 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of ~~October 29, 2021,~~May 2, 2022, there were ~~140,423,852~~141,347,146 shares of the registrant’s common stock outstanding.

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Instructure,” and the “Company” refer to Instructure Holdings, Inc. and its wholly-owned subsidiaries.

~~Share amounts and per share data give retroactive effect to the forward stock split described in the Description of Business and Basis of Presentation footnote effective July 9, 2021.~~

Share amounts and per share data give retroactive effect to the forward stock split described in the Description of Business and Basis of Presentation footnote effective July 9, 2021.

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the condensed consolidated balance sheets. Restricted cash has been disclosed in Other assets as it is associated with letters of credit obtained to secure office space from our various lease agreements and other contractual arrangements (in thousands):

Table of ~~the ASU as it relates to arrangements that reference London Inter-Bank Offered Rate (“LIBOR”).~~Contents

For all ~~acquisitions disclosed above,~~periods presented, the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill generated from these transactions is attributable to the expected synergies to be achieved upon consummation of the business combinations and the assembled workforce values. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. Developed technology represents the estimated fair value of the acquired existing technology and is being amortized over its estimated remaining useful life of five ~~year~~yearss.. Amortization of developed technology is included in subscription and support cost of revenue expenses in the accompanying condensed consolidated statements of operations ~~during the unaudited nine~~ and ~~three months ended September 30, 2021 (Successor), unaudited six months ended September 30, 2020 (Successor) and unaudited three months ended March 31, 2020 (Predecessor).~~comprehensive loss. Customer relationships represent the estimated fair value of the acquired customer bases and are amortized over the estimated remaining useful ~~lives ranging from~~life of ~~four~~ to seven ~~years. The trade names acquired are amortized over the estimated remaining useful lives ranging from~~ ~~three~~ to ~~ten~~ years. Amortization of customer relationships ~~and trade names~~ is included in sales and marketing expenses in the accompanying condensed consolidated statements of ~~operations.~~operations and comprehensive loss.

~~Due to the step up in book basis~~Sale of the intangible assets as a result of the Take-Private Transaction, the Company moved from a deferred tax asset position, offset by a full valuation allowance, to an overall net deferred tax liability position of $~~88.3~~ ~~million. On December 22, 2020, the Company recorded an increase to the Certica deferred tax liability of $15.2~~ million in purchase accounting due to the step up in book basis of intangible assets as a result of the stock acquisition. We expect the net deferred tax liability to decrease as book amortization expense is recognized on the acquisition-related intangible assets. On June 28, 2021, the Company recorded a provisional increase to the Eesysoft deferred tax liability of $~~0.7~~ million in purchase accounting due to a step up in book basis of intangible assets as a result of the stock acquisition. We expect the net deferred tax liability to decrease as book amortization expense is recognized on the acquisition-related intangible assets. The deferred tax liability will remain provisional until the Eesysoft tax returns are filed.

~~Accumulated amortization for capitalized software development costs was $0.6~~ ~~million and $0.5~~ million at September 30, 2021 (unaudited) and December 31, 2020, respectively. Amortization expense for capitalized software development costs for the unaudited nine months and three months ended September 30, 2021 (Successor), unaudited six and three months ended September 30, 2020 (Successor), and unaudited three months March 31, 2020 (Predecessor), was $~~0.5~~ ~~million, $0.2~~ ~~million, $0.3~~ ~~million, $0.2~~ ~~million, and $1.8~~ ~~million, respectively, and is recorded within subscription and support cost of revenue on the consolidated statements of operations.~~

~~12.~~11. Stock-Based Compensation

Employee Equity Plans

In April 2020, as part of the Take-Private Transaction, the board of managers approved the Instructure Parent, LP Incentive Equity Plan (the “2020 Plan”) and the Instructure Co-Invest Agreement (the “Co-Invest Agreement”) to incentivize employees and to align the employees and management with the owners of the business. The 2020 Plan provided for the grant of incentive stock options, profits interest, equity appreciation rights and other forms of awards to employees and non-employees granted or denominated in TopCo Units. Under the 2020 Plan, 10,000,000 Class B Units (“Incentive Units”) were reserved for issuance (“Incentive Carry”) and did not have a contractual life. Incentive Carry grants were subject to a service and a performance vesting condition based on the achievement of an EBITDA target as established by the Company’s board of managers, over a performance period of four years. Additionally, TopCo granted 480,000 Incentive Units to certain members of the board of managers that were only subject to service-based vesting conditions over four years (“Board Carry”). These Incentive Units were not included in the Incentive Carry pool previously discussed and there was no contractual life. The Co-Invest Agreement offered employees the one-time opportunity to co-invest in TopCo by purchasing Units directly from the Company for cash. Under the Co-Invest agreement, the purchase price for 1 Class A unit and 72 Class B units was $1,000, which is the same investment allocation between the two unit classes as the investment made by existing investors at the time of the Take-Private Transaction.

The 2020 Plan was terminated in July 2021 in connection with the IPO. No further equity awards were granted under the 2020 Plan subsequent to the IPO. As of the IPO date, 2,271,698 vested Incentive Units converted to 1,305,738 shares of the Company's common stock and were released to the Unit holders, and 6,126,802 unvested Incentive Units were exchanged for 3,496,739 RSUs under the 2021 Plan. The RSUs will generally vest in 11 equal quarterly installments which commenced on September 1, 2021.

In July 2021, our board of directors adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), which serves as the successor to 2020 Plan. Accordingly, 0 shares remain available for issuance under the 2020 Plan. A total of 18,000,000 shares of the Company's common stock were initially reserved for issuance under the 2021 Plan. Pursuant to the terms of the 2021 Plan, the share reserve increased by 5,629,623 shares in January 2022. As of March 31, 2022, we had 16,584,889 shares of common stock available for future grants under the 2021 Plan.

In July 2021, our board of directors adopted, and our stockholders approved the 2021 Employee Stock Purchase Plan (the "2021 ESPP"), which allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The initial offering period ended on February 28, 2022. Each new offering period will begin on or about March 1 and September 1 and will be approximately six months in duration. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85% of the lesser of (1) the fair market value of our common stock on the offering date or (2) the fair market value of our common stock on the purchase date. A total of 1,900,000 shares of the Company’s common stock were initially reserved for issuance under the 2021 ESPP. Pursuant to the terms of the 2021 ESPP, the share reserve increased by 1,407,406 shares in January 2022. As of March 31, 2022 (unaudited), 3,067,546 shares of common stock were available for purchase under the 2021 ESPP.

In January and February 2022, we granted 792,905 and 1,089,775 RSUs, respectively, to employees under the 2021 Plan. Each RSU entitles the recipient to receive one share of the Company's common stock upon vesting. The RSUs are subject to time-based service requirements and generally vest over a four-year service period. The grant date fair values of the RSUs granted in January and February 2022 were $21.12 and $22.41, respectively, which represent the closing stock price for the underlying common stock on the respective grant dates, with an aggregate fair value of $41.2 million.

The following two tables show stock-based compensation by award type and where the stock-based compensation expense was recorded in our condensed consolidated statements of operations and comprehensive loss (in thousands):

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

2021

2020

2020

(unaudited)

Options

$
28

$
186

$
104

$
1,594

$
367

Restricted stock units

7,784

3,907

12,151

35,852

6,076

Employee stock purchase plan

565

0

565

0

666

Class A and Class B Units

2

2,629

4,902

3,104

0

Total stock-based compensation

$
8,379

$
6,722

$
17,722

$
40,550

$
7,109



	Three months ended March 31,
	2022		2021
	(unaudited)
Options	$	19	$	48
Restricted stock units		8,863		2,871
Shares for issuance under employee stock purchase plan		594		0
Class A and Class B Units		—		2,666
Total stock-based compensation	$	9,476	$	5,585

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

2021

2020

2020

(unaudited)

Subscription and support cost of revenue

$
257

$
333

$
652

$
653

$
301

Professional services and other cost of revenue

323

222

610

463

285

Sales and marketing

2,139

1,843

4,814

5,435

1,977

Research and development

2,292

2,149

4,896

7,193

1,874

General and administrative

3,368

2,175

6,750

26,806

2,672

Total stock-based compensation

$
8,379

$
6,722

$
17,722

$
40,550

$
7,109



	Three months ended March 31,
	2022		2021
	(unaudited)
Subscription and support cost of revenue	$	282	$	224
Professional services and other cost of revenue		376		177
Sales and marketing		2,577		1,582
Research and development		2,540		1,670
General and administrative		3,701		1,932
Total stock-based compensation	$	9,476	$	5,585

In connection with the Take-Private Transaction on March 31, 2020, and except for certain executives, outstanding stock options and restricted stock units, ~~(“RSUs”,~~and together with the stock options, “equity awards”), whether vested or unvested, were cancelled and replaced with the right to receive $49.00 per share in cash, less the applicable exercise price per share and applicable withholding taxes (the “per share price”), with respect of each share of common stock underlying such award (“Cash Replacement Awards”). The per share price attributed to the unvested equity awards will vest and be payable at the same time such equity awards would have vested pursuant to their original terms prior to the replacement. During the ~~unaudited nine and~~ three months ended ~~September 30,~~March 31, 2022 and 2021 ~~(Successor), and unaudited six and three months ended September 30, 2020 (Successor)~~(unaudited), the Company recognized $~~6.1~~ ~~million, $~~1.7 ~~million, $37.4~~ million and $~~4.1~~2.9 million of stock-based compensation expense associated with the Cash Replacement Awards, respectively.

~~Successor~~

~~In July 2021, our board of directors adopted the 2021 Omnibus Incentive Plan (the~~ “~~2021 Plan~~”) in order to promote the success of the Company’s business for the benefit of its stockholders by enabling the Company to offer eligible individuals cash and stock-based incentives in order to attract, retain, and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders. The 2021 Plan provides for potential grants of the following awards with respect to shares of the Company’s common stock: (i) incentive stock options qualified as such under U.S. federal income tax laws; (ii) non-qualified stock options or any other form of stock options; (iii) restricted stock units; (iv) performance awards; (v) Other equity-based and cash-based incentive awards as determined by the Committee (meaning any committee of the board of directors duly authorized by the board of directors to administer the 2021 Plan). The maximum aggregate number of shares of the Company’s common stock that may be issued pursuant to awards under the 2021 Plan is ~~18,000,000~~ ~~shares (the “Plan Share Reserve”).~~

The 2021 Plan also contains a provision that will add an additional number of shares of common stock to the Plan Share Reserve on the first day of each year starting with January 1, 2022, equal to the lesser of (i) the positive difference between (x) 4% of the outstanding common stock on the last day of the immediately preceding year, and (y) the Plan Share Reserve on the last day of the immediately preceding year, and (ii) a lower number of shares of common stock as may be determined by the board of directors.

~~On July 21, 2021, the board of directors granted~~ ~~1,689,950~~ ~~RSUs to employees and certain members of the board of directors under the 2021 Plan.~~ ~~Each RSU entitles the recipient to receive one share of the Company's common stock upon vesting. The RSUs are subject to time-based service requirements and generally vest over~~ ~~four years~~ with one quarter of the RSUs vesting on the first anniversary of the vesting commencement date and then one sixteenth vesting quarterly thereafter with vesting commencement dates generally ranging from March 2021 to September 2021. ~~The aggregate fair value of the RSUs granted on the date of the IPO was the IPO price for the underlying common stock of the Company, or $20.00, and totaled $34.0~~ ~~million.~~

Restricted Stock Units

~~Restricted Stock Unit~~The following table summarizes the activity ~~on or after~~of RSUs for the ~~IPO date was as follows during the periods indicated, presented for awards granted to employees and members of the board of directors (unaudited, in~~unaudited three months ended March 31, 2022 (in thousands, except per unit amounts):


	RSUs			Weighted Average Grant Date Fair Value Per Unit		RSUs			Weighted Average Grant Date Fair Value Per Unit
Outstanding as June 30, 2021		0		$	0
Unvested and outstanding at December 31, 2021							1,987		$	21.00
Granted		1,719			20.04		1,883			21.87
Vested		0			0		(122	)		20.41
Forfeited or cancelled		(62	)		20.00		(136	)		22.15
Outstanding at September 30, 2021		1,657		$	20.04
Unvested and outstanding at March 31, 2022							3,612		$	21.43

As of ~~September 30, 2021,~~March 31, 2022 (unaudited), total unrecognized compensation cost related to unvested RSUs ~~granted on or after the IPO date~~ amounted to $~~31.0~~71.3 million, which is expected to be recognized over a weighted average period of ~~3.5~~3.6 years.

~~Incentive Units~~

The 2020 Plan provides for the grant of incentive stock options, profits interest, equity appreciation rights and other forms of awards to employees and non-employees granted or denominated in shares of the TopCo’s Units. Under the 2020 Plan, ~~10,000,000~~ Class B Units (“Incentive Units”) were reserved for issuance (“Incentive Carry”) and do not have a contractual life. Incentive Carry grants are subject to a service and a performance vesting condition based on the achievement of an EBITDA target as established by the Company’s board of managers, over a performance period of ~~four years~~.

~~The Co-Invest Agreement offered employees the one-time opportunity to co-invest in TopCo by purchasing Units directly from the Company for cash. Under the Co-Invest agreement, the purchase price for~~ 1 ~~Class A unit and~~ 72 ~~Class B units was $1,000, which is the same investment allocation between the two unit classes as the investment made by existing investors at the time of the Take-Private Transaction. The minimum cash investment was $2,500. Any consideration received in excess of the investment has been recognized as stock-based compensation in the consolidated statements of operations.~~

~~Additionally, TopCo granted~~ ~~480,000~~ ~~Incentive Units to certain members of the board of managers that were only subject to service-based vesting conditions over~~ ~~four years~~ ~~(“Board Carry”). These Incentive Units are not included in the Incentive Carry pool previously discussed and there is no contractual life.~~

~~In connection with the stock-split and IPO,~~ ~~2,271,698~~ ~~Incentive Units that were vested as of the IPO date converted to~~ ~~1,305,738~~ ~~shares of the Company's common stock and were released to the Unit holders, and~~ ~~6,126,802~~ ~~Incentive Units unvested as of the IPO date were exchanged for~~ ~~3,496,739~~ ~~RSUs under the 2021 Plan.~~ ~~The RSUs will generally vest in 11 equal quarterly installments commencing September 1, 2021.~~ ~~In connection with this conversion, the Company will incur incremental stock-based compensation expense of $12.4~~ ~~million, which will be recognized over the remaining vesting period of the awards.~~

The following table summarizes the activity ~~under the 2020 Plan, inclusive~~ of the Incentive Carry and Board Carry, ~~and~~subsequent to their conversion into RSUs under the 2021 Plan, ~~(unaudited,~~ for the unaudited three months ended March 31, 2022 (in thousands, except per unit amounts):


	RSUs			Weighted Average Grant Date Fair Value Per Unit
Unvested and outstanding at December 31, 2021		2,736		$	10.75
Vested		(304	)		11.03
Forfeited or cancelled		(59	)		11.23
Unvested and outstanding at March 31, 2022		2,373		$	10.74

RSUs - Pre IPO

Weighted Average Grant Date Fair Value Per Unit

Outstanding Incentive Units at December 31, 2020

8,666

$
4.03

Incentive Units granted

0

0

Incentive Units forfeited or cancelled

(268
)

4.09

Incentive Units vested at IPO

(2,271
)

4.04

Incentive Units exchanged for RSUs

(6,127
)

0

Incentive Units after IPO

0

0

RSUs exchanged from Incentive Units

3,497

0

RSUs forfeited or cancelled

(60
)

11.03

RSUs vested

(306
)

9.32

Outstanding RSUs at September 30, 2021

3,131

$
10.76

The following table summarizes the assumptions relating to our Incentive Units used in the option pricing model to establish the grant date fair value for the Successor Period from April 1, 2020 to December 31, 2020:18

Table of Contents

Period from April 1 to December 31,
2020
Dividend yield
NaN
Volatility
60%
Risk-free interest rate
0.3%
Expected life (years)
4.3-4.7

There were no Incentive Units granted subsequent to December 31, ~~2020.~~2021. As of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, we had $~~32.5~~24.5 million and $~~28.2~~28.3 million of unrecognized stock-based compensation expense related to unvested Incentive Units exchanged for RSUs, ~~as of July, 21 2021,~~ that are expected to be recognized over a weighted-average period of ~~2.5~~2.0 and ~~3.3~~2.3 years, respectively.

~~2021 Employee Stock Purchase Plan~~

~~In July 2021, our board of directors adopted, and our stockholders approved, the 2021 ESPP. The~~ 2021 ESPP ~~became effective upon the closing of our IPO and provides for the grant of rights to purchase shares of our common stock. The 2021 Plan initially reserves~~ ~~1,900,000~~ shares of common stock under the plan, which automatically increases on January 1 of each calendar year, beginning on January 1, 2022 and continuing through and including January 1, 2031 by an amount equal to 1~~% of the shares outstanding on December 31 of the immediately preceding calendar year, or a lesser number of shares as is determined by the board of directors.~~ ~~The plan allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to~~ 15% of their eligible compensation, subject to any plan limitations. The initial offering will consist of one offering period, which will end on February 28, 2022. After the initial offering ends, a new offering period will begin on the date designated by the board of directors. Each new offering will begin on or about March 1 and September 1 and will be approximately six months in duration. On each purchase date, eligible employees will purchase our common stock at a price per share equal to 85~~% of the lesser of (1) the fair market value of our common stock on the offering date or (2) the fair market value of our common stock on the purchase date.~~

The following table summarizes the assumptions relating to 2021 ESPP purchase rights used in a Black-Scholes option pricing model for the three months ended ~~September 30, 2021:~~March 31, 2022 and 2021 (unaudited):


		Three months ended September 30
		~~2021~~
~~Dividend yield~~		~~NaN~~
~~Volatility~~		47%
~~Risk-free interest rate~~		~~0.06~~%
~~Expected life (years)~~		.6

~~Predecessor~~

In August 2015, our board of directors adopted the 2015 Equity Incentive Plan (the “2015 Plan”) and our stockholders approved the 2015 Plan in October 2015. The 2015 Plan became effective in connection with the Predecessor's first initial public offering (the “initial IPO”) and provided for the grant of incentive stock options, nonqualified options, restricted stock units, stock appreciation rights, and shares of restricted stock. As of December 31, 2019, there were ~~7,491,786~~ shares of common stock authorized under the 2015 Plan. The 2015 Plan also provided that the number of shares reserved and available for issuance under the plan automatically increased each January 1, beginning on January 1, 2016 and continuing through and including January 1, 2025, by ~~4.5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors.~~ ~~This number was subject to adjustment in the event of a stock split, stock dividend or other change in our capital structure.~~

~~Additionally, as part of our acquisition of Portfolium, we assumed the Portfolium 2014 Plan.~~ ~~NaN~~ ~~shares are available for issuance under the Portfolium 2014 Plan.~~

The board of directors determined the terms of each grant. Generally, options have a vesting period ranging from one to four years. Stock options have a ten-year contractual life. Certain stock options had provisions to accelerate vesting upon the occurrence of certain events such as a change in control. Certain stock options provided for early exercise of unvested shares. All options were granted with an exercise price equal to or greater than the estimated fair value of our common stock at the date of grant. The fair value of the common stock that underlies the stock options has historically been determined by the board of directors based, in part, upon periodic valuation studies obtained from a third-party valuation firm. After the initial IPO and prior to the Take-Private Transaction, the fair value was determined by the then closing price of our common stock as reported on the New York Stock Exchange on the date of grant. There were no grants between the Take-Private Transaction and the date we were de-listed from the New York Stock Exchange.

~~In August 2015, our board of directors adopted the 2015 ESPP. Our stockholders approved the 2015 ESPP in October 2015, which became effective on the closing date of the initial IPO. A total of~~ ~~333,333~~ shares of our common stock were initially reserved for issuance under the 2015 ESPP. The number of shares reserved for issuance increased automatically each year, beginning January 1, 2016 through and including January 1, 2025 by the lesser of 1~~% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year;~~ ~~333,333~~ ~~shares of common stock; or such lesser number as determined by our board of directors.~~ ~~As of December 31, 2019, there were~~ ~~1,533,205~~ ~~shares authorized under the 2015 ESPP. The plan allowed eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to~~ 15~~% of their eligible compensation, subject to any plan limitations. Our board of directors approved the 2015 ESPP offerings. Each offering did not to be identical, but could not exceed~~ ~~27 months~~ ~~and could specify one or more shorter purchase periods within the offering.~~

~~On each purchase date, eligible employees could purchase our stock at a price per share equal to~~ 85~~% of the lesser of (1) the fair market value of our stock on the offering date or (2) the fair market value of our stock on the purchase date. As of January 1, 2020,~~ ~~602,094~~ ~~shares were reserved for future issuance under the 2015 ESPP.~~ ~~NaN~~ ~~shares of common stock were issued during the unaudited three months ended March 31, 2020.~~

In Connection with the Take-Private Transaction on March 31, 2020, and except for certain executives, outstanding equity awards (including under the 2015 Plan, the Portfolium 2014 Plan and the 2015 ESPP), whether vested or unvested, were cancelled and replaced with the right to receive the Cash Replacement Awards.

~~The following table summarizes the assumptions relating to the 2015 ESPP purchase rights used in a Black Scholes option pricing model for the unaudited three months ended March 31, 2020:~~


		~~Three Months Ended March 31,~~
		~~2020~~
~~2015 Employee Stock Purchase Plan~~
~~Dividend yield~~		~~NaN~~
~~Volatility~~		~~29.69~~%
~~Risk-free interest rate~~		~~1.62~~%
~~Expected life (years)~~		~~0.5~~
~~Fair value of common stock~~		$~~52.52~~

~~The Company did~~ 0~~t grant any employee stock options during the unaudited three months ended March 31, 2020.~~

~~The following table summarizes the stock option activity for the unaudited three months ended March 31, 2020 (in thousands, except per share amounts):~~

Shares Underlying Options

Weighted Average Exercise Price

Weighted Average Remaining Life (in years)

Aggregate Fair Value

Outstanding at January 1, 2020

601

$
18.25

6.2

$
17,992

Granted

0

0

Exercised

(131
)

8.16

5,297

Forfeited or cancelled

0

12.24

13

Outstanding at March 31, 2020

470

21.07

3.2

13,113

Vested and expected to vest - March 31, 2020

470

21.07

3.2

13,113

Exercisable at March 31, 2020 (1)

343

$
16.84

3.6

$
11,033

~~(1)~~

~~Options were exchanged for rights to receive $49.00~~ ~~per share in cash, less applicable exercise price, on March 31, 2020 upon consummation of the Take-Private Transaction.~~


	Three months ended March 31,
	2022	2021
Dividend yield	NaN	NaN
Volatility	41 - 47%	NaN
Risk-free interest rate	0.06	NaN
Expected life (years)	0.5 - 0.6	None

~~The following table summarizes the activity of our unvested stock options for the unaudited three months ended March 31, 2020 (in thousands, except per share amounts):~~

Shares Underlying Options

Weighted Average Grant Date Fair Value Per Share

Unvested at January 1, 2020

159

$
17.92

Granted

0

0

Vested

(32
)

16.05

Forfeited

0

0

Unvested at March 31, 2020 (1)

127

$
18.38

~~(1)~~

~~Options were replaced for rights to receive $49.00~~ ~~per share in cash, less applicable exercise price, on March 31, 2020 upon consummation of the Take-Private Transaction upon meeting certain vesting conditions in the Successor Period.~~

~~The total intrinsic value of options exercised was $5.3~~ ~~million during the unaudited three months ended March 31, 2020. The total fair value of options vested during the unaudited three months ended March 31, 2020 was $0.5~~ ~~million.~~ ~~The activity for RSUs for the unaudited three months ended March 31, 2020 is as follows (in thousands, except per share amounts):~~

RSUs Outstanding

Shares

Weighted Average Grant Date Fair Value Per Share

Unvested and outstanding at January 1, 2020

2,584

$
40.38

Granted

5

48.27

Vested

(233
)

36.97

Cancelled

(240
)

38.90

Unvested and outstanding at March 31, 2020 (1)

2,116

~~(1)~~

~~Shares were replaced for rights to receive $49.00~~ ~~per share in cash on March 31, 2020, upon consummation of the Take-Private Transaction upon meeting certain vesting conditions in the Successor Period.~~

~~13.~~12. Income Taxes

Utilization of the net operating loss carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

We file tax returns in the United States, the United Kingdom, Australia, the Netherlands, Hong Kong, Sweden, Brazil, Mexico, Hungary, China, Singapore and various state jurisdictions. All of our tax years remain open to examination by major taxing jurisdictions to which we are subject, as carryforward attributes generated in past years may still be adjusted upon examination by the Internal Revenue Service or state and foreign tax authorities if they have or will be used in future periods.

We believe that we have provided adequate reserves for our income tax uncertainties in all open tax years. We do not expect our gross unrecognized tax benefits to change significantly in the next 12 months.

~~14.~~13. Fair Value of Financial Instruments

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

There were 0 transfers between Level 1 and Level 2 of the fair value measurement hierarchy during the ~~unaudited~~ period ended ~~September 30, 2021 (Successor)~~March 31, 2022 (unaudited) and December 31, ~~2020.~~2021. Assets measured at fair value on a recurring basis as of ~~September 30, 2021~~March 31, 2022 (unaudited) were as follows (in thousands):


	September 30, 2021								March 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	3,343	$	0	$	0	$	3,343	$	3,343	$	0	$	0	$	3,343
Total assets	$	3,343	$	0	$	0	$	3,343	$	3,343	$	0	$	0	$	3,343

Assets measured at fair value on a recurring basis as of December 31, ~~2020~~2021 were as follows (in thousands):


	December 31, 2020								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	3,342	$	0	$	0	$	3,342	$	3,343	$	0	$	0	$	3,343
Total assets	$	3,342	$	0	$	0	$	3,342	$	3,343	$	0	$	0	$	3,343

Instruments Not Recorded at Fair Value on a Recurring Basis.

We estimate the fair value of our Senior Term Loan carried at face value, less unamortized discount costs, quarterly for disclosure purposes. The estimated fair value of our Senior Term Loan is determined by Level 2 inputs observable market based inputs or unobservable inputs that are corroborated by market data. As of March 31, 2022 (unaudited), the fair value of our Senior Term Loan was $493.5 million. The carrying amounts of our cash, prepaid expenses, other current assets, and accrued liabilities approximate their current fair value because of their nature and relatively short maturity dates or durations.

~~15.~~14. Leases

The Company leases office space under non-cancelable operating leases with lease terms ranging from one to seven years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include early termination options. The Company has elected to exercise its early termination rights. All related operating leases have been impaired to reflect this early termination option. The Company subleases 5four of its locations. The first, second, third, ~~fourth,~~ and ~~fifth~~fourth sublease term has 2115 months, 4281 months, ~~87 months~~, 5246 months, and 3825 months remaining, respectively. ~~All~~None of the above subleases have noan option for renewal.

Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. Right-of-use assets also include adjustments related to prepaid or deferred lease payments and lease incentives. As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on information available at the lease commencement date to determine the present value of lease payments.

The Company performed evaluations of its contracts and determined that each of its identified leases are operating leases. The components of operating lease expense were as follows (in thousands):


	Successor												Predecessor
	Three months ended September 30,			Three months ended September 30,			Nine months ended September 30,			Six months ended September 30,			Three months ended March 31,			Three months ended March 31,
	2021			2020			2021			2020			2020			2022			2021
							(unaudited)									(unaudited)
Operating lease cost, gross	$	1,731		$	2,361		$	5,621		$	4,657		$	2,235		$	1,796		$	1,952
Variable lease cost, gross(1)		435			389			1,371			1,128			531			536			409
Sublease income		(300	)		(177	)		(777	)		(354	)		(177	)		(254	)		(228	)
Total lease costs(2)	$	1,866		$	2,573		$	6,215		$	5,431		$	2,589		$	2,078		$	2,133

(1)

Variable rent expense was not included within the measurement of the Company's operating right-of-use assets and lease liabilities. Variable rent expense is comprised primarily of the Company's proportionate share of operating expenses, property taxes and insurance and is classified as lease expense due to the Company's election to not separate lease and non-lease components.

(2)

Short-term lease costs for the unaudited ~~nine and three months ended September 30, 2021 (Successor), unaudited six and three months ended September 30, 2020 (Successor), and unaudited~~ three months ended March 31, ~~2020 (Predecessor)~~2022 and 2021 (unaudited) were not significant and are not included in the table above.

Cash paid for amounts included in the measurement of operating lease liabilities for the ~~unaudited nine and three months ended September 30, 2021 (Successor), unaudited six and three months ended September 30, 2020 (Successor), and unaudited~~ three months ended March 31, ~~2020 (Predecessor)~~2022 and 2021 (unaudited) were $~~6.5~~ ~~million,~~ $2.2 million $~~4.4~~ ~~million, $2.0~~ ~~million,~~ and $~~2.5~~1.9 million, respectively, and ~~was~~were included in net cash ~~provided by~~used in operating activities in the condensed consolidated statements of cash flows.

As of ~~September 30, 2021~~March 31, 2022 (unaudited), the maturities of the Company’s operating lease liabilities were as follows (in thousands):


Remainder of 2021	$	2,172
2022		8,861
Remainder of 2022				$	6,670
2023		8,713			8,729
2024		8,458			8,460
2025		4,395			4,390
2026 and thereafter		5,920
2026					2,816
2027 and thereafter					3,121
Total lease payments		38,519			34,186
Less:
Imputed interest		(6,558	)		(5,310	)
Lease liabilities		31,961			28,876
Tenant improvement reimbursements included in the measurement of lease liabilities but not yet received		(280	)		(414	)
Lease liabilities, net		31,681			28,462

As of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, the weighted average remaining lease term is ~~4.7~~ 4.2and ~~5.3~~ 4.4years, respectively, and the weighted average discount rate used to determine operating lease liabilities was 8.19% as of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020.~~2021.

~~16.~~15. Commitments and Contingencies

Non-cancelable purchase obligations

As of March 31, 2022 (unaudited), our outstanding non-cancelable purchase obligations with a term of 12 months or longer related to cloud infrastructure services in the ordinary course of business totaled $45.0 million for fiscal year 2023 and $48.0 million for fiscal years 2024 and 2025, respectively.

Letters of Credit

As of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, we had a total of $~~4.3~~4.4 million and $~~4.7~~4.2 million respectively, of letters of credit outstanding that were issued for purposes of securing certain of the Company’s obligations under facility leases and other contractual arrangements.

Litigation

We are involved in various legal proceedings and claims, including challenges to trademarks, from time to time arising in the normal course of business. If we determine that it is probable that a loss has been incurred and the amount is reasonably estimable, we will record a liability in our financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. ~~Management believes~~Although the results of litigation and claims are inherently unpredictable and uncertain, management does not believe that the outcome of our various legal proceedings, with the potential exception of the matter described below (which we believe is without merit and which we are defending vigorously against), if determined adversely to us, singly or in the aggregate, ~~will not~~would have a material impact on our financial position, results of operations, or liquidity.

In February 2021, Oklahoma Law Enforcement Retirement System and Q. Wade Billings filed a class action lawsuit against Instructure Holdings, LLC, certain Thoma Bravo entities and certain directors and officers of Predecessor, relating to the Take Private Transaction. The complaint alleges that such directors and officers breached their fiduciary duties in connection with the Take Private Transaction, and that Instructure Holdings, LLC and Thoma Bravo aided and abetted such breaches. Plaintiffs seek damages of an unidentified amount, interest, and attorneys’ and experts’ fees and expenses.

~~17.~~16. Related-Party Transactions

The Company has agreements in place with Thoma Bravo, LLC for financial and management advisory services, along with compensation arrangements and reimbursements to directors and officers. During the unaudited ~~nine and three months ended September 30, 2021 (Successor), unaudited six months ended September 30, 2020 (Successor), and unaudited~~ three months ended March 31, ~~2020 (Predecessor)~~2022 and 2021 (unaudited), the Company incurred $~~0.4~~0.2 million and $0.1 million, $~~0.5~~ ~~million, and $47.0~~ ~~thousand,~~ respectively, related to these services. ~~There were no related party expenses in the three month period ended September 30, 2020 (Successor).~~ The related expense is reflected in general and administrative expense in the condensed consolidated statements of ~~operations.~~operations and comprehensive loss.

The spouse of Mitch Benson, our Chief Product Officer, is an employee of the Company. Mr. Benson has been an employee of the Company since 2014 and our Chief Product Officer since August 2019. His spouse, Ms. Tara Gunther, has been an employee of the Company since 2014. Her ~~2020~~2021 base salary and short-term incentive award was approximately $0.2 million in the aggregate. ~~Ms. Gunther held RSUs that were converted into cash awards in the Take-Private Transaction with a value of approximately $0.1~~ ~~million that vested in 2020, and was granted a 2020 target long-term incentive award with a value of approximately $0.1~~ ~~million.~~ She also received benefits generally available to all employees. The compensation for Ms. Gunther was determined in accordance with our standard employment and compensation practices applicable to employees with similar responsibilities and positions. For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022 (unaudited), Ms. Gunther's base salary was $0.1 ~~million.~~million.

In connection with our entry into our Credit Facilities on March 24, 2020, affiliates of Thoma Bravo collectively acquired $129.2 million of our Term ~~Loan and as of September 30, 2021 (unaudited), affiliates of Thoma Bravo collectively owned~~ $~~88.6~~ ~~million of our Term~~ Loan. ~~Interest paid to affiliates of Thoma Bravo during the unaudited nine and three months ended September 30, 2021 (Successor)~~ ~~and unaudited six and three months ended September 30, 2020 (Successor) were $7.0~~ ~~million, $1.7~~ ~~million, $5.5~~ ~~million, and $2.6million, respectively.~~ In connection with our principal prepayments made in August 2021, $42.5 million of the prepayments were applied to the Term Loan held by affiliates of Thoma Bravo. Additionally, in connection with our October 29, 2021 Refinancing, $88.6 million of our Term Loan held by affiliates of Thoma Bravo was paid off. Refer to Note ~~10—~~7—Credit ~~Facilities~~Facility for additional information regarding the principal prepayments and Refinancing.

Interest paid to affiliates of Thoma Bravo during the three months ended March 31, 2021 (unaudited) was $2.8 million.

~~18.~~17. Subsequent Events

On ~~November 5, 2021,~~April 13, 2022, Instructure, Inc. entered into a Stock Purchase Agreement with all of the securityholders of ~~Kimono LLC~~Concentric Sky, Inc. (“~~Kimono”~~Concentric Sky”), the makers of Badgr, which will be rebranded to Canvas Badges, and paid $~~10.0~~22.0 million in cash, subject to customary adjustments, to such securityholders to acquire 100% of the outstanding securities of ~~Kimono.~~Concentric Sky.

3422

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Forward-Looking Statements~~

You should read the following discussion and analysis together with the financial statements and the related notes to those statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and our audited Consolidated Financial Data for the year ended December 31, ~~2020~~2021 and the related notes thereto, which are included in the Company’s ~~Prospectus dated July 21, 2021~~Annual Report on Form 10-K filed with the SEC ~~in connection with the Company’s initial public offering (the “IPO”).~~on February 23, 2022. The following discussion contains forward-looking statements that are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in the section entitled “Risk Factors” of the Company’s Prospectus dated July 21, 2021 filed with the SEC in connection with our IPO and instatements. See the “Forward Looking Statements” section of this Quarterly Report on Form 10-Q. ~~As a result, our actual results may differ materially from those contained or anticipated in these forward-looking statements.~~

Overview

From the inception of a teacher’s lesson through a student’s mastery of a concept, Instructure personalizes, simplifies, organizes, and automates the entire learning lifecycle through the power of technology. Our learning platform delivers the elements that leaders, teachers, and learners need – a next-generation LMS, robust assessments for learning, actionable analytics, and engaging, dynamic content. Schools standardize on Instructure’s solutions as their core learning platform because we bring together all of the tools that students, teachers, parents, and administrators need to create an accessible and modern learning environment. Our platform is cloud-native, built on open technologies, and scalable across thousands of institutions and tens of millions of users worldwide. We are the LMS market share leader in both Higher Education and paid ~~K-12.~~K-12, with nearly 7,000 global customers, representing Higher Education institutions and K-12 districts and schools in more than 100 countries. We are maniacally focused on our customers and enhancing the teaching and learning experience. As such, we continuously innovate to grow the footprint of our platform, including through our acquisitions of Portfolium to add online skills portfolio capabilities for Higher Education students, MasteryConnect ~~Certica~~ and ~~Eesysoft~~Certica to add assessment and analytics ~~capabilities.~~capabilities, Impact to allow educators to evaluate the impact education technologies have on student engagement and outcome, and Elevate Data Sync to secure syncing capabilities across applications within a school environment. Our platform becomes deeply ingrained into our customers’ instructional workflows.

Since our founding in 2008, we have expanded our platform from the core LMS to include a broad set of offerings targeting all aspects of teaching and learning. As our platform has grown, we have become more strategic to schools as they seek vendor consolidation, best of breed solutions, and integrated offerings to serve teachers and students.

This discussion and analysis reflects our financial condition and results of operations for the unaudited ~~nine and~~ three months ended ~~September 30, 2021 (Successor), unaudited six~~March 31, 2022 and ~~three months ended September 30, 2020 (Successor) and~~2021.

For the unaudited three months ended March 31, ~~2020 (Predecessor).~~

~~For the unaudited nine~~2022 and ~~three months ended September 30, 2021 (Successor), unaudited six and three months ended September 30, 2020 (Successor), and three months ended March 31, 2020 (Predecessor):~~2021:

•

Our revenue was ~~$294.8 million, $107.2 million, $143.1 million, $81.8~~$113.5 million and ~~$71.4~~$94.0 million, respectively.

•

Our net loss was ~~$68.0 million, $13.3 million, $136.7 million, $60.2~~$5.5 million and ~~$22.2~~$33.1 million, respectively.

•

Our adjusted EBITDA was ~~$105.0 million, $41.3 million, $39.8 million, $26.4~~$43.6 million and ~~$4.8~~$32.6 million, respectively.

•

Our operating cash flow was ~~$108.8 million, $161.2 million, $42.0 million, $100.3~~$(65.9) million and ~~$(57.1)~~$(58.7) million, respectively.

•

Our free cash flow was ~~$106.1 million, $160.0 million, $41.2 million, $99.5~~$(67.3) million and ~~$(57.8)~~$(59.1) million, respectively.

Adjusted EBITDA and free cash flow are non-GAAP measures, see “Non-GAAP Financial Measures” for definitions and reconciliations to the most closely comparable GAAP measure.

Recent Developments

On July 26, 2021, the Company completed its IPO of 12,500,000 shares of common stock at an offering price of $20.00 per share. The Company received net proceeds of $233.1 million after deducting underwriting discounts and commissions. On August 19, 2021, the underwriters partially exercised their over-allotment option of 1,675,000 shares of common stock at an offering price of $20.00 per share. The Company received net proceeds of $31.3 million after deducting underwriting discounts and commissions. The Company used the proceeds from the IPO and the overallotment option to repay approximately $255.1 million of borrowings outstanding under its Term Loan.

Impact of COVID-19

~~Although the~~The COVID-19 pandemic ~~caused general business disruption worldwide beginning in January 2020, it also~~ created a set of conditions in which students of all ages began learning from home, causing schools to rapidly adopt or upgrade online platforms for students and teachers to conduct lessons remotely. In response to the pandemic, the U.S. government also passed stimulus legislation that directed over $280 billion of funding to education initiatives. These circumstances resulted in an increase in our operational performance, cash flows, and financial condition. We believe that the COVID-19 pandemic accelerated adoption of our learning platform, which we expect will continue to generate additional opportunities for us in the future.

While we ~~have~~ experienced a significant increase in customers due to the pandemic, the aforementioned factors ~~have~~ also ~~driven~~resulted in increased usage of our services and ~~have~~ required us to expand our network and data storage and processing capacity, particularly third-party cloud hosting. ~~During the six months ended September 30, 2020 (Successor) and three months ended March 31, 2020 (Predecessor), this resulted in an increase in our operating costs.~~ We ~~continue~~continued to experience high usage on our learning platform, even as North American K-12 students ~~have returned~~started returning to the classroom during ~~the nine months ended September 30,~~ 2021. As more of our customers have begun transitioning back to the classroom on either a full-time or hybrid basis, the demand for our network and data storage capacity, inclusive of third-party cloud hosting, has come down from peak pandemic levels, but remains significantly higher than pre-pandemic levels. These factors have generated a positive impact to our gross margin.

There is no assurance that we will experience a continued increase in the adoption of our learning platform or that new or existing customers will continue to utilize our service after the COVID-19 pandemic ~~has tapered.~~tapers. Moreover, the continued tapering of the COVID-19 pandemic, ~~particularly as vaccinations are widely available,~~ may result in a decline in customers once students are ~~no longer attending school from home.~~

~~As part of our response~~more fully transitioned back to the ~~COVID-19 pandemic, we implemented an internal initiative to ensure the support and retention of our customers. This initiative is~~classroom on either a collaboration between multiple organizations and teams at Instructure to help ensure renewal and growth in statewide deals. The initiative includes monitoring usage, developing a statewide communication plan, establishing user groups, creating marketing and advocacy materials, and keeping leadership informed of status, risks, and wins.full-time or hybrid basis.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the global economy, the lasting social effects, and impact on our business, results of operations and financial condition ~~will depend on future developments that are highly~~continue to be uncertain and cannot be accurately predicted.

Key Factors Affecting Our Performance

Our historical financial performance has been, and we expect our financial performance in the future to be, driven by the following trends and our ability to:

Increase Adoption of Cloud-Based Software by Higher Education and K-12 Institutions

Our ability to increase market adoption of our platform is driven by the overall adoption of cloud applications and infrastructure by academic institutions. We believe that Higher Education and K-12 institutions are poised to accelerate the pace of cloud adoption to support near-term online educational needs, as a result of, and following the COVID-19 pandemic, and to withstand future challenges. Academic institutions that relied upon on-premises solutions to support remote operations faced significant delays at the height of the pandemic. In order to continue providing a high-quality education and support in-person, remote, and hybrid learning, institutions must make a fundamental shift to adopt cloud-based collaboration solutions. As the leader in the market for cloud-based learning technology, we believe the imperative for these institutions to adopt cloud infrastructure will increase demand for our platform and broaden our customer base.

Grow Our Customer Base

We believe there is significant opportunity to grow our customer base in Higher Education and K-12. The growth of our Higher Education customer base is primarily dependent on the replacement of legacy systems with our cloud-native platform in North America and our continued expansion efforts internationally. The growth of our K-12 customer base is primarily dependent on our ability to surround currently implemented free solutions with our learning platform and, in connection therewith, monetize demand for our broad capabilities. We intend to expand our customer base by continuing to make targeted and prudent investments in sales and marketing and customer support.

Cross-sell into our Existing Customer Base

Most of our customers initially engage with us using our Canvas LMS solution, and then we are generally able to cross-sell our other solutions as these customers become aware of the benefits of our broad capabilities, including learning, assessments, analytics, student success, program management, digital courseware, and global online learning. Our future revenue growth is dependent upon our ability to expand our customers’ use of our learning platform. Our ability to increase sales to existing customers depends on a number of factors, including customer satisfaction, competition, pricing, economic conditions, and spending by customers.

Key Components of Results of Operations

Revenue

We generate revenue primarily from two main sources: (1) subscription and support revenue, which is comprised of SaaS fees from customers accessing our learning platform and from customers purchasing additional support beyond the standard support that is included in the basic SaaS fees; and (2) related professional services revenue, which is comprised of training, implementation services and other types of professional services.

Subscription revenue is derived from customers using our learning platform and is driven primarily by the number of customers, the number of users at each customer, the price of our applications and renewals. Support revenue is derived from customers purchasing additional support beyond the standard support that is included in the basic SaaS fee. Our contracts typically vary in length between one and five years. Subscriptions and support are non-cancelable and are billed in advance on an annual basis. All subscription and support fees billed are initially recorded in deferred revenue and recognized ratably over the subscription term.

Professional services and other revenue are derived primarily from implementation, training, and other consulting fees. Implementation services includes training and consulting services that generally take anywhere from 30 to 90 days to complete depending on customer-side complexity and timelines. It includes regularly scheduled and highly-structured activities to ensure customers progress toward better utilizing our applications. Most of these interactions take place over the phone and through the use of web meeting technology. Because we have determined the implementation services are distinct, they are recognized over time as the services are rendered, using an efforts-expended input method. Implementation services also include nonrefundable upfront setup fees, which are allocated to the remaining performance obligations.

We include training with every implementation and offer additional training for a fee. The training offered is focused on creating confidence among users so they can be successful with our applications. Most training is performed remotely using web meeting technology. Because we have determined that trainings are distinct, we record training revenue upon the delivery of the training. Training is recognized ratably in the same manner as subscription and support revenue described above.

In addition to our implementation and training offerings, we provide consulting services for custom application development, integrations, content services and change management consulting. These services are architected to boost customer adoption of our applications and to drive usage of features and capabilities that are unique to our company. We have determined that these services are distinct. Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended input method.

Cost of Revenue

Cost of subscription and support revenue consists primarily of the costs of our cloud hosting provider and other third-party service providers, employee-related costs including payroll, benefits and stock-based compensation expense for our operations and customer support teams, amortization of capitalized software development costs and acquired technology, and allocated overhead costs, which we define as rent, facilities and costs related to IT. Our acquired technology is amortized over the estimated remaining useful life, which is five years.

Cost of professional services and other revenue consists primarily of personnel costs of our professional services organization, including salaries, benefits, travel, bonuses and stock-based compensation, as well as allocated overhead costs.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees, including sales commissions and incentives, benefits and stock-based compensation expense, marketing programs, including lead generation, costs of our annual InstructureCon user conference, acquisition-related amortization expenses and allocated overhead costs. We defer and amortize on a straight-line basis sales commission costs related to acquiring new contracts over a period of benefit that we have determined to be generally four years. Customer relationships represent the estimated fair value of the acquired customer bases and are amortized over the estimated remaining useful life of seven years. The trade names acquired are amortized over the estimated remaining useful lives ranging from ~~five~~three to ten years.

Research and Development. Research and development expenses consist primarily of personnel costs of our development team, including payroll, benefits and stock-based compensation expense and allocated overhead costs. We capitalize certain software development costs that are attributable to developing new applications, features and adding incremental functionality to our platform. We amortize these costs to subscription and support cost of revenue in the condensed consolidated statements of operations and comprehensive loss over the estimated life of the new application or incremental functionality, which is generally three years.

General and Administrative. General and administrative expenses consist of personnel costs and related expenses for executive, finance, legal, human resources, recruiting, employee-related information technology, administrative personnel, including payroll, benefits and stock-based compensation expense; professional fees for external legal, accounting and other consulting services; and allocated overhead costs.

Other Income (Expense)

Other income (expense), net consists primarily of interest income, interest expense, and the impact of foreign currency transaction gains and losses. Interest expense is related to fees incurred to have access to our credit facilities. As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased.

Income Tax Benefit ~~(Expense)~~

We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income and changes in tax laws. The tax benefit at ~~December~~March 31, ~~2020~~2022 consists of decreases in U.S. Federal and state deferred tax liabilities due to current year pretax book ~~amortization,~~loss, and increases to foreign deferred tax assets as a result of ~~the step up~~changes in ~~basis of intangible assets from the Take-Private Transaction.~~foreign tax rates.

3825

Results of Operations

The following tables set forth our results of operations for the periods presented and as a percentage of our total revenue for those periods. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q which include, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial position and results of operations for the interim periods presented. The period-to-period comparison of financial results is not necessarily indicative of financial results to be achieved in future periods.


	Successor												Predecessor
	Three months ended September 30,			Three months ended September 30,			Nine months ended September 30,			Six months ended September 30,			Three months ended March 31,			Three months ended March 31,
	2021			2020			2021			2020			2020			2022			2021
				(in thousands)												(in thousands)
Revenue:
Subscription and support	$	96,163		$	73,313		$	266,774		$	129,460		$	65,968		$	103,492		$	86,354
Professional services and other		11,058			8,459			27,994			13,682			5,421			9,970			7,626
Total revenue		107,221			81,772			294,768			143,142			71,389			113,462			93,980
Cost of revenue:
Subscription and support(1) (2) (3)		36,528			35,996			112,575			69,975			19,699			35,546			39,884
Professional services and other(1) (3)		4,939			5,034			15,500			10,592			4,699			5,465			5,750
Total cost of revenue		41,467			41,030			128,075			80,567			24,398			41,011			45,634
Gross profit		65,754			40,742			166,693			62,575			46,991			72,451			48,346
Operating expenses:
Sales and marketing(1) (2) (3)		40,553			40,100			120,858			84,034			27,010			43,321			41,222
Research and development(1) (3)		15,823			14,619			47,191			36,736			19,273			17,201			17,089
General and administrative(1) (3)		14,396			13,092			38,943			47,533			17,295			15,616			13,351
Impairment on held-for-sale goodwill (3)		—			29,612			—			29,612			—
Impairment on disposal group (3)		—			3,389			1,218			3,389			—			—			1,218
Total operating expenses		70,772			100,812			208,210			201,304			63,578			76,138			72,880
Loss from operations		(5,018	)		(60,070	)		(41,517	)		(138,729	)		(16,587	)		(3,687	)		(24,534	)
Other income (expense):
Interest income		—			5			13			40			313			36			27
Interest expense		(11,251	)		(16,357	)		(44,178	)		(34,449	)		(8	)		(4,553	)		(17,271	)
Other income (expense), net(3)		(1,623	)		187			(2,365	)		603			(5,738	)		306			(634	)
Total other income (expense), net		(12,874	)		(16,165	)		(46,530	)		(33,806	)		(5,433	)		(4,211	)		(17,878	)
Loss before income taxes		(17,892	)		(76,235	)		(88,047	)		(172,535	)		(22,020	)		(7,898	)		(42,412	)
Income tax benefit (expense)		4,631			16,062			20,022			35,788			(183	)
Income tax benefit																	2,353			9,341
Net loss	$	(13,261	)	$	(60,173	)	$	(68,025	)	$	(136,747	)	$	(22,203	)	$	(5,545	)	$	(33,071	)

(1)

Includes stock-based compensation as follows:


	Successor								Predecessor
	Three months ended September 30,		Three months ended September 30,		Nine months ended September 30,		Six months ended September 30,		Three months ended March 31,		Three months ended March 31,
	2021		2020		2021		2020		2020		2022		2021
			(in thousands)								(in thousands)
Cost of revenue:
Subscription and support	$	257	$	333	$	652	$	653	$	301	$	282	$	224
Professional services and other		323		222		610		463		285		376		177
Sales and marketing		2,139		1,843		4,814		5,435		1,977		2,577		1,582
Research and development		2,292		2,149		4,896		7,193		1,874		2,540		1,670
General and administrative		3,368		2,175		6,750		26,806		2,672		3,701		1,932
Total stock-based compensation	$	8,379	$	6,722	$	17,722	$	40,550	$	7,109	$	9,476	$	5,585

3926

(2)

Includes amortization of acquisition-related intangibles as follows:


	Successor								Predecessor
	Three months ended September 30,		Three months ended September 30,		Nine months ended September 30,		Six months ended September 30,		Three months ended March 31,		Three months ended March 31,
	2021		2020		2021		2020		2020		2022		2021
			(in thousands)								(in thousands)
Cost of revenue:
Subscription and support	$	15,582	$	15,000	$	46,412	$	30,167	$	1,293	$	15,690	$	15,415
Sales and marketing		18,008		17,617		53,900		35,430		1,293		18,049		17,946
Total amortization of acquisition-related intangibles	$	33,590	$	32,617	$	100,312	$	65,597	$	2,586	$	33,739	$	33,361

(3)

Includes restructuring, transaction and sponsor related costs as follows:

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

2021

2020

2020

(in thousands)

Cost of revenue:

Subscription and support

$
159

$
—

$
2,108

$
2,056

$
—

Professional services and other

28

70

883

856

66

Sales and marketing

99

1,420

2,551

3,706

556

Research and development

226

1,017

2,904

3,581

1,273

General and administrative

1,519

4,556

8,378

7,117

6,465

Impairment on disposal group

—

3,389

1,218

3,389

—

Impairment on held-for-sale goodwill

—

29,612

—

29,612

—

Other income (expense), net

(1,610
)

618

(1,610
)

618

(5,757
)
Total restructuring, transaction and sponsor related costs

$
3,641

$
39,446

$
19,652

$
49,699

$
14,117


	Three months ended March 31,
	2022		2021
	(in thousands)
Cost of revenue:
Subscription and support	$	9	$	1,921
Professional services and other		54		849
Sales and marketing		280		2,251
Research and development		290		2,551
General and administrative		1,837		4,267
Impairment on disposal group		—		1,218
Other income (expense), net		292		—
Total restructuring, transaction and sponsor related costs	$	2,178	$	13,057


	Successor				Predecessor
	Three months ended September 30,	Three months ended September 30,	Nine months ended September 30,	Six months ended September 30,		Three months ended March 31,	Three months ended March 31,
	2021	2020	2021	2020		2020	2022	2021
		(as a percentage of total revenue)					(as a percentage of total revenue)
Revenue:
Subscription and support	90%	90%	91%	90%		92%	91%	92%
Professional services and other	10	10	9	10		8%	9	8
Total revenue	100	100	100	100		100	100	100
Cost of revenue:
Subscription and support	34	44	38	49		28	31	42
Professional services and other	5	6	5	7		7	5	6
Total cost of revenue	39	50	43	56		35	36	48
Gross profit	61	50	57	44		65	64	52
Operating expenses:
Sales and marketing	38	49	41	59		38	38	44
Research and development	15	18	16	26		27	15	18
General and administrative	13	16	13	33		24	14	14
Impairment on held-for-sale goodwill	—	36	—	21		—
Impairment on disposal group	—	4	—	2		—	—	1
Total operating expenses	66	123	70	141		89	67	77
Loss from operations	(5)	(73)	(13)	(97)		(24)	(3)	(25)
Other income (expense):
Interest income	—	—	—	—		—	—	—
Interest expense	(10)	(20)	(15)	(24)		—	(4)	(18)
Other expense	(2)	—	(1)	—		(8)
Other income (expense), net							—	(1)
Total other income (expense), net	(12)	(20)	(16)	(24)		(8)	(4)	(19)
Loss before income taxes	(17)	(93)	(29)	(121)		(32)	(7)	(44)
Income tax benefit (expense)	4	20	7	25		(1)
Income tax benefit							2	10
Net loss	(13)%	(73)%	(22)%	(96)%		(33)%	(5)%	(34)%

Comparison of the unaudited Three ~~Months Ended September 30, 2021 (Successor)~~months ended March 31, 2022 and unaudited Three Months Ended September 30, 2020 (Successor) and comparison of the unaudited Nine Months Ended September 30, 2021 (Successor), the unaudited period from April 1, 2020 to September 30, 2020 (Successor), and the unaudited period from January 1, 2020 tomonths ended March 31, ~~2020 (Predecessor).~~2021.

Revenue

Successor

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Change

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

Amount

%

2021

2020

2020

(dollars in thousands)

Subscription and support

$
96,163

$
73,313

$
22,850

31
%

$
266,774

$
129,460

$
65,968

Professional services and other

11,058

8,459

2,599

31

27,994

13,682

5,421

Total revenue

$
107,221

$
81,772

$
25,449

31
%

$
294,768

$
143,142

$
71,389



	Three months ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Subscription and support	$	103,492	$	86,354	$	17,138		20	%
Professional services and other		9,970		7,626		2,344		31
Total revenue	$	113,462	$	93,980	$	19,482		21	%

Three month change

Subscription and support revenue increased ~~$22.9~~$17.1 million for the unaudited three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 due to an increase in new customers, growth from existing customers through upselling historical products and cross-selling new products, growth in our international markets, contributions from our recent acquisitions, and the effects of acquisition accounting from Accounting Standards Codification (“ASC”) Topic 805 (“ASC 805”).

Professional services and other revenue increased ~~$2.6~~$2.3 million for the unaudited three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 due to the same factors discussed above.

~~Nine month change~~

Subscription and support revenue was $266.8 million for the unaudited nine months ended September 30, 2021 (Successor), $129.5 million for the unaudited six months ended September 30, 2020 (Successor), and $66.0 million for the unaudited three months ended March 31, 2020 (Predecessor). This increase was due to the increase in new and existing customers, as discussed above, partly as a result of COVID-19, as well as the effects of acquisition accounting from ASC 805.

Professional services and other revenue was $28.0 million for the unaudited nine months ended September 30, 2021 (Successor), $13.7 million for the unaudited six months ended September 30, 2020 (Successor), and $5.4 million for the unaudited three months ended March 31, 2020 (Predecessor). This increase was due to the increase in new and existing customers, as discussed above, partly as a result of COVID-19, as well as the effects of acquisition accounting from ASC 805.

Cost of Revenue


	Successor												Successor						Predecessor
	Three months ended September 30,			Three months ended September 30,			Change						Nine months ended September 30,			Six months ended September 30,			Three months ended March 31,			Three months ended March 31,						Change
	2021			2020			Amount			%			2021			2020			2020			2022			2021			Amount			%
	(dollars in thousands)																					(dollars in thousands)
Cost of revenue:
Subscription and support	$	36,528		$	35,996		$	532			1	%	$	112,575		$	69,975		$	19,699		$	35,546		$	39,884		$	(4,338	)		-11	%
Professional services and other		4,939			5,034			(95	)		(2	)		15,500			10,592			4,699			5,465			5,750			(285	)		(5	)
Total cost of revenue	$	41,467		$	41,030		$	437			1	%	$	128,075		$	80,567		$	24,398		$	41,011		$	45,634		$	(4,623	)		-10	%
Gross margin percentage
Subscription and support revenue		62	%		51	%								58	%		46	%		70	%		66	%		54	%
Professional services and other		55			40									45			23			13			45			25
Total gross margin		61			50									57			44			66			64			51

Three month change

Total cost of revenue ~~increased $0.4~~decreased $4.6 million for the unaudited three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 due to an ~~increase~~decrease in software expense, amortization of acquisition-related intangible assets, and third-party contractor costs.

Subscription and support cost of revenue ~~increased $0.5~~decreased $4.3 million for the unaudited three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 due to an increase in software costs, amortization of acquisition-related technology and third-party contractors. Web hosting and third-party software license costs increased $0.4 million due to the increase in total customers. Amortization costs increased $0.4 million due to an increase in acquisition-related technology related to the acquisition of Eesysoft. Third-party consultants and contractors increased $1.4 million due to outsourcing customer support during our peak busy season. The increases were offset by a decrease of ~~$1.1~~$1.9 million related to the ~~salaries, wages,~~exit of leased property, which occurred in the three months ended March 31, 2021, and ~~employee-related benefits due to lower headcount. Additional offsets are due to a decrease~~decreases in ~~office~~ rent and related expenses of ~~$0.5~~$0.3 million. Web hosting expenses and software license expenses decreased $1.9 million. Salaries, wages, and employee-related benefits decreased $0.4 million. These decreases were offset by an increase in amortization of acquisition-related intangibles of $0.4 million.

Professional services and other cost of revenue decreased ~~$0.1 million for the unaudited three months ended September 30, 2021 (Successor) due to a decrease of~~ $0.3 million related to systems and hardware, office rent and communication expenses, and depreciation. This was offset by an increase in stock-based compensation expense and other employee-related expenses of $0.2 million.

~~Nine month change~~

Subscription and support cost of revenue was $112.6 million for the unaudited nine months ended September 30, 2021 (Successor), $70.0 million for the unaudited six months ended September 30, 2020 (Successor), and $19.7 million for the unaudited three months ended March 31, ~~2020 (Predecessor). This increase was~~2022 due to ~~the increase in amortization~~a decrease of ~~acquisition-related intangibles of $13.2~~$0.8 million ~~an increase in web hosting expenses of $7.7 million and other software expenses of $1.5 million. Additionally, expenses~~ related to ~~third-party consultants and contractors increased by $1.6 million, and employee-related and marketing expenses increased by $0.3 million. These increases were offset by decreases~~the exit of ~~$1.3 million~~leased property, which occurred in salaries and wages due to decreased headcount, and decreases in rent expense, communication expense, and other allocated costs of $0.03 million due to moving our support organization to remote workers.

~~Professional services and other cost of revenue was $15.5 million for~~ the ~~unaudited nine months ended September 30, 2021 (Successor), $10.6 million for the unaudited six months ended September 30, 2020 (Successor), and $4.7 million for the unaudited~~ three months ended March 31, ~~2020 (Predecessor).~~2021. This ~~increase~~decrease was ~~due to an increase in payroll expense of $0.5 million,~~ offset by ~~a decrease~~increases in ~~systems~~employee-related related expenses of $0.3 million and ~~hardware expense~~software expenses of $0.2 ~~million and depreciation expense~~million.

Table of $0.1 million.Contents

Operating Expenses

Sales and Marketing

Successor

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Change

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

Amount

%

2021

2020

2020

(dollars in thousands)

Sales and marketing

$
40,553

$
40,100

$
453

1
%

$
120,858

$
84,034

$
27,010

Percentage of revenue

41
%

59
%

38
%



	Three months ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Sales and marketing	$	43,321	$	41,222	$	2,099		5	%

Three month change

Sales and marketing expenses increased $0.5 million for the unaudited three months ended September 30, 2021 (Successor) due to an increase in payroll, travel and other employee-related costs of $0.9 million, as select offices began to reopen from the COVID-19 closures. Additionally, amortization of acquisition-related intangibles increased $0.3 million, and marketing expenses increased $0.2 million. These increases were offset by decreases in consultants and contractors of $0.7 million, and a decrease in office rent of $0.2 million.

~~Nine month change~~

Sales and marketing expense was $120.9 million for the unaudited nine months ended September 30, 2021 (Successor), $84.0 million for the unaudited six months ended September 30, 2020 (Successor), and $27.0$2.1 million for the unaudited three months ended March 31, ~~2020 (Predecessor). This increase was~~2022 due to ~~increases~~an increase in ~~amortization~~salaries, wages and stock-based compensation of ~~acquisition-related intangibles of $16.8~~$3.2 million, ~~increases in marketing expenses related to lead generation of $0.8 million, increases in software expenses of $0.3 million, and increases in other~~additional employee-related expenses of ~~$0.6~~$0.7 million, and an increase in travel of $0.3 million. These increases were offset by ~~decreases~~a decrease of $2.1 million related to the exit of leased property, which occurred in ~~payroll~~the three months ended March 31, 2021, and ~~stock-based compensation~~a decrease in third-party expenses of ~~$8.0 million, and decreases in office rent and communication expenses of $0.7~~$0.2 million.

Research and Development

Successor

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Change

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

Amount

%

2021

2020

2020

(dollars in thousands)

Research and development

$
15,823

$
14,619

$
1,204

8
%

$
47,191

$
36,736

$
19,273

Percentage of revenue

16
%

26
%

27
%



	Three months ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Research and development	$	17,201	$	17,089	$	112		1	%

Three month change

Research and development expenses increased $1.2 million for the unaudited three months ended September 30, 2021 (Successor) due to an increase in employee-related costs and third party consultants and contractors. Employee-related costs, including payroll and travel, increased $0.7 million and third party consultants and contractors increased by $1.1 million. These increases were offset by an decrease of $0.6 million in allocated office rent.

~~Nine month change~~

Research and development expense was $47.2 million for the unaudited nine months ended September 30, 2021 (Successor), $36.7 million for the unaudited six months ended September 30, 2020 (Successor), and $19.3$0.1 million for the unaudited three months ended March 31, ~~2020 (Predecessor). This decrease was~~2022 due to ~~a decrease~~an increase in employee-related expenses of $0.8 million. There were also additional increases related to software of $0.1 million, contractor and consulting costs ~~including severance and stock-based compensation,~~ of ~~$10.2 million. Additionally, we saw decreases in systems and hardware expense of $1.4~~$0.4 million and ~~decreases in allocated office rent~~other miscellaneous increases of ~~$0.9~~$0.1 million. These ~~decreases~~increases were offset by ~~an increase~~a decrease of ~~$3.6~~$1.3 million related to the exit of leased property, which occurred in ~~third-part consultants and contracts, and other employee related expenses of $0.1 million.~~the three months ended March 31, 2021.

General and Administrative

Successor

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Change

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

Amount

%

2021

2020

2020

(dollars in thousands)

General and administrative

$
14,396

$
13,092

$
1,304

10
%

$
38,943

$
47,533

$
17,295

Percentage of revenue

13
%

33
%

24
%



	Three months ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
General and administrative	$	15,616	$	13,351	$	2,265		17	%

Three month change

General and administrative expenses increased by ~~$1.3~~$2.3 million for the unaudited three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 due to an increase in employee-related and insurance costs. Employee-related costs, including payroll and stock-based compensation increased $2.0 million, and ~~travel, increased by $2.4 million. Expenses~~expenses related to D&O insurance increased ~~by $0.9~~$1.8 million ~~and recruiting expenses~~as a result of being a public company. Additionally, bad debt expense increased by $0.2 million. Other additional miscellaneous increased $0.1 million These increases were offset by a decrease of $0.7 million related to the exit of leased property, which occurred in ~~legal fees of $1.9 million and other insignificant decreases in taxes and fees, and bad debt expense of $0.3 million.~~

~~Nine month change~~

~~General and administrative expense was $38.9 million for~~ the ~~unaudited nine months ended September 30, 2021 (Successor), $47.5 million for the unaudited six months ended September 30, 2020 (Successor), and $17.3 million for the unaudited~~ three months ended March 31, 2020 (Predecessor). This decrease was due to a decrease in payroll and stock-based compensation expense of $22.6 million, legal fees and expenses of $3.7 million, as well as a decrease in other taxes and fees, and bad debt expense of $0.9 million. These decreases were offset by an increase in insurance expenses of $1.0 million and other employee related and travel expenses of $0.3 million.2021.

Other Income (Expense), Net

Successor

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Change

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

Amount

%

2021

2020

2020

(dollars in thousands)

Other income (expense), net

$
(12,874
)

$
(16,165
)

$
3,291

(20
)%

$
(46,530
)

$
(33,806
)

$
(5,433
)
Percentage of revenue

(16
)%

(24
)%

(8
)%



	Three months ended March 31,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Other income (expense), net	$	(4,211	)	$	(17,878	)	$	13,667		(76	)%

4429

Three month change

Other income (expense), net includes interest income and expense and the impact of foreign currency transaction gains and losses. Other income (expense), net ~~increased $3.3 million for the unaudited three months ended September 30, 2021 (Successor) as a result of a~~ decreased interest expense of $5.1 million due to reduced interest rate on our Term Loan (as defined below), and prepayments made on the principal with proceeds from the IPO and the exercise of the underwriters' overallotment option. Additional decreases of $0.5 million was due to the disposal of assets in the prior period. These decreases were offset by increases in realized and unrealized foreign currency losses of $2.3 million.

~~Nine month change~~

Other income (expense), net was $(46.5) million for the unaudited nine months ended September 30, 2021 (Successor), $(33.8) million for the unaudited six months ended September 30, 2020 (Successor), and $(5.4)$13.7 million for the unaudited three months ended March 31, ~~2020 (Predecessor). This increase in~~2022 as a result of decreased interest expense ~~was~~of $12.7 million due to ~~an increase in~~reduced interest ~~expense related to~~rates on our Term Loan and Senior Term Loan (as defined below), as well as the overall reduction in principal following our IPO and Refinancing. Additional decreases of ~~$9.7~~$0.8 million ~~resulting from additional debt acquired in December 2020. Additional increases were due~~related to ~~an increase in~~ realized and unrealized foreign currency ~~losses~~gains, and $0.1 million was due to disposal of ~~$2.2~~fixed assets in the period ending March 31, 2021.

Income Tax Benefit


	Three months ended March 31,				Change
	2022		2021		Amount			%
	(dollars in thousands)
Income taxes	$	2,353	$	9,341	$	(6,988	)		(75	)%

Three month change

Income tax benefit decreased $7.0 million for the unaudited three months ended March 31, 2022. Income tax benefit consists of current and deferred taxes for U.S. and foreign income taxes. Due to the Company's NOL carryforward position, the decrease in ~~interest~~the income ~~from marketable securities of $0.3 million. These increases were offset~~tax benefit was driven mainly by a ~~decrease~~reduction in ~~expense related to the disposal of leased property and other assets, which occurred~~pretax book loss recognized in the ~~prior period.~~unaudited three months ended March 31, 2022.

Liquidity and Capital Resources

As of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, our principal sources of liquidity were cash, cash equivalents and restricted cash totaling ~~$231.8~~$105.3 million and ~~$151.0~~$169.2 million, respectively, which was held for working capital purposes, as well as the available balance of our ~~Credit Facilities,~~Senior Term Loan, (as defined below). As of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, our cash equivalents were comprised of money market funds. We expect our operating cash flows to improve as we increase our operational efficiency and experience economies of scale.

We have financed our operations through cash received from operations, debt financing, and ~~equity contributions from Thoma Bravo, and~~ more recently, our IPO. We believe our existing cash and cash equivalents, our ~~Credit Facilities~~Senior Term Loan and cash provided by sales of our solutions and services will be sufficient to meet our working capital, ~~and~~ capital expenditure and cash needs for at least the next 12 ~~months.~~months and beyond. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced products and services offerings, and the continuing market acceptance of our products. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies.

We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.

A portion of our customers pay in advance for subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of ~~September 30, 2021~~March 31, 2022 (unaudited), we had deferred revenue of ~~$287.1~~$189.0 million, of which ~~$270.4~~$175.2 million was recorded as a current liability and is expected to be recorded to revenue in the next 12 months, provided all other revenue recognition criteria have been met. As of December 31, ~~2020,~~2021, we had deferred revenue of ~~$204.9~~$255.7 million, of which ~~$192.9~~$240.9 million was recorded as a current liability.

The following table shows our cash flows for the unaudited ~~nine months ended September 30, 2021 (Successor), the unaudited six months ended September 30, 2020 (Successor), and unaudited~~ three months ended March 31, ~~2020 (Predecessor):~~2022 and 2021:


	Successor						Predecessor
	Nine months ended September 30,			Six months ended September 30,			Three months ended March 31,			Three months ended March 31,
	2021			2020			2020			2022			2021
				(in thousands)						(in thousands)
Net cash provided by (used in) operating activities	$	108,816		$	41,960		$	(57,058	)
Net cash used in operating activities										$	(65,945	)	$	(58,732	)
Net cash provided by (used in) investing activities		26,372			(1,904,855	)		14,871			(1,311	)		45,616
Net cash provided by (used in) financing activities		(54,353	)		2,016,728			(346	)		2,813			(50,105	)

4530

Our cash flows are subject to seasonal fluctuations. A significant portion of our contracts have terms that coincide with our ~~academic~~ customers’ typical fiscal year-end of June 30. Historical experience has shown an increase in new and renewed contracts as well as anniversary billings, all of which immediately precede the beginning of our academic customers’ typical fiscal year-end. We typically invoice SaaS fees annually upfront with credit terms of net 30 or 60 days. In turn, our cash flows from operations are affected by this seasonality and are typically reflected in higher cash flow, accounts receivable and deferred revenue balances for the second and third quarter of each year.

Credit ~~Facilities~~Facility

On March 24, 2020, we entered into a credit agreement with a syndicate of lenders and Golub Capital Markets LLC, as administrative agent and collateral agent, and Golub Capital Markets LLC and Owl Rock Capital Advisors LLC, as joint bookrunners and joint lead arrangers (the “Credit Agreement”). The Credit Agreement provided for a senior secured term loan facility (the “Initial Term Loan”) in an original aggregate principal amount of $775.0 million, which was supplemented by an incremental term loan pursuant to the First Incremental Amendment and Waiver to Credit Agreement, dated as of December 22, 2020, in a principal amount of $70.0 million (the “Incremental Term Loan” and, together with the Initial Term Loan, the “Term Loan”). The Credit Agreement also provided for a senior secured revolving credit facility in an aggregate principal amount of $50.0 million (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit Facilities”). The Revolving Credit Facility included a $10.0 million sublimit for the issuance of letters of credit.

The Credit Agreement required us to repay the principal of the Term Loan in equal quarterly repayments equal to 0.25% of the original principal amount of Term Loan. ~~Further, until the last day of the quarter ending June 30, 2021, the Credit Facilities bore interest at a rate equal to (i) 6.00%~~ ~~plus~~ the highest of (x) the prime rate (as determined by reference to the Wall Street Journal), (y) the Federal funds open rate plus 0.50% per annum, and (z) a daily Eurodollar rate based on an interest period of one month plus 1.00% per annum or (ii) the Eurodollar rate ~~plus~~ 7.00% per annum, subject to a 1.00% Eurodollar floor. Thereafter, on the last day of each of the five full fiscal quarters, we had the option (“Pricing Grid Election”) to (i) retain the aforementioned applicable margins or (ii) switch to the applicable margins set forth on a pricing grid which, subject to certain pro forma total net leverage ratio limits, provides for applicable margins ranging from 5.50% to 7.00%, in the case of Eurodollar loans, and 4.50% to 6.00% in the case of ABR Loan. The applicable margins set forth on the pricing grid became mandatory beginning on the tenth full fiscal quarter ending after March 24, 2020.

~~On May 27, 2021,~~In connection with the ~~Company exercised its option to make a Pricing Grid Election. As a result,~~Company's IPO, the ~~Company’s applicable margin for Eurodollar loans under the Credit Facilities was 5.5% as of September 30, 2021.~~

We were also required to pay a commitment fee of up to 0.50% per annum of unused commitments under the Revolving Credit Facility, letter of credit fees on a per annum basis, and customary fronting, issuance, and administrative fees for the issuance of letters of credit.

As of September 30, 2021 (unaudited), we had outstanding borrowings of $531.3 million of the Term Loan, no outstanding borrowings under our Revolving Credit Facility and $4.3 million outstanding under letters of credit, respectively. With proceeds from our IPO, weCompany made a principal ~~payment~~prepayment in August 2021 of $224.3 ~~million on our outstanding Term Loan. Subsequently, following the exercise of the underwriter's overallotment of shares, we made a principal payment of $30.8~~ million on its outstanding Term Loan. In connection with the ~~payments, we~~underwriters' exercise of their over-allotment option in August 2021, the Company made an additional principal prepayment in August 2021 of $30.8 million on its outstanding Term Loan. The Company also incurred a 1.5% prepayment ~~premium.~~premium in conjunction with each principal prepayment.

On October 29, 2021, we entered into ~~the Refinancing, providing for Senior~~a credit agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “2021 Credit Agreement”), governing our senior secured credit facilities (the “Senior Secured Credit ~~Facilities~~Facilities”), consisting of a $500.0 million ~~Senior~~senior secured term loan facility (the “Senior Term ~~Loan~~Loan”) and a $125.0 million ~~Senior Revolver.~~senior secured revolving credit facility (the “Senior Revolver”). The proceeds from the new Senior ~~Term Loan~~Secured Credit Facilities were used, in addition to cash on hand, (1) to refinance, in full, all existing indebtedness under the Credit Agreement ~~and~~(the “Refinancing”), (2) to pay certain fees and expenses incurred in connection with the entry into the ~~JPMorgan~~2021 Credit Agreement and ~~Refinancing.~~the Refinancing, and (3) to finance working capital needs of the Company and its subsidiaries for general corporate purposes.

All of the Company's obligations under the Senior Secured Credit Facilities are guaranteed by the subsidiary guarantors named therein (the “Subsidiary Guarantors”). The Senior Revolver includes borrowing capacity available for letters of credit. Any issuance of letters of credit will reduce the amount available under the Senior Revolver. At and subsequent to closing, there have not been any borrowings incurred under the Senior Revolver.

The Senior Term Loan has a seven-year maturity and the Senior Revolver has a five-year maturity. Commencing June 30, 2022, we are required to repay the Senior Term Loan portion of the Senior Secured Credit Facilities in quarterly principal installments of 0.25% of the aggregate original principal amount of the Senior Term Loan at closing, with the balance payable at maturity. Borrowings under the Senior Secured Credit Facilities bear interest, at the Company's option, at: (i) Base Rate equal to the greater of (a) the Federal Funds Rate plus 1/2 of 1.00%, (b) the rate of interest in effect for such day as publicly announced from time to time by the administrative agent as its "prime rate," (c) a Eurocurrency Rate for such date plus 1.00% and (d) 1.00%; or (ii) the Eurocurrency Rate (provided that the Eurocurrency Rate applicable to the Senior Term Loan shall not be less than 0.50% per annum). The Applicable Rate for the Senior Term Loan with respect to Eurocurrency Rate Loans is 2.75% per annum and 1.75% per annum for Base Rate Loans. The Applicable Rate for the Senior Revolver with respect to Eurocurrency Rate Loans, SONIA Loans, and Alternative Currency Term Rate Loans ranges from 2.00% to 2.5% subject to the Company's Consolidated First Lien Net Leverage Ratio, while the Applicable Rate for Base Rate Loans ranges from 1.00% to 1.50% subject to the Company's Consolidated First Lien Net Leverage Ratio. We are also required to pay an unused commitment fee to the lenders under the Senior Revolver at the Applicable Commitment Fee of the average daily unutilized commitments. The Applicable Commitment Fee ranges from 0.40% to 0.50% subject to the Company's Consolidated First Lien Never Leverage Ratio.

As of March 31, 2022 (unaudited), we had outstanding borrowings of $500.0 million on the Senior Term Loan, no outstanding borrowings under our Senior Revolver and $4.4 million outstanding under letters of credit.

Operating Activities

Net cash ~~provided by (used in)~~used in operating activities consists of net loss adjusted for certain non-cash items, including stock-based compensation, depreciation and amortization and other non-cash charges, net.

4631

Net cash ~~provided by~~used in operating activities during the unaudited ~~nine~~three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 was ~~$108.8~~$65.9 million, which was attributable to a net loss of ~~$68.0~~$5.5 million adjusted for certain non-cash items, including ~~$11.5~~$7.8 million of stock-based compensation expense, ~~$103.0~~$34.7 million depreciation and amortization ~~$2.0~~and $0.3 million in amortization of debt discount and issuance ~~costs, $1.2 million of impairment on disposal group, and $1.6 million in other non-cash items.~~costs. These amounts were offset by a decrease of $0.4 million in other non-cash items and $3.4 million to deferred income ~~taxes of $20.3 million.~~taxes. Working capital sources of cash included a net increase of ~~$72.8~~$51.9 million in deferred revenue and accounts receivable resulting from the seasonality of our business where a significant number of our customer agreements occur in the second and third quarter each year. Prepaid expenses and other current assets decreased by ~~$0.1~~$34.7 million, lease liabilities decreased by $1.5 million, other liabilities decreased by $1.1 million, while accounts payable and accrued liabilities increased by ~~$8.6~~$11.7 million, deferred commissions increased by ~~$5.6 million, lease liabilities decreased by $4.7 million, other liabilities decreased by $0.9~~$0.3 million, and right-of-use assets ~~decreased~~increased by ~~$7.6~~$1.2 million.

Net cash ~~provided by~~used in operating activities during the unaudited ~~six~~three months ended ~~September 30, 2020 (Successor)~~March 31, 2021 was ~~$42.0~~$58.7 million, which was attributable to ~~our~~a net loss of ~~$136.7~~$33.1 million adjusted for certain non-cash items, including ~~$3.1~~$2.6 million of stock-based compensation expense, ~~$68.0~~$34.3 million of depreciation and amortization, ~~$1.0~~$0.6 million in amortization of debt discount and issuance costs, ~~$33.0~~$1.2 million of impairment on disposal group, and ~~held-for-sale goodwill, and $1.4~~$1.3 million in other non-cash items. These amounts were offset by a decrease to deferred income taxes of ~~$36.1 million. These amounts were offset by a decrease to deferred income taxes of $36.1~~$9.4 million. Working capital sources of cash included a net ~~increase~~decrease of ~~$108.7~~$33.6 million in deferred revenue and accounts receivable resulting from the seasonality of our business where a significant number of our customer agreements occur in the second and third quarter of each year. Prepaid expenses and other current assets decreased by ~~$21.4~~$18.9 million, ~~right-of-use assets~~accounts payable and accrued liabilities decreased by ~~$5.3~~$8.6 million, and deferred commissions decreased by ~~$19.0 million. These were offset by increases of $4.0 million in other liabilities and $11.8 million in accounts payable and accrued liabilities.~~

Net cash used in operating activities during the unaudited three months ended March 31, 2020 (Predecessor) was $57.1 million, which was attributable to our net loss of $22.2 million adjusted for certain non-cash items, including $7.1 million of stock-based compensation expense, $5.6 million of depreciation and amortization, and $2.0 million in other non-cash items. Working capital sources of cash included a net decrease of $25.1 million in deferred revenue and accounts receivable resulting from the seasonality of our business where a significant number of customer agreements occur in the second and third quarter of each year. As a result of our leasing activity, our right-of-use assets and lease liabilities resulted in a net decrease of $3.0 million. Accounts payable and accrued liabilities increased by $2.2 million, while deferred commissions increased by $1.5$0.1 million. These were offset by a ~~decrease~~net increase of ~~$25.1~~$3.6 million in ~~prepaid expenses~~right-of-use assets and ~~other current assets~~lease liabilities due to ~~renewal~~our leasing activity and an increase in other liabilities of ~~annual contracts to begin fiscal year 2020.~~$1.2 million.

Investing Activities

Our investing activities have consisted of business acquisitions, property and equipment purchases for computer-related equipment and capitalization of software development costs. Capitalized software development costs are related to new applications or improvements to our existing software platform that expand the functionality for our customers.

Net cash used in investing activities during the unaudited three months ended March 31, 2022 was $1.3 million, consisting of purchases of property and equipment of $1.3 million.

Net cash provided by investing activities during the unaudited ~~nine~~three months ended ~~September 30,~~March 31, 2021 ~~(Successor)~~ was ~~$26.4~~$45.6 million, consisting of $46.0 million due to the sale of our Bridge business, which was offset by ~~our acquisition of Eesysoft of $16.9 million, and~~ purchases of property and equipment of ~~$2.8~~$0.4 million.

Net cash used in investing activities during the unaudited six months ended September 30, 2020 (Successor) was $1,904.9 million, consisting of business acquisitions of $1,904.1 million, and purchases of property and equipment of $0.9 million.

Net cash provided by investing activities during the unaudited three months ended March 31, 2020 (Predecessor) was $14.9 million, consisting of cash maturities of our marketable securities of $15.6 million. These were offset by purchases of property and equipment of $0.7 million.

Financing Activities

Our financing activities have consisted of ~~borrowings~~proceeds from issuance of ~~long-term debt, capital contributions received from stockholders, and selling our~~ common stock from ~~our IPO.~~employee equity plans, shares withheld for tax withholdings on vesting of RSUs, repurchases of TopCo units and repayments of long-term debt.

Net cash ~~used in~~provided by financing activities during the unaudited ~~nine~~three months ended ~~September 30, 2021 (Successor)~~March 31, 2022 was ~~$54.4~~$2.8 million, which consisted of ~~$307.9~~$4.1 million in proceeds from the issuance of ~~principal payments made on our long-term debt, $3.8 million of prepayment premium paid in connection with our principal debt payments,~~common stock from employee equity plans, offset by $1.3 million of shares repurchased for tax withholdings on vesting of restricted stock ~~and distributions to stockholders of $0.9 million. These cash outflows were offset by $259.6 million of IPO proceeds, net of offering costs paid of $5.7 million.~~

Net cash provided by financing activities during the unaudited six months ended September 30, 2020 (Successor) was $2,016.7 million, which consisted of $763.3 of borrowings, net of debt discount and issuance costs totaled, which was offset by $3.9 million of principal payments made during the period. Total proceeds from contributions from stockholders was $1,257.3 million.

units.

Net cash used in financing activities during the unaudited three months ended March 31, ~~2020 (Predecessor)~~2021 was ~~$0.3~~$50.1 million, which consisted of ~~$1.1~~$49.5 million ~~in proceeds received from~~of principal payments made on our long-term debt and the ~~issuance~~repurchase of ~~common stock under employee equity plans, including the exercise of stock options, offset by $1.4~~$0.6 million ~~in shares repurchased for tax withholdings on vesting of restricted stock.~~

~~Contractual Obligations and Commitments~~

As of September 30, 2021, there had been no material changes, outside of the ordinary course of business, in the Company's outstanding contractual obligations disclosed in the Company’s Prospectus dated July 21, 2021 filed with the SEC in connection with the IPO.

~~Off-Balance Sheet Arrangements~~

During the nine months ended September 30, 2021 and 2020, we did not have any relationships with any entities or financial partnerships, such as structured finance or special purpose entities established for the purpose of facilitating off-balance sheet arrangements or other purposes.TopCo Units.

Critical Accounting ~~Policies and~~ Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

~~Certain accounting policies involve significant judgments and assumptions by management, which~~There have abeen no material ~~impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies~~changes to beour critical accounting ~~policies. The~~ estimates ~~and assumptions used by management are based on historical experience and other factors, which are believed~~as compared to ~~be reasonable under the circumstances. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are~~those described in ~~Note 2—Summary~~the section titled “Management’s Discussion and Analysis of ~~Significant Accounting Policies included~~Financial Condition and Results of Operations” set forth in ~~this~~our Annual Report on Form ~~10-Q.~~10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 23, 2022.

Recent Accounting Pronouncement

For information on recent accounting pronouncements, see Recent Accounting Pronouncements in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Measures

In addition to our results determined in accordance with U.S. GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance and liquidity. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their U.S. GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with U.S. GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are encouraged to review the related U.S. GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable U.S. GAAP financial measures.

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

2021

2020

2020

(in thousands)

Other Financial Data:

Non-GAAP operating income (1)

40,361

25,483

103,030

37,324

1,468

Free cash flow (2)

160,006

99,516

106,056

41,169

(57,771
)
Adjusted EBITDA (3)

41,257

26,388

105,013

39,780

4,809

Allocated Combined Receipts (4)

108,600

87,922

303,239

162,731

71,389



	Three months ended March 31,
	2022			2021
	(in thousands)
Other Financial Data:
Non-GAAP operating income (1)		42,497			32,227
Free cash flow (2)		(67,256	)		(59,134	)
Adjusted EBITDA (3)		43,553			32,560
Allocated Combined Receipts (4)		113,961			98,738

(1)

We define “non-GAAP operating ~~income”~~income (loss)” as loss from operations excluding the impact of stock-based compensation, restructuring, transaction and sponsor related costs, amortization of acquisition-related intangibles, and the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and the Certica, Impact and ~~Eesysoft~~Elevate Data Sync acquisitions that we do not believe are reflective of our ongoing operations.

(2)

We define “free cash flow” as net cash provided by (used in) operating activities less purchases of property and equipment and intangible assets, net of proceeds from disposals of property and equipment.

(3)

“EBITDA” is defined as earnings before debt-related costs, including interest and loss on debt extinguishment, provision (benefit) for taxes, depreciation, and amortization. We further adjust EBITDA to exclude certain items of a significant or unusual nature, including stock-based compensation, restructuring, transaction and sponsor related costs, amortization of acquisition-related intangibles, and the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and Certica, Impact and ~~Eesysoft~~Elevate Data Sync acquisitions.

(4)

“Allocated Combined Receipts” is defined as the combined receipts of our Company and companies that we have acquired allocated to the period of service delivery. We calculate Allocated Combined Receipts as the sum of (i) revenue and (ii) the impact of fair value adjustments to acquired unearned revenue related to the Take-Private Transaction and Certica, Impact and ~~Eesysoft~~Elevate Data Sync acquisitions that we do not believe are reflective of our ongoing operations.

Non-GAAP Operating Income

We define non-GAAP operating income as loss from operations excluding the impact of stock-based compensation, restructuring, transaction and sponsor related costs, amortization of acquisition-related intangibles, and the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and Certica, Impact and ~~Eesysoft~~Elevate Data Sync acquisitions that we do not believe are reflective of our ongoing operations. We believe non-GAAP operating income is useful in evaluating our operating performance compared to that of other companies in our industry, as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance. Although we exclude the amortization of acquisition-related intangibles from this non-GAAP measure, management believes it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

The following table provides a reconciliation of loss from operations to non-GAAP operating income for each of the periods indicated:

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

2021

2020

2020

(in thousands)

Loss from operations

(5,018
)

(60,070
)

(41,517
)

(138,729
)

(16,587
)
Stock-based compensation

8,379

6,722

17,722

40,550

7,109

Restructuring, transaction and sponsor related costs

2,031

40,064

18,042

50,317

8,360

Amortization of acquisition-related intangibles

33,590

32,617

100,312

65,597

2,586

Fair value adjustments to deferred revenue in connections with purchase accounting

1,379

6,150

8,471

19,589

—

Non-GAAP operating income

$
40,361

$
25,483

$
103,030

$
37,324

$
1,468


	Three months ended March 31,
	2022			2021
	(in thousands)
Loss from operations		(3,687	)		(24,534	)
Stock-based compensation		9,476			5,585
Restructuring, transaction and sponsor related costs		2,470			13,057
Amortization of acquisition-related intangibles		33,739			33,361
Fair value adjustments to deferred revenue in connection with purchase accounting		499			4,758
Non-GAAP operating income	$	42,497		$	32,227

Free Cash Flow

We define free cash flow as net cash ~~provided by (used in)~~used in operating activities less purchases of property and equipment and intangible assets, net of proceeds from disposals of property and equipment. We believe free cash flow facilitates period-to-period comparisons of liquidity. We consider free cash flow to be an important measure because it measures the amount of cash we generate and reflects changes in working capital. We use free cash flow in conjunction with traditional U.S. GAAP measures as part of our overall assessment of our liquidity, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our Board concerning our liquidity.

The following table provides a reconciliation of net cash ~~provided by (used in)~~used in operating activities to free cash flow for each of the periods indicated:


	Successor												Predecessor			Three months ended March 31,
	Three months ended September 30,			Three months ended September 30,			Nine months ended September 30,			Six months ended September 30,			Three months ended March 31,			2022			2021
	2021			2020			2021			2020			2020			(in thousands)
				(in thousands)
Net cash provided by (used in) operating activities	$	161,183		$	100,285		$	108,816		$	41,960		$	(57,058	)
Net cash used in operating activities																$	(65,945	)	$	(58,732	)
Purchases of property and equipment and intangible assets		(1,193	)		(807	)		(2,800	)		(858	)		(732	)		(1,333	)		(411	)
Proceeds from disposals of property and equipment		16			38			40			67			19			22			9
Free cash flow	$	160,006		$	99,516		$	106,056		$	41,169		$	(57,771	)	$	(67,256	)	$	(59,134	)

Adjusted EBITDA

EBITDA is defined as earnings before debt-related costs, including interest and loss on debt extinguishment, ~~provision (benefit)~~benefit for taxes, depreciation, and amortization. We further adjust EBITDA to exclude certain items of a significant or unusual nature, including stock-based compensation, restructuring, transaction and sponsor related costs, amortization of acquisition-related intangibles, and the impact of fair value adjustments to acquired unearned revenue relating to the Take-Private Transaction and Certica, Impact and ~~Eesysoft~~Elevate Data Sync acquisitions. Although we exclude the amortization of acquisition-related intangibles from this non-GAAP measure, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

We believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and Board. In addition, it provides a useful measure for period-to-period comparisons of our business, as it removes the effect of certain non-cash expenses and certain variable charges.

Adjusted EBITDA has limitations as a financial measure, should be considered as supplemental in nature, and is not meant as a substitute for the related financial information prepared in accordance with U.S. GAAP.

5034

The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:

Successor

Predecessor

Three months
ended
September 30,

Three months
ended
September 30,

Nine months
ended
September 30,

Six months
ended
September 30,

Three months
ended
March 31,

2021

2020

2021

2020

2020

(in thousands)

Net Loss

$
(13,261
)

$
(60,173
)

$
(68,025
)

$
(136,747
)

$
(22,203
)
Interest on outstanding debt and loss on debt extinguishment

11,247

16,357

44,170

34,449

—

Provision (benefit) for taxes

(4,631
)

(16,062
)

(20,022
)

(35,788
)

183

Depreciation

911

1,329

2,728

2,426

2,982

Amortization

2

2

5

5

35

Stock-based compensation

8,379

6,722

17,722

40,550

7,109

Restructuring, transaction and sponsor related costs

3,641

39,446

19,652

49,699

14,117

Amortization of acquisition-related intangibles

33,590

32,617

100,312

65,597

2,586

Fair value adjustments to deferred revenue in connection with purchase accounting

1,379

6,150

8,471

19,589

—

Adjusted EBITDA

$
41,257

$
26,388

$
105,013

$
39,780

$
4,809



	Three months ended March 31,
	2022			2021
	(in thousands)
Net Loss	$	(5,545	)	$	(33,071	)
Interest on outstanding debt and loss on debt extinguishment		4,553			17,270
Benefit for taxes		(2,353	)		(9,341	)
Depreciation		1,004			939
Amortization		2			2
Stock-based compensation		9,476			5,585
Restructuring, transaction and sponsor related costs		2,178			13,057
Amortization of acquisition-related intangibles		33,739			33,361
Fair value adjustments to deferred revenue in connection with purchase accounting		499			4,758
Adjusted EBITDA	$	43,553		$	32,560

Allocated Combined Receipts

We define Allocated Combined Receipts as the combined receipts of our Company and companies that we have acquired allocated to the period of service delivery. We calculate Allocated Combined Receipts as the sum of (i) revenue and (ii) the impact of fair value adjustments to acquired unearned revenue related to the Take-Private Transaction and Certica, Impact and ~~Eesysoft~~Elevate Data Sync acquisitions that we do not believe are reflective of our ongoing operations. Management uses this measure to evaluate organic growth of the business period over period, as if the Company had operated as a single entity and excluding the impact of acquisitions or adjustments due to purchase accounting. Organic growth in current and future periods is driven by sales to new customers and the addition of additional subscriptions and functionality to existing customers, offset by customer cancellations or reduced subscriptions upon renewal.

We believe that it is important to evaluate growth on this organic basis, as it is an indication of the success of our services from the customer’s perspective that is not impacted by corporate events such as acquisitions or the fair value estimates of acquired unearned revenue. We believe this measure is useful to investors because it illustrates the trends in our organic revenue growth and allows investors to analyze the drivers of revenue on the same basis as management.

The following table presents a reconciliation of revenue to Allocated Combined Receipts for each of the periods indicated:


	Successor								Predecessor
	Three months ended September 30,		Three months ended September 30,		Nine months ended September 30,		Six months ended September 30,		Three months ended March 31,		Three months ended March 31,
	2021		2020		2021		2020		2020		2022		2021
	(in thousands)										(in thousands)
Revenue	$	107,221	$	81,772	$	294,768	$	143,142	$	71,389	$	113,462	$	93,980
Fair value adjustments to deferred revenue in connection with purchase accounting		1,379		6,150		8,471		19,589		—		499		4,758
Allocated Combined Receipts	$	108,600	$	87,922	$	303,239	$	162,731	$	71,389	$	113,961	$	98,738

5135

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements ~~that~~within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are ~~subject~~based on our management’s beliefs and assumptions and on information currently available to ~~risks and uncertainties.~~our management. All statements other than statements of historical ~~fact included in this prospectus~~facts are ~~forward-looking statements. Forward-looking statements give our current expectations and projections~~“forward-looking statements” for purposes of these provisions, including those relating to future events or our future financial ~~condition, results of operations, plans, objectives, future~~ performance and ~~business. You~~financial guidance. In some cases, you can identify forward-looking statements by ~~the fact that they do not relate strictly to historical or current facts. These statements may include words~~terminology such as ~~“anticipate,~~“may,” ~~“estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,~~“might,” “will,” “should,” ~~“can have,~~“expect,” ~~“likely”~~“plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “potential,” “intend” or “continue,” the negative of terms like these or other comparable terminology, and other words ~~and~~or terms of similar meaning in connection with any discussion of ~~the timing or nature of~~ future operating or financial ~~performance or other events.~~performance. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results or our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. These statements are only predictions. You should not place undue reliance on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties, many of which are beyond our control, or currently unknown to us. Our assumptions may turn out to be inaccurate and cause actual events or results to differ materially from our expectation or projections. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

•

risks associated with future stimulus packages approved by the U.S. federal government;

•

risks associated with failing to continue our recent growth rates;

•

our ability to acquire new customers and successfully retain existing customers;

•

the effects of the increased usage of, or interruptions or performance problems associated with, our learning platform;

•

the impact on our business and prospects from the effects of the current COVID-19 pandemic;

•

our history of losses and expectation that we will not be profitable for the foreseeable future;

•

the impact of adverse general and industry-specific economic and market conditions;

•

risks to our revenue from changes in the spending policies or budget priorities for government funding of Higher Education and K-12 institutions;

•

our ability to grow our business effectively, to scale our business and to manage our expenses;

•

risks caused by delays in upturns or downturns being reflected in our operating results;

•

risks and uncertainties associated with potential acquisitions;

•

our ability to use net operating losses to offset future taxable income;

•

our ability to change our pricing models, if necessary to compete successfully;

•

the length and unpredictability of our sales cycles;

•

risks associated with failure to develop our sales and marketing capabilities;

•

the competitiveness of the market in which we operate;

•

risks associated with joint ventures, platform partnerships and strategic alliances;

•

our ability to offer high-quality professional services and support;

•

the effectiveness of our expense reduction plan;

•

risks associated with international operations;

•

our reliance on our management team and other key employees, including the effects of recent significant changes to our executive leadership team and the resulting transitions;

•

our ability to attract and retain qualified personnel;

•

our ability to maintain our company culture as we grow;

•

risks related our brand recognition and reputation;

•

the complexity and time-consuming nature of our billing and collections processing;

•

our ability to adapt and respond to rapidly changing technology, evolving industry standards and changing customer needs;

•

the impact of potential information technology or data security breaches or other cyberattacks or other disruptions;

•

risks associated with our use of open source software, including that we make a substantial portion of the source code for Canvas available under the terms of an open source license;

•

risks relating to our reliance on third-party software and intellectual property licenses;

•

the impact of real or perceived errors, failures or bugs in our solutions;

•

risks associated with lawsuits by third parties for alleged infringement, misappropriation or other violation of their intellectual property and proprietary rights;

•

our ability to obtain, maintain, protect and enforce our intellectual property and proprietary rights;

•

risks related to incorrect or improper use of our solutions or our failure to properly train customers on how to utilize our solutions;

•

privacy laws and regulations, including changes thereto, applicable to our business;

•

risks relating to non-compliance with FERPA, COPPA and other regulatory regimes applicable to our business;

•

risks related to changes in tax laws;

•

the impact of export and import control laws and regulations;

•

risk relating to non-compliance with anti-corruption, anti-bribery and similar laws;

•

our ability to comply with complex procurement rules and regulations;

•

risks related to future litigation;

•

risks related to our existing and future indebtedness;

•

our ability to develop and maintain proper and effective internal control over financial reporting;

•

our management team’s limited experience managing a public company

•

our ability to correctly estimate market opportunity and forecast market growth;

•

the impact of any catastrophic events;

•

rising inflation and our ability to control costs, including our operating costs;

•

our ability to raise additional capital or generate cash flows necessary to expand operations and invest in new technologies;

•

political instability, terrorist activities or military conflicts, including Russia's invasion of Ukraine; and

•

other factors disclosed in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2022 and elsewhere in this ~~prospectus.~~Quarterly Report.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q and “Risk Factors” in the Prospectus dated July 21, 2021 filed with the SEC in connection with our IPO. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by ~~these~~this cautionary ~~statements~~statement as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this ~~prospectus~~report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates and inflation. We do not hold or issue financial instruments for trading purposes.

Foreign Currency Exchange Risk

Our reporting currency is the U.S. dollar. Due to our international operations, we have foreign currency risks related to operating expense denominated in currencies other than the U.S. dollar, particularly the euro. Most of our sales are denominated in U.S. dollars, and therefore our revenue is not currently subject to significant foreign currency risk. Our operating expenses are denominated in the currencies of the countries in which our operations are located, which are primarily in the United States, Europe, Australia, and New Zealand. Our condensed consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments. For the unaudited ~~nine and three months ended September 30, 2021 (Successor), the unaudited six and three months ended September 30, 2020 (Successor), and unaudited~~ three months ended March 31, ~~2020 (Predecessor),~~2022 and 2021, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our condensed consolidated financial statements.

Interest Rate Risk

We had cash, cash equivalents ~~and~~and restricted cash of ~~$231.8~~$105.3 million and ~~$151.0~~$169.2 million as of ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, respectively, consisting of cash and money market accounts in highly rated financial institutions. With the exception of cash, these interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in our interest income have not been significant. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of these investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates.

At ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, we also had in place a ~~$50.0~~$125.0 million ~~Revolving Credit Facility, with availability of $50.0 million,~~Senior Revolver and approximately ~~$531.3~~$500.0 million on our Senior Term Loan. As of March 31, 2022 (unaudited) and ~~$839.2 million in Term Loans, respectively, both of which bear~~December 31, 2021, we had no outstanding borrowings under our Senior Revolver. The Senior Revolver bears interest at ~~5.50%,~~2.5% whereas the Senior Term Loan bears interest at 2.75% plus a variable applicable ~~margin.~~rate. At ~~September 30, 2021~~March 31, 2022 (unaudited) and December 31, ~~2020,~~2021, the applicable ~~margin~~rate was ~~1.0% for the Revolving Credit Facility~~0.52% and ~~1.0% for the Term Loans.~~0.50%, respectively.

We have an agreement to ~~maintain~~maintain cash balances at a financial institution of no less than ~~$4.3~~$4.4 million as collateral for several letters of credit for purposes of securing certain of the Company’s obligations under facility leases and other contractual arrangements.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) ~~prior to~~as of the ~~filing~~end of the period covered by this ~~Quarterly Report on Form 10-Q.~~report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were ~~in design~~designed to, and ~~operation,~~were effective to, provide assurance at a reasonable ~~assurance level.~~level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended ~~September 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control. The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

5438

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are, and from time to time may be, party to litigation and subject to claims incident to the ordinary course of business. As our growth continues, we may become party to an increasing number of litigation matters and claims. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position. With the potential exception of the below matter (which we believe is without merit and which we are defending vigorously against), we are not presently party to any legal proceedings that in the opinion of management, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

The defendants moved to dismiss the complaint on May 3, 2021. We do not believe these claims have merit and are defending vigorously against them.

Item 1A. Risk Factors

There have been no material changes in the risk factors included in section entitled “Risk Factors” included in our ~~Prospectus~~Annual Report on Form 10-K dated ~~July 21, 2021~~February 23, 2022 filed with the ~~SEC in connection with our IPO.~~SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

5539

EXHIBIT INDEX


Exhibit Number		Description
3.1		Second Amended and Restated Certificate of Incorporation of Instructure Holdings, Inc., filed July 23, 2021(1)
3.2		Amended and Restated Bylaws of Instructure Holdings, Inc., effective July 21, 2021(2)
10.1		~~Director Nomination~~Executive Agreement, dated as of ~~July 26,~~June 25, 2021, bybetween Instructure, Inc. and ~~among the Company and the other signatories party thereto~~Mitch Benson~~(3)~~
~~10.2~~		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.7 to Instructure Holdings, Inc.’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 28, 2021)~~(4)~~
~~10.3~~		Instructure Holdings, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to Instructure Holdings, Inc.’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 23, 2021)~~(5)~~
~~10.4~~		Instructure Holdings, Inc. 2021 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.3 to Instructure Holdings, Inc.’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 23, 2021)~~(6)~~
31.1		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of the Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of the Principal Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation
101.DEF		Inline XBRL Extension Definition
101.LAB		Inline XBRL Taxonomy Extension Label
101.PRE		Inline XBRL Taxonomy Extension Presentation
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.

(1) Incorporated by reference to Exhibit 3.1 on Form 8-K filed on July 21, 2021

(2) Incorporated by reference to Exhibit 3.2 on Form 8-K filed on July 21, 2021

~~(3) Incorporated by reference to Exhibit 10.1 on Form 8-K filed on July 21, 2021~~

~~(4) Incorporated by reference to Exhibit 10.2 on Form 8-K filed on July 21, 2021~~

~~(5) Incorporated by reference to Exhibit 10.3 on Form 8-K filed on July 21, 2021~~

~~(6) Incorporated by reference to Exhibit 10.4 on Form 8-K filed on July 21, 2021~~

5640

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Instructure Holdings, Inc.

Date: ~~November 10, 2021~~May 4, 2022	By:	/s/Dale Bowen
		Dale Bowen
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)

5741


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	INST	New York Stock Exchange


	September 30,			December 31,			March 31,			December 31,
	2021			2020			2022			2021
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	227,487		$	146,212		$	100,854		$	164,928
Accounts receivable—net		54,759			47,315			36,606			51,607
Prepaid expenses		16,831			12,733			51,078			15,475
Deferred commissions		10,193			6,663			11,729			11,418
Assets held for sale		0			57,334
Other current assets		2,913			3,083			2,759			3,384
Total current assets		312,183			273,340			203,026			246,812
Property and equipment, net		10,264			11,289			11,115			10,792
Right-of-use assets		19,352			26,904			16,978			18,175
Goodwill		1,186,676			1,172,395			1,194,221			1,194,221
Intangible assets, net		660,030			755,349			596,005			629,746
Noncurrent prepaid expenses		2,493			6,269			1,404			1,553
Deferred commissions, net of current portion		18,568			16,434			19,490			20,105
Deferred tax assets								7,927			6,477
Other assets		5,724			6,651			5,979			5,901
Total assets	$	2,215,290		$	2,268,631		$	2,056,145		$	2,133,782
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	22,271		$	13,302		$	11,881		$	18,324
Accrued liabilities		24,529			23,638			23,069			28,408
Lease liabilities		6,482			6,037			6,880			6,666
Long-term debt, current		2,235			6,118			4,013			2,763
Liabilities held for sale		0			11,834
Deferred revenue		270,421			192,864			175,203			240,936
Total current liabilities		325,938			253,793			221,046			297,097
Long-term debt, net of current portion		514,970			820,925			489,497			490,500
Deferred revenue, net of current portion		16,667			12,015			13,772			14,740
Lease liabilities, net of current portion		25,479			30,670			21,996			23,678
Deferred tax liabilities		38,347			58,601			27,890			29,851
Other long-term liabilities		4,896			4,643			2,418			3,531
Total liabilities		926,297			1,180,647			776,619			859,397
Stockholders’ equity:
Common stock, par value $0.01 per share; 500,000 and 252,480 shares authorized as of September 30, 2021 (unaudited) and December 31, 2020, respectively; 140,423 and 126,219 shares issued and outstanding as of September 30, 2021 (unaudited) and December 31, 2020, respectively.		1,404			1,262
Common stock, par value $0.01 per share; 500,000 shares authorized as of March 31, 2022 (unaudited) and December 31, 2021; 141,347 and 140,741 shares issued and outstanding as of March 31, 2022 (unaudited) and December 31, 2021, respectively.								1,413			1,407
Additional paid-in capital		1,533,595			1,264,703			1,550,318			1,539,638
Accumulated deficit		(246,006	)		(177,981	)		(272,205	)		(266,660	)
Total stockholders’ equity		1,288,993			1,087,984			1,279,526			1,274,385
Total liabilities and stockholders’ equity	$	2,215,290		$	2,268,631		$	2,056,145		$	2,133,782


	Common
	Stock, $0.01						Additional						Total
	Par Value						Paid-In			Accumulated			Stockholders'
	Shares			Amount			Capital			Deficit			Equity
Balances at December 31, 2020		126,219		$	1,262		$	1,264,703		$	(177,981	)	$	1,087,984
Repurchase of TopCo Units		(133	)		(1	)		(562	)		—			(563	)
Stock-based compensation		—			—			2,666			—			2,666
Net loss		—			—			—			(33,071	)		(33,071	)
Balances at March 31, 2021		126,086		$	1,261		$	1,266,807		$	(211,052	)	$	1,057,016


	Successor						Predecessor
	Nine months ended September 30,			Six months ended September 30,			Three months ended March 31,			Three months ended March 31,
	2021			2020			2020			2022			2021
Operating activities:
Net loss	$	(68,025	)	$	(136,747	)	$	(22,203	)	$	(5,545	)	$	(33,071	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation of property and equipment		2,728			2,427			2,982			1,004			939
Amortization of intangible assets		100,319			65,602			2,620			33,741			33,365
Amortization of deferred financing costs		1,958			1,018			0			294			609
Impairment on disposal group		1,218			3,389			0			0			1,218
Impairment on held-for-sale goodwill		—			29,612			—
Stock-based compensation		11,532			3,116			7,109			7,813			2,633
Deferred income taxes		(20,254	)		(36,062	)		—			(3,411	)		(9,380	)
Other		1,565			1,381			1,959			(360	)		1,321
Changes in assets and liabilities:
Accounts receivable, net		(7,700	)		(23,179	)		11,903			14,779			16,906
Prepaid expenses and other assets		80			21,383			(25,121	)		(34,733	)		(18,921	)
Deferred commissions		(5,596	)		(19,010	)		1,469			304			(52	)
Right-of-use assets		7,552			5,294			4,509			1,197			5,242
Accounts payable and accrued liabilities		8,634			(11,796	)		2,187			(11,746	)		(8,633	)
Deferred revenue		80,470			131,855			(36,983	)		(66,701	)		(50,486	)
Lease liabilities		(4,746	)		(338	)		(7,489	)		(1,468	)		(1,643	)
Other liabilities		(919	)		4,015			—			(1,113	)		1,221
Net cash provided by (used in) operating activities		108,816			41,960			(57,058	)
Net cash used in operating activities											(65,945	)		(58,732	)
Investing activities:
Purchases of property and equipment		(2,800	)		(858	)		(732	)		(1,333	)		(411	)
Proceeds from sale of property and equipment		40			67			19			22			9
Proceeds from sale of Bridge		46,018			—			—			0			46,018
Business acquisitions, net of cash received		(16,886	)		(1,904,064	)		—
Maturities of marketable securities		—			—			15,584
Net cash provided by (used in) investing activities		26,372			(1,904,855	)		14,871			(1,311	)		45,616
Financing activities:
IPO proceeds, net of offering costs paid of $5,719		259,604			—			—
Proceeds from issuance of common stock from employee equity plans		—			—			1,067			4,076			0
Shares repurchased for tax withholdings on vesting of restricted stock units		(1,318	)		—			(1,413	)		(1,263	)		0
Proceeds from issuance of term debt, net of discount		—			763,276			—
Proceeds from contributions from stockholders		—			1,257,327			—
Distributions to stockholders		(930	)		—			—
Repurchase of TopCo units											0			(563	)
Repayments of long-term debt		(307,882	)		(3,875	)		—			0			(49,542	)
Term Loan prepayment premium		(3,827	)		—			—
Net cash provided by (used in) financing activities		(54,353	)		2,016,728			(346	)		2,813			(50,105	)
Net increase (decrease) in cash, cash equivalents, and restricted cash		80,835			153,833			(42,533	)
Foreign currency impacts on cash, cash equivalents, and restricted cash											590			0
Net decrease in cash, cash equivalents, and restricted cash											(63,853	)		(63,221	)
Cash, cash equivalents, and restricted cash, beginning of period		150,953			58,703			101,236			169,152			150,953
Cash, cash equivalents, and restricted cash, end of period	$	231,788		$	212,536		$	58,703		$	105,299		$	87,732
Supplemental cash flow disclosure:
Cash paid for taxes	$	556		$	257		$	32		$	69		$	77
Interest paid	$	42,302		$	33,258			—		$	1,424		$	16,672
Non-cash investing and financing activities:
Capital expenditures incurred but not yet paid	$	62		$	20		$	79		$	119		$	17


	Successor				Predecessor
	Nine months ended September 30,		Six months ended September 30,		Three months ended March 31,		Three months ended March 31,
	2021		2020		2020		2022		2021

Cash and equivalents	$	227,487	$	208,012	$	53,889	$	100,854	$	83,012
Restricted cash		4,301		4,524		4,814		4,445		4,720
Total cash, cash equivalents, and restricted cash	$	231,788	$	212,536	$	58,703	$	105,299	$	87,732


Large accelerated filer		Accelerated filer	

Non-accelerated filer		Smaller reporting company	

Emerging growth company	


		Page
	PART I. FINANCIAL INFORMATION (Unaudited)

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss	4

	Condensed Consolidated Statements of Stockholders’ Equity	5

	Condensed Consolidated Statements of Cash Flows	76

	Notes to Condensed Consolidated Financial Statements	98

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3523

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5338

Item 4.	Controls and Procedures	5438

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5539

Item 1A.	Risk Factors	5539

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5539

Item 3.	Default Upon Senior Securities	5539

Item 4.	Mine Safety Disclosures	5539

Item 5.	Other Information	5539

Item 6.	Exhibits	5539

SIGNATURES		5741



Successor Balances at June 30, 2020	—	$	—	126,240	$	1,262	$	1,247,358	$	(76,574	)	$	1,172,046
Additional capital contribution	—		—	—		—		8,802		—			8,802
Stock-based compensation	—		—	—		—		3,008		—			3,008
Net loss	—		—	—		—		—		(60,173	)		(60,173	)
Successor Balances at September 30, 2020	—	$	—	126,240	$	1,262	$	1,259,168	$	(136,747	)	$	1,123,683


	Common				Common
	Stock, $0.0001				Stock, $0.01						Additional						Total
	Par Value				Par Value						Paid-In			Accumulated			Stockholders’
	Shares		Amount		Shares			Amount			Capital			Deficit			Equity
Successor Balances at December 31, 2020		—	$	—		126,219		$	1,262		$	1,264,703		$	(177,981	)	$	1,087,984
Repurchase of TopCo Units		—		—		(220	)		(2	)		(928	)		—			(930	)
Issuance of common stock in connection with initial public offering, net of underwriters' discounts and commissions and issuance costs		—		—		14,175			142			259,462			—			259,604
Vesting of restricted stock units		—		—		306			3			(3	)		—			—
Shares withheld for tax withholding on vesting of restricted stock units		—		—		(57	)		(1	)		(1,317	)		—			(1,318	)
Stock-based compensation		—		—		—			—			11,678			—			11,678
Net loss		—		—		—			—			—			(68,025	)		(68,025	)
Successor Balances at September 30, 2021		—	$	—		140,423		$	1,404		$	1,533,595		$	(246,006	)	$	1,288,993



Predecessor Balances at December 31, 2019	38,257		$	3		—	$	—	$	493,795		$	(348,241	)	$	145,557
Exercise of common stock options	131			—		—		—		1,067			—			1,067
Vesting of restricted stock units	233			—		—		—		—			—			—
Stock-based compensation	—			—		—		—		7,308			—			7,308
Shares withheld for tax withholding on vesting of restricted stock units	(29	)		—		—		—		(1,413	)		—			(1,413	)
Net loss	—			—		—		—		—			(22,203	)		(22,203	)
Predecessor Balances at March 31, 2020	38,592			3		—		—		500,757			(370,444	)		130,316
Cancellation of Predecessor equity	(38,592	)		(3	)	—		—		(500,757	)		370,444			(130,316	)
Take-Private Transaction	—			—		126,240		1,262		1,139,526			—			1,140,788
Additional capital contribution	—			—		—		—		116,538			—			116,538
Stock-based compensation	—			—		—		—		3,104			—			3,104
Net loss	—			—		—		—		—			(136,747	)		(136,747	)
Successor Balances at September 30, 2020	—		$	—		126,240	$	1,262	$	1,259,168		$	(136,747	)	$	1,123,683


		Estimated Useful Life
~~Computer and office equipment~~		2-~~3 years~~
~~Purchased software~~		2-~~3 years~~
~~Furniture and fixtures~~		2-~~5 years~~
~~Capitalized software development costs~~		~~3 years~~
~~Leasehold improvement and other~~		~~Lesser of lease term or useful life~~


Consideration transferred	(unaudited)
Cash paid	$	17,472	$	17,472
Deferred consideration		1,500		1,500
Total purchase consideration	$	18,972	$	18,972

Identifiable assets acquired
Cash	$	586	$	586
Accounts receivable		624		624
Deposits		9		9
Intangible assets: developed technology		3,300		3,300
Intangible assets: customer relationships		1,700		1,700
Total assets acquired	$	6,219	$	6,219

Liabilities assumed
Accounts payable and accrued liabilities	$	49	$	49
Deferred revenue		692		692
Payroll tax liability		91		91
Deferred tax liability		672		672
Lease liability		24		24
Total liabilities assumed	$	1,528	$	1,528
Goodwill		14,281		14,281
Total purchase consideration	$	18,972	$	18,972


Consideration transferred
Cash paid	$	1,904,064
Total purchase consideration	$	1,904,064
Identifiable assets acquired
Cash and cash equivalents	$	58,703
Accounts receivable		25,749
Prepaid expenses		44,177
Other assets		5,150
Intangible assets: developed technology		300,000
Intangible assets: customer relationships		395,000
Intangible assets: trade name		130,900
Property and equipment		14,353
Right-of-use assets		34,539
Total assets acquired	$	1,008,571
Liabilities assumed
Accounts payable and accrued liabilities	$	40,254
Deferred revenue		86,600
Lease liabilities		39,189
Deferred tax liability		88,461
Other liabilities		80
Total liabilities assumed	$	254,584
Goodwill		1,150,077
Total purchase consideration	$	1,904,064


Consideration transferred
Cash paid	$	133,416
Total purchase consideration	$	133,416
Identifiable assets acquired
Cash	$	12,243
Accounts receivable		2,533
Prepaid expenses		1,360
Other assets		537
Intangible assets: developed technology		28,300
Intangible assets: customer relationships		60,900
Intangible assets: trade name		700
Total assets acquired	$	106,573
Liabilities assumed
Accounts payable and accrued liabilities	$	896
Deferred revenue		7,802
Contingent consideration liability		750
Other liability		469
Deferred tax liability		15,170
Total liabilities assumed	$	25,087
Goodwill		51,930
Total purchase consideration	$	133,416


Consideration transferred
Cash paid	$	11,021
Holdback amount		350
Total purchase consideration	$	11,371
Identifiable assets acquired
Cash and cash equivalents	$	1,324
Accounts receivable, net		336
Prepaid expenses		66
Intangible assets: developed technology		2,200
Intangible assets: customer relationships		1,200
Total assets acquired	$	5,126
Liabilities assumed
Accounts payable and accrued liabilities	$	174
Deferred revenue		515
Other liabilities		25
Total liabilities assumed	$	714
Goodwill		6,959
Total purchase consideration	$	11,371


	Total
Balance as of December 31, 2020	$	1,172,395
Additions (Note 4 - Acquisitions)		14,281
Balance as of September 30, 2021 (unaudited)	$	1,186,676


	Weighted Average Remaining Useful Life (Years)	September 30, 2021			December 31, 2020
		(unaudited)
Software	18 Months	$	21		$	23
Trade names	100 Months		125,800			126,383
Developed technology	44 Months		311,600			310,311
Customer relationships	68 Months		412,400			413,947
Accumulated Amortization			(189,791	)		(95,315	)
Total		$	660,030		$	755,349


	Amortization
	Expense
Years Ending December 31,	(unaudited)
Remainder of 2021	$	33,589
2022		134,355
2023		134,349
2024		134,114
2025		91,402
2026 and thereafter		132,221
Total	$	660,030


	December 31, 2020
Assets
Net receivables	$	228
Deferred commissions, current		576
Other current assets		406
Property and equipment, net		267
Deferred commissions, net of current portion		864
Goodwill		29,612
Net intangible assets		65,159
Total assets held for sale	$	97,112
Liabilities
Accrued Liabilities	$	154
Deferred revenue		11,680
Total liabilities held for sale		11,834
Total net assets held for sale	$	85,278
Total net assets held for sale	$	85,278
Estimated fair value less costs to sell		(45,500	)
Impairment of held-for-sale assets	$	39,778
Total assets held for sale	$	97,112
Impairment of held-for-sale goodwill and assets		(39,778	)
Adjusted assets held for sale	$	57,334


	Total
Balance as of December 31, 2021	$	1,194,221
Additions (Note 5 - Acquisitions)		0
Balance as of March 31, 2022 (unaudited)	$	1,194,221


	Weighted-Average Remaining Useful Life	March 31, 2022							December 31, 2021
		Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
				(unaudited)
Software	11 Months	$	21	$	(15	)	$	6	$	21	$	(13	)	$	8
Trade names	93 Months		125,800		(26,087	)		99,713		125,800		(22,809	)		102,991
Developed technology	37 Months		313,800		(119,905	)		193,895		313,800		(104,215	)		209,585
Customer relationships	61 Months		413,600		(111,209	)		302,391		413,600		(96,438	)		317,162
Total		$	853,221	$	(257,216	)	$	596,005	$	853,221	$	(223,475	)	$	629,746


	RSUs - Pre IPO			Weighted Average Grant Date Fair Value Per Unit
Outstanding Incentive Units at December 31, 2020		8,666		$	4.03
Incentive Units granted		0			0
Incentive Units forfeited or cancelled		(268	)		4.09
Incentive Units vested at IPO		(2,271	)		4.04
Incentive Units exchanged for RSUs		(6,127	)		0
Incentive Units after IPO		0			0
RSUs exchanged from Incentive Units		3,497			0
RSUs forfeited or cancelled		(60	)		11.03
RSUs vested		(306	)		9.32
Outstanding RSUs at September 30, 2021		3,131		$	10.76


		~~Period from April 1 to December 31,~~
		~~2020~~
~~Dividend yield~~		~~NaN~~
~~Volatility~~		60%
~~Risk-free interest rate~~		~~0.3~~%
~~Expected life (years)~~		~~4.3~~-~~4.7~~


	Shares Underlying Options			Weighted Average Exercise Price		Weighted Average Remaining Life (in years)		Aggregate Fair Value
Outstanding at January 1, 2020		601		$	18.25		6.2	$	17,992
Granted		0			0
Exercised		(131	)		8.16				5,297
Forfeited or cancelled		0			12.24				13
Outstanding at March 31, 2020		470			21.07		3.2		13,113
Vested and expected to vest - March 31, 2020		470			21.07		3.2		13,113
Exercisable at March 31, 2020 (1)		343		$	16.84		3.6	$	11,033


	Shares Underlying Options			Weighted Average Grant Date Fair Value Per Share
Unvested at January 1, 2020		159		$	17.92
Granted		0			0
Vested		(32	)		16.05
Forfeited		0			0
Unvested at March 31, 2020 (1)		127		$	18.38


	RSUs Outstanding
	Shares			Weighted Average Grant Date Fair Value Per Share
Unvested and outstanding at January 1, 2020		2,584		$	40.38
Granted		5			48.27
Vested		(233	)		36.97
Cancelled		(240	)		38.90
Unvested and outstanding at March 31, 2020 (1)		2,116