CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands)(unaudited) Nine Months Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $6,140 $14,599 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,081 6,141 Share-based compensation expense 4,452 4,058 Write-off of long-lived assets 82 4 Provision for bad debts 323 913 Noncash lease expenses 412 444 Deferred income tax expense (benefit) 2,051 (10,308) Changes in assets and liabilities: Accounts receivable (1,647) (2,183) Prepaid expenses and other current assets (617) (407) Other noncurrent assets (470) (26) Accounts payable 1,156 (240) Accrued expenses and other current liabilities (1,150) (1,473) Deferred revenue (125) (143) Operating lease liabilities (419) (512) Net cash provided by operating activities 17,269 10,867 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (152) (98) Capitalized costs included in intangible assets (7,118) (6,921) Net cash used in investing activities (7,270) (7,019) CASH FLOWS FROM FINANCING ACTIVITIES: Taxes paid related to net share settlement of vesting of restricted stock units (431) (197) Repurchases of common stock (5,853) (1,251) Net cash used in financing activities (6,284) (1,448) Net increase in cash and cash equivalents $3,715 $2,400 Cash and cash equivalents at beginning of period 32,032 31,810 Cash and cash equivalents at end of period $35,747 $34,210 SUPPLEMENTAL DISCLOSURE INFORMATION: Cash paid for interest $- $- Cash paid for income taxes $524 $55 Share-based compensation capitalized in intangible assets $1,210 $1,389 Retirement of treasury stock $6,428 $1,280 Right-of -use assets obtained in exchange of operating lease liabilities $- $1,919 Operating lease liabilities arising from obtaining right-of-use assets $- $1,919 Use and Reconciliation of Non-GAAP Financial Measures Management evaluates the financial performance of our business on a variety of key indicators, including non-GAAP metrics of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF.
The following is a reconciliation of gross profit, the most directly comparable US GAAP financial measure, to adjusted gross profit: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2024 2023 2024 2023 Revenue $19,057 $15,837 $55,624 $45,143 Cost of revenue (exclusive of depreciation and amortization) (3,314) (3,313) (10,525) (9,732) Depreciation and amortization of intangible assets (2,382) (2,112) (6,918) (5,965) Gross profit 13,361 10,412 38,181 29,446 Depreciation and amortization of intangible assets 2,382 2,112 6,918 5,965 Adjusted gross profit $15,743 $12,524 $45,099 $35,411 Gross margin 70% 66% 69% 65% Adjusted gross margin 83% 79% 81% 78% The following is a reconciliation of net cash provided by operating activities, the most directly comparable US GAAP financial measure, to FCF: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2024 2023 2024 2023 Net cash provided by operating activities $7,247 $5,789 $17,269 $10,867 Less: Purchase of property and equipment (35) (47) (152) (98) Capitalized costs included in intangible assets (2,380) (2,412) (7,118) (6,921) Free cash flow $4,832 $3,330 $9,999 $3,848 In order to assist readers of our consolidated financial statements in understanding the operating results that management uses to evaluate the business and for financial planning purposes, we present non-GAAP measures of adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share, adjusted gross profit, adjusted gross margin, and FCF as supplemental measures of our operating performance.
The following is a reconciliation of net income, the most directly comparable US GAAP financial measure, to adjusted EBITDA: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2024 2023 2024 2023 Net income $1,719 $12,495 $6,140 $14,599 Interest income, net (353) (346) (1,032) (947) Income tax expense (benefit) 1,132 (10,384) 2,441 (10,253) Depreciation and amortization 2,434 2,171 7,081 6,141 Share-based compensation expense 1,657 1,369 4,452 4,058 Litigation costs 7 1 7 49 Write-off of long-lived assets and others 82 56 89 58 Adjusted EBITDA $6,678 $5,362 $19,178 $13,705 Revenue $19,057 $15,837 $55,624 $45,143 Net income margin 9% 79% 11% 32% Adjusted EBITDA margin 35% 34% 34% 30% The following is a reconciliation of net income, the most directly comparable US GAAP financial measure, to adjusted net income: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands, except share data) 2024 2023 2024 2023 Net income $1,719 $12,495 $6,140 $14,599 Share-based compensation expense 1,657 1,369 4,452 4,058 Amortization of share-based compensation capitalized in intangible assets 292 249 853 706 Discrete tax items(1) - (10,272) - (10,272) Tax effect of adjustments(2) (518) (1,275) (1,251) (1,275) Adjusted net income $3,150 $2,566 $10,194 $7,816 Earnings per share: Basic $0.12 $0.90 $0.44 $1.05 Diluted $0.12 $0.87 $0.43 $1.03 Adjusted earnings per share: Basic $0.23 $0.18 $0.74 $0.56 Diluted $0.22 $0.18 $0.72 $0.55 Weighted average shares outstanding: Basic 13,782,476 13,952,426 13,852,947 13,970,317 Diluted 14,311,575 14,329,878 14,224,285 14,207,673 (1) During the three months ended September 30, 2023, $10.3 million of income tax benefit was recognized as a result of the release of the valuation allowance previously recorded on our deferred tax asset and the cumulative research and development tax credit, which were excluded to calculate the adjusted net income.(2) The tax effect of adjustments is calculated using the expected federal and state statutory tax rate.
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