Upland Software, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission ( “ SEC ” ), including our Annual Report on Form 10-K for the year ended December 31, 2024. In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements may be identified by the use of forward-looking words such as “anticipate,” “believe,” “may,” “will,” “continue,” “seek,” “estimate,” “intend,” “hope,” “predict,” “could,” “should,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions, although not all forward-looking statements contain these words. These forward-looking statements include, but are not limited to, statements concerning the following: • our financial performance and our ability to achieve or sustain profitability or predict future results; • our plans regarding future acquisitions or divestitures and our ability to consummate and operationalize acquisitions or divestitures; • our ability to expand our go to market operations, including our marketing and sales organization, and successfully increase sales of our products; • our ability to obtain financing in the future on acceptable terms or at all; • our expectations with respect to revenue, cost of revenue and operating expenses in future periods; • our expectations with regard to revenue from perpetual licenses, usage fees, and professional services; • our ability to adapt to macroeconomic factors impacting the global economy, including the Russia-Ukraine conflict, the conflicts in the Middle East, foreign currency exchange risk, inflation and supply chain constraints; • our ability to attract and retain customers; • our ability to successfully enter new markets and manage our international expansion; • our ability to comply with privacy laws and regulations; • our ability to incorporate and deliver artificial intelligence (“AI”) functionality into our products and services, including our ability to unlock critical knowledge, automate content workflows and drive measurable ROI; • our ability to deliver high-quality customer service; • our plans regarding, and our ability to effectively manage, our growth, including with respect to our growth investments; • maintaining our senior management team and key personnel; • the performance of our resellers; • our ability to adapt to changing market conditions and competition; • our ability to adapt to technological change and continue to innovate; • the growth of demand for cloud-based, digital transformation applications; • our ability to integrate our applications with other software applications; • maintaining and expanding our relationships with third parties; • costs associated with defending intellectual property infringement and other claims; • our ability to maintain, protect and enhance our brand and intellectual property; • our expectations with regard to trends, such as seasonality, which affect our business; • impairments to goodwill and other intangible assets; • our beliefs regarding how our applications benefit customers and what our competitive strengths are; • the operation, reliability and security of our third-party data centers; 21 Table of Contents • our expectations as to the timing of the discontinuation of any Sunset Assets (as defined below), as well as the composition of Sunset Assets; • our expectations as to the payment of dividends; • our current level of indebtedness, including our exposure to variable interest rate risk; • potential elimination or limitation of tax incentives or tax losses and/or reduction of U.S. federal net operating loss carryforwards (“NOLs”); and • other risk factors included under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024, as updated by this Quarterly Report on Form 10-Q and periodically updated as necessary in our future quarterly reports on Form 10-Q and other filings that we make with the SEC. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors, including those described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Overview Upland Software, Inc. (“Upland,” “we,” “us,” “our,” or the “Company”), a Delaware corporation headquartered in Austin, Texas, is a leader in AI-powered knowledge and content management software. Our solutions help enterprises unlock critical knowledge, automate content workflows, and drive measurable ROI—enhancing customer and employee experiences while supporting regulatory compliance. More than 1,100 enterprise customers rely on Upland to solve complex challenges and provide a trusted path for AI adoption. Through a series of acquisitions and integrations, we have established a library of diverse software applications under the Upland brand that address specific digital transformation needs. Our revenue has grown from $149.9 million in the year ended December 31, 2018 to $274.8 million in the year ended December 31, 2024, representing a compound annual growth rate of 11%. During the three months ended March 31, 2025 and 2024, foreign revenue as a percent of total revenue was 29% and 30%, respectively. To support continued growth, we may pursue acquisitions of complementary technologies and businesses. This may expand our product library, customer base, and market access resulting in increased benefits of scale. Key Metrics and Non-GAAP Financial Measures In addition to the GAAP financial measures described below in “Results of Operations,” we regularly review the following key metrics and non-GAAP financial measures to evaluate and identify trends in our business, measure our performance, prepare financial projections and make strategic decisions. 22 Table of Contents Core Organic Growth Rate Beginning with the three months ended June 30, 2023, we began disclosing our Core Organic Growth Rate, a non-GAAP financial measure. We use Core Organic Growth Rate as a key performance measure to assess our consolidated operating performance over time and for planning and forecasting purposes. Core Organic Growth Rate is the percentage change between two reported periods in subscription and support revenue, excluding subscription and support revenue from Sunset Assets, subscription and support revenue from divestitures, and Overage Charges, each as defined below. We calculate our year-over-year Core Organic Growth Rate as though all acquisitions or dispositions closed as of the end of the latest period were closed as of the first day of the prior year period presented. Core Organic Growth Rate does not represent actual organic revenue generated by our business as it stood at the beginning of the respective period. For the three-month period ended March 31, 2025, our Core Organic Growth Rate was 0.2%. Core Organic Growth Rates are not necessarily indicative of either future results of operations or actual results that might have been achieved had certain Sunset Asset classifications not been made or had certain acquisitions or dispositions been consummated on the first day of the prior year period presented. We believe that this metric is useful to management and investors in analyzing our financial and operational performance period-over-period along with evaluating the growth of our business normalized for the impact of acquisitions and dispositions, as well as adjusting for the exclusion of non-core Sunset Assets and non-committed Overage Charges. For example, by including pre-acquisition revenue, Core Organic Growth Rate allows us to measure the underlying revenue growth of our business as of the end of the period presented, which we believe provides insight into our current performance. Related Defined Terms In connection with periodic reviews of our business, we have decided to discontinue the availability of certain non-strategic product offerings and a limited number of non-strategic customer contracts (collectively referred to as “Sunset Assets”). It is possible that during future periodic reviews of our business we may determine to add additional non-strategic product offerings or non-strategic customer contracts to Sunset Assets or remove certain product offerings or customer contracts from the classification of Sunset Assets. In either case, we will adjust the revenues attributable to Sunset Assets and properly reflect the year over year change for such addition or removal. Overage Charges are subscription and support revenues earned in addition to contractual minimum customer commitments as a result of the usage volume of services including text and e-mail messaging and third-party pass-through costs that exceed the levels stipulated in contracts with the Company. The following table represents a reconciliation of total revenue, the most comparable GAAP measure, to core organic revenue for each of the periods indicated. Three Months Ended March 31, 2025 2024 (dollars in thousands) Reconciliation of total revenue to core organic revenue: Total revenue $ 63,655 $ 70,736 Less: Perpetual license revenue 1,608 1,470 Professional services revenue 1,865 2,188 Subscription and support revenue from Sunset Assets 4,481 7,002 Subscription and support revenue from divestitures 3,937 7,818 Overage Charges 913 1,494 Core organic revenue $ 50,851 $ 50,764 Adjusted EBITDA We monitor our Adjusted EBITDA to help us evaluate the effectiveness and efficiency of our operations. Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss), calculated in accordance with GAAP, adjusted for depreciation and amortization expense, net interest expense, loss on debt extinguishment, net other expense, benefit from income taxes, stock-based compensation expense, acquisition and divestiture related expense, purchase accounting deferred revenue discount, gains and losses on divestitures of businesses, and impairment of goodwill. 23 Table of Contents The following table represents a reconciliation of net loss from continuing operations, the most comparable GAAP measure, to Adjusted EBITDA for each of the periods indicated. Three Months Ended March 31, 2025 2024 (dollars in thousands) Reconciliation of Net Loss to Adjusted EBITDA: Net loss $ (25,848) $ (96,130) Add: Depreciation and amortization expense 9,661 13,802 Interest expense (income), net 2,443 4,958 Other expense (income), net 241 78 Benefit from income taxes (1,345) (547) Stock-based compensation expense 2,675 3,522 Divestiture-related expenses 1,745 — Non-recurring litigation costs 18 118 Purchase accounting deferred revenue discount 35 75 Loss on divestitures of businesses 23,457 — Impairment of goodwill — 87,227 Adjusted EBITDA $ 13,082 $ 13,103 We believe that Adjusted EBITDA provides useful information to management, investors and others in understanding and evaluating our operating results for the following reasons: • Adjusted EBITDA is widely used by investors and securities analysts to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon their financing, capital structures and the method by which assets were acquired; • Our management uses Adjusted EBITDA in conjunction with GAAP financial measures for planning purposes, in the preparation of our annual operating budget, as a measure of our operating performance, to assess the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance because Adjusted EBITDA eliminates the impact of items that we do not consider indicative of our core operating performance; • Adjusted EBITDA provides more consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our operations and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. Adjusted EBITDA should not be considered as an alternative to net loss or any other measure of financial performance calculated and presented in accordance with GAAP. The use of Adjusted EBITDA as an analytical tool has limitations such as: • Impairment of goodwill and depreciation and amortization are non-cash charges, and the assets being depreciated or amortized, which contribute to the generation of revenue, will often have to be replaced in the future and Adjusted EBITDA does not reflect cash requirements for such replacements; however, much of the depreciation and amortization relates to amortization of acquired intangible assets as well as the goodwill as a result of business combination purchase accounting adjustments, which will not need to be replaced in the future; • Adjusted EBITDA may not reflect changes in, or cash requirements for, our working capital needs or contractual commitments; • Adjusted EBITDA does not reflect the potentially dilutive impact of stock-based compensation; • Adjusted EBITDA does not reflect interest or tax payments that could reduce cash available for use; and • Other companies, including companies in our industry, might calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as comparative measures. Because of these limitations, you should consider Adjusted EBITDA together with other financial performance measures, including various cash flow metrics, net loss and our other GAAP results. 24 Table of Contents Results of Operations Consolidated Statements of Operations Data The following table set forth our results of operations for the specified periods, as well as our results of operations for the specified periods as a percentage of revenue. The period-to-period comparisons of results of operations are not necessarily indicative of results for future periods. Three Months Ended March 31, 2025 2024 Amount Percent of Revenue Amount Percent of Revenue (dollars in thousands, except share and per share data) Revenue: Subscription and support $ 60,182 95 % $ 67,078 95 % Perpetual license 1,608 3 % 1,470 2 % Total product revenue 61,790 98 % 68,548 97 % Professional services 1,865 2 % 2,188 3 % Total revenue 63,655 100 % 70,736 100 % Cost of revenue: Subscription and support (1)(3) 16,950 27 % 19,829 28 % Professional services and other (1) 1,098 1 % 1,220 2 % Total cost of revenue 18,048 28 % 21,049 30 % Gross profit 45,607 72 % 49,687 70 % Operating expenses: Sales and marketing (1) 13,756 22 % 17,018 24 % Research and development (1) 11,542 18 % 12,455 18 % General and administrative (1)(2) 11,621 18 % 13,232 19 % Depreciation and amortization 7,995 13 % 11,396 16 % Divestiture-related expenses 1,745 2 % — — % Impairment of goodwill — — % 87,227 123 % Total operating expenses 46,659 73 % 141,328 200 % Loss from operations (1,052) (1) % (91,641) (130) % Other Expense: Interest expense, net (2,443) (4) % (4,958) (7) % Loss on divestitures of businesses (23,457) (37) % — — % Other income (expense), net (241) — % (78) — % Total other expense (26,141) (41) % (5,036) (7) % Loss before provision for income taxes (27,193) (42) % (96,677) (137) % Benefit from income taxes 1,345 1 % 547 1 % Net loss (25,848) (41) % (96,130) (136) % Preferred stock dividends and accretion (1,438) (2) % (1,375) (2) % Net loss attributable to common shareholders $ (27,286) (43) % $ (97,505) (138) % Net loss per common share: Net loss per common share, basic and diluted $ (0.97) $ (3.37) Weighted-average common shares outstanding, basic and diluted 28,220,936 28,917,897 (1) Includes stock-based compensation detailed under Share-based Compensation in “ Item 1. Financial Statements—Note 10. Stockholders' Equity (Deficit)” . (2) Includes general and administrative stock-based compensation of $2.0 million and $2.3 million for the three months March 31, 2025 and March 31, 2024, respectively. General and administrative expense excluding stock-based compensation as a percentage of total revenues was 15% and 15% for the three months ended March 31, 2025 and March 31, 2024, respectively. (3) Includes depreciation and amortization of $1.7 million and $2.4 million for the three months ended March 31, 2025 and March 31, 2024, respectively. 25 Table of Contents Comparison of the Three Months Ended March 31, 2025 and 2024 See Note 12. Divestitures regarding product lines divested in the three months ended March 31, 2025. Revenue Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Revenue: Subscription and support $ 60,182 $ 67,078 (10) % Perpetual license 1,608 1,470 9 % Total product revenue 61,790 68,548 (10) % Professional services 1,865 2,188 (15) % Total revenue $ 63,655 $ 70,736 (10) % Percentage of revenue: Subscription and support 95% 95% Perpetual license 3% 2% Total product revenue 98% 97% Professional services 2% 3% Total revenue 100% 100% For the Three Months Ended March 31, 2025 Total revenue was $63.7 million in the three months ended March 31, 2025, compared to $70.7 million in the three months ended March 31, 2024, a decrease of $7.0 million, or 10%. This decrease is primarily due to the expected decline in subscription and support revenue from Sunset Assets of $2.5 million, and the decline in subscription and support revenue related to divested businesses of $3.9 million. The remaining decrease results from declines in overage charges of approximately $0.5 million, declines in total professional services revenue of $0.3 million, offset by an increase in total perpetual license revenue of $0.1 million. 26 Table of Contents Cost of Revenue Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Cost of revenue: Subscription and support (1) $ 16,950 $ 19,829 (15) % Professional services and other 1,098 1,220 (10) % Total cost of revenue 18,048 21,049 (14) % Gross profit $ 45,607 $ 49,687 (8) % Percentage of total revenue: Subscription and support (1) 27% 28% Professional services and other 1% 2% Total cost of revenue 28% 30% Gross profit 72% 70% (1) Includes amortization and stock compensation expense as follows: Amortization $ 1,666 $ 2,406 Stock Compensation $ 121 $ 186 For the Three Months Ended March 31, 2025 Cost of subscription and support revenue was $17.0 million in the three months ended March 31, 2025, compared to $19.8 million in the three months ended March 31, 2024, a decrease of $2.8 million, or 15%. $1.1 million of the decrease is attributable to infrastructure costs, personnel costs and amortization expense related to divested product lines. The remaining decrease in cost of subscription and support revenue is due to a decrease of $0.3 million in variable telecom carrier costs, decreases of $0.8 million in personnel costs and a decrease of $0.6 million in amortization of intangible assets. Cost of professional services and other revenue was $1.1 million in the three months ended March 31, 2025, compared to $1.2 million in the three months ended March 31, 2024, a decrease of $0.1 million, or 10%. The decrease in cost of professional services was comprised of a decrease in personnel-related expenses in both our divested product lines and our remaining product lines. Operating Expenses Sales and Marketing Expense Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Sales and marketing (1) $ 13,756 $ 17,018 (19) % Percentage of total revenue 22% 24% (1) Includes stock compensation expense as follows: Stock Compensation $ 252 $ 397 For the Three Months Ended March 31, 2025 Sales and marketing expense was $13.8 million in the three months ended March 31, 2025, compared to $17.0 million in the three months ended March 31, 2024, a decrease of $3.2 million, or 19%. The decrease in sales and marketing expense is attributable to decreases in personnel costs of $1.3 million related to our divested product lines and $1.6 million related to our remaining product lines as well as a decrease in on-going marketing spend of $0.3 million. 27 Table of Contents Research and Development Expense Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Research and development (1) $ 11,542 $ 12,455 (7) % Percentage of total revenue 18% 18% (1) Includes stock compensation expense as follows: Stock Compensation $ 290 $ 606 For the Three Months Ended March 31, 2025 Research and development expense was $11.5 million in the three months ended March 31, 2025, compared to $12.5 million in the three months ended March 31, 2024, a decrease of $1.0 million, or 7.3%. The decline in research and development expense is primarily attributable to a $0.4 million decrease in personnel-related costs in our divested product lines and $0.6 million in personnel-related costs in our remaining product lines as we continue to shift our spending focus to our India Center of Excellence, as well as decreases in third-party software costs. General and Administrative Expense Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) General and administrative (1) $ 11,621 $ 13,232 (12) % Percentage of total revenue 18% 19% (1) Includes stock compensation expense as follows: Stock compensation $ 2,012 $ 2,333 For the Three Months Ended March 31, 2025 General and administrative expense was $11.6 million in the three months ended March 31, 2025, compared to $13.2 million in the three months ended March 31, 2024, a decrease of $1.6 million, or 12%. This decrease is primarily due to a decrease of $1.1 million in personnel-related costs related to our on-going product lines. Decreases of $0.3 million in legal and HR-related professional fees, and $0.2 million in tax and accounting-related professional fees also contributed to the decline in general and administrative expense. Depreciation and Amortization Expense Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Depreciation and amortization: Depreciation $ 260 $ 292 (11) % Amortization 7,735 11,104 (30) % Total depreciation and amortization $ 7,995 $ 11,396 (30) % Percentage of total revenue: Depreciation 1% —% Amortization 12% 16% Total depreciation and amortization 13% 16% 28 Table of Contents For the Three Months Ended March 31, 2025 Depreciation and amortization expense was $8.0 million in the three months ended March 31, 2025, compared to $11.4 million in the three months ended March 31, 2024, a decrease of $3.4 million, or 30%. $2.7 million of the decrease resulted from the decline in amortization from intangible assets associated with the divested product lines. The remainder of the decrease is due to remaining intangible assets becoming fully amortized in prior periods. Divestiture-related Expenses Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Divestiture-related expenses $ 1,745 $ — 100 % Percentage of total revenue 2% —% For the Three Months Ended March 31, 2025 Divestiture-related expense was $1.7 million in the three months ended March 31, 2025, compared to nil in the three months ended March 31, 2024. We incurred $1.7 million in divestiture-related expense in three months ended March 31, 2025. No divestiture-related expenses were incurred in the three months ended March 31, 2024. Impairment of goodwill Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Impairment of goodwill $ — $ 87,227 N/A Goodwill impairment is recognized on a non-recurring basis when the carrying value (or GAAP basis book value) of our Company (which is our only reporting unit) exceeds the estimated fair value of our Company as determined by reference to a number of factors and assumptions, including the trends in the stock price of our Common Stock. We assess goodwill for impairment annually on October 1st, or more frequently when an event occurs which could cause the carrying value of our Company to exceed the estimated fair value of our Company. As a result of declines in our stock price during the three months ended March 31, 2024, we performed a goodwill impairment evaluation which resulted in a goodwill impairment of $87.2 million for the three months ended March 31, 2024. We will continue to evaluate goodwill for impairment in 2025 and future impairments of goodwill could occur if we experience significant stock price declines. 29 Table of Contents Other Income (Expense) Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Other expense: Interest income (expense), net $ (2,443) $ (4,958) (51) % Loss on divestitures of businesses (23,457) — 100 % Other income (expense), net (241) (78) 209 % Total other expense $ (26,141) $ (5,036) 419 % Percentage of total revenue: Interest income (expense), net (4)% (7)% Loss on divestitures of businesses (37)% —% Other income (expense), net —% —% Total other expense (41)% (7)% For the Three Months Ended March 31, 2025 Interest expense, net of interest income, was $2.4 million of net interest income in the three months ended March 31, 2025 compared to $5.0 million of net interest expense in the three months ended March 31, 2024, a change of $2.6 million or 51%. This was due primarily to prepayments on the Company’s Term Loans during the three months ended March 31, 2025, which lowered cash interest expense by $5.3 million. This reduction was offset by a decline in cash interest inflow related to our interest rate swaps of $0.8 million. Amortization of realized and unrealized gains on interest rates swaps from accumulated other comprehensive income to interest expense, net was $3.9 million for the three months ended March 31, 2025 as compared to amortization of $1.5 million in the three months ended March 31, 2024. The amortization effects on interest expense, net was offset by changes in the fair value of the interest rate swaps recorded to interest expense, net of $2.2 million in the three months ended March 31, 2025 with no such effects recorded to interest expense, net in the three months ended March 31, 2024. Interest income for the three months ended March 31, 2025 declined $2.3 million from interest income in the three months ended March 31, 2024 due to lower cash and cash equivalents. Other income (expense), net recognized during the three months ended March 31, 2025 and 2023 were related primarily to foreign currency exchange fluctuations. Benefit from Income Taxes Three Months Ended March 31, 2025 2024 % Change (dollars in thousands) Benefit from income taxes $ 1,345 $ 547 146 % Percentage of total revenue 1% 1% For the Three Months Ended March 31, 2025 The benefit for income taxes was $1.3 million in the three months ended March 31, 2025, compared to a benefit from income taxes of $0.5 million in the three months ended March 31, 2024, resulting in an increase in benefit from income taxes of $0.8 million. The benefit from income taxes for the three months ended March 31, 2025 relates primarily to the deferred tax benefit from the business divestitures in the first quarter of 2025. This tax benefit is partially offset by the income tax from non-U.S. and U.S. operations. Liquidity and Capital Resources We have financed our operations primarily through cash generated from operating activities, the raising of capital including sales of our Common Stock or our convertible preferred stock, and borrowings under our Credit Facility. We believe that current cash and cash equivalents, and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months. 30 Table of Contents As of March 31, 2025, we had $33.7 million of cash, cash equivalents and restricted cash and $259.4 million of borrowings outstanding under our Term Loans that mature August 6, 2026. As of December 31, 2024, we had $57.1 million of cash, cash equivalents and restricted cash and $293.7 million of borrowings outstanding under our Term Loans. The $22.7 million decrease in cash, cash equivalents and restricted cash from December 31, 2024 to March 31, 2025 was due primarily $34.2 million in debt repayment which includes $30.2 million of prepayments made in the current quarter, offset by $4.2 million cash proceeds from divestitures of businesses and $8.3 million in cash inflows from operations. Our cash and cash equivalents held by our foreign subsidiaries was $19.9 million as of March 31, 2025 and $32.4 million as of December 31, 2024. Our intent is to permanently reinvest these funds outside the U.S. and our current plans do not demonstrate a need to repatriate them to fund our domestic operations. We do not provide for federal income taxes on the undistributed earnings of our foreign subsidiaries. As of March 31, 2025 and December 31, 2024, we had a working capital deficit of $17.1 million and a working capital deficit of $2.0 million, respectively. Credit Facility As described in “ Note 6. Debt ”, the Company has a Credit Facility which includes the fully drawn Term Loans as of March 31, 2025. The Term Loans mature on August 6, 2026. The $60 million revolver under our Credit Facility expired in August 2024 with no amounts outstanding at the time of maturity. The following table summarizes our cash flows for the periods indicated: Three Months Ended March 31, 2025 2024 (dollars in thousands) Consolidated Statements of Cash Flows data: Net cash provided by operating activities $ 8,305 $ 5,121 Net cash provided by (used in) investing activities 3,789 (183) Net cash used in financing activities (34,723) (9,599) Effect of exchange rate fluctuations on cash, cash equivalents and restricted cash (92) (284) Change in cash, cash equivalents and restricted cash (22,721) (4,945) Cash, cash equivalents and restricted cash, beginning of period 57,052 236,559 Cash, cash equivalents and restricted cash, end of period $ 34,331 $ 231,614 Cash Flows from Operating Activities Cash provided by operating activities is significantly influenced by the amount of cash we invest in personnel and infrastructure to support the anticipated growth of our business. Our working capital consists primarily of cash, receivables from customers, prepaid assets, unbilled professional services, deferred commissions, accounts payable, accrued compensation and other accrued expenses, lease liabilities, and deferred revenues. The volume of professional services rendered, the volume and timing of customer bookings and contract renewals, and the related timing of collections on those bookings and renewals, as well as the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued payroll and related benefits, all affect these account balances. Cash provided by operating activities was $8.3 million for the three months ended March 31, 2025 compared to cash provided by operating activities of $5.1 million for the three months ended March 31, 2024, an increase of approximately $3.2 million comprised of a non-recurring $1.2 million cash gain on the sale of a portion of our interest rate swaps in the three months ended March 31, 2025. as well as changes in working capital for the three months ended March 31, 2025 which include collections on accounts receivable, increases in prepaid and other current assets, payments of current liabilities and decreases in deferred revenue. A substantial source of cash is invoicing for subscriptions and support fees in advance, which is recorded as deferred revenue, and is included on our condensed consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of booked fees for our software subscriptions and support, which is amortized into revenue in accordance with our revenue recognition policy. We assess our liquidity, in part, through an analysis of new subscriptions invoiced, expected cash receipts on new and existing subscriptions, and our ongoing operating expense requirements. 31 Table of Contents Cash Flows from Investing Activities Historically, our investing activities have consisted of investments in our product library and customer base through acquisitions of complementary technologies and businesses and the routine purchases of office equipment. Other activities, such as divestitures of businesses and purchases of other equipment, may affect our cash flows from investing activities in such periods as these transactions occur. Cash provided by investing activities was $3.8 million for the three months ended March 31, 2025 compared to cash used by investing activities of $0.2 million for the three months ended March 31, 2024, an increase of $4.0 million. During the three months ended March 31, 2025, the Company divested of certain product lines and received cash proceeds of $4.2 million. Cash used in investing activities consisted of purchases of property and equipment of $0.4 million for the three months ended March 31, 2025 compared to $0.2 million of purchases of property and equipment for the three months ended March 31, 2024. Cash Flows from Financing Activities Historically, our primary financing activities have consisted of capital raised to fund our acquisitions, proceeds from debt obligations incurred to finance our acquisitions, repayments and servicing of our debt obligations, share repurchases and share based employee payroll tax payment activity. Cash used in financing activities was $34.7 million for the three months ended March 31, 2025 compared to $9.6 million for the three months ended March 31, 2024, an increase of $25.1 million of cash used due to $32.9 million in additional payments on the Company’s Term Loans in the three months ended March 31, 2025 over payments made in the three months ended March 31, 2024, netted with $7.9 million used for Common Stock repurchases in the three months ended March 31, 2024 over the three months ended March 31, 2025. Critical Accounting Policies and the Use of Estimates We prepare our condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. The following critical accounting policies reflect significant judgments and estimates used in the preparation of our condensed consolidated financial statements: • income taxes; and • goodwill and other intangibles. We are not aware of any specific event or circumstance that would require updates to our estimates or judgments or require us to revise the carrying value of our assets or liabilities as of May 12, 2025, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions. Other Key Accounting Policies Our unaudited interim financial statements and other financial information for the three months ended March 31, 2025, as presented herein and in “ Item 1. Financial Statements ” to this Quarterly Report on Form 10-Q, reflect no material changes in our critical accounting policies and estimates as set forth in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “Annual Report”). Please refer to our Annual Report for a detailed description of our critical accounting policies that involve significant management judgment. We evaluate our estimates, judgments and assumptions on an ongoing basis, and while we believe that our estimates, judgments and assumptions are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. Recent Accounting Pronouncements For information with respect to recent accounting pronouncements and the impact of these pronouncements on our condensed consolidated financial statements, refer to “Note 2. Basis of Presentation and Summary of Significant Accounting Policies—Recent Accounting Pronouncements” to our condensed consolidated financial statements. 32 Table of Contents