GTY Technology Holdings Inc. [GTYH] Filings

10-Q 1 gtyhu-20220331x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2022


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

For the transition period from to

GTY TECHNOLOGY HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Massachusetts	001-37931	83-2860149
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

800 Boylston Street, 16^th Floor Boston, MA 02199

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (877) 465-3200

Not Applicable

(Former name or former address, if changed since last report)

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 $0.0001 per share	GTYH	Nasdaq Stock Market LLC

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 May 13, 2022, 59,409,278 shares of common stock, par value $0.0001 per share, were outstanding.

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GTY TECHNOLOGY HOLDINGS INC.

Form 10-Q

For the Quarter Ended March 31, 2022

Table of Contents

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss	4

	Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity	5

	Unaudited Condensed Consolidated Statements of Cash Flows	7

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION		35

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6.	Exhibits	36

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)


	March 31,		December 31,
	2022		2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	11,274	$	13,329
Accounts receivable, net		13,510		12,604
Prepaid expenses and other current assets		5,766		4,191
Total current assets		30,550		30,124

Property and equipment, net		3,120		3,208
Finance lease right of use assets		643		722
Operating lease right of use assets		3,281		1,876
Intangible assets, net		82,935		86,528
Goodwill		268,808		268,808
Other assets		3,860		3,678
Total assets	$	393,197	$	394,944

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	7,430	$	5,483
Deferred revenue - current portion		28,688		26,816
Finance lease liability - current portion		41		140
Operating lease liability - current portion		827		581
Contingent consideration - current portion		547		13
Total current liabilities		37,533		33,033

Deferred revenue - less current portion		1,687		1,979
Warrant liability		1,912		4,868
Deferred tax liability		17,137		17,738
Contingent consideration - less current portion		40,807		43,032
Term loans, net		24,940		24,641
Operating lease liability - less current portion		3,859		2,716
Total liabilities		127,875		128,007

Commitments and contingencies

Shareholders’ equity:
Common stock		6		6
Exchangeable shares		47,447		50,358
Additional paid in capital		407,851		401,507
Accumulated other comprehensive loss		(437)		(44)
Treasury stock		(8,343)		(8,343)
Accumulated deficit		(181,202)		(176,547)
Total shareholders' equity		265,322		266,937
Total liabilities and shareholders’ equity	$	393,197	$	394,944

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

(Amounts in thousands, except per share amounts)



	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2022		2021
Revenues	$	15,900	$	13,259
Cost of revenues		6,037		4,742
Gross Profit		9,863		8,517

Operating expenses
Sales and marketing		5,245		3,762
General and administrative		6,295		5,193
Research and development		4,033		2,985
Amortization of intangible assets		3,593		3,599
Change in fair value of contingent consideration		(1,677)		1,114
Total operating expenses		17,489		16,653
Loss from operations		(7,626)		(8,136)

Other income (expense)
Interest expense, net		(687)		(859)
Loss from repurchase/issuance of shares		—		(5,333)
Change in fair value of warrant liability		2,956		(4,038)
Gain on extinguishment of debt		—		239
Other income (loss), net		(41)		(71)
Total other income (expense), net		2,228		(10,062)

Loss before income taxes		(5,398)		(18,198)
Benefit from income taxes		743		170
Net loss		(4,655)		(18,028)

Net loss per share, basic and diluted	$	(0.08)	$	(0.32)
Weighted average common shares outstanding, basic and diluted		58,033		55,828

Net loss	$	(4,655)	$	(18,028)
Other comprehensive gain (loss):
Foreign currency translation gain (loss)		(393)		255
Total other comprehensive gain (loss)		(393)		255
Comprehensive loss	$	(5,048)	$	(17,773)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share amounts)

Three Months Ended March 31, 2022


													Accumulated
							Additional						Other		Total
	Common Stock			Exchangeable Shares			Paid in		Treasury		Accumulated		Comprehensive		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Stock		Deficit		Loss		Equity
Balance - December 31, 2021	57,604,854	$	6	5,586,251	$	50,358	$	401,507	$	(8,343)	$	(176,547)	$	(44)	$	266,937
Net loss	—		—	—		—		—		—		(4,655)		—		(4,655)
Foreign currency translation loss	—		—	—		—		—		—		—		(393)		(393)
Share-based compensation	—		—	—		—		3,432		—		—		—		3,432
Vested and issued restricted stock units	1,399,254		—	—		—		—		—		—		—		—
Stock option exercises	1,155		—	—		—		1		—		—		—		1
Common stock issued for exchangeable shares	291,167		—	(291,167)		(2,911)		2,911		—		—		—		—
Balance - March 31, 2022	59,296,430	$	6	5,295,084	$	47,447	$	407,851	$	(8,343)	$	(181,202)	$	(437)	$	265,322

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share amounts)

Three Months Ended March 31, 2021


													Accumulated
							Additional						Other		Total
	Common Stock			Exchangeable Shares			Paid in		Treasury		Accumulated		Comprehensive		Shareholders’
	Shares	Amount		Shares	Amount		Capital		Stock		Deficit		Income		Equity
Balance - December 31, 2020	55,570,282	$	6	5,972,779	$	54,224	$	390,232	$	(5,633)	$	(129,030)	$	6	$	309,805
Adjustment for correction of an error - warrant liability	—		—	—		—		(9,351)		—		6,311		—		(3,040)
Balance - December 31, 2020, as adjusted	55,570,282		6	5,972,779		54,224		380,881		(5,633)		(122,719)		6		306,765
Net loss	—		—	—		—		—		—		(18,028)		—		(18,028)
Foreign currency translation gain	—		—	—		—		—		—		—		255		255
Share-based compensation	—		—	—		—		1,823		—		—		—		1,823
Issuance of common stock	935,633		—	—		—		6,790		—		—		—		6,790
Common stock repurchases	(525,060)		—	—		—		—		(2,710)		—		—		(2,710)
Vested and issued restricted stock units	1,095,689		—	—		—		—		—		—		—		—
Stock option exercises	792		—	—		—		1		—		—		—		1
Common stock issued for exchangeable shares	358,658		—	(358,658)		(3,587)		3,587		—		—		—		—
Balance - March 31, 2021	57,435,994	$	6	5,614,121	$	50,637	$	393,082	$	(8,343)	$	(140,747)	$	261	$	294,896

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)


	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(4,655)	$	(18,028)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation of property and equipment		257		253
Amortization of intangible assets		3,593		3,599
Amortization of right of use assets		269		279
Share-based compensation		3,432		1,823
Deferred income tax benefit		(601)		(170)
Loss on issuance/repurchase of shares		—		5,333
Change in fair value of warrant liability		(2,956)		4,038
Change in fair value of contingent consideration		(1,677)		1,114
Amortization of deferred debt issuance costs		166		172
Accrual of paid in kind interest		132		130
Gain on extinguishment of debt		—		(239)
Bad debt expense		—		5
Loss on disposal of fixed assets		—		24
Changes in operating assets and liabilities:
Accounts receivable		(866)		(789)
Prepaid expenses and other assets		(1,749)		(1,536)
Accounts payable and accrued liabilities		1,799		(813)
Deferred revenue and other liabilities		1,394		1,747
Operating lease liabilities		(229)		(348)
Net cash used in operating activities		(1,691)		(3,406)

Cash flows from investing activities:
Capital expenditures		(170)		(31)
Proceeds from disposal of fixed assets		—		6
Net cash used in investing activities		(170)		(25)

Cash flows from financing activities:
Contingent consideration payments		(14)		(28)
Stock options exercises		1		1
Common stock repurchases		—		(8,043)
Proceeds from issuance of common stock, net of costs		—		6,790
Repayments of finance lease liabilities		(99)		(144)
Net cash used in financing activities		(112)		(1,424)

Effect of foreign currency on cash and cash equivalents		(82)		(9)

Net change in cash and cash equivalents		(2,055)		(4,864)
Cash and cash equivalents, beginning of period		13,329		22,800
Cash and cash equivalents, end of period	$	11,274	$	17,936

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOWS DISCLOSURE

(Amounts in thousands)


	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2022		2021
Supplemental disclosure of cash flow information:
Cash paid for interest	$	518	$	510

Noncash Investing and Financing Activities:
Exchangeable shares converted to common stock	$	2,911	$	3,587

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2022

(Amounts in tables in thousands, except share and per share amounts)

Note 1. Organization and Business Operations

GTY Technology Holdings Inc. and its subsidiaries (“GTY” or the “Company”) offers a cloud-based suite of solutions primarily for North American state and local governments. GTY’s cloud-based suite of solutions for state and local governments addresses functions in procurement, payments, grant management, budgeting and permitting.

The Company is headquartered in Boston, Massachusetts and has other offices in the United States and Canada. The following is a brief description of the Company’s primary subsidiaries and their businesses.

Bonfire, a Procurement Business

Bonfire Interactive Ltd. (“Bonfire” or “Procurement”) was incorporated on March 5, 2012 under the laws of the Province of Ontario. Bonfire is a provider of strategic sourcing and procurement software, serving customers in government, the broader public sector, and various highly regulated commercial vertical markets. Bonfire offers customers and their sourcing professionals a modern software-as-a-service (“SaaS”) application that helps find, engage, evaluate, negotiate and award vendor and supplier contracts. Bonfire delivers workflow automation, data collection and analysis, and collaboration to drive cost savings, compliance, and strategic outcomes. All of Bonfire’s applications are delivered as a SaaS offering, and Bonfire offers implementation and premium support services.

CityBase, a Payments Business

CityBase, Inc. (“CityBase” or “Payments”), a Delaware corporation headquartered in Chicago, provides dynamic content, digital services, and integrated payments via a SaaS platform that includes technological functionality accessible via web and mobile, kiosk, point-of-sale, and other channels. CityBase software integrates its platform to underlying systems of record, billing, and other source systems, and configures payments and digital services to meet the requirements of its customers, which include government agencies and utility companies.

eCivis, a Grants Management Business

eCivis, Inc. (“eCivis” or “Grants Management”), a Delaware corporation headquartered in Los Angeles, California, is a leading SaaS provider of grants management and indirect cost reimbursement solutions that enable its customers to standardize and streamline complex grant processes in a fully integrated platform. The eCivis platform consists of four core cloud-based products, including grants research, grants management, sub-recipient management, and cost allocation and recovery. To assist its customers in the implementation of its cloud-based products, eCivis offers one-time implementation services, including data integration, grants migration and change management. Additionally, eCivis provides ongoing grants management training, cost allocation plan consulting and cost recovery services.

Open Counter, a Permitting Business

Open Counter Enterprises Inc. (“Open Counter” or “Permitting”), a Delaware corporation headquartered in Boston, Massachusetts, is a developer and provider of software tools for cities to streamline permitting and licensing services for municipal governments. Open Counter provides customers with software through a hosted platform and provides professional services related to software implementation.

Questica, a Budget Business

Questica Software Inc. (“Questica” and, collectively with Sherpa, “Budget”) is a British Columbia corporation organized in 1998 and headquartered in Burlington, Ontario, Canada. Questica designs and develops budgeting software that

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2022

(Amounts in tables in thousands, except share and per share amounts)

supports the unique requirements of the public sector. The Questica suite of products are part of a comprehensive web-based budgeting preparation, performance, management, data visualization and visual publication solution that enables public sector and non-profit organizations to improve and shorten their budgeting cycles.

Sherpa, a Budget Business

Sherpa Government Solutions LLC (“Sherpa” and, collectively with Questica, “Budget”) is a Colorado limited liability company headquartered in Denver, Colorado, established in 2004. Sherpa is a leading provider of public sector budgeting software and consulting services that help state and local governments create and manage budgets and performance. Customers purchase Sherpa’s software and then engage its consulting services to configure the software and receive training on how to manage the software going forward. Following implementation, customers continue to use the software in exchange for maintenance or subscription fees.

Note 2. Going Concern and Liquidity

The Company’s condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the condensed consolidated financial statements, the Company had an accumulated deficit of approximately $181.2 million at March 31, 2022, a net loss of approximately $4.7 million, approximately $1.7 million net cash used in operating activities for the three months ended March 31, 2022, and $30.0 million of term loans due within 12 months of the date of these condensed consolidated financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is attempting to further expand its customer base; scale up its production of various products; increase revenue; and replace the term loans with financing with terms similar to the current agreement in place; however, the Company’s cash position may not be sufficient to support its daily operations through the next twelve months from the date of filing this 10-Q. While the Company believes in the viability of its platform and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect.

The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on February 18, 2022.

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2022

(Amounts in tables in thousands, except share and per share amounts)

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2022.

Certain reclassifications have been made to conform to current period presentation. These reclassifications include the presentation of the gain on extinguishment of debt and the proceeds from the disposal of fixed assets. There was no impact to net loss or net change in cash and cash equivalents, respectively.

Principles of Consolidation

The condensed consolidated financial statements include all accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in the accompanying condensed consolidated financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates include revenue recognition, the carrying value of goodwill, the fair value of acquired intangibles, the capitalization of software development costs, the useful lives of intangible assets, share-based compensation, right of use assets, warrant liability, financing and operating lease liabilities, contingent consideration and the valuation allowance of deferred tax assets resulting from net operating losses.

COVID-19 Update

The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause customer slowdowns or shutdowns, depress demand, and adversely impact results of operations. During the quarter ended March 31, 2022, the Company faced significant uncertainties and continues to expect uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in the consolidated financial statements.

Significant Accounting Policies

There have been no material changes to the Company’s significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on February 18, 2022.

Fair Value

The fair value of an asset or liability is the price that would be received to sell an asset or transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes a fair value hierarchy that maximizes the use of observable inputs and

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2022

(Amounts in tables in thousands, except share and per share amounts)

minimizes the use of unobservable inputs when measuring fair value and defines three levels of inputs that may be used to measure fair value.

●

Level 1 — uses quoted prices in active markets for identical assets or liabilities.

●

Level 2 — uses observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

●

Level 3 — uses one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgment.

The Company’s only material financial instruments carried at fair value as of March 31, 2022 and December 31, 2021, with changes in fair value flowing through current earnings, consist of contingent consideration liabilities recorded in conjunction with business combinations and the fair value of its warrant liabilities are as follows:


			Fair Value Measurement at
			Reporting Date Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Balance as of		for Identical		Observable		Unobservable
	March 31,		Assets		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(Level 3)
Contingent consideration – current	$	547	$	—	$	—	$	547
Contingent consideration – long term		40,807		—		—		40,807
Warrant liability		1,912		—		—		1,912
Total liabilities measured at fair value	$	43,266	$	—	$	—	$	43,266


			Fair Value Measurement at
			Reporting Date Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
	Balance as of		for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2021		(Level 1)		(Level 2)		(Level 3)
Contingent consideration – current	$	13	$	—	$	—	$	13
Contingent consideration – long term		43,032		—		—		43,032
Warrant liability		4,868		—		—		4,868
Total liabilities measured at fair value	$	47,913	$	—	$	—	$	47,913

There were no transfers made among the three levels in the fair value hierarchy during the three months ended March 31, 2022.

The following tables present additional information about Level 3 liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for liabilities within the Level 3 category may include changes in

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

MARCH 31, 2022

(Amounts in tables in thousands, except share and per share amounts)

fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

Changes in contingent consideration liabilities measured at fair value from December 31, 2021 to March 31, 2022 were as follows:


Contingent consideration – December 31, 2021	$	43,045
Change in fair value of contingent consideration		(1,677)
Payments of contingent consideration		(14)
Contingent consideration – March 31, 2022	$	41,354

On February 19, 2019, the Company consummated several acquisitions (collectively, the “Acquisition”), pursuant to which it acquired each of Bonfire, CityBase, eCivis , Open Counter, Questica and Sherpa (together with Bonfire, CityBase, eCivis, Open Counter and Questica, the “Acquired Companies”).

The fair value of the Company’s contingent consideration liabilities recorded as part of the Acquisition has been classified within Level 3 in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments due to the sellers based on each company’s achievement of annual earnings targets in certain years and other events considered in certain transaction documents. The fair values of the contingent consideration were calculated through the use of either Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding earnings thresholds, and approximate timing of payments as outlined in the purchase agreements for each of the Acquired Companies. The analyses utilized the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility of earnings. Estimated payments, as determined through the respective models, were further discounted by a credit spread assumption to account for credit risk. The contingent consideration is revalued to fair value each period, and any increase or decrease is recorded in operating income (loss). The fair value of the contingent consideration may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.

As of March 31, 2022, the contingent consideration liability consists of consideration due to former shareholders of CityBase and shareholders associated with an asset purchase by eCivis prior to the Acquisition.

Shareholders associated with CityBase may receive, upon CityBase’s trailing twelve-month net revenue exceeding $37.0 million, or the CityBase threshold, on or prior to December 31, 2048, an earnout payment equal to a number of shares (or, in the case of certain individuals associated with CityBase who are not accredited investors, the cash value thereof) of our common stock calculated by dividing $54.5 million by the greater of (x) $10.00 or (y) the volume-weighted average closing price for the shares of our common stock for the 30 trading days immediately preceding the payment date. The fair value of contingent consideration as of March 31, 2022 is $40.8 million. The valuation of contingent consideration as of March 31, 2022 was derived from a Monte Carlo simulation of payout patterns from revenue estimates provided by the Company.

Pursuant to the terms of a 2018 asset purchase agreement by eCivis, shareholders associated with the purchase may receive cash consideration equal to 7.5% of new revenue between $500,000 and 999,999.99, 10% of new revenue above $1,000,000, 2% of renewal revenue up to 249,999.99 3% of renewal revenue between $250,000.00 to $749,999.99 and 5% above $750,000.00 in each earn-out year beginning in 2018 and ending in 2022. Only revenue derived from the acquired assets is eligible. The potential undiscounted amount of all future payments that the Company could be required to make

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(Amounts in tables in thousands, except share and per share amounts)

is unlimited. The total fair value of the associated contingent liability as of March 31, 2022 is approximately $0.5 million. The valuation of contingent consideration as of March 31, 2022 was derived from a discounted cash flow model based on expected payment amounts estimated by the Company.

Changes in the warrant liability measured at fair value from December 31, 2021 to March 31, 2022 were as follows:


Warrant liability – December 31, 2021	$	4,868
Change in fair value of warrant liability		(2,956)
Warrant liability – March 31, 2022	$	1,912

The warrant liability was estimated using a Black-Scholes model derived from a Monte Carlo simulation of the Company’s outstanding public warrants. These inputs were primarily derived from the implied volatility of the traded public warrant price. The warrant liability is revalued to fair value each period, and any increase or decrease is recorded in other income (expense).

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and term loans approximates fair value because of the short-term nature of these instruments.

The Company measures certain assets at fair value on a non-recurring basis, generally annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include goodwill and other intangible assets.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Disaggregation of Revenues


	Three Months Ended		Three Months Ended
	March 31,		March 31,
	2022		2021
Subscriptions, support and maintenance	$	12,545	$	10,165
Professional services		3,012		2,941
License		39		63
Asset sales		304		90
Total revenues	$	15,900	$	13,259

Revenues

Subscription, support and maintenance. The Company delivers its solutions primarily as a subscription service that provides customers with access to SaaS related support and updates during the term of the arrangement. Revenues are recognized ratably over the contract term as the customer simultaneously receives and consumes the benefits of the subscription, as the service is made available by the Company. The first year of subscription fees are typically payable within 30 days after the execution of a contract, and thereafter upon renewal. The Company initially records subscription fees as contract liabilities and recognizes revenues on a straight-line basis over the term of the agreement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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(Amounts in tables in thousands, except share and per share amounts)

The Company’s contracts may include variable consideration in the form of usage fees, which are constrained and recognized once the uncertainties associated with the constraint are resolved, which is when usage occurs and the fee is known.

Subscription, support and maintenance revenues also includes kiosk rentals and support or maintenance pertaining to license sales. Revenues from kiosk rentals and support are recognized on a straight-line basis over the support period.

Revenues from subscription, support and maintenance comprised approximately 79% and 77% of total revenues for the three months ended March 31, 2022 and 2021, respectively.

Professional services. The Company’s professional services contracts generate revenues on a time and materials or fixed fee basis. Revenues are recognized as the services are rendered for time and materials contracts. Revenues are recognized when the milestones are achieved and accepted by the customer or on a proportional performance basis for fixed fee contracts. Training revenues are recognized as the services are performed. Revenues from professional services comprised approximately 19% and 22% of total revenues for the three months ended March 31, 2022 and 2021, respectively.

License. Revenues from distinct licensed software are recognized upfront when the software is made available to the customer, which normally coincides with contract execution, as this is when the customer has the risks and rewards of the right to use the software. Revenues from licenses comprised less than 1% of total revenues for the three months ended March 31, 2022 and 2021.

Asset sales. Revenues from asset sales are recognized when the asset, typically a kiosk, has been received by the customer and is fully operational and ready to accept transactions, which is when the customer obtains control and has the risks and rewards of the asset. Asset sales comprised approximately 2% and 1% of total revenues for the three months ended March 31, 2022 and 2021, respectively.

Net Loss per Share

Net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share of common stock is computed similarly to basic net income per share of common stock except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Due to the net loss for the three months ended March 31, 2022 and 2021, diluted and basic loss per share are the same.

Securities that could potentially dilute net loss per share in the future that were not included in the computation of diluted loss per share at March 31, 2022 and 2021 are as follows:


	2022	2021
Warrants to purchase common stock	27,093,316	27,093,334
Unvested restricted stock units	2,900,250	3,173,584
Options to purchase common stock	239,088	245,112
Total	30,232,654	30,512,030

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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(Amounts in tables in thousands, except share and per share amounts)

Income Taxes

In determining the quarterly benefit from income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate of 21% as a result of state taxes, foreign taxes and changes in the Company’s valuation allowance for domestic income taxes. For the three months ended March 31, 2022 and 2021, the Company recorded a $0.7 million and $0.2 million benefit from income taxes, respectively.

Recently Adopted Accounting Pronouncements

On January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance to improve consistent application. The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In November 2021, the Financial Accounting Standards Board issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance (ASU 2021-10), which requires the disclosure of government assistance received by most business entities relating to: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. This guidance will be effective for our annual financial statements for the year ended December 31, 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

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GTY TECHNOLOGY HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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MARCH 31, 2022

(Amounts in tables in thousands, except share and per share amounts)

Note 4. Intangible Assets

The Company recognized goodwill and certain identifiable intangible assets in connection with business combinations. Identifiable intangible assets consist of the following as of March 31, 2022 and December 31, 2021:


	March 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents / Developed Technology	$	60,084	$	(23,350)	$	36,734
Trade Names / Trademarks		16,348		(5,235)		11,113
Customer Relationships		51,003		(15,915)		35,088
Non-Compete Agreements		1,162		(1,162)		-
Total Intangibles	$	128,597	$	(45,662)	$	82,935


	December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents / Developed Technology	$	60,084	$	(21,494)	$	38,590
Trade Names / Trademarks		16,348		(4,836)		11,512
Customer Relationships		51,003		(14,630)		36,373
Non-Compete Agreements		1,162		(1,109)		53
Total Intangibles	$	128,597	$	(42,069)	$	86,528

Amortization expense recognized by the Company related to intangible assets was $3.6 million for each of the three months ended March 31, 2022 and 2021.

The estimated aggregate future amortization expense for intangible assets is as follows:


Nine months ending December 31, 2022		10,683
Year ending December 31, 2023		14,224
Year ending December 31, 2024		14,263
Year ending December 31, 2025		14,224
Year ending December 31, 2026		14,224
Thereafter		15,317
	$	82,935

Note 5. Leases

The Company leases office space under agreements classified as operating leases that expire on various dates through 2030. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses.

At March 31, 2022, the Company had operating right of use assets of approximately $3.3 million and operating lease liabilities of approximately $4.7 million, which are included in the condensed consolidated balance sheet. The right of use

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(Amounts in tables in thousands, except share and per share amounts)

assets obtained in exchange for new operating lease liabilities was approximately $1.6 million for the three months ended March 31, 2022.

GTY Technology Holdings Inc. [GTYH] Filings
10-Q	[2022-05-13]
10-K	[2022-02-18]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-13]
10-K	[2021-02-19]
10-Q	[2020-11-05]
10-Q	[2020-08-07]
10-Q	[2020-05-08]
10-K	[2020-03-13]
10-Q	[2019-11-07]
10-Q	[2019-08-09]
10-Q	[2019-05-13]
10-K	[2019-03-18]
10-Q	[2018-11-09]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-16]
10-Q	[2017-11-13]
10-Q	[2017-08-11]
10-Q	[2017-05-12]
10-K	[2017-03-24]
10-Q	[2016-12-12]
S-1	[2016-09-26]