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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended September 30, 2021

OR

 

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

For the transition period from       to      

Commission File Number: 001-40550

 

Intapp, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

46-1467620

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

3101 Park Blvd

Palo Alto, California

94306

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650852-0400

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

INTA

 

The Nasdaq Global Select Market

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  ☒    No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

As of November 5, 2021, the registrant had 60,989,119 shares of common stock, $0.001 par value per share, outstanding.

 

 


Table of Contents

 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets as of September 30, 2021 and June 30, 2021

2

 

Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2021 and 2020

3

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2021 and 2020

4

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the Three Months Ended September 30, 2021 and 2020

5

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2021 and 2020

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

32

 

PART II.

 

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

 

Signatures

35

 

 

 

i


Table of Contents

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, and the information incorporated herein by reference, particularly in the sections captioned “Risk Factors” under Part II, Item 1A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part I, Item 2, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about:

 

 

our inability to continue our growth at or near historical rates;

 

 

our history of losses;

 

 

impact of the COVID-19 pandemic on U.S. and global economies, our business, our employees, results of operations, financial condition, demand for our products, sales and implementation cycles, and the health of our clients’ and partners’ businesses;

 

 

data breaches, unauthorized access to client data or other disruptions of our solutions;

 

 

U.S. and global market and economic conditions, particularly adverse to our targeted industries;

 

 

the length and variability of our sales cycle;

 

 

our ability to compete in highly competitive markets;

 

 

additional complexity, burdens, and volatility in connection with our international sales and operations;

 

 

our ability to incur indebtedness in the future;

 

 

the possibility that third parties may assert we are infringing or violating their intellectual property rights; and

 

 

the other risks and uncertainties described under “Risk Factors.”

In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

This Quarterly Report on Form 10-Q contains market data and industry forecasts that involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this Quarterly Report on Form 10-Q is generally reliable, such information is inherently imprecise.

You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

 

 

 

 

 

 

 

1


Table of Contents

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

 

Intapp, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

 

September 30, 2021

 

 

June 30, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,937

 

 

$

37,636

 

Restricted cash

 

 

3,727

 

 

 

3,827

 

Accounts receivable, net of allowance for doubtful accounts of $911 and $764 as of September 30, 2021 and June 30, 2021, respectively

 

 

31,699

 

 

 

48,573

 

Unbilled receivables, net

 

 

7,015

 

 

 

6,840

 

Other receivables, net

 

 

572

 

 

 

858

 

Prepaid expenses

 

 

8,605

 

 

 

9,591

 

Deferred commissions, current

 

 

7,519

 

 

 

6,551

 

Total current assets

 

 

114,074

 

 

 

113,876

 

Property and equipment, net

 

 

10,774

 

 

 

10,674

 

Goodwill

 

 

262,015

 

 

 

262,270

 

Intangible assets, net

 

 

49,040

 

 

 

52,349

 

Deferred commissions, noncurrent

 

 

11,076

 

 

 

10,414

 

Other assets

 

 

1,001

 

 

 

10,244

 

Total assets

 

$

447,980

 

 

$

459,827

 

Liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,047

 

 

$

2,198

 

Accrued compensation

 

 

20,517

 

 

 

29,218

 

Accrued expenses

 

 

7,303

 

 

 

9,953

 

Deferred revenue, net

 

 

109,437

 

 

 

107,893

 

Other current liabilities

 

 

28,382

 

 

 

22,621

 

Total current liabilities

 

 

170,686

 

 

 

171,883

 

Deferred tax liabilities

 

 

5,461

 

 

 

5,705

 

Long-term deferred revenue, net

 

 

938

 

 

 

1,908

 

Other liabilities

 

 

5,457

 

 

 

18,170

 

Debt, net

 

 

 

 

 

275,593

 

Total liabilities

 

 

182,542

 

 

 

473,259

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value per share, zero and 19,870,040 shares authorized as of September 30, 2021 and June 30, 2021, respectively; zero and 19,034,437 shares issued and outstanding as of September 30, 2021 and June 30, 2021, respectively; liquidation preference of $0 and $203,340 as of September 30, 2021 and June 30, 2021, respectively

 

 

 

 

 

144,148

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value per share, 50,000,000 and zero shares authorized as of September 30, 2021 and June 30, 2021, respectively; no shares issued or outstanding as of September 30, 2021 and June 30, 2021

 

 

 

 

 

 

Common stock, $0.001 par value per share, 700,000,000 and 65,000,000 shares authorized as of September 30, 2021 and June 30, 2021, respectively; 60,926,767 and 29,444,577 shares issued and outstanding as of September 30, 2021 and June 30, 2021, respectively

 

 

61

 

 

 

29

 

Additional paid-in capital

 

 

577,339

 

 

 

128,943

 

Accumulated other comprehensive loss

 

 

(774

)

 

 

(494

)

Accumulated deficit

 

 

(311,188

)

 

 

(286,058

)

Total stockholders’ equity (deficit)

 

 

265,438

 

 

 

(157,580

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

447,980

 

 

$

459,827

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2


Table of Contents

 

Intapp, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

SaaS and support

 

$

43,489

 

 

$

33,105

 

Subscription license

 

 

10,584

 

 

 

9,996

 

Total recurring revenues

 

 

54,073

 

 

 

43,101

 

Professional services

 

 

8,117

 

 

 

5,042

 

Total revenues

 

 

62,190

 

 

 

48,143

 

Cost of revenues

 

 

 

 

 

 

 

 

SaaS and support

 

 

11,342

 

 

 

9,279

 

Total cost of recurring revenues

 

 

11,342

 

 

 

9,279

 

Professional services

 

 

11,034

 

 

 

7,704

 

Total cost of revenues

 

 

22,376

 

 

 

16,983

 

Gross profit

 

 

39,814

 

 

 

31,160

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

16,970

 

 

 

11,954

 

Sales and marketing

 

 

25,645

 

 

 

15,338

 

General and administrative

 

 

20,830

 

 

 

8,144

 

Total operating expenses

 

 

63,445

 

 

 

35,436

 

Operating loss

 

 

(23,631

)

 

 

(4,276

)

Loss on debt extinguishment

 

 

(2,407

)

 

 

 

Interest expense

 

 

(159

)

 

 

(6,279

)

Other income, net

 

 

879

 

 

 

268

 

Net loss before income taxes

 

 

(25,318

)

 

 

(10,287

)

Income tax benefit (expense)

 

 

188

 

 

 

(120

)

Net loss

 

 

(25,130

)

 

 

(10,407

)

Less: cumulative dividends allocated to preferred stockholders

 

 

 

 

 

(3,811

)

Net loss attributable to common stockholders

 

$

(25,130

)

 

$

(14,218

)

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

 

$

(0.42

)

 

$

(0.55

)

Weighted-average shares used to compute net loss per share attributable to common stockholders, basic and diluted

 

 

60,085

 

 

 

25,984

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

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Intapp, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(25,130

)

 

$

(10,407

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(280

)

 

 

415

 

Other comprehensive income (loss)

 

 

(280

)

 

 

415

 

Comprehensive loss

 

$

(25,410

)

 

$

(9,992

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Intapp, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

(unaudited)

 

 

Three Months Ended September 30, 2021

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

Additional

Paid-in

 

Accumulated

Other

Comprehensive

 

Accumulated

 

Stockholders'

Equity

 

 

Shares

 

Amount

 

 

Shares

 

Amount

 

Capital

 

Loss

 

Deficit

 

(Deficit)

 

Balance as of June 30, 2021

 

19,034,437

 

$

144,148

 

 

 

29,444,577

 

$

29

 

$

128,943

 

$

(494

)

$

(286,058

)

$

(157,580

)

Conversion of convertible preferred stock to common stock upon initial public offering

 

(19,034,437

)

 

(144,148

)

 

 

19,034,437

 

 

19

 

 

144,129

 

 

 

 

 

 

144,148

 

Issuance of common stock upon initial public offering, net of offering costs of $9,767

 

 

 

 

 

 

12,075,000

 

 

12

 

 

282,979

 

 

 

 

 

 

282,991

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

372,753

 

 

1

 

 

2,260

 

 

 

 

 

 

2,261

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

19,028

 

 

 

 

 

 

19,028

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

(280

)

 

 

 

(280

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,130

)

 

(25,130

)

Balance as of September 30, 2021

 

 

$

 

 

 

60,926,767

 

$

61

 

$

577,339

 

$

(774

)

$

(311,188

)

$

265,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2020

 

 

Convertible

Preferred Stock

 

 

Common Stock

 

Additional

Paid-in

 

Accumulated

Other

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Shares

 

Amount

 

 

Shares

 

Amount

 

Capital

 

Loss

 

Deficit

 

Deficit

 

Balance as of June 30, 2020

 

19,034,437

 

$

144,148

 

 

 

24,331,569

 

$

24

 

$

69,178

 

$

(1,667

)

$

(238,199

)

$

(170,664

)

Issuance of common stock, net of issuance costs of $169

 

 

 

 

 

 

2,432,545

 

 

2

 

 

29,018

 

 

 

 

 

 

29,020

 

Repurchase of shares

 

 

 

 

 

 

(200,000

)

 

 

 

(797

)

 

 

 

(1,095

)

 

(1,892

)

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

1,436,086

 

 

2

 

 

5,703

 

 

 

 

 

 

5,705

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

4,590

 

 

 

 

 

 

4,590

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

415

 

 

 

 

415

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,407

)

 

(10,407

)

Balance as of September 30, 2020

 

19,034,437

 

$

144,148

 

 

 

28,000,200

 

$

28

 

$

107,692

 

$

(1,252

)

$

(249,701

)

$

(143,233

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Intapp, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(25,130

)

 

$

(10,407

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,052

 

 

 

3,262

 

Amortization of deferred financing costs

 

 

 

 

 

294

 

Provision for doubtful accounts

 

 

291

 

 

 

(49

)

Stock-based compensation

 

 

19,028

 

 

 

4,590

 

Loss on debt extinguishment

 

 

2,407

 

 

 

 

Change in fair value of contingent consideration, including unrealized foreign exchange gain

 

 

(955

)

 

 

 

Deferred income taxes

 

 

(244

)

 

 

(142

)

Other

 

 

36

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

16,768

 

 

 

(10

)

Unbilled receivables, current

 

 

(175

)

 

 

435

 

Prepaid expenses and other assets

 

 

1,105

 

 

 

(42

)

Deferred commissions

 

 

(1,630

)

 

 

(147

)

Accounts payable and accrued liabilities

 

 

(5,481

)

 

 

(3,902

)

Deferred revenue, net

 

 

574

 

 

 

(2,038

)

Other liabilities

 

 

(5,997

)

 

 

(2,671

)

Net cash provided by (used in) operating activities

 

 

4,649

 

 

 

(10,827

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(32

)

 

 

(398

)

Capitalized internal-use software costs

 

 

(831

)

 

 

(346

)

Net cash used in investing activities

 

 

(863

)

 

 

(744

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Payments on borrowings

 

 

(278,000

)

 

 

(5,000

)

Proceeds from initial public offering, net of underwriting discounts

 

 

292,758

 

 

 

 

Payments for deferred offering costs

 

 

(3,389

)

 

 

 

Proceeds from common stock issuance

 

 

 

 

 

29,020

 

Proceeds from stock option exercises

 

 

2,261

 

 

 

5,705

 

Repurchase of common stock

 

 

 

 

 

(1,892

)

Net cash provided by financing activities

 

 

13,630

 

 

 

27,833

 

Effect of foreign exchange rates on cash and cash equivalents

 

 

(215

)

 

 

30

 

Net increase in cash, cash equivalents and restricted cash

 

 

17,201

 

 

 

16,292

 

Cash, cash equivalents and restricted cash - beginning of period

 

 

41,463

 

 

 

43,159

 

Cash, cash equivalents and restricted cash - end of period

 

$

58,664

 

 

$

59,451

 

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,937

 

 

$

58,344

 

Restricted cash

 

 

3,727

 

 

 

1,107

 

Total cash, cash equivalents and restricted cash

 

$

58,664

 

 

$

59,451

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

5,950

 

 

$

6,579

 

Cash paid for income taxes

 

 

38

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Deferred offering costs in accounts payable and accrued liabilities

 

 

969

 

 

 

150

 

Conversion of convertible preferred stock to common stock upon initial public offering

 

 

144,148

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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Intapp, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Description of Business

Intapp, Inc. (“Intapp” or the “Company”), formerly known as LegalApp Holdings, Inc., was incorporated in Delaware on November 27, 2012 to facilitate the acquisition of Integration Appliance, Inc., which became a wholly owned subsidiary of Intapp, Inc. on December 21, 2012. LegalApp Holdings, Inc. changed its name to Intapp, Inc. in February 2021. Intapp has no significant assets or operations other than the ownership of Integration Appliance, Inc.

The Company is a leading provider of industry-specific, cloud-based software solutions for the professional and financial services industry globally. The Company empowers private capital, investment banking, legal, accounting, and consulting firms with the technology they need to meet rapidly changing client, investor, and regulatory requirements, deliver the right insights to the right professionals, replace legacy systems, and operate more competitively. The Company serves clients primarily in the United States, United Kingdom and Australian markets. References to “the Company,” “us,” “we,” or “our” in these unaudited condensed consolidated financial statements refer to the consolidated operations of Intapp and its consolidated subsidiaries.

Initial public offering

On July 2, 2021, the Company completed its initial public offering (“IPO”), in which it sold 10,500,000 shares of common stock at a public offering price of $26.00 per share for net proceeds of $244.8 million after deducting underwriting discounts of $18.4 million and offering costs of $9.8 million. Upon the closing of the IPO, all outstanding shares of Series A and Series A-1 convertible preferred stock automatically converted into 19,034,437 shares of common stock on a one-for-one basis.

On July 8, 2021, the underwriters of the Company’s IPO exercised in full their right to purchase an additional 1,575,000 shares of common stock at the public offering price of $26.00 per share, resulting in additional net proceeds of $38.2 million after deducting underwriting discounts of $2.8 million.

Prior to the IPO, deferred offering costs, which primarily consist of direct incremental legal and accounting fees relating to the IPO, were capitalized and recorded in other assets on the consolidated balance sheet as of June 30, 2021. Upon the consummation of the IPO, these costs were reclassified into additional paid-in capital as a reduction of the net proceeds received from the IPO during the three months ended September 30, 2021.

Note 2. Summary of Accounting Policies

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2021 filed with the SEC on September 15, 2021. The unaudited condensed consolidated financial statements include accounts of the Company and its consolidated subsidiaries, after eliminating all inter-company transactions and balances.

The interim unaudited condensed consolidated financial statements have been prepared on a basis consistent with the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal and recurring adjustments, necessary to state fairly the Company’s financial condition, its operations and cash flows for the periods presented. The historical results are not necessarily indicative of future results, and the results of operations for the three months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.

 

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Use of estimates

The preparation of the accompanying unaudited condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the unaudited condensed consolidated financial statements and accompanying notes. Those estimates and assumptions include, but are not limited to, revenue recognition including determination of the standalone selling price (“SSP”) of the deliverables included in multiple deliverable revenue arrangements; the depreciable lives of long-lived assets including intangible assets; the expected useful life of deferred commissions; the fair value of common stock used in stock-based compensation; the fair value of assets acquired and liabilities assumed in business combinations; goodwill and long-lived assets impairment assessment; the fair value of contingent consideration liabilities; valuation allowances on deferred tax assets and accounts receivable; uncertain tax positions; and loss contingencies. The Company evaluates estimates and assumptions on an ongoing basis using historical experience and other factors including those resulting from the impacts of the COVID-19 pandemic and adjusts those estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates, and those differences could be material to the unaudited condensed consolidated financial statements.

Significant accounting policies

The Company’s significant accounting policies are described in Note 2, Summary of Accounting Policies, to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021. There have been no material changes to the significant accounting policies during the three months ended September 30, 2021.

Revenue recognition

The Company’s revenues are derived from contracts with our clients. The majority of the Company’s revenues are derived from the sale of our software as a service (“SaaS”) solutions and subscriptions to our term software applications, including support services, as well as the provision of professional services for the implementation of our solutions. The Company accounts for revenues in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), which the Company adopted on July 1, 2020 using the full retrospective method of adoption.

The core principle of ASC 606 is to recognize revenues upon the transfer of control of services or products to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or products. The Company applies the following framework to recognize revenues:

Identification of the contract, or contracts, with our clients

The Company considers the terms and conditions of written contracts and its customary business practices in identifying its contracts under ASC 606. The Company determines it has a contract with a client when the contract is approved, each party’s rights regarding the services and products to be transferred can be identified, payment terms for the services and products can be identified, the client has the ability and intent to pay, and the contract has commercial substance. The Company evaluates whether two or more contracts entered within close proximity with one another should be combined and accounted for as a single contract. The Company also evaluates the client’s ability and intent to pay, which is based on a variety of factors, including the client’s historical payment experience or, in the case of a new client, credit and financial information pertaining to the client.

Identification of the performance obligation in the contract

Performance obligations promised in a contract are identified based on the services or products that will be transferred to the client that are both:

 

i.

capable of being distinct, whereby the client can benefit from the service or product either on its own or together with other resources that are readily available from the Company or third parties, and

 

ii.

distinct in the context of the contract, whereby the transfer of the services or products is separately identifiable from other promises in the contract.

To the extent a contract includes multiple promised services or products, the Company applies judgment to determine whether promised services or products are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised services or products are accounted for as a combined performance obligation.

 

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The Company derives its revenues primarily from the following four sources, which represent the performance obligations of the Company:

 

i.

Sales of SaaS under subscription arrangements: revenue derived from subscriptions to our SaaS solutions;

 

ii.

Sales of subscriptions to our licenses: software revenues derived from the sale of term licenses to clients;

 

iii.

Support activities: support activities that consist of email and phone support, bug fixes, and rights to unspecified software updates and upgrades released on a when, and if, available basis during the support term; and

 

iv.

Sales of professional services: services related to the implementation and configuration of the Company’s SaaS offerings and software licenses.

SaaS and subscription licenses are generally sold as annual or multi-year initial terms with automatic annual renewal provisions on expiration of the initial term. Support for subscription licenses follows the same contract periods as the initial or renewal term. Professional services related to implementation and configuration activities are typically time and materials contracts.

Determination of the transaction price

The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services and products to the client. Variable consideration is estimated and included in the transaction price if, in the Company’s judgment, it is probable that no significant future reversal of cumulative revenues under the contract will occur.

In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide clients with simplified and predictable ways of purchasing the Company’s products and services, not to receive financing from clients or to provide clients with financing.

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on its relative SSP. The majority of the Company’s contracts contain multiple performance obligations, such as when subscription licenses are sold with support and professional services. Some of the Company’s performance obligations have observable inputs that are used to determine the SSP of those distinct performance obligations. Where SSP is not directly observable, the Company determines the SSP using information that may include market conditions and other observable inputs.

Recognition of revenues when, or as, the Company satisfies a performance obligation

The Company recognizes revenues as control of the services or products is transferred to a client, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services or products. The Company is principally responsible for the satisfaction of its distinct performance obligations, which are satisfied either at a point in time or over a period of time.

The Company records revenues net of applicable sales taxes collected. Sales taxes collected from clients are recorded as part of accounts payable in the accompanying consolidated balance sheets and are remitted to state and local taxing jurisdictions based on the filing requirements of each jurisdiction.

Performance obligations satisfied at a point in time

Subscription licenses

The Company has concluded that its sale of term licenses to clients (“subscription licenses”) provides the client with the right to functional intellectual property (“IP”) and are distinct performance obligations from which the client can benefit on a stand-alone basis. The transaction price allocated to subscription license arrangements is recognized as revenues at a point in time when control is transferred to the client, which generally occurs at the time of delivery or upon commencement of the renewal term. Subscription license fees are generally payable in advance on an annual basis over the term of the license arrangement, which is typically noncancelable.

Performance obligations satisfied over a period of time

SaaS and support as well as professional services arrangements comprise the majority of distinct performance obligations that are satisfied over a period of time.

SaaS and support

The transaction price allocated to SaaS subscription arrangements is recognized as revenues over time throughout the term of the contract as the services are provided on a continuous basis, beginning after the SaaS environment is provisioned and made available to clients. The Company’s SaaS subscriptions are generally one to three years in duration, with the majority being one year. Consideration from SaaS arrangements is typically billed in advance on an annual basis.

 

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The Company’s subscription license sales include noncancelable support which entitle clients to receive technical support and software updates, on a when and if available basis, during the term of the subscription license agreement. Technical support and software updates are considered distinct from the related subscription licenses but accounted for as a single stand ready performance obligation as they each constitute a series of distinct services that are substantially the same and have the same pattern of transfer to the client. The transaction price allocated to support is recognized as revenue over time on a straight-line basis over the term of the support contract which corresponds to the underlying subscription license agreement. Consideration for support services is typically billed in advance on an annual basis. In some instances, the client may purchase premium support services which are generally priced as a percentage of the associated subscription license.

Professional services

The Company’s professional services revenues are primarily comprised of implementation, configuration and upgrade services. The Company has determined that professional services provided to clients represent distinct performance obligations. These services may be provided on a stand-alone basis or bundled with other performance obligations, including SaaS arrangements, subscription licenses, and support services. The transaction price allocated to these performance obligations is recognized as revenue over time as the services are performed. The professional services engagements are billed to clients on a time and materials basis and are recognized as invoiced. In instances where professional services arrangements are sold on a fixed price basis, revenues are recognized over time using an input measure of time incurred to date relative to total estimated time to be incurred at project completion. Professional services arrangements sold on a time and materials basis are generally invoiced monthly in arrears and those sold on a fixed fee basis are invoiced upon the achievement of project milestones.

The Company records reimbursable out-of-pocket expenses associated with professional services contracts in both revenues and cost of revenues.

Contract modifications

Contracts may be modified to account for changes in contract scope or price. The Company considers contract modifications to exist when the modification either creates new rights or obligations or changes the existing enforceable rights and obligations of either party. Contract modifications are accounted for prospectively when it results in the promise to deliver additional products and services that are distinct and contract price does not increase by an amount that reflects standalone selling price for the new goods or services.

Balance sheet presentation

Contracts with our clients are reflected in the consolidated balance sheets as follows:

 

Accounts receivable, net represents amounts billed to clients in accordance with contract terms for which payment has not yet been received. It is presented net of the allowance for doubtful accounts as part of current assets in the consolidated balance sheets.

 

Unbilled receivables, net represents amounts that are unbilled due to agreed-upon contractual terms in which billing occurs subsequent to revenue recognition. This generally occurs in multi-year subscription license arrangements where control of the software license is transferred at the inception of the contract, but the client is invoiced annually in advance over the term of the license. Unbilled receivables are presented net of the allowance for doubtful accounts, if applicable, in the consolidated balance sheets with the long-term portion included in other assets. Under ASC 606, these balances represent contract assets.

 

Contract costs consist principally of client acquisition costs (sales commissions). The Company classifies deferred commissions as current or non-current on our consolidated balance sheets based on the timing of when the Company expects to recognize the expense.

 

Deferred revenue, net represents amounts that have been invoiced to the client for which the Company has the right to invoice, but that have not been recognized as revenues because the related products or services have not been transferred to the client. Deferred revenue that will be realized within twelve months of the balance sheet date is classified as current. The remaining deferred revenue is presented as non-current. Under ASC 606, these balances represent contract liabilities.

The Company may receive consideration from its clients in advance of performance on a portion of the contract and, on another portion of the contract, perform in advance of receiving consideration. Contract assets and liabilities related to rights and obligations in a contract are interdependent. Therefore, contract assets and liabilities are presented net at the contract level, as either a single contract asset or a single contract liability, in the consolidated balance sheets.

 

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Concentrations of credit risk and significant clients

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. The Company maintains its cash with high quality financial institutions. The Company is exposed to credit risk for cash held in financial institutions in the event of a default to the extent that such amounts recorded on the balance sheet are in excess of amounts that are insured by the Federal Deposit Insurance Corporation (“FDIC”).

No client individually accounted for 10% or more of the Company’s revenues for the three months ended September 30, 2021 and 2020. As of September 30, 2021, no client individually accounted for 10% or more of the Company’s total accounts receivable. As of June 30, 2021, one client individually accounted for 25% of the Company’s total accounts receivable.

Recent accounting pronouncements

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, the consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

The JOBS Act does not preclude an emerging growth company from early adopting new or revised accounting standards.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases. The guidance requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The guidance states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. The new standard is effective for the Company for fiscal periods beginning after December 15, 2021 and early adoption is permitted. The Company expects to recognize lease liabilities and right-of-use assets related to its operating leases upon adoption of the standard. The Company is evaluating the impact of this ASU on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses, which requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of this ASU on its financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (ASC 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes by removing certain exceptions and by updating accounting requirements around franchise taxes, goodwill recognized for tax purposes, the allocation of current and deferred tax expense among legal entities, among other minor changes. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. This new standard will be effective for the Company for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.

Note 3. Revenues  

Disaggregation of revenues

Revenues by geography were as follows (in thousands):

 

 

 

Three Months Ended September 30,

 

 

 

2021

 

 

2020

 

United States

 

$

42,631

 

 

$

34,199

 

United Kingdom

 

 

11,878

 

 

 

8,705

 

Rest of the world

 

 

7,681

 

 

 

5,239

 

Total

 

$