What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-07 compared with 2025-05-08 · 225 added, 111 removed, 389 unchanged (46% of the section changed)

77 unchanged sentences

Due to the variability of our billing terms and the episodic nature of our customers purchasing additional subscriptions, we do not believe changes in our deferred revenue in a given period are directly correlated with our revenue growth.

We have invested in our Customer Success organization to help ensure customers are able to build and deploy applications on our platform.

We have invested in our professional services organization to help ensure customers are able to build and deploy applications on our platform.

We believe our professional services have driven customer success and facilitated the adoption of our platform by customers.

We have a number of strategic partnerships with companies, including Accenture, Capgemini, Deloitte, EY, KPMG, PwC, and TCS, which allow them to refer customers to us in order to purchase subscriptions.

Our partners then provide professional services directly to the customers using our platform.

Our partners then provide professional services directly to the customers using our

We intend to continue focusing on adding new customers with our strategic partners.

In addition, over time we expect

our professional services revenue as a percentage of total revenue to decline as we increasingly rely on strategic partners to help our customers deploy our software.

We believe our investment in professional services, including strategic partners building their practices around Appian, will drive increased adoption of our platform.

Our customers primarily include financial services, government, life sciences, insurance, manufacturing, energy, healthcare, telecommunications, and transportation organizations.

Generally, our sales team targets its efforts to organizations with over 2,000 employees and $2 billion in annual revenue.

For the three months ended March 31, 2025, revenue generated from government agencies represented 33.4% of total revenue, of which revenue from U.S.

federal government agencies was 23.9% of total revenue.

For the three months ended March 31, 2024, revenue generated from government agencies represented 29.5% of total revenue, of which revenue from U.S.

federal government agencies was 21.7% of total revenue.

No single end-customer accounted for more than 10% of our total revenue in the three months ended March 31, 2025 or 2024.

Generally, our sales team targets its efforts at organizations with over 2,000 employees and $2 billion in annual revenue.

For the three and six months ended June 30, 2025, revenue generated from government agencies represented 34.1% and 33.8%, respectively, of total revenue, of which revenue from U.S.

federal government agencies was 25.9% and 24.9% of total revenue in each period.

For the three and six months ended June 30, 2024, revenue generated from government agencies represented 31.4% and 30.4%, respectively, of total revenue, of which revenue from U.S.

federal government agencies was 22.6% and 22.1% of total revenue, respectively.

We offer our platform globally.

Our platform supports multiple languages to facilitate collaboration and address challenges in multinational organizations.

In the three months ended March 31, 2025, 36.2% of our total revenue was generated from customers outside of the United States as compared to 37.2% in the three months ended March 31, 2024.

As of March 31, 2025, we operated in 16 countries.

In the three and six months ended June 30, 2025, 38.4% and 37.3%, respectively, of our total revenue was generated from customers outside of the United States as compared to 38.2% and 37.7% in the three and six months ended June 30, 2024, respectively.

As of June 30, 2025, we operated in 16 countries.

We believe we have a significant opportunity to continue to grow our international footprint, and we are investing in new geographies, including through investment in direct and indirect sales channels, professional services, and customer support and implementation partners.

18 unchanged sentences

Our ability to continue to grow our customer base is dependent, in part, upon our ability to differentiate ourselves within the increasingly competitive markets in which we participate.

• Further Penetration of Existing Customers - Our sales team seeks to generate additional revenue from existing customers by adding new users to our platform.

• Further Penetration of Existing Customers - Our sales team seeks to generate additional revenue from existing customers by adding new users or application licenses to our platform.

Many of our customers begin by building a single application and then grow to build dozens of applications on our platform.

2 unchanged sentences

Our ability to increase sales to existing customers will depend on a number of factors, including the size of our sales and professional services teams, customers’ level of satisfaction with our platform and professional services, pricing, economic conditions, and our customers’ overall spending levels.

• Mix of Subscriptions and Professional Services Revenue - We believe our professional services have driven customer success and facilitated the adoption of our platform by customers.

During the initial period of deployment of our platform by a customer, we generally provide a greater amount of support in building applications and training than later in the deployment, with a typical engagement lasting from two to six months.

At the same time, many of our customers have historically purchased subscriptions for only a limited set of their total potential end users.

As a result of these factors, the proportion of total revenue for a customer associated with professional services is relatively high during the initial deployment period.

Over time, as the need for professional services associated with user deployments decreases and the number of end users increases, we expect subscriptions revenue as a percentage of total revenue to increase.

In addition, we continue to grow our base of strategic partners to provide broader customer coverage and solution delivery capabilities.

These partners perform professional services with respect to any new service contracts they originate.

As the usage of strategic partners expands, we expect the proportion of our total revenue from subscriptions to increase over time relative to professional services.

For the three months ended March 31, 2025 and 2024, 80.7% and 78.5% of our revenue, respectively, was derived from sales of subscriptions while the remaining 19.3% and 21.5%, respectively, was derived from the sale of professional services.

• Investments in Growth - We have made, and plan to continue to make, investments for long-term growth, including investing in our platform and infrastructure to continuously maximize their power and speed, meet the evolving needs of our customers, and take advantage of our market opportunity.

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Cloud Subscriptions Revenue

Three Months Ended March 31,

2025 2024 % Change

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 % Change 2025 2024 % Change

Cloud subscriptions revenue

2 unchanged sentences

Our cloud subscriptions revenue for any customer is primarily determined by the number of users who access and utilize the applications built on our platform or by the number of application licenses purchased, as well as the price paid.

We believe increasing cloud subscriptions revenue is an indicator of the demand for our platform,

the pace at which the market for our solutions is growing, the productivity of our sales team and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.

We believe increasing cloud subscriptions revenue is an indicator of the demand for our platform, the pace at which the market for our solutions is growing, the productivity of our sales team and strategic relationships in growing our customer base, and our ability to further penetrate our existing customer base.

Cloud Subscriptions Revenue Retention Rate

As of March 31,

As of June 30,

Cloud subscriptions revenue retention rate

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This effectively represents recurring dollars we should expect in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period without accounting for any expansion or contraction.

We subsequently measure the recurring cloud subscriptions revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period.

We subsequently measure

the recurring cloud subscriptions revenue in the current trailing 12-month period from the cohort of customers from the previous trailing 12-month period.

Cloud subscriptions revenue retention rate is then calculated by dividing the aggregate recurring cloud subscriptions revenue in the current trailing 12-month period by the previous trailing 12-month period.

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Our professional services revenue is comprised of fees for consulting services, including application development, deployment assistance, and training related to our platform.

Over time, we expect professional services revenue as a percentage of total revenue to decrease as the usage of our partner network expands.

Cost of Revenue

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Gross Profit and Gross Margin

Gross profit and gross margin (defined as gross profit as a percentage of total revenue), have been, and will continue to be, affected by various factors, including the mix of cloud subscriptions and term license subscriptions, the mix of total subscriptions revenue and professional services revenue, subscription pricing, the costs associated with third-party hosting providers, and the extent to which we expand or reduce our professional services to support future changes in our growth.

the mix of total subscriptions revenue and professional services revenue, subscription pricing, the costs associated with third-party hosting providers, and the extent to which we expand or reduce our professional services to support future changes in our growth.

Our gross margin may fluctuate from period to period based on the above factors.

3 unchanged sentences

Professional Services Gross Margin

Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the costs of our Customer Success organization as we continue to invest in the growth of our business, as well as by consultant utilization rates.

Professional services gross margin is affected by the growth in our professional services revenue as compared to the growth in, and timing of, the costs of our professional services organization as we continue to invest in the growth of our business, as well as by consultant utilization rates.

Professional services gross margin is also impacted by the amount of services performed by subcontractors and partners as opposed to internal resources.

For the full year 2025, we expect professional services gross margin to be consistent with 2024;

however, the margins for individual quarters remain subject to fluctuation based on the factors discussed above.

The professional services margins for individual quarters remain subject to fluctuation based on the factors discussed above.

Operating Expenses

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In 2025, we expect general and administrative expense to increase in absolute dollars largely due to investments in our information technology team.

Other Non-Operating Expense

Other Expense (Income), Net

Other expense (income), net consists primarily of gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

Other Non-Operating (Income) Expense

Other (Income) Expense, Net

Other (income) expense, net consists primarily of gains and losses related to changes in foreign currency exchange rates, interest income on our cash and cash equivalents and investments, and other sources of income or expense not related to our core business operations.

Interest Expense

2 unchanged sentences

The following table sets forth our consolidated statements of operations (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Subscriptions $ 132,657 $ 112,974 $ 267,009 $ 230,668

3 unchanged sentences

Subscriptions 17,154 13,262 32,048 25,532

14,894 12,270

Professional services 26,767 26,151 50,791 51,878

24,024 25,727

Total cost of revenue 43,921 39,413 82,839 77,410

2 unchanged sentences

Sales and marketing 60,458 66,592 115,011 124,748

54,553 58,156

Research and development 40,347 39,446 79,864 79,217

39,517 39,771

General and administrative 36,898 40,193 71,170 73,639

34,272 33,446

Total operating expenses 137,703 146,231 266,045 277,604

4 unchanged sentences

Total other non-operating (income) expense (12,245) 4,562 (12,643) 18,415

Loss before income taxes (436) (33,388)

Income (loss) before income taxes

1,261 (43,756) 825 (77,144)

Income tax expense (benefit) 1,573 (164) 2,314 (629)

1 unchanged sentence

The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

Subscriptions 77.7 % 77.1 % 79.2 % 77.9 %

5 unchanged sentences

Total cost of revenue*

25.7 26.9 24.6 26.1

Gross profit 74.3 73.1 75.4 73.9

4 unchanged sentences

Total operating expenses*

80.7 99.9 78.9 93.7

Operating loss (6.4) (26.8) (3.5) (19.8)

2 unchanged sentences

Interest expense 3.1 4.2 3.2 4.0

Total other non-operating expense*

Loss before income taxes*

Total other non-operating (income) expense*

(7.2) 3.1 (3.8) 6.2

Income (loss) before income taxes*

0.7 (29.9) 0.2 (26.0)

Income tax expense (benefit) 0.9 (0.1) 0.7 (0.2)

1 unchanged sentence

* Totals may not foot due to rounding.

Comparison of the Three Months Ended March 31, 2025 and 2024

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2025 and 2024

Three Months Ended June 30,

2025 2024 $ Change % Change

3 unchanged sentences

Total revenue $ 170,640 $ 146,450 $ 24,190 16.5 %

Total revenue increased $16.6 million, or 11.1%, in the three months ended March 31, 2025 compared to the same period in 2024 due to an increase in our subscriptions revenue of $16.7 million.

This increase was partially offset by a decrease in our professional services revenue of $0.1 million.

Total revenue increased $24.2 million, or 17%, in the three months ended June 30, 2025 compared to the same period in 2024 due to an increase in our subscriptions revenue of $19.7 million coupled with an increase in our professional services revenue of $4.5 million.

The increase in subscriptions revenue was driven by an $18.5 million increase in cloud subscriptions revenue, a $0.5 million increase in term license subscriptions revenue, and a $0.7 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was an $11.3 million increase in subscriptions revenue from sales to new customers, while the remaining $8.4 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers.

The increase in professional services revenue was due

primarily to a $6.1 million increase in revenue from sales to new customers customers, which was partially offset by a $1.6 million decrease in sales to existing customers.

Cost of Revenue

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Cost of revenue

Subscriptions $ 17,154 $ 13,262 $ 3,892 29.3 %

Professional services 26,767 26,151 616 2.4

Total cost of revenue $ 43,921 $ 39,413 $ 4,508 11.4 %

Subscriptions gross margin 87.1 % 88.3 %

Professional services gross margin 29.5 % 21.9 %

Total gross margin 74.3 % 73.1 %

Cost of revenue increased $4.5 million, or 11%, in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $3.4 million increase in hosting costs coupled with a $2.0 million increase in contractor costs.

These increases were partially offset by a $0.9 million decrease in professional services and product support personnel costs.

Hosting costs increased due to an increase in sales of our cloud offering during the three months ended June 30, 2025, while contractor costs increased due to an increase in the usage of subcontractors for professional services engagements.

Professional services and product support personnel costs decreased due to a decrease headcount of 8% from June 30, 2024 to June 30, 2025.

Sales and Marketing Expense

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Sales and marketing $ 60,458 $ 66,592 $ (6,134) (9.2) %

% of revenue 35.4 % 45.5 %

Sales and marketing expense decreased $6.1 million, or 9%, in the three months ended June 30, 2025 compared to the same period in 2024, primarily due to a $5.0 million decrease in sales and marketing personnel costs and a $0.7 million decrease in marketing expenses.

This decrease was partially offset by a $0.4 million increase in contractor costs.

Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 25% from June 30, 2024 to June 30, 2025.

Marketing expenses decreased due to reduced spending on marketing events and digital marketing.

Research and Development Expense

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Research and development $ 40,347 $ 39,446 $ 901 2.3 %

% of revenue 23.6 % 26.9 %

Research and development expense increased $0.9 million, or 2%, in the three months ended June 30, 2025 compared to the same period in 2024.

This change is primarily attributable to a $1.0 million increase in research

and development personnel costs, which was partially offset by a $0.3 million decline in contractor costs.

Although research and development headcount remained consistent period over period, overall personnel costs increased due to higher bonus expense and a $0.4 million increase in stock compensation expense.

Contractor costs decreased due to lower third-party consulting fees.

General and Administrative Expense

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

General and administrative

$ 36,898 $ 40,193 $ (3,295) (8.2) %

% of revenue 21.6 % 27.4 %

General and administrative expense decreased $3.3 million, or 8%, in the three months ended June 30, 2025 compared to the same period in 2024 primarily due to a $5.0 million decrease in rent expense.

In addition, insurance expense decreased $1.3 million due to lower amortization expense associated with our JPI policy.

These decreases were partially offset by increases of $1.2 million in professional fees and $1.0 million in general and administrative personnel costs.

Rent expense decreased due to $5.5 million of lease impairment charges recorded in the prior year period, with no such charges occurring in the current year.

Professional fees increased primarily due to a $1.8 million increase in litigation-related expenses attributable to the Pegasystems legal case.

Although general and administrative headcount was down 5% from June 30, 2024 to June 30, 2025, personnel costs increased due to higher bonus expense and a $0.5 million increase in stock compensation expense.

Other Income, Net

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Other income, net

$ (17,564) $ (1,545) $ (16,019) ***

% of revenue (10.3) % (1.1) %

*** Indicates a percentage that is not meaningful.

Other income, net was $17.6 million in the three months ended June 30, 2025 compared to other income, net of $1.5 million in the three months ended June 30, 2024.

This change was primarily due to $15.6 million in foreign exchange gains in the three months ended June 30, 2025 as compared to $0.2 million in foreign exchange losses in the three months ended June 30, 2024.

Interest Expense

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Interest expense $ 5,319 $ 6,107 $ (788) (12.9) %

% of revenue 3.1 % 4.2 %

Interest expense decreased by $0.8 million in the three months ended June 30, 2025 as compared to the corresponding period in 2024 primarily due to a lower effective interest rate and lower outstanding principal compared to the prior year period.

Income Tax Expense (Benefit)

Three Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Income tax expense (benefit)

$ 1,573 $ (164) $ 1,737 ***

0.9 % (0.1) %

*** Indicates a percentage that is not meaningful.

Income tax expense increased by $1.7 million in the three months ended June 30, 2025 as compared to the corresponding period in 2024.

This change was primarily driven by increased pre-tax book income in certain international subsidiaries for the three months ended June 30, 2025.

The change in pre-tax book income was primarily attributable to increases in unrealized foreign exchange gains.

Comparison of the Six Months Ended June 30, 2025 and 2024

Six Months Ended June 30,

2025 2024 $ Change % Change

(dollars in thousands)

Subscriptions $ 267,009 $ 230,668 $ 36,341 15.8 %

Professional services 70,057 65,617 4,440 6.8

Total revenue $ 337,066 $ 296,285 $ 40,781 13.8 %

Total revenue increased $40.8 million, or 14%, in the six months ended June 30, 2025 compared to the same period in 2024 due to an increase in our subscriptions revenue of $36.3 million as well as an increase in our professional services revenue of $4.4 million.

The increase in subscriptions revenue was driven by a $31.7 million increase in cloud subscriptions revenue, a $3.6 million increase in term license subscriptions revenue, and a $1.0 million increase in maintenance and support revenue.

With respect to new versus existing customers, there was an $18.5 million increase in subscriptions revenue from sales to new customers, while the remaining $17.8 million of the increase was attributable to expanded deployments, price increases on renewals, and corresponding sales of additional subscriptions to existing customers.

The decrease in professional services

revenue was due primarily to a $4.9 million decrease in revenue from existing customers, which was largely offset by a $4.8 million increase in sales to new customers.

The increase in professional services revenue was due primarily to a $10.7 million increase in revenue from sales to new customers, which was partially offset by a $6.3 million decrease in sales to existing customers.

Cost of Revenue

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

7 unchanged sentences

Total gross margin 75.4 % 73.9 %

Cost of revenue increased $0.9 million, or 2.4%, in the three months ended March 31, 2025 compared to the same period in 2024, primarily due to a $2.4 million increase in hosting costs coupled with a $0.4 million increase in contractor costs.

Cost of revenue increased $5.4 million, or 7%, in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $5.8 million increase in hosting costs coupled with a $2.4 million increase in

contractor costs.

These increases were partially offset by a $2.5 million decrease in professional services and product support personnel costs.

Hosting costs increased due to an increase in sales of our cloud offering during the three months ended March 31, 2025, while contractor costs increased due to an increase in the usage of subcontractors for professional services engagements.

Professional services and product support personnel costs decreased due to a decrease in cost of sales headcount of 11% from March 31, 2024 to March 31, 2025.

Subscriptions gross margin decreased slightly to 88.9% for the three months ended March 31, 2025, compared to 89.6% in the same period in 2024.

The decrease in subscriptions gross margin was attributable to an increase in hosting costs, which was substantially offset by an increase in subscriptions revenue during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Professional services gross margin increased to 25.1% for the three months ended March 31, 2025 compared to 20.0% in the same period in 2024 due largely to a decrease in professional services personnel expense, partially offset by a slight decrease in professional services revenue in the comparable period.

Gross margin increased to 76.6% for the three months ended March 31, 2025 compared to 74.6% for the three months ended March 31, 2024, driven largely by the increase in subscriptions revenue and the improvement in professional services gross margin.

Hosting costs increased due to an increase in sales of our cloud offering during the six months ended June 30, 2025, while contractor costs increased due to an increase in the usage of subcontractors for professional services engagements.

Professional services and product support personnel costs decreased due to a decrease in cost of sales headcount of 8% from June 30, 2024 to June 30, 2025.

Sales and Marketing Expense

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

2 unchanged sentences

% of revenue 34.1 % 42.1 %

Sales and marketing expense decreased $3.6 million, or 6.2%, in the three months ended March 31, 2025 compared to the same period in 2024, primarily due to a $2.2 million decrease in sales and marketing personnel costs.

This decrease was partially offset by a $0.3 million increase travel and entertainment costs and a $0.2 million increase in contractor costs.

Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 24% from March 31, 2024 to March 31, 2025 and a $0.3 million decrease in stock compensation expense.

Sales and marketing expense decreased $9.7 million, or 8%, in the six months ended June 30, 2025 compared to the same period in 2024, primarily due to a $7.3 million decrease in sales and marketing personnel costs, a $1.6 million decrease in allocated costs such as rent and employee medical costs, and a $0.7 million decrease in marketing expenses.

These decreases were partially offset by a $0.7 million increase in travel and entertainment costs and a $0.6 million increase in contractor costs.

Sales and marketing personnel costs decreased due to a decrease in sales and marketing headcount of 25% from June 30, 2024 to June 30, 2025.

Travel and entertainment expense increased due to a higher number of in-person events and engagements relative to the prior year, while the increase in contractor costs was attributable to an increase in third-party consulting fees.

Research and Development Expense

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

2 unchanged sentences

% of revenue 23.7 % 26.7 %

Research and development expense decreased $0.3 million, or 0.6%, in the three months ended March 31, 2025 compared to the same period in 2024.

This change is primarily attributable to a $0.3 million decline in research and development personnel costs.

Research and development headcount remained consistent period over period, but overall personnel costs declined due to realized cost savings from our product development center in India.

Research and development expense increased $0.6 million, or 1%, in the six months ended June 30, 2025 compared to the same period in 2024.

This change is primarily attributable to a $0.6 million increase in research and development personnel costs.

Although research and development headcount remained consistent period over period, overall personnel costs increased due to higher stock compensation and severance expense, offset by a reduction in salaries expense.

General and Administrative Expense

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

3 unchanged sentences

% of revenue 21.1 % 24.9 %

General and administrative expense increased $0.8 million, or 2.5%, in the three months ended March 31, 2025 compared to the same period in 2024 primarily due to increases of $0.8 million in information technology spending and $0.7 million in professional fees.

These increases were partially offset by decreases of $1.4 million in insurance expense and $0.3 million in personnel costs.

Information technology costs were higher due to continued investments in computer software while professional fees were higher due to a $1.1 million increase in litigation-related expenses attributable to the Pegasystems cases and a $0.4 million increase in contract labor spending.

The decrease in insurance expense was driven by the lower amortization expense of our judgment preservation insurance policy, and personnel costs were lower due to headcount decreasing by 3% from March 31, 2024 to March 31, 2025.

Other Non-Operating (Income) Expense, Net

Three Months Ended March 31,

General and administrative expense decreased $2.5 million, or 3%, in the six months ended June 30, 2025 compared to the same period in 2024 primarily due to a $4.5 million decrease in rent expense.

In addition, insurance expense decreased $2.7 million due to lower amortization expense associated with our judgment preservation insurance policy.

These decreases were partially offset by increases of $1.8 million in professional fees, $1.2 million in information technology spending, and $0.7 million in general and administrative personnel costs.

Rent expense decreased due to $5.5 million of lease impairment charges recorded in the prior year period, with no

such charges occurring in the current year.

Professional fees increased primarily due to a $2.7 million increase in litigation-related expenses attributable to the Pegasystems legal case.

Other (Income) Expense, Net

Six Months Ended June 30,

2025 2024 $ Change % Change

4 unchanged sentences

*** Indicates a percentage that is not meaningful.

Other income, net was $5.7 million in the three months ended March 31, 2025 compared to other expense, net of $8.2 million in the three months ended March 31, 2024.

This change was primarily due to $4.1 million in foreign exchange gains in the three months ended March 31, 2025 as compared to $11.5 million in foreign exchange losses in the three months ended March 31, 2024.

Other income, net was $23.3 million in the six months ended June 30, 2025 compared to other expense, net of $6.7 million in the six months ended June 30, 2024.

This change was primarily due to $19.7 million in foreign exchange gains in the six months ended June 30, 2025 as compared to $11.7 million in foreign exchange losses in the six months ended June 30, 2024.

In addition, there was a $1.4 million decrease in other income related to a non-recurring local government incentive payment that was received in the prior year.

Interest Expense

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

2 unchanged sentences

% of revenue 3.2 % 4.0 %

Interest expense decreased by $0.3 million in the three months ended March 31, 2025 as compared to the corresponding period in 2024 primarily due to a lower effective interest rate on our outstanding principal across the comparable periods.

Interest expense decreased by $1.1 million in the six months ended June 30, 2025 as compared to the corresponding period in 2024 primarily due to a lower effective interest rate and lower outstanding principal across the comparable periods.

Income Tax Expense (Benefit)

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

4 unchanged sentences

*** Indicates a percentage that is not meaningful.

Income tax expense increased by $1.2 million in the three months ended March 31, 2025 as compared to the corresponding period in 2024.

This change was primarily driven by increased pre-tax book income in certain international subsidiaries for the three months ended March 31, 2025.

The change in pre-tax book income was primarily attributable to increases in non-operating unrealized foreign exchange gains.

Income tax expense increased by $2.9 million in the six months ended June 30, 2025 as compared to the corresponding period in 2024.

This change was primarily driven by increased pre-tax book income in certain international subsidiaries for the six months ended June 30, 2025.

The change in pre-tax book income was primarily attributable to increases in unrealized foreign exchange gains.

Non-GAAP Financial Measures

1 unchanged sentence

We use these non-GAAP financial performance measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

Management believes these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results.

Management believes these non-GAAP financial measures provide meaningful

supplemental information regarding our performance by excluding certain expenses that may not be indicative of our recurring core business operating results.

We believe both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, and analyzing future periods.

2 unchanged sentences

Our non-GAAP financial performance measures include the following:

non-GAAP subscriptions cost of revenue, non-GAAP professional services costs of revenue, non-GAAP total cost of revenue, non-GAAP total operating expense, non-GAAP operating loss, non-GAAP income tax expense, non-GAAP net income (loss), and non-GAAP net income (loss) per share, basic and diluted.

These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, unrealized foreign exchange rate gains and losses, certain non-ordinary litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases (net of insurance reimbursements), or Litigation Expense, amortization of the judgment preservation insurance policy, or JPI Amortization, severance costs related to an involuntary reduction in our workforce, or Severance Costs, lease impairment and lease-related charges associated with actions taken to reduce the footprint of our leased office spaces, or Lease Impairment and Lease-Related Charges, and a short-swing profit disgorgement paid to us by an investor, or Short-Swing Profit Payment.

While some of these items may be recurring in nature and should not be disregarded in the evaluation of our earnings performance, it is useful to exclude such items when

analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur.

non-GAAP subscriptions cost of revenue, non-GAAP professional services cost of revenue, non-GAAP total cost of revenue, non-GAAP total operating expense, non-GAAP operating income (loss), non-GAAP income tax expense (benefit), non-GAAP net income (loss), and non-GAAP net income (loss) per share, basic and diluted.

These non-GAAP financial performance measures exclude the effect of stock-based compensation expense, unrealized foreign exchange rate gains and losses, certain non-ordinary litigation-related expenses consisting of legal and other professional fees associated with the Pegasystems cases (net of insurance reimbursements), or Litigation Expense, amortization of the judgment preservation insurance policy, or JPI Amortization, severance costs related to an involuntary reduction in our workforce, or Severance Costs, and lease impairment and lease-related charges associated with actions taken to reduce the footprint of our leased office spaces, or Lease Impairment and Lease-Related Charges.

While some of these items may be recurring in nature and should not be disregarded in the evaluation of our earnings performance, it is useful to exclude such items when analyzing current results and trends compared to other periods as these items can vary significantly from period to period depending on specific underlying transactions or events that may occur.

Therefore, while we may incur or recognize these types of expenses in the future, we believe removing these items for purposes of calculating our non-GAAP financial measures provides investors with a more focused presentation of our ongoing operating performance.

We also discuss adjusted EBITDA, a non-GAAP financial performance measure we believe offers a useful view of the overall operation of our business.

We define adjusted EBITDA as net loss before (1) other expense (income), net, (2) interest expense, (3) income tax expense, (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, and (8) Lease Impairment and Lease-Related Charges.

We define adjusted EBITDA as net loss before (1) other (income) expense , net, (2) interest expense, (3) income tax expense (benefit), (4) depreciation expense and amortization of intangible assets, (5) stock-based compensation expense, (6) Litigation Expense, (7) JPI Amortization, (8) Severance Costs, and (9) Lease Impairment and Lease-Related Charges.

The most directly comparable GAAP financial measure to adjusted EBITDA is net loss.

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Unrealized Foreign Exchange Rate Gains and Losses Non-GAAP Measure

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Subscriptions cost of revenue $ 17,154 $ (205) $ — $ — $ — $ — $ 16,949

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(312) 10,398 2,482 3,118 297 (15,695) 288

Net (loss) income per share, basic and diluted (a,b)

Net (loss) income per share, basic

$ (0.00) $ 0.14 $ 0.03 $ 0.04 $ — $ (0.21) $ 0.00

Three Months Ended March 31, 2024

Net (loss) income per share, diluted (a)

$ (0.00) $ 0.14 $ 0.03 $ 0.04 $ — $ (0.21) $ 0.00

Six Months Ended June 30, 2025

Subscriptions cost of revenue $ 32,048 $ (448) $ — $ — $ — $ — $ 31,600

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(11,818) 20,732 4,194 6,202 609 — 19,919

Non-operating expense (income)

Non-operating (income) expense

(23,280) — — — — 20,770 (2,510)

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(1,489) 19,982 4,194 6,202 609 (19,444) 10,054

Net (loss) income per share, basic and diluted

Net (loss) income per share, basic

$ (0.02) $ 0.27 $ 0.06 $ 0.08 $ 0.01 $ (0.26) $ 0.14

Net (loss) income per share, diluted (a,b)

$ (0.02) $ 0.27 $ 0.06 $ 0.08 $ 0.01 $ (0.26) $ 0.13

(a) Accounts for the impact of 0.4 million shares of dilutive securities.

(b) Per share amounts do not foot due to rounding.

The following table reconciles GAAP net loss to adjusted EBITDA for the three months ended March 31, 2025 and 2024 (in thousands):

Three Months Ended March 31,

GAAP Measure Stock-Based Compensation Litigation Expense JPI Amortization Severance Costs Lease Impairment and Lease-Related Charges Unrealized Foreign Exchange Rate Gains and Losses Non-GAAP Measure

Three Months Ended June 30, 2024

Subscriptions cost of revenue $ 13,262 $ (217) $ — $ — $ — $ — $ — $ 13,045

Professional services cost of revenue 26,151 (1,461) — — (1,398) — — 23,292

Total cost of revenue 39,413 (1,678) — — (1,398) — — 36,337

Total operating expense 146,231 (8,222) (721) (4,504) (4,136) (5,462) — 123,186

Operating (loss) income (39,194) 9,900 721 4,504 5,534 5,462 — (13,073)

Non-operating income

(1,545) — — — — — (959) (2,504)

Income tax impact of above items (164) 537 — — 1,096 — 103 1,572

Net (loss) income (43,592) 9,363 721 4,504 4,438 5,462 856 (18,248)

Net (loss) income per share, basic and diluted

$ (0.60) $ 0.13 $ 0.01 $ 0.06 $ 0.06 $ 0.08 $ 0.01 $ (0.25)

Six Months Ended June 30, 2024

Subscriptions cost of revenue $ 25,532 $ (430) $ — $ — $ — $ — $ — $ 25,102

Professional services cost of revenue 51,878 (3,039) — — (1,398) — — 47,441

Total cost of revenue 77,410 (3,469) — — (1,398) — — 72,543

Total operating expense 277,604 (17,037) (1,463) (9,008) (4,136) (5,462) — 240,498

Operating (loss) income (58,729) 20,506 1,463 9,008 5,534 5,462 — (16,756)

Non-operating expense (income) 6,662 — — — — — (12,807) (6,145)

Income tax impact of above items (629) 1,141 — — 1,096 — 1,038 2,646

Net (loss) income (76,515) 19,365 1,463 9,008 4,438 5,462 11,769 (25,010)

Net (loss) income per share, basic and diluted

$ (1.05) $ 0.27 $ 0.02 $ 0.12 $ 0.06 $ 0.08 $ 0.16 $ (0.34)

The following table reconciles GAAP net loss to adjusted EBITDA for the three and six months ended June 30, 2025 and 2024 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2025 2024 2025 2024

GAAP net loss $ (312) $ (43,592) $ (1,489) $ (76,515)

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Interest expense 5,319 6,107 10,637 11,753

Income tax expense

Income tax expense (benefit)

1,573 (164) 2,314 (629)

Depreciation expense and amortization of intangible assets

2,524 2,580 4,970 4,941

Stock-based compensation expense 10,693 9,900 20,732 20,506

Litigation Expense

2,482 721 4,194 1,463

JPI Amortization

3,118 4,504 6,202 9,008

Severance Costs

— 5,534 — 5,534

Lease Impairment and Lease-Related Charges

297 5,462 609 5,462

Adjusted EBITDA $ 8,130 $ (10,493) $ 24,889 $ (11,815)

Liquidity and Capital Resources

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of March 31, 2025 and December 31, 2024:

March 31, 2025 December 31, 2024

The following table presents selected financial information and statistics pertaining to liquidity and capital resources as of June 30, 2025 and December 31, 2024:

June 30, 2025 December 31, 2024

Cash and cash equivalents $ 112,207 $ 118,552

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The total cost of the policy was $57.3 million, which we paid with operating cash on hand.

In addition, in February 2024 our Board of Directors authorized a share repurchase program, under which we repurchased approximately 1.3 million shares of our common stock for approximately $50.0 million during the first quarter of 2024.

We may in the future opportunistically repurchase our common stock within the context of maintaining our strong capital position.

In February 2024, our Board of Directors authorized a share repurchase program, under which we repurchased approximately 1.3 million shares of our common stock for approximately $50.0 million during the first quarter of 2024.

In addition, in May 2025, our Board of Directors authorized a second program to repurchase up to $10.0 million of our common stock from May 2025 to December 2025.

In the second quarter of 2025, we repurchased 0.3 million shares under this program at an average share price of $31.91 and totaling $10.0 million.

Outside of the above items and cash used by operations, other uses of cash in 2025 to date have included capital expenditures related to the expansion of the new leased facilities and principal repayments of our term loan debt.

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The agreement, which was originated in July 2021 and amended in October 2024, currently contains minimum annual spending requirements of $44.0 million from November 2024 to October 2029.

Spending under this agreement for the three months ended March 31, 2025 and 2024 totaled $10.4 million and $10.3 million, respectively.

The timing of payments under the agreement may vary.

Spending under this agreement for the three and six months ended June 30, 2025 totaled $12.9 million and $23.3 million, respectively.

Spending under this agreement for the three and six months ended June 30, 2024 totaled $10.7 million and $21.0 million, respectively.

We expect to meet our minimum annual spending requirement during the term of the arrangement.

Historical Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

2025 2024 $ Change % Change

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Investing activities:

Net cash (used by) provided by investing activities

Net cash used by investing activities

(33,093) (21,629) (11,464) 53.0

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Operating Activities

Net cash provided by operating activities was $45.0 million for the three months ended March 31, 2025 as compared to $18.9 million provided by operating activities for the three months ended March 31, 2024.

The increase in net cash provided by operating activities was primarily driven by increased cash collections stemming from strong contract bookings in the fourth quarter of 2024 and other cost management activities during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024.

Net cash provided by operating activities was $43.0 million for the six months ended June 30, 2025 as compared to $1.3 million provided by operating activities for the six months ended June 30, 2024.

The increase in net cash provided by operating activities was primarily driven by increased cash collections stemming from strong contract bookings in the fourth quarter of 2024 and first half of 2025 as well as our continuing cost management activities.

Investing Activities

Net cash used by investing activities was $24.1 million for the three months ended March 31, 2025 as compared to $7.5 million in net cash provided by investing activities for the three months ended March 31, 2024.

Net cash used by investing activities was $33.1 million for the six months ended June 30, 2025 as compared to $21.6 million in net cash used by investing activities for the six months ended June 30, 2024.

This change was primarily driven by a $30.9 million increase in purchases of short-term investments.

This increase was partially offset by a $4.0 million increase in proceeds from the maturity of investments and a $1.5 million decrease in capital expenditure payments.

This increase was partially offset by an $18.3 million increase in proceeds from the maturity of investments and a $1.1 million decrease in capital expenditure payments.

Financing Activities

Net cash used by financing activities was $5.5 million for the three months ended March 31, 2025 as compared to $4.2 million of net cash used by financing activities for the three months ended March 31, 2024.

The increase in net cash used by financing activities was primarily due to a $1.3 million increase in debt repayments and a $0.3 million increase in payments for employee taxes related to the net share settlement of equity awards during the three months ended March 31, 2025.

Net cash used by financing activities was $19.0 million for the six months ended June 30, 2025 as compared to $6.7 million of net cash used by financing activities for the six months ended June 30, 2024.

The increase in net cash used by financing activities was primarily due to a $50.0 million decrease in proceeds from borrowings, which was partially offset by a $40.0 million decrease in repurchases of common stock and a $2.5 million increase in debt repayments during the six months ended June 30, 2025.

Critical Accounting Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis