10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from                       to        

Commission File Number 001-38789

KLDiscovery Inc.

(Exact Name of Registrant as Specified in its Charter)

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)

Registrant’s telephone number, including area code: (703) 288-3380

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

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

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

As of May 12, 2022, there were 42,701,216 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

Table of Contents

	Page
Part I. Financial Information	1
Item 1. Financial Statements	1
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Comprehensive Loss	2
Condensed Consolidated Statements of Changes in Stockholders’ Equity	3
Condensed Consolidated Statements of Cash Flows	4
Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk	28
Item 4. Controls and Procedures	29
Part II. Other Information	30
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 6. Exhibits	30
Signatures	32

PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

KLDiscovery Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	March 31, 2022			December 31, 2021
	(unaudited)
Current assets
Cash and cash equivalents	$	38,403		$	46,468
Accounts receivable, net of allowance
for doubtful accounts of $8,573 and $9,774, respectively		98,950			93,273
Prepaid expenses		15,678			9,669
Other current assets		1,070			1,133
Total current assets		154,101			150,543
Property and equipment
Computer software and hardware		72,719			73,677
Leasehold improvements		26,564			26,796
Furniture, fixtures and other equipment		2,819			3,064
Accumulated depreciation		(82,066	)		(81,261	)
Property and equipment, net		20,036			22,276
Intangible assets, net		56,245			59,291
Goodwill		394,226			395,759
Other assets		8,395			8,535
Total assets	$	633,003		$	636,404
Current liabilities
Current portion of long-term debt, net	$	3,000		$	3,000
Accounts payable and accrued expense		32,828			27,067
Current portion of contingent consideration		655			646
Deferred revenue		3,497			4,800
Total current liabilities		39,980			35,513
Long-term debt, net		510,301			507,706
Deferred tax liabilities		6,957			6,772
Other liabilities		8,533			8,559
Total liabilities		565,771			558,550
Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value,  200,000,000 shares authorized, 42,701,216 and 42,684,549 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		4			4
Preferred Stock
$0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		—			—
Additional paid-in capital		387,126			386,028
Accumulated deficit		(325,547	)		(315,967	)
Accumulated other comprehensive income		5,649			7,789
Total stockholders' equity		67,232			77,854
Total liabilities and stockholders' equity	$	633,003		$	636,404

See Notes to Condensed Consolidated Financial Statements.

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KLDiscovery Inc.

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

(in thousands, except share and per share amounts)

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Revenues	$	81,898		$	75,450
Cost of revenues		43,272			37,422
Gross profit		38,626			38,028
Operating expenses
General and administrative		16,525			15,440
Research and development		3,068			2,171
Sales and marketing		10,844			9,457
Depreciation and amortization		4,914			7,641
Total operating expenses		35,351			34,709
Income from operations		3,275			3,319
Other expenses
Other expense		—			14
Change in fair value of Private Warrants		(191	)		(1,969	)
Interest expense		12,691			12,257
Loss on debt extinguishment		—			7,257
Loss before income taxes		(9,225	)		(14,240	)
Income tax provision		355			616
Net loss	$	(9,580	)	$	(14,856	)
Other comprehensive loss, net of tax
Foreign currency translation		(2,140	)		(2,462	)
Total other comprehensive loss, net of tax		(2,140	)		(2,462	)
Comprehensive loss	$	(11,720	)	$	(17,318	)
Net loss per share - basic and diluted	$	(0.22	)	$	(0.35	)
Weighted average shares outstanding - basic and diluted		42,686,216			42,532,915

See Notes to Condensed Consolidated Financial Statements.

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KLDiscovery Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except for share amounts)

	Common Stock Issued				Additional paid-in		Accumulated			Accumulated other comprehensive
	Shares		Amount		capital		deficit			income (loss)			Total
Balance as of December 31, 2021		42,684,549	$	4	$	386,028	$	(315,967	)	$	7,789		$	77,854
Share-based compensation		—		—		1,098		—			—			1,098
Stock issued in exchanges for vested units		16,667		—		—		—			—			—
Foreign exchange translation		—		—		—		—			(2,140	)		(2,140	)
Net loss		—		—		—		(9,580	)		—			(9,580	)
Balance as of March 31, 2022		42,701,216	$	4	$	387,126	$	(325,547	)	$	5,649		$	67,232

	Common Stock Issued				Additional paid-in			Accumulated			Accumulated other comprehensive
	Shares		Amount		capital			deficit			income (loss)			Total
Balance as of December 31, 2020		42,529,017	$	4	$	385,387		$	(255,424	)	$	12,254		$	142,221
Share-based compensation		—		—		1,003			—			—			1,003
Exercise of stock options		4,465		—		34			—			—			34
Stock issued in exchange for vested units		16,666		—		—			—			—			—
Private warrants		—		—		(3,810	)		—			—			(3,810	)
Foreign exchange translation		—		—		—			—			(2,462	)		(2,462	)
Net loss		—		—		—			(14,856	)		—			(14,856	)
Balance as of March 31, 2021		42,550,148	$	4	$	382,614		$	(270,280	)	$	9,792		$	122,130

See Notes to Condensed Consolidated Financial Statements.

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KLDiscovery Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Operating activities
Net loss	$	(9,580	)	$	(14,856	)
Adjustments to reconcile net loss to net cash used in operating    activities:
Depreciation and amortization		7,850			9,816
Non-cash interest		4,860			4,815
Loss on extinguishment of debt		—			7,257
Stock-based compensation		1,062			978
Provision for losses on accounts receivable		827			972
Deferred income taxes		185			342
Change in fair value of contingent consideration		9			19
Change in fair value of Private Warrants		(191	)		(1,969	)
Changes in operating assets and liabilities:
Accounts receivable		(6,822	)		(680	)
Prepaid expenses and other assets		(6,190	)		(5,087	)
Accounts payable and accrued expenses		5,631			(2,986	)
Deferred revenue		(1,287	)		(1,436	)
Net cash used in operating activities		(3,646	)		(2,815	)
Investing activities
Purchases of property and equipment		(2,968	)		(3,088	)
Net cash used in investing activities		(2,968	)		(3,088	)
Financing activities
Proceeds for exercise of stock options		—			34
Payments for capital lease obligations		(531	)		(285	)
Debt acquisition costs		—			(2,031	)
Proceeds long-term debt, net of original issue discount		—			294,000
Retirement of debt		—			(289,000	)
Payments on long-term debt		(750	)		—
Net cash (used in) provided by financing activities		(1,281	)		2,718
Effect of foreign exchange rates		(170	)		(208	)
Net decrease in cash		(8,065	)		(3,393	)
Cash at beginning of period		46,468			51,201
Cash at end of period	$	38,403		$	47,808
Supplemental disclosure:
Cash paid for interest	$	7,876		$	12,232
Net income taxes paid (refunded)	$	60		$	(591	)
Significant non-cash investing and financing activities
Purchases of property and equipment in accounts payable    and accrued expenses on the condensed consolidated balance sheets	$	1		$	682

See Notes to Condensed Consolidated Financial Statements.

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KLDiscovery Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the three months ended March 31, 2022 and 2021

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

Organization

KLDiscovery Inc. (the “Company,” “we” or “us”) is a leading global provider of eDiscovery, information governance and data recovery solutions to corporations, law firms, insurance companies and individuals in 19 countries around the world. We provide technology solutions to help our clients solve complex data challenges. The Company’s headquarters are located in McLean, Virginia. The Company has 31 locations in 19 countries, as well as 9 data centers and 17 data recovery labs globally.

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

Principles of consolidation

The accompanying condensed 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 condensed consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial and risk factor information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which we previously filed with the Securities and Exchange Commission (the “SEC”).

Use of estimates

The preparation of condensed 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 condensed 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, including the fair value of Private Warrants (as defined in Note 3), the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the evaluation of goodwill for impairment, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

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 three months ended March 31, 2022 and 2021, the Company did not have a single customer that represents ten percent (10%) 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 $14.1 million and $14.9 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $25.4 million and $25.6 million for the three months ended March 31, 2022 and 2021, respectively.

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Foreign currency

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” in the Company’s Condensed Consolidated Balance Sheets.

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 (income) expense” in the Company’s Condensed 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.

Cash and cash equivalents

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

Accounts receivable are recorded at the 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.

Fixed Assets

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:

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

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 is depreciated using the straight-line method over the lease term.

Depreciation expense totaled $2.4 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively, and includes amortization of assets recorded under capital leases.

Internal-use software development costs

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 amortized 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 “Intangible assets, net” in the Company’s Condensed Consolidated Balance Sheets and totaled $15.6 million and $14.7 million, net of accumulated amortization, as of March 31, 2022 and December 31, 2021, respectively.

Upon the adoption of Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, (“ASU 2018-15”) during the fourth quarter of 2021, capitalized implementation costs of cloud computing arrangements are included in both Prepaid expense and Other assets in the Company’s Consolidated Balance Sheet and totaled $1.5 million and $4.9 million as of March 31, 2022 and $1.5 million and $5.1 million as of December 31, 2021, respectively.  In addition, the amortization costs for the capitalized implementation cost related to cloud computing arrangements are now included in General and administrative expense in the Company’s Condensed Consolidated Statement of Comprehensive Loss and total

6

$0.4 million for the three months ended March 31, 2022. Cash flows associated with the capitalized implementation cost related to cloud computing arrangements, previously recorded as part of Cash from investing activities, are now included in cash flows used by operating activities in the Company’s Condensed Consolidated Statement of Cash Flows and total $0.3 million for the three months ended March 31, 2022.

Intangible assets and other long-lived assets

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.

Amortization expense totaled $5.0 million and $6.9 million for the three months ended March 31, 2022 and 2021, respectively; $2.5 million and $2.2 million of which was classified as part of the “Cost of revenues” line in the Company’s Condensed 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

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, 2021 testing date, the Company determined there is one reporting unit.

Management concluded that there was no impairment of goodwill and intangible assets during the three months ended March 31, 2022.

Debt issuance costs

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 are presented in the Condensed 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 are presented in the Condensed Consolidated Balance Sheets within “Other assets.”

Revenue recognition

Revenues are recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that the Company expects 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 Accounting Standard Codification (“ASC”) 606, Revenue Recognition: (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.

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We provide Legal Technology services to our clients through several technology solutions including Nebula Ecosystem (“Nebula”) our internally developed end-to-end fully integrated proprietary solution. We also provide Data Recovery solutions. 

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2022 (in thousands):

	2022 Q1						2021 Q1
	Technology Solutions		Nebula		Consolidated		Technology Solutions		Nebula		Consolidated
Legal Technology	$	66,240	$	6,117	$	72,357	$	58,329	$	5,405	$	63,734
Data Recovery		9,541		—		9,541		11,716		—		11,716
Total revenue	$	75,781	$	6,117	$	81,898	$	70,045	$	5,405	$	75,450

Performance Obligations and Timing of Revenue Recognition

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.

(1) Legal Technology, including Nebula and our expansive suite of technology solutions, such as our end-to-end eDiscovery technology solutions, managed review solutions, collections, processing, analytics, hosting, production and professional services, and

(2) Data Recovery solutions, which provides data restoration, data erasure and data management services.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. Most of the Company’s 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 at a point in time utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain other 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 at a point in time 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.

Other eDiscovery agreements are time and material arrangements that 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 at a point in time based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because it has a contractual 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.

The Company offers term license subscriptions to Ontrack PowerControls software to 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 and support, as well as access to future software upgrades and patches. 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.

Net loss per common share

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period, 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

8

upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

Accounting Standards Not Yet Adopted

The Company is an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and has elected to 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 means the Company’s consolidated financial statements may not be comparable to other public companies due to the differences in accounting standards being applied. The effective dates shown below reflect the election to use the extended transition period.

In February 2016, the FASB issued Accounting Standards Update (“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. 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.

Note 2 – Correction of an immaterial error

On April 12, 2021, the SEC Staff issued a “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (“SPACs”) (the “SEC Staff Statement”). The Company evaluated the SEC Staff Statement and determined that its Private Warrants (as defined in Note 3), which had historically been accounted for as a component of equity, should be reclassified and recorded as a liability at fair value during each reporting period, with changes in fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss.

In accordance with Financial Accounting Standards Board ASC 250, Accounting Changes and Error Corrections, the Company evaluated the materiality of the errors from quantitative and qualitative perspectives and concluded that the errors were immaterial to the Company’s prior period interim and annual consolidated financial statements. Because these errors were not material to any prior period interim or annual financial statements, no amendments to previously filed interim or annual periodic reports are required. The Company recognized the cumulative effect of the error on prior periods by recording during the three months ended and as of, March 31, 2021, (i) $2.0 million of income in the Condensed Consolidated Statements of Comprehensive Loss to reflect the cumulative decrease in the fair value of the Private Warrants liabilities, (ii) a warrant liability of $1.8 million in the Condensed Consolidated Balance Sheet and (iii) a decrease in additional paid-in capital of $3.8 million in the Condensed Consolidated Balance Sheet.

Note 3 – Fair value measurements

The Company accounts for recurring and non-recurring fair value measurements in accordance with ASC 820, Fair Value Measurements (“ASC 820”). 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.

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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 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. The fair value of future expected acquisition-related contingent purchase consideration obligations was $0.7 million and $0.6 million at March 31, 2022 and December 31, 2021, 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 a quarterly basis.

The Company has determined that the 6,350,000 warrants to purchase Common Stock (the “Private Warrants”) issued in connection with the consummation of the Business Combination in December 2019 should be accounted for as liabilities in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of Private Warrants in the Condensed Consolidated Statements of Comprehensive Loss. The fair value of the Private Warrants was $1.7 million and $1.8 million as of March 31, 2022 and 2021, respectively.

To estimate the fair value of the Private Warrants as of December 31, 2021 and March 31, 2022, the Company used a Black Scholes closed form model, which is a Level 3 fair value measurement. Significant inputs used in the Black Scholes model for the Private Warrants were as follows:

	December 31, 2021 & March 31, 2022
Expected volatility		27.00	%
Expected term (in years)		2.94
Risk free interest rate		0.96	%
Dividend yield		0.00	%
Exercise Price	$	11.50
Fair value of Common Stock	$	6.80

The Company’s use of a Black Scholes model required the use of the following inputs, including assumptions:

• Expected volatility – as of the valuation date, the Public Warrants (as defined in Note 7) and the Common Stock were traded and their market prices were used to infer the expected annual volatility of the Common Stock. The expected volatility is used to value the Private Warrants.

• Expected term – the expected term is based on the exercise period, which began 30 days after the consummation of the Business Combination in December 2019 and ends on December 19, 2024 (which is five years after the completion of the Business Combination).

• Risk-free interest rate – the risk-free interest rate is based on the U.S. Treasury Bill yields for the period commensurate with the time to exercise the Private Warrants.

• Dividend yield – the Company does not pay dividends and has no plans to do so. As a result, the expected dividend yield is zero.

• Exercise price – the exercise price is contractually set at $11.50.

• Fair value of stock – the stock price is the quoted market price as of the valuation date.

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The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the periods ended March 31, 2022 and December 31, 2021 (in thousands):

Balance at December 31, 2020	$	920
Private Warrants		3,810
Change in fair value of Private Warrants		(1,969	)
Change in fair value of contingent consideration		(275	)
Balance at December 31, 2021		2,486
Change in fair value of Private Warrants		(191	)
Change in fair value of contingent consideration		9
Balance at March 31, 2022	$	2,304

Management estimates that 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.

Note 4 – Leasing arrangements

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 $2.8 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively.

For periods subsequent to March 31, 2022, 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):

	Capital Leases			Operating Leases
2022 (9 months)	$	1,350		$	6,417
2023		1,057			8,032
2024		—			6,880
2025		—			3,457
2026		—			1,860
Thereafter		—			692
Total	$	2,407		$	27,338
Less interest on lease obligations		(138	)
		2,269
Less current portion		(1,452	)
Non-current portion	$	817

Note 5 – Long term debt

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

	March 31, 2022			December 31, 2021
Convertible Debenture notes		231,676			229,382
2021 Credit Agreement		297,000			297,750
Total debt		528,676			527,132
Less: unamortized original issue discount		(13,760	)		(14,700	)
Less: unamortized debt issuance costs		(1,615	)		(1,726	)
Total debt, net		513,301			510,706
Current portion of debt		3,000			3,000
Less: current portion of unamortized original    issue discount		—			—
Less: current portion of unamortized debt    issuance costs		—			—
Total current portion of debt, net		3,000			3,000
Total long-term debt, net	$	510,301		$	507,706

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2021 Credit Agreement

On February 8, 2021, certain subsidiaries of the Company, or the Loan Parties, entered into a new secured credit agreement, or the 2021 Credit Agreement. Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 Credit Agreement discussed below.

The 2021 Credit Agreement provides for (i) initial term loans in an aggregate principal amount of $300 million, or the Initial Term Loans, (ii) delayed draw term loans in an aggregate principal amount of $50 million, or the Delayed Draw Term Loans, and (iii) revolving credit loans in an aggregate principal amount of $40 million, with a letter of credit sublimit of $10 million, or the Revolving Credit Loans. The Delayed Draw Term Loans are available to the Loan Parties at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans bear interest, at the Loan Parties’ 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 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 of $0.8 million, 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 8, 2026 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 Loan Parties’ 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 (as defined in the 2021 Credit Agreement) of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter. The Company was in compliance with all Credit Agreement covenants as of March 31, 2022.

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.

Revolving Credit Loans

The 2021 Credit Agreement also provides for an unfunded revolver commitment for borrowing up to $40.0 million (the “Revolving Credit Loans”). As of March 31, 2022, there was $39.4 million available capacity for borrowing under the revolving loan commitment due to the $0.6 million of letters of credit outstanding (See Note 9 – Commitments and contingencies).

2016 Credit Agreement and Revolving Credit Facility

On December 9, 2016, certain subsidiaries of the Company entered into a credit agreement, or 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 loan borrowings of $340.0 million under the first lien facility and $125.0 million under the second lien facility were to mature on December 9, 2022 and December 9, 2023, respectively. The 2016 Credit Agreement also provided for an unfunded revolver commitment for borrowing up to $30.0 million, maturing on June 9, 2022. The first lien facility and the revolving credit facility were repaid and retired on February 8, 2021 and the second lien facility was repaid on December 19, 2019. The Company incurred a loss on debt extinguishment of $7.3 million during the three months ended March 31, 2021 in connection with the retirement of the first lien facility and the revolving credit facility.

Convertible Debentures

On December 19, 2019, the Company issued Convertible Debentures, which mature in 2024, in an aggregate principal amount of $200 million (the “Debentures” or the “Convertible Debentures”). At March 31, 2022 and December 31, 2021, the balance due under the Convertible Debentures was $231.7 million and $229.4 million, respectively.

The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased, and 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 increase the principal amount of the Debentures by an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding (subject to reduction for any principal amount repaid). 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.

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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.

The Debentures are convertible into shares of 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. We are seeking stockholder approval of the conversion of the Debentures into common stock at our 2022 Annual Meeting of Stockholders. However, in the event the Company elects to redeem any Debentures, the holders 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 March 31, 2022, the Company was in compliance with all Debenture covenants.

Note 6 – Equity incentive plan

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. Pursuant to the 2019 Plan, the number of shares of Common Stock available for issuance under the 2019 Plan automatically increases on each January 1 (commencing with January 1, 2021) until and including January 1, 2029, by an amount equal to the lesser of: (a) 5% of the shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by our Board of Directors (the “Board”).  The Compensation Committee of the Board approved an increase to the share reserve as set out in the 2019 Plan in 2021. As of March 31, 2022, 11,760,678 shares of Common Stock were reserved under the 2019 Plan, of which 2,713,118 shares of Common Stock remained available for issuance.

Stock option activity

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, 2021		5,093,682		$	8.34		8.4	$	24
Granted		1,130,850			6.00
Exercised		—			—
Forfeited		(27,829	)		8.29
Expired		(24,633	)		8.48
Options outstanding, March 31, 2022		6,172,070		$	7.91		8.4	$	5
Options vested and exercisable, March 31, 2022		2,777,689		$	8.32		7.9	$	5
Options vested and expected to vest, March 31, 2022		6,172,070		$	7.91		8.4	$	5

(1) Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying Common Stock and the exercise price of outstanding in-the-money options.

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

	2019 Plan
	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Total fair value of stock options granted	$	2,884	$	2,125
Total fair value of options vested		609		18

Time-based vesting stock options

Time-based vesting stock options generally vest over a three-year period, are subject to graded vesting schedules, and expire 10 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 us was $2.55, and $1.79, during the three months ended March 31, 2022 and 2021, respectively.

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For the three months ended March 31, 2022, and 2021 the Company recognized $1.1 million and $1.0 million of stock-based compensation expense, respectively, in connection with time-based vesting stock options. As of March 31, 2022, there was $6.2 million of unrecognized stock-based compensation expense related to unvested time-based vesting stock options that is expected to be recognized over a weighted-average period of two years.

Stock Option Valuation

The Company used valuation models to value both time and performance-based vesting stock options granted during the three months ended March 31, 2022 and 2021. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employee directors under the 2019 Plan:

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Expected volatility	42.90%		44.61%
Expected term (in years)		6.00		6.00
Dividend yield	0.00%		0.00%
Risk-free interest rate	1.62%		0.70%

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

• Expected volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses an estimated volatility based on the historical and implied volatilities of share prices of comparable companies.

• Expected term – This is the period that the options granted are expected to remain unexercised. For options granted during the three months ended March 31, 2022 and 2021, the Company derived the expected life of the option based on the average midpoint between vesting and the contractual term as there is little exercise history.

• Dividend yield – The Company has never declared or paid dividends and does not have any plans to do so in the foreseeable future.

• Risk-free interest rate – This is the U.S. Treasury rate for securities with similar terms that most closely resemble the expected life of the option.

Stock-based compensation expense

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

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Cost of revenues	$	351	$	342
General and administrative		408		396
Research and development		103		64
Sales and marketing		200		176
Total	$	1,062	$	978

Performance –based restricted stock units

The Company granted RSUs to certain employees and non-employee directors which are subject to certain vesting criteria. The RSUs granted to employees become eligible to begin vesting upon a liquidity event (as defined in the award agreements governing the RSUs). The amount and timing of the vesting of the RSUs depends on the type and timing of the liquidity event as it relates to the Closing Date. Generally, a portion of the RSUs will first vest upon the occurrence of the liquidity event and the remainder will vest in up to three annual installments thereafter, provided that if the liquidity event occurs after the third anniversary of the Closing Date, all RSUs will vest immediately upon the liquidity event. The vesting of the RSUs held by a grantee is generally subject to his or her continued employment with the Company.

Time-based restricted stock units

The Company grants certain non-employee directors time-based restricted stock units in satisfaction of their annual retainer payments. These units vest over a one-year or three-year period. During the three months ended March 31, 2022 and 2021, the Company recognized the grant-date fair value of the restricted stock units of $0.2 million and $0.2 million as stock-based compensation expense, respectively. During the three months ended March 31, 2022 and 2021, the Company made no new grants of time-based restricted stock units to its non-employee directors.

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The following table summarizes the Company’s RSU activity for performance-based RSUs awarded to employees and for time-based RSUs granted to non-employee directors under the 2019 Plan:

Description	RSUs Outstanding
Balance at December 31, 2021		1,513,892
Granted		13,889
Vested - non-employee director awards		(16,667	)
Forfeited		(12,986	)
Expired		—
Balance at March 31, 2022		1,498,128

The Company determined the achievement of the liquidity event was not probable and therefore no expense related to the performance based awards was recorded during the three months ended March 31, 2022 and 2021.

Note 7 – Equity

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 times and in the amounts as the Board 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.

There were no stock issuances during the three months ended March 31, 2022 and 2021, other than pursuant to stock option exercises and vesting of non-employee director RSUs.

Warrants

On the Closing Date, in connection with the consummation of the Business Combination, the Company assumed (i) 23,000,000 warrants (the “Public Warrants”) to purchase shares of Common Stock and (ii) 6,350,000 Private Warrants (together with the Public Warrants, the “Warrants”). The Public Warrants qualify for equity accounting as these warrants do not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The Public Warrants were measured at fair value at the time of issuance and classified as equity. As disclosed in Note 2, the Company has determined that the Private Warrants fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity, and therefore these warrants are classified as liabilities and measured at fair value at each reporting period.

Each Warrant entitles the holder to purchase one share of Common Stock for $11.50 per share. If Private Warrants are 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 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 the issuance of Common Stock at a price below the 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 are 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.

Shares Subject to Forfeiture

On December 19, 2019, in connection with the consummation of the Business Combination, 550,000 shares of Common Stock held by Pivotal Acquisition Holdings LLC were subjected 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 the Company’s financial statements and continue to be subject to the additional lockup as of March 31, 2022.

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Note 8 – Income taxes

A valuation allowance has been established against the Company’s net U.S. federal and state deferred tax assets, including net operating loss (“NOL”) carryforwards. As a result, the Company’s income tax position is primarily related to foreign tax activity and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities. During the three months ended March 31, 2022 and 2021, the Company recorded an income tax provision of $0.4 million and $0.6 million, respectively, resulting in an effective tax rate of (4.3)% and (4.2)%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences, state taxes and the valuation allowance against our domestic deferred tax assets.

Note 9 – Commitments and contingencies

The Company is involved in various legal proceedings, which 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 March 31, 2022.

The Company has two letters of credit totaling $0.6 million as of March 31, 2022 as additional security for lease guarantees related to leased properties.

Note 10 – Related parties

As of March 31, 2022, $115.8 million, including paid-in kind interest of the Debentures are owed to affiliates of MGG Investment Group, which is an affiliate of a director of the Company. For the three months ended March 31, 2022 and 2021, the Company recognized $3.4 million and $3.1 million in interest expense, respectively, related to Debentures owned by the MGG Investment Group.

Note 11 – Subsequent events

The Company has evaluated subsequent events since the date on which these financial statements were issued through the date on which this Quarterly Report on Form 10-Q was filed, and identified the item below for disclosure:

On April 7, 2022 the Company issued an additional 463,000 performance based restricted stock units to its employees under the 2019 Plan. The units will vest over a three-year time period based on the achievement of certain revenue targets and continued service with the Company.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including information incorporated herein by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts. This includes, without limitation, statements regarding our financial position, business strategy and management’s plans and objectives 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 Quarterly Report on Form 10-Q, 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.

All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect, including:

• potential failure to comply with privacy and information security regulations governing the client datasets that we process and store;

• the outbreak of disease or similar public health threat, such as COVID-19;

• the ability to operate in highly competitive markets, and potential adverse effects of this competition;

• risk of decreased revenues if we do not adapt our pricing models;

• the ability to attract, motivate and retain qualified employees, including members of our senior management team;

• the ability to maintain a high level of client service and expand operations;

• potential issues with our product offerings that could cause legal exposure, reputational damage and an inability to deliver services;

• the ability to develop and successfully grow revenues from new products such as Nebula, improve existing products and adapt our business model to keep pace with industry trends;

• risk that our products and services fail to interoperate with third-party systems;

• potential unavailability of third-party technology that we use in our products and services;

• potential disruption of our products, offerings, website and networks;

• difficulties resulting from our implementation of new consolidated business systems;

• the ability to deliver products and services following a disaster or business continuity event;

• potential unauthorized use of our products and technology by third parties and/or data security breaches and other incidents;

• potential intellectual property infringement claims;

• the ability to comply with various trade restrictions, such as sanctions and export controls, resulting from our international operations;

• consequences of our substantial levels of indebtedness;

• potential impairment charges related to goodwill, identified intangible assets and fixed assets;

• impacts of laws and regulations on our business;

• potential litigation and regulatory proceedings involving us;

• expectations regarding the time during which we will be an emerging growth company or smaller reporting company;

• the potential liquidity and trading of our public securities; and

• other risks and uncertainties indicated in the section titled “Risk Factors” in this Quarterly Report on Form 10-Q.

The forward-looking statements contained in this Quarterly Report on Form 10-Q and in any document incorporated by reference are based on current expectations and beliefs, which we believe to be reasonable, 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

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anticipated. These forward-looking statements involve a number of risks, uncertainties (many 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 “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. 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 addition, statements that include phrases such as “we believe” and similar phrases reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for these statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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 Pivotal Acquisition Corp.’s acquisition of the outstanding shares of LD Topco, Inc. via a reverse capitalization (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 overview provides a summary of the sections included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations:

• Executive Summary — a general description of our business and key highlights for the three months ended March 31, 2022.

• Results of Operations — an analysis of our results of operations in our condensed consolidated financial statements.

• Liquidity and Capital Resources — an analysis of our cash flows, sources and uses of cash, commitments and contingencies and quantitative and qualitative disclosures about market risk.

• Critical Accounting Policies and Estimates — a discussion of critical accounting policies requiring judgments and estimates.

Overview

KLD is a leading global provider of eDiscovery, information governance and data recovery solutions to corporations, law firms, insurance agencies and individuals. We provide technology solutions to help our clients solve complex legal, regulatory and data challenges. We have broad geographical coverage in the eDiscovery and data recovery industries with 31 locations in 19 countries, as well as 9 data centers and 17 data recovery labs globally. Our integrated proprietary technology solutions enable the efficient and accurate collection, processing, transmission, review and/or recovery of complex and large-scale enterprise data. In conjunction with proprietary technology, we provide immediate expert consultation and 24/7/365 support wherever a customer is located worldwide, which empowers us to become a “first-call” partner for mission-critical, time-sensitive, or nuanced eDiscovery and data recovery challenges. We are continuously innovating to provide a more reliable, secure and seamless experience when tackling various “big data” volume, velocity, and veracity challenges. A key example of our purpose-built innovation is Nebula, our flagship, end-to-end artificial intelligence/machine learning, or AI/ML, powered solution that serves as a singular platform of engagement for legal data.

Key factors affecting our performance

Our operating results, financial performance and future growth will depend on a variety of factors, including, among others, maintaining our history of product innovation, increasing adoption of Nebula, maintaining and growing our client base while driving greater penetration, growth in the number of our matters, particularly large matters and establishing our partner channel for Nebula. Some of the more important factors are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on March 17, 2022 (our “Annual Report”), as supplemented by the additional discussion below. In addition, as discussed below, the COVID-19 pandemic has impacted our operating results.  

Key business metrics

The following are among the key operational and financial metrics we use to measure and evaluate our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

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Clients

We have a strong track record of growing our client base, and we believe that our ability to increase the number of clients utilizing our Legal Technology solutions, including Nebula, is an important indicator of our market penetration, our business growth, and our future opportunities.

We define Legal Technology clients as each primary law firm and corporation to which we provided services in a litigation matter that we billed during the past two years. We define Nebula clients, each of which is included in the number of Legal Technology clients, as the total number of primary law firm, corporation, insurance company and service provider clients to which we provided legal technology solutions for a matter that we billed for use of our Nebula solution during the two years prior to the applicable date.

The following table sets forth the number of Legal Technology clients and Nebula clients as of the dates shown:

	March 31,
	2022		2021
Legal Technology clients		5,563		5,294
Nebula clients		1,293		988

Number and size of matters

We believe our ability to continuously grow the number of matters on our platform over time is an important measure of scale for our business and is indicative of our future growth prospects.

We define Legal Technology matters as the total number of matters on which our Legal Technology solutions were used in the twelve months preceding the applicable date. Matters refer to a range of activities that include collecting, tracking, analyzing, and exchanging relevant data. Legal Technology solutions currently drive the majority of our revenue, and provide the foundation for additional adoption of our proprietary technology solutions and other offerings. We define Nebula matters, which are included in the number of Legal Technology matters, as the total number of matters on which our Nebula solution was used in the twelve months preceding the applicable date. Nebula is our ecosystem of proprietary technology solutions that enables clients to collect, process, store, analyze, and govern their data on a single platform. Nebula comprises a steadily growing component of our revenue and we expect Nebula adoption to increase and the number of Nebula matters to grow in the long term as we continue to introduce new product capabilities and cross-sell Nebula to our existing clients.

The following table sets forth the number of Legal Technology matters and Nebula matters as of the dates shown:

	March 31,
	2022		2021
Legal Technology matters		7,877		7,660
Nebula matters		1,009		817

Our comprehensive product offerings, technology-enabled service offerings and reputation as a trusted partner to our clients enable us to capture matters of large size and complexity. During the three months ended March 31, 2022 and 2021, respectively, 48%, and 40% of Legal Technology revenue was produced by matters that generated revenues of greater than $500,000, and 79% and 74% of our Legal Technology revenue was produced by matters that generated revenues of greater than $100,000 during the relevant period.

Legal Technology net revenue retention

We calculate our Legal Technology net revenue retention rate by dividing (1) total Legal Technology revenue in the twelve-month period from accounts that generated Legal Technology revenue during the corresponding immediately preceding twelve month period by (2) total Legal Technology revenue in the immediately preceding twelve month period generated from those same accounts. Our Legal Technology net revenue retention rate includes revenue from use of Nebula.

	Twelve Months Ended March 31,
	2022	2021
Legal Technology net revenue retention	109%	84%

For the three months ended March 31, 2022 and 2021, our Legal Technology revenue was $72.4 million and 63.7 million, respectively, and our data recovery revenue was $9.5 million and $11.7 million, respectively.

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Our Legal Technology net revenue retention rate is impacted by our usage-based pricing model, and revenue could fluctuate in any given period due to frequency of matters, client upsell, cross-sell, and churn. During 2020 and 2021, the COVID-19 pandemic impacted our Legal Technology net revenue retention rate, as it impacted the rest of our business, as certain accounts experienced a slowdown in the number and frequency of matters. In the long-term, we plan to increase our net revenue retention rate by increasing the number of solutions that we sell on a subscription-basis, as well as broadening the scope of our Nebula offerings, to promote strong product adoption. As we expand our products beyond eDiscovery to other information governance solutions such as big data hosting and processing, including through Nebula, we expect clients to leverage our technology earlier in the data lifecycle, providing further opportunity for us to increase our product and service penetration and client retention. Furthermore, we plan to establish and broaden our channel partnerships over time and leverage these strong relationships to further our awareness of our products and overall usage within the industry.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Revenue

The Company primarily generates revenue from selling solutions that fall into the following categories:

(1)   Legal Technology, including Nebula and our expansive suite of technology solutions, such as our end-to-end eDiscovery technology solutions, managed review solutions, collections, processing, analytics, hosting, production, and professional services; and

(2)   Data recovery solutions, which provides data restoration, data erasure and data management services.

The Company generates the majority of its revenues by providing Legal Technology solutions to our clients. Most of the Company’s eDiscovery contracts are time and materials types of arrangements, while others are subscription-based, fixed-fee 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. The Company recognizes revenues for these arrangements utilizing a right-to-invoice practical expedient because it has a contractual right to consideration for services completed to date.

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

Other eDiscovery agreements are time and material arrangements that 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 it has a contractual right to consideration for services completed to date.

Data recovery engagements are mainly fixed fee arrangements requiring the client to pay a pre-established fee in exchange for the successful completion of such engagement on a predetermined device. For the recovery 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 engagements are also fixed fee arrangements for which revenue is recognized at a point in time when the certificate of erasure is sent to the customer.

The Company offers term license subscriptions to Ontrack PowerControls software to 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 and support, as well as access to future software upgrades and patches. 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.

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For the three months ended March 31, 2022 and 2021, our Legal Technology revenue was $72.4 million and 63.7 million, respectively, and our data recovery revenue was $9.5 million and $11.7 million, respectively. For the three months ended March 31, 2022 and 2021, Legal Technology revenue from our technology solutions other than Nebula was $66.2 million and $58.3 million respectively, and revenue from for Nebula was $6.1 million and $5.4 million, respectively. Additionally, we generally have longstanding relationships with our clients and for the three months ended March 31, 2022 and 2021, no single client accounted for more than ten percent of our revenues.

We currently expect non-Nebula Legal Technology revenues to remain relatively consistent over time and that Nebula revenue will continue to accelerate, with Nebula growing as a larger percentage of the mix of total revenue over time.

Cost of Revenues

Cost of revenue consists primarily of technology infrastructure costs, personnel costs and amortization of capitalized developed technology costs. Infrastructure costs include hardware, software, occupancy and cloud costs to support our legal technology and data recovery solutions. Personnel costs include salaries, benefits, bonuses, and stock-based compensation as well as costs associated with document reviewers which are variable based on managed review revenue. We intend to continue to invest additional resources in our infrastructure to expand the capability of solutions and enable our customers to realize the full benefit of our solutions. The level, timing and relative investment in our cloud infrastructure could affect our cost of revenue in the future. Additionally, cost of revenue in future periods could be impacted by fluctuations in document reviewer costs associated with managed review revenue.

Operating expenses

Our operating expenses consist of research and development, sales and marketing, general and administrative and amortization and depreciation expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, share-based compensation and sales commissions. Operating expenses also include occupancy, software expense and professional services. We intend to continue to increase our investment in research and development to further develop our proprietary technology and support further penetration and adoption of our offering, including our end-to-end Nebula platform, including through hiring additional personnel. We expect these investments to cause research and development expense to increase in 2022 versus 2021, and thereafter anticipate research and development expense normalizing as a percentage of revenues. We also intend to significantly increase our investment in sales and marketing through the end of 2022 in connection with an expected increase in headcount. The anticipated long-term benefits from these investments are expected to increase revenues, which is also expected to slightly decrease sales and marketing expense as a percentage of revenue over time. We also expect general and administrative expense to decrease slightly as a percentage of revenue over time due to our ability to scale as revenues increase and as a result of historical cost-cutting measures.

Interest Expense

Interest expense consists primarily of interest payments and accruals relating to outstanding borrowings. We expect interest expense to vary each reporting period depending on the amount of outstanding borrowings and prevailing interest rates.

Income Tax (Benefit) Provision

Income tax (benefit) provision is primarily related to foreign tax activity and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities. We maintain a valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred assets will be utilized.

Non-U.S. GAAP Financial Measures

We prepare 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. Our management believes that these measures are relevant and provide useful supplemental information to investors by providing a baseline for evaluating and comparing our operating performance against that of other companies in our industry.

Our management believes EBITDA and Adjusted EBITDA 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, equity compensation, acquisition and transaction costs, restructuring costs, and systems establishment costs which are incurred outside the ordinary course of our business, provides information about our cost structure and helps us to track our operating progress. We encourage investors and potential investors to carefully review our U.S. GAAP financial measures and compare them with our EBITDA and

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adjusted EBITDA. 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.

EBITDA and Adjusted EBITDA

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), extinguishment of debt, impairment losses, and depreciation and amortization. We view adjusted EBITDA as an 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 as the 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:

• Acquisition, financing and transaction costs generally represent earn-out payments, rating agency fees and letter of credit and revolving facility fees, as well as professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

• Stock compensation and other primarily represent portions of compensation paid to our employees and executives through stock-based instruments. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may not align with the actual value realized upon the future exercise or termination of the related stock-based awards. Additionally, stock compensation is a non-cash expense. Therefore, we believe it is useful to exclude stock-based compensation to better understand the long-term performance of our core business.

• Change in fair value of Private Warrants relates to changes in the fair market value of the Private Warrants issued in conjunction with the Business Combination. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.

• Restructuring costs generally represent non-ordinary course costs incurred in connection with a change in a contract or a change in the makeup of our personnel often related to an acquisition, such as severance payments, recruiting fees and retention charges. We do not consider the amount of restructuring costs to be a representative component of the day-to-day operating performance of our business.

• Systems establishment costs relate to non-ordinary course expenses incurred to develop our IT infrastructure, including system automation and enterprise resource planning system implementation. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.

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 EBITDA and 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, EBITDA and adjusted EBITDA do not reflect:

• our cash expenditures or future requirements for capital expenditures;

• changes in, or cash requirements for, our working capital needs;

• interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

• any cash income taxes that we may be required to pay;

• any cash requirements for replacements of assets that are depreciated or amortized over their estimated useful lives and may have to be replaced in the future; or

• all non-cash income or expense items that are reflected in our statements of cash flows.

See “—Results of Operations” below for reconciliations of adjusted EBITDA to net loss.

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RESULTS OF OPERATIONS

Impacts of the COVID-19 pandemic on the Company’s Business

The COVID-19 pandemic continues to impact the global economy and cause significant macroeconomic uncertainty. The future impacts of the pandemic on the Company’s business are currently not estimable or determinable. As new variants of the virus emerge, infection rates vary across the countries in which we operate, and governmental authorities have continued to implement numerous and evolving measures to try to contain the spread of the virus, including travel bans and restrictions, masking recommendations and mandates, vaccine recommendations and mandates, limits on gatherings, quarantines, shelter-in-place orders and business shutdowns. We have taken proactive measures to protect the health and safety of our employees, customers, partners and suppliers, consistent with governmental guidelines.

The Company modified employee travel and work locations, and cancelled certain events, among other actions taken in response to the COVID-19 pandemic. During 2020, the Company implemented a salary exchange program pursuant to which certain employees took a temporary reduction in salary through December 31, 2020 ranging from 2% to 20% in exchange for grants of an aggregate of 417,673 stock options and 211,207 RSUs. In December 2020, the Company extended the salary exchange program for the Company’s named executive officers and for the position of Vice-President and higher but did not issue any additional stock options or RSUs in connection with the salary exchange program. As of June 2021, the Company ended the salary exchange program. The Company will continue to actively monitor the situation and may reinstate certain of the measures described above or take further actions that alter its business operations, including actions as required by federal, state or local authorities or that it determines are in the best interests of its employees, customers, partners, suppliers and stockholders. Due to the evolving situation and the uncertainties as to the scope and duration of the COVID-19 pandemic, our business may be impacted in ways that we cannot predict.

​On March 27, 2020, the President signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, to provide emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally support 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 $4.0 million of payroll taxes due in 2020, of which $2.0 million was paid in December 2021 and $2.0 is expected to be paid in December 2022.

For the three months ended March 31, 2022 compared with the three months ended March 31, 2021

The results for the periods shown below should be reviewed in conjunction with our unaudited condensed consolidated financial statements included in “Item 1. Financial Statements.”

The following table sets forth statements of operations data for each of the periods indicated:

	For the Three Months Ended March 31,
(in millions)	2022			2021
Revenues	$	81.9		$	75.4
Cost of revenues		43.3			37.4
Gross profit		38.6			38.0
Operating expenses		35.4			34.7
Income from operations		3.2			3.3
Interest expense		12.7			12.3
Change in fair value of Private Warrants		(0.2	)		(2.0	)
Loss on debt extinguishment		—			7.2
Loss before income taxes		(9.2	)		(14.2	)
Income tax provision		0.4			0.6
Net loss		(9.6	)		(14.8	)
Total other comprehensive income, net of tax		(2.1	)		(2.5	)
Comprehensive loss		(11.7	)		(17.3	)

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Adjusted EBITDA

	For the Three Months Ended March 31,
(in millions)	2022			2021
Net Loss	$	(9.6	)	$	(14.8	)
Interest expense		12.7			12.3
Income tax provision		0.4			0.6
Extinguishment of debt		-			7.2
Depreciation and amortization expense		7.8			9.8
EBITDA (1)	$	11.3		$	15.1
Acquisition, financing and transaction costs		1.4			0.8
Stock compensation and other		1.1			1.0
Change in fair value of Private Warrants		(0.2	)		(2.0	)
Restructuring costs		0.1			0.1
Systems establishment		0.4			0.4
Adjusted EBITDA (1)	$	14.1		$	15.4

(1)   EBITDA and adjusted EBITDA are non-GAAP measures. See “—Non-U.S. GAAP Financial Measures.”

Revenues

Revenues increased by $6.5 million, or 8.6%, to $81.9 million for the three months ended March 31, 2022 as compared to $75.5 million for the three months ended March 31, 2021. This increase is due to an increase in Legal Technology revenue of $8.6 million, resulting from an increase of $7.9 million from our technology solutions other than Nebula and an increase of $0.7 million from Nebula, partially offset by a decrease in data recovery revenue of $2.2 million. The increase in Legal Technology revenue is due to a higher volume of litigation.

Cost of Revenues

Cost of revenues increased by $5.9 million, or 15.8%, to $43.3 million for the three months ended March 31, 2022 as compared to $37.4 million for the three months ended March 31, 2021. This increase is primarily due to increased wages of approximately $4.1 million for document reviewers due to increased managed review revenue, increased software costs of $0.5 million and increased payroll taxes of $0.3 million. In addition, amortization expense increased by $0.4 million as internally developed software intangible assets were placed into service. As a percentage of revenue, our cost of revenues for the three months ended March 31, 2022 increased to 52.9% as compared to 49.6% for the three months ended March 31, 2021, and was due to the factors noted above.

Gross Profit

Gross profit increased by $0.6 million, or 1.6%, to $38.6 million for the three months ended March 31, 2022 as compared to $38.0 million for the three months ended March 31, 2021. Gross profit increased primarily due to the factors noted above. As a percentage of revenue, our gross profit for the three months ended March 31, 2022 decreased to 47.1% as compared to 49.6% for the three months ended March 31, 2021, and was due to the cost of revenues increases noted above.

Operating Expenses

Operating expenses increased by $0.7 million, or 2.0%, to $35.4 million for the three months ended March 31, 2022 as compared to $34.7 million for the three months ended March 31, 2021. This increase is the result of an increase in wages of $1.1 million due to increased development headcount, an increase of $0.7 million in vacated lease costs, increased commissions of $0.6 million, increased payroll benefits of $0.2 million, an increase in contract labor costs of $0.2 million, an increase in marketing costs of $0.2 million, an increase of $0.1 million for recruiting, an increase of $0.1 million in software expense, and an increase of $0.1 million in travel expense. These increases were partially offset by a $2.7 million decrease in depreciation and amortization expense. As a percentage of revenue, our operating expenses for the three months ended March 31, 2022 decreased to 43.2% as compared to 46.0% for three months ended March 31, 2021.

Interest Expense

Interest expense increased by $0.4 million, or 3.3%, to $12.7 million for the three months ended March 31, 2022 as compared to $12.3 million for the three months ended March 31, 2021. This increase is primarily due to an increase in outstanding debt partially offset by lower interest rates on the refinanced First Lien Facility (as defined below) due to the refinancing discussed below in the Liquidity and Capital Resources section.

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Loss on Debt Extinguishment

For the three months ended March 31, 2021, we incurred a loss on debt extinguishment of $7.2 million in connection with the retirement of the first lien facility and the revolving credit facility under the credit agreement entered into in 2016. There were no such losses in the three months ended March 31, 2022.

Change in Fair Value of Private Warrants

During the first quarter of 2021, the Company determined that its Private Warrants, which had historically been accounted for as a component of equity, should be reclassified and recorded as a liability at fair value during each reporting period. For the three months ended March 31, 2022 and 2021, we recorded an adjustment to the Private Warrants liability of $0.2 million and $2.0 million, respectively.

Income Tax Provision

During the three months ended March 31, 2022 and 2021, the Company recorded income tax provisions of $0.4 million and $0.6 million, respectively, resulting in an effective tax rate of (4.3)% and (4.2)%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences, U.S. state and local income taxes and the valuation allowance against our domestic deferred tax assets. The effective rate for the three months ended March 31, 2022 decreased from the three months ended March 31, 2021 primarily due to a change in the allocation of our pre-tax earnings and losses among countries with differing statutory tax rates.

Net Loss

Net loss for the three months ended March 31, 2022 was $(9.6) million compared to $(14.8) million for the three months ended March 31, 2021. Net loss decreased for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 due to the factors noted above.

Liquidity and Capital Resources

Our primary cash needs are and 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 revolving credit facility discussed below. We may also seek to access the capital markets opportunistically from time-to-time depending on, among other things, financial market conditions. 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 the majority of our eDiscovery accounts receivable 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 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 continue 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 of our accounts receivable. As of March 31, 2022, we had $38.4 million in cash compared to $46.5 million as of December 31, 2021. As of March 31, 2022, we had $510.3 million of outstanding borrowings compared to $507.7 million as of December 31, 2021. We expect to finance our operations in the short- and long-term, primarily through existing cash balances and cash flow from operating activities.

2021 Credit Agreement

On February 8, 2021, certain subsidiaries of the Company, or the Loan Parties, entered into a new secured credit agreement, or the 2021 Credit Agreement. Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 credit agreement discussed below.

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, with a letter of credit sublimit of $10 million (the “Revolving Credit Loans”). The Delayed Draw Term Loans are available to the Loan Parties at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans bear interest, at the Loan Parties’ 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

25

Agreement), the Base Rate (as defined in the 2021 Credit Agreement) plus 5.50% per annum. The Revolving Credit Loans 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 of $0.8 million, 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 8, 2026 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 Loan Parties’ 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 (as defined in the 2021 Credit Agreement) of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter. The Company was in compliance with all Credit Agreement covenants as of March 31, 2022.

Revolving Credit Loans

The 2021 Credit Agreement also provides for the Revolving Credit Loans pursuant to an unfunded revolver commitment for borrowing up to $40.0 million. As of March 31, 2022, there was $39.4 million available capacity for borrowing under the revolving loan commitment due to the $0.6 million of letters of credit outstanding (See Note 9 – Commitments and contingencies).

2016 Credit Agreement and Revolving Credit Facility

On December 9, 2016, certain subsidiaries of the Company entered into a credit agreement, or 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 loan borrowings of $340.0 million and the second lien facility of $125.0 million were to mature on December 9, 2022 and December 9, 2023, respectively. The 2016 Credit Agreement also provided for an unfunded revolver commitment for borrowing up to $30.0 million, maturing on June 9, 2022. The initial term loan and the revolving credit facility were repaid and retired on February 8, 2021 and the second lien facility was repaid on December 19, 2019. The Company incurred a loss on debt extinguishment of $7.3 million during the three months ended March 31, 2021 in connection with the retirement of the first lien facility and the revolving credit facility.

Convertible Debentures

On December 19, 2019, the Company issued Debentures, which mature in 2024, in an aggregate principal amount of $200 million. At March 31, 2022 and December 31, 2021, the balance due under the Convertible Debentures was $231.7 million and $229.4 million, respectively.

The Debentures mature on December 19, 2024 unless earlier converted, redeemed or repurchased, and 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 increase the principal amount of the Debentures by an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding (subject to reduction for any principal amount repaid). 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 are 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.

The Debentures are convertible into shares of 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. We are seeking stockholder approval of the conversion of the Debentures into common stock at our 2022 Annual Meeting of Stockholders. However, in the event the Company elects to redeem any Debentures, the holders 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

26

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 March 31, 2022, the Company was in compliance with all Debenture covenants.

Our net cash flows from operating, investing and financing activities for the three months ended March 31, 2022 and 2021 were as follows:

(in thousands)	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021
Net cash (used in) provided by:
Operating activities	$	(3,646	)	$	(2,815	)
Investing activities	$	(2,968	)	$	(3,088	)
Financing activities	$	(1,281	)	$	2,718
Effect of foreign exchange rates	$	(170	)	$	(208	)
Net decrease in cash	$	(8,065	)	$	(3,393	)

Cash Flows Used in Operating Activities

Net cash used in operating activities was $3.6 million and $2.8 million for the three months ended March 31, 2022 and 2021, respectively. The increase in net cash used is due to a decrease in non-cash items of $7.9 million, partially offset by a higher net loss of $5.3 million and an increase in cash used for working capital of $1.8 million. The increase in cash used for working capital for the period is primarily due to an $8.9 million increase in cash used in accounts payable and accrued expenses offset by $6.1 million increase in cash provided by accounts receivable driven by the increase in revenue, and a $1.1 million increase in cash used to settle outstanding prepaid expenses and other assets, including $0.7 million reclassification of capitalized implementation costs related to cloud computing agreements after the implementation of ASU 2018-15. Accounts Receivable and Accounts payable fluctuate from period-to-period depending on the timing of purchases and payments.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $3.0 million for the three months ended March 31, 2022 as compared to net cash used in investing activities of $3.1 million for the three months ended March 31, 2021. The decrease in cash used is due to $0.7 million of capitalized implementation costs related to cloud computing agreements in the prior year that are classified in operating cash flows in the current year as a result of the implementation of ASU 2018-15, partially offset by a $0.6 million increase in purchases of property and equipment.

Cash Flows Used in/Provided by Financing Activities

For the three months ended March 31, 2022, net cash used in financing activities was $1.3 million, related to the payments of long-term debt of $0.8 million and capital lease obligations of $0.5 million. For the three months ended March 31, 2021, net cash provided by financing activities was $2.7 million and included the proceeds of long-term debt, net of original discount of $294.0 million, offset by the retirement of long-term debt of $289.0 million, debt acquisition costs of $2.0 million, and capital lease obligations of $0.3 million.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Part II, Item 7 of our Annual Report. Other than as described above, there were no material changes to our capital resources and material cash requirements during the three months ended March 31, 2022.

Recent Accounting Pronouncements

There were no changes to our recent accounting pronouncements from those described in our Annual Report.

Critical Accounting Policies and Estimates

We prepare our condensed 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. There were no changes to our critical accounting policies from those described in our Annual Report.

27

Item 3.      Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We are subject to interest rate market risk in connection with our long-term indebtedness. Our principal interest rate exposure relates to outstanding amounts under the $300 million Initial Term Loans, the Revolving Credit Loans of $40 million and the Delayed Draw Term Loans of $50 million. Interest rate changes may 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 March 31, 2022 are fully drawn, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our annualized interest expense by approximately $0.4 million. We do not currently hedge our interest rate exposure.

Exchange Rate Risk

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. The resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive (loss) income” in our Condensed Consolidated Balance Sheets included elsewhere in this Quarterly Report on Form 10-Q.

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” in our condensed consolidated statements of comprehensive loss included elsewhere in this Quarterly Report on Form 10-Q. 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 three months ended March 31, 2022 and 2021, we generated the equivalent of $14.1 million and $15.0 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 three-month period would have correspondingly changed our revenues by approximately $0.1 million and $0.1 million for each of the three months ended March 31, 2022 and 2021.

We do not currently hedge our exchange rate exposure.

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Item 4.     Controls and Procedures.

Evaluation of disclosure controls and procedures

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 provide reasonable assurance that information required to be timely disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management in a timely fashion. We recognize that 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. In addition, projections of any evaluation of effectiveness in 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. Our management is necessarily required to use judgment in evaluating the effectiveness of our controls and procedures and the information disclosed to management thereunder.

In the ordinary course of business, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, periodically reviews and evaluates the effectiveness of our internal control over financial reporting and makes changes, if appropriate, to our disclosure controls and procedures to improve such controls and increase efficiency, seeking to ensure that we maintain an effective internal control environment. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report was performed under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and reported to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC.

Changes in internal control over financial reporting

There has been no change in the Company’s internal control over financial reporting during the most recently completed fiscal quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

29

Part II. Other Information

Item 1.     Legal Proceedings.

In the ordinary conduct of our business, we are subject to lawsuits, arbitrations and administrative proceedings from time to time. We vigorously defend these claims; however, no assurances can be given as to the outcome of any pending legal proceedings. We believe, based on currently available information, that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on our business, financial condition, liquidity or results of operations.

Item 1A.  Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Part I, Item 1A under the caption “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which risks could materially and adversely affect our business, results of operations, financial condition and liquidity. No material changes in the risk factors discussed in such Form 10-K has occurred. Such risk factors do not identify all risks that we face because our business operations could also be affected by additional factors not presently known to us or that we currently consider to be immaterial to our operations. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally.

Item 6.     Exhibits.

a) Exhibits

30

Exhibit Index

Exhibit Number	Description
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)
10.1 #	Third Amendment to the Software License Agreement dated as of January 1, 2022 by and between KLDiscovery Ontrack, LLC (successor-in-interest to LDiscovery LLC) and Relativity ODA LLC (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed March 17, 2022)
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	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

* Filed herewith.

** Furnished herewith.

# Certain confidential information contained in this agreement has been omitted in reliance on Item 601(b)(10)(iv).

31

SIGNATURES

Pursuant to the requirements 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.

KLDiscovery Inc.
By:	/s/ Christopher J. Weiler
	Christopher J. Weiler
	Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)

Date: May 12, 2022

32

EX-31.1

Exhibit 31.1

CERTIFICATION 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

I, Christopher J. Weiler, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of KLDiscovery Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 12, 2022	By:	/s/ Christopher J. Weiler
		Christopher J. Weiler
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION 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

I, Dawn Wilson, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of KLDiscovery Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 12, 2022	By:	/s/ Dawn Wilson
		Dawn Wilson
		Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KLDiscovery Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 12, 2022	By:	/s/ Christopher J. Weiler
		Christopher J. Weiler
		Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KLDiscovery Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 12, 2022	By:	/s/ Dawn Wilson
		Dawn Wilson
		Chief Financial Officer (Principal Financial Officer)

XML

Cover Page - shares	3 Months Ended
	Mar. 31, 2022	May 12, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2022
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2022
Entity Registrant Name	KLDiscovery Inc.
Entity Central Index Key	0001752474
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		42,701,216
Entity File Number	001-38789
Entity Tax Identification Number	61-1898603
Entity Address, Address Line One	8201 Greensboro Drive
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	McLean
Entity Address, State or Province	VA
Entity Address, Postal Zip Code	22102
City Area Code	703
Local Phone Number	288-3380
Entity Incorporation, State or Country Code	DE
Document Quarterly Report	true
Document Transition Report	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets
Cash and cash equivalents	$ 38,403	$ 46,468
Accounts receivable, net of allowance for doubtful accounts of $8,573 and $9,774, respectively	98,950	93,273
Prepaid expenses	15,678	9,669
Other current assets	1,070	1,133
Total current assets	154,101	150,543
Property and equipment
Accumulated depreciation	(82,066)	(81,261)
Property and equipment, net	20,036	22,276
Intangible assets, net	56,245	59,291
Goodwill	394,226	395,759
Other assets	8,395	8,535
Total assets	633,003	636,404
Current liabilities
Current portion of long-term debt, net	3,000	3,000
Accounts payable and accrued expense	32,828	27,067
Current portion of contingent consideration	655	646
Deferred revenue	3,497	4,800
Total current liabilities	39,980	35,513
Long-term debt, net	510,301	507,706
Deferred tax liabilities	6,957	6,772
Other liabilities	8,533	8,559
Total liabilities	565,771	558,550
Commitments and contingencies
Stockholders' equity
Common stock $0.0001 par value, 200,000,000 shares authorized, 42,701,2016 and 42,684,549 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	4	4
Preferred Stock $0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of March 31, 2022 and December 31, 2021
Additional paid-in capital	387,126	386,028
Accumulated deficit	(325,547)	(315,967)
Accumulated other comprehensive income	5,649	7,789
Total stockholders' equity	67,232	77,854
Total liabilities and stockholders' equity	633,003	636,404
Computer software and hardware
Property and equipment
Property and equipment, gross	72,719	73,677
Leasehold improvements
Property and equipment
Property and equipment, gross	26,564	26,796
Furniture, fixtures and other equipment
Property and equipment
Property and equipment, gross	$ 2,819	$ 3,064

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts	$ 8,573	$ 9,774
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	42,701,216	42,684,549
Common stock, shares outstanding	42,701,216	42,684,549
Preferred Stock, per share	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Statement [Abstract]
Revenues	$ 81,898	$ 75,450
Cost of revenues	43,272	37,422
Gross profit	38,626	38,028
Operating expenses
General and administrative	16,525	15,440
Research and development	3,068	2,171
Sales and marketing	10,844	9,457
Depreciation and amortization	4,914	7,641
Total operating expenses	35,351	34,709
Income from operations	3,275	3,319
Other expenses
Other expense		14
Change in fair value of Private Warrants	(191)	(1,969)
Interest expense	12,691	12,257
Loss on debt extinguishment		7,257
Loss before income taxes	(9,225)	(14,240)
Income tax provision	355	616
Net loss	(9,580)	(14,856)
Other comprehensive loss, net of tax
Foreign currency translation	(2,140)	(2,462)
Total other comprehensive loss, net of tax	(2,140)	(2,462)
Comprehensive loss	$ (11,720)	$ (17,318)
Net loss per share - basic and diluted	$ (0.22)	$ (0.35)
Weighted average shares outstanding - basic and diluted	42,686,216	42,532,915

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (Loss)
Balance at Dec. 31, 2020	$ 142,221	$ 4	$ 385,387	$ (255,424)	$ 12,254
Balance (in shares) at Dec. 31, 2020		42,529,017
Share-based compensation	1,003		1,003
Exercise of stock options	34		34
Exercise of stock options (in Shares)		4,465
Stock issued in exchange for vested units (in Shares)		16,666
Private warrants	(3,810)		(3,810)
Foreign exchange translation	(2,462)				(2,462)
Net loss	(14,856)			(14,856)
Balance at Mar. 31, 2021	122,130	$ 4	382,614	(270,280)	9,792
Balance (in shares) at Mar. 31, 2021		42,550,148
Balance at Dec. 31, 2021	77,854	$ 4	386,028	(315,967)	7,789
Balance (in shares) at Dec. 31, 2021		42,684,549
Share-based compensation	1,098		1,098
Stock issued in exchange for vested units (in Shares)		16,667
Foreign exchange translation	(2,140)				(2,140)
Net loss	(9,580)			(9,580)
Balance at Mar. 31, 2022	$ 67,232	$ 4	$ 387,126	$ (325,547)	$ 5,649
Balance (in shares) at Mar. 31, 2022		42,701,216

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Operating activities
Net loss	$ (9,580)	$ (14,856)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	7,850	9,816
Non-cash interest	4,860	4,815
Loss on debt extinguishment		7,257
Stock-based compensation	1,062	978
Provision for losses on accounts receivable	827	972
Deferred income taxes	185	342
Change in fair value of contingent consideration	9	19
Change in fair value of Private Warrants	(191)	(1,969)	$ (1,969)
Changes in operating assets and liabilities:
Accounts receivable	(6,822)	(680)
Prepaid expenses and other assets	(6,190)	(5,087)
Accounts payable and accrued expenses	5,631	(2,986)
Deferred revenue	(1,287)	(1,436)
Net cash used in operating activities	(3,646)	(2,815)
Investing activities
Purchases of property and equipment	(2,968)	(3,088)
Net cash used in investing activities	(2,968)	(3,088)
Financing activities
Proceeds for exercise of stock options		34
Payments for capital lease obligations	(531)	(285)
Debt acquisition costs		(2,031)
Proceeds long-term debt, net of original issue discount		294,000
Retirement of debt		(289,000)
Payments on long-term debt	(750)
Net cash (used in) provided by financing activities	(1,281)	2,718
Effect of foreign exchange rates	(170)	(208)
Net decrease in cash	(8,065)	(3,393)
Cash at beginning of period	46,468	51,201	51,201
Cash at end of period	38,403	47,808	$ 46,468
Supplemental disclosure:
Cash paid for interest	7,876	12,232
Net income taxes paid (refunded)	60	(591)
Significant non-cash investing and financing activities
Purchases of property and equipment in accounts payable and accrued expenses on the condensed consolidated balance sheets	$ 1	$ 682

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Organization, Business and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2022

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization, business and summary of significant accounting policies

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

Organization

KLDiscovery Inc. (the “Company,” “we” or “us”) is a leading global provider of eDiscovery, information governance and data recovery solutions to corporations, law firms, insurance companies and individuals in 19 countries around the world. We provide technology solutions to help our clients solve complex data challenges. The Company’s headquarters are located in McLean, Virginia. The Company has 31 locations in 19 countries, as well as 9 data centers and 17 data recovery labs globally.

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

Principles of consolidation

The accompanying condensed 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 condensed consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial and risk factor information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which we previously filed with the Securities and Exchange Commission (the “SEC”).

Use of estimates

The preparation of condensed 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 condensed 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, including the fair value of Private Warrants (as defined in Note 3), the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the evaluation of goodwill for impairment, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

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 three months ended March 31, 2022 and 2021, the Company did not have a single customer that represents ten percent (10%) 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 $14.1 million and $14.9 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $25.4 million and $25.6 million for the three months ended March 31, 2022 and 2021, respectively.

Foreign currency

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” in the Company’s Condensed Consolidated Balance Sheets.

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 (income) expense” in the Company’s Condensed 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.

Cash and cash equivalents

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

Accounts receivable are recorded at the 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.

Fixed Assets

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:

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

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 is depreciated using the straight-line method over the lease term.

Depreciation expense totaled $2.4 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively, and includes amortization of assets recorded under capital leases.

Internal-use software development costs

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 amortized 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 “Intangible assets, net” in the Company’s Condensed Consolidated Balance Sheets and totaled $15.6 million and $14.7 million, net of accumulated amortization, as of March 31, 2022 and December 31, 2021, respectively.

Upon the adoption of Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, (“ASU 2018-15”) during the fourth quarter of 2021, capitalized implementation costs of cloud computing arrangements are included in both Prepaid expense and Other assets in the Company’s Consolidated Balance Sheet and totaled $1.5 million and $4.9 million as of March 31, 2022 and $1.5 million and $5.1 million as of December 31, 2021, respectively.  In addition, the amortization costs for the capitalized implementation cost related to cloud computing arrangements are now included in General and administrative expense in the Company’s Condensed Consolidated Statement of Comprehensive Loss and total

$0.4 million for the three months ended March 31, 2022. Cash flows associated with the capitalized implementation cost related to cloud computing arrangements, previously recorded as part of Cash from investing activities, are now included in cash flows used by operating activities in the Company’s Condensed Consolidated Statement of Cash Flows and total $0.3 million for the three months ended March 31, 2022.

Intangible assets and other long-lived assets

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.

Amortization expense totaled $5.0 million and $6.9 million for the three months ended March 31, 2022 and 2021, respectively; $2.5 million and $2.2 million of which was classified as part of the “Cost of revenues” line in the Company’s Condensed 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

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, 2021 testing date, the Company determined there is one reporting unit.

Management concluded that there was no impairment of goodwill and intangible assets during the three months ended March 31, 2022.

Debt issuance costs

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 are presented in the Condensed 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 are presented in the Condensed Consolidated Balance Sheets within “Other assets.”

Revenue recognition

Revenues are recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that the Company expects 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 Accounting Standard Codification (“ASC”) 606, Revenue Recognition: (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.

We provide Legal Technology services to our clients through several technology solutions including Nebula Ecosystem (“Nebula”) our internally developed end-to-end fully integrated proprietary solution. We also provide Data Recovery solutions. 

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2022 (in thousands):

	2022 Q1						2021 Q1
	Technology Solutions		Nebula		Consolidated		Technology Solutions		Nebula		Consolidated
Legal Technology	$	66,240	$	6,117	$	72,357	$	58,329	$	5,405	$	63,734
Data Recovery		9,541		—		9,541		11,716		—		11,716
Total revenue	$	75,781	$	6,117	$	81,898	$	70,045	$	5,405	$	75,450

Performance Obligations and Timing of Revenue Recognition

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.

(1) Legal Technology, including Nebula and our expansive suite of technology solutions, such as our end-to-end eDiscovery technology solutions, managed review solutions, collections, processing, analytics, hosting, production and professional services, and

(2) Data Recovery solutions, which provides data restoration, data erasure and data management services.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. Most of the Company’s 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 at a point in time utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain other 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 at a point in time 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.

Other eDiscovery agreements are time and material arrangements that 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 at a point in time based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because it has a contractual 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.

The Company offers term license subscriptions to Ontrack PowerControls software to 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 and support, as well as access to future software upgrades and patches. 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.

Net loss per common share

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period, 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.

Accounting Standards Not Yet Adopted

The Company is an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and has elected to 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 means the Company’s consolidated financial statements may not be comparable to other public companies due to the differences in accounting standards being applied. The effective dates shown below reflect the election to use the extended transition period.

In February 2016, the FASB issued Accounting Standards Update (“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. 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.

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Correction of an Immaterial Error

3 Months Ended

Mar. 31, 2022

Accounting Changes And Error Corrections [Abstract]

Correction of an immaterial error

Note 2 – Correction of an immaterial error

On April 12, 2021, the SEC Staff issued a “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” (“SPACs”) (the “SEC Staff Statement”). The Company evaluated the SEC Staff Statement and determined that its Private Warrants (as defined in Note 3), which had historically been accounted for as a component of equity, should be reclassified and recorded as a liability at fair value during each reporting period, with changes in fair value recorded in the Condensed Consolidated Statements of Comprehensive Loss.

In accordance with Financial Accounting Standards Board ASC 250, Accounting Changes and Error Corrections, the Company evaluated the materiality of the errors from quantitative and qualitative perspectives and concluded that the errors were immaterial to the Company’s prior period interim and annual consolidated financial statements. Because these errors were not material to any prior period interim or annual financial statements, no amendments to previously filed interim or annual periodic reports are required. The Company recognized the cumulative effect of the error on prior periods by recording during the three months ended and as of, March 31, 2021, (i) $2.0 million of income in the Condensed Consolidated Statements of Comprehensive Loss to reflect the cumulative decrease in the fair value of the Private Warrants liabilities, (ii) a warrant liability of $1.8 million in the Condensed Consolidated Balance Sheet and (iii) a decrease in additional paid-in capital of $3.8 million in the Condensed Consolidated Balance Sheet.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 3 – Fair value measurements

The Company accounts for recurring and non-recurring fair value measurements in accordance with ASC 820, Fair Value Measurements (“ASC 820”). 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 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. The fair value of future expected acquisition-related contingent purchase consideration obligations was $0.7 million and $0.6 million at March 31, 2022 and December 31, 2021, 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 a quarterly basis.

The Company has determined that the 6,350,000 warrants to purchase Common Stock (the “Private Warrants”) issued in connection with the consummation of the Business Combination in December 2019 should be accounted for as liabilities in accordance with ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of Private Warrants in the Condensed Consolidated Statements of Comprehensive Loss. The fair value of the Private Warrants was $1.7 million and $1.8 million as of March 31, 2022 and 2021, respectively.

To estimate the fair value of the Private Warrants as of December 31, 2021 and March 31, 2022, the Company used a Black Scholes closed form model, which is a Level 3 fair value measurement. Significant inputs used in the Black Scholes model for the Private Warrants were as follows:

	December 31, 2021 & March 31, 2022
Expected volatility		27.00	%
Expected term (in years)		2.94
Risk free interest rate		0.96	%
Dividend yield		0.00	%
Exercise Price	$	11.50
Fair value of Common Stock	$	6.80

The Company’s use of a Black Scholes model required the use of the following inputs, including assumptions:

• Expected volatility – as of the valuation date, the Public Warrants (as defined in Note 7) and the Common Stock were traded and their market prices were used to infer the expected annual volatility of the Common Stock. The expected volatility is used to value the Private Warrants.

• Expected term – the expected term is based on the exercise period, which began 30 days after the consummation of the Business Combination in December 2019 and ends on December 19, 2024 (which is five years after the completion of the Business Combination).

• Risk-free interest rate – the risk-free interest rate is based on the U.S. Treasury Bill yields for the period commensurate with the time to exercise the Private Warrants.

• Dividend yield – the Company does not pay dividends and has no plans to do so. As a result, the expected dividend yield is zero.

• Exercise price – the exercise price is contractually set at $11.50.

• Fair value of stock – the stock price is the quoted market price as of the valuation date.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the periods ended March 31, 2022 and December 31, 2021 (in thousands):

Balance at December 31, 2020	$	920
Private Warrants		3,810
Change in fair value of Private Warrants		(1,969	)
Change in fair value of contingent consideration		(275	)
Balance at December 31, 2021		2,486
Change in fair value of Private Warrants		(191	)
Change in fair value of contingent consideration		9
Balance at March 31, 2022	$	2,304

Management estimates that 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.

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Leasing Arrangements

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leasing Arrangements

Note 4 – Leasing arrangements

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 $2.8 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively.

For periods subsequent to March 31, 2022, 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):

	Capital Leases			Operating Leases
2022 (9 months)	$	1,350		$	6,417
2023		1,057			8,032
2024		—			6,880
2025		—			3,457
2026		—			1,860
Thereafter		—			692
Total	$	2,407		$	27,338
Less interest on lease obligations		(138	)
		2,269
Less current portion		(1,452	)
Non-current portion	$	817

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Long Term Debt

3 Months Ended

Mar. 31, 2022

Long Term Debt [Abstract]

Long Term Debt

Note 5 – Long term debt

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

	March 31, 2022			December 31, 2021
Convertible Debenture notes		231,676			229,382
2021 Credit Agreement		297,000			297,750
Total debt		528,676			527,132
Less: unamortized original issue discount		(13,760	)		(14,700	)
Less: unamortized debt issuance costs		(1,615	)		(1,726	)
Total debt, net		513,301			510,706
Current portion of debt		3,000			3,000
Less: current portion of unamortized original    issue discount		—			—
Less: current portion of unamortized debt    issuance costs		—			—
Total current portion of debt, net		3,000			3,000
Total long-term debt, net	$	510,301		$	507,706

2021 Credit Agreement

On February 8, 2021, certain subsidiaries of the Company, or the Loan Parties, entered into a new secured credit agreement, or the 2021 Credit Agreement. Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 Credit Agreement discussed below.

The 2021 Credit Agreement provides for (i) initial term loans in an aggregate principal amount of $300 million, or the Initial Term Loans, (ii) delayed draw term loans in an aggregate principal amount of $50 million, or the Delayed Draw Term Loans, and (iii) revolving credit loans in an aggregate principal amount of $40 million, with a letter of credit sublimit of $10 million, or the Revolving Credit Loans. The Delayed Draw Term Loans are available to the Loan Parties at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans bear interest, at the Loan Parties’ 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 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 of $0.8 million, 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 8, 2026 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 Loan Parties’ 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 (as defined in the 2021 Credit Agreement) of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter. The Company was in compliance with all Credit Agreement covenants as of March 31, 2022.

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.

Revolving Credit Loans

The 2021 Credit Agreement also provides for an unfunded revolver commitment for borrowing up to $40.0 million (the “Revolving Credit Loans”). As of March 31, 2022, there was $39.4 million available capacity for borrowing under the revolving loan commitment due to the $0.6 million of letters of credit outstanding (See Note 9 – Commitments and contingencies).

2016 Credit Agreement and Revolving Credit Facility

On December 9, 2016, certain subsidiaries of the Company entered into a credit agreement, or 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 loan borrowings of $340.0 million under the first lien facility and $125.0 million under the second lien facility were to mature on December 9, 2022 and December 9, 2023, respectively. The 2016 Credit Agreement also provided for an unfunded revolver commitment for borrowing up to $30.0 million, maturing on June 9, 2022. The first lien facility and the revolving credit facility were repaid and retired on February 8, 2021 and the second lien facility was repaid on December 19, 2019. The Company incurred a loss on debt extinguishment of $7.3 million during the three months ended March 31, 2021 in connection with the retirement of the first lien facility and the revolving credit facility.

Convertible Debentures

On December 19, 2019, the Company issued Convertible Debentures, which mature in 2024, in an aggregate principal amount of $200 million (the “Debentures” or the “Convertible Debentures”). At March 31, 2022 and December 31, 2021, the balance due under the Convertible Debentures was $231.7 million and $229.4 million, respectively.

The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased, and 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 increase the principal amount of the Debentures by an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding (subject to reduction for any principal amount repaid). 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.

The Debentures are convertible into shares of 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. We are seeking stockholder approval of the conversion of the Debentures into common stock at our 2022 Annual Meeting of Stockholders. However, in the event the Company elects to redeem any Debentures, the holders 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 March 31, 2022, the Company was in compliance with all Debenture covenants.

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Equity Incentive Plan

3 Months Ended

Mar. 31, 2022

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Incentive Plan

Note 6 – Equity incentive plan

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. Pursuant to the 2019 Plan, the number of shares of Common Stock available for issuance under the 2019 Plan automatically increases on each January 1 (commencing with January 1, 2021) until and including January 1, 2029, by an amount equal to the lesser of: (a) 5% of the shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by our Board of Directors (the “Board”).  The Compensation Committee of the Board approved an increase to the share reserve as set out in the 2019 Plan in 2021. As of March 31, 2022, 11,760,678 shares of Common Stock were reserved under the 2019 Plan, of which 2,713,118 shares of Common Stock remained available for issuance.

Stock option activity

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, 2021		5,093,682		$	8.34		8.4	$	24
Granted		1,130,850			6.00
Exercised		—			—
Forfeited		(27,829	)		8.29
Expired		(24,633	)		8.48
Options outstanding, March 31, 2022		6,172,070		$	7.91		8.4	$	5
Options vested and exercisable, March 31, 2022		2,777,689		$	8.32		7.9	$	5
Options vested and expected to vest, March 31, 2022		6,172,070		$	7.91		8.4	$	5

(1) Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying Common Stock and the exercise price of outstanding in-the-money options.

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

	2019 Plan
	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Total fair value of stock options granted	$	2,884	$	2,125
Total fair value of options vested		609		18

Time-based vesting stock options

Time-based vesting stock options generally vest over a three-year period, are subject to graded vesting schedules, and expire 10 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 us was $2.55, and $1.79, during the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022, and 2021 the Company recognized $1.1 million and $1.0 million of stock-based compensation expense, respectively, in connection with time-based vesting stock options. As of March 31, 2022, there was $6.2 million of unrecognized stock-based compensation expense related to unvested time-based vesting stock options that is expected to be recognized over a weighted-average period of two years.

Stock Option Valuation

The Company used valuation models to value both time and performance-based vesting stock options granted during the three months ended March 31, 2022 and 2021. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employee directors under the 2019 Plan:

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Expected volatility	42.90%		44.61%
Expected term (in years)		6.00		6.00
Dividend yield	0.00%		0.00%
Risk-free interest rate	1.62%		0.70%

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

• Expected volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses an estimated volatility based on the historical and implied volatilities of share prices of comparable companies.

• Expected term – This is the period that the options granted are expected to remain unexercised. For options granted during the three months ended March 31, 2022 and 2021, the Company derived the expected life of the option based on the average midpoint between vesting and the contractual term as there is little exercise history.

• Dividend yield – The Company has never declared or paid dividends and does not have any plans to do so in the foreseeable future.

• Risk-free interest rate – This is the U.S. Treasury rate for securities with similar terms that most closely resemble the expected life of the option.

Stock-based compensation expense

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

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Cost of revenues	$	351	$	342
General and administrative		408		396
Research and development		103		64
Sales and marketing		200		176
Total	$	1,062	$	978

Performance –based restricted stock units

The Company granted RSUs to certain employees and non-employee directors which are subject to certain vesting criteria. The RSUs granted to employees become eligible to begin vesting upon a liquidity event (as defined in the award agreements governing the RSUs). The amount and timing of the vesting of the RSUs depends on the type and timing of the liquidity event as it relates to the Closing Date. Generally, a portion of the RSUs will first vest upon the occurrence of the liquidity event and the remainder will vest in up to three annual installments thereafter, provided that if the liquidity event occurs after the third anniversary of the Closing Date, all RSUs will vest immediately upon the liquidity event. The vesting of the RSUs held by a grantee is generally subject to his or her continued employment with the Company.

Time-based restricted stock units

The Company grants certain non-employee directors time-based restricted stock units in satisfaction of their annual retainer payments. These units vest over a one-year or three-year period. During the three months ended March 31, 2022 and 2021, the Company recognized the grant-date fair value of the restricted stock units of $0.2 million and $0.2 million as stock-based compensation expense, respectively. During the three months ended March 31, 2022 and 2021, the Company made no new grants of time-based restricted stock units to its non-employee directors.

The following table summarizes the Company’s RSU activity for performance-based RSUs awarded to employees and for time-based RSUs granted to non-employee directors under the 2019 Plan:

Description	RSUs Outstanding
Balance at December 31, 2021		1,513,892
Granted		13,889
Vested - non-employee director awards		(16,667	)
Forfeited		(12,986	)
Expired		—
Balance at March 31, 2022		1,498,128

The Company determined the achievement of the liquidity event was not probable and therefore no expense related to the performance based awards was recorded during the three months ended March 31, 2022 and 2021.

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Equity

3 Months Ended

Mar. 31, 2022

Equity [Abstract]

Equity

Note 7 – Equity

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 times and in the amounts as the Board 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.

There were no stock issuances during the three months ended March 31, 2022 and 2021, other than pursuant to stock option exercises and vesting of non-employee director RSUs.

Warrants

On the Closing Date, in connection with the consummation of the Business Combination, the Company assumed (i) 23,000,000 warrants (the “Public Warrants”) to purchase shares of Common Stock and (ii) 6,350,000 Private Warrants (together with the Public Warrants, the “Warrants”). The Public Warrants qualify for equity accounting as these warrants do not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The Public Warrants were measured at fair value at the time of issuance and classified as equity. As disclosed in Note 2, the Company has determined that the Private Warrants fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity, and therefore these warrants are classified as liabilities and measured at fair value at each reporting period.

Each Warrant entitles the holder to purchase one share of Common Stock for $11.50 per share. If Private Warrants are 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 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 the issuance of Common Stock at a price below the 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 are 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.

Shares Subject to Forfeiture

On December 19, 2019, in connection with the consummation of the Business Combination, 550,000 shares of Common Stock held by Pivotal Acquisition Holdings LLC were subjected 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 the Company’s financial statements and continue to be subject to the additional lockup as of March 31, 2022.

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Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income taxes

A valuation allowance has been established against the Company’s net U.S. federal and state deferred tax assets, including net operating loss (“NOL”) carryforwards. As a result, the Company’s income tax position is primarily related to foreign tax activity and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities. During the three months ended March 31, 2022 and 2021, the Company recorded an income tax provision of $0.4 million and $0.6 million, respectively, resulting in an effective tax rate of (4.3)% and (4.2)%, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences, state taxes and the valuation allowance against our domestic deferred tax assets.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2022

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 9 – Commitments and contingencies

The Company is involved in various legal proceedings, which 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 March 31, 2022.

The Company has two letters of credit totaling $0.6 million as of March 31, 2022 as additional security for lease guarantees related to leased properties.

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Related Parties

3 Months Ended

Mar. 31, 2022

Related Party Transactions [Abstract]

Related Parties

Note 10 – Related parties

As of March 31, 2022, $115.8 million, including paid-in kind interest of the Debentures are owed to affiliates of MGG Investment Group, which is an affiliate of a director of the Company. For the three months ended March 31, 2022 and 2021, the Company recognized $3.4 million and $3.1 million in interest expense, respectively, related to Debentures owned by the MGG Investment Group.

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Subsequent Events

3 Months Ended

Mar. 31, 2022

Subsequent Events [Abstract]

Subsequent events

Note 11 – Subsequent events

The Company has evaluated subsequent events since the date on which these financial statements were issued through the date on which this Quarterly Report on Form 10-Q was filed, and identified the item below for disclosure:

On April 7, 2022 the Company issued an additional 463,000 performance based restricted stock units to its employees under the 2019 Plan. The units will vest over a three-year time period based on the achievement of certain revenue targets and continued service with the Company.

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Organization, Business and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2022

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization

Organization

KLDiscovery Inc. (the “Company,” “we” or “us”) is a leading global provider of eDiscovery, information governance and data recovery solutions to corporations, law firms, insurance companies and individuals in 19 countries around the world. We provide technology solutions to help our clients solve complex data challenges. The Company’s headquarters are located in McLean, Virginia. The Company has 31 locations in 19 countries, as well as 9 data centers and 17 data recovery labs globally.

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

Principles of consolidation

Principles of consolidation

The accompanying condensed 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 condensed consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the financial and risk factor information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which we previously filed with the Securities and Exchange Commission (the “SEC”).

Use of estimates

Use of estimates

The preparation of condensed 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 condensed 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, including the fair value of Private Warrants (as defined in Note 3), the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the evaluation of goodwill for impairment, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock, $0.0001 par value per share (the “Common Stock”), stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

Segments, concentration of credit risk and major customers

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 three months ended March 31, 2022 and 2021, the Company did not have a single customer that represents ten percent (10%) 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 $14.1 million and $14.9 million for the three months ended March 31, 2022 and 2021, respectively. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $25.4 million and $25.6 million for the three months ended March 31, 2022 and 2021, respectively.

Foreign currency

Foreign currency

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” in the Company’s Condensed Consolidated Balance Sheets.

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 (income) expense” in the Company’s Condensed 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.

Cash and cash equivalents

Cash and cash equivalents

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

Accounts receivable

Accounts receivable are recorded at the 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.

Fixed Assets

Fixed Assets

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:

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

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 is depreciated using the straight-line method over the lease term.

Depreciation expense totaled $2.4 million and $2.9 million for the three months ended March 31, 2022 and 2021, respectively, and includes amortization of assets recorded under capital leases.

Internal-use software development costs

Internal-use software development costs

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 amortized 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 “Intangible assets, net” in the Company’s Condensed Consolidated Balance Sheets and totaled $15.6 million and $14.7 million, net of accumulated amortization, as of March 31, 2022 and December 31, 2021, respectively.

Upon the adoption of Accounting Standards Update No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, (“ASU 2018-15”) during the fourth quarter of 2021, capitalized implementation costs of cloud computing arrangements are included in both Prepaid expense and Other assets in the Company’s Consolidated Balance Sheet and totaled $1.5 million and $4.9 million as of March 31, 2022 and $1.5 million and $5.1 million as of December 31, 2021, respectively.  In addition, the amortization costs for the capitalized implementation cost related to cloud computing arrangements are now included in General and administrative expense in the Company’s Condensed Consolidated Statement of Comprehensive Loss and total

$0.4 million for the three months ended March 31, 2022. Cash flows associated with the capitalized implementation cost related to cloud computing arrangements, previously recorded as part of Cash from investing activities, are now included in cash flows used by operating activities in the Company’s Condensed Consolidated Statement of Cash Flows and total $0.3 million for the three months ended March 31, 2022.

Intangible assets and other long-lived assets

Intangible assets and other long-lived assets

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.

Amortization expense totaled $5.0 million and $6.9 million for the three months ended March 31, 2022 and 2021, respectively; $2.5 million and $2.2 million of which was classified as part of the “Cost of revenues” line in the Company’s Condensed 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

Goodwill

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, 2021 testing date, the Company determined there is one reporting unit.

Management concluded that there was no impairment of goodwill and intangible assets during the three months ended March 31, 2022.

Debt issuance costs

Debt issuance costs

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 are presented in the Condensed 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 are presented in the Condensed Consolidated Balance Sheets within “Other assets.”

Revenue recognition

Revenue recognition

Revenues are recognized when the Company satisfies a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that the Company expects 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 Accounting Standard Codification (“ASC”) 606, Revenue Recognition: (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.

We provide Legal Technology services to our clients through several technology solutions including Nebula Ecosystem (“Nebula”) our internally developed end-to-end fully integrated proprietary solution. We also provide Data Recovery solutions. 

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2022 (in thousands):

	2022 Q1						2021 Q1
	Technology Solutions		Nebula		Consolidated		Technology Solutions		Nebula		Consolidated
Legal Technology	$	66,240	$	6,117	$	72,357	$	58,329	$	5,405	$	63,734
Data Recovery		9,541		—		9,541		11,716		—		11,716
Total revenue	$	75,781	$	6,117	$	81,898	$	70,045	$	5,405	$	75,450

Performance Obligations and Timing of Revenue Recognition

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.

(1) Legal Technology, including Nebula and our expansive suite of technology solutions, such as our end-to-end eDiscovery technology solutions, managed review solutions, collections, processing, analytics, hosting, production and professional services, and

(2) Data Recovery solutions, which provides data restoration, data erasure and data management services.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. Most of the Company’s 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 at a point in time utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain other 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 at a point in time 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.

Other eDiscovery agreements are time and material arrangements that 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 at a point in time based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because it has a contractual 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.

The Company offers term license subscriptions to Ontrack PowerControls software to 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 and support, as well as access to future software upgrades and patches. 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.

Net Loss per Common Share

Net loss per common share

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the period, 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.

Accounting Standards Not Yet Adopted

Accounting Standards Not Yet Adopted

The Company is an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and has elected to 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 means the Company’s consolidated financial statements may not be comparable to other public companies due to the differences in accounting standards being applied. The effective dates shown below reflect the election to use the extended transition period.

In February 2016, the FASB issued Accounting Standards Update (“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. 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.

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Organization, Business and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2022

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Estimated Useful Lives of Assets

Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

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

Summary of Revenue from Contracts with Customers

The following table summarizes revenue from contracts with customers for the three months ended March 31, 2022 (in thousands):

	2022 Q1						2021 Q1
	Technology Solutions		Nebula		Consolidated		Technology Solutions		Nebula		Consolidated
Legal Technology	$	66,240	$	6,117	$	72,357	$	58,329	$	5,405	$	63,734
Data Recovery		9,541		—		9,541		11,716		—		11,716
Total revenue	$	75,781	$	6,117	$	81,898	$	70,045	$	5,405	$	75,450

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Schedule of Black Scholes model for the Private Warrants

To estimate the fair value of the Private Warrants as of December 31, 2021 and March 31, 2022, the Company used a Black Scholes closed form model, which is a Level 3 fair value measurement. Significant inputs used in the Black Scholes model for the Private Warrants were as follows:

	December 31, 2021 & March 31, 2022
Expected volatility		27.00	%
Expected term (in years)		2.94
Risk free interest rate		0.96	%
Dividend yield		0.00	%
Exercise Price	$	11.50
Fair value of Common Stock	$	6.80

The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employee directors under the 2019 Plan:

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Expected volatility	42.90%		44.61%
Expected term (in years)		6.00		6.00
Dividend yield	0.00%		0.00%
Risk-free interest rate	1.62%		0.70%

Summary of Reconciliation of Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the periods ended March 31, 2022 and December 31, 2021 (in thousands):

Balance at December 31, 2020	$	920
Private Warrants		3,810
Change in fair value of Private Warrants		(1,969	)
Change in fair value of contingent consideration		(275	)
Balance at December 31, 2021		2,486
Change in fair value of Private Warrants		(191	)
Change in fair value of contingent consideration		9
Balance at March 31, 2022	$	2,304

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Leasing Arrangements (Tables)

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Schedule of Future Minimum Payments for Operating and Capital Lease Obligations

For periods subsequent to March 31, 2022, 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):

	Capital Leases			Operating Leases
2022 (9 months)	$	1,350		$	6,417
2023		1,057			8,032
2024		—			6,880
2025		—			3,457
2026		—			1,860
Thereafter		—			692
Total	$	2,407		$	27,338
Less interest on lease obligations		(138	)
		2,269
Less current portion		(1,452	)
Non-current portion	$	817

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Long Term Debt (Tables)

3 Months Ended

Mar. 31, 2022

Long Term Debt [Abstract]

Summary of Components of Long-term Debt

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

	March 31, 2022			December 31, 2021
Convertible Debenture notes		231,676			229,382
2021 Credit Agreement		297,000			297,750
Total debt		528,676			527,132
Less: unamortized original issue discount		(13,760	)		(14,700	)
Less: unamortized debt issuance costs		(1,615	)		(1,726	)
Total debt, net		513,301			510,706
Current portion of debt		3,000			3,000
Less: current portion of unamortized original    issue discount		—			—
Less: current portion of unamortized debt    issuance costs		—			—
Total current portion of debt, net		3,000			3,000
Total long-term debt, net	$	510,301		$	507,706

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Equity Incentive Plan (Tables)

3 Months Ended

Mar. 31, 2022

Schedule of Additional Information on Stock Option Grants And Vesting

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

	2019 Plan
	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Total fair value of stock options granted	$	2,884	$	2,125
Total fair value of options vested		609		18

Schedule of Black Scholes model for the Private Warrants

To estimate the fair value of the Private Warrants as of December 31, 2021 and March 31, 2022, the Company used a Black Scholes closed form model, which is a Level 3 fair value measurement. Significant inputs used in the Black Scholes model for the Private Warrants were as follows:

	December 31, 2021 & March 31, 2022
Expected volatility		27.00	%
Expected term (in years)		2.94
Risk free interest rate		0.96	%
Dividend yield		0.00	%
Exercise Price	$	11.50
Fair value of Common Stock	$	6.80

The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employee directors under the 2019 Plan:

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Expected volatility	42.90%		44.61%
Expected term (in years)		6.00		6.00
Dividend yield	0.00%		0.00%
Risk-free interest rate	1.62%		0.70%

Stock Based Compensation Expense Included In Condensed Consolidated Statements of Comprehensive Loss

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

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Cost of revenues	$	351	$	342
General and administrative		408		396
Research and development		103		64
Sales and marketing		200		176
Total	$	1,062	$	978

Restricted Stock Units [Member]

Schedule of RSUs Activity Under 2019 Plan

The following table summarizes the Company’s RSU activity for performance-based RSUs awarded to employees and for time-based RSUs granted to non-employee directors under the 2019 Plan:

Description	RSUs Outstanding
Balance at December 31, 2021		1,513,892
Granted		13,889
Vested - non-employee director awards		(16,667	)
Forfeited		(12,986	)
Expired		—
Balance at March 31, 2022		1,498,128

2019 Plan [Member]

Schedule of Stock Option Activity Under 2019 Plan

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, 2021		5,093,682		$	8.34		8.4	$	24
Granted		1,130,850			6.00
Exercised		—			—
Forfeited		(27,829	)		8.29
Expired		(24,633	)		8.48
Options outstanding, March 31, 2022		6,172,070		$	7.91		8.4	$	5
Options vested and exercisable, March 31, 2022		2,777,689		$	8.32		7.9	$	5
Options vested and expected to vest, March 31, 2022		6,172,070		$	7.91		8.4	$	5

(1) Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying Common Stock and the exercise price of outstanding in-the-money options.

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Organization, Business and Summary of Significant Accounting Policies - Additional Information (Detail) $ / shares in Units, $ in Thousands		3 Months Ended
	Oct. 01, 2021 ReportingUnit	Mar. 31, 2022 USD ($) Location Country Datacenter Lab Segment Customer $ / shares	Mar. 31, 2021 USD ($) Customer	Dec. 31, 2021 USD ($) $ / shares
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of countries | Country		19
Number of data centers | Datacenter		9
Number of data recovery labs | Lab		17
Date of incorporation		Aug. 02, 2018
Common stock, par value | $ / shares		$ 0.0001		$ 0.0001
Number of business segment | Segment		1
Revenues		$ 81,898	$ 75,450
Depreciation expense		2,400	2,900
Amortization expense		5,000	6,900
Number of reporting unit | ReportingUnit	1
Cost of Revenues [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Amortization expense		2,500	2,200
Internal-Use Software Development [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Capitalized software costs		15,600		$ 14,700
Internal-Use Software Development [Member] | ASU 2018-15 [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Capitalized computer software implementation amortization costs, operating activities		300
Internal-Use Software Development [Member] | ASU 2018-15 [Member] | General and Administrative Expense [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Capitalized computer software implementation amortization costs		400
Internal-Use Software Development [Member] | ASU 2018-15 [Member] | Prepaid Expense [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Capitalized software implementation costs		1,500		1,500
Internal-Use Software Development [Member] | ASU 2018-15 [Member] | Other Assets [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Capitalized software implementation costs		4,900		5,100
UK and Germany [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Revenues		14,100	$ 14,900
Long-lived assets		$ 25,400		$ 25,600
Consolidated Revenues [Member] | Customer Concentration Risk [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of customers representing more than 5% of consolidated revenues or accounts receivable | Customer		0	0
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of customers representing more than 5% of consolidated revenues or accounts receivable | Customer		0	0
Minimum [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of locations | Location		31
Minimum [Member] | Internal-Use Software Development [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Estimated useful life		3 years
Maximum [Member] | Internal-Use Software Development [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Estimated useful life		5 years

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Organization, Business and Summary of Significant Accounting Policies - Estimated Useful Lives of Assets (Detail)	3 Months Ended
	Mar. 31, 2022
Computer software and hardware | Minimum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	3 years
Computer software and hardware | Maximum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	5 years
Leasehold improvements
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	Shorter of lease term or useful life
Furniture, fixtures and other equipment | Minimum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	3 years
Furniture, fixtures and other equipment | Maximum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	5 years

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Organization, Business and Summary of Significant Accounting Policies - Summary of Revenue from Contracts with Customers (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Disaggregation Of Revenue [Line Items]
Revenues	$ 81,898	$ 75,450
Technology Solutions
Disaggregation Of Revenue [Line Items]
Revenues	75,781	70,045
Nebula
Disaggregation Of Revenue [Line Items]
Revenues	6,117	5,405
Legal Technology
Disaggregation Of Revenue [Line Items]
Revenues	72,357	63,734
Legal Technology | Technology Solutions
Disaggregation Of Revenue [Line Items]
Revenues	66,240	58,329
Legal Technology | Nebula
Disaggregation Of Revenue [Line Items]
Revenues	6,117	5,405
Data Recovery
Disaggregation Of Revenue [Line Items]
Revenues	9,541	11,716
Data Recovery | Technology Solutions
Disaggregation Of Revenue [Line Items]
Revenues	$ 9,541	$ 11,716

XML

Correction of an Immaterial Error - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Reclassification [Line Items]
Expense (Income) related to fair value adjustment of warrants liabilities	$ (191)	$ (1,969)	$ (1,969)
Decrease in additional paid-in capital		(3,810)
Cumulative Effect, Period of Adoption, Adjustment [Member]
Reclassification [Line Items]
Increase in warrant liabilities		1,800
Decrease in additional paid-in capital		3,800
Private Warrants [Member]
Reclassification [Line Items]
Increase in warrant liabilities			$ 3,810
Private Warrants [Member] | Cumulative Effect, Period of Adoption, Adjustment [Member]
Reclassification [Line Items]
Expense (Income) related to fair value adjustment of warrants liabilities		$ (2,000)

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Fair Value Measurements - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions	Mar. 31, 2022	Dec. 31, 2021	Mar. 31, 2021	Dec. 31, 2019
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value of future expected acquisition-related contingent consideration obligations	$ 0.7	$ 0.6
Fair value of warrants	$ 1.7		$ 1.8
Warrants, expected term	5 years
Exercise price	$ 11.50
Liability [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Warrants outstanding				6,350,000

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Fair Value Measurements - Schedule of Black Scholes model for the Private Warrants (Details) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Fair Value Disclosures [Abstract]
Expected volatility	27.00%	27.00%
Expected term (in years)	2 years 11 months 8 days	2 years 11 months 8 days
Risk free interest rate	0.96%	0.96%
Dividend yield	0.00%	0.00%
Exercise Price	$ 11.50	$ 11.50
Fair value of Common Stock	$ 6.80	$ 6.80

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Fair Value Measurements - Summary of Reconciliation of Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) (Detail) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning	$ 2,486	$ 920	$ 920
Change in fair value of Private Warrants	(191)	$ (1,969)	(1,969)
Change in fair value of contingent consideration	9		(275)
Balance at ending	$ 2,304		2,486
Private Warrants [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Increase in warrant liabilities			$ 3,810

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Leasing Arrangements - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Leases [Abstract]
Operating and capital lease agreements lease expiring year	2029
Rent expense	$ 2.8	$ 2.9

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Leasing Arrangements - Schedule of Future Minimum Payments for Operating and Capital Lease Obligations (Detail) $ in Thousands	Mar. 31, 2022 USD ($)
Capital Leases
2022 (9 months)	$ 1,350
2023	1,057
Total	2,407
Less interest on lease obligations	(138)
Net amount	2,269
Less current portion	(1,452)
Non-current portion	817
Operating Leases
2022 (9 months)	6,417
2023	8,032
2024	6,880
2025	3,457
2026	1,860
Thereafter	692
Total	$ 27,338

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Long Term Debt - Summary of Components of Long-term Debt (Detail) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Debt Instrument [Line Items]
Total debt	$ 528,676	$ 527,132
Less: unamortized original issue discount	(13,760)	(14,700)
Less: unamortized debt issuance costs	(1,615)	(1,726)
Total debt, net	513,301	510,706
Current portion of debt	3,000	3,000
Total current portion of debt, net	3,000	3,000
Long-term debt, net	510,301	507,706
Convertible Debenture Notes
Debt Instrument [Line Items]
Total debt	231,676	229,382
2021 Credit Agreement
Debt Instrument [Line Items]
Total debt	$ 297,000	$ 297,750

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Long Term Debt - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands			3 Months Ended
	Feb. 08, 2021	Dec. 19, 2019	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021	Dec. 09, 2016
Debt Instrument [Line Items]
Loss on debt extinguishment				$ 7,257
Debt amount, balance due			$ 528,676		$ 527,132
First Lien Facility
Debt Instrument [Line Items]
Initial term loan borrowing						$ 340,000
Term loan maturity date			Dec. 09, 2022
Second Lien Facility
Debt Instrument [Line Items]
Initial term loan borrowing						$ 125,000
Term loan maturity date			Dec. 09, 2023
Convertible Debentures Due 2024 [Member]
Debt Instrument [Line Items]
Debt principal amount		$ 200,000
Term loan maturity date		Dec. 19, 2024
Debt amount, balance due			$ 231,676		$ 229,382
Debt interest rate in cash		4.00%
Debt interest rate in kind		4.00%
Debt periodic payment			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.
Percentage of amount will add to principal amount			3.00%
Principal amount of debt redeemed		100.00%
Debt conversion price per share		$ 18
Percentage of principal amount paid in event of default			25.00%
Term Loans and Delayed Draw Term Loans [Member]
Debt Instrument [Line Items]
Floor interest rate	1.00%
Revolving Credit Facility [Member] | 2016 Credit Agreement [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity			$ 30,000
Loan maturing date			Jun. 09, 2022
Loss on debt extinguishment				$ 7,300
Letter of Credit [Member] | 2021 Credit Agreement [Member]
Debt Instrument [Line Items]
Revolving credit loans			$ 600
Revolving Credit Loans [Member] | 2021 Credit Agreement [Member]
Debt Instrument [Line Items]
Available borrowing capacity			$ 39,400
2021 Credit Agreement [Member]
Debt Instrument [Line Items]
Debt principal amount	$ 300,000
Delayed draw term loans	50,000
Debt instrument, maturity description			The Initial Term Loans, Delayed Draw Term Loans and Revolving Credit Loans are each scheduled to mature on the earlier of February 8, 2026 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.
Debt instrument, closing fees	$ 8,000
2021 Credit Agreement [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt instrument, net leverage ratio	7.00
2021 Credit Agreement [Member] | Minimum [Member]
Debt Instrument [Line Items]
Debt instrument, net leverage ratio	1.00
2021 Credit Agreement [Member] | Term Loans and Delayed Draw Term Loans [Member]
Debt Instrument [Line Items]
Loans amortize rate	1.00%
Quarterly installment	$ 800
2021 Credit Agreement [Member] | Adjusted Eurocurrency Rate [Member] | Term Loans and Delayed Draw Term Loans [Member]
Debt Instrument [Line Items]
Loan variable interest rate	6.50%
2021 Credit Agreement [Member] | Base Rate [Member] | Term Loans and Delayed Draw Term Loans [Member]
Debt Instrument [Line Items]
Loan variable interest rate	5.50%
2021 Credit Agreement [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Revolving credit loans	$ 40,000
2021 Credit Agreement [Member] | Revolving Credit Facility [Member] | Adjusted Eurocurrency Rate [Member]
Debt Instrument [Line Items]
Loan variable interest rate	4.00%
2021 Credit Agreement [Member] | Revolving Credit Facility [Member] | Base Rate [Member]
Debt Instrument [Line Items]
Loan variable interest rate	3.00%
2021 Credit Agreement [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Revolving credit loans	$ 10,000
2021 Credit Agreement [Member] | Revolving Credit Loans [Member]
Debt Instrument [Line Items]
Revolving credit loans	$ 40,000

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Equity Incentive Plan - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2022 USD ($) Installment $ / shares shares	Mar. 31, 2021 USD ($) $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation	$ 1,062,000	$ 978,000
Performance Based Restricted Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation	$ 0	0
Vesting maximum number of annual installments | Installment	3
Time-Based Restricted Stock Units | Non Employee Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation	$ 200,000	$ 200,000
Options granted | shares	0	0
Time-Based Restricted Stock Units | Maximum [Member] | Non Employee Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	3 years
Time-Based Restricted Stock Units | Minimum [Member] | Non Employee Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	1 year
2019 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Percentage of share increase	5.00%
Common stock options authorized under plan | shares	11,760,678
Common stock options available for issuance | shares	2,713,118
Options granted | shares	1,130,850
2019 Plan [Member] | Time Based Vesting Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	3 years
Weighted average fair value granted | $ / shares	$ 2.55	$ 1.79
Stock-based compensation	$ 1,100,000	$ 1,000,000.0
Unrecognized stock-based compensation expense	$ 6,200,000
Unrecognized stock-based compensation expense, period	2 years
2019 Plan [Member] | Time Based Vesting Stock Option [Member] | Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expiration period	10 years

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Equity Incentive Plan - Schedule of Stock Option Activity Under 2019 Plan (Detail) - 2019 Plan [Member] - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended	12 Months Ended
		Mar. 31, 2022	Dec. 31, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options outstanding, beginning balance		5,093,682
Options granted		1,130,850
Options forfeited		(27,829)
Options expired		(24,633)
Options outstanding, ending balance		6,172,070	5,093,682
Options vested and exercisable		2,777,689
Options vested and expected to vest		6,172,070
Weighted average exercise price, beginning balance		$ 8.34
Weighted average exercise price, granted		6.00
Weighted average exercise price, forfeited		8.29
Weighted average exercise price, expired		8.48
Weighted average exercise price, ending balance		7.91	$ 8.34
Weighted average exercise price, vested and exercisable		8.32
Weighted average exercise price, vested and expected to vest		$ 7.91
Weighted average remaining contractual term, balance		8 years 4 months 24 days	8 years 4 months 24 days
Weighted average remaining contractual term, vested and exercisable		7 years 10 months 24 days
Weighted average remaining contractual term, vested and expected to vest		8 years 4 months 24 days
Aggregate intrinsic value, beginning balance	[1]	$ 5	$ 24
Aggregate intrinsic value, vested and exercisable	[1]	5
Aggregate intrinsic value, vested and expected to vest	[1]	$ 5

[1] Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying Common Stock and the exercise price of outstanding in-the-money options.

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Equity Incentive Plan - Schedule of Additional Information on Stock Option Grants And Vesting (Detail) - 2019 Plan [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total fair value of stock options granted	$ 2,884	$ 2,125
Total fair value of options vested	$ 609	$ 18

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Equity Incentive Plan - Summary of Valuation Models of Fair Value of Awards Granted To Employees and Non-Employees Under 2019 Plan (Detail)	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected volatility	27.00%		27.00%
Expected term (in years)	2 years 11 months 8 days		2 years 11 months 8 days
Dividend yield	0.00%		0.00%
Risk free interest rate	0.96%		0.96%
2019 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected volatility	42.90%	44.61%
Expected term (in years)	6 years	6 years
Dividend yield	0.00%	0.00%
Risk free interest rate	1.62%	0.70%

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Equity Incentive Plan - Stock Based Compensation Expense Included In Condensed Consolidated Statements of Comprehensive Loss (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 1,062	$ 978
Cost of Revenues [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	351	342
General and administrative [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	408	396
Research and development [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	103	64
Sales and marketing [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 200	$ 176

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Equity Incentive Plan - Schedule of RSUs Activity for Performance-based RSUs Awarded to Employees Under 2019 Plan (Detail) - 2019 Plan [Member] - Restricted Stock Units [Member]	3 Months Ended
	Mar. 31, 2022 shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning balance	1,513,892
Granted	13,889
Vested - non-employee director awards	(16,667)
Forfeited	(12,986)
Ending balance	1,498,128

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Equity - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Class Of Stock [Line Items]
Common stock, shares authorized	200,000,000		200,000,000
Common stock, par value	$ 0.0001		$ 0.0001
Preferred stock, shares authorized	1,000,000		1,000,000
Preferred Stock, per share	$ 0.0001		$ 0.0001
Common stock, voting rights	one vote for each share
Common stock, shares issued	0	0
Exercise price	$ 11.50
Closing sale price of company's common stock	$ 6.80		$ 6.80
Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Description of warrants	Each Warrant entitles the holder to purchase one share of Common Stock for $11.50 per share. If Private Warrants are 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.
Exercise price	$ 11.50
Warrants expiration date	Dec. 19, 2024
Sale price of common stock	$ 18.00
Number of business days	3 days
Pivotal Acquisition Corp. [Member] | Minimum [Member]
Class Of Stock [Line Items]
Number of trading days	20 days
Pivotal Acquisition Corp. [Member] | Maximum [Member]
Class Of Stock [Line Items]
Number of trading days	30 days
Pivotal Acquisition Corp. [Member] | Common Stock [Member]
Class Of Stock [Line Items]
Number of securities eligible for each warrant	1
Pivotal Acquisition Holdings LLC [Member]
Class Of Stock [Line Items]
Recapitalization transaction (in shares)	550,000
Number of consecutive trading days	20 days
Reverse merger transaction, sale of common stock description	On December 19, 2019, in connection with the consummation of the Business Combination, 550,000 shares of Common Stock held by Pivotal Acquisition Holdings LLC were subjected 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 the Company’s financial statements and continue to be subject to the additional lockup as of March 31, 2022.
Closing stock price period	5 years
Forfeited amount	$ 0
Pivotal Acquisition Holdings LLC [Member] | Minimum [Member]
Class Of Stock [Line Items]
Closing sale price of company's common stock	$ 15.00
Pivotal Acquisition Holdings LLC [Member] | Maximum [Member]
Class Of Stock [Line Items]
Closing sale price of company's common stock	$ 15.00
Public Warrants [Member] | Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Warrants outstanding	23,000,000
Exercise price	$ 0.01
Public Warrants [Member] | Pivotal Acquisition Corp. [Member] | Maximum [Member]
Class Of Stock [Line Items]
Minimum prior written notice period	30 days
Private Warrants [Member] | Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Warrants outstanding	6,350,000

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Tax Disclosure [Abstract]
Income tax provision	$ 355	$ 616
Effective tax rate	(4.30%)	(4.20%)

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Commitments and Contingencies - Additional Information (Detail) $ in Millions	Mar. 31, 2022 USD ($) LetterofCredit
Commitments And Contingencies Disclosure [Abstract]
Number of letters of credit | LetterofCredit	2
Letters of credit as additional security for lease guarantees | $	$ 0.6

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Related Parties - Additional Information (Detail) - MGG Investment Group [Member] - Debentures [Member] - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Related Party Transaction [Line Items]
Debt instrument outstanding	$ 115.8
Interest expense, related party	$ 3.4	$ 3.1

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Subsequent Events - Additional Information (Detail) - Subsequent Event [Member] - 2019 Plan [Member] - Performance Based Restricted Stock Units [Member]	Apr. 07, 2022 shares
Subsequent Event [Line Items]
Units issued	463,000
Vesting period	3 years