INNODATA INC

Previous wording

These forward-looking statements are based on management’s current expectations, assumptions and estimates and are subject to a number of risks and uncertainties, including, without limitation, impacts resulting from ongoing geopolitical conflicts, including between Russia and Ukraine, Hamas’ attack against Israel and the ensuing conflict and increased hostilities between Hezbollah and Israel and Iran and Israel; investments in large language models; that contracts may be terminated by customers; projected or committed volumes of work may not materialize; pipeline opportunities and customer discussions which may not materialize into work or expected volumes of work; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; the ability and willingness of our customers and prospective customers to execute business plans that give rise to requirements for our services; continuing reliance on project-based work in the Digital Data Solutions (DDS) segment and the primarily at-will nature of such contracts and the ability of these customers to reduce, delay or cancel projects; potential inability to replace projects that are completed, canceled or reduced; our DDS segment’s revenue concentration in a limited number of customers; our dependency on content providers in our Agility segment; the Company’s ability to achieve revenue and growth targets; difficulty in integrating and deriving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire; a continued downturn in or depressed market conditions; changes in external market factors; the potential effects of U.S. monetary policy, including the interest rate policies of the Federal Reserve; changes in our business or growth strategy; the emergence of new, or growth in existing competitors; various other competitive and technological factors; our use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

Current wording

These forward-looking statements are based on management’s current expectations, assumptions and estimates and are subject to a number of risks and uncertainties, including, without limitation, impacts resulting from ongoing geopolitical conflicts, including between India and Pakistan, Russia and Ukraine, Hamas’ attack against Israel and the ensuing conflict and increased hostilities between Hezbollah and Israel and Iran and Israel; investments in large language models; that contracts may be terminated by customers; projected or committed volumes of work may not materialize; pipeline opportunities and customer discussions which may not materialize into work or expected volumes of work; the likelihood of continued development of the markets, particularly new and emerging markets, that our services support; the ability and willingness of our customers and prospective customers to execute business plans that give rise to requirements for our services; continuing reliance on project-based work in the Digital Data Solutions (“DDS”) segment and the primarily at-will nature of such contracts and the ability of these customers to reduce, delay or cancel projects; potential inability to replace projects that are completed, canceled or reduced; our DDS segment’s revenue concentration in a limited number of customers; our dependency on content providers in our Agility segment; our ability to achieve revenue and growth targets; difficulty in integrating and deriving synergies from acquisitions, joint ventures and strategic investments; potential undiscovered liabilities of companies and businesses that we may acquire; potential impairment of the carrying value of goodwill and other acquired intangible assets of companies and businesses that we acquire; a continued downturn in or depressed market conditions; changes in external market factors; the potential effects of U.S. global trading and monetary policy, including the interest rate policies of the Federal Reserve; changes in our business or growth strategy; the emergence of new, or growth in existing competitors; various other competitive and technological factors; our use of and reliance on information technology systems, including potential security breaches, cyber-attacks, privacy breaches or data breaches that result in the unauthorized disclosure of consumer, customer, employee or Company information, or service interruptions; and other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission.

Previous wording

Innodata Inc. (Nasdaq: INOD) (including its subsidiaries, the “Company,” “Innodata,” “we,” “us” or “our”) is a global data engineering company. We believe that data and Artificial Intelligence (“AI”) are inextricably linked. Our mission is to help the world’s leading technology companies and enterprises drive Generative AI / AI innovation, which we believe will contribute to a safer and more prosperous world.

Current wording

Innodata Inc. (Nasdaq: INOD) (including its subsidiaries, the “Company,” “Innodata,” “we,” “us” or “our”) is a leading data engineering company. Our mission is to help the world’s most prestigious companies deliver the promise of ethical, high-performing artificial intelligence (“AI”), which we believe will contribute to a safer and more prosperous world.

Previous wording

We developed our capabilities and honed our approaches progressively over the last 35+ years creating high-quality data for many of the world’s most demanding information companies. Approximately eight years ago, we formed Innodata Labs, a research and development center, to research, develop and apply machine learning and emerging AI to our large-scale, human-intensive data operations. In 2019, we began packaging the capabilities that emerged from our R&D efforts in order to align with several fast-growing new markets and help companies use AI and machine learning (“ML”) to drive performance benefits and business insights.

Current wording

We developed our capabilities and honed our approaches progressively over the last 35+ years creating high-quality data for many of the world’s most demanding information companies. Approximately nine years ago, we formed Innodata Labs, a research and development center, to research, develop and apply machine learning and emerging AI to our large-scale, human-intensive data operations. In 2019, we began packaging the capabilities that emerged from our R&D efforts in order to align with several fast-growing new markets and help companies use AI and machine learning (“ML”) to drive performance benefits and business insights.

Previous wording

For social media companies, robotics companies, financial services companies, and many others, we collect or create training data, annotate training data, and train AI algorithms for working with images, text, video, audio, code and sensor data.

Current wording

For social media companies, financial services companies, and many others, we collect or create training data, annotate training data, and train AI algorithms for working with images, text, video, audio, code and sensor data.

Previous wording

We utilize a variety of leading third-party tools, proprietary tools and customer tools. For text annotation, we use our proprietary data annotation platform that incorporates AI to reduce costs while improving consistency and quality of output. Our proprietary data annotation platform features auto-tagging capabilities that apply to both classical and generative AI tasks. The platform encapsulates many of the innovations we conceived of in the course of its 35+ year history of creating high-quality data.

Current wording

We utilize a variety of leading third-party tools, proprietary tools and customer tools. For text annotation, we use our proprietary data annotation platform that incorporates AI to reduce costs while improving consistency and quality of output. Our proprietary data annotation platform features auto-tagging capabilities that apply to both classical and generative AI tasks. The platform encapsulates many of the innovations we conceived of in the course of our 35+ year history of creating high-quality data.

Previous wording

With the current level of demand for our services, we believe we have existing cash and cash equivalents that provide sufficient sources of liquidity to satisfy our financial needs for at least the next 12 months from the date of the filing of this Report (refer to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for additional information). In the event we experience a significant or prolonged reduction in revenues, the likelihood of which is uncertain, we would seek to manage our liquidity by utilizing the Revolving Credit Facility, reducing capital expenditures, deferring investment activities, and reducing operating costs.

Current wording

With the current level of demand for our services, we believe we have existing cash and cash equivalents that provide sufficient sources of liquidity to satisfy our financial needs for at least the next 12 months from the date of the filing of this Report (refer to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for additional information). In the event we experience a significant or prolonged reduction in revenues, we would seek to manage our liquidity by utilizing the Revolving Credit Facility, reducing capital expenditures, deferring investment activities, and reducing operating costs.

Previous wording

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands).

Current wording

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the U.S. GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the three-month periods ended March 31, 2025 and 2024 (in thousands).

Previous wording

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests, non-recurring severance, and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

Current wording

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with U.S. GAAP before net interest expense (income), income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests, non-recurring severance, and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

Previous wording

The following table contains a reconciliation of U.S. GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the three and nine-month periods ended September 30, 2024 and 2023 (in thousands).

Current wording

The following table contains a reconciliation of U.S. GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the three -month periods ended March 31, 2025 and 2024 (in thousands).

Previous wording

Revenues from the DDS segment were $44.7 million and $16.1 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $28.6 million or approximately 178%. The increase was primarily attributable to higher volume from an existing customer.

Current wording

Revenues from the DDS segment were $50.8 million and $19.7 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $31.1 million or approximately 158%. The increase was primarily attributable to higher volume from an existing customer.

Previous wording

Revenues from the Synodex segment were $1.9 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $0.2 million or 12%. The increase was primarily attributable to higher volume from existing customers.

Current wording

Revenues from the Synodex segment were $2.0 million and $1.9 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $0.1 million or 5%. The increase was primarily attributable to higher volume from existing customers.

Previous wording

Revenues from the Agility segment were $5.6 million and $4.4 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $1.2 million or approximately 27%. The increase was principally attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

Current wording

Revenues from the Agility segment were $5.5 million and $4.9 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $0.6 million or approximately 12%. The increase was principally attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

Previous wording

One customer in the DDS segment generated approximately 59% and 11% of the Company’s total revenues for the three months ended September 30, 2024 and 2023, respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. customers accounted for 17% and 40% of the Company’s total revenues for the three months ended September 30, 2024 and 2023, respectively.

Current wording

One customer in the DDS segment generated approximately 61% and 24% of the Company’s total revenues for the three months ended March 31, 2025 and 2024, respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, revenues from non-U.S. customers accounted for 16% and 33% of the Company’s total revenues for the three months ended March 31, 2025 and 2024, respectively.

Previous wording

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, and other direct expenses that are incurred in providing services to our customers.

Current wording

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, recruitment costs and other direct expenses that are incurred in providing services to our customers.

Previous wording

Direct operating costs were $30.9 million and $13.9 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $17.0 million or 122%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes $15.6 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; an unfavorable impact of foreign exchange rate fluctuations of $0.6 million, higher depreciation and amortization of capitalized developed software of $0.3 million; higher AWS and other cloud subscriptions of $0.3 million; and higher content costs of $0.2 million. Direct operating costs as a percentage of total revenues were 59% and 63% for the three months ended September 30, 2024 and 2023, respectively. The decrease in direct operating cost as a percentage of total revenues was primarily due to higher revenues in all segments and lower direct operating costs in the Synodex segment; offset in part by higher direct operating costs in the DDS and Agility segments.

Current wording

Direct operating costs were $35.1 million and $16.9 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $18.2 million or 108%. The cost increase was primarily due to increased headcount to support higher volumes from an existing customer. The increase in direct operating costs includes $15.4 million from direct and indirect labor related costs primarily on account of new hires and higher incentives; higher recruitment fees of $1.4 million; higher cloud service subscriptions of $0.4 million; higher depreciation and amortization of capitalized developed software of $0.3 million; an unfavorable impact of foreign exchange rate fluctuations of $0.2 million; higher content costs of $0.1 million and an increase in other direct operating costs of $0.4 million. Direct operating costs as a percentage of total revenues were 60% and 64% for the three months ended March 31, 2025 and 2024, respectively. The decrease in direct operating cost as a percentage of total revenues was primarily due to higher revenues in all segments, offset in part by higher direct operating costs in the DDS and Agility segments.

Previous wording

Direct operating costs for the Synodex segment were $1.5 million and $1.7 million for the three months ended September 30, 2024 and 2023, respectively, a decrease of $0.2 million or 12%. The decrease in direct operating costs was primarily due to the effect of the cost optimization initiatives completed in 2023 which resulted in cost efficiencies for the Synodex segment. The reduction was primarily due to lower direct labor costs of $0.2 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were 79% and 100% for the three months ended September 30, 2024 and 2023, respectively. The decrease in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to higher revenues and a decrease in direct operating costs.

Current wording

Direct operating costs for the Synodex segment were $1.5 million for each of the three-month periods ended March 31, 2025 and 2024. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were 75% and 79% for the three months ended March 31, 2025 and 2024, respectively. The decrease in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to higher revenues.

Previous wording

Gross profit for the DDS segment was $17.6 million and $5.8 million for the three months ended September 30, 2024 and 2023, respectively. The $11.8 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 39% and 36% for the three months ended September 30, 2024 and 2023, respectively. The increase in gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Current wording

Gross profit for the DDS segment was $19.7 million and $6.6 million for the three months ended March 31, 2025 and 2024, respectively. The $13.1 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 39% and 33% for the three months ended March 31, 2025 and 2024, respectively. The increase in gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Previous wording

Gross profit for the Synodex segment was $1.3 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively. The $0.8 million increase in gross profit for the Synodex segment was primarily due to lower direct operating costs and higher revenues. Gross margin for the Synodex segment was 23% and 9% for the nine months ended September 30, 2024 and 2023, respectively. The increase in gross margin for the Synodex segment as a percentage of revenues was primarily due to lower direct operating costs and higher revenues.

Current wording

Gross profit for the Synodex segment was $0.5 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively. The $0.1 million increase in gross profit for the Synodex segment was primarily due to higher revenues. Gross margin for the Synodex segment was 27% and 21% for the three months ended March 31, 2025 and 2024, respectively. The increase in gross margin for the Synodex segment as a percentage of revenues was primarily due to higher revenues.

Previous wording

Selling and administrative expenses were $27.2 million and $22.8 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of $4.4 million or 19%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative labor and related expenses of $2.6 million, primarily on account of new hires, salary increases, incentives and bonuses awarded; offset in part by lower severance; higher professional fees of $1.4 million; higher expenses for marketing related activities of $0.3 million; an unfavorable impact of foreign exchange rate fluctuations of $0.1 million; and an increase in other selling and administrative expenses of $0.3 million; offset in part by lower provisions for credit losses of $0.3 million. Selling and administrative expenses as a percentage of total revenues were 24% and 38% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in all segments and lower selling and administrative expenses in the Synodex and Agility segments, offset in part by higher selling and administrative expenses in the DDS segment.

Current wording

Selling and administrative expenses were $15.0 million and $8.3 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $6.7 million or 81%. The increase in selling and administrative expenses was primarily due to higher expenses associated with the increase in revenues. The increase in selling and administrative expenses includes higher selling and administrative payroll and related expenses of $3.8 million, primarily on account of new hires, salary increases, incentives and bonuses; higher professional fees of $2.4 million; higher expenses for marketing related activities of $0.3 million; higher subscriptions of $0.3 million; offset in part by a decrease in other selling and administrative expenses of $0.1 million. Selling and administrative expenses as a percentage of total revenues were 26% and 31% for the three months ended March 31, 2025 and 2024, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in all segments, offset in part by higher selling and administrative expenses in all segments.

Previous wording

Selling and administrative expenses for the Agility segment were $2.8 million and $2.3 million for the three months ended September 30, 2024 and 2023, respectively, an increase of $0.5 million or 22%. The increase in selling and administrative expenses includes selling and administrative labor and related expenses of $0.4 million, primarily on account of new hires, salary increases, incentives and bonuses awarded and an increase in other selling and administrative expenses of $0.2 million; offset in part by lower provision for credit losses of $0.1 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were 50% and 52% for the three months ended September 30, 2024 and 2023, respectively. The decrease in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to higher revenues, offset in part by higher selling and administrative expenses.

Current wording

Selling and administrative expenses for the Synodex segment were $0.3 million and $0.1 million for the three months ended March 31, 2025 and 2024, respectively, an increase of $0.2 million or 200%. The increase in selling and administrative expenses includes selling and administrative labor and related expenses of $0.1 million, primarily on account of incentives and bonuses awarded and an increase in other selling and administrative expenses of $0.1 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were 15% and 5% for the three months ended March 31, 2025 and 2024, respectively. The increase in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was primarily attributable due to higher selling and administrative expenses offset in part by higher revenues.

Previous wording

We recorded a benefit from income taxes of $5.2 million and provision for income taxes of $0.8 million for the nine months ended September 30, 2024 and 2023, respectively. (Refer to Note 5 of Notes to Condensed Consolidated Financial Statements for the components of the income tax provision for the nine-month periods ended September 30, 2024 and 2023).

Current wording

We recorded a provision for income taxes of $0.6 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively. (Refer to Note 4 of Notes to Condensed Consolidated Financial Statements for the components of the income tax provision for the three-month periods ended March 31, 2025 and 2024).

Previous wording

Net income was $17.4 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively. The $17.0 million increase was a result of higher revenue in all segments and lower direct operating costs and selling and administrative expenses in the Synodex segment, offset in part by higher direct operating costs and selling and administrative expenses in the DDS and Agility segments, and a change in income tax provision in the current quarter resulting from the release of the valuation allowance on our U.S. deferred tax assets.

Current wording

Net income was $7.8 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively. The $6.8 million increase was a result of higher revenue in all segments, offset in part by higher direct operating costs in the DDS and Agility segments and higher selling and administrative expenses in all segments, and a higher income tax provision in the current quarter.

Previous wording

Net income for the DDS segment was $16.5 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively. The $16.1 million increase was primarily attributable to higher revenues, offset in part by higher direct operating costs and selling and administrative expenses, and a change in income tax provision in the current quarter resulting from the release of the valuation allowance on our U.S. deferred tax assets.

Current wording

Net income for the DDS segment was $7.7 million and $0.4 million for the three months ended March 31, 2025 and 2024, respectively. The $7.3 million increase was primarily attributable to higher revenues, offset in part by higher direct operating costs and selling and administrative expenses, and a higher income tax provision in the current quarter.

Previous wording

The Synodex segment had a net income of $0.4 million and a net loss of $0.2 million for the three months ended September 30, 2024 and 2023, respectively. The $0.6 million change was due to higher revenues and lower direct operating costs and selling and administrative expenses in the current quarter.

Current wording

The Agility segment had a net loss of $0.2 million and a net income of $0.3 million for the three months ended March 31, 2025 and 2024, respectively. The $0.5 million change was due to higher direct operating costs, and higher selling and administrative expenses offset in part by higher revenues in the current quarter.

Previous wording

Adjusted gross profit was $44.7 million and $25.1 million for the nine months ended September 30, 2024 and 2023, respectively. The $19.6 million increase in adjusted gross profit was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments. Adjusted gross margin was 40% and 41% for the nine months ended September 30, 2024 and 2023, respectively. The decrease in adjusted gross margin was primarily due to higher revenues in all segments and lower direct operating costs for the Synodex segment, offset in part by higher direct operating costs in the DDS and Agility segments.

Current wording

Adjusted gross profit was $25.2 million and $11.0 million for the three months ended March 31, 2025 and 2024, respectively. The $14.2 million increase in adjusted gross profit was primarily due to higher revenues in all segments, offset in part by higher direct operating costs in the DDS and Agility segments. Adjusted gross margin was 43% and 41% for the three months ended March 31, 2025 and 2024, respectively. The increase in adjusted gross margin was primarily due to higher revenues in all segments, offset in part by higher direct operating costs in the DDS and Agility segments.

Previous wording

Adjusted gross profit for the DDS segment was $18.3 million and $6.2 million for the three months ended September 30, 2024 and 2023, respectively. The $12.1 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 41% and 39% for the three months ended September 30, 2024 and 2023, respectively. The increase in the adjusted gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Current wording

Adjusted gross profit for the DDS segment was $20.9 million and $7.0 million for the three months ended March 31, 2025 and 2024, respectively. The $13.9 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 41% and 35% for the three months ended March 31, 2025 and 2024, respectively. The increase in the adjusted gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Previous wording

Adjusted gross profit for the Synodex segment was $0.6 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The $0.5 million increase in adjusted gross profit in the Synodex segment was due to higher revenues and lower direct operating costs. Adjusted gross margin for the Synodex segment was 31% and 9% for the three months ended September 30, 2024 and 2023, respectively. The increase in the adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to higher revenues and lower direct operating costs.

Current wording

Adjusted gross profit for the Synodex segment was $0.6 million and $0.5 million for the three months ended March 31, 2025 and 2024, respectively. The $0.1 million increase in adjusted gross profit in the Synodex segment was due to higher revenues. Adjusted gross margin for the Synodex segment was 32% and 29% for the three months ended March 31, 2025 and 2024, respectively. The increase in the adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to higher revenues.

Previous wording

Adjusted EBITDA was $13.9 million and $3.2 million for the three months ended September 30, 2024 and 2023, respectively. The $10.7 million increase in Adjusted EBITDA was due to higher net income and higher depreciation and amortization, offset in part by a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets, lower stock-based compensation and interest expense in the current quarter.

Current wording

Adjusted EBITDA was $12.7 million and $3.8 million for the three months ended March 31, 2025 and 2024, respectively. The $8.9 million increase in Adjusted EBITDA was due to higher net income and higher stock-based compensation and depreciation and amortization, and a higher income tax provision offset in part by lower interest expense in the current quarter.

Previous wording

Adjusted EBITDA for the DDS segment was $12.1 million and $2.2 million for the three months ended September 30, 2024 and 2023, respectively. The $9.9 million increase in Adjusted EBITDA in the DDS Segment was due to higher net income and higher depreciation and amortization, offset in part by a change in income tax provision resulting from the release of the valuation allowance on our U.S. deferred tax assets, lower interest expense and stock-based compensation in the current quarter.

Current wording

Adjusted EBITDA for the DDS segment was $11.5 million and $2.2 million for the three months ended March 31, 2025 and 2024, respectively. The $9.3 million increase in Adjusted EBITDA in the DDS Segment was due to higher net income and higher stock-based compensation and depreciation and amortization, and a higher income tax provision offset in part by lower interest expense in the current quarter.

Previous wording

Adjusted EBITDA for the Synodex segment was $0.5 million and $0.1 million for the three months ended September 30, 2024 and 2023, respectively. The $0.4 million increase in Adjusted EBITDA in the Synodex segment was due to higher net income in the current quarter.

Current wording

Adjusted EBITDA for the Agility segment was $0.7 million and $1.1 million for the three months ended March 31, 2025 and 2024, respectively. The $0.4 million decrease in Adjusted EBITDA in the Agility segment was due to lower net income in the current quarter.

Previous wording

On September 30, 2024, we had cash and cash equivalents of $26.4 million, of which $9.8 million was held by our foreign subsidiaries, and $16.6 million was held in the United States. Despite the passage of the new tax law under which we may repatriate funds from overseas after paying the toll charge, it is our intent, as of September 30, 2024, to indefinitely reinvest the overseas funds in our foreign subsidiaries.

Current wording

On March 31, 2025, we had cash and cash equivalents of $56.6 million, of which $17.3 million was held by our foreign subsidiaries, and $39.3 million was held in the United States. Despite the passage of the new tax law under which we may repatriate funds from overseas after paying the toll charge, it is our intent, as of March 31, 2025, to indefinitely reinvest the overseas funds in our foreign subsidiaries.

Previous wording

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of September 30, 2024, we had working capital of approximately $25.0 million, as compared to working capital of approximately $9.1 million as of December 31, 2023. The increase in working capital is due to increased collections from higher revenues and proceeds from stock option exercises in the period, offset by capital expenditures during the period to build future capacity.

Current wording

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of March 31, 2025, we had working capital of approximately $53.2 million, as compared to working capital of approximately $41.5 million as of December 31, 2024. The increase in working capital is due to increased collections from higher revenues and proceeds from stock option exercises in the period, offset by capital expenditures during the period to build future capacity.

Previous wording

On August 8, 2024, we filed a Registration Statement on Form S-3 (Registration No. 333-281379) (the “Form S-3”) with the SEC. The Form S-3, which includes a base prospectus, allows us to offer and sell, from time to time, in one or more offerings, common stock, preferred stock, debt securities, warrants or units up to an aggregate public offering price of $50.0 million. On September 16, 2024 we filed Amendment No.1 to the Form S-3. The Form S-3 was declared effective by the SEC on October 10, 2024. The Form S-3 is intended to preserve our flexibility to raise capital from time to time, if and when needed.

Current wording

On August 8, 2024, we filed a Registration Statement on Form S-3 (Registration No. 333-281379) (the “Form S-3”), as amended on September 16, 2024, and declared effective on October 10, 2024, with the SEC, which includes a base prospectus that allows us to offer and sell, from time to time, in one or more offerings, common stock, preferred stock, debt securities, warrants or units up to an aggregate public offering price of $50.0 million. The Form S-3 is intended to preserve our flexibility to raise capital from time to time, if and when needed.

Previous wording

Cash provided by our operating activities for the nine months ended September 30, 2024 was $17.7 million resulting from net income of $18.4 million, adjusted for non-cash expenses of $1.9 million and a decrease in working capital of $2.6 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Current wording

Cash provided by our operating activities for the three months ended March 31, 2025 was $10.9 million resulting from net income of $7.8 million, adjusted for non-cash expenses of $5.0 million and a decrease in working capital of $1.9 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Previous wording

Cash provided by our operating activities for the nine months ended September 30, 2023 was $5.8 million resulting from our net loss of $2.5 million, adjusted for non-cash expenses of $7.1 million and an increase in working capital of $1.2 million. Refer to the condensed consolidated statements of cash flows for further details.

Current wording

Cash provided by our operating activities for the three months ended March 31, 2024 was $6.8 million resulting from our net income of $1.0 million, adjusted for non-cash expenses of $2.6 million and an increase in working capital of $3.2 million. Refer to the Condensed Consolidated Statements of Cash Flows for further details.

Previous wording

For the nine months ended September 30, 2024 and 2023, cash used in our investing activities was $5.5 million and $3.8 million, respectively. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the nine months ended September 30, 2024 amounting to $5.5 million consisted of $3.2 million for the DDS segment, $1.5 million for the Agility segment and $0.8 million for the Synodex segment.

Current wording

For the three months ended March 31, 2025 and 2024, cash used in our investing activities was $2.4 million and $1.3 million, respectively. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the three months ended March 31, 2025 amounting to $2.4 million consisted of $1.5 million for the DDS segment, $0.6 million for the Agility segment and $0.3 million for the Synodex segment.

Previous wording

During the next 12 months, it is anticipated that capital expenditures for capitalized developed software and ongoing technology, equipment and infrastructure upgrades will approximate to $6.0 million, a portion of which we may finance.

Current wording

During the next 12 months, it is anticipated that capital expenditures for capitalized developed software and ongoing technology, equipment and infrastructure upgrades will approximate to $11.0 million, a portion of which we may finance.

Previous wording

Cash provided by financing activities for the nine months ended September 30, 2023 was $2.8 million primarily from proceeds of stock option exercises of $3.1 million, offset in part by payment of long-term obligations of $0.3 million.

Current wording

Cash provided by financing activities for the three months ended March 31, 2025 was $0.9 million primarily from proceeds of stock option exercises of $1.0 million, offset in part by payment of long-term obligations of $0.1 million.