kld-10k_20201231.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ No ☒

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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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 June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the closing sales price of $8.05 on the OTC Pink Sheet Market, was approximately $342 million.

As of March 18, 2021, there were 42,533,482 of the registrant’s common stock, par value $0.0001 per share, outstanding.

Portions of the registrant’s definitive proxy statement relating to its annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting”), to be filed with the Securities and Exchange Commission (the “SEC”) within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates, are incorporated herein by reference where indicated. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, such proxy statement is not deemed to be filed as part hereof.

We believe that this Annual Report on Form 10-K, or some of the information incorporated herein by reference, contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Report, or in the information incorporated herein by reference, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. When we discuss our strategies or plans, we are making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, our management.

Forward-looking statements in this Annual Report on Form 10-K and in any documents incorporated by reference herein may include, for example, statements about:

The forward-looking statements contained in this Annual Report on Form 10-K and in any document incorporated by reference are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

In this Annual Report on Form 10-K, we refer to the special purpose acquisition company, Pivotal Acquisition Corp. (“Pivotal”), prior to the Closing Date (as defined below) as the “Company.” Following consummation of the Business Combination, the “Company,” and references to “we,” “us,” or similar such references should be understood to be references to the combined company, KLDiscovery Inc. When this Annual Report on Form 10-K references “LD Topco” and describes the business of KLDiscovery, it refers to the business of LD Topco, Inc. and its subsidiaries prior to the consummation of the Business Combination. Following the date of the Business Consummation, references to “KLDiscovery” should be understood to reference KLDiscovery Inc. This Annual Report on Form 10-K also refers to our websites, but information contained on those sites is not part of this Annual Report on Form 10-K.

The Company was incorporated under the name “Pivotal Acquisition Corp.” as a blank check company on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, stock purchase, reorganization or similar business combination with one or more businesses or entities. Our efforts to identify a prospective target business were not limited to any particular industry or geographic location but focused on companies in North America in industries ripe for disruption from continuously evolving digital technology and the resulting shift in distribution patterns and consumer purchase behavior.

In August 2018, Pivotal Acquisition Holdings LLC (the “Founder”) purchased 5,750,000 shares of Class B common stock (“founder shares”) for an aggregate purchase price of $25,000 in connection with the Company’s organization. The Founder transferred 50,000 founder shares to each of our independent directors in December 2018 and transferred 100,000 founder shares to our chief financial officer in December 2018, in each case at the same per-share purchase price paid by the Founder. These shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

On February 4, 2019, we consummated our initial public offering (“IPO”) of 23,000,000 units, including 3,000,000 units subject to the underwriters’ over-allotment option. Each unit consisted of one share of Class A common stock and one redeemable public warrant (“Public Warrants”), with each Public Warrant entitling the holder to purchase

one share of Class A common stock at a price of $11.50 per share commencing 30 days after the consummation of an initial business combination. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $230 million. Cantor Fitzgerald & Co. acted as the sole book-running manager and BTIG, LLC acted as lead manager of the offering. The securities sold in the IPO were registered under the Securities Act on a registration statement on Form S-1 (No. 333-229027), which became effective under Section 8(a) of the Securities Act on January 31, 2019.

Simultaneous with the consummation of the IPO, we consummated the private placement of an aggregate of 6,350,000 private warrants (“Private Warrants” and, together with the Public Warrants, the “Warrants”) to the Founder at a price of $1.00 per Private Warrant, generating total proceeds of $6.35 million. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The Private Warrants are identical to the Public Warrants included in the units sold in the IPO, except that the Private Warrants are non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchaser or its permitted transferees. In connection with the Business Combination, the Founder forfeited 1,764,719 Private Warrants.

Following the IPO, a total of $230 million was placed in the trust account and the remaining proceeds, net of underwriting discounts and commissions and other costs and expenses, became available to be used as working capital to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses.

On December 19, 2019 (the “Closing Date”), the Company and LD Topco, Inc., a Delaware corporation (“LD Topco”), consummated a business combination pursuant to an Agreement and Plan of Reorganization, dated as of May 20, 2019, as amended by (i) the Amendment to Agreement and Plan of Reorganization, dated as of October 30, 2019, and (ii) the Amendment No. 2 to Agreement and Plan of Reorganization, dated as of December 16, 2019 (the “Merger Agreement”), by and among the Company, Pivotal Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), LD Topco, and, solely in its capacity as representative of the stockholders of LD Topco, Carlyle Equity Opportunity GP, L.P., a Delaware limited partnership (“Carlyle”). Pursuant to the Merger Agreement, among other things, Merger Sub was merged with and into LD Topco, with LD Topco surviving as a wholly owned subsidiary of the Company (the “Business Combination”).

The Business Combination was accounted for as a reverse merger in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Under this method of accounting, the Company will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on (i) LD Topco shareholders owning the majority interest of the combined company, (ii) LD Topco being represented on the board of directors of the combined company by up to three members, in addition to the chief executive officer of LD Topco, (iii) LD Topco’s senior management comprising the senior management of the combined company and (iv)

LD Topco’s operations comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of LD Topco issuing stock for the net assets of Pivotal, accompanied by a recapitalization. The net assets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of LD Topco.

We are an “emerging growth company,” as defined under the JOBS Act. As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of such extended transition period.

We will remain an emerging growth company until the earlier of (i) December 31, 2024 (the last day of the fiscal year following the fifth anniversary of the consummation of our IPO), (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (iv) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior three-year period.

We are one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. In 2020, we served over 4,400 legal technology clients, including 98% of the American Lawyer 100 (the “AM Law 100”) and 61% of Fortune 500 companies. We have broad geographical coverage in the eDiscovery and data recovery industries with 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe. Our technology and service offerings protect our clients from growing information governance challenges, litigation, compliance breaches and data loss.

Our legal technology service offerings provide a wide variety of solutions for information governance and eDiscovery, including forensic collections, data processing, secure hosting, managed review, advanced analytics and document production. eDiscovery refers to a process in which electronic data is sought, located, secured, searched and analyzed with the intent of using it as evidence in a civil, criminal or investigative legal case or regulatory action. Our data recovery service offerings allow clients to recover data in the event of physical or logical loss and provide data management tools and solutions and proprietary data erasure technologies. We differentiate ourselves through our leading integrated suite of proprietary software and services, geographic scale and award-winning corporate culture, which we believe drives our client service success.

Our longstanding relationships with our clients are driven primarily by two factors: technological excellence and a culture of client service. We were ranked as a top eDiscovery provider in an aggregation of fourteen “Best Of” customer surveys from a variety of ALM online legal publications.

We offer our clients both proprietary and third-party solutions to address their legal technology requirements. Our proprietary end-to-end eDiscovery solution, Nebula, can be deployed on the cloud, on premise or behind a client’s firewall via mobile kits. This technology is a key selling point and these solutions are critical to our success. We believe that our proprietary solutions offer us a unique competitive advantage in the industry, giving us an exclusive product, which allows our clients to execute their job functions quickly and with a high degree of accuracy, thus saving them time and expense. In addition to our proprietary suite of tools, we can integrate third-party applications and tools into our workflow to create what we believe is the best possible solution for our clients. This is useful for

projects where clients want to take advantage of our technology platform, but may also have a need to leverage technology that specializes in one narrow aspect. We uphold a core set of client service values including teamwork, responsiveness and sole focus on client service. As we have scaled our global operations, this set of shared beliefs has created a unique environment where employees thrive and work together to deliver our white-glove, 24/7/365 service to our clients. In an industry that is driven by long-term, repeat relationship business, we believe our technology solutions, coupled with our dedication to excellent service, have continued to set us apart from the competition.

We were founded in 2005 as a forensic and eDiscovery company. We recapitalized with an investment from WestView Capital Partners (“WestView”) in September 2011, at which point we began executing a targeted acquisition strategy focused on tuck-in acquisitions of companies that would benefit from our scale and offer us advanced technology solutions and attractive client relationships. Since 2013, we acquired nine U.S. regional eDiscovery companies ranging in size and capabilities, including our 2013 acquisition of AlphaLit and our 2014 acquisition of RenewData. The RenewData acquisition facilitated our entry into the data archiving market, allowing us to increase our geographic reach, diversify our client base, grow our salesforce and further develop our technology platform.

In 2015, we recapitalized with The Carlyle Group (“TCG or Carlyle”) and Revolution Growth III L.P. (“RG or Revolution”). This recapitalization provided us with the resources to execute our largest acquisition to date, Kroll Ontrack, which was completed in December 2016. The Kroll Ontrack acquisition expanded our international operations, allowing us to position ourselves as one of a small number of eDiscovery companies with cross-border capabilities. The acquisition also made us a global leader in data recovery services, via the “Ontrack” business, which has been providing data recovery services since 1985.

In 2017, we launched Nebula, a proprietary end-to-end eDiscovery solution optimized for the cloud. In 2018, in order to make further investments in sales and technology, we announced growth equity financing from our prior investor, WestView, together with Carlyle and Revolution. Coinciding with the investment, we released our mobile eDiscovery solution, Nebula Private Cloud (“NPC”), which allows our clients to have a small-scale private data center behind their own firewall. Also in 2018, we furthered our geographic expansion through Western Europe and Canada by opening additional data centers and managed review facilities.

In 2019, we announced our Nebula Big Data Store offering for information governance management which will include legal hold and notification services, thus expanding our proprietary technology suite into the information archiving market.

In 2020, in response to the unprecedented COVID-19 global pandemic and the corresponding travel restrictions, we announced our Remote Collection (“RCMgr”) offering as an alternative to on-site collections. This self-collection software allows end-users and IT professionals to perform defensible collections of hard drives, loose files and email servers. We also successfully transitioned to remote document review, which enabled review attorneys to continue working securely from home in light of the global disruption to in person work caused by the COVID-19 pandemic.

eDiscovery is an essential component of litigation, government investigations and regulatory and compliance submissions, where parties exchange Electronically Stored Information (“ESI”) with each other. eDiscovery is subject to rules and agreed-upon processes, which often involve reviewing data for privilege and relevance before it is exchanged. eDiscovery software and services facilitate the identification, preservation, collection, review and exchange of ESI. The eDiscovery industry is highly fragmented with over 100 vendors, and in 2020, the top three pure play eDiscovery vendors accounted for approximately 15% of the industry.

According to Complex Discovery, the eDiscovery market is expected to grow from $10.9 billion in 2020 to $15.1 billion in 2025, representing a 6.8% compound annual growth rate (“CAGR”). We believe the industry is in the midst of a transformation driven by data proliferation and compounded by increasing complexity in the makeup and composition of the data we must be equipped to handle. These two factors help drive the growth.

Data Proliferation. According to IDC, electronic data will reach 175 zettabytes by 2025. Data is growing at an exponential rate due to several factors, including the adoption of mobile devices, accessibility of hosted systems and increased reliance on electronic data storage. With ESI expected to continue growing at a significant rate, the organizations that effectively deploy advanced technologies, such as predictive coding and data analytics, and are able to help their clients work through large data sets quickly and accurately will be best positioned to earn increased market share.

Market Shift to the Cloud. eDiscovery solutions are typically deployed in one of three fashions: On-premise (hosted at one of our data centers), in the public cloud (Google, Amazon Web Services, Microsoft Azure) or behind a client’s firewall. Although on-premise hosting has largely been the dominant deployment to date, cloud deployment is expected to see significant growth. IDC predicts that by 2025, 49% of data will be stored in public cloud environments. Deployment in the public cloud offers many benefits, including scalability, flexibility, security and compliance, and, as a result, the adoption of cloud technology is expected to continue to increase. In particular, small and medium-sized enterprises are adopting cloud deployment mainly due to its cost-effectiveness and advanced results.

Data archiving serves a critical role in the management of organizational information resources for all businesses, regardless of size. Information archiving addresses information preservation for long-term access, enhancing access to large volumes of information in order to render it more useable and thus valuable. Information archiving also facilitates data management and disposition based on content of such data and need for preservation and/or disposition. As a result, data archiving serves as a primary source of information in legal discovery for litigious organizations. In the cloud economy, data archiving is increasingly displacing traditional backup strategies for disaster recovery purposes, since archiving provides a defense against malicious or inadvertent data loss by insiders and can be an insurance policy against ransomware. The legal hold software market overlaps with both the data archiving market and the eDiscovery software market and addresses the need for organizations to comply with legal requirements to preserve data in the face of pending litigation. Finally, the regulatory compliance software market is driven by the myriad regulatory regimes around the world that require organizations to preserve certain information, sometimes on immutable storage, for specified minimum periods. Conversely, some regulations require verifiable destruction of information when a specified time period has elapsed or certain events arise, and data archiving facilities easy execution of such requirements.

According to The Radicati Group, the information archiving market is expected to grow to $8.5 billion by 2022. Significant trends affecting this market include the shift to cloud computing and storage from traditional on-premises computing and storage, increased demands for storage to do more than simply preserve data and the advent of the “API economy,” in which vendors offer application programming interfaces (“APIs”) that enable other vendors to integrate with, extend and enhance the functionality of their core product, thereby increasing value for an end-client. These trends are driven by the widespread and general adoption of cloud services for many functions, a need for businesses or functions with variable demand to favor operational expenditures over capital expenditures, and a need for systems and data to support multiple functions, thereby driving efficiency and cost containment.

When consumers and businesses lose or cannot access data due to system failures, accidental deletion, physical damage, natural disasters, ransomware or user error, and no backup is available, data recovery service companies can help recover data which would have otherwise been lost. Data recovery service vendors can typically recover data from hard disk or solid state drives, flash drives and USB external drives, while some have the capability to recover data from servers, Redundant Array of Inexpensive Disks (“RAID”) systems, enterprise storage areas networks and network attached storage systems, backup tapes, optical disks, databases and virtual machines. Data recovery service companies use software tools and physical inspection to diagnose and determine the condition of

the media and what data may be recovered. They then make an image of the data and perform a logical reconstruction of the data. In the case of physical damage, the device may need to be disassembled in a clean room lab and spare parts used to facilitate the recovery.

This fragmented industry is served by thousands of vendors, the majority of which are small electronics repair shops using off-the-shelf data recovery software tools. There are very few global data recovery providers that have clean room labs and physical data recovery capability with multiple labs. Factors affecting the industry include the increasing use of mobile devices, use of the cloud, streaming content, cost of storage and complexities of edge and analytics workloads and advanced data protection systems.

We have built an integrated suite of eDiscovery tools and services covering information governance, forensic collections, data processing, secure online hosting, managed review, advanced analytics and document production. In addition, we offer data recovery solutions ranging from cleanroom facilities to proprietary data erasure, data recovery and data management tools.

We are one of the largest globally scaled eDiscovery providers in a highly-fragmented industry of over 100 vendors. With approximately 2.3% of the current eDiscovery market, based on 2020 eDiscovery revenue, we are poised to continue to gain market share via strategic acquisitions.

Nebula. Nebula is a proprietary end-to-end information governance and eDiscovery platform which helps to facilitate the identification, preservation, collection, processing, review and exchange of ESI. Nebula is powered by our in-house technology that has been developed, tested and trusted to improve the eDiscovery experience. Nebula is unique to us and contains the latest advancements in eDiscovery, while still delivering essential functionality. We offer three hosting options for Nebula: On-Premise at our data centers, in the public cloud (via Microsoft Azure cloud), and at a client’s location via NPC. NPC is particularly noteworthy as it allows for processing, filtering, analysis, review and production of ESI without the need to transfer data outside of the client’s location or across borders.

eDiscovery.com Review (“EDR”). EDR is an all-encompassing, single platform used to search, review and exchange ESI. Over the past decade, our clients have produced to requesting parties over one billion documents and billions of pages using EDR.

Relativity. In 2006, we became the first vendor to license Relativity, a widely used document review tool. Shortly thereafter, we hosted the first case to reach one million records on the platform, and we have consistently worked to improve our clients’ experiences by offering a suite of proprietary enhancements exclusive to us, together with our

white-glove client service. Our differentiated data hosting environment offers our clients optimal performance, reliability and redundancy. We currently host Relativity in six countries worldwide.

KLD Analytics. Developed through collaboration among our data scientists, software engineers and legal professionals, KLD Analytics offers a full range of technology-assisted review tools, supported by our team of technologists and consultants. This suite of tools offers features such as:

KLD Processing. Our proprietary processing platform has been used exclusively by us for over 15 years. KLD Processing is a highly scalable platform which ingests disparate data types and sources, extracts the content of documents, removes duplicative or otherwise innocuous data, such as operating and system files, and exports data for review and production.

Managed Review Services. Our managed review services provide the facilities, staffing and expertise necessary to review large and complex data sets with a high degree of accuracy and efficiency. We assemble review teams of experienced legal professionals for any type of case. Each team member is a qualified attorney who has passed a selective screening process and has received training from our review managers. Review managers utilize proven methodologies to target and address quality issues early, allowing us to intelligently prioritize the documents that need to be reviewed more closely. Review managers are able to glean insights into productivity and quality using our proprietary technology to deliver a higher quality production. We have experience handling managed reviews for a variety of types of matters, ranging from litigation, investigations and regulatory reviews, such as second requests, and have conducted reviews in over 30 languages. We have document review facilities in the United States, the United Kingdom and the European Union, and regularly recruit over 1000 remote reviewers across the United States.

Digital Forensics Services. One of our specialties is computer forensics, including collections and analysis. Without a sound forensic collection, critical electronic evidence may be missed, inadvertently altered or otherwise rendered inadmissible. Whether it be for a small matter, such as a collection of data from a single device, or a large corporate investigation involving multiple custodians and data sources, in-person or remote, our collection analysts will determine and execute the most defensible, efficient and cost-effective strategy. Each year, we regularly collect data from many countries around the world. As a result, we possess a deep bench of talent with knowledge of country-specific discovery laws and customs. With offices across the globe, our collection team can be on the ground quickly in most regions. Our proprietary Remote Collection Manager (“RCMgr”) product is a suite of tools used to facilitate document collections remotely and by end-users, allowing defensibility and accuracy to be maintained without the need to deploy personnel onsite. RCMgr hard drives can arrive pre-configured to collect only the data within scope and the RCMgr tool logs the entire collection in granular detail, ensuring that we can track the process from start to finish. Upon completion of the collection, RCMgr verifies and encrypts the collected data for secure shipment back to one of our labs.

Our digital forensic services include analysis and investigative services in addition to collection services. Wherever electronic equipment is used, there is a potential source of electronic evidence and digital information, including a “bread crumb” trail to illuminate misuse or wrongdoing. Our computer forensics teams help extract critical evidence, recover any data that culprits may have sought to erase or hide, retrieve key data buried in documents and

organize data contained in multiple information sources. A forensic investigation may be undertaken on a wide range of media as anything that stores data can potentially be investigated.

Legal Hold Management. A legal hold plan that recognizes when the duty to preserve data begins, what it entails, how to implement it and when it ends is essential to any information governance or eDiscovery strategy. Our Legal Hold Management solution addresses these issues through comprehensive technology and defensible processes. With a flexible Software-as-a-Service (“SaaS”) delivery model, clients can choose to manage holds on their own using our technology or leverage our consultants to oversee and manage the process. In addition to leveraging commercially available tools, such as Relativity Legal Hold, we offer Nebula Legal Hold, which simplifies the legal hold process by managing and tracking legal hold communications and key data in a single location. Project initiation and management is efficient and flexible, whether utilizing customized communications or leveraging a full bank of legal hold templates, including initial notices, questionnaires, follow-ups and acknowledgments.

Office 365 Migration & Management. As an inaugural Microsoft Office compliance and eDiscovery partner, we have decades of industry experience partnering with clients as they prepare for unexpected lawsuits and regulatory investigations. Our experts receive a large volume of questions from outside counsel and corporate legal departments concerning Office 365. As a Microsoft partner, we provide the expertise and services necessary to reliably and defensibly leverage the Data Governance, Search & Investigation and Advanced eDiscovery suites in Office 365. Examples of common challenges our consultants assist with include:

Nebula Big Data Store. Nebula Big Data Store is a highly scalable, enterprise-grade storage solution with economics that rival back-up tape. Nebula Big Data Store runs on Microsoft’s Azure cloud, allowing it to be available anywhere in the world in a highly secure and resilient manner. Time- and event-based retention policies, defensible deletion and preservation controls are all built-in, offering excellent value. Nebula Big Data Store works hand-in-hand with Nebula Legal Hold for seamless preservation activities. The product eliminates costly, highly duplicative, on-premises “dumping grounds” that cannot be searched or managed effectively.

Nebula Big Data Store is designed to solve enterprise problems stemming from burgeoning data volumes, fragmented application landscapes and increasing business, regulatory and legal demands, and it positions us to take advantage of evolving trends in the information archiving services industry. Nebula Big Data Store offers an API, making it simple for other products to connect to it and further extend and enhance the value of the information stored within the tool. The tool can assist with legacy application retirement, dark data remediation and information governance, among other use cases. Nebula Big Data Store works seamlessly with our eDiscovery offerings, covering the entire eDiscovery lifecycle. It is also less expensive and simpler to deploy than traditional archiving solutions. Finally, our experience and expertise in machine learning in eDiscovery positions us well to extend our archiving offering into the regulatory compliance intelligence market.

Data Recovery. Business and private users routinely store business-critical data on servers, laptops, mobile devices and phones. As a result, data loss events can be devastating. The cost to an enterprise can amount to millions of dollars if they are unable to access important data for business operations.

To address those data loss events when they occur, we provide data recovery services worldwide. Data recovery refers to the recovery of specific information that is inaccessible due to accidental deletion, ransomware, hard drive accidental formatting, Windows reinstallation, partition loss, virtual machine deletion, system booting failure or physical damage of a storage device. The data recovery process involves a secure chain of custody and begins with a diagnosis of the media (hard disk drive, solid state drive, flash drive, RAID, database, tape or optical disk) by our data recovery engineers. The next step is to image the media, a bit by bit copy of the storage areas of the media, along with the system and hidden areas. The engineers then use proprietary tools and methods to reconstruct the data structures from the media image, which includes hidden and system areas. Physical damage may require additional clean room lab procedures, disassembly and use of new parts to access and reconstruct as much of the data as possible.

Ontrack Data Recovery performed over 42,000 data recoveries in more than 70 countries in 2020. Most of our clients believed that their data was secure, safe and backed-up although, for various reasons, it was not. When other data protection efforts fail, Ontrack can often recover our clients’ data, documents and critical systems. We believe that Ontrack is a global leader in the in-lab data recovery services industry and we have a 30-year history of developing our own recovery tools and making significant investments in automation. More than 20% of our data recovery jobs worldwide come from IT service companies or other data recovery companies who re-sell our data recovery services to their clients.

Email Extraction. We offer professional email recovery services for consumers and businesses alike. From individual files to entire databases, we maintain the expertise and technology to support practically any use case. The success of email recovery is dependent on where the email is stored. Email software, such as Microsoft Outlook, commonly stores email on hardware like a laptop, desktop, mobile phone, tablet or server. We can easily recover email from both functioning and non-functioning hardware. Additionally, our recovery engineers are experienced in recovering enterprise email no matter how it is stored on a client’s server, whether it is inside a database, a Microsoft Exchange Information Store or individual messages in separate files, such as .pst containers.

Tape Services. We provide a range of tape services to solve the problems associated with legacy backup tapes and regularly support our clients to solve the following challenges:

Data Destruction Services. Permanently deleting data isn’t as straightforward as pressing a delete button – it takes time and proper resources. Data that is not completely expunged before the media is disposed of is vulnerable to exposure. To increase the security of data, a secure, verified data destruction process is required. Based on their knowledge, our data experts seek to select and execute the most appropriate data destruction method for the client’s media. Once the data has been destroyed, we provide a certificate of destruction and disposal.

We support our clients throughout the whole data destruction process by offering data destruction services in our labs or onsite using Blancco Erasing Software or our Ontrack Degausser. For clients who want to handle the data destruction process themselves, we sell these products to the client and advise them how to best use them.

Mobile Phone Repair. We can repair broken screens and replace damaged batteries in many commonly used Apple and Samsung devices at our labs around the world.

Ontrack EasyRecovery. Developed through our partnership with one of the world’s leading data recovery software manufacturers, Ontrack EasyRecovery is able to handle nearly every type of logical data loss (not physical damage) situation. Ontrack EasyRecovery allows clients to perform precise file recovery of data lost through deletion, reformatting and a number of other data loss scenarios. The product recovers data from solid-state drives (“SSD”) and conventional hard drives, memory cards, USB hard drives, flash drives and optical media. The product functions on both Windows and Mac operating systems and comes in several different versions, ranging from a free version

ideal for small one-time recoveries to a Toolkit version which would give a professional the ability to handle complex projects. There is a “free” version that is capable of recovering up to 1 GB of data, a “Home” version for straightforward recoveries, a “Professional” version suitable for small to medium businesses and a “Technician” version that includes the tools needed to successfully perform data recoveries on all types of computer storage devices and rebuild broken RAID volumes.

Ontrack PowerControls. We believe Ontrack PowerControls is the market leading granular restore software product, developed from Ontrack’s expertise in data recovery. This product enables email and backup administrators and database administrators to restore individual mailboxes and messages, without having to restore the entire database. Ontrack PowerControls is used to find and export email, SharePoint items and structured query language (“SQL”) tables for eDiscovery, litigation, investigations, compliance, selective migration, develop and test and general restore use cases for IT. We believe Ontrack PowerControls provides a more powerful and faster search tool than native tools, and, most importantly for legal and compliance use cases, it does not alter the metadata, making it forensically sound. Most enterprise backup platforms do not have granular restore capabilities, so they partner with Ontrack and integrate Ontrack PowerControls with their products.

Our eDiscovery solutions and information archiving services are billed on a monthly basis in arrears with amounts typically due within 30 to 45 days. Our data recovery services are billed as the services are provided, with payments due within 30 days of billing. The majority of our data recovery software is billed monthly in advance with amounts typically due within 30 to 45 days; however, depending on the client contract, billing can occur annually, quarterly or monthly.

Market Leader Across the eDiscovery Space. We are the third largest pure play electronic services discovery provider in the $10.9 billion eDiscovery industry, according to third-party data. We have established our market-leading position by leveraging our expansive sales force, national sales and service network, longstanding client relationships and operational expertise. Based on this prior experience, we believe that we will be able to further develop our market share.

Comprehensive Product Offering. We have a broad product offering of premium proprietary technology, such as eDiscovery processing, managed review, data hosting, data analytics, forensic collection, data recovery, archiving, managed services, email management and information governance. We believe that our diverse and comprehensive products and offerings make us the provider of choice for our clients.

Nebula Product Offering. Nebula provides us with several distinct advantages. First, the breadth of Nebula allows us to capture clients as early as the identification phase, via Nebula Big Data Store and Nebula Legal Hold, and keep them in the platform all the way through production. Second, our scale allows the platform to be deployed in many key geographic regions around the world, allowing us to penetrate underserved markets. Third, the flexibility to deploy Nebula in the cloud or at a client’s location, via NPC, removes significant geographical barriers to sales. Lastly, the platform is supported by our team of over 215 project managers and hosting support analysts globally.

Expansive Geographic Footprint. Our geographic presence spans the globe, with 32 offices in 18 countries. Our broad reach provides us with a first responder-type advantage when clients have urgent work requiring immediate attention. In addition, our familiarity with local laws and regulations allows us effectively assist clients in navigating complex, cross-border situations.

Established Client Relationships and Industry Expertise. We have longstanding relationships with a large and diverse group of clients, which include 98% of the AM Law 100 and 61% of Fortune 500 companies. We provide our clients with 24/7/365, follow-the-sun service.

Proven and Experienced Management. We have a strong and highly experienced management team. Our chief executive officer Chris Weiler has more than 25 years of experience in the eDiscovery industry, and is one of the longest tenured CEO’s in the eDiscovery industry globally. During his tenure, Mr. Weiler and his team have identified, acquired and integrated 17 acquisitions and he has a proven track record and playbook for accretive

acquisitions with the ability to target companies that meet rigorous criteria focused on people, culture, client base, geography and technology. As a result of these acquisitions, the acquired company’s client bases are efficiently onboarded onto our proprietary platforms allowing a seamless transition for our clients and full access to our global capabilities, resulting in significant cross-selling opportunities and creating increased revenues and incremental profitability. Our chief financial officer Dawn Wilson has over 20 years of experience in finance and accounting, primarily with public companies in the technology and services industry, and has successfully acquired and integrated over 40 acquisitions in her career.

Increased Product Innovation. Adoption of cloud technology is expected to continue increasing. This shift presents market opportunities that we believe we are well positioned to capitalize upon. Our Nebula platform is a mature product, deployed globally in the cloud, in use by over 5,000 users and backed by our global client support and development teams, ensuring around-the-clock, “white glove” service and a rigorous, yet consistent, cadence for upgrades and improvements. The growth potential for this platform is further accentuated by our breadth of reach, powered largely by Nebula Big Data, which pushes our products’ capabilities into the information archiving market. We will also continue to advance our technology platform, both in and around Nebula, to give clients useful functionality and increased value.

Growth and Strengthening of Sales Force. We have been and will remain focused on attracting and retaining top sales professionals. We believe that certain key initiatives we are currently undertaking will ensure that accounts have proper coverage and penetration and will allow us to maximize wallet share.

Selectively Pursue Strategic Acquisitions. Due to the fragmentation in the legal technology and data recovery industries, there is substantial opportunity to continue completing strategic acquisitions of scale, as well as smaller, accretive tuck-in acquisitions. We have successfully sourced, executed and integrated ten strategic acquisitions since 2013. Acquisitions allow us to grow the company both inorganically and organically in that we can significantly increase revenue organically due to the breadth of service offerings and proprietary technology that we can provide to newly acquired customer relationships that were not available for the acquired sales people to sell before joining our company. For example, we acquired AlphaLit in 2013, and AlphaLit did not offer Managed Review services or Forensic Collection services. After the acquisition, the AlphaLit salespeople could sell these service offerings to existing AlphaLit customers, thereby increasing revenues. We will primarily focus on small to mid-size opportunities in order to leverage our scalable platform. We are experienced in quickly integrating acquired companies into our broader business, which has allowed us to significantly increase revenue and meaningfully increase EBITDA by focusing on preserving client facing personnel, client retention, seamless transition of clients of the target business and the ability for our new salespeople to sell across a broader platform. Our past acquisitions demonstrate our management’s ability to effectively source, execute and integrate acquisitions into their existing and growing platform. While we will continue to identify merger and acquisition opportunities to explore, we are temporarily halting such activity as a result of the COVID-19 pandemic.

Our legal technology clients include both law firms and corporations serving many industry sectors including finance and banking, pharmaceutical and biotechnology, technology, insurance, real estate and government. Our data recovery clients include individuals and corporations requiring recovery and accessing of data. For the year ended December 31, 2020, we served over 4,400 legal technology clients, including 98% of the AM Law 100 and 61% of Fortune 500 companies. We have longstanding relationships with our clients, and for the years ended December 31, 2019 and 2020, no single client accounted for more than 5% of our revenues.

The eDiscovery market is highly fragmented, competitive and evolving. Our competitors in the eDiscovery market include Consilio, EPIQ, FTI Consulting, Inc, United Lex, EY, Deloitte, KPMG, Navigant, Conduent, Lighthouse, Everlaw, Disco, Logikcull and Transperfect. We believe the principal competitive factors in this industry include:

There are hundreds of small regional eDiscovery providers which may have a few captive relationships but lack the resources or scale to compete for meaningful work. Likewise, of the global and national providers, most lack an end-to-end proprietary platform to complement their global scale and resources. We believe we are uniquely positioned with an ideal complement of global reach, scale of resources and proprietary technology to address almost any client need.

The data recovery market is highly fragmented and generally competitive. Clients choose vendors based on brand awareness and reputation, speed, price and security. Our competitors in the data recovery market include Drivesavers, Gillware Data Recovery, Disk Doctors, Digital Data Recovery DDC and Myung Information Technologies.

We operate with a global sales team to address the specialized needs of our client base and cultivate strategic partnerships with key clients in our industry. Our Legal Technology sales organization comprises over 40 professionals and is led by our sales executives and regional managers. Our business development managers have developed “first-call” relationships with several of our largest clients while providing significant expertise in the technical nature of the services.

Our global sales structure is tailored to deliver quick responses to sales executives on pricing, account ownership requests and general assistance with client requests and training. This structure is built on our foundational values of teamwork and responsiveness. Our global sales force pursues opportunities in a wide range of geographies and is not confined by the traditional territorial structure that competitors offer. This allows us to maximize relationships and revenue.

Sales leadership encourages representatives around the world to collaborate. A global sales strategy initiative has been implemented to facilitate communication between teams on shared major accounts, which includes the coordination of regular calls and information sharing on key accounts. Most law firms have multiple buyers and this model maximizes our ability to increase wallet share.

Sales executives are encouraged to act as their own entrepreneurs, backed by the support of seasoned sales leadership and a global sales operations team. The sales operations team assists the sales team with all client requests including conflict checks, SalesForce data entry, estimate creation and generation of client agreements and work orders. This global support team allows the sales representatives to focus on what they do best – generating new business and maintaining existing client relationships. Our global sales structure and sales operations teams deliver quick responses to representatives and clients, flexible pricing models and simplified matter initiation, giving us a competitive advantage in a fast-paced industry.

We focus on connecting with our clients through our marketing team. Our marketing campaigns are home-grown and highlight the “KLD Difference. One KLD.” and are focused on our powerful, proprietary technology, marketed as “Proprietary Powerhouse.”

We advertise in a wide variety of trade publications and at sports and entertainment events. We also sponsor a variety of events, seminars and conferences around the world. We operate approximately 35 global websites which highlight our leadership, products, services, technology, industry experience, press clippings and our community contributions. Holding true to our values, we are heavily focused on charitable donations and community work,

which are highlighted on our “KLD Community” website page. We also have a number of video advertising campaigns which are shared via YouTube, Twitter and LinkedIn.

We are headquartered in McLean, VA where we house key functions including accounting, finance, human resources, legal, eDiscovery operations, eDiscovery project management, managed review and data recovery. We maintain a diverse geographic footprint globally, with 32 locations in 18 countries. In addition, we have 9 data centers and 18 data recovery labs worldwide. We have document review facilities in the United States, the United Kingdom and the European Union, and regularly recruit over 1000 remote reviewers across the United States.

In addition to on-premise data centers, we deliver our proprietary Nebula platform via the cloud and Nebula Private Cloud, which means that a Nebula environment can be established in any Microsoft Azure location worldwide. The Nebula Private Cloud devices are custom-built hardware running the Nebula platform and, thus, can be deployed virtually anywhere.

We own a range of registered intellectual property rights across the world, primarily trademark registrations and patents.

We own 125 trademark registrations globally and currently have 26 trademark applications at various stages in the application process. Our material trademarks are either registered or are pending applications for registrations in the U.S. Patent and Trademark office and various non-U.S. jurisdictions (but with a focus on the European Union, the United Kingdom, Norway, Switzerland, Japan, Australia, China, Singapore and Hong Kong). We use “KLDiscovery,” “Ontrack” and “Ibas” as our primary corporate trademarks. The trademark “KLDiscovery” has proceeded to registration in Australia, China, the European Union, Hong Kong, India, Switzerland and the United Kingdom. Additionally, we have applied to register “Nebula,” the brand name for our proprietary e-discovery platform, in our key markets and, to date, applications have proceeded to registration in the United States, the European Union, United Kingdom, Switzerland and Brazil.

“Ontrack” and “Ontrack Data Recovery” are used in Canada by us subject to a perpetual license from Kroll, LLC who own the “Kroll Ontrack” trademark in that jurisdiction. This license was granted as part of the Kroll Ontrack acquisition in December 2016.

We are the registered proprietor of over 500 domain names including our key domains used to promote our activities, being kldiscovery.com, ontrack.com and ibas.com together with many local variants of these main domain names.

We own the copyright of many of our business software and tools as they have been created by employees in the course of their employment. These include the Nebula and EDR platforms (two proprietary eDiscovery platforms for access and review of data), the PMDB Database (internal job tracking tool), Service Cloud (data recovery portal), PowerControls (data recovery software for email) and several Relativity applications to enhance the license of standard Relativity platform services.

We have a total of 23 patents, either registered in their respective jurisdiction or at application stage, including recent applications for our Nebula offering.

Human Capital Management - Attracting, Developing and Retaining Highly Qualified Talent

As of December 31, 2020, we had 2,323 employees. This total included 1,125 temporary contingent employees who are employed temporarily to work on active managed review matters. Our employees are not represented by a labor union and we have not experienced any work stoppages. We believe that our employee relations are excellent.

Successful execution of our corporate strategy is dependent on attracting, developing and retaining key employees and members of our management team. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. We continuously evaluate, modify and enhance our internal processes and technologies to increase employee engagement, productivity and efficiency.

As of December 31, 2020, not including the 1,125 employees who are employed temporarily to work on active managed review matters, our employees, including those employed by region, were approximately:

In order to comply with local employee-related laws, we do not require our employees to disclose their race and ethnicity. As of December 31, 2020, based on self-reported information of 61.8% of our employees, our global gender and ethnicity demographics were as follows:

Employee training is used to reinforce these values across our global employee base. Annual participation in trainings related to ethics, environment, health and safety, cyber-security and emergency responses are at or near 100%.

The mailing address of our principal executive office is 8201 Greensboro Dr., Suite 300, McLean, VA 22102 and the telephone number is (703) 288-3380. The website address is www.kldiscovery.com. Information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov. Our SEC filings are also available free of charge on our website at www.kldiscovery.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Our website and the information contained on, or that can be accessed through, our website is not incorporated into this Annual Report on Form 10-K.

An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this Annual Report on Form 10-K, including our historical financial statements and related notes included elsewhere in this Annual Report on Form 10-K, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our Common Stock and Warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements.”

We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.

We process, store and use personal and other special datasets on behalf of some of our clients, which subjects us to governmental regulation and other legal obligations related to privacy and information security, and our actual or perceived failure to comply with such obligations could harm our business and reputation.

We collect, store, transmit, use, disclose and process data that was collected from persons or their devices (“personally identifiable information” or “PII”) and other sensitive client data. In addition to terms in our contractual arrangements with clients, there are numerous federal, state, local and foreign laws, regulations and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of such PII and other personal or client data, the scope of which is continually evolving and subject to differing interpretations. We and our clients must comply with such laws, regulations and directives and we and our clients may be subject to significant consequences, including penalties and fines, for our failure to comply.

For example, on May 25, 2018, the General Data Protection Regulation 679/2016 (“GDPR”) replaced the Data Protection Directive 95/46/EC with respect to the processing of PII in the European Union. The GDPR imposes several stringent requirements for controllers and processors of PII (including non-E.U. processors who process personal data on behalf of E.U. controllers), including, for example, more robust internal accountability controls, a strengthened individual data rights regime, shortened timelines for mandatory data breach notifications, limitations on retention and secondary use of information and additional obligations when we contract with third parties in connection with the processing of PII. Failure to comply with the requirements of the GDPR and the applicable

national data protection laws of the E.U. member states may result in fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. Complying with the GDPR has required us to implement additional internal processes to ensure that we collect and process PII in a compliant way and re-draft all our standard contracts to meet specific articles within the GDPR. As we continue to operate under the GDPR, compliance may become onerous and adversely affect our business, financial condition, results of operations and prospects.

In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from the EEA to the United States. For example, on July 16, 2020, the E.U.-U.S. Privacy Shield Framework, which allows for the transfer of personal data from the US to the EU, was invalidated by the European Court of Justice (“CJEU”) and this was followed on September 8, 2020 by the invalidation of the equivalent Swiss-US Privacy Shield Framework. Three of our group companies are accredited under the E.U.-U.S. Privacy Shield Framework to legitimize the transfer of personal data from the EEA to the US. Although the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate PII transfer mechanism) upon which we rely for intra group transfers of PII (and is the most widely used transfer mechanism by our clients), it made clear that use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals. Additionally, the European Data Protection Board (assigned by the European Commission to oversee data privacy in the EU) has issued guidance concerning data transfers following these CJEU decision which places a higher burden on compliance for data transfers. Given these legal developments, the long-term future of the standard contractual clauses remains uncertain and may be invalidated in future by European courts or supervisory authorities and we could be impacted by changes in law as a result of any future review of these transfer mechanisms. If further legal bases for transferring PII from Europe to the United States are invalidated, or if we are unable to transfer PII between and among countries and regions in which we operate, it could affect the manner in which we provide our services or could adversely affect our financial results.

The introduction of the California Consumer Protection Act (“CCPA”), which became effective on January 1, 2020, introduces the most stringent data privacy laws in the United States. While its effect is targeted at the collection and use of consumer personal data, its introduction has required us to assess certain processes and workflows when using data that could be covered by the CCPA. For example, where data relevant to CCPA is introduced into our systems, we are required to track the location of such data, hold it safely and securely, authenticate and answer requests from data subjects, and purge such data upon expiration of the contractual function for which it is held. These requirements are not only costly in implementation of new processes and functionalities but also, where any violation is found, the CCPA allows for private lawsuits from consumers and liquidated damages between $100 and $750 per consumer for incidences of data breach, in addition to the possible imposition of civil penalties by the Attorney General of California (ranging from no more than $2,500 for each violation and up to $7,500 for any intentional violation found to occur). If further states introduce new privacy laws, it could affect how our services are provided and impact our financial results.

Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others (including clients), a loss of client confidence, damage to our brand and reputation or a loss of clients, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with clients. For example, some countries have adopted laws mandating that PII regarding clients in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly.

Additionally, in connection with some of our product initiatives, we expect that our clients may increasingly use our cloud services to store and process PII and other regulated data. While we include minimum privacy or information security commitments in our contracts, E.U. requirements may make it so that we will be unable to do business without such commitments. Any failure by us to timely amend client contracts to conform to changing data

protection laws, or to comply with our posted privacy policies, other federal, state or international privacy-related or data protection laws and regulations, or the privacy or information security commitments contained in our contracts could result in proceedings against us by governmental entities or others, including individual rights of action, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the increased attention focused upon any liability we may have as a result of lawsuits or regulatory actions could also harm our reputation or otherwise impact the growth of our business. Furthermore, although we market and sell products to our clients to help them comply with federal, state, local and foreign laws, regulations and directives, including the GDPR, our clients are responsible for ensuring they are in compliance with such laws, regulations and directives. Any failure by our clients to comply could result in significant consequences to them, including penalties and fines, and despite the existence of contractual exclusions and marketing disclaimers which make their responsibility for their own compliance clear, our clients may file claims or seek indemnification from us, which may result in reputational harm and require us to expend time, effort and costs to defend such claims or respond to indemnification requests.

In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-regulatory standards that either legally or contractually apply to our clients or us. Any significant change to applicable laws, regulations, directives or industry practices regarding the collection, storage, transmission, processing, use or disclosure of our clients’ data, or regarding the manner in which the express or implied consent of clients for the collection, storage, transmission, processing, use and disclosure of such data is obtained, could require us to modify our solutions and features, possibly in a material manner, and may limit our ability to develop new services and features that make use of the data that our clients voluntarily share with us. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to clients or other third parties, our privacy-related legal obligations or any compromise of security that results in the unauthorized access to, use, release or transfer of PII or other client data, may result in governmental enforcement actions, litigation, negative media attention or public statements against us by consumer advocacy groups or others and could cause our clients to lose trust in us, which would have an adverse effect on our reputation and business. Our clients may also accidentally disclose their passwords or store them on a mobile device that may be lost or stolen, resulting in unauthorized access to their data and creating the perception that our systems are not secure against third-party access. Additionally, if employees or third parties that we work with, such as contractors, vendors or developers, violate applicable laws or our policies, such violations may also put our clients’ information at risk and could in turn have an adverse effect on our business.

We have expanded our involvement in the delivery and provision of cloud computing through business alliances with various providers of cloud computing services and software and expect to continue to do so in the future. The application of U.S. and international data privacy laws to cloud computing vendors is uncertain, and our existing contractual provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against us resulting from the failures of cloud computing providers which we may partner with. While we do limit this in our contractual agreements with clients, the failure to comply with data protection laws and regulations by our clients and business partners who provide cloud computing services could have a material adverse effect on our business. Some cloud computing providers have been reluctant to provide us with information which we need in order to comply with E.U. privacy laws, and some providers refuse to offer legally compliant terms or offer terms that are commercially reasonable. We will need to modify our procurement processes in response to changing client and regulatory demands. If we fail to do so correctly, or in a timely manner, we may experience disruptions in client relationships, or receive regulatory inquiries or be the subject of government enforcement actions, which may in turn cause a material loss in revenues or damage our brand and reputation.

An outbreak of disease or similar public health threat, such as a novel strain of coronavirus, could have an ongoing material adverse impact on the Company’s business, operating results and financial condition.

We are vulnerable to the general economic effects of disease outbreaks and similar public health threats. COVID-19 began to spread globally in late 2019 and was declared a pandemic by the World Health Organization and continues to impact worldwide economic activity. A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. KLDiscovery was eligible for federal government stimulus incentives, including U.S.

payroll tax deferral and employee retention tax credits. For the year ended December 31, 2020, we have deferred $4.0 million in payroll taxes, which we will repay $2.0 million by December 31, 2021 and $2.0 million by December 31, 2022. As of December 31, 2020, we have claimed tax credits of $1.8 million, primarily related to the retention of our employees, which we do not have to repay.

Primarily due to the impact of COVID-19, our revenues decreased by $22.5 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019 as many clients delayed new litigation and court systems closed for a period of time and have been slow to reopen. The extent to which COVID-19 will impact our results, including the ability of our customers to survive and continue to pay in a timely manner, is dependent on uncertain and unpredictable new information about COVID-19 and various new strains now emerging, and the responsive measures taken by the governments of countries we serve, which could adversely impact our business, financial condition or results of operations.

We operate in highly competitive markets and our inability to effectively compete may adversely affect our financial condition and results of operations.

The markets for our products and services are highly competitive and are subject to rapid technological changes and evolving client demands and needs. We compete on the basis of various factors, including product functionality, product integration, platform coverage, quality of service interoperability with third-party technologies, ability to scale and price products and services, worldwide sales infrastructure, global technical support, name recognition and reputation.

Our competitors vary in size, scope and breadth of the products and services they offer and include software vendors that offer software products that directly compete with our product offerings. In our Data & Storage Technology (“DST”) business, we face growing competition from network equipment, computer hardware manufacturers, large operating system providers and other technology companies that increasingly develop and incorporate into their products storage, server management software and backup that compete at some levels with our product offerings. Our competitive position could be materially adversely affected if our clients perceive the functionality incorporated into these products as a replacement for our products. Many of our principal competitors are established companies that have substantial financial resources, recognized brands, technological expertise and market experience, and sometimes have more established positions in certain product lines and geographies than we do. We also compete with smaller and sometimes newer companies, some of which are specialized with a narrower focus than our company, and face competition from other eDiscovery and data management services providers. Our competitors invest significantly in research and development as well as sales and marketing. We also face competition from the backup services solutions offered by cloud IT providers.

Our competitors may be able to more quickly adopt new or emerging technologies or address client requirements and new and emerging technologies may allow startup companies to more quickly enter the market than in the past. We may also face increased competition from companies that provide more in-depth offerings, adapting their products and services to meet the demands of their clients or combining with one of their competitors to enhance their products and services. A number of our principal competitors may continue to make acquisitions to improve the competitiveness of their offerings. Increased competition could cause, among other things, price reductions of our products, reduced profitability and loss of market share. To competitively serve the needs of our existing clients and to attract new clients, we must continue to:

General economic and business conditions together with intense competition in the sales of our products and services place pressure on us to reduce prices for our software and services, and we frequently encounter aggressive price competition. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable than ours, we may need to lower our prices or offer other incentives in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing of both our on-site software business and our cloud business, as well as overall demand for our on-site software product and service offerings, which could reduce our revenues and profitability.

Industry pricing models are evolving, and we anticipate that clients may increasingly request alternative pricing models. These pricing models may exacerbate existing pricing pressures, require investments in different product solutions or place us at a competitive disadvantage relative to our competitors. Moreover, the use of evolving technology by our clients to develop more complex pricing models may lead to additional pricing pressures. If we are unable to adapt our operations to these evolving pricing models, our results of operations may be adversely affected or we may not be able to offer pricing that is attractive relative to our competitors.

Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as our sales force implements, and our clients adjust to, such new pricing policies. Some of our competitors may bundle products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our products. If we do not adapt our pricing models to reflect changes in client use of our products or changes in client demand, our revenues could decrease. An increase in open source software distribution may also cause us to change our pricing models.

Our inability to successfully recover from a disaster or other business continuity event could impair our ability to deliver our products and services and harm our business.

We are heavily reliant on our technology and infrastructure to provide our products and services to our clients. For example, we provide services through computer hardware that is located in our 9 global data centers around the world as well as in cloud-based data centers offered through the Microsoft Azure Cloud. Our physical data centers are vulnerable to damage, interruption or performance problems from earthquakes, floods, fires, power loss, terrorist attacks, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and similar misconduct. The occurrence of any of these events, a decision to close a data center, or other unanticipated problems could result in interruptions in the delivery of certain of our products and services.

Any errors, defects, disruptions or other performance problems with our systems, products and services could reduce our revenue, cause us to issue credits or pay penalties, cause clients to terminate their agreements with us, commence or threaten litigation against us, harm our reputation and damage our clients’ businesses. For example, we may experience disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously, fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our products and services could impact our revenues or cause clients to cease doing business with us. In addition, our business would be harmed if any events of this nature caused our clients and potential clients to believe our services are unreliable. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations.

Our products, SaaS offerings, website and networks may be subject to intentional or accidental disruption that could materially adversely affect our reputation, business and future sales.

Despite our precautions and significant ongoing investments to protect against security risks such as data breaches, cyber-attacks and other intentional or accidental disruptions of our products, offerings and networks, we expect to be an ongoing target of attacks specifically designed to breach or interrupt our networks and systems, which could

harm our reputation and result in litigation, fines and penalties. Sophisticated actors may attempt to penetrate our network security or the security of our website and misappropriate proprietary information or cause interruptions to our services. Our products may come under focused threats and attacks and we or our clients may suffer data loss as a consequence of such attacks on our products. Such cyber-attacks threaten to misappropriate our proprietary information and cause interruptions of our information technology (“IT”) services. Because the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate or detect these techniques. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems and networks. We have experienced and defended against threats to our systems and security including malware, phishing attacks and Distributed Denial of Service attacks, with none having had a material adverse effect on our business to date. However, we may experience more serious incidents in the future. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as we store increasing amounts of our clients’ data in cloud-based environments.

We outsource a number of our internal business functions to third-party contractors, and some of our client facing business operations depend, in part, on the success of our contractors’ own cybersecurity measures. We also partner with cloud service providers for some client service offerings. Similarly, particularly for the DST business, we rely upon distributors, resellers, system vendors and systems integrators to sell our products and our sales operations depend, in part, on the reliability of their cybersecurity measures. Additionally, we depend upon our employees to appropriately handle confidential information and deploy our IT resources in a safe and secure fashion and in accordance with our policies so as not to expose our network systems to security breaches and the loss of data. Accordingly, if our cybersecurity systems, policies and procedures, and those of our contractors, partners and vendors fail to protect against unauthorized access, cyber-attacks or the mishandling of information by our employees, contractors, partners or vendors, our ability to conduct our business effectively could be damaged in a number of ways, including:

Should any of the above events occur, we could be subject to significant claims for liability from our clients and regulatory actions from governmental agencies, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. The regulatory and contractual actions, litigations, investigations, fines, penalties and liabilities relating to data breaches that result in losses of PII, PHI or credit card information of users of our services can be significant in terms of fines and reputational impact, and necessitate changes to our business operations that may be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and remediate damages. Consequently, our financial performance and results of operations would be materially adversely affected.

If we do not continue to attract, motivate and retain members of our senior management team and key employees, we may be unable to expand our products and services offering or effectively manage or grow our business.

Our future success depends upon the continued service and performance of our senior management team and key technical and sales personnel. If we lose any of our senior management term or key technical and sales personnel, we may be unable to effectively manage our current and future operations.

Our success depends upon our ability to attract, motivate and retain highly qualified technical, managerial, and sales and marketing employees in order to implement our corporate development strategy and operations. The pool of qualified candidates is limited and we face intense competition. If we are unable to continue to successfully recruit and retain the most skilled and capable senior managers and key technical and sales employees, our ability to implement our business plan and develop and maintain our software could be adversely affected and our business, financial condition and results of operations could be adversely affected.

Our ability to expand our operations and maintain or increase our revenue is dependent on the quality of our client service and support services, and our failure to provide high level service could have a material adverse effect on our results of operations.

Our clients depend upon our client service and support staff to meet their eDiscovery needs and they demand high-quality support services. Failure to meet that demand could negatively affect our reputation in the marketplace and could adversely affect sales of our services and solutions, potentially having a material and adverse affect on our business, results of operations and financial condition.

Defects, disruptions, performance problems or risks related to the provision of our product offerings could impair our ability to deliver our services and could expose us to liability, damage our brand and reputation or otherwise negatively impact our business.

Certain of our products and services utilize software solutions developed by us or third parties for our clients’ needs, and new releases of software products are issued to our clients periodically. Complex software products, such as those we offer, may contain undetected errors or defects, especially when they are first introduced or new versions are released. Despite testing, these undetected errors may be discovered only after a product has been installed and used either in our internal processing system or by our clients, and could result in unanticipated service interruptions or other performance problems and cause damage to our clients’ businesses. If that occurs, clients could elect not to renew with us, to delay or withhold payment to us, or to make warranty or other claims against us, and we could be obligated to provide service credits based on our failure to meet service level commitments, which could result in additional expense and risk of litigation.

We believe that our reputation and name recognition are critical factors in our ability to compete and generate additional sales. Promotion and enhancement of our name will depend largely on our success in continuing to provide effective products and services. The occurrence of errors in our products or services, the discovery of security vulnerabilities or the detection of bugs by our clients may damage our reputation in the market and our relationships with our existing clients, and as a result, we may be unable to attract or retain clients.

In addition, because our products and services are used to manage data that is often critical to our clients, they may have a greater sensitivity to defects in our products than to defects in other, less critical, applications. As a result, the licensing and support of our products and services involve the risk of product liability claims. Our license agreements with our clients typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in our license agreements vary and may not be effective as a result of existing or future national, federal, state or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any material product liability claims to date, the sale and support of our products entail the risk of such claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against product liability may not be adequate to cover all potential claims.

If we are unable to develop new and enhanced products and services that achieve widespread market acceptance, or if we are unable to continually improve the performance, features and reliability of our existing products and services or adapt our business model to keep pace with industry trends, our business and operating results could be materially adversely affected.

The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing client needs. We believe that key competitive factors in the markets we serve include the breadth and quality of professional services, system and software solution offerings, product integration, platform coverage, the stability of our information systems, the features and capabilities of our product and service offerings, the pricing of our products and services, and the potential for future product and service enhancements. Our future success depends on our ability to keep pace with technological changes and to respond to the rapidly changing needs of our clients by developing or introducing new products, product upgrades and services on a timely and cost-effective basis. We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. Clients may require features and capabilities that our current products and services do not have, such as remote collections from mobile phones. We need to successfully respond to significant market challenges to our existing product portfolio as well as invest in new growth areas based on our core technical capabilities. Our failure to develop products and services that satisfy client preferences in a timely and cost-effective manner may harm our ability to maintain relationships with existing clients, as well as our ability to create or increase demand for our products and services, and may materially adversely affect our operating results. As competition in the IT industry increases, it may become increasingly difficult for us to maintain a technological advantage and to leverage that advantage toward increased revenues and profits. New product development and introduction involve a significant commitment of time and resources and are subject to a number of risks and challenges including:

If we are not successful in managing these risks and challenges, if our new products, product upgrades and services are not technologically competitive or do not achieve market acceptance, or if our efforts are more costly or resource-intensive than anticipated or fail to achieve the expected outcomes, our business, financial condition and results of operations could be adversely affected.

We develop products and services that interoperate with certain software, operating systems and hardware developed by others, and if the developers of such software, operating systems and hardware do not cooperate with us, if we are unable to obtain access to their new products or if we are unable to devote the necessary resources so that our applications interoperate with those third-party systems, our development efforts may be delayed or foreclosed and our business, financial condition and results of operations may be adversely affected.

Our products and services operate primarily on the Windows, UNIX and Linux operating systems, are used in conjunction with the Microsoft SQL and Microsoft Azure platforms, and operate on hardware devices of numerous manufacturers. When new or updated versions of these operating systems, software applications and hardware devices are introduced, it is often necessary for us to develop updated versions of our software applications so that they interoperate properly with these systems and devices. We may not accomplish these development efforts quickly or cost-effectively, or at all, and it is not clear what the relative growth rates of these operating systems and hardware will be. These development efforts require the cooperation of the developers of the operating systems, software applications, and hardware, as well as substantial capital investment and the devotion of substantial employee and/or financial resources. For some operating systems, we must obtain some proprietary application program interfaces from the owner in order to develop software applications that interoperate with the operating system. Operating system and software owners have no obligation to assist in these development efforts, provide us with early access to their technology and products or share with or sell to us any application program interfaces, formats or protocols we may need. If they do not provide us with the necessary access, assistance or proprietary technology on a timely basis, or at all, we may experience product development delays or be unable to expand our software applications into other areas.

A large number of our proprietary software and applications are built on commonly used “open source” licenses. We maintain a record of all “open source” licenses used for such software and applications. Despite this, a failure to materially comply with the terms of such “open source” licenses could negatively affect our business and subject us to possible litigation.

The unavailability of third-party technology could adversely impact our revenue and results of operations.

We license certain eDiscovery-related software from third parties and incorporate or integrate such components into and with our services and products. For instance, we integrate third-party solutions licensed from certain providers such as Relativity, a key supplier of one of our eDiscovery platforms, with the delivery of our eDiscovery services and products. While we have developed our own proprietary platforms, certain third-party software, such as that licensed from Relativity, has become central to the operation and delivery of our eDiscovery services and products.

Certain of our third-party software license contracts expire within the next one to three years and may be renewed only by mutual consent. For instance, our license contract with Relativity expires on June 30, 2024. There is no assurance that we will be able to renew these contracts as they expire or that such renewals will be on the same or substantially similar terms or on conditions that are commercially reasonable to us. If we fail to renew these contracts as they expire, we may be unable to offer certain eDiscovery-related services and products to our clients. In addition, our third-party software licenses are non-exclusive. For example, all of our primary competitors in the eDiscovery business use Relativity in connection with their eDiscovery platforms (in addition to any proprietary platforms that they may own themselves).

If certain of our third-party licensors were to change their product offerings, cease actively supporting their existing technologies, fail to update and enhance their technologies to keep pace with changing industry standards, encounter technical difficulties in the continued development of their technologies, significantly increase prices, terminate our licenses, suffer significant capacity or supply chain constraints or suffer other disruptions, we would need to identify alternative suppliers and incur additional internal and/or external development costs to ensure continued performance of our eDiscovery-related services and products. Such alternatives may not be available on attractive

terms, or at all, or may not be as widely accepted or as effective as the software provided by our existing suppliers. If the cost of licensing or maintaining this third-party technology significantly increases, our revenues could significantly decrease. In addition, interruptions in the functionality of our services and products resulting from changes in or with our third party licensors could adversely affect our commitments to clients, future sales of our services and products solutions, and negatively affect our business, financial condition and results of operations.

We utilize various web service providers, such as Microsoft Azure, for the delivery of our cloud-based products. These services are operated by third parties that we do not control and that could require significant time to replace. We expect this dependence on third parties to continue. These systems are vulnerable to damage or interruption and have experienced interruptions in the past. A prolonged web service disruption affecting our cloud-based offerings for any of the foregoing reasons would negatively impact our ability to serve our clients and could damage our reputation with current and potential clients, expose us to liability, cause us to lose clients or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the web services we use. Interruptions in these third party-services on which we rely could affect the security or availability of our products and cloud infrastructure and could have a material adverse effect on our business. In addition, these web services providers may generally terminate our agreements for convenience upon providing some nominal period of notice and may terminate our agreements for cause if a breach by us has not been cured within a short time period. In the event that our service agreements are terminated, or there is a lapse of service, elimination of web services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platforms as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our solutions for deployment on a different cloud infrastructure service provider, which may adversely affect our business, operating results and financial condition.

If we we encounter difficulties as we implement our new consolidated business systems, our business may be adversely affected.

We are in the process of implementing new consolidated business systems across our global operations. We rely on our IT to help us effectively manage our client relationships, sales information, order processing and support and marketing services, and we anticipate that the implementation of new consolidated business systems will improve our processes. However, there is a risk that implementation of these new systems will not achieve these expected benefits as quickly as anticipated or at all. In addition, there can be no assurance that there will not be errors, delays or other related issues resulting from the transition to our new business systems and adjustments to associated business processes, or that we will be able to fix any error or issue. Such errors, delays or issues may result in unanticipated costs or expenditures and divert the attention of key senior management away from other aspects of our business, which may adversely affect our business, operating results and financial condition.

Our failure to comply with the export controls and trade and economic sanctions laws and regulations of the United States and various international jurisdictions could result in legal liability and materially adversely affect our reputation and results of operations.

Our business activities are subject to various export controls and trade and economic sanctions laws and regulations, including, without limitation, the U.S. Commerce Department’s Export Administration Regulations, the U.S. Treasury Department’s Office of Foreign Assets Control’s (“OFAC”) trade and economic sanctions programs, the United Nations Security Council, and other laws and regulations of a similar nature administered and enforced by relevant government authorities (collectively, “Trade Controls”). Such Trade Controls may prohibit or restrict our ability to, directly or indirectly, conduct activities or dealings in or with certain countries, as well as with individuals or entities that are the subject of Trade Controls-related prohibitions and restrictions. For example, our ability to procure items necessary for our business activities could be adversely impacted by the imposition of export or sanctions-related prohibitions or restrictions on our contractual counterparties. Similarly, our sales of certain commodities, software and technology, and our provision of services to persons located outside the United States may be subject to certain regulatory prohibitions, restrictions or other requirements, including certain licensing or reporting requirements. Similarly, our ability to procure such items necessary for our business activities could be adversely impacted by the imposition of export or sanctions-related prohibitions or restrictions on our contractual counterparties. Our failure to successfully comply with applicable Trade Controls may expose us to negative legal and business consequences, including civil or criminal penalties, government investigations, disgorgement of

profits, injunctions and suspension or debarment from government contracts, other remedial measures, and reputational harm. Investigations of alleged violations can be expensive and disruptive.

Although we have implemented compliance policies and internal procedures reasonably designed to promote compliance with applicable Trade Controls, we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

Third party claims of infringement could cause us to incur significant legal expenses and prevent us from selling our products.

The software and internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have received in the past, and may receive in the future, communications from third parties alleging infringement of their intellectual property rights, including claims regarding patents, copyrights, trade secrets and trademarks.

Because of the constant technological change in the markets in which we compete and the extensive coverage of intellectual property protection for existing technologies, including software patents, it is possible that the number of these claims may grow.

Any such intellectual property claim, with or without merit, could result in costly litigation and distract management from day-to-day operations, and the outcomes of such claims are uncertain. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of or redesign our products, stop offering (or temporarily stop offering) our services to others, pay monetary amounts as damages, enter into royalty or licensing arrangements or satisfy indemnification obligations that we have with some of our clients, which could materially adversely affect our business, results of operations, financial condition or cash flows. There is no assurance that any royalty or licensing arrangements we may seek in such circumstances will be available on commercially reasonable terms or at all. In addition, certain client agreements require us to indemnify our clients for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. We have made and expect to continue making significant expenditures to preempt, investigate, defend and settle claims related to the use of technology and intellectual property rights, including trademarks, as part of our strategy to manage this risk.

Our substantial levels of indebtedness could adversely affect our financial condition.

As of December 31, 2020, we had approximately $506 million of indebtedness, consisting of borrowings under our First Lien Facility (as defined herein) and the Debentures. See “Item 13 - Certain Relationships and Related Person Transactions” for additional information.

Our indebtedness could have important consequences to us and our investors, including, but not limited to:

In addition, as our indebtedness matures, or if we are unable to service our high level of indebtedness, we may need to restructure or refinance all or a portion of our indebtedness, sell material assets or operations or raise additional

debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms, or at all, and these actions may not be sufficient to meet our capital requirements. Furthermore, we may not be able to invest in our business and as a result, we may not be able to achieve our forecasted results of operation.

If we are unable to make required interest and principal payments on our indebtedness, it would result in an event of default under the agreements governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness and foreclosure on the assets that secure such indebtedness.

Although our debt agreements contain restrictions on the incurrence of additional indebtedness, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial, thereby exacerbating the risks associated with our high level of indebtedness.

For additional information on our indebtedness, see the Liquidity and Capital Resources discussion in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation and Note 7 – Subsequent Events in Item 8 – Financial Statements and Supplementary Data.

We may need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets.

We have substantial balances of goodwill and identified intangible assets. We are required to test goodwill and any other intangible assets with an indefinite life for possible impairment on an annual basis, or more frequently when circumstances indicate that impairment may have occurred. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment.

Based on the results of the annual impairment test as of October 1, 2020, the fair value of our reporting unit exceeded the individual reporting unit’s carrying value, and goodwill was not impaired. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or impairment in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge would be recorded if the estimated fair value of the assets is lower than the carrying value and any such impairment charge could have a material adverse effect on our results of operations and financial position.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited and could adversely impact ur business, financial condition and operating results.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined under U.S. income tax laws) that exceeds 50 percentage points over a rolling three-year period. Similar rules apply under state tax laws. If we experience one or more ownership changes as a result of future transactions in our stock, then we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn.

The insurance coverage that we purchase may prove to be inadequate or unavailable when we need the coverage.

We carry liability, property, directors and officers, business interruption, Cyber and other insurance policies to cover insurable risks to our company. We select the types of insurance, the limits and the deductibles based on our specific risk profile, the cost of the insurance coverage versus its perceived benefit and general industry standards. Our insurance policies contain industry standard exclusions for events such as war. Although we generally attempt to select reputable insurance carriers, any economic disruptions may prevent us from using our insurance if the counterparty does not have the capital necessary to meet the coverage. In addition, our agreements with customers also contain obligations to carry comprehensive general liability, property, workers' compensation, and automobile

liability insurance. Any of the limits of insurance that we purchase could prove to be inadequate, which could materially and adversely impact our business, financial condition and results of operations.

Unanticipated changes in our effective tax rate or challenges by tax authorities could harm our future results.

We are subject to income taxes in the United States and various non-U.S. jurisdictions. Our effective tax rate could be adversely affected by changes in the allocation of our pre-tax earnings and losses among countries with differing statutory tax rates, in certain non-deductible expenses as a result of acquisitions, in the valuation of our deferred tax assets and liabilities, or in federal, state, local or non-U.S. tax laws and accounting principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. Increases in our effective tax rate would adversely affect our operating results.

In addition, we may be subject to income tax audits by various tax jurisdictions throughout the world.The application of tax laws in such jurisdictions may be subject to diverging and sometimes conflicting interpretations by tax authorities in these jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Taxing authorities may successfully assert that we should have collected or in the future should collect additional sales and use taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

We have not historically filed sales and use tax returns or collected sales and use taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Taxing authorities may seek to impose such taxes on us, including for past sales, which could result in penalties and interest. Any such tax assessments may adversely affect the results of our operations.

Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.

We conduct integrated operations internationally through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements between our subsidiaries and between our subsidiaries and us. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally require that transfer prices be the same as those between unrelated companies dealing at arm’s length and that contemporaneous documentation is maintained to support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were to successfully challenge our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, which could result in a higher tax liability to us. Such reallocations may subject us to interest and penalties that would increase our consolidated tax liability and could adversely affect our financial condition, results of operations and cash flows.

We may issue additional shares of Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our Common Stock.

As of the date of this Annual Report on Form 10-K, we have Warrants outstanding to purchase up to an aggregate of 29,350,000 shares of Common Stock and may issue an aggregate of 2,200,000 shares of Common Stock to certain of our stockholders if the reported closing sale price of our Common Stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger. We also have the ability to initially issue up to 7,500,000 shares under the 2019 Incentive Award Plan (the “2019 Plan”), and as of December 31, 2020, we have issued 6,054,772 options and Restricted Stock Units. Additionally, in the event we voluntarily prepay all or a portion of the Debentures prior to maturity, the holders of such prepaid Debentures will have the right to purchase shares of our Common Stock in amount commensurate in value to the pre-payment at a price of $18 per share, subject to adjustment (the “conversion price”). The holders of the Debentures also have the option to convert the Debentures into shares of our Common Stock at the conversion price at any time. The number of shares that may

be issued in such a circumstance cannot be determined at this time. We may issue additional shares of Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances. The issuance of additional shares of Common Stock or other equity securities of equal or senior rank would dilute the ownership interests of existing stockholders and could cause the market price of our Common Stock to decline.

Our charter and Delaware law may hinder or prevent a changein control of our company.

Certain provisions of our Second Amended and Restated Certificate of Incorporation could limit the ability of a third party to acquire control of our company. For example, our directors are authorized to issue additional shares of common and preferred stock, only our directors are authorized to call a special meeting of our stockholders, stockholders are subject to advance notice requirements, minimum shareholding periods and ownership thresholds to propose matters for consideration at stockholder meetings, and we have a staggered board of three classes, with each class subject to retirement and re-election once every three years.

Future resales of Common Stock may cause the market price of our securities to drop significantly, even if our business is doing well.

The Founder, the former officers and directors of Pivotal, and certain of our stockholders were granted certain rights, pursuant to a registration rights agreement, dated as of the Closing Date, entered into in connection with the consummation of the Business Combination among the Company, the stockholders LD Topco, the holders of the founder shares and certain other securityholders of the Company (the “Registration Rights Agreement”), to require us to register, in certain circumstances, the resale under the Securities Act of Common Stock held by them, subject to certain conditions. The sale or possibility of sale of these shares could have the effect of increasing the volatility in our share price or putting significant downward pressure on the price of our stock.

An active, liquid and orderly trading market for our Common Stock may not develop or be maintained, and our stock price may be volatile, which could result in securities litigation.

Our Common Stock currently trades in over-the-counter markets and is quoted on the OTC Pink Sheet Market under the ticker symbol “KLDI” and an active, liquid and orderly trading market for our Common Stock may not develop or be maintained. The market price of our Common Stock could fluctuate significantly due to a number of factors, some of which are beyond our control.

The stock markets in general have experienced extreme volatility often unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources and harm our business, operating results, financial condition and reputation.

The trading price of our common stock may decline if our stockholders sell a large number of shares of our common stock or if we issue a large number of new shares of our common stock or shares convertible into our common stock.

A majority of our outstanding shares of common stock are held by a relatively small number of our stockholders. A sale of a substantial number of our shares in the public market by our significant stockholders or pursuant to new issuances by us could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

In addition, the Business Combination resulted in our merging with a special purpose acquisition company (“SPAC”), which can cause additional volatility in the price of our Common Stock. We expect that the price of our Common Stock and of that of SPACs in general may be more volatile compared to the stock price of an operating company.

Rule 144 of the Securities Act provides a safe harbor under which affiliates of an issuer may resell their securities into the public market. Any further sales by these stockholders or further issuances of common stock could have material adverse effect on the market price of our common stock. In addition, new issuances of common stock or shares convertible into common stock by us would dilute the equity interests and voting power of our existing stockholders.

Concentration of ownership among our large stockholders and their affiliates may limit the influence of smaller stockholders on corporate decisions and the interests of such large stockholders may not align with those of the smaller stockholders.

A majority of our outstanding shares are held by a relatively small number of our stockholders. As a result, if some of these stockholders vote in an aligned manner, they could meaningfully influence the outcome of matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or sale of our company or its assets. This concentration of ownership could limit the ability of other stockholders to influence corporate matters and may delay or preclude an acquisition or cause the market price of our stock to decline. Some of these persons or entities may have interests that may materially differ from the rest of our stockholders.

We do not own any properties and all of our material physical properties are occupied pursuant to either the terms of a negotiated lease or another contractual arrangement for occupation of space, such as space rental in a data center facility.

The table below presents summary information regarding our material properties as of December 31, 2020.

Country	Location	Legal Technologies Office	Data Storage Technologies Office	Managed Review Facility	Data Center	Clean Room
Australia	Brisbane	X	X			X
Canada	Toronto		X			X
Canada	Toronto				X
China	Shanghai		X
China	Suzhou		X			X
Finland	Helsinki		X			X
France	Paris		X			X
France	Paris				X
Germany	Boblingen	X	X			X
Germany	Frankfurt				X
Hong Kong	North Point		X			X
Hong Kong	Won Chai	X
Ireland	Balleycoolin				X
Italy	Varese		X			X
Japan	Tokyo	X	X			X
Japan	Tokyo				X
Netherlands	Amersfoort		X			X
Norway	Kongsvinger	X	X			X
Poland	Katowice	X	X	X		X
Spain	Madrid		X			X
Sweden	Uppsala		X			X
Switzerland	Wallisellen		X			X
United Kingdom	London	X		X
United Kingdom	Slough				X
United Kingdom	Surrey		X			X
United States	Austin, Texas	X			X
United States	Brooklyn Park, Minnesota				X
United States	Chicago, Illinois	X
United States	Eden Prairie, Minnesota	X	X	X	X	X
United States	Fairfax, Virginia	X
United States	McLean, Virginia	X	X	X		X
United States	Richmond, Virginia	X

We are currently not a party to any legal proceedings that are expected to have a material adverse effect on our business or financial condition. From time-to-time, we are subject to litigation incidental to our business, as well as other litigation of a non-material nature in the ordinary course of business.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock, par value $0.0001 per share, is quoted on the OTC Pink Sheet Market under the symbol “KLDI.” Our public warrants are quoted on the OTC Pink Sheet Market under the symbol “KLDIW.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of December 31, 2020, there were 70 holders of record of our common stock, and 8 holders of record of our warrants.

On February 18, 2020, we filed a registration statement on Form S-8, registering 7,500,000 shares of common stock, relating to awards to be undertaken in the future, with such vesting conditions, as applicable, to be determined in accordance with the 2019 Plan. The following types of awards can be issued under the 2019 Plan: stock options, stock appreciation rights, restricted stock, restricted stock units, performance compensation awards and other stock-based awards.

We have never declared or paid any cash dividends on our common stock and we currently do not anticipate paying any cash dividends for the foreseeable future. Instead, we anticipate that all of our earnings on our common stock will be used to provide working capital, to support our operations, and to finance the growth and development of our business, including potentially the acquisition of, or investment in, businesses, technologies or products that complement our existing business. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits and other factors our Board of Directors might deem relevant.

The following table provides certain information as of December 31, 2020, with respect to our equity compensation plans under which common stock is authorized for issuance:

The following table presents a summary of our selected historical financial data derived from our last two years of Financial Statements. Because this information is only a summary and does not provide all of the information contained in our Financial Statements, including the related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements for more detailed information.

(in thousands)	Year ended December 31, 2020			Year ended December 31, 2019
Revenues	$	289,545		$	312,054
Cost of revenues		147,732			160,845
Gross profit		141,813			151,209
Operating expenses
General and administrative		58,509			55,005
Research and development		7,167			5,945
Sales and marketing		38,395			48,517
Depreciation and amortization		35,955			39,149
Total operating expenses		140,026			148,616
Income from operations		1,787			2,593
Other expenses
Other expense		118			308
Loss on extinguishment of debt		—			7,203
Interest expense		50,659			48,377
Loss before income taxes		(48,990	)		(53,295	)
Income tax provision		936			719
Net loss	$	(49,926	)	$	(54,014	)
Other comprehensive income, net of tax
Foreign currency translation		4,947			311
Total other comprehensive income, net of tax		4,947			311
Comprehensive loss	$	(44,979	)	$	(53,703	)
Net loss per share - basic and diluted	$	(1.17	)	$	(1.27	)
Weighted average shares outstanding - basic and diluted		42,529,017			42,425,295
Cash Flow Data:
Net cash provided by (used in) operating activities	$	39,776		$	(8,297	)
Net cash used in investing activities		(14,059	)		(15,218	)
Net cash (used in) provided by financing activities		(18,595	)		43,490
Other Financial Data:
Depreciation and amortization	$	47,762		$	50,407
Interest expense, including loss on extinguishment of debt	$	50,659		$	55,580
EBITDA	$	49,431		$	52,692
Adjusted EBITDA	$	63,290		$	68,723
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	51,201		$	43,407
Total assets	$	679,746		$	714,912
Current portion of long-term debt	$	10,948		$	11,689
Long term debt - net of current portion	$	472,600		$	468,932
Total stockholders' equity	$	142,221		$	183,765
Working capital	$	93,968		$	100,103

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Throughout this section, unless otherwise noted “we,” “us,” “our,” “Company,” “KLDiscovery,” “KLD”, “KLDiscovery Inc.” or “LD Topco, Inc.” refer to KLDiscovery Inc. and its consolidated subsidiaries. As a result of the Business Combination, (i) KLDiscovery Inc.’s consolidated financial results for periods prior to December 19, 2019 reflect the financial results of LD Topco, Inc. and its consolidated subsidiaries, as the accounting predecessor to KLDiscovery Inc., and (ii) for periods from and after this date, KLDiscovery Inc.’s financial results reflect those of KLDiscovery Inc. and its consolidated subsidiaries (including LD Topco, Inc. and its subsidiaries) as the successor following the Business Combination. The following discussion and analysis of financial condition and results of operations of the Company should be read together with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Such discussion and analysis reflects the historical results of operations and financial position of the Company. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.

We are one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. We provide technology-enabled services and software to help law firms, corporations, government agencies and consumers solve complex data challenges. We have broad geographical coverage in the eDiscovery and data recovery industries with more than 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe. Our legal technology services cover both eDiscovery and information governance services to support the litigation, regulatory compliance, and internal investigation needs of our clients. We offer data collection and forensic investigation, early case assessment, electronic discovery and data processing, application software, data hosting, and managed review services. In addition, through our global Ontrack Data Recovery name, we deliver world-class data recovery, email extraction and restoration, data destruction and tape management services.

Data proliferation is contributing to growth in the eDiscovery and information governance market. Data is growing at an exponential rate due to several factors, including the adoption of mobile devices, accessibility of hosted systems and increased reliance on electronic data storage. We are well positioned to gain market share from the growth of electronically stored information given our prior and continued investment in our infrastructure and proprietary technologies that allows us to efficiently identify, preserve, collect, process, review and host complex data sets. We will continue to develop and enhance our technology which will position us to continue to evolve as the market changes.

The eDiscovery and information governance market is highly fragmented and price competitive. While many of our competitors rely on third party software tools to provide their services, we offer our services utilizing third party platforms enhanced with our proprietary tools, as well as our own end-to-end tools. Because we can provide service offerings utilizing proprietary technology, we have more flexibility in pricing, and we are not hindered by third party licensing software expenses. As such, our proprietary tools allow us to be less impacted by significant price compression than our competitors.

Historically, on-premise tools have been the dominant deployment solution in the past. However, recently the market has shifted to cloud-based solutions and this shift can result in increased revenue for us as we offer our own proprietary cloud-based solutions.

For the years ended December 31, 2020 and December 31, 2019, our legal technology revenue was $247.3 million and $265.9 million, respectively, and our data recovery revenue was $42.3 million and $46.2 million, respectively. Additionally, we have longstanding relationships with our clients and for the years ended December 31, 2019 and 2020, no single client accounted for more than 5% of our revenues.

We prepare audited financial statements in accordance with U.S. GAAP. We also disclose and discuss other non-U.S. GAAP financial measures such as EBITDA and adjusted EBITDA. We believe that these measures are relevant and provide useful supplemental information to investors by providing a baseline for evaluation and comparing our operating performance against that of other companies in our industry.

The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies and, in the future, we may disclose different non-U.S. GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry. We believe these non-U.S. GAAP financial measures reflect our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest, income taxes, management fees and equity compensation, acquisition and transaction costs, restructuring costs, systems establishment and costs associated with strategic initiatives which are incurred outside the ordinary course of our business, and provide information about our cost structure, that helps track our operating progress. We encourage investors and potential investors to carefully review the U.S. GAAP financial information and compare them with our EBITDA and adjusted EBITDA.

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. We view adjusted EBITDA as our operating performance measure and as such, we believe that the most directly comparable U.S. GAAP financial measure is net loss. In calculating adjusted EBITDA, we exclude from net loss certain items that we believe are not reflective of our ongoing business and exclusion of these items allows us to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions:

Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by any of these adjustments, or that our projections and estimates will be realized in their entirety or at all. In addition, because of these limitations, adjusted EBITDA should not be considered as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.

The use of adjusted EBITDA instead of U.S. GAAP measures has limitations as an analytical tool, and adjusted EBITDA should not be considered in isolation, or as a substitute for analysis of our results of operations and operating cash flows as reported under U.S. GAAP. For example, adjusted EBITDA does not reflect:

The following table provides a reconciliation of net loss to EBITDA and adjusted EBITDA:

(in millions)	Year ended December 31, 2020			Year ended December 31, 2019
Net loss	$	(49.9	)	$	(54.0	)
Interest expense		50.7			48.4
Income tax expense		0.9			0.7
Depreciation and amortization expense		47.7			50.4
Loss on debt extinguishment		-			7.2
EBITDA	$	49.4		$	52.7
Acquisition, financing and transaction costs		5.2			3.6
Strategic Initiatives:
Sign-on bonus amortization		0.2			0.4
Non-recoverable draw		0.3			3.7
Total strategic initiatives		0.5			4.1
Management fees, stock compensation and other		3.7			3.5
Restructuring costs		2.5			2.2
Systems establishment		2.0			2.6
Adjusted EBITDA	$	63.3		$	68.7

For the year ended December 31, 2020 Compared with the year ended December 31, 2019

The results for the periods shown below should be reviewed in conjunction with our audited consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data.”

	For The Years Ended December 31,
(in millions)	2020			2019
Revenues	$	289.5		$	312.1
Cost of revenues		147.7			160.9
Gross profit		141.8			151.2
Operating expenses	$	140.0			148.6
Income from operations		1.8			2.6
Interest expense		50.7			48.4
Loss on debt extinguishment		—			7.2
Other expense		0.1			0.3
Loss before income taxes		(49.0	)		(53.3	)
Income tax provision		0.9			0.7
Net loss		(49.9	)		(54.0	)
Total other comprehensive income, net of tax		4.9			0.3
Comprehensive loss	$	(45.0	)	$	(53.7	)

Revenues decreased by $22.6 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019. This decrease is primarily due to a decrease of $18.6 million in legal technology revenue and a decrease of $3.9 million in data recovery revenue. These decreases are primarily due to the impacts of COVID-19, as many clients have delayed the start of new matters and court systems have been slow to reopen.

Cost of revenues decreased by $13.2 million, or 8.2%, to $147.7 million for the year ended December 31, 2020 as compared to $160.9 million for the year ended December 31, 2019. This decrease is primarily due to decreased variable costs of $1.5 million associated with decreased revenues, decreased hardware and software expenses of approximately $2.3 million, decreased communications expenses of $0.9 million and expense reduction measures implemented by management, including decreased (i) personnel expense of approximately $7.4 million, (ii) travel and entertainment expense of $1.3 million, and (iii) other operational expenses of $0.9 million. These decreases were partially offset by $0.6 million of increased severance expenses due to the integration of operational business units. As a percentage of revenue, our cost of revenues for the year ended December 31, 2020 decreased to 51.0% as compared to 51.6% for the year ended December 31, 2019. This decrease was due to the factors noted above.

Gross profit decreased by $9.4 million, or 6.2%, to $141.8 million for the year ended December 31, 2020 as compared to $151.2 million for the year ended December 31, 2019. Gross profit decreased primarily due to the factors noted above. As a percentage of revenue, our gross profit for the year ended December 31, 2020 increased to 49.0% as compared to 48.4% for the year ended December 31, 2019.

Operating expenses decreased by $8.6 million, or 5.8%, to $140.0 million for the year ended December 31, 2020 as compared to $148.6 million for the year ended December 31, 2019. This decrease is primarily due to expense reduction measures implemented by management which decreased (i) personnel expenses by $7.3 million, (ii) travel and entertainment expenses by $2.0 million, (iii) marketing expenses by $0.9 million, and (iv) other operational expenses of $0.9 million. In addition, depreciation and amortization decreased by $3.2 million. These decreases were partially offset by increased costs incurred related to lease terminations to optimize our real estate footprint of $4.6 million and $0.6 million of increased severance costs due to the integration of operational business units. As a percentage of revenue, our operating expenses for the year ended December 31, 2020 increased to 48.4% as compared to 47.6% for the year ended December 31, 2019 due to the factors noted above.

Interest expense increased by $2.3 million, or 4.8%, to $50.7 million for the year ended December 31, 2020 as compared to $48.4 million for the year ended December 31, 2019. This increase is primarily due to the increase in outstanding debenture related debt, partially offset by lower interest rates during the year ended December 31, 2020 compared to the year ended December 31, 2019.

A valuation allowance has been established against our net U.S. federal and state deferred tax assets, including net operating loss carryforwards. As a result, our income tax provision is primarily related to foreign taxes and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities.

During the years ended December 31, 2020 and 2019, we recorded an income tax provision of $0.9 million and $0.7 million, respectively, resulting in an effective tax rate of (1.8) % and (1.3) %, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences and the valuation allowance against our domestic deferred tax assets. The effective rate for the year ended December 31, 2020 did not meaningfully change from the year ended December 31, 2019.

We reported pre-tax loss of $49.0 million during the year ended December 31, 2020 with an effective tax rate of (1.8) %, resulting in a $0.9 million income tax provision. The effective tax rate was primarily impacted by our valuation allowance, which caused a decrease in the tax benefit of $9.6 million. Without this item, our effective tax rate would have been 21.4%, which is higher than the statutory tax rate of 21.0%, primarily due to the effects of foreign tax rate differences, U.S. state taxes and certain permanent items.

We reported pre-tax loss of $53.3 million during the year ended December 31, 2019 with an effective tax rate of (1.3) %, resulting in a $0.7 million income tax provision. The effective tax rate was primarily impacted by our valuation allowance, which caused a decrease in the tax benefit of $12.7 million. Without this item, our effective tax rate would have been 25.1%, which is higher than the statutory tax rate of 21.0%, primarily due to the effects of foreign tax rate differences, U.S. state taxes and certain permanent items.

Net loss for the year ended December 31, 2020 was $49.9 million compared to $54.0 million for year ended December 31, 2019. Net loss decreased for the year ended December 31, 2020 as compared to the year ended December 31, 2019 due to the factors noted above.

Our primary cash needs have been to meet debt service requirements and to fund working capital and capital expenditures. We fund these requirements from cash generated by our operations, as well as funds available under our 2021 Credit Agreement (as defined below). See “2021 Credit Agreement”. Although our eDiscovery solutions and information archiving services are billed on a monthly basis in arrears with amounts typically due within 30 to 45 days, the eDiscovery industry tends towards longer collectability trends. As a result, we have typically collected on the majority of our eDiscovery accounts receivables within 90 to 120 days, which is consistent within the industry. With respect to our data recovery services, they are billed as the services are provided, with payments due within 30 days of billing. We typically collect on our data recovery services accounts receivables within 30 to 45 days. Lastly, the majority of our data recovery software is billed monthly in advance with amounts typically due within 30 to 45 days; however, depending on the client contract, billing can occur annually, quarterly or monthly. Long outstanding receivables are not uncommon due to the nature of our legal technology services as litigation cases can go on for years, and in certain instances, our collections are delayed until the customer has received payment for their services in connection with a legal matter or the case has been settled. These long-outstanding invoices are a function of the industry in which we operate, rather than indicative of an inability to collect. We have experienced no material seasonality trends as it relates to collection on our accounts receivable. As of December 31, 2020, we had $51.2 million in cash compared to $43.4 million as of December 31, 2019. As of December 31, 2020, we had $503.5 million of outstanding borrowings compared to $506.0 million as of December 31, 2019. We expect to finance our operations over the next 12 months primarily through existing cash balances and cash flow, supplemented as necessary by funds available through our 2021 Credit Agreement.

On February 8, 2021, the Company entered into a new secured credit agreement (the “2021 Credit Agreement”). Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 Credit Agreement.

The 2021 Credit Agreement provides for (i) initial term loans in an aggregate principal amount of $300 million (the “Initial Term Loans”), (ii) delayed draw term loans in an aggregate principal amount of $50 million (the “Delayed Draw Term Loans”), and (iii) revolving credit loans in an aggregate principal amount of $40 million (the “Revolving Credit Loans”). The Delayed Draw Term Loans will be available to the Company at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans will bear interest, at the Company’s option, at the rate of (x) with respect to Eurocurrency Rate Loans (as defined in the 2021 Credit Agreement), the Adjusted Eurocurrency Rate (as defined in the 2021 Credit Agreement) with a 1.0% floor, plus 6.50% per annum, or (y) with respect to Base Rate Loans (as defined in the 2021 Credit Agreement), the Base Rate (as defined in the 2021 Credit Agreement) plus 5.50% per annum. The Revolving Credit Loans will bear interest, at our option, at the rate of (x) with respect to Eurocurrency Rate Loans, the Adjusted Eurocurrency Rate plus 4.00% per annum, or (y) with respect to Base Rate Loans, the Base Rate plus 3.00% per annum. The Initial Term Loans and Delayed Draw Term Loans amortize at a rate of 1.00% of the aggregate principal amount of Initial Term Loans and Delayed Draw Term Loans outstanding, payable in consecutive quarterly installments, beginning on June 30, 2021.

The Initial Term Loans, Delayed Draw Term Loans and Revolving Credit Loans are each scheduled to mature on the earlier of February 16, 2026 and or six months prior to maturity of our Debentures due in December 2024. The Initial Term Loans and Delayed Draw Term Loans may be voluntarily repaid at any time, but may be subject to a prepayment premium. The Initial Term Loans and Delayed Draw Term Loans are required to be repaid under certain circumstances, including with Excess Cash Flow (as defined in the 2021 Credit Agreement), the proceeds of an Asset Sale or Casualty Event (each as defined in the 2021 Credit Agreement) and the proceeds of certain refinancing indebtedness.

The obligations under the 2021 Credit Agreement are secured by substantially all of the Company’s assets. The 2021 Credit Agreement contains customary affirmative and negative covenants as well as a financial maintenance covenant that requires the Loan Parties to maintain a First Lien Net Leverage Ratio of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter.

The Company closing fees of $8.0 million in connection with the entry into the 2021 Credit Agreement. These fees will be amortized over the full term of the 2021 Credit Agreement.

In February 2021, a loss on debt extinguishment of $7.2 million was recognized in connection with the retirement of the 2016 Credit Agreement.

On December 9, 2016, we entered into a Credit Agreement (as amended or supplemented to date, the “2016 Credit Agreement”) with a group of lenders to establish term loan facilities and a revolving line of credit for borrowings by LD Intermediate, Inc. and LD Lower Holdings, Inc. (the “Initial Term Loans”). The Initial Term Loan borrowings of $340.0 million (the “First Lien Facility”) and $125.0 million (the “Second Lien Facility” and, together with the First Lien Facility, the “Facilities”) were to mature on December 9, 2022 and December 9, 2023, respectively. The First Lien Facility was repaid on February 8, 2021 and the Second Lien Facility was repaid on December 19, 2019.

The First Lien Facility established a term loan principal payment schedule with payments due on the last day of each calendar quarter, beginning on March 31, 2017 with a payment of $2.1 million. Quarterly principal payments increased to $4.3 million beginning on March 31, 2019 with a balloon payment of $259.3 million due at maturity. The interest rate for the First Lien Facility adjusted every interest rate period, which can be one, two, three or six months in duration and is decided by us, or to the extent consented to by all Appropriate Lenders (as defined in the 2016 Credit Agreement), 12 months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 5.875% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate (as defined in the 2016 Credit Agreement) multiplied by the greatest of (a) LIBOR, (b) 0.00% per annum and (c) solely with respect to the Initial Term Loans, 1.00% per annum. As of December 31, 2020, the net balance due was $289.0 million, with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 1.00%. As of December 31, 2019, the net balance due was $306.0 million, with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 2.596%.

The Second Lien Facility required a balloon payment of $125.0 million due at maturity. The interest rate for the Second Lien Facility adjusted every interest rate period, which could be one, two, three or six months in duration and is decided by the Company, or to the extent consented to by all Appropriate Lenders (as defined in the 2016 Credit Agreement), 12 months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum is 10.0% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of (a) LIBOR, (b) 0.00% per annum and (c) solely with respect to the Initial Term Loans, 1.00% per annum. The Second Lien Facility was repaid upon consummation of the Business Combination on December 19, 2019.

The Facilities were secured by substantially all of our assets and contain certain covenants. As of December 31, 2020 and December 31, 2019, we were in compliance with all covenants.

The 2016 Credit Agreement included a mandatory prepayment within ten days after delivery of the annual audited financial statements commencing with the year ended December 31, 2017. The Excess Cash Flow amount is specifically defined in section 1.01 of the 2016 Credit Agreement. The Excess Cash Flow calculation starts with net income and then adds back a series of non-cash expenses, capital expenditures, M&A, and debt related amounts to arrive at a final amount due.

The amount of the Excess Cash Flow payment would have been reduced if the First Lien Net Leverage Ratio falls below certain thresholds. Such percentage in respect of any Excess Cash Flow Period shall be reduced to 50%, 25% or 0% if the First Lien Net Leverage Ratio as of the last day of the year to which such Excess Cash Flow Period relates was equal to or less than 3.75 to 1.00, 3.25 to 1.00 or 2.75 to 1.00, respectively.

We were not required to make any additional principal payments under the Excess Cash Flow covenant for the year ended December 31, 2019 or December 31, 2020.

The 2016 Credit Agreement also provided for a Revolving Credit Facility of up to $30.0 million that was scheduled to mature on June 9, 2022. Borrowings under the Revolving Credit Facility were subject to meeting certain financial covenants set forth in the 2016 Credit Agreement, including the First Lien Net Leverage Ratio. We were able to draw up to $30.0 million under the Revolving Credit Facility, on a term loan basis, with either an adjustable eurocurrency loan interest rate of 5.375%, 5.625%, or 5.875% with interest rates based on the First Lien Net Leverage Ratio plus an amount equal to the LIBOR, or a base rate loan interest rate of 4.375%, 4.635%, or 4.875% plus the Base Rate. As of December 31, 2020 and 2019, we had no amounts outstanding under our Revolving Credit Facility and $0.7 million in letters of credit were issued with approximately $29.3 million of available borrowing capacity under the Revolving Credit Facility. As discussed above, the Revolving Credit Facility was repaid on February 8, 2021 and was terminated.

The Initial Term Loan borrowings pursuant to the 2016 Credit Agreement were issued at an original issue discount of $11.9 million and $6.3 million for the First Lien Facility and Second Lien Facility, respectively. The original issue discount was amortized using the effective yield method over the respective term of each Facility.

We incurred closing fees in connection with the entry into the Facilities and the Revolving Credit Facility pursuant to the 2016 Credit Agreement of $13.6 million. These closing fees were deferred on December 9, 2016, along with fees of $0.6 million related to our prior term loan facility that we refinanced in connection with our entry into the 2016 Credit Agreement and are amortized over their respective terms.

In connection with the Business Combination on December 19, 2019, we issued $200 million aggregate principal amount of Debentures due 2024 in a private placement to certain “accredited investors” pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. The equity structure as of the date of the Business Combination included 2,097,974 shares of common stock and 1,764,719 warrants for the issuance of common stocks to the debenture holders related to the Debenture issuance. The proceeds of the Debentures were in part to repay our outstanding Second Lien Facility and amounts outstanding under the Revolving Credit Facility.

The Debentures mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures bear interest at an annual rate of 4.00% in cash and 4.00% in kind, payable quarterly on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, we will add to the principal amount (subject to reduction for any principal amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding, which will accrue from the last payment and will be payable at maturity, upon conversion or upon an optional redemption, if no prior payment was made.

At any time, upon notice as set forth in the Debentures, the Debentures will be redeemable at our option, in whole or in part, at a price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest thereon.

Subject to approval to allow for the full conversion of the Debentures into common stock, the Debentures will be convertible into shares of our common stock at the option of the debenture holders at any time and from time to time at a price of $18 per share, subject to certain adjustments. However, in the event we elect to redeem any Debentures, the holders will have a right to purchase common stock from us in an amount equal to the amount redeemed at the conversion price.

The Debentures contain covenants that limit our ability to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) engage in certain transactions with affiliates; or (iv) designate our subsidiaries as unrestricted subsidiaries. The Debentures provide for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Debentures and certain events of bankruptcy or insolvency. If an event of default occurs and continues, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may declare the entire principal amount of all the Debentures to be due and payable immediately.

Our net cash flows from operating, investing and financing activities for the years ended December 31, 2020 and 2019 were as follows:

Net cash provided by operating activities was $39.8 million for the year ended December 31, 2020 as compared to net cash used in operating activities of $(8.3) million for the year ended December 31, 2019. The increase in net cash provided is due to a $4.1 million reduction in net loss, a $7.3 million increase in non-cash expenses and a $36.7 million increase in working capital. The period over period decrease in non-cash items is primarily due to a $14.1 million increase in non-cash interest, a $1.2 million increase in stock-based compensation, an increase in the provision for losses on accounts receivable of $1.0 million and a $0.8 million decrease in deferred tax benefit, offset by a $7.2 million decrease on the loss on debt extinguishment and a $2.7 million decrease in depreciation and amortization. The increase in working capital for the period is primarily due to a $26.8 million decrease in accounts receivable and a $13.6 million increase in accounts payable and accrued expenses, offset by a $2.3 million increase in prepaid expense and other current assets and a $1.4 million decrease in deferred revenue. Trade accounts receivable fluctuate from period to period depending on the period to period change in revenue and the timing of collections. Accounts payable fluctuate from period to period depending on the timing of purchases and payments.

Net cash used in investing activities was $14.1 million for the year ended December 31, 2020 as compared to net cash used in investing activities of $15.2 million for the year ended December 31, 2019. The decrease in cash used in investing activities is due to decreased purchases of property and equipment of $2.3 million, offset by increased cash payments related to acquisitions in 2020 of $1.2 million.

For the year ended December 31, 2020, net cash used in financing activities of $18.6 million related to the payments of long-term debt of $17.0 million and capital lease obligations of $1.6 million. For the year ended December 31, 2019, net cash provided by financing activities of $43.5 million related to the net cash received in the Business

Combination of $186.5 million and cash received on the issuance of common stock of $0.4 million, offset by payments of long-term debt of $142.0 million and capital lease obligations of $1.4 million.

Our operating lease obligations are disclosed below and in Note 5 to our audited consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data.” Rent expense for the years ended December 31, 2020 and 2019 was $14.1 million and $14.7 million, respectively.

The following table summarizes our contractual obligations as of December 31, 2020:

	Payments due by period
(in thousands)	Total		Less than 1 year		1 to less than 3 years		3 to less than 5 years		More than 5 years
Contractual obligations
Debt:
Principal (1)	$	566,287	$	17,000	$	272,000	$	277,287	$	—
Interest on debt (2)		154,530		47,694		76,517		30,318		—
Purchase obligations		40,922		15,264		21,594		4,064		—
Capital leases		4,966		1,313		2,932		721		—
Operating leases		40,680		9,437		17,504		11,187		2,552
Total contractual obligations	$	807,385	$	90,708	$	390,547	$	323,577	$	2,552

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities or purchased any nonfinancial assets.

See Note 1 to our consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data” for a summary of accounting standards not yet adopted.

We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates. These estimates consider the facts, circumstances and information available, and may be based on subjective inputs, assumptions and information known and unknown to us. Material changes in certain of the estimates that we use could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. See Note 1 to our consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data” for a summary of our significant accounting policies. The following describes certain of our significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material.

We recognize all of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair value on the acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred. Restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price, such as working capital adjustments, or other fair value adjustments determined during the measurement period are recorded as an adjustment to goodwill, with the exception of contingent consideration, which is recognized in the statement of operations in the period it is modified. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowances are recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required.

We evaluate the recoverability of our long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount.

Goodwill represents the excess of the total consideration paid over our identified intangible and tangible assets and our acquisitions. We test our goodwill for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the testing date (October 1), we have determined there is one reporting unit.

We test goodwill resulting from acquisitions for impairment annually on October 1, or more frequently, whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired.

Goodwill impairment exists when the estimated fair value of the reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced by the excess through an impairment charge recorded in our statements of operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis.

The fair value of each reporting unit is estimated using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business combinations. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analyses are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term business plans and recent operating performance.

Accordingly, we have not identified any indicators of impairment, nor have any impairment charges been recorded related to goodwill as a result of the annual impairment test.

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions.

Tax law requires certain items to be included in our tax returns at different times than when the items are reflected in the financial statements. The annual tax expense reflected in the Consolidated Statements of Income is different than that reported in our tax returns. Some of these differences are permanent (for example, expenses recorded for accounting purposes that are not deductible in the returns such as certain entertainment expenses) and some differences are temporary and reverse over time, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred, or expense for which a deduction has been taken already in the tax return, but the expense has not yet been recognized in the financial statements. Deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements, as well as tax losses that can be carried over and used in future years. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts we believe are more likely than not to be recovered. In evaluating the amount of any such valuation allowance, we consider the existence of cumulative income or losses in recent years, the reversal of existing temporary differences, the existence of taxable income in prior carry back years, available tax planning strategies and estimates of future taxable income for each of our taxable jurisdictions. The latter two factors involve the exercise of significant judgment. As of December 31, 2020, deferred tax asset valuation allowances totaled $65.2 million, primarily related to federal and state net operating losses available to carry forward to future years and, interest expense disallowance carryovers. Although realization is not assured, we believe it is more likely than not that all other deferred tax assets for which no valuation allowances have been established will be realized. This conclusion is based on our expectation that the reversal of existing taxable temporary differences will provide a source of taxable income to realize these deferred tax assets.

We determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in our financial statements. A tax position is measured as the portion of the tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority (that has full knowledge of all relevant information). We may be required to change our provision for income taxes when the ultimate treatment of certain items is challenged or agreed to by taxing authorities, when estimates used in determining valuation allowances on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances. Future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur. As of December 31, 2020, unrecognized tax benefits totaled $1.0 million, related to U.S. federal and state net operating losses available to carry forward to future years. However, due to the Company’s determination that the U.S. federal and state net operating losses for the unrecognized tax benefit would likely be realized, a valuation allowance offset was recorded against the unrecognized tax benefit, resulting in no effective tax rate impact.

We are subject to interest rate market risk in connection with our long-term indebtedness. Our principal interest rate exposure at December 31, 2020 related to outstanding amounts under the $340 million First Lien Facility as well as the Revolving Credit Facility of $30 million. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. Assuming the amounts outstanding at December 31, 2020 are fully drawn, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense by approximately $0.4 million per year. We do not currently hedge our interest rate exposure.

Results of operations for our non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive (loss) income.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” on our Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

During the twelve months ended December 31, 2020 and 2019, we generated the equivalent of $57.0 million and $69.4 million, respectively, of U.S. dollar-denominated revenues in non-U.S. subsidiaries. Each 100-basis point increase or decrease in the average foreign currency rate to U.S. dollar exchange rate for the year would have correspondingly changed our revenues by approximately $0.6 million for each of the years ended December 31, 2020 and 2019. We do not currently hedge our exchange rate exposure.

We have audited the accompanying consolidated balance sheets of KLDiscovery Inc. (the Company) as of December 31, 2020 and December 31, 2019, the related consolidated statements of comprehensive loss, stockholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

	December 31, 2020			December 31, 2019
Current assets
Cash and cash equivalents	$	51,201		$	43,407
Accounts receivable, net of allowance
for doubtful accounts of $8,513 and $7,486, respectively		83,985			96,994
Prepaid expenses		7,175			7,296
Other current assets		709			556
Total current assets		143,070			148,253
Property and equipment
Computer software and hardware		72,211			72,228
Leasehold improvements		27,271			26,963
Furniture, fixtures and other equipment		3,365			3,794
Accumulated depreciation		(77,697	)		(64,682	)
Property and equipment, net		25,150			38,303
Intangible assets, net		109,733			130,568
Goodwill		399,085			395,171
Other assets		2,708			2,617
Total assets	$	679,746		$	714,912
Current liabilities
Current portion of long-term debt, net	$	10,948		$	11,689
Accounts payable and accrued expense		33,504			31,270
Current portion of contingent consideration		695			340
Deferred revenue		3,955			4,851
Total current liabilities		49,102			48,150
Long-term debt, net		472,600			468,932
Deferred tax liabilities		7,335			6,294
Other liabilities		8,488			7,771
Total liabilities		537,525			531,147
Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, shares authorized - 200,000,000 shares authorized as of December 31, 2020 and December 31, 2019; 42,529,017 shares issued and outstanding as of December 31, 2020 and December 31, 2019		4			4
Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of December 31, 2020 and December 31, 2019		—			—
Additional paid-in capital		385,387			381,952
Accumulated deficit		(255,424	)		(205,498	)
Accumulated other comprehensive income		12,254			7,307
Total stockholders' equity		142,221			183,765
Total liabilities and stockholders' equity	$	679,746		$	714,912

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

(in thousands)	Year ended December 31, 2020			Year ended December 31, 2019
Revenues	$	289,545		$	312,054
Cost of revenues		147,732			160,845
Gross profit		141,813			151,209
Operating expenses
General and administrative		58,509			55,005
Research and development		7,167			5,945
Sales and marketing		38,395			48,517
Depreciation and amortization		35,955			39,149
Total operating expenses		140,026			148,616
Income from operations		1,787			2,593
Other expenses
Other expense		118			308
Loss on extinguishment of debt		—			7,203
Interest expense		50,659			48,377
Loss before income taxes		(48,990	)		(53,295	)
Income tax provision		936			719
Net loss	$	(49,926	)	$	(54,014	)
Other comprehensive income, net of tax
Foreign currency translation		4,947			311
Total other comprehensive income, net of tax		4,947			311
Comprehensive loss	$	(44,979	)	$	(53,703	)
Net loss per share - basic and diluted	$	(1.17	)	$	(1.27	)
Weighted average shares outstanding - basic and diluted		42,529,017			42,425,295

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

	Common Stock Issued
	Shares		Amount		Additional paid-in capital			Treasury Stock			Accumulated deficit			Accumulated other comprehensive income		Total
Balance as of December 31, 2018		42,288,870		4		372,316			(2,406	)		(147,954	)		6,996		228,956
Issuance of common stock		172,350		—		1,655			—			—			—		1,655
Recapitalization transaction		—		—		8,122			—			(3,530	)		—		4,592
Retirement of treasury stock		—		—		(2,406	)		2,406			—			—		—
Share-based compensation		67,797		—		2,265			—			—			—		2,265
Foreign exchange translation		—		—		—			—			—			311		311
Net loss		—		—		—			—			(54,014	)		—		(54,014	)
Balance as of December 31, 2019		42,529,017	$	4	$	381,952		$	-		$	(205,498	)	$	7,307	$	183,765
Share-based compensation		—		—		3,435			—			—			—		3,435
Foreign exchange translation		—		—		—			—			—			4,947		4,947
Net loss		—		—		—			—			(49,926	)		—		(49,926	)
Balance as of December 31, 2020		42,529,017	$	4	$	385,387		$	-		$	(255,424	)	$	12,254	$	142,221

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

	Year ended December 31, 2020			Year ended December 31, 2019
Operating activities
Net loss	$	(49,926	)	$	(54,014	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		47,762			50,407
Non-cash interest		19,450			5,320
Loss on extinguishment of debt		—			7,203
Stock-based compensation		3,435			2,265
Provision for losses on accounts receivable		4,088			3,104
Deferred income taxes		1,041			219
Change in fair value of contingent consideration		98			48
Changes in operating assets and liabilities:
Accounts receivable		10,050			(16,712	)
Prepaid expenses and other assets		87			2,404
Accounts payable and accrued expenses		4,675			(8,937	)
Deferred revenue		(984	)		396
Net cash provided by (used in) operating activities		39,776			(8,297	)
Investing activities
Acquisitions, net of cash		(3,124	)		(1,950	)
Purchases of property and equipment		(10,935	)		(13,268	)
Net cash used in investing activities		(14,059	)		(15,218	)
Financing activities
Recapitalization transaction		—			186,503
Revolving credit facility draws		29,000			54,500
Revolving credit facility repayments		(29,000	)		(54,500	)
Payments for capital lease obligations		(1,595	)		(1,427	)
Payments on long-term debt		(17,000	)		(142,000	)
Issuance of common stock		—			414
Net cash (used in) provided by financing activities		(18,595	)		43,490
Effect of foreign exchange rates		672			(7	)
Net increase in cash		7,794			19,968
Cash at beginning of period		43,407			23,439
Cash at end of period	$	51,201		$	43,407
Supplemental disclosure:
Cash paid for interest	$	32,196		$	42,693
Income taxes paid, net of refunds	$	(195	)	$	470
Significant noncash investing and financing activities
Assumption of Pivotal Debentures	$	-		$	200,000
Equity issued for acquisitions	$	-		$	1,241
Purchases of property and equipment in accounts payable and accrued expenses on the consolidated balance sheets	$	394		$	129

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

Note 1 – Organization, business and summary of significant accounting policies

KLDiscovery Inc., (the “Company”) provides technology-based litigation support solutions and services including computer e-discovery, data hosting, and managed review predominantly to top law firms, corporations and government agencies. The majority of the Company’s current business is derived from these services. The Company’s headquarters is located in McLean, Virginia and has 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe.

The Company was originally incorporated under the name Pivotal Acquisition Corp. (“Pivotal”) as a blank check company on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, stock purchase, reorganization or similar business combination with one or more businesses or entities.

On December 19, 2019, Pivotal acquired of the outstanding shares of LD Topco, Inc. via a reverse capitalization (the “Business Combination”) and was renamed KLDiscovery Inc.

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Business Combination was accounted for as a reverse recapitalization (the "Recapitalization Transaction") in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, LD Topco, Inc. is considered the acquirer based on facts and circumstances, including the following:

As a result of LD Topco, Inc. being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” LD Topco, Inc. is the predecessor and legal successor to the Company. The historical operations of LD Topco, Inc. are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of LD Topco, Inc. prior to the Business Combination; (ii) the combined results of the Company and LD Topco, Inc. following the Business Combination on December 19, 2019; (iii) the assets and liabilities of LD Topco, Inc. at their historical cost; and (iv) KLDiscovery Inc.’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of LD Topco, Inc. in connection with the Business Combination is reflected retroactively to January 1, 2018 and has been utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse capitalization of LD Topco, Inc.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Although actual results could differ from those estimates, management does not believe that such differences would be material.

Significant estimates include, but are not limited to, the allowance for doubtful accounts, determining the fair values of assets acquired and liabilities assumed, the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the impairment of goodwill, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock and stock option awards, and acquisition-related contingent consideration.

The Company operates in one business segment, providing technology-based litigation support solutions and services.

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with a banking institution where the balances, at times, exceed federally insured limits. Management believes the risks associated with these deposits are limited.

With respect to accounts receivable, the Company performs ongoing evaluations of its customers, generally grants uncollateralized credit terms to its customers, and maintains an allowance for doubtful accounts based on historical experience and management’s expectations of future losses. As of and for the years ended December 31, 2020 and 2019, the Company did not have a single customer that represents more than five percent (5%) or more of its consolidated revenues or accounts receivable. The Company believes that the geographic and industry diversity of the Company’s customer base throughout the U.S. and internationally minimizes the risk of incurring material losses due to concentrations of credit risk. The Company’s foreign revenues, principally from businesses in the UK and Germany, totaled approximately $57.0 million in 2020 and $69.8 million in 2019. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $26.3 million at December 31, 2020 and $21.8 million at December 31, 2019.

Results of operations for the Company’s non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive income.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

The Company considers all highly liquid financial instruments with an original maturity of three months or less when purchased to be cash equivalents.

Accounts receivable are recorded at original invoice amount less an estimate for doubtful receivables based on a review of outstanding amounts monthly. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history. Accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.

A rollforward of the allowance for doubtful accounts is presented below (in thousands):

Computer software, property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Gains or losses on disposals are included in results of operations at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Costs for replacements and betterments are capitalized, while the costs of maintenance and repairs are expensed as incurred. Property under capital leases are depreciated using the straight-line method over the lease term.

Depreciation expense totaled $16.9 million and $18.6 million for the years ended December 31, 2020 and 2019, respectively, and includes amortization of assets recorded under capital leases.

The Company capitalizes certain internal computer software costs incurred during the application development stage. The application development stage generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. Capitalized software costs are depreciated over the estimated useful life of the underlying project on a straight-line basis. The Company’s estimated useful life of capitalized software costs varies between three and five years, depending on management’s expectation of the economic life of various software. Capitalized software amortization costs are recorded as a component of cost of revenue.

Capitalized software costs are reflected as part of the “Intangible assets, net line” in the Company’s Consolidated Balance Sheets and totaled $18.5 million and $13.5 million, net of accumulated amortization, as of December 31, 2020 and 2019, respectively.

The Company evaluates the recoverability of its long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount. No impairment losses were recognized in the accompanying consolidated financial statements.

Amortization expense totaled $30.9 million and $31.8 million for the years ended December 31, 2020 and 2019, respectively; $11.8 million and $11.3 million of which was classified as part of the “Cost of revenues” line in the Company’s Consolidated Statements of Comprehensive Loss.

The Company allocates the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company recognizes as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, the Company uses various recognized valuation methods including the income and market approaches. Further, the Company makes assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. The Company records the net assets and results of operations of an acquired entity in the financial statements from the acquisition date. The Company initially performs these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under its supervision, where appropriate, and make revisions as estimates and assumptions are finalized. The Company expenses acquisition-related costs as they are incurred.

Goodwill represents the excess of the total consideration paid over identified intangible and tangible assets of the Company and its acquisitions. The Company tests its goodwill for impairment at the reporting unit level on an annual basis on October 1, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the October 1 testing date the Company determined there is one reporting unit.

Goodwill impairment exists when the estimated fair value of the reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced by the excess through an impairment charge recorded in the Company’s statements of operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis.

The fair value of the Company’s reporting unit is estimated using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples. The cash flows employed in the DCF analyses are based on the Company’s best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term business plans and recent operating performance. The carrying value of the reporting unit includes the assets and liabilities employed in its operations and goodwill.

Accordingly, the Company has not identified any indicators of impairment, nor have any impairment charges been recorded related to goodwill resulting from the annual impairment test.

The following table provides a rollforward of the carrying amount of goodwill (in thousands):

Debt issuance costs are stated at cost, net of accumulated amortization, and are amortized over the term of the debt using both the straight-line and the effective yield methods. U.S. GAAP requires that the effective yield method be used to amortize debt acquisition costs; however, if the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method, the straight-line method may be used. The amortization for funded term debt is calculated according to the effective yield method and revolving and unfunded term debt is calculated according to the straight-line method. Debt issuance costs related to funded term debt is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Debt issuance costs related to revolving and unfunded term debt is presented in the Consolidated Balance Sheets within “Other assets.”

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2019, utilizing the modified retrospective method. The Company’s adoption of ASC 606 did not result in material changes to the Company’s revenue recognition.

Revenues are recognized when we satisfy a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.

The Company evaluates its revenue contracts with customers based on the five-step model under ASC 606: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenues when (or as) each performance obligation is satisfied.

The following table summarizes revenue from contracts with customers for the years ended December 31, 2020 and 2019 (in thousands):

The Company primarily sells services and products that fall into the categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. All of our eDiscovery service contracts are time and materials types of arrangements.

Time and materials arrangements are based on units of data stored or processed. Unit-based revenues are recognized as services are provided, based on either the amount of data stored or processed, the number of concurrent users accessing the information, or the number of pages or images processed for a client, at agreed upon per unit rates. We recognize revenues for these arrangements utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain of our eDiscovery contracts are subscription-based, fixed-fee arrangements, which have tiered pricing based on the quantity of data hosted. For a fixed monthly fee, our clients receive a variety of optional eDiscovery services, which are included in addition to the data hosting. The Company recognizes revenues for these arrangements based on predetermined monthly fees as determined in our contractual agreements, utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Managed review services are time and materials types of arrangements. These agreements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. The Company recognizes revenues for these arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Data recovery services are mainly fixed fee arrangements requiring the client to pay a pre-established fee in exchange for the successful completion of a data recovery on a predetermined device. For the recovery services performed by the Company’s technicians, the revenue is recognized at a point in time, when the recovered data is sent to the customer.

Data erasure services are fixed fee arrangements for which revenue is recognized at a point in time, when the certificate of erasure is sent to the customer.

Ontrack PowerControls, included in the data recovery revenue stream, offers term license subscriptions for customers with on-premises installations of the software pursuant to contracts that are historically one to four years in length. The term license subscriptions include maintenance, support, as well as access to future software upgrades and fixes. The license and the additional support services are deemed to be one performance obligation, and thus revenue for these arrangements is recognized ratably over the term of the agreement.

The Company measures and recognizes compensation expense for all share-based awards to employees based on estimated grant date fair values on a straight-line basis over the requisite service period. The Company uses the Black-Scholes valuation model, depending on terms, facts and circumstances of each share-based award. The expected vesting of the Company’s performance-based RSUs is based upon the probability of a liquidity event, such as a change in control as defined under the 2019 Plan. The level of achievement of the liquidity event, if any, is re-evaluated quarterly.

Advertising costs consist of marketing, advertising through print and other media, professional event sponsorship and public relations. These costs are expensed as incurred. Advertising costs totaled $4.5 million and $7.1 million for the years ended December 31, 2020 and 2019, respectively. Advertising costs are reflected within “Sales and marketing” in the accompanying Consolidated Statements of Comprehensive Loss.

Costs incurred in the research and development of the Company’s technologies primarily consist of developer salaries. Research and development expenses were $7.2 million and $5.9 million for the years ended December 31, 2020 and 2019, respectively.

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. Excess tax benefits and tax deficiencies are recognized in the income tax provision in the period in which they occur.

The Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not that some portion, or all its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax assets primarily based on the reversal of existing taxable temporary differences and projections of future taxable income (exclusive of reversing temporary differences and carryforwards). In evaluating such projections, the Company considers its history of profitability, the competitive environment, and general economic conditions. In addition, the Company considers the time frame over which it would take to utilize the deferred tax assets prior to their expiration.

For certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

On December 19, 2019, the Company completed a reverse merger with Pivotal Acquisition Corp. whereby the Company received 34,800,000 shares for its outstanding 3,707,564 shares, effecting 1-to-9.3862 stock exchange. The per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the annual financial statements of the Company. The impact of the stock exchange is also shown on the Company’s Statements of Stockholders’ Equity.”

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement”, which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements. This standard was effective for the Company for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption did not have a material impact on the Company’s current financial position and results of operations, but the financial statement disclosures were updated in accordance with the ASU.

In connection with the transaction with Pivotal (see Note 2), the Company elected to be an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and take advantage of the extended transition period of delaying the adoption of new or revised accounting standards until such time as those standards apply to private companies. This may make the comparison of the Company’s consolidated financial statements to other public companies not meaningful due to the differences in accounting standards being applied.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and the Company is currently evaluating the impact that Topic 842 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The Company is required to adopt ASC 326 effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the Company is currently evaluating the impact that Topic 326 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption, including the adoption in any interim period, is permitted for all entities. The Company does not expect ASU 2019-12 to have a meaningful effect on the Company’s current financial position, results of operations or financial statement disclosures.

On December 19, 2019, Pivotal, the legal predecessor company, consummated the Business Combination with LD Topco, Inc. The stockholders of LD Topco, Inc. received an aggregate of 34,800,000 shares of Pivotal common stock. The former stockholders of LD Topco, Inc. also have the right to receive up to 2,200,000 shares of the Company’s common stock if (i) a change in control occurs or (ii) the reported closing sale price of the Company’s common stock exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination. The Company also assumed 29,500,000 warrants which entitles the holder to purchase shares of the Company’s common stock beginning December 18, 2019 at an exercise price of $11.50 per share as part of this transaction.

As part of the transaction, on December 19, 2019, the Company assumed 8% convertible debentures (“Debentures”) due 2024 in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts outstanding under its revolving credit facility.

The net proceeds from the Business Combination, as reported in the consolidated statements of cash flows for the year ended December 31, 2019 within the financing section are summarized below:

The Company accounts for recurring and non-recurring fair value measurements in accordance with ASC 820, Fair Value Measurements. ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value, and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1 – Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

Level 2 – Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3 – Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity – e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security.

The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires significant judgments to be made by the Company.

The Company believes that the fair values of its current assets and current liabilities (cash, accounts receivable, accounts payable, and other current liabilities) approximate their reported carrying amounts. The Company believes that the interest rates on its debt are current market rates.

The Company estimates the fair value of contingent purchase consideration based on the present value of the consideration expected to be paid during the remainder of the earn-out period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. During 2019, the Company acquired three companies for total consideration of $5.5 million, of which $2.0 million was in cash, $1.5 million was in deferred payments, $1.2 million was in stock and contingent consideration of $1.0 million, which was recorded at its estimated fair value of $0.8 million related to future earnouts. The fair value of future expected acquisition-related contingent consideration obligations was $0.9 million and $0.8 million at December 31, 2020 and 2019, respectively.

The significant unobservable inputs used in the fair value measurements of the Company’s contingent purchase consideration include its measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these individual inputs would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is indirectly proportional to the fair value of contingent purchase consideration and a change in the assumptions used for the future cash flows is directly proportional to the fair value of contingent purchase consideration. The Company, using additional information as it becomes available, reassesses the fair value of the contingent purchase consideration on an annual basis.

Any change in the fair value of contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense on the Consolidated Statements of Comprehensive Loss.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019 (in thousands):

Management estimates the carrying amount of the Company’s long-term debt approximates its fair value because the interest rates on these instruments are subject to changes in market interest rates or are consistent with prevailing interest rates.

Description	Weighted Average Remaining Useful Life in Years		December 31, 2020			December 31, 2019
Trademark and tradenames		5.5	$	67,183		$	66,311
Accumulated amortization				(29,004	)		(21,504	)
Trademark and tradenames, net				38,179			44,807
Developed technology		4.2		79,796			71,327
Accumulated amortization				(49,968	)		(36,838	)
Developed technology, net				29,828			34,489
Non-compete agreements		—		1,402			1,467
Accumulated amortization				(1,402	)		(1,242	)
Non-compete agreements, net				—			225
Customer relationships		6.1		97,420			95,693
Accumulated amortization				(55,694	)		(44,646	)
Customer relationships, net				41,726			51,047
Intangible assets, net of amortization			$	109,733		$	130,568

The Company leases office space and certain equipment under operating and capital lease agreements, expiring in various years through 2029. Certain leases contain annual rent escalation clauses.

Rent expense totaled $14.1 million and $14.7 million for the years ended December 31, 2020 and 2019, respectively. As part of an effort to optimize the Company’s real estate footprint, during 2020, the Company terminated leases in 18 locations and reduced the footprint of four locations resulting in lease termination savings of approximately $4.6 million.

The amortization expense recorded for capital leases totaled $0.5 million and $0.7 million, respectively, for the years ended December 31, 2020 and 2019.

For years subsequent to December 31, 2020, future minimum payments for all operating and capital lease obligations that have initial non-cancelable lease terms exceeding one year, net of rental income from subleases are as follows (in thousands):

December 31,	Capital Leases			Operating Leases
2021	$	1,313		$	9,437
2022		1,586			8,936
2023		1,346			8,568
2024		721			7,377
2025		—			3,810
Thereafter		—			2,552
Total	$	4,966		$	40,680
Less: interest on lease obligations		(464	)
Net amount		4,502
Less: current portion		(1,313	)
Non-current	$	3,189

The table below summarizes the components of the Company’s long-term debt (in thousands):

	December 31,
	2020			2019
First lien facility due 2022		289,000			306,000
Convertible debenture notes due 2024		214,541			200,000
Total debt		503,541			506,000
Less: unamortized original issue discount		(16,126	)		(19,806	)
Less: unamortized debt issuance costs		(3,867	)		(5,573	)
Total debt, net		483,548			480,621
Current portion of debt		17,000			17,000
Less: current portion of unamortized original issue discount		(4,312	)		(3,687	)
Less: current portion of unamortized debt issuance costs		(1,740	)		(1,624	)
Total current portion of debt, net		10,948			11,689
Total long-term debt, net	$	472,600		$	468,932

On February 8, 2021 we entered into the 2021 Credit Agreement, the details of which are disclosed below in Note 17 - Subsequent Events.

On December 9, 2016, KLDiscovery entered into a Credit Agreement with a group of lenders to establish term loan facilities and a revolving line of credit for borrowings by LD Intermediate, Inc. and LD Lower Holdings, Inc. (the “Initial Term Loans”). The Initial Term Loan borrowings of $340.0 million (“First Lien Facility”) and $125.0 million (“Second Lien Facility”) were to mature on December 9, 2022 and December 9, 2023, respectively. The First Lien Facility was repaid on February 8, 2021 (see Note 17) and the Second Lien Facility was repaid on December 19, 2019.

The First Lien Facility established a term loan principal payment schedule with payments due on the last day of each calendar quarter beginning on March 31, 2017 of $2.1 million. Quarterly principal payments increased to $4.3 million beginning on March 31, 2019 with a balloon payment of $259.3 million due at maturity. The interest rate for the First Lien Facility adjusted every interest rate period, which could be one, two, three or six months in duration and was decided by the Company, or to the extent consented to by all appropriate Lenders, twelve months thereafter. Interest payment dates include the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 5.875% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. At December 31, 2020, the balance due was $289.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 1.00%. At December 31, 2019, the balance due was $306.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 2.596%.

The Second Lien Facility required a balloon payment of $125.0 million due at maturity. The interest rate for the Second Lien Facility adjusted every interest rate period, which could have been one, two, three or six months in duration and was decided by the Company, or to the extent consented to by all appropriate Lenders, twelve months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 10.0% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. On December 19, 2019, the Second Lien Facility was paid off and closed. A loss on debt extinguishment was recognized related to the Second Lien Facility closing in the amount of $7.2 million in 2019 related to the write off of deferred financing costs and original issue discounts on the Second Lien Facility. At December 31, 2019 the balance due was zero.

The First and Second Lien Facilities were secured by substantially all the Company’s assets and contain financial covenants. As of December 31, 2020 and 2019, the Company was in compliance with all covenants.

The 2016 Credit Agreement included a mandatory prepayment within ten days after delivery of the annual audited financial statements commencing with the year ending December 31, 2016, in an amount equal to the Excess Cash Flow Percentage of Excess Cash Flow for such Fiscal Year, as defined in the agreement. There were no mandatory prepayments with respect to 2020 and 2019.

The 2016 Credit Agreement also provided for unfunded revolver commitment (the “Revolving Credit Facility”) for borrowing up to $30.0 million and was to mature on June 9, 2022. Interest was due at adjustable interest rates ranging from 5.375% to 5.875% based on the First Lien Net Leverage Ratio plus an amount equal to the LIBOR. No amounts were outstanding under the revolving loan as of December 31, 2020 and 2019. The Revolving Credit Facility was retired on February 8, 2021.

As of December 31, 2020, there was approximately $29.3 million available capacity for borrowing under the Revolving Credit Facility due to $0.7 million of letters of credit outstanding (See Note 15).

On December 19, 2019, the Company assumed 8% convertible debentures (“Debentures”) due 2024 in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts outstanding under the Revolving Credit Facility. At December 31, 2020 and 2019, the balance due under the Convertible Debentures, including in-kind and accrued interest, was $214.5 million and $200.0 million, respectively.

The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures will bear interest at an annual rate of 4.00% in cash, payable quarterly, and 4.00% in kind, accrued quarterly, on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, the Company will add to the principal amount (subject to reduction for any principal amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding. The additional payment will accrue from the last payment date for the additional payment (or the Closing Date if no prior payment has been made), and will also be payable at maturity, upon conversion and upon an optional redemption.

At any time, upon notice as set forth in the Debentures, the Debentures will be redeemable at the Company’s option, in whole or in part, at a price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest thereon.

Subject to approval to allow for the full conversion of the Debentures into common stock, the Debentures will be convertible into shares of the Company’s common stock at the option of the debenture holders at any time and from time to time at a price of $18 per share, subject to certain adjustments. However, in the event the Company elects to redeem any Debentures, the holders will have a right to purchase common stock from the Company in an amount equal to the amount redeemed at the conversion price.

The Debentures contain covenants that limit the Company’s ability to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) engage in certain transactions with affiliates; or (iv) designate the Company’s subsidiaries as unrestricted subsidiaries. The Debentures provide for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Debentures and certain events of bankruptcy or insolvency. If an event of default occurs and continues, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may declare the entire principal amount of all the Debentures to be due and payable immediately. As of December 31, 2020 and 2019 the Company was in compliance with all covenants.

Future principal payments, including in kind interest, are as follows (in thousands):

The initial term loan borrowings related to the 2016 Credit Agreement were issued at an original issue discount of $11.9 million and $6.3 million for the First Lien Facility and Second Lien Facility, respectively. The Debentures were issued at an original discount of $13.7 million. The original issue discount is amortized using the effective yield method over the respective term of each facility or debenture. Accretion of the original issue discount totaled $3.7 million and $2.7 million during the years ended December 31, 2020 and 2019, respectively. Amortization is recorded as interest expense in the accompanying Consolidated Statements of Comprehensive Loss.

The Company incurred term loan facilities and revolver closing fees related to the 2016 Credit Agreement of $13.6 million. The term loan facilities and revolver closing fees were deferred on December 9, 2016, along with fees of $0.6 million related to the 2016 Credit Agreement and are amortized over their respective terms. The Company incurred closing fees related to the Debentures of $0.9 million which were deferred on December 19, 2019 and are amortized over the term of the debentures. Amortization of debt issuance costs totaled $1.6 million and $2.1 million during the years ended December 31, 2020 and 2019, respectively. Amortization is recorded as interest expense in the accompanying Consolidated Statements of Comprehensive Loss. A loss on debt extinguishment was recognized related to the closing of the Second Lien Facility in the amount of $7.2 million for deferred financing costs and original issue discounts in 2019.

The future amortization of debt issuance costs and original issue discount related to the 2016 Credit Agreement, the Revolving Credit Facility and Convertible Debentures are as follows (in thousands):

In February 2021, the Company expensed $7.2 million of these debt issuance costs in connection with the retirement of the 2016 Credit Agreement.

The Company’s 401(k) plan covers employees who are at least 21 years of age, have completed one year of employment and worked a minimum of 1,000 hours. Employees may elect to defer a percentage of their salary up to the maximum allowed under the Internal Revenue Service Code. During 2019, the Company made matching contributions to its 401(k) plan equal to 100% of the first 3% of salary deferred plus 50% of the next 2% of an employee’s contribution for a total maximum Company match of 4% of the salary deferred by the employee, subject to Internal Revenue Service Code limitations. Starting in January 2020, the Company discontinued matching contributions to the 401(k) plan. Contributions to the 401(k) plan were $0.3 million and $3.7 million for the years ended December 31, 2020 and 2019, respectively.

On December 19, 2019, the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. As of December 31, 2020, 7,500,000 shares of Common Stock were reserved under the 2019 Plan, of which 1,948,815 shares of Common Stock remained available for issuance.

On March 29, 2016, the Company adopted the 2016 Equity Incentive Plan (as amended, the “2016 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. The 2016 Plan was terminated on December 19, 2019 and all outstanding awards were cancelled.

The following table summarizes the Company’s stock option activity under the 2019 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options outstanding, December 31, 2018		-
Granted		514,710		$	9.90		10.0
Forfeited		-
Expired		-
Options outstanding, December 31, 2019		514,710		$	9.90		10.0
Granted		4,137,750			8.49
Forfeited		(387,186	)		8.85
Expired		(4,521	)		8.85
Options outstanding, December 31, 2020		4,260,753		$	8.46		9.0	$	54
Options vested and exercisable, December 31, 2020		1,204,863		$	8.20		9.0	$	54
Options vested and expected to vest, December 31, 2020		4,260,753		$	8.46		9.0	$	54

The following table summarizes the Company’s stock option activity under the 2016 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options Outstanding, December 31, 2018		411,480		$	100		8.3	$	—
Granted		67,050			90
Forfeited		(32,860	)		99
Expired		(8,640	)		99
Cancelled		(437,030	)		100
Options Outstanding, December 31, 2019		-						$	—

No stock options were exercised during the years ended December 31, 2020 and 2019.

The following table summarizes additional information on stock option grants and vesting (in thousands):

Under the 2016 Plan, time-based vesting stock options vested over a five-year period, subject to graded vesting schedules, and expired ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by the Company was $37.16 during the year ended December 31, 2019.

Under the 2016 Plan, for the year ended December 31, 2019, the Company recognized $2.3 million of stock-based compensation expense in connection with time-based stock options.

Under the 2019 Plan, time-based vesting stock options generally vest over a three-year period, are subject to graded vesting schedules, and expire ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by the Company was $2.19, and $1.89 during the years ended December 31, 2020 and 2019, respectively.

Under the 2019 Plan, for the years ended December 31, 2020 and 2019, the Company recognized $3.4 million and $0.01 million of stock-based compensation expense in connection with time-based stock options, respectively. As of December 31, 2020 and 2019, there was $6.4 million and $1.0 million of unrecognized stock-based compensation expense related to unvested time-based stock options that is expected to be recognized over a weighted-average period of three years, respectively.

Performance-based vesting stock options were issued under the 2016 Plan, which was terminated in December 2019, and generally vested upon the satisfaction of performance- and market-based criteria, based on the Principal Stockholders’ (as defined in the 2016 Plan) internal rate of return on their investment in the Company as measured following their sale of at least 70% of the Principal Stockholders total holdings in the Company, and expire ten years from the date of grant. The weighted-average fair value per share of performance-based vesting stock options granted by the Company was $37.16 during the year ended December 31, 2019.

The Company used valuation models to value both time and performance-based vesting stock options granted during 2020 and 2019. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employees under both the 2019 Plan and the 2016 Plan:

A discussion of management’s methodology for developing each of the assumptions used in the valuation model follows:

During the years ended December 31, 2020 and 2019, the Company granted to certain non-employee directors 136,956 and 7,223 stock awards, respectively. These stock awards were issued to non-employee directors in satisfaction of their annual retainer payments and are not subject to any vesting conditions, and thus became issued and outstanding shares on the grant date. Accordingly, the Company recognized the grant-date fair value of the stock awards of $0.4 million and $0.7 million as stock-based compensation expense concurrent with the grant date of the awards during the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense is included in the Consolidated Statements of Comprehensive Loss within the following line items (in thousands):

Certain employees may be eligible to receive restricted stock unit (“RSU”) awards in the event of a change in control or IPO (as both terms are defined in the respective employment agreements) with a market value equal to the greater of (1) $3.5 million for two employees, or $4 million for the other referenced employee or (2) an amount determined using a formula-based model (as defined in the respective employment agreements), as of the date of such grants.

The amount and timing of the vesting of the RSUs is dependent on the type and timing of the liquidity event as it relates to the Business Combination date of December 19, 2019. Generally, a portion of the RSUs will first vest upon the occurrence of the liquidity event and the remainder will vest in installments thereafter, provided that if the liquidity event occurs after the third anniversary of the Business Combination, all RSUs will vest immediately upon the liquidity event. The vesting of the RSUs is generally subject to continued employment.

The following table summarizes the Company’s RSU activity under the 2019 Plan:

The Company determined that the achievement of the liquidity event was not probable and therefore no expense was recorded during the year ended December 31, 2020.

The Company is authorized to issue up to 200,000,000 shares of common stock, $0.0001 par value per share (the “Common Stock”) and 1,000,000 shares of preferred stock, $0.0001 par value per share. Each holder of Common Stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. The holders of the Common Stock are entitled to receive dividends out of assets legally available at the time and in the amounts as the Company’s Board of Directors may from time to time determine. In the event of any liquidation, dissolution or winding up of the Company, the assets of the Company shall be distributed ratably among the holders of the then outstanding common stock.

During 2019, the Company issued 172,350 shares of Common Stock in exchange for $1.7 million. There were no stock issuances during 2020.

On December 19, 2019, in connection with the consummation of the Business Combination, the Company assumed 23,000,000 warrants (the “Public Warrants”), 4,585,281 warrants (the “Private Warrants”) and (iii) 1,764,719 warrants (the “Debenture Holder Warrants”). These warrants qualified for equity accounting as the warrants did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The warrants were measured at fair value at the time of issuance and classified as equity.

Each warrant entitles the holder to purchase one share of common stock for $11.50 per share. If held by the initial purchaser of the Private Warrant or certain permitted transferees, the purchase can occur on a cashless basis. The warrants will expire on December 19, 2024 or earlier upon redemption or liquidation.

If the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders, the Company may redeem all the Public Warrants at a price of $0.01 per warrant upon not less than 30 days’ prior written notice.

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. The warrants will not be adjusted for issuance of common stock at a price below its exercise price. The Company will not be required to net cash settle the warrants.

The Private Warrants are identical to the Public Warrants except that the Private Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

On December 19, 2019, in connection with the consummation of the reverse merger transaction, 550,000 shares of common stock held by Pivotal Acquisition Holdings LLC are subject to an additional lockup that will be released only if the last reported sale price of the common stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of common stock does not equal or exceed $15.00 within five years from the Closing Date, such shares will be forfeited to the Company for no consideration. These shares are reported as outstanding in our financial statements and continue to be subject to the additional lockup as of December 31, 2020.

Basic loss per common share (“EPS”) is calculated by dividing the net loss for the year by the weighted-average number of common shares outstanding during the period. Due to the Company’s net loss for the years ended December 31, 2020 and 2019, all potential common stock equivalents were anti-dilutive.

The following table summarizes basic and diluted loss per share or the years ended December 31, 2020 and 2019 (in thousands, except per share amounts):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Basic and diluted loss per share:
Net loss	$	(49,926	)	$	(54,014	)
Weighted average common shares outstanding - basic		42,529,017			42,529,017
Dilutive effect of potentially issuable shares		—			—
Weighted average common shares outstanding - diluted		42,529,017			42,529,017
Basic loss per share	$	(1.17	)	$	(1.27	)
Dilutive effect of potentially issuable shares		—			—
Diluted loss per share	$	(1.17	)	$	(1.27	)
Common share equivalents excluded due to anti-dilutive effect		3,788,388			—

The Company had immaterial foreign currency losses that are reflected in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss for years December 31, 2020 and 2019. Transaction gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include cash as well as third party receivables and payables.

The components of income tax expense for the years ended December 31, 2020 and 2019 are presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Current
Federal	$	(712	)	$	(37	)
State		73			61
Foreign		729			447
Deferred
Federal		334			332
State		806			705
Foreign		(294	)		(789	)
Total income tax provision	$	936		$	719

The actual income tax expense amounts for the years ended December 31, 2020 and 2019 differed from the expected tax amounts computed by applying the U.S. federal corporate income tax rate of 21% for 2020 and 2019 to the amounts of loss before income taxes as presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Pre-tax book loss	$	(48,990	)	$	(53,295	)
Tax at Federal statutory rate of 21% in 2020 and 2019		(10,288	)		(11,192	)
State taxes		879			766
Stock based compensation		3			1,060
Foreign rate differential		(1,223	)		(871	)
Unrecognized tax benefit		549			-
Other adjustments		1,453			(1,707	)
Valuation allowance		9,563			12,663
Total income tax provision	$	936		$	719

The domestic and foreign components of loss before income taxes from continuing operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):

The tax effects of temporary differences at December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Net operating losses and other carryforwards	$	42,859		$	41,299
Interest expense carryforward		30,112			20,070
Property and equipment		2,448			2,221
Accrued expenses		512			82
Payroll tax deferral		1,089			-
Allowance for doubtful accounts		1,768			1,517
Stock-based compensation		878			—
Other		540			633
Deferred tax asset		80,206			65,822
Valuation allowance		(65,228	)		(51,895	)
Total deferred tax assets, net of valuation allowance		14,978			13,927
Intangible assets		(21,791	)		(20,098	)
Prepaid expenses		(107	)		(73	)
Other		(415	)		(50	)
Deferred tax liability		(22,313	)		(20,221	)
Net deferred tax liability	$	(7,335	)	$	(6,294	)

At December 31, 2020 and 2019, the Company had tax effected U.S. federal net operating loss carryforwards of approximately $32.1 million and $31.0 million, respectively, of which $7.8 million tax effected, begin to expire in 2024 but approximately $16.5 million, tax effected, begin to expire in 2035 and $7.8 million, tax effected, have no expiration. At December 31, 2020 and 2019, the Company had tax effected state net operating loss carryforwards of approximately $6.7 million and $6.5 million, respectively. The majority of the state tax losses will not begin expiring until 2035 or later. At December 31, 2020 and 2019, the Company also had U.S. tax credit carryforwards of approximately $0.9 million and $0.9 million, respectively. The tax credits will expire in 2021.

The tax effected foreign net operating loss at December 31, 2020 and 2019 is approximately $3.1 million and $2.9 million, respectively, the majority of which has an unlimited carryforward period.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2016. The Company is also subject to examination in various foreign jurisdictions. In material foreign jurisdictions, the statute of limitations ranges one – four years from the filing of a tax return.

The Company has not provided for U.S. income and foreign withholding taxes on approximately $13.5 million of certain foreign subsidiaries' undistributed earnings as of December 31, 2020, because such earnings have been retained and are intended to be indefinitely reinvested outside of the U.S. These earnings could become subject to additional tax, if they were remitted as dividends, loaned to the Company, or if the Company should sell its stock in these foreign subsidiaries. However, it is not practicable to estimate the amount of taxes that would be payable for these earnings because such tax, if any, is dependent on circumstances existing if and when a taxable event occurs.

As of December 31, 2020 and 2019, the Company had a valuation allowance of $65.2 million and $51.9 million, respectively, against certain deferred tax assets. The valuation allowance relates to the deferred tax assets of the Company’s U.S. entities, including federal and state tax attributes and timing differences, as well as the deferred tax assets of certain foreign subsidiaries. The increase in the valuation allowance during 2020 is primarily related to operating losses incurred during the year and the limitation on deductibility of interest expense. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no

longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized; the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance. It is possible that such reduction of or addition to the Company’s valuation allowance may have a material impact on the Company’s results from operations. The U.S. federal and foreign changes to valuation allowance of approximately $9.6 million is presented in the effective tax rate reconciliation as part of the valuation allowance. The U.S. state changes to valuation allowance of approximately $3.8 million is presented as part of the state taxes in the effective tax rate reconciliation as part of the unrecognized tax benefit.

As of December 31, 2020 and 2019, the total amount of unrecognized tax benefits was $1.0 million and $0 million, respectively, that would favorably impact the Company’s effective income tax rate. However, due to the Company’s determination that the deferred tax asset would not more-likely-than-not be realized, a full valuation allowance was recorded, therefore, zero net impact resulted in the Company’s effective income tax rate. The Company’s uncertain income tax position liability has been recorded to deferred income taxes to offset the tax attribute carryforward amounts. The U.S. federal and foreign changes to uncertain tax positions of approximately $0.6 million is presented in the effective tax rate reconciliation as part of the unrecognized tax benefit. The U.S. state changes to uncertain tax positions of approximately $0.4 million is presented as part of the state taxes in the effective tax rate reconciliation as part of the unrecognized tax benefit.

In connection with the Company’s continued integration and realignment efforts following the 2016 acquisition of Kroll Ontrack, LLC, the Company recorded severance and retention expense of $2.5 million and $1.4 million during the years ended December 31, 2020 and 2019, comprised of employee severance and other employee-related costs

associated with a reduction in workforce of 39 and 33 employees for 2020 and 2019, respectively. Severance and retention expense are included in the Consolidated Statements of Comprehensive Loss as follows:

The activity and balance of severance-related liabilities, which are recorded within Accounts payable and accrued expense in our Consolidated Balance Sheet, are as follows (in thousands):

The Company is involved in various legal proceedings, which may arise occasionally in the normal course of business. While the ultimate results of such matters generally cannot be predicted with certainty, management does not expect such matters to have a material effect on the financial position and results of operations as of December 31, 2020. The Company has three letters of credit totaling $0.7 million as additional security for lease guarantees related to leased properties.

The potential impacts of the ongoing COVID-19 pandemic on the Company’s business are currently not estimable or determinable. The Company has made modifications to employee travel, work locations, and cancellation of certain events, among other modifications. During 2020, the Company implemented a salary exchange program pursuant to which certain employees took a temporary reduction in salary through December 31, 2020 that ranges from 2% to 20% in exchange for receiving 417,673 stock options and 211,207 RSUs. In December 2020, the Company extended the salary reduction program through September 20, 2021 for the named executive officers and for management positions of or higher than Vice-Presidents. The Company also initiated limited furloughs for certain employees. The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that it determines is in the best interests of its employees, customers, partners, suppliers and stockholders. Primarily due to the impact of COVID-19, our revenues decreased by $22.5 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019 as many clients delayed new litigation and court systems closed for a period of time and have been slow to reopen.

On March 27, 2020, the President signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, NOL carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In

particular, under the CARES Act, (i) for taxable years beginning before 2021, NOL carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility was increased from 30% to 50% of taxable income. As permitted under the CARES Act, the Company deferred payroll taxes due in 2020 to 2021 and 2022. The Company continues to analyze other aspects of the CARES Act as well as similar tax legislation in other countries we operate but does not believe they will have a meaningful impact to its results.

On December 22, 2015, the Company entered into a consulting agreement with Carlyle Investment Management, LLC, an affiliate of Carlyle, for advisory, consulting and other services in relation to the strategic and financial management of the Company. For the year ended December 31, 2019, the Company recognized $1.0 million in management consulting fees, reflected within “General and administrative expenses” in the accompanying consolidated Statements of Comprehensive Loss. The consulting agreement was terminated on December 19, 2019.

As of December 31, 2020, $107.3 million including paid-in kind of the Company’s Debentures are owed to affiliates of MGG Investment Group, which is an affiliate of a director of the Company. For the years ended December 31, 2020 and December 31,2019, the Company recognized $12.1 million and $0.4 million in interest expense, respectively related to the amounts owned by the MGG Investment Group.

The Company has evaluated subsequent events through the dates on which this Form 10-K was filed, the date on which these financial statements were issued, and identified the below item for discussion.

The Company incurred closing fees of $8.0 million in connection with the entry into the 2021 Credit Agreement. These fees will be amortized over the full term of the 2021 Credit Agreement.

In February 2021, a loss on debt extinguishment of $7.2 million was recognized in connection with the retirement of the 2016 Credit Agreement.

On February 16, 2021, the Company issued an additional 1.1 million time-based options and 0.3 million performance/market-based restricted stock units to its employees under the 2019 Plan.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act ), as of the end of the period covered by this Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in this Form 10-K was (a) reported within the time periods specified by SEC rules and regulations and (b) communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and concluded that our internal control over financial reporting was effective at December 31, 2020.

This Annual Report on Form 10-K does not include an attestation by our independent registered public accounting firm regarding our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) due to a transition period established by the rules of the SEC.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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

Our current directors and executive officers are listed below. Also set forth below are the biographies for all our current directors and executive officers. There are no family relationships among any of our directors or executive officers.

Christopher J. Weiler co-founded KLDiscovery in 2005 and has served as its Chief Executive Officer and a director since such time. Prior to co-founding KLDiscovery, Mr. Weiler co-founded On-Site Sourcing, a litigation support and electronic discovery services company, in 1993 and served as its President and Chief Executive Officer until December 2004. From 1991 to 1992, Mr. Weiler worked for Pitney Bowes Management Services as a manager, and from 1985 to 1991, he served in the U.S. Navy as a surface warfare officer and as a Navy Senate Liaison Officer in Washington, D.C. Mr. Weiler received a B.S. in Political Science and Engineering from the U.S. Naval Academy. We believe that Mr. Weiler is qualified to serve as a member of our Board of Directors due to his knowledge of our company and his extensive experience in the electronic discovery services industry.

Dawn Wilson has been the Chief Financial Officer of KLDiscovery since September 2017. Ms. Wilson has over 20 years of experience in finance and accounting. After starting her career at Arthur Andersen in 1992, she has primarily been with public companies in the technology and services industry. Most recently, Ms. Wilson served as Vice President of Accounting of CoStar Group, the leading provider of commercial real estate information, analytics and online marketplaces, from July 2004 to August 2016. She received a Masters in Accounting from Virginia Polytechnic Institute and State University.

Krystina Jones joined KLDiscovery in 2006 in a sales role, where she was responsible for generating new business from Am Law 100 law firms and Fortune 500 corporations. During her tenure with KLDiscovery, Ms. Jones has consistently created opportunities, developed new clients and increased the company’s client base by delivering tailored solutions and service excellence. She is a top producing sales representative in the organization, focused on corporate accounts. Today, Ms. Jones is Executive Vice President, Global LT Sales & Marketing where she is responsible for KLDiscovery's global sales and marketing organizations for the Legal Technologies business. In this role, she is responsible for developing, implementing and executing a global sales & marketing strategy across the entire organization. Additionally, Ms. Jones is responsible for KLDiscovery's global sales operations teams who support the business development managers in delivering best-in-class service to their clients. She continues to maintain, and grow, her existing book of business. Ms. Jones has over a decade of experience in the industry at KLDiscovery, and has held a variety of leadership positions with the company throughout its eleven acquisitions and integrations. Ms. Jones holds a dual degree in Marketing Management from Virginia Polytechnic Institute and State University.

Donna S. Morea has been a member of the Board of Directors of KLDiscovery since March 2017 and she currently serves as the Chair of our Board of Directors. She is an Operating Executive of TCG focused on the technology and

business services sectors. She is a board member of NetHealth, Accelerate Learning and Unison. She also currently serves on the boards of directors of Truist Financial Corporation, and Inova Health Systems, and as the Chair of the Board of Science Applications International Corporation. From 2004 to 2011 she served President of CGI Technology and Solutions, Inc. (“CGI”) where she led CGI’s software and IT services in the US, Europe and Asia-Pacific, serving commercial and government clients. Prior to that, she served in numerous executive management roles at American Management Systems, which was acquired by CGI in 2004. Previously, she has served on the board of directors of CGI and as chair of the Northern Virginia Technology Council. Ms. Morea received a M.B.A., with distinction, in Finance from the Wharton School at the University of Pennsylvania and a B.A. with high honors from Wesleyan University. We believe that Ms. Morea is qualified to serve as a member of our Board of Directors due to her broad knowledge of the information technology industry and management experience.

Ian Fujiyama has been a member of the Board of Directors of KLDiscovery since March 2020. Mr. Fujiyama is a Managing Director for TCG, focusing on buyouts and strategic minority investments in the aerospace, defense and government services sectors. Since joining TCG in 1997, Mr. Fujiyama has led all of TCG’s recent investments in the Federal services sector, including Novetta, Booz Allen Hamilton and ARINC. Beginning in 1999, he spent two years in Hong Kong and Seoul working in TCG’s Asia Buyout fund, Carlyle Asia Partners, where he was a founding member of the team and helped lead TCG’s investment in KorAm Bank, TCG’s first investment in the financial services industry. Mr. Fujiyama was also involved in a number of successfully exited holdings, including ARINC, United Components, Inc, Lear Siegler Services, EG&G Technical Services and CPI. Prior to joining TCG, Mr. Fujiyama was an Associate at Donaldson Lufkin and Jenrette Securities Corp, with a focus on high yield and merchant banking transactions. Mr. Fujiyama received his B.S. in economics, summa cum laude, from The Wharton School of the University of Pennsylvania with a concentration in finance. Mr. Fujiyama has served on the boards of directors of ARINC, Booz Allen Hamilton, Dynamic Precision Group, CPI, Novetta and United Components. Additionally, Mr. Fujiyama served as the Chairman of TCG’s Diversity and Inclusion Committee. We believe that Mr. Fujiyama is qualified to serve as a member of our Board of Directors due to his knowledge of technology solutions and corporate finance experience.

Kevin Griffin served as a member of the Board of Directors of Pivotal Acquisition Corp. (“Pivotal”) since September 2018, and following KLDiscovery’s business combination with Pivotal (the “Business Combination”) on December 19, 2019 (the “Closing Date”), he has remained on the Board of Directors. Mr. Griffin has been designated as a director by Pivotal Spac Funding LLC, a managing member of Pivotal Acquisition Holdings LLC (the “Founder”), pursuant to our amended and restated certificate of incorporation. During Mr. Griffin’s 20-year career, Mr. Griffin has originated and invested over $4 billion across the capital structure of middle market businesses and has also sat on numerous boards of directors. Mr. Griffin founded MGG Investment Group (“MGG”) in October 2014 and has served as its Chief Executive Officer and Chief Investment Officer since such time. Prior to launching MGG, Mr. Griffin was a Managing Director with Highbridge Principal Strategies from January 2010 to June 2014, where he was a senior member of the Specialty Lending Platform and a Member of the Highbridge Credit Committee. Prior to this, Mr. Griffin was the Head of Private Investing for Octavian Funds, a hedge fund focused on global investing across debt and equity structures, from 2007 to 2009. From 2003 to 2007, Mr. Griffin was part of Fortress Investment Group (“Fortress”) in charge of originating and underwriting investment opportunities for the Drawbridge Special Opportunities Fund. Prior to Fortress, Mr. Griffin was an investor with one of the first publicly traded business development companies, American Capital, where he was involved in numerous equity buyout and subordinated debt investments. Mr. Griffin began his career with Houlihan Lokey, Howard & Zukin’s Investment Banking Division, focusing primarily on distressed M&A and financial restructurings. The M&A Advisor in May 2015 named Mr. Griffin a winner of its 40 Under 40 Emerging Leaders Award. The Hedge Fund Journal, in association with EY, in December 2016 named Mr. Griffin one of 50 “Tomorrow’s Titans.” Mr. Griffin received a B.S.B.A. in Finance from Georgetown University. We believe that Mr. Griffin is qualified to serve as a member of our Board of Directors due to his extensive business and operational experience and contacts.

Jonathan J. Ledecky has served as President and Chief Operating Officer of Northern Star Acquisition Corp. since September 2020 and served as its Chief Executive Officer from July 2020 until September 2020 and has served as the President and Chief Operating Officer of Northern Star Investment Corp. II since November 2020. He has also served as Chairman of the Board of Pivotal Investment Corp. III since October 2020. Mr. Ledecky has been a co-owner of the National Hockey League’s New York Islanders franchise since October 2014. He also serves as an Alternate Governor on the Board of Governors of the NHL and as President of NY Hockey Holdings LLC. Mr. Ledecky has served as chairman of Ironbound Partners Fund LLC, a private investment management fund, since

March 1999. He was also the Chief Executive Officer and chairman of the board of directors of Pivotal II, a blank check company like our company that raised $230,000,000 in its initial public offering in July 2019 and consummated its initial business combination with XL, a leading provider of fleet electrification solutions for Class 2-6 commercial vehicles in North America, in December 2020. Mr. Ledecky has continued to serve on the board of directors of XL following the merger. Mr. Ledecky was also Chief Executive Officer and chairman of the board of directors of Pivotal I, a blank check company like our company that raised $230,000,000 in its initial public offering in February 2019. In December 2019, Pivotal I consummated its initial business combination with KLDiscovery, a provider of software and services that help protect corporations from a range of information governance, compliance and data issues. Mr. Ledecky has also served as President and a director of Newtown Lane Holdings, Incorporated, a blank check company, since October 2015. Mr. Ledecky also served as a member of the board of directors of Propel Media, Inc., a digital media holding company, from January 2015 to January 2019. From July 2005 to December 2007, Mr. Ledecky served as president, secretary and a director of Endeavor Acquisition Corp., a blank check company that completed its initial business combination with American Apparel, Inc. From January 2007 to May 2009, he served as president, secretary and a director of Victory Acquisition Corp., a blank check company that was unable to consummate an initial business combination. He also served as president, secretary and a director of Triplecrown Acquisition Corp., a blank check company, from June 2007 until it completed its initial business combination with Cullen Agricultural Technologies, Inc. in October 2009. During 2007, he also served as president, secretary and director of Grand Slam Acquisition Corp., Performance Acquisition Corp. and Endeavour International Acquisition Corp., three similarly structured blank check companies that never completed their initial public offerings due to market conditions at the time. Mr. Ledecky founded U.S. Office Products in October 1994 and served as its chief executive officer until November 1997 and as its chairman until its sale in June 1998. U.S. Office Products was one of the fastest start-up entrants in the history of the Fortune 500 with sales in excess of $3 billion within its first three years of operation. From 1999 to 2001, Mr. Ledecky was vice chairman of Lincoln Holdings, owners of the Washington sports franchises in the NBA, NHL and WNBA. In addition to the foregoing, Mr. Ledecky served as chairman of the board and chief executive officer of Consolidation Capital Corporation from its formation in February 1997 until March 2000 when it merged with Group Maintenance America Corporation. Mr. Ledecky also has served as a trustee of George Washington University, a director of the U.S. Chamber of Commerce and a commissioner on the National Commission on Entrepreneurship and currently serves as a trustee of the U.S. Olympic and Paralympic Foundation. In 2004, Mr. Ledecky was elected the Chief Marshal of the 2004 Harvard University Commencement, an honor bestowed by his alumni peers for a 25th reunion graduate deemed to have made exceptional contributions to Harvard and the greater society while achieving outstanding professional success. Mr. Ledecky received a B.A. (cum laude) from Harvard University in 1979 and a M.B.A. from the Harvard Business School in 1983. We believe that Mr. Ledecky is qualified to serve as a member of our Board of Directors due to his public company experience, business leadership, operational experience and contacts.

Evan B. Morgan has been a member of the Board of Directors of KLDiscovery since December 2015. Mr. Morgan has served as Manager of The Radcliff Companies (“Radcliff”), a New York-based private investment partnership, since July 2016. Radcliff invests across the capital structure seeking long-term compounding at high rates of return primarily in privately held consumer and services businesses. Mr. Morgan joined Revolution Growth (“RG”), where he was a Partner, in 2011. In 2016, when he joined Radcliff, Mr. Morgan transitioned to Special Partner status with RG. From 2009 to 2011, Mr. Morgan worked for TCG. Mr. Morgan currently serves on the boards of directors of Shorecal Limited and JetLinx Global. Mr. Morgan previously served as a member of board of directors of Pivotal from December 2018 until April 2019. Mr. Morgan is a member of the board of managers of Chrome Hearts Holdings (since 2017), Cross Country Mortgage LLC (since 2019) and a Board observer of Sweetgreen and Sportradar Mr. Morgan received a B.A. from the University of Pennsylvania. We believe that Mr. Morgan is qualified to serve as a member of our Board of Directors due to his knowledge of our business and industry.

Lawrence Prior III has been a member of the Board of Directors of KLDiscovery since March 2020. Mr. Prior is an Operating Executive for The Carlyle Group (“TCG”), focused on the aerospace, defense and government services sectors. He is based in Washington, DC and serves on the board of directors of Novetta and is the Chairman of the Board Two Six Technologies. Mr. Prior was most recently President and Chief Executive Officer of CSRA, Inc., which was acquired by General Dynamics. Previously, he was Executive Vice President and General Manager of CSC’s North American Public Sector business, providing next-generation technology solutions and mission services to the U.S. Department of Defense, Intelligence Community and FedCiv sectors. Before joining CSC, Mr. Prior held executive leadership positions at BAE Systems Inc., ManTech International, SAIC, LightPointe

Communications, High Technology Solutions, the County of San Diego and TRW. Earlier in his career, Mr. Prior worked as a professional staff member on the House Permanent Select Committee on Intelligence and served as an Intelligence Officer in the U.S. Marine Corps. Mr. Prior earned his B.S. degree from Loyola Marymount University and an M.A. in security studies from the Edmund A. Walsh School of Foreign Service at Georgetown University. We believe that Mr. Prior is qualified to serve as a member of our Board of Directors due to his knowledge of technology solutions and corporate finance experience.

Arjun Shah has been a member of the Board of Directors of KLDiscovery since March 16, 2021. Mr. Shah is a Vice President with TCG focused on investment opportunities in the technology, media and telecom sectors. He is based in Washington, DC. Since joining Carlyle in 2017, Mr. Shah has been actively involved with TCG’s investments in ION Group, Workforce Logiq, and KLDiscovery. Prior to joining TCG, Mr. Shah was with Tinicum Incorporated and Blackstone, both in New York. Mr. Shah received his M.B.A. with high distinction from Harvard Business School, where he was a Baker Scholar. He graduated summa cum laude from the Jerome Fisher Program in Management & Technology at University of Pennsylvania, where he received a B.S. in economics from The Wharton School and a B.S. in engineering. We believe that Mr. Shah is qualified to serve as a member of our Board of Directors due to his knowledge of technology solutions and corporate finance experience.

Lauren Tanenbaum has been a member of the Board of Directors of KLDiscovery since February 2021. Ms. Tanenbaum is a Principal within the Global Capital Markets team at TCG. She provides financing guidance for TCG’s four U.S.-based private equity funds both at initial acquisition and on an ongoing portfolio basis. In her role in Capital Markets, Ms. Tanenbaum arranges a wide variety of financings ranging from large, broadly syndicated transactions to middle market private placements. Prior to joining TCG in 2018, Ms. Tanenbaum worked at J.P. Morgan from 2011 to 2018, most recently as a Vice President in Leveraged Finance. Additionally, she was an Investment Banker in the Public Finance department at Morgan Stanley from 2009 to 2011. Ms. Tanenbaum received a B.A. in History from the University of Pennsylvania. We believe that Ms. Tanenbaum is qualified to serve as a member of our Board of Directors due to her extensive corporate finance experience.

Richard J. Williams has been a member of the Board of Directors of KLDiscovery since February 2018. In 2004, Mr. Williams co-founded WestView Capital Partners (“WestView”), a private equity firm focused on growth-oriented companies, and he currently serves as its Manager Partner. WestView currently manages approximately $1.7 billion of capital. Prior to co-founding WestView, he was a Partner in Tudor Investment Corporation’s (“Tudor”) private equity group from 2000 to 2004. Prior to joining Tudor, Mr. Williams was a Managing Director of Triumph Capital Group, a Boston-based private equity firm which managed more than $800 million in capital. In these positions, Mr. Williams has been responsible for investments in the technology services, software, business services and healthcare sectors. Mr. Williams currently serves on the boards of directors of CloudWave Healthcare Solutions, Abacus Group, AccountabilIT, The Shelby Group and Health Monitor Network. Mr. Williams previously served on the boards of directors of numerous private and public companies, including Thorne Research and LDiscovery. Mr. Williams received a B.S. in Computer Science from Yale University and a M.B.A. from the Wharton School at the University of Pennsylvania. We believe that Mr. Williams is qualified to serve as a member of our Board of Directors due to his extensive experience with growth-oriented companies and other public companies.

Our business and affairs are managed under the direction of our Board of Directors. Our Board of Directors is currently comprised of ten members, classified into three classes, each comprising as nearly as possible one-third of the directors to serve three-year terms. As Class B directors, each of Donna Morea, Jonathan J. Ledecky, Evan Morgan, and Lauren Tanenbaum will serve until the 2021 annual meeting; as Class C directors, each of Christopher J. Weiler, Ian Fujiyama, and Arjun Shah will serve until the 2022 annual meeting; and as Class A directors, each of Richard J. Williams, Kevin Griffin, and Lawrence Prior III will serve until the 2023 annual meeting, or in each case until their respective successors are duly elected and qualified.

As a result of our Common Stock being quoted on the OTC Pink Sheet Market, we will adhere to its rules in determining whether a director is independent. Our Board of Directors has consulted, and will consult, with its counsel to ensure that the determinations are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors. The OTC Pink Sheet Market listing standards generally define an “independent director” as a person, other than an executive officer or employee of a company or any other individual having a relationship which, in the opinion of the issuer’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Our Board of Directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his/her background, employment and affiliations, including family relationships, our Board of Directors has determined that Donna Morea, Jonathan Ledecky, Kevin Griffin, Ian Fujiyama, Evan Morgan, Lawrence Prior III, Richard Williams, Lauren Tanenbaum, and Arjun Shah do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is considered an independent director. Our independent directors will have regularly scheduled meetings at which only independent directors are present.

Our Board of Directors recognizes that the leadership structure and combination or separation of the Chief Executive Officer and Chair of the Board of Directors roles is driven by our needs at any point in time. As a result, no policy exists requiring combination or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed our Board of Directors the flexibility to establish the most appropriate structure for us at any given time.

Our Board of Directors will oversee the risk management activities designed and implemented by our management. Our Board of Directors will execute its oversight responsibility both directly and through its committees. Our Board of Directors will also consider specific risk topics, including risks associated with our strategic initiatives, business plans and capital structure. Our management, including our executive officers, is primarily responsible for managing the risks associated with operation and business of the Company and will provide appropriate updates to the Board of Directors and the Audit Committee. Our Board of Directors will delegate to the Audit Committee oversight of its risk management process, and our other committees will also consider risk as they perform their respective committee responsibilities. All committees will report to the Board of Directors as appropriate, including when a matter rises to the level of a material or enterprise risk.

Our Board of Directors held four meetings in 2020. We expect our directors to attend all board meetings and any meetings of committees of which they are members and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Each of our directors attended all of the meetings of the Board of Directors and meetings of committees of which he or she was a member. Although we do not have any formal policy regarding director attendance at stockholder meetings, we attempt to schedule meetings so that all directors can attend.

We have a separately standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee are composed solely of independent directors.

Lawrence Prior III (chairman), Evan Morgan, Kevin Griffin and Lauren Tanenbaum currently serve as members of our Audit Committee. Each member of the Audit Committee is financially literate. Mr. Darman previously qualified as an “audit committee financial expert” as defined in applicable SEC rules, however Mr. Darman resigned from our

Board of Directors on March 16, 2021. As a result, we will be reviewing our board members’ qualifications to identify a suitable audit committee financial expert. The Board has determined that each of the members of the Audit Committee is an “independent director,” as defined under the OTC Pink Sheet Market listing standards. Such Audit Committee members shall also be “financially literate.” “Financially literate” generally means being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. The Audit Committee has a written charter, which is available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Audit-Committee-Charter.pdf.

Our Audit Committee held four meetings in 2020. Each of our Audit Committee members attended these meetings of the Audit Committee.

Our Nominating and Corporate Governance Committee currently consists of Ian Fujiyama (chairman), Lawrence Prior III and Richard Williams. The Nominating and Corporate Governance Committee is responsible for overseeing the selection of persons to be nominated to serve on our Board of Directors. The Nominating and Corporate Governance Committee considers persons identified by its members, management, stockholders, investment bankers and others. The Nominating and Governance Committee has a written charter, which is available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Nominating-Committee-Charter.pdf.

The guidelines for selecting director nominees, which are specified in the Nominating and Corporate Governance Committee Charter, generally provide that persons to be nominated should:

The Nominating and Corporate Governance Committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the Board of Directors. The Nominating and Corporate Governance Committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The Nominating and Corporate Governance Committee does not distinguish among nominees recommended by stockholders and other persons.

Our Nominating and Corporate Governance Committee acted by unanimous written consent one time in 2020.

Our Compensation Committee currently consists of Donna Morea (chair) and Richard Williams. The Compensation Committee has a written charter, which is available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Compensation-Committee-Charter.pdf.

The Compensation Committee may also, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation Committee will consider the independence of each such adviser, including the factors required by the SEC.

The Compensation Committee makes compensation decisions regarding all of our Named Executive Officers. Our Chief Executive Officer makes recommendations to the Compensation Committee to assist it in determining compensation levels for our other executive officers and reviews the performance of our other executive officers. While the Compensation Committee utilizes this information and values management’s observations with regard to compensation, the ultimate decisions regarding executive compensation are made by the Compensation Committee.

Additionally, the Compensation Committee may form and delegate any of its responsibilities to one or more subcommittees as it deems appropriate. Our Compensation Committee met seven times in 2020.

We have adopted a Code of Ethics that applies to all officers, directors and employees. The Code of Ethics codifies the business and ethical principles that govern all aspects of our business.

We will provide, without charge, upon request, copies of our Code of Ethics. Requests for copies of the Code of Ethics should be sent in writing to KLDiscovery, 8201 Greensboro Dr., Suite 300, McLean, VA 22102. It is also available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Code_of_Ethics.PDF.

None of the members of the Compensation Committee is currently, or has been at any time, one of our officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

We have adopted a Shareholder Communications Policy. Interested parties of the Company may communicate directly with the independent members of our Board of Directors and the chair of the Board of Directors about corporate governance, corporate strategy, board-related matters or other substantive matters that our company secretary and Chair of the Board of Directors consider to be important for the director(s) to know, by addressing any communications to the intended recipient by name or position in care of: Company Secretary, 8201 Greensboro Drive, Suite 300, McLean, VA 22102 or andrew.southam@kldiscovery.com.

Members of our Board of Directors who are not our employees are generally eligible to participate in a compensation program, which we refer to as the Non-Employee Director Compensation Program, under which a director is eligible to receive the following amounts as compensation for his or her services on our Board of Directors:

However, for fiscal year 2020, Ian Fujiyama, William Darman and Richard Williams were not eligible to participate in the Non-Employee Director Compensation Program, and Evan Morgan was not eligible to receive an annual retainer fee under the Non-Employee Director Compensation Program, but was eligible to receive equity-based compensation under the Non-Employee Director Compensation Program. Effective as of June 17, 2020, our Non-Employee Director Compensation Program was amended to eliminate the additional $45,000 fee provided to our lead independent director and, instead, provide a $75,000 annual retainer fee for the chairman of our Board of Directors.

The restricted stock units granted upon a director’s initial election or appointment will vest as to one-third of the restricted stock units on each of the first three anniversaries of the date of grant, such that the award will be fully vested on the third anniversary of the date of grant, subject to continued service. The restricted stock units granted annually to directors will vest in a single installment on the day before the next annual meeting, subject to continued service. In addition, all unvested restricted stock units will vest in full upon the occurrence of a change in control, subject to continued service.

Director fees under the program will be payable in arrears in four equal quarterly installments not later than the fifteenth day following the final day of each calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our Board of Directors.

Each member of our Board of Directors is entitled to be reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of the Board of Directors and any committee of the Board of Directors on which he or she serves.

The table below shows all compensation to our non-employee directors for the year ended December 31, 2020.

Name	Year	Fees Earned or Paid in Cash ($)		Stock Awards ($) (4)		Total ($)
Jonathan Ledecky	2020		30,000		149,347		179,347
Kevin Griffin	2020		40,000		149,347		189,347
Daniel Akerson (1)	2020		-		-		-
Donna Morea	2020		78,750		149,347		228,097
William Darman (2)	2020		-		-		-
Richard Williams	2020		-		-		-
Evan Morgan	2020		-		149,347		149,347
Lawrence Prior III (3)	2020		41,684		343,500		385,184
Ian Fujiyama (3)	2020		-		-		-

Our “Named Executive Officers” for the year ended December 31, 2020 are Christopher J. Weiler, our Chief Executive Officer, Dawn M. Wilson, our Chief Financial Officer, and Krystina L. Jones, our Executive Vice President, Global Legal Technologies Sales & Marketing (collectively, the “Named Executive Officers” or “NEOs”).

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The compensation reported in this discussion is not necessarily indicative of how our Named Executive Officers will be compensated in the future.

The following table presents summary information regarding the total compensation for the years ended December 31, 2020 and December 31, 2019, for the Named Executive Officers.

Name and Principal Position	Year	Salary ($)				Bonus ($)		Stock Awards ($) (2)		Option Awards ($) (2)		Non-Equity Incentive Plan Compensation ($)				All Other Compensation ($) (4)		Total ($)
Christopher J. Weiler	2020		372,692				-		274,800		-		-				13,196		660,688
Chief Executive Officer	2019		493,269				-		-		425,447		-				12,037		930,753
Dawn M. Wilson	2020		354,769						870,127		9,529		-				6,851		1,241,276
Chief Financial Officer	2019		355,769				240,000		-		1,063,599		-				7,461		1,666,829
Krystina L. Jones	2020		524,404	(1	)		-		342,662		55,695		1,865,520	(3	)		7,300		2,795,581
EVP, Global LT Sales &	2019		569,230				-		-		319,076		1,666,151				11,200		2,565,657
Marketing

The primary elements of compensation for the Company’s Named Executive Officers were base salary, annual cash bonuses, awards of stock options, awards of RSUs and, for Ms. Jones, commissions and an irrevocable draw through our sales commission program. The Company’s Named Executive Officers are also eligible to participate in our employee benefit plans and programs, including medical and dental benefits, flexible spending accounts, long-term care benefits, and short- and long-term life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans.

The Company’s Named Executive Officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities.

During 2020, the base salaries of the Company’s Named Executive Officers were modified multiple times as part of the company’s cost savings initiative in response to the COVID-19 pandemic, as described in the footnotes to the table below. In recognition for their willingness to agree to their base salary reductions and their contributions to the Company, Mses. Wilson and Jones received awards of stock options and RSUs with grant date fair values that were materially greater than the amount of their base salary reductions. These awards are described below under the heading “—Equity Compensation”.

The annual base salaries for our Named Executive Officers as of December 31, 2019 and December 31, 2020 were as follows:

In addition to base salaries, Mr. Weiler and Ms. Wilson are eligible to participate in the KLDiscovery Inc. Corporate Annual Bonus Plan (the “Annual Bonus Plan”). The Annual Bonus Plan is designed to motivate our employees to achieve corporate goals and to reward our employees for their contributions towards achievement of these goals. Our Board of Directors annually approves the Company’s annual budget, which includes a discretionary bonus pool for granting awards under the Annual Bonus Plan. The extent to which the bonus pool is funded is based on the Company’s achievement of certain adjusted EBITDA goals during the plan year. After the year is completed, certain of our senior executives grant eligible employees bonuses from the bonus pool based on each employee’s role, seniority, and annual cash bonus target.

For 2020, the financial goals related generally to the achievement of adjusted EBITDA goals. The target ETBIDA level was $82.4 million for 2020, and the aggregate bonus pool under the Annual Bonus Plan could range between $1 million and $5 million. Disclosure for how adjusted EBITDA is calculated is calculated from our audited financial statements is provided in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations–– Key Components of our Results Of Operations–– Adjusted EBITDA.”

Mr. Weiler and Ms. Wilson’s 2020 annual cash bonus targets, expressed as a percentage of base salary, were 75% and 60%, respectively. Based on the Company’s performance during 2020, it was determined that no bonuses were to be paid to Mr. Weiler or Ms. Wilson for 2020 under the Annual Bonus Plan, as noted in the “2020 Summary Compensation Table” above.

Ms. Jones is eligible to earn sales commissions pursuant to the 2019 Commission Plan (together with the addendums thereunder). Under the 2019 Commission Plan, Ms. Jones is eligible to earn an annual irrevocable draw of $150,000, payable in equal monthly installments as well as additional, monthly commission that is based on invoiced revenue multiplied by specified commission rates, payable in arrears to the extent that they exceed her monthly draw. Ms. Jones’s annual irrevocable draw has not been reduced during the COVID-19 pandemic, but, on April 23, 2020, Ms. Jones agreed to forgo $113,192 in monthly commission payments.

We have granted equity awards pursuant to the KLDiscovery Inc. 2019 Incentive Award Plan (the “2019 Plan”) to our eligible employees, including our Named Executive Officers. We have historically offered stock options and RSUs as the long-term incentive component of our compensation program. The Company’s stock options generally allow employees, including our Named Executive Officers, to purchase shares of our Common Stock at a price equal to the fair market value of our Common Stock on the date of grant, as determined by the Board of Directors. The Company’s RSUs represent a contractual right to receive one share of our Common Stock for each RSU upon the settlement date, subject to certain vesting conditions.

Generally, stock options and RSUs granted under the 2019 Plan have vesting schedules that are designed to encourage continued employment. Stock options granted to our NEOs generally vest over a three-year period, subject to continued employment and generally expire ten years from the date of grant. In the event of a change in control of the Company (a “Change in Control”), the option tranche that was scheduled on the applicable vesting date immediately following the Change in Control will immediately vest, and the remainder of the option will vest in each of the subsequent anniversaries of the Change in Control. We refer to this option vesting schedule herein as the “Standard Option Vesting Schedule.”

RSUs granted to our NEOs generally vest according to the following vesting schedule (subject to continued employment), which we refer to herein as the “Standard RSU Vesting Schedule”:

From time to time, our Board of Directors may also construct alternate vesting schedules as it determines are appropriate to motivate particular employees.

In 2019, Mr. Weiler received an award of 121,110 stock options, but on August 6, 2020, he voluntarily forfeited all 121,110 such stock options. In 2020, Mr. Weiler received an award of 40,000 RSUs, but on April 23, 2020, he voluntarily forfeited all 40,000 RSUs.

In 2019 and 2020, Ms. Wilson received awards of 302,770 and 5,015 stock options, respectively. In addition, in 2020, Ms. Wilson received an award of 126,656 RSUs. On April 23, 2020, Ms. Wilson voluntarily forfeited 6,667 RSUs. The outstanding stock options and RSUs vest based on the Company’s Standard Option Vesting Schedule and Standard RSU Vesting Schedule described above.

In 2019 and 2020, Ms. Jones received awards of 90,830 and 29,913 stock options, respectively. In addition, in 2020, Ms. Jones received an award of 49,878 RSUs. On April 23, 2020, Ms. Jones voluntarily forfeited 6,667 RSUs, and on May 5, 2020, Ms. Jones voluntarily forfeited 6,000 stock options and 3,000 RSUs. The outstanding stock options and RSUs vest based on the Company’s Standard Option Vesting Schedule and Standard RSU Vesting Schedule described above.

During 2020, Mr. Weiler, Ms. Wilson and Ms. Jones all agreed to these forfeitures in order to facilitate the grant of equity awards to other key employees.

The Company has entered into employment and severance arrangements with each of the Named Executive Officers. The material terms and conditions of these arrangements are described below.

Mr. Weiler is party to an employment agreement, dated September 30, 2011, and which has been subsequently amended, pursuant to which he serves as the Chief Executive Officer of the Company. The current term of the employment agreement will expire on September 30, 2023, subject to automatic one-year renewals unless either party gives written notice of non-renewal at least ninety days prior to the then-scheduled expiration of the term. Pursuant to his employment agreement, Mr. Weiler is entitled to an annual base salary, and is eligible to participate in an incentive program established by the Board under which Mr. Weiler may earn a bonus based on achievement of performance metrics as determined by the Board.

Mr. Weiler has also agreed to refrain from disclosing our confidential information during or at any time following his employment with us and from competing with us or soliciting our employees or customers during his employment and for one year following termination of his employment.

In the event that Mr. Weiler’s employment is terminated either by the Company without cause (as defined in his employment agreement) or by Mr. Weiler for good reason (as defined in his employment agreement), subject to his execution and non-revocation of a general release of claims and continued compliance with his restrictive covenant obligations, as described above, Mr. Weiler would be entitled to receive (i) an amount in cash equal to the sum of (A) his base salary and (B) a pro-rated bonus for the year in which his termination occurs and (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 12 months. In the event that Mr. Weiler’s employment is terminated either by the Company without cause or by Mr. Weiler for good reason, in either case, within three months prior to or twelve months following a change in control, then in lieu of the severance benefits described above, subject to his execution and non-revocation of a general release of claims and continued compliance with his restrictive covenant obligations, as described above, Mr. Weiler would be entitled to receive (i) an amount in cash equal to 1.5 times the sum of (A) his base salary plus (B) his target annual bonus for the year of termination, (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 18 months and (iii) accelerated vesting of all unvested equity or equity-based awards held by him that vest solely based on the passage of time, with any such awards that vest based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement.

The Company entered into an offer letter agreement with Ms. Wilson pursuant to which she serves as the Chief Financial Officer of the Company. Pursuant to her offer letter, Ms. Wilson is entitled to an annual base salary and is eligible to earn a discretionary bonus currently targeted at 60% of her annual base salary based on the achievement of key performance objectives and company performance.

Ms. Jones is party to an offer letter agreement pursuant to which Ms. Jones has been employed by the Company. Pursuant to her offer letter, Ms. Jones is entitled to an annual base salary, an irrevocable draw of $150,000, and is eligible to receive monthly commissions under the Company’s current commission plan.

The Company has entered into restrictive covenant agreements with each of Mses. Wilson and Jones pursuant to which they agree to refrain from disclosing our confidential information during or at any time following their employment with us and from competing with us or soliciting our employees or customers during their employment and for one year following termination of their employment .

The Company also entered into executive severance agreements with each of Mses. Wilson and Jones. Under these severance agreements, which became effective on June 17, 2020, in the event that Ms. Wilson or Ms. Jones’s employment is terminated by the Company without cause (as defined in the severance agreements) or by Ms. Wilson or Ms. Jones for good reason (as defined in the severance agreements), subject to her execution and non-revocation of a general release of claims, Ms. Wilson or Ms. Jones, as applicable, would be entitled to receive (i) an amount in cash equal to the sum of (A) 50% of her base salary (without regard to the base salary reductions described above under the heading “—Base Salaries”), (B) a pro-rated bonus for the year in which her termination occurs, and (C) for Ms. Jones, an amount equal to six months of her average monthly sales commissions over the prior three year period and (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 6 months. In the event that Ms. Wilson’s or Ms. Jones’s employment is terminated either by the Company without cause or by Ms. Wilson or Ms. Jones, as applicable, for good reason, in either case, within three months prior to or twelve months following a change in control, then in lieu of the severance benefits described above, subject to her execution and non-revocation of a general release of claims and continued compliance with her restrictive covenant obligations, as described above, Ms. Wilson or Ms. Jones, as applicable, would be entitled to receive (i) an amount in cash equal to the sum of (A) her base salary plus (B) her target annual bonus for the year of termination and (C) for Ms. Jones, an amount equal to twelve months of her average monthly sales commissions over the prior three year period, (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 12 months and (iii) accelerated vesting of all unvested equity or equity-based awards held by her that vest solely based on the passage of time, with any such awards that vest based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement.

The following table summarizes the number of shares of Common Stock underlying outstanding equity incentive plan awards for each Named Executive Officer as of December 31, 2020.

			Option Awards							Stock Awards
Name and Principal Position	Grant Date		Number of Securities Underlying Unexercised Options Exercisable (2)		Number of Securities Underlying Unexercised Options Unexercisable (2)		Option Exercise Price		Option Expiration Date	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (3)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (4)
Christopher J. Weiler		(1)	—		—		—		—	—		—
Chief Executive Officer			—		—		—		—	—		—

Dawn M. Wilson	4/21/2020		—			5,015	$	9.95	4/20/2030		1,656	$	13,331
Chief Financial Officer	2/17/2020		—		—		—		—		118,333	$	952,581
	12/19/2019			100,923		201,847	$	9.90	12/18/2029	—		—

Krystina L. Jones	4/21/2020		—			23,913	$	9.95	4/20/2030		6,878	$	55,367.90
EVP, Global LT Sales &	2/17/2020		—		—		—		—		33,333	$	268,330.65
Marketing	12/19/2019			30,276		60,534	$	9.90	12/18/2029	—		—

Our Named Executive Officers are eligible to participate in our employee benefit plans and programs, including medical, dental and vision benefits and life insurance, to the same extent as its other full-time employees, subject to the terms and eligibility requirements of those plans. We also sponsor a 401(k) defined contribution plan in which our Named Executive Officers may participate, subject to limits imposed by the Internal Revenue Code of 1986, as amended, to the same extent as all of our other full-time employees. The plan allows for us to make discretionary employer matching contributions equal to 100% of the first 3% and 50% of the next 2% of a participant’s deferral. We did not make any employer matching contributions in 2020. These matching contributions are fully vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our Named Executive Officers, in accordance with our compensation policies.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 4, 2021 by:

Unless otherwise noted, the amount of beneficial ownership for each individual or entity includes (i) shares of Common Stock issuable upon exercise of the Warrants, (ii) shares of Common Stock issuable upon conversion of the Debentures, as the Debentures are convertible by the holders thereof at any time at a price of $18 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions), and (iii) shares of Common Stock that may be issuable to certain of our stockholders if the reported closing sale price of our Common Stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination (the “Contingent Shares”), as such conditions may occur within 60 days. The number of shares and percentages of beneficial ownership set forth below are based on 42,533,482 shares of our Common Stock issued and outstanding as of March 4, 2021, which does not include any shares issuable upon exercise of Warrants or conversion of Debentures or any Contingent Shares. To our knowledge, except as noted below, no person or entity is the beneficial owner of more than 5% of the voting power of the Company's voting securities.

Beneficial ownership is determined under SEC rules and regulations and generally includes voting or investment power over securities. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Approximate Percentage of Outstanding Shares
Directors and Executive Officers (1)
Jonathan J. Ledecky (2)		9,655,889		20.5	%
Kevin Griffin (2)(3)		15,865,326		29.9	%
Evan Morgan (4)		40,228	*
Richard J. Williams (5)		1,607,823		3.8	%
Donna Morea (6)		55,806	*
Christopher J. Weiler (7)		1,588,803		3.7	%
Dawn Wilson (8)		100,923	*
Krystina Jones (9)		165,250	*
Arjun Shah	—		—
Lawrence Prior III		16,667	*
Ian Fujiyama	—		—
Lauren Tanenbaum	—		—
All executive officers and directors as a group (12 individuals)		29,096,715		50.1	%

Five Percent Holders
Pivotal Acquisition Holdings LLC (2)		9,655,889		20.5	%
The Carlyle Group Inc. (10)		21,250,970		48.5	%
OTPP (11)		7,416,079		15.3	%
MGG (12)		5,805,556		12.1	%
Revolution (13)		4,098,642		9.6	%
Linden Capital L.P. (14)		3,164,907		6.9	%

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board of Directors (or the Audit Committee). Related party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our Common Stock, or (c) immediate family member of the persons referred to in clauses (a) and (b) has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 5% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.

Our Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related party transactions to the extent we enter into such transactions. The Audit Committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, but that director is required to provide the Audit Committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete an annual directors’ and officers’ questionnaire that elicits information about related party transactions.

These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

In August 2018, we issued 5,570,000 shares of Class B common stock to the Founder for $25,000 in cash, at a purchase price of approximately $0.004 per share, in connection with our organization (the “founder shares”). The Founder transferred 50,000 founder shares to each independent director in December 2018 and transferred 100,000 founder shares to Pivotal’s chief financial officer in December 2018, in each case at the same per-share purchase price paid by the Founder.

The founder shares were designated as Class B common stock and were automatically converted into shares of our single class of Common Stock on the first business day following the consummation of the Business Combination on a one-for-one basis, subject to adjustment. Notwithstanding the foregoing, this provision was not triggered in connection with the Business Combination.

The Founder and our officers and directors purchased an aggregate of 6,350,000 private warrants (for a total purchase price of $6,350,000) from us on a private placement basis simultaneously with the consummation of our initial public offering (“IPO”) (the “Private Warrants”). The Private Warrants are identical to the 23,000,000 warrants exercisable for Common Stock included in the units issued in our IPO (the “Public Warrants”) except that the Private Warrants: (i) are not redeemable by us and (ii) may be exercised for cash or on a cashless basis, as described in the prospectus for our IPO, so long as they are held by the initial purchasers or any of their permitted transferees. If the Private Warrants are held by holders other than the initial purchasers or any of their permitted transferees, they will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants included in the units sold in our IPO. The initial purchasers of the Private Warrants have agreed not to transfer, assign or sell any of the Private Warrants, including the Common Stock issuable upon exercise of the Private Warrants (except to certain permitted transferees), until 30 days after the completion of the Business Combination. In connection with the Business Combination, the Founder forfeited 1,764,719 Private Warrants.

Other than as described above, no compensation of any kind was paid by us to our Founder, executive officers and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of the Business Combination. However, these individuals were reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.

Pivotal Spac Funding LLC, a managing member of the Founder, agreed in connection with our IPO, pursuant to the Forward Purchase Contract, to purchase, in a private placement to occur concurrently with the consummation of our initial business combination, and under certain conditions, up to $150,000,000 of our securities.

On December 16, 2019, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Ontario Teachers’ Pension Plan, another large global financial institution and affiliates of MGG, an affiliate of Kevin Griffin (the “Purchasers”). Pursuant to the Purchase Agreement, on the Closing Date, we sold to the Purchasers an aggregate of $200 million convertible debentures in a private placement (the “Debentures”). The Debentures have a term of 5 years and will be repayable at any time prior to maturity without any prepayment penalty. However, in the event we elect to pre-pay the Debentures, the holders will have a right to purchase Common Stock from us in an amount commensurate in value to the pre-payment at a price of $18 per share, subject to adjustment (the “conversion price”). Additionally, the holders will have the option to convert the Debentures into shares of our Common Stock at the conversion price at any time. The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures will bear interest at an annual rate of 4.00% in cash and 4.00% in kind, payable quarterly on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, Pivotal will add to the principal amount (subject to reduction for any principal

amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding (the “Additional Payment”). The Additional Payment will accrue from the last payment date for the Additional Payment (or the Closing Date if no prior payment has been made), and will also be payable at maturity, upon conversion and upon an optional redemption. In connection with the issuance of the Debentures, certain of the Purchasers also purchased from us on the Closing Date an aggregate of 2,097,974 shares of our Common Stock and 1,764,719 warrants sold to the Debenture holders in a private placement that closed simultaneously with the consummation of the Business Combination (“Debenture Holder Warrants”) for the aggregate price of approximately $1.77 million.

As of December 31, 2020, $107.3 million, including payment-in kind interest, of our Debentures are held by affiliates of MGG. For the years ended December 31, 2020 and December 31,2019, we recognized $12.1 million and $0.4 million in interest expense, respectively, related to the amounts held by affiliates of MGG.

In connection with the closing of the Business Combination, we entered into a Stockholders’ Agreement(as amended on March 25, 2020 and further amended on February 2, 2021) with affiliates of TCG and RG, pursuant to which the holders of a majority of the shares of our Common Stock held by such TCG affiliates and RG have the right to designate up to six directors (or such other number as permitted pursuant to the terms of the Stockholders’ Agreement) for election to our board of directors for so long as such TCG affiliates and RG maintain collective ownership of a certain percentage interest in us.

On the Closing Date, in connection with the consummation of the Business Combination, 550,000 shares of our Common Stock held by the Founder became subject to an additional lockup that will be released only if the last reported sale price of the Common Stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of our Common Stock does not equal or exceed $15.00 within five years from the Closing Date, such shares will be forfeited to us for no consideration.

In connection with the consummation with the Business Combination, we entered into a Registration Rights Agreement with the pre-Business Combination stockholders (the “LD Topco Stockholders”) of LD Topco Inc. (“LD Topco”) , the Founder, and the other holders of our Class B common stock that were issued prior to our IPO (which were converted upon consummation of the Business Combination into our single class of Common Stock on a one-for-one basis). Pursuant to the Registration Rights Agreement, the LD Topco Stockholders, the Founder and the other holders of founder shares were granted certain rights to have registered, in certain circumstances, the resale under the Securities Act of 1933, as amended (the “Securities Act”), of our securities held by such holders, subject to certain conditions set forth therein.

We have entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements, together with our amended and restated bylaws, provide that we will jointly and severally indemnify each indemnitee to the fullest extent permitted by the Delaware general corporation law from and against all loss and liability suffered and expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of the indemnitee in connection with any threatened, pending, or completed action, suit or proceeding that arises by reason of their status or service as executive officers or directors. Additionally, we agreed to advance to the indemnitee all out-of-pocket costs of any type or nature whatsoever incurred in connection therewith.

On December 22, 2015, LDisc Holdings, LLC (“LDisc”), an indirect subsidiary of LD Topco, entered into a consulting services agreement (the “Consulting Services Agreement”) with Carlyle Investment Management (“CIM”), an affiliate of TCG, in connection with the acquisition of LDisc by an affiliate of CIM. In exchange for providing LDisc and its subsidiaries with certain ongoing strategic and financial advisory and consulting services pursuant to the Consulting Services Agreement, CIM was entitled to a quarterly fee, determined each calendar quarter, equal in the aggregate to the greater of (i) 0.5% of the trailing 12-month consolidated EBITDA of LDisc and its subsidiaries and (ii) $250,000. The Consulting Services Agreement was terminated in connection with the Business Combination and $3.25 million of unpaid amounts thereunder as of the consummation of the Business Combination were paid to CIM. Further, under the Consulting Services Agreement, CIM was entitled to additional fees and compensation agreed upon by the parties for any other services provided by CIM to LDisc from time to time. CIM did not provide any additional services under the Consulting Services Agreement beyond the advisory and consulting services for the year ended December 31, 2019. The Consulting Services Agreement provided that LDisc would indemnify CIM against any claims arising out of or in connection with its performance under the Consulting Services Agreement and would reimburse CIM for its reasonable out-of-pocket expenses incurred in connection with its performance of the services provided under the Consulting Services Agreement.

From time to time, we may make sales to and purchases from companies that are affiliated with TCG. Such transactions have been entered into in the ordinary course of business and are not considered material.

The following table sets forth the aggregate fees and expenses billed to us by Ernst & Young LLP (“EY”), our independent registered public accounting firms for fiscal years 2019 and 2020:

The Audit Committee maintains policies and procedures for the pre-approval of work performed by the independent auditors and, pursuant to the Audit Committee charter, all auditor engagements must be approved in advance by the Audit Committee. All of the services provided to the Company by EY during fiscal 2020 and 2019 were pre-approved by the Audit Committee.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 18^th day of March, 2021.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Name	Title	Date

/s/ Christopher J. Weiler	Chief Executive Officer (Principal Executive Officer)	March 18, 2021
Christopher J. Weiler

/s/ Dawn Wilson	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 18, 2021
Dawn Wilson

/s/ Donna Morea	Chair of the Board	March 18, 2021
Donna Morea

/s/ Ian Fujiyama	Director	March 18, 2021
Ian Fujiyama

/s/ Kevin Griffin	Director	March 18, 2021
Kevin Griffin

	Director	March 18, 2021
Jonathan J. Ledecky

/s/ Evan Morgan	Director	March 18, 2021
Evan Morgan

/s/ Lawrence Prior III	Director	March 18, 2021
Lawrence Prior III

/s/ Arjun Shah	Director	March 18, 2021
Arjun Shah

/s/ Lauren Tanenbaum	Director	March 18, 2021
Lauren Tanenbaum

/s/ Richard Williams	Director	March 18, 2021
Richard Williams

Delaware	61-1898603
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
8201 Greensboro Drive Suite 300 McLean, VA	22102
(Address of Principal Executive Offices)	(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	47
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	48

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	49
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13.	Certain Relationships and Related Transactions, and Director Independence	66
Item 14.	Principal Accounting Fees and Services	69

PART IV
Item 15.	Exhibits, Financial Statement Schedules	70
Item 16.	Form 10-K Summary	73

Region	Employee Count
North America		756
Europe, Middle East, and Africa		390
Asia Pacific		52
Total		1,198

Gender	Employee Percentage
Female	29%
Male	71%

Ethnicity	Employee Percentage
Asian	8.4%
Black / African American	7.3%
Hispanic / Latin	5.2%
Multiracial, Native American and Pacific Islander	2.8%
White	76.3%

	2020			2019
Net cash provided by (used in):
Operating activities	$	39,776		$	(8,297	)
Investing activities	$	(14,059	)	$	(15,218	)
Financing activities	$	(18,595	)	$	43,490
Effect of foreign exchange rates	$	672		$	(7	)
Net increase in cash	$	7,794		$	19,968

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets as of December 31, 2020 and 2019	F-3

Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2020 and 2019	F-4

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2020 and 2019	F-5

Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 2019	F-6

Notes to Consolidated Financial Statements	F-7

Balance at December 31, 2018	$	5,564
Charged to/reversed from expense		3,104
Charged to/from other accounts		—
Deductions (write offs)		(1,182	)
Balance at December 31, 2019	$	7,486
Charged to/reversed from expense		4,088
Charged to/from other accounts		283
Deductions (write offs)		(3,344	)
Balance at December 31, 2020	$	8,513

Computer software and hardware		3 to 5 years
Leasehold improvements		Shorter of lease term or useful life
Furniture, fixtures and other equipment		3 to 5 years

Balance at December 31, 2018	$	394,167
Acquisitions		263
Foreign currency translation		741
Balance at December 31, 2019		395,171
Acquisitions		1,009
Disposal		(96	)
Foreign currency translation		3,001
Balance at December 31, 2020	$	399,085

	Year Ended December 31, 2020		Year Ended December 31, 2019
eDiscovery services	$	197,300	$	215,560
Managed review		49,985		50,290
Legal technology services		247,285		265,850
Data recovery		42,260		46,204
Total revenue	$	289,545	$	312,054

Gross cash received by KLDiscovery from Business Combination	$	201,657
Less: fees to underwriters		(6,500	)
Less: other transaction costs		(8,654	)
Net cash received by KLDiscovery from Business Combination	$	186,503

Balance at December 31, 2018	$	—
Additions (payments) to contingent consideration		774
Change in fair value of contingent consideration		48
Balance at December 31, 2019		822
Additions (payments) to contingent consideration		—
Change in fair value of contingent consideration		98
Balance at December 31, 2020	$	920

	2016 Plan				2019 Plan
	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2020		Year Ended December 31, 2019
Total fair value of stock options granted	$	-	$	2,492	$	9,241	$	974
Total fair value of options vested		-		1,439		2,711		-

	Year Ended December 31, 2020		Year Ended December 31, 2019
Expected volatility	37.63 - 41.24%		36.92 - 37.70%
Expected term (in years)		6.0	6 - 6.5
Dividend yield	0%		0%
Risk free interest rate	0.30 - 1.43%		1.79 - 2.89%

	RSUs
Description	Outstanding
Outstanding at December 31, 2019		-
Granted		1,402,312
Forfeited		(111,880	)
Expired		-
Outstanding at December 31, 2020		1,290,432

	Year Ended December 31, 2020			Year Ended December 31, 2019
Domestic	$	(46,686	)	$	(52,438	)
Foreign		(2,304	)		(857	)
Total	$	(48,990	)	$	(53,295	)

	Year Ended December 31, 2020			Year Ended December 31, 2019
Beginning Balance	$	51,895		$	36,595
Additions	$	14,149		$	15,622
Reductions		(816	)		(322	)
Ending Balance	$	65,228		$	51,895

	Year Ended December 31, 2020		Year Ended December 31, 2019
Costs of revenues	$	950	$	301
General and administrative		469		567
Sales and marketing		1,076		516
Research and development		8		19
Total	$	2,503	$	1,403

Balance at December 31, 2018	$	555
Payments		(1,600	)
Expense		1,403
Balance at December 31, 2019	$	358
Payments		(1,395	)
Expense		2,503
Balance at December 31, 2020	$	1,466

Name	Age (1)	Position
Christopher J. Weiler	58	Chief Executive Officer and Director
Dawn Wilson	54	Chief Financial Officer
Krystina Jones	37	Executive Vice President, Global LT Sales and Marketing
Donna Morea	66	Director (Chair)
Ian Fujiyama	48	Director
Kevin Griffin	44	Director
Jonathan Ledecky	63	Director
Evan Morgan	36	Director
Lawrence Prior III	65	Director
Arjun Shah	32	Director
Lauren Tanenbaum	33	Director
Richard Williams	60	Director

Name	Stock Awards Outstanding as of December 31, 2020 (3)
Jonathan Ledecky		21,739
Kevin Griffin		21,739
Donna Morea		21,739
Evan Morgan		21,739
Lawrence Prior III		50,000

Name	Annual Base Salary as of December 31, 2019 ($)		Annual Base Salary as of December 31, 2020 ($)
Christopher J. Weiler (1)		490,000		300,000
Dawn Wilson (2)		400,000		320,000
Krystina Jones (3)		575,000		490,000

	Fiscal Year Ended December 31, 2019		Fiscal Year Ended December 31, 2020

Audit Fees (1)	$	1,721,392	$	1,591,000
Tax Fees (2)		209,110		178,811
All Other Fees (3)		824,516		171,500
Total	$	2,755,018	$	1,941,311

Exhibit Number		Description
2.1+		Agreement and Plan of Merger, dated as of May 20, 2019, by and among Pivotal Acquisition Corp., Pivotal Merger Sub Corp., LD Topco, Inc., and Carlyle Equity Opportunity GP, LP (solely as representative of the stockholders of LD Topco, Inc.) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed May 21, 2019)
2.2		Amendment to Agreement and Plan of Merger, dated as of October 30, 2019, by and among Pivotal Acquisition Corp., Pivotal Merger Sub Corp., LD Topco, Inc., and Carlyle Equity Opportunity GP, LP (solely as representative of the stockholders of LD Topco, Inc.) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed November 1, 2019)
2.3		Amendment No. 2 to Agreement and Plan of Reorganization, dated as of October 30, 2019, as amended on October 30, 2019, by and among Pivotal Acquisition Corp., Pivotal Merger Sub Corp., LD Topco, Inc. and Carlyle Equity Opportunity GP, L.P. (solely as representative of the stockholders of LD Topco, Inc.) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed December 17, 2019)
3.1		Second Amended and Restated Certificate of Incorporation of KLDiscovery Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed December 26, 2019)
3.2		Amended and Restated Bylaws of KLDiscovery Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed December 26, 2019)
4.1		Specimen Common Stock Certificate of KLDiscovery Inc. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 26, 2019)
4.2		Specimen Warrant Certificate of KLDiscovery Inc. (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed December 26, 2019)
4.3		Warrant Agreement between Continental Stock Transfer & Trust Company and Pivotal Acquisition Corp. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed February 1, 2019)
4.4		Form of 8.00% Convertible Debenture due 2024 (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed December 26, 2019)
4.5		Securities Purchase Agreement, dated as of December 16. 2019, by and among Pivotal Acquisition Corp. and the Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 17, 2019)
4.6		Registration Rights Agreement, dated December 19, 2019, by and among Pivotal Acquisition Corp., affiliates of Carlyle Equity Opportunity GP, L.P. and Revolution Growth III, LP and certain other signatories thereto (incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K filed December 26, 2019)
4.7*		Description of Securities
10.1		KLDiscovery Inc. 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 26, 2019)
10.2		Employment Agreement, dated as of September 30, 2011, between LDiscovery, LLC and Christopher Weiler (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)
10.3		Offer Letter, dated as of September 30, 2006, between LegisDiscovery, LLC and Krystina Jones (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)

10.4		Offer Letter, dated as of August 25, 2017, between KrolLDiscovery and Dawn Wilson (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)
10.5		First Lien Credit Agreement, dated as of December 9, 2016, among LD Intermediate Holdings, Inc. and LD Lower Holdings, Inc., as co-borrowers, LD Topco, Inc., as Holdings, Royal Bank of Canada, as administrative agent, collateral agent, swing line lender and L/C issuer, the other lenders party thereto, and RBC Capital Markets and TD Securities (USA) LLC, as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)
10.6		Second Lien Credit Agreement, dated as of December 9, 2016, among LD Intermediate Holdings, Inc. and LD Lower Holdings, Inc., as co-borrowers, LD Topco, Inc., as Holdings, Royal Bank of Canada, as administrative agent and collateral agent, the other lenders party thereto, and RBC Capital Markets, Northwestern Mutual Investment Management Company, LLC and TD Securities (USA) LLC, as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)
10.7#		Software License Agreement, dated as of January 1, 2018, between LDiscovery, LLC and Relativity ODA LLC (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed July 26, 2019)
10.8		KLDiscovery Inc. 2019 Incentive Award Plan – Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed September 16, 2019)
10.9		KLDiscovery Inc. 2019 Incentive Award Plan – Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed September 16, 2019)
10.10		KLDiscovery Inc. Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed September 16, 2019)
10.11		KLDiscovery Inc. 2019 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed December 26, 2019)
10.12		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed December 26, 2019)
10.13		Stockholders’ Agreement, dated December 19, 2019, by and among Pivotal Acquisition Corp., affiliates of Carlyle Equity Opportunity GP, L.P. and Revolution Growth III, LP and certain other signatories thereto (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed December 26, 2019)
10.14		Pay Change Letter, dated February 24, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.15		Pay Change Letter, dated April 21, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10Q filed August 13, 2020)
10.16		Pay Change Letter, dated April 21, 2020, by and between KLDiscovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10Q filed August 13, 2020)
10.17		Pay Change Letter, dated April 21, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10Q filed August 13, 2020)
10.18		Voluntary Forfeiture of RSUs Letter, dated April 23, 2020, by and between KL Discovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.19		Voluntary Forfeiture of RSUs Letter, dated April 23, 2020, by and between KL Discovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.20		Voluntary Forfeiture of RSUs Letter, dated April 23, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.21		Voluntary Forfeiture of RSUs Letter, dated May 5, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed August 13, 2020)

10.22		KLDiscovery Inc. Non-Employee Director Compensation Program (as amended and restated effective as of June 17, 2020) (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.23		Executive Severance and Novation Agreement dated June 17, 2020 by and between KLDiscovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.24		Executive Severance and Novation Agreement dated June 17, 2020 by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.25		Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.26		Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.27		Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.28		Voluntary Forfeiture of Options Letter, dated August 6, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.29		Executive Severance and Novation Agreement, dated September 30, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.30		Kroll Discovery 2018 Legal Technology Sales Commission Plan, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.31		KLDiscovery (January-December 2018) Sales Commission Plan Sales Performance Addendum, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.32		KLDiscovery 2020 Americas Legal Technology Sales Commission Plan, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.33		KLDiscovery 2020 Sales Commission Plan Sales Performance Addendum, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.34		Amendment No. 1 to Credit Agreement, dated as of December 23, 2020, by and among LD Intermediate Holdings Inc. and LD Lower Holdings Inc., LD Topco Inc. the Revolving Credit Lenders party thereto and Royal Bank of Canada, as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 28, 2020)
10.35*#		Software License Agreement dated as of December 24, 2020 by and between LDiscovery LLC and Relativity ODA LLC
10.36		Credit Agreement, dated as of February 8, 2021, by and among LD Lower Holdings Inc., LD Topco Inc, and other guarantors party thereto, the Lenders party thereto, each L/C Issuer party thereto and Wilmington Trust National Association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 8, 2021)
10.37*		Amendment to Stockholders’ Agreement, dated March 23, 2020, by and among KLDiscovery Inc. (formerly known as Pivotal Acquisition Corp.) and CEOF II DE I AIV, LP, a partnership, and Revolution Growth III, LP, and certain other signatories thereto.
10.38*		Second Amendment to Stockholders’ Agreement, dated February 2, 2021, by and among KLDiscovery Inc. (formerly known as Pivotal Acquisition Corp.) and CEOF II DE I AIV, LP, a partnership, and Revolution Growth III, LP, and certain other signatories thereto.
16.1		Letter from Marcum LLP to the Securities and Exchange Commission (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed December 26, 2019)
21.1*		List of Subsidiaries

23.1*		Consent of Ernst & Young LLP
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

		KLDiscovery Inc.

		By:	/s/ Christopher J. Weiler
			Christopher J. Weiler
			Chief Executive Officer