|
|
|
(3,089 |
) |
|
|
— |
|
|
|
(6,366 |
) |
Change in fair value of warrant liabilities |
|
|
(21,004 |
) |
|
|
— |
|
|
|
(23,140 |
) |
|
|
— |
|
Stock-based compensation expense and related employer payroll tax |
|
|
28,653 |
|
|
|
2,883 |
|
|
|
53,308 |
|
|
|
15,537 |
|
Business combination transaction and related costs |
|
|
324 |
|
|
|
1,953 |
|
|
|
1,056 |
|
|
|
4,955 |
|
Lease abandonment |
|
|
— |
|
|
|
925 |
|
|
|
1,338 |
|
|
|
1,850 |
|
Lease overlap costs |
|
|
— |
|
|
|
909 |
|
|
|
1,222 |
|
|
|
1,817 |
|
Net (income) costs related to divestiture |
|
|
(6 |
) |
|
|
1,494 |
|
|
|
53 |
|
|
|
2,266 |
|
M&A and integration costs |
|
|
348 |
|
|
|
— |
|
|
|
1,756 |
|
|
|
— |
|
Gain on sale of cost method investment |
|
|
— |
|
|
|
— |
|
|
|
(3,578 |
) |
|
|
— |
|
Tax effect of adjustments |
|
|
(11,287 |
) |
|
|
(7,223 |
) |
|
|
(22,867 |
) |
|
|
(16,774 |
) |
Adjusted net income |
|
$ |
37,408 |
|
|
$ |
26,326 |
|
|
$ |
86,278 |
|
|
$ |
51,332 |
|
Adjusted net income per share attributable to
common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.14 |
|
|
$ |
0.10 |
|
Diluted |
|
$ |
0.06 |
|
|
$ |
0.05 |
|
|
$ |
0.13 |
|
|
$ |
0.10 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
605,948,628 |
|
|
|
505,430,380 |
|
|
|
604,534,589 |
|
|
|
505,252,635 |
|
Diluted |
|
|
639,964,696 |
|
|
|
523,687,498 |
|
|
|
640,650,297 |
|
|
|
523,438,612 |
|
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 six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net cash provided by operating activities |
|
$ |
40,820 |
|
|
$ |
21,586 |
|
|
$ |
87,685 |
|
|
$ |
59,820 |
|
Less: Purchases of software, equipment, and property |
|
|
(11,189 |
) |
|
|
(8,521 |
) |
|
|
(25,469 |
) |
|
|
(13,158 |
) |
Less: Purchase of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(49 |
) |
Free Cash Flow |
|
$ |
29,631 |
|
|
$ |
13,065 |
|
|
$ |
62,216 |
|
|
$ |
46,613 |
|
Liquidity and Capital Resources
We have financed our operations with cash flows from operations. The Company generated $87.7 million of cash flows from operating activities during the six months ended June 30, 2022. As of June 30, 2022, the Company had cash and cash equivalents of $227.6 million, a working capital surplus of $212.1 million and an accumulated deficit totaling $718.8 million. As of June 30, 2022, the Company had $796.0 million aggregate principal outstanding on its term loan.
We believe that our existing cash and cash equivalents, our cash flows from operating activities and our borrowing capacity under our 2021 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 businesses, applications or technologies, we may enter into these types of arrangements, which could reduce our cash
39
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 a credit agreement (the "2021 Credit Agreement").
The 2021 Credit Agreement replaced 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 and 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 quarter ending March 31, 2022, the Term B Loan requires quarterly principal payments of $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 the 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 June 30, 2022, the Company is not subject to the annual excess cash flow calculation and no such principal prepayments are required.
As of June 30, 2022, the amount outstanding on the Term B Loans was $796.0 million, of which, $8.0 million is classified as current.
Borrowings under the 2021 Credit Facility bear interest at rates based on the ratio of the Company’s and its subsidiaries’ consolidated first lien net indebtedness to the Company’s and its subsidiaries’ consolidated EBITDA for applicable periods specified in the 2021 Credit 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 June 30, 2022, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.3%. The Company made interest payments of $6.6 million during the three months ended June 30, 2022.
During the six months ended June 30, 2022, the weighted-average interest rate on the outstanding borrowings under the Term B Loan was 3.2%. The Company made interest payments of $12.5 million during the six months ended June 30, 2022.
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. At June 30, 2022, $249.3 million was available to be borrowed under the 2021 Revolving Credit Facility.
In addition, beginning with the three months ended June 30, 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 exceeds 35% of the aggregate commitments, the Company’s leverage ratio cannot exceed 6.25 to 1.00. As of June 30, 2022, the Company was not subject to the financial covenant.
First Lien Credit Agreement—In April 2017, the Company entered into the First Lien Credit Agreement.
The First Lien Credit Agreement initially consisted of a $1.0 billion term loan and revolving 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 Revolvers.
In February 2020, the Company refinanced its long-term debt and entered into the First Amendment to the First Lien 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.
40
The First Lien Amendment provided an incremental term loan in the amount of $375.0 million and reduced the amount of commitments under the First Lien Revolvers to an aggregate principal amount of $91.3 million. The First Lien Revolvers continued to have a sublimit of $30.0 million for letters of credit.
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 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 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 up to $21.9 million was required. In April 2021, the Company made a principal prepayment of $1.5 million to those lenders who made such a request.
The Company made a principal prepayment of $525.0 million on July 30, 2021. Subsequently, in September 2021, using the proceeds from the Term B Loan provided in the 2021 Credit Agreement, the Company fully repaid the remaining $804.2 million of outstanding borrowings on the First Lien Term Loan.
Amounts outstanding under the First Lien Credit Agreement bore interest at a variable rate of LIBOR, plus up to 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% was payable on the unused portion of the First Lien Revolvers.
During the three months ended June 30, 2021 the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1%. The Company made interest payments of $13.5 million during the three months ended June 30, 2021.
During the six months ended June 30, 2021 the weighted-average interest rate on the outstanding borrowings under the First Lien Term Loan was 4.1%. The Company made interest payments of $26.8 million during the six months ended June 30, 2021.
Cash Flows
The following table provides a summary of cash flow data for the six months ended June 30, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
(dollar amounts in thousands) |
|
2022 |
|
|
2021 |
|
Net cash provided by operating activities |
|
$ |
87,685 |
|
|
$ |
59,820 |
|
Net cash used in investing activities |
|
|
(53,819 |
) |
|
|
(23,396 |
) |
Net cash provided by (used in) financing activities |
|
|
11,511 |
|
|
|
(139,962 |
) |
Net effect of exchange rate change |
|
|
(281 |
) |
|
|
(74 |
) |
Change in cash and cash equivalents |
|
$ |
45,096 |
|
|
$ |
(103,612 |
) |
Net cash provided by operating activities was $87.7 million for the six months ended June 30, 2022. Net cash provided by operating activities consists of net income of $27.5 million, adjusted for $48.8 million of non-cash items, $21.8 million for changes in working capital and ($10.4) million for the effect of changes in other operating assets and liabilities. Significant non-cash adjustments include depreciation and amortization of $63.1 million, stock-based compensation expense of $52.0 million, non-cash lease expense of $2.2 million, deferred income tax benefits of ($43.7) and a change in fair value of warrant liabilities of ($23.1) million. The change in net operating assets and liabilities was primarily a result of a decrease of $15.5 million in other current assets due to timing of cash receipts of non-trade receivables and timing of payments for other deferred costs and an increase in income taxes of $13.9 million, partially offset by decrease in accrued expenses of $8.0 million due to timing of cash disbursements and employee incentive plan payments, an increase in other assets of $9.9 million due to timing of payments and other deferred costs, and an increase in accounts receivable of $4.0 million due to timing of receipts of payments from customers.
Net cash used in investing activities was $53.8 million for the six months ended June 30, 2022. Net cash used in investing activities was due to $32.2 million for a business acquisition and $25.5 million of capitalized internally developed software projects and purchases of software, equipment and property, partially offset by $3.9 million of proceeds from the sale of a cost method investment.
Net cash provided by financing activities was $11.5 million for the six months ended June 30, 2022. Net cash provided by financing activities was due to $15.5 million of proceeds from stock option exercises, partially offset by $4.0 million of principal payments of long-term debt.
41
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and our results of operations.
Critical Accounting 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 estimates as compared to the critical accounting policies and estimates disclosed in our audited consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K.
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 contingent consideration associated with the acquisition of Safekeep as of the acquisition date and reassess our estimate each reporting period.