SEC Filing | Definitive Healthcare Corp

View:

Download DOC

Download PDF

Download XLS

Download XBRL

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 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

Commission File Number 001-40815

Definitive Healthcare Corp.

(Exact name of registrant as specified in its charter)


Delaware	86-3988281
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

550 Cochituate Road Framingham, MA	01701
(Address of principal executive offices)	(Zip Code)

(508) 720-4224

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.001 par value

The 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, a 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 by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 3, 2022, the number of outstanding shares of the registrant’s Class A Common Stock was 97,660,738 shares.

Definitive Healthcare Corp.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2022

TABLE OF CONTENTS


		Page

	Glossary	3

	Cautionary Note Regarding Forward-Looking Statements	4

Part I.	FINANCIAL INFORMATION	5

	Condensed Consolidated Balance Sheets – March 31, 2022 and December 31, 2021	5

	Condensed Consolidated Statements of Operations – Three Months ended March 31, 2022 and 2021	6

	Condensed Consolidated Statements of Comprehensive Loss – Three Months ended March 31, 2022 and 2021	7

	Condensed Consolidated Statements of Changes in Members’ Equity and Total Equity – Three Months ended March 31, 2022 and 2021	8

	Condensed Consolidated Statements of Cash Flows – Three Months ended March 31, 2022 and 2021	9

	Notes to the Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	38

Part II.	OTHER INFORMATION	39

Item 1.	Legal Proceedings	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 5.	Other Information	39

Item 6.	Exhibits	40

Signatures		41

GLOSSARY

As used in this quarterly report on Form 10-Q, the terms identified below have the meanings specified below unless otherwise noted or the context indicates otherwise. References in this Form 10-Q to “Definitive Healthcare Corp.” refer to Definitive Healthcare Corp. and not to any of its subsidiaries unless the context indicates otherwise. References in this Form 10-Q to “Definitive Healthcare”, "Definitive”, the “Company”, “we”, “us”, and “our” refer (1) prior to the consummation of the Reorganization Transactions, to Definitive OpCo and its consolidated subsidiaries, and (2) after the consummation of the Reorganization Transactions, to Definitive Healthcare Corp. and its consolidated subsidiaries unless the context indicates otherwise.

•

“Advent” refers to funds affiliated with Advent International, a global private equity firm.

•

“Advent Acquisition” refers to the purchase of a majority of the issued and outstanding units of DH Holdings by Advent on July 16, 2019. The acquisition was accounted for as a business combination and purchase accounting was applied.

•

“AIDH Management Holdings, LLC” is a special purpose investment vehicle through which certain persons, primarily employees and certain legacy investors, indirectly hold interests in Definitive OpCo.

•

“Amended LLC Agreement” refers to the agreement entered into by Definitive Opco pursuant to which members have the right to exchange all or a portion of their LLC units for newly issued shares of Class A Common Stock in Definitive Healthcare Corp.

•

“ARR” refers to annualized recurring revenue as of period end.

•

“Blocker Company” or “Blocker Companies” refers to certain entities treated as corporations for U.S. tax purposes that held LLC units in Definitive OpCo which, through the Reorganization Transactions, were merged into Definitive Healthcare Corp. and are now holders of Class A Common Stock.

•

“Class B Units” refers to units granted by AIDH Management Holdings, LLC prior to the Reorganization Transactions intended to be treated as “profit interests” for U.S. federal income tax purposes which have economic interests similar to Stock Appreciation Rights (“SARS”) and which are subject to vesting.

•

“Continuing LLC Members” refers to holders of LLC Units under the Amended LLC Agreement.

•

“Definitive OpCo” refers to AIDH TopCo, LLC, a Delaware limited liability company, and a subsidiary of Definitive Healthcare Corp., following the Reorganization Transactions.

•

“Definitive OpCo Units” refers to unvested Class B Units held by employees of the Company or indirectly through Definitive OpCo at the time of the Reorganization Transactions that were exchanged for unvested Definitive OpCo units based on their respective participation thresholds and the IPO price of $27.00 per share.

•

“DH Holdings” refers to Definitive Healthcare Holdings, LLC, a Delaware limited liability company and wholly-owned subsidiary of Definitive Healthcare Corp.

•

“LLC Units” refers to limited liability company interests in Definitive OpCo.

•

“IPO” refers to the initial public offering of Class A Common Stock of Definitive Healthcare Corp.

•

“NDR” or “Net Dollar Retention Rate” refers to net dollar retention rate, which we calculate as the percentage of ARR retained from existing customers across a defined period, after accounting for upsell, down-sell, pricing changes and churn. We calculate net dollar retention as beginning ARR for a period, plus (i) expansion ARR (including, but not limited to, upsell and pricing increases), less (ii) churn (including, but not limited to, non-renewals and contractions), divided by (iii) beginning ARR for a period.

•

“Reorganization Transactions” refers to transactions completed in connection with the Company’s IPO as defined within Note 1 to our unaudited consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

•

“Spectrum Equity” refers to investment funds associated with Spectrum Equity Management, L.P., a private equity firm.

•

“Sponsors” refers collectively to Advent, 22C Capital, and Spectrum Equity.

•

“22C Capital” refers to investment funds associated with 22C Capital LLC, a private equity firm.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, regional, national or global political, economic, business, competitive, market and regulatory conditions.

For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with Part I, Item 1A, “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2021 and Part II, Item 1A in this Quarterly Report and the other cautionary statements that are included elsewhere in this Quarterly Report and in our public filings, including under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Any forward-looking statement made by us speaks only as of the date on which we make it. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except number of shares)

(Unaudited)


	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	229,795		$	387,498
Short-term investments		109,027			—
Accounts receivable, net		38,465			43,336
Prepaid expenses and other current assets		7,208			6,518
Current portion of deferred contract costs		7,657			6,880
Total current assets		392,152			444,232
Property and equipment, net		4,818			5,069
Operating lease right-of-use assets, net		18,811			—
Other assets		2,876			8,273
Deferred contract costs, net of current portion		12,314			11,667
Deferred tax asset		—			158
Investment in equity securities		—			32,675
Intangible assets, net		387,241			352,470
Goodwill		1,323,516			1,261,444
Total assets	$	2,141,728		$	2,115,988
Liabilities and Equity
Current liabilities:
Accounts payable		6,207			4,651
Accrued expenses and other current liabilities		12,837			22,658
Current portion of deferred revenue		93,574			83,611
Current portion of term loan		6,875			6,875
Current portion of operating lease liabilities		2,522			—
Total current liabilities		122,015			117,795
Long term liabilities:
Deferred revenue		387			412
Term loan, net of current portion		262,226			263,808
Operating lease liabilities, net of current portion		17,728			—
Tax receivable agreements liability		154,673			153,529
Deferred tax liabilities		86,144			75,888
Other long-term liabilities		1,290			1,294
Total liabilities		644,463			612,726

Equity:
Class A Common Stock, par value $0.001, 600,000,000 shares authorized, 97,574,397 and 97,030,095 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		98			97
Class B Common Stock, par value $0.00001, 65,000,000 shares authorized, 57,666,776 and 55,040,110 shares issued and outstanding, respectively, at March 31, 2022, and 58,244,627 and 55,488,221 shares issued and outstanding, respectively at December 31, 2021		—			—
Additional paid-in capital		899,485			890,724
Accumulated other comprehensive income		918			62
Accumulated deficit		(26,301	)		(17,677	)
Noncontrolling interests		623,065			630,056
Total equity		1,497,265			1,503,262
Total liabilities and equity	$	2,141,728		$	2,115,988

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Revenue	$	50,124		$	36,936
Cost of revenue:
Cost of revenue exclusive of amortization shown below		5,950			4,196
Amortization		5,378			5,241
Gross profit		38,796			27,499
Operating expenses:
Sales and marketing		21,293			11,743
Product development		6,850			3,794
General and administrative		10,454			4,636
Depreciation and amortization		9,874			9,446
Transaction expenses		1,310			38
Total operating expenses		49,781			29,657
Loss from operations		(10,985	)		(2,158	)
Other expense, net:
Other (expense) income, net		(101	)		124
Interest expense, net		(1,884	)		(8,454	)
Total other expense, net		(1,985	)		(8,330	)
Net loss before income taxes		(12,970	)		(10,488	)
Provision for income taxes		(87	)		—
Net loss		(13,057	)		(10,488	)
Less: Net loss attributable to Definitive OpCo prior to the Reorganization Transactions		—			(10,488	)
Less: Net loss attributable to noncontrolling interests		(4,433	)		—
Net loss attributable to Definitive Healthcare Corp.	$	(8,624	)	$	—
Net loss per share of Class A Common Stock:
Basic and diluted (1)	$	(0.09	)	N/A
Weighted average Class A Common Stock outstanding:
Basic and diluted (1)		97,158,823		N/A

(1) Basic and diluted net loss per share of Class A Common Stock is applicable only for the periods beginning from September 15, 2021, which is the period following the IPO and related Reorganization Transactions. See Note 18 for the number of shares used in the computation of net loss per share of Class A Common Stock and the basis for the computation of net loss per share.

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Net loss	$	(13,057	)	$	(10,488	)
Other comprehensive loss:
Foreign currency translation adjustments		6			163
Unrealized loss on available-for-sale securities		(309	)		—
Unrealized gain on interest rate hedging instruments		1,646			—
Comprehensive loss		(11,714	)		(10,325	)
Less: Comprehensive loss attributable to Definitive OpCo prior to the Reorganization Transactions		—			(10,325	)
Less: Comprehensive loss attributable to noncontrolling interests		(3,946	)		—
Comprehensive loss attributable to Definitive Healthcare Corp.	$	(7,768	)	$	—

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY AND TOTAL EQUITY

(amounts in thousands, except share and unit amounts)

(Unaudited)


																Accumulated
										Additional						Other
	Class A		Class A		Class B			Class B		Paid-In			Accumulated			Comprehensive		Noncontrolling			Total
	Stock		Amount		Stock			Amount		Capital			Deficit			Income		Interests			Equity
Balance at January 1, 2022		97,030,095	$	97		58,244,627		$	—	$	890,724		$	(17,677	)	$	62	$	630,056		$	1,503,262
Net loss		—		—		—			—		—			(8,624	)		—		(4,433	)		(13,057	)
Other comprehensive income		—		—		—			—		—			—			856		487			1,343
Vested incentive units		—		—		—			—		(696	)		—			—		696			—
Effect of LLC unit exchanges		544,302		1		(544,302	)		—		5,080			—			—		(5,978	)		(897	)
Forfeited unvested incentive units		—		—		(33,549	)		—		—			—			—		—			—
Equity-based compensation		—		—		—			—		4,377			—			—		2,495			6,872
Distributions to noncontrolling interests		—		—		—			—		—			—			—		(258	)		(258	)
Balance at March 31, 2022		97,574,397	$	98		57,666,776		$	—	$	899,485		$	(26,301	)	$	918	$	623,065		$	1,497,265


				Accumulated
				Other			Total
	Members'			Comprehensive			Members'
	Equity			(Loss) Income			Equity
Balance at January 1, 2021	$	1,195,694		$	(131	)	$	1,195,563
Net loss prior to Reorganization Transactions		(10,488	)		—			(10,488	)
Other comprehensive income (loss) prior to Reorganization Transactions		—			163			163
Equity-based compensation		406			—			406
Balance at March 31, 2021	$	1,185,612		$	32		$	1,185,644

See notes to condensed consolidated financial statements.

DEFINITIVE HEALTHCARE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Cash flows provided by operating activities:
Net loss	$	(13,057	)	$	(10,488	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		525			341
Amortization of intangible assets		14,727			14,346
Amortization of deferred contract costs		1,875			843
Equity-based compensation		6,872			406
Amortization of debt issuance costs		176			523
Provision for doubtful accounts receivable		9			35
Tax receivable agreement remeasurement		248			—
Deferred income taxes		69			—
Changes in operating assets and liabilities:
Accounts receivable		8,526			4,399
Prepaid expenses and other current assets		692			(559	)
Deferred contract costs		(3,299	)		(2,854	)
Contingent consideration		(6,400	)		—
Accounts payable, accrued expenses and other current liabilities		(3,579	)		(3,908	)
Deferred revenue		6,249			10,443
Net cash provided by operating activities		13,633			13,527
Cash flows used in investing activities:
Purchases of property, equipment and other assets		(794	)		(3,842	)
Purchases of short-term investments		(109,559	)		—
Cash paid for acquisitions, net of cash acquired		(56,499	)		—
Net cash used in investing activities		(166,852	)		(3,842	)
Cash flows used in financing activities:
Repayments of term loans		(1,719	)		(1,170	)
Payment of contingent consideration		(1,100	)		—
Payments of equity offering issuance costs		(1,299	)		(126	)
Member distributions		(258	)		—
Net cash used in financing activities		(4,376	)		(1,296	)
Net (decrease) increase in cash and cash equivalents		(157,595	)		8,389
Effect of exchange rate changes on cash and cash equivalents		(108	)		(84	)
Cash and cash equivalents, beginning of period		387,498			24,774
Cash and cash equivalents, end of period	$	229,795		$	33,079
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest	$	1,771		$	8,039
Acquisitions:
Net assets acquired, net of cash acquired	$	97,499		$	—
Initial cash investment in prior year		(40,000	)		—
Contingent consideration		(1,000	)		—
Net cash paid for acquisitions	$	56,499		$	—
Supplemental disclosure of non-cash investing activities:
Capital expenditures included in accrued expenses	$	3,500		$	—

See notes to condensed consolidated financial statements

DEFINITIVE HEALTHCARE CORP.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Definitive Healthcare Corp., through its operating subsidiary, Definitive OpCo, provides comprehensive and up-to-date hospital and healthcare-related information and insight across the entire healthcare continuum via a multi-tenant software-as-a-service (“SaaS”) platform which combines proprietary and public sources to deliver insights. Unless otherwise stated, references to “we,” “us,” “our,” “Definitive Healthcare” and the “Company” refer (1) prior to the consummation of the Reorganization Transactions (as defined below), to Definitive OpCo and its consolidated subsidiaries, and (2) after the consummation of the Reorganization Transactions, to Definitive Healthcare Corp. and its consolidated subsidiaries.

Organization

Definitive Healthcare Corp. was formed on May 5, 2021 as a Delaware corporation to facilitate an initial public offering (“IPO”) and other related transactions to carry on the business of Definitive OpCo, a Delaware limited liability company. Following consummation of the Reorganization Transactions, Definitive OpCo became an indirect subsidiary of Definitive Healthcare Corp.

The Company is headquartered in Framingham, MA.

Initial Public Offering

On September 17, 2021, Definitive Healthcare completed its IPO, in which it sold 17,888,888 shares of Class A Common Stock (including shares issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares) at a public offering price of $27.00 per share for net proceeds of $452.8 million, after deducting underwriters’ discounts and commissions (but excluding other offering expenses and reimbursements).

Definitive Healthcare used net proceeds from the IPO to (i) acquire 14,222,222 newly issued limited liability company interests (“LLC Units”) from Definitive OpCo; (ii) purchase 1,169,378 LLC Units from certain holders of LLC Units prior to the IPO; and (iii) repurchase 2,497,288 shares of Class A Common Stock received by the former shareholders of certain Blocker Companies (as defined below). Definitive OpCo used proceeds from the IPO to pay fees and expenses of approximately $11.4 million incurred in connection with the IPO and the Reorganization Transactions and to repay $199.6 million, inclusive of accrued interest expense, of the outstanding borrowings under our 2019 Credit Agreement, with the remaining proceeds intended to be used for general corporate purposes.

Reorganization Transactions

In connection with the IPO, the Company completed the following transactions (the “Reorganization Transactions”). Definitive OpCo entered into a second amended and restated limited liability company agreement (the “Amended LLC Agreement”) pursuant to which members of Definitive OpCo prior to the IPO who continue to hold LLC Units have the right to require Definitive OpCo to exchange all or a portion of their LLC Units for newly issued shares of Class A Common Stock. Until exchanged, each LLC Unit is coupled with one share of Definitive Healthcare Corp. Class B Common Stock. The total amount of shares of Class B Common Stock outstanding is equal to the number of vested LLC Units outstanding. Entities treated as corporations for U.S. tax purposes that held LLC Units (individually, a “Blocker Company” and collectively, the "Blocker Companies") each merged with a merger subsidiary and subsequently merged into Definitive Healthcare Corp. and are now holders of Class A Common Stock.

Following the Reorganization Transactions, Definitive Healthcare Corp. became a holding company, with its sole material asset being a controlling equity interest in Definitive OpCo. Definitive Healthcare Corp. operates and controls all of the business and affairs of Definitive OpCo, and through Definitive OpCo and its subsidiaries, conducts its business. Accordingly, Definitive Healthcare Corp. consolidates the financial results of Definitive OpCo, and reports the noncontrolling interests of unexchanged LLC Unit holders on its consolidated financial statements.

In connection with the Reorganization Transactions and the IPO, Definitive Healthcare Corp entered into a tax receivable agreement. See Note 17. Income Taxes.

Follow-On Offering

On November 22, 2021, Definitive Healthcare Corp. completed a follow-on offering, in which it sold 11,000,000 shares of Class A Common Stock at a public offering price of $36.00 per share for net proceeds of $382.1 million, after deducting underwriters’ discounts and commissions (but excluding other offering expenses and reimbursements).

Definitive Healthcare Corp. used net proceeds from the follow-on offering to (i) acquire 7,000,000 newly issued LLC Units from Definitive OpCo; (ii) purchase 1,766,762 LLC Units from certain unitholders; and (iii) repurchase 2,233,238 shares of Class A Common Stock received by the former shareholders of certain Blocker Companies. Definitive OpCo used net proceeds from the

follow-on offering to pay fees and expenses of approximately $1.6 million incurred in connection with the follow-on offering, with the remaining proceeds intended to be used for general corporate purposes.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and in conformity with rules applicable to quarterly financial information. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative nongovernmental GAAP as found in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The condensed consolidated financial statements as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 are unaudited. Amounts for the period from January 1, 2021 through March 31, 2021 presented in the condensed consolidated financial statements and notes to the condensed consolidated financial statements herein represent the historical operations of Definitive OpCo. The amounts as of March 31, 2022 and December 31, 2021 and for the period from January 1, 2022 through March 31, 2022 reflect the consolidated operations of Definitive Healthcare Corp. and its consolidated subsidiaries. All adjustments, consisting of normal recurring adjustments, except as otherwise noted, considered necessary for a fair presentation of the unaudited interim condensed consolidated financial statements for these interim periods have been included.

Refer below and to Note 2. Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for the Company’s significant accounting policies and estimates.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. These estimates relate, but are not limited to, revenue recognition, allowance for doubtful accounts, contingencies, valuations and useful lives of intangible assets acquired in business combinations, equity-based compensation, and income taxes. Actual results could differ from those estimates.

Leases

Effective January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02—Leases (Topic 842) (“ASC 842”).

In accordance with ASC 842, the Company, at the inception of the contract, determines whether a contract is or contains a lease. For leases with terms greater than 12 months, the Company records the related operating or finance right of use asset and lease liability at the present value of lease payments over the lease term. The Company is generally not able to readily determine the implicit rate in the lease and therefore uses the determined incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate represents an estimate of the market interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. Renewal options are not included in the measurement of the right of use assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods. Some leases also include early termination options, which can be exercised under specific conditions. Additionally, certain leases contain incentives, such as construction allowances from landlords. These incentives reduce the right-of-use asset related to the lease.