What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-06 · 182 added, 171 removed, 346 unchanged (51% of the section changed)

3 unchanged sentences

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.

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 section “Special Note Regarding Forward-Looking Statements” of this Quarterly Report.

We intend the discussion of our financial condition and results of operations that follows to provide information that will assist the reader in understanding our condensed consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies, and estimates affect our condensed consolidated financial statements.

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The pharmaceutical industry spends more than $260 billion annually on research and development (“R&D”).

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

Generally, companies spend an average of $6.2 billion per US Food and Drug Administration ("FDA") approved drug according to "Analysis of pharma R&D productivity - a new perspective needed" on Drug Discovery Today.

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

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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.

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.

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

Q1 Q2 Q3 Q1 Q2 Q3

(in millions except percentage)

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We believe that the 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, 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, 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, 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.

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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Other companies, including those in our industry, may not use these measures and may calculate them differently than those presented, limiting the usefulness as a comparative measure.

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

THREE MONTHS ENDED

JUNE 30, SIX MONTHS ENDED

The following table reconciles net loss to adjusted EBITDA:

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

2024 2023 2024 2023

(in thousands)

Net income (loss)(a) $ (12,574) $ 4,706 $ (17,257) $ 6,064

Net loss(a) $ (1,371) $ (48,965) $ (18,628) $ (42,901)

Interest expense(a) 5,187 5,903 16,516 17,046

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Change in fair value of contingent consideration(d) 2,431 8,757 8,092 11,316

Acquisition-related expenses(e) 1,073 692 2,787 1,884

Integration expense(f) — 55 — 157

Transaction - related expenses (g) 2,753 — 2,753 —

Severance expense(h) 183 — 183 —

Reorganization expense(i) 2,163 — 2,214 —

Loss on disposal of fixed assets(j) 13 25 13 29

Executive recruiting expense(k) 43 200 423 396

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

Acquisition-related expenses(f) 1,364 1,392 4,151 3,276

Integration expense(g) — 33 — 190

Transaction - related expenses (h) (128) — 2,625 —

Severance expense(i) — — 183 —

Reorganization expense(j) 1,730 1,602 3,944 1,602

Loss on disposal of fixed assets(k) — — 13 29

Executive recruiting expense(l) 222 — 645 396

Adjusted EBITDA $ 33,061 $ 28,844 $ 88,522 $ 93,523

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

THREE MONTHS ENDED

JUNE 30, SIX MONTHS ENDED

The following table reconciles net loss to adjusted net income:

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

2024 2023 2024 2023

(in thousands)

Net income (loss) (a) $ (12,574) $ 4,706 $ (17,257) $ 6,064

Net loss (a) $ (1,371) $ (48,965) $ (18,628) $ (42,901)

Currency (gain) loss(a) 1,546 (2,179) 2,526 (165)

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Change in fair value of contingent consideration(d) 2,431 8,757 8,092 11,316

Acquisition-related expenses(e) 1,073 692 2,787 1,884

Integration expense(f) — 55 — 157

Transaction - related expenses (g) 2,753 — 2,753 —

Severance expense(h) 183 — 183 —

Reorganization expense(i) 2,163 — 2,214 —

Loss on disposal of fixed assets(j) 13 25 13 29

Executive recruiting expense(k) 43 200 423 396

Income tax expense impact of adjustments(l) (8,273) (4,602) (15,362) (10,097)

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

Acquisition-related expenses(f) 1,364 1,392 4,151 3,276

Integration expense(g) — 33 — 190

Transaction - related expenses (h) (128) — 2,625 —

Severance expense(i) — — 183 —

Reorganization expense(j) 1,730 1,602 3,944 1,602

Loss on disposal of fixed assets(k) — — 13 29

Executive recruiting expense(l) 222 — 645 396

Income tax expense impact of adjustments(m) (7,079) (10,572) (22,442) (20,669)

Adjusted net income $ 20,253 $ 17,074 $ 48,193 $ 54,748

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

THREE MONTHS ENDED

JUNE 30, SIX MONTHS ENDED

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

2024 2023 2024 2023

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Change in fair value of contingent consideration(d) 0.02 0.05 0.05 0.07

Acquisition-related expenses(e) 0.01 0.01 0.02 0.01

Integration expense(f) — — — —

Transaction - related expenses (g) 0.02 — 0.02 —

Severance expense(h) — — — —

Reorganization expense(i) 0.01 — 0.01 —

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

Executive recruiting expense(k) — — — —

Income tax expense impact of adjustments(l) (0.05) (0.03) (0.10) (0.06)

Goodwill impairment expense(e) — 0.30 — 0.30

Acquisition-related expenses(f) 0.01 0.01 0.03 0.02

Integration expense(g) — — — —

Transaction - related expenses (h) — — 0.02 —

Severance expense(i) — — — —

Reorganization expense(j) 0.01 0.01 0.02 0.01

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

Executive recruiting expense(l) — — — —

Income tax expense impact of adjustments(m) (0.04) (0.07) (0.14) (0.13)

Adjusted diluted earnings per share $ 0.13 $ 0.11 $ 0.30 $ 0.34

Basic weighted average common shares outstanding 160,642,052 159,165,206 160,225,375 158,769,638

Effect of potentially dilutive shares outstanding (m) 961,455 951,150 925,274 1,249,113

Effect of potentially dilutive shares outstanding (n) 323,745 742,488 723,301 1,078,382

Adjusted diluted weighted average common shares outstanding 160,965,797 159,907,694 160,948,676 159,848,020

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

(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 costs associated with our public offerings that are not capitalized, as well as debt issuance costs that are not deferred or treated as a contra-liability directly deducted from the carrying value of the associated debt liability.

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

(i) Represents expenses related to reorganization, including legal entity reorganization and lease abandonment costs associated with the evaluation of our office space footprint.

(j) Represents the gain or loss related to the disposal of fixed assets.

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

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

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

(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, as well as debt issuance costs that are not deferred or treated as a contra-liability directly deducted from the carrying value of the associated debt liability.

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

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

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

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

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

(n) 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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Cost of Revenues

Cost of revenues consists primarily of employee related expenses, equity-based compensation, the costs of third-party subcontractors, travel costs, distributor fees, amortization of capitalized software, and allocated overhead.

We may add or expand computing infrastructure service providers, make additional investments in the availability and security of our solutions, or add resources to support our growth.

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• Sales and Marketing .

Sales and marketing expenses consist primarily of employee-related expenses, equity-based compensation, sales commissions, brand development, advertising, travel-related

expenses, and industry conferences and events.

Sales and marketing expenses consist primarily of employee-related expenses, equity-based compensation, sales commissions, brand development, advertising, travel-related expenses, and industry conferences and events.

We plan to continue to invest in sales and marketing to increase penetration of our existing client base and expand to new clients.

• Research and Development .

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

R&D expense consist primarily of employee-related expenses, equity-based compensation, third-party consulting, 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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Business Combinations

Since 2013 and as of June 30, 2024, we have completed 20 acquisitions, of which 13 have included software or technology.

Since 2013 and as of September 30, 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.

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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 trademarks, 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 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 June 30, 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).

At September 30, 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")

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

During the six months ended June 30, 2024, the Company made payments of $1.8 million on contingent consideration.

At June 30, 2024 the contingent consideration related to revenues was remeasured to zero, resulting in a negative fair value remeasurement and adjustment of $1.9 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

During the nine months ended September 30, 2024, the Company made payments of $1.8 million on contingent consideration.

At September 30, 2024 the contingent consideration related to revenues was remeasured to zero, resulting in a negative fair value remeasurement of $1.9 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

Applied BioMath, LLC ("ABM")

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

At June 30, 2024, the contingent consideration was remeasured to $4.7 million, resulting in a negative fair value adjustment of $0.7 million and recorded in G&A on the accompanying condensed consolidated statement of operations and comprehensive income (loss).

During the nine months ended September 30, 2024, the Company made payments of $4.7 million on contingent

consideration.

At September 30, 2024, the contingent consideration was remeasured to zero, resulting in a negative fair value adjustment of $0.7 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 liabilities and included in accrued expenses and other long-term liabilities on our condensed consolidated balance sheet.

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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.

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 condensed consolidated financial statements with effect from the date of the acquisitions.

For more information about our acquisitions, see Note 4.

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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 six months ended June 30, 2024 to the three and six months ended June 30, 2023, respectively.

Three Months Ended June 30, 2024 Versus Three Months Ended June 30, 2023

The following table summarizes our unaudited statements of operations data for the three months ended at June 30, 2024 and 2023:

THREE MONTHS ENDED JUNE 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 and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023, respectively.

Three Months Ended September 30, 2024 Versus Three Months Ended September 30, 2023

The following table summarizes our unaudited statements of operations data for the three months ended at September 30, 2024 and 2023:

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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Total revenues $ 94,820 $ 85,576 $ 9,244 11 %

Total revenues increased $2.9 million, or 3%, to $93.3 million for the three months ended June 30, 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 $4.5 million, or 13%, to $38.2 million for the three months ended June 30, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers and expanding relationships with customers.

Services revenues decreased $1.6 million, or 3%, to $55.1 million for the three months ended June 30, 2024 as compared to the same period in 2023, primarily attributed to decrease in revenue from consulting services as compared to the same period in 2023.

Total revenues increased $9.2 million, or 11%, to $94.8 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The overall revenue growth was primarily due to an increase in our technology-enabled services and software product offerings, driven by strong demand from existing customers, client expansions, new customers, and business acquisitions.

Software revenues increased $4.6 million, or 15%, to $35.9 million for the three months ended September 30, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers and expanding relationships with customers, and business acquisitions.

Services revenues increased $4.7 million, or 9%, to $58.9 million for the three months ended September 30, 2024 as compared to the same period in 2023, primarily attributed to growth from business acquisitions continued growth in technology-enabled services with existing and new customers.

Cost of Revenues

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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Cost of revenues $ 37,189 $ 35,876 $ 1,313 4 %

Cost of revenues increased by $3.6 million, or 10%, to $39.8 million for the three months ended June 30, 2024 as compared to the same period in 2023.

The increase was primarily due to a $2.5 million increase in employee-related costs resulting from billable headcount growth, an $0.8 million increase in intangible assets amortization, a $0.5 million increase in stock-based compensation costs, and a $0.5 million increase in equipment and software expenses, partially offset by a $0.8 million decrease in consulting and professional costs.

Cost of revenues increased $1.3 million, or 4%, to $37.2 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The increase was primarily due to a $1.1 million increase in employee-related costs resulting from billable headcount growth, a $0.7 million increase in intangible assets amortization, a $0.5 million increase in equipment and software expenses, and a $0.3 million decrease in capitalized cost in R&D, partially offset by a $1.1 million decrease in consulting and professional costs, and a $0.2 million decrease in travel related expense.

Sales and Marketing Expenses

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 12 % 8 %

Sales and marketing expenses increased by $4.1 million, or 51%, to $12.2 million for the three months ended June 30, 2024 as compared to the same period in 2023.

Sales and marketing expenses increased primarily due to a $1.6 million increase in employee-related costs mainly resulting from head count growth driven by acquisitions along with investment to build the commercial organization, a $1.1 million increase in commission expenses, a $0.5 million increase in stock-based compensation costs, a $0.5 million increase in marketing expenses, a $0.2 million increase in professional and consulting expenses, a $0.1 million increase in travel expense, and a $0.1 million increase in equipment and software expense.

Sales and marketing expenses increased by $4.1 million, or 57%, to $11.3 million for the three months ended September 30, 2024 as compared to the same period in 2023.

Sales and marketing expenses increased primarily due to a $1.8 million increase in employee-related costs mainly resulting from head count growth driven by acquisitions along with investment to build the commercial organization, a $1.1 million increase in commission expenses, a $0.5 million increase in stock-based compensation costs, a $0.3 million increase in marketing expenses, a $0.2 million increase in professional and consulting expenses, and a $0.1 increase in travel expense.

Research and Development Expenses

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 9 % 10 %

Research and development expenses increased by $1.2 million, or 15%, to $9.1 million for the three months ended June 30, 2024 as compared to the same period in 2023.

The change in research and development expenses was primarily due to a $2.7 million increase in employee-related costs, mainly resulting from head count growth associated with investments in software development, including AI integration across our product portfolio, a $0.2 million increase in the equipment and software expense, and a $0.2 million increase in license expenses, partially offset by a $2.0 million increase in capitalized cost in R&D.

Research and development expenses decreased by $0.7 million, or 8%, to $8.3 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The decrease in research and development expenses was primarily due to a $1.9 million increase in capitalized cost in R&D, a $0.6 million decrease in stock-based compensation costs, partially offset by a $1.5 million increase in employee-related costs, mainly resulting from head count growth associated with investments in software development, including AI integration across our product portfolio, and a $0.3 million increase in the equipment and software expense.

General and Administrative Expenses

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 23 % 32 %

General and administrative expenses increased by $13.8 million, or 97%, to $28.1 million for the three months ended June 30, 2024 as compared to the same period in 2023.

The increase in general and administrative expenses was primarily due to a $5.0 million increase in stock-based compensation costs, a $1.0 million increase in employee-related costs primarily resulting from head count growth, a $2.6 million increase in transaction expense primarily related to refinancing of a term loan and a revolving line of credit, a $2.3 million increase in reorganization expense, a $1.5 million increase related to remeasurement changes in the fair value of contingent consideration, an $0.8 million increase in provision for credit allowance, and a $0.7 million increase in professional and consulting expenses.

General and administrative expenses decreased by $5.7 million, or 21%, to $22.0 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The decrease in general and administrative expenses was primarily due to a $6.3 million decrease related to remeasurement changes in the fair value of contingent consideration, a $0.6 million decrease in provision for credit allowance, a $0.6 million decrease in equipment & software expense, a $0.4 million decrease in stock-based compensation costs, and a $0.4 million decrease in lease abandonment expense, partially offset by a $1.6 million increase in employee-related costs primarily resulting from headcount growth and organizational restructure, and an $0.8 million increase in professional and consulting expenses.

Intangible Asset Amortization

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 14 % 13 %

Intangible asset amortization expense increased by $2.2 million, or 20%, to $12.7 million for the three months ended June 30, 2024 as compared to the same period in 2023.

Intangible asset amortization expense increased by $1.8 million, or 16%, to $13.0 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The increase in intangible asset amortization expense was primarily due to a $1.2 million increase in amortization in acquired intangible assets and a $0.6 million increase in amortization in capitalized software.

Depreciation and Amortization Expense

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues — % — %

Depreciation and amortization expense increased $0.1 million, to $0.5 million for the three months ended June 30, 2024 as compared to the same period in 2023.

Depreciation and amortization expense increased $0.1 million, to $0.4 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The increase in depreciation and amortization expense was primarily due to a $0.1 million increase in depreciation expense for computer equipment.

Goodwill Impairment Expense

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

(in thousands)

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

There was no goodwill impairment charge for the three months ended September 30, 2024.

Goodwill impairment expense was $47.0 million for the three months ended September 30, 2023.

The goodwill impairment expense in the previous year was primarily due to an impairment related to the legacy Regulatory and Writing reporting unit, as its carrying value exceeded its fair value.

Interest Expense

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 5 % 7 %

Interest expense of $5.6 million for the three months ended June 30, 2024, was nearly flat as compared to the same period in 2023.

The change in interest expense was primarily due to a $0.3 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 $0.3 million increase in gain from our interest swap hedge activities.

Net Other (Income ) Expense

THREE MONTHS ENDED JUNE 30, CHANGE

Interest expense decreased by $0.7 million, or 12%, to $5.2 million for the three months ended September 30, 2024, as compared to the same period in 2023.

The change in interest expense was primarily due to a $0.5 million decrease in interest from our floating rate term loan debt, primarily related to the base margin rate reduction from term loan refinancing, and a $0.2 million decrease related with the amortization of debt issuance cost.

Net Other Income

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Net other (income ) expense $ (2,350) $ (1,010) $ (1,340) 133 %

Net other income $ (932) $ (5,078) $ 4,146 (82) %

% of total revenues (1) % (6) %

Net other income increased by $1.3 million, to $2.4 million for the three months ended June 30, 2024 as compared to the same period in 2023.

The increase in net other income was primarily due to a $1.0 million remeasurement gain related to the fluctuation of the foreign currency rate and a $0.3 million increase in interest income.

Net other income decreased by $4.1 million, to $0.9 million for the three months ended September 30, 2024 as compared to the same period in 2023.

The decrease in net other income was primarily due to a $3.7 million increase in expense from remeasurement related to the fluctuation of the foreign currency rate and a $0.3 million decrease in interest income.

Provision (Benefit) for Income Taxes

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

2 unchanged sentences

Effective income tax rate 17 % 9 %

Our income tax expense was $0.3 million, resulting in an effective income tax rate of (2)% for the three months ended June 30, 2024 as compared to an income tax expense of $3.7 million, or an effective income tax rate of 44%, for the same period in 2023.

Our income tax expense for the three months ended June 30, 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 United Kingdom earnings, and discrete tax items.

Net Income (Loss)

THREE MONTHS ENDED JUNE 30, CHANGE

Our income tax benefit was $0.3 million, resulting in an effective income tax rate of 17% for the three months ended September 30, 2024 as compared to an income tax benefit of $4.6 million, or an effective income tax rate of 9%, for the same period in 2023.

Our income tax expense for the three months ended September 30, 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.

earnings, and discrete tax items.

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Net income (loss) $ (12,574) $ 4,706 $ (17,280) (367) %

Net loss was $12.6 million representing a $17.3 million change in net income for the three months ended June 30, 2024 as compared to a net income of $4.7 million for the same period of 2023.

The decrease in net income was primarily due to a $21.4 million increase in operating expense, a $3.6 million increase in cost of revenue, partially offset by a $2.9 million increase in revenue, a $3.4 million decrease in tax expense, and a $1.3 million increase in total other income.

Six Months Ended June 30, 2024 Versus Six Months Ended June 30, 2023

The following table summarizes our unaudited statements of operations data for the six months ended at June 30, 2024 and 2023:

SIX MONTHS ENDED JUNE 30, CHANGE

Net loss $ (1,371) $ (48,965) $ 47,594 (97) %

Net loss was $1.4 million representing a $47.6 million change in net income for the three months ended September 30, 2024 as compared to a net loss of $49.0 million for the same period of 2023.

The increase in net income was primarily due to a $47.4 million decrease in operating expense mainly related to a $47.0 million goodwill impairment charge recorded in the third quarter of 2023, a $9.2 million increase in revenue, and a $0.7 million decrease in interest expense, partially offset by a $4.1 million decrease in total other income, a $4.4 million decrease in tax benefit, and a $1.3 million increase in cost of revenue.

Nine Months Ended September 30, 2024 Versus Nine Months Ended September 30, 2023

The following table summarizes our unaudited statements of operations data for the nine months ended at September 30, 2024 and 2023:

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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Total revenues $ 284,787 $ 266,327 $ 18,460 7 %

Total revenues increased $9.2 million, or 5%, to $190.0 million for the six months ended June 30, 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 $10.8 million, or 16%, to $77.5 million for the six months ended June 30, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers and expanding relationships with customers.

Services revenues decreased $1.6 million, or 1% to $112.5 million for the six months ended June 30, 2024 as compared to the same period in 2023, primarily attributed to decrease in revenue from consulting service as compared to the same period in 2023.

Total revenues increased by $18.5 million, or 7%, to $284.8 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The overall increase in revenues was primarily due to growth in

our software product offerings, driven by strong demand from existing customers, client expansions, and new customers, as well as growth from our technology-enabled services and business acquisitions.

Software revenues increased $15.4 million, or 16%, to $113.4 million for the nine months ended September 30, 2024 as compared to the same period in 2023, primarily driven by strong demand within existing customers, client expansions, new customers, and growth from business acquisitions.

Services revenues increased $3.1 million, or 2% to $171.4 million for the nine months ended September 30, 2024 as compared to the same period in 2023, primarily attributed to increase in revenue from our technology-enabled services and business acquisitions.

Cost of Revenues

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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Cost of revenues $ 116,253 $ 106,956 $ 9,297 9 %

Cost of revenues increased by $8.0 million, or 11%, to $79.1 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The increase was primarily due to a $4.4 million increase in employee-related costs resulting from billable headcount growth, a $1.7 million increase in stock-based compensation costs, a $1.6 million increase in intangible assets amortization, a $1.0 million increase in equipment and software expenses, and a $0.2 million decrease in capitalized cost in R&D, partially offset by a $1.1 million decrease in professional and consulting expenses.

Cost of revenues increased by $9.3 million, or 9%, to $116.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The increase was primarily due to a $5.5 million increase in employee-related costs resulting from billable headcount growth, a $2.4 million increase in intangible assets amortization, a $1.8 million increase in stock-based compensation costs, a $1.5 million increase in equipment and software expenses, and a $0.5 million decrease in capitalized cost in R&D, partially offset by a $2.2 million decrease in professional and consulting expenses, and a $0.2 million decrease in cost related to license and service.

Sales and Marketing Expenses

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 12 % 9 %

Sales and marketing expenses increased by $6.8 million, or 42%, to $22.9 million for the six months ended June 30, 2024 as compared to the same period in 2023.

Sales and marketing expenses increased primarily due to a $2.6 million increase in employee-related costs mainly resulting from head count growth driven by acquisitions along with investment to build the commercial organization, a $1.8 million increase in commission expense, a $0.8 million increase in stock-based compensation costs, a $0.7 million increase in marketing expenses, a $0.4 million increase in travel expenses, a $0.3 million increase in professional and consulting expenses, and a $0.2 million increase in equipment and software expenses.

Sales and marketing expenses increased by $10.9 million, or 47%, to $34.2 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

Sales and marketing expenses increased primarily due to a $4.3 million increase in employee-related costs mainly resulting from head count growth driven by acquisitions along with investment to build the commercial organization, a $2.9 million increase in commission expense, a $1.3 million increase in stock-based compensation costs, a $1.0 million increase in marketing expenses, a $0.6 million increase in professional and consulting expenses, a $0.5 million increase in travel expenses, and a $0.3 million increase in equipment and software expenses.

Research and Development Expenses

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 10 % 10 %

Research and development expenses increased by $3.9 million, or 23%, to $21.1 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The change in research and development expenses was primarily due to a $5.7 million increase in employee-related costs, mainly resulting from head count growth associated with investments in software development, including AI integration across our product portfolio, a $0.4 million increase in the cost of licenses, a $0.4 million increase in equipment and software expense, partially offset by a $2.6 million increase in capitalized cost in R&D.

Research and development expenses increased by $3.2 million, or 12%, to $29.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The change in research and development expenses was primarily due to a $7.2 million increase in employee-related costs, mainly resulting from head count growth associated with investments in software development, including AI integration across our product portfolio, a $0.7 million increase in equipment and software expenses, and a $0.5 million increase in the cost of licenses, partially offset by a $4.4 million increase in capitalized cost in R&D, a $0.5 million decrease in stock-based compensation costs, and a $0.4 million decrease in professional and consulting expenses.

General and Administrative Expenses

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 26 % 23 %

General and administrative expenses increased by $17.0 million, or 50%, to $51.1 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The increase in general and administrative expenses was primarily due to a $2.1 million increase in employee-related costs primarily resulting from head count growth, a $4.1 million increase in stock-based compensation costs, a $3.1 million increase related to remeasurement changes in the fair value of contingent consideration, a $2.6 million increase in transaction expense primarily related to refinancing of our term loan and revolving line of credit, a $2.3 million increase in reorganization expense, a $1.0 million increase in provision for credit allowance, a $0.8 million increase in merger and acquisition expenses, a $0.6 million increase in professional and consulting expenses, and a $0.2 million increase in public company-related expenses.

General and administrative expenses increased by $11.3 million, or 18%, to $73.1 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The increase in general and administrative expenses was primarily due to a $6.1 million increase in in employee-related costs, mainly resulting from headcount growth and organizational restructuring, a $3.7 million increase in stock-based compensation costs, a $2.4 million increase in transaction expense primarily related to refinancing of our term loan and revolving line of credit, a $1.4 million increase in professional and consulting expenses, a $0.6 million increase in merger and acquisition expenses, a $0.3 million increase in provision for credit allowance, a $0.3 million increase in public company-related expense, and a $0.2 million increase in executive recruiting, partially offset by a $3.2 million decrease related to remeasurement changes in the fair value of contingent consideration, and a $0.5 million decrease in equipment and software expenses.

Intangible Asset Amortization

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

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% of total revenues 13 % 12 %

Intangible asset amortization expense increased by $4.2 million, or 20%, to $25.3 million for the six months ended June 30, 2024, as compared to the same period in 2023.

Intangible asset amortization expense increased by $6.0 million, or 19%, to $38.3 million for the nine months ended September 30, 2024, as compared to the same period in 2023.

The increase in intangible asset amortization expense was primarily due to a $3.8 million increase in amortization in acquired intangible assets and a $2.2 million increase in amortization in capitalized software.

Depreciation and Amortization Expense

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues — % — %

Depreciation and amortization expense increased $0.1 million, to $0.9 million for the six months ended June 30, 2024 as compared to the same period in 2023.

Depreciation and amortization expense increased $0.2 million, to $1.3 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The increase in depreciation and amortization expense was primarily due to an increase in depreciation expense for computer equipment.

Goodwill Impairment Expense

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

(in thousands)

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

There was no goodwill impairment charge for the nine months ended September 30, 2024.

Goodwill impairment expense was $47.0 million for the nine months ended September 30, 2023.

The goodwill impairment charge in the previous year was primarily due to an impairment related to the legacy Regulatory and Writing reporting unit, as its carrying value exceeded its fair value.

Interest Expense

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

2 unchanged sentences

% of total revenues 6 % 6 %

Interest expense increased by $0.2 million, or 2%, to $11.3 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The increase in interest expense was primarily due to a $1.1 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 $0.8 million increase in gain from our interest swap hedge activities.

Net Other (Income ) Expense

SIX MONTHS ENDED JUNE 30, CHANGE

Interest expense decreased by $0.5 million, or 3%, to $16.5 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The decrease in interest expense was primarily due to a $0.8 million increase in gain from our interest swap hedge activities, and a $0.3 million decrease in amortization of debt issuance costs, partially offset by a $0.6 million increase in interest expense from term loan debt.

Net Other Income

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Net other (income ) expense $ (3,954) $ (1,516) $ (2,438) 161 %

Net other income $ (4,886) $ (6,594) $ 1,708 (26) %

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

Net other income increased by $2.4 million, or 161%, to $4.0 million for the six months ended June 30, 2024 as compared to the same period in 2023.

The increase in net other income was primarily due to a $1.5 million

increase in interest income, primarily from cash investments, and a $1.0 million remeasurement gain related to the fluctuation of the foreign currency rate.

Net other income decreased by $1.7 million, or 26%, to $4.9 million for the nine months ended September 30, 2024 as compared to the same period in 2023.

The decrease in net other income was primarily due to a $2.7 million in remeasurement loss related to the fluctuation of the foreign currency rate, partially offset by a $1.2 million increase in interest income, primarily from cash investments.

Provision (Benefit) for Income Taxes

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

2 unchanged sentences

Effective income tax rate 4 % (0.3) %

Our income tax benefit was $0.4 million, resulting in an effective income tax rate of 3% for the six months ended June 30, 2024 as compared to an income tax expense of $4.8 million, or an effective income tax rate of 44% for the same period in 2023.

Our income tax expense for the six months ended June 30, 2024 and 2023 was primarily due to the tax effects of U.S.

Net Income (Loss)

SIX MONTHS ENDED JUNE 30, CHANGE

Our income tax benefit was $0.7 million, resulting in an effective income tax rate of 4% for the nine months ended September 30, 2024 as compared to an income tax expense of $0.1 million, or an effective income tax rate of (0.3)% for the same period in 2023.

Our income tax expense for the nine months ended September 30, 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.

earnings, and discrete tax items.

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Net income (loss) $ (17,257) $ 6,064 $ (23,321) 385 %

Net loss was $17.3 million representing a $23.3 million change in net income for the six months ended June 30, 2024 as compared to a net income of $6.1 million for the same period of 2023.

The decrease in net income was primarily due to a $32.0 million increase in operating expense, a $8.0 million increase in cost of revenue, partially offset by a $9.2 million increase in revenue, a $5.2 million decrease in tax expense, and a $2.4 million increase in total other income.

Net loss $ (18,628) $ (42,901) $ 24,273 57 %

Net loss was $18.6 million representing a $24.3 million change in net income for the nine months ended September 30, 2024 as compared to a net loss of $42.9 million for the same period of 2023.

The increase in net income was primarily due to a $18.5 million increase in revenue, $15.4 million decrease in operating expense, a $0.9 million decrease in tax expense, and a $0.5 million decrease in interest income, partially offset by a $9.3 million increase in cost of revenue, and a $1.7 million decrease in other income.

Liquidity and Capital Resources

We have consistently generated positive cash flow from operations, providing $14.1 million and $28.0 million as a source of funds for the six months ended June 30, 2024 and 2023, respectively.

We have consistently generated positive cash flow from operations, providing $31.1 million and $59.4 million as a source of funds for the nine months ended September 30, 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 six and twelve months periods ended at June 30, 2024 and December 31, 2023 and as of June 30, 2024 and December 31, 2023.

June 30, 2024 December 31, 2023

The following table provides a summary of the major sources of liquidity for the nine and twelve months periods ended at September 30, 2024 and December 31, 2023 and as of September 30, 2024 and December 31, 2023.

SEPTEMBER 30, 2024 DECEMBER 31,

(dollars in thousands)

6 unchanged sentences

___________________________________

(a) Net cash from operating activities for six months ended at June 30, 2024 and twelve months ended at December 31, 2023.

(b) Cash balances a June 30, 2024 and December 31, 2023 included $42.5 million and $47.3 million in cash and cash equivalents, respectively, held outside of the United States.

(a) Net cash from operating activities for nine months ended at September 30, 2024 and twelve months ended at December 31, 2023.

(b) Cash balances a September 30, 2024 and December 31, 2023 included $129.7 million and $47.3 million in cash and cash equivalents, respectively, held outside of the United States.

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

We also have future cash obligations of $17.3 million for lease contracts, which have remaining terms of one to six years.

The principal amount of long-term debt outstanding as of June 30, 2024 matures in the following years:

The principal amount of long-term debt outstanding as of September 30, 2024 matures in the following years:

Remainder of 2024 2025 2026 2027 2028 Thereafter TOTAL

4 unchanged sentences

Our expected primary uses on a short-term and long-term basis are for repayment of debt, interest payments, working capital, capital expenditures, geographic or service offering expansion, acquisitions, investments, and other general corporate purposes.

We believe we will meet short- and long-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions.

We believe we will meet short-term and long-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and potential future equity or debt transactions.

Our future capital requirements, however, will depend on many factors, including funding for potential acquisitions, investments, and other growth and strategic opportunities, which could increase our cash requirements.

1 unchanged sentence

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

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

(in thousands)

8 unchanged sentences

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 six months of 2024 was $14.1 million, compared to $28.0 million in the same period of 2023.

The $13.9 million decrease in cash from operating activities was primarily driven by a decrease in cash-adjusted net income, an increase in accounts receivable, and an increase in cash used to obtain prepaid and other assets, partially offset by increased cash inflows from deferred revenues.

Net cash provided by operating activities in the first nine months of 2024 was $31.1 million, compared to $59.4 million in the same period of 2023.

The $28.3 million decrease in cash from operating activities was primarily driven by a decrease in cash-adjusted net income, an increase in accounts receivable, an increase in cash used to obtain prepaid and other assets, and an increase in payment for accounts payable, accrued expense and other liabilities, partially offset by increased cash inflows from deferred revenues.

Investing activities

Net cash used by investing activities in the first six months of 2024 was $9.7 million, a decrease of $4.8 million, compared to $14.5 million in the same period of 2023.

The change in investing activities was primarily due to a $7.6 million decrease in cash used for business acquisition, partially offset by a $2.4 million increase in cash utilized in capitalized development costs and a $0.5 million increase in cash utilized in capital expenditures to support our growth.

Net cash used by investing activities in the first nine months of 2024 was $15.2 million, a decrease of $3.3 million, compared to $18.5 million in the same period of 2023.

The change in investing activities was primarily due to a $7.6 million decrease in cash used for business acquisition, partially offset by a $4.0 million increase in cash utilized in capitalized development costs and a $0.3 million in cash utilized in capital expenditures to support our growth.

Financing Activities

Net cash used by financing activities in the first six months of 2024 was $14.1 million, compared to $7.3 million in the same period of 2023.

The $6.8 million increase in cash outflow in financing activities was primarily due to a $10.4 million increase in cash payments for contingent consideration related to business acquisition, and a $2.3 million increase in cash payments associated with share awards vested and withheld for payroll tax, partially offset by a $5.1 million increase in cash proceeds net of debt issuance cost from refinancing of term loan debt, and an $0.8 million decrease in quarterly prepayment payment of term loan debt.

Net cash used by financing activities in the first nine months of 2024 was $19.7 million, compared to $8.2 million in the same period of 2023.

The $11.5 million increase in cash outflow in financing activities was primarily due to a $15.2 million increase in cash payments for contingent consideration related to business acquisitions, and a $2.2 million increase in cash payments associated with share awards vested and withheld for payroll tax, partially offset by a $5.1 million increase in cash proceeds net of debt issuance cost from refinancing of term loan debt, and a $0.8 million decrease in quarterly prepayment payment of term loan debt.

We have been a party to a Credit Agreement since August 2017 that provides for a senior secured term loan and commitments under a revolving credit facility (as amended, the “Credit Agreement”).

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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 June 30, 2024, we were in compliance with the covenants of the Credit Agreement.

As of June 30, 2024, we had $300.0 million of outstanding borrowings on the term loan, and $100.0 million of availability under the revolving credit facility under the Credit Agreement.

As of September 30, 2024, we were in compliance with the covenants of the Credit Agreement.

As of September 30, 2024, we had $299.3 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 six months ended June 30, 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 $0.4 million for the six months ended June 30, 2024 and income tax expense of $4.8 million for the six months ended June 30, 2023.

As of June 30, 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.

There have been no material changes to our contractual obligations during the nine months ended September 30, 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 $0.7 million for the nine months ended September 30, 2024 and income tax expense of $0.1 million for the nine months ended September 30, 2023.

As of September 30, 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.

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

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 carryforwards, 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.

1 unchanged sentence

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

As of June 30, 2024, the valuation allowance remained unchanged from December 31, 2023.

As of September 30, 2024, the valuation allowance remained unchanged from December 31, 2023.

Off-Balance Sheet Arrangements

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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 June 30, 2024.

There were no significant changes to our critical accounting estimates during the three months ended September 30, 2024.

Recently Adopted and Issued Accounting Standards

2 unchanged sentences

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 six months ended June 30, 2024.

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