Octave Intelligence plc

06/04/2026 | Press release | Distributed by Public on 06/04/2026 06:16

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section should be read in conjunction with the Condensed Combined Financial Statements and accompanying Notes included under Item 1. Financial Statements of this Form 10-Q and the Combined Financial Statements and accompanying Notes and related "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the three years ended December 31, 2025 included in the Information Statement. See the sections of this Form 10-Q titled "Note About Forward-looking Statements" and "Risk Factors" for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause future results to differ materially from those reflected in this section. The financial information discussed below and included in this Form 10-Q may not necessarily reflect what our financial condition, results of operations or cash flows would have been had we been a standalone company during the periods presented or what our financial condition, results of operations and cash flows may be in the future.
OVERVIEW
Business Overview
Octave provides a suite of software solutions that help organizations design, build, operate, and protect their physical assets, people, and critical infrastructure. These workflow environments often involve different teams, specialized tools, and large volumes of information that are difficult to integrate or interpret without context. When data is organized into separate systems or isolated workflows, decision making slows down, quality issues are harder to identify, and teams may miss early signs of risk or system failure.
Our platform connects data, events, and workflows across these environments and applies context-aware intelligence to help customers understand what is happening, what may happen next, and how actions in one area affect conditions in another. By providing a clearer picture of current and emerging conditions, our software helps optimize the performance and reliability of the systems that teams depend on so they can act quicker and reduce risk. We refer to our suite of software solutions collectively as our platform, noting that different components of the software architecture are at various stages of technical integration and interoperability.
Spin-off from Hexagon
On March 4, 2025, Hexagon announced that its board of directors had directed management to prepare for the spin-off of the Octave business into an independent, publicly-traded company through a tax-free, from both a U.S federal income and Swedish tax perspective, pro rata distribution of all the outstanding share capital of Octave to Hexagon shareholders via a Lex-ASEA distribution.
On April 24, 2026, the general meeting of shareholders of Hexagon approved the Distribution of the Octave business into a separate publicly-traded company named Octave Intelligence plc.
On May 22, 2026, the spin-off was consummated by means of a tax-free pro rata distribution (the "Distribution") wherein each Hexagon shareholder of record on May 22, 2026 (the "Record Date") received one (1) Octave Class A Ordinary Share for every ten (10) Hexagon Class A Shares and one (1) Octave Class B Ordinary Share for every ten (10) Hexagon Class B Shares held. Octave Class A Ordinary Shares were delivered to holders of Hexagon Class A Shares, Octave Class B Ordinary Shares were delivered to holders of Hexagon Class B Shares, other than affiliates of Hexagon, in the form of Swedish Depository Receipts (the "Octave SDRs"), and Octave Class B Ordinary Shares were delivered to holders of Hexagon Class B Shares that are Hexagon affiliates in book-entry form via Octave's transfer agent. Following the Distribution, Hexagon does not beneficially own any Octave ordinary shares.
Immediately following the Distribution, there were 11,025,000 Octave Class A Ordinary Shares and 257,412,788 Octave Class B Ordinary Shares, for a total of 268,437,788 Octave ordinary shares, outstanding. Non-affiliate Hexagon shareholders on the Record Date received Octave Class B Shares via 210,003,594 Octave SDRs delivered through Euroclear Sweden that are listed on Nasdaq Stockholm under the ticker symbol "OCTV SDB," while affiliates of Hexagon received 47,409,194 Octave Class B Shares in book entry form via Octave's transfer agent. Of the initial 210,003,594 Octave SDRs delivered in respect of the initial distribution, 5,713,266 Octave SDRs were converted at the request of the holders thereof into Octave Class B Shares delivered on May 28, 2026. From time to time, holders of Octave SDRs may convert such interests into Octave Class B Shares pursuant to the procedures established in the General Terms and Conditions for the Octave SDRs, as previously disclosed. The Octave Class B Shares are listed under the ticker symbol "OCTV" on the Nasdaq Global Select Market in New York.
Relationship with Hexagon
The Condensed Combined Financial Statements included herein are derived from Hexagon's historical accounting records and presented on a standalone basis as if the Octave operations had been conducted independently from Hexagon. The Condensed Combined Financial Statements are prepared in accordance with U.S. GAAP and Hexagon's historical accounting policies, by aggregating financial information from the components of Octave's and Hexagon's accounting records directly attributable to Octave. The Condensed Combined Financial Statements include all revenues and costs directly attributable to the Octave business. Historically, Hexagon provided certain corporate functions to Octave and costs associated with these functions were allocated to Octave. These functions include, but are not limited to, corporate communications, executive management, legal, human resources, treasury, finance, accounting, information technology, and the related benefit costs associated with such functions, such as stock-based compensation. The costs of such services were allocated to Octave based on direct usage when identifiable, with the remainder allocated on a pro rata basis of revenue of Octave and Hexagon. Octave and Hexagon believe the basis on which these expenses have been allocated are a reasonable reflection of the utilization of services provided to, or the benefit received by, Octave during the periods presented; however, they may not be indicative of the actual expense that would have been incurred had Octave been operating as a standalone company for the periods presented.
Actual costs that may have been incurred if Octave had been a standalone company would depend on a number of factors, including the organizational structure, pricing power, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and corporate infrastructure.
In connection with the Distribution, we entered into certain agreements with Hexagon, including a Distribution Agreement, Tax Disaffiliation Agreement, Employee Matters Agreement, and Master Transition Services Agreement. Under the Master Transition Services Agreement, we generally expect to be able to utilize Hexagon's services for a transitional period following the Distribution before we replace these services over time with services supplied either internally or by third parties. The expenses for the services may vary from the historical costs directly billed and allocated to us for the same services.
We expect to continue to incur certain costs in connection with our establishment as a standalone public entity (the "Separation-Related Costs"). The Separation-Related Costs include non-recurring expenses associated with the separation and stand-up of functions required to operate as a standalone public entity. These non-recurring costs relate primarily to applicable employee related costs, system separation and implementation costs, business and facilities separation, development of our brand and other matters. The Separation-Related Costs are expected to continue through at least fiscal year 2027. Additionally, we will incur increased costs as a result of becoming an independent, publicly-traded company, primarily from establishing or expanding the corporate support for our businesses, including information technology, human resources, treasury, tax, internal audit, risk management, equity-based compensation programs, accounting and financial reporting, investor relations, governance, legal, procurement and other services.
KEY DRIVERS
Impact of Foreign Currency Exchange on Results of Operations
Our operations are internationally diversified, and our results of operations have been, and we expect in the future will be, affected by changes in foreign currency exchange rates. For the three months ended March 31, 2026, and 2025, approximately 54% and 49%, respectively, of our total revenues and 36% and 41%, respectively, of our total operating expenses were denominated in a currency other than the U.S. dollar. Our most significant currencies outside of the U.S. dollar are denominated in euro, Canadian dollar, Chinese renminbi, Indian rupee, British pound and Australian dollar. Other than the natural hedge attributable to matching revenue and expenses in the same currencies, we did not hedge foreign currency exposure in these historical periods.
We identify the effects of foreign currency on our operations and present constant currency information because we believe exchange rates are an important factor in understanding period-over-period comparisons and enhance the understanding of our results and evaluations of our performance. Refer to the "Non-GAAP Financial Measures" section for additional information, including our definition and our use of constant currency.
Revenue
We generate revenue through subscriptions, perpetual licenses, professional services and other offerings. Our revenue base is well-diversified across account types, industries, and geographic regions. Excluding the impact of acquisitions, our primary sources of revenue growth come from increased subscriptions revenue within our long-standing client base, particularly through expanded usage of existing solutions, as well as adoption of new product offerings by those clients and subscriptions from new customers.
We anticipate subscriptions will continue to represent a significant majority of new arrangements, including customers migrating from existing license arrangements to subscription services, in future periods. Due to the ratable recognition of subscriptions revenue, growth in subscriptions revenue will lag behind the growth of subscription orders and will impact the comparative growth of our reported revenue on a quarter-over-quarter basis.
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the periods presented:
Three Months Ended March 31,
2026 2025
Revenue:
Subscriptions $ 279,180 $ 258,832
Licenses 35,125 42,639
Subscriptions and licenses 314,305 301,471
Services and other 72,196 81,333
Total revenue 386,501 382,804
Cost of revenue:
Cost of subscriptions and licenses 43,786 39,484
Cost of services and other 45,037 60,078
Total cost of revenue 88,823 99,562
Gross profit 297,678 283,242
Operating expenses:
Research and development 47,486 43,402
Sales and marketing 96,520 88,638
General and administrative 42,592 36,392
Amortization of intangible assets 42,993 37,353
Other operating expense, net 4,453 3,553
Total operating expenses 234,044 209,338
Income from operations 63,634 73,904
Other income, net 348 551
Income before income tax 63,982 74,455
Provision for income taxes 16,601 14,969
Net income $ 47,381 $ 59,486
Revenue
The volume, mix, and duration of contract types starting or renewing in any given period may have a material impact on revenue in the period, and as a result can impact the comparability of reported revenue period-over-period.
Revenue by type is as follows:
Three Months Ended March 31,
2026 2025
Revenue:
Subscription licenses $ 72,362 $ 74,167
SaaS 84,669 67,849
Maintenance subscription 122,149 116,816
Subscriptions
279,180 258,832
Licenses
35,125 42,639
Subscriptions and licenses
314,305 301,471
Services and other
72,196 81,333
Total revenue
$ 386,501 $ 382,804
Revenue by type, as a percentage of total revenue, is as follows:
Three Months Ended March 31,
2026 2025
Revenue:
Subscription licenses 19 % 19 %
SaaS 22 % 18 %
Maintenance subscription 31 % 31 %
Subscriptions
72 % 68 %
Licenses
9 % 11 %
Services and other
19 % 21 %
Total revenue 100 % 100 %
Revenue by geographic region, based upon the location of the end customer, is as follows:
Three Months Ended March 31,
2026 2025
Americas: (1)
United States $ 145,892 $ 160,489
Other Americas 41,853 35,911
EMIA (2)
145,520 132,200
APAC (3)
53,236 54,204
Total revenue $ 386,501 $ 382,804
___________________
(1)Americas includes the United States, Canada, and Latin America.
(2)EMIA includes Europe, Middle East, India, and Africa.
(3)APAC includes the Asia-Pacific region, excluding India.
Operations in Ireland, our country of domicile, are not material in all periods presented.
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Revenue increased by $3.7 million or 1%, primarily due to organic sales increases and from favorable currency impacts, this was partially offset by impacts of the divestiture of non-core businesses which resulted in a 4% negative impact over the prior year. Revenue in EMIA grew 10%, while revenue in Americas and APAC declined by 4% and 2%, respectively. Subscriptions revenue growth was the primary driver for the overall portfolio, led by SaaS sales which grew 25% with continued demand for SaaS offerings, followed by maintenance subscription growth of 5% from a focus on annual increases to contract values, partially offset by a slight decline in subscription licenses of 2% due to market headwinds. Licenses sales slowed with an 18% decline due to a customer demand shift to SaaS and subscription licenses. Services and other declined by 11% due to the divestiture of non-core businesses that occurred during the second and third quarters of the prior year.
Cost of Revenue and Operating Expenses
Management continuously assesses our cost structure to ensure an optimal balance of personnel necessary to support revenue levels, investment in innovation and the associated infrastructure necessary to support business operations and continuity, including investments in certain public company functions necessary to operate as a standalone business.
Cost of Revenue
Three Months Ended March 31,
2026 2025
Total cost of revenue
$ 88,823 $ 99,562
Gross profit percentage
77 % 74 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Cost of revenue decreased by $10.7 million or 11%, primarily due to the reduction in services and other labor and associated delivery costs that supported the divestiture of non-core businesses. This was partially offset by an increase in cloud platform costs associated with public cloud infrastructure providers and general labor costs. As a result, gross profit margin improved from 74% to 77%, and when coupled with the growth in revenue, gross profit increased by $14.4 million or 5%.
Research and Development Expenses
Three Months Ended March 31,
2026 2025
Research and development
$ 47,486 $ 43,402
Percentage of total revenue
12 % 11 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Research and development expenses increased by $4.1 million or 9%, primarily due to higher salaries and wages driven by wage inflation, increased hiring of technical personnel, and greater investments in development tools to support development efforts. Capitalization of software development costs declined as a proportion of overall expenditures.
Sales and Marketing Expenses
Three Months Ended March 31,
2026 2025
Sales and marketing
$ 96,520 $ 88,638
Percentage of total revenue
25 % 23 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Sales and marketing expenses increased by $7.9 million or 9%, primarily due to higher salaries and wages driven by increased marketing costs, wage inflation, additional hiring of sales and sales support personnel, and increased investments in sales enablement technology.
General and Administrative Expenses
Three Months Ended March 31,
2026 2025
General and administrative $ 42,592 $ 36,392
Percentage of total revenue 11 % 10 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
General and administrative expenses increased by $6.2 million or 17%, primarily due to higher salaries and wages driven by wage inflation, increased hiring to support public company functions, an increase in the allowance for doubtful accounts, and a general increase in information technology costs.
Amortization of Intangible Assets
Three Months Ended March 31,
2026 2025
Amortization of intangible assets $ 42,993 $ 37,353
Percentage of total revenue 11 % 10 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Amortization of intangible assets increased by $5.6 million or 15%, primarily due to incremental new releases of developed product solutions for sale.
Other Operating Expense, Net
Three Months Ended March 31,
2026 2025
Other operating expense, net $ 4,453 $ 3,553
Percentage of total revenue 1 % 1 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Other operating expense increased by $0.9 million or 25%, primarily due to an increase in restructuring charges associated with certain cost reduction actions to offset investments in public company functions, partially offset by a decrease in contingent consideration fair value remeasurement gains.
Other Income, Net
Three Months Ended March 31,
2026 2025
Other income, net $ 348 $ 551
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Other income, net has remained relatively flat for the three months ended March 31, 2026 and 2025.
Provision for Income Taxes
Three Months Ended March 31,
2026 2025
Income before income taxes $ 63,982 $ 74,455
Provision for income taxes $ 16,601 $ 14,969
Effective tax rate 26 % 20 %
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
For the three months ended March 31, 2026, the effective tax rate was higher as compared to the three months ended March 31, 2025, primarily due to the jurisdictional mix of earnings and effects of cross-border transactions in preparation for the Distribution.
NON-GAAP FINANCIAL MEASURES
Below are definitions and reconciliations of certain non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP. Management believes that, when considered together with reported amounts, these measures are useful to investors and management in understanding our ongoing operations and in the analysis of ongoing operating trends. Management believes these non-GAAP financial measures provide investors with a more meaningful measure of company performance period to period, align the measures to how management evaluates performance internally, and make it easier for investors to compare our performance to peers. These measures should be considered in addition to, and not as replacements for, the most directly comparable U.S. GAAP measure. The non-GAAP financial measures we use are as follows:
Adjusted Income from Operations-Income from Operations
Adjusted income from operations is defined as Income from operations adjusted for amortization of acquired intangibles; amortization of developed technologies; stock-based compensation expense; impairment charges; acquisition costs and charges; restructuring charges; stand-up costs; and select other non-recurring items.
Adjusted Operating Margin-Operating Margin
Adjusted operating margin is defined as Operating margin adjusted for amortization of acquired intangibles; amortization of developed technologies; stock-based compensation expense; impairment charges; acquisition costs and charges; restructuring charges; stand-up costs; and select other non-recurring items.
Adjusted Net Income-Net Income
Adjusted net income is defined as Net income adjusted for amortization of acquired intangibles; amortization of developed technologies; stock-based compensation expense; impairment charges; acquisition costs and charges; restructuring charges; stand-up costs; select other non-recurring items; and a corresponding adjustment to income tax expense for the impact of these adjustments.
Free Cash Flow-Cash Flow from Operations
Free cash flow is defined as cash flow from operations net of capital expenditures, including purchases of property and equipment and capitalization of software development costs. These expenditures consist primarily of facility improvements, office equipment, computer equipment, and software development costs. We believe that free cash flow, in conjunction with cash from operations, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations. Free cash flow is not a measure of cash available for discretionary expenditures.
Free Cash Flow Margin-Cash Flow from Operations Margin
Free cash flow margin is defined as free cash flow divided by revenue. We believe that free cash flow margin, in conjunction with cash from operations and free cash flow, is a useful measure of liquidity since capital expenditures are a necessary component of ongoing operations. Free cash flow is not a measure of cash available for discretionary expenditures.
Description of Adjustments
Amortization of acquired intangibles and amortization of developed technologies are non-cash expenses that are impacted by the timing and magnitude of our acquisitions and additions to developed technologies. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Stock-based compensation expense is a non-cash expense relating to equity-based awards issued to executive officers, employees and outside directors, consisting of performance share awards. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Impairment charges are non-cash expenses related to long-lived assets for which it was determined the carrying value of such assets was partially or fully unrecoverable. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Acquisition costs and charges are direct costs of potential and completed acquisitions and expenses related to acquisition integration activities, including transaction fees, due diligence costs, severance and professional fees. Subsequent adjustments to our initial estimated amount of contingent consideration associated with specific acquisitions are also included within acquisition costs and charges. The occurrence and amount of these costs and charges varies depending on the timing and size of acquisitions and subsequent adjustments to our initial estimated amount of contingent consideration. We believe the assessment of our operations excluding these costs and charges is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Restructuring charges include excess facility restructuring costs; impairment and accretion expenses related to the lease assets of exited facilities; sublease income from previously impaired facilities; severance charges resulting from employee reduction actions; and third-party professional consulting fees related to modifications of our business strategy. These charges vary in size based on restructuring plans and duration. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Stand-up costs include expenses associated with the spin-off and stand up of functions required to operate as a standalone public entity, these costs primarily relate to system implementation expenses, legal and consulting costs, development of our brand and other matters. We believe the assessment of our operations excluding these costs is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Other non-recurring items include selected costs and charges that do not naturally conform to one of the adjustments above, including certain litigation matters net of expected insurance recoveries. We believe the assessment of our operations excluding these costs and charges is relevant to our assessment of internal operations and comparisons to the performance of other companies in our industry.
Income tax adjustments include the tax impact of the items excluded from Adjusted net income.
We use these non-GAAP financial measures, and we believe that they assist our investors, to make period-to-period comparisons of our operational performance because they provide a view of our operating results and cash flows without items that are not, in our view, indicative of our core operating results. We believe that these non-GAAP financial measures, when used in conjunction with the most comparable U.S. GAAP measure, help illustrate underlying trends in our business, and we use the measures to establish budgets and operational goals (communicated internally and externally) for managing our business and evaluating our performance. We believe that providing non-GAAP financial measures also affords investors a view of our operating results and cash flows that may be more easily compared to the results of other companies in our industry that use similar financial measures to supplement their U.S. GAAP results.
The items excluded from the non-GAAP financial measures often have a material impact on our financial results, certain of those items are non-recurring, and other such items often recur. Accordingly, the non-GAAP financial measures included herein should be considered in addition to, and not as a substitute for or superior to, the comparable measures prepared in accordance with U.S. GAAP. The following tables reconcile each of these non-GAAP financial measures to its most closely comparable U.S. GAAP measure on our financial statements.
NON-GAAP FINANCIAL MEASURES
Three Months Ended March 31,
2026 2025
Income from operations $ 63,634 $ 73,904
Amortization of acquired intangibles
18,023 18,443
Amortization of developed technologies
25,256 19,195
Stock-based compensation expense
3,482 3,529
Impairment charges
- -
Acquisition costs and charges
(2,622) (1,538)
Restructuring charges
3,727 3,383
Stand-up costs 1,068 -
Other non-recurring items 3,000 -
Adjusted income from operations $ 115,568 $ 116,916
Operating margin 16 % 19 %
Amortization of acquired intangibles
5 5
Amortization of developed technologies
7 5
Stock-based compensation expense
1 1
Impairment charges
- -
Acquisition costs and charges
(1) -
Restructuring charges
1 1
Stand-up costs - -
Other non-recurring items 1 -
Adjusted operating margin 30 % 31 %
Net income $ 47,381 $ 59,486
Amortization of acquired intangibles
18,023 18,443
Amortization of developed technologies
25,256 19,195
Stock-based compensation expense
3,482 3,529
Impairment charges
- -
Acquisition costs and charges
(2,622) (1,538)
Restructuring charges
3,727 3,383
Stand-up costs 1,068 -
Other non-recurring items 3,000 -
Tax impacts
(10,295) (8,919)
Adjusted net income $ 89,020 $ 93,579
Cash flow from operations $ 115,445 $ 125,509
Purchases of property and equipment
(2,371) (1,509)
Capitalization of software development costs
(31,060) (32,351)
Free cash flow $ 82,014 $ 91,649
Operating cash flow margin 30 % 33 %
Purchases of property and equipment
(1) -
Capitalization of software development costs
(8) (9)
Free cash flow margin 21 % 24 %
Constant Currency
Constant currency is a non-GAAP financial measure that presents our revenue excluding the estimated effects of foreign currency exchange rate fluctuations. A significant amount of our operations is conducted in foreign currencies. As a result, the comparability of the financial results reported in U.S. dollars is affected by changes in foreign currency exchange rates. We use constant currency to evaluate the underlying performance of the business, and we believe it is helpful for investors to present operating results on a comparable basis period-over-period to evaluate its underlying performance.
In reporting period-over-period results, we calculate the effects of foreign currency fluctuations and constant currency information by translating current and prior period results on a functional currency basis to our reporting currency using the prior period average foreign currency exchange rates from which the transaction occurred.
Reconciliation of revenue to revenue in constant currency for the three months ended March 31, 2026:
Three months ended March 31, 2026 Three months ended March 31, 2025
Actual Impact of Foreign Exchanges at 2025 Rates Constant Currency Actual Impact of Foreign Exchanges at 2025 Rates Constant Currency
Revenue:
Subscriptions
$ 279,180 $ 10,502 $ 268,678 $ 258,832 $ - $ 258,832
Licenses
35,125 1,321 33,804 42,639 - 42,639
Subscriptions and licenses
314,305 11,823 302,482 301,471 - 301,471
Services and other
72,196 2,716 69,480 81,333 - 81,333
Total revenue
$ 386,501 $ 14,539 $ 371,962 $ 382,804 $ - $ 382,804
LIQUIDITY AND CAPITAL RESOURCES
Sources of Historical Liquidity
We have historically generated positive cash flow from operations; however, as part of Hexagon, Octave has been dependent upon Hexagon for all of its working capital and financing requirements. Hexagon uses a centralized approach to cash management and financing of its operations. Accordingly, a substantial portion of Octave's cash accounts are regularly cleared to Hexagon at Hexagon's discretion, and Hexagon funds its operating and investing activities as needed. This arrangement is not reflective of the manner in which the Octave business would have been able to finance its operations had it been a standalone business separate from Hexagon during the periods presented. Transfers of cash between Hexagon and Octave are included within Net transfers (to) from Parent in the Condensed Combined Statements of Cash Flows and the Condensed Combined Statements of Equity.
Revolving Credit Facility and Term Loan Facility
In connection with the Distribution, on April 27, 2026, the Company entered into a senior unsecured credit facility (the "Credit Agreement") consisting of (a) a five-year senior unsecured multi-currency revolving credit facility in an aggregate principal amount of up to $500 million (the "Revolving Credit Facility") and (b) a four-year senior unsecured term loan facility (the "Term Loan Facility" and, together with the Revolving Credit Facility, the "Credit Facilities") consisting of (i) a U.S. dollar-denominated term loan in an amount of up to $350 million and (ii) a euro-denominated term loan in an amount of up to €150 million.
Borrowings under the Credit Facilities bear interest, at the Company's option, at variable rates based on Term Secured Overnight Financing Rate ("SOFR") or an alternative base rate for loans denominated in U.S. dollars, Euro Interbank Offered Rate ("EURIBOR") for loans denominated in euro or Daily Simple Sterling Overnight Index Average ("SONIA") for Revolving Credit Facility loans denominated in pounds sterling, in each case plus an applicable margin.
The applicable margin varies based on the Company's consolidated leverage ratio and ranges from (i) 125 to 175 basis points in the case of Term SOFR loans, EURIBOR loans and Daily Simple SONIA loans and (ii) 25 to 75 basis points in the case of loans bearing interest at the alternative base rate. Under the Credit Agreement, the Company is required to maintain a maximum consolidated leverage ratio as of the end of each fiscal quarter of no more than 3.50 to 1.00. The Company may elect to increase the maximum permitted consolidated leverage ratio to 4.00 to 1.00 for the fiscal quarter during which a material acquisition occurs and for the following three fiscal quarters.
The Credit Agreement includes representations and warranties, events of default and affirmative and negative covenants that are customary for similar financings, including, among other things and subject to certain significant exceptions, limitations on liens, indebtedness, mergers and asset sales, as well as customary reporting and compliance obligations.
In connection with the Distribution, on the Distribution date the Company fully drew the Term Loan Facility and borrowed approximately $120 million and €25 million under the Revolving Credit Facility. The proceeds from the borrowings under the Credit Facilities were used to fund a cash payment of $625 million to Hexagon in connection with the Distribution.
CASH FLOW ACTIVITY
Summarized cash flow information for the three months ended March 31, 2026 and 2025 is as follows:
Three Months Ended March 31,
2026 2025
Net cash provided by operating activities
$ 115,445 $ 125,509
Net cash used in investing activities
$ (33,074) $ (45,566)
Net cash used in financing activities
$ (60,841) $ (75,104)
Operating Activities
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Net cash provided by operating activities decreased by $10.1 million, primarily due to a decrease in net income of $12.1 million. The decrease in non-cash adjustments of $9.0 million was largely offset by an increase in net cash flows from the change in operating assets and liabilities of $11.0 million. The decrease in non-cash adjustments was primarily driven by an increase in depreciation and amortization, partially offset by the timing of restructuring charges and movement in deferred income tax expense. The increase in net cash flows from the change in operating assets and liabilities was primarily due to timing of collections on receivables and the timing of cash disbursements for operating assets and liabilities, partially offset by timing of recognition of deferred revenue.
Investing Activities
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Net cash used in investing activities decreased by $12.5 million primarily due to the absence of an acquisition completed in the current period as compared to aggregate consideration paid, net of cash acquired, of $11.7 million in the prior period.
Financing Activities
For the three months ended March 31, 2026 compared with the three months ended March 31, 2025
Net cash used in financing activities decreased by $14.3 million primarily due to a decrease in net transfers to Hexagon.
Cash and Cash Requirements
As of March 31, 2026 and December 31, 2025, our cash and cash equivalents totaled $175.5 million and $156.1 million, respectively. Our ability to generate positive cash flows from operations is dependent on general economic conditions, and the competitive environment in our industry, and is subject to the business and other risk factors described in the section of this Form 10-Q titled "Risk Factors" and under the section titled "Risk Factors" in the Information Statement. If we are unable to generate sufficient cash flows from operations or otherwise comply with the terms of any external borrowings, we may be required to seek additional financing alternatives.
We believe that we have sufficient liquidity based on our current cash position, cash flows from operations and expected future financing to meet our expected payments related to our material cash requirements for at least the next 12 months.
Cash and Cash Equivalents Held by non-U.S. Subsidiaries
Cash and cash equivalents held by the Company's non-U.S. subsidiaries as of March 31, 2026 and December 31, 2025 were $155.1 million and $141.8 million, respectively.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING ESTIMATES
There were no material changes in critical accounting estimates from those disclosed in the Information Statement section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
OTHER MATTERS
See Note 2, "Summary of Significant Accounting Policies," of the Condensed Combined Financial Statements for a discussion of recent accounting pronouncements.
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