What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-08 · 186 added, 326 removed, 223 unchanged (70% of the section changed)

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The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report and our 2023 Annual Report.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity, and capital resources, and all other non-historical statements in this discussion are forward-looking statements and are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management.

Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, particularly in the sections “Special Note Regarding Forward-Looking Statements” and “Risk Factors” of this Quarterly Report.

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Executive Overview

We accelerate medicines to patients using biosimulation software, technology, and services to transform traditional drug discovery and development.

Biosimulation is a powerful technology used to conduct virtual trials using virtual patients to predict how drugs behave in different individuals.

Biopharmaceutical companies use our proprietary biosimulation software throughout drug discovery and development to inform critical decisions that not only save significant time and money but also advance drug safety and efficacy, improving millions of lives each year.

As a global leader in biosimulation based on 2022 revenue, we provide an integrated, end-to-end platform used by more than 2,300 clients including biopharmaceutical companies, regulatory agencies and academic institutions across 70 countries, including 39 of the top 40 biopharmaceutical companies by research and development spend in 2021.

Since 2014, customers who use our biosimulation software and technology-driven services have received 90% of all new drug approvals by the FDA.

Moreover, 20 global regulatory authorities license our biosimulation software to independently analyze, verify, and review regulatory submissions, including the FDA, Health Canada, Japan’s Pharmaceuticals and Medical Devices Agency, and UK’s Medicines and Healthcare Products Regulatory Agency.

We build our biosimulation technology on first principles of biology, chemistry, and pharmacology with proprietary mathematical algorithms that model how medicines and diseases behave in the body.

For over two decades, we have honed and validated our biosimulation technology with an abundance of data from scientific literature, lab research, and preclinical and clinical studies.

Many of our solutions are underpinned by artificial intelligence (machine learning) and SaaS-based value communication tools.

In turn, our customers use biosimulation to conduct virtual trials to answer critical questions, such as:

What will be the human response to a drug based on preclinical data?

How will other drugs interfere with this new drug?

What is a safe and efficacious dose for children, the elderly, or patients with pre-existing conditions?

Virtual trials may be used to optimize dosing on populations that are otherwise difficult to study for ethical or logistical reasons, such as infants, pregnant women, the elderly, and cancer patients.

Biosimulation results need to be incorporated into regulatory documents for compelling submissions.

Accordingly, we provide regulatory science and market access solutions and integrate them with biosimulation so that our customers can navigate the complex and evolving regulatory landscape and maximize their chances of approval.

Our differentiated regulatory services are powered by submissions management software and natural language processing for scalability and speed, allowing us to deliver more than 300 regulatory submissions over the past five years.

Our team of regulatory professionals has extensive experience applying industry guidelines and global regulatory requirements.

With continued innovation in and adoption of our biosimulation software, technology, and services, we believe more biopharmaceutical companies worldwide will leverage more of our end-to-end platform to reduce cost, accelerate speed to market, and ensure the safety and efficacy of medicines for all patients.

Public Offerings and Other Key Shareholders Transactions

On August 11, 2022, the Company completed a secondary public offering in which certain selling stockholders, including EQT, sold 7,000,000 shares of the Company’s common stock.

The Company did not offer any common stock in this transaction and did not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

The Company incurred costs of $0.6 million, recorded in general and administrative expenses, in relation to the secondary public offering.

On December 8, 2022, Arsenal acquired an aggregate of 29,954,521 shares of our common stock from EQT at a price of $15.00 per share.

In connection with this transaction, we entered into (i) a letter agreement, effective December 8, 2022, with Arsenal providing that, subject to certain exceptions, Arsenal is prohibited from transferring the acquired shares until December 8, 2024;

(ii) a stockholders agreement with Arsenal, effective December 8, 2022, which, among other things, grants certain conditional rights to Arsenal to nominate up to two directors to our Board;

and (iii) a Registration Rights Agreement, which contains provisions that entitle Arsenal to certain rights to have their securities registered by the Company under the Securities Act.

We are a leading provider of biosimulation technology and solutions for using Model-Informed Drug Development ("MIDD") in the global biopharmaceutical industry.

Biosimulation and MIDD can increase the probability of success in bringing a new drug to market and decrease the costs of drug development.

In addition, MIDD strategies are increasingly utilized to help predict commercial success, a critical part of the drug development process as new products must be both approved by regulators and adopted by the market.

Our goal is to enable the life science industry to use data, modeling, and analytics to make better decisions during drug development and commercialization to increase productivity rates and vastly reduce development costs.

Drug development is necessarily a highly regulated process involving the collection of vast amounts of laboratory, clinical and evidence data, and there are many failures at every step along the way which add to total cost.

The pharmaceutical industry spends more than $260 billion annually on R&D.

Generally, companies spend an average of $6.2 billion per US Food and Drug Administration ("FDA") approved drug.

Our software and scientists incorporate modern advances in scientific understanding, drug development experience, data analysis, and AI resulting in significant opportunities to decrease the cost and increase the odds of new drug approval and commercial success.

Our proprietary biosimulation platforms are built on biology, chemistry, and pharmacology principles with proprietary mathematical algorithms that model how medicines and diseases behave in the body.

For over two decades, our scientists have developed and validated our biosimulation technology using data from scientific literature, laboratory research, preclinical and clinical studies.

To do this, we have developed solutions for the collection, standardization, validation, storage, and analysis of the preclinical and clinical data needed for MIDD.

These data solutions are used internally and by global life sciences companies.

The scientific principles underlying our work with customers in biosimulation and MIDD must be transparent and fully explainable during the regulatory process, so we have become experts at incorporating data and results into regulatory documents.

Our software and regulatory services streamline the creation of regulatory filings and speed regulatory data flow to maximize the chances of successful commercialization.

AI and machine learning technologies are being incorporated across our software and services portfolios providing opportunities to expand the number of data sources utilized, better predict outcomes, and streamline reporting.

For example, we are using machine learning to automate and speed the process of biosimulation, and we have created an AI application to aid creating regulatory documents from scientific analyses and clinical data.

We believe that AI predictive models will continue to enhance the accuracy and usefulness of biosimulation models and be utilized broadly across drug development.

We deliver software and technology-enabled services.

Our strategy is to create and apply validated software applications that can be used broadly in the life science industry.

We offer services, leveraging our technology, delivered by scientists with extensive drug development experience to aid our clients in applying biosimulation and MIDD to their specific projects.

Since 2014, customers who leverage our solutions have received more than 90% of all new drug approvals by FDA.

We have worked with nearly 2,400 life sciences companies and academic institutions and have collaborated on more than 8,000 customer projects in the last decade across a wide variety of therapeutic areas ranging from cancer and hematology to diabetes and hundreds of rare diseases.

Our software products are licensed by more than 57,000 users and are also used by 23 global drug regulatory agencies, including the U.S.

FDA, Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”), and China Food and Drug Administration ("cFDA").

With continued innovation in and adoption of our biosimulation software, technology, and services, we believe more life science companies worldwide will leverage more of our end-to-end platform to reduce cost, accelerate speed to market, and ensure safety and efficacy of medicines for all patients.

Key Factors Affecting Our Performance

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We monitor two key performance indicators to evaluate retention and expansion:

new bookings and renewal rates.

Our new bookings represent the estimated annual contract value of a signed contract or purchase order where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the software and/or services.

new bookings and net retention rates.

Our new bookings represent the estimated contract value of a signed contract or purchase order where there is sufficient or reasonable certainty about the customer’s ability and intent to fund and commence the software and/or services.

Bookings vary from period to period depending on numerous factors, including the overall health of the biopharmaceutical industry, regulatory developments, industry consolidation, and sales performance.

Bookings have varied and will continue to vary significantly from quarter to quarter and from year to year.

• Renewal Rates:

Our renewal rates measure the percentage of software customers who renew their licenses or subscriptions at the end of the license or subscription periods.

The renewal rate is based on revenues and excludes the effect of price increases or expansions.

The table below summarizes our quarterly bookings and renewal rate trends:

Q1 Q2 Q3 Q1 Q2 Q3

(in millions)

• Net Retention Rates:

Our net retention rates measure the percentage of recurring revenue that is retained from existing software customers over a specific time period of time, inclusive of price increases and expansion.

The table below summarizes our quarterly bookings and net retention rate trends:

(in millions except percentage)

Bookings $ 105.8 $ 112.7

Renewal Rate 90 % 93 % 86 % 92 % 92 % 93 %

Net Retention Rates 114.1 % 110.5 %

Investments in Growth

We have invested and intend to continue to invest in expanding the breadth and depth of our solutions, including through acquisitions and international expansion.

We expect to continue to invest in (i) scientific talent to expand our ability to deliver solutions across the drug development spectrum;

(ii) sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies;

(iii) research and development to support existing solutions and innovate new technology;

(iv) other operational and administrative functions to support our expected growth;

and (v) complementary business.

We expect to continue to invest (i) in scientific talent to expand our ability to deliver solutions across the drug development spectrum;

(ii) in sales and marketing to promote our solutions to new and existing customers and in existing and expanded geographies;

(iii) in research and development to support existing solutions and innovate new technology;

(iv) in other operational and administrative functions to support our expected growth;

and (v) in complementary businesses.

We expect that our headcount and our total operating expenses will continue to increase over time.

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The acceptance of model-informed biopharmaceutical discovery and development by regulatory authorities affects the demand for our products and services.

Support for the use of biosimulation in discovery and development from regulatory bodies, such as the FDA and EMA, has been critical to its rapid adoption by the biopharmaceutical industry.

There has been a steady increase in the recognition by regulatory and academic institutions of the role that modeling and simulation can play in the biopharmaceutical development and approval process, as demonstrated by new regulations and guidance documents describing and encouraging the use of modeling and simulation in the biopharmaceutical discovery, development, testing, and approval process, which has directly led to an increase in the demand for our services.

Support for the use of biosimulation in discovery and development from regulatory bodies, such as the FDA and European Medicines Agency, has been critical to its rapid adoption by the biopharmaceutical industry.

Changes in government or regulatory policy, or a reversal in the trend toward increasing the acceptance of and reliance upon in silico data in the drug approval process, could decrease the demand for our products and services or lead regulatory authorities to cease use of, or recommend against the use of, our products and services.

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The market for our biosimulation products and related services for the biopharmaceutical industry is competitive and highly fragmented.

In biosimulation software, we compete with other scientific software providers, technology companies, in-house development by biopharmaceutical companies, and certain open source solutions.

In the technology-driven services market, we compete with specialized companies, in-house teams at biopharmaceutical companies, and academic and government institutions.

In some standard biosimulation services, and in regulatory and market access, we also compete with contract research organizations, who may also offer more traditional methods of drug development and clinical trial design that are used in lieu of biosimulation.

Some of our competitors and potential competitors have longer operating histories in certain segments of our industry than we do and could have greater financial, technical, marketing, R&D, and other resources.

Some of our competitors offer products and services directed at more specific markets than those we target, enabling these competitors to focus a greater proportion of their efforts and resources on those specific markets.

Some competing products are developed and made available at a lower cost by government organizations and academic institutions, and these entities may be able to devote substantial resources to product development.

Some clinical research organizations or technology companies may decide to enter into or expand their offerings in the biosimulation area, whether through acquisition or internal development.

We also face competition from open source software initiatives, in which developers provide software and intellectual property free of charge, such as R and PK-Sim software.

In addition, some of our customers spend significant internal resources in order to develop their own solutions.

In our view, the principal competitive factors in our market are the functionality and quality of models, the breadth of molecular types, therapeutic areas, and modalities supported, regulator acceptance of our solutions, ease of use and functionality of applications, depth of experience in drug

development, brand awareness and reputation, total cost, and the ability to securely integrate with other enterprise applications and the overall drug development process in the customer.

Macroeconomic challenges

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We believe that presentation of the GAAP and the non-GAAP metrics in this filing will aid investors in understanding our business.

Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, goodwill impairments, change in fair value of contingent consideration, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

Management also measures operating performance based on adjusted net income defined for a particular period as net income (loss) excluding, equity-based compensation expense, amortization of acquisition-related intangible assets, goodwill impairments, change in fair value of contingent consideration, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

Management measures operating performance based on adjusted EBITDA defined for a particular period as net income (loss) excluding interest expense, provision (benefit) for income taxes, depreciation and amortization expense, intangible asset amortization, equity-based compensation expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

Management also measures operating performance based on adjusted net income defined for a particular period as net income (loss) excluding, equity-based compensation expense, amortization of acquisition-related intangible assets, goodwill impairment expense, acquisition and integration expense, and other items not indicative of our ongoing operating performance.

Further, management measures operating performance based on adjusted diluted earnings per share defined for a particular period as adjusted net income divided by the weighted-average diluted common shares outstanding.

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The following table reconciles net income (loss) to adjusted EBITDA:

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

2023 2022 2023 2022

THREE MONTHS ENDED MARCH 31,

(in thousands)

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Change in fair value of contingent consideration(d) 2,878 1,261

Goodwill impairment expense(e) 46,984 — 46,984 —

Acquisition-related expenses(f) 1,392 253 3,276 1,331

Integration expense(g) 33 — 190 —

Transaction-related expenses(h) — 596 — 724

Severance expenses(i) — 722 — 722

Reorganization expense(j) 1,602 — 1,602 —

Loss on disposal of fixed assets(k) — 49 29 56

Executive recruiting expense(l) — — 396 —

First-year Sarbanes-Oxley implementation costs(m) — — — 961

Acquisition-related expenses(e) 1,714 1,192

Integration expense(f) — 102

Reorganization expense(g) 51 —

Loss on disposal of fixed assets(h) — 4

Executive recruiting expense(i) 380 196

Adjusted EBITDA $ 29,143 $ 32,306

The following table reconciles net income (loss) to adjusted net income:

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

2023 2022 2023 2022

THREE MONTHS ENDED MARCH 31,

(in thousands)

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Change in fair value of contingent consideration(d) 2,878 1,261

Goodwill impairment expense(e) 46,984 — 46,984 —

Acquisition-related expenses(f) 1,392 253 3,276 1,331

Integration expense(g) 33 — 190 —

Transaction-related expenses(h) — 596 — 724

Severance expenses(i) — 722 — 722

Reorganization expense(j) 1,602 — 1,602 —

Loss on disposal of fixed assets(k) — 49 29 56

Executive recruiting expense(l) — — 396 —

First-year Sarbanes-Oxley implementation costs(m) — — — 961

Income tax expense impact of adjustments(n) (10,572) (4,257) (20,669) (12,236)

Acquisition-related expenses(e) 1,714 1,192

Integration expense(f) — 102

Reorganization expense(g) 51 —

Loss on disposal of fixed assets(h) — 4

Executive recruiting expense(i) 380 196

Income tax expense impact of adjustments(j) (7,089) (5,495)

Adjusted net income $ 16,548 $ 19,311

The following table reconciles diluted earnings per share to adjusted diluted earnings per share:

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

2023 2022 2023 2022

(in thousands except share and per share data)

THREE MONTHS ENDED MARCH 31,

Diluted earnings per share(a) $ (0.03) $ 0.01

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Change in fair value of contingent consideration(d) 0.02 0.01

Goodwill impairment expense(e) 0.30 — 0.30 —

Acquisition-related expenses(f) 0.01 — 0.02 0.01

Integration expense(g) — — — —

Transaction-related expenses(h) — — — —

Severance expenses(i) — — — —

Reorganization expense(j) 0.01 — 0.01 —

Loss on disposal of fixed assets(k) — — — —

Executive recruiting expense(l) — — — —

First-year Sarbanes-Oxley implementation costs(m) — — — 0.01

Income tax expense impact of adjustments(n) (0.07) (0.03) (0.13) (0.08)

Acquisition-related expenses(e) 0.01 0.01

Integration expense(f) — —

Reorganization expense(g) — —

Loss on disposal of fixed assets(h) — —

Executive recruiting expense(i) — —

Income tax expense impact of adjustments(j) (0.04) (0.03)

Adjusted Diluted Earnings Per Share $ 0.10 $ 0.12

Basic weighted average common shares outstanding 159,524,270 158,177,025

Effect of potentially dilutive shares outstanding (o) 742,488 2,447,479 1,078,382 2,869,512

Effect of potentially dilutive shares outstanding (k) 889,094 1,550,387

Adjusted diluted weighted average common shares outstanding 160,413,364 159,727,412

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(d) Represents expense associated with remeasuring fair value of contingent consideration of business acquisition.

(e) Represents expense associated with goodwill impairment charge.

(f) Represents costs associated with mergers and acquisitions and any retention bonuses pursuant to the acquisitions.

(g) Represents integration costs related to post - acquisition integration activities.

(h) Represents costs associated with our public offerings that are not capitalized.

(i) Represents charges for severance provided to former executives.

(j) Represents expense related to reorganization, including legal entity reorganization and lease abandonment cost associated with the evaluation of our office space footprint.

(k) Represents the gain/loss related to disposal of fixed assets.

(l) Represents recruiting and relocation expenses related to hiring senior executives.

(m) Represents the first-year Sarbanes-Oxley costs for accounting and consulting fees related to the Company's preparation to comply with Section 404 of the Sarbanes-Oxley Act, as well as implementation cost of adopting ASC 842.

(n) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(o) Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding.

(e) Represents costs associated with mergers and acquisitions and any retention bonuses pursuant to the acquisitions.

(f) Represents integration costs related to post - acquisition integration activities.

(g) Represents expense related to reorganization, including legal entity reorganization and lease abandonment cost associated with the evaluation of our office space footprint.

(h) Represents the gain/loss related to disposal of fixed assets.

(i) Represents recruiting and relocation expenses related to hiring senior executives.

(j) Represents the income tax effect of the non-GAAP adjustments calculated using the applicable statutory rate by jurisdiction.

(k) Represents potentially dilutive shares that were included from our GAAP diluted weighted average common shares outstanding.

Components of Results of Operations

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• Research and Development .

Research and development expense consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits.

Research and development expense (“R&D”) consist primarily of employee-related expenses, equity-based compensation, third-party consulting, allocated software costs and tax credits.

We plan to continue to invest in our R&D efforts to enhance and scale our software product offerings by development of new features and increased functionality.

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General and administrative expense consists of personnel-related expenses associated with our executive, legal, finance, human resources, information technology, and other administrative functions, including salaries, benefits, bonuses, and equity-based compensation.

General and administrative

expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

General and administrative expense also includes professional fees for external legal, accounting and other consulting services, allocated overhead costs, and other general operating expenses.

• Intangible Asset Amortization .

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• Interest Expense .

Interest expense consists primarily of interest expense associated with the Credit Agreement, including amortization of debt issuance costs and discounts.

Interest expense consists primarily of interest expense associated with our Credit Agreement, including amortization of debt issuance costs and discounts.

• Net Other Income (Expense) .

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We expect income tax expense to increase over time as the Company continues to grow more profitable.

Since our inception, and as of September 30, 2023, we have completed 18 acquisitions, of which 13 have included software or technology.

Business Combinations

Since 2013 and as of March 31, 2024, we have completed 20 acquisitions, of which 13 have included software or technology.

Details of acquisitions that have closed since the beginning of fiscal year 2023 are provided below.

We continually seek and assess a range of highly focused opportunities in our immediately addressable market and in related adjacent markets, whether through acquisitions, licenses, or partnerships.

Integrated Nonclinical Development Solutions, Inc.

On January 3, 2022, we completed the acquisition of INDS for a total consideration of $8.0 million, which qualified as a business combination.

The business combination was not significant to our consolidated financial statements.

Based on the purchase price allocation, approximately $2.4 million, $1.0 million, $0.1 million, and $2.9 million of the purchase price were assigned to customer relationships, developed technology, non-compete agreements, and goodwill, respectively.

Vyasa Analytics, LLC

On December 28, 2022, the Company completed the acquisition of Vyasa, a company that provides an AI-powered, scalable deep learning software and analytics platform for organizations within healthcare and life sciences, higher education and state and local governments for total consideration of $29.3 million.

The business combination was not significant to the Company’s condensed consolidated financial statements.

Based on the Company’s purchase price allocation, approximately $11.4 million, $1.5 million, $0.1 million, $0.1 million and $16.6 million of the purchase price were assigned to developed technology, customer relationships, trademarks, non-compete agreements and goodwill, respectively.

The fair value of the contingent consideration was estimated to be $19.8 million as of the acquisition date.

The contingent consideration was classified as a liability and included in accrued liabilities and other long-term liabilities on the Company’s condensed consolidated balance sheet, which is remeasured on a recurring basis at fair value for each reporting period.

Any changes in the fair value of these contingent liabilities are included in the earnings in the condensed consolidated statements of operations and comprehensive income (loss).

At September 30, 2023, the contingent consideration was remeasured to $31.5 million, resulting in $11.7 million adjustment to fair value.

Drug Interaction Solutions, University of Washington ("DIDB ")

On June 20, 2023, the Company entered into an asset purchase agreement with the University of Washington and completed the acquisition of Drug Interaction Solutions, including the Drug Interaction Database and related products, from the University of Washington for total estimated consideration of $8.3 million.

The business combination was not significant to the Company’s condensed consolidated financial statements.

The total estimated consideration includes a portion of contingent consideration that is payable over the next two years in cash, not to exceed $2.0 million.

Future payments of contingent consideration are based on eligible revenue for the period from July 1, 2023 through June 30, 2025.

On June 20, 2023, we entered into an asset purchase agreement with the University of Washington and completed the acquisition of DIDB, including the Drug Interaction Database and related products, from The University of Washington for a total estimated consideration of $8.3 million.

The business combination was not significant to the Company’s consolidated financial statements.

Based on our purchase price allocation, approximately $0.3 million, $5.6 million, $0.4 million, and $2.3 million of the purchase price was assigned to trade names, database content/technology, customer relationships and goodwill, respectively.

The total estimated consideration included a portion of contingent consideration that is payable over the next two years in cash, not to exceed $2.0 million.

The fair value of the contingent consideration was estimated to be $0.8 million as of the acquisition date.

At September 30, 2023, the contingent consideration was remeasured to $0.4 million, resulting in a negative fair value adjustment of $0.4 million and recorded in general and administrative (“G&A”) on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Based on the Company’s preliminary purchase price allocation, approximately $0.3 million, $5.6 million, $0.4 million, and $2.3 million of the purchase price were assigned to trademarks, database content/technology, customer relationships and goodwill, respectively.

The current purchase price allocation is preliminary.

At March 31, 2024, the contingent consideration was remeasured to $0.1 million, resulting in a fair value adjustment of $4 thousand and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Formedix Limited ("Formedix")

On October 10, 2023, we completed the acquisition of Formedix for a total estimated consideration of $41.4 million.

The business combination was not material to our condensed consolidated financial statements.

Based on our purchase price allocation, approximately $11.7 million, $3.1 million, and $25.1 million of the purchase price were assigned to developed technology, customer relationships and goodwill, respectively.

The total estimated consideration included a portion of contingent consideration that is payable over two years in cash, not to exceed $9.0 million.

The fair value of the contingent consideration related to revenue threshold was estimated to be $4.4 million as of the acquisition date.

Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively.

Additionally, another portion of the contingent consideration is based on the resolution of certain tax contingencies.

In total, the fair value of the contingent consideration was estimated to be $5.2 million as of the acquisition date.

At March 31, 2024 the contingent consideration related to revenues was remeasured to $3.2 million, resulting in a negative fair value remeasurement and adjustment of $0.5 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Applied BioMath, LLC ("ABM")

On December 12, 2023, we completed the acquisition of ABM, an industry-leader in providing model-informed drug discovery and development support to help accelerate and de-risk therapeutic research and development, for total estimated consideration of $36.6 million.

The business combination was not material to our consolidated financial statements.

Based on our preliminary purchase price allocation, approximately $4.6 million, $0.8 million, $13.7 million and $15.9 million of the purchase price was assigned to developed technology, non-compete agreements, customer relationships and goodwill, respectively.

The total estimated consideration includes a portion of contingent consideration that is payable over two years in cash, not to exceed $17.6 million.

Future payments of contingent consideration are based on achieving certain eligible revenue targets for each of the twelve-month periods ended December 31, 2023 and 2024, respectively.

The fair value of the contingent consideration was estimated to be $5.4 million as of the acquisition date.

At March 31, 2024, the contingent consideration was remeasured to $4.4 million, resulting in a negative fair value adjustment of $0.9 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

The contingent considerations for all acquisitions were classified as a liability and included in accrued expense and other long-term liabilities on our condensed consolidated balance sheet.

The contingent consideration related with revenue threshold are remeasured on a recurring basis at fair value for each reporting period.

Any changes in the fair value of these contingent liabilities are included in the earnings in the condensed consolidated statements of operations and comprehensive income (loss).

The current purchase price allocations for acquisitions of Formedix and ABM are preliminary.

The primary areas of the preliminary purchase price allocations that are not yet finalized that relate to the fair value of certain tangible assets and liabilities assumed and residual goodwill.

We continue to gather information supporting the acquired assets and liabilities, including but not limited to the estimation of the fair value of the identifiable intangible assets, measurement of deferred revenue and corresponding impact on goodwill, during the measurement period.

Any adjustments to the preliminary purchase price allocation identified during the measurement period, which will not exceed one year from the acquisition date, will be accounted for prospectively.

The results of operations of the acquired businesses and the fair value of the acquired assets and liabilities assumed are included in the Company’s consolidated financial statements with effect from the date of the acquisitions.

For more information about our acquisitions, see Note 5.

“Acquisitions” in the notes to the condensed consolidated financial statements.

“Business Combinations” in the notes to the condensed consolidated financial statements.

Results of Operations

We have included the results of operations of acquired companies in our condensed consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three and nine months ended September 30, 2023 to the three and nine months ended at September 30, 2022.

Three Months Ended September 30, 2023 Versus Three Months Ended September 30, 2022

The following table summarizes our unaudited statements of operations data for the three months ended September 30, 2023 and 2022:

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

We have included the results of operations of acquired companies in our condensed consolidated results of operations from the date of their respective acquisitions, which impacts the comparability of our results of operations when comparing results for the three months ended March 31, 2024 to the three months ended at March 31, 2023.

Three Months Ended March 31, 2024 Versus Three Months Ended March 31, 2023

The following table summarizes our unaudited statements of operations data for the three months ended at March 31, 2024 and 2023:

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

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Total revenues $ 96,654 $ 90,301 $ 6,353 7 %

Revenues increased $0.9 million, or 1%, to $85.6 million for the three months ended September 30, 2023 as compared to the same period in 2022.

The overall increase in revenues was primarily due to growth in our technology-driven services and software product offerings from strong demand within existing customers, new product introductions, and client expansions.

The increase was partially offset by a decline in regulatory revenue.

Software revenues increased $2.9 million, or 10%, to $31.3 million for the three months ended September 30, 2023 as compared to the same period in 2022, primarily driven by strong demand within existing customers, new product introductions, and expanding relationships with customers.

Services revenues decreased $2.1 million, or 4% to $54.2 million for the three months ended September 30, 2023, as compared to the same period in 2022.

The decrease in overall services revenue is primarily attributable to a decline in regulatory revenue.

Total revenues increased $6.4 million, or 7%, to $96.7 million for the three months ended March 31, 2024 as compared to the same period in 2023.

The overall increase in revenues was primarily due to growth in our software product offerings from strong demand within existing customers, client expansions, and new customers.

Software revenues increased $6.3 million, or 19%, to $39.3 million for the three months ended March 31, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers and expanding relationships with customers.

Services revenues of $57.3 million were relatively flat for the three months ended March 31, 2024, as compared to the same period in 2023.

Cost of Revenues

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

1 unchanged sentence

Cost of revenues $ 39,255 $ 34,856 $ 4,399 13 %

Cost of revenues increased by $3.1 million, or 9%, to $35.9 million for the three months ended September 30, 2023 as compared to the same period in 2022.

The increase was primarily due to a $2.3 million increase in employee-related costs resulting from billable head count growth, a $0.7 million increase in stock-based compensation costs, a $0.4 million increase in intangible assets amortization, and a $0.1 million increase in travel and entertainment expense, partially offset by a $0.4 million decrease in miscellaneous operating expense and other items.

Cost of revenues increased by $4.4 million, or 13%, to $39.3 million for the three months ended March 31, 2024 as compared to the same period in 2023.

The increase was primarily due to a $1.9 million increase in employee-related costs resulting from billable head count growth, a $1.2 million increase in stock-based compensation costs, a $0.8 million increase in intangible assets amortization, a $0.5 million increase in equipment and software expenses.

Sales and Marketing Expenses

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 11 % 9 %

Sales and marketing expenses increased by $0.9 million, or 14%, to $7.2 million for the three months ended September 30, 2023 as compared to the same period in 2022.

Sales and marketing expenses increased primarily due to a $0.8 million increase in employee-related costs primarily resulting from head count growth, a $0.2 million increase in stock-based compensation costs, partially offset by a $0.2 million decrease in marketing expense.

Sales and marketing expenses increased by $2.7 million, or 34%, to $10.7 million for the three months ended March 31, 2024 as compared to the same period in 2023.

Sales and marketing expenses increased primarily due to a $1.7 million increase in employee-related costs primarily resulting from head count growth, a $0.2 million increase in stock-based compensation costs, a $0.2 million increase in travel expenses, a $0.2 million increase in marketing expenses, and a $0.2 million increase in professional and consulting expenses.

Research and Development Expenses

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 12 % 10 %

Research and development expenses increased by $2.7 million, or 42%, to $9.0 million for the three months ended September 30, 2023, as compared to the same period in 2022.

The change in research and development expenses was primarily due to a $2.2 million increase in employee-related costs primarily resulting from head count growth and a $1.0 million increase in stock-based compensation costs, partially offset by a $0.6 million increase in capitalized cost in R&D.

Research and development expenses increased by $2.7 million, or 29%, to $12.0 million for the three months ended March 31, 2024, as compared to the same period in 2023.

The change in research and development expenses was primarily due to a $3.0 million increase in employee-related costs primarily resulting from head count growth, and a $0.2 million increase in the cost of licenses, partially offset by a $0.5 million increase in capitalized cost in R&D.

General and Administrative Expenses

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 24 % 22 %

General and administrative expenses increased by $10.4 million, or 60%, to $27.8 million for the three months ended September 30, 2023 as compared to the same period in 2022.

The increase in general and administrative expenses was primarily due to a $8.8 million increase related to change in the fair value of contingent considerations, a $1.6 million increase in lease abandonment expense, $0.8 million increase in merger and acquisition expenses, $0.6 million increase in equipment and software expense, partially offset by a $0.6 decrease in transaction cost, a $0.3 million decrease in employee-related costs, and a $0.3 million decrease in insurance expense.

General and administrative expenses increased by $3.2 million, or 16%, to $23.0 million for the three months ended March 31, 2024 as compared to the same period in 2023.

The increase in general and administrative expenses was primarily due to a $1.6 million increase related to change in the fair value of contingent consideration, a $1.1 million increase in employee-related costs primarily resulting from head count growth, a $0.5 million increase in merger and acquisition expenses, a $0.2 million increase in equipment and software expenses, a $0.2 million increase in executive recruiting expense, and a $0.2 million increase in credit allowance provision expense, partially offset by a $0.9 million decrease in stock-based compensation costs.

Intangible Asset Amortization

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 13 % 12 %

Intangible asset amortization expense increased by $0.6 million, or 5%, to $11.2 million for the three months ended September 30, 2023, as compared to the same period in 2022.

The increase in intangible asset amortization expense was primarily due to higher amortization expense from capitalized software.

Intangible asset amortization expense increased by $2.1 million, or 20%, to $12.6 million for the three months ended March 31, 2024, as compared to the same period in 2023.

The increase in intangible asset amortization expense was primarily due to $1.3 million increase in amortization in acquired intangible assets and $0.8 million increase in amortization in capitalized software.

Depreciation and Amortization Expense

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues — % — %

Depreciation and amortization expense of $0.4 million was relatively flat for the three months ended September 30, 2023, as compared to the same period in 2022.

Goodwill Impairment Expense

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Goodwill impairment expense $ 46,984 $ — $ 46,984 nm

Goodwill impairment expense was $47.0 million for the three months ended September 30, 2023 as compared to no goodwill impairment expense for the same period in 2022.

The increase in goodwill impairment expense was primarily due to record goodwill impairment for legacy Regulatory and Writing reporting unit as the carrying value exceeded its fair value.

Depreciation and amortization expense of $0.4 million was relatively flat for the three months ended March 31, 2024, as compared to the same period in 2023.

Interest Expense

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 6 % 6 %

Interest expense increased by $0.7 million, or 13%, to $5.9 million for the three months ended September 30, 2023 as compared to the same period in 2022.

The increase in interest expense was primarily due to an increase in market interest rates reflected on our term loan floating rate debt.

The increase in interest expense was partially offset by a $1.5 million gain from interest swap hedge activities.

Net Other Income

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

Interest expense increased by $0.3 million, or 5%, to $5.8 million for the three months ended March 31, 2024 as compared to the same period in 2023.

The increase in interest expense was primarily due to an $0.8 million increase in our floating rate term loan debt, driven by the uptick in market interest rates.

The increase in interest expense was partially offset by a $0.5 million increase in gain from our interest swap hedge activities.

Net Other (Income ) Expense

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

(in thousands)

Net other income $ (5,078) $ (2,855) $ (2,223) 78 %

Net other (income ) expense $ (1,604) $ (506) $ (1,098) 217 %

% of total revenues (2) % (1) %

Net other income increased by $2.2 million, to $5.1 million for the three months ended September 30, 2023 as compared to the same period in 2022.

The increase in net other income was primarily due to a $2.5 million increase in interest income primarily from cash investments, and partially offset by a $0.3 million decrease in gains related to the fluctuation of foreign currency exchange rates.

Net other income increased by $1.1 million, to $1.6 million for the three months ended March 31, 2024 as compared to the same period in 2023.

The increase in net other income was primarily due to a $1.2 million increase interest income primarily from cash investments.

Provision (Benefit) for Income Taxes

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

1 unchanged sentence

Provision (benefit) for income taxes $ (751) $ 1,111 $ (1,862) (168) %

$ (4,644) $ 4,557 $ (9,201) (202) %

Effective income tax rate 14 % 45 %

Income tax benefit was $4.6 million, resulting in an effective income tax rate of 9% for the three months ended September 30, 2023 as compared to an income tax expense of $4.6 million, or an effective income tax rate of 54%, for the same period in 2022.

Our income tax (benefit) expense for the three months ended September 30, 2023 and 2022 were primarily tax effects of U.S.

Our income tax benefit was $0.8 million, resulting in an effective income tax rate of 14% for the three months ended March 31, 2024 as compared to an income tax expense of $1.1 million, or an effective income tax rate of 45%, for the same period in 2023.

Our income tax expense for the three months ended March 31, 2024 and 2023 was primarily due to the tax effects of U.S.

pre-tax income, the relative mix of domestic and international earnings, the impact of non-deductible items, adjustments to the valuation allowances, the effects of tax elections made for U.K.

1 unchanged sentence

Net Income (Loss)

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Net income (loss) $ (48,965) $ 3,936 $ (52,901) nm

Net loss was $49.0 million representing a $52.9 million decrease in net income for the three months ended September 30, 2023 as compared to a net income of $3.9 million in the same period of 2022.

The decrease in net income was primarily due to a $47.0 million increase in goodwill impairment expense, a $8.8 million increase related to change in the fair value of contingent considerations, a $1.6 million increase in lease abandonment expense, a $4.1 million increase in other operating expenses, and a $3.1 million increase in cost of revenue, partially offset by a $9.2 million decrease in tax expense, and a $2.5 million increase in interest income.

Nine Months Ended September 30, 2023 Versus Nine Months Ended September 30, 2022

The following table summarizes our unaudited statements of operations data for the nine months ended September 30, 2023 and 2022:

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Software $ 98,058 $ 86,309 $ 11,749 14 %

Services 168,269 162,702 5,567 3 %

Total revenues $ 266,327 $ 249,011 $ 17,316 7 %

Revenues increased $17.3 million, or 7%, to $266.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase in revenues was primarily due to growth in our technology-driven services and software product offerings from strong demand within existing customers, client expansions, and new customers.

The increase was partially offset by the negative impact on our revenue from the fluctuation of foreign currency exchange rates.

Software revenues increased $11.7 million, or 14%, to $98.1 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The overall growth is primarily attributable to growth in strong demand within existing customers, new product introductions, and expanding relationships with customers.

Services revenues increased $5.6 million, or 3%, to $168.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The growth in overall services revenue is primarily attributable to continued growth in biosimulation.

The increase was partially offset by the decline in regulatory revenues.

Cost of Revenues

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Cost of revenues $ 106,956 $ 100,795 $ 6,161 6 %

Cost of revenues increased by $6.2 million, or 6%, to $107.0 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase was primarily due to a $4.2 million increase in employee-related costs resulting from billable head count growth, a $1.5 million increase in stock-based compensation costs, a $0.9 million increase in intangible assets amortization, and a $0.5 million increase in travel, partially offset by a $0.4 million increase in capitalized software cost, a $0.3 million decrease in miscellaneous operation expenses, and a $0.2 million decrease in consulting and professional services.

Sales and Marketing Expenses

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Sales and marketing $ 23,351 $ 19,608 $ 3,743 19 %

% of total revenues 9 % 8 %

Sales and marketing expenses increased by $3.7 million, or 19%, to $23.4 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

Sales and marketing expenses increased primarily due to a $3.2 million increase in employee-related costs resulting from head count growth, a $0.5 million increase in travel, a $0.2 million increase in marketing, and a $0.2 million increase in miscellaneous operating expense, partially offset by a $0.4 million decrease in stock-based compensation cost.

Research and Development Expenses

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Research and development $ 26,155 $ 21,607 $ 4,548 21 %

% of total revenues 10 % 9 %

Research and development expenses increased by $4.5 million, or 21%, to $26.2 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase in research and development expenses was primarily due to a $5.3 million increase in employee-related costs primarily resulting from headcount growth, a $0.7 million increase in stock-based compensation cost, and a $0.3 million increase in travel, partially offset by a $1.5 million increase in capitalized cost in research & development, and a $0.3 million decrease in consulting and professional expense.

General and Administrative Expenses

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

General and administrative $ 61,777 $ 53,444 $ 8,333 16 %

% of total revenues 23 % 21 %

General and administrative expenses increased by $8.3 million, or 16%, to $61.8 million for the nine months ended September 30, 2023, as compared to the same period in 2022.

The increase in general and administrative expenses was primarily due to a $11.3 million increase related to the change in fair value of contingent consideration, a $1.6 million increase in lease abandonment expense, a $1.1 million increase in equipment expenses, a $0.8 million increase in merger and acquisition cost, a $0.6 million increase in consulting and professional services expense, a $0.4 million increase in executive recruiting expense, and a 0.3 million increase in employee-related costs resulting from head count growth, partially offset by a $4.8 million decrease in stock-based compensation costs, a $1.0 million decrease in first-year Sarbanes-Oxley implementation costs, a $0.9 million decrease in insurance expense, a $0.7 million decrease in transaction expense, and a $0.3 million decrease in facility and lease related expense.

Intangible Asset Amortization

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Intangible asset amortization $ 32,272 $ 31,095 $ 1,177 4 %

% of total revenues 12 % 12 %

Intangible asset amortization expense increased by $1.2 million, or 4%, to $32.3 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase in intangible asset amortization expense is primarily due to increased amortization expense from capitalized software.

Depreciation and Amortization Expense

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Depreciation and amortization $ 1,139 $ 1,321 $ (182) (14) %

% of total revenues — % 1 %

Depreciation and amortization expense decreased by $0.2 million, or 14%, to $1.1 million for the nine months ended September 30, 2023, as compared to the same period in 2022.

The decrease was primarily due to a decrease in depreciation and amortization from finance lease and furniture for the nine months ended September 30, 2023 as compared to the same period in 2022.

Goodwill Impairment Expense

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Goodwill Impairment Expense $ 46,984 $ — $ 46,984 nm

Goodwill impairment expense was $47.0 million for the nine months ended September 30, 2023 as compared to no goodwill impairment expense for the same period in 2022.

The increase in goodwill impairment expense was primarily due to record goodwill impairment for legacy Regulatory and Writing reporting unit as the carrying value exceeded its fair value.

Interest Expense

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Interest expense $ 17,046 $ 12,328 $ 4,718 38 %

% of total revenues 6 % 5 %

Interest expense increased by $4.7 million, or 38%, to $17.0 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase in interest expense was primarily due to an increase in market interest rates reflected on our term loan floating rate debt.

The increase in interest expense was partially offset by a $3.8 million gain from interest swap hedge activities.

Net other income

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Net other income $ (6,594) $ (6,217) $ (377) 6 %

% of total revenues (2) % (2) %

Net other income increased by $0.4 million to $6.6 million for the nine months ended September 30, 2023 as compared to the same period in 2022.

The increase in net other income was primarily due to a $6.1 million increase in interest income, partially offset by a $5.7 million remeasurement losses related to the fluctuation of foreign currency exchange rates.

Provision for Income Taxes

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2023 2022 $ %

(in thousands)

Provision for income taxes $ 142 $ 9,473 $ (9,331) (99) %

Effective income tax rate (0.3) % 63 %

Income tax expense was $0.1 million, resulting in an effective income tax rate of (0.3)% for the nine months ended September 30, 2023 as compared to an income tax expense of $9.5 million, or an effective income tax rate of 63%, for the same period in 2022.

Our income tax expense for the nine months ended September 30, 2023 and 2022 was primarily due to the tax effects of U.S.

pre-tax income, the relative mix of domestic and international earnings, the impact of non-

deductible items, adjustments to the valuation allowances, the effects of tax elections made for U.K.

earnings, and discrete tax items.

Net (Loss) income

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2024 2023 $ %

(in thousands)

Net (loss) income $ (42,901) $ 5,557 $ (48,458) (872) %

Net loss was $42.9 million, representing a $48.5 million decrease in net income for the nine months ended September 30, 2023, as compared to a net income of $5.6 million in the same period of 2022.

The decrease in net income was primarily due to a $47.0 million increase in goodwill impairment charge, a $11.3 million increase in expense related to change in the fair value of contingent considerations, a $6.2 million increase in cost of revenue, a $5.7 million remeasurement losses related to the fluctuation of foreign currency exchange rates, a $4.7 million increase in other operating expense items, a $4.7 million increase in interest expense, and a $1.6 million increase in lease abandonment expense, partially offset by a $17.3 million increase in total revenue, a $9.3 million decrease in tax expense, a $6.1 million increase in interest income.

Net income (loss) $ (4,683) $ 1,358 $ (6,041) 445 %

Net loss was $4.7 million representing a $6.0 million change in net income for the three months ended March 31, 2024 as compared to a net income of $1.4 million for the same period of 2023.

The decrease in net income was primarily due to a $10.7 million increase in operating expense, a $4.4 million increase in cost of revenue, partially offset by a $6.4 million increase in revenue, a $1.9 million decrease in tax expense, and a $0.8 million increase in total other income.

Liquidity and Capital Resources

We have consistently generated positive cash flow from operations, providing $59.4 million and $57.1 million as a source of funds for the nine months ended September 30, 2023 and 2022, respectively.

We have consistently generated positive cash flow from operations, providing $4.3 million and $10.0 million as a source of funds for the three months ended March 31, 2024 and 2023, respectively.

Our additional liquidity comes from several sources:

maintaining adequate balances of cash and cash equivalents, issuing common stock, and accessing credit facilities and revolving lines of credit.

The following table provides a summary of the major sources of liquidity for the nine and twelve months periods ended at September 30, 2023 and December 31, 2022 and as of September 30, 2023 and December 31, 2022.

September 30, 2023 December 31, 2022

The following table provides a summary of the major sources of liquidity for the three and twelve months periods ended at March 31, 2024 and December 31, 2023 and as of March 31, 2024 and December 31, 2023.

March 31, 2024 December 31, 2023

(in thousands)

Net cash from operating activities (a)

59,429 92,543

Cash and cash equivalents (b)

1 unchanged sentence

Term loan credit facilities 293,695 294,450

Revolving line of credit (c)

100,000 100,000

Gross revolving line of credit 100,000 100,000

___________________________________

(a) Net cash from operating activities for nine months ended at September 30, 2023 and twelve months ended at December 31, 2022.

(b) Cash balance as of September 30, 2023 and December 31, 2022 included $70.0 million and $56.4 million cash and cash equivalents, respectively, held outside of the United States.

(c) Available borrowings under the revolving lines of credits as of September 30, 2023 and December 31, 2022 were reduced by $0.1 million and $0.1 million standby letters of credit issued to a landlord in lieu of a security deposit in addition to any outstanding borrowings.

(a) Net cash from operating activities for three months ended at March 31, 2024 and twelve months ended at December 31, 2023.

(b) Cash balance as of March 31, 2024 and December 31, 2023 included $46.2 million and $47.3 million cash and cash equivalents, respectively, held outside of the United States.

Our material cash requirements from known contractual obligations are principal and interest payments of long-term debt.

We also have future cash obligations of $18.7 million for lease contracts, which have remaining terms of one to six years.

The principal amount of long-term debt outstanding as of September 30, 2023 matures in the following years:

The principal amount of long-term debt outstanding as of March 31, 2024 matures in the following years:

Remainder of 2024 2025 2026 TOTAL

8 unchanged sentences

The following table presents a summary of our cash flows for the periods shown:

NINE MONTHS ENDED SEPTEMBER 30,

THREE MONTHS ENDED MARCH 31,

(in thousands)

3 unchanged sentences

Effect of foreign exchange rate changes on cash and cash equivalents, and restricted cash (546) 1,174

Net increase in cash and cash equivalents, and restricted cash $ 32,624 $ 27,159

Net increase ( decrease) in cash and cash equivalents, and restricted cash $ (10,175) $ 7,550

Cash paid for interest $ 5,395 $ 5,196

1 unchanged sentence

Operating Activities

Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions for credit losses, depreciation and amortization, stock-based compensation, deferred taxes and other non-cash items and (ii) changes in the balances of operating assets and liabilities.

Net cash provided by operating activities in the first nine months of 2023 was $59.4 million, compared to $57.1 million in the same period of 2022.

The $2.4 million increase in cash from operating activities was primarily due to higher cash collections from accounts receivable, reduced cash payments for accounts payable and accrued expenses, and partially offset by increased cash utilization for obtaining prepaid and other assets, as well as higher payments for taxes and interest.

Our cash flows from operating activities primarily include net income adjusted for (i) non-cash items included in net income, such as provisions (recoveries) for credit losses, depreciation and amortization, stock-based compensation, deferred taxes and other non-cash items and (ii) changes in the balances of operating assets and liabilities.

Net cash provided by operating activities in the first three months of 2024 was $4.3 million, compared to $10.0 million in the same period of 2023.

The $5.7 million decrease in cash from operating activities was primarily driven by decrease in cash-adjusted net income, reduced cash inflows from deferred

revenues, more cash utilized for acquiring prepaid and other assets, and increased payments for accounts payable, accrued expenses, and other liabilities, partially offset by higher cash collected from accounts receivable.

Investing activities

Net cash used in investing activities in the first nine months of 2023 was $18.5 million, an increase of $3.3 million, compared to $15.2 million in the same period of 2022.

The change in investing activities was primarily due to a $1.7 million increase in cash payments in connection with business acquisitions, and a $1.9 million increase in cash utilized in capitalized development costs, partially offset by a $0.4 million decrease in cash utilized in capital expenditures to support our growth.

Net cash used by investing activities in the first three months of 2024 was $3.6 million, an increase of $0.8 million, compared to $2.7 million in the same period of 2023.

The change in investing activities was primarily due to a $0.6 million increase in cash utilized in capitalized development costs and a $0.3 million increase in cash utilized in capital expenditures to support our growth.

Financing Activities

Net cash used in financing activities in the first nine months of 2023 was $8.2 million, compared to $6.4 million cash used in the same period of 2022.

The $1.8 million decrease in cash flow in financing activities was primarily due to a $3.1 million increase in cash payments in connection with share awards vested and withheld for payroll tax, partially offset by a $1.1 million decrease in cash payments on the financing component of the interest rate swap.

Net cash used by financing activities in the first three months of 2024 was $10.3 million, compared to $0.9 million cash used in the same period of 2023.

The $9.5 million decrease in cash flow in financing activities was primarily due to an $8.6 million increase in cash payments for contingent consideration related to business acquisition, and a $0.9 million increase in cash payments associated with share awards vested and withheld for payroll tax.

We have been a party to a Credit Agreement since August 2017 that provided for a senior secured term loan and commitments under a revolving credit facility.

The Company and the lenders modified the Credit Agreement on June 17, 2021, which provides for, among other things, (i) the extension of the termination date applicable to the revolving credit commitments under the Credit Agreement to August 2025, (ii) the extension of the maturity date applicable to the term loans under the Credit Agreement to August 2026, and (iii) an increase of approximately $80,000 in commitments available under the revolving line of credit (resulting in an aggregate amount of commitments of $100,000).

The term loan under the modified Credit Agreement has substantially the same terms as the existing term loans and revolving credit commitments.

The Credit Agreement is collateralized by substantially all U.S.

assets and stock pledges for the non-U.S.

subsidiaries and contains various financial and nonfinancial covenants.

Borrowings under the Credit Agreement were subject to a variable interest rate at LIBOR plus a margin.

The applicable margins were based on achieving certain levels of compliance with financial covenants.

We signed a LIBOR transition amendment on June 26, 2023 to adopt a new benchmark interest rate, SOFR, determined in accordance with the Credit Agreement to replace LIBOR.

In order to make SOFR similar to LIBOR in terms of the overall interest rate being earned by the lenders under the Credit Agreement, a Credit Spread Adjustment (“CSA”) is added to the SOFR.

We and our lenders most recently modified the Credit Agreement on June 17, 2021.

The maturity date of the term loans under the Credit Agreement is August 2026;

the termination date of the revolving credit commitments is August 2025.

Borrowings under the Credit Agreement bear interest at a rate per annum equal to either (i) the Eurocurrency rate, with a floor of 0.00%, as adjusted for the reserve percentage required under regulations issued by the Federal Reserve Board for determining maximum reserve requirements with respect to Eurocurrency funding, plus an applicable margin rate of 3.50% for the term loan and between 4.00% and 3.50% for revolving credit loans, depending on the applicable first lien leverage ratio, or (ii) an alternative base rate (“ABR”), with a floor of 1.00%, plus an applicable margin rate of 2.50% for the term loan or between 3.00% and 2.50% for revolving credit loans, depending on the applicable first lien leverage ratio (with the ABR determined as the greatest of (a) the prime rate, (b) the federal funds effective rate, plus 0.50%), and (c) the Eurocurrency rate plus 1.00%.

Additionally, we are obligated to pay commitment fees and other customary fees under the revolving credit facility.

In response to the discontinuation of LIBOR, we executed a LIBOR transition amendment in June 2023, formalizing the replacement of LIBOR with the Secured Overnight Funding Rate (“SOFR”).

As part of this modification, a Credit Spread Adjustment (“CSA”) was introduced to aligning SOFR with LIBOR in terms of the overall interest rate earned by lenders under the Credit Agreement.

The CSA varied depending on the selected interest period.

Additionally, we are obligated to pay under the revolving credit facility (i) a commitment fee of between 0.50% and 0.25% per annum of the unused amount of the revolving credit facility, depending on the applicable first lien leverage ratio, (ii) customary letter of credit issuance and participation fees, and (iii) other customary fees and expenses of the letter of credit issuers.

All obligations under the Credit Agreement are unconditionally guaranteed by our wholly owned direct and indirect subsidiaries, subject to certain exceptions.

All obligations under the Credit Agreement, and the guarantees of those obligations, are secured on a first lien basis, subject to certain exceptions, by substantially all of our assets and the assets of the other guarantors.

As of September 30, 2023, we had $295.2 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement, and outstanding letters of credit of $0.1 million under the Credit Agreement.

As of September 30, 2023, we were in compliance with the covenants of the Credit Agreement.

As of March 31, 2024, we were in compliance with the covenants of the Credit Agreement.

As of March 31, 2024, we had $293.7 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement.

Contractual Obligations and Commercial Commitments

There have been no material changes to our contractual obligations during the nine months ended September 30, 2023 from those disclosed in our 2022 Annual Report, except for payments made in the ordinary course of business.

We recorded income tax expense of $0.1 million for the nine months ended September 30, 2023 and income tax expense of $9.5 million for the nine months ended September 30, 2022.

As of September 30, 2023, we had federal and state NOLs of approximately $1.8 million and $0.05 million, respectively, which are available to reduce future taxable income and expire between 2024 and 2036 and 2029 and 2040, respectively.

We had federal and state R&D tax credit carryforwards of approximately $0.4 million and $0.1 million, respectively, to offset future income taxes, which expire between 2025 and 2042.

There have been no material changes to our contractual obligations during the three months ended March 31, 2024 from those disclosed in our 2023 Annual Report, except for payments made in the ordinary course of business.

We recorded income tax benefit of $0.8 million for the three months ended March 31, 2024 and income tax expense of $1.1 million for the three months ended March 31, 2023.

As of March 31, 2024, we had federal and state NOLs of approximately $1.6 million and $0.04 million, respectively, which are available to reduce future taxable income and expire between 2035 and 2036 and 2029 and 2040, respectively.

We had federal and state R&D tax credit carryforwards of approximately $0.3 million and $0, respectively, to offset future income taxes, which expire between 2027 and 2028.

We also had foreign tax credits of approximately $13.8 million, which will start to expire in 2027.

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Our carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

As required by ASC Topic 740, Income Taxes, our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are composed principally of NOL carryforwards, Section 174

carryforwards, investment tax credit carryforward, and foreign tax credit carryforwards.

As required by Accounting Standards Codification (‘‘ASC’’) Topic 740, Income Taxes, our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are composed principally of NOL carryforwards, Section 174 carryforwards, investment tax credit carryforward, and foreign tax credit carryforwards.

Management has determined that it is more likely than not that we will not realize the benefits of foreign tax credit carryforwards.

At the foreign subsidiaries, management has determined that it is more likely than not that we will not realize the benefits of certain NOL carryforwards.

As a result, a valuation allowance of $25.7 million is recorded at December 31, 2022.

As of September 30, 2023, the valuation allowance remained unchanged from December 31, 2022.

As a result, a valuation allowance of $31.5 million was recorded at December 31, 2023.

As of March 31, 2024, the valuation allowance remained unchanged from December 31, 2023.

Off-Balance Sheet Arrangements

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Actual results could differ materially from those estimates and assumptions.

We discussed the accounting policies that we believe are most critical to the portrayal of our results of operations and financial condition and require management’s most difficult, subjective and complex judgments in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2022 Annual Report.

There were no significant changes to our critical accounting estimates during the three months ended September 30, 2023.

We discussed the accounting policies that we believe are most critical to the

portrayal of our results of operations and financial condition and require management’s most difficult, subjective and complex judgments in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our 2023 Annual Report.

There were no significant changes to our critical accounting estimates during the three months ended March 31, 2024.

Recently Adopted and Issued Accounting Standards

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For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of the Company’s 2023 Annual Report.

There were no material changes to the Company’s market risk exposure during the nine months ended September 30, 2023.

There were no material changes to the Company’s market risk exposure during the three months ended March 31, 2024.

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