CCC INTELLIGENT SOLUTIONS HOLDINGS INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations. - Insurance News | InsuranceNewsNet

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March 1, 2022 Newswires
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CCC INTELLIGENT SOLUTIONS HOLDINGS INC. – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.

Edgar Glimpses
The following discussion and analysis of our financial condition and results of
operations should be read together with our audited consolidated financial
statements and related notes appearing elsewhere in this Annual Report on Form
10-K.
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" and "Risk Factors" as set forth
elsewhere in this Annual Report on Form
10-K.

Unless otherwise indicated or the context otherwise requires, references to
"CCC," "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,
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 across the claims lifecycle, 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. As of 2021, we have
more than 300 insurers on our network, connecting with over 27,000 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.

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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
believe 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 Smart Suite of AI solutions increases automation across existing
insurance and repair processes including vehicle damage detection, claim triage,
repair estimating, and intelligent claims review. 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.

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. as of 2021 based on DWP,
and hundreds of regional carriers. We have more than 30,000 total customers,
including over 27,000 automotive collision repair facilities (including
repairers and other entities that estimate damaged vehicles), thousands of
automotive dealers, 12 of the top 15 automotive manufacturers as of 2021 based
on new vehicle sales, and numerous other companies that participate in the P&C
insurance economy.

We generate revenue through the sale of software subscriptions and other
revenue, primarily from professional services. We generated $688.3 million of
revenue for the year ended December 31, 2021, an increase of 9% from the prior
year which included $34.7 million attributable to the portion of our casualty
solution (specifically, the First Party Clinical Services) divested in fiscal
year 2020. The divestiture of First Party Clinical Services had a (6%) impact on
total revenue growth. Net loss for the year ended December 31, 2021 was
$248.9 million, compared to a net loss for the year ended December 31, 2020 of
$16.9 million, mainly due to $209.9 million of stock-based compensation expense
recognized in conjunction with the Business Combination. Adjusted EBITDA
increased 28.9% year-over-year to $261.4 million. See our reconciliation of
EBITDA and Adjusted EBITDA within the section titled
"Non-GAAP
Financial Measures."

Basis of Presentation

The Company's consolidated financial statements and accompanying notes included
elsewhere in this Annual Report on Form
10-K
include the accounts of the Company and its consolidated subsidiaries and were
prepared in accordance with GAAP. Intercompany transactions and balances are
eliminated in consolidation. The consolidated financial statements include 100%
of the accounts of wholly-owned and majority-owned subsidiaries and the
ownership interest of the minority investor is recorded as a
non-controlling
interest in a subsidiary.

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The Company operates in one 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.

Effective January 1, 2021, the Company's lease accounting policy follows the
guidance from Accounting Standards Codification ("ASC") 842,

Leases

, which requires companies to recognize on the balance sheet the assets and
liabilities for the rights and obligations created by the leased asset. The
Company adopted this standard using the modified retrospective approach for all
leases entered into before the effective date. Prior to the adoption of ASC 842,
the Company's lease accounting recognition policy followed guidance from ASC
840,

Leases

. Due to the adoption of this guidance, the Company recognized operating
right-of-use
assets and operating lease liabilities of $47.1 million and $53.0 million,
respectively, as of the date of adoption. The difference between the
right-of-use
assets and lease liabilities on the accompanying consolidated balance sheet is
primarily due to the accrual for lease payments as a result of straight-line
lease expense and unamortized tenant incentive liability balances. See Note 2
and Note 10 to our consolidated financial statements included elsewhere in this
Annual Report on Form
10-K.

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, December for a quarter ending December 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 insurance carriers and collision
repair 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 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   2021       2020       2019
Software NDR      March 31        106 %      105 %      103 %
                  June 30         110 %      103 %      105 %
                September 30      113 %      103 %      107 %
                December 31       115 %      103 %      107 %


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 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

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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 insurance carriers and $4,000 for collision repair
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 smaller emerging solutions with international
subsidiaries or other ecosystem solutions, such as parts suppliers and other
automotive manufacturers, and excludes CCC Casualty which are largely usage and
professional service based solutions.

               Quarter Ending   2021       2020       2019
Software GDR      March 31         98 %       98 %       98 %
                  June 30          98 %       98 %       98 %
                September 30       98 %       98 %       98 %
                December 31        98 %       98 %       98 %


Recent Developments

Business Combination

On July 30, 2021, we consummated the business combination transaction pursuant
to the Business Combination Agreement dated February 2, 2021, as amended,
between CCC and Dragoneer.

Upon the closing of the Business Combination, Dragoneer was renamed "CCC
Intelligent Solutions Holdings Inc.
" and the Company became a wholly owned
subsidiary of CCC Intelligent Solutions Holdings Inc.


The Business Combination 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 Cypress Holdings, Inc. issuing stock for the net
assets of Dragoneer, accompanied by a recapitalization.

The board of directors of Cypress Holdings, Inc. approved a modification that
resulted in vesting of the performance-based awards with a market condition and
the Phantom Shares upon Closing of the Business Combination. At the time of
modification, the Company estimated a new fair value of the modified awards and
the Company recognized $203.9 million of stock-based compensation expense based
on the fair value of the performance-based awards with a market condition and
$6.0 million of stock-based compensation expense based on the fair value of the
Phantom Shares.

As a result of the Business Combination, we received net cash contributions from
the Business Combination of $763.3 million from the Dragoneer trust account,
funds received for issuance of common stock pursuant to forward purchase
agreements and private investment in public equity investors.

See Note 3 to our consolidated financial statements included in this Annual
Report on
Form 10-K
for additional information on the Business Combination.

COVID-19


In March 2020, the World Health Organization declared the outbreak of the new
strain of the coronavirus to be a pandemic. The
COVID-19
pandemic is having widespread, rapidly evolving, and unpredictable impacts on
global society, economies, financial markets, and business practices. The
COVID-19
pandemic has resulted in Federal and state governments implementing various
measures in an effort to contain the virus, including social distancing, travel
restrictions, border closures, limitations on public gatherings, work from home,
supply chain logistical changes, and closure of
non-essential
businesses. To protect the health and well-being of its employees, suppliers,
and customers, the Company has made substantial modifications to employee travel
policies, implemented a hybrid working model of
in-person
and remote work, and cancelled or shifted the majority of its conferences and
other marketing events to virtual-only. The
COVID-19
pandemic has impacted and may continue to impact our business operations,
including our employees, customers, partners, and communities, and there is
substantial uncertainty in the nature and degree of its continued effects over
time.

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For additional information regarding the impact of
COVID-19
on the Company, see "Item 1A. Risk Factors", included elsewhere in this Annual
Report on Form
10-K.

Employee Stock Purchase Plan


In July 2021, the Company's Board of Directors adopted the CCC 2021 Employee
Stock Purchase Plan ("ESPP"). Under the ESPP, employee purchases occur at the
end of discrete offering periods. The first offering period began on January 1,
2022 and ends on June 30, 2022. Subsequent
six-month
offering periods begin on July 1 and January 1 (or such other date determined by
the Board of Directors) each year. Under the ESPP, eligible employees can
acquire shares of the Company's common stock by accumulating funds through
payroll deductions. The purchase price for shares of common stock purchased
under the ESPP is 85% of the lesser of the fair market value of the Company's
common stock on (i) the first day of the applicable offering period and (ii) the
last day of the applicable offering period. As of December 31,
2021, 6,031,704 shares of common stock are reserved for sale under the ESPP.

Investment Sale


In February 2022, the Company received a cash payment of $3.9 million in
exchange for its equity interest in an investee as a result of the acquisition
of the investee. The Company had been accounting for its investment using the
cost method and recognized a gain of $3.6 million upon receipt of the cash. The
Company no longer has any ownership interest in the investee.

Business Acquisition

On February 8, 2022, the Company completed its acquisition of Safekeep, Inc.
("Safekeep"), a privately held company that applies AI to support the
digitization of subrogation claims for insurers.


In exchange for all the outstanding shares of Safekeep, the Company paid total
consideration of $31.9 million upon closing, subject to adjustment for certain
post-closing indemnities.

As additional consideration for the shares, the acquisition agreement includes a
contingent
earn-out
for additional cash consideration based on the achievement of certain revenue
targets during the year ending December 31, 2024. For additional information,
see Note 29 to the consolidated financial statements included elsewhere in this
Annual Report on Form
10-K

Key Factors Affecting Operating Results

The following are key factors affecting our operating results in the years
ending December 31, 2021, 2020 and 2019:

• Conversion and implementation of new customers:

             We focus significant resources on attracting and onboarding 

new

             customers across the various segments of the P&C insurance 

economy we

             serve. We have a strong track record of new customer 

conversion across

             all our markets. On average, customer implementations take less than
             three months to complete. A significant portion of our sales force is
             focused on converting new customer accounts across our

industry, and

             this will continue to be a focus of our business for the foreseeable
             future.



         •   Long-term customer relationships:
             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 generate revenue through the sale of software
             subscriptions and our average contract is approximately three to five
             years in duration. In 2021, our national carrier customers included 18
             of the top 20 automotive insurers based on DWP, with average customer
             relationships spanning more than 10 years, as evidenced by our
             historical GDR of 98%, and numerous exclusive arrangements.



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• Expansion of solution adoption from existing customers:

             A central part of our strategy is expanding solution adoption 

across

             our existing customer base. We have developed long-term

relationships

             with our customers and have a proven track record of 

successfully

             cross-selling product offerings. We have the opportunity to realize
             incremental value by selling additional functionality to customers
             that do not currently utilize our full solution portfolio. As we
             innovate and bring new technology and solutions to market, we also
             have the opportunity to realize incremental value by selling new
             software solutions to our existing customer base. Capitalizing on this
             opportunity has been a significant driver of our revenue growth and
             net dollar retention in recent years and will remain a central
             go-to-market
             priority.



         •   Investment in R&D:
             We have a strong track record of innovation and new solution 

delivery

             with our customers. We remain committed to delivering

market-leading

             technology including AI solutions for the P&C insurance economy. We
             believe that maintaining our software solution leadership is
             imperative to our growth plan. As a result, we intend to continue
             making significant investments in research and development to improve
             and expand our software solutions. Our research and development
             expenses totaled $166.0 million, $109.5 million and $114.0 million in
             the years ended December 31, 2021, 2020 and 2019,

respectively. In

             2021, the increase in our R&D was primarily due to stock-based
             compensation related to the Business Combination transaction. 

We

             expect that research and development will remain a key

investment area

             for the foreseeable future.



         •   Investment in Platform, Privacy, and Security:
             Our technology platform is imperative to our strategy as it enables
             successful customer implementations, new software delivery, and
             ongoing performance and delivery. In addition to our

investments in

             R&D, we invest in platform infrastructure, maintenance,

privacy, and

             security protocols to enable performance across our technology
             platform. We expect investment in these areas to continue to increase
             in absolute dollars for the foreseeable future.



         •   Investment in Sales and Marketing:
             Our sales and marketing efforts are a key component of our growth
             strategy. Our investments in this area have enabled us to

build and

             sustain our customer base while creating long-term customer
             relationships. We plan to continue to invest in our sales and
             marketing efforts, including adding sales personnel and

expanding

             marketing activities, to support our business growth. Our 

sales and

             marketing expenses totaled $148.9 million, $74.7 million and
             $82.1 million, in the years ended December 31, 2021, 2020 and 2019,
             respectively. In 2021, the increase in our sales and marketing was
             primarily due to stock-based compensation related to the

Business

             Combination transaction. As the business continues to grow, we 

expect

             sales and marketing expenses to increase in absolute dollars 

for the

             foreseeable future.


Components of Results of Operations

Revenue


Revenue is derived from the sale of 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
$662.3 million, $573.6 million and $540.2 million or 96%, 91% and 88% of total
revenue during the years ended December 31, 2021, 2020 and 2019, respectively.
We continue to expect software subscription revenue to be a high percentage of
total revenue as software subscription revenue continues to be a key strategic
priority.

Revenues from professional services include fees from customers for the
Company's First Party Clinical Services and other
non-software
services. First Party Clinical Services revenue and other
non-software
services revenue is recognized in the period the service is performed.

In December 2020, we sold our First Party Clinical Services to a third-party
buyer. First Party Clinical Services revenue for the years ended December 31,
2021, 2020 and 2019 was $0.0 million, $34.7 million and $46.0 million,
respectively.

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Costs and Expenses

Cost of Revenue

Cost of Revenue, exclusive of amortization and impairment of acquired
technologies


These costs include costs of software subscription and professional services
revenue. Our cost of software subscription revenue is primarily comprised of
cloud infrastructure costs, information technology ("IT") security costs,
license and royalty fees paid to third parties and personnel-related expenses,
including salaries, other direct personnel-related costs and stock-based
compensation, and depreciation expense. We expect cost of revenue, exclusive of
amortization and impairment of acquired intangibles, to increase in absolute
dollars as we continue to hire personnel, require additional cloud
infrastructure and incur royalty fees in support of our revenue growth.

Our cost of other revenue is primarily comprised of personnel-related expenses
for our customer support teams and contractors, including salaries, direct
personnel-related costs and stock-based compensation, and fees paid to third
parties. We expect our cost of other revenue to increase in absolute dollars in
support of our revenue growth.

In December 2020, we sold our First Party Clinical Services to a third-party
buyer. First Party Clinical Services cost of revenue for the years ended
December 31, 2021, 2020 and 2019 was $0.0 million, $31.3 million and
$39.9 million, respectively.

Amortization of Acquired Technologies

We amortize to cost of revenue the capitalized costs of technologies acquired in
connection with historical acquisitions.

Impairment of Acquired Technologies

Impairment of acquired technologies consists of impairment charges of
technologies acquired in connection with historical acquisitions.

Operating expenses

Operating expenses are categorized as follows:

Research and development


Our research and development expenses consist primarily of personnel-related
costs, including stock-based compensation, and costs of external development
resources involved in the engineering, design and development of new solutions,
as well as expenses associated with significant ongoing improvements to existing
solutions. Research and development expenses also include costs for certain IT
expenses.

Research and development costs, other than software development costs qualifying
for capitalization, are expensed as incurred. Capitalized software development
costs consist primarily of personnel-related costs.

We expect research and development expenses, excluding stock-based compensation,
to increase in absolute dollars as we continue to dedicate substantial resources
to develop, improve and expand the functionality of our solutions. We also
expect an increase in the rate of capitalization of our investments in research
and development for the foreseeable future.

Selling and Marketing


Our selling and marketing expenses consist primarily of personnel-related costs
for our sales and marketing functions, including sales commissions and
stock-based compensation. Additionally, selling and marketing expenses include
advertising costs, marketing costs and event costs, including the Company's
annual industry conference.

We expect our selling and marketing expenses, excluding stock-based
compensation, to increase on an absolute dollar basis as we continue to increase
investments to support the growth of our business.

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General and Administrative


Our general and administrative expenses consist primarily of personnel-related
costs, including stock-based compensation, for our executive management and
administrative employees, including finance and accounting, human resources,
information technology, facilities and legal functions. Additionally, general
and administrative expenses include professional service fees, insurance
premiums, and other corporate expenses that are not allocated to the above
expense categories.

We expect our general and administrative expenses, excluding stock-based
compensation, to increase in absolute dollars as we continue to expand our
operations, hire additional personnel, and incur costs as a public company.

Amortization of Intangible Assets

Our amortization of intangible assets consists of the capitalized costs of
customer relationships and favorable lease term in connection with historical
acquisitions.


Impairment

Impairment consists of impairment charges recognized on goodwill and intangible
assets during the year ended December 31, 2019.

Non-operating

income (expense)

Non-operating

income (expense) is categorized as follows:

Interest Expense


Interest expense comprises interest expense accrued or paid on our indebtedness.
We expect interest expense to vary each reporting period depending on the amount
of outstanding indebtedness and prevailing interest rates.

Gain (Loss) on Change in Fair Value of Interest Rate Swaps


Gain (loss) on change in fair value of interest rate swaps comprises fair value
adjustments of our interest rate swap agreements at the end of each reporting
period.

In September 2021, we extinguished the interest rate swaps and do not expect to
recognize any gain or loss on the change in fair value of interest rate swaps in
subsequent periods.

Change in Fair Value of Warrant Liabilities


Change in fair value of warrant liabilities comprises fair value adjustments of
the Public Warrants and Private Warrants assumed in connection with the Business
Combination. We expect the change in fair value of warrant liabilities to vary
each reporting period depending on the fair value adjustments and number of
exercises and redemptions of outstanding Public Warrants and Private Warrants
during each reporting period. In December 2021, we redeemed all of our
outstanding Public Warrants and as of December 31, 2021, the Company no longer
has Public Warrants outstanding subject to fair value adjustments.

Loss on Early Extinguishment of Debt

Loss on early extinguishment of debt comprises the
write-off
of deferred financing fees and original issue discount associated with the
Company's long-term debt at the time of extinguishment.

Other
Income-Net

Other
income-net

consists primarily of interest income on the Company's cash balances and foreign
currency transaction gains and losses related to the impact of transactions
denominated in a foreign currency.

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Income Tax Benefit


Income tax benefit consists of U.S. and state income taxes and income taxes in
certain foreign jurisdictions in which we conduct business. Earnings from our
non-U.S.
activities are subject to local country income tax and may be subject to current
U.S. income tax. Due to cumulative losses, we maintain a full valuation
allowance for deferred tax assets for our operations in foreign jurisdictions.
We expect to maintain this full valuation allowance for the foreseeable future.

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Results of Operations

Comparison of Fiscal Year Ended December 31, 2021 to Fiscal Year Ended
December 31, 2020


                                                                          Year Ended December 31,                          Change

(dollar amounts in thousands, except share and per share data) 2021

                  2020                  $                  %
Revenue                                                             $     688,288         $     633,063         $   55,225               8.7 %

Cost of revenue, exclusive of amortization of acquired
technologies

                                                              169,335               182,414            (13,079 )            -7.2 %
Amortization of acquired technologies                                      26,320                26,303                 17               0.1 %

Cost of revenue
(1)                                                                       195,655               208,717            (13,062 )            -6.3 %

Gross profit                                                              492,633               424,346             68,287              16.1 %
Operating expenses:
Research and development
(1)                                                                       165,991               109,508             56,483              51.6 %
Selling and marketing
(1)                                                                       148,861                74,710             74,151              99.3 %
General and administrative
(1)                                                                       250,098                90,838            159,260             175.3 %
Amortization of intangible assets                                          72,358                72,310                 48               0.1 %

Total operating expenses                                                  637,308               347,366            289,942              83.5 %

Operating (loss) income                                                  (144,675 )              76,980           (221,655 )              NM
Other income (expense), net:
Interest expense                                                          (58,990 )             (77,003 )           18,013              23.4 %
Gain (loss) on change in fair value of interest rate swaps                  8,373               (13,249 )           21,622                NM
Change in fair value of warrant liabilities                               (64,501 )                  -             (64,501 )              NM
Loss on early extinguishment of debt                                      (15,240 )              (8,615 )           (6,625 )           -76.9 %
Other income, net                                                             114                   332               (218 )           -65.7 %

Total other (expense) income, net                                        (130,244 )             (98,535 )          (31,709 )           -32.2 %
Pretax (loss), no income                                                 (274,919 )             (21,555 )         (253,364 )         -1175.4 %
Income tax benefit                                                         26,000                 4,679             21,321             455.7 %

Net loss                                                            $    (248,919 )       $     (16,876 )       $ (232,043 )         -1375.0 %

Net loss per share attributable to common stockholders-basic
and diluted

                                                         $       

(0.46 ) $ (0.03 )
Weighted-average shares used in computing net loss per share
attributable to common stockholders-basic and diluted

543,558,222           504,115,839


NM-Not Meaningful

(1) Includes stock-based compensation expense as follows (in thousands):




                                           Year Ended December 31,
                                             2021              2020
Cost of revenues                         $      13,644       $    494
Research and development                        40,681          1,174
Sales and marketing                             65,045          2,024
General and administrative                     142,625          7,644

Total stock-based compensation expense $ 261,995 $ 11,336

Revenues


Revenue increased by $55.2 million to $688.3 million, or 8.7%, for the year
ended December 31, 2021, compared to the year ended December 31, 2020. The
increase in revenue was primarily a result of a 10% growth from existing
customer upgrades and expanding solution offerings to these existing customers
as well as 4% growth from new customers and 1% increase in other transaction
revenue, partially offset by a 6% impact in professional services revenues due
to the divestiture of the First Party Clinical Services in December 2020.

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Cost of Revenue

Cost of revenue decreased by $13.1 million to $195.7 million, or 6.3%, for the
year ended December 31, 2021, compared to the year ended December 31, 2020.

Cost of Revenue, exclusive of amortization of acquired technologies


Cost of revenue, exclusive of amortization of acquired technologies, decreased
$13.1 million to $169.3 million, or 7.2%, for the year ended December 31, 2021,
compared to the year ended December 31, 2020. The decline was due to a reduction
of $31.3 million of costs related to the divestiture of First Party Clinical
Services in December 2020 and a $2.2 million decrease in consulting costs,
partially offset by a $13.2 million increase in stock-based compensation mainly
from a vesting term modification of outstanding stock options completed in
conjunction with the Business Combination, a $5.6 million increase in personnel
costs and a $3.5 million increase in third party license and royalty fees.

Amortization of Acquired Technologies

Amortization of acquired technologies was $26.3 million for the years ended
December 31, 2021 and 2020.

Gross Profit


Gross profit increased by $68.3 million to $492.6 million, or 16.1%, for the
year ended December 31, 2021, compared to the year ended December 31, 2020. Our
gross profit margin increased to 71.6% for the year ended December 31, 2021
compared to 67.0% for the year ended December 31, 2020. The increase in gross
profit margin was due to increased software subscription revenues, economies of
scale resulting from fixed cost arrangements and the divestment of our First
Party Clinical Services in December 2020.

Research and Development


Research and development expense increased by $56.5 million to $166.0 million,
or 51.6%, for the year ended December 31, 2021, compared to the year ended
December 31, 2020. The increase was primarily due to a $39.5 million increase in
stock-based compensation, mainly from a modification in the vesting terms of
stock options completed in conjunction with the Business Combination, a
$15.5 million increase in personnel-related costs and a $3.8 million increase in
IT costs, partially offset by a $3.1 million increase in the amount of
capitalized time on development projects.

Selling and Marketing


Selling and marketing expense increased by $74.2 million to $148.9 million, or
99.3%, for the year ended December 31, 2021, compared to the year ended
December 31, 2020. The increase was primarily due to a $63.0 million increase in
stock-based compensation mainly from a modification in the vesting terms of
stock options completed in conjunction with the Business Combination, and a
$9.9 million increase in personnel costs, including sales incentives.

General and Administrative


General and administrative expense increased by $159.3 million to
$250.1 million, or 175.3%, for the year ended December 31, 2021, compared to the
year ended December 31, 2020. The increase was primarily due to a $135.0 million
increase in stock-based compensation mainly from a vesting term modification of
outstanding stock options completed in conjunction with the Business
Combination, a $3.7 million increase in personnel costs, a $4.7 million increase
in insurance costs and $10.1 million of expenses related to the business
combination transaction. In addition, there was a $6.3 million increase in
facilities costs 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.

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Amortization of Intangible Assets

Amortization of intangible assets was $72.4 million and $72.3 million during the
years ended December 31, 2021 and 2020, respectively.

Interest Expense


Interest expense decreased by $18.0 million to $59.0 million, or 23.4%, for the
year ended December 31, 2021, compared to the year ended December 31, 2020
primarily due to the Company using a portion of its proceeds from the Business
Combination to make a principal prepayment of $525.0 million in July 2021 and
refinancing its long-term debt in September 2021, after which the Company's
long-term debt bore interest at a lower variable interest rate.

Gain (Loss) on Change in Fair Value of Interest Rate Swaps


The Company recognized a gain on change in fair value of interest rate swaps of
$8.4 million for the year ended December 31, 2021, compared to a loss on change
in fair value of interest rate swaps of $13.2 million for the year ended
December 31, 2020. The gain recognized for the year ended December 31, 2021 was
due to the proximity of the maturity date prior to the extinguishment of the
interest rate swaps in September 2021. The loss recognized in the prior period
was mainly attributable to the decline in the forward yield curve during the
year ended December 31, 2020.

Change in Fair Value of Warrant Liabilities


Change in fair value of warrant liabilities was $64.5 million for the year ended
December 31, 2021. The warrant liabilities were recorded as part of the Business
Combination and therefore did not exist in the prior year. The expense 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,
the dates of redemption or exercise for all of the Public Warrants and
December 31, 2021 for the Private Warrants.

Loss on Early Extinguishment of Debt


Loss on early extinguishment of debt during the year ended December 31, 2021 was
$15.2 million due to the early repayments of the total balance outstanding under
the Company's First Lien Term Loan. Loss on early extinguishment of debt during
the year ended December 31, 2020 was $8.6 million due to the early repayment of
the total balance outstanding under the Company's Second Lien Term Loan.

Income Tax Benefit


Income tax benefit increased by $21.3 million to $26.0 million, or 455.7%, for
the year ended December 31, 2021, compared to the year ended December 31, 2020.
Income tax benefit increased primarily due to higher pretax losses, mainly due
to higher stock-based compensation expense.

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Comparison of Fiscal Year Ended December 31, 2020 to Fiscal Year Ended
December 31, 2019


                                                                         Year Ended December 31,                       Change

(dollar amounts in thousands, except share and per share data) 2020

                 2019                 $                %
Revenue                                                             $     633,063        $     616,084        $   16,979            2.8 %

Cost of revenue, exclusive of amortization and impairment of
acquired technologies
(1)

                                                                       182,414              191,868            (9,454 )         -4.9 %
Amortization of acquired technologies                                      26,303               27,797            (1,494 )         -5.4 %
Impairment of acquired technologies                                            -                 5,984            (5,984 )           NM

Cost of revenue                                                           208,717              225,649           (16,932 )         -7.5 %

Gross profit                                                              424,346              390,435            33,911            8.7 %
Operating expenses:
Research and development
(1)                                                                       109,508              114,005            (4,497 )         -3.9 %
Selling and marketing
(1)                                                                        74,710               82,109            (7,399 )         -9.0 %
General and administrative
(1)                                                                        90,838               78,128            12,710           16.3 %
Amortization of intangible assets                                          72,310               81,329            (9,019 )        -11.1 %
Impairment                                                                     -               201,066          (201,066 )           NM

Total operating expenses                                                  347,366              556,637          (209,271 )        -37.6 %

Operating income (loss)                                                    76,980             (166,202 )         243,182             NM
Other income (expense):
Interest expense                                                          (77,003 )            (89,475 )          12,472           13.9 %
Loss on change in fair value of interest rate swaps                       (13,249 )            (22,432 )           9,183           40.9 %
Loss on early extinguishment of debt                                       (8,615 )                 -             (8,615 )           NM
Other income, net                                                             332                  476              (144 )        -30.3 %

Total other income (expense)                                              (98,535 )           (111,431 )          12,896           11.6 %
Pretax loss                                                               (21,555 )           (277,633 )         256,078           92.2 %
Income tax benefit                                                          4,679               67,293           (62,614 )        -93.0 %

Net loss                                                            $     (16,876 )      $    (210,340 )      $  193,464           92.0 %

Net loss per share attributable to common stockholders-basic
and diluted

                                                         $       

(0.03 ) $ (0.42 )
Weighted-average shares used in computing net loss per share
attributable to common stockholders-basic and diluted

504,115,839          503,453,127


NM-Not Meaningful

(1) Includes stock-based compensation expense as follows (in thousands):




                                           Year Ended December 31,
                                             2020              2019
Cost of revenues                         $         494       $    485
Research and development                         1,174          1,216
Sales and marketing                              2,024          1,858
General and administrative                       7,644          3,565

Total stock-based compensation expense $ 11,336 $ 7,124

Revenues


Revenue increased by $17.0 million to $633.1 million, or 2.8%, for the year
ended December 31, 2020, compared to the year ended December 31, 2019. The
increase in revenue was primarily a result of existing customer upgrades and
expanding solution offerings to these existing customers, as evidenced by our
net dollar retention of 103%, as well as 3% growth from new customers, partially
offset by 3% decline from other transactions, with 2% of that change from First
Party Clinical services.

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Cost of Revenue

Cost of revenue decreased by $16.9 million to $208.7 million, or 7.5%, for the
year ended December 31, 2020, compared to the year ended December 31, 2019.

Cost of Revenue, exclusive of amortization and impairment of acquired
technologies


Cost of revenue, exclusive of amortization and impairment of acquired
technologies, decreased $9.5 million to $182.4 million, or 4.9%, for the year
ended December 31, 2020, compared to the year ended December 31, 2019. The
decrease in cost of revenue was due to a decrease in third party fees for
professional services of $9.4 million due to less professional services revenue
and a $4.1 million decrease in royalties primarily due to transitioning from a
third-party offering to an internally developed solution, partially offset by a
$4.0 million increase in personnel-related costs, including share-based
compensation, from increased headcount.

Amortization of Acquired Technologies


Amortization of acquired technologies decreased by $1.5 million to
$26.3 million, or 5.4%, for the year ended December 31, 2020, compared to the
year ended December 31, 2019. The decrease resulted from an impairment charge
recognized in 2019.

Impairment of Acquired Technologies


There was no impairment charge recognized during the year ended December 31,
2020. Impairment of acquired technologies was $6.0 million for the year ended
December 31, 2019 due to an impairment charge recognized as a result of a
downward revision of future projected earnings and cash flows at one of our
reporting units.

Gross Profit


Gross profit margin increased by $33.9 million to $424.3 million, or 8.7%, for
the year ended December 31, 2020, compared to the year ended December 31, 2019.
Our gross margin percentage increased from 63.4% for the year ended December 31,
2019 to 67.0% for the year ended December 31, 2020. The increase in absolute
dollars and percentage was primarily due to the increased software subscription
revenue and economies of scale resulting from fixed cost arrangements, as well
as a change in the mix of services provided during the year ended December 31,
2020.

Research and Development

Research and development expense decreased by $4.5 million to $109.5 million, or
3.9%, for the year ended December 31, 2020, compared to the year ended
December 31, 2019. The decrease was due to a $10.1 million increase in the
amount of capitalized time on development projects and a $1.5 million decrease
in depreciation expense due to certain capital assets reaching the conclusion of
their useful lives. These items were partially offset by a $5.2 million increase
in personnel-related costs, including share-based compensation, from increased
headcount and a $2.2 million increase in IT costs.

Selling and Marketing


Selling and marketing expense decreased by $7.4 million to $74.7 million, or
9.0%, for the year ended December 31, 2020, compared to the year ended
December 31, 2019. The decrease was primarily due to impacts from
COVID-19
as we implemented safety measures for our employees, including a $6.1 million
decrease in travel costs, a $1.9 million decrease in marketing and event costs,
and a $1.0 million decrease in consulting costs, partially offset by a
$2.5 million increase in personnel related costs, including sales incentives and
share-based compensation.

General and Administrative

General and administrative expense increased by $12.7 million to $90.8 million,
or 16.3%, for the year ended December 31, 2020, compared to the year ended
December 31, 2019. The increase was primarily due to a $7.4 million increase in
personnel related costs, including share-based compensation, a $4.3 million
increase in external legal fees and, a $3.8 million increase in consulting and
third-party service costs, partially offset by a $3.8 million gain recognized on
the divestiture of the Company's First Party Clinical Services.

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Amortization of Intangible Assets

Amortization of intangible assets decreased by $9.0 million to $72.3 million, or
11.1%, for the year ended December 31, 2020, compared to the year ended
December 31, 2019 as a result of the impairment charge recognized in 2019.

Impairment


No impairment charges were recognized during the year ended December 31, 2020.
Impairment was $201.1 million for the year ended December 31, 2019, which
included impairment charges of goodwill and intangibles assets of $25.8 million
and $175.3 million, respectively, and was the result of lower forecasted
earnings and cash flows for one of the Company's reporting units. See Note 11 to
our consolidated financial statements for additional information.

Interest Expense


Interest expense decreased by $12.5 million to $77.0 million, or 13.9%, for the
year ended December 31, 2020, compared to the year ended December 31, 2019
primarily due to the Company refinancing its long-term debt in February 2020. As
part of the refinancing, the Company used the proceeds from an incremental term
loan of $375.0 million under its First Lien Credit Agreement to repay the total
balance outstanding under the Company's Second Lien Term Loan, which bore
interest at a higher variable interest rate.

Loss on change in Fair Value of Interest Rate Swaps


Loss on change in fair value of interest rate swaps decreased by $9.2 million to
$13.2 million, or 40.9%, for the year ended December 31, 2020, compared to the
year ended December 31, 2019. The decrease was attributable to the proximity of
the maturity date of the swap agreements.

Loss on early extinguishment of debt


Loss on early extinguishment of debt for the year ended December 31, 2020 was
$8.6 million due to the early repayment of the total balance outstanding under
the Company's Second Lien Term Loan. There was no loss on early extinguishment
of debt for the year ended December 31, 2019.

Income Tax Benefit

Income tax benefit decreased by $62.6 million to $4.7 million, or 93.0%, for the
year ended December 31, 2020, compared to the year ended December 31, 2019.
Income tax benefit decreased primarily due to lower pretax losses.

Non-GAAP

Financial Measures


In addition to our results determined in accordance with U.S. GAAP, we believe
that Adjusted Gross Margin, and Adjusted EBITDA, 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 for 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.

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Adjusted Gross Profit


We believe that Adjusted Gross Profit, as defined below, provides meaningful
supplemental information regarding our performance by excluding certain items
that may not be indicative of our core business operating results. 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 and impairment of acquired technologies,
business combination transaction costs, and stock-based compensation, which are
not indicative of our core business operating results. The Adjusted Gross Margin
percentage is defined as Adjusted Gross Profit divided by Revenue, less First
Party Clinical Services divested revenue of $0, $34,742 and $46,042 for the
fiscal years ended December 31, 2021, 2020 and 2019, respectively (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
years ended December 31, 2021, 2020 and 2019:


                                                     Year ended December 

31,

(amounts in thousands, except percentages)     2021           2020          

2019

Gross Profit                                 $ 492,633      $ 424,346      $ 390,435
First Party Clinical Services-Gross Profit          -          (3,429 )       (6,118 )
Amortization of acquired technologies           26,320         26,303       

27,797

Impairment of acquired technologies                 -              -        

5,984

Business combination transaction costs             905             -              -
Stock-based compensation                        13,644            494            485

Adjusted Gross Profit                        $ 533,502      $ 447,714      $ 418,583

Gross Profit Margin                                 72 %           67 %           63 %
Adjusted Gross Profit Margin                        78 %           75 %           73 %


For the year ended December 31, 2021, Adjusted Gross Profit increased
$85.8 million or 19.2% while Adjusted Gross Margin increased 3% to 78%. For the
year ended December 31, 2020, Adjusted Gross Profit increased $29.1 million or
7.0% while Adjusted Gross Margin increased 2% to 75%. Each of these increases in
Adjusted Gross Margin were primarily due to an increase in software subscription
revenue and economies of scale resulting from fixed cost arrangements.

Adjusted EBITDA


We believe that Adjusted EBITDA, as defined below, is useful in evaluating our
operational performance distinct and apart from financing costs, certain
expenses and non-operational expenses. Adjusted EBITDA is defined as net loss
adjusted for interest, taxes, depreciation, amortization, (gain) loss on change
in fair value of interest rate swaps, change in fair value of warrant
liabilities, asset impairment charges, stock-based compensation expense, 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
existing headquarters' lease, net costs related to divestiture and less revenue
and related cost of revenue associated with First Party Clinical Services, which
was divested as of December 31, 2020. Net loss is the most directly comparable
GAAP measure to Adjusted EBITDA, and you should review the reconciliation of net
loss to Adjusted EBITDA below and not rely on any single financial measure to
evaluate our business.

Adjusted EBITDA is intended as a supplemental measure of our performance that is
neither required by, nor presented in accordance with, GAAP. You should be aware
that when evaluating Adjusted EBITDA, we may incur future expenses similar to
those excluded when calculating this measure. In addition, our presentation of
this measure should not be construed as an inference that our future results
will be unaffected by unusual or nonrecurring items.

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The following table reconciles net loss to Adjusted EBITDA for the years ended
December 31, 2021, 2020 and 2019:

                                                             Year ended December 31,
(dollar amounts in thousands)                         2021            2020             2019
Net loss                                           $ (248,919 )     $ (16,876 )     $ (210,340 )
Interest expense                                       58,990          77,003           89,475
Income tax benefit                                    (26,000 )        (4,679 )        (67,293 )
Amortization of intangible assets                      72,358          72,310           81,329
Amortization of acquired technologies-Cost of
revenue                                                26,320          26,303           27,797
Depreciation and amortization related to
software, equipment and property                       24,451          17,749           18,391

EBITDA                                                (92,800 )       171,810          (60,641 )
(Gain) loss on change in fair value of
interest rate swaps                                    (8,373 )        13,249           22,432
Change in fair value of warrant liabilities            64,501              -                -
Impairment charge                                          -               -           207,050
Stock-based compensation expense                      261,995          11,336            7,710
Loss on early extinguishment of debt                   15,240           8,615               -
Business combination transaction costs                 12,385           1,188               -
Lease abandonment                                       2,582              -                -
Lease overlap costs                                     3,697              -                -
Net costs related to divestiture                        2,177              35               -
First Party Clinical Services-Revenue                      -          (34,742 )        (46,042 )
First Party Clinical Services-Cost of revenue              -           31,313           39,924

Adjusted EBITDA                                    $  261,404       $ 202,804       $  170,433



Adjusted EBITDA increased $58.6 million, or 28.9%, for the year ended
December 31, 2021, compared to the year ended December 31, 2020. Adjusted EBITDA
increased $32.4 million, or 19.0%, for the year ended December 31, 2020,
compared to the year ended December 31, 2019. These increases were driven 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.

Adjusted Net Income and Adjusted Earnings Per Share


We believe that Adjusted Net Income, as defined below, and Adjusted Earnings Per
Share are useful in evaluating our operational performance distinct and apart
from financing costs, certain expenses and
non-operational
expenses. Adjusted Net Income is defined as net loss adjusted for the
after-tax
effects of amortization, asset impairment charges, (gain) loss on change in fair
value of interest rate swaps, change in fair value of warrant liabilities,
stock-based compensation expense, 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 existing headquarters' lease, net costs
related to divestiture, less revenue and related cost of revenue associated with
First Party Clinical Services, which was divested as of December 31, 2020. Net
loss is the most directly comparable GAAP measure to Adjusted Net Income, and
you should review the reconciliation of net loss to Adjusted Net Income below
and not rely on any single financial measure to evaluate our business.

Adjusted Net Income and Adjusted Earnings Per Share are intended as supplemental
measures of our performance that are neither required by, nor presented in
accordance with, GAAP. You should be aware that when evaluating Adjusted Net
Income and Adjusted Earnings Per Share, we may incur future expenses similar to
those excluded when calculating these measures. In addition, our presentation of
these measures should not be construed as an inference that our future results
will be unaffected by unusual or
non-recurring
items.

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The following table reconciles net loss and GAAP basic and diluted earnings per
share to Adjusted Net Income and Adjusted Earnings per Share for the years ended
December 31, 2021, 2020 and 2019.

                                                          Year ended December 31,
(dollar amounts in thousands)                 2021                 2020                 2019
Net (loss)                                $    (248,919 )      $     (16,876 )      $    (210,340 )
Amortization of intangible assets                72,358               72,310               81,329
Amortization of acquired
technologies-Cost of revenue                     26,320               26,303               27,797
Impairment charge                                    -                    -               207,050
(Gain) loss on change in fair value
of interest rate swaps                           (8,373 )             13,249               22,432
Change in fair value of warrant
liabilities                                      64,501                   -                    -
Stock-based compensation expense                261,995               11,336                7,710
Loss on early extinguishment of debt             15,240                8,615                   -
Business combination transaction
costs                                            12,385                1,188                   -
Lease abandonment                                 2,582                   -                    -
Lease overlap costs                               3,697                   -                    -
Net costs related to divestiture                  2,177                   35                   -
First Party Clinical
Services-Revenue                                     -               (34,742 )            (46,042 )
First Party Clinical Services-Cost
of revenue                                           -                31,313               39,924
Tax effect of adjustments                       (73,684 )            (33,389 )            (88,452 )

Adjusted net income                       $     130,279        $      79,342        $      41,408
Adjusted net income per share
attributable to common stockholders
Basic                                     $        0.24        $        0.16        $        0.08
Diluted                                   $        0.23        $        0.15        $        0.08
Weighted average shares outstanding
Basic                                       543,558,222          504,115,839          503,453,127
Diluted                                     575,619,243          519,748,819          508,781,383


Adjusted Net Income increased $50.9 million, or 64.2%, for the year ended
December 31, 2021, compared to the year ended December 31, 2020. Adjusted Net
Income increased $37.9 million, or 91.6%, for the year ended December 31, 2020,
compared to the year ended December 31, 2019. 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.

Liquidity and Capital Resources


We have financed our operations from cash flows from operations. As of
December 31, 2021 and 2020, the Company had cash and cash equivalents of
$182.5 million and $162.1 million, respectively. The Company had a working
capital surplus of $186.3 million at December 31, 2021 and had an accumulated
deficit at December 31, 2021 totaling $746.4 million. As of December 31, 2021,
the Company had $800.0 million aggregate principal amount outstanding on term
loans.

We believe that our existing cash and cash equivalents, our cash flows from
operating activities and our borrowing capacity under our 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.

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Other than the business acquisition discussed in the "Recent Developments"
section of this Management's Discussion and Analysis of Financial Condition and
Results of Operations, we are not currently a party to any material definitive
agreement regarding potential investments in, or acquisitions of, complementary
business, applications or technologies. However, 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. We may
require additional borrowings under our credit arrangements and alternative
forms of financings or investments to achieve our longer-term strategic plans.

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 2021 Credit Agreement, dated as of
September 21, 2021.

The 2021 Credit Agreement replaced the Company's First Lien Credit Agreement,
dated as of April 27, 2017, as amended as of February 14, 2020.


The 2021 Credit Agreement consists of the 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 Company received proceeds of
$798.0 million, net of debt discount of $2.0 million, related to the Term B
Loan.

Using proceeds from the Term B Loan, we repaid 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 year ended December 31, 2021.

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 fiscal 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. The Company is not subject to the annual
excess cash flow calculation in fiscal year 2021 and no such principal
prepayments are required.

As of December 31, 2021, the amount outstanding under the Term B Loan was
$800.0 million. During the year ended December 31, 2021, the Company issued a
standby letter of credit for $0.7 million which reduces the amount available to
be borrowed under the 2021 Revolving Credit Facility for so long as such standby
letter of credit remains outstanding and at December 31, 2021, $249.3 million
was available to be borrowed.

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. The interest rate per
annum applicable to the loans under the 2021 Credit Facility are based on a
fluctuating rate of interest equal to the sum of an applicable rate and, at the
Company's election from time to time, either:

    (1)  a base rate determined by reference to the highest of (a) the rate last
         quoted by the Wall Street Journal as the "prime rate," (b) the federal
         funds effective rate plus 0.50%, (c) one-month LIBOR plus 1.00% and (d)

with respect to the Term B Loans, 1.50% and with respect to the Revolving

         Credit Facility, 1.00%, or



    (2)  a Eurocurrency rate determined by reference to LIBOR (other than with

respect to Euros, Euribor and with respect to British Pounds Sterling,

SONIA) with a term as selected by the Company, of one, three or six

months (subject to (x) in the case of term loans, a 0.50% per annum floor

and (y) in the case of revolving loans, a 0.00% per annum floor).

A quarterly commitment fee of up to 0.50% per annum is payable on the unused
portion of the 2021 Revolving Credit Facility.

During the year ended December 31, 2021 the weighted-average interest rate on
the outstanding borrowings under the Term B Loan was 3.0%. The Company made
interest payments of $6.7 million during the year ended December 31, 2021.

Borrowings under the 2021 Credit Agreement are guaranteed by Cypress
Intermediate Holdings II, Inc.
and certain of its U.S. subsidiaries. The 2021
Credit Agreement is secured by a first priority lien on the stock of CCC
Intelligent Solutions Inc.
and substantially all of its assets, subject to
various limitations and exceptions.


The 2021 Credit Agreement contains representations and warranties, and
affirmative and negative covenants, customary for a financing of this type. The
Company was in compliance with all affirmative and negative covenants during the
year ended December 31, 2021. The terms of the 2021 Credit Agreement include a
financial covenant, which requires that, at the end of each fiscal quarter
(commencing with the fiscal quarter ending March 31, 2022), if the aggregate
amount of borrowings under the 2021 Revolving Credit Facility exceeds 35% of the
aggregate commitments of the 2021 Revolving Credit Facility, the Company's
first-lien leverage ratio cannot exceed 6.25 to 1.00. As of December 31, 2021,
the Company was not subject to the financial covenant.

Prior to entering in to the 2021 Credit Agreement in September 2021, our
long-term debt was provided through our First Lien Credit Agreement and Second
Lien Credit Agreement, each entered into in April 2017.

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On February 14, 2020, we refinanced our long-term debt and entered into the
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 loan were used to repay all outstanding borrowings under the Second Lien
Credit Agreement.

The repayment of outstanding borrowings under the Second Lien Credit Agreement
was determined to be a debt extinguishment and we recognized an $8.6 million
loss on early extinguishment of debt during the year ended December 31, 2020.

First Lien Credit Agreement
. The First Lien Credit Agreement initially consisted of a $1.0 billion term
loan ("First Lien Term Loan"), a $65.0 million Dollar revolving credit facility
("Dollar Revolver"), and a $35.0 million multicurrency revolving credit facility
("Multicurrency Revolver" and together with the Dollar Revolver, the "First Lien
Revolvers"), with a sublimit of $30.0 million for letters of credit under the
First Lien Revolver. We received proceeds of $997.5 million, net of debt
discount of $2.5 million, related to the First Lien Term Loan.

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 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, the
non-extended
Dollar Revolver and
non-extended
Multicurrency Revolver consisted of commitments of $8.1 million and
$4.4 million, respectively, which was scheduled to mature on April 27, 2022. The
extended Dollar Revolver and extended Multicurrency Revolver consisted 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 quarterly principal payments of approximately
$3.5 million until March 31, 2024, with the remaining outstanding principal
amount required to be paid on 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, 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 is required, the prepayment offsets the future quarterly principal
payments of the same amount were required. The annual excess cash flow
calculation for the year ended December 31, 2020 required a principal prepayment
of $1.5 million, which was paid in April 2021. The annual excess cash flow
calculation for the year ended December 31, 2019 did not require a principal
prepayment.

In September 2021, using the proceeds from the Term B Loan provided in the 2021
Credit Agreement and cash on hand, the Company fully repaid $804.2 million of
outstanding borrowings on the First Lien Term Loan.

The Company made a voluntary 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 for $6.0 million in the consolidated statement of
operations and comprehensive loss during the year ended December 31, 2021.

Outstanding borrowings under the First Lien Term Loan bore interest at a
variable rate of LIBOR, plus up to 3.00% per annum based upon the Company's
first lien leverage ratio. 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 years ended December 31, 2021, 2020 and 2019, the weighted-average
interest rate on the outstanding borrowings under the First Lien Term Loan was
4.1%, 4.2% and 5.2%, respectively. The Company made interest payments of
$36.1 million, $53.6 million and $50.7 million during the years ended
December 31, 2021, 2020 and 2019, respectively.

The First Lien Credit Agreement contained representations and warranties, and
affirmative and negative covenants, customary for a financing of this type. The
Company was in compliance with all affirmative and negative covenants during the
years ended December 2020 and 2019, and through the point of repayment in
September 2021.

Second Lien Credit Agreement
. The Second Lien Credit Agreement consisted of a $375.0 million term loan
("Second Lien Term Loan"). We received proceeds of $372.2 million, net of
discount of $2.8 million, related to the Second Lien Term Loan.

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In February 2020, using the proceeds from the incremental term loan provided in
the First Lien Amendment, we fully repaid the outstanding balance on the Second
Lien Term Loan (see Note 15 to our consolidated financial statements for
additional information).

Amounts outstanding under the Second Lien Term Loan during the years ended
December 31, 2020 and 2019 bore interest at a variable rate of LIBOR, plus
6.75%. During the years ended December 31, 2020 and 2019, the weighted-average
interest rate on the Second Lien Term Loan was 8.6% and 9.1%, respectively.


Interest Rate Swap Agreements.
In June 2017, we entered into three floating to fixed interest rate swap
agreements ("Swap Agreements") to reduce our exposure to the variability from
future cash flows resulting from interest rate risk related to our floating rate
long-term debt.

On September 21, 2021, the Company made an aggregate payment of $10.0 million to
extinguish the Swap Agreements that were scheduled to expire in June 2022. The
aggregate notional amount of the Swap Agreements totaled $864.9 million at
December 31, 2020.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations and other commitments
as of December 31, 2021, and the years in which these obligations are due:


                                                                                                        Subsequent

(dollar amounts in thousands)                  Total          2022       2023-2024      2025-2026        to 2026
Long-term debt obligations(1)               $   800,000     $  8,000     $   16,000     $   16,000     $    760,000
Scheduled interest payments(1)                  156,585       23,880         47,040         46,080           39,585
Operating lease obligations(2)                   97,804        8,559         13,449         14,160           61,636
Purchase obligations(3)                         123,575       23,560         28,527         20,501           50,987
Licensing agreement(4)                           49,179        4,918          9,836          9,836           24,589

Total                                       $ 1,227,143     $ 68,917     $  114,852     $  106,577     $    936,797



(1) Includes scheduled principal and interest payments at existing rates at

December 31, 2021 and assumes no

non-mandatory

prepayments. Obligations that are repayable prior to maturity at our option

are reflected at their contractual maturity date. See Note 15 to our

consolidated financial statements for additional information.

(2) Includes leases of facilities that expire at various dates through 2037. Rent

expense for leased facilities of $13.7 million, $9.7 million and $9.5 million

    was recognized during the years ended December 31, 2021, 2020 and 2019,
    respectively. See Note 10 to our consolidated financial statements for
    additional information.

(3) Includes long-term agreements with suppliers and other parties related to

licensing data used in our services, outsourced data center, disaster

recovery, and SaaS offerings. See Note 22 to our consolidated financial for

additional information.

(4) A licensing agreement with a third party to obtain a perpetual software

license ("Licensing Agreement") for a database structure, tools, and

historical claims data used within the Company's software. Payments include

    principal and imputed interest through the contract termination date in
    December 2031. See Note 16 to our consolidated financial statements for
    additional information.



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Cash Flows

The following table provides a summary of cash flow data for the years ended
December 31, 2021, 2020 and 2019:


                                                    Year ended December 31,
(dollar amounts in thousands)                 2021           2020           

2019

Net cash provided by operating activities $ 127,335 $ 103,943 $

66,301

Net cash used in investing activities (48,598 ) (30,667 ) (21,055 )
Net cash used in financing activities (58,440 ) (4,421 )

       (9,428 )
Net effect of exchange rate change                129             62        

(70 )

Change in cash and cash equivalents $ 20,426 $ 68,917 $

 35,748



2021

Net cash provided by operating activities was $127.3 million for the year ended
December 31, 2021. Net cash provided by operating activities consists of net
loss of $248.9 million, adjusted for $420.1 million of

non-cash items,

($4.5) million for changes in working capital and ($39.4) million for the effect
of changes in other operating assets and liabilities.

Non-cash adjustments


include stock-based compensation expense of $262.0 million, depreciation and
amortization of $123.1 million, change in fair value of warrant liabilities of
$64.5 million, a loss on early extinguishment of debt of $15.2 million,
$6.3 million in

non-cash


lease expense, amortization of deferred financing fees and debt discount of
$4.3 million, deferred income tax benefits of ($46.9) million and a change in
fair value of interest rate swaps of ($8.4) million. The change in working
capital was primarily a result of an increase in other current assets of
$12.3 million due to timing of payments for prepaid and other deferred costs, an
increase in accounts receivable of $4.7 million due to revenue growth and an
increase in the current portion of deferred contract costs of $3.1 million due
to higher employee sales incentives, partially offset by an increase in accrued
expenses of $8.3 million due to timing of payments, an increase in deferred
revenue of $4.5 million due to revenue growth and timing of customer payments
and an increase in income taxes of $3.8 million due to timing of payments. The
change in other operating assets and liabilities was primarily a result of an
increase in

non-current

other assets of $7.8 million due to timing of payments and other deferred costs,
an increase in


non-current

deferred contract costs of $7.7 million due to higher employee sales incentives,
a $10.2 million cash settlement of vested phantom stock, and a $10.0 million
payment for the early extinguishment of the Company's interest rate swap
agreements
.

Net cash used in investing activities was $48.6 million for the year ended
December 31, 2021. Net cash used in investing activities is primarily related to
capitalized time on internally developed software projects and purchases of
software, equipment and property of $38.3 million and an investment in a limited
partnership of $10.2 million.

Net cash used in financing activities was $58.4 million for the year ended
December 31, 2021. Net cash used in financing activities was primarily related
to principal payments of long-term debt of $1,336.2 million, dividends to
shareholders prior to the Business Combination of $269.2 million and a deemed
distribution to CCCIS option holders of $9.0 million, partially offset by
borrowings from the Term B Loan, net of fees paid to the lender, of
$789.9 million, and net proceeds from the Business Combination of
$763.3 million.

2020


Net cash provided by operating activities was $103.9 million for the year ended
December 31, 2020. Net cash provided by operating activities consists of net
loss of $16.9 million, adjusted for
non-cash items
and the effect of changes in working capital.
Non-cash adjustments
include stock-based compensation expense of $11.3 million, depreciation and
amortization of $116.4 million, deferred income tax benefits of ($11.1) million,
amortization of deferred financing fees of $4.6 million, loss on early
extinguishment of debt of $8.6 million, change in fair value of interest rate
swaps of $13.2 million and a gain on divestiture of ($3.8) million. The change
in net operating assets and liabilities was primarily a result of an increase in
deferred contract costs of $3.0 million due to the payment of employee sales
incentives, an increase in accounts receivable of $10.6 million due to timing of
receipts of payments from customers, and an increase in prepayments and other
assets of $15.7 million due to
non-trade
receivables and timing of payments for prepaid and other deferred costs,
partially offset by an increase in income taxes of $6.7 million due to timing of
tax payments. Net changes in working capital used cash of ($12.1) million.

Net cash used in investing activities was $30.7 million for the year ended
December 31, 2020. Net cash used in investing activities is primarily related to
capitalized time on internally developed software projects and purchases of
software, equipment and property of $30.1 million.

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Net cash used in financing activities was $4.4 million for the year ended
December 31, 2020. Net cash used in financing activities was primarily related
to principal repayments on long-term debt of $ 388.8 million, including the
repayment of the Second Lien Term Loan of $375.0 million, partially offset by
additional borrowings from the incremental term loan under the First Lien Credit
Agreement, net of fees paid to the lender, of $369.8 million and $14.2 million
of proceeds from the issuance of a
non-controlling
interest in a subsidiary.

2019

Net cash provided by operating activities was $66.3 million for the year ended
December 31, 2019. Net cash provided by operating activities consists of net
loss of $210.3 million, adjusted for
non-cash items
and the effect of changes in working capital.
Non-cash adjustments
include stock-based compensation expense of $7.1 million, depreciation and
amortization of $127.5 million, impairment of goodwill and intangible assets of
$207.1 million, deferred income taxes of ($84.3) million, amortization of
deferred financing fees of $4.8 million and change in fair value of interest
rate swaps of $22.4 million. The change in net operating assets and liabilities
was primarily a result of an increase in deferred contract costs of $7.3 million
due to the payment of employee sales incentives, an increase in accounts
receivable of $4.5 million due to timing of receipts of payments from customers,
and an increase in prepayments and other assets of $5.9 million, partially
offset by an increase in accounts payable of $4.5 million due to timing of cash
disbursements. Net changes in working capital used cash of ($6.1) million.

Net cash used in investing activities was $21.1 million for the year ended
December 31, 2019. Net cash used in investing activities is primarily related to
purchases of software, equipment and property of $20.5 million.

Net cash used in financing activities was $9.4 million for the year ended
December 31, 2019. Net cash used in financing activities is primarily related to
principal payments on long term debt of $10.0 million partially offset by
proceeds from company stock option exercises of $0.7 million.

Recent Accounting Pronouncements


See Note 2 to our audited consolidated financial statements 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 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.

For information on our significant accounting policies, see Note 2 to our
audited consolidated financial statements.

We believe the following critical accounting policies affect our most
significant judgments and estimates used in preparation of our consolidated
financial statements:

  •   Revenue Recognition



  •   Valuation of Goodwill and Intangible Assets



  •   Stock-based Compensation



  •   Valuation of Warrant Liabilities



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Revenue Recognition

Revenue recognition requires judgment and the use of estimates. The Company
generates revenue from subscription-based contracts that are billed either on a
subscription or transactional basis. Revenue is derived from the sale of
software subscriptions, and other revenue, primarily professional services.

The estimates and assumptions requiring significant judgment under our revenue
recognition policy in accordance with FASB ASC 606 are as follows:

Determine the transaction price


The transaction price is determined based on the consideration to which we
expect to be entitled in exchange for services to the customer. Variable
consideration is included in the transaction price if, in our judgment, it is
probable that no significant future reversal of cumulative revenue under the
contract will occur. The sale of our software subscriptions may include variable
consideration related to usage-based contracts and provisions for additional
fees when the volume of a customer's transactions exceeds agreed upon maximums
within defined reporting periods. We estimate variable consideration based on
the most likely amount, to the extent that a significant revenue reversal is not
probable to occur.

The Company may occasionally recognize an adjustment in revenue in the current
period for performance obligations partially or fully satisfied in the previous
periods resulting from changes in estimates for the transaction price, including
any changes to the Company's assessment of whether an estimate of variable
consideration is constrained. For the years ended December 31, 2021, 2020 and
2019, the impact on revenue recognized in the respective period, from
performance obligations partially or fully satisfied in the previous period, was
not significant.

Determine the amortizable life of contract assets


Sales commissions earned by our sales force are considered incremental and
recoverable costs of obtaining a contract with a customer. Sales commissions for
initial contracts are deferred and then amortized on a straight-line basis over
a period of benefit that we have determined to generally be between three and
five years. We determined the period of benefit by taking into consideration our
customer contracts, our technology, and other factors. Most often with larger
customers, a new contract or amended master agreement will not include a renewal
period that requires assessment of whether the new business and renewal business
commissions are commensurate. This is because the solutions and services offered
as part of the new contract or amended agreement will be different from the
original due to changes in technology and offerings. While the renewal period
may be reached, most often a new multi-year agreement is signed that includes
new services and features which will pay out a commission on the new services
and features at the new business percentage and the renewal services and
features at the renewal commission percentage. In situations when the renewal
period is triggered, it is typically with smaller customers where the sales
commission paid is insignificant. Thus, sales commissions are amortized on a
systematic basis over three to five years which corresponds to the period and
pattern in which revenue is recognized. Sales commissions for renewal contracts
are deferred and then amortized on a straight-line basis over the related
contractual renewal period. Amortization expense is included in selling and
marketing expenses on the consolidated statements of operations and
comprehensive loss.

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 fair value of
a reporting unit or indefinite-lived intangible asset is below its carrying
value.

In 2021, 2020 and 2019, we performed a quantitative goodwill impairment test, in
which we compared the fair value of our reporting units, which we primarily
determine using an income approach based on the present value of discounted cash
flows, to the respective carrying value, which includes goodwill. If the fair
value of a reporting unit exceeds their respective carrying value, the goodwill
is not considered impaired. If the carrying value is higher than the fair value,
the difference would be recognized as an impairment loss.

The process of evaluating the potential 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 assumptions that represent
the highest and best use for our reporting units. Changes in judgment on these
assumptions and estimates could result in goodwill impairment charges. We
believe that the assumptions and estimates utilized are appropriate based on the
information available to management.

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No goodwill impairments were recorded during the years ended December 31, 2021
and 2020
.

Based on the results of our assessment performed as of September 30, 2019, which
included downward revisions to future projected earnings and cash flows of one
of our reporting units, it was determined that the carrying value of goodwill
was impaired and the Company recorded an impairment charge to goodwill of
$25.8 million.

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 recorded during the years ended December 31, 2021
and 2020. During the year ended December 31, 2019, the Company recorded an
impairment charge to one of its reporting unit's customer relationships and
acquired technology intangible assets. The Company's forecasted future revenue
and expense cash flow streams indicated the carrying amounts of the intangible
assets were not recoverable and therefore the Company recorded an impairment
charge of $181.3 million.

Stock-based Compensation

The Company accounts for stock-based compensation plans in accordance with ASC
718, Compensation-Stock Compensation, which requires the recognition of expense
measured based on the grant date fair value of the stock-based compensation
awards. Our stock-based awards include stock options, restricted stock units
("RSUs") and phantom shares. Our stock-based awards have vesting terms that are
service-based, performance-based or performance-based with a market condition.

The grant date fair value of our service-based awards, excluding RSUs, is
determined using the Black-Scholes option-pricing model. The fair value of each
service-based and performance-based RSU is determined using the fair value of
the underlying common stock on the date of grant. The fair value of each award
with performance-based with a market condition vesting is determined using a
Monte Carlo simulation model.

For stock-based awards with only service conditions, we recognize stock-based
compensation expense on a straight-line basis over the requisite service period
only for the portion of awards expected to vest, based on an estimated
forfeiture rate. For stock-based awards with only performance conditions, we
recognize stock-based compensation expense on a straight-line basis over the
explicit performance period when the performance targets are probable of being
achieved. We recognize stock-based compensation expense on awards that are
subject to performance-based vesting with a market condition when the
performance targets are considered probable of being achieved. The determination
of the grant date fair value for these awards is affected by assumptions
regarding a number of complex and subjective variables, including expected stock
price volatility over the expected term of the award, the risk-free interest
rate for the expected term of the award and expected dividends. The market
condition of these awards impacts the fair value at grant date and is the reason
the Monte Carlo simulation is utilized to determine fair value.

Key assumptions used in the Black-Scholes option pricing model and Monte Carlo
simulation method include:

• Fair Value of Common Stock-Prior to the Business Combination, there

             was no public market for our common stock. For those periods 

included

             in our consolidated financial statements, fair values of the 

shares of

             common stock underlying our stock-based awards were estimated on each
             grant date by our board of directors. Our board of directors, with
             input from management considered, among other things,

valuations of

             our common stock, which were prepared in accordance with the 

guidance

             provided by the American Institute of Certified Public

Accountants

             2013 Practice Aid, Valuation of Privately-Held-Company Equity
             Securities Issued as Compensation as well as the Advent

Transaction

             for grants in 2017.


• Expected Term-The expected term represents the period that stock-based

             awards are expected to be outstanding and, for time-based 

awards, is

             determined using the simplified method that uses the weighted average
             of the
             time-to-vesting
             and the contractual life of the awards.



                                       68

--------------------------------------------------------------------------------

Table of Contents


         •   Expected Volatility-As we have limited trading history for our common
             stock, the expected volatility was estimated based on the average
             volatility for comparable publicly traded companies over a period
             equal to the expected term of the stock option grants. The comparable
             companies were chosen based on their similar size, stage in the life
             cycle or area of specialty.



         •   Risk-Free Interest Rate-The risk-free interest rate is based on the
             U.S. Treasury zero coupon issues in effect at the time of grant for
             periods corresponding with the expected term of awards.



         •   Expected Dividend Yield-Historically, we have not paid regular
             dividends on our common stock and have no plans to pay

dividends on

             our common stock on a regular basis. We do not have a dividend 

policy.

             Therefore, we used an expected dividend yield of zero.


See Note 20 to our consolidated financial statements for more information
concerning certain of the specific assumptions we used in applying the
Black-Scholes and Monte Carlo option pricing models to determine the estimated
fair value of our stock-based awards with service vesting and performance
vesting. Some of these assumptions involve inherent uncertainties and the
application of significant judgment. As a result, if factors or expected
outcomes change and we use significantly different assumptions or estimates, our
stock-based compensation could be materially different.

Valuation of Warrant Liabilities


We account for our warrants in accordance with the guidance contained in ASC
815-40 under
which the warrants do not meet the criteria for equity treatment and must be
recorded as liabilities. Accordingly, we classify the warrants as liabilities at
their fair value and adjust the warrants to fair value at each reporting period.
This liability is subject to
re-measurement
at each balance sheet date until exercised, and any change in fair value is
recognized in our consolidated statements of operations and comprehensive loss.
The fair value of the Public Warrants was determined using the quoted market
price as of the valuation date. The fair value of the Private Warrants was
determined using the Black-Scholes option pricing model.

See Note 5 to our consolidated financial statements for more information
concerning certain of the specific assumptions we used in applying the
Black-Scholes option-pricing model to determine the fair value of our Private
Warrants. Some of these assumptions involve inherent uncertainties and the
application of significant judgment. As a result, if factors or expected
outcomes change and we use significantly different assumptions or estimates, our
warrant liabilities could be materially different.

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