8-K
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 16, 2023

 

 

Nasdaq, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-38855   52-1165937

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

151 W. 42nd Street,

New York, New York

  10036
(Address of principal executive offices)   (Zip code)

Registrant’s telephone number, including area code: +1 212 401 8700

No change since last report

(Former Name or Address, If Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.01 par value per share   NDAQ   The Nasdaq Stock Market
0.900% Senior Notes due 2033   NDAQ33   The Nasdaq Stock Market
0.875% Senior Notes due 2030   NDAQ30   The Nasdaq Stock Market
1.75% Senior Notes due 2029   NDAQ29   The Nasdaq Stock Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company  

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

 

 

 


Item 1.01.

Entry into a Material Definitive Agreement.

As previously announced, on June 10, 2023, Nasdaq, Inc. (“Nasdaq”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Nasdaq, Argus Merger Sub 1, Inc., a Delaware corporation and a direct wholly owned subsidiary of Nasdaq, Argus Merger Sub 2, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Nasdaq, Adenza Holdings, Inc., a Delaware corporation (“Adenza”), and Adenza Parent, LP, a Delaware limited partnership (“Seller”), pursuant to which Nasdaq will acquire 100% of the stock of Adenza from Seller (the “Acquisition”). The Acquisition has not yet been consummated and there can be no assurance that the Acquisition will be consummated as contemplated or at all. For further information relating to the Acquisition, please see Nasdaq’s Current Report on Form 8-K filed with the SEC on June 12, 2023.

On June 16, 2023, in connection with the Acquisition, Nasdaq, certain lenders party thereto and Bank of America, N.A., as administrative agent (the “Administrative Agent”) entered into Amendment No. 2 (the “Amendment”) to that certain Amended and Restated Credit Agreement, dated as of December 16, 2022 (as amended by Amendment No. 1, dated as of March 29, 2023, the “Existing Credit Agreement”), among Nasdaq, the lenders party thereto, the Administrative Agent and the other parties from time to time party thereto.

Pursuant to the Amendment, the financial covenant in the Existing Credit Agreement will be amended to increase the maximum leverage ratio permitted thereunder in connection with and following the consummation of the Acquisition, subject to certain step-downs set forth therein.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by the full text of the Amendment, a copy of which is filed as Exhibit 10.1 hereto and is incorporated by reference herein.

 

Item 2.03.

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The description contained under Item 1.01 above is hereby incorporated by reference in its entirety into this Item 2.03.

 

Item 8.01.

Other Events.

Nasdaq is filing: (i) as Exhibit 99.1 to this Current Report on Form 8-K, the audited consolidated financial statements of Adenza Group, Inc., a Delaware corporation and wholly owned subsidiary of Adenza (“Adenza Group”), as of December 31, 2022 and 2021 and for each of the fiscal years ended December 31, 2022 and 2021; (ii) as Exhibit 99.2, Adenza Group’s interim unaudited consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023; (iii) as Exhibit 99.3, the unaudited pro forma condensed combined financial statements of Nasdaq, giving effect to the Acquisition and the related transactions described therein; and (iv) as Exhibit 23.1, the consent of BDO USA, LLP, independent registered public accounting firm of Adenza Group.

This Current Report on Form 8-K does not modify or update the consolidated financial statements of Nasdaq included in its Annual Report on Form 10-K for the year ended December 31, 2022 or in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, nor does it reflect any subsequent information or events.

 

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits.

The following exhibits are filed as part of this Current Report on Form 8-K:

 

Exhibit
No.

  

Exhibit Description

10.1    Amendment No. 2, dated as of June 16, 2023, among Nasdaq, Inc., a Delaware corporation, the lenders party thereto and Bank of America, N.A., as administrative agent.
23.1    Consent of BDO USA, LLP, independent auditor (with respect to Adenza Group, Inc.).
99.1    Audited consolidated financial statements of Adenza Group, Inc. as of December 31, 2022 and 2021, and for each of the fiscal years ended December 31, 2022 and 2021.
99.2    Interim unaudited consolidated financial statements of Adenza Group, Inc. as of March 31, 2023 and for the three months ended March 31, 2023.
99.3    Unaudited pro forma condensed combined financial statements of Nasdaq, Inc. as of March 31, 2023 and for the year ended December 31, 2022 and three months ended March 31, 2023.
104    Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Dated: June 20, 2023     NASDAQ, INC.
    By:  

/s/ John A. Zecca

    Name:   John A. Zecca
    Title:   Executive Vice President and Chief Legal Officer

 

-3-

EX-10.1

Exhibit 10.1

Execution Version

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT

This AMENDMENT NO. 2, dated as of June 16, 2023 (this “Amendment Agreement”), among Nasdaq, Inc., a Delaware corporation (the “Borrower”), the Lenders (as defined below) party hereto, Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”).

WHEREAS, reference is made to that certain Amended and Restated Credit Agreement, dated as of December 16, 2022 (as amended by Amendment No. 1, dated as of March 29, 2023, the “Existing Credit Agreement” and as amended by this Amendment Agreement, the “Amended Credit Agreement”), among the Borrower, the lenders party thereto (collectively, the “Lenders”), the Administrative Agent and the other parties from time to time party thereto. Unless otherwise defined herein, terms defined in the Amended Credit Agreement and used herein shall have the meanings given to them in the Amended Credit Agreement;

WHEREAS, the Borrower intends to consummate the acquisition, directly or through one or more of its Subsidiaries, of Adenza Holdings, Inc. (the “Specified Acquisition”) pursuant to an Agreement and Plan of Merger, dated as of June 10, 2023 (as may be amended, modified or supplemented from time to time, the “Acquisition Agreement”), by and among the Borrower, Argus Merger Sub 1, Inc., Argus Merger Sub 2, LLC, Adenza Holdings, Inc. and Adenza Parent, LP; and

WHEREAS, the Borrower desires to amend certain provisions of the Existing Credit Agreement, on the terms set forth herein; and

WHEREAS, Section 9.02(b) of the Credit Agreement provides that the Borrower, the Administrative Agent and the Required Lenders may amend the Credit Agreement and the other Loan Documents for certain purposes (including those set forth herein).

NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

Section 1. Amendment of the Existing Credit Agreement. As of the Amendment No. 2 Effective Date (as defined below), the Existing Credit Agreement is hereby amended by:

(a) inserting the following definitions into Section 1.01 of the Credit Agreement (in applicable alphabetical order):

Amendment No. 2” means that certain Amendment No. 2, dated as of the Amendment No. 2 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto.

Amendment No. 2 Effective Date” means June 16, 2023.

Specified Acquisition” means the acquisition by the Borrower, directly or indirectly through one or more of its Subsidiaries, of Adenza Holdings, Inc.

Specified Acquisition Closing” shall mean the time of the consummation of the Specified Acquisition.

Subsequent Acquisition Holiday” shall have the meaning specified in the second paragraph of Section 6.06.

 

-1-


(b) replacing the words “The Borrower will not” in the first line of Section 6.06 of the Existing Credit Agreement with the words “Prior to the Specified Acquisition Closing, the Borrower will not”.

(c) inserting the following language as a new second paragraph of Section 6.06 of the Existing Credit Agreement as follows:

From and after the Specified Acquisition Closing, the Borrower will not permit the Leverage Ratio as of the last day of any period of four consecutive fiscal quarters of the Borrower (a) ending on or prior to last day of the fourth full fiscal quarter following the Specified Acquisition Closing, to be greater than 4.75 to 1.00, (b) ending on or after the first day of the fifth full fiscal quarter following the Specified Acquisition Closing and on or prior to the last day of the sixth full fiscal quarter following the Specified Acquisition Closing, to be greater than 4.25 to 1.00, (c) ending on or after the first day of the seventh full fiscal quarter following the Specified Acquisition Closing and on or prior to the last day of the eighth full fiscal quarter following the Specified Acquisition Closing, to be greater than 4.00 to 1.00, (d) ending on or after the first day of the ninth full fiscal quarter following the Specified Acquisition Closing and on or prior to the last day of the tenth full fiscal quarter following the Specified Acquisition Closing, to be greater than 3.75 to 1.00 and (e) thereafter, to be greater than 3.50 to 1.00; provided that the Borrower shall be permitted on one occasion following the consummation of the Specified Acquisition and during the term of this Agreement, to allow the Leverage Ratio required under this second paragraph of Section 6.06 to be increased to (w) 4.50 to 1.00 in connection with an Acquisition for the period beginning on the closing date of such Acquisition until (and including) the last day of the second full fiscal quarter of the Borrower following the closing date of such Acquisition, (x) 4.25 to 1.00 for the period beginning on the first day of the third full fiscal quarter following the closing date of such Acquisition until (and including) the last day of the fourth full fiscal quarter of the Borrower following the closing date of such Acquisition, (y) 4.00 to 1.00 for the period beginning on the first day of the fifth full fiscal quarter following the closing date of such Acquisition until (and including) the last day of the sixth full fiscal quarter of the Borrower following the closing date of such Acquisition and (z) 3.75 to 1.00 for the period beginning on the first day of the seventh full fiscal quarter following the closing date of such Acquisition until (and including) the last day of the eighth full fiscal quarter of the Borrower following the closing date of such Acquisition (such increase, a “Subsequent Acquisition Holiday”), so long as (A) on the last day of the fiscal quarter immediately preceding the consummation of (or, at the Borrower’s option, signing of the definitive agreement relating to) such Acquisition, the Leverage Ratio did not exceed 3.50 to 1.00 and (B) the Borrower is in compliance on a Pro Forma Basis with a maximum Leverage Ratio of 4.50 to 1.00 on the closing date of such Acquisition immediately after giving effect to such Acquisition; provided, further, that (i) the Borrower shall provide notice in writing to the Administrative Agent of such Subsequent Acquisition Holiday and a transaction description of such Acquisition (regarding the name of the Person or assets being acquired, the purchase price, the Leverage Ratio on a Pro Forma Basis and the acquired revenue (for the trailing four quarter period) and Consolidated EBITDA of such acquired Person or assets) and (ii) at the end of any Subsequent Acquisition Holiday, the maximum Leverage Ratio permitted under this second paragraph of Section 6.06 (if then applicable) shall revert to 3.50 to 1.00. For the avoidance of doubt, following consummation of the Specified Acquisition, this paragraph shall supersede the immediately preceding paragraph in this Section 6.06.

 

-2-


Section 2. Effectiveness. This Amendment Agreement shall become effective on the date (such date and time of effectiveness, the “Amendment No. 2 Effective Date”) that each of the conditions set forth below shall have been satisfied:

(a) the Administrative Agent shall have received executed counterparts hereof from the Borrower, the Administrative Agent and the Lenders constituting the Required Lenders; and

(b) the Borrower shall have paid, or concurrently herewith shall pay, to the Administrative Agent, to the extent invoiced at least two (2) Business Days prior to the date hereof, its reasonable and documented out-of-pocket expenses incurred in connection with this Amendment Agreement, in each case, in accordance with, and subject to the limitations of, Section 9.03(a) of the Existing Credit Agreement.

Section 3. Representations and Warranties. In order to induce the Lenders party hereto and the Administrative Agent to enter into this Amendment Agreement, the Borrower hereby represents and warrants to each of the Lenders and the Administrative Agent that, as of the Amendment No. 2 Effective Date, both immediately before and immediately after giving effect to this Amendment Agreement:

(a) no Default (as defined in the Existing Credit Agreement) shall have occurred or be continuing; and

(b) the representations and warranties of the Borrower set forth in the Loan Documents shall be true and correct in all material respects on and as of the Amendment No. 2 Effective Date, except to the extent that any representation and warranty expressly relates to an earlier date, in which case such representation and warranty shall have been true and correct in all material respects as of such earlier date.

Section 4. Effect of Amendment.

(a) Except as expressly set forth herein, this Amendment Agreement shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Existing Credit Agreement or any other Loan Document and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Existing Credit Agreement or any other provision of the Existing Credit Agreement or of any other Loan Document, all of which, subject to the terms of this Amendment Agreement, are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Existing Credit Agreement, Amended Credit Agreement or any other Loan Document in similar or different circumstances.

(b) On and after the Amendment No. 2 Effective Date, each reference in the Existing Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, and each reference to the “Credit Agreement” in any other Loan Document, shall be deemed a reference to the Amended Credit Agreement. This Amendment Agreement shall constitute a “Loan Document” for all purposes of the Amended Credit Agreement and the other Loan Documents.

Section 5. Governing Law; WAIVER OF JURY TRIAL. This Amendment Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTIONS 9.09(B), (C) AND (D) AND SECTION 9.10 OF THE AMENDED CREDIT AGREEMENT ARE HEREBY INCORPORATED BY REFERENCE HEREIN, MUTATIS MUTANDIS.

 

-3-


Section 6. Counterparts. This Amendment Agreement may be executed in any number of counterparts (and by different parties hereto in separate counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment Agreement by facsimile or other electronic transmission will be as effective as delivery of a manually executed counterpart hereof and shall have the same legal effect, validity and enforceability as a paper record. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the parties hereto of a manually signed paper communication which has been converted into electronic form (such as scanned into .pdf format), or an electronically signed communication converted into another format, for transmission, delivery and/or retention and, for the further avoidance of doubt, the words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Amendment Agreement shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other state laws based on the Uniform Electronic Transactions Act, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.

Section 7. Headings. Section headings in this Amendment Agreement are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Amendment Agreement.

Section 8. Severability. Any provision of this Amendment Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

[Remainder of page intentionally blank; signature pages follow]

 

-4-


IN WITNESS WHEREOF, the parties hereto have executed this Amendment Agreement as of the date first written above.

 

NASDAQ, INC.,

    as Borrower

By:  

/s/ Ann Dennison

  Name:   Ann Dennison
  Title:  

Executive Vice President and

Chief Financial Officer

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


BANK OF AMERICA, N.A.,

as Administrative Agent and individually as a Lender

By:  

/s/ Sherman Wong

  Name:   Sherman Wong
  Title:   Director

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


GOLDMAN SACHS BANK USA,

as a Lender

By:  

/s/ Robert Ehudin

  Name:   Robert Ehudin
  Title:   Authorized Signatory

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


CITIBANK, N.A.,

as a Lender

By:  

/s/ Maureen Maroney

  Name:   Maureen Maroney
  Title:   Vice President

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


HSBS Bank USA National Association

as a Lender

By:  

/s/ James Stovell

  Name:   James Stovell
  Title:   Director

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


INDUSTRIAL AND COMMERCIAL BANK OF CHINA LIMITED, NEW YORK BRANCH,

as a Lender

By:  

/s/ Christopher Samms

  Name: Christopher Samms
  Title:   Director
By:  

/s/ Pinyen Shih

  Name: Pinyen Shih
  Title:   Executive Director

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


JPMORGAN CHASE BANK, N.A,

as a Lender

By:  

/s/ Jennifer M. Dunneback

  Name: Jennifer M. Dunneback
  Title:   Executive Director

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


MIZUHO BANK, LTD.,

as a Lender

By:  

/s/ Donna DeMagistris

  Name: Donna DeMagistris
  Title:   Executive Director

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


MORGAN STANLEY BANK, N.A.,

as a Lender

By:  

/s/ Michael King

  Name: Michael King
  Title:   Authorized Signatory

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


NORDEA BANK ABP, NEW YORK BRANCH,

as a Lender

By:  

/s/ Rikard Gruvberg

  Name: Rikard Gruvberg
  Title:   Head of FIG Americas
By:  

/s/ Henrik M. Steffensen

  Name: Henrik M. Steffensen
  Title:   Executive Vice President

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


NORDEA BANK ABP, NEW YORK BRANCH,

as a Lender

By:  

/s/ Penny Neville-Park

  Name: Penny Neville-Park
  Title:   Authorised Signatory
By:  

/s/ Alison Butt

  Name: Alison Butt
  Title:   Authorised Signatory

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


TD Bank, N.A.,

as a Lender

By:  

/s/ Steve Levi

  Name: Steve Levi
  Title:   Senior Vice President

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]


WELLS FARGO BANK, NATIONAL ASSOCIATION

as a Lender

By:  

/s/ Megan Griffin

  Name: Megan Griffin
  Title:   Managing Director

 

[Signature Page to Amendment No. 2 to Nasdaq, Inc. A&R Credit Agreement]

EX-23.1

Exhibit 23.1

Consent of Independent Auditor

Adenza Group, Inc.

New York, New York

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-255666) and Form S-8 (No. 333-239891, No. 333-225218, No. 333-196838, No. 333-167724, No. 333-167723, No. 333-110602, No. 333-106945, Nos. 333-76064, No. 333-72852, No. 333-70992 and Nos. 333-265824) of Nasdaq, Inc. of our report dated April 28, 2023, relating to the consolidated financial statements of Adenza Group, Inc. which appears in this Form 8-K of Nasdaq, Inc.

/s/ BDO USA, LLP

New York, NY

June 19, 2023

 

EX-99.1

Exhibit 99.1

 

  

Adenza Group, Inc. and Subsidiaries

 

Consolidated Financial Statements

Year Ended December 31, 2022 and 2021

  

 

 

 

 

 

The report accompanying these financial statements was issued by

BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of

BDO International Limited, a UK company Limited by guarantee.


Adenza Group, Inc. and Subsidiaries

 

Consolidated Financial Statements

Year Ended December 31, 2022 and 2021


Adenza Group, Inc. and Subsidiaries

Contents

 

 

Independent Auditor’s Report

     3-4  

Consolidated Financial Statements

  

Consolidated Balance Sheet as of December 31, 2022 and 2021

     5-6  

Consolidated Statements of Operations for the Year ended December 31, 2022 and 2021

     7  

Consolidated Statements of Comprehensive Loss for the Year ended December 31, 2022 and 2021

     8  

Consolidated Statements of Changes in Stockholders’ Equity for the Year ended December 31, 2022 and 2021

     9  

Consolidated Statements of Cash Flows for the Year ended December 31, 2022 and 2021

     10-11  

Notes to Consolidated Financial Statements

     12-36  

 

2


LOGO    Tel: 212-371-4446    622 Third Ave, Suite 3100
   Fax: 212-371-9374    New York, NY 10017
   www.bdo.com   

Independent Auditor’s Report

Board of Directors

Adenza Group, Inc.

New York, New York

Opinion

We have audited the consolidated financial statements of Adenza Group, Inc. and its subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued or available to be issued.

 

3


LOGO

 

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

 

   

Exercise professional judgment and maintain professional skepticism throughout the audit.

 

   

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

 

   

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

 

   

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

 

   

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

 

LOGO

New York, New York

April 28, 2023

 

4


Adenza Group, Inc. and Subsidiaries

Consolidated Balance Sheet

 

 

(USD 000)

   December 31, 2022      December 31, 2021  

Assets

     

Current Assets

     

Cash and cash equivalents

     185,469        190,657  

Restricted cash

     916        517  

Accounts receivable, net

     125,991        101,061  

Unbilled receivables

     126,273        103,129  

Prepaid expenses and other current assets

     10,469        8,330  

Deferred contract costs

     3,618        1,778  

Prepaid income taxes

     5,724        5,707  
  

 

 

    

 

 

 

Total Current Assets

     458,460        411,179  

Unbilled receivables, noncurrent

     32,155        44,832  

Goodwill

     3,679,682        3,679,682  

Intangible assets, net

     1,943,620        2,094,412  

Property and equipment, net

     8,745        8,494  

Due from related parties

     6,475        2,188  

Right-of-use assets

     17,037        29,967  

Deferred contract costs, noncurrent

     11,194        6,496  

Deferred tax assets

     2,865        2,793  

Restricted Cash

     986        674  

Prepaid expenses

     327        418  

Equity Investment

     2,498        2,389  

Other long-term assets

     2,220        3,016  
  

 

 

    

 

 

 

Total Assets

     6,166,264        6,286,540  
  

 

 

    

 

 

 

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5


Adenza Group, Inc. and Subsidiaries

Consolidated Balance Sheet

 

 

(USD 000)

   December 31, 2022     December 31, 2021  

Liabilities and Stockholders’ Equity

    

Current Liabilities

    

Current maturities of long-term debt

     21,027       20,475  

Accounts payable

     6,363       2,481  

Income taxes payable

     9,540       3,974  

Accrued expenses

     54,735       60,234  

Deferred revenue

     176,949       161,124  

Lease liabilities

     4,954       5,390  
  

 

 

   

 

 

 

Total Current Liabilities

     273,568       253,678  

Long-term debt, less current maturities

     1,958,471       1,971,048  

Lease liabilities

     17,877       24,526  

Other long-term liabilities

     2,596       2,257  

Deferred revenue, net of current portion

     12,272       2,554  

Deferred tax liabilities

     358,707       427,174  
  

 

 

   

 

 

 

Total Liabilities

     2,623,491       2,681,237  
  

 

 

   

 

 

 

Contingencies (Note 11)

    

Stockholders’ Equity

    

Common stock

     —       —  

Additional paid-in capital

     3,711,428       3,711,428  

Accumulated deficit

     (134,186     (89,876

Accumulated other comprehensive income

     (34,469     (16,249
  

 

 

   

 

 

 

Total Stockholders’ Equity

     3,542,773       3,605,303  
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

     6,166,264       6,286,540  
  

 

 

   

 

 

 

 

*

Represents value less than $1,000

The accompanying notes are an integral part

of these consolidated financial statements.

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6


Adenza Group, Inc. and Subsidiaries

Consolidated Statements of Operations

 

 

     Year ended     Year ended  
     December 31,     December 31,  

(USD 000)

   2022     2021  

Net Sales

     513,725       293,609  
  

 

 

   

 

 

 

Cost of sales

     96,707       58,059  

Cost of sales – Stock Appreciation Rights (SARs) and stock- based compensation

     —         4,897  

Amortization of Developed Technology

     61,068       34,516  
  

 

 

   

 

 

 

Gross Profit

     355,950       196,137  
  

 

 

   

 

 

 

Research and development

     56,856       45,412  

Selling, general, and administrative

     75,866       57,024  

Depreciation and amortization

     101,709       62,700  

SARs and stock-based compensation

     —         13,575  

Re-organization costs (Note 12)

     18,083       9,457  

Transaction Costs

     1,097       6,629  
  

 

 

   

 

 

 

Income from Operations

     102,339       1,340  
  

 

 

   

 

 

 

Other (Expense)/ Income

    

Interest expense

     (172,980     (91,223

Interest income

     711       143  

Loss on foreign currency transactions

     (701     (14,947

Other Income / (Expense)

     1,210       (53
  

 

 

   

 

 

 

Loss Before Provision for Income Taxes

     (69,421     (104,740

Benefit for Income Taxes (Note 13)

     25,111       32,204  
  

 

 

   

 

 

 

Net Loss

     (44,310     (72,536
  

 

 

   

 

 

 

The accompanying notes are an integral part

of these consolidated financial statements.

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7


Adenza Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

 

 

     Year ended     Year ended  
     December 31,     December 31,  

(USD 000)

   2022     2021  

Net Loss

     (44,310     (72,536

Other Comprehensive Expense

    

Unrealized loss on foreign currency translation

     (18,220     (23,360
  

 

 

   

 

 

 

Comprehensive Loss

     (62,530     (95,896
  

 

 

   

 

 

 

The accompanying notes are an integral part

of these consolidated financial statements.

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8


Adenza Group, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

 

 

(USD 000)

   Common Stock     Additional
Paid-In Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
(Loss) Income
    Total  

Opening Balance, December 31, 2020

     —       1,271,421        (17,340     7,111       1,261,192  

Shares issued

     —       2,440,007        —         —         2,440,007  

Net loss

     —         —          (72,536     —         (72,536

Unrealized loss on currency translation

     —         —          —         (23,360     (23,360
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2021

     —       3,711,428        (89,876     (16,249     3,605,303  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net loss

     —         —          (44,310     —         (44,310

Unrealized loss on currency translation

     —         —          —         (18,220     (18,220
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, December 31, 2022

     —       3,711,428        (134,186     (34,469     3,542,773  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

*

Represents value less than $1000

The accompanying notes are an integral part

of these consolidated financial statements.

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9


Adenza Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

 

     Year ended     Year ended  

(USD 000)

   December 31, 2022     December 31, 2021  

Cash Flows from Operating Activities

    

Net loss

     (44,310     (72,536

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Depreciation and amortization of property and equipment

     3,183       2,014  

Amortization of debt issuance costs

     7,898       4,490  

Amortization of deferred contract costs

     2,625       675  

Amortization of intangible assets

     159,594       95,202  

Impairment of leasehold improvement

     1,201       —    

Impairment of right-of-use assets

     5,735       —    

Deferred income tax

     (67,628     (49,836

Changes in assets decrease / (increase):

    

Accounts receivable

     (25,025     (51,538

Unbilled receivables

     (11,788     456  

Prepaid expenses and other current assets

     (1,960     (36

Deferred contract costs

     (9,178     (7,919

Prepaid income taxes

     (17     2,047  

Other assets

     515       (647

Changes in liabilities increase / (decrease):

    

Accounts payable

     3,910       (1,705

Income taxes payable

     6,087       3,477  

Accrued expenses

     (4,536     (3,745

Other current liabilities

     —         (3,029

Other long-term liabilities

     662       497  

Deferred revenue

     26,398       92,994  
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     53,366       10,861  
  

 

 

   

 

 

 

Cash Flows from Investing Activities

    

Capitalized software development costs

     (20,377     (9,625

Capitalized software implementation costs and other intangibles

     (2,580     (2

Purchase of property and equipment

     (5,017     (1,851

Disposal of property and equipment

     2       —    

Payment to previous owners on the Merger

     —         (438

Business acquisition, net of cash acquired

     —         (3,815,349
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (27,972     (3,827,265
  

 

 

   

 

 

 

Cash Flows from Financing Activities

    

Issuance of long-term debt

     —         1,550,000  

Issuance of common stock

     —         2,422,191  

Due from/to related parties

     (4,286     (2,188

Payments made for debt issuance costs

     —         (36,053

Payments of debt

     (20,475     (12,738
  

 

 

   

 

 

 

Net Cash (Used in) / Provided by Financing Activities

     (24,761     3,921,212  
  

 

 

   

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash

     (5,110     (2,992
  

 

 

   

 

 

 

Net (Decrease) / Increase in Cash and Cash Equivalents and Restricted Cash

     (4,477     101,816  

Cash and Cash Equivalents and Restricted Cash, beginning of period

     191,848       90,032  
  

 

 

   

 

 

 

Cash and Cash Equivalents and Restricted Cash, end of period

     187,371       191,848  
  

 

 

   

 

 

 

 

10


Adenza Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

 

(USD 000)

            

Supplemental Disclosure of Cash Flow Information

    

Contribution of rollover equity in exchange for common stock

     —         17,816  

Increase in lease liabilities from obtaining right-of-use assets – ASC 842 adoption

     —         9,097  

Increase in lease liabilities from obtaining right-of-use assets

     2,907       23,914  

Reduction in lease liabilities due to remeasurement and termination

     (4,652     —    

Cash paid during the period for income taxes

     36,245       10,952  

Cash paid during the period for interest

     164,502       89,810  
  

 

 

   

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash

 

 

(USD 000)

   December 31, 2022      December 31, 2021  

Cash and cash equivalents

     185,469        190,657  

Current, Restricted cash

     916        517  

Non-current, Restricted cash

     986        674  
  

 

 

    

 

 

 

Total Cash and Cash Equivalents and Restricted Cash

     187,371        191,848  
  

 

 

    

 

 

 

The accompanying notes are an integral part

of these consolidated financial statements.

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11


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

1. Nature of Operations and Principles of Consolidation

Business Activity

Adenza Group, Inc. and Subsidiaries (collectively, the Company) provide software solutions for enterprise risk management, data management, regulatory reporting, and compliance requirements of financial institutions. The Company’s software provides a comprehensive solution for all levels of regulatory and management financial reporting, and complete integration, and provides a data-warehousing platform for risk data, market data, front/middle/back-office data, reference data, and operational loss data. It enables clients to automate and streamline business operations while optimizing processes, systems, data enrichment, and transparency to enhance decision-making and reduce operational costs. This is offered on-premises or in a software-as-a-service model.

Consulting services of the Company include systems specification, design, resource scheduling, project management, and regulatory reporting and integration.

On October 17, 2020, the Company entered into an Agreement and Plan of Merger (as amended and restated on November 4, 2020, the Agreement), whereby Project Agile Parent, LLC (Adenza Parent) agreed to acquire the Company, pursuant to the terms and conditions of the Agreement through a merger of Project Agile Merger Sub, Inc. with and into the Company (the Merger). The Merger closed on December 3, 2020, pursuant to the filing of a Certificate of Merger with the Secretary of State of the State of Delaware.

On March 19, 2021, the Company entered into an Agreement with shareholders of Calypso Group Lux S.C.A. to acquire Calypso Group Lux S.C.A. and its subsidiaries (collectively, the Calypso Group) through its subsidiary Capri Bidco Limited (as amended and restated on July 22, 2021, the Agreement), pursuant to the terms and conditions of the Agreement (the Acquisition). Stock transfer forms for the change of ownership were executed on July 22, 2021, the date of acquisition.

Impact of war between Russia and Ukraine

Following the invasion of Ukraine by Russia, Adenza concluded that its ongoing presence in Russia was inconsistent with its values as an organization and discontinued all operations in Russia by the end of 2022. All employment contracts and contracts with Russian customers have been terminated. The Company recorded a $6.4 million loss in revenue in 2022 due to the contract terminations.

Adenza has two Russian subsidiaries, one has been placed into liquidation in February 2023 and the other is dormant pending liquidation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

 

12


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand (USD 000), except when otherwise indicated. The consolidated financial statements provide comparative information for the previous period. The current year results are not comparable with the previous period since current year results include the operations of the Calypso Group for the entirety of the year ended December 31, 2022 while the prior year results include the operations of Calypso Group subsequent to the acquisition date.

Certain amounts in prior year’s financial statements have been reclassified to conform to current year’s financial presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates, judgments, and assumptions in these consolidated financial statements include those related to the valuation of goodwill and intangible assets, useful lives of assets for calculating depreciation and amortization, valuation of long-lived assets, allowances for doubtful accounts, valuation of deferred tax assets, provisions for uncertain tax positions, assumptions used for the valuation of stock-based compensation, and in the allocation of a transaction price to distinct performance obligations in connection with revenue recognition.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 - Valuations are based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations are based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations are based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

At December 31, 2022 and 2021, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled receivable, accounts payable, and accrued expenses, approximated book value due to the short maturity of these instruments. The carrying amount of restricted cash approximates fair value because, as the restrictions expire, the carrying value represents the amount that the Company will receive. Liabilities are shown net of any discounts.

At December 31, 2022 and 2021, the Company does not have assets or liabilities required to be measured at fair value in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements.

 

13


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are related to funds deposited into money market funds and other short-term certificates of deposit.

Restricted Cash

Amounts included in restricted cash as of December 31, 2022 and 2021 pertain to certain customer and lease deposits.

Accounts Receivable

Accounts receivable consists of trade receivables recorded at the original invoice amount less an estimate made for uncollectible accounts. The Company analyzes the collectability of trade accounts receivable by considering historical bad debts, client creditworthiness, current economic trends, changes in client payment terms, and collection trends when evaluating the adequacy of the allowance for doubtful accounts. Any change in the assumptions used in analyzing a specific account receivable may result in an allowance for doubtful accounts being recognized in the period in which the change occurs. Trade receivables are net of allowances for doubtful accounts of $1.1 million and $1.6 million as of December 31, 2022 and 2021, respectively. In certain instances, in accordance with ASC 606, the Company will not recognize revenue when there is uncertainty as to the collectability of amounts due under the contract. Such occurrences have been infrequent and immaterial to the consolidated financial statements.

Property and Equipment

Property and equipment are stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets. Furniture and fixtures, computer equipment, and leasehold improvements are depreciated over the shorter of the remaining term of the related lease or the estimated economic useful life of the improvement.

Foreign Currency Translation

For all foreign operations, the functional currency is their respective local currency. Transactions in foreign currencies are translated into the respective functional currencies using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences arising from the settlement of such transactions and from the translation at the reporting date of monetary assets and liabilities denominated in foreign currencies are recognized in Consolidated statements of operations.

At the time of the Acquisition, the Company entered a forward cover to purchase EUR 270 million to pay off the EUR debt of the Calypso Group. This resulted in a loss of $11.8 million shown as part of “Loss on foreign currency transactions” in the Consolidated Statements of Operations for the year ended December 31, 2021.

Assets and liabilities of these operations are translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Consolidated statements of operations accounts are translated at the average rate of exchange prevailing during the year ended December 31, 2022 and 2021. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss.

 

14


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Impairment of Long-Lived Assets

Long-lived assets consist primarily of Intangibles, property and equipment. The Company evaluates these long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. No impairment loss was recorded for the year ended December 31, 2022 and 2021.

Equity Investment

Associates are those entities over which the Company has significant influence (defined as the ability to participate in the financial and operating decisions of the investee but not control over those policies) but are not subsidiaries. The results of associates are incorporated in these consolidated financial statements using the equity method of accounting, under which investments in associates are carried in the consolidated Balance sheet at cost as adjusted for post-acquisition changes in the Company’s share of net assets of the associate less any impairment in the value of individual investments.

As part of the Acquisition, the Company acquired an investment in Sernova Financials Limited (“Sernova”) at a value of $2.4 million in which the Calypso Group held 19.5% of outstanding share capital. For the years ended December 31, 2022 and 2021, the Company recorded its share of Sernova’s profit $0.1 million and $0.01 million respectively in Other (Expense)/ Income in the consolidated Statements of Operations.

There is also a Subscription agreement between Calypso Technology Inc and Sernova wherein Calypso provides cloud-hosted software to Sernova, which Sernova uses for the sole purpose of providing a fully managed service to its end clients. Sernova pays subscription fees to Calypso for using the cloud-hosted Calypso software and such subscription fees are a percentage of the fee charged by Sernova to its end clients.

The subscription fee percentage is 50% of Sernova’s revenue from its customer up to $6.0 million annually and then it reduces by 5% for each incremental million-dollar annual revenue up to 35% for revenue above $8.0 million. For the years ended December 31, 2022 and 2021, the Company recorded subscription revenue of $4.25 million and $1.1 million, respectively. The Company had receivables outstanding of $0.9 million and $0.8 million as of December 31, 2022 and 2021, respectively.

Accumulated Other Comprehensive Income

FASB ASC Topic 220, Reporting Comprehensive Income, establishes rules for the reporting of comprehensive income and its components. Comprehensive income is defined as all changes in equity from non-owner sources. For the Company, comprehensive loss consists of net loss and changes in the cumulative foreign currency translation adjustments.

 

15


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Stock-Compensation. Under the fair value recognition provisions of this accounting guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period.

As stock-based compensation expense recognized in the Company’s consolidated statements of operations is based on awards ultimately expected to vest, the amount of expense has been reduced for forfeitures as they occur, as permitted under FASB ASC Topic 718.

Pre-Merger share appreciation rights

Prior to the Merger, the Company had granted share appreciation rights (SARs) to employees in 2019 and 2018. The vesting for these SARs and corresponding expense recognition was dependent on a “Milestone Event”, as well as time-based vesting conditions, which stipulate the on-going service of the recipient to the Company. Once both criteria were met, the Company would recognize an expense consistent with the fair value of the vested portion of the award, with a corresponding liability as awards are satisfied in cash. Further information regarding SARs can be found in Note 10.1.

Post-Merger incentive plan

Adenza Parent, L.P. (“Adenza Parent”), the ultimate holding company, implemented a management incentive plan in which it issues Class B Units of Adenza Parent (“Class B PIUs”) or Class B equity appreciation rights (the “Class B EARs” and collectively with the Class B PIUs, the “Awards”) to the Company’s employees for the performance of services. In 2022 and 2021, Adenza Parent allocated the awards to certain employees (“the Participants”).

Since the value of these awards were estimated to be insignificant at the time of the grant, there is no stock based compensation recognized within the Company’s consolidated statements of operations. The fair value was arrived using a discounted cash flow analysis and the market implications of the Merger transaction.

Developed Technology

The Company’s Developed technology includes the costs of internally developed software technology and software technology purchased through acquisition. In accordance with FASB ASC Topic 985, Software, the Company capitalizes costs incurred to develop software once technological feasibility has been reached which for the Company is defined as the earlier of when a detailed program plan is established, or a working model is created. Capitalized costs include costs to design the software configuration and interfaces, coding, installation, and testing, as well as development costs related to software enhancements that add functionality.

During the years ended December 31, 2022 and 2021, the Company capitalized such costs of $20.4 million and $9.6 million, respectively. These capitalized costs are amortized over the software’s expected useful life, which is generally five years. Amortization expense related to the Developed technology for the years ended December 31, 2022 and 2021 amounted to $61.1 million and $34.5 million, respectively.

 

16


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Income Taxes

Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between financial statements carrying amounts of assets and liabilities and their respective tax basis. Deferred taxes are calculated using currently enacted income tax rates for the year in which they are recognized. The effect of a change in income tax rates on deferred tax asset and liability balances is recognized in income in the period that includes the enactment of such rate change. A valuation allowance, if necessary, is recorded against deferred tax assets if utilization is not likely.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Should tax laws change, the Company’s tax expense and cash flows could be materially impacted.

401(k) Retirement Plan

Two subsidiaries of the Company in the United States maintain a qualified 401(k) plan for its eligible employees, who may elect to contribute voluntarily through payroll deductions, subject to certain statutory limitations as mentioned in the table below. One of the subsidiaries has elected to provide for a matching contribution while the other subsidiary has elected to not provide for a matching contribution. The Company contributed $0.5 million and $0.1 million towards employer contributions for the year ended December 31, 2022 and 2021, respectively.

 

     (USD 000)  

Year

   Basic Contribution
Limit
     Catch-Up Contribution
(50 or older)
 

2022

     20.5        6.5  

2021

     19.5        6.5  

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17


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Revenue Recognition

The Company derives substantially all of its revenues from selling licenses and maintenance for a fixed fee, and from providing consulting services. The Company’s agreements for licenses and maintenance generally have annual or multi-year terms. The Company typically invoices customers annually at the beginning of each annual contract period but may also invoice customers on a quarterly or monthly basis. Payments are generally due and payable upon receipt of invoice by the Company’s customers or within 30 days of the stated billing date.

The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements:

 

   

Identify the contract with a customer.

 

   

Identify the performance obligations in the contract.

 

   

Determine the transaction price.

 

   

Allocate the transaction price to performance obligations in the contract.

 

   

Recognize revenue as the performance obligation is satisfied.

The Company’s contracts may include one or any combination of the following products and services.

License and Solutions Reporting Templates

Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to time-based licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premise or time-based licenses is recognized upfront at the point in time when the software is made available to the customer as this is the point the user of the software can direct the use of and obtain substantially all of the remaining benefits from the software license.

Solutions Reporting Templates provide customers with one or more “Software Components” of the Company’s Regulatory Solutions software that are being licensed by a customer. Solutions Reporting Template contracts include two performance obligations: a term license to the on-premise software, and associated maintenance to provide technical support, bug fixes, and unspecified updates on a stand-ready basis.

When contracted with customers for on-premise use, license and solution revenue is recognized at a point in time when control is passed to the customer upon receipt of the license and solution. License maintenance and solution maintenance revenue is recognized over the contract term.

Cloud Services

The Company offers cloud services arrangements whereby the software is hosted and managed for certain customers. When contracted simultaneously with the Company’s software, there is a single performance obligation of the Company to maintain the use of the software. Revenue is recognized for such arrangements ratably over the duration of the contact.

 

18


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Consulting Services

Consulting is comprised of two types of services, implementation, and training. Implementation consists of services to implement the Company’s software for the client, including software installation, environment set-up, configuration of data sources, and models for uploading into the software, systems testing, and user testing. The Company offers training sessions for client users. Consulting services are typically billed on a time and expense basis. These are provided based on hourly or daily rates and revenue is recognized based on actual hours incurred. The Company also offers fixed price contract agreements and revenue is recognized using the input method to measure progress towards complete satisfaction of the services, because the customer simultaneously receives and consumes the benefits provided by the Company. In contracts with multiple performance obligations, we account for individual performance obligations separately if they are distinct. The input method is based upon hours consumed relevant to the total project.

For certain Regulatory Solutions, the Company allocates the transaction price to each performance obligation based on our relative standalone selling price out of total consideration of the contract. Standalone selling price is determined utilizing observable prices to the extent available based on a grouping of recent contracts with similar performance obligations. If the standalone selling price for a performance obligation is not directly observable, we use an estimate based on observable inputs.

For certain Capital Market Solutions, the Company determines standalone selling prices for professional services and software maintenance services for perpetual licenses using observable pricing as these are sold separately to its customers. As pricing for perpetual and time-based licenses is highly variable, the Company applies the residual approach when determining the standalone selling price of the perpetual license and time-based license and maintenance services bundle and does so by deducting the sum of the observable standalone selling prices of the other performance obligations in the contract from the transaction price.

Disaggregated Revenue Information

The following table provides the timing of revenue recognition of disaggregated revenue:

 

     (USD 000)  

December 31,

   2022      2021  

Over time

     393,615        206,591  

Point in time

     120,110        87,018  
  

 

 

    

 

 

 
     513,725        293,609  
  

 

 

    

 

 

 

Deferred Contract Costs

The Company capitalizes commission expenses paid to internal sales personnel that are incremental to obtaining customer contracts. Costs related to the initial signing of contracts are amortized over the average customer life, which has been estimated to be five years. The Company determined the period of benefit by taking into consideration the length of terms in its customer contracts, including renewals and extensions, the average customer life, and the expected useful life of the Company’s technology. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, and the remaining portion is recorded as deferred contract costs, non-current in the consolidated balance sheets.

Amortization expense is included in selling, general, and administrative expense in the consolidated statements of operations.

The following table represents a roll forward of the Company’s deferred contract costs:

 

     (USD 000)  

Balance, December 31, 2020

     1,079  
  

 

 

 

Additions to deferred contract costs

     7,870  

Amortization of deferred contract costs

     (675
  

 

 

 

Balance, December 31, 2021

     8,274  
  

 

 

 

Additions to deferred contract costs

     9,163  

Amortization of deferred contract costs

     (2,625
  

 

 

 

Balance, December 31, 2022

     14,812  
  

 

 

 

 

19


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Contract Assets (Unbilled Receivables) and Contract Liabilities (Deferred Revenue)

The Company records unbilled accounts receivable related to revenue recognized in excess of amounts invoiced as the Company has an unconditional right to invoice and receive payment in the future related to those fulfilled obligations. The Company records contract assets as amounts related to the contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. The Contract asset balance was $158.4 million and $148.0 million as of December 31, 2022 and 2021, respectively, of which $126.3 million and $103.1 million are included in current assets as of December 31, 2022 and 2021, respectively. The remaining balance is presented within long term assets.

The Company records contract liabilities to deferred revenue when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts.

The following table represents a rollforward of the Company’s contract liabilities (deferred revenue):

 

     (USD 000)  

Balance, December 31, 2020

     5,304  
  

 

 

 

On acquisition of Calypso

     65,277  

Additions to deferred revenue

     307,887  

Reduction of deferred revenue

     (214,790
  

 

 

 

Balance, December 31, 2021

     163,678  
  

 

 

 

Additions to deferred revenue

     436,950  

Reduction of deferred revenue

     (411,407
  

 

 

 

Balance, December 31, 2022

     189,221  
  

 

 

 

Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as deferred revenue, net of current portion on the accompanying balance sheets.

Leases

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company applies a single recognition and measurement approach for all leases, except for short-term and low-value leases. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Amortization of the right-of-use asset is calculated as the difference between the predetermined straight-line rent expense and the imputed interest on the lease liability.

 

20


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.

Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of Properties i.e., those leases that have a term of 12 months or less from the commencement date and do not contain a purchase option. The Company also applies the lease of low-value assets recognition exemption to leases that are low in value. Both of the above type of lease payments are recognized as expenses on a straight-line basis over the lease term.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. The Company’s annual impairment assessment is performed at the end of each fiscal year or performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASC 350, Intangibles – Goodwill and Other state that if an indicator of impairment exists then an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASC 350 also states that a reporting unit with a $0 or negative carrying amount is not required to perform a qualitative assessment. The Merger resulted in an acquisition of Goodwill of $1,125.0 million in 2020, which was increased by $0.4 million in 2021 due to the forfeiture of SARs. Further upon the Acquisition of Calypso, additional Goodwill of $2,554.3 million was recognized.

The Company analyzed its operational structure for the purpose of identifying reporting units in accordance with ASC 350 and determined that the Company’s operations comprise a single reporting unit. There were no indicators of impairment during the year and hence, the Company performed only the annual evaluation of the impairment. Such evaluation did not result in any impairment charge during the year ended December 31, 2022 and 2021.

 

21


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Intangible Assets

Definite-lived intangible assets are amortized over their respective estimated useful lives to their estimated residual values, in a pattern that reflects when the economic benefits will be consumed and are reviewed for impairment under the provisions of ASC 360-10-35, Property, Plant and Equipment/Overall/Subsequent Measurement. The Company reviews intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the carrying amount of the asset exceeds its fair value.

No impairment loss was recognized for intangible assets with definite lives during the year ended December 31, 2022 and 2021.

Intangible assets are amortized on a straight-line basis over their useful finite economic lives, as noted below, and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The assessed useful life of customer relationships requires a high degree of management judgment and estimation. Such estimates are, in part, predicated upon assumed attrition and growth rates applicable to existing customers at the time of acquisition. If actual results deviate from these assumptions, it could result in an impairment or change in the estimated useful life that could have a material impact on future operating results.

 

              (USD 000)    

December 31,

   Useful lives      2022      2021  

Trademark

     8-10 years        130,763        130,616  

Developed technology

     5-7 years        391,223        372,639  

Customer relationships

     18-21 years        1,675,053        1,688,273  

Purchased software

     1.5-5 years        3,900        1,475  
     

 

 

    

 

 

 
        2,200,939        2,193,003  

Less: accumulated amortization

        (257,319      (98,591
     

 

 

    

 

 

 
        1,943,620        2,094,412  
     

 

 

    

 

 

 

Amortization on Intangible assets for the year ended December 31, 2022 and 2021 is $159.6 million and $95.2 million, respectively. The expected amortization expense for each of the fiscal years 2023 through 2027 and for periods thereafter is as follows:

 

Year ending December 31,

   (USD 000)  

2023

     162,820  

2024

     162,729  

2025

     162,469  

2026

     162,187  

2027

     138,822  

Thereafter

     1,154,593  
  

 

 

 

Total Intangible Assets, Net

     1,943,620  
  

 

 

 

The remainder of this page intentionally left blank.

 

22


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

3. Purchase Accounting and Business Acquisition

The following table summarizes the fair values of the assets acquired and liabilities assumed on July 22, 2021, in connection with the Acquisition of the Calypso Group and is inclusive of all related acquisition accounting in the Company’s consolidated financial statements:

 

     (USD 000)  

Assets

  

Cash

     58,333  

Restricted Cash

     1,049  

Accounts receivable

     21,286  

Unbilled receivable

     108,885  

Prepaid expenses and other current assets

     6,496  

Prepaid income taxes

     10,547  

Property and equipment, net

     6,379  

Intangible assets- Purchased software

     1,473  

Intangible assets

     1,583,700  

Right of use assets

     21,417  

Goodwill

     2,554,292  

Other assets

     5,484  

Deferred tax assets

     1,655  
  

 

 

 

Total Assets Acquired

     4,380,996  
  

 

 

 

Liabilities

  

Accounts payable

     3,466  

Deferred revenue

     65,277  

Accrued expenses

     37,897  

Income tax payable

     639  

Other long-term reserves

     1,875  

Other liabilities

     318  

Lease liabilities

     21,173  

Deferred tax liabilities

     356,889  
  

 

 

 

Total Liabilities Assumed

     487,534  
  

 

 

 

Total Purchase Consideration

     3,893,462  
  

 

 

 

The purchase price for the Acquisition was allocated to intangible assets as follows: $80.0 million of trademarks, amortizable over a period of eight years, $1,247.5 million of customer relationships, amortizable over a period of twenty-one years, and $256.2 million of developed technology, amortized over a period of six years. The fair value of the acquired customer relations was determined using an excess earnings method. The fair value of the trademarks and developed technology was determined using a relief from royalty method.

The Acquisition resulted in the recognition of $2,554.3 million of goodwill. Goodwill largely consisted of the value of the acquired assembled workforce, the fair value of expected synergies, not including those available to market participants and premiums paid by the merging entity. As part of the purchase accounting, the Company recognized deferred tax liabilities resulting from temporary differences between the book and tax basis of acquired intangible assets.

 

23


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Transaction costs included in the accompanying consolidated statements of operations is $1.1 million and $6.6 million for the year ended December 31, 2022 and 2021, respectively.

During the year ended December 31, 2021, the Company adopted ASU 2021-08, which enables the Company to recognize deferred revenue acquired in a business combination as if it had originated from the contract. This accounting treatment was applied to the deferred revenue acquired in the Calypso Group acquisition.

4. Concentration of Risks Related to Credit, Foreign Operations, and Foreign Currencies

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, deposits with banks and financial institutions including restricted balances as well as exposure to customers including accounts receivables and unbilled receivable. The Company maintains cash balances in several United States financial institutions, which are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution. Beyond the United States of America, the Company has cash balances covered by comparable insurance based on local regulations. From time to time, the Company’s balances may exceed these limits however balances are held with financial institutions with high credit standing.

The Company performs ongoing evaluations of its customers’ financial condition and maintains an allowance for uncollectible accounts receivable based upon the expected collectability of all accounts receivable, using the provision matrix and the specific identification method. The Company does not require collateral from its customers. The Company is not able to predict changes in the financial stability of its customers. In cases when a delinquency in payments occurs, the Company may withhold services delivery under current implementation, discontinue support or limit the right to use its software.

As of December 31, 2022, and 2021, there is no geographical concentration of credit risk as the Company’s customer base is internationally dispersed and no individual customer represents more than 10% of the Company’s outstanding trade and other unbilled receivables balances or more than 10% of the Company’s revenue in any of the periods presented.

At December 31, 2022 and 2021, geographic concentrations of net assets by countries outside the United States were as follows:

 

     (USD 000)  

December 31,

   2022      2021  

United Kingdom

     35,429        20,992  

Netherlands

     207,775        230,663  

Singapore

     14,662        14,380  
  

 

 

    

 

 

 
     257,866        266,035  
  

 

 

    

 

 

 

The Company is also subject to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of the foreign affiliates and intercompany loans, as well as transactions denominated in foreign currencies.

 

24


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

5. Property and Equipment, Net

Property and equipment, net is summarized as follows:

 

     (USD 000)  

December 31,

   2022      2021  

Furniture and fixtures

     98        617  

Computer equipment

     6,450        5,447  

Leasehold improvements

     5,383        4,300  
  

 

 

    

 

 

 
     11,931        10,364  

Accumulated Impairment

     (1,201      —    

Accumulated depreciation

     (1,985      (1,870
  

 

 

    

 

 

 
     8,745        8,494  
  

 

 

    

 

 

 

Depreciation and amortization expense related to property and equipment for the year ended December 31, 2022 and 2021 amounted to $3.2 million and $2.0 million, respectively.

6. Due from Related Parties

The due from related parties consists of receivable from Adenza Holdings, Inc., an intermediate Parent entity, for repurchases of its share capital funded by the Adenza Group, Inc. on its behalf. The receivable is unsecured and bears no interest, as it is payable on demand.

7. Leases

The Company has lease contracts for its office premises which are operating in nature as per ASC 842. Leases of property generally have lease terms between 12 months to 10 years depending upon the importance of a particular location and other factors such as the number of customers and employees in that country. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets.

The Company applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. Set out below are the carrying amounts of right-of-use assets recognized for operating leases and the movements during the years then ended:

 

(USD 000)

   2022      2021  

As at January 1,

     29,967        —    

Effect of adoption of ASC 842 Leases at January 1, 2021

     —          9,258  

On account of acquisition of Calypso

     —          21,417  

RoU assets obtained in exchange for new operating lease liabilities

     2,907        2,742  

Termination of lease

     (1,740      —    

Remeasurement of lease term

     (2,888      —    

Impairment of RoU assets

     (5,735      —    

Amortization for the year

     (5,474      (3,450
  

 

 

    

 

 

 

As of December 31,

     17,037        29,967  
  

 

 

    

 

 

 

 

25


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Set out below are the carrying amounts of operating lease liabilities (included under interest-bearing loans and borrowings) and the movements during the period:

 

     (USD 000)  
     2022      2021  

As at January 1,

     29,916        —    

Effect of adoption of ASC 842 Leases at January 1, 2021

     —          9,097  

On account of acquisition of Calypso

     —          21,172  

Additions on account of new lease contracts

     2,907        2,742  

Termination of lease

     (1,766      —    

Remeasurement of lease term

     (2,888      —    

Accretion of interest

     2,055        1,375  

Payment of lease liabilities

     (7,393      (4,470
  

 

 

    

 

 

 

As of December 31,

     22,831        29,916  
  

 

 

    

 

 

 

Less: current portion

     4,954        5,390  
  

 

 

    

 

 

 

Total non-current lease liabilities

     17,877        24,526  
  

 

 

    

 

 

 

The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an annual basis for the next five years and thereafter:

 

Year ending December 31,

   (USD 000)  

2023

     6,466  

2024

     6,449  

2025

     4,684  

2026

     3,828  

2027

     2,752  

Thereafter

     2,777  
  

 

 

 

Total Operating lease payments

     26,956  
  

 

 

 

Imputed Interest

     (4,125
  

 

 

 

Total

     22,831  
  

 

 

 

The following table presents the weighted-average lease term and discount rate for operating leases:

 

     (USD 000)  
     2022     2021  

Weighted-average remaining lease term

     4.58 years       5.88 years  

Weighted-average discount rate

     7.48     7.31
  

 

 

   

 

 

 

Amortization and interest expense on the Capitalized Operating leases for the year ended December 31, 2022 and 2021, amounted to $7.5 million and $4.8 million, respectively.

The Company has non-cancellable minimum operating lease commitments for short-term leases and low-value assets as of December 31, 2022 and 2021 totaling $0.07 million and $0.7 million respectively.

 

26


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Impairment of Leases and related assets

During the year ended December 31, 2022, the Company decided to exit and seek sublease for two leased facilities predominately due to a remote work model for a significant number of employees arising from the COVID-19 pandemic and synergies arising from the Acquisition. The Company recorded a non-cash impairment charge of $5.7 million related to operating lease right-of-use assets for the affected facilities and an impairment charge of $1.2 million for associated leasehold improvements. The impairment was determined by comparing the fair value of the impacted right-of-use asset to the carrying value of the asset as of the impairment measurement date, as required under ASC Topic 360, Property, Plant, and Equipment. The fair value of the right-of-use asset was based on the estimated sublease income for the affected facilities taking into consideration the time it will take to obtain a sublease tenant, the applicable discount rate and the sublease rate which represents Level 3 unobservable inputs. The impairment is presented in the Re-organization costs on the Consolidated Statements of Operations. No impairment was recorded during the year ended December 31, 2021.

Sublease

During 2022, the Company sub-leased office space where the Company is the tenant to several surplus non-cancellable leases. Total sublease income for the years ended December 31, 2022 and 2021 was $1.0 million and $0, respectively. Total estimated aggregate sublease income to be received over the term of the sub-lease arrangement from January 01, 2023 and ending August 31,2029 amount to $6.9 million.

8. Long-Term Debt and Line-of-Credit

On December 3, 2020, in relation to the Merger, the Company entered into a term loan agreement with the principal amount of $500.0 million (the “Term loan”). The loan matures on December 3, 2027 and requires quarterly principal payments of $1.3 million and interest payments of 7.50% on the outstanding principal amount. In connection with the term loan agreement, the Company incurred $14.3 million of debt issuance costs.

In connection with the Acquisition, the Company increased its existing term loan agreement by $1,650.0 million including $100.0 million of Delayed Draw Term Loan (DDTL) with the same maturity date of December 3, 2027. As of the year ended December 31, 2021, the Company had drawn $1,550.0 million towards term loan and DDTL was not drawn. The quarterly principal payments were revised to $5.1 million and interest rate was reduced by 50bps to 7.00% on the outstanding principal amount. The interest rate applicable is made up of two components which are LIBOR with a floor of 1% and a credit spread of 6%. During the year ended December 31, 2022, the Company paid off principal to the extent of $20.48 million and credit spread ranged between 6% to 5.75% depending upon the Company’s leverage ratio.

Until such time that the DDTL is utilized, a commitment fee of 1.00% is payable on the committed amount of $100.0 million. As of December 31, 2022 and 2021, the Company has no outstanding borrowings against the DDTL.

During the year ended December 31, 2021, the Company evaluated the amendment to the debt arrangement in accordance with ASC 470-50, Debt – Modifications and Extinguishments, and determined it represented a modification. The Company incurred $33.8 million of debt issuance costs for increase in limits which are recognized as deferred financing costs offsetting the debt balance and amortized as interest expense through the maturity date.

 

27


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Principal payments required to be made under the terms of the term loan agreement are as follows:

 

Year ending December 31, 2022

   (USD 000)  

2023

     20,475  

2024

     20,475  

2025

     20,475  

2026

     20,475  

2027

     20,475  

Thereafter

     1,914,413  
  

 

 

 
     2,016,788  
  

 

 

 

The loan balance reported in the consolidated balance sheet is presented net of the unamortized balance of debt issuance costs of $37.8 million and $45.7 million as of December 31, 2022 and 2021, respectively. Amortization of these costs is calculated by the straight-line method, which approximates the effective interest method, and reported as interest expense in the accompanying statements of operations. The interest expense representing amortization of loan issuance costs for the year ended December 31, 2022 and 2021 was $7.9 million and $4.5 million, respectively.

The Company also maintains a $150.0 million revolving credit facility (RCF) which matures on December 3, 2025. Interest on amounts borrowed are payable at the same rate as applicable to the Term loan and, until the facility is utilized, there is a commitment fee of 0.50% is payable on the total amount of the facility. As of December 31, 2022 and 2021, the Company has no outstanding borrowings against the facility.

The term loan and credit facilities are subject to certain financial and affirmative covenants. As of December 31, 2022 and 2021 the Company was in compliance with all required covenants. The term loan and credit facilities are secured by the assets of the Company.

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28


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

9. Capital Structure

Pursuant to the Merger, all issued and outstanding equity of the Company (the Equity Instruments) was canceled and converted into the right to receive Merger Consideration as defined in the Agreement. The Equity Instruments included Series A-1 Preferred Stock, Class A Voting Common Stock, Class B Non-Voting Common Stock, and options to acquire Class B Non-Voting Common Stock. Certain holders of Class A Voting Common Stock and Class B Non-Voting Common Stock (the Rollover Securities) agreed to rollover their securities into the acquiring structure. This was accomplished on December 3, 2020 through a contribution of the Rollover Securities to Adenza Parent, L.P. (the Ultimate Parent) in exchange for partnership units in the Ultimate Parent. The Ultimate Parent contributed the Rollover Securities to Project Agile Parent, LLC, and the Rollover Securities were cancelled in connection with the Merger (without the payment of further consideration therefor).

In connection with the Acquisition, the Company received capital amounting to $2,350.0 million from the Ultimate Parent, via intermediate entities, to complete the acquisition of the Calypso Group. Additionally, certain shareholders of the Calypso Group agreed to rollover their securities amounting to $17.8 million into shares in the Ultimate Parent and this was accomplished in the same manner as described above on July 22, 2021.

During the year ended December 31, 2021, additional capital contributions were made to the Company by the Ultimate Parent, via intermediate entities, which amounted to $72.2 million.

Capital Stock

As of December 31, the Company’s capital structure is summarized as follows:

 

Common Stock

   2022      2021  

Authorized

     1,000        1,000  

Issued

     1,000        1,000  

Outstanding

     1,000        1,000  

Par

   $ 0.010      $ 0.010  
  

 

 

    

 

 

 

Common Stock

Dividend rights

The Company’s common shares do not contain any dividend rights.

Voting Rights

The Company’s common shares do not contain any voting rights.

Redemption Rights

The common shares are not redeemable.

The remainder of this page intentionally left blank.

 

29


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

10. Management incentive plan

10.1 Pre-Merger Management incentive plan

Stock Appreciation Rights

Pursuant to the Amended and Restated AxiomSL 2017 Equity Incentive Plan, the Company granted SARs to employees in 2019 and 2018. The SARs vested over a period of three years and upon the occurrence of a milestone event, such as a merger with a person or group resulting in a change of control of the Company. In December 2020, in relation to the Merger, 2,986,955 SAR units had a payment of 50% of the per share of $9.04 less the Base Price identified in the applicable SAR Agreement of approximately $2.37 per share. In December 2021, the remaining 50% of the SAR’s balance was paid, reduced by forfeitures and accelerated payments.

Total SARs and other stock-based awards expense recognized in the Company’s consolidated statements of operations is $0 and $18.5 million for the year ended December 31, 2022 and 2021, respectively.

10.2 New Management incentive plan

Adenza Parent L.P., the ultimate Parent, implemented the Amended and Restated Adenza Parent, L.P. Incentive Equity Plan and the Adenza Parent, L.P. Equity Appreciation Rights Plan (collectively, the “Plan”) pursuant to which Adenza Parent issues awards of incentive equity to employees of the Company and its direct and indirect subsidiaries. Pursuant to the Plan, incentive equity may be issued in the form of Class B Units of Adenza Parent (“Class B PIUs”) or Class B equity appreciation rights (“Class B EARs” and collectively with the Class B PIUs, the “Awards”). Adenza Parent issued Class B PIUs and Class B EARs to certain employees and directors of Adenza Parent (“the Participants”) for no cash consideration in March and April 2021 and again in December 2021. Since the value of these Awards was immaterial at the time of the grant, there is no compensation expense recognized during the year ended December 31, 2021. The estimated valuation of the awards was determined using a discounted cash flow analysis.

A summary of activity is as follows:

 

     Class B EARs      Class B PIUs      Total  

December 31, 2020

     —          87,138        87,138  

Granted

     1,558,098        8,613,550        10,171,648  

Cancelations

     —          (1,214,709      (1,214,709
  

 

 

    

 

 

    

 

 

 

December 31, 2021

     1,558,098        7,485,979        9,044,077  
  

 

 

    

 

 

    

 

 

 

Granted

     316,445        769,404        1,085,849  

Cancelations

     (91,232      (675,694      (766,926
  

 

 

    

 

 

    

 

 

 

December 31, 2022

     1,783,311        7,579,689        9,363,000  
  

 

 

    

 

 

    

 

 

 

Class B PIUs are equity in Adenza Parent. Subject to a participation threshold, if any, each holder of Class B PIUs is entitled to its pro rata share of proceeds from a Change in Control of Adenza Parent after satisfaction of all liabilities and payment to the holders of Class A Units of the Class A Unreturned Capital and Class A Unpaid Yield, each as defined in the Second Amended and Restated Limited Partnership Agreement of Adenza Parent.

 

30


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

The Class B EARs have a financial right to consideration upon a Change in Control. The Class B EARs are not actual equity interests in the Adenza Parent or any entity but represent a hypothetical unit of measurement maintained by the Adenza Parent in a bookkeeping account for the Participant’s benefit, entitling the Participant to a cash payment subject to the terms and conditions of the Plan and assuming for these purposes that each Class B EAR is economically equivalent to one Class B PIU.

The Awards are subject to certain restrictions, including vesting restrictions, transferability restrictions, repurchase rights, and rights of first refusal. Some or all of the Awards may be subject to cancellation or repurchase upon the Participant’s termination of employment with the Company.

Awards granted in March and April 2021 were subject to two types of vesting:

 

1.

Type I – time-based vesting – 25% of the Awards would vest on the first anniversary of the acquisition of AxiomSL by Thoma Bravo (i.e., December 3, 2021), and the remaining 75% of the Type I Awards will vest in equal amounts monthly over the next thirty-six (36) months.

 

2.

Type II – performance-based vesting – These Awards will vest depending upon Adenza meeting the EBITDA-based targets set by the Board for the relevant years 2021-2024. If the EBITDA-based target for a period is met, then 25% of the Type II Awards will vest as of December 31 of the relevant year.

Holders of Awards issued in March and April 2021 were offered the option to switch to the following vesting terms, which applied to all Awards issued in December 2021 and all awards issued in 2022, except for those under the Sales Vesting Plan described below. Some holders opted to switch to the terms of the awards issued in December 2021 however the value of both the awards is insignificant resulting in no impact on consolidated statements of operations.

Vesting can be divided into 3 types that are as follows:

 

1.

Type I - time-based vesting - 25% of Type I Awards will vest on the first anniversary of the acquisition of Calypso by Thoma Bravo (i.e., July 22, 2022), and the remaining 75% of the Type I Awards will vest in equal amounts daily over the next thirty-six (36) months.

 

2.

Type II - performance-based vesting - These Awards will vest depending upon Adenza meeting the EBITDA-based targets set by the Board for the relevant years 2022-2025. If the EBITDA-based target for a period is met, then 25% of the Type II Awards will vest as of December 31 of the relevant year.

 

3.

Type Ill - will vest upon a change of control.

Participants may have the right to acceleration upon a Change in Control, as set forth in the applicable Grant Agreement. Upon termination of employment, unvested Awards are cancelled. Vested awards may be subject to cancelation or repurchase, depending on the terms of the applicable Grant Agreement and the circumstances of the Participant’s termination.

The remainder of this page intentionally left blank.

 

31


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

In May 2022, the Ultimate Parent issued Awards to Participants who are Sales Executives of the Company and its direct and indirect subsidiaries (the “Sales Vesting Plan”). Each Award is divided into three equal annual tranches. Vesting is determined based on each Participant’s sales quota as set forth in the Participant’s Sales Compensation Plan, and is determined as follows:

 

  1.

0% to 65% Quota Achievement: No vesting of the annual tranche. All amounts in the annual tranche are forfeited.

 

  2.

65% to 80% Quota Achievement: No vesting of the annual tranche, however 40% of the annual tranche carries over to the next year.

 

  3.

80% to 100% Quota Achievement: Minimum 40% vesting of the annual tranche. The remaining 60% vests based on proportionate achievement between 80% and 100%. Unvested amounts carryover to the following year.

Quota overachievement entitles the Participant to additional vesting from the subsequent year’s tranche. Amounts carried-over from a prior year tranche are available for the next year only.

Awards granted under the Sales Vesting Plan are subject to the same restrictions and other terms and conditions as the other vesting plans.

11. Contingencies

The Company, from time to time, may be involved in various claims and lawsuits, both for and against the Company, arising in the normal course of business. Management believes that any financial responsibility that may be incurred in settlement of such claims and lawsuits would not be material to the Company’s financial position, operations, and cash flows.

12. Re-organization costs

Re-organization costs are summarized below:

 

(USD 000)

   Year ended
December 31,
2022
     Year ended
December 31,
2021
 

Restructure - Severance and office relocation on account of Axiom & Calypso merger and Russia operations windup

     5,433        8,638  

One time projects - Internal entities reorganization post-merger and other realignment projects

     3,038        —    

Systems - Implementation of Finance and Customer Relationship Management systems

     1,487        819  

Others - Calypso acquisition and Cyber security

     1,199        —    

Impairment of Right of Use Asset

     5,725        —    

Impairment of Leasehold improvement

     1,201        —    
  

 

 

    

 

 

 
     18,083        9,457  
  

 

 

    

 

 

 

 

32


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

13. Income Taxes

The Benefit for income taxes for the year ended December 31, 2022 and 2021 is summarized as follows:

 

(USD 000)

   Year ended
December 31,
2022
     Year ended
December 31,
2021
 

Current tax

     

Federal

     26,349        6,317  

State and local

     3,209        1,761  

Foreign

     12,206        9,338  
  

 

 

    

 

 

 

Total Current

     41,764        17,416  
  

 

 

    

 

 

 

Deferred tax

     

Federal

     (53,444      (26,161

State and local

     (11,607      (18,094

Foreign

     (1,824      (5,365
  

 

 

    

 

 

 

Total Deferred

     (66,875      (49,620
  

 

 

    

 

 

 

Total Income Tax Benefit

     (25,111      (32,204
  

 

 

    

 

 

 

The effective income tax rate differs from the amount computed by applying the U.S. federal statutory income tax rate to income before income taxes approximately as follows:

 

     (USD 000)  

December 31,

   2022      2021  

Loss before tax

     (69,421      (104,740

Income tax benefit at statutory rate of 21%

     (14,578      (21,995

State and local income taxes net of federal tax benefit

     (6,635      (13,182

Non-deductible/non-taxable items:

     

Transaction costs

     —          1,652  

Non-deductible foreign exchange loss

     —          2,470  

Stock based compensation

     —          583  

Non-taxable income and gains or non-deductible losses

     (101      —    

Non-deductible expenses

     125        119  

Tax credits related to research activity

     (1,307      (1,297

Effect of U.S. tax inclusion from foreign subsidiaries

     669        204  

Deduction allowed for export sales and services

     (4,695      (3,028

Foreign tax rate differential

     (731      1,285  

Withholding and other taxes - net

     3,311        435  

Prior period, rate changes, and other adjustments

     (438      365  

Unrecognized tax position

     (829      269  

Change in valuation allowance

     117        29  

Other adjustments

     (19      (113
  

 

 

    

 

 

 

Income tax benefit

     (25,111      (32,204
  

 

 

    

 

 

 

 

December 31,

   2022     2021  

Income tax benefit at statutory rate of 21%

     21     21

State and local income taxes net of federal tax benefit

     9.56     12.59

Non-deductible/non-taxable items:

    

Transaction costs

     —         (1.58 %) 

Non-deductible foreign exchange loss

     —         (2.36 %) 

Stock based compensation

     —         (0.56 %) 

Non-taxable income and gains or non-deductible losses

     0.15     0.00

Non-deductible expenses

     (0.18 %)      (0.11 %) 

Tax credits related to research activity

     1.88     1.24

Effect of U.S. tax inclusion from foreign subsidiaries

     (0.96 %)      (0.19 %) 

Deduction allowed for export sales and services

     6.76     2.90

Foreign tax rate differential

     1.05     (1.23 %) 

Withholding and other taxes - net

     (4.77 %)      (0.42 %) 

Prior period, rate changes, and other adjustments

     0.63     (0.35 %) 

Unrecognized tax position

     1.19     (0.26 %) 

Change in valuation allowance

     (0.17 %)      (0.03 %) 

Other adjustments

     0.02     0.11
  

 

 

   

 

 

 

Income tax benefit

     36.16     30.75
  

 

 

   

 

 

 

The tax effects of temporary differences and related deferred tax assets and liabilities as of December 31, 2022 and 2021, are presented below:

 

     (USD 000)  

December 31,

   2022      2021  

Deferred Tax Assets

     

Net operating loss, interest, and tax credit carryforwards

     56,740        33,442  

Accruals and reserves

     3,607        7,370  

Transaction costs

     1,688        1,879  

Lease liabilities

     5,328        7,016  

Other

     47        21  
  

 

 

    

 

 

 

Total Deferred Tax Assets

     67,410        49,728  
  

 

 

    

 

 

 

Deferred Tax Liabilities

     

Depreciation and amortization

     (408,520      (455,855

Deferred revenue

     (253      (325

Capitalized expenses

     (3,015      (1,038

Right of use assets

     (3,885      (6,945

Other

     (83      (82
  

 

 

    

 

 

 

Total Deferred Tax Liabilities

     (415,756      (464,245
  

 

 

    

 

 

 

Gross Deferred Tax Liabilities

     (348,346      (414,517

Valuation allowance

     (7,496      (9,864
  

 

 

    

 

 

 

Net Deferred Tax Liabilities

     (355,842      (424,381
  

 

 

    

 

 

 

The Company’s effective tax rate differs from the statutory tax rate primarily due to state taxes, non-deductible expenses and losses, foreign rate differential, Foreign Derived Intangible Income (FDII) deduction, Global Intangible Low-Taxed Income (GILTI) inclusion, and credits and incentives.

 

33


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

The Company generally considers the earnings of its foreign subsidiaries to be indefinitely invested outside the United States and estimates that future domestic cash generation will be sufficient to meet future domestic cash needs. However, there are certain limited jurisdictions from where the company does plan to distribute its unremitted earnings. The Company has estimated that no additional material tax provisions are required for the planned remittances from those jurisdictions in the foreseeable future. As of December 31, 2022 and 2021, taxes are generally not provided on income of the Company’s foreign subsidiaries. If, in the future, the foreign earnings are repatriated to the United States, or if the Company determines that the earnings will be remitted in the foreseeable future, additional tax provisions may be required. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the weight of all available evidence, which includes the historical operating performance and the recorded cumulative losses or credits in prior fiscal periods, management does not believe that it is more likely than not that the Company will realize its net deferred tax assets in its Netherland holdings subsidiary as of December 31, 2022 and 2021, and its unused R&D credits in the state of California as of December 31, 2022 and 2021. As a result, a valuation allowance of $7.5 million and $9.9 million has been provided as of December 31, 2022 and 2021, respectively. The valuation allowance decreased by $2.4 million from December 31, 2021.

As of December 31, 2022, the Company’s net operating loss carryforwards primarily relate to state tax loss carryforwards that will begin to expire in 2035 if not utilized. As of December 31, 2022 and 2021, the Company had nil federal net operating loss carryforwards, and net operating loss carryforwards for various state tax purposes of approximately $9.3 million and $6.1 million respectively. The Company’s Netherlands holdings subsidiary has loss carryforwards of $1.5 million and $1.0 million as of December 31, 2022 and 2021, which may be carried forward indefinitely.

US GAAP provides that the tax effects from uncertain tax positions can be recognized in the financial statements only if the position is more likely than not of being sustained on audit, based on the technical merits of the position. On December 31, 2022 and 2021, the Company had $4.5 million and $4.9 million of unrecognized benefits recorded, respectively.

The Company recognizes interest and penalties related to uncertain tax positions in its income tax provision. On December 31, 2022 and 2021, approximately $0.1 million and $0.4 million of interest and penalties related to uncertain tax positions was accrued.

The Company does not expect any material changes in the amount of unrecognized tax benefits within the next twelve months.

The Company files income tax returns in the U.S., various state jurisdictions, and various foreign jurisdictions. The U.S., state, and foreign jurisdictions have statutes of limitations that generally range from three to five years. To the extent utilized in future years’ tax returns, net operating loss carryforwards as of December 31, 2022 and 2021 will remain subject to examination until the respective tax year is closed.

Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement increased the deferred tax assets and the cash tax liabilities of the Company. On August 16, 2022, Congress passed the Inflation Reduction Act of 2022. Management does not anticipate the tax provisions of the newly introduced act to impact the financial position of the Company and will continue to monitor as new information and guidance becomes available.

 

34


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

14. Subsequent Events

The Company evaluated events occurred after December 31, 2022 through April 28, 2023, the date when the consolidated financial statements were available to be issued, and there are no subsequent events that met recognition or disclosure criteria.

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35

EX-99.2

Exhibit 99.2

 

   Adenza Group, Inc. and Subsidiaries
   Consolidated Financial Statements
   Three Month Period Ended March 31, 2023


Adenza Group, Inc. and Subsidiaries

 

Consolidated Financial Statements

Three Month Period Ended March 31, 2023


Adenza Group, Inc. and Subsidiaries

Contents

 

 

Consolidated Financial Statements (unaudited)

  

Consolidated Balance Sheet as of March 31, 2023

     3  

Consolidated Statement of Operations for the three month period ended March 31, 2023

     5  

Consolidated Statement of Comprehensive Loss for the three month period ended March 31, 2023

     6  

Consolidated Statement of Changes in Stockholders’ Equity for the three month period ended March 31, 2023

     7  

Consolidated Statement of Cash Flows for the three month period ended March 31, 2023

     8  

Notes to Consolidated Financial Statements

     10-27  

 

2


Adenza Group, Inc. and Subsidiaries

Consolidated Balance Sheet

(unaudited)

 

 

(USD 000)

   March 31, 2023  

Assets

  

Current Assets

  

Cash and cash equivalents

     189,548  

Restricted cash

     918  

Accounts receivable, net

     82,704  

Unbilled receivables

     110,333  

Prepaid expenses and other current assets

     11,092  

Deferred contract costs

     4,041  

Prepaid income taxes

     4,379  
  

 

 

 

Total Current Assets

     403,015  

Unbilled receivables, noncurrent

     35,495  

Goodwill

     3,679,682  

Intangible assets, net

     1,913,117  

Property and equipment, net

     7,596  

Due from related parties

     6,846  

Right-of-use assets

     15,855  

Deferred contract costs, noncurrent

     11,910  

Deferred tax assets

     2,972  

Restricted Cash

     986  

Prepaid expenses

     304  

Equity Investment

     2,642  

Other long-term assets

     2,224  
  

 

 

 

Total Assets

     6,082,644  
  

 

 

 

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3


Adenza Group, Inc. and Subsidiaries

Consolidated Balance Sheet

(unaudited)

 

 

(USD 000)

   March 31, 2023  

Liabilities and Stockholders’ Equity

  

Current Liabilities

  

Current maturities of long-term debt

     20,480  

Accounts payable

     5,295  

Income taxes payable

     16,389  

Accrued expenses

     41,052  

Deferred revenue

     152,148  

Lease liabilities

     5,070  
  

 

 

 

Total Current Liabilities

     240,434  

Long-term debt, less current maturities

     1,955,327  

Lease liabilities

     16,446  

Other long-term liabilities

     2,571  

Deferred revenue, net of current portion

     5,964  

Deferred tax liabilities

     340,835  
  

 

 

 

Total Liabilities

     2,561,577  
  

 

 

 

Contingencies (Note 11)

  

Stockholders’ Equity

  

Common stock

     -

Additional paid-in capital

     3,711,428  

Accumulated deficit

     (160,546

Accumulated other comprehensive income

     (29,815
  

 

 

 

Total Stockholders’ Equity

     3,521,067  
  

 

 

 

Total Liabilities and Stockholders’ Equity

     6,082,644  
  

 

 

 

 

*

Represents value less than $1,000

The accompanying notes are an integral part

of these consolidated financial statements.

The remainder of this page intentionally left blank.

 

4


Adenza Group, Inc. and Subsidiaries

Consolidated Statement of Operations

(unaudited)

 

 

(USD 000)

   Three month
period ended
March 31, 2023
 

Net Sales

     125,779  
  

 

 

 

Cost of sales

     27,987  

Amortization of Developed Technology

     15,843  
  

 

 

 

Gross Profit

     81,949  
  

 

 

 

Research and development

     14,445  

Selling, general, and administrative

     20,099  

Depreciation and amortization

     25,592  

Re-organization costs (Note 12)

     1,316  

Transaction Costs

     30  
  

 

 

 

Income from Operations

     20,467  
  

 

 

 

Other (Expense)/ Income

  

Interest expense

     (54,286

Interest income

     579  

Gain on foreign currency transactions

     891  

Other Income

     526  
  

 

 

 

Loss Before Provision for Income Taxes

     (31,823

Benefit for Income Taxes (Note 10)

     5,463  
  

 

 

 

Net Loss

     (26,360
  

 

 

 

The accompanying notes are an integral part

of these consolidated financial statements.

The remainder of this page intentionally left blank.

 

5


Adenza Group, Inc. and Subsidiaries

Consolidated Statement of Comprehensive Loss

(unaudited)

 

 

(USD 000)

   Three month
period ended
March 31, 2023
 

Net Loss

     (26,360

Other Comprehensive Income

  

Unrealized gain on foreign currency translation

     4,654  
  

 

 

 

Comprehensive Loss

     (21,706
  

 

 

 

The accompanying notes are an integral part

of these consolidated financial statements.

The remainder of this page intentionally left blank.

 

6


Adenza Group, Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

(unaudited)

 

 

(USD 000)

   Common Stock     Additional
Paid-In Capital
     Accumulated
Deficit
    Accumulated
Other
Comprehensive
(Loss) Income
    Total  

Balance, December 31, 2022

     —       3,711,428        (134,186     (34,469     3,542,773  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net loss

     —         —          (26,360     —         (26,360

Unrealized gain on currency translation

     —         —          —         4,654       4,654  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance, March 31, 2023

     —       3,711,428        (160,546     (29,815     3,521,067  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

*

Represents value less than $1000

The accompanying notes are an integral part

of these consolidated financial statements.

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7


Adenza Group, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

(unaudited)

 

 

(USD 000)

   Three month
period ended
March 31, 2023
 

Cash Flows from Operating Activities

  

Net loss

     (26,360

Adjustments to reconcile net loss to net cash provided by operating activities:

  

Depreciation and amortization of property and equipment

     742  

Amortization of debt issuance costs

     1,974  

Amortization of deferred contract costs

     964  

Amortization of intangible assets

     40,693  

Deferred income tax

     (18,406

Changes in assets decrease / (increase):

  

Accounts receivable

     43,642  

Unbilled receivables

     12,928  

Prepaid expenses and other current assets

     71  

Deferred contract costs

     (2,057

Prepaid income taxes

     1,383  

Other assets

     (142

Changes in liabilities increase / (decrease):

  

Accounts payable

     (1,105

Income taxes payable

     6,887  

Accrued expenses

     (13,996

Other current liabilities

     (706

Other long-term liabilities

     (805

Deferred revenue

     (31,329
  

 

 

 

Net Cash Provided by Operating Activities

     14,378  
  

 

 

 

Cash Flows from Investing Activities

  

Capitalized software development costs

     (5,761

Purchase of property and equipment

     (451
  

 

 

 

Net Cash Used in Investing Activities

     (6,212
  

 

 

 

Cash Flows from Financing Activities

  

Due from/to related parties

     (352

Payments of debt

     (5,119
  

 

 

 

Net Cash Used in Financing Activities

     (5,471
  

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents and Restricted Cash

     1,386  
  

 

 

 

Net Increase in Cash and Cash Equivalents and Restricted Cash

     4,081  

Cash and Cash Equivalents and Restricted Cash, beginning of period

     187,371  
  

 

 

 

Cash and Cash Equivalents and Restricted Cash, end of period

     191,452  
  

 

 

 

 

8


Adenza Group, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

(unaudited)

 

 

(USD 000)

 

Supplemental Disclosure of Cash Flow Information

  

Cash paid during the three month period for income taxes

     4,445  

Cash paid during the three month period for interest

     52,852  
  

 

 

 

Reconciliation of Cash and Cash Equivalents and Restricted Cash

 

 

(USD 000)

   March 31, 2023  

Cash and cash equivalents

     189,548  

Current, Restricted cash

     918  

Non-current, Restricted cash

     986  
  

 

 

 

Total Cash and Cash Equivalents and Restricted Cash

     191,452  
  

 

 

 

The accompanying notes are an integral part

of these consolidated financial statements.

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9


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

1. Nature of Operations and Principles of Consolidation

Business Activity

Adenza Group, Inc. and Subsidiaries (collectively, the Company) provide software solutions for enterprise risk management, data management, regulatory reporting, and compliance requirements of financial institutions. The Company’s software provides a comprehensive solution for all levels of regulatory and management financial reporting, and complete integration, and provides a data-warehousing platform for risk data, market data, front/middle/back-office data, reference data, and operational loss data. It enables clients to automate and streamline business operations while optimizing processes, systems, data enrichment, and transparency to enhance decision-making and reduce operational costs. This is offered on-premises or in a software-as-a-service model.

Consulting services of the Company include systems specification, design, resource scheduling, project management, and regulatory reporting and integration.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand (USD 000), except when otherwise indicated.

In the opinion of management, the accompanying unaudited Consolidated Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of March 31, 2023 and for the three months then ended. The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates, judgments, and assumptions in these consolidated financial statements include those related to the valuation of goodwill and intangible assets, useful lives of assets for calculating depreciation and amortization, valuation of long-lived assets, allowances for doubtful accounts, valuation of deferred tax assets, provisions for uncertain tax positions, assumptions used for the valuation of stock-based compensation, and in the allocation of a transaction price to distinct performance obligations in connection with revenue recognition.

 

10


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 - Valuations are based on quoted prices for identical assets and liabilities in active markets.

Level 2 - Valuations are based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations are based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

At March 31, 2023, the fair value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, unbilled receivable, accounts payable, and accrued expenses, approximated book value due to the short maturity of these instruments. The carrying amount of restricted cash approximates fair value because, as the restrictions expire, the carrying value represents the amount that the Company will receive. Liabilities are shown net of any discounts.

At March 31, 2023, the Company does not have assets or liabilities required to be measured at fair value in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are related to funds deposited into money market funds and other short-term certificates of deposit.

Restricted Cash

Amounts included in restricted cash as of March 31, 2023 pertain to certain customer and lease deposits.

Accounts Receivable

Accounts receivable consists of trade receivables recorded at the original invoice amount less an estimate made for uncollectible accounts. The Company analyzes the collectability of trade accounts receivable by considering historical bad debts, client creditworthiness, current economic trends, changes in client payment terms, and collection trends when evaluating the adequacy of the allowance for doubtful accounts. Any change in the assumptions used in analyzing a specific account receivable may result in an allowance for doubtful accounts being recognized in the period in which the change occurs. Trade receivables are net of allowances for doubtful accounts of $1.1 million as of March 31, 2023. In certain instances, in accordance with ASC 606, the Company will not recognize revenue when there is uncertainty as to the collectability of amounts due under the contract. Such occurrences have been infrequent and immaterial to the consolidated financial statements.

 

11


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Property and Equipment

Property and equipment are stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets. Furniture and fixtures, computer equipment, and leasehold improvements are depreciated over the shorter of the remaining term of the related lease or the estimated economic useful life of the improvement.

Foreign Currency Translation

For all foreign operations, the functional currency is their respective local currency. Transactions in foreign currencies are translated into the respective functional currencies using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences arising from the settlement of such transactions and from the translation at the reporting date of monetary assets and liabilities denominated in foreign currencies are recognized in Consolidated statement of operations.

Assets and liabilities of these operations are translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Consolidated statement of operations accounts are translated at the average rate of exchange prevailing during the three month period ended March 31, 2023. Translation adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss.

Impairment of Long-Lived Assets

Long-lived assets consist primarily of intangibles, property and equipment. The Company evaluates these long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. No impairment loss was recorded for the three month period ended March 31, 2023.

Equity Investment

Associates are those entities over which the Company has significant influence (defined as the ability to participate in the financial and operating decisions of the investee but not control over those policies) but are not subsidiaries. The results of associates are incorporated in these consolidated financial statements using the equity method of accounting, under which investments in associates are carried in the consolidated Balance sheet at cost as adjusted for post-acquisition changes in the Company’s share of net assets of the associate less any impairment in the value of individual investments.

 

12


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

In connection with the Company’s acquisition of Calypso Group Lux S.C.A in March of 2021, an investment in Sernova Financials Limited (“Sernova”) was acquired at a value of $2.4 million for 19.5% of outstanding share capital. For the three month period ended March 31, 2023, the Company recorded its share of Sernova’s profit amounting to $0.1 million in Other (Expense)/ Income in the consolidated Statement of Operations.

There is also a Subscription agreement between Adenza Inc. (previously known as Calypso Technology Inc.) and Sernova wherein Adenza Inc. provides cloud-hosted software to Sernova, which Sernova uses for the sole purpose of providing a fully managed service to its end clients. Sernova pays subscription fees to Adenza Inc. for using the cloud-hosted software and such subscription fees are a percentage of the fee charged by Sernova to its end clients.

The subscription fee percentage is 50% of Sernova’s revenue from its customers up to $6.0 million annually and then it reduces by 5% for each incremental million-dollar annual revenue up to 35% for revenue above $8.0 million. For the three month period ended March 31, 2023, the Company recorded subscription revenue of $1.4 million. The Company had receivables outstanding of $1.0 million as of March 31, 2023.

Accumulated Other Comprehensive Income

FASB ASC Topic 220, Reporting Comprehensive Income, establishes rules for the reporting of comprehensive income and its components. Comprehensive income is defined as all changes in equity from non-owner sources. For the Company, comprehensive loss consists of net loss and changes in the cumulative foreign currency translation adjustments.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Stock-Compensation. Under the fair value recognition provisions of this accounting guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period.

As stock-based compensation expense recognized in the Company’s consolidated statement of operations is based on awards ultimately expected to vest, the amount of expense has been reduced for forfeitures as they occur, as permitted under FASB ASC Topic 718.

Incentive plan

Adenza Parent, L.P. (“Adenza Parent”), the ultimate holding company, implemented a management incentive plan in which it issues Class B Units of Adenza Parent (“Class B PIUs”) or Class B equity appreciation rights (the “Class B EARs” and collectively with the Class B PIUs, the “Awards”) to the Company’s employees for the performance of services. In 2022 and 2021, Adenza Parent allocated the awards to certain employees (“the Participants”).

Since the value of these awards were estimated to be insignificant at the time of the grant, there is no stock based compensation recognized within the Company’s consolidated statement of operations. The fair value was arrived using a discounted cash flow analysis and the market implications of the Merger transaction.

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13


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Developed Technology

The Company’s Developed technology includes the costs of internally developed software technology and software technology purchased through acquisition. In accordance with FASB ASC Topic 985, Software, the Company capitalizes costs incurred to develop software once technological feasibility has been reached which for the Company is defined as the earlier of when a detailed program plan is established, or a working model is created. Capitalized costs include costs to design the software configuration and interfaces, coding, installation, and testing, as well as development costs related to software enhancements that add functionality.

During the three month period ended March 31, 2023, the Company capitalized such costs of $5.8 million. These capitalized costs are amortized over the software’s expected useful life, which is generally five years. Amortization expense related to the Developed technology for the three month period ended March 31, 2023 amounted to $15.8 million.

Income Taxes

Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between financial statements carrying amounts of assets and liabilities and their respective tax basis. Deferred taxes are calculated using currently enacted income tax rates for the year in which they are recognized. The effect of a change in income tax rates on deferred tax asset and liability balances is recognized in income in the period that includes the enactment of such rate change. A valuation allowance, if necessary, is recorded against deferred tax assets if utilization is not likely.

Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Should tax laws change, the Company’s tax expense and cash flows could be materially impacted.

401(k) Retirement Plan

Two subsidiaries of the Company in the United States maintain a qualified 401(k) plan for its eligible employees, who may elect to contribute voluntarily through payroll deductions, subject to certain statutory limitations as mentioned in the table below. One of the subsidiaries has elected to provide for a matching contribution while the other subsidiary has elected to not provide for a matching contribution. The Company contributed $0.3 million towards employer contributions for the three month period ended March 31, 2023.

 

            (USD 000)  

Year

   Basic Contribution Limit      Catch-Up Contribution (50 or older)  

2023

     22.5        7.5  

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14


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Revenue Recognition

The Company derives substantially all of its revenues from selling licenses and maintenance for a fixed fee, and from providing consulting services. The Company’s agreements for licenses and maintenance generally have annual or multi-year terms. The Company typically invoices customers annually at the beginning of each annual contract period but may also invoice customers on a quarterly or monthly basis. Payments are generally due and payable upon receipt of invoice by the Company’s customers or within 30 days of the stated billing date.

The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its arrangements:

 

   

Identify the contract with a customer.

 

   

Identify the performance obligations in the contract.

 

   

Determine the transaction price.

 

   

Allocate the transaction price to performance obligations in the contract.

 

   

Recognize revenue as the performance obligation is satisfied.

The Company’s contracts may include one or any combination of the following products and services.

License and Solutions Reporting Templates

Licenses for on-premise software provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to time-based licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenue from distinct on-premise or time-based licenses is recognized upfront at the point in time when the software is made available to the customer as this is the point the user of the software can direct the use of and obtain substantially all of the remaining benefits from the software license.

Solutions Reporting Templates provide customers with one or more “Software Components” of the Company’s Regulatory Solutions software that are being licensed by a customer. Solutions Reporting Template contracts include two performance obligations: a term license to the on-premise software, and associated maintenance to provide technical support, bug fixes, and unspecified updates on a stand-ready basis.

When contracted with customers for on-premise use, license and solution revenue is recognized at a point in time when control is passed to the customer upon receipt of the license and solution. License maintenance and solution maintenance revenue is recognized over the contract term.

Cloud Services

The Company offers cloud services arrangements whereby the software is hosted and managed for certain customers. When contracted simultaneously with the Company’s software, there is a single performance obligation of the Company to maintain the use of the software. Revenue is recognized for such arrangements ratably over the duration of the contact.

 

15


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Consulting Services

Consulting is comprised of two types of services, implementation, and training. Implementation consists of services to implement the Company’s software for the client, including software installation, environment set-up, configuration of data sources, and models for uploading into the software, systems testing, and user testing. The Company offers training sessions for client users. Consulting services are typically billed on a time and expense basis. These are provided based on hourly or daily rates and revenue is recognized based on actual hours incurred. The Company also offers fixed price contract agreements and revenue is recognized using the input method to measure progress towards complete satisfaction of the services, because the customer simultaneously receives and consumes the benefits provided by the Company. In contracts with multiple performance obligations, we account for individual performance obligations separately if they are distinct. The input method is based upon hours consumed relevant to the total project.

For certain Regulatory Solutions, the Company allocates the transaction price to each performance obligation based on our relative standalone selling price out of total consideration of the contract. Standalone selling price is determined utilizing observable prices to the extent available based on a grouping of recent contracts with similar performance obligations. If the standalone selling price for a performance obligation is not directly observable, we use an estimate based on observable inputs.

For certain Capital Market Solutions, the Company determines standalone selling prices for professional services and software maintenance services for perpetual licenses using observable pricing as these are sold separately to its customers. As pricing for perpetual and time-based licenses is highly variable, the Company applies the residual approach when determining the standalone selling price of the perpetual license and time-based license and maintenance services bundle and does so by deducting the sum of the observable standalone selling prices of the other performance obligations in the contract from the transaction price.

Disaggregated Revenue Information

The following table provides the timing of revenue recognition of disaggregated revenue for the three-month period ended March 31, 2023:

 

(USD 000)

   Three month
period ended
March 31, 2023
 

Over time

     105,873  

Point in time

     19,905  
  

 

 

 

Total

     125,779  
  

 

 

 

Deferred Contract Costs

The Company capitalizes commission expenses paid to internal sales personnel that are incremental to obtaining customer contracts. Costs related to the initial signing of contracts are amortized over the average customer life, which has been estimated to be five years. The Company determined the period of benefit by taking into consideration the length of terms in its customer contracts, including renewals and extensions, the average customer life, and the expected useful life of the Company’s technology. Amounts expected to be recognized within one year of the balance sheet date are recorded as deferred contract costs, and the remaining portion is recorded as deferred contract costs, non-current in the consolidated balance sheets.

Amortization expense is included in selling, general, and administrative expense in the consolidated statement of operations.

 

16


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

The following table represents a roll forward of the Company’s deferred contract costs:

 

     (USD 000)  

Balance, December 31, 2022

     14,812  
  

 

 

 

Additions to deferred contract costs

     2,103  

Amortization of deferred contract costs

     (964)  
  

 

 

 

Balance, March 31, 2023

     15,951  
  

 

 

 

Contract Assets (Unbilled Receivables) and Contract Liabilities (Deferred Revenue)

The Company records unbilled accounts receivable related to revenue recognized in excess of amounts invoiced as the Company has an unconditional right to invoice and receive payment in the future related to those fulfilled obligations. The Company records contract assets as amounts related to the contractual right to consideration for both completed and partially completed performance obligations that may not have been invoiced. The Contract asset balance was $145.8 million as of March 31, 2023, of which $110.3 million is included in current assets and the remaining balance is presented within long term assets.

The Company records contract liabilities to deferred revenue when the Company receives customer payments in advance of the performance obligations being satisfied on the Company’s contracts.

The following table represents a rollforward of the Company’s contract liabilities (deferred revenue):

 

     (USD 000)  

Balance, December 31, 2022

     189,221  
  

 

 

 

Additions to deferred revenue

     87,750  

Reduction of deferred revenue

     (118,859)  
  

 

 

 

Balance, March 31, 2023

     158,112  
  

 

 

 

Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as deferred revenue, net of current portion on the accompanying balance sheets.

Leases

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company applies a single recognition and measurement approach for all leases, except for short-term and low-value leases. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Amortization of the right-of-use asset is calculated as the difference between the predetermined straight-line rent expense and the imputed interest on the lease liability.

 

17


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.

Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of Properties i.e., those leases that have a term of 12 months or less from the commencement date and do not contain a purchase option. The Company also applies the lease of low-value assets recognition exemption to leases that are low in value. Both of the above type of lease payments are recognized as expenses on a straight-line basis over the lease term.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired in business combinations. The Company’s annual impairment assessment is performed at the end of each fiscal year or performed at other times if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASC 350, Intangibles – Goodwill and Other state that if an indicator of impairment exists then an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASC 350 also states that a reporting unit with a $0 or negative carrying amount is not required to perform a qualitative assessment.

The Company analyzed its operational structure for the purpose of identifying reporting units in accordance with ASC 350 and determined that the Company’s operations comprise a single reporting unit. There were no indicators of impairment during the three month period ended March 31, 2023. The carrying value of Goodwill as at March 31, 2023 was $3,679.7 million.

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18


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Intangible Assets

Definite-lived intangible assets are amortized over their respective estimated useful lives to their estimated residual values, in a pattern that reflects when the economic benefits will be consumed and are reviewed for impairment under the provisions of ASC 360-10-35, Property, Plant and Equipment/Overall/Subsequent Measurement. The Company reviews intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized in an amount by which the carrying amount of the asset exceeds its fair value.

No impairment loss was recognized for intangible assets with definite lives during the three month period ended March 31, 2023.

Intangible assets are amortized on a straight-line basis over their useful finite economic lives, as noted below, and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The assessed useful life of customer relationships requires a high degree of management judgment and estimation. Such estimates are, in part, predicated upon assumed attrition and growth rates applicable to existing customers at the time of acquisition. If actual results deviate from these assumptions, it could result in an impairment or change in the estimated useful life that could have a material impact on future operating results.

 

March 31,

   Useful lives      (USD 000)
2023
 

Trademark

     8-10 years        130,933  

Developed technology

     5-7 years        397,507  

Customer relationships

     18-21 years        1,678,626  

Purchased software

     1.5-5 years        4,676  
     

 

 

 
        2,211,742  

Less: accumulated amortization

        (298,625)  
     

 

 

 
        1,913,117  
     

 

 

 

Amortization of Intangible assets for the three month period ended March 31, 2023 is $40.7 million. The expected amortization expense for each of the fiscal years 2023 through 2027 and for periods thereafter is as follows:

 

Year ending December 31,

   (USD 000)  

2023 – From April 1 to December 31

     123,415  

2024

     164,328  

2025

     164,068  

2026

     163,785  

2027

     140,386  

Thereafter

     1,157,135  
  

 

 

 

Total Intangible Assets, Net

     1,913,117  
  

 

 

 

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19


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

3.

Concentration of Risks Related to Credit, Foreign Operations, and Foreign Currencies

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, deposits with banks and financial institutions including restricted balances as well as exposure to customers including accounts receivables and unbilled receivable. The Company maintains cash balances in several U.S. financial institutions, which are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution. Beyond the United States of America, the Company has cash balances covered by comparable insurance based on local regulations. From time to time, the Company’s balances may exceed these limits however balances are held with financial institutions with high credit standing.

The Company performs ongoing evaluations of its customers’ financial condition and maintains an allowance for uncollectible accounts receivable based upon the expected collectability of all accounts receivable, using the provision matrix and the specific identification method. The Company does not require collateral from its customers. The Company is not able to predict changes in the financial stability of its customers. In cases when a delinquency in payments occurs, the Company may withhold services delivery under current implementation, discontinue support or limit the right to use its software.

As of March 31, 2023, there is no geographical concentration of credit risk as the Company’s customer base is internationally dispersed and no individual customer represents more than 10% of the Company’s outstanding trade and other unbilled receivables balances or more than 10% of the Company’s revenue in any of the periods presented.

At March 31, 2023, geographic concentrations of net assets by countries outside the United States were as follows:

 

(USD 000)

March 31,

   2023  

United Kingdom

     41,025  

Netherlands

     207,097  

Singapore

     15,381  
  

 

 

 
     263,503  
  

 

 

 

The Company is also subject to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of the foreign affiliates and intercompany loans, as well as transactions denominated in foreign currencies.

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20


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

4.

Property and Equipment, Net

Property and equipment, net is summarized as follows:

 

March 31,

   (USD 000)
2023
 

Furniture and fixtures

     123  

Computer equipment

     5,937  

Leasehold improvements

     5,621  
  

 

 

 
     11,681  

Accumulated depreciation and impairment

     (4,085
  

 

 

 
     7,596  
  

 

 

 

Depreciation and amortization expense related to property and equipment for the three month period ended March 31, 2023 amounted to $0.7 million.

 

5.

Due from Related Parties

The due from related parties consists of receivable from Adenza Holdings, Inc., an intermediate Parent entity, for repurchases of its share capital funded by the Adenza Group, Inc. on its behalf amounting to $6.8 million as of March 31, 2023. The receivable is unsecured and bears no interest, as it is payable on demand.

 

6.

Leases

The Company has lease contracts for its office premises which are operating in nature as per ASC 842. Leases of property generally have lease terms between 12 months to 10 years depending upon the importance of a particular location and other factors such as the number of customers and employees in that country. The Company’s obligations under its leases are secured by the lessor’s title to the leased assets.

The Company applies the ‘short-term lease’ and ‘lease of low-value assets’ recognition exemptions for these leases. Set out below are the carrying amounts of right-of-use assets recognized for operating leases and the movements during the years then ended:

 

(USD 000)

   2023  

As at January 1,

     17,037  

Amortization

     (1,182
  

 

 

 

As of March 31,

     15,855  
  

 

 

 

Set out below are the carrying amounts of operating lease liabilities (included under interest-bearing loans and borrowings) and the movements during the three month period:

 

     (USD 000)  
     2023  

As at January 1,

     22,831  

Accretion of interest

     417  

Payment of lease liabilities

     (1,732
  

 

 

 

As of March 31,

     21,516  
  

 

 

 

Less: current portion

     5,070  
  

 

 

 

Total non-current lease liabilities

     16,446  
  

 

 

 

 

21


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

The following table presents a maturity analysis of expected undiscounted cash flows for operating leases on an annual basis for the next five years and thereafter:

 

Year ending December 31,

   (USD 000)  

2023 – April 1 to December 31

     4,733  

2024

     6,449  

2025

     4,684  

2026

     3,828  

2027

     2,752  

Thereafter

     2,778  
  

 

 

 

Total Operating lease payments

     25,224  
  

 

 

 

Imputed Interest

     (3,708
  

 

 

 

Total

     21,516  
  

 

 

 

The following table presents the weighted-average lease term and discount rate for operating leases:

 

     (USD 000)  

March 31,

   2023  

Weighted-average remaining lease term

     4.41 years  

Weighted-average discount rate

     7.45
  

 

 

 

Amortization and interest expense on the Capitalized Operating leases for the three month period ended March 31, 2023 amounted to $1.6 million.

The Company has non-cancellable minimum operating lease commitments for short-term leases and low-value assets as of March 31, 2023 totaling $0.2 million.

Sublease

During 2022, the Company sub-leased office space where the Company is the tenant to several surplus non-cancellable leases. Total sublease income for the three month period ended March 31, 2023 was $0.4 million. Total estimated aggregate sublease income to be received over the term of the sub-lease arrangement from April 1, 2023 and ending August 31, 2029 amounts to $6.6 million.

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22


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

7.

Long-Term Debt and Line-of-Credit

In 2020, the Company entered into a term loan agreement with the principal amount of $500.0 million (the “Term loan”). The loan matures on December 3, 2027 and requires quarterly principal payments of $1.3 million and interest payments of 7.50% on the outstanding principal amount. In connection with the term loan agreement, the Company incurred $14.3 million of debt issuance costs.

In 2021, the Company increased its existing term loan agreement by $1,650.0 million including $100.0 million of Delayed Draw Term Loan (DDTL) with the same maturity date of December 3, 2027. As of March 31, 2023, the Company had drawn $1,550.0 million towards term loan and DDTL was not drawn. The quarterly principal payments were revised to $5.1 million and interest rate was reduced by 50bps to 7.00% on the outstanding principal amount. The interest rate applicable is made up of two components which are LIBOR with a floor of 1% and a credit spread of 6%. During the three month period ended March 31, 2023, the Company paid off principal to the extent of $5.1 million and credit spread was 5.75% based upon the Company’s leverage ratio.

Until such time that the DDTL is utilized, a commitment fee of 1.00% is payable on the committed amount of $100.0 million. As of March 31, 2023, the Company has no outstanding borrowings against the DDTL.

During 2021, the Company incurred $33.8 million of debt issuance costs for increase in limits which are recognized as deferred financing costs offsetting the debt balance and amortized as interest expense through the maturity date.

Principal payments required to be made under the terms of the term loan agreement are as follows:

 

Year ending December 31

   (USD 000)  

2023 – From April 1 to December 31

     15,356  

2024

     20,475  

2025

     20,475  

2026

     20,475  

2027

     20,475  

Thereafter

     1,914,413  
  

 

 

 
     2,011,669  
  

 

 

 

The loan balance reported in the consolidated balance sheet is presented net of the unamortized balance of debt issuance costs of $35.9 million as of March 31, 2023. Amortization of these costs is calculated by the straight-line method, which approximates the effective interest method, and reported as interest expense in the accompanying statement of operations. The interest expense representing amortization of loan issuance costs for the three month period ended March 31, 2023 was $2.0 million.

The Company also maintains a $150.0 million revolving credit facility (RCF) which matures on December 3, 2025. Interest on amounts borrowed are payable at the same rate as applicable to the Term loan and, until the facility is utilized, there is a commitment fee of 0.50% is payable on the total amount of the facility. As of March 31, 2023, the Company has no outstanding borrowings against the facility.

The term loan and credit facilities are subject to certain financial and affirmative covenants. As of March 31, 2023, the Company was in compliance with all required covenants. The term loan and credit facilities are secured by the assets of the Company.

 

23


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

8.

Capital Structure

Capital Stock

As of March 31, 2023, the Company’s capital structure is summarized as follows:

 

Common Stock

   2023  

Authorized

     1,000  

Issued

     1,000  

Outstanding

     1,000  

Par

   $ 0.010  
  

 

 

 

Common Stock

Dividend rights

The Company’s common shares do not contain any dividend rights.

Voting Rights

The Company’s common shares do not contain any voting rights.

Redemption Rights

The common shares are not redeemable.

The remainder of this page intentionally left blank.

 

24


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

9.

Management incentive plan

Adenza Parent L.P., the ultimate Parent, implemented the Amended and Restated Adenza Parent, L.P. Incentive Equity Plan and the Adenza Parent, L.P. Equity Appreciation Rights Plan (collectively, the “Plan”) pursuant to which Adenza Parent issues awards of incentive equity to employees of the Company and its direct and indirect subsidiaries. Pursuant to the Plan, incentive equity may be issued in the form of Class B Units of Adenza Parent (“Class B PIUs”) or Class B equity appreciation rights (“Class B EARs” and collectively with the Class B PIUs, the “Awards”). Adenza Parent issued Class B PIUs and Class B EARs to certain employees and directors of Adenza Parent (“the Participants”) for no cash consideration in March and April 2021 and again in December 2021, May 2022 and January 2023. Since the value of these awards was immaterial at the time of the grant, there is no compensation expense recognized during the three month period ended March 31, 2023. The estimated valuation of the awards was determined as an average of various valuation methods such as discounted cash flow analysis, comparable public company analysis and comparable acquisition analysis.

A summary of activity is as follows:

 

     Class B EARs      Class B PIUs      Total  

December 31, 2022

     1,783,311        7,579,689        9,363,000  
  

 

 

    

 

 

    

 

 

 

Granted

     392,211        381,117        773,328  

Cancelations

     (15,662      (12,679      (28,341
  

 

 

    

 

 

    

 

 

 

March 31, 2023

     2,159,860        7,948,127        10,107,987  
  

 

 

    

 

 

    

 

 

 

Class B PIUs are equity in Adenza Parent. Subject to a participation threshold, if any, each holder of Class B PIUs is entitled to its pro rata share of proceeds from a Change in Control of Adenza Parent after satisfaction of all liabilities and payment to the holders of Class A Units of the Class A Unreturned Capital and Class A Unpaid Yield, each as defined in the Second Amended and Restated Limited Partnership Agreement of Adenza Parent.

The Class B EARs have a financial right to consideration upon a Change in Control. The Class B EARs are not actual equity interests in the Adenza Parent or any entity but represent a hypothetical unit of measurement maintained by the Adenza Parent in a bookkeeping account for the Participant’s benefit, entitling the Participant to a cash payment subject to the terms and conditions of the Plan and assuming for these purposes that each Class B EAR is economically equivalent to one Class B PIU.

The Awards are subject to certain restrictions, including vesting restrictions, transferability restrictions, repurchase rights, and rights of first refusal. Some or all of the Awards may be subject to cancellation or repurchase upon the Participant’s termination of employment with the Company.

Awards granted in March and April 2021 were subject to two types of vesting:

 

1.

Type I – time-based vesting – 25% of the Awards would vest on the first anniversary of the acquisition of AxiomSL by Thoma Bravo (i.e., December 3, 2021), and the remaining 75% of the Type I Awards will vest in equal amounts monthly over the next thirty-six (36) months.

 

2.

Type II – performance-based vesting—These Awards will vest depending upon Adenza meeting the EBITDA-based targets set by the Board for the relevant years 2021-2024. If the EBITDA-based target for a period is met, then 25% of the Type II Awards will vest as of December 31 of the relevant year.

 

25


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

Holders of Awards issued in March and April 2021 were offered the option to switch to the following vesting terms, which applied to all Awards issued in December 2021 and thereafter, except for those under the Sales Vesting Plan described below. Some holders opted to switch to the terms of the awards issued in December 2021 however the value of both the awards is insignificant resulting in no impact on consolidated statement of operations.

Vesting can be divided into 3 types that are as follows:

 

1.

Type I—time-based vesting—25% of Type I Awards will vest on the first anniversary of the vesting start date (for the Awards issued in December 2021, the vesting start date was the date of the acquisition of Calypso by Thoma Bravo (i.e., July 22, 2022)), and the remaining 75% of the Type I Awards will vest in equal amounts daily over the next thirty-six (36) months.

 

2.

Type II—performance-based vesting—These Awards will vest depending upon Adenza meeting the EBITDA-based targets set by the Board for the relevant years 2022-2025 (or 2023-2026, for awards issued in May 2022 or January 2023). If the EBITDA-based target for a period is met, then 25% of the Type II Awards will vest as of December 31 of the relevant year.

 

3.

Type Ill—will vest upon a change of control.

Participants may have the right to acceleration upon a Change in Control, as set forth in the applicable Grant Agreement. Upon termination of employment, unvested Awards are cancelled. Vested awards may be subject to cancelation or repurchase, depending on the terms of the applicable Grant Agreement and the circumstances of the Participant’s termination.

In May 2022, the Ultimate Parent issued Awards to Participants who are Sales Executives of the Company and its direct and indirect subsidiaries (the “Sales Vesting Plan”). Each Award is divided into three equal annual tranches. Vesting is determined based on each Participant’s sales quota as set forth in the Participant’s Sales Compensation Plan, and is determined as follows:

 

1.

0% to 65% Quota Achievement: No vesting of the annual tranche. All amounts in the annual tranche are forfeited.

 

2.

65% to 80% Quota Achievement: No vesting of the annual tranche, however 40% of the annual tranche carries over to the next year.

 

3.

80% to 100% Quota Achievement: Minimum 40% vesting of the annual tranche. The remaining 60% vests based on proportionate achievement between 80% and 100%. Unvested amounts carryover to the following year.

Quota overachievement entitles the Participant to additional vesting from the subsequent year’s tranche. Amounts carried-over from a prior year tranche are available for the next year only.

Awards granted under the Sales Vesting Plan are subject to the same restrictions and other terms and conditions as the other vesting plans.

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26


Adenza Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

 

 

10.

Income Taxes

The Company determines the tax provision for interim periods using an estimate of its annual effective tax rate. Each quarter, the Company updates its estimate of annual effective tax rate, and if its estimated tax rate changes, the Company makes a cumulative adjustment.

The Company recorded income tax benefit of $5.5 million for the three month period ended March 31, 2023. The Company’s effective tax rate is 17.2% and differs from the statutory tax rate primarily due to state taxes, non-deductible expenses and losses, foreign rate differential, Global Intangible Low-Taxed Income (GILTI) inclusion, and credits and incentives.

 

11.

Contingencies

The Company, from time to time, may be involved in various claims and lawsuits, both for and against the Company, arising in the normal course of business. Management believes that any financial responsibility that may be incurred in settlement of such claims and lawsuits would not be material to the Company’s financial position, operations, and cash flows.

 

12.

Re-organization costs

Re-organization costs are summarized below:

 

(USD 000)

   Three month
period ended
March 31, 2023
 

One time projectsInternal entities reorganization post-merger and other realignment projects

     716  

SystemsImplementation and consolidation of internal systems

     600  
  

 

 

 
     1,316  
  

 

 

 

 

13.

Subsequent Events

The Company evaluated events occurred after March 31, 2023 through June 19, 2023, the date when the consolidated financial statements were available to be issued, and there are no subsequent events that met recognition or disclosure criteria, other than as disclosed below:

On 10 June 2023, Adenza Parent, L.P. entered into a definitive Agreement and Plan of Merger to sell the entire share capital of Adenza Holdings, Inc, its immediate subsidiary holding the rest of the Group, to Nasdaq, Inc. a technology company serving the global financial system. Completion is subject to various regulatory and anti-trust reviews and approvals.

The remainder of this page intentionally left blank.

 

27

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information combines the historical condensed consolidated balance sheet and statement of income of Nasdaq, Inc. (the “Company” or “Nasdaq”) and the historical condensed consolidated balance sheet and statement of operations of Adenza Group, Inc (“Adenza Group”), a wholly owned subsidiary of Adenza Holdings, Inc. (“Adenza”), after giving effect to the Acquisition (as defined in Note 1 – Description of the Acquisition and Financing Transactions) and the pro forma effects of certain assumptions and adjustments described in “Notes to the Unaudited Pro Forma Condensed Combined Financial Information” below.

The unaudited pro forma condensed combined financial information has been prepared to give effect to the following:

 

   

Application of the acquisition method of accounting under the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 805, Business Combinations (“ASC 805”) where the assets and liabilities of Adenza will be recorded by Nasdaq at their respective fair values as of the date the Acquisition was completed;

 

   

Adjustments to conform financial statement presentation of Adenza Group to those of Nasdaq, based upon preliminary assessment by Nasdaq;

 

   

Adjustments to reflect the following financing transactions (collectively, the “Financing Transactions”) and other adjustments:

 

   

Nasdaq’s proposed commercial paper issuances;

 

   

Nasdaq’s proposed offerings of U.S. dollar-denominated and euro-denominated senior notes; and

 

   

Nasdaq’s proposed entry into a delayed draw term loan facility;

 

   

The transfer of purchase consideration comprised of $5,750 million in cash and 85,608,414 shares of Nasdaq common stock to be issued (subject to customary closing adjustments), in exchange for the right, title, and interest in and to all the outstanding shares of Adenza; and

 

   

Adjustments to reflect transaction costs in connection with the Acquisition that would have been incurred had the Acquisition been consummated.

The following unaudited pro forma condensed combined balance sheet as of March 31, 2023 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 2022 and the three months ended March 31, 2023 are derived from and should be read in conjunction with Nasdaq’s (i) audited historical consolidated financial statements filed in the Annual Report on Form 10-K of Nasdaq for the year ended December 31, 2022 and (ii) unaudited interim condensed consolidated financial statements filed in the Quarterly Report on Form 10-Q of Nasdaq for the three months ended March 31, 2023 and Adenza Group’s (i) audited historical consolidated financial statements of Adenza Group for the year ended December 31, 2022, (ii) unaudited interim condensed consolidated financial statements of Adenza Group for the three months ended March 31, 2023. The difference between Adenza and Adenza Group’s financial statements is immaterial, and the activity of Adenza outside of Adenza Group is related primarily to intercompany activity which is eliminated in consolidation. The unaudited pro forma condensed combined financial information gives effect to the Acquisition and the Financing Transactions as if they had occurred on (i) March 31, 2023 for purposes of the unaudited pro forma condensed combined balance sheet, and (ii) January 1, 2022 for purposes of the unaudited pro forma condensed combined statements of income for the year ended December 31, 2022 and the three months ended March 31, 2023.

The unaudited pro forma financial information has been derived from the financial statements of Nasdaq and Adenza Group after giving pro forma effect to the Acquisition and the Financing Transactions. The unaudited pro forma condensed combined financial statements have been prepared by Nasdaq’s management for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations that would have been realized had the Acquisition and the Financing Transactions occurred on the dates indicated, nor are they meant to be indicative of any future consolidated financial position or future results of operations that Nasdaq will experience. Pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements are based on available information and certain assumptions that we believe are reasonable and supportable, and do not reflect any cost savings, operating synergies or revenue synergies that may result from the Acquisition or the costs to achieve such synergies. The financial statements of Adenza Group used to prepare the unaudited pro forma condensed combined statements of income were prepared for the purpose of the unaudited pro forma condensed combined statements of income for the three months ended March 31, 2023.

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under U.S. GAAP, which requires all of the following steps: (a) identifying the acquirer; (b) determining the acquisition date; (c) recognizing and measuring the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree; and (d) recognizing and measuring goodwill or a gain from a bargain purchase. For the Acquisition, Nasdaq is determined to be the accounting acquirer of Adenza. The identifiable assets acquired, and liabilities assumed, and goodwill are measured and recorded at their acquisition date fair value, with limited exceptions. The results of operations for the combined company will be reported prospectively after the Acquisition date. Nasdaq intends to finalize the valuations, other studies, and the purchase price allocation as soon as practicable within the measurement period, but in no event later than one year following the closing date of the Acquisition. The assets and liabilities of Adenza have been measured based on various preliminary estimates using assumptions that Nasdaq believes are reasonable, based on information that is currently available. Accordingly, actual adjustments may differ materially from the amounts reflected in the unaudited pro forma condensed combined financial information and the differences may be material. We therefore caution you not to place undue reliance on the unaudited pro forma condensed combined financial information. An initial review of the accounting policies was completed to determine material differences and Nasdaq will continue to review the accounting policies and practices of Adenza, and as a result, may identify differences between the accounting policies and practices of the two companies that, when conformed, could have an impact on the financial statements of the Company after giving effect to the Acquisition.

As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma condensed combined financial information.

 

1


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of March 31, 2023

($ in millions)

 

           (Note 3)     (Note 5)       
     Nasdaq
Historical

As of March 31,
2023
    Adenza
Group
Reclassed

As of March 31,
2023
    Transaction
Accounting
Adjustments –

Acquisition
         Transaction
Accounting
Adjustments –
Financing
         Pro Forma
Combined
 

Assets

                

Current assets:

                

Cash and cash equivalents

   $ 373     $ 190     $ (5,911   (a) (b)    $ 5,872     (a)    $ 524  

Restricted cash and cash equivalents

     57       1       —            —            58  

Default funds and margin deposits

     7,055       —         —            —            7,055  

Financial investments

     197       —         —            —            197  

Receivables, net

     666       193       —            —            859  

Other current assets

     192       19       (4   (c)      —            207  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

  

 

 

 

Total current assets

     8,540       403       (5,915        5,872          8,900  

Property and equipment, net

     529       8       —            —            537  

Goodwill

     8,103       3,680       3,214     (d)      —            14,997  

Intangible assets, net

     2,545       1,913       1,941     (e)      —            6,399  

Operating lease assets

     427       16       —            —            443  

Other non-current assets

     631       63       (12   (c)      —            682  
  

 

 

   

 

 

   

 

 

      

 

 

   

 

  

 

 

 

Total assets

   $ 20,775     $ 6,083     $ (772      $ 5,872        $ 31,958  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Liabilities

                

Current liabilities:

                

Accounts payable and accrued expenses

   $ 183     $ 46     $ —          $ —          $ 229  

Section 31 fees payable to SEC

     125       —         —            —            125  

Accrued personnel costs

     157       —         —            —            157  

Deferred revenue

     664       152       —            —            816  

Other current liabilities

     173       22       —            —            195  

Default funds and margin deposits

     7,055       —         —            —            7,055  

Short-term debt

     347       20       (20   (f)      260     (j)      607  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total current liabilities

     8,704       240       (20        260          9,184  

Long-term debt

     4,762       1,955       (1,955   (f)      5,632     (j)      10,394  

Deferred tax liabilities, net

     463       341       486     (g)      —            1,290  

Operating lease liabilities

     442       16       —            —            458  

Other non-current liabilities

     225       9       —            —            234  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total liabilities

     14,596       2,561       (1,489        5,892          21,560  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Commitments and contingencies

                

Equity

                

Nasdaq stockholders’ equity:

                

Common stock, $0.01 par value

     5       —         1     (i)      —            6  

Additional paid-in capital

     1,312       3,712       672     (h) (i)      —            5,696  

Common stock in treasury, at cost

     (555     —         —            —            (555

Accumulated other comprehensive loss

     (2,006     (30     30     (i)      —            (2,006

Retained earnings

     7,411       (160     14     (b)
(h) (i)
     (20   (k)      7,245  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total Nasdaq stockholders’ equity

     6,167       3,522       717          (20        10,386  

Noncontrolling interests

     12       —         —            —            12  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total equity

     6,179       3,522       717          (20        10,398  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

Total liabilities and equity

   $ 20,775     $ 6,083     $ (772      $ 5,872        $ 31,958  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

 

See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

2


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the Year Ended December 31, 2022

($ in millions, except per share data)

 

           (Note 3)     (Note 6)  
     Nasdaq
Historical

Year Ended
December 31,
2022
    Adenza
Group
Reclassed

Year Ended
December 31,
2022
    Transaction
Accounting
Adjustments –
Acquisition
           Transaction
Accounting
Adjustments –
Financing
           Pro Forma
Combined
       

Revenue:

                  

Market Platforms

   $ 4,225     $ —       $ —          $ —          $ 4,225    

Capital Access Platforms

     1,684       —         —            —            1,684    

Adenza

     —         514       —            —            514    

Anti-Financial Crime

     306       —         —            —            306    

Other revenues

     11       —         —            —            11    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Total revenues

     6,226       514       —            —            6,740    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Transaction-based expenses:

                  

Transaction rebates

     (2,092     —         —            —            (2,092  

Brokerage, clearance and exchange fees

     (552     —         —            —            (552  
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Revenues less transaction-based expenses

     3,582       514       —            —            4,096    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Operating expenses:

                  

Compensation and benefits

     1,003       181       393       (a)        —            1,577    

Professional and contract services

     140       12       —            —            152    

Computer operations and data communications

     207       16       —            —            223    

Occupancy

     104       10       —            —            114    

General, administrative and other

     125       11       —            —            136    

Marketing and advertising

     51       1       —            —            52    

Depreciation and amortization

     258       163       193       (b)        —            614    

Regulatory

     33       —         —            —            33    

Merger and strategic initiatives

     82       1       136       (c)        —            219    

Restructuring charges

     15       18       —            —            33    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Total operating expenses

     2,018       413       722          —            3,153    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Operating income

     1,564       101       (722        —            943    

Interest income

     7       1       —            —            8    

Interest expense

     (129     (172     —            (197     (e)        (498  

Other income

     2       1       —            —            3    

Net income from unconsolidated investees

     31       —         —            —            31    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Income before income taxes

     1,475       (69     (722        (197        487    

Income tax provision (benefit)

     352       (25     (82     (d)        (49     (f)        196    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Net income

   $ 1,123     $ (44   $ (640      $ (148      $ 291    

Net loss attributable to noncontrolling interests

     2       —         —            —            2    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Net income attributable to Nasdaq

   $ 1,125     $ (44   $ (640      $ (148      $ 293    
  

 

 

   

 

 

   

 

 

      

 

 

      

 

 

   

Weighted Average Common Shares Outstanding—Basic

     492.4         85.6       (g)             578.0       (g)  

Weighted Average Common Shares Outstanding—Diluted

     497.9         85.6       (g)             583.5       (g)  

Earnings per share—Basic

   $ 2.28                 $ 0.51       (g)  

Earnings per share—Diluted

   $ 2.26                 $ 0.50       (g)  

See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

3


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

For the Three Months Ended March 31, 2023

($ in millions, except per share data)

 

           (Note 3)     (Note 6)  
     Nasdaq
Historical

Three
Months
Ended March 31,
2023
    Adenza
Group
Reclassed
Three Months
Ended March 31,
2023
    Transaction
Accounting
Adjustments -
Acquisition
    Transaction
Accounting
Adjustments -
Financing
    Pro Forma
Combined
 

Revenue:

          

Market Platforms

   $ 1,032     $ —       $ —       $ —       $ 1,032  

Capital Access Platforms

     416       —         —         —         416  

Adenza

     —         126       —         —         126  

Anti-Financial Crime

     84       —         —         —         84  

Other revenues

     1       —         —         —         1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     1,533       126       —         —         1,659  

Transaction-based expenses:

          

Transaction rebates

     (487     —         —         —         (487

Brokerage, clearance and exchange fees

     (132     —         —         —         (132
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues less transaction-based expenses

     914       126       —         —         1,040  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

          

Compensation and benefits

     256       51       —         —         307  

Professional and contract services

     32       2       —         —         34  

Computer operations and data communications

     54       5       —         —         59  

Occupancy

     39       2       —         —         41  

General, administrative and other

     14       2       —         —         16  

Marketing and advertising

     9       —         —         —         9  

Depreciation and amortization

     69       42       47  (b)      —         158  

Regulatory

     9       —         —         —         9  

Merger and strategic initiatives

     2       —         —         —         2  

Restructuring charges

     18       1       —         —         19  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     502       105       47       —         654  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     412       21       (47     —         386  

Interest income

     6       1       —         —         7  

Interest expense

     (36     (54     —         (32 ) (e)      (122

Other income

     —         1       —         —         1  

Net income from unconsolidated investees

     14       —         —         —         14  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     396       (31     (47     (32     286  

Income tax provision (benefit)

     95       (5     (12 ) (d)      (8 ) (f)      70  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 301     $ (26   $ (35   $ (24   $ 216  

Net loss attributable to noncontrolling interests

     1       —         —         —         1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Nasdaq

   $ 302     $ (26   $ (35   $ (24   $ 217  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Common Shares Outstanding—Basic

     489.9         85.6  (g)        575.5  (g) 

Weighted Average Common Shares Outstanding—Diluted

     494.8         85.6  (g)        580.4  (g) 

Earnings per share—Basic

   $ 0.62           $ 0.38  (g) 

Earnings per share—Diluted

   $ 0.61           $ 0.37  (g) 

See the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

4


NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1 - Description of the Acquisition and Financing Transactions

The Acquisition

On June 12, 2023, Nasdaq announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Nasdaq, Argus Merger Sub 1, Inc. (“Merger Sub 1”), Argus Merger Sub 2, LLC (“Merger Sub 2”), Adenza, and Adenza Parent, LP (“Seller”) to acquire the entire issued and to be issued share capital of Adenza for cash consideration of $5,750 million and 85,608,414 shares of Nasdaq common stock. A portion of the cash consideration will be used to settle the existing indebtedness of Adenza and its subsidiaries. The estimated fair value of the purchase consideration was $10,135 million based on the closing price per share of Nasdaq common stock on June 16, 2023. In connection with the consummation of the Acquisition, (i) Merger Sub 1 will merge with and into Adenza with Adenza being the surviving entity (“Surviving Corporation”) and will become a subsidiary of Nasdaq, (ii) Surviving Corporation will merge with and into Merger Sub 2 and Merger Sub 2 being the surviving company (“Surviving Company”) and will be a subsidiary of Nasdaq.

The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the preliminary purchase price allocation of the assets acquired and liabilities assumed of Adenza based on Nasdaq management’s best estimate of fair value. The final purchase price allocation may vary based on final valuations and analyses of fair value of the acquired assets and assumed liabilities. The actual results of Adenza for periods subsequent to March 31, 2023 may result in material differences to the pro forma results had they been prepared on the basis of subsequent periods. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.

The Financing Transactions

The unaudited pro forma condensed combined financial information includes certain financing adjustments related to the expected concurrent issuances of (i) U.S. dollar and euro-denominated senior notes, (ii) loans under a new three-year unsecured term loan credit facility and (iii) commercial paper. The proceeds of the Financing Transactions will be used to finance the Acquisition as well as for repayment of Adenza and its subsidiaries’ existing indebtedness and to settle transaction related fees and expenses.

Note 2 – Basis of Presentation

The unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of Nasdaq and Adenza Group, respectively, as adjusted to give pro forma effect to the Acquisition and the Financing Transactions. Adenza Group is a wholly owned subsidiary of Adenza, and its financial statements represent the operations of Adenza, noting the difference in financial statements between the two entities is immaterial and that the activity of Adenza outside of Adenza Group is related primarily to intercompany activity which is eliminated in consolidation.

The unaudited pro forma condensed combined balance sheet as of March 31, 2023, the unaudited pro forma condensed combined statement of income for the year ended December 31, 2022, and the unaudited pro forma condensed combined statement of income for the three months ended March 31, 2023 presented herein are based on the historical financial statements of Nasdaq and Adenza Group. The following financial information was combined:

 

   

The unaudited pro forma condensed combined balance sheet as of March 31, 2023 is presented as if the Acquisition and the Financing Transactions had occurred on March 31, 2023 and combines the historical unaudited condensed consolidated balance sheet of Nasdaq as of March 31, 2023 with the historical unaudited condensed consolidated balance sheet of Adenza Group as of March 31, 2023.

 

   

The unaudited pro forma condensed combined statement of income for the year ended December 31, 2022 has been prepared as if the Acquisition and Financing Transactions had occurred January 1, 2022, the first day of the beginning of Nasdaq’s fiscal year 2022 and the beginning of Nasdaq’s annual period presented, and combines Nasdaq’s historical audited consolidated statement of income for the year ended December 31, 2022 with Adenza Group’s historical audited consolidated statement of operations for the year ended December 31, 2022.

 

   

The unaudited pro forma condensed combined statement of income for the three months ended March 31, 2023 has been prepared as if the Acquisition and Financing Transactions had occurred on January 1, 2022 and combines Nasdaq’s historical unaudited condensed consolidated statement of income for the three months ended March 31, 2023 with Adenza Group’s historical unaudited consolidated statement of operations for the three months ended March 31, 2023.

Pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements are based on available information. Given the Acquisition has not yet been consummated, the Company is still in the process of aligning Adenza’s revenue with Nasdaq’s segment presentation. Therefore, the Company has presented Adenza’s revenue separately in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2022, and the unaudited pro forma condensed combined statement of income for the three months ended March 31, 2023.

The Acquisition is accounted for as a business combination using the acquisition method of accounting under the provisions of ASC 805 and using the fair value concepts defined in ASC 820, Fair Value Measurements. Under ASC 805, all assets acquired and liabilities assumed are recorded at their acquisition date fair value, while transaction costs associated with the business combination are expensed as incurred. The excess of acquisition consideration over the estimated fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. The determination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated useful lives of amortizable identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows related to the businesses acquired. The preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates and assumptions regarding certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired, income taxes, and goodwill are subject to change as the Company obtains additional information during the measurement period (up to one year from the Acquisition date). Although the Company believes the fair values assigned to the assets acquired and liabilities assumed from the Acquisition are reasonable, new information may be obtained about facts and circumstances that existed as of the date of the Acquisition during the twelve-month period following the Acquisition which could cause actual results to differ materially from the unaudited pro forma condensed combined financial information.

 

5


The unaudited pro forma condensed combined financial statements do not include the realization of any cost savings from operating efficiencies, synergies or other restructuring activities which might result from the Acquisition.

Note 3 – Reclassification Adjustments

Reclassification of historical Adenza Group financial statement line items was required as of March 31, 2023, for the year ended December 31, 2022 and the three months ended March 31, 2023 to conform to the expected financial statement line items of the combined company following the Acquisition.

Pro Forma Combined Balance Sheet reclassification adjustments as of March 31, 2023 included the following (in millions):

 

Adenza Group Historical Consolidated

Balance Sheet Line Items

  

Nasdaq Historical Consolidated

Balance Sheet Line Items

   Adenza Group
Historical
Consolidated
Balances
As of March 31,
2023
    Reclassification          Adenza Group
Reclassed
As of March 31,
2023
 

Restricted cash

   Restricted cash and cash equivalents      1       —            1  

Accounts receivable, net

   Receivables, net      83       110     (a)      193  

Unbilled receivables

        110       (110   (a)      —    

Prepaid expenses and other assets

   Other current assets      11       8     (b) (c)      19  

Deferred contract costs

        4       (4   (b)      —    

Prepaid income taxes

        4       (4   (c)      —    

Unbilled receivables, noncurrent

        35       (35   (a)      —    

Due from related parties

        7       (7   (d)      —    

Right-of-use assets

   Operating lease assets      16       —            16  

Deferred contract costs, noncurrent

        12       (12   (b)      —    

Deferred tax assets

        3       (3   (e)      —    

Restricted cash (non-current)

        1       (1   (f)      —    

Other long-term assets

   Other non-current assets      2       61     (a) (b)
(d) (e)
(f) (g)
     63  

Equity investment

        3       (3   (g)      —    

Current maturities of long-term debt

   Short-term debt      20       —            20  

Accounts payable

   Accounts payable and accrued expenses      5       41     (h)      46  

Accrued expenses

        41       (41   (h)      —