What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-05 compared with 2024-11-06 · 146 added, 282 removed, 246 unchanged (64% of the section changed)

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Executive Overview

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

We are a global leader in 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.

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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 that add to the total cost.

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 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.

On average, the pharmaceutical industry spends more than $270 billion annually on research and development ("R&D").

Generally, companies spend an average of $6.2 billion per FDA-approved drug to develop one new medicine, including the cost of failures, 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 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.

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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.

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

The scientific principles underlying our work must be transparent and fully explainable during the regulatory process, so we have developed expertise in incorporating data and results into regulatory documents.

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 in 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.

For example, we are using machine learning to automate and speed the process of biosimulation, and we have created an AI application to aid in drafting 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 will be utilized broadly across drug development.

We deliver software and technology-enabled services.

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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 the 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, and the China Food and Drug Administration.

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

We have worked with more than 2,400 life sciences companies and academic institutions and have collaborated on more than 9,000 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 94,000 users and are also used by 23 global drug regulatory agencies, including the FDA and Japan’s Pharmaceuticals and Medical Devices Agency (the “PMDA”).

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.

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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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However, some changes in regulations, such as a relaxation in regulatory requirements or the introduction of streamlined or expedited approval procedures, or an increase in regulatory requirements that we have difficulty satisfying or that make our regulatory strategy services less competitive, could eliminate or substantially reduce the demand for our regulatory services.

Additionally, a new government administration may lead to either stricter or more relaxed regulatory environments.

Currently, the new U.S.

federal administration shows signs of reforming the pharmaceutical industry, particularly focusing on drug pricing and accelerated drug approval.

These changes are expected to potentially have a significant impact on the biopharmaceutical industries, creating a mix of opportunities and challenges for us.

In addition to the external regulatory environment, internally, we initiated a review process in 2024 to evaluate the long-term strategic options for our regulatory services business.

This review could result in several potential directions for the business, which could potentially have a significant impact on our operations.

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

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.

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 conditions

Uncertain macroeconomic conditions, including higher inflation, rising interest rates and instability in the financial system, geopolitical conflicts, and pandemics or other infectious disease outbreaks, may pose challenges to our business.

We believe that any impacts these conditions may have on our business would be transitory and we are well-equipped to manage them going forward.

Uncertain macroeconomic conditions, including higher inflation, rising interest rates and instability in the financial system, trade disputes, tariffs, changes in government funding, geopolitical conflicts, and pandemics or other infectious disease outbreaks, may pose challenges to our business.

Non-GAAP Measures

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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, 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, change in fair value of contingent consideration, acquisition, 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.

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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 loss to adjusted EBITDA:

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

2024 2023 2024 2023

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

THREE MONTHS ENDED MARCH 31,

(in thousands)

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

Net income (loss)(a) $ 4,743 $ (4,683)

Interest expense(a) 4,806 5,751

Interest income(a) (1,642) (2,574)

(Benefit from) Provision for income taxes(a) (290) (4,644) (736) 142

Benefit from income taxes(a) (201) (751)

Depreciation and amortization expense(a) 873 432

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Change in fair value of contingent consideration(d) (179) 2,878

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

Acquisition-related expenses(e) 876 1,714

Reorganization expense(f) 151 51

Loss on disposal of fixed assets(g) 6 —

Executive recruiting expense(h) 661 380

Adjusted EBITDA $ 34,843 $ 29,143

The following table reconciles net loss to adjusted net income:

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

2024 2023 2024 2023

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

THREE MONTHS ENDED MARCH 31,

(in thousands)

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

Net income (loss) (a) $ 4,743 $ (4,683)

Currency (gain) loss(a) (62) 876

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Change in fair value of contingent consideration(d) (179) 2,878

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)

Acquisition-related expenses(e) 876 1,714

Reorganization expense(f) 151 51

Loss on disposal of fixed assets(g) 6 —

Executive recruiting expense(h) 661 380

Income tax expense impact of adjustments(i) (5,071) (7,089)

Adjusted net income $ 22,247 $ 16,548

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

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

2024 2023 2024 2023

THREE MONTHS ENDED MARCH 31,

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

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

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)

Acquisition-related expenses(e) 0.01 0.01

Reorganization expense(f) — —

Loss on disposal of fixed assets(g) — —

Executive recruiting expense(h) — —

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

Adjusted diluted earnings per share $ 0.14 $ 0.10

Basic weighted average common shares outstanding 160,996,258 159,524,270

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

Effect of potentially dilutive shares outstanding (j) 354,034 889,094

Adjusted diluted weighted average common shares outstanding 161,350,292 160,413,364

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(a) Represents amounts as determined under GAAP.

(a) Represents a measure determined under GAAP.

(b) Represents expenses related to equity-based compensation.

Equity-based compensation has been, and will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.

Equity-based compensation has been, and we expect will continue to be for the foreseeable future, a recurring expense in our business and an important part of our compensation strategy.

(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, 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.

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

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

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

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

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

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

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

In addition to adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, management also uses organic revenue, a non-GAAP financial metric, to measure the growth of our existing business operations excluding the impact of acquisitions and divestitures.

Our definition of organic revenue may not be comparable to similarly titled measures used by other companies and is not a measure of performance presented in accordance with GAAP.

The table below presents revenue growth from organic operations and acquisitions:

THREE MONTHS ENDED MARCH 31, Growth

Q1 2025 vs Q1 2024

(in thousands except percentage)

Total revenues 106,004 10 %

Revenue related to acquisition (5,858) 6 %

Organic revenue 100,146 4 %

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

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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Business Combinations

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

Since 2013 and as of March 31, 2025, we have completed 21 acquisitions, of which 14 have included software or technology.

Details of acquisitions that have closed since the beginning of fiscal year 2024 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.

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

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

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")

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 the 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.

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")

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 a total estimated consideration of $36.6 million.

The business combination was not material to our condensed 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.

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.

The contingent considerations 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 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.

Chemaxon, Kft.

On October 1, 2024, we completed the acquisition of 100% of the equity of Chemaxon, a software company that develops leading software products for chemical structure drawing, property prediction, search, and analysis, for a total cash consideration of $96.4 million.

Based on our purchase price allocation, approximately $36.0 million, $11.0 million, $2.9 million, $0.3 million, and $49.4 million of the purchase price was assigned to developed technology, customer relationships, trademark, non-compete agreement, and goodwill, respectively.

The results of Chemaxon have been included in our consolidated results of operations and comprehensive income (loss) since the date of acquisition.

The current purchase price allocation for Chemaxon is preliminary.

The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of deferred taxes and residual goodwill.

The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired at the acquisition date 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.

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 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

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, 2025 to the three months ended March 31, 2024, respectively.

Three Months Ended March 31, 2025 Versus Three Months Ended March 31, 2024

The following table summarizes our unaudited statements of operations data for the three months ended at March 31, 2025 and 2024:

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

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Total revenues $ 106,004 $ 96,654 $ 9,350 10 %

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.

Total revenues increased $9.4 million, or 10%, to $106.0 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The overall revenue growth was primarily due to an increase in revenue from our technology-enabled services and software product offerings, driven by growth from business acquisition, which increased by $5.9 million, as well as strong demand from existing customers, expansion of relationships with existing customers and new customers.

Software revenues increased $7.1 million, or 18%, to $46.4 million for the three months ended March 31, 2025 as compared to the same period in 2024, primarily driven by by growth from business acquisition, which increased by $5.6 million, as well as strong demand within existing customers, and expansion of relationships with existing customers.

Services revenues increased $2.3 million, or 4%, to $59.6 million for the three months ended March 31, 2025 as compared to the same period in 2024, primarily attributed to continued growth in technology-enabled services with existing and new customers.

Cost of Revenues

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THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

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Cost of revenues $ 41,521 $ 39,255 $ 2,266 6 %

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.

Cost of revenues increased $2.3 million, or 6%, to $41.5 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase was primarily due to a $1.2 million increase in intangible assets amortization, a $0.6 million increase in licensing cost, and a $0.5 million increase related to executive recruiting expenses.

Sales and Marketing Expenses

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

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% of total revenues 12 % 11 %

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.

Sales and marketing expenses increased by $2.0 million, or 19%, to $12.7 million for the three months ended March 31, 2025 as compared to the same period in 2024.

Sales and marketing expenses increased primarily due to a $2.0 million increase in employee-related costs mainly resulting from head count growth driven by acquisitions along with investment to build the commercial organization, and a $0.2 million increase in stock-based compensation costs, partially offset by a $0.3 million decrease in travel related expenses.

Research and Development Expenses

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

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% of total revenues 10 % 12 %

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.

Research and development expenses decreased by $1.5 million, or 12%, to $10.5 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The decrease in research and development expenses was primarily due to a $2.3 million increase in capitalized cost in R&D, reflecting strategic investments, a $0.7 million decrease in stock-based compensation costs, and a $0.2 million decrease in licensing cost, partially offset by a $1.8 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.

General and Administrative Expenses

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2025 2024 $ %

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% of total revenues 19 % 24 %

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.

General and administrative expenses decreased by $3.3 million, or 14%, to $19.7 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The decrease in general and administrative expenses was primarily due to a $3.1 million decrease related to remeasurement changes in the fair value of contingent consideration, a $1.4 million decrease in stock-based compensation costs, and a $0.8 million increase in lease abandonment gains, and partially offset by a $0.7 million increase in employee-related costs primarily resulting from headcount growth and organizational restructure, a $0.5 million increase in business acquisition costs, a $0.3 million increase in provision for credit allowance, a $0.3 million increase in public company expenses and other miscellaneous expenses, and a $0.2 million increase in professional and consulting expenses.

Intangible Asset Amortization

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THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

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% of total revenues 12 % 13 %

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.

Intangible asset amortization expense increased by $0.5 million, or 4%, to $13.1 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase in intangible asset amortization expense was primarily due to a $1.0 million increase in amortization in capitalized software, and offset by a $0.5 million decrease in amortization from acquired intangible assets.

Depreciation and Amortization Expense

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2025 2024 $ %

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% of total revenues 1 % — %

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.

Depreciation and amortization expense increased $0.4 million, to $0.9 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase in depreciation and amortization expense was primarily due to a $0.5 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 SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

2 unchanged sentences

% of total revenues 5 % 6 %

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

Interest expense decreased by $0.9 million, or 16%, to $4.8 million for the three months ended March 31, 2025, as compared to the same period in 2024.

The change in interest expense was primarily due to a $1.3 million decrease in interest from our floating rate term loan debt, primarily due to a decline in market interest rates and a reduced base margin rate resulting from the refinancing of the term loan, and a $0.2 million decrease related with the amortization of debt issuance cost, partially offset by a $0.6 million decrease in gain from our interest swap hedge activities.

Net Other (Income) expense

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

(in thousands)

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

Net other (income) expense $ (1,725) $ (1,604) $ (121) 8 %

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

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 SEPTEMBER 30, CHANGE

Net other income increased by $0.1 million to $1.7 million for the three months ended March 31, 2025 as compared to the same period in 2024.

The increase in net other income was primarily due to a $0.9 million increase in gain from remeasurement related to the fluctuation of the foreign currency rate, along with a $0.1 million increase in miscellaneous income, partially offset by a $0.9 million decrease in interest income.

Benefit for Income Taxes

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

(in thousands)

Provision (benefit) for income taxes $ (290) $ (4,644) $ 4,354 (94) %

Benefit for Income Taxes $ (201) $ (751) $ 550 73 %

Effective income tax rate (4) % 14 %

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.

Our income tax benefit was $0.2 million, resulting in an effective income tax rate of (4)% for the three months ended March 31, 2025 as compared to an income tax benefit of $0.8 million, or an effective income tax rate of 14%, for the same period in 2024.

Our income tax benefit for the three months ended March 31, 2025 and 2024 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 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 $ %

(in thousands)

Software $ 113,426 $ 98,058 $ 15,368 16 %

Services 171,361 168,269 3,092 2 %

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

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

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

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Sales and marketing $ 34,247 $ 23,351 $ 10,896 47 %

% of total revenues 12 % 9 %

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Research and development $ 29,333 $ 26,155 $ 3,178 12 %

% of total revenues 10 % 10 %

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

General and administrative $ 73,080 $ 61,777 $ 11,303 18 %

% of total revenues 26 % 23 %

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Intangible asset amortization $ 38,286 $ 32,272 $ 6,014 19 %

% of total revenues 13 % 12 %

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Depreciation and amortization $ 1,322 $ 1,139 $ 183 16 %

% of total revenues — % — %

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

2024 2023 $ %

(in thousands)

Interest expense $ 16,516 $ 17,046 $ (530) (3) %

% of total revenues 6 % 6 %

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

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

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

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

Net Income (Loss)

THREE MONTHS ENDED MARCH 31, CHANGE

2025 2024 $ %

(in thousands)

Provision (benefit) for income taxes $ (736) $ 142 $ (878) (618) %

Effective income tax rate 4 % (0.3) %

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

Net income (loss)

$ 4,743 $ (4,683) $ 9,426 201 %

(in thousands)

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.

Net income was $4.7 million representing a $9.4 million increase in net income for the three months ended March 31, 2025 as compared to a net loss of $4.7 million for the same period of 2024.

The increase in net income was primarily due to a $9.4 million increase in revenue, a $1.8 million decrease in operating expenses, and a $1.1 million increase in total net other income, partially offset by a $2.3 million increase in cost of revenue, and a $0.6 million decrease in tax benefit.

Liquidity and Capital Resources

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.

We have consistently generated positive cash flow from operations, providing $17.4 million and $4.3 million as a source of funds for the three months ended March 31, 2025 and 2024, 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, 2024 and December 31, 2023 and as of September 30, 2024 and December 31, 2023.

SEPTEMBER 30, 2024 DECEMBER 31,

The following table provides a summary of the major sources of liquidity for the three and twelve months periods ended at March 31, 2025 and December 31, 2024 and as of March 31, 2025 and December 31, 2024.

MARCH 31, 2025 DECEMBER 31,

(dollars in thousands)

6 unchanged sentences

___________________________________

(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.

(a) Net cash from operating activities for three months ended at March 31, 2025 and twelve months ended at December 31, 2024.

(b) Cash balances as of March 31, 2025 and December 31, 2024 included $58.4 million and $45.8 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 September 30, 2024 matures in the following years:

We also have future cash obligations of $17.7 million for lease contracts, which have remaining terms of one to nine years.

The principal amount of long-term debt outstanding as of March 31, 2025 matures in the following years:

Remainder of 2025 2026 2027 2028 2029 Thereafter TOTAL

3 unchanged sentences

We believe our existing sources of liquidity will be sufficient to meet our working capital, capital expenditures, and contractual obligations for the foreseeable future.

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.

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-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.

2 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)

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 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.

Net cash provided by operating activities in the first three months of 2025 was $17.4 million, compared to $4.3 million in the same period of 2024.

The $13.1 million increase in cash from operating activities was primarily driven by an increase in cash-adjusted net income, a decrease in accounts receivable, and a lower cash outflows related to prepaid and other assets, partially offset by lower cash inflows from deferred revenues and increase in accrued expenses and other liabilities.

Investing Activities

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.

Net cash used by investing activities in the first three months of 2025 was $5.8 million, an increase of $2.2 million, compared to $3.6 million in the same period of 2024.

The change in investing activities was primarily due to a $2.2 million increase in cash utilized in capitalized software development costs to support our growth.

Financing Activities

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.

Net cash used by financing activities in the first three months of 2025 was $14.0 million, compared to $10.3 million in the same period of 2024.

The $3.6 million increase in cash outflow in financing activities was primarily due to a $4.6 million increase in cash payments for contingent consideration related to a business acquisition, partially offset by a $0.9 million decrease 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 provides for a senior secured term loan and commitments under a revolving credit facility (as amended, the “Credit Agreement”).

On June 26, 2024, we entered into the Fifth Amendment to the Credit Agreement (the 'Amendment'), primarily amended (1) the principal amount of the term loan to $300.0 million and the maturity date to June 26, 2031;

and (2) extending

the termination date of $100.0 million revolving credit commitment to June 26, 2029.

On June 26, 2024, we entered into the Fifth Amendment to the Credit Agreement (the “Amendment”), which primarily (1) amended the principal amount of the term loan to $300.0 million and the maturity date to June 26, 2031;

and (2) extended the termination date associated with the $100.0 million revolving credit commitment to June 26, 2029.

The term loan under this Amendment has substantially the same terms as the existing term loans and revolving credit commitments.

3 unchanged sentences

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, 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.

As of March 31, 2025, we were in compliance with the covenants of the Credit Agreement.

As of March 31, 2025, we had $297.8 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, 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.

There have been no material changes to our contractual obligations during the three months ended March 31, 2025 from those disclosed in our 2024 Annual Report, except for payments made in the ordinary course of business.

We recorded income tax benefit of $0.2 million for the three months ended March 31, 2025 and income tax benefit $0.8 million for the three months ended March 31, 2024.

As of March 31, 2025, we had federal and state NOLs of approximately $6.2 million and $4.9 million, respectively, which are available to reduce future taxable income and expire between 2035 and 2036 and 2029 and 2040, respectively.

We had federal R&D tax credit carryforwards of approximately $0.3 million to offset future income taxes, which expire between 2027 and 2048.

We also had foreign tax credits of approximately $11 million, which will start to expire in 2027.

2 unchanged sentences

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 carryforward, and foreign tax credit carryforwards.

As required by Accounting Standards Codification 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.

1 unchanged sentence

As a result, a valuation allowance of $24 million was recorded at December 31, 2024.

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

As of March 31, 2025, the valuation allowance remained unchanged from December 31, 2024.

Off-Balance Sheet Arrangements

1 unchanged sentence

Critical Accounting Estimates

Our accounting policies are more fully described in Note 2.

“Summary of Significant Accounting Policies,” in our audited consolidated financial statements included in our 2023 Annual Report.

Our accounting policies are more fully described in Note 2 “Summary of Significant Accounting Policies,” in our audited consolidated financial statements included in our 2024 Annual Report.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

2 unchanged sentences

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 2024 Annual Report.

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

There were no significant changes to our critical accounting estimates during the three months ended March 31, 2025.

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 2024 Annual Report.

There were no material changes to the Company’s market risk exposure during the nine months ended September 30, 2024.

There were no material changes to the Company’s market risk exposure during the three months ended March 31, 2025.

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