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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, 2022
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: 001-36331
Quotient Technology Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware77-0485123
(State or Other Jurisdiction of
 Incorporation or Organization)
(I.R.S. Employer Identification No.)
1260 East Stringham Avenue, 6th Floor, Salt Lake City, UT
84106
(Address of Principal Executive Offices)(Zip Code)
(650)
605-4600
(Registrant’s Telephone Number, Including Area Code)
(Former name, former address and former fiscal year, 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, $0.00001 par value QUOT New York Stock Exchange
Preferred Stock Purchase RightsNew York Stock Exchange
    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 checkmark 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 3, 2022, the registrant had 96,699,554 shares of common stock outstanding.


QUOTIENT TECHNOLOGY INC.
INDEX
REPORT ON
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
 

3


PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements.

QUOTIENT TECHNOLOGY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 September 30,
2022
December 31,
2021
(unaudited) 
Assets  
Current assets:  
Cash and cash equivalents$208,394 $237,417 
Accounts receivable, net of allowance for credit losses of $998 and $2,500 at
   September 30, 2022 and December 31, 2021, respectively
96,058 177,216 
Prepaid expenses and other current assets20,400 19,312 
Total current assets324,852 433,945 
Property and equipment, net26,364 22,660 
Operating lease right-of-use assets15,353 23,874 
Intangible assets, net5,461 13,003 
Goodwill128,427 128,427 
Other assets11,597 13,571 
Total assets$512,054 $635,480 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$23,796 $18,021 
Accrued compensation and benefits10,994 20,223 
Other current liabilities62,014 95,279 
Deferred revenues17,561 26,778 
Contingent consideration related to acquisitions 22,275 
Convertible senior notes, net199,844 188,786 
Total current liabilities314,209 371,362 
Operating lease liabilities22,597 26,903 
Other non-current liabilities472 522 
Deferred tax liabilities1,991 1,991 
Total liabilities339,269 400,778 
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.00001 par value—10,000,000 shares authorized; 250,000
 shares designated as Series A Junior Participating Preferred Stock; and no shares
   issued or outstanding at September 30, 2022 and December 31, 2021
  
Common stock, $0.00001 par value—250,000,000 shares authorized; 96,501,690
   and 94,779,442 shares issued and outstanding at September 30, 2022 and
   December 31, 2021, respectively
1 1 
Additional paid-in capital708,297 731,672 
Accumulated other comprehensive loss(1,543)(1,099)
Accumulated deficit(533,970)(495,872)
Total stockholders’ equity172,785 234,702 
Total liabilities and stockholders’ equity$512,054 $635,480 
 
See Accompanying Notes to Condensed Consolidated Financial Statements


4


QUOTIENT TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues$70,336 $135,884 $218,043 $375,080 
Cost of revenues36,765 86,535 123,110 240,680 
Gross profit33,571 49,349 94,933 134,400 
Operating expenses:
Sales and marketing19,939 29,401 63,334 85,233 
Research and development4,899 11,074 21,727 34,541 
General and administrative16,401 12,244 81,978 40,086 
Change in fair value of contingent consideration 245  772 
Total operating expenses41,239 52,964 167,039 160,632 
Loss from operations(7,668)(3,615)(72,106)(26,232)
Interest expense(1,837)(3,809)(4,170)(11,306)
Other income (expense), net200 (96)(181)(130)
Loss before income taxes(9,305)(7,520)(76,457)(37,668)
Provision for (benefit from) income taxes(2,138)323 374 790 
Net loss$(7,167)$(7,843)$(76,831)$(38,458)
Net loss per share, basic and diluted$(0.07)$(0.08)$(0.80)$(0.41)
Weighted-average number of common shares used in computing net loss per share, basic and diluted96,389 94,133 95,567 93,408 
 
See Accompanying Notes to Condensed Consolidated Financial Statements

5


QUOTIENT TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net loss$(7,167)$(7,843)$(76,831)$(38,458)
Other comprehensive income (loss):
Foreign currency translation adjustments(95)12 (444)(92)
Comprehensive loss$(7,262)$(7,831)$(77,275)$(38,550)
 
See Accompanying Notes to Condensed Consolidated Financial Statements

6


QUOTIENT TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Total stockholders' equity, beginning balances$174,978 $239,772 $234,702 $247,029 
Common stock and additional paid-in capital:
Beginning balances$703,229 $721,796 $731,673 $698,333 
Cumulative-effect adjustment due to adoption of ASU 2020-06— — (49,090)— 
Stock-based compensation5,329 4,783 28,650 17,338 
Exercise of employee stock options— — — 13,199 
Issuance of common stock for services provided— — — 223 
Issuance of common stock, purchase plan— — 824 1,595 
Payments for taxes related to net share settlement of equity awards(260)(1,177)(3,759)(5,286)
Ending balance$708,298 $725,402 $708,298 $725,402 
Accumulated other comprehensive loss:
Beginning balances$(1,448)$(1,105)$(1,099)$(1,001)
Other comprehensive loss(95)12 (444)(92)
Ending balance$(1,543)$(1,093)$(1,543)$(1,093)
Accumulated deficit:
Beginning balances$(526,803)$(480,919)$(495,872)$(450,304)
Cumulative-effect adjustment due to adoption of ASU 2020-06— — 38,733 — 
Net loss(7,167)(7,843)(76,831)(38,458)
Ending balance$(533,970)$(488,762)$(533,970)$(488,762)
Total stockholders' equity, ending balances$172,785 $235,547 $172,785 $235,547 
 
See Accompanying Notes to Condensed Consolidated Financial Statements

7


QUOTIENT TECHNOLOGY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 Nine Months Ended September 30,
 20222021
Cash flows from operating activities:
Net loss$(76,831)$(38,458)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization14,028 24,425 
Stock-based compensation27,849 17,074 
Impairment of long-lived and right-of-use assets11,448  
Impairment of intangible assets 9,086 
Amortization of debt discount and issuance cost823 8,655 
Allowance (recovery) for credit losses(1,412)115 
Deferred income taxes 790 
Change in fair value of contingent consideration 772 
Other non-cash expenses5,060 3,236 
Changes in operating assets and liabilities:
Accounts receivable82,570 (18,871)
Prepaid expenses and other assets(1,941)3,264 
Accounts payable and other liabilities(30,525)7,952 
Payments for contingent consideration and bonuses(19,008)(2,901)
Accrued compensation and benefits(9,332)5,445 
Deferred revenues(9,217)9,127 
Net cash (used in) provided by operating activities(6,488)29,711 
Cash flows from investing activities:
Purchases of property and equipment(14,216)(10,773)
Net cash used in investing activities(14,216)(10,773)
Cash flows from financing activities:
Proceeds from issuances of common stock under stock plans824 14,794 
Payments for taxes related to net share settlement of equity awards(3,759)(5,286)
Payments for debt issuance costs(33) 
Principal payments on promissory note and finance lease obligations(106)(169)
Payments for contingent consideration(5,686)(6,121)
Net cash (used in) provided by financing activities(8,760)3,218 
Effect of exchange rates on cash and cash equivalents441 37 
Net (decrease) increase in cash and cash equivalents(29,023)22,193 
Cash and cash equivalents at beginning of period237,417 222,752 
Cash and cash equivalents at end of period$208,394 $244,945 
Supplemental disclosures of cash flow information:
Cash paid for income taxes$4,781 $202 
Cash paid for interest$1,765 $1,774 
Supplemental disclosures of noncash investing and financing activities:
Fixed asset purchases not yet paid$992 $1,057 
 
See Accompanying Notes to Condensed Consolidated Financial Statements
8


QUOTIENT TECHNOLOGY INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Description of Business
Quotient Technology Inc. (together with its subsidiaries, the “Company” or "Quotient"), is an industry leading digital media and promotions technology company that powers cohesive omnichannel brand-building and sales-driving marketing campaigns for advertisers and retailers to influence purchasing decisions throughout a shopper's path to purchase. These marketing campaigns are planned, delivered and measured using our technology platforms and data analytics tool. The Company's network includes the digital properties of retail partners, publisher partners and advertiser customers (also known as consumer packaged goods ("CPG") manufacturers or brands), social media platforms, its consumer brands Coupons.com and Shopmium, and its digital out-of-home ("DOOH") properties. This network provides the Company with proprietary and licensed data, including retailers’ in-store point-of-sale ("POS") shopper data, purchase intent and online behavior, and location intelligence. With such data powering its platforms, customers and partners use Quotient to leverage consumer data and insights, engage consumers via digital channels, and integrate marketing and merchandising programs to drive measurable sales results and consumer engagement.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 1, 2022, as amended by its subsequent Form 10-K/A, Amendment No. 1, filed on April 29, 2022 (collectively, "Annual Report on Form 10-K").
The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full year ending December 31, 2022 or for any other period.
There have been no significant changes to the Company’s significant accounting policies described in the Annual Report on Form 10-K that have had a material impact on its condensed consolidated financial statements and related notes.
Liquidity
The Company has financed its operations and capital expenditures through cash flows from operations as well as from the proceeds of the issuance of convertible senior notes in 2017. As of September 30, 2022 its principal source of liquidity was cash and cash equivalents of $208.4 million, which was held for working capital purposes. The Company's cash equivalents are comprised primarily of money market funds.

In November 2017, the Company issued $200.0 million aggregate principal amount of 1.75% convertible senior notes due December 1, 2022 (the "Maturity Date") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended, (the “Notes”). Refer to Note 8 for further details related to the Notes. Management's intent is to meet its repayment obligation pursuant to the Notes and as of November 2, 2022 has executed commitment letters with each of two lenders regarding the obtaining of debt financing of $105.0 million. Refer to Note 16 for further details related to the commitment letters. To the extent that current and anticipated future sources of liquidity are insufficient to fund the Company’s future business activities
9


and requirements, the Company may be required to seek additional equity or debt financing. In the event that future additional financing is required from outside sources beyond those levels currently contemplated, the Company may not be able to raise funding on terms acceptable to it or at all.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Such management estimates include, but are not limited to, revenue recognition, collectability of accounts receivable, useful lives of intangible assets, estimates related to recoverability of long-lived assets and goodwill, stock-based compensation, legal contingencies, deferred income tax assets and associated valuation allowances and distribution fee commitments. These estimates generally require judgments, may involve the analysis of historical and prediction of future trends, and are subject to change from period to period. Actual results may differ from the Company’s estimates, and such differences may be material to the accompanying condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ("ASU 2020-06"). The guidance simplifies an issuer's accounting for convertible debt instruments and its application of the derivatives scope exception for contracts in its own entity. The guidance eliminates two of the three models in ASC 470-20 that require separate accounting for embedded conversion features. The Company adopted this standard effective January 1, 2022 using the modified retrospective approach. Therefore, the condensed consolidated financial statements for the three and nine months ended September 30, 2022 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy.
In connection with the adoption of this standard, the Company recognized a cumulative effect adjustment of $38.7 million to retained earnings on the Company’s condensed consolidated balance sheet as of January 1, 2022. This adjustment was primarily driven by the derecognition of interest expense related to the accretion of the debt discount associated with the embedded conversion option recorded in the prior period as required under the legacy guidance. In addition, the Company reclassified $50.7 million and issuance costs of $1.6 million from additional paid-in-capital to convertible senior notes, net on the Company’s condensed consolidated balance sheet as of January 1, 2022. The reclassification was recorded in order to combine the two legacy units of account into a single instrument classified as a liability since the bifurcation of the instrument into two units of account is no longer required under the new standard. Under the new guidance, the Company will no longer incur interest expense related to the accretion of the debt discount associated with the embedded conversion option. The Company will use the if-converted method to calculate diluted earnings-per-share (EPS). If the Company makes an irrevocable election to settle the principal of the convertible senior notes in cash and the excess conversion spread in shares, the if-converted method will result in a reduced number of shares issued to reflect only the excess conversion. Since the Company had a net loss for the three and nine months ended September 30, 2022, the convertible senior notes were determined to be anti-dilutive and therefore had no impact to basic or diluted net loss per share for the period as a result of adopting ASU 2020-06.
Revenue Recognition
The Company primarily generates revenue by providing digital promotions and media solutions to its customers and partners. Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
The Company determines revenue recognition through the following steps:
Identification of the contract, or contracts, with a customer
10


Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company provides digital promotions, including digital coupons, and/or media programs to its customers, which consist of advertisers, retail partners and advertising agencies. The Company uses its proprietary technology platforms to create, target, deliver and analyze these programs for customers. The Company typically generates revenue, derived from customer use of these programs, on a cost-per-click, cost-per-impression, or cost-per-acquisition basis, and customers are typically billed monthly. Duration-based campaigns are generally billed prior to campaign launch.
The pricing of digital promotions programs typically includes both promotion setup fees and promotion campaign fees. Promotion setup fees are related to the creation of digital promotions and set up of the underlying campaign on Quotient’s proprietary platforms for tracking the related clicks. The Company recognizes revenues related to promotion setup fees over time, proportionally, on a per click basis using the number of authorized clicks, per insertion order, commencing on the date of the first click. A click refers to the consumer's action of activating a digital promotion through the Company’s proprietary technology platforms by either saving it to a retailer’s loyalty account for automatic digital redemption, or printing it for physical redemption at a retailer. Promotion campaign fees are usually determined on a per-click basis. The Company typically recognizes revenues for digital promotion campaign fees as clicks occur.
The Company also has a duration-based National Promotions offering, as part of its National Promotion business. This offering provides advertisers access to the Company’s proprietary platforms for a specific period of time (the campaign period) in exchange for a fixed fee. The Company provides a single service consisting of making the advertiser’s promotions available for use on its network each day during the campaign period, which generally is between seven and twenty-eight days. The Company has a stand-ready performance obligation that is satisfied over time; therefore, the Company recognizes revenue ratably over the campaign period.
The Company’s media programs enable advertisers and retailers to distribute digital media to promote their brands and products on its retailers’ websites and mobile applications, and through a network of affiliate publishers and non-publisher third parties that display its media offerings on their websites or mobile applications. Pricing for media campaigns is usually determined on a cost-per-click, cost-per-impression, or cost-per-acquisition basis. The Company recognizes revenue each time a digital media ad is displayed or each time a user clicks on the media ad displayed on the Company’s websites, mobile applications or on third-party websites.  
Gross Versus Net Revenue Reporting
In the normal course of business and through its distribution network, the Company delivers digital media and promotions on retailers’ websites through retailers’ loyalty programs, and on the websites of digital publishers. In these situations, the Company evaluates whether it is the principal (i.e., reporting revenues on a gross basis) or agent (i.e., reporting revenues on a net basis). The Company typically reports digital promotion and media advertising revenues for campaigns placed on third-party owned properties on a gross basis; that is, the amounts billed to its customers are recorded as revenues, and distribution fees paid to retailers or digital publishers are recorded as cost of revenues. The Company is the principal because it controls the digital promotion and media advertising inventory before it is transferred to its customers. The Company’s control is evidenced by its sole ability to monetize the digital coupon and media advertising inventory, by its being the party primarily responsible to its customers, and by its having discretion in establishing pricing for the delivery of the digital promotions and media, or a combination of these.
In other cases (e.g., sponsored search and DOOH offerings), the Company reports revenues on a net basis, that is, the costs for digital advertising inventory and third-party data paid to suppliers are deducted from gross revenues to arrive at net revenues. The Company’s performance obligation in these arrangements is to provide the use of its platforms that enables customers to bid on real-time digital advertising inventory, use of data, and other add-on features in designing and executing their campaigns. The Company charges its customers a platform fee based on a percentage of the digital advertising inventory and data costs purchased through the use of its platforms. The platform fee is not contingent on the results of a digital media advertising campaign. The Company
11


has determined that it is an agent in these arrangements because it does not have control of the digital advertising inventory before it is transferred to the customer and does not set prices.
The Company also offers retailer-specific promotion and media campaign solutions (either, or both, also known as "shopper" offerings). The Company has determined that it is an agent in these arrangements as the customer (i.e., the retailer) controls the delivery of shopper promotion and media programs on its website and sets the pricing. The Company’s obligation in these arrangements is to provide use of its platforms to the retailers. The retailer determines how shopper promotions and media programs are executed through the Company’s platforms. Under these arrangements, the Company reports revenue on a net basis.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling-price basis. The Company determines its best estimate of standalone selling prices based on its overall pricing objectives, taking into consideration market conditions and other factors, including the value of its contracts and the characteristics of targeted customers.
Deferred Revenues
Deferred revenues primarily relate to cash received or billings to customers associated with promotion setup fees, promotion campaign fees and digital media fees that are expected to be recognized upon click, or upon delivery of media impressions, or upon campaign duration, which generally occur within the next twelve months. The Company records deferred revenues, including amounts which are refundable, when cash payments are received or become due in advance of the Company satisfying its performance obligations. The decrease of $9.2 million in the deferred revenue balance for the nine months ended September 30, 2022 was due to $44.6 million of recognized revenue, partially offset by cash payments of $35.4 million received or due in advance of satisfying the Company’s performance obligations, including $3.3 million which the Company determined should have been recognized in prior periods as the underlying performance obligations were satisfied in prior periods. Management determined these amounts were not material to the previously issued annual and interim financial statements.
The Company’s payment terms vary by the type and size of its customers. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
Disaggregated Revenue
The following table presents the Company’s revenues disaggregated by type of services (in thousands, unaudited). The majority of the Company’s revenue is generated from sales in the United States.
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Promotion$44,749 $65,538 $137,516 $194,729 
Media25,587 70,346 80,527 180,351 
Total Revenue$70,336 $135,884 $218,043 $375,080 
 Practical Expedients and Exemptions
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, and (ii) contracts for which it recognizes revenue for an amount where it has the right to invoice for services performed.
12


Sales Commissions
The Company generally incurs and expenses sales commissions upon recognition of revenue for related goods and services, which typically occurs within one year or less. Sales commissions earned related to revenues for initial contracts are commensurate with sales commissions related to renewal contracts. These costs are recorded in sales and marketing expenses within the condensed consolidated statements of operations.
3. Fair Value Measurements
The fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company’s fair value hierarchy for its financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in thousands):
 
September 30, 2022
Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$105,550   $105,550 
Total$105,550 $ $ $105,550 
Liabilities:
Contingent consideration related to acquisitions    
Total$ $ $ $ 
 December 31, 2021
 Level 1Level 2Level 3Total
Assets:    
Cash equivalents:    
Money market funds$105,004   $105,004 
Total$105,004 $ $ $105,004 
Liabilities:
Contingent consideration related to acquisitions  22,275 22,275 
Total$ $ $22,275 $22,275 
The valuation technique used to measure the fair value of money market funds includes using quoted prices in active markets.
As of December 31, 2021, the contingent consideration relates to the acquisition of Ubimo Ltd. (“Ubimo”). As of December 31, 2021, there was no contingent consideration relating to the acquisition of Elevaate Ltd.
13


("Elevaate"). The fair values of contingent consideration are based on the expected achievement of certain revenue targets as defined under the acquisition agreements and were estimated using an option pricing method with significant inputs that are not observable in the market, thus classified as a Level 3 instrument. The inputs included the expected achievement of certain financial metrics over the contingent consideration period, volatility and discount rate. The fair value of the contingent consideration is classified as a liability and is re-measured each reporting period. Refer to Note 6 for further details related to the acquisitions.
The following table represents the change in the contingent consideration (in thousands):
 Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
 UbimoElevaateUbimoElevaate
 Level 3Level 3Level 3Level 3
Balance at the beginning of period$ $ $22,275 $ 
Change in fair value during the period    
Payments made during the period  (22,275) 
Total$ $ $ $ 
 Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
 UbimoElevaateUbimoElevaate
 Level 3Level 3Level 3Level 3
Balance at the beginning of period$21,410 $ $20,930 $8,524 
Change in fair value during the period245  725 47 
Payments made during the period   (8,571)
Total$21,655 $ $21,655 $ 
The Company recorded a charge of zero during the three and nine months ended September 30, 2022, respectively, and $0.2 million and $0.8 million during the three and nine months ended September 30, 2021, respectively, for the re-measurement of the fair values of contingent consideration related to acquisitions, as a component of operating expenses in the accompanying condensed consolidated statements of operations.
During the nine months ended September 30, 2022, the Company paid $22.3 million related to Ubimo's achievement of financial metrics subject to contingent consideration during the measurement period ending December 31, 2021, and as a result, no liability existed as of September 30, 2022. Out of the total consideration paid, $5.7 million was originally measured and recorded on the acquisition date, and $16.6 million was recorded subsequent to the acquisition date through changes in fair value of contingent consideration within the condensed consolidated statements of operations.
Fair Value Measurements of Other Financial Instruments
As of September 30, 2022 and December 31, 2021, the fair value of the Company’s 1.75% convertible senior notes due 2022 was $190.4 million and $193.8 million, respectively. The fair value was determined based on a quoted price of the convertible senior notes in an over-the-counter market on the last trading day of the reporting period. Accordingly, these convertible senior notes are classified within Level 2 in the fair value hierarchy. Refer to Note 8 for additional information related to the Company’s convertible debt.

14


4. Allowance for Credit Losses  
The summary of activity in the allowance for credit losses is as follows (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Balance at the beginning of period$3,715 $1,962 $2,500 $2,070 
Change in provision for expected credit losses(2,659)126 (1,438)127 
Write-offs charged against the allowance(58)(47)(64)(156)
Balance at the end of period$998 $2,041 $998 $2,041 


15


5. Balance Sheet Components
Property and Equipment, Net
Property and equipment consist of the following (in thousands):
 September 30,
2022
December 31,
2021
Software$67,704 $51,093 
Computer equipment20,264 23,696 
Leasehold improvements5,746 8,362 
Furniture and fixtures2,281 2,552 
Total95,995 85,703 
Accumulated depreciation and amortization(69,727)(68,052)
Projects in process96 5,009 
Total property and equipment, net$26,364 $22,660 
Depreciation and amortization expense related to property and equipment was $2.5 million and $6.5 million for the three and nine months ended September 30, 2022, respectively, and $2.1 million and $5.6 million for the three and nine months ended September 30, 2021, respectively.
The Company capitalized internal-use software development and enhancement costs of $5.5 million and $13.7 million during the three and nine months ended September 30, 2022, respectively, and $2.2 million and $6.6 million during the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2022, the Company had $1.8 million and $4.1 million, respectively, and $1.1 million and $2.9 million during the three and nine months ended September 30, 2021, respectively, in amortization expense related to internal-use software, which is included in property and equipment depreciation and amortization expense, and which is recorded as cost of revenues. Capitalized internal-use software development costs are included in Software within "Property and equipment, net". The unamortized capitalized development costs were $19.8 million and $11.6 million as of September 30, 2022 and December 31, 2021, respectively.
During the third quarter of 2022, the Company performed an interim assessment of its long-lived assets to determine if any indicators of impairment existed and determined that there were no indicators of impairment. During the three and nine months ended September 30, 2022, the Company recorded an impairment charge of zero and $1.4 million, respectively, related to capitalized software.
Accrued Compensation and Benefits
Accrued compensation and benefits consist of the following (in thousands):
 September 30,
2022
December 31,
2021
Payroll and related expenses$3,662 $4,253 
Bonus3,143 9,045 
Commissions3,054 5,838 
Vacation1,135 1,087 
Total accrued compensation and benefits$10,994 $20,223 
 
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Other Current Liabilities  
Other current liabilities consist of the following (in thousands):
 September 30,
2022
December 31,
2021
Distribution fees$24,941 $46,313 
Liability related to litigation settlements9,750  
Operating lease liabilities6,002 4,935 
Traffic acquisition cost5,967 12,033 
Prefunded liability3,486 4,782 
Rebate liability1,754 2,444 
Interest payable1,167 292 
Marketing expenses60 636 
Deferred cost related to a retailer agreement 8,000 
Other8,887 15,844 
Total other current liabilities$62,014 $95,279 

6. Acquisitions
Acquisition of Ubimo
On November 19, 2019, the Company acquired all outstanding shares of Ubimo, a leading data and media activation company.
The total acquisition consideration of $20.7 million consisted of $15.0 million in cash and contingent consideration of up to $24.8 million payable in cash with an estimated fair value of $5.7 million as of the acquisition date. The contingent consideration payout was based on Ubimo achieving certain financial metrics between the date of the acquisition through December 31, 2021. The acquisition date fair value was determined using an option pricing model. As of December 31, 2021, the date that the contingent consideration period ended, Ubimo achieved certain financial metrics. During the nine months ended September 30, 2022, the Company paid $24.7 million, of which $22.3 million related to contingent consideration and $2.4 million related to certain bonuses; and as a result, no liability existed as of September 30, 2022. Of the total $24.7 million that was paid, $5.7 million was classified within financing activity and the remaining $19.0 million was classified within operating activity on the Company's condensed consolidated statements of cash flows.
Acquisition of Elevaate
On October 26, 2018, the Company acquired all the outstanding shares of Elevaate, a sponsored search company for retail partners and CPG brands.
The total acquisition consideration of $13.3 million consisted of $7.2 million in cash and contingent consideration of up to $18.5 million payable in cash with an estimated fair value of $6.1 million as of the acquisition date. The contingent consideration payout was based on Elevaate achieving certain financial metrics between February 1, 2019 through January 31, 2021. The acquisition date fair value of the contingent consideration was determined by using an option pricing model. The fair value of the contingent consideration was re-measured every reporting period. As of January 31, 2021, the date that the contingent consideration period ended, Elevaate achieved certain financial metrics. During the year ended December 31, 2021, the Company paid $9.0 million, of which $8.6 million related to contingent consideration and $0.4 million related to certain bonuses; and, as a result, no liability existed as of December 31, 2021. Of the total $9.0 million that was paid, $6.1 million was classified within financing activity and the remaining $2.9 million was classified within operating activity on the Company's consolidated statements of cash flows.
 
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7. Goodwill and Intangible Assets
The Company tests goodwill for impairment annually during the fourth quarter of each year at the reporting unit level and on an interim basis if events or substantive changes in circumstances indicate that the carrying amount of a reporting unit may exceed its fair value (i.e., that a triggering event has occurred). Additionally, the Company evaluates finite-lived intangible assets and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset groupings may not be recoverable.
Goodwill:
In the third quarter of 2022, the Company, which operates in a single reporting unit, determined that a goodwill triggering event had occurred. The Company performed a quantitative assessment to evaluate goodwill. In performing its quantitative impairment assessment, the Company estimated the fair value of its reporting unit using the income approach and market approach. The income approach uses projected operating results and cash flows that are discounted using a market-participant discount rate based on a weighted-average cost of capital. The financial projections reflect management's best estimate of economic and market conditions over the projected period including forecasted revenue growth rate, earnings before interest, taxes, depreciation and amortization ("EBITDA") margin, tax rate, capital expenditures, depreciation and amortization and changes to working capital requirements. The market approach estimates fair value by using comparable industry multiples, such as multiples of revenue and EBITDA.
The key assumptions used in the discounted cash flow model included forecasted growth rate, forecasted EBITDA margins and discount rate. The interim test resulted in the Company’s determination that the fair value of its reporting unit exceeded its carrying value and therefore, its goodwill was not impaired.

While the goodwill of the Company's reporting unit was not impaired as of the end of the third quarter of 2022, there can be no assurance that goodwill will not be impaired in future periods. The Company will continue to monitor its operating results, cash forecasts and challenges from declines in current business and market conditions, as well as impacts of COVID-19, for possible future goodwill impairments to its reporting unit.
Intangible Assets:
 
The following table summarizes the gross carrying amount and accumulated amortization for the intangible assets (in thousands):  
 
 September 30, 2022
 GrossAccumulated
Amortization
NetWeighted
Average
Amortization
Period
(Years)
Media service rights$35,582 $(35,582)$ 0.0
Developed technologies27,170 (24,381)2,789 1.1
Promotion service rights24,426 (24,426) 0.0
Customer relationships22,690 (20,373)2,317 1.7
Data access rights10,206 (10,206) 0.0
Domain names5,948 (5,596)352 0.0
Trade names2,823 (2,823) 0.0
Vendor relationships2,510 (2,510) 0.0
Patents975 (972)3 0.1
Registered users420 (420) 0.0
 $132,750 $(127,289)$5,461 1.3
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 December 31, 2021
 GrossAccumulated
Amortization
NetWeighted
Average
Amortization
Period
(Years)
Media service rights$35,582 $(32,282)$3,300 0.7
Developed technologies27,170 (22,235)4,935 1.7
Promotion service rights24,426 (23,419)1,007 0.6
Customer relationships22,690 (19,311)3,379 2.4
Data access rights10,206 (10,206) 0.0
Domain names5,948 (5,596)352 0.0
Trade names2,823 (2,823) 0.0
Vendor relationships2,510 (2,510) 0.0
Patents975 (945)30 0.8
Registered users420 (420) 0.0
 $132,750 $(119,747)$13,003 1.5
As of September 30, 2022 and December 31, 2021, the Company has a domain name with a gross value of $0.4 million with an indefinite useful life that is not subject to amortization.
Intangible assets subject to amortization are amortized over their useful lives as shown in the table above. Amortization expense related to intangible assets subject to amortization was $2.3 million and $7.5 million during the three and nine months ended September 30, 2022, respectively, and $5.2 million and $18.8 million during the three and nine months ended September 30, 2021, respectively. Estimated future amortization expense related to intangible assets as of September 30, 2022 is as follows (in thousands):    
 
Total
2022, remaining three months$967 
20233,583 
2024559 
2025 
2026 
2027 and beyond 
Total estimated amortization expense$5,109 
 As of September 30, 2022, the Company performed an analysis of the impact of recent events, including business and market disruption, on the fair values of its intangible assets, and determined that an impairment does not exist. However, there can be no assurance that intangible assets will not be impaired in future periods, and the Company will continue to monitor its operating results, cash flow forecasts and challenges from declines in current market conditions, as well as impacts of COVID-19, for future determinations regarding these intangible assets.

8. Debt Obligations
2017 Convertible Senior Notes
In November 2017, the Company issued and sold $200.0 million aggregate principal amount of 1.75% convertible senior notes due December 2022 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “notes”). The notes are unsecured obligations of the Company and bear interest at a fixed rate of 1.75% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2018. The total net proceeds from the debt offering, after deducting transaction costs, were approximately $193.8 million.  
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The conversion rate for the notes is initially 57.6037 shares of the Company’s common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $17.36 per share of common stock, subject to adjustment upon the occurrence of specified events.
The terms of the notes provide that the holders of the notes were entitled to convert their notes at their option at any time prior to the close of business on the business day immediately preceding September 1, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2018 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five-business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate for the notes on each such trading day; (3) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. The terms of the notes further provide that, on or after September 1, 2022, holders are entitled to convert all or any portion of their notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The Company intends to settle the principal amount of the notes with cash.
The terms of the notes provide that the Company was not entitled to redeem the notes prior to December 5, 2020. The terms of the notes further provide that the Company may redeem for cash all or any portion of the notes, at its option, on or after December 5, 2020 if the last reported sale price of its common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending not more than three trading days preceding the date on which it provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the notes.
If the Company undergoes a fundamental change prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
In accounting for the issuance of the notes, prior to the adoption of ASU 2020-06 on January 1, 2022, the Company separated the notes into liability and equity components. The carrying amount of the liability component of $149.3 million was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component of $50.7 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the notes. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) was amortized to interest expense over the term of the notes at an effective interest rate of 5.8%.
Prior to the adoption of ASU 2020-06 on January 1, 2022, the Company allocated the total debt issuance costs incurred of $6.2 million to the liability and equity components of the notes in proportion to the respective values. Issuance costs attributable to the liability component of $4.6 million were amortized to interest expense using the effective interest method over the contractual terms of the notes. Issuance costs attributable to the equity component of $1.6 million were netted with the equity component in additional paid-in capital.
Subsequent to the adoption of ASU 2020-06 on January 1, 2022, which the Company elected to adopt using the modified retrospective method, the Company removed the impact of recognizing the equity component of the notes (at issuance and subsequent accounting impact of additional interest expense from debt discount amortization). The cumulative effect of the accounting change as of January 1, 2022 was an increase to the carrying amount of the convertible notes of $10.4 million, an increase to beginning retained earnings of $38.7 million, and a reduction to additional paid-in capital of $49.1 million.
The net carrying amount of the liability component of the notes recorded in convertible senior notes, net on the condensed consolidated balance sheets was as follows (in thousands):
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September 30,
2022
December 31,
2021
Principal$200,000 $200,000 
Unamortized debt discount (10,358)
Unamortized debt issuance costs(156)(856)
Net carrying amount of the liability component$199,844 $188,786 
The following table sets forth the interest expense related to the notes recognized in interest expense on the condensed consolidated statements of operations (in thousands):
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Contractual interest expense$875 $875 $2,625 $2,625 
Amortization of debt discount 2,691  7,958 
Amortization of debt issuance costs234 233 700 697 
Total interest expense related to the Notes$1,109 $3,799 $3,325 $11,280 
ABL Credit Agreement
On November 17, 2021, the Company, as borrower, and certain subsidiaries of the Company as guarantors, entered into a Loan, Guaranty and Security Agreement (the "ABL Credit Agreement") with Bank of America, N.A., a national banking association, and certain other financial institutions from time to time that may become parties to the agreement (the "Lenders").
Prior to the First Amendment and Limited Waiver to Loan, Guaranty and Security Agreement dated August 5, 2022 (the "First Amendment"), (as more fully described below), the ABL Credit Agreement provided for an asset-based revolving credit facility (the "ABL Facility") for available borrowings up to $100.0 million with the actual amount dependent on a "borrowing base" number consisting of the sum of various categories of eligible accounts receivable (the lesser of such number and $100.0 million, the "Line Cap"). Prior to the First Amendment, the ABL Credit Agreement provided that the ABL Facility was to mature and all outstanding amounts, if any, become due and payable on November 17, 2026 ("fixed ABL maturity date"), except that the maturity date shall be accelerated to the date that is 91 days prior to the maturity of the Company’s outstanding 1.75% Convertible Senior Notes due 2022 (the “Notes”), unless (i) the Notes are repaid in full or converted to equity at least 91 days prior to the maturity of the Notes, (ii) the Notes are refinanced and/or extended to a maturity date that is at least 91 days after the fixed ABL maturity date, or (iii) during the 91 day period prior, the Company has sufficient cash to repay the Notes in full, the Company meets a certain liquidity test after giving pro forma effect to the repayment to the Notes, and there is no event of default under the ABL Facility. Prior to the First Amendment, the ABL Credit Agreement provided that the commitments of the Lenders under the ABL Facility will terminate and outstanding borrowings under the ABL Facility will mature on the fifth anniversary of the closing of the ABL Facility or sooner as described above.
Prior to the First Amendment, the ABL Credit Agreement included conditions to borrowings, representations and warranties, affirmative and negative covenants and events of default customary for financings of this type and size, and provided that, in the event of default, all obligations will be automatically due and payable and all commitments will terminate. Prior to the First Amendment, the ABL Credit Agreement required the Company to maintain a minimum fixed charge coverage ratio at all times and limited the Company’s and its subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on any assets, pay dividends or make certain restricted payments, consummate certain assets sales and merge, consolidate and/or sell or dispose of certain assets. Prior to the First Amendment, the ABL Credit Agreement also required that if the Company's Excess Availability (defined as the Line Cap less borrowed amounts or issued letters of credit) were less than the greater of (i) the Line Cap and (ii) $10.0 million, the Company w maintain a fixed coverage charge ratio of at least 1.00 to 1.00. In addition, the ABL Credit Agreement included customary events of default, which would possibly have required the Company to pay an additional 2% interest on the outstanding loans under the ABL Credit Agreement. Prior to the First Amendment, borrowings under the ABL Facility initially would bear interest at a rate equal to, for BSBY Loans, the BSBY Rate plus the Applicable Margin or, for Base Rate Loans, the Base Rate plus the Applicable Margin. The Applicable Margin was to be determined based on average daily borrowing availability.
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As of June 30, 2022, the Company was not in compliance with the above covenants; however, on August 5, 2022, the Company entered into the First Amendment. Pursuant to the First Amendment, the Company was provided a waiver of a covenant violation for the quarter ended June 30, 2022. In addition, the terms of the ABL Facility were amended to reduce the aggregate value of the credit facility to $50.0 million, modify the fixed charge coverage ratio ("FCCR") covenant conditions for the next three fiscal quarters, revise the springing maturity date, and impose a temporary reduction of $5.0 million in funding available based on the Company's FCCR.
On September 1, 2022, the ABL Credit Agreement, as modified by the First Amendment, terminated pursuant to its own terms. As of September 30, 2022, there had been no borrowings or repayments under the ABL Facility.
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9. Stock-based Compensation
2013 Equity Incentive Plan
In October 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”), which became effective in March 2014 and serves as the successor to the Company’s 2006 Stock Plan (the “2006 Plan”). Pursuant to the 2013 Plan, 4,000,000 shares of common stock were initially reserved for grant, plus (1) any shares that were reserved and available for issuance under the 2006 Plan at the time the 2013 Plan became effective, (2) any shares that become available upon forfeiture or repurchase by the Company under the 2006 Plan and (3) any shares added to the 2013 Plan pursuant to the next paragraph.
Under the 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), and performance-based stock units ("PSUs") to employees, directors and consultants. The shares available will be increased at the beginning of each year by the lesser of (i) 4% of outstanding common stock on the last day of the immediately preceding year, or (ii) such number determined by the Board of Directors and subject to additional restrictions relating to the maximum number of shares issuable pursuant to incentive stock options. Under the 2013 Plan, both the incentive stock options (ISOs) and non-qualified stock options (NSOs) are granted at a price per share not less than 100% of the fair market value on the effective date of the grant. The Board of Directors determines the vesting period for each option award on the grant date, and the options generally expire 10 years from the grant date or such shorter term as may be determined by the Board of Directors.
Stock Options
The fair value of each option was estimated using the Black-Scholes model on the date of grant for the periods presented using the following assumptions:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Expected life (in years)6.020.006.020.00
Risk-free interest rate2.90%%
2.90% - 2.96%
%
Volatility50%%50%%
Dividend yield
There were no option grants during the three and nine months ended September 30, 2021. The weighted-average grant date fair value of options were $1.62 and $1.85 during the three and nine months ended September 30, 2022, respectively.
Restricted Stock Units and Performance-Based Restricted Stock Units
The fair value of RSUs equals the market value of the Company’s common stock on the date of the grant. The RSUs are excluded from issued and outstanding shares until they are vested.
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On March 1, 2021, the Company granted a total of 938,831 performance-based restricted stock units (“2021 PSU Awards”), under the 2013 Equity Incentive Plan, to certain executive leaders with a grant date fair value of $13.28. The PSU Award represents the right to receive shares of the Company’s common stock upon meeting certain vesting conditions. The 2021 PSU Awards will vest in three years subject to the achievement of certain operating performance goals, stock performance goals and continued employment. The fair value of the 2021 PSU Award was measured using a Monte Carlo simulation. As of September 30, 2022, the Company performed an assessment and determined that the likelihood of achievement of certain operating performance goals was not deemed probable. As such, during the three and nine months ended September 30, 2022 and September 30, 2021, no compensation expense was recognized in the Company's condensed consolidated financial statements related to the 2021 PSU Awards. During the second quarter of 2022, certain of the 2021 PSU Awards were modified in connection with a separation agreement between the Company and its former chief executive officer ("former CEO"). Refer to "Stock-based Compensation Expense" below for further details.
On March 1, 2022, (“2022 Grant Date”), the Company granted a total of