S-1/A 1 d141813ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on September 20, 2021

No. 333-259299

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 1 FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Allvue Systems Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   7372   86-2770454

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

396 Alhambra Circle 11th Floor

Coral Gables, FL 33134

Telephone: (305) 901-7060

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Mark Heimbouch

Chief Executive Officer

396 Alhambra Circle 11th Floor

Coral Gables, FL 33134

Telephone: (305) 901-7060

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Robert M. Hayward, P.C.
Robert E. Goedert, P.C.

Michael P. Keeley
Kirkland & Ellis LLP
300 North LaSalle Street
Chicago, IL 60654
(312) 862-2000

  Michael Kaplan
Roshni Banker Cariello
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450 4000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  

If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

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

 

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.

 

 

Title of Each Class of
Securities to be Registered
  Amount to be
Registered(1)
  Proposed Maximum
Offering Price per
Share (2)
  Proposed
Maximum
Aggregate
Offering Price(1)(2)
 

Amount of

Registration Fee

Class A Common Stock, par value $0.0001 per share

 

17,595,000

 

$19.00

 

$334,305,000

 

$36,472.68(3)

 

 

 

(1)

Includes the aggregate offering price of shares of Class A common stock subject to the underwriters’ option to purchase additional shares of Class A common stock.

(2)

Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933.

(3)

$10,910 previously paid.

 

 

The registrant hereby amends this Registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities nor a solicitation of an offer to buy these securities in any jurisdiction where the offer and sale is not permitted.

 

Subject to Completion. Dated September 20, 2021

15,300,000 Shares

 

LOGO

Class A Common Stock

This is the initial public offering of shares of Class A common stock of Allvue Systems Holdings, Inc., par value $0.0001 per share. Allvue Systems Holdings, Inc. is offering 15,300,000 shares of its Class A common stock to be sold in the offering.

Prior to this offering, there has been no public market for the Class A common stock of Allvue Systems Holdings, Inc. It is currently estimated that the initial public offering price per share will be between $17.00 and $19.00. Allvue Systems Holdings, Inc. has applied to list its Class A common stock on the New York Stock Exchange (“NYSE”) under the symbol “ALVU.”

Allvue Systems Holdings, Inc. has two authorized classes of common stock: Class A and Class V (together, the “common stock”). Holders of the Class A common stock and Class V common stock are each entitled to one vote per share. All holders of Class A common stock and Class V common stock will vote together as a single class except as otherwise required by applicable law or our certificate of incorporation. Holders of Class V common stock do not have any right to receive dividends or distributions upon the liquidation or winding up of Allvue Systems Holdings, Inc.

Allvue Systems Holdings, Inc. will use the net proceeds from this offering to purchase newly-issued units (“LLC Units”) in Bluefin Topco, LLC (“Topco LLC”). The purchase price for the LLC Units will be equal to the initial public offering price of the shares of Class A common stock less the underwriting discounts and commissions referred to below. Topco LLC will use the net proceeds it receives from Allvue Systems Holdings, Inc. in connection with this offering as described in “Use of Proceeds.” Upon completion of this offering, Allvue Systems Holdings, Inc. will own 50,132,966 LLC Units representing a 57.1% economic interest in Topco LLC, and Allvue Systems Holdings, Inc. will be the sole managing member of Topco LLC and will exclusively operate and control all of its business and affairs. The existing owners of Topco LLC will hold the remaining 46,362,139 LLC Units (consisting of vested and unvested Class A Units and Class B Units, each as defined below) representing a 42.9% economic interest in Topco LLC, and a number of shares of Class V common stock equal to the number of Class A Units held by existing owners. LLC Units are, from time to time, exchangeable for shares of our Class A common stock or, at our election, in the case of the Class A Units for cash from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). Allvue Systems Holdings, Inc. will be a holding company, and upon consummation of this offering and the application of the net proceeds therefrom, its sole asset will be direct and indirect interests in Topco LLC. Immediately following this offering, the holders of Class A common stock will collectively own 100% of the economic interests in Allvue Systems Holdings, Inc. and have 58.8% of the voting power of Allvue Systems Holdings, Inc. The existing owners of Class A Units in Topco LLC, through ownership of our Class V common stock, will have the remaining 41.2% of the voting power of Allvue Systems Holdings, Inc.

Allvue Systems Holdings, Inc. is an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, has elected to comply with certain reduced public company reporting requirements for this prospectus and expects to continue to do so in future filings.

Investing in our Class  A common stock involves risks. See “Risk Factors” beginning on page 28 to read about factors you should consider before investing in shares of our Class A common stock.

Immediately after this offering, certain affiliates of Vista (as defined herein), after giving effect to this offering and assuming an offering size set forth above, will beneficially own approximately 67.2% of the voting power of our common stock. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the NYSE. See “Management—Controlled Company Status” and “Principal Shareholders.”

 

 

PRICE $         A SHARE

 

 

     Per share      Total  

Initial public offering price

   $                    $                

Underwriting discounts and commissions(1)

   $        $    

Proceeds, before expenses, to Allvue Systems Holdings, Inc.

   $        $    

 

(1)

We have also agreed to reimburse the underwriters for certain FINRA-related expenses in connection with this offering. See “Underwriting” for additional information regarding underwriting compensation.

We have granted the underwriters an option to purchase up to an additional 2,295,000 shares of Class A common stock from us at the initial public offering price less the underwriting discounts and commissions for a period of 30 days after the date of this prospectus.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The underwriters expect to deliver shares of Class A common stock against payment in New York, New York on or about                 , 2021 through the book-entry facilities of the Depositary Trust Company.

 

  Joint Bookrunners  
Goldman Sachs & Co. LLC   Barclays   Credit Suisse
Deutsche Bank Securities   RBC Capital Markets   Truist Securities
  Co-Managers  

 

Piper Sandler       Stifel

 

Cabrera Capital

Markets LLC

 

CastleOak Securities, L.P.

 

C.L. King &

Associates

 

Mischler Financial Group, Inc.

 

Telsey Advisory

Group

 

 

Prospectus dated                     , 2021.


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LOGO

Our Mission To empower superior investment decisions


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LOGO

Allvue A new standard in technology for investment managers with cloud-based solutions for: Capital Raising Sourcing & Execution Managing Investments Back Office & Investor Portal


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LOGO

20 of the top 25 collateralized loan obligation managers by AUM >23 fund administrators Allvue EMPOWERING SUPERIOR INVESTMENT DECISIONS ~147 private equity and venture capital firms >15 global commercial banks >9,000 LPs interact with our platform via our GP clients 31% 2020 Annual Recurring Revenue Growth ~111mm 2020 Revenue ~400 Clients ~114% 2020 Net Dollar Retention ~$45mm 2020 Net Loss ~14,000 Individual Users Note: Client metrics as of June 30, 2021.


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LOGO

The Allvue solution simplifies end-to-end process across asset classes and client types Allvue General Partners Limited Partners Fund Administrators, Banks Private Equity Venture Capital Real Estate Private Debt Infrastructure Fixed Income Capital Raising Sourcing & Execution Managing Investments Back Office & Investor Portal Software Solutions Data Strategy Aggregate ● Analyze ● Consume ● Act


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     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     28  

FORWARD-LOOKING STATEMENTS

     84  

USE OF PROCEEDS

     87  

DIVIDEND POLICY

     88  

CAPITALIZATION

     89  

DILUTION

     91  

SELECTED CONSOLIDATED FINANCIAL DATA

     93  

UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

     95  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     106  

BUSINESS

     140  

ORGANIZATIONAL STRUCTURE

     158  

MANAGEMENT

     172  

EXECUTIVE COMPENSATION

     181  

PRINCIPAL SHAREHOLDERS

     194  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     198  

DESCRIPTION OF CERTAIN INDEBTEDNESS

     201  

DESCRIPTION OF CAPITAL STOCK

     207  

SHARES ELIGIBLE FOR FUTURE SALE

     216  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

     219  

UNDERWRITING

     224  

LEGAL MATTERS

     234  

EXPERTS

     234  

WHERE YOU CAN FIND MORE INFORMATION

     234  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

 

 

Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission (“SEC”). We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions and under circumstances where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.

For investors outside of the United States, neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.

Through and including                , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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BASIS OF PRESENTATION

In connection with the consummation of this offering, we will effect certain organizational transactions. Unless otherwise stated or the context otherwise requires, all information in this prospectus reflects the consummation of the organizational transactions and this offering, which we refer to collectively as the “Organizational Transactions.” See “Organizational Structure” for a description of the Organizational Transactions and a diagram depicting our anticipated structure after giving effect to the Organizational Transactions, including this offering.

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “our business,” “the Company” and “Allvue” refer to and similar references refer: (1) on or following the consummation of the Organizational Transactions, including this offering, to Allvue Systems Holdings, Inc. and its consolidated subsidiaries, including Topco LLC and its consolidated subsidiaries, and (2) prior to the consummation of the Organizational Transactions, including this offering, to Topco LLC and its consolidated subsidiaries. The term “Vista” refers to Vista Equity Partners, our principal shareholder, and the term “Topco LLC” refers to Bluefin Topco, LLC.

We will be a holding company and the sole managing member of Topco LLC and, upon consummation of this offering and the application of net proceeds therefrom, our sole asset will be equity interests in Topco LLC held directly and indirectly through the Blocker Entity (as defined below). Topco LLC is the predecessor of the issuer, Allvue Systems Holdings, Inc., for financial reporting purposes. Allvue Systems Holdings, Inc. will be the reporting entity following this offering.

Allvue Systems Holdings, Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this prospectus. Allvue Systems Holdings, Inc. will have no interest in any operations other than those of Topco LLC and its consolidated subsidiaries. Accordingly, this prospectus contains the historical financial statements of Topco LLC and its consolidated subsidiaries. The unaudited pro forma consolidated financial data of Allvue Systems Holdings, Inc. presented in this prospectus has been derived from the application of pro forma adjustments to the historical consolidated financial statements of Topco LLC and its subsidiaries included elsewhere in this prospectus. These pro forma adjustments give effect to the Organizational Transactions as described in “Organizational Structure,” including the consummation of this offering and other related transactions, as if all such transactions had occurred on June 30, 2021, in the case of the unaudited pro forma condensed balance sheet and January 1, 2020, in the case of the unaudited pro forma consolidated statements of operations. See “Unaudited Pro Forma Consolidated Financial Data” for a complete description of the adjustments and assumptions underlying the unaudited pro forma consolidated financial data included in this prospectus.

Topco LLC was formed in 2019 to serve as a holding company in connection with Vista’s acquisition of Black Mountain Systems, LLC (“Black Mountain”) on July 1, 2019 (the “Black Mountain Acquisition”). As Topco LLC did not have any previous operations, Black Mountain is viewed as the predecessor to Topco LLC and its consolidated subsidiaries. Accordingly, this prospectus includes certain historical consolidated financial and other data for Black Mountain for periods prior to the completion of the Black Mountain Acquisition. The financial information for the period after July 1, 2019 represents the consolidated financial information of Topco LLC and its consolidated subsidiaries, including Black Mountain, which is referred to as the “Successor” company. Prior to July 1, 2019, the consolidated financial statements include the accounts of Black Mountain and its subsidiaries, which is referred to herein as the “Predecessor” company. References to the “Successor 2019 Period” refer to the period from July 1, 2019 through December 31, 2019, following the Black Mountain Acquisition. References to the “Predecessor 2019 Period” refer to the period from January 1, 2019 through June 30, 2019, prior to the Black Mountain Acquisition.

 

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As a result of the Black Mountain Acquisition, which is discussed further in Note 7 to our audited consolidated financial statements included herein, Topco LLC was determined to be the accounting acquirer and Black Mountain’s historical assets and liabilities are reflected at fair value as of July 1, 2019, the closing date of the Black Mountain Acquisition. As a result of the Black Mountain Acquisition, the results of operations and financial position of the Predecessor and Successor are not directly comparable.

On September 6, 2019, Vista, through its ownership in Topco LLC, acquired Vertice Technologies, LLC, which was formerly known as AltaReturn and is referred to herein as “AltaReturn.” As of January 1, 2020, Black Mountain changed its name to Allvue Systems, LLC (“Allvue”) and AltaReturn was merged into Allvue.

MARKET AND INDUSTRY DATA

Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research.

Certain information in the text of this prospectus is contained in independent industry publications. The sources of these independent industry publications are provided below:

 

   

Preqin, Preqin Special Report: The Future of Alternatives 2025, November 2020;

 

   

PitchBook Data, Inc., Data on Commercial Banks, January 2021;

 

   

PitchBook Data, Inc., Data on Large investment Banks, January 2021;

 

   

PitchBook Data, Inc., Data on Top U.S. Pension Funds, January 2021;

 

   

PitchBook Data, Inc., Data on Top U.S. Endowments, January 2021; and

 

   

CreditFlux, Two roads diverged in the CLO wood, November 2019.

We have not had this information verified by any independent sources. The independent industry publications used in this prospectus were not prepared on our behalf. While we are not aware of any misstatements regarding any information presented in this prospectus, forecasts, assumptions, expectations, beliefs, estimates and projects involve risk and uncertainties and are subject to change based on various factors, including those described under the headings “Forward-Looking Statements” and “Risk Factors.”

TRADEMARKS, SERVICE MARKS AND TRADENAMES

This prospectus includes our trademarks, service marks and trade names, such as “Allvue,” which are the property of the Company or its subsidiaries. This prospectus also contains trademarks, service marks and trade names of other companies which are the property of their respective owners. Solely for convenience, trademarks, service marks and trade names referred to in this prospectus may appear without the ®, SM or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names. We do not intend our use or display of the trademarks, service marks or trade names of other parties to imply a relationship with, or endorsement of, these other parties.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our Class A common stock. For a more complete understanding of us and this offering, you should read and carefully consider the entire prospectus, including the more detailed information set forth under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes. Some of the statements in this prospectus are forward-looking statements. See “Forward-Looking Statements.” Unless otherwise stated, this prospectus assumes no exercise of the underwriters’ option to purchase additional shares.

Our Mission

Our mission is to empower superior investment decisions.

Company Overview

Allvue sets a new standard in technology for investment managers in the private capital and credit markets by pairing modern cloud-based software solutions with capabilities across multiple asset classes. Our software solutions serve the entire investment lifecycle and are seamlessly integrated to provide a comprehensive product suite. We serve investment managers of all sizes worldwide, including general partners (“GPs”), limited partners (“LPs”), fund administrators and banks. We believe our software solutions allow our clients to operate and grow their businesses more effectively by automating manual processes, improving data accuracy and consistency across workflows and delivering enhanced analytics.

Within the broader investment management industry, our software solutions currently focus on alternative asset classes and credit markets, which include private equity, venture capital, real estate, private debt, infrastructure and fixed income. Alternative asset classes have experienced significant growth and increased allocations of capital from investors in recent years. According to Preqin, a leading provider of industry data, the alternative investments industry has approximately $11 trillion in assets under management (“AUM”) as of December 31, 2020, which has grown at an approximately 10.2% compound annual growth rate (“CAGR”) over the preceding decade.

As the investment management industry continues to grow, and as firms continue to extend into alternative asset classes, we believe there will be heightened demand for modern technology solutions driven by increased regulatory requirements, demands for transparency from investors and a need for modern technology equipped to support the investment workflow for multiple asset classes across the full investment lifecycle. Many investment managers currently rely on a patchwork of in-house manual systems, highly inefficient workflows and multiple disparate third-party vendors to serve their needs. We believe these legacy solutions are cumbersome, without meaningful scale and are unable to provide sufficient oversight or insights for an increasingly complex industry.

Our deep understanding of the investment management industry has allowed us to develop highly scalable software solutions tailored to address the key challenges and complexity faced by our clients. We provide clients with a modern alternative to their legacy systems, which we believe enhances their ability to distill data and uncover insights and, in turn, fosters more informed investment decisions. Our cloud-based software solutions deliver automation, accuracy, consistency and efficiency for multiple asset classes across our clients’ workflows. We seek to help our clients improve workflows throughout the investment lifecycle, enable deeper relationships with their investors and prospects and allow them to focus on data analysis instead of data collection.


 

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Our cloud-based software solutions automate and enhance investment management workflows across the investment lifecycle and across multiple asset classes, as shown in the graphic below.

 

LOGO

We define the investment lifecycle as having three stages, but some or all of these stages may be happening concurrently. During capital raising, we support our clients by allowing them to track potential capital providers or investors, gain relationship insights and organize their data (i.e. our Investor Management solution). During sourcing and execution, we support our clients as they search, analyze and execute potential investments (i.e. our Pipeline Management, Research Management, Trade Order Management and Compliance solutions). During the investment management phase, we support our clients by automating manual processes, monitoring performance and investment-risk exposures and providing high quality analytics (i.e. our Portfolio Management, Portfolio Monitoring, Performance Attribution, Fund Finance and Business Intelligence solutions). Across the full end-to-end investment lifecycle, we provide clients with integrated software solutions to support their back office and investor portals (i.e. our Fund Accounting, Investment Accounting, Corporate Accounting and Investor Portal solutions). All of our software solutions are seamlessly integrated and leverage proprietary and third-party data to deliver valuable insights.

Our intuitive and modern user interfaces enables our clients to integrate different functions, automate manual workflows and visualize their data. Leveraging Application Programming Interfaces (“APIs”), our technology seamlessly integrates with our clients’ existing systems. Our clients can drive competitive differentiation from the extensive proprietary data insights accessible through our software solutions. Simply put, we believe we drive mission critical end-to-end workflows for our clients, which creates strong loyalty to our solutions.

Our cloud-based software solutions provide investment managers of all sizes worldwide, including GPs, LPs, investment managers, fund administrators and banks, the ability to effectively grow and scale their businesses. Our industry recognition is exemplified by our blue-chip client base of approximately 400 investment managers as of June 30, 2021, including:

 

   

20 of the top 25 collateralized loan obligation managers by AUM;

 

   

Approximately 147 private equity and venture capital firms;

 

   

Over 23 fund administrators; and


 

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Over 15 global commercial banks.

Across these approximately 400 clients, we charge subscription fees for over 14,000 individual users relying on our software solutions to execute their day-to-day activities, including portfolio management, technology, investment analysis, operations, trading, investor relations, risk and compliance among others.

The breadth of our network goes far beyond the clients that we serve today. Each of our GP clients interacts with their investors via our investor portal software solutions (“Investor Portal software solutions”), creating value as more investors are added to our platform. These investors may not currently be our clients, but the interaction of our GP clients with their investors via our Investor Portal software solutions enhances the industry recognition of our software solutions and contributes to the wealth of data on our platform. In total, we estimate that over 9,000 LPs interact with our platform via our GP clients, including the following LPs as of June 30, 2021:

 

   

19 out of 25 of the largest global insurance companies by AUM;

 

   

91 of the 100 largest endowments by AUM;

 

   

44 of the 50 largest US pension plans by AUM; and

 

   

24 of the 25 largest investment consultants by AUM.

Across these over 9,000 LPs, approximately 90,000 individual users access our solutions. These users are not charged fees directly, as access is provided through their GPs’ subscriptions. These users access, share and analyze data on their investments through our Investor Portal software solutions.

We believe our competitive advantage is demonstrated in our 96.5% and 97.3% Gross Dollar Retention Rate and 115.2% and 113.9% Net Dollar Retention Rate as of June 30, 2021 and December 31, 2020, respectively. Our Gross Dollar Retention Rate measures our success in retaining recurring revenue from existing clients, which we calculate as the Annualized Recurring Revenue (“ARR”) recorded as of the first day of the applicable trailing-twelve-month reporting period less the ARR lost from customer cancellation during the applicable trailing-twelve-month reporting period (the numerator), divided by the ARR as of the first day of the applicable trailing-twelve-month reporting period (the denominator). Our Gross Dollar Retention Rate reflects only client cancellations and does not reflect expanded adoption or decreased utilization of our solutions by our existing clients. In addition, our Net Dollar Retention Rate measures our ability to increase revenue across our existing client base through expanded use of our platform, offset by clients whose subscription contracts with us are not renewed or renew at a lower amount. We calculate our Net Dollar Retention Rate as of the end of a trailing-twelve-month reporting period by measuring ARR as of the last day of the applicable trailing-twelve-month reporting period from clients with associated ARR as of the first day of the applicable trailing-twelve-month reporting period (the numerator), divided by ARR as of the first day of the applicable trailing-twelve-month reporting period (the denominator). Our Net Dollar Retention Rate provides insight into the impact of expanding adoption of our solutions by our existing clients on our subscription revenue during the applicable trailing-twelve-month period.

We aim to be the market-leading provider of cloud-based software solutions for the investment management industry. Key pillars of our growth strategy include deepening relationships with existing clients, growing our client base, broadening our geographical presence, continuing to innovate and add new software solutions and pursuing acquisitions. We continue to invest in our sales force and technology capabilities to capture these growth opportunities.


 

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We have a recurring subscription-based revenue model that results in a powerful combination of growth and profitability. For the six months ended June 30, 2021, total subscription revenue represented approximately 83.4% of our total revenue. Total subscription revenue represented approximately 76.1% of our total revenue for the year ended December 31, 2020. Our subscription-based revenue model charges our clients a fee that is primarily based on the number of users on our platform and the number of modules purchased from our end-to-end product suite. We may consider a client’s size, range of asset classes and other factors in determining per user fees. We also charge clients additional fees for implementation and consulting related to initial installation and ongoing services, respectively.

Our ARR, which we define as the annualized value of all recurring contracts as of the end of a defined period, grew 31.4% as of June 30, 2021 compared to the end of the prior year-period. Our ARR grew 30.6% as of December 31, 2020 compared to the prior year-end. For the six months ended June 30, 2021, our Net Loss Margin was approximately 29.3%, and we generated approximately 16.4% Adjusted EBITDA margin for the same period. Our Net Loss Margin was approximately 40.5% in the year ended December 31, 2020, and we generated approximately 16.9% Adjusted EBITDA margin for the same period.

For the six months ended June 30, 2021, our total revenue was $71.3 million and our total subscription revenue was $59.5 million, or 83.4% of total revenue. For the year ended December 31, 2020, our total revenue was $111.3 million and our total subscription revenue was $84.6 million, or 76.1% of total revenue. In order to advance our leadership position in the investment technology industry, we have made significant investments in our software platform and sales and marketing organization, and incurred a net loss of $20.9 million and $45.1 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively. For additional information on our financial results and key metrics, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

Our History

Allvue was formed in September 2019, with the merger of Black Mountain and AltaReturn, two leading providers of investment technology solutions. Black Mountain was founded in 2007 and developed innovative, configurable software solutions capable of handling the complexities associated with private credit assets. AltaReturn was founded in 2008 to power mission-critical functions and address reporting needs of the private equity industry through software solutions, including some of the most successful GPs, LPs, investment managers and fund administrators in the world. Both Black Mountain and AltaReturn were founded by industry veterans who had worked at legacy solutions providers.

This collective industry experience and focus on innovative software solutions remain core differentiators of Allvue today. We believe we have benefitted from capabilities across multiple asset classes, a larger client base, increased breadth of software solutions and sophistication of technology. This has allowed us to better serve our clients and foster our leadership position in the investment technology industry. Together, we offer an integrated solution, backed by a singular go-to-market approach, that can be tailored across our four core client types today.

Industry Background

Investment management is a large and growing industry. Investors are increasing allocations to alternative asset classes, leading to significant AUM growth. According to Preqin, a leading provider of


 

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industry data, the global alternative investments industry AUM has grown at an approximately 10.2% CAGR over the last decade and Preqin forecasts that it will continue to grow at an approximately 9.8% CAGR from 2020 through 2025. Preqin also reported that among public pension funds, the median allocation to alternative asset classes increased from approximately 18% as of December 31, 2010 to approximately 30% as of August 31, 2020. In addition, approximately 80% of institutional investors surveyed by Preqin in August 2020 responded that they plan to increase their allocation to alternative asset classes by 2025. These figures include AUM in private equity, private debt, real estate, infrastructure, natural resources and hedge funds asset classes, which include many of the asset classes that we currently serve. Allocations to alternative asset classes grow as investors seek diversification and potentially higher returns compared to traditional asset classes.

As the investment management industry continues to grow, investment managers face increased complexity and competition, combined with increasing levels of regulatory oversight. In addition to sustaining and improving performance in their current strategies, investment managers need to manage additional asset classes, enhance reporting for their investors and improve efficiencies throughout their workflow. In response to these challenges, many investment managers are increasing their investment in technology to make their operations more client focused, automated and agile. We believe the investment technology industry is currently fragmented, with many investment managers using disparate internal systems and legacy external solutions to address the specific needs of their businesses. In addition, many legacy solutions only address certain aspects of managers’ workflows instead of providing a comprehensive solution. As illustrated below, we believe there is currently a disparate ecosystem of investment managers, asset classes, critical workflows and third-party stakeholders in the industry.

 

LOGO

The key trends affecting the investment management industry include:

 

   

Growth in alternative investments AUM;

 

   

Need for efficiency and scalability;

 

   

Increasing complexity of investment strategies;

 

   

Shift in technology toward integrated solutions;


 

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Adoption of cloud-based solutions;

 

   

Demand for data and insights; and

 

   

Increasing global regulatory complexities.

Our Market Opportunity

Investment managers spend substantial time and resources to develop and maintain internal processes and workflows. We believe there is a significant opportunity to disrupt this market by replacing in-house technology and workflows, such as paper and spreadsheets, with our cloud-based software solutions. By utilizing our end-to-end integrated solutions, investment managers can focus more resources on generating high quality investment returns for their investors.

We estimate that our current total addressable market (“TAM”), representing the portion of technology spend that can be targeted by our software solutions, is approximately $8 billion globally. To estimate our total addressable market, we categorized the investment management industry into client types we target and sourced the number of firms per type from data prepared by Preqin, PitchBook and CreditFlux. These client types included GPs, LPs, investment managers, fund administrators and banks and represent approximately 40,000 current and prospective clients in total. We then estimated average spend per client for our software solutions, accounting for different client sizes, and multiplied the price per client by the total number of firms in each client type, both in the United States and globally. Our assumed pricing represents historical data points from our suite of software solutions and assumes that clients use the maximum number of our software solutions. Our market opportunity is only based on our estimations for recurring subscription revenue and excludes impact of professional services.

In addition, we believe there is an adjacent opportunity to new solutions leveraging existing datasets, such as asset level financial and performance data on investments and funds across multiple asset classes. We believe that our data opportunity presents an additional addressable market of approximately $2 billion based on private capital markets spend, bringing our estimate of TAM to approximately $10 billion.

The Allvue Advantage

The investment management industry currently suffers from outdated workflows driven by fragmented legacy infrastructure. Investment managers need to analyze data from disparate solutions across multiple asset classes, connect with their own clients and portfolio companies and integrate third-party information from other market participants. We believe there is a significant opportunity to disrupt the status quo and provide cloud-based software solutions across asset classes and client types.

We believe our software solutions provide us with a competitive advantage by helping our clients overcome the limitations of existing systems to solve the challenges of the current investment management industry. Key components of our competitive advantage include:

 

   

Deep domain expertise.    We possess deep, industry-specific domain expertise, developed over more than ten years of experience serving investment managers. This enables us to offer a broad range of software solutions embedded with smart, intuitive pre-built functionality, designed to meet the precise use case requirements of our clients. We continue to address the


 

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various and evolving needs of our clients across multiple asset classes. We believe our clients benefit from the domain expertise embedded in our technology, such as our protocols to address the ongoing London interbank offered rate (“LIBOR”) transition impacting the investment management industry.

 

   

Modern cloud-based platform.    Our software solutions are built on a cloud-based platform to serve our clients effectively. We deliver open and extensible software with APIs, capable of integrating market and proprietary data, including connections with over 100 third-party data providers. With a user interface designed for ease, speed and accuracy, both technical and non-technical clients can tailor our software solutions to meet their needs. Our software solutions are built on a combination of third-party and proprietary technologies to provide a cloud-based solution for our clients. We continuously and efficiently deliver updates to our cloud-based software solutions.

 

   

Integrated end-to-end solutions covering the full investment lifecycle.    Our comprehensive suite of software solutions is designed to meet the full range of our clients’ needs throughout the full investment lifecycle. We provide a seamlessly integrated set of software solutions for our clients’ end-to-end workflows. Our solutions can also be used modularly to augment specific capabilities within clients’ existing workflows. We believe we will continue to update existing software solutions and launch new software solutions, allowing our clients to continue to improve their workflows consistently.

 

   

Flexible technology platform.    Our software solutions are designed to meet the most complex and sophisticated technology needs of the largest investment managers, but are also flexible to cost-effectively serve the needs of smaller investment managers. Our clients include a broad range of investment managers across GPs, LPs, investment managers, fund administrators and banks.

 

   

Data management and insights to enable better decision-making.    We enable our clients to use data as a strategic asset by helping our clients create a centralized repository for data across their workflows. When using our software solutions, clients can efficiently gather insights on portfolio investments, funds, potential opportunities and their own business. Our reporting software solutions allow our clients to visualize data and disseminate proprietary insights to internal decision makers and external stakeholders. Our software solutions are agnostic to data sources, leveraging clients’ internal and third-party data sources. We continue to invest in our data warehouse to better collect and leverage proprietary and third-party data.

Our company was founded on the belief that the investment management industry was not being adequately serviced by in-house solutions or legacy technology providers. We prioritize building our own technology and investing in engineering talent, as we believe these are enduring competitive advantages that are difficult to replicate. As of June 30, 2021, approximately 35% of our employees were in research and development-related roles, reflecting the emphasis we place on our technology. We also have an additional team dedicated to professional services, ensuring that our software solutions are successfully implemented.

Our Solutions and Technology Platform

Our software solutions serve an end-to-end range of workflows across the full investment lifecycle. Our software solutions aim to help our clients make better investment decisions, enable deeper relationships with their investors and prospects and allow them to focus on data analysis instead of data collection. Our clients leverage our software solutions either individually for specific


 

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workflows or as a combined suite to manage the full end-to-end investment lifecycle. Our suite includes the following software solutions as shown below:

 

LOGO

Our cloud-based proprietary software solutions are supported by a modern architecture with deep technology leadership across the organization. Our technology is robust, flexible and capable of serving multiple client types across multiple asset classes. Our cloud-based platform allows our software solutions to be easily upgraded as new features are developed. Our platform does not require constant re-engineering and we can deploy our platform across a broad spectrum of use cases and scales, including adding new data sources efficiently.

We provide our software solutions via two hosted cloud providers, Amazon Web Services (“AWS”) and Microsoft Azure (“Azure”). Certain of our clients use our software solutions via our on-premise delivery model, due to legacy contracts or bespoke implementations. We are currently working with our on-premise clients to migrate to our cloud-based software solutions, which will enhance usability and upgradeability for these clients. We believe that these few on-premise clients will migrate to our cloud-based software solutions, subject to timing of contract renewals and other factors, without experiencing material disruption.

Our open and extensible platform is capable of integrating market and proprietary data though APIs. Seamless integration between our software solutions provides a central repository for our clients’ data across their end-to-end workflows. At the front of our software solutions is a modern and intuitive interface, allowing both technical and non-technical clients to tailor our software solutions to meet their needs.

Our Growth Strategy

We believe we have a significant market opportunity and we are investing to execute our growth strategy. We have increased our sales force and are working with third-party solution providers such as integrators and consultants to continue to grow our client base. In addition, we are investing in our technology team and capabilities to enhance our existing solutions and develop new innovations to serve industry needs.


 

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We intend to extend our position as a leading provider of cloud-based software solutions for the investment management industry. The key components of our growth strategy are:

 

   

Deepening relationships with our existing clients.    We have deep engagement with our clients, with many using multiple solutions to empower their investment decisions, as evidenced by our strong Net Dollar Retention Rate of 115.2% and 113.9% as of June 30, 2021 and December 31, 2020, respectively. We intend to expand upon our track record of success with our existing clients to cross-sell and up-sell additional software solutions. We already have a strong land-and-expand track record that has deepened relationships with our existing clients.

 

   

Growing our client base.    We believe there is a significant opportunity to continue to grow our client base across the investment management industry. Our client base of approximately 400 investment managers as of June 30, 2021 represents a small portion of potential clients both in North America and globally. We are continuing to enhance our go-to-market strategy and sales team, exemplified by our sales and marketing expense of $12.3 million and $13.2 million in the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

 

   

Broadening our geographical presence.    We believe there is significant need for our software solutions globally, providing an opportunity for us to grow through further international expansion. We are currently establishing a local team to serve the Asia Pacific (“APAC”) market and believe there is potential for longer-term expansion in Europe, Middle East and Africa regions (“EMEA”) and additional geographies.

 

   

Expanding network effects.    We believe there are significant potential network effects as more investment managers join our platform. We currently serve over 14,000 individual users and approximately 90,000 non-client LP users, fostering a broad network of relationships and information on our platform. We believe the following network effects may continue to drive increased adoption of our software solutions:

 

   

Certain LPs may ask their GPs to use our software solutions in order to enhance the flow of information regarding their investments.

 

   

Certain GPs may ask their fund administrators to use our software solutions so their back-office accounting platforms are more integrated with the GPs’ front office software solutions.

 

   

Certain banks may ask borrowers to use our software solutions to minimize document flow and streamline communication.

 

   

Continuing to innovate and add new software solutions.    We have made significant investments in research and development and intend to continue to do so. We recorded research and development expenses of $12.8 million and $21.1 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, representing approximately 17.9% and 18.9% of our total revenue for the respective periods. We are focused on enhancing the functionality and breadth of our current software solutions as well as developing and launching new software solutions to address the evolving needs of investment managers. For example, in the year ended December 31, 2020 we launched the new LP Portfolio Management software solution, which allows us to reach new LP clients.

 

   

Developing new data solutions.    We believe there is an opportunity to provide new solutions leveraging existing datasets, such as data on investments and funds across multiple asset classes. This opportunity leverages our existing capabilities in reporting, accounting and monitoring. We already collect extensive data on funds and investments, which we believe is more detailed and granular than data collected by our competitors.


 

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Pursuing acquisitions.    We have successfully integrated complementary businesses to enhance our software solutions and technology capabilities, including the merger of Black Mountain and AltaReturn in September 2019 to form Allvue. Following the acquisition, we were able to retain clients at a 96.5% and 97.3% Gross Dollar Retention Rate as of June 30, 2021 and December 31, 2020, respectively, amid the coronavirus (“COVID-19”) pandemic. We intend to further pursue targeted acquisitions that complement our product capabilities, provide us access to new markets or expand our addressable client segments.

Summary of Risks Associated with Our Business, This Offering and Our Class A Common Stock

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors.” The following is a summary of the principal risks we face.

 

   

The COVID-19 pandemic could materially adversely affect our business, operating results, financial condition and prospects.

 

   

We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.

 

   

We rely on the ability to hire and retain our personnel and the loss of one or more key employees or an inability to attract and retain highly skilled employees could adversely affect our business.

 

   

Because we recognize subscription revenue over the term of the contract, downturns or upturns in our business may not be reflected in our results of operations until future periods.

 

   

Our business is subject to seasonal sales, client growth fluctuations and subscription renewal fluctuations, which could result in volatility in our operating results some of which may not be immediately reflected in our financial position and results of operations.

 

   

We face significant competition that may adversely affect our ability to add new clients, retain existing clients and grow our business.

 

   

If the market for cloud-based alternative investment software technology develops more slowly than we expect or changes in a way that we fail to anticipate, our sales would suffer and our results of operations would be adversely affected.

 

   

Our strategy to develop and introduce new products and services exposes us to risks such as limited client acceptance, costs related to product defects, and large expenditures, each of which may result in no additional net revenue or decreased net revenue.

 

   

If we are unable to attract new clients, continue to broaden our existing clients’ use of our solution, or expand our sales capabilities, our revenue growth will be adversely affected.

 

   

Future acquisitions and divestitures could harm our business and operating results.

 

   

If we are unable to develop, introduce and market new and enhanced versions of our solutions or to scale our business and manage our expenses, our operating results may suffer.

 

   

We may fail to successfully expand internationally or fail to successfully operate our offices located outside of the United States, including in the Ukraine. In addition, sales to clients outside the United States or with international operations expose us to risks inherent in international sales, which may include a marked increase in expenses.

 

   

Adverse general and industry-specific economic and market conditions and reductions in IT spending may reduce demand for our solutions, which could harm our results of operations.


 

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We face risk if our estimates of market opportunity and forecasts of market growth prove to be inaccurate or if we need to change our pricing to compete successfully.

 

   

We invest significantly in research and development, and to the extent our research and development investments do not translate into new solutions or material enhancements to our current solutions or if we do not use those investments efficiently, our business and results of operations would be harmed.

 

   

Our large clients have substantial negotiating leverage, which could harm our results of operations.

 

   

If we fail to maintain, enhance or protect our brand, our ability to expand our client base will be impaired and our business, financial condition and results of operations may suffer.

 

   

Our relatively limited operating history as a combined business makes it difficult to evaluate our current business and prospects and may increase the risk that we will not be successful.

 

   

We face risk related to catastrophes, disruptions, capacity limitations or interference with our use of the data centers operated by third-party providers or if there are interruptions or performance problems associated with our technology or infrastructure, all of which could result in delays or outages of our service and harm our business.

 

   

Failure to obtain, maintain, protect and enforce our proprietary technology and other intellectual property and proprietary rights could substantially harm our business, operating results and financial condition.

 

   

A breach or compromise of our security measures or those we rely on could result in unauthorized access to clients’ data, which may materially and adversely impact our reputation, business and results of operations.

 

   

We may be subject to claims that our employees or related parties have wrongfully used or disclosed alleged trade secrets or other confidential information of their current or former employers or other third parties or claims asserting ownership of what we regard as our own intellectual property rights.

 

   

Real or perceived errors, failures or bugs in our solutions, hosting, support or implementation could adversely affect our business, results of operations, financial condition and growth prospects.

 

   

We may encounter implementation challenges, including in situations in which we rely on systems integrators (“SIs”), which would materially and adversely affect our business and results of operations.

 

   

Any failure to offer high-quality support could cause our business and reputation to suffer.

 

   

Changes in tax laws, privacy laws or regulations that are applied adversely to us or our clients may cause our business, cash flow, financial condition or results of operations to suffer.

 

   

Any future litigation against us could damage our reputation and be costly and time-consuming to defend.

 

   

The other factors set forth under “Risk Factors.”

These and other risks are more fully described in the section entitled “Risk Factors” in this prospectus. If any of these risks actually occur, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, you could lose all or part of your investment in our Class A common stock.


 

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Our Principal Shareholder

We have a valuable relationship with our principal shareholder, Vista. In connection with this offering, we will enter into a director nomination agreement (the “Director Nomination Agreement”) with Vista that provides Vista the right to designate nominees to our board of directors (our “Board”), subject to certain conditions.

The Director Nomination Agreement will provide Vista the right to designate (i) all of the nominees for election to our Board for so long as Vista beneficially owns common stock entitled to vote generally in the election of directors representing 40% or more of the aggregate number of shares of Class A and Class V common stock outstanding upon completion of this offering, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split or similar changes in the Company’s capitalization (the “Original Amount”); (ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Vista beneficially owns at least 30% and less than 40% of the Original Amount; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for so long as Vista beneficially owns at least 20% and less than 30% of the Original Amount; (iv) a number of directors (rounded up to the nearest whole number) equal to 20% of the total directors for so long as Vista beneficially owns at least 10% and less than 20% of the Original Amount; and (v) one director for so long as Vista beneficially owns at least 5% and less than 10% of the Original Amount. In each case, Vista’s nominees must comply with applicable law and stock exchange rules. See “Certain Relationships and Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

Vista is a leading global investment firm with more than $75 billion in assets under management as of June 30, 2021. The firm exclusively invests in enterprise software, data and technology-enabled organizations across private equity, permanent capital, credit and public equity strategies, bringing an approach that prioritizes creating enduring market value for the benefit of its global ecosystem of investors, companies, clients and employees. Vista’s investments are anchored by a sizable long-term capital base, experience in structuring technology-oriented transactions and proven, flexible management techniques that drive sustainable growth. Vista believes the transformative power of technology is the key to an even better future—a healthier planet, a smarter economy, a diverse and inclusive community and a broader path to prosperity.

General Corporate Information

Our principal executive offices are located at 396 Alhambra Circle, 11th Floor, Coral Gables, Florida 33134. Our telephone number is (305) 901-7060. Our website address is www.allvuesystems.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our Class A common stock. We are a holding company and all of our business operations are conducted through, and substantially all of our assets are held by, our subsidiaries.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the date on which


 

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we are deemed to be a large accelerated filer (this means the market value of common that is held by non-affiliates exceeds $700.0 million as of the end of the second quarter of that fiscal year), or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);

 

   

only being required to present two years of audited financial statements, plus unaudited condensed financial statements for any interim period, and related management’s discussion and analysis of financial condition and results of operations;

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

We have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements and executive compensation in this prospectus and expect to elect to take advantage of other reduced burdens in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We are electing to take advantage of this extended transition period for complying with new or revised accounting standards provided for by the JOBS Act. We will therefore comply with new or revised accounting standards when they apply to private companies. As a result, our financial statements may not be comparable with companies that comply with public company effective dates for accounting standards.

Ownership and Organizational Structure

Allvue Systems Holdings, Inc. is a Delaware corporation formed to serve as a holding company that will hold an interest in Topco LLC. Allvue Systems Holdings, Inc. has not engaged in any business or other activities other than in connection with its formation and this offering. Upon consummation of this offering and the application of the proceeds therefrom, we will be a holding company, our sole assets will be equity interests in Topco LLC (held directly and indirectly through the Blocker Entity (as defined below)) and we will exclusively operate and control all of the business and affairs and consolidate the financial results of Topco LLC. See “Organizational Structure” for a complete description of the Organizational Transactions.

In connection with the Organizational Transactions:

 

   

We will amend and restate Topco LLC’s existing operating agreement (the “LLC Operating Agreement”) to, among other things, (i) modify Topco LLC’s capital structure by replacing the membership interests currently held by providing for LLC Units consisting of two classes of


 

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common ownership interests in Topco LLC (Class B common units held by certain current and former employees and consultants subject to vesting and certain participation thresholds (“Class B Units”), and Class A common units held by the other Topco LLC owners, including Allvue Systems Holdings, Inc. and Vista (“Class A Units” and together with the Class B Units, referred to as “LLC Units” herein)) and (ii) appoint Allvue Systems Holdings, Inc. as the sole managing member of Topco LLC. See “Organizational Structure—Amended and Restated Operating Agreement of Topco LLC.”

 

   

We will engage in a series of transactions (the “Unit Exchanges”) that will result in LLC Unitholders (as defined below) who currently own less than 150 Class A Units in Topco LLC (the “Designated Unitholders”) receiving 158,762 shares of our Class A common stock, in the aggregate, in exchange for all of their Class A Units in Topco LLC.

 

   

Bluefin Blocker, Inc. (the “Blocker Entity”), through which Vista holds a portion of its ownership interests in Topco LLC, will engage in a series of transactions (the “Blocker Contribution”) that will result in the Blocker Entity becoming a subsidiary of Allvue Systems Holdings, Inc. As a result of such transactions, Vista will exchange all of its equity interests in the Blocker Entity for shares of our Class A common stock and enter into the Tax Receivable Agreement (as defined below). See “Use of Proceeds.”

 

   

We will amend and restate the certificate of incorporation of Allvue Systems Holdings, Inc. to, among other things, provide for Class A common stock and Class V common stock. See “Description of Capital Stock.”

 

   

We will issue shares of Class V common stock, which provide no economic rights, to certain holders of Class A Units on a one-to-one basis with the number of Class A Units owned by such holders, for nominal consideration. Each share of our Class V common stock entitles its holder to one vote on all matters to be voted on by shareholders generally. See “Description of Capital Stock—Class V common stock.”

 

   

We will enter into an exchange agreement (the “Exchange Agreement”) with the direct holders of LLC Units (other than the Blocker Entity) (the “LLC Unitholders”) pursuant to which the holders of Class A Units may exchange their Class A Units, together with an equal number of shares of Class V common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). The Exchange Agreement will also provide that holders of fully vested Class B Units may exchange their Class B Units for a number of shares of Class A common stock equal to the then current value of a share of Class A common stock less the participation thresholds of such Class B Units multiplied by the number of fully vested Class B Units being exchanged, divided by the then current value of Class A common stock. See “Organizational Structure—Exchange Agreement.”

 

   

We will enter into a tax receivable agreement (the “Tax Receivable Agreement”) with the LLC Unitholders that will require us to pay to such persons 85% of the amount of cash savings, if any, in U.S. federal, state and local income taxes (computed using simplifying assumptions to address the impact of state and local taxes) we actually realize (or, under certain circumstances are deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the Tax Receivable Agreement, as discussed below) as a result of (i) Basis Adjustments (as defined below) resulting from exchanges of LLC Units for shares of our Class A common stock or cash in the future, (ii) certain tax attributes of the Blocker Entity, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into


 

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the Tax Receivable Agreement, including tax benefits attributable to payments that we are required to make under the Tax Receivable Agreement. See “Organizational Structure—Tax Receivable Agreement.”

We estimate that the net proceeds to us from the sale of our Class A common stock in this offering, after deducting underwriting discounts and commissions and estimated expenses payable by us, will be approximately $247.0 million (approximately $285.4 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full), based on an assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). We intend to use such net proceeds to acquire 15,300,000 newly-issued LLC Units in Topco LLC at a purchase price per LLC Unit equal to the initial offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

In turn, Topco LLC intends to apply the balance of the net proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares of Class A common stock) to (i) repay all of our outstanding indebtedness under the First Lien Term Loan Facility (as defined below), under which $162.5 million was outstanding and which had an interest rate of 4.09% as of June 30, 2021, (ii) repay all of our outstanding indebtedness under the Second Lien Term Loan Facility (as defined below), under which $75.0 million was outstanding and which had an interest rate of 7.84% as of June 30, 2021, (iii) repay all of our outstanding indebtedness under our Revolving Credit Facility, under which no borrowings were outstanding as of June 30, 2021 but under which a total of $15.1 million of borrowings were outstanding and which had an interest rate of 4.1% as of August 31, 2021 as a result of borrowings subsequent to June 30, 2021, (iv) pay expenses incurred in connection with this offering and the other Organizational Transactions and (v) for general corporate purposes. See “Use of Proceeds.”

The diagram below depicts our historical organizational structure prior to the completion of the Organizational Transactions. This diagram is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us, or owning a beneficial interest in us.

 

LOGO

 

(1)

The LLC Unitholders other than Vista collectively own approximately 29.4% of the equity interests of Topco LLC. Other than the Designated Unitholders, all of these investors will continue to hold their equity interest in Topco LLC upon completion of this offering.


 

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The diagram below depicts our expected organizational structure immediately following completion of the Organizational Transactions and this offering. This diagram is provided for illustrative purposes only and does not purport to represent all legal entities owned or controlled by us, or owning a beneficial interest in us.

 

LOGO

 

(1)

Upon completion of this offering, Vista will own 23.4% of the equity of Topco LLC and the remaining LLC Unitholders will collectively own the remaining 24.6% of the equity in Topco LLC not held directly or indirectly by Allvue Systems Holdings, Inc. See “Principal Shareholders” for additional information about Vista and other LLC Unitholders that will beneficially own more than 5% of our outstanding shares of Class V common stock following the completion of this offering. In addition to Vista, our existing owners include a limited number of third parties that have invested in Class A Units, as well as certain of our executive officers and other employees who have been issued Class B Units that are subject to time- or performance-based vesting requirements, with a weighted average participation threshold of $10.68 per unit. See “Executive Compensation—Topco LLC Management Incentive Units” for a discussion of the participation thresholds.

(2)

Upon completion of this offering, Vista will control approximately 67.2% (or approximately 65.5% if the underwriters exercise their option to purchase additional shares of Class A common stock in full) of the voting power in Allvue Systems Holdings, Inc. through its ownership of our Class A common stock and Class V common stock. See “Principal Shareholders” for additional information about Vista.

(3)

The Designated Unitholders will receive an aggregate 158,762 shares of our Class A common stock in connection with the Unit Exchanges.

(4)

Shares of Class A common stock and Class V common stock will vote as a single class except as otherwise required by law or our certificate of incorporation. Each outstanding share of Class A common stock and Class V common stock will be entitled to one vote on all matters to be voted on by shareholders generally. The Class V common stock does not have any right to receive dividends or distributions upon the liquidation or winding up of Allvue Systems Holdings, Inc. In accordance with the Exchange Agreement to be entered into in connection with the Organizational Transactions, the holders of Class A Units may exchange their Class A Units,


 

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  together with an equal number of shares of Class V common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). The Exchange Agreement will also provide that holders of fully vested Class B Units may exchange their Class B Units for a number of shares of Class A common stock equal to the then current value of a share of Class A common stock less the participation thresholds of such Class B Units multiplied by the number of fully vested Class B Units being exchanged, divided by the then current value of Class A common stock.
(5)

Assumes no exercise of the underwriters’ option to purchase additional shares of Class A common stock. If the underwriters exercise their option to purchase additional shares of Class A common stock in full, (i) the holders of Class A common stock other than Vista will have 20.3% of the voting power in Allvue Systems Holdings, Inc., (ii) Vista, through its ownership of our Class A common stock and Class V common stock, will have 65.5% of the voting power of Allvue Systems Holdings, Inc., (iii) the LLC Unitholders, including Vista, will own 46.9% of the outstanding LLC Units in Topco LLC and (iv) Allvue Systems Holdings, Inc. will own 53.1% of the outstanding LLC Units in Topco LLC.

Our corporate structure following the offering, as described above, is referred to as an “Up-C” structure, which is commonly used by partnerships and limited liability companies when they undertake an initial public offering of their businesses. Our Up-C structure will allow the existing owners (other than the Designated Unitholders) of Topco LLC to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the offering. One of these benefits is that future taxable income of Topco LLC that is allocated to such owners will be taxed on a flow-through basis and therefore will not be subject to corporate taxes at the entity level. Additionally, because the LLC Units that the existing owners (other than the Designated Unitholders) will continue to hold are exchangeable for shares of our Class A common stock or, at our option, for cash, the Up-C structure also provides the existing owners (other than the Designated Unitholders) of Topco LLC potential liquidity that holders of non-publicly traded limited liability companies are not typically afforded. See “Organizational Structure” and “Description of Capital Stock.”

Following this offering, each of the existing owners of Topco LLC Class A Units (other than the Designated Unitholders) will also hold a number of shares of our Class V common stock equal to the number of Class A Units they own. Holders of our Class A common stock and Class V common stock will each be entitled to one vote per share on all matters on which shareholders are entitled to vote.

Allvue Systems Holdings, Inc. will also hold LLC Units, and therefore receive benefits on account of its ownership in an entity treated as a partnership, or “pass-through” entity, for income tax purposes because, as Allvue Systems Holdings, Inc. acquires LLC Units in exchange for shares of our Class A common stock or cash in the future under the mechanism described above, it will obtain a step-up in tax basis in its share of the assets of Topco LLC and its flow-through subsidiaries. This step-up in tax basis will provide Allvue Systems Holdings, Inc. with certain tax benefits, such as future depreciation and amortization deductions that can reduce its taxable income. Pursuant to the Tax Receivable Agreement, Allvue Systems Holdings, Inc. will be required to pay the LLC Unitholders, collectively, 85% of the value of these tax benefits, certain tax attributes of the Blocker Entity, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and certain other tax benefits related to entering into the Tax Receivable Agreement, including tax benefits attributable to payments that Allvue Systems Holdings, Inc. makes under the Tax Receivable Agreement; however, the remaining 15% of such benefits will be available to Allvue Systems Holdings, Inc. Due to the uncertainty of various factors, the payments that we may be required to make under the Tax Receivable Agreement to the


 

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LLC Unitholders may be significant and are dependent upon sufficient taxable income to fully utilize the potential future tax benefits that are subject to the Tax Receivable Agreement. See “Organizational Structure—Tax Receivable Agreement.”

Generally, Allvue Systems Holdings, Inc. will receive a pro rata share of any distributions (including tax distributions) made by Topco LLC to its members. However, pursuant to the LLC Operating Agreement, tax distributions will be made quarterly by Topco LLC to the holders of Class A Units (including Allvue Systems Holdings, Inc.) on a pro rata basis based on Topco LLC’s net taxable income and to the holders of Class B Units based on such holder’s allocable share of Topco LLC’s net taxable income (rather than on a pro rata basis). Such tax distributions will be calculated based upon an assumed tax rate, which, under certain circumstances, may cause Topco LLC to make tax distributions that, in the aggregate, exceed the amount of taxes that Topco LLC would have paid if it were a similarly situated corporate taxpayer. Funds used by Topco LLC to satisfy its tax distribution obligations will not be available for reinvestment in our business. See “Risk Factors—Risks Related to Our Organizational Structure.”

As a result of the Organizational Transactions:

 

   

the investors in this offering will collectively own 15,300,000 shares of our Class A common stock and we will hold 50,132,966 Class A Units in Topco LLC;

 

   

the holders of Class A Units will own 35,086,096 Class A Units and 35,086,096 shares of Class V common stock;

 

   

the holders of Class B Units subject to time-based vesting will own 9,235,096 Class B Units with a weighted average participation threshold of $10.55.

 

   

the holders of Class B Units subject to performance-based vesting will own 2,040,945 Class B Units with a weighted average participation threshold of $11.24, which fully vest if our principal shareholder achieves a specified total equity return multiple;

 

   

our Class A common stock will collectively represent approximately 58.8% of the voting power in us; and

 

   

our Class V common stock will collectively represent approximately 41.2% of the voting power in us.


 

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The Offering

 

Issuer

Allvue Systems Holdings, Inc.

 

Class A common stock offered by us

15,300,000 shares (or 17,595,000 shares if the underwriters’ option is exercised in full).

 

Underwriters’ option to purchase additional shares of Class A common stock

We have granted the underwriters an option to purchase up to 2,295,000 shares of Class A common stock from us within 30 days of the date of this prospectus.

 

Class A common stock to be outstanding immediately after this offering

50,132,966 Shares of Class A common stock (or 52,427,966 shares of Class A common stock if the underwriters’ option is exercised in full). If all outstanding Class A Units and fully vested Class B Units were exchanged for newly-issued shares of Class A common stock, 87,803,831 shares of Class A common stock (or 90,098,831 shares of Class A common stock if the underwriters’ option is exercised in full) would be outstanding.

 

Class V common stock to be outstanding immediately after this offering

35,086,096 shares. Immediately after this offering, holders of Class A Units will own 100% of the outstanding shares of our Class V common stock.

 

Ratio of shares of Class A common stock to LLC Units

Our amended and restated certificate of incorporation and the amended and restated operating agreement of Topco LLC will require that we and Topco LLC at all times maintain a one-to-one ratio between the number of shares of Class A common stock issued by us and the number of LLC Units owned by us (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).

 

Voting

Each share of our Class A common stock entitles its holder to one vote on all matters to be voted on by shareholders generally.

 

  Each share of our Class V common stock entitles its holder to one vote on all matters to be voted on by shareholders generally.

 

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  After this offering, the holders of Class A Units will hold a number of shares of Class V common stock equal to the number of Class A Units held by such holders. See “Description of Capital Stock—Class V Common Stock.”

 

  Holders of our Class A common stock and Class V common stock vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law or our certificate of incorporation.

 

Voting power held by holders of Class A common stock

58.8% (or 100% if all outstanding Class A Units were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

Voting power held by holders of Class V common stock

41.2% (or 0% if all outstanding Class A Units were exchanged for newly-issued shares of Class A common stock on a one-for-one basis).

 

Use of proceeds

We estimate, based upon an assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we will receive net proceeds from this offering of approximately $247.0 million (or $285.4 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

  We intend to use such net proceeds to acquire 15,300,000 newly-issued LLC Units (or 17,595,000 LLC Units if the underwriters exercise their option to purchase additional shares in full) in Topco LLC at a purchase price per LLC Unit equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

 

 

In turn, Topco LLC intends to apply the balance of the net proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares of Class A common stock) to repay indebtedness, pay expenses incurred in connection with this offering and the


 

20


Table of Contents
 

other Organizational Transactions and for general corporate purposes.

 

  See “Use of Proceeds” and “Organizational Structure.”

 

Controlled company

After this offering, assuming an offering size as set forth in this section, Vista will control approximately 67.2% of the voting power (or 65.5% of our Class A common stock if the underwriters’ option to purchase additional shares of Class A common stock is exercised in full) in us through its ownership of our Class A common stock and Class V common stock. As a result, we expect to be a controlled company within the meaning of the corporate governance standards of the NYSE. See “Management—Controlled Company Status.”

 

Dividend policy

We currently intend to retain any future earnings for investment in our business and do not expect to pay any dividends on our Class A common stock in the foreseeable future. Holders of our Class V common stock are not entitled to participate in any cash dividends declared by our board of directors. The declaration and payment of all future dividends, if any, will be at the discretion of our Board and will depend upon our financial condition, earnings, contractual conditions or applicable laws and other factors that our Board may deem relevant. As discussed under “Dividend Policy,” it is possible that we will receive distributions from Topco LLC significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. While our Board may choose to distribute such cash balances as dividends on our Class A common stock, it will not be required (and does not currently intend) to do so. See “Dividend Policy.”

 

Exchange rights of holders of the LLC Units

Prior to this offering, we will enter into the Exchange Agreement with the LLC Unitholders pursuant to which holders of Class A Units may exchange their Class A Units, together with an equal number of shares of Class V common stock, for shares of Class A common stock on a one-for-one basis or, at our election, for cash from a substantially concurrent public offering or private sale (based on the price of our Class A


 

21


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common stock in such public offering or private sale). Any shares of Class V common stock so delivered will be canceled. The Exchange Agreement will also provide that holders of fully vested Class B Units may exchange their Class B Units for a number of shares of Class A common stock equal to the then current value of a share of Class A common stock less the participation thresholds of such Class B Units multiplied by the number of fully vested Class B Units being exchanged, divided by the then current value of Class A common stock. See “Organizational Structure—Exchange Agreement.”

 

Tax Receivable Agreement

We will enter into the Tax Receivable Agreement with the LLC Unitholders, which will require us to pay to such persons 85% of the amount of tax benefits, if any, that Allvue Systems Holdings, Inc. actually realizes (or in some circumstances is deemed to realize) as a result of (i) Basis Adjustments (as defined below) resulting from exchanges of LLC Units for shares of our Class A common stock or cash in the future, (ii) certain tax attributes of the Blocker Entity, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement. See “Organizational Structure—Tax Receivable Agreement.”

 

Registration Rights Agreement

We intend to enter into a registration rights agreement (the “Registration Rights Agreement”) with certain LLC Unitholders in connection with this offering. The Registration Rights Agreement will provide such LLC Unitholders registration rights whereby, following our initial public offering and the expiration of any related lock-up period, such LLC Unitholder can require us to register under the Securities Act shares of Class A common stock (including shares issuable to them upon exchange of its LLC Units). The Registration Rights Agreement will also provide for piggyback registration rights for certain LLC Unitholders. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

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Directed share program

At our request, the underwriters have reserved up to 765,000 shares of Class A common stock, or 5.0% of the shares of Class A common stock offered pursuant to this prospectus, for sale at the initial public offering price per share through a directed share program, to certain individuals associated with Vista. If purchased by these persons, these shares will not be subject to a lock-up restriction, except to the extent that the purchasers of such shares are otherwise subject to lock-up or market stand-off agreements as a result of their relationships with us. The number of shares available for sale to the general public will be reduced by the number of reserved shares sold to these individuals. Any reserved shares not purchased by these individuals will be offered by the underwriters to the general public on the same basis as the other shares offered pursuant to this prospectus. See “Underwriting.”

 

Risk factors

Investing in our Class A common stock involves a high degree of risk. See “Risk Factors” elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

Symbol for trading on the NYSE

“ALVU.”

Unless otherwise indicated, all information in this prospectus:

 

   

assumes the effectiveness of the Organizational Transactions;

 

   

assumes an initial public offering price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus;

 

   

assumes that the underwriters’ option to purchase additional shares of Class A common stock is not exercised;

 

   

includes a 100-for-1 split of LLC Units;

 

   

excludes the shares of Class A common stock that may be issuable upon the exchange of Class A Units and fully vested Class B Units;

 

   

excludes 9,235,096 Class B Units issued to certain of our executive officers and certain other employees that are subject to time-based vesting, with a weighted average participation threshold of $10.55;

 

   

excludes 2,040,945 Class B Units issued to certain of our executive officers and certain other employees that are subject to performance-based vesting, with a weighted average participation threshold of $11.24, which fully vest if our principal shareholder achieves a specified total equity return multiple. See “Executive Compensation—Topco LLC Management Incentive Units” for a discussion of the participation thresholds;

 

   

excludes 1,704,381 shares of Class A common stock reserved for issuance under our 2021 Employee Stock Purchase Plan (the “ESPP”); and


 

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excludes 8,521,906 shares of Class A common stock reserved for future issuance under the 2021 Plan, including: (i) 1,099,999 restricted stock units (“RSUs”) that may be settled for an equal number of shares of Class A common stock that we will issue to certain employees in connection with the completion of this offering, as described in the section entitled “Executive Compensation—Equity and Cash Incentives—Summary of the 2021 Omnibus Incentive Plan—IPO Grants,” and (ii) 33,332 RSUs that we will issue to certain of our independent directors upon completion of this offering and that vest on the first anniversary of the grant date.


 

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Table of Contents

Summary Historical and Pro Forma Consolidated Financial and Other Data

The following tables present, as of the dates and for the periods indicated, (1) the summary historical consolidated financial and other data for our Predecessor, Black Mountain and its consolidated subsidiaries, (2) the summary historical consolidated financial and other data for our Successor, Topco LLC and its consolidated subsidiaries and (3) the summary unaudited pro forma financial data for Allvue Systems Holdings, Inc. and its consolidated subsidiaries, including Topco LLC. Topco LLC is the predecessor of Allvue Systems Holdings, Inc. for financial reporting purposes. As a result of the Black Mountain Acquisition, the results of operations and financial position of the Predecessor and Successor are not directly comparable. The summary consolidated statement of operations data for the period from January 1 to June 30, 2019 have been derived from the audited consolidated financial statements and notes of Black Mountain and its subsidiaries included elsewhere in this prospectus. The summary consolidated statement of operations data for the period from July 1 to December 31, 2019 and the year ended December 31, 2020 and the summary consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from the audited consolidated financial statements and notes of Topco LLC and its subsidiaries included elsewhere in this prospectus. The summary consolidated statement of operations data for the six months ended June 30, 2020 and 2021 and the summary condensed consolidated balance sheet data as of June 30, 2021 have been derived from the unaudited interim condensed consolidated financial statements and notes of Topco LLC and its subsidiaries included elsewhere in this prospectus.

The results of operations for the periods presented below are not necessarily indicative of the results to be expected for the full year or any future period. The information set forth below should be read together with “Use of Proceeds,” “Capitalization,” “Selected Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

The summary unaudited pro forma consolidated financial data of Allvue Systems Holdings, Inc. presented below have been derived from our unaudited pro forma consolidated financial statements and notes included elsewhere in this prospectus. The summary unaudited pro forma financial data as of June 30, 2021 and for the six months ended June 30, 2021 and for the year ended December 31, 2020 gives effect to the Organizational Transactions as described in “Organizational Structure,” including the consummation of this offering, the use of the net proceeds therefrom and related transactions, as described in “Use of Proceeds” and “Unaudited Pro Forma Consolidated Financial Data,” as if all such transactions had occurred on January 1, 2020, with respect to the statement of operations data, and June 30, 2021, with respect to the consolidated balance sheet data. The unaudited pro forma financial data include various estimates that are subject to material change and may not be indicative of what our operations or financial position would have been had this offering and related transactions taken place on the dates indicated, or that may be expected to occur in the future. The summary unaudited pro forma consolidated financial data of Allvue Systems Holdings, Inc. presented below does not reflect a total of $15.1 million of borrowings under our Revolving Credit Facility as of August 31, 2021 that were borrowed subsequent to June 30, 2020, which amount we intend to repay with a portion of the net proceeds of this offering. See “Unaudited Pro Forma Consolidated Financial Data” for a complete description of the adjustments and assumptions underlying the summary unaudited pro forma consolidated financial data.

The summary historical consolidated financial and other data of Allvue Systems Holdings, Inc. have not been presented, as Allvue Systems Holdings, Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.


 

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    For the
Six
Months
Ended
June 30,

2021
    For the
Six
Months
Ended
June 30,
2020
    Successor     Predecessor     Allvue Systems Holdings, Inc.
Pro Forma
 
    Year Ended
December 31,
2020
    Period from
July 1 to
December 31,
2019
    Period from
January 1
to June 30,
2019
    For the Six
Months Ended
June 30,

2021
    Year ended
December 31,
2020
 
   

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

 

Consolidated Statement of Operations Data:

             

Revenue:

             

Subscription revenue: Cloud-based and maintenance and support

  $ 38,712     $ 26,226     $ 57,194     $ 17,624     $ 10,834     $ 38,712     $ 57,194  

Subscription revenue:
On-premise

    20,783       21,890       27,436       2,761       13,542       20,783       27,436  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total subscription revenue

  $ 59,495     $ 48,116     $ 84,630     $ 20,385     $ 24,376     $ 59,495     $ 84,630  

Professional services revenue

    11,819       14,420       26,627       14,356       11,581       11,819       26,627  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    71,314       62,536       111,257       34,741       35,957       71,314       111,257  

Cost of revenue:

             

Cost of subscription revenue

    10,178       6,920       14,504       3,728       1,528       10,178       14,504  

Cost of professional services revenue

    13,255       11,051       22,118       10,216       7,334       13,255       22,118  

Amortization of developed software

    9,406       9,406       18,812       7,859       350       9,406       18,812  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    32,839       27,377       55,434       21,803       9,212       32,839       55,434  

Gross profit

    38,475       35,159       55,823       12,938       26,745       38,475       55,823  

Operating expenses:

             

General and administrative

    16,589       12,607       27,000       17,037       10,657       19,064       32,550  

Research and development

    12,788       10,492       21,071       12,767       5,030       12,788       21,071  

Sales and marketing

    12,344       5,211       13,239       3,439       2,796       12,344       13,239  

Acquisitions, integration and restructuring expense

    2,526       3,945       7,456       7,310       8,346       2,526       7,456  

Amortization of intangible assets

    7,747       7,670       15,340       6,088       1,499       7,747       15,340  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    51,994       39,925       84,106       46,641       28,328       54,469       89,656  

Operating loss

    (13,519     (4,766     (28,283     (33,703     (1,583     (15,994     (33,833

Interest income

          10       19       4       1             19  

Interest expense

    (6,826     (8,405     (15,419     (5,973     (2,005            

Other expense

    (227     (120     (388     (5     (23     (227     (4,648
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (20,572     (13,281     (44,071     (39,677     (3,610     (16,221     (38,462

Income tax expense

    (309     (490     (979     (436     (375     (309     (979
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (20,881     (13,771   $ (45,050   $ (40,113   $ (3,985     (16,530     (39,441

Other comprehensive income (loss)

    81       (740     377       328       2      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Comprehensive loss

  $ (20,800   $ (14,511   $ (44,673   $ (39,785   $ (3,983    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

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    For the
Six
Months
Ended
June 30,

2021
    For the
Six
Months
Ended
June 30,
2020
    Successor     Predecessor     Allvue Systems Holdings, Inc.
Pro Forma
 
    Year Ended
December 31,
2020
    Period from
July 1 to
December 31,
2019
    Period from
January 1
to June 30,
2019
    For the Six
Months Ended
June 30,

2021
    Year ended
December 31,
2020
 
   

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

 

Net Loss Margin

    29.3     22.0     40.5     115.5     11.1    

Net loss attributable to noncontrolling interests

              (6,840     (16,248

Net loss attributable to Allvue Systems Holdings, Inc.

              (9,690     (23,193

Pro Forma Net Loss Per Share

             

Basic

              (0.20     (0.48

Diluted

              (0.20     (0.48

Pro Forma Number of Shares Used in Computing Net Loss Per Share

             

Basic

              48,479,855       48,171,523  

Diluted

              48,479,855       48,171,523  

Non-GAAP Financial Data:

             

Adjusted EBITDA(2)

  $ 11,729     $ 17,634     $ 18,835     $ (476   $ 10,033      

EBITDA Margin(3)

    16.4     28.2     16.9     (1.4 )%      27.9    

Selected Other Data:

             

ARR as of period end(4)

  $ 100,405     $ 76,402     $ 90,843     $ 69,564     $ 39,789      

Net Dollar Retention Rate as of period end(4)

    115.2     111.2     113.9     110.8      

Consolidated Balance Sheet Data (at period end):

             

Cash

  $ 10,575       $ 9,982     $ 13,780       $ 19,899    

Working capital(5)

    (6,825       1,063       11,845         4,324    

Total assets

    894,163         928,916       946,076         900,897    

Long-term debt, less current portion

    232,571         233,077       234,090            

Total liabilities

    286,671         305,555       280,372         52,275    

Total members’ / stockholders’ equity

  $ 607,492       $ 623,361     $ 665,704       $ 848,622    

 

(1)

See the unaudited pro forma consolidated statement of operations in “Unaudited Pro Forma Consolidated Financial Data” for a description of the assumptions underlying the pro forma net loss per share calculations.

(2)

We define Adjusted EBITDA as net loss before net interest expense, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. For a reconciliation of Adjusted EBITDA to net loss, the most directly comparable measure calculated and presented in accordance with GAAP, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

(3)

Adjusted EBITDA Margin represents Adjusted EBITDA divided by total revenue for the same period. For a reconciliation of Adjusted EBITDA Margin to Net Loss Margin, the most directly comparable measure calculated and presented in accordance with GAAP, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

(4)

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Business Metrics” for more information with respect to ARR and Net Dollar Retention Rate.

(5)

We define working capital as current assets less current liabilities.


 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before making a decision to invest in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our Class A common stock could decline, and you could lose all or part of your investment.

Risks Related to COVID-19

The COVID-19 pandemic could materially adversely affect our business, operating results, financial condition and prospects.

The severity, magnitude and duration of the COVID-19 pandemic is uncertain and rapidly changing. The COVID-19 pandemic has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders and shutdowns. These measures have impacted and may further impact all or portions of our facilities, workforce and operations, the behavior of our clients and the operations of our respective vendors and suppliers. Concern over the impact of COVID-19 has delayed the purchasing decisions of certain prospective clients and/or caused them to consider making smaller purchases than originally anticipated. While governmental authorities have taken measures to try to contain the COVID-19 pandemic, there is considerable uncertainty regarding such measures and potential future measures. There is no certainty that measures taken by governmental authorities will be sufficient to mitigate the risks posed by the COVID-19 pandemic, and our ability to perform critical functions could be harmed.

In response to disruptions caused by the COVID-19 pandemic, we have implemented a number of measures designed to protect the health and safety of our workforce, proactively reduce operating costs, conserve liquidity and position us to maintain our healthy financial position. These measures include restrictions on non-essential business travel, the institution of work-from-home policies wherever feasible and the implementation of strategies for workplace safety at our facilities that remain open. We are following the guidance from public health officials and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines and wearing of masks. We will continue to incur increased costs for our operations during this pandemic that are difficult to predict with certainty. As a result, our future business, operating results, financial condition and prospects may be affected by the COVID-19 disruptions. There is no assurance the measures we have taken or may take in the future will be successful in managing the uncertainties caused by COVID-19.

While most of our operations can be performed remotely, there is no guarantee that we will be as effective while working remotely because our team is dispersed, many employees may have additional personal needs to attend to (such as looking after children as a result of school closures or caring for family members who become sick), and employees may become sick themselves and be unable to work. Decreased effectiveness of our team could adversely affect our results due to our inability to meet in person with potential clients, cancellation and inability to participate in conferences and other industry events that lead to sales generation, longer time periods to review and approve work product and a corresponding reduction in innovation, longer time to respond to platform performance issues, or other decreases in productivity that could seriously harm our business. Significant management time and resources may be diverted from our ordinary business operations in order to develop, implement and manage workplace safety strategies and conditions as we attempt to return to our facilities.

 

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As a result of COVID-19, we may decide to postpone or cancel planned investments in our business in response to changes in our business, or experience difficulties in recruiting or retaining personnel, each of which may impact our ability to respond to our clients’ needs and fulfill contractual obligations. In addition, as a result of financial or operational difficulties, our suppliers, system integrators and channel partners may experience delays or interruptions in their ability to provide services to us or our clients, if they are able to do so at all. This could interrupt our clients’ access to our services, which in turn could adversely affect their perception of our platform’s reliability and result in increased liability exposure. We rely upon third parties for certain critical inputs to our business and platform, such as data centers and technology infrastructure. Any disruptions to services provided to us by third parties that we rely upon to provide our platform, including as a result of actions outside of our control, could significantly impact the continued performance of our platform.

The COVID-19 pandemic has also significantly increased economic and demand uncertainty globally, and has led to record levels of unemployment in the United States. As a result, the COVID-19 pandemic has caused an economic slowdown, and it is possible that it could cause a global recession. This economic uncertainty has led to a general decrease in consumer spending and confidence, as well as an increased focus at state and federal level on budgets and overall spending. Our revenue, results of operations and cash flows depend on the overall demand for our platform. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally), geopolitical issues or the availability and cost of credit have led to increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in turn could result in reductions in IT spending by our existing and prospective clients. Some of our clients have experienced and may continue to experience financial hardships that, to date, have resulted in certain instances of delayed or uncollectible payments from our existing clients, though this could increase in the future. It is unclear when and how quickly the economy will recover after this unprecedented shutdown. All of these factors could have a negative impact on our revenue, cash flows and results of operations.

The severity, magnitude and duration of the COVID-19 pandemic is uncertain, rapidly changing and hard to predict and depends on events beyond our knowledge or control. These and other impacts of the COVID-19 pandemic could have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our reputation, solutions subscription sales, results of operations or financial condition. We may not be able to predict or respond to all impacts on a timely basis to prevent near- or long-term adverse impacts to our results. As a result, we cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, operating results, financial condition and prospects.

Risks Related to Our Business and Strategy

We have a history of cumulative losses, and we do not expect to be profitable for the foreseeable future.

We incurred net losses of $20.9 million, $45.1 million, $40.1 million and $4.0 million in the six months ended June 30, 2021 and in the year ended December 31, 2020, the Successor 2019 Period and the Predecessor 2019 Period, respectively. We had an accumulated deficit of $106.0 million and $85.2 as of June 30, 2021 and December 31, 2020, respectively. Our losses and accumulated deficit reflect the substantial investments we have made to acquire new clients and develop our platform. We expect our operating expenses to increase in the future due to anticipated increases in sales and marketing expenses, research and development expenses, operations costs and general and administrative costs, and, therefore, we expect our losses to continue for the foreseeable future. Furthermore, to the extent we are successful in gaining new clients, we will also incur increased losses because many costs associated with acquiring new clients are generally incurred up front, while

 

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subscription revenue is generally recognized ratably over the terms of the agreements (typically three years, although some clients commit for longer or shorter periods). If we are unable to maintain consistent or increasing revenue or revenue growth, the market price of our common stock could be volatile, and it may be difficult for us to achieve and maintain profitability or maintain or increase cash flow on a consistent basis. Accordingly, we cannot assure you that we will achieve profitability in the future, or that, if we do become profitable, we will sustain profitability or achieve our target margins on a midterm or long-term basis.

We have experienced rapid growth in recent periods, and our recent growth rates may not be indicative of our future growth. As our costs increase, we may not be able to generate sufficient revenue to achieve and, if achieved, maintain profitability.

We have experienced significant revenue growth in recent periods. In future periods, we may not be able to sustain revenue growth consistent with recent history, or at all. We believe our revenue growth depends on a number of factors, including, but not limited to, our ability to:

 

   

price our solutions effectively so that we are able to attract and retain clients without compromising our profitability;

 

   

attract new clients, successfully deploy and implement our solutions, upsell or otherwise increase our existing clients’ use of our solutions, obtain client renewals and provide our clients with excellent client support;

 

   

adequately expand, train, integrate and retain our sales force and other new employees, and maintain or increase our sales force’s productivity;

 

   

enhance our information, training and communication systems to ensure that our employees are well-coordinated and can effectively communicate with each other and clients;

 

   

improve our internal control over financial reporting and disclosure controls and procedures to ensure timely and accurate reporting of our operational and financial results;

 

   

successfully identify and enter into agreements with suitable acquisition targets, integrate any acquisitions and acquired technologies into our existing solutions or use them to develop new solutions;

 

   

successfully introduce new solutions and enhance existing solutions;

 

   

successfully introduce our solutions to new markets outside of the United States;

 

   

successfully compete against larger companies and new market entrants; and

 

   

increase awareness of our brand.

We may not successfully accomplish any of these objectives and, in particular, the COVID-19 pandemic may impact our ability to successfully accomplish any of the above. As a result, it is difficult for us to forecast our future results of operations. Our historical growth rate should not be considered indicative of our future performance and may decline in the future. In future periods, our revenue could grow more slowly than in recent periods or decline for any number of reasons, including those outlined above. We also expect our operating expenses to increase in future periods, particularly as we continue to invest in research and development and technology infrastructure, expand our operations globally, develop new solutions and enhancements for existing solutions and as we begin to operate as a public company. If our revenue growth does not increase to offset these anticipated increases in our operating expenses, our business, financial position and results of operations will be harmed, and we may not be able to achieve or maintain profitability. In addition, the additional expenses we will incur may not lead to sufficient additional revenue to maintain historical revenue growth rates and profitability.

 

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We have expanded our management team significantly in the past two years, and if we lose key members of our management team or are unable to attract and retain executives, key personnel and employees we need to support our operations and growth, our business and future growth prospects may be harmed.

Our future success depends upon our ability to continue to attract, train, integrate and retain highly skilled employees, particularly those on our management team, including Mark Heimbouch, our Chief Executive Officer, and our sales and marketing personnel, professional services personnel, cloud-based solutions personnel and software engineers. Since the completion of the Black Mountain Acquisition in July 2019, we have expanded our management team, including Mark Heimbouch, our Chief Executive Officer who joined us in October 2020, Paul Wasinger, our Chief Financial Officer who joined us in February 2021, James Black, our Chief Operating Officer who joined us in February 2021, Ryan Keough, our Chief Revenue Officer who joined us in September 2019, Brandon Meeks, our Chief Technology Officer who joined us in September 2019 after serving as Black Mountain’s Chief Technology Officer since 2011, Yuriy Shterk, our Chief Product Officer who joined us in March 2020, Deborah Mason, our Chief Legal Officer who joined us in July 2021 and Stephen McKnight our Chief Accounting Officer who joined us in August 2021. The continued integration of the new members of our management team will be critical to our success.

In addition, any potential inability to attract and retain qualified personnel, or delays in hiring necessary personnel, including delays due to COVID-19, may seriously harm our business, results of operations and financial condition. If immigration policy in the U.S. and abroad related to skilled foreign workers were materially adjusted, such a change could hamper our efforts to hire highly skilled employees, including highly specialized engineers, which would adversely impact our business.

Our executive officers and other key employees are generally employed on an at-will basis, which means that these personnel could terminate their relationship with us at any time. The loss of any member of our senior management team could significantly delay or prevent us from achieving our business and/or development objectives, and could materially harm our business.

We face competition for qualified individuals from numerous software and other technology companies. Competition for these personnel is intense, especially for engineers with high levels of experience in designing and developing software for Internet-related services. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or our company have breached their legal obligations, resulting in a diversion of our time and resources.

In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. Further, significant amounts of time and resources are required to train technical, sales, services and other personnel. We may incur significant costs to attract, train and retain such personnel, and we may lose new employees to our competitors or other technology companies before we realize the benefit of our investment after recruiting and training; such employees may divulge proprietary or other confidential information of ours.

Also, to the extent that we hire personnel from competitors, we may be subject to allegations that such personnel have been improperly solicited or have divulged proprietary or other confidential information. In addition, we have a limited number of sales people and the loss of several sales people within a short period of time could have a negative impact on our sales efforts. We may be unable to

 

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attract and retain suitably qualified individuals who are capable of meeting our growing technical, operational and managerial requirements, or we may be required to pay increased compensation in order to do so.

Our ability to expand geographically depends, in large part, on our ability to attract, retain and integrate managers with the appropriate skills to lead local operations and employees. Similarly, our profitability depends on our ability to effectively utilize personnel with the right mix of skills and experience to perform services for our clients, including our ability to transition employees to new assignments on a timely basis. If we are unable to effectively deploy our employees globally on a timely basis to fulfill the needs of our clients, our reputation could suffer and our ability to attract new clients may be harmed.

Because of the technical nature of our solutions and the dynamic market in which we compete, any failure to attract, integrate and retain qualified technical, sales, services and other personnel, as well as our contract workers, could harm our ability to generate sales or successfully develop new solutions and professional services and enhancements of existing solutions.

Our relatively limited operating history as a combined business makes it difficult to evaluate our current business and prospects and may increase the risk that we will not be successful.

Our relatively limited operating history of combined operations makes it difficult to evaluate our current business and prospects and plan for our future growth. We were acquired by Vista in July 2019 and we completed the AltaReturn Acquisition in September 2019. Prior to the AltaReturn Acquisition, we focused primarily on developing innovative, configurable software solutions capable of handling the complexities associated with private credit assets, and AltaReturn focused primarily on powering mission-critical functions and addressing reporting needs of the private equity industry through software solutions. Since the AltaReturn Acquisition, our business model as a combined business has not been fully proven, which subjects us to a number of uncertainties, including our ability to plan for and model future growth. We have encountered and will continue to encounter risks and uncertainties frequently experienced by recently combined companies, including our ability to manage expanding operations, service our clients if our customer base grows substantially, gain customer acceptance of our combined products and services, attract additional clients, withstand increasing competition and manage increasing expenses as we continue to grow our business. If our assumptions regarding these risks and uncertainties are incorrect or change in response to changes in the market for our products and services, our operating and financial results could differ materially from our expectations and our business could suffer.

Our quarterly results fluctuate significantly and may not fully reflect the underlying performance of our business.

Our quarterly results of operations, including the levels of our revenue, gross margin, profitability, cash flow and deferred revenue, have varied significantly and may continue to vary significantly in the future and, accordingly, period-to-period comparisons of our results of operations may not be meaningful. Thus, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may continue to fluctuate as a result of a variety of factors, many of which are outside of our control, and may not fully or accurately reflect the underlying performance of our business. For example, while subscriptions with our clients include multi-year non-cancellable terms, in a limited number of contracts, clients have an option to buy out of the contract for a specified termination fee. If such clients exercise this buy-out option, or if we negotiate an early termination of a contract at a client’s request, any termination fee would be recognized in full at the time of termination, which would favorably affect subscription revenue in that period and unfavorably affect subscription revenue in subsequent periods. Fluctuation in quarterly results may

 

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negatively impact the value of our common stock. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:

 

   

our ability to retain current clients or attract new clients;

 

   

the activation, delay in activation or cancellation of large blocks of users by clients;

 

   

the timing of recognition of professional services revenue;

 

   

the amount and timing of operating expenses related to the maintenance and expansion of our business, operations and infrastructure;

 

   

acquisitions of our clients, to the extent the acquirer elects not to continue using our solution or reduces subscriptions to it;

 

   

client renewal rates;

 

   

increases or decreases in the number of users licensed or pricing changes upon renewals of client contracts;

 

   

network outages or security breaches;

 

   

general economic, industry and market conditions (particularly those affecting investment managers);

 

   

changes in our pricing policies or those of our competitors;

 

   

seasonal variations in sales of our solution subscriptions, which have historically been highest in the fourth quarter of our fiscal year;

 

   

the timing and success of new product introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, clients or strategic partners; and

 

   

the timing of expenses related to the development or acquisition of technologies or businesses and potential future charges for impairment of goodwill from acquired companies.

Because we recognize subscription revenue over the term of the contract, downturns or upturns in our business may not be reflected in our results of operations until future periods.

We generally recognize subscription revenue ratably over the terms of our client contracts, which are generally three-year periods with three-year renewals after the initial term. Most of the subscription revenue we report each quarter is derived from the recognition of deferred revenue relating to subscriptions activated in previous quarters. Consequently, a reduction in activated subscriptions in any single quarter may only have a small impact on our revenue for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales or market acceptance of our solution may not be reflected in our results of operations until future periods.

In addition, most of our on-premise clients renew in the first quarter of the year. Given the timing of renewals, we receive a greater percentage of our annual on-premise license revenue in the first quarter of the year as revenue is recognized at the later of delivery or commencement of the annual license term, as compared to being recognized ratably over the course of the year. Accordingly, our quarterly results may fluctuate significantly. If our quarterly results of operations fall below the expectations of investors and securities analysts who follow our stock, the price of our Class A common stock would decline substantially, and we could face costly lawsuits, including securities class actions.

 

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We may not be able to increase the number of new subscription-based accounts or cause existing accounts to renew their subscriptions, and our predictions about the long-term rate of client subscription renewals or adoption of our solutions may not be accurate, which could have a negative impact on our current and future business, financial condition and results of operations.

Our clients have no obligation to renew their subscriptions for our solution after the expiration of the initial or current subscription term, and our clients, if they choose to renew at all, may renew for fewer users or on less favorable pricing terms. Since the average initial term of our client agreements is generally three-years with three-year renewals after the initial term, and we only began selling our combined software solution in 2019, we have limited historical data with respect to rates of client subscription renewals and cannot be certain of anticipated renewal rates. Our renewal rates may decline or fluctuate as a result of a number of factors, including competitive offerings, our clients’ satisfaction with our pricing or our solution or reductions in account spending levels or account activity due to economic downturns. If our clients do not renew their subscriptions for our solution on similar pricing terms, our revenue may decline and our business could suffer.

Additionally, as the markets for our software solutions develop, we may be unable to attract new clients based on the same subscription model that we have used historically. Moreover, large or influential financial institution clients may demand more favorable pricing or other contract terms from us. As a result, we may in the future be required to change our pricing model, reduce our prices or accept other unfavorable contract terms, any of which could adversely affect our revenue, gross margin, profitability, financial position and cash flow.

The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.

The market for the software we sell is highly competitive with relatively low barriers to entry within certain areas of our product portfolio. Our competitors include comprehensive and point investment software vendors that may have relationships across our diverse client base. Some clients may be hesitant to switch or to adopt our comprehensive cloud-based software solutions and prefer to maintain their existing relationships with their legacy software vendors.

We may also in the future face competition from new entrants to our market, some of whom would be able to invest massive resources to develop a unified platform that competes directly with ours or to acquire one or more of our competitors to compete with us. If existing or new companies develop or market solutions similar to ours, develop an entirely new software platform for alternative investment management sector, acquire one of our existing competitors or form a strategic alliance with one of our competitors or other industry participants, our ability to compete effectively could be significantly impacted, which would have a material adverse effect on our business, results of operations and financial condition.

Our competitors may offer software on a standalone basis at a low price or bundled as part of a larger product sale. In order to take advantage of client demand for cloud-based software, legacy vendors are expanding their cloud-based software through acquisitions and organic development. Legacy vendors may also seek to partner with other leading cloud providers. We also face competition from custom-built software vendors and from vendors of specific applications, some of which offer cloud-based solutions.

We may also face competition from a variety of vendors of cloud-based and on-premise software products that may have some of the core functionality of our solutions but that address only a portion of the capabilities and features of our platform. In addition, other companies that provide cloud-based

 

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software in different target markets may develop software or acquire companies that operate in our target markets, and some potential clients may elect to develop their own internal software. With the introduction of new technologies and market entrants, we expect this competition to intensify in the future.

Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition. In addition, many of our competitors have established marketing relationships, access to larger client bases and major distribution agreements with consultants, system integrators and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources. If our platform does not become more accepted relative to our competitors’, or if our competitors are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically advanced than ours, then our revenue could be adversely affected. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels, our operating results will be negatively affected. Pricing pressures and increased competition could result in reduced sales, reduced margins, losses or a failure to maintain or improve our competitive market position, any of which could adversely affect our business.

If the market for cloud-based alternative investment software technology develops more slowly than we expect or changes in a way that we fail to anticipate, our sales would suffer and our results of operations would be adversely affected.

Use of, and reliance on, cloud-based alternative investment software technology is still at an early stage and we do not know whether investment managers will continue to adopt cloud-based technology such as our solutions in the future, or whether the market will change in ways we do not anticipate. Many investment managers have invested substantial personnel and financial resources in legacy software, and these institutions may be reluctant, unwilling or unable to convert from their existing systems to our solution. Furthermore, these investment managers may be reluctant, unwilling or unable to use cloud-based technology due to various concerns such as the security of their data and reliability of the delivery model. These concerns or other considerations may cause investment managers to choose not to adopt cloud-based technology such as ours or to adopt them more slowly than we anticipate, either of which would adversely affect us. Our future success also depends on our ability to sell additional applications and functionality to our current and prospective clients. As we create new applications and enhance our existing solution, these applications and enhancements may not be attractive to clients. In addition, promoting and selling new and enhanced functionality may require increasingly costly sales and marketing efforts, and if clients choose not to adopt this functionality our business and results of operations could suffer. If investment managers are unwilling or unable to transition from their legacy systems, or if the demand for our solution does not meet our expectations, our results of operations and financial condition will be adversely affected.

Our strategy to develop and introduce new products and services exposes us to risks such as limited client acceptance, costs related to product defects, and large expenditures, each of which may result in no additional net revenue or decreased net revenue.

The software industry is characterized by rapid technological changes as well as changes in client requirements and preferences. In recent years, the industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies. Clients are also reconsidering how they purchase software products, which requires us to constantly evaluate our business model and strategy. In response, we are focused on providing solutions to enable our clients to be more agile and collaborative on their projects. We devote significant resources to the development of new technologies. In addition, we frequently introduce new

 

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business models or methods that require a considerable investment of technical and financial resources, such as our introduction of flexible subscription and service offerings and our transition of multi-subscription plans to named-user plans. It is uncertain whether these strategies, including our product and pricing changes, will accurately reflect client demand or be successful, or whether we will be able to develop the necessary infrastructure and business models more quickly than our competitors. We make such investments through further development and enhancement of our existing products and services, as well as through acquisitions. Such investments may not result in sufficient revenue generation to justify their costs and could result in decreased net revenue or profitability. If we are not able to meet client requirements, either with respect to our software or the manner in which we provide such products, or if we are not able to adapt our business model to meet our clients’ requirements, our business, financial condition or results of operations may be adversely impacted.

In particular, a component of our growth strategy is to have clients of our on-premises products transition their portfolios to include our other offerings and cloud-based functionality. However, the transition to our cloud-based solutions may require extensive time and coordination with our clients, and some of our clients may choose to terminate their contracts or choose not to renew their subscriptions. Our executive management team must continuously act quickly and with vision, given the rapidly changing client expectations and technology advancements inherent in the software industry, the extensive and complex efforts required to create useful and widely accepted products, and the rapid evolution of cloud computing, mobile devices, new computing platforms, and other technologies, such as consumer products. Although we have articulated a strategy that we believe will fulfill these challenges, if we fail to execute properly on that strategy or adapt the strategy as market conditions evolve, we may fail to meet our clients’ expectations, be unable to compete with our competitors’ products and technology, and lose the confidence of our channel partners and employees. This in turn could adversely affect our business and financial performance.

If we are unable to attract new clients or continue to broaden our existing clients’ use of our solution, our revenue growth will be adversely affected.

To increase our revenue, we will need to continue to attract new clients and succeed in having our current clients expand the use of our solution across their institution. For example, our revenue growth strategy includes increased penetration of markets outside the United States as well as selling our cloud-based software solutions to existing and new clients, and failure in either respect would adversely affect our revenue growth. In addition, for us to maintain or improve our results of operations, it is important that our clients renew their subscriptions with us on the same or more favorable terms to us when their existing subscription term expires. Our revenue growth rates may decline or fluctuate as a result of a number of factors, including client spending levels, client dissatisfaction with our solution, decreases in the number of users at our clients, changes in the type and size of our clients, pricing changes, competitive conditions, the loss of our clients to other companies and general economic conditions. Our clients may also require fewer subscriptions for our solution as its use may enable them to operate more efficiently over time. Therefore, we cannot assure you that our current clients will renew or expand their use of our solution. If we are unable to sign new clients or retain or attract new business from current clients, our business and results of operations may be materially and adversely affected.

Failure to effectively expand our sales capabilities could harm our ability to increase our client base.

Increasing our client base and expanding client adoption within and across business lines will depend, to a significant extent, on our ability to effectively expand our sales and marketing operations and activities. From to December 31, 2020 to June 30, 2021, our sales and marketing teams increased from 76 to 93 employees. From December 31, 2019 to December 31, 2020, our sales and marketing

 

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teams increased from 25 to 76 employees. We plan to continue to expand our direct sales force both domestically and internationally for the foreseeable future. We believe that there is significant competition for experienced sales professionals with the sales skills and technical knowledge that we require. Newly hired employees require significant training and time before they achieve full productivity and they may not become as productive as quickly as we expect, if at all. Further, we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business. Our business will be adversely affected if our sales expansion efforts do not generate a significant increase in revenue.

We derive all of our revenue from clients in the alternative investments industry, and any downturn, consolidation or decrease in technology spend in the financial services industry could adversely affect our business.

All of our revenue is derived from investment managers whose industry has experienced significant pressure in recent years due to economic uncertainty, low interest rates, liquidity concerns and increased regulation. In the past, investment managers have experienced consolidation, distress and failure. It is possible these conditions may reoccur. If any of our clients merge with or are acquired by other entities, such as investment managers that have internally developed cloud-based technology solutions or that are not our clients or use our solution less, we may lose business. Additionally, changes in management of our clients could result in delays or cancellations of the implementation of our solution. It is also possible that the larger investment managers that result from business combinations could have greater leverage in negotiating price or other terms with us or could decide to replace some or all of the elements of our solution. Our business may also be materially and adversely affected by weak economic conditions in the alternative investments industry. Any downturn in the financial services industry may cause our clients to reduce their spending on technology or cloud-based alternative investments software technology or to seek to terminate or renegotiate their contracts with us. Moreover, even if the overall economy is robust, economic fluctuations caused by things such as the U.S. Federal Reserve lowering interest rates may cause potential new clients and existing clients to become less profitable and therefore forego or delay purchasing our solution or reduce the amount of spend with us, which would materially and adversely affect our business.

Acquisitions and divestitures could harm our business and operating results.

We have acquired in the past, and plan to acquire in the future, other businesses, solutions and technologies. Acquisitions and divestures involve significant risks and uncertainties, which include:

 

   

disruption of our ongoing operations, diverting management from day-to-day responsibilities, increasing our expenses and adversely impacting our business, financial condition and operating results;

 

   

failure of an acquired business to further our business strategy;

 

   

uncertainties in achieving the expected benefits of an acquisition or disposition, including enhanced revenue, technology, human resources, cost savings, operating efficiencies and other synergies;

 

   

decrease in cash available for operations, stock repurchase programs and other uses and resulting in potentially dilutive issuances of equity securities or the incurrence of debt;

 

   

incurrence of amortization expense related to identifiable intangible assets acquired that could impact our operating results;

 

   

difficulty integrating the operations, systems, technologies, solutions and personnel of acquired businesses effectively;

 

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the need to provide transition services in connection with a disposition, which may result in the diversion of resources and focus;

 

   

difficulty achieving expected business results due to a lack of experience in new markets, solutions or technologies or the initial dependence on unfamiliar distribution partners or vendors;

 

   

retention and motivation of key personnel from acquired companies;

 

   

employee morale issues affecting employees of businesses that we acquire or dispose of, which may result from changes in compensation, changes in management, reporting relationships, future prospects or the direction of the acquired or disposed business;

 

   

assumption of the liabilities of an acquired business, including acquired litigation-related liabilities and regulatory compliance issues, and potential litigation or regulatory action arising from a proposed or completed acquisition;

 

   

lawsuits resulting from an acquisition or disposition;

 

   

maintenance of good relationships with clients or business partners of an acquired business or our own clients as a result of any integration of operations;

 

   

unidentified issues not discovered during the diligence process, including issues with the acquired or divested business’s intellectual property, solution quality, security, privacy practices, accounting practices, regulatory compliance or legal contingencies;

 

   

maintenance or establishment of acceptable standards, controls, procedures or policies with respect to an acquired business;

 

   

risks relating to the challenges and costs of closing a transaction, including, for example, obtaining shareholders’ approval where applicable, including from a majority of the minority shareholders, tendering shares under terms of the cash tender offer where applicable and satisfaction of regulatory approvals, as well as completion of customary closing conditions for each transaction;

 

   

the need to later divest acquired assets at a loss if an acquisition does not meet our expectations; and

 

   

entry into highly competitive markets in which we have no or limited direct prior experience and where competitors have stronger market positions.

In addition, our exposure to risks associated with various claims, including the use of intellectual property, may be increased as a result of acquisitions of other companies. For example, we may have a lower level of visibility into the development process with respect to intellectual property or the care taken to safeguard against infringement risks with respect to the acquired company or technology. In addition, third parties may make infringement, misappropriation and similar or related claims after we have acquired technology that were not asserted prior to our acquisition. We could also acquire businesses or companies that offer solutions or services different than our current platform services, which could expose us to new areas of risk. In addition, acquisitions could result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. If an acquired business fails to meet our expectations, our operating results, business and financial position may suffer.

If we are unable to develop, introduce and market new and enhanced versions of our solutions, we may be put at a competitive disadvantage and our operating results could be adversely affected.

Our ability to attract new clients and increase revenue from our existing clients depends, in part, on our continued ability to enhance the functionality of our existing solutions by developing, introducing

 

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and marketing new and enhanced versions of our solutions that address the evolving needs of our clients and changing industry standards. Because some of our solutions are complex and require rigorous testing, development cycles can be lengthy and can require months or even years of development, depending upon the solution and other factors. As we expand internationally, our solutions and services must be modified and adapted to comply with regulations and other requirements of the countries in which our clients do business.

Additionally, market conditions, including changes by third-party providers that host our cloud services and changes in data privacy regulations, may dictate that we change the technology platform underlying our existing solutions or that new solutions be developed on different technology platforms, potentially adding material time and expense to our development cycles. The nature of these development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenue, if any, from such expenses.

If we fail to develop new solutions or enhancements to our existing solutions, our business could be adversely affected, especially if our competitors are able to introduce solutions with enhanced functionality. It is critical to our success for us to anticipate changes in technology, industry standards and client requirements and to successfully introduce new, enhanced and competitive solutions to meet our clients’ and prospective clients’ needs on a timely basis.

If we are not able to scale our business and manage our expenses, our operating results may suffer.

We have expanded specific functions over time in order to scale efficiently, to improve our cost structure and help scale our business. Our need to scale our business has placed, and will continue to place, a significant strain on our administrative and operational business processes, infrastructure, facilities and other resources. Our ability to manage our operations will require significant expenditures and allocation of valuable management resources to improve internal business processes and systems, including investments in automation. Further, we expect to continue to expand our business globally. International expansion may also be required for our continued business growth, and managing any international expansion will require additional resources and controls. If our operations, infrastructure and business processes fail to keep pace with our business and client requirements, clients may experience disruptions in service or support or we may not scale the business efficiently, which could adversely affect our reputation and adversely affect our revenue. There is no guarantee that we will be able to continue to develop and expand our infrastructure and business processes at the pace necessary to scale the business, and our failure to do so may have an adverse effect on our business. If we fail to efficiently expand our engineering, operations, client support, professional services, cloud infrastructure, IT and financial organizations and systems, or if we fail to implement or maintain effective internal business processes, controls and procedures, our costs and expenses may increase more than we planned or we may fail to execute on our solutions roadmap or our business plan, any of which would likely seriously harm our business, operating results and financial condition.

Our long-term success depends, in part, on our ability to operate offices located outside of the United States, including Ukraine.

We currently operate a research and development facility in Kyiv, Ukraine, an office location in London, an office location in Singapore and we are exploring opening additional international offices. Operating our research and development facility in Ukraine requires substantial resources and management attention and subjects us to economic, political and operational risks that are different from those in the United States. Due to the ongoing inside conflict with some other Ukraine regions with support by Russia, and the sanctions imposed on them, some resources may not be available in

 

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Ukraine for extended periods of time. Russia supplies natural gas and petrol for Ukraine, and without access to these resources for extended periods of time, our ability to operate our research and development facility may be severely hindered. Other risks specific to our operations in Ukraine include, but are not limited to, difficulty with responding to changes in economic conditions that may include inflation and fluctuations in exchange rates and interest rates; problems that impair our business infrastructure, such as telephone system failure or an international disruption of our information technology systems by a third party; failure to act in accordance with corporate, social responsibility, labor, environmental, health and safety standards and regulations; and the need to increase the levels of our employee compensation more rapidly than in the past to retain talent. We also face a risk that our employees in the U.S. may fail to coordinate with their Ukrainian counterparts efficiently and productively. If any of these risks materialize, our business, results of operations and financial condition may be materially adversely affected.

We may fail to successfully expand internationally. In addition, sales to clients outside the United States or with international operations expose us to risks inherent in international sales, which may include a marked increase in expenses.

A key element of our growth strategy is to further expand our international operations and worldwide client base. We have begun expending significant resources to build out our sales and professional services organizations outside of the United States, including in France, Germany, Brazil and Singapore, and we may not realize a suitable return on this investment in the near future, if at all. We have limited operating experience in international markets, and we cannot assure you that our international expansion efforts will be successful. Our experience in the United States may not be relevant to our ability to expand in any international market.

Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic and political risks that are different from those in the United States. Export control regulations in the United States may increasingly be implicated in our operations as we expand internationally. These regulations may limit the export of our solution and provision of our solution outside of the United States, or may require export authorizations, including by license, a license exception or other appropriate government authorizations, including annual or semi-annual reporting and the filing of an encryption registration. Changes in export or import laws, or corresponding sanctions, may delay the introduction and sale of subscriptions to our solutions or sale of services in international markets, or, in some cases, prevent the export or import of our solutions or services to certain countries, regions, governments, persons or entities altogether, which could adversely affect our business, financial condition and results of operations.

We are also subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”) and the U.K. Bribery Act of 2010, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering or providing improper payments or benefits to officials and other recipients for improper purposes. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in foreign jurisdictions.

In addition, we face risks in doing business internationally that could adversely affect our business, including:

 

   

unanticipated costs;

 

   

the need to localize and adapt our solution for specific countries;

 

   

complying with varying and sometimes conflicting data privacy laws and regulations;

 

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difficulties in staffing and managing foreign operations, including employment laws and regulations;

 

   

unstable regional, economic or political conditions, including Brexit (as defined below);

 

   

different pricing environments, longer sales cycles and collections issues;

 

   

new and different sources of competition;

 

   

weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in obtaining, maintaining, defending and enforcing intellectual property and other rights outside of the United States;

 

   

laws and business practices favoring local competitors;

 

   

compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, and anti-bribery laws and regulations;

 

   

increased financial accounting and reporting burdens and complexities;

 

   

restrictions on the transfer of funds; and

 

   

adverse tax consequences.

We may experience fluctuations in foreign currency exchange rates that could adversely impact our results of operations.

Our international sales are generally denominated in foreign currencies, and this revenue could be materially affected by currency fluctuations. For the six months ended June 30, 2021 and the year ended December 31, 2020, approximately 20.5% and 19.9%, respectively, of our total revenue was from international clients. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we believe our operating activities act as a natural hedge for a substantial portion of our foreign currency exposure at the cash flow or operating income level because we typically collect revenue and incur costs in the currency of the location in which we provide our solutions and services, our contracts with our clients are long-term in nature so it is difficult to predict if our operating activities will provide a natural hedge in the future. In addition, as we enter into license agreements, which have historically been characterized by large annual payments, significant fluctuations in foreign currency exchange rates that coincide with annual payments may affect our revenue or financial results in such quarter. Our results of operations may also be impacted by transaction gains or losses related to revaluing certain current asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. Moreover, significant and unforeseen changes in foreign currency exchange rates may cause us to fail to achieve our stated projections for revenue and operating income, which could have an adverse effect on our stock price. We will continue to experience fluctuations in foreign currency exchange rates, which, if material, may harm our revenue or results of operations.

Our clients may defer or forego purchases of our solutions or professional services in the event of weakened global economic conditions and political instability.

General worldwide economic conditions remain unstable, making it difficult for our clients and us to forecast and plan future business activities accurately. Prolonged economic uncertainties or downturns could harm our business operations or financial results. For example, the referendum on the United Kingdom’s withdrawal from the European Union in June 2016 (“Brexit”) caused significant volatility in global stock markets and fluctuations in currency exchange rates. The United Kingdom’s formal notification to the European Counsel required under Article 50 of the Treaty on European Union

 

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was made on March 29, 2017, triggering a two year negotiation period, subject to extension. The United Kingdom formally left the European Union (the “EU”) on January 31, 2020, and the United Kingdom reached the end of the transition period in December 2020. There will likely continue to be considerable uncertainty as to the United Kingdom’s post-transition and post-withdrawal framework, in particular as to the arrangements which will apply to its relationships with the EU and with other countries. The new Trade and Cooperation Agreement reached between the EU and United Kingdom in late 2020 is untested and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European and global markets for some time. This process and/or the uncertainty associated with it may adversely affect the return on investments economically tied to the United Kingdom or EU (including investments made pursuant to the European Direct Lending strategy). This may be due to, among other things: (i) increased uncertainty and volatility in the United Kingdom, the EU and other financial markets; (ii) fluctuations in asset values; (iii) fluctuations in exchange rates; (iv) increased illiquidity of investments located, listed or traded within the United Kingdom, the EU or elsewhere; (v) changes in the willingness or ability of financial and other counterparties to enter into transactions, or the price at which and terms on which they are prepared to transact; and/or (vi) changes in legal and regulatory regimes to which our investments are or become subject.

The political and economic instability created by Brexit has caused and may continue to cause significant volatility in global financial markets and uncertainty regarding the regulation of data protection in the United Kingdom. In particular, although the United Kingdom enacted a Data Protection Act in May 2018 that is consistent with the General Data Protection Regulation (“GDPR”) of the EU, uncertainty remains regarding how data transfers to and from the United Kingdom will be regulated. See “—Risks Related to Laws and Regulation—Changes in privacy laws, regulations, and standards may cause our business to suffer.” The full effect of Brexit is uncertain and depends on any agreements the United Kingdom may make with the EU and others.

Brexit or other global events, such as the recent imposition of various trade tariffs and the COVID-19 pandemic, may continue to create global economic, political and regulatory uncertainty not only in the United Kingdom, but in other regions in which we have significant operations. These conditions could cause our clients to reevaluate their decision to purchase our solutions and professional services, which could delay and lengthen our sales cycles or result in cancellations of planned purchases. Furthermore, during challenging economic times our clients may face issues in gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. If that were to occur, we may not receive amounts owed to us and may be required to record an allowance for doubtful accounts, which would adversely affect our financial results. A substantial downturn in the alternative investments industry may cause firms to react to worsening conditions by reducing their capital expenditures, reducing their spending on IT, delaying or canceling IT projects, or seek to lower their costs by renegotiating vendor contracts. Negative or worsening conditions in the general economy both in the United States and abroad, including conditions resulting from financial and credit market fluctuations, could cause a decrease in corporate spending on enterprise software in general, and in the insurance industry specifically, and negatively affect the rate of growth of our business.

In addition, the U.S. Congress could introduce legislation that would result in the increased regulation of the financial and insurance industries, which could reduce the need for our solutions and professional services. An expansion in government’s role in our business may lower the future revenue for the solutions we are developing and adversely affect our future business, possibly materially. We cannot predict what insurance initiatives, if any, will be implemented at the federal or state level, or the effect any future legislation or regulation will have on us. Any of these events could seriously harm our business, results of operations and financial condition.

 

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Adverse general and industry-specific economic and market conditions and reductions in IT spending may reduce demand for our solutions, which could harm our results of operations.

Our revenue, results of operations and cash flows depend on the overall demand for our solutions. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally), geopolitical issues or the availability and cost of credit could lead to increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in turn could result in reductions in IT spending by our existing and prospective clients. Prolonged economic slowdowns may result in clients delaying or canceling IT projects, choosing to focus on in-house development efforts or seeking to lower their costs by requesting us to renegotiate existing contracts on less advantageous terms or defaulting on payments due on existing contracts or not renewing at the end of existing contract terms. As a result, broadening or protracted extension of an economic downturn could harm our business, revenue, results of operations and cash flows.

Certain estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate.

This prospectus includes our internal estimates of the addressable market for our solutions. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may prove to be inaccurate. This is especially so at the present time due to the uncertain and rapidly changing projections of the severity, magnitude and duration of the COVID-19 pandemic. The estimates and forecasts in this prospectus relating to the size and expected growth of our target market, market demand and adoption, capacity to address this demand and pricing may also prove to be inaccurate. In particular, our estimates regarding our current and projected market opportunity are difficult to predict. For example, our clients may move toward an outsourcing, service-based model rather instead of an in-house, cloud-based software solution model, which could impact size of the addressable market. The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all.

We invest significantly in research and development, and to the extent our research and development investments do not translate into new solutions or material enhancements to our current solutions, or if we do not use those investments efficiently, our business and results of operations would be harmed.

A key element of our strategy is to invest significantly in our research and development efforts to develop new solutions and enhance our existing solutions to address additional applications and markets. We recorded research and development expenses of $12.8 million and $21.1 million for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively, representing approximately 17.9% and 18.9% of our total revenue for the respective periods. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business may be harmed and we may not realize the expected benefits of our strategy. Moreover, research and development projects can be technically challenging and expensive. The nature of these research and development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we are able to offer compelling solutions and generate revenue, if any, from such investment. Additionally, anticipated client demand for solutions we are developing could decrease after the development cycle has commenced, rendering us unable to recover substantial costs associated with the development of such solution. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of solutions that are competitive in our current or future markets, it would harm our business and results of operations.

 

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The length and unpredictability of the sales cycle for our software could delay new sales and cause our revenue and cash flows for any given quarter to fail to meet our projections or market expectations.

The sales cycle between our initial contact with a potential new client and the signing of a subscription with that client typically ranges from six to nine months. As a result of this lengthy sales cycle, we have only a limited ability to forecast the timing of sales. A delay in or failure to complete transactions could harm our business and financial results, and could cause our financial results to vary significantly from quarter to quarter. Our sales cycle varies widely, reflecting differences in our potential clients’ decision-making processes, procurement requirements and budget cycles, and is subject to significant risks over which we have little or no control, including:

 

   

clients’ budgetary constraints and priorities; the timing of our clients’ budget cycles;

 

   

the need by some clients for lengthy evaluations that often include both their administrators and governing boards; and

 

   

the length and timing of clients’ approval processes.

Our large clients have substantial negotiating leverage, which may require that we agree to terms and conditions that result in increased cost of sales, decreased revenue and lower average selling prices and gross margin percentages, all of which would harm our results of operations.

Our clients include some of the largest investment managers in the world, including private equity firms, asset managers, banks, fund administrators and limited partners. These clients have significant bargaining power when negotiating new product solution subscriptions, or renewals of existing agreements, and have the ability to acquire similar solutions from other vendors or develop such systems internally. These clients have and may continue to seek advantageous pricing and other commercial terms and may require us to develop additional features in the solutions we sell to them. We have been required to, and may continue to be required to, reduce the average selling price of our solutions in response to these pressures. These clients may also require us to implement their purchased solutions on an expedited basis. If we are unable to implement our solutions in accordance with our contractual obligations, or avoid reducing our average selling prices and gross margin percentages, our results of operations would be harmed.

We may need to change our pricing models to compete successfully.

The intense competition we face in the sale of subscriptions to our solutions and sale of our services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions or services or develop solutions that the marketplace considers more valuable than ours, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Our competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount our offerings. We also must determine the appropriate price of our offerings and services to enable us to compete effectively internationally. Our prices may also change because of discounts, a change in our mix of solutions toward subscription, enterprise-wide licensing arrangements, bundling of solutions, features and functionality by us or our competitors, potential changes in our pricing, anticipation of the introduction of new solutions or promotional programs for clients. In response to the COVID-19 pandemic, we may be required to offer deeply discounted pricing, adopt new pricing models and offer extended payment terms in order to attract new and retain existing clients, which could have a material adverse impact on our liquidity and financial condition.

 

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Any broad-based change to our prices and pricing policies could cause our revenue to decline or be delayed as our sales force implements and our clients adjust to new pricing policies. We or our competitors may bundle solutions for promotional purposes or as a long-term go-to-market or pricing strategy or provide guarantees of prices and solution implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our solutions. If we do not adapt our pricing models to reflect changes in client use of our solution or changes in client demand, our revenue could decrease.

If we fail to maintain, enhance or protect our brand, our ability to expand our client base will be impaired and our business, financial condition and results of operations may suffer.

We believe that maintaining, enhancing and protecting our brand, is critical to support the marketing and sale of our existing and future solutions subscriptions to new clients and expand sales of our solutions subscriptions to existing clients. We also believe that the importance of brand recognition will increase as competition in our market increases. Successfully maintaining, enhancing and protecting our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable solutions that continue to meet the needs of our clients at competitive prices, our ability to maintain our clients’ trust, our ability to continue to develop new functionality and use cases, our ability to successfully differentiate our solutions and solution capabilities from competitive products and our ability to obtain, maintain, protect and enforce trademark and other intellectual property protection for our brand. Our brand promotion activities may not generate client awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. In addition, our competitors and other third parties that offer similar solutions to those offered by us and the failure or negative performance of such competitors’ or other third parties’ solutions could lead to a loss of confidence in our solutions, irrespective of the performance of our solutions. Any loss of confidence in our solutions could lead to withdrawals, redemptions and liquidity issues in such solutions, which may cause our revenue and earnings to decline. If we fail to successfully promote, maintain or protect our brand, our business, financial condition and results of operations may suffer.

Our business is subject to the risks of natural catastrophic events, and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches or terrorism.

Our corporate headquarters are located in Florida. A significant natural disaster, such as a hurricane, impacting our headquarters or one of our other facilities, any of our cloud hosting provider facilities, or one of our business partners, could adversely affect our business, results of operations and financial condition. For example, the rapid spread of COVID-19 globally in 2020 resulted in travel restrictions and in some cases, prohibitions of non-essential travel, disruption and shutdown of businesses and greater uncertainty in global financial markets. Prolonged health concerns or political or governmental developments in countries in which we or our clients, partners and service providers operate could result in further economic, social or labor instability, slow our sales process, result in clients not purchasing or renewing our solutions or failing to make payments, and could otherwise have a material adverse effect on our business and our results of operations and financial condition. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and will include emerging information concerning the re-opening of private businesses, infection rates and the actions taken by governments and private businesses to attempt to contain and cope with COVID-19.

Further, if a natural disaster or man-made incident were to affect Internet service providers, this could adversely affect the ability of our clients to use our solutions and platform. Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a

 

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natural disaster or man-made incident, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities and lengthy interruptions in service, any of which could adversely affect our business, results of operations and financial condition. See “—Risks Related to our Intellectual Property Rights and our Technology— If our security measures or those of our third-party service providers are breached or fail and result in unauthorized disclosure of data, we could lose clients, fail to attract new clients and be exposed to protracted and costly litigation.”

Large clients often demand more configuration and integration services, or customized features and functions that we do not offer, which could adversely affect our business and operating results.

Large clients may demand more configuration and integration services, which increase our upfront investment in sales and deployment efforts, with no guarantee that these clients will increase the scope of their subscription. As a result of these factors, we must devote a significant amount of sales support and professional services resources to individual clients, increasing the cost and time required to complete sales. Additionally, our platform does not currently permit clients to modify our code. If prospective clients require customized features or functions that we do not offer and that would be difficult for them to deploy themselves, then the market for our platform will be more limited and our business could suffer.

Goodwill and other intangible and long-lived assets associated with businesses we acquire may become impaired which could adversely affect our business, financial condition and results of operations.

The performance of the businesses that we have acquired or will acquire may not meet the financial projections anticipated at acquisition or may be impacted by one or more unfavorable events or circumstances. This could negatively affect the value of goodwill and other intangible assets, as well as long-lived assets, and may require us to test the applicable reporting unit and/or asset for impairment. If following the test, we determine that we should record an impairment charge, our business, financial condition and results of operations may be adversely affected. If the estimates or assumptions used in our evaluation of impairment or fair value change, we may be required to record impairment losses on certain of those assets, which could adversely affect our results of operations.

We are required to make a number of significant judgments in applying our accounting policies, and our use of different estimates and assumptions in the application of these policies could result in material changes to our financial condition and results of operations. In addition, changes in accounting standards or their interpretation could significantly impact our results of operations.

Our accounting policies are critical to the manner in which we present our results of operations and financial condition. Many of these policies are highly complex and involve many subjective assumptions, estimates and judgments. We are required to review these estimates regularly and revise them when necessary. Our actual results of operations vary from period to period based on revisions to these estimates. In addition, the regulatory bodies that establish accounting and reporting standards, including the SEC and the Financial Accounting Standards Board (“FASB”) periodically revise or issue new financial accounting and reporting standards that govern the preparation of our consolidated financial statements. Changes to these standards or their interpretation could significantly impact our results in future periods.

 

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Any future litigation against us could damage our reputation and be costly and time-consuming to defend.

We may become subject, from time to time, to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes or employment claims made by current or former employees, including as a result of actions taken by us in response to the COVID-19 pandemic. Litigation might result in reputational damage and substantial costs and may divert management’s attention and resources, which might adversely impact our business, overall financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us. Moreover, any negative impact to our reputation will not be adequately covered by any insurance recovery. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our results of operations and leading analysts or potential investors to reduce their expectations of our performance, which could reduce the value of our Class A common stock. While we currently are not aware of any material pending or threatened litigation against us, we can make no assurances the same will continue to be true in the future.

Risks Related to our Intellectual Property Rights and our Technology

Disruptions, capacity limitations or interference with our use of the data centers operated by third-party providers that host our cloud services, including, but not limited to AWS and Azure, could result in delays or outages of our cloud service and harm our business.

We currently host our cloud service from third-party data center facilities operated by AWS and Azure, from several global locations. Any damage to, failure of or interference with our cloud service that is hosted by AWS and Azure, or by third-party providers we may utilize in the future, whether as a result of our actions, actions by the third-party data centers, actions by other third parties, or acts of God, could result in interruptions in our cloud service and/or the loss of our data or our clients’ data. While the third-party data centers host the server infrastructure, we manage the cloud services through our site reliability engineering team, and we need to support version control, changes in cloud software parameters and the evolution of our solutions, all in a multi-OS environment. As we utilize third-party data centers, we may move or transfer our data and our clients’ data from one region to another. Despite precautions taken during this process, any unsuccessful data transfers may impair the delivery of our service. Many of our client agreements contain contractual service level commitments to maintain specified service levels for our cloud services, and if we, AWS and Azure, or any other third-party data center facilities that we may utilize fail to meet these service level commitments, we may have to issue credits to these clients, which could adversely affect our operations. Impairment of, or interruptions in, our cloud services may reduce our subscription revenue, subject us to claims and litigation, cause our clients to terminate their subscriptions and adversely affect our subscription renewal rates and our ability to attract new clients. Our business will also be harmed if our clients and potential clients believe our services are unreliable. Additionally, any limitation of the capacity of our third-party data centers could impede our ability to scale, onboard new clients or expand the usage of existing clients, which could adversely affect our business, financial condition and results of operations.

We do not control, or in some cases have limited control over, the operation of the data center facilities we or our third-party providers use, and they are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events. They may also be subject to cyberattacks, computer viruses, disabling devices, break-ins, sabotage, intentional criminal acts, acts of vandalism and similar misconduct and to adverse events caused by operator error. Despite precautions taken at these facilities, the occurrence of a natural disaster, an act of terrorism, war or other act of malfeasance, a decision to close the facilities

 

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without adequate notice, or other unanticipated problems at these facilities, could result in lengthy interruptions in our service and the loss of client data and business. Our platform’s continuing and uninterrupted performance is critical to our success. Users may become dissatisfied by any system failure that interrupts our ability to provide our platform to them. We may not be able to easily switch our AWS and Azure operations to another cloud or other data center provider if there are disruptions or interference with our use of or relationship with AWS and Azure, and, even if we do switch our operations, other cloud and data center providers are subject to the same risks. Sustained or repeated system failures would reduce the attractiveness of our platform to users, thereby reducing revenue. Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our platform. We may not carry sufficient business interruption insurance to compensate us for losses that may occur as a result of any events that cause interruptions in our service. We may also incur significant costs for using alternative equipment or facilities or taking other actions in preparation for, or in reaction to, any such events.

In the event that any of our agreements with our third-party service providers are terminated, there is a lapse or elimination of any services or features that we utilize or there is an interruption of connectivity or damage to facilities, whether due to actions outside of our control or otherwise, we could experience interruptions or delays in client access to our platform and incur significant expense in developing, identifying, obtaining and/or integrating replacement services, which may not be available on commercially reasonable terms or at all, and which would adversely affect our business, financial condition and results of operations.

We may be sued by third parties for alleged infringement, misappropriation or other violation of their intellectual property and proprietary rights.

There is considerable patent and other intellectual property development activity in our industry. Our success depends, in part, on our ability to develop and commercialize our solutions without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of others. In the future, our competitors or other third parties could claim that we are infringing, misappropriating or otherwise violating their intellectual property or proprietary rights, and in the future we may become subject to intellectual property disputes and we may be found to be infringing, misappropriating or otherwise violating such rights. A claim may also be made relating to technology that we acquire or license from third parties.

We may be unaware of the intellectual property or proprietary rights of others that may cover some or all of our solutions. Regardless of merit, any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages, costs and/or ongoing royalty payments, prevent us from offering our solutions, require us to obtain a license, which may not be available on commercially reasonable terms or at all, require us to re-design our solutions, which could by costly, time-consuming or impossible or require that we comply with other unfavorable terms. If any of our clients are sued, we would in general be required to defend and/or settle the litigation on their behalf. In addition, if we are unable to obtain licenses or modify our solutions to make them non-infringing, we might have to refund a portion of license fees prepaid to us and terminate those agreements, which could further exhaust our resources. In addition, we may pay substantial settlement amounts or royalties on future solution subscription sales to resolve claims or litigation, whether or not legitimately or successfully asserted against us. Even if we were to prevail in the actual or potential claims or litigation against us, any claim or litigation regarding our intellectual property and proprietary rights could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. Such disputes, with or without merit, could also cause potential clients to refrain from purchasing our solutions or otherwise cause us reputational harm.

 

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We do not currently have a patent portfolio, which could prevent us from deterring patent infringement claims, and our competitors and others may now and in the future have significantly larger and more mature patent portfolios than we have. Any litigation or claims of infringement, may also involve non-practicing entities, patent holding companies or other adverse patent owners. We cannot predict the outcome of claims or lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition or results of operations.

If we are unable to obtain, maintain, protect or enforce our intellectual property and proprietary rights, our competitive position could be harmed or we could be required to incur significant expenses.

Our ability to compete effectively is dependent in part upon our ability to obtain, maintain, protect and enforce our intellectual property and other proprietary rights, including proprietary technology. We establish and protect our intellectual property and proprietary rights, including our proprietary information and technology through a combination of licensing agreements, third-party nondisclosure agreements, confidentiality procedures and other contractual provisions, as well as through trademark, trade dress, copyright, trade secret and other intellectual property laws in the United States and similar laws in other countries. However, the steps we take to obtain, maintain, protect and enforce our intellectual property and proprietary rights may be inadequate. There can be no assurance that these protections will be available in all cases or will be adequate to prevent our competitors or other third parties from copying, reverse engineering, accessing or otherwise obtaining and using our technology, intellectual property or proprietary rights or solutions without our permission. The laws of some foreign countries, including countries in which our solutions are sold, may not be as protective of intellectual property and proprietary rights as those in the United States, and mechanisms for enforcement of intellectual property and proprietary rights may be inadequate. Accordingly, we may choose not to seek protection in certain countries, and we will not have the benefit of protection in such countries. Proceedings to enforce our intellectual property rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the U.S. and foreign countries may affect our ability to obtain adequate protection for our products, services and other technologies and the enforcement of intellectual property rights. Furthermore, there can be no assurance that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology or design around our intellectual property and proprietary rights. In each case, our ability to compete could be significantly impaired.

In addition, third parties may seek to challenge, invalidate or circumvent our intellectual property protections including trademarks, copyrights, trade secrets or other intellectual property and proprietary rights, or any applications for any of the foregoing, including through administrative processes, or litigation. The legal standards relating to the validity, enforceability and scope of protection of intellectual property and proprietary rights are uncertain and still evolving. There can be no assurance that any future patent applications we may file or in-license will result in issued patents or whether the examination process will require us to narrow the scope of the claims sought. In addition, any patents issued from any future patent applications or licensed to us in the future may not provide us with competitive advantages, may be successfully challenged, invalidated or circumvented by third parties, or may not prove to be enforceable in actions brought against alleged infringers. Opposition or cancellation proceedings may in the future be filed against our trademark applications and registrations, and our trademarks may not survive such proceedings. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Moreover, third parties may file first for our trademarks in certain countries. If they succeed in registering or developing common law rights in such trademarks, and if we are not

 

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successful in challenging such third-party rights, we may not be able to use these trademarks to develop brand recognition of our technologies, products or services. The value of our intellectual property and proprietary rights could also diminish if others assert rights therein or ownership thereof, and we may be unable to successfully resolve any such conflicts in our favor or to our satisfaction. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively, which could have a material adverse effect on our competitive position, business, financial condition, and results of operations.

To prevent substantial unauthorized use of our intellectual property and proprietary rights, it may be necessary to prosecute actions for infringement, misappropriation or other violation of our intellectual property and proprietary rights against third parties. Any such action may be time-consuming and could result in significant costs and diversion of our resources and management’s attention, and there can be no assurance that we will be successful in such action, even when our rights have been infringed, misappropriated or otherwise violated. Further, our efforts to enforce our intellectual property and proprietary rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property and proprietary rights, and if such defenses, counterclaims or countersuits are successful, we could lose valuable intellectual property and proprietary rights.

Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property and proprietary rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating or otherwise violating our intellectual property and proprietary rights. Although we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other third parties, including clients and third-party service providers, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information, know-how and trade secrets. Moreover, no assurance can be given that these agreements will be effective in controlling access to, distribution, use, misuse, misappropriation, reverse engineering or disclosure of our proprietary information, know-how and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions and platform capabilities. These agreements may be breached, and we may not have adequate remedies for any such breach. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the U.S. are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, it could have a material adverse effect on our competitive position, business, financial condition and results of operations.

We may be subject to claims that our employees, consultants, advisors or independent contractors have wrongfully used or disclosed alleged trade secrets or other confidential information of their current or former employers or other third parties or claims asserting ownership of what we regard as our own intellectual property rights.

Although we try to ensure that our employees, consultants, advisors and independent contractors do not use the confidential or proprietary information, trade secrets or know-how of others in their work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, improperly used or disclosed intellectual property rights, confidential or proprietary information, trade secrets or know-how, of any such individual’s current or former employer or other third party. Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations

 

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of consultants or others who are involved in developing our products. We may also be subject to claims that former employees, consultants, independent contractors or other third parties have an ownership interest in our intellectual property rights. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, we cannot guarantee that we have entered into intellectual property assignment agreements with each party that may have developed intellectual property rights for us. Individuals not subject to invention assignment agreements may make adverse ownership claims to our current and future intellectual property rights. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be insufficient or breached, and we may not be able to obtain adequate remedies for such breaches. We may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property rights. Additionally, to the extent that our employees, independent contractors or other third parties with whom we do business use intellectual property rights owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, and results of operations.

If our security measures or those of our third-party service providers are breached or fail and result in unauthorized disclosure of data, we could lose clients, fail to attract new clients and be exposed to protracted and costly litigation.

Our platform and solutions store and transmit proprietary and confidential data, which may include information of our clients or their clients, and perform other back-office functions, including wiring funds, on behalf of our clients, some of which is critical to their business operations. As a technology company, we face an increasing number of threats to our platform and computer systems, including unauthorized activity and access, system viruses, worms, malware, malicious code, spyware, ransomware, denial of service attacks, phishing attacks, and organized cyberattacks, as well as human error or malfeasance, or fraud or malice on the part of employees or third parties (including state-sponsored organizations with significant financial and technological resources), any of which could breach our security and disrupt our platform and our clients’ operations or result in a significant interruption in the delivery of our solutions. Although we devote significant resources to prevent unwanted intrusions and to protect our systems and data, whether such data is housed internally or by external third parties, the techniques used by computer hackers and cyber criminals to obtain unauthorized access to data or to sabotage computer systems change frequently and generally are not detected until after an incident has occurred. Cyber threat actors are becoming more sophisticated and coordinated in their attempts to access information technology (IT) systems and data. There have also been initial media reports highlighting increased cybersecurity threats and potential breaches because of the increase in the number of individuals working from home as a result of the COVID-19 pandemic. While we have implemented certain safeguards and processes to thwart unwanted intrusions and to protect the data in our platform and computer systems, whether housed internally or externally by third parties, such safeguards and the cybersecurity measures taken by our third-party service providers may be unable to anticipate, detect or prevent all attempts to compromise our platform and systems. We and certain of our third-party service providers have experienced and may continue to experience cyber incidents of varying degrees and type in the conduct of our business. Although such incidents did not have a material adverse effect on our operating results, there can be no assurance of a similar result in the future. If our security measures are breached or fail as a result of third-party action, user error, malfeasance or otherwise, it could result in the loss or misuse of proprietary and confidential data, which could subject us to significant liability, or interrupt our business, potentially over an extended period of time. Because we do not control our third-party service providers, or the processing

 

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of data by our third-party service providers, other than through our contractual relationships, our ability to monitor our third-party service providers’ data security may be very limited such that we cannot ensure the integrity or security of measures they take to protect and prevent the loss of our or our clients’ data. As a result, we are subject to the risk that cyber-attacks on, or other security incidents affecting, our third-party service providers may adversely affect our business even if an attack or breach does not directly impact our systems. It is also possible that security breaches sustained by, or other security incidents affecting, our competitors could result in negative publicity for our entire industry that indirectly harms our reputation and diminishes demand for our products and services.

Any or all of these issues could harm our reputation, adversely affect our ability to attract new clients, cause existing clients to scale back their offerings or elect not to renew their agreements, cause prospective clients of our clients not to enroll or existing clients to not stay enrolled in our offerings, result in difficulty in marketing our solutions, result in allegations by our customers that we have not performed our contractual obligations, trigger indemnification obligations under our customer agreements, or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage resulting from breach of our security measures could create distrust of our company by prospective clients or their clients. In addition, our insurance coverage may not be adequate to cover costs, expenses and losses associated with such events, and in any case, such insurance may not cover all of the types of costs, expenses and losses we could incur to respond to and remediate a security breach. As a result, we may be required to expend significant additional resources to protect against the threat of these disruptions and security breaches or to alleviate problems caused by such disruptions or breaches. Further, we could be forced to expend significant financial and operational resources in response to a security breach, including repairing system damage, increasing security protection costs by deploying additional personnel and modifying or enhancing our protection technologies, investigating and remediating any information security vulnerabilities, complying with notification obligations and defending against and resolving legal and regulatory claims, all of which could divert resources and the attention of our management and key personnel away from our business operations and adversely affect our business, financial condition and results of operations.

Many governments have enacted laws that require companies and institutions to notify impacted individuals of data breach incidents, usually in writing. Under the terms of our contracts with our clients, we would be responsible for the costs of investigating and disclosing data breaches to the clients. In addition to costs associated with investigating and fully disclosing a data breach, we could be subject to regulatory proceedings or private claims by affected parties, which could result in substantial monetary fines or damages, and our reputation would likely be harmed.

Indemnity provisions in various agreements to which we are party potentially expose us to substantial liability for infringement, misappropriation or other violation of intellectual property rights, data protection and other losses.

Our agreements with our clients and other third parties may include indemnification provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of intellectual property rights, data protection, damages caused by us to property or persons, or other liabilities relating to or arising from our software, services, platform, our acts or omissions under such agreements or other contractual obligations. Some of these indemnity agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. Large indemnity payments could harm our business, financial condition and results of operations. Although we attempt to contractually limit our liability with respect to such indemnity obligations, we are not always successful and may still incur substantial liability related to them, and we may be required to cease use of certain functions of our platform or solutions as a result of any such claims or forced to make changes to our

 

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products or enter into license agreements, which may not be available on commercially reasonable terms or at all. In addition, even claims that ultimately are unsuccessful could result in expenditures of management’s time and other resources. Any dispute with a client or other third party with respect to such obligations could have adverse effects on our relationship with such client or other third party and other existing or prospective clients, reduce demand for our solutions and services and adversely affect our reputation, business, financial conditions and results of operations. In addition, although we carry general liability insurance, our insurance may not be adequate to indemnify us for all liability that may be imposed or otherwise protect us from liabilities or damages with respect to claims alleging compromises of client data, and any such coverage may not continue to be available to us on acceptable terms or at all.

Our use of open source software could impose limitations on our ability to commercialize our solutions or subject us to litigation or other actions.

Our software contains solutions licensed for use from third-party authors under open source licenses, and we expect to continue to incorporate open source software in our solutions in the future. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement, misappropriation or other violation claims or the quality of the code. Some open source licenses contain requirements that we make available the source code of modifications or derivative works we create based upon, incorporating or using the type of open source software we use and that we license such modifications or derivative works under the terms of the applicable open source licenses. If we fail to comply, or are alleged to have failed to comply, with the terms and conditions of our open source licenses, we could be required to incur significant legal expenses defending such allegations, subject to significant damages, enjoined from the sale of subscriptions to our proprietary solutions and required to comply with onerous conditions or restrictions on our proprietary solutions, any of which could be disruptive to our business.

Moreover, if we combine our proprietary solutions with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary solutions to the public or offer our solutions to users at no cost. This could allow our competitors to create similar solutions with lower development effort and time and ultimately could result in a loss of sales for us. We cannot ensure that we have not incorporated open source software in our software in a manner that is inconsistent with the terms of the applicable license or our current policies, and we may inadvertently use open source in a manner that we do not intend or that could expose us to claims for breach of contract or intellectual property infringement, misappropriation or other violation.

The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such an event, we could be required to seek licenses from third parties in order to continue offering our solutions, re-engineer our solutions, discontinue the sale of subscriptions of our solutions and sale of our services in the event re-engineering cannot be accomplished on a timely basis or make generally available, in source code form, all or a portion of our proprietary source code, any of which could materially and adversely affect our business and operating results.

If there are interruptions or performance problems associated with our technology or infrastructure, our existing clients may experience service outages and our new clients may experience delays in the deployment of our solutions.

Our continued growth depends on the ability of our existing and potential clients to access our solutions and applications 24 hours a day, seven days a week, without interruption or degradation of

 

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performance. We have and, in the future may experience disruptions, outages and other performance problems with our infrastructure due to a variety of factors, including infrastructure changes, introductions of new functionality, service interruptions from our hosting or technology partners, human or software errors, capacity constraints, distributed denial of service attacks or other security-related incidents. In some instances, we may not be able to identify the cause or causes of these performance problems immediately or in short order. We may not be able to maintain the level of service uptime and performance required by our clients or our contractual commitments, especially during peak usage times and as our solutions become more complex and our user traffic increases. If any of our solutions malfunction or if our clients are unable to access our solutions or deploy them within a reasonable amount of time, or at all, our business would be harmed. The adverse effects of any service interruptions on our reputation and financial condition may be disproportionately heightened due to the nature of our business and the fact that our clients expect continuous and uninterrupted access to our solutions and have a low tolerance for interruptions of any duration. Since our clients use our solutions to assist in necessary business and service interactions and to support client and client-facing applications, any outage on our solutions would impair the ability of our clients to operate their businesses and provide necessary services, which would negatively impact our brand, reputation and client satisfaction.

Any of the above circumstances or events may harm our reputation, cause clients to terminate their agreements with us, impair our ability to obtain subscription renewals from existing clients, impair our ability to grow our client base, result in the expenditure of significant financial, technical and engineering resources, subject us to financial penalties and liabilities under our service level agreements, and otherwise could adversely affect our business, results of operations and financial condition.

Failures in internet infrastructure or interference with broadband or wireless access could cause current or potential clients to believe that our solutions are unreliable, leading these clients to switch to our competitors or to avoid using our solutions, which could negatively impact our revenue or harm our opportunities for client growth.

Our solutions depend in part on our clients’ high-speed broadband or wireless access to the internet. Increasing numbers of clients and bandwidth requirements may degrade the performance of our solutions due to capacity constraints and other internet infrastructure limitations, and additional network capacity to maintain adequate data transmission speeds may be unavailable or unacceptably expensive. If adequate capacity is not available to us, our solutions may be unable to achieve or maintain sufficient data transmission, reliability or performance. In addition, if internet service providers and other third parties providing internet services, including incumbent phone companies, cable companies and wireless companies, have outages or suffer deterioration in their quality of service, our clients may not have access to or may experience a decrease in the quality of our solutions. These providers may take measures that block, degrade, disrupt or increase the cost of client access to our solutions. Any of these disruptions to data transmission could lead clients to switch to our competitors or avoid using our solutions, which could negatively impact our revenue or harm our opportunities for growth.

Real or perceived errors, failures or bugs in our solutions, hosting, support or implementation could adversely affect our business, results of operations, financial condition and growth prospects.

Our solutions are complex, and therefore, undetected errors, failures, bugs or defects may be present in our solutions or occur in the future in our solutions, our technology or software or technology or software we license in from third parties, including open source software, especially when updates or new solutions are released. Such software and technology is used in IT environments with different

 

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operating systems, system management software, devices, databases, servers, storage, middleware, custom and third-party applications and equipment and networking configurations, which may cause errors, failures, bugs or defects in the IT environment into which such software and technology is deployed. This diversity increases the likelihood of errors, failures, bugs or defects in those IT environments. Despite testing by us, real or perceived errors, failures, bugs or defects may not be found until our clients use our solutions. Real or perceived errors, failures, bugs or defects in our solutions could result in negative publicity, cause a loss of or delay in market acceptance of our solutions and harm to our brand, weaken our competitive position, result in claims by clients for losses sustained by them or failure to meet the stated service level commitments in our client agreements. In such an event, we may be required, or may choose, for client relations or other reasons, to expend significant additional resources in order to help correct the problem. Any real or perceived errors, failures, bugs or defects in our solutions could also impair our ability to attract new clients, retain existing clients or expand their use of our solutions, which would adversely affect our business, results of operations and financial condition.

Moreover, as our solutions are adopted by an increasing number of clients, it is possible that the individuals and organizations behind advanced cyberattacks will begin to focus on finding ways to hack our solutions. If this happens, our clients could be specifically targeted by attackers exploiting vulnerabilities in our solutions, which could subject us to private claims by affected parties and adversely affect our reputation.

Organizations are increasingly subject to a wide variety of attacks on their networks, systems and endpoints. If any of our clients experiences a successful third-party cyberattack on our solutions, such client could be dissatisfied with our solutions, regardless of whether theft of any of such client’s data occurred in such attack. Additionally, if clients fail to adequately deploy protection measures or update our solutions, clients and the public may erroneously believe that our solutions are especially susceptible to cyberattacks. Real or perceived security breaches against our solutions could cause disruption or damage to our clients’ networks or other negative consequences and could result in negative publicity to us, damage to our reputation, lead to other client relations issues and adversely affect our revenue and results of operations. We may also be subject to liability claims for damages related to real or perceived errors, failures, bugs or defects in our solutions. A material liability claim or other occurrence that harms our reputation or decreases market acceptance of our solutions may harm our business and results of operations. Finally, since some our clients use our solutions for compliance reasons, any errors, failures, bugs, defects, disruptions in service or other performance problems with our solutions may damage our clients’ business and could hurt our reputation.

We may encounter implementation challenges, which would materially and adversely affect our business and results of operations.

We may face unexpected challenges related to the complexity of our clients’ implementation and configuration requirements. Implementation of our solution may be delayed or expenses may increase when clients have unexpected data, software or technology challenges, or unanticipated business requirements, which could adversely affect our relationship with clients and our operating results. In general, the revenue related to implementation and other professional services we provide are recognized on a proportional performance basis, and delays and difficulties in these engagements could result in losses on these contracts. In addition, our clients often require complex acceptance testing related to the implementation of our solution. We also intend to leverage the services of systems integrators to implement and configure our platform in the future.

For implementations, project delays may result in recognizing revenue later than expected. Further, because we do not fully control our clients’ implementation schedules, if our clients do not allocate the internal resources necessary to meet implementation timelines or if there are unanticipated

 

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implementation delays or difficulties, our ability to take clients live and the overall client experience could be adversely affected. We rely on existing clients to act as references for prospective clients, and difficulties in implementation and configuration could therefore adversely affect our ability to attract new clients. Any difficulties or delays in implementation processes could cause clients to delay or forego future purchases of our solution.

Incorrect or improper use of our solutions or our failure to properly train clients on how to utilize our solutions could result in client dissatisfaction and negatively affect our business, results of operations, financial condition and growth prospects.

Our solutions are complex and are used in a wide variety of investment management environments. The proper use of our solutions requires training of the client and end user. If our solutions are not used correctly or as intended, inadequate performance may result. Because our clients rely on our solutions, services and maintenance support to manage a wide range of operations, the incorrect or improper use of our solutions, our failure to properly train clients on how to efficiently and effectively use our solutions, or our failure to properly provide maintenance services to our clients may result in negative publicity or legal claims against us. Also, as we continue to expand our client base, any failure by us to properly provide these services will likely result in lost opportunities for follow-on sales of subscriptions to our solutions and sale of our services.

In addition, if there is substantial turnover of client personnel responsible for use of our solutions, or if client personnel are not well trained in the use of our solutions, clients may defer the implementation of our solutions, may use them in a more limited manner than originally anticipated or may not use them at all. Further, if there is substantial turnover of the client personnel responsible for use of our solutions, our ability to make additional sales may be substantially limited.

If we fail to offer high-quality support, our business and reputation could suffer.

Our clients rely on our client support personnel to resolve issues and realize the full benefits that our solutions provide. High-quality support is also important for the renewal and expansion of our subscriptions with existing clients. The importance of our support function will increase as we expand our business and pursue new clients. Many of our large clients have complex networks and require high levels of focused support, including premium support offerings, to fully realize the benefits of our solutions. As our client base continues to grow, we will need to expand our account management, client service and other personnel and our network of channel partners and system integrators to provide personalized account management and client service. Any failure by us to maintain the expected level of support could reduce client satisfaction and hurt our client retention, particularly with respect to our large clients.

Furthermore, as we sell our solutions internationally, our support organization faces additional challenges, including those associated with delivering support, training and documentation in languages other than English. Any failure to maintain high-quality client support, or a market perception that we do not maintain high-quality support, could materially harm our reputation, business, financial condition and results of operations, and adversely affect our ability to sell our solutions to existing and prospective clients. The importance of high-quality client support will increase as we expand our business and pursue new clients.

We may not be able to respond to rapid technological changes with new solution and service offerings. If we fail to predict and respond rapidly to evolving technological trends and our clients’ changing needs, we may not be able to remain competitive.

Our market is characterized by rapid technological change, changing client needs, frequent new software solution introductions and evolving industry standards. The introduction of third-party

 

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solutions embodying new technologies and the emergence of new industry standards and products could make our existing and future software solutions obsolete and unmarketable. We may not be able to develop updated solutions and services that keep pace with these and other technological developments that address the increasingly sophisticated needs of our clients or that meet new industry standards or interoperate with new or updated operating systems and hardware devices. We may also fail to adequately anticipate and prepare for the commercialization of emerging technologies and the development of new markets and applications for our technology and thereby fail to take advantage of new market opportunities or fall behind early movers in those markets. Our clients require that our solutions effectively identify and respond to these challenges on a timely basis without disrupting the performance of our clients’ IT systems or interrupting their operations. As a result, we must continually modify and improve our offerings in response to these changes on a timely basis. If we are unable to evolve our solutions in time to respond to and remain ahead of new technological developments, our ability to retain or increase market share and revenue in our markets could be materially adversely affected.

In addition, the process of developing new technology is complex and uncertain, and if we fail to accurately predict clients’ changing needs and emerging technological trends, our business could be harmed. We believe that we must continue to dedicate significant resources to our research and development efforts, including significant resources to developing new solutions and solution enhancements before knowing whether the market will accept them. Our new solutions and solution enhancements could fail to attain sufficient market acceptance for many reasons, including:

 

   

delays in releasing new solutions or enhancements to the market;

 

   

the failure to accurately predict market or client demands;

 

   

defects, errors or failures in the design or performance of our new solutions or solution enhancements;

 

   

negative publicity about the performance or effectiveness of our solutions;

 

   

the introduction or anticipated introduction of competing solutions by our competitors; and

 

   

the perceived value of our solutions or enhancements relative to their cost.

Our competitors, particularly those with greater financial and operating resources, may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or client requirements. With the introduction of new technologies, the evolution of our solutions and new market entrants, we expect competition to intensify in the future. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses or the failure of our solutions to achieve or maintain more widespread market acceptance.

We rely on third-party software and intellectual property licenses. Performance issues, errors and defects, or failure to successfully integrate or license necessary third-party software, content or services, could cause delays, errors, or failures of our solution, increases in our expenses and reductions in our sales, which could materially and adversely affect our business and results of operations.

Our solutions include software and other intellectual property and proprietary rights licensed from third parties. Any performance issues, errors, bugs, or defects in third-party software, content or services could result in errors or a failure of our solution, which could adversely affect our business and results of operations. It may be necessary in the future to seek or renew licenses relating to various aspects of our solutions. We have the expectation, based on experience and standard industry practice that such licenses generally can be obtained on commercially reasonable terms. However, there can be no assurance that the necessary licenses would be available on commercially reasonable terms, if

 

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at all. Our inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms could have a material adverse effect on our business, operating results and financial conditions. In any such case, we may be required to seek licenses to other software or intellectual property or proprietary rights from other parties and re-design our solutions to function with such technology, or develop replacement technology ourselves, which could result in increased costs and solution delays. We may also be forced to limit the features available in our current or future solutions. Moreover, incorporating intellectual property or proprietary rights licensed from third parties on a nonexclusive basis in our solutions, including our software could limit our ability to protect our intellectual property and proprietary rights in our solutions and our ability to restrict third parties from developing similar or competitive technology using the same third-party intellectual property or proprietary rights.

Risks Related to Laws and Regulation

Changes in tax laws or regulations that are applied adversely to us or our clients may have a material adverse effect on our business, cash flow, financial condition or results of operations.

New income, sales, use, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified, or applied adversely to us. For example, U.S. federal tax legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), enacted many significant changes to the U.S. tax laws. Future guidance from the U.S. Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. For example, legislation enacted on March 27, 2020, entitled the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to the Tax Act, the CARES Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.

We are subject to export controls and economic sanctions laws, and our clients and channel partners are subject to import controls that could subject us to liability if we are not in full compliance with applicable laws.

Certain of our solutions are subject to U.S. export controls and we would be permitted to export such solutions to certain countries outside the U.S. only by first obtaining an export license from the U.S. government, or by utilizing an existing export license exception, or after clearing U.S. government agency review. Obtaining the necessary export license or accomplishing a U.S. government review for a particular export may be time-consuming and may result in the delay or loss of sales opportunities. Furthermore, U.S. export control laws and economic sanctions, including economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control, prohibit the sale of subscriptions to or supply of our solutions and services to U.S. embargoed or sanctioned countries, regions, governments, persons and entities.

Although we take precautions to prevent our solutions from being provided in violation of U.S. export control and economic sanctions laws, our solutions may have been in the past, and could in the future be, provided inadvertently in violation of such laws. If we were to fail to comply with U.S. export law requirements, U.S. customs regulations, U.S. economic sanctions or other applicable U.S. laws, we could be subject to substantial civil and criminal penalties, including fines, incarceration for

 

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responsible employees and managers and the possible loss of export or import privileges. U.S. export controls, sanctions and regulations apply to our channel partners as well as to us. Any failure by our channel partners to comply with such laws, regulations or sanctions could have negative consequences, including reputational harm, government investigations and penalties.

Changes in our solutions or changes in export and import regulations may create delays in the introduction of our solutions into international markets, prevent our clients with international operations from deploying our solutions globally or, in some cases, prevent the export or import of our solutions to certain countries, governments or persons altogether. In addition, any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our solutions by, or in our decreased ability to export or sell our solutions to, existing or potential clients with international operations. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely affect our business, financial condition and operating results.

We are subject to anti-corruption, anti-bribery and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.

We are subject to anti-corruption and anti-bribery and similar laws, such as the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010 and other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, offering, soliciting, or accepting, directly or indirectly, improper payments or other improper benefits to or from any person whether in the public or private sector. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage and other consequences. Any investigations, actions or sanctions could adversely affect our business, results of operations and financial condition.

Changes in privacy laws, regulations, and standards may cause our business to suffer.

Our clients can use our platform to collect, use and store certain types of personal or identifying information regarding their employees and clients. Federal, state and foreign government bodies and agencies have adopted, are considering adopting or may adopt laws and regulations regarding the collection, use, storage and disclosure of personal information obtained from consumers and individuals, such as compliance with the Health Insurance Portability and Accountability Act in the United States and the GDPR in the European Union. The regulatory framework for the handling of personal and confidential information is rapidly evolving and is likely to remain uncertain for the foreseeable future as new privacy laws are being enacted globally and existing laws are being updated and strengthened. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our clients may limit the use and adoption of our platform and reduce overall demand or lead to significant fines, penalties or liabilities for any noncompliance with such privacy laws. Furthermore, privacy concerns may cause our clients’ employees to resist providing the personal data necessary to allow our clients to use our platform effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our platform in certain industries.

All of these domestic and international legislative and regulatory initiatives may adversely affect our and our clients’ ability to process, handle, store, use and transmit demographic and personal

 

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information from our and their employees, clients and suppliers, which could reduce demand for our platform. The European Union and many countries in Europe have stringent privacy laws and regulations, which may affect our ability to operate cost effectively in certain European countries. In particular, the EU has adopted the GDPR which went into effect on May 25, 2018 and contains numerous requirements and changes, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Specifically, the GDPR introduced numerous privacy-related changes for companies operating in the EU, including greater control for data subjects (e.g., the “right to be forgotten”), increased data portability for EU consumers, data breach notification requirements, and increased fines. In particular, under the GDPR, fines of up to 20 million Euros or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. Complying with the GDPR may cause us to incur substantial operational costs or require us to change our business practices. Despite our efforts to bring practices into compliance with the GDPR, we may not be successful either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Non-compliance could result in proceedings against us by governmental entities, clients, data subjects or others. We may also experience difficulty retaining or obtaining new European or multi-national clients due to the compliance cost, potential risk exposure, and uncertainty for these entities, and we may experience significantly increased liability with respect to these clients pursuant to the terms set forth in our engagements with them. Recent legal developments in Europe have created complexity and regulatory compliance uncertainty regarding certain transfers of personal information from the EEA to the United States. For example, on July 16, 2020, the Court of Justice of the European Union (“CJEU”) invalidated the EU-U.S. Privacy Shield Framework (“Privacy Shield”) under which personal information could be transferred from the EU to U.S. entities who had self-certified under the Privacy Shield program. While the CJEU upheld the adequacy of EU-specified standard contractual clauses as an adequate personal information transfer mechanism, it made clear that reliance on them alone may not necessarily be sufficient in all circumstances and that their use must be assessed on a case-by-case basis taking into account the surveillance laws in and the right of individuals afforded by, the destination country. The CJEU went on to state that, if the competent supervisory authority believes that the standard contractual clauses cannot be complied with in the destination country and the required level of protection cannot be secured by other means, such supervisory authority is under an obligation to suspend or prohibit that transfer unless the data exporter has already done so itself. Furthermore, on June 4, 2021, the European Commission adopted new standard contractual clauses, which became effective on June 29, 2021, and impose on companies additional obligations relating to data transfers, including the obligation to conduct a transfer impact assessment and, depending on a party’s role in the transfer, to implement additional security measures and to update internal privacy practices. The new standard contractual clauses also introduce the possibility of transfer of personal data from data processors in the EU to data controllers outside the EU. If we elect to rely on the new standard contractual clauses for data transfers, we may be required to incur significant time and expend significant resources to update our contractual arrangements and to comply with new obligations. If we are unable to implement a valid mechanism for personal data transfers from the EU, we will face increased exposure to regulatory actions, substantial fines and injunctions against processing personal data from the EU. Inability to export personal data may also restrict our activities outside the EU, limit our ability to collaborate with partners as well as other service providers, contractors and other companies outside of the EU, and require us to increase our processing capabilities within the EU at significant expense or otherwise cause us to change the geographical location or segregation of our relevant systems and operations — any or all of which could adversely affect our operations or financial results. Ongoing legal challenges to the SCCs may render them invalid or could result in further limitations on the ability to transfer data across borders. Similar concerns may apply to transfers of personal data out of the United Kingdom (“UK”). Additionally, certain countries have passed or are considering passing laws requiring data localization, which could increase the cost and complexity of delivering our services and operating our business. We rely on a mixture of mechanisms to transfer personal data from the EU to

 

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the United States (including having previously relied on Privacy Shield) and are evaluating what additional mechanisms may be required to establish adequate safeguards for personal information. As supervisory authorities continue to issue further guidance on personal information export mechanisms, including circumstances where the standard contractual clauses cannot be used and/or start taking enforcement action, we could suffer additional costs, complaints, and/or regulatory investigations or fines. Moreover, if we are otherwise unable to transfer personal information between and among countries and regions in which we operate, it could affect the manner in which we provide our services, and we may find it necessary to establish systems in the EU to maintain personal data originating from the EU, which may involve substantial expense and distraction from other aspects of our business. In the meantime, there could be uncertainty as to how to comply with EU privacy law.

Further, ongoing developments in the United Kingdom have created uncertainty with regard to data protection regulation in the United Kingdom. As of January 1, 2021, and the expiry of transitional arrangements agreed to between the United Kingdom and the European Union, data processing in the United Kingdom is governed by a United Kingdom version of the GDPR (combining the GDPR and the Data Protection Act 2018), exposing us to two parallel regimes, each of which potentially authorizes similar fines and other potentially divergent enforcement actions for certain violations. With respect to transfers of personal data from the European Economic Area to the United Kingdom, the European Commission adopted an adequacy decision for the United Kingdom on June 28, 2021, finding the United Kingdom ensures an adequate level of data protection. Following the adoption of the adequacy decision, there will be increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the United Kingdom and the European Economic Area. Other countries have also passed or are considering passing laws requiring local data residency or restricting the international transfer of data.

In addition to the changing regulatory landscape in the EU, California, among other things, enacted the California Consumer Privacy Act of 2018 (“CCPA”) which took effect on January 1, 2020, and which broadly defines personal information, gives California residents expanded privacy rights, allows consumers to opt out of certain data sharing with third parties, provides for civil penalties for violations, and includes a new cause of action for data breaches. Moreover, a new privacy law, the California Privacy Rights Act (“CPRA”), was voted into law by Californians during the November 2020 election. The CPRA will significantly modify the CCPA, and will impose additional data protection obligations on companies doing business in California, including additional consumer rights processes and opt-outs for certain uses of sensitive data and sharing of personal data starting in January 2023. The effects of this legislation are potentially far-reaching and may require us to modify our data management practices and to incur substantial expense in an effort to comply.

Certain other state laws impose similar privacy obligations and all 50 states have laws that include obligations to provide notification of security breaches to affected individuals, state officers and others. Any other proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. Additionally, any failure or perceived failure by us, or any third parties with which we do business, to comply with our posted privacy policies or contractual obligations to which we or such third parties are or may become subject, may result in actions or other claims against us by governmental entities or private actors, the expenditure of substantial costs, time and other resources or the incurrence of significant fines, penalties or other liabilities.

Because the interpretation and application of many privacy and data protection laws along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or

 

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the features of our solutions and platform capabilities. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions and platform capabilities, which could have an adverse effect on our business. Any inability or perceived inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations and policies that are applicable to the businesses of our clients may limit the use and adoption of, and reduce the overall demand for, our solutions. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our solutions, particularly in certain industries and foreign countries. If we are not able to adjust to changing laws, regulations and standards related to the Internet, our business may be harmed.

Many of our clients are subject to a regulatory environment and to industry standards that may change in a manner that reduces the types or volume of solutions or services we provide or may reduce the type or number of transactions in which our clients engage, and therefore reduce our revenue.

Our clients are subject to a number of government regulations and industry standards with which our services must comply. Our clients must ensure that our services and related solutions work within the extensive and evolving regulatory and industry requirements applicable to them. Federal, state, foreign or industry authorities could adopt laws, rules or regulations affecting our clients’ businesses that could lead to increased operating costs and could reduce the convenience and functionality of our services, possibly resulting in reduced market acceptance. In addition, action by regulatory authorities relating to credit availability, data usage, privacy or other related regulatory developments could have an adverse effect on our clients and, therefore, could have a material adverse effect on our financial condition, revenue, results of operations, prospects for future growth and overall business. Elimination of regulatory requirements could also adversely affect the sales of our solutions designed to help clients comply with complex regulatory environments.

Risks Related to Being a Public Company

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our Class A common stock.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to complete our evaluation, testing and any required remediation prior to becoming a public company or in a timely manner thereafter. If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline, and we may be subject to investigation or sanctions by the SEC.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting

 

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as of the end of the fiscal year that coincides with the filing of our second annual report on Form 10-K. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We will also be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company” as defined in the JOBS Act if we take advantage of the exemptions contained in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price. To comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition and results of operations.

Our management team has limited experience managing a public company.

Many members of our management team have joined us recently or have limited experience managing a publicly-traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations and financial condition.

Our quarterly operating results and other metrics may vary significantly and be unpredictable, which could cause the trading price of our stock to decline.

Our operating results and other metrics have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

 

   

the impact of COVID-19 on our clients’ budgets and their ability to purchase or renew at similar volumes to prior periods;

 

   

the level of demand for our solutions, including our newly-introduced solutions;

 

   

the timing and use of new subscriptions and renewals of existing subscriptions;

 

   

the timing and success of new solution announcements and introductions by us and our competitors;

 

   

our ability to maintain scalable internal systems for reporting, order processing, license fulfillment, solution delivery, purchasing, billing and general accounting, among other functions;

 

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the extent to which clients subscribe for additional solutions, license additional solutions or increase the number use cases;

 

   

significant security breaches of, technical difficulties with, or interruptions to, the delivery and use of our offerings;

 

   

client budgeting cycles and seasonal buying patterns;

 

   

any changes in the competitive landscape of our industry, including consolidation among our competitors, clients, partners or resellers;

 

   

timing of costs and expenses during a quarter;

 

   

deferral of orders in anticipation of new solutions or enhancements announced by us or our competitors;

 

   

price competition;

 

   

changes in renewal rates and terms in any quarter;

 

   

costs related to the acquisition of businesses, talent, technologies or intellectual property by us, including potentially significant amortization costs and possible write-downs;

 

   

litigation-related costs, settlements or adverse litigation judgments;

 

   

any disruption in our sales channels or termination of our relationship with channel and other strategic partners;

 

   

general economic conditions, both domestically and in our foreign markets, and related changes to currency exchange rates;

 

   

insolvency or credit difficulties confronting our clients, affecting their ability to purchase or pay for our solutions; and

 

   

future accounting pronouncements or changes in our accounting policies.

Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other operating results, including fluctuations in our key metrics. This variability and unpredictability could result in our failing to meet the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits.

We may fail to meet or exceed the expectations of securities analysts and investors, and the market price for our Class A common stock could decline. If one or more of the securities analysts who cover us change their recommendation regarding our stock adversely, the market price for our Class A common stock could decline. Additionally, our stock price may be based on expectations, estimates or forecasts of our future performance that may be unrealistic or may not be achieved. Further, our stock price may be affected by financial media, including press reports and blogs.

Risks Related to Our Indebtedness

Our existing indebtedness could adversely affect our business and growth prospects.

As of June 30, 2021, we had total long-term indebtedness outstanding of approximately $232.6 million, including term loans of $237.5 million and deferred debt issuance costs of $3.3 million. Concurrently with or shortly after the completion of this offering, we expect to enter into a new revolving credit facility (the “Post-IPO Credit Facility”), which we expect to provide $125.0 million of borrowing

 

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capacity. See “Description of Certain Indebtedness—Post-IPO Credit Facility” for a description of the expected terms of the Post-IPO Credit Facility. There can be no assurance that we will enter into the Post-IPO Credit Facility on the terms described herein, or at all. All obligations under the Credit Facilities are, and obligations under the Post-IPO Credit Facility are expected to be, secured by first-priority perfected security interests in substantially all of our assets and the assets of our subsidiaries, subject to permitted liens and other exceptions. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.

Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in the Credit Facilities (as well as those expected to be included in the Post-IPO Credit Facility) have important consequences, including:

 

   

limiting funds otherwise available for financing our capital expenditures by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt;

 

   

limiting our ability to incur or prepay existing indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes in the nature of the business, among other things;

 

   

making us more vulnerable to rising interest rates, as substantially all of our borrowings, including borrowings under the Credit Facilities, bear variable rates of interest; and

 

   

making us more vulnerable in the event of a downturn in our business.

Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, tax laws, including the disallowance or deferral of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial condition, results of operations, cash flows and prospects. Further, our Credit Facilities contain customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or

 

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necessary for our business. With respect to the Credit Facilities, we are subject to financial covenants capping the Total Leverage Ratio (as defined therein) at the maximum levels set forth set forth in the following table as of the corresponding dates set forth below:

 

Test Period Ending

   Maximum Total Leverage
Ratio under the First
Lien Credit Agreement
   Maximum Total Leverage
Ratio under the Second
Lien Credit Agreement

December 31, 2019

   12.00 to 1.00    15.00 to 1.00

March 31, 2020

   12.00 to 1.00    15.00 to 1.00

June 30, 2020

   12.00 to 1.00    15.00 to 1.00

September 30, 2020

   12.00 to 1.00    15.00 to 1.00

December 31, 2020

   11.25 to 1.00    14.0625 to 1.00

March 31, 2021

   10.75 to 1.00    13.4375 to 1.00

June 30, 2021

   10.25 to 1.00    12.8125 to 1.00

September 30, 2021

   9.75 to 1.00    12.1875 to 1.00

December 31, 2021

   9.25 to 1.00    11.5625 to 1.00

March 31, 2022

   8.75 to 1.00    10.9375 to 1.00

June 30, 2022

   8.25 to 1.00    10.3125 to 1.00

September 30, 2022

   7.75 to 1.00    9.6875 to 1.00

December 31, 2022

   7.25 to 1.00    9.0625 to 1.00

March 31, 2023

   6.75 to 1.00    8.4375 to 1.00

June 30, 2023

   6.25 to 1.00    7.8125 to 1.00

September 30, 2023

   5.75 to 1.00    7.1875 to 1.00

December 31, 2023 and each test period thereafter

   5.25 to 1.00    6.5625 to 1.00

We expect to use cash flow from operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures. The ability to make these payments depends on our financial and operating performance, which is subject to prevailing economic, industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.

Despite current indebtedness levels, we may incur substantially more indebtedness, which could further exacerbate the risks associated with our substantial indebtedness.

We may incur significant additional indebtedness in the future. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. If new debt is added to our current indebtedness levels, the related risks that we face could intensify. Although the financing documents governing our Credit Facilities contain, and we expect the Post-IPO Credit Facility will contain, restrictions on the incurrence of additional indebtedness and liens, these restrictions are subject to a number of important qualifications and exceptions, and the additional indebtedness and liens incurred in compliance with these restrictions could be substantial.

The financing documents governing our Credit Facilities permit us, and we expect the Post-IPO Credit Facility will permit us, to incur certain additional indebtedness, including liabilities that do not constitute indebtedness as defined in the financing documents. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. In addition, financing documents governing our Credit Facilities do not restrict, and we expect the Post-IPO Credit Facility will not restrict, our Principal Shareholder from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our Credit Facilities. If new debt is added to our currently anticipated indebtedness levels, the related risks that we face could intensify.

 

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Variable rate indebtedness that we have incurred or may in the future incur will subject us to interest rate risk, which could cause our debt service obligations to increase significantly.

Substantially all of our borrowings, including borrowings under our Credit Facilities, and expected borrowings under the Post-IPO Credit Facility, bear variable rates of interest. An increase in prevailing interest rates would increase our debt service obligations, which would have a negative impact on our cash flows, including cash available for servicing our indebtedness.

We may not be able to generate sufficient cash flow to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance outstanding debt obligations depends on our financial and operating performance, which will be affected by prevailing economic, industry and competitive conditions and by financial, business and other factors beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness. Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit worthiness, which would also harm our ability to incur additional indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures and acquisitions, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants. Refinancings may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service obligations. The financing documents governing our Credit Facilities restrict, and we expect the Post-IPO Credit Facility will also restrict, our ability to conduct asset sales and/or use the proceeds from asset sales for certain purposes. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe are fair and any proceeds that we do receive may not be adequate to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our indebtedness.

The terms of the financing documents governing our Credit Facilities restrict, and we expect the Post-IPO Credit Facility will restrict, our current and future operations, particularly our ability to respond to changes or to take certain actions.

The financing documents governing our Credit Facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:

 

   

incur additional indebtedness;

 

   

incur liens;

 

   

merge, dissolve, liquidate, amalgamate, consolidate or sell all or substantially all of our assets;

 

   

declare or pay certain dividends, payments or distribution or repurchase or redeem certain capital stock;

 

   

permit our subsidiaries to enter into agreements restricting their ability to pay dividends, make loans, incur liens and sell assets; and

 

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make certain investments.

These restrictions could limit, potentially significantly, our operational flexibility and affect our ability to finance our future operations or capital needs or to execute our business strategy.

The phase-out of LIBOR, or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.

Borrowings under our Credit Facilities bear interest based partly on the LIBOR, the basic rate of interest used in lending between banks on the London interbank market which is widely used as a reference for setting the interest rate on loans globally. LIBOR is currently expected to be phased out by the middle of 2023. The U.S. Federal Reserve has begun publishing a Secured Overnight Funding Rate which is currently intended to serve as an alternative reference rate to LIBOR. If the method for calculation of LIBOR changes, if LIBOR is no longer available, or if lenders have increased costs due to changes in LIBOR, we may suffer from potential increases in interest rates on our borrowings. This could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects. We cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks. Further, we may need to renegotiate our Credit Facilities or incur other indebtedness, and changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, may negatively impact the terms of such indebtedness.

We may be unable to refinance our indebtedness.

Our Revolving Credit Facility matures on September 6, 2024, our First Lien Term Loan Facility matures on September 4, 2026 and our Second Lien Term Loan Facility matures on September 6, 2027. In addition, we may need to refinance all or a portion of our indebtedness before maturity. Our ability to repay, refinance, replace or extend these facilities by their maturity dates will be dependent on, among other things, business conditions, our financial performance and the general condition of the financial markets. If a financial disruption were to occur at the time that we are required to repay indebtedness outstanding under these facilities, we could be forced to undertake alternate financings, including a sale of additional common stock, negotiate for an extension of the maturity of the applicable facility or sell assets and delay capital expenditures in order to generate proceeds that could be used to repay indebtedness. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.

Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our competitive position and results of operations.

We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms or at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:

 

   

develop and enhance our solution offerings;

 

   

continue to expand our organization;

 

   

hire, train and retain employees;

 

   

respond to competitive pressures or unanticipated working capital requirements; or

 

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pursue acquisition opportunities.

In addition, if we issue additional equity to raise capital, your interest in us will be diluted.

Risks Related to Our Organizational Structure

Our principal asset is our interest in Topco LLC, and, accordingly, we depend on distributions from Topco LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement. Topco LLC’s ability to make such distributions may be subject to various limitations and restrictions.

We are a holding company and have no material assets other than our direct and indirect ownership of LLC Units. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes, satisfy our obligations under the Tax Receivable Agreement and pay operating expenses or declare and pay dividends, if any, in the future depends on the financial results and cash flows of Topco LLC and its subsidiaries. There can be no assurance that Topco LLC and its subsidiaries will generate sufficient cash flow to distribute funds to us or that applicable state law and contractual restrictions, including negative covenants in debt instruments of Topco LLC and its subsidiaries, will permit such distributions.

Topco LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to any entity-level U.S. federal income tax. Instead, for U.S. federal income tax purposes, taxable income of Topco LLC is allocated to the LLC Unitholders and us. Accordingly, we will incur income taxes on our distributive share of any net taxable income of Topco LLC. Under the terms of the LLC Operating Agreement, Topco LLC is obligated to make tax distributions to LLC Unitholders and us. In addition to tax expenses, we will incur expenses related to our operations, including obligations to make payments under the Tax Receivable Agreement. Due to the uncertainty of various factors, the payments that we may be required to make under the Tax Receivable Agreement to the LLC Unitholders may be significant and are dependent upon sufficient taxable income to fully utilize the potential future tax benefits that are subject to the Tax Receivable Agreement. Under the LLC Operating Agreement, tax distributions shall be made on a pro rata basis among the LLC Unitholders, and will be calculated without regard to any applicable basis adjustment under Section 743(b) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), which means that the amount of tax distributions will be determined based on the LLC Unitholder who is allocated the largest amount of taxable income on a per LLC Unit basis and at a tax rate that will be determined by us, but will be made pro rata based on ownership of LLC Units, and so Topco LLC will be required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes that it would have paid if it were taxed on its net income at the tax rate applicable to a similarly situated corporate taxpayer.

We intend to cause Topco LLC to make (1) pro rata cash distributions to the owners of LLC Units (including us) in amounts sufficient to fund their tax obligations in respect of taxable income allocated to them (as discussed above) and to fund our obligation to make payments under the Tax Receivable Agreement and (2) non-pro rata reimbursements to us in respect of our expenses.

However, Topco LLC’s ability to make such distributions may be subject to various limitations and restrictions, such as restrictions on distributions that would violate either any contract or agreement to which Topco LLC or any of its subsidiaries is then a party, including debt agreements, or any applicable law, or that would have the effect of rendering Topco LLC or its subsidiaries insolvent. If we do not have sufficient funds to pay our taxes or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent that we are unable to make payments under the Tax Receivable Agreement, such payments generally will be deferred and will

 

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accrue interest until paid. Nonpayment for a specified period, however, may constitute a breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, unless, generally, such nonpayment is due to a lack of sufficient funds or is prevented by any debt agreement to which Topco LLC or its subsidiaries is a party. See “—Risks Related to Our Class A Common Stock and This Offering,” “Dividend Policy,” “Organizational Structure—Tax Receivable Agreement” and “Organizational Structure—Amended and Restated Operating Agreement of Topco LLC.”

If Topco LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the Tax Receivable Agreement, even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status. Even as a partnership for U.S. federal income tax purposes, Topco LLC could become liable for amounts resulting from adjustments to its tax returns for prior years.

We intend to operate such that Topco LLC does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is a partnership the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof. Under certain circumstances, transfers of LLC Units could cause Topco LLC to be treated as a publicly traded partnership. In addition, from time to time the U.S. Congress has considered legislation to change the tax treatment of partnerships and there can be no assurance that any such legislation will not be enacted or if enacted will not be adverse to us.

If Topco LLC were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we might be subject to potentially significant tax inefficiencies, including as a result of our inability to file a consolidated U.S. federal income tax return with Topco LLC. In addition, we may not be able to realize tax benefits covered under the Tax Receivable Agreement and would not be able to recover any payments previously made by us under the Tax Receivable Agreement, even if the corresponding tax benefits (including any claimed increase in the tax basis of Topco LLC’s assets) were subsequently determined to have been unavailable.

Even if Topco LLC continues to be treated as a partnership for U.S. federal income tax purposes, certain adjustments to Topco LLC’s tax return for prior years may result in liabilities for Topco LLC. Legislation that is effective for taxable years beginning after December 31, 2017 may impute liability for adjustments to a partnership’s tax return on the partnership itself with respect to taxable years of the partnership that are open to adjustment, including taxable years prior to the offering, in certain circumstances, absent an election to the contrary. Topco LLC (or any subsidiary of Topco LLC that is treated as a partnership for U.S. federal income tax purposes) may be subject to material liabilities pursuant to this legislation and related guidance if, for example, its calculations of taxable income are incorrect.

Conflicts of interest could arise between our shareholders and the LLC Unitholders, which may impede business decisions that could benefit our shareholders.

Holders of LLC Units have the right to consent to certain amendments to the LLC Operating Agreement, as well as to certain other matters. Holders of these voting rights may exercise them in a manner that conflicts with the interests of our shareholders. Circumstances may arise in the future when the interests of the LLC Unitholders conflict with the interests of our shareholders. As we control Topco LLC, we have certain obligations to the LLC Unitholders that may conflict with fiduciary duties our officers and directors owe to our shareholders. These conflicts may result in decisions that are not in the best interests of shareholders.

 

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The Tax Receivable Agreement with the LLC Unitholders requires us to make cash payments to them in respect of certain tax benefits to which we may become entitled, and we expect that the payments we may be required to make could be substantial.

In connection with the consummation of this offering, we will enter into a Tax Receivable Agreement with the LLC Unitholders, which will require us to pay to such persons 85% of the tax benefits, if any, that we actually realize, or, in some circumstances, are deemed to realize, as a result of (i) Basis Adjustments (as defined below) resulting from exchanges of LLC Units for shares of our Class A common stock or cash in the future, (ii) certain tax attributes of the Blocker Entity, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement. Due to the uncertainty of various factors, the payments that we may be required to make under the Tax Receivable Agreement to the LLC Unitholders may be significant and are dependent upon sufficient taxable income to fully utilize the potential future tax benefits that are subject to the Tax Receivable Agreement. Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine, which tax reporting positions will be based on the advice of our tax advisors. Any payments made by us to the LLC Unitholders under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make payments under the Tax Receivable Agreement, such payments generally will be deferred and will accrue interest until paid. Nonpayment for a specified period, however, may constitute a breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement, unless, generally, such nonpayment is due to a lack of sufficient funds or is prevented by any debt agreement to which Topco LLC or any of its subsidiaries is a party. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of the tax benefits that may be deemed realized under the Tax Receivable Agreement. The payments under the Tax Receivable Agreement are also not conditioned upon the LLC Unitholders or Vista maintaining a continued ownership interest in Topco LLC or us.

The actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the timing of and the amount of gain recognized by the LLC Unitholders upon exchanges of LLC Units, the amount and timing of the taxable income we generate in the future and the federal tax rates then applicable. See “Organizational Structure—Tax Receivable Agreement.”

The U.S. Internal Revenue Service (the “IRS”) might challenge the tax benefits we receive in connection with this offering and related transactions or in connection with future acquisitions of LLC Units. As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash tax savings.

Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we determine. Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase or the availability of the Blocker Entity’s net operating losses (“NOLs”) or other tax attributes of the Blocker Entity, Topco LLC or subsidiaries of Topco LLC, we will not be reimbursed for any cash payments previously made under the Tax Receivable Agreement if any tax benefits initially claimed by us are subsequently disallowed, in whole or in part, by the IRS or other applicable taxing authority. For example, if the IRS later asserts that we did not obtain a tax basis increase or disallows or defers (in whole or in part) the availability of NOLs due to a potential ownership change under Section 382 of the Code, among other potential challenges, then we would not be reimbursed for any cash payments previously made under the Tax Receivable Agreement with respect to such tax benefits that we had initially claimed. Instead, any excess cash payments made by us to a party to the

 

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Tax Receivable Agreement will be netted against any future cash payments that we might otherwise be required to make to such party under the terms of the Tax Receivable Agreement. Nevertheless, any tax benefits initially claimed by us may not be disallowed for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the Tax Receivable Agreement. Accordingly, there may not be sufficient future cash payments against which to net. The applicable U.S. federal income tax rules are complex and their application to certain aspects of our structure are uncertain and there is no explicit authority in this regard, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the Tax Receivable Agreement that are substantially greater than our actual cash tax savings.

The amounts that we may be required to pay to the LLC Unitholders under the Tax Receivable Agreement may be accelerated in certain circumstances and may also significantly exceed the actual tax benefits that we ultimately realize.

The Tax Receivable Agreement provides that if (1) certain mergers, asset sales, other forms of business combination or other changes of control were to occur, (2) we breach any of our material obligations under the Tax Receivable Agreement or (3) at any time, we elect an early termination of the Tax Receivable Agreement, then the Tax Receivable Agreement will terminate and our obligations, or our successor’s obligations, to make payments under the Tax Receivable Agreement would accelerate and become immediately due and payable. The amount due and payable in that circumstance is based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the Tax Receivable Agreement. See “Organizational Structure—Tax Receivable Agreement.” We may need to incur debt to finance payments under the Tax Receivable Agreement to the extent our cash resources are insufficient to meet our obligations under the Tax Receivable Agreement as a result of timing discrepancies or otherwise.

As a result of a change in control, material breach or our election to terminate the Tax Receivable Agreement early, (1) we could be required to make cash payments to the LLC Unitholders that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the Tax Receivable Agreement and (2) we would be required to make an immediate cash payment equal to the anticipated future tax benefits that are the subject of the Tax Receivable Agreement discounted in accordance with the Tax Receivable Agreement, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the Tax Receivable Agreement.

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the LLC Unitholders that will not benefit the other common shareholders to the same extent as they will benefit the LLC Unitholders.

Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the LLC Unitholders that will not benefit the other holders of our Class A common stock to the same extent. We will enter into a Tax Receivable Agreement with the LLC Unitholders, which will require us to pay to such persons 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of (i) Basis Adjustments (as defined below) resulting from exchanges of LLC Units for shares of our Class A common stock or cash in the future, (ii) certain tax attributes of the Blocker Entity, Topco LLC and subsidiaries of Topco LLC that existed

 

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prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we make under the Tax Receivable Agreement. Due to the uncertainty of various factors, the payments that we may be required to make under the Tax Receivable Agreement to the LLC Unitholders may be significant and are dependent upon sufficient taxable income to fully utilize the potential future tax benefits that are subject to the Tax Receivable Agreement. Although we will retain 15% of the amount of such tax benefits, this and other aspects of our organizational structure may adversely impact the future trading market for the Class A common stock.

We may not be able to realize all or a portion of the tax benefits that are currently expected to result from the tax attributes covered by the Tax Receivable Agreement and from payments made under the Tax Receivable Agreement.

Our ability to realize the tax benefits that we currently expect to be available as a result of the attributes covered by the Tax Receivable Agreement, the payments made pursuant to the Tax Receivable Agreement, and the interest deductions imputed under the Tax Receivable Agreement all depend on a number of assumptions, including that we earn sufficient taxable income each year during the period over which such deductions are available and that there are no adverse changes in applicable law or regulations. Additionally, if our actual taxable income were insufficient or there were additional adverse changes in applicable law or regulations, we may be unable to realize all or a portion of the expected tax benefits and our cash flows and shareholders’ equity could be negatively affected. See “Organizational Structure—Tax Receivable Agreement.”

Topco LLC will be required to make distributions to us and the LLC Unitholders and we expect that the distributions will be substantial.

Topco LLC is treated as a partnership for U.S. federal income tax purposes and, as such, is not subject to U.S. federal income tax. Instead, taxable income is allocated to its members, including us. We intend to cause Topco LLC to make tax distributions quarterly to the holders of Class A Units (including us) on a pro rata basis based on Topco LLC’s net taxable income and to the holders of Class B Units based on such holder’s allocable share of Topco LLC’s net taxable income (rather than on a pro rata basis). In addition, we intend to cause Topco LLC to make pro rata distributions to the LLC Unitholders and us in order to provide us with the funds necessary for us to satisfy our obligations to make payments under the Tax Receivable Agreement. Funds used by Topco LLC to satisfy its tax distribution obligations and funds distributed by Topco LLC to the LLC Unitholders and us in order to enable us to satisfy our obligations to make payments under the Tax Receivable Agreement will not be available for reinvestment in our business. Moreover, we expect that these tax distributions will be substantial, and will likely exceed (as a percentage of Topco LLC’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. As a result, it is possible that we will receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. While our Board may choose to distribute such cash balances as dividends on our Class A common stock, it will not be required to do so, and may in its sole discretion choose to use such excess cash for any purpose depending upon the facts and circumstances at the time of determination. To the extent that we do not distribute such excess cash as dividends on the Class A common stock and instead, for example, hold such cash balances, the LLC Unitholders may benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following an exchange of their LLC Units for shares of the Class A common stock, notwithstanding that such exchanging LLC Unitholders may previously have participated as holders of LLC Units in distributions by Topco LLC that resulted in such excess cash balances at our level. See “Dividend Policy.”

 

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Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our operating results and financial condition.

We are subject to income taxes in the United States, and certain of our subsidiaries are subject to income taxes outside of the United States, and our tax liabilities will be subject to the allocation of expenses in differing jurisdictions. Our future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

   

changes in the valuation of our deferred tax assets and liabilities;

 

   

expected timing and amount of the release of any tax valuation allowances;

 

   

expiration of, or detrimental changes in, research and development tax credit laws; or

 

   

changes in tax laws, regulations or interpretations thereof.

In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal, state, and local tax authorities, and certain of our subsidiaries may be subject to audits of income, sales and other transaction taxes by non-U.S. tax authorities. Outcomes from these audits could have an adverse effect on our operating results and financial condition.

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if it (1) is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act.

As the sole managing member of Topco LLC, we will control and manage Topco LLC. On that basis, we believe that our interest in Topco LLC is not an “investment security” under the 1940 Act. Therefore, we have less than 40% of the value of our total assets (exclusive of U.S. government securities and cash items) in “investment securities.” However, if we were to lose the right to manage and control Topco LLC, interests in Topco LLC could be deemed to be “investment securities” under the 1940 Act.

We intend to conduct our operations so that we will not be deemed to be an investment company. However, if we were deemed to be an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Risks Related to Our Class A Common Stock and This Offering

Vista controls us, and Vista’s interests may conflict with ours or yours in the future.

Immediately following this offering, investment entities affiliated with Vista will control approximately 67.2% of the voting power of our outstanding common stock, or 65.5% if the

 

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underwriters exercise in full their option to purchase additional shares of Class A common stock, which means that, based on its percentage voting power controlled after the offering, Vista will control the vote of all matters submitted to a vote of our shareholders. This control will enable Vista to control the election of the members of our Board and all other corporate decisions. Even when Vista ceases to control a majority of the total voting power, for so long as Vista continues to own a significant percentage of our common stock, Vista will still be able to significantly influence the composition of our Board and the approval of actions requiring shareholder approval. Accordingly, for such period of time, Vista will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common stock. In particular, for so long as Vista continues to own a significant percentage of our common stock, Vista will be able to cause or prevent a change of control of us or a change in the composition of our Board and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of Class A common stock as part of a sale of us and ultimately might affect the market price of our Class A common stock.

In addition, in connection with this offering, we will enter into a Director Nomination Agreement with Vista. The Director Nomination Agreement will provide Vista the right to designate (i) all of the nominees for election to our Board for so long as Vista beneficially owns common stock entitled to vote generally in the election of directors representing 40% or more of the voting power beneficially owned by Vista upon completion of this offering, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split or similar changes in the Company’s capitalization (the “Original Amount”); (ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Vista beneficially owns at least 30% and less than 40% of the Original Amount; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for so long as Vista beneficially owns at least 20% and less than 30% of the Original Amount; (iv) a number of directors (rounded up to the nearest whole number) equal to 20% of the total directors for so long as Vista beneficially owns at least 10% and less than 20% of the Original Amount; and (v) one director for so long as Vista beneficially owns at least 5% and less than 10% of the Original Amount. The Director Nomination Agreement will also provide that Vista may assign such right to an affiliate of Vista. The Director Nomination Agreement will prohibit us from increasing or decreasing the size of our Board without the prior written consent of Vista. See “Certain Relationships and Related Party Transactions—Policies for Approval of Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

Vista and its affiliates engage in a broad spectrum of activities, including investments in our industry generally. In the ordinary course of their business activities, Vista and its affiliates may engage in activities where their interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or clients of ours. Our certificate of incorporation to be effective at or prior to the consummation of this offering will provide that none of Vista, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) or its affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Vista also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, Vista may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance its investment, even though such transactions might involve risks to you or may not prove beneficial.

Upon listing of our shares of Class A common stock on the NYSE, we will be a “controlled company” within the meaning of the rules of the NYSE and, as a result, we will qualify for, and

 

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intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to shareholders of companies that are subject to such governance requirements.

After completion of this offering, Vista will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of our Board consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exceptions. As a result, we may not have a majority of independent directors on our Board, our compensation and nominating and corporate governance committees may not consist entirely of independent directors and our compensation and nominating and corporate governance committees may not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.

We may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section titled “Use of Proceeds.” Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increases the value of your investment, and the failure by our management to apply these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government. These investments may not yield a favorable return to our shareholders. If we do not invest or apply the net proceeds from this offering in ways that enhance shareholder value, we may fail to achieve expected results, which could cause the price of our Class A common stock to decline.

We are an “emerging growth company” and we expect to elect to comply with reduced public company reporting requirements, which could make our Class A common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we are eligible for certain exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being

 

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required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved and (iv) not being required to provide audited financial statements for the year ended December 31, 2018 or five years of Selected Consolidated Financial Data in this prospectus. We could be an emerging growth company for up to five years after the first sale of our Class A common stock pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2026. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have made certain elections with regard to the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take advantage of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our Class A common stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our Class A common stock less attractive as a result of reliance on these exemptions. If some investors find our Class A common stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our Class A common stock and the market price for our Class A common stock may be more volatile.

The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are electing to take advantage of this extended transition period for complying with new or revised accounting standards provided for by the JOBS Act. We will therefore comply with new or revised accounting standards when they apply to private companies. As a result, our financial statements may not be comparable with companies that comply with public company effective dates for accounting standards.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”

As a public company, we will incur legal, accounting and other expenses that we did not previously incur. We will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Sarbanes-Oxley Act, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial condition, results of operations, cash flows and prospects. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert our management’s attention from implementing our growth strategy, which could prevent us from improving our business, financial condition, results of operations, cash flows and prospects. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us

 

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to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and there could be a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.

Our certificate of incorporation and bylaws to be effective at or prior to the consummation of this offering and the Delaware General Corporation Law (the “DGCL”) contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Among other things:

 

   

these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders;

 

   

these provisions provide for a classified board of directors with staggered three-year terms;

 

   

these provisions provide that, at any time when Vista controls less than 40% in voting power of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

 

   

these provisions prohibit shareholder action by written consent from and after the date on which Vista controls less than 35% in voting power of our stock entitled to vote generally in the election of directors;

 

   

these provisions provide that for as long as Vista controls at least 50% in voting power of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of a majority in voting power of the outstanding shares of our capital stock and at any time when Vista controls less than 50% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 66 2/3% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and

 

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these provisions establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings; provided, however, at any time when Vista controls at least 10% in voting power of our stock entitled to vote generally in the election of directors, such advance notice procedure will not apply to Vista.

We will opt out of Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any interested shareholder for a period of three years following the date on which the shareholder became an interested shareholder. However, our certificate of incorporation to be effective at or prior to the consummation of this offering will contain a provision that provides us with protections similar to Section 203, and will prevent us from engaging in a business combination with a person (excluding Vista and any of its direct or indirect transferees and any group as to which such persons are a party) who acquires at least 85% of our common stock for a period of three years from the date such person acquired such common stock, unless board or shareholder approval is obtained prior to the acquisition. See “Description of Capital Stock—Anti-Takeover Provisions.” These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you desire, including actions that you may deem advantageous, or negatively affect the trading price of our Class A common stock. In addition, because our Board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team.

These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for shareholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board, including actions to delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our Class A common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see “Description of Capital Stock.”

We cannot predict the impact our dual class structure may have on the market price of our Class A common stock.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of our Class A common stock or in adverse publicity or other adverse consequences. For example, certain index providers have restrictions on including companies with multiple-class share structures in certain of their indexes. In July 2017, FTSE Russell and Standard & Poor’s announced that they would cease to allow most newly public companies utilizing dual or multi-class capital structures to be included in their indices. Affected indices include the Russell 2000 and the S&P 500, S&P MidCap 400 and S&P SmallCap 600, which together make up the S&P Composite 1500. Under these policies, our dual class capital structure would make us ineligible for inclusion in certain indices, and as a result, mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track those indices will not be investing in our stock. Because of our dual class structure, we will likely be excluded from certain of these indexes and we cannot assure you that other stock indexes will not take similar actions. Given the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from stock indexes would likely preclude investment by many of these funds and could make our Class A common stock less attractive to other investors. As a result, the market price of our Class A common stock could be adversely affected.

Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders and the

 

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federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our certificate of incorporation, which we will adopt at or prior to the consummation of this offering, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any claims in state court for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine; provided that for the avoidance of doubt, the forum selection provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including any “derivative action,” will not apply to suits to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our certificate of incorporation will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder; accordingly, we cannot be certain that a court would enforce such provision. Our certificate of incorporation will further provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above. However, our stockholders will not be deemed to have waived (and cannot waive) compliance with the federal securities laws and the rules and regulations thereunder. See “Description of Capital Stock—Forum Selection.” The forum selection provisions in our certificate of incorporation may have the effect of discouraging lawsuits against us or our directors and officers and may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us. If the enforceability of our forum selection provisions were to be challenged, we may incur additional costs associated with resolving such challenge. While we currently have no basis to expect any such challenge would be successful, if a court were to find our forum selection provisions to be inapplicable or unenforceable with respect to one or more of these specified types of actions or proceedings, we may incur additional costs associated with having to litigate in other jurisdictions, which could have an adverse effect on our business, financial condition, results of operations, cash flows and prospects and result in a diversion of the time and resources of our employees, management and board of directors.

If you purchase shares of Class A common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our Class A common stock is substantially higher than the net tangible book value per share of our Class A common stock. Therefore, if you purchase shares of our Class A common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book value per share after this offering. Based on an assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, you will experience immediate dilution of $17.86 per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, purchasers of Class A common stock in this offering will have contributed 31% of the aggregate price paid by all purchasers of our Class A common stock but will own only approximately 18% of our Class A common stock outstanding after this offering. See “Dilution” for more detail.

 

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An active, liquid trading market for our Class A common stock may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our Class A common stock. Although we have applied to list our Class A common stock on the NYSE under the trading symbol “ALVU,” an active trading market for our Class A common stock may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our Class A common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our Class A common stock. The market price of our Class A common stock may decline below the initial public offering price, and you may not be able to sell your shares of our Class A common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing additional shares of our Class A common stock or other equity or equity-linked securities and may impair our ability to acquire other companies or technologies by using any such securities as consideration.

Our operating results and stock price may be volatile, and the market price of our Class A common stock after this offering may drop below the price you pay.

Our quarterly operating results are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations, including as a result of the COVID-19 pandemic. This market volatility, as well as general economic, market or political conditions, could subject the market price of our Class A common stock to wide price fluctuations regardless of our operating performance. Our operating results and the trading price of our Class A common stock may fluctuate in response to various factors, including:

 

   

market conditions in our industry or the broader stock market;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new solutions or services by us or our competitors;

 

   

issuance of new or changed securities analysts’ reports or recommendations;

 

   

sales, or anticipated sales, of large blocks of our stock;

 

   

additions or departures of key personnel;

 

   

regulatory or political developments;

 

   

litigation and governmental investigations;

 

   

changing economic conditions;

 

   

investors’ perception of us;

 

   

events beyond our control such as weather, war and health crises such as the COVID-19 pandemic; and

 

   

any default on our indebtedness.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our Class A common stock to fluctuate substantially. Fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares of

 

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Class A common stock and may otherwise negatively affect the market price and liquidity of our shares of Class A common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

A significant portion of our total outstanding shares of Class A common stock are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our Class A common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our Class A common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares of Class A common stock intend to sell shares, could reduce the market price of our Class A common stock. After this offering, we will have 50,132,966 outstanding shares of Class A common stock. This includes shares of Class A common stock that we are selling in this offering, which may be resold in the public market immediately. Following the consummation of this offering, substantially all of the shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under lock-up agreements executed in connection with this offering described in “Underwriting” and restricted from immediate resale under the federal securities laws as described in “Shares Eligible for Future Sale.” All of these shares of Class A common stock will, however, be able to be resold after the expiration of the lock-up period, as well as pursuant to customary exceptions thereto or upon the waiver of the lock-up agreement by the representatives on behalf of the underwriters. We also intend to register shares of Class A common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements. As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares of Class A common stock sell them or are perceived by the market as intending to sell them.

Because we have no current plans to pay regular cash dividends on our Class A common stock following this offering, you may not receive any return on investment unless you sell your Class A common stock for a price greater than that which you paid for it.

We do not anticipate paying any regular cash dividends on our Class A common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under our Credit Facilities. Therefore, any return on investment in our Class A common stock is solely dependent upon the appreciation of the price of our Class A common stock on the open market, which may not occur. See “Dividend Policy” for more detail.

If securities or industry analysts do not publish research or reports about our business, if they publish unfavorable research or reports, or adversely change their recommendations regarding our Class A common stock or if our results of operations do not meet their expectations, our stock price and trading volume could decline.

If a trading market for our Class A common stock develops, the trading market will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. As a newly public company, we may be slow to attract

 

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research coverage. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research, issue an adverse opinion regarding our stock price or if our results of operations do not meet their expectations, our stock price could decline. Moreover, if one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our Class A common stock, which could depress the price of our Class A common stock.

Our certificate of incorporation will authorize us to issue one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our Class A common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our Class A common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our Class A common stock.

Vista may pursue corporate opportunities independent of us that could present conflicts with our and our shareholders’ interests.

Vista is in the business of making or advising on investments in companies and holds (and may from time to time in the future acquire) interests in or provide advice to businesses that may directly or indirectly compete with our business or be suppliers or clients of ours. For example, while Vista does not currently have other substantial investments or portfolio companies that compete in the investment management industry, they may have in the future. Vista may also pursue acquisitions that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

Our charter provides that none of our officers or directors who are also an officer, director, employee, partner, managing director, principal, independent contractor or other affiliate of Vista will be liable to us or our shareholders for breach of any fiduciary duty by reason of the fact that any such individual pursues or acquires a corporate opportunity for its own account or the account of an affiliate, as applicable, instead of us, directs a corporate opportunity to any other person, instead of us or does not communicate information regarding a corporate opportunity to us.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategies or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

 

   

the impact on our operations and financial condition from the effects of the current COVID-19 pandemic;

 

   

our history of cumulative losses and expectation that we will not be profitable for the foreseeable future;

 

   

risks associated with failing to continue our recent growth rates;

 

   

risks associated with the recent expansion of our management team and our ability to retain, hire and integrate skilled personnel;

 

   

limited operating history as a combined business;

 

   

fluctuations in revenue over the term of our contracts;

 

   

risks associated with subscription renewals and adoption of our solutions;

 

   

the competitiveness of the market in which we operate;

 

   

the market for our solutions developing more slowly than we anticipate;

 

   

our ability to develop, introduce and market new and enhanced versions of our solutions to meet client needs and expectations;

 

   

failure to effectively expand our sales capabilities;

 

   

any downturn or consolidation or decrease in technology spend in the financial services industry;

 

   

risks and uncertainties associated with potential acquisitions and divestitures;

 

   

our ability to develop, introduce and market new and enhanced versions of our solutions;

 

   

our ability to scale our business and manage our expenses;

 

   

our ability to operate offices located outside of the United States, including in Ukraine, and our ability to successfully expand internationally;

 

   

fluctuations in foreign currency exchange rates;

 

   

the impact of adverse general and industry-specific economic and market conditions;

 

   

our ability to correctly estimate market opportunity and forecast market growth;

 

   

our ability to successfully develop new solutions or materially enhance current solutions through our research and development efforts;

 

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risks caused by delays in upturns or downturns being reflected in our financial position and results of operations;

 

   

the length and variability of our sales cycles;

 

   

risks related to negotiating leverage and the demands of our large clients;

 

   

our ability to change our pricing models, if necessary to compete successfully;

 

   

our ability to acquire new accounts and successfully retain existing accounts;

 

   

our ability to maintain, enhance and protect our brand;

 

   

the impact of any catastrophic events;

 

   

our ability to provide configuration and integration services to large clients;

 

   

our judgment in applying accounting policies and changes in accounting standards;

 

   

the effects of interruptions or delays in services provided by our data centers or other third parties;

 

   

risks associated with lawsuits by third parties for alleged infringement, misappropriation or other violation of their intellectual property and proprietary rights;

 

   

our ability to obtain, maintain, protect and enforce intellectual property protection for our current and future solutions;

 

   

risks related to claims that our employees have wrongfully used or disclosed confidential information of their current or former employers or claims asserting ownership of our intellectual property rights;

 

   

the impact of potential information technology or data security breaches or other cyber-attacks or other disruptions;

 

   

the risks associated with indemnity provisions in some of our agreements;

 

   

the risks related to our use of open source software in certain of our solutions;

 

   

the impact of interruptions or performance problems associated with our technology or infrastructure;

 

   

risks related to the failures in internet infrastructure or interference with broadband or wireless access;

 

   

the impact of real or perceived errors, failures or bugs in our solutions;

 

   

risks related to incorrect or improper use of our solutions or our failure to properly train clients on how to utilize our solutions;

 

   

our ability to offer high-quality support;

 

   

our ability to predict and respond to rapidly evolving technological trends and our clients’ changing needs;

 

   

our reliance on third-party software and intellectual property licenses;

 

   

risks related to future litigation against us;

 

   

risks related to changes in tax laws;

 

   

the impact of export and import control laws and regulations;

 

   

risk relating to non-compliance with anti-corruption, anti-bribery and similar laws;

 

   

changes in privacy laws and regulations applicable to our business;

 

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our ability to comply with legal requirements, contractual obligations and industry standards relating to security, data protection and privacy;

 

   

risk to our reputation and of liability from a failure to comply with a variety of complex procurement rules and regulation;

 

   

our ability to develop and maintain proper and effective internal control over financial reporting;

 

   

our management team’s limited experience managing a public company;

 

   

the impact of variation in our quarterly operating results on the trading price of our stock; and

 

   

other factors disclosed in the section entitled “Risk Factors” and elsewhere in this prospectus.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

In addition, statements that “we believe” and similar statements 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 such 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.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

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USE OF PROCEEDS

We estimate, based upon an assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we will receive net proceeds from this offering of approximately $247.0 million (or $285.4 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use such net proceeds to acquire 15,300,000 newly-issued LLC Units (or 17,595,000 LLC Units if the underwriters exercise their option to purchase additional shares in full) in Topco LLC at a purchase price per LLC Unit equal to the initial public offering price per share of Class A common stock in this offering, less underwriting discounts and commissions.

In turn, Topco LLC intends to apply the balance of the net proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares of Class A common stock) to (i) repay all of our outstanding indebtedness under the First Lien Term Loan Facility, under which $162.5 million was outstanding and which had an interest rate of 4.09% as of June 30, 2021, (ii) repay all of our outstanding indebtedness under the Second Lien Term Loan Facility, under which $75.0 million was outstanding and which had an interest rate of 7.84% as of June 30, 2021, (iii) repay all of our outstanding indebtedness under our Revolving Credit Facility, under which no borrowings were outstanding as of June 30, 2021 but under which a total of $15.1 million of borrowings were outstanding and which had an interest rate of 4.1% as of August 31, 2021 as a result of borrowings subsequent to June 30, 2021, (iv) pay expenses incurred in connection with this offering and the other Organizational Transactions and (v) for general corporate purposes.

Pending use of the net proceeds from this offering described above, we may invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.

Assuming no exercise of the underwriters’ option to purchase additional shares of Class A common stock, each $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) would increase or decrease the net proceeds to us from this offering by approximately $14.2 million, assuming the number of shares of Class A common stock offered, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each 1,000,000 increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease the net proceeds to us from this offering by approximately $16.7 million, assuming that the initial public offering price per share for the offering remains at $18.00 (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. Additionally, because we are a holding company, our ability to pay dividends on our Class A common stock may be limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us. Any future determination to pay dividends will be at the discretion of our Board, subject to compliance with covenants in current and future agreements governing our and our subsidiaries’ indebtedness, including our First Lien Credit Agreement (as defined herein), including the Post-IPO Credit Agreement, and our Second Lien Credit Agreement (as defined herein), and will depend on our results of operations, financial condition, capital requirements and other factors that our Board deems relevant.

Under the terms of the LLC Operating Agreement, Topco LLC is obligated to make tax distributions to current and future unitholders, including us, with such distributions to be made on a pro rata basis among the LLC Unitholders and us based on Topco LLC’s net taxable income and without regard to any applicable basis adjustment under Section 743(b) of the Code, which means that the amount of tax distributions will be determined based on the holder who is allocated the largest amount of taxable income on a per LLC Unit basis and at a tax rate that will be determined by us, but will be made pro rata based on ownership of LLC Units, and so Topco LLC will be required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes that it would have paid if it were taxed on its net income at the tax rate applicable to a similarly situated corporate taxpayer. We expect that these tax distributions will be substantial, and will likely exceed (as a percentage of Topco LLC’s income) the overall effective tax rate applicable to a similarly situated corporate taxpayer. As a result, it is possible that we will receive distributions significantly in excess of our tax liabilities and obligations to make payments under the Tax Receivable Agreement. While our Board may choose to distribute such cash balances as dividends on our Class A common stock (subject to the limitations set forth in the preceding paragraph), it will not be required (and does not currently intend) to do so, and may in its sole discretion choose to use such excess cash for any purpose depending upon the facts and circumstances at the time of determination.

 

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CAPITALIZATION

The following table describes our cash and consolidated capitalization as of June 30, 2021:

 

   

of Topco LLC on an actual basis;

 

   

of Allvue Systems Holdings, Inc. on a pro forma basis, after giving effect to the Organizational Transactions other than this offering; and

 

   

of Allvue Systems Holdings, Inc. on a pro forma as adjusted basis, after giving effect to the Organizational Transactions and our sale of 15,300,000 shares of Class A common stock in this offering at an assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (assuming no exercise of the underwriters’ option to purchase additional shares of Class A common stock) and the application of the net proceeds of the offering as set forth in “Use of Proceeds.”

You should read this table in conjunction with the consolidated financial statements and the related notes, “Use of Proceeds,” “Organizational Structure,” “Unaudited Pro Forma Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

    As of June 30, 2021  
    Actual
Topco LLC
    Pro Forma for the
Organizational
Transactions
(other than the
offering)
    Pro Forma As
Adjusted for the
Organizational
Transactions
(including the
offering)(1)
 

Cash and cash equivalents

  $ 10,575     $ 10,579     $ 19,899  

Indebtedness:

     

First Lien Term Loan Facility

    162,525       162,525       —    

Second Lien Term Loan Facility

    75,000       75,000       —    

Revolving Credit Facility(1)

    —         —         —    

Members’ equity

    712,750       —         —    

Class A common stock, $0.0001 par value per share, no shares issued and outstanding, on an actual basis; 500,000,000 shares authorized, 34,832,966 shares issued and outstanding, on a pro forma basis; 500,000,000 shares authorized; 50,132,966 shares issued and outstanding, on a pro forma as adjusted basis

    —         3       5  

Class V common stock, $0.0001 par value per share, no shares issued and outstanding, on an actual basis; 300,000,000 shares authorized; 35,086,096 shares issued and outstanding, on a pro forma basis and on a pro forma as adjusted basis

    —         4       4  

Additional paid-in capital

    —         355,082       563,089  

Accumulated deficit

    (106,044     (52,830     (64,328

Accumulated other comprehensive income

    786       392       463  
 

 

 

   

 

 

   

 

 

 

Members’ / stockholders’ equity

    607,492       302,651       499,233  

Noncontrolling interests(2)

    —         304,845       349,389  
 

 

 

   

 

 

   

 

 

 

Total members’ / stockholders’ equity

    607,492       607,496       848,622  
 

 

 

   

 

 

   

 

 

 

Total capitalization

  $ 855,592     $ 855,600     $ 868,521  
 

 

 

   

 

 

   

 

 

 

 

(1)

As of June 30, 2021, we had an additional $25.0 million available for borrowing under our Revolving Credit Facility. On July 28, 2021 and August 25, 2021, we borrowed $5.0 million and $10.0 million, respectively, under our Revolving Credit Facility. We intend to use a portion of the

 

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  net proceeds of this offering to repay all outstanding borrowings under our Revolving Credit Facility. See “Use of Proceeds.” Concurrently with or shortly after the completion of this offering, we expect to enter into the Post-IPO Credit Facility, which we expect to provide $125.0 million of borrowing capacity. See “Description of Certain Indebtedness—Post-IPO Credit Facility” for a description of the expected terms of the Post-IPO Credit Facility. There can be no assurance that we will enter into the Post-IPO Credit Facility on the terms described therein, or at all.

 

(2)

On a pro forma as adjusted basis, includes the Topco LLC interests not owned by us, which represents 41.2% of Topco LLC’s LLC Units. The LLC Unitholders will hold the noncontrolling economic interest in Topco LLC. Allvue Systems Holdings, Inc. will hold 58.8% of the economic interest in Topco LLC.

A $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus) would increase or decrease each of cash, total stockholders’ equity and total capitalization on a pro forma basis by approximately $14.2 million, assuming the number of shares of Class A common stock offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each 1,000,000 increase or decrease in the number of shares of Class A common stock offered in this offering would increase or decrease each of cash, total stockholders’ equity and total capitalization on a pro forma basis by approximately $16.7 million, based on an assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The number of shares of Class A common stock to be outstanding after the completion of this offering excludes:

 

   

35,086,096 shares of Class A common stock that may be issuable upon the exchange of Class A Units;

 

   

2,584,769 shares of Class A common stock that may be issuable upon the exchange of fully vested Class B Units with a weighted average participation threshold of $10.01 per unit and assuming a stock price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.

 

   

1,149,896 shares of Class A common stock that may be issuable upon the exchange of unvested Class B Units that are subject to time-based vesting, with a weighted average participation threshold of $11.53 per unit and assuming a stock price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus.

 

   

Shares of Class A common stock that may be issuable upon the exchange of Class B Units that are subject to performance-based vesting, with a weighted average participation threshold of $11.24 per unit, which fully vest if our principal shareholder achieves a specified total equity return multiple.

 

   

1,704,381 shares of Class A common stock reserved for issuance under our 2021 ESPP; and

 

   

8,521,906 shares of Class A common stock reserved for future issuance under the 2021 Plan, including: (i) 1,099,999 RSUs that may be settled for an equal number of shares of Class A common stock that we will issue to certain employees in connection with the completion of this offering, as described in the section entitled “Executive Compensation—Equity and Cash Incentives—Summary of the 2021 Omnibus Incentive Plan—IPO Grants,” and (ii) 33,332 RSUs that we will issue to certain of our independent directors upon completion of this offering and that vest on the first anniversary of the grant date.

 

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DILUTION

Because the LLC Unitholders do not own any Class A common stock or other economic interests in Allvue Systems Holdings, Inc., we have presented dilution in pro forma net tangible book value (deficit) per share after this offering assuming that the holders of Class A Units and fully vested Class B Units had all of their LLC Units redeemed or exchanged for newly-issued shares of Class A common stock (rather than for cash and based upon an assumed offering price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and the cancellation for no consideration of all of their shares of Class V common stock (which are not entitled to receive distributions or dividends, whether in cash or stock, from Allvue Systems Holdings, Inc.), in the case of the holders of Class A Units, in order to more meaningfully present the dilutive impact to the investors in this offering. We refer to the assumed redemption or exchange of all Class A Units and fully vested Class B Units for shares of Class A common stock as described in the previous sentence as the “Assumed Redemption.”

Dilution results from the fact that the initial public offering price per share of the Class A common stock is substantially in excess of the pro forma net tangible book value (deficit) per share of Class A common stock after this offering. Net tangible book value (deficit) per share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of Class A common stock outstanding. If you invest in our Class A common stock, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value (deficit) per share of our Class A common stock after this offering.

Pro forma net tangible book value (deficit) per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of Class A common stock, after giving effect to the Organizational Transactions, including the sale of 15,300,000 shares of Class A common stock in this offering at the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and the Assumed Redemption. Our pro forma net tangible book value (deficit) as of June 30, 2021 was $12.3 million, or $0.14 per share of Class A common stock. This represents an immediate increase in net tangible book value (deficit) to the LLC Unitholders of $3.33 per share and an immediate dilution to new investors in this offering of $17.86 per share. We determine dilution by subtracting the pro forma net tangible book value (deficit) per share after this offering from the amount of cash that a new investor paid for a share of Class A common stock. The following table illustrates this dilution:

 

Assumed initial public offering price per share

   $ 18.00  

Pro forma net tangible book value (deficit) per share as of June 30, 2021 before this offering(1)

   $ (3.19

Increase in net tangible book value (deficit) per share attributable to the investors in this offering

   $ 3.33  
  

 

 

 

Pro forma net tangible book value (deficit) per share after this offering and repayment of the debt

   $ 0.14  
  

 

 

 

Dilution in net tangible book value (deficit) per share to the investors in this offering

   $ 17.86  
  

 

 

 

 

(1)

The computation of pro forma net tangible book value (deficit) per share as of June 30, 2021 before this offering is set forth below:

 

(in thousands, except share and per share data)       

Book value of tangible assets(a)

   $ 55,244  

Less: total liabilities(a)

   $ (286,671
  

 

 

 

Pro forma net tangible book value (deficit)(a)

   $ (231,427
  

 

 

 

Shares of Class A common stock outstanding(a)

     72,503,832  
  

 

 

 

Pro forma net tangible book value (deficit) per share

   $ (3.19

 

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  (a)

Gives pro forma effect to the Organizational Transactions (other than this offering) and the Assumed Redemption.

A $1.00 increase or decrease in the assumed initial public offering price of $18.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase or decrease pro forma net tangible book value (deficit) by $14.2 million, or $0.16 per share, and would increase or decrease the dilution per share to the investors in this offering by $0.84 based on the assumptions set forth above.

The following table summarizes as of June 30, 2021, after giving effect to the Organizational Transactions (including this offering), the number of shares of Class A common stock purchased from us, the total consideration paid and the average price per share paid by the purchasers in this offering, based upon an assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) and before deducting estimated underwriting discounts and commissions and offering expenses, after giving effect to the Assumed Redemption:

 

     Shares of Class A
Common Stock
Purchased
    Total Consideration        
     Number      Percent     Amount      Percent     Average
Price Per
Share
 

Existing owners

     72,503,832        83   $ 607,496        69   $ 8.38  

Investors in this offering

     15,300,000        17       275,400        31       18.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     87,803,832        100   $ 882,896        100   $ 10.06  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The discussion and tables above assume no exercise of the underwriters’ option to purchase additional shares of Class A common stock. In addition, the discussion and tables above exclude shares of Class V common stock, because holders of the Class V common stock are not entitled to distributions or dividends, whether in cash or stock, from Allvue Systems Holdings, Inc. If the underwriters’ option to purchase additional shares of Class A common stock is exercised in full, after giving effect to the Assumed Redemption, the holders of Class A Units and fully vested Class B Units would collectively own approximately 80.5% and the investors in this offering would own approximately 19.5% of the total number of shares of our Class A common stock outstanding after this offering. If the underwriters exercise their option to purchase additional shares of Class A common stock in full, after giving effect to the Assumed Redemption, the pro forma net tangible book value (deficit) per share after this offering would be $0.56 per share, and the dilution in the pro forma net tangible book value (deficit) per share to the investors in this offering would be $17.44 per share.

The tables and calculations above are based on the number of shares of common stock outstanding as of June 30, 2021 (after giving effect to the Organizational Transactions). To the extent that any new options or other equity incentive grants are issued in the future with an exercise price or purchase price below the initial public offering price, new investors will experience further dilution.

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent additional capital is raised through the sale of equity or equity-linked securities, the issuance of these securities could result in further dilution to our shareholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present, as of the dates and for the periods indicated, (1) the selected historical consolidated financial and other data for our Predecessor, Black Mountain and its consolidated subsidiaries and (2) the selected historical consolidated financial and other data for our Successor, Topco LLC and its consolidated subsidiaries. As a result of the Black Mountain Acquisition, the results of operations and financial position of the Predecessor and Successor are not directly comparable. The selected consolidated statement of operations data for the period from January 1 to June 30, 2019 have been derived from the audited consolidated financial statements and notes of Black Mountain and its subsidiaries included elsewhere in this prospectus. The selected consolidated statement of operations data for the period from July 1 to December 31, 2019 and the year ended December 31, 2020 and the selected consolidated balance sheet data as of December 31, 2019 and 2020 have been derived from the audited consolidated financial statements and notes of Topco LLC and its subsidiaries included elsewhere in this prospectus. The selected consolidated statement of operations data for the six months ended June 30, 2021 and 2020 and the selected consolidated balance sheet data as of June 30, 2021 have been derived from the unaudited interim condensed consolidated financial statements and notes of Topco LLC and its subsidiaries included elsewhere in this prospectus. In our opinion, the unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with our audited consolidated financial statements and contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair statement of such interim financial statements. The selected data set forth below is not necessarily indicative of the results to be expected for the full year or for any future period.

The information set forth below should be read together with the “Prospectus Summary—Summary Historical and Pro Forma Consolidated Financial Data,” “Use of Proceeds,” “Capitalization,” “Unaudited Pro Forma Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

The selected consolidated financial data of Allvue Systems Holdings, Inc. have not been presented as Allvue Systems Holdings, Inc. is a newly incorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periods presented in this section.

 

                Successor     Predecessor  
    For the
Six
Months
Ended
June 30,
2021
    For the
Six
Months
Ended
June 30,
2020
    Year Ended
December 31,
2020
    Period from
July 1 to
December 31,
2019
    Period from
January 1 to
June 30,
2019
 
    (in thousands, except per share and per unit data)  

Consolidated Statement of Operations Data:

         

Revenue:

         

Subscription revenue: Cloud-based and maintenance and support

  $ 38,712     $ 26,226     $ 57,194     $ 17,624     $ 10,834  

Subscription revenue: On-premise

    20,783       21,890       27,436       2,761       13,542  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total subscription revenue

    59,495       48,116       84,630       20,385       24,376  

Professional services revenue

    11,819       14,420       26,627       14,356       11,581  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    71,314       62,536       111,257       34,741       35,957  

Cost of revenue:

         

Cost of subscription revenue

    10,178       6,920       14,504       3,728       1,528  

Cost of professional services revenue

    13,255       11,051       22,118       10,216       7,334  

Amortization of developed software

    9,406       9,406       18,812       7,859       350  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

    32,839       27,377       55,434       21,803       9,212  

Gross profit

    38,475       35,159       55,823       12,938       26,745  

 

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                Successor     Predecessor  
    For the
Six
Months
Ended
June 30,
2021
    For the
Six
Months
Ended
June 30,
2020
    Year Ended
December 31,
2020
    Period from
July 1 to
December 31,
2019
    Period from
January 1 to
June 30,
2019
 
    (in thousands, except per share and per unit data)  

Operating expenses:

         

General and administrative

    16,589       12,607       27,000       17,037       10,657  

Research and development

    12,788       10,492       21,071       12,767       5,030  

Sales and marketing

    12,344       5,211       13,239       3,439       2,796  

Acquisitions, integration and restructuring expense

    2,526       3,945       7,456       7,310       8,346  

Amortization of intangibles

    7,747       7,670       15,340       6,088       1,499  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    51,994       39,925       84,106       46,641       28,328  

Operating loss

    (13,519     (4,766     (28,283     (33,703     (1,583

Interest income

          10       19       4       1  

Interest expense

    (6,826     (8,405     (15,419     (5,973     (2,005

Other expense

    (227     (120     (388     (5     (23
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income tax expense

    (20,572     (13,281     (44,071     (39,677     (3,610

Income tax expense

    (309 )       (490     (979     (436     (375
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (20,881     (13,771     (45,050     (40,113     (3,985

Other comprehensive income (loss)

    81       (740     377       328       2  

Comprehensive loss

  $ (20,800   $ (14,511   $ (44,673   $ (39,785   $ (3,983
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss Margin

    29.3     22.0     40.5     115.5     11.1

Consolidated Balance Sheet Data (at period end):

         

Cash

  $ 10,575       $ 9,982     $ 13,780    

Working capital(1)

    (6,825       1,062       11,845    

Total assets

    894,163         928,916       946,076    

Long-term debt, less current portion

    232,571         233,077       234,090    

Total liabilities

    286,671         305,555       280,372    

Total members’ equity

  $ 607,492       $ 623,361     $ 665,704    

 

(1)

We define working capital as current assets less current liabilities.

 

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UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

The unaudited consolidated pro forma balance sheet as of June 30, 2021 and the unaudited consolidated pro forma statements of operations for the six months ended June 30, 2021 and year ended December 31, 2020 present our financial position and results of operations after giving pro forma effect to the following transactions as if such transactions occurred on June 30, 2021 for the unaudited consolidated pro forma balance sheet and on January 1, 2020 for the unaudited consolidated pro forma statements of operations:

 

  (1)

The Organizational Transactions described under “Organizational Structure,” (not including this offering);

 

  (2)

The effects of the Tax Receivable Agreement, as described under “Certain Relationships and Related Party Transactions—Tax Receivable Agreement;” and

 

  (3)

This offering and the application of the estimated net proceeds from this offering as described under “Use of Proceeds.”

Our historical consolidated financial information has been derived from our consolidated and condensed consolidated financial statements and accompanying notes to the consolidated and condensed consolidated financial statements included elsewhere in this prospectus. Allvue Systems Holdings, Inc. was formed on March 19, 2021 and will have no material assets or results of operations until the completion of this offering. Therefore, its historical financial information is not included in the unaudited consolidated pro forma financial information.

The unaudited consolidated pro forma financial information has been prepared on the basis that we will be taxed as a corporation for U.S. federal and state income tax purposes and, accordingly, will become a taxpaying entity subject to U.S. federal, state and foreign income taxes. The presentation of the unaudited consolidated pro forma financial information is prepared in conformity with Article 11 of Regulation S-X, as amended by the final rule, Release 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” The unaudited consolidated pro forma financial information has been adjusted to include Transaction Accounting Adjustments, which reflect the application of the accounting required by generally accepted accounting principles in the United States (“GAAP”), linking the effects of the transactions listed above to the Company’s historical consolidated financial statements and is based on currently available information and certain estimates and assumptions. See the accompanying notes to the unaudited consolidated pro forma financial information for a discussion of assumptions made.

The unaudited consolidated pro forma financial information is not necessarily indicative of financial results that would have been attained had the described transactions occurred on the dates indicated above or that could be achieved in the future. Future results may vary significantly from the results reflected in the unaudited consolidated pro forma statements of operations and should not be relied upon as an indication of our results after the consummation of this offering and the other transactions contemplated by such unaudited consolidated pro forma financial information. However, our management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited consolidated pro forma financial information.

As a public company, we will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. We expect to incur additional annual expenses related to these steps and, among other things, additional directors’ and officers’ liability insurance, director fees, costs to comply with the reporting requirements of the

 

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SEC, transfer agent fees, hiring of additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We have not included any pro forma adjustments relating to these costs.

For purposes of the unaudited consolidated pro forma financial information, we have assumed that we will issue 15,300,000 shares of Class A common stock at a price per share of $18.00 (which is the midpoint of the estimated public offering price range set forth on the cover of this prospectus), and, as a result, immediately following the completion of this offering, the ownership percentage represented by LLC Units not held by us will be approximately 41.2%, and the net loss attributable to LLC Units not held by us will accordingly represent approximately 41.2% of our net loss. Except as otherwise indicated, the unaudited consolidated pro forma financial information presented assumes no exercise of the underwriters’ option to purchase additional shares of Class A common stock.

As described in greater detail under “Certain Relationships and Related Party Transactions—Tax Receivable Agreement,” in connection with the consummation of this offering, we will enter into the Tax Receivable Agreement with the LLC Unitholders that will require us to pay to such persons 85% of the amount of cash savings, if any, in U.S. federal, state and local income taxes (computed using simplifying assumptions to address the impact of state and local taxes) that we actually realize (or under certain circumstances are deemed to realize in the case of an early termination payment by us, a change in control or a material breach by us of our obligations under the Tax Receivable Agreement, as discussed below) as a result of (i) Basis Adjustments (as defined below) resulting from any exchanges of LLC Units for shares of our Class A common stock or cash in the future, (ii) certain tax attributes of the Blocker Entity, Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement, including tax benefits attributable to payments that we are required to make under the Tax Receivable Agreement.

We expect to benefit from the remaining 15% of cash savings, if any, that we realize from the tax attributes described above. Given the historical losses of Topco LLC, the deferred tax assets carry a full valuation allowance and, as such, we are not initially recording a liability under the Tax Receivable Agreement. Accordingly, no adjustments to the unaudited consolidated pro forma information have been made related to the deferred tax assets or Tax Receivable Agreement. Due to the uncertainty in the amount and timing of future exchanges of LLC Units by LLC Unitholders for shares of our Class A common stock or cash, the unaudited consolidated pro forma financial information assumes that no such future exchanges of LLC Units have occurred and therefore no increases in tax basis in Topco LLC assets or other tax benefits that may be realized thereunder have been assumed in the unaudited consolidated pro forma financial information. However, if all of the LLC Unitholders were to exchange all of their LLC Units, we would recognize a deferred tax asset of approximately $218.2 million and a liability under the Tax Receivable Agreement of approximately $185.5 million, assuming: (i) all exchanges or purchases occurred on the same day as this offering; (ii) a price of $18.00 per share (which is the midpoint of the estimated price range set forth on the cover page of this prospectus); (iii) a constant corporate tax rate of 26%; (iv) that we will have sufficient taxable income to fully utilize the tax benefits and (v) no material changes in tax law. These amounts are estimates and have been prepared for illustrative purposes only. The actual amount of deferred tax assets and related liabilities that we will recognize will differ based on, among other things, the timing of the exchanges, the price per share of our Class A common stock at the time of the exchange, and the tax rates then in effect.

For each 5% increase (decrease) in the amount of LLC Units exchanged for shares of our Class A common stock by or purchased from the LLC Unitholders (or their transferees of LLC Units or other assignees), our deferred tax asset would increase (decrease) by approximately $10.9 million and the related liability would increase (decrease) by approximately $9.3 million, assuming that the price per share and corporate tax rate remain the same. For each $1.00 increase (decrease) in the assumed

 

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share price of $18.00 per share, our deferred tax asset would increase (decrease) by approximately $10.7 million and the related liability would increase (decrease) by approximately $9.1 million, assuming that the number of LLC Units exchanged by or purchased from the LLC Unitholders (or their transferees of LLC Units and other assignees) and the corporate tax rate remain the same. These amounts are estimates and have been prepared for illustrative purposes only. The actual amount of deferred tax assets and liability under the Tax Receivable Agreement that we will recognize will differ based on, among other things, the timing of the exchanges and purchases, the price of our shares of Class A common stock at the time of the exchange or purchase, and the tax rates then in effect. See “Organizational Structure—Tax Receivable Agreement.”

The unaudited consolidated pro forma financial information should be read together with “Organizational Structure,” “Capitalization,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited consolidated financial statements of Topco LLC and related notes thereto as well as the unaudited interim condensed consolidated financial statements of Topco LLC and related notes thereto included elsewhere in this prospectus.

 

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UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET

AS OF JUNE 30, 2021

 

    Topco LLC
(As Reported)
    Transaction
Accounting
Adjustments—
Organizational
Adjustments
    As Adjusted
for the
Transaction
Accounting
Adjustments—
Organizational
Adjustments
    Transaction
Accounting
Adjustments—
Offering
Adjustments
    Pro Forma
Allvue
Systems
Holdings, Inc.
 
    (in thousands, except per share data)  

Assets

         

Current Assets

         

Cash and cash equivalents

  $ 10,575     $ 4 (a)    $ 10,579     $ 9,320 (f)    $ 19,899  

Accounts receivable, net

    20,056             20,056             20,056  

Contract assets

    13,093             13,093             13,093  

Capitalized sales commissions

    1,072             1,072             1,072  

Prepaid expenses and other current assets

    2,298             2,298             2,298  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    47,094       4       47,098       9,320       56,418  

Capitalized sales commissions

    2,147             2,147             2,147  

Property and equipment, net

    3,565             3,565             3,565  

Intangible assets, net

    246,948             246,948             246,948  

Goodwill

    585,823             585,823             585,823  

Other non-current assets

    8,586             8,586       (2,590) (g)      5,996  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

    894,163       4       894,167       6,730       900,897  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Members’/Stockholders’ Equity

         

Current Liabilities:

         

Accounts payable

    3,842             3,842             3,842  

Accrued compensation and benefits
expense

    6,209             6,209             6,209  

Sales and use tax payable

    7,134             7,134             7,134  

Deferred revenue

    28,402             28,402             28,402  

Income tax accrual

    969             969             969  

Current maturities of long-term debt

    1,650             1,650       (1,650) (h)       

Other current liabilities

    5,713             5,713       (175) (h)      5,538  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    53,919             53,919       (1,825)       52,094  

Noncurrent Liabilities

         

Long term debt, net

    232,571             232,571       (232,571) (h)       

Other long-term liabilities

    181             181             181  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    286,671             286,671       (234,396)       52,275  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and Contingencies

         

Members’ equity:

         

Class A common stock, par value $0.0001 per share

          3 (b)      3       2 (f)      5  

Class V common stock, par value $0.0001 per share

          4 (a)      4             4  

Additional paid in capital

          355,082 (d)      355,082       208,007 (i)      563,089  

Members’ equity

    712,750       (712,750) (c)                   

Accumulated deficit

    (106,044     53,214 (e)      (52,830     (11,498) (j)      (64,328

Accumulated other comprehensive income (loss)

    786       (394) (e)      392       71 (j)      463  

Noncontrolling interests

          304,845 (e)      304,845       44,544 (j)      349,389  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total members’ / stockholders’ equity

   
607,492
 
    4       607,496       241,126       848,622  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 894,163     $ 4     $ 894,167     $ 6,730     $ 900,897  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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UNAUDITED INTERIM CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2021

 

     Topco LLC
(As Reported)
    Transaction
Accounting
Adjustments-
Organizational
Adjustments
    As Adjusted
for the
Transaction
Accounting
Adjustments -
Organizational
Adjustments
    Transaction
Accounting
Adjustments -
Offering
Adjustments
    Pro Forma
Allvue
Systems
Holdings, Inc.
 
     (in thousands, except per share data)  

Revenue

          

Subscription revenue: Cloud-based and maintenance and support

   $ 38,712     $ —       $ 38,712     $ —       $ 38,712  

Subscription revenue: On-premise

     20,783       —         20,783       —         20,783  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total subscription revenue

     59,495       —         59,495       —         59,495  

Professional services revenue

     11,819       —         11,819       —         11,819  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     71,314       —         71,314       —         71,314  

Cost of revenue

          

Cost of subscription revenue

     10,178       —         10,178       —         10,178  

Cost of professional services revenue

     13,255       —         13,255       —         13,255  

Amortization of developed software

     9,406       —         9,406       —         9,406  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     32,839       —         32,839       —         32,839  

Gross profit

     38,475       —         38,475       —         38,475  

Operating Expenses

          

General and administrative

     16,589       —         16,589       2,475 (m)      19,064  

Research and development

     12,788       —         12,788       —         12,788  

Sales and marketing

     12,344       —         12,344       —         12,344  

Acquisitions, integration and restructuring expense

     2,526       —         2,526       —         2,526  

Amortization of intangibles

     7,747       —         7,747       —         7,747  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     51,994       —         51,994       2,475       54,469  

Operating loss

     (13,519     —         (13,519     (2,475)       (15,994

Interest expense

     (6,826     —         (6,826     6,826 (l)      —    

Other expense

     (227     —         (227     —         (227
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     (20,572     —         (20,572     4,351       (16,221

Income tax expense

     (309     —         (309     —   (n)      (309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (20,881     —         (20,881     4,351       (16,530

Net income (loss) attributable to noncontrolling interests

     —         (8,641) (k)      (8,641     1,801 (l)(m)      (6,840
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Allvue Systems Holdings Inc.

   $ (20,881   $ 8,641     $ (12,240   $ 2,550     $ (9,690
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro Forma Net Loss Per Share:

          

Basic

             (0.20 )(o) 
          

 

 

 

Diluted

             (0.20 )(o) 
          

 

 

 

Pro Forma Number of Shares Used in Computing Net Loss Per Share

          

Basic

             48,479,855 (o) 
          

 

 

 

Diluted

             48,479,855 (o) 
          

 

 

 

 

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UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020

 

     Topco LLC
(As Reported)
    Transaction
Accounting
Adjustments -
Organizational
Adjustments
    As Adjusted
for the
Transaction
Accounting
Adjustments -
Organizational
Adjustments
    Transaction
Accounting
Adjustments -
Offering
Adjustments
    Pro Forma
Allvue
Systems
Holdings, Inc.
 
     (in thousands, except per share data)  

Revenue

          

Subscription revenue: Cloud-based and maintenance and support

   $ 57,194     $     $ 57,194     $     $ 57,194  

Subscription revenue: On-premise

     27,436             27,436             27,436  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total subscription revenue

     84,630             84,630             84,630  

Professional services revenue

     26,627             26,627             26,627  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     111,257             111,257             111,257  

Cost of revenue

          

Cost of subscription revenue

     14,504             14,504             14,504  

Cost of professional services revenue

     22,118             22,118             22,118  

Amortization of developed software

     18,812             18,812             18,812  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     55,434             55,434             55,434  

Gross profit

     55,823             55,823             55,823  

Operating Expenses

          

General and administrative

     27,000             27,000       5,550 (m)      32,550  

Research and development

     21,071             21,071             21,071  

Sales and marketing

     13,239             13,239             13,239  

Acquisitions, integration and restructuring expense

     7,456             7,456             7,456  

Amortization of intangibles

     15,340             15,340             15,340  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     84,106             84,106       5,550       89,656  

Operating loss

     (28,283           (28,283     (5,550)       (33,833

Interest income

     19             19             19  

Interest expense

     (15,419           (15,419     15,419 (l)       

Other expense

     (388           (388     (4,260) (l)      (4,648
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense

     (44,071           (44,071     5,609       (38,462

Income tax expense

     (979           (979     (n)      (979
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (45,050           (45,050     5,609       (39,441

Net income (loss) attributable to noncontrolling interests

           (18,548) (k)      (18,548     2,300 (l)(m)      (16,248
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Allvue Systems Holdings Inc.

   $ (45,050   $ 18,548     $ (26,502   $ 3,309     $ (23,193
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro Forma Net Loss Per Share:

          

Basic

             (0.48 )(o) 
          

 

 

 

Diluted

             (0.48 )(o) 
          

 

 

 

Pro Forma Number of Shares Used in Computing Net Loss Per Share

          

Basic

             48,171,523 (o) 
          

 

 

 

Diluted

             48,171,523 (o) 
          

 

 

 

 

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NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

1. Description of the Transactions

Organizational Transactions and the Offering

In connection with the Organizational Transactions and the Offering, Allvue Systems Holdings, Inc. will become the sole managing member of Topco LLC, exclusively operate and control the day-to-day business affairs and decision making of Topco LLC and its subsidiaries and will have the obligation to absorb losses and receive benefits from Topco LLC. Topco LLC will be a variable interest entity and Allvue Systems Holdings, Inc. will be the primary beneficiary of Topco LLC. Therefore, Allvue Systems Holdings, Inc. will consolidate Topco LLC into Allvue Systems Holdings, Inc.’s consolidated financial statements, which will be accounted for akin to a reorganization of entities under common control. As a result, the consolidated financial statements of Allvue Systems Holdings, Inc. will recognize the assets and liabilities received in the reorganization at their historical carrying amounts, as reflected in the historical consolidated financial statements of Topco LLC. For a complete description of the Organizational Transactions, see section entitled “Organizational Structure” included elsewhere in this prospectus. For a complete description of the Organizational Transactions, see section entitled “Organizational Structure” included elsewhere in this prospectus.

The Company is offering shares of Class A common stock in this offering at an assumed initial public offering price of $18.00 per share, which is equal to the midpoint of the estimated offering price range set forth on the cover page of this prospectus, after deducting estimated underwriter discounts and commissions. Allvue Systems Holdings, Inc. intends to use certain net proceeds from this offering to acquire newly issued LLC Units in TopCo LLC. In turn, Topco LLC intends to apply the balance of the proceeds it receives from us (including any additional proceeds it may receive from us if the underwriters exercise their option to purchase additional shares of Class A common stock) to repay indebtedness, pay expenses incurred in connection with this offering and the other Organizational Transactions and for general corporate purposes.

2. Notes to Unaudited Consolidated Pro Forma Balance Sheet

Transaction Accounting Adjustments include the following adjustments to the unaudited consolidated pro forma balance sheet as of June 30, 2021, as follows:

Organizational Adjustments

 

(a)

Reflects the issuance of Class V common stock to the LLC Unitholders, on a one-to-one basis with the number of Class A Units they own, in exchange for nominal cash consideration equal to the par value of the Class V common stock issued, as described in greater detail under “Organizational Structure” included elsewhere in this prospectus.

 

(b)

As part of the Organizational Transactions, the Blocker Entity will become a subsidiary of Allvue Systems Holdings, Inc. and Vista will receive 34,563,093 shares of Class A common stock as consideration for the Blocker Contribution.

 

(c)

Represents an adjustment to Members’ equity to reflect a reclassification of Members’ equity to additional paid-in capital.

 

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Table of Contents
(d)

The following table is a reconciliation of additional paid-in capital following the completion of the Organizational Transactions and prior to the Offering:

 

(in thousands)    As of
June 30, 2021
     Note  

Reclassification of Members’ equity to additional paid-in capital

   $ 712,750        (c

Impact of Blocker Contribution

     (3      (b

Reclassification of additional paid-in capital to noncontrolling interest

     (357,665      (e
  

 

 

    

Additional paid-in capital pro forma adjustment

   $ 355,082     
  

 

 

    

 

(e)

As a result of the Organizational Transactions and this offering Allvue Systems Holdings, Inc. will exclusively operate and control the business and affairs of Topco LLC and will consolidate Topco LLC. The LLC Units owned by LLC Unitholders will be considered noncontrolling interests in the consolidated financial statements of Allvue Systems Holdings, Inc. The following table is a reconciliation of noncontrolling interest following the completion of the Organizational Transactions prior to the offering:

 

(in thousands)    As of June 30, 2021  

Reclassification of additional paid in capital

   $ 357,665  

Reclassification of Accumulated other comprehensive income

     394  

Reclassification of Accumulated deficit

     (53,214
  

 

 

 

Net noncontrolling interest pro forma adjustment

   $ 304,845  
  

 

 

 

Offering Adjustments

 

(f)

We estimate that the proceeds to us from this offering will be approximately $247.0 million (or $285.4 million if the underwriters exercise their option to purchase additional shares of Class A common stock in full), based on an assumed initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus) after deducting $28.4 of assumed underwriting discounts and commissions and estimated offering expenses. We intend to use the net proceeds from this offering to repay $237.7 million of outstanding indebtedness as discussed in Note (h) and for general corporate purposes. For more information, see “Use of Proceeds.”