[Executive Summary & Business Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Business%20Highlights) [Second Quarter 2025 Performance Highlights](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Highlights) Designer Brands Inc. reported a sequential improvement in comparable sales for Q2 2025, achieving positive diluted EPS and adjusted diluted EPS with growth year-over-year, despite decreases in net sales, total comparable sales, and gross profit compared to the prior year - The company achieved a **280-basis point sequential improvement** in comparable sales from the first quarter of 2025[2](index=2&type=chunk) Second Quarter 2025 Key Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 (million USD) | Q2 2024 (million USD) | Change (million USD) | Change (%) | | :-------------------------- | :------ | :------ | :----- | :--------- | | Net Sales | $739.8 | $771.9 | $(32.1) | (4.2)% | | Total Comparable Sales | (5.0)% | (1.4)% | (3.6)% | - | | Gross Profit | $322.9 | $339.5 | $(16.6) | (4.9)% | | Gross Margin | 43.7% | 44.0% | (0.3)% | (30) bps | | Diluted EPS | $0.22 | $0.24 | $(0.02) | (8.3)% | | Adjusted Diluted EPS | $0.34 | $0.29 | $0.05 | 17.2% | [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Doug Howe highlighted the positive impact of targeted operational initiatives, leading to a strong start for the back-to-school season in U.S. Retail and improvements in traffic and conversion, while acknowledging ongoing macroeconomic volatility and uncertainty - Targeted operational initiatives supported a **strong start to the back-to-school season** within the U.S. Retail segment[2](index=2&type=chunk) - The company observed gradual improvements in traffic and a notable uptick in conversion[2](index=2&type=chunk) - Ongoing efforts include strengthening the brand, driving awareness through marketing investments, and optimizing the omni-channel model[2](index=2&type=chunk) - Management remains committed to disciplined execution amidst macroeconomic volatility, extended tariff increases, and caution in discretionary spending[2](index=2&type=chunk) [Consolidated Financial Results](index=6&type=section&id=Consolidated%20Financial%20Results) [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the second quarter of 2025, Designer Brands Inc. reported a decrease in net sales, gross profit, and net income attributable to Designer Brands Inc. compared to the prior year, with operating profit also declining and diluted EPS decreasing from $0.24 to $0.22 Condensed Consolidated Statements of Operations (Three Months Ended) | Metric | August 2, 2025 (thousands USD) | August 3, 2024 (thousands USD) | Change (thousands USD) | Change (%) | | :------------------------------------------ | :------------- | :------------- | :----- | :--------- | | Net sales | $739,762 | $771,900 | $(32,138) | (4.2)% | | Gross profit | $322,933 | $339,549 | $(16,616) | (4.9)% | | Operating profit | $26,583 | $28,589 | $(2,006) | (7.0)% | | Net income (loss) attributable to Designer Brands Inc. | $10,827 | $13,824 | $(2,997) | (21.7)% | | Diluted earnings (loss) per share | $0.22 | $0.24 | $(0.02) | (8.3)% | Condensed Consolidated Statements of Operations (Six Months Ended) | Metric | August 2, 2025 (thousands USD) | August 3, 2024 (thousands USD) | Change (thousands USD) | Change (%) | | :------------------------------------------ | :------------- | :------------- | :----- | :--------- | | Net sales | $1,426,671 | $1,518,496 | $(91,825) | (6.0)% | | Gross profit | $618,059 | $669,560 | $(51,501) | (7.7)% | | Operating profit | $19,321 | $37,971 | $(18,650) | (49.1)% | | Net income (loss) attributable to Designer Brands Inc. | $(6,597) | $14,607 | $(21,204) | (145.2)% | | Diluted earnings (loss) per share | $(0.14) | $0.25 | $(0.39) | (156.0)% | [Segment Performance](index=6&type=section&id=Segment%20Performance) Segment performance for Q2 2025 showed mixed results, with U.S. Retail experiencing declines across key metrics, Canada Retail seeing a slight net sales increase but overall declines, and the Brand Portfolio segment facing significant decreases across all key metrics [Net Sales by Segment](index=6&type=section&id=Net%20Sales%20by%20Segment) Consolidated net sales decreased by 4.2% for the three months ended August 2, 2025, with declines in U.S. Retail and Brand Portfolio segments, partially offset by a slight increase in Canada Retail Segment Net Sales (Three Months Ended August 2, 2025 vs. August 3, 2024) | Segment | August 2, 2025 (thousands USD) | August 3, 2024 (thousands USD) | Change (thousands USD) | Change (%) | | :---------------- | :------------- | :------------- | :----- | :--------- | | U.S. Retail | $610,926 | $641,694 | $(30,768) | (4.8)% | | Canada Retail | $75,077 | $74,797 | $280 | 0.4% | | Brand Portfolio | $73,157 | $95,993 | $(22,836) | (23.8)% | | Total Segment Net Sales | $759,160 | $812,484 | $(53,324) | (6.6)% | | Consolidated Net Sales | $739,762 | $771,900 | $(32,138) | (4.2)% | [Comparable Sales by Segment](index=6&type=section&id=Comparable%20Sales%20by%20Segment) Total comparable sales decreased by 5.0% for the three months ended August 2, 2025, with the Brand Portfolio segment's direct-to-consumer channel experiencing the most significant decline Change in Comparable Sales (Three Months Ended August 2, 2025 vs. August 3, 2024) | Segment | August 2, 2025 (%) | August 3, 2024 (%) | | :------------------------------------ | :------------- | :------------- | | U.S. Retail segment | (4.9)% | (1.1)% | | Canada Retail segment | (0.6)% | (3.1)% | | Brand Portfolio segment - direct-to-consumer channel | (29.2)% | (7.0)% | | Total | (5.0)% | (1.4)% | [Gross Profit by Segment](index=7&type=section&id=Gross%20Profit%20by%20Segment) Consolidated gross profit decreased by 4.9% for the three months ended August 2, 2025, with a slight decline in gross margin, and all segments experiencing a decrease in gross profit, particularly the Brand Portfolio Segment Gross Profit (Three Months Ended August 2, 2025 vs. August 3, 2024) | Segment | August 2, 2025 (thousands USD) | August 2, 2025 (% of Segment Net Sales) | August 3, 2024 (thousands USD) | August 3, 2024 (% of Segment Net Sales) | Change (%) | Basis Points Change (bps) | | :-------------------- | :---------------------- | :------------------------------------- | :---------------------- | :------------------------------------- | :--------- | :------------------ | | U.S. Retail | $264,522 | 43.3% | $282,916 | 44.1% | (6.5)% | (80) | | Canada Retail | $34,950 | 46.6% | $35,087 | 46.9% | (0.4)% | (30) | | Brand Portfolio | $18,508 | 25.3% | $26,635 | 27.7% | (30.5)% | (240) | | Consolidated Gross Profit | $322,933 | 43.7% | $339,549 | 44.0% | (4.9)% | (30) | [Operating Profit by Segment](index=7&type=section&id=Operating%20Profit%20by%20Segment) Consolidated operating profit decreased by 7.0% for the three months ended August 2, 2025, with all segments reporting a decline in operating profit, and the Brand Portfolio showing a significant increase in operating loss Segment Operating Profit (Three Months Ended August 2, 2025 vs. August 3, 2024) | Segment | August 2, 2025 (thousands USD) | August 2, 2025 (% of Segment Net Sales) | August 3, 2024 (thousands USD) | August 3, 2024 (% of Segment Net Sales) | Change (%) | Basis Points Change (bps) | | :-------------------- | :---------------------- | :------------------------------------- | :---------------------- | :------------------------------------- | :--------- | :------------------ | | U.S. Retail | $60,211 | 9.9% | $77,573 | 12.1% | (22.4)% | (220) | | Canada Retail | $8,498 | 11.3% | $9,052 | 12.1% | (6.1)% | (80) | | Brand Portfolio | $(3,606) | (4.9)% | $(2,053) | (2.1)% | 75.6% | (280) | | Consolidated Operating Profit | $26,583 | 3.6% | $28,589 | 3.7% | (7.0)% | (10) | [Financial Position & Capital Structure](index=2&type=section&id=Financial%20Position%20%26%20Capital%20Structure) [Condensed Consolidated Balance Sheets](index=10&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of August 2, 2025, Designer Brands Inc. reported an increase in cash and cash equivalents and a decrease in inventories compared to the prior year, with total assets slightly decreasing and total liabilities increasing Condensed Consolidated Balance Sheet Highlights (as of August 2, 2025 vs. August 3, 2024) | Metric | August 2, 2025 (thousands USD) | August 3, 2024 (thousands USD) | Change (thousands USD) | | :-------------------------- | :------------- | :------------- | :----- | | Cash and cash equivalents | $44,937 | $38,834 | $6,103 | | Inventories | $610,876 | $642,783 | $(31,907) | | Total current assets | $751,925 | $798,048 | $(46,123) | | Total assets | $2,061,731 | $2,107,134 | $(45,403) | | Total current liabilities | $573,495 | $619,038 | $(45,543) | | Long-term debt | $509,593 | $458,974 | $50,619 | | Total liabilities | $1,777,720 | $1,748,070 | $29,650 | | Total shareholders' equity | $280,797 | $355,545 | $(74,748) | [Liquidity](index=2&type=section&id=Liquidity) The company's cash and cash equivalents increased year-over-year, and it maintained significant availability under its revolving credit facility, despite an increase in total debt compared to the prior year Liquidity Position (as of August 2, 2025 vs. August 3, 2024) | Metric | August 2, 2025 (million USD) | August 3, 2024 (million USD) | Change (million USD) | | :------------------------------------------------ | :------------- | :------------- | :----- | | Cash and cash equivalents | $44.9 | $38.8 | $6.1 | | Available for borrowings under credit facility | $104.3 | N/A | N/A | | Total Debt | $516.3 | $465.7 | $50.6 | | Inventories | $610.9 | $642.8 | $(31.9) | [Store Count](index=2&type=section&id=Store%20Count) As of August 2, 2025, Designer Brands Inc. operated 668 stores across its U.S. Retail and Canada Retail segments, a slight decrease from the previous year, with a corresponding reduction in total square footage Store Count and Square Footage (as of August 2, 2025 vs. August 3, 2024) | Segment | Stores (count) | Square Footage (thousands sq ft) | Stores (count) | Square Footage (thousands sq ft) | | :---------------------- | :------------------- | :--------------------------- | :------------------- | :--------------------------- | | U.S. Retail - DSW stores | 493 | 9,686 | 499 | 9,879 | | Canada Retail - The Shoe Co. stores | 121 | 618 | 123 | 631 | | Canada Retail - Rubino stores | 28 | 147 | 28 | 149 | | Canada Retail - DSW stores | 26 | 511 | 26 | 511 | | Total number of stores | 668 | 10,962 | 676 | 11,170 | [Financial Outlook & Non-GAAP Reconciliation](index=2&type=section&id=Financial%20Outlook%20%26%20Non-GAAP%20Reconciliation) [2025 Financial Outlook](index=2&type=section&id=2025%20Financial%20Outlook) Due to ongoing macroeconomic uncertainty, particularly concerning global trade policies, Designer Brands Inc. has decided not to reinstate its full-year 2025 financial guidance - The Company has elected not to reinstate full year 2025 guidance due to macroeconomic uncertainty stemming primarily from global trade policies[6](index=6&type=chunk) [Non-GAAP Reconciliation](index=11&type=section&id=Non-GAAP%20Reconciliation) The company provides adjusted non-GAAP financial measures to offer a clearer view of its core operating performance by excluding certain one-time or non-recurring items, with adjusted diluted EPS for Q2 2025 at $0.34, higher than the GAAP diluted EPS of $0.22 Non-GAAP Adjusted Financial Results (Three Months Ended August 2, 2025 vs. August 3, 2024) | Metric | August 2, 2025 (thousands USD) | August 3, 2024 (thousands USD) | Change (thousands USD) | | :-------------------------- | :------------- | :------------- | :----- | | Adjusted operating expenses | $(295,250) | $(309,596) | $14,346 | | Adjusted operating profit | $30,261 | $32,524 | $(2,263) | | Adjusted net income | $16,716 | $17,071 | $(355) | | Adjusted diluted earnings per share | $0.34 | $0.29 | $0.05 | [Non-GAAP Measures Explanation](index=11&type=section&id=Non-GAAP%20Measures%20Explanation) Designer Brands Inc. uses non-GAAP financial measures to supplement GAAP results by adjusting for items not indicative of core operations, such as restructuring costs, acquisition-related costs, impairment charges, and foreign currency transaction losses, to provide better comparability and insight into business trends - Non-GAAP measures adjust for restructuring and integration costs, acquisition-related costs, impairment charges, foreign currency transaction losses, and their net tax impact[24](index=24&type=chunk)[25](index=25&type=chunk) - These measures are used to increase comparability to prior periods, identify business trends, and evaluate operating performance by adjusting for items not indicative of core operations[25](index=25&type=chunk) [Comparable Sales Performance Metric Definition](index=12&type=section&id=Comparable%20Sales%20Performance%20Metric%20Definition) The company defines comparable sales as a key metric for its direct-to-consumer businesses, encompassing sales from stores open for at least 14 months and e-commerce sales, with Canada Retail specifically excluding foreign currency translation impact - Comparable sales include sales from stores in operation for at least 14 months at the beginning of the applicable year[26](index=26&type=chunk) - The metric includes e-commerce sales for U.S. Retail and Canada Retail segments, and direct-to-consumer e-commerce net sales for the Brand Portfolio segment[26](index=26&type=chunk) - Comparable sales for the Canada Retail segment exclude the impact of foreign currency translation[26](index=26&type=chunk) [Company Overview & Legal Disclosures](index=3&type=section&id=Company%20Overview%20%26%20Legal%20Disclosures) [About Designer Brands](index=3&type=section&id=About%20Designer%20Brands) Designer Brands Inc. is a major global designer, producer, and retailer of footwear and accessories, operating through a diversified brand portfolio, a robust omni-channel infrastructure, and over 660 stores in North America, while also engaging in international distribution and private label product development with a commitment to corporate social responsibility - Designer Brands is one of the world's largest designers, producers, and retailers of footwear and accessories, with a mission of being shoe obsessed[10](index=10&type=chunk) - The company's portfolio includes brands such as Topo Athletic, Keds, Vince Camuto, Kelly & Katie, Jessica Simpson, Lucky Brand, Mix No. 6, and Crown Vintage[10](index=10&type=chunk) - Operations include a direct-to-consumer omni-channel infrastructure, national wholesale distribution, a **billion-dollar digital commerce business**, and over **660 DSW, The Shoe Co., and Rubino stores** in North America[10](index=10&type=chunk) - Designer Brands supports the global community by donating over **twelve million pairs of shoes** to Soles4Souls since 2018[11](index=11&type=chunk) [Safe Harbor Statement](index=4&type=section&id=Safe%20Harbor%20Statement) The report contains forward-looking statements subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially, including general economic conditions, consumer preferences, supply chain disruptions, and tariffs, with no undertaking by the company to update these statements - Forward-looking statements are based on current views and expectations and involve known and unknown risks and uncertainties[12](index=12&type=chunk) - Key risk factors include uncertain general economic and financial conditions, supply chain disruptions, tariffs, fluctuating interest rates, and impacts on consumer discretionary spending[12](index=12&type=chunk) - Other risks relate to changing consumer preferences, climate change, execution of business strategies, integration of acquisitions, supplier relationships, distribution systems, cybersecurity, and compliance with laws and regulations[12](index=12&type=chunk)[13](index=13&type=chunk) [Webcast and Conference Call Information](index=3&type=section&id=Webcast%20and%20Conference%20Call%20Information) Designer Brands Inc. hosted a conference call on September 9, 2025, to discuss its financial results, with details provided for live participation and an archived replay, and important information also disseminated via the company's investor website - A conference call was hosted on **September 9, 2025, at 8:30 am Eastern Time**[8](index=8&type=chunk) - Investors and analysts could participate via dial-in or live webcast, with an archived version available until September 23, 2025[8](index=8&type=chunk)[9](index=9&type=chunk) - Important information may be disseminated initially or exclusively via the Company's investor website[9](index=9&type=chunk) [Contact Information](index=12&type=section&id=Contact%20Information) Contact information for investor relations inquiries is provided - Contact for investor relations: Stacy Turnof, DesignerBrandsIR@edelman.com[27](index=27&type=chunk)

[Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements%2E) [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20July%2031%2C%202025%20and%20October%2031%2C%202024%2E) As of July 31, 2025, the company's total assets were **$830.5 million**, a decrease from **$944.1 million** as of October 31, 2024, with both current assets and total liabilities decreasing, and stockholders' equity falling from **$656.9 million** to **$556.2 million** Consolidated Balance Sheets (USD in thousands) | Metric | July 31, 2025 (USD in thousands) | October 31, 2024 (USD in thousands) | | :-------------------------------- | :------------------------------- | :-------------------------------- | | **Assets** | | | | Cash and Cash Equivalents, unrestricted | 174,662 | 148,133 | | Investments - Short-term | - | 109,123 | | Inventories | 104,598 | 113,703 | | Project Assets, net | 224,482 | 242,131 | | Goodwill | - | 4,075 | | Intangible Assets, net | 4,215 | 14,779 | | Total Assets | 830,535 | 944,124 | | **Liabilities and Stockholders' Equity** | | | | Total Current Liabilities | 69,027 | 73,904 | | Long-term Liabilities and Other Liabilities | 119,320 | 130,850 | | Total Liabilities | 205,458 | 216,658 | | Total Stockholders' Equity | 556,171 | 656,922 | - As of July 31, 2025, the company's unrestricted cash and cash equivalents increased to **$174.7 million** from **$148.1 million** as of October 31, 2024, with all short-term investments having matured and no longer held[7](index=7&type=chunk) - Goodwill and certain intangible assets were impaired to zero due to restructuring plans and the cessation of solid oxide technology commercialization activities[7](index=7&type=chunk)[66](index=66&type=chunk)[78](index=78&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss (Three Months Ended July 31, 2025 and 2024)](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20months%20ended%20July%2031%2C%202025%20and%202024%2E) For the three months ended July 31, 2025, total revenue increased by **97%** to **$46.7 million** year-over-year, but operating and net losses significantly widened due to **$64.5 million** in impairment charges and **$4.1 million** in restructuring expenses Consolidated Statements of Operations and Comprehensive Loss (USD in thousands) | Metric (USD in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | | Total Revenue | 46,743 | 23,695 | | Total Cost of Sales | 51,877 | 29,897 | | Gross Loss | (5,134) | (6,202) | | Total Operating Expenses | 90,230 | 27,415 | | Operating Loss | (95,364) | (33,617) | | Net Loss | (91,896) | (35,123) | | Net Loss Attributable to Common Stockholders | (92,456) | (33,460) | | Basic and Diluted Loss Per Share | (3.78) | (1.99) | - Product revenue significantly increased, primarily driven by the delivery and commissioning of **8** fuel cell modules under a Long-Term Service Agreement (LTSA) with GGE, and a sales contract with Ameresco, Inc[130](index=130&type=chunk) - The quarter recognized **$64.5 million** in impairment charges, mainly related to goodwill, in-process intangible assets, property, plant, and equipment, and inventories associated with solid oxide technology, along with **$4.1 million** in restructuring expenses[8](index=8&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss (Nine Months Ended July 31, 2025 and 2024)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20nine%20months%20ended%20July%2031%2C%202025%20and%202024%2E) For the nine months ended July 31, 2025, total revenue increased by **64%** to **$103.1 million** year-over-year, but net loss expanded to **$162 million** with a loss per share of **$7.22** due to impairment and restructuring charges Consolidated Statements of Operations and Comprehensive Loss (USD in thousands) | Metric (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------ | :------------------------------ | :------------------------------ | | Total Revenue | 103,146 | 62,806 | | Total Cost of Sales | 122,922 | 87,807 | | Gross Loss | (19,776) | (25,001) | | Total Operating Expenses | 144,249 | 92,455 | | Operating Loss | (164,025) | (117,456) | | Net Loss | (162,031) | (117,178) | | Net Loss Attributable to Common Stockholders | (160,431) | (86,993) | | Basic and Diluted Loss Per Share | (7.22) | (5.56) | - Product revenue was primarily driven by the delivery and commissioning of **12** fuel cell modules under the LTSA with GGE, and a sales contract with Ameresco, Inc[161](index=161&type=chunk) - Research and development expenses decreased to **$28.6 million**, mainly due to reduced investment in the commercial development of solid oxide power generation and electrolysis platforms, and carbon separation and capture solutions[177](index=177&type=chunk) [Consolidated Statements of Changes in Equity (Three and Nine Months Ended July 31, 2025)](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20three%20and%20nine%20months%20ended%20July%2031%2C%202025%2E) For the nine months ended July 31, 2025, total stockholders' equity decreased from **$657 million** as of October 31, 2024, to **$556 million**, primarily due to net loss and preferred stock dividends, partially offset by common stock issuances and equity incentive plans Consolidated Statements of Changes in Equity (USD in thousands) | Metric (USD in thousands) | Balance as of October 31, 2024 | Balance as of July 31, 2025 | | :------------------------ | :----------------------------- | :-------------------------- | | Common Stock Shares | 20,375,932 | 29,645,294 | | Common Stock Amount | 2 | 3 | | Additional Paid-in Capital | 2,300,031 | 2,357,630 | | Accumulated Deficit | (1,641,550) | (1,799,581) | | Accumulated Other Comprehensive Loss | (1,561) | (1,881) | | Treasury Stock | (1,198) | (1,360) | | Deferred Compensation | 1,198 | 1,360 | | Total Stockholders' Equity | 656,922 | 556,171 | | Noncontrolling Interests | 10,687 | 9,049 | | Total Equity | 667,609 | 565,220 | - For the nine months ended July 31, 2025, approximately **9.2 million** shares of common stock were sold through the Amended Sales Agreement, generating net proceeds of approximately **$51.6 million**[30](index=30&type=chunk)[89](index=89&type=chunk) - Preferred stock dividends were **$2.4 million** for both nine-month periods[9](index=9&type=chunk)[189](index=189&type=chunk) [Consolidated Statements of Changes in Equity (Three and Nine Months Ended July 31, 2024)](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity%20for%20the%20three%20and%20nine%20months%20ended%20July%2031%2C%202024%2E) For the nine months ended July 31, 2024, total stockholders' equity decreased from **$700 million** as of October 31, 2023, to **$685 million**, primarily due to net loss and preferred stock dividends, partially offset by common stock issuances and noncontrolling interest contributions Consolidated Statements of Changes in Equity (USD in thousands) | Metric (USD in thousands) | Balance as of October 31, 2023 | Balance as of July 31, 2024 | | :------------------------ | :----------------------------- | :-------------------------- | | Common Stock Shares | 15,020,872 | 18,461,340 | | Common Stock Amount | 2 | 2 | | Additional Paid-in Capital | 2,199,704 | 2,277,470 | | Accumulated Deficit | (1,515,541) | (1,600,134) | | Accumulated Other Comprehensive Loss | (1,672) | (1,576) | | Treasury Stock | (1,078) | (1,198) | | Deferred Compensation | 1,078 | 1,198 | | Total Stockholders' Equity | 682,493 | 675,762 | | Noncontrolling Interests | 17,955 | 9,345 | | Total Equity | 700,448 | 685,107 | - For the nine months ended July 31, 2024, noncontrolling interests contributed **$25.1 million**, primarily from tax equity financing transactions for the Derby and Groton projects[14](index=14&type=chunk)[247](index=247&type=chunk) - Net proceeds from common stock issuances totaled **$71.7 million**[14](index=14&type=chunk)[247](index=247&type=chunk) [Consolidated Statements of Cash Flows (Nine Months Ended July 31, 2025 and 2024)](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20nine%20months%20ended%20July%2031%2C%202025%20and%202024%2E) For the nine months ended July 31, 2025, cash used in operating activities decreased, cash provided by investing activities significantly increased, and cash provided by financing activities decreased, with total cash, cash equivalents, and restricted cash at period-end increasing to **$237 million** Consolidated Statements of Cash Flows (USD in thousands) | Cash Flow Activities (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Net Cash Used in Operating Activities | (102,427) | (158,751) | | Net Cash Provided by (Used in) Investing Activities | 89,970 | (18,978) | | Net Cash Provided by Financing Activities | 40,537 | 96,238 | | Effect of Exchange Rate Changes on Cash | (109) | 96 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | 27,971 | (81,395) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 236,854 | 218,181 | - Cash provided by investing activities primarily resulted from **$772 million** in maturities of U.S. Treasury securities, offset by **$661 million** in U.S. Treasury security purchases, **$3.8 million** in project asset expenditures, and **$17.6 million** in capital expenditures[243](index=243&type=chunk) - Cash provided by financing activities primarily stemmed from **$4 million** in noncontrolling interest contributions and **$51.6 million** in net proceeds from common stock sales, partially offset by **$10.4 million** in debt repayments and **$2.4 million** in preferred stock dividend payments[246](index=246&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%2E) The notes to consolidated financial statements provide detailed information on the company's business, accounting policies, recent accounting pronouncements, tax equity financings, revenue recognition, impairment and restructuring, investments, inventories, project assets, goodwill and intangible assets, accrued liabilities, leases, stockholders' equity, redeemable preferred stock, loss per share, restricted cash, debt, benefit plans, commitments and contingencies, and subsequent events [Note 1. Nature of Business and Basis of Presentation](index=13&type=section&id=Note%201.%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) FuelCell Energy is a global leader in fuel cell technology, offering clean power, heat, hydrogen, and carbon capture solutions, which implemented a 1-for-30 reverse stock split in November 2024 and generates cash primarily through product sales, projects, power generation, R&D, and financing activities - The company focuses on providing environmentally responsible distributed baseload energy solutions through its proprietary fuel cell technology platforms, including clean power, heat, clean hydrogen, and water, with carbon capture capabilities[18](index=18&type=chunk) - On November 8, 2024, the company effected a 1-for-30 reverse stock split, reducing outstanding common stock from **611 million** shares to approximately **20.376 million** shares[21](index=21&type=chunk) - As of July 31, 2025, unrestricted cash and cash equivalents were **$174.7 million**, an increase from **$148.1 million** as of October 31, 2024, with all short-term U.S. Treasury security investments having matured prior to July 31, 2025[27](index=27&type=chunk) - The company anticipates sufficient liquidity for the next **12 months**, but long-term profitability and cash flow depend on timely project completion, increased power generation cash flows, financing access, order growth, R&D funding, solid oxide and carbon capture platform commercialization, and cost reductions[33](index=33&type=chunk)[34](index=34&type=chunk) [Note 2. Recent Accounting Pronouncements](index=19&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) The company is evaluating recent FASB accounting pronouncements on reportable segment disclosures, income tax disclosures, and expense classification disclosures, expecting the impact on financial statements to be primarily in disclosures with no material effect on operating results - The FASB issued guidance in November 2023 to improve reportable segment disclosures, requiring enhanced disclosure of significant segment expenses, effective for annual reports in fiscal year 2025[39](index=39&type=chunk) - The FASB issued guidance in December 2023 to enhance income tax disclosures, requiring more information on how entity operations, tax risks, tax planning, and operating opportunities affect tax rates and future cash flows, effective for fiscal years beginning after December 15, 2025[40](index=40&type=chunk) - The FASB issued new guidance in November 2024, requiring enhanced disclosures for specific expense categories within certain expense captions in the income statement, effective for fiscal years beginning after December 15, 2026[41](index=41&type=chunk) [Note 3. Tax Equity Financings](index=19&type=section&id=Note%203.%20Tax%20Equity%20Financings) The company funds its Derby, Groton, and Yaphank projects through tax equity financing transactions, with Derby showing net income attributable to noncontrolling interests of **$0.4 million** (three months) and **$1.2 million** (nine months) for 2025, and net losses for Groton and Yaphank in both periods Net Income (Loss) Attributable to Noncontrolling Interests (USD in thousands) | Project | Period | Net Income (Loss) Attributable to Noncontrolling Interests (USD in thousands) | | :------ | :------------------------------- | :------------------------------------------------------------ | | Derby | Three Months Ended July 31, 2025 | 400 | | Derby | Three Months Ended July 31, 2024 | (1,800) | | Derby | Nine Months Ended July 31, 2025 | 1,200 | | Derby | Nine Months Ended July 31, 2024 | (28,600) | | Groton | Three Months Ended July 31, 2025 | (10) | | Groton | Three Months Ended July 31, 2024 | (200) | | Groton | Nine Months Ended July 31, 2025 | (3,500) | | Groton | Nine Months Ended July 31, 2024 | (3,500) | | Yaphank | Three Months Ended July 31, 2025 | (600) | | Yaphank | Three Months Ended July 31, 2024 | (400) | | Yaphank | Nine Months Ended July 31, 2025 | (1,700) | | Yaphank | Nine Months Ended July 31, 2024 | (500) | - For the nine months ended July 31, 2024, the loss attributable to noncontrolling interests for the Derby project was primarily due to investment tax credits (ITC) and accelerated depreciation[191](index=191&type=chunk) [Note 4. Revenue Recognition](index=21&type=section&id=Note%204.%20Revenue%20Recognition) The company's contract assets and liabilities both increased, customer consideration payable related to the Toyota hydrogen production and power purchase agreement remained stable, and the joint development agreement with ExxonMobil Technology and Engineering Company (EMTEC) and Rotterdam pilot project purchase order continued to contribute to advanced technology revenue, while the Long-Term Service Agreement (LTSA) with Gyeonggi Green Energy Co., Ltd. (GGE) is valued at **$159.6 million** for **42** fuel cell module replacements and long-term O&M services Contract Balances (USD in thousands) | Metric (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------ | :------------ | :--------------- | | Contract Assets | 98,100 | 65,100 | | Contract Liabilities | 10,700 | 7,200 | | Customer Consideration Payable | 6,000 | 6,000 | - The joint development agreement with EMTEC was extended to December 31, 2026, with an expected annual budget of at least **$10 million**, and allows the company to pursue new carbon capture projects using Generation 1 and Generation 2 technologies[56](index=56&type=chunk)[57](index=57&type=chunk) - The LTSA with GGE totals **$159.6 million** for the replacement of **42** 1.4 MW fuel cell modules, balance of plant replacement parts, and long-term operations and maintenance services, with the first **6** modules commissioned in Fall 2024 and another **12** modules commissioned during the nine months ended July 31, 2025[59](index=59&type=chunk)[61](index=61&type=chunk) Remaining Performance Obligations (USD in thousands) | Remaining Performance Obligations (USD in thousands) | Amount (USD in thousands) | Estimated Recognition Period | | :----------------------------------- | :------------------------ | :--------------------------- | | Service Agreements | 169,400 | 3-15 years | | Power Purchase Agreements (PPAs) | 378,900 | 19-20 years | | Advanced Technology Contracts | 7,100 | Approximately 2 years | | Product Purchase Agreements | 96,200 | Next 2 fiscal years | [Note 5. Impairment and Restructuring](index=25&type=section&id=Note%205.%20Impairment%20and%20Restructuring) The company implemented multiple restructuring rounds in September, November 2024, and June 2025, including workforce reductions of approximately **39%** to lower operating costs and reallocate resources, with the June 2025 plan resulting in **$64.5 million** in impairment charges related to solid oxide technology goodwill, in-process intangible assets, inventories, and property, plant, and equipment - In June 2025, the Board of Directors approved a global restructuring plan, reducing the workforce by **122** employees (approximately **22%** of total staff) and ceasing most solid oxide technology development efforts to lower operating costs and reallocate resources[64](index=64&type=chunk) Impairment Charges by Category (USD in thousands) | Impairment Charge Category (USD in thousands) | Amount (USD in thousands) | | :------------------------------------ | :------------------------ | | Property, Plant, and Equipment | 42,100 | | Inventories | 9,000 | | In-Process Intangible Assets | 9,300 | | Goodwill | 4,100 | | **Total** | **64,500** | - Restructuring expenses, primarily severance, were **$4.1 million** and **$5.6 million** for the three and nine months ended July 31, 2025, respectively[65](index=65&type=chunk) [Note 6. Investments – Short-Term](index=29&type=section&id=Note%206.%20Investments%20%E2%80%93%20Short-Term) As of July 31, 2025, the company no longer holds short-term U.S. Treasury security investments, as all such securities held during the first nine months of fiscal year 2025 have matured Investments – Short-Term (USD in thousands) | Metric (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------ | :------------ | :--------------- | | U.S. Treasury Securities | - | 109,123 | - The company classified U.S. Treasury securities as held-to-maturity and recorded them at amortized cost, with a weighted-average yield to maturity of **4.78%** as of October 31, 2024[72](index=72&type=chunk) [Note 7. Inventories](index=29&type=section&id=Note%207.%20Inventories) As of July 31, 2025, the company's total inventories were **$107.3 million**, including **$71 million** in work-in-process inventories, and a **$9 million** impairment charge for solid oxide inventories was recognized during the three months ended July 31, 2025, due to the cessation of solid oxide technology commercialization activities Inventories by Category (USD in thousands) | Inventory Category (USD in thousands) | July 31, 2025 | October 31, 2024 | | :---------------------------------- | :------------ | :--------------- | | Raw Materials | 36,360 | 35,989 | | Work-in-Process | 70,981 | 80,457 | | Total Inventories | 107,341 | 116,446 | | Inventories – Current | (104,598) | (113,703) | | Inventories – Long-term | 2,743 | 2,743 | - Work-in-process inventories primarily include standard inventories used to manufacture modules or module components, intended for future project asset construction, power plant orders, or service agreements[73](index=73&type=chunk) - Long-term inventories include exchange modules contractually required to be segregated for specific project assets[74](index=74&type=chunk) [Note 8. Project Assets](index=30&type=section&id=Note%208.%20Project%20Assets) As of July 31, 2025, the company's net project assets totaled **$224.5 million**, primarily comprising **12** completed and operational power generation facilities with a net value of **$223.8 million**, and **$0.7 million** in construction-in-progress project assets Project Assets by Category (USD in thousands) | Project Asset Category (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------------------ | :------------ | :--------------- | | Project Assets in Operation | 306,747 | 308,503 | | Accumulated Depreciation | (82,964) | (66,542) | | Project Assets in Operation, net | 223,783 | 241,961 | | Construction-in-Progress Project Assets | 699 | 170 | | **Project Assets, net** | **224,482** | **242,131** | - The estimated useful lives for project assets are **20 years** for balance of plant and site construction, and **4 to 7 years** for modules[76](index=76&type=chunk) [Note 9. Goodwill and Intangible Assets](index=30&type=section&id=Note%209.%20Goodwill%20and%20Intangible%20Assets) Due to the June 2025 restructuring plan, the company recognized **$4.1 million** in goodwill and **$9.3 million** in in-process intangible asset impairment charges related to Versa Inc. during the three months ended July 31, 2025, reducing goodwill to zero, and as of July 31, 2025, net intangible assets were **$4.2 million**, primarily associated with the Bridgeport Fuel Cell Project acquisition Intangible Assets by Category (USD in thousands) | Intangible Asset Category (USD in thousands) | Net as of July 31, 2025 | Net as of October 31, 2024 | | :----------------------------------- | :---------------------- | :------------------------- | | In-Process Intangible Assets | - | 9,592 | | Bridgeport PPA | 4,215 | 5,187 | | **Total** | **4,215** | **14,779** | - Amortization expense for intangible assets related to the Bridgeport Fuel Cell Project was **$0.3 million** for both three-month periods and **$1 million** for both nine-month periods ended July 31, 2025 and 2024[79](index=79&type=chunk) [Note 10. Accrued Liabilities](index=32&type=section&id=Note%2010.%20Accrued%20Liabilities) As of July 31, 2025, the company's total accrued liabilities were **$29.87 million**, slightly lower than **$30.36 million** as of October 31, 2024, primarily comprising accrued payroll and employee benefits, customer consideration payable, accrued service agreement and PPA costs, and accrued severance Accrued Liabilities by Category (USD in thousands) | Accrued Liability Category (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------------------ | :------------ | :--------------- | | Accrued Payroll and Employee Benefits | 6,999 | 9,808 | | Customer Consideration Payable | 2,515 | 2,515 | | Accrued Service Agreement and PPA Costs | 11,872 | 10,574 | | Accrued Legal, Tax, Professional, and Other | 5,097 | 5,230 | | Accrued Severance | 3,383 | 2,235 | | **Total Accrued Liabilities** | **29,866** | **30,362** | - Accrued service agreement costs include a service agreement loss reserve of **$9.8 million** as of July 31, 2025, and **$9 million** as of October 31, 2024[85](index=85&type=chunk) - Accrued severance is primarily related to restructuring activities and workforce reductions in September, November 2024, and June 2025[85](index=85&type=chunk) [Note 11. Leases](index=32&type=section&id=Note%2011.%20Leases) The company primarily leases real estate, vehicles, and equipment through operating lease agreements, with a weighted-average remaining lease term of approximately **18 years** and a weighted-average discount rate of **7.8%** as of July 31, 2025 Operating Lease Expense (USD in thousands) | Operating Lease Expense (USD in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Operating Lease Expense | 300 | 400 | | Operating Lease Expense (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | Operating Lease Expense | 1,000 | 1,100 | Undiscounted Operating Lease Liability Maturities (USD in thousands) | Undiscounted Operating Lease Liability Maturities (USD in thousands) | Amount (USD in thousands) | | :------------------------------------------- | :------------------------ | | Due in Year 1 | 1,313 | | Due in Year 2 | 1,431 | | Due in Year 3 | 1,748 | | Due in Year 4 | 1,221 | | Due in Year 5 | 1,119 | | Thereafter | 17,617 | | **Total Undiscounted Lease Payments** | **24,449** | [Note 12. Stockholders' Equity](index=32&type=section&id=Note%2012.%20Stockholders%27%20Equity) The company continues to issue common stock through its Amended Sales Agreement, selling approximately **6.8 million** shares for net proceeds of **$38.1 million** during the three months ended July 31, 2025, and approximately **9.2 million** shares for net proceeds of **$51.6 million** during the nine months ended July 31, 2025, with approximately **$151.4 million** of stock remaining available for sale as of July 31, 2025 - The Amended Sales Agreement allows the company to issue and sell common stock with an aggregate offering price of up to **$300 million** from time to time[88](index=88&type=chunk) Common Stock Sales through Amended Sales Agreement | Period | Common Stock Shares Sold (millions) | Average Selling Price (USD/share) | Net Proceeds (million USD) | | :----- | :-------------------------------- | :-------------------------------- | :------------------------- | | Three Months Ended July 31, 2025 | 6.8 | 5.70 | 38.1 | | Nine Months Ended July 31, 2025 | 9.2 | 5.84 | 51.6 | - As of July 31, 2025, approximately **$151.4 million** of stock remained available for sale under the Amended Sales Agreement[90](index=90&type=chunk) [Note 13. Redeemable Preferred Stock](index=34&type=section&id=Note%2013.%20Redeemable%20Preferred%20Stock) As of July 31, 2025, the company had **64,020** shares of Series B 5% Cumulative Convertible Perpetual Preferred Stock issued and outstanding, with a liquidation preference of **$1,000** per share and a carrying value of **$59.9 million**, and paid **$0.8 million** and **$2.4 million** in preferred stock dividends for the three and nine months ended July 31, 2025 and 2024, respectively Redeemable Preferred Stock (USD in thousands) | Metric (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------ | :------------ | :--------------- | | Series B Preferred Stock (Shares Outstanding) | 64,020 | 64,020 | | Series B Preferred Stock (Carrying Value) | 59,857 | 59,857 | - The Series B Preferred Stock has a liquidation preference of **$1,000** per share[92](index=92&type=chunk) - The company paid **$0.8 million** and **$2.4 million** in preferred stock dividends for the three and nine months ended July 31, 2025 and 2024, respectively[92](index=92&type=chunk) [Note 14. Loss Per Share](index=35&type=section&id=Note%2014.%20Loss%20Per%20Share) Due to net losses, diluted loss per share calculations did not consider potentially dilutive securities, with net loss attributable to common stockholders of **$92.5 million** and **$160.4 million**, and loss per share of **$3.78** and **$7.22**, for the three and nine months ended July 31, 2025, respectively Loss Per Share (USD in thousands, except per share data) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----- | :------------------------------- | :------------------------------- | | Net Loss Attributable to Common Stockholders (USD in thousands) | (92,456) | (33,460) | | Basic and Diluted Loss Per Share (USD) | (3.78) | (1.99) | | Weighted-Average Common Stock Shares | 24,441,294 | 16,772,791 | | Metric | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :----- | :------------------------------- | :------------------------------- | | Net Loss Attributable to Common Stockholders (USD in thousands) | (160,431) | (86,993) | | Basic and Diluted Loss Per Share (USD) | (7.22) | (5.56) | | Weighted-Average Common Stock Shares | 22,233,074 | 15,646,242 | Potentially Dilutive Securities | Potentially Dilutive Securities | July 31, 2025 | July 31, 2024 | | :------------------------------ | :------------ | :------------ | | Options to Purchase Common Stock | 523 | 577 | | Unvested Restricted Stock Units | 929,358 | 559,081 | | Series B Preferred Stock | 1,261 | 1,261 | | **Total** | **931,142** | **560,919** | [Note 15. Restricted Cash](index=35&type=section&id=Note%2015.%20Restricted%20Cash) As of July 31, 2025, the company's total restricted cash and cash equivalents amounted to **$62.2 million**, primarily designated for performance guarantees, future debt service, and letters of credit, with **$16.1 million** classified as short-term and **$46.1 million** as long-term restricted cash Restricted Cash by Category (USD in thousands) | Restricted Cash Category (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------------------ | :------------ | :--------------- | | Restricted Cash for Letters of Credit | 14,152 | 14,152 | | Restricted Cash for Crestmark Sale-Leaseback Transaction | 2,914 | 2,908 | | Debt Service and Performance Reserve for OpCo Financing Facility | 20,868 | 24,721 | | Debt Service and Performance Reserve for Senior and Subordinate Back-Leverage Facilities | 15,756 | 12,869 | | Other | 8,502 | 6,100 | | **Total Restricted Cash** | **62,192** | **60,750** | | Short-term Restricted Cash | (16,092) | (12,161) | | Long-term Restricted Cash | 46,100 | 48,589 | - As of July 31, 2025, total outstanding letters of credit were **$14.2 million**, with various maturity dates extending through October 2029[95](index=95&type=chunk) [Note 16. Debt](index=37&type=section&id=Note%2016.%20Debt) As of July 31, 2025, the company's total debt and financing obligations were **$123.1 million**, slightly lower than **$131.7 million** as of October 31, 2024, primarily comprising EXIM financing, Derby and Groton back-leverage loans, the OpCo financing facility, and the Connecticut loan, with the OpCo financing facility's interest rate swap generating a **$0.6 million** gain and a **$0.2 million** loss for the three and nine months ended July 31, 2025, respectively Debt by Category (USD in thousands) | Debt Category (USD in thousands) | July 31, 2025 | October 31, 2024 | | :------------------------------- | :------------ | :--------------- | | EXIM Financing Facility | 9,409 | 10,104 | | Derby Senior Back-Leverage Facility | 7,805 | 8,514 | | Derby Subordinate Back-Leverage Facility | 3,500 | 3,500 | | Groton Senior Back-Leverage Facility | 10,145 | 10,857 | | Groton Subordinate Back-Leverage Facility | 8,000 | 8,000 | | Sale-Leaseback Transaction Financing Obligation | 18,781 | 18,811 | | Connecticut Loan | 5,350 | 6,024 | | OpCo Financing Facility | 63,563 | 70,067 | | Deferred Financing Costs | (3,481) | (4,215) | | **Total Debt and Financing Obligations** | **123,072** | **131,662** | | Current Portion | (16,710) | (15,924) | | Long-term Portion | 106,362 | 115,738 | - The OpCo financing facility's interest rate swap generated a **$0.6 million** gain and a **$0.2 million** loss for the three and nine months ended July 31, 2025, respectively[98](index=98&type=chunk) [Note 17. Benefit Plans](index=39&type=section&id=Note%2017.%20Benefit%20Plans) The company implements long-term incentive plans, including Performance Stock Units (PSUs) tied to relative Total Shareholder Return (TSR) and time-vesting Restricted Stock Units (RSUs), granting **186,507** PSUs and **186,501** time-vesting RSUs to senior management, and **321,184** time-vesting RSUs to other employees in fiscal year 2025, with a total of **929,358** unvested RSUs as of July 31, 2025 - The fiscal year 2025 long-term incentive plan includes relative Total Shareholder Return (TSR) Performance Stock Units (PSUs) and time-vesting Restricted Stock Units (RSUs)[100](index=100&type=chunk)[102](index=102&type=chunk) Equity Compensation Expense (USD in thousands) | Equity Compensation Expense (USD in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | | Cost of Sales | 207 | 463 | | Administrative and Selling Expenses | 1,271 | 2,304 | | Research and Development Expenses | 158 | 483 | | **Total** | **1,636** | **3,250** | | Equity Compensation Expense (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------------- | :------------------------------- | :------------------------------- | | Cost of Sales | 620 | 1,211 | | Administrative and Selling Expenses | 7,399 | 6,498 | | Research and Development Expenses | 482 | 1,257 | | **Total** | **8,501** | **8,966** | Restricted Stock Unit Activity | Restricted Stock Unit Activity | Shares | Weighted-Average Fair Value (USD) | | :----------------------------- | :-------- | :-------------------------------- | | Unvested as of October 31, 2024 | 516,561 | 64.53 | | Granted - Time-Vesting RSUs | 507,685 | 8.11 | | Granted - PSUs | 186,507 | 14.38 | | Vested | (146,207) | 63.36 | | Forfeited | (135,188) | 39.84 | | **Unvested as of July 31, 2025** | **929,358** | **26.53** | [Note 18. Commitments and Contingencies](index=41&type=section&id=Note%2018.%20Commitments%20and%20Contingencies) The company faces risks from performance penalties under service agreements, fuel price volatility under power purchase agreements, and other purchase commitments, with **$66.9 million** in material, supply, and service purchase commitments as of July 31, 2025, and derivative fair value risk related to natural gas purchase contracts, though management believes existing legal proceedings will not materially adversely affect financial statements - The company's service agreements require power plants to meet minimum operating levels, otherwise it may face performance penalties or need to replace fuel cell modules[108](index=108&type=chunk) - Power purchase agreements expose the company to fuel price volatility and fuel procurement risks, which are mitigated through fuel cost pass-through mechanisms, fixed-price supply contracts, and potential financial hedges[110](index=110&type=chunk) - As of July 31, 2025, the company had **$66.9 million** in material, supply, and service purchase commitments[112](index=112&type=chunk) - The company recognized net mark-to-market gains of **$1 million** and **$2 million** related to natural gas contract derivatives for the three and nine months ended July 31, 2025, respectively[111](index=111&type=chunk) [Note 19. Subsequent Events](index=43&type=section&id=Note%2019.%20Subsequent%20Events) Subsequent to the quarter-end, the company sold approximately **2.7 million** shares of common stock through its Amended Sales Agreement, generating net proceeds of approximately **$11.8 million**, with approximately **$139.4 million** of stock remaining available for sale under the agreement - Subsequent to the quarter-end, the company sold approximately **2.7 million** shares of common stock through its Amended Sales Agreement at an average price of **$4.55** per share, generating net proceeds of approximately **$11.8 million**[114](index=114&type=chunk)[199](index=199&type=chunk) - Following this sale, approximately **$139.4 million** of stock remained available for sale under the Amended Sales Agreement[114](index=114&type=chunk)[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%2E) [FORWARD-LOOKING STATEMENTS](index=44&type=section&id=FORWARD-LOOKING%20STATEMENTS) This report contains numerous forward-looking statements regarding the company's future financial condition, operating results, business plans, market developments, project completion timelines, financing capabilities, cost competitiveness, restructuring plan effectiveness, and sales targets, which are based on current beliefs and assumptions and involve inherent risks and uncertainties that could cause actual results to differ materially from expectations - Forward-looking statements cover the development and commercialization of fuel cell technologies and products, project completion timelines, business plans and strategies, anticipated operating results (such as revenue growth and profitability), liquidity, future funding under advanced technology contracts, project financing, and cost reduction targets[117](index=117&type=chunk) - Risks and uncertainties include those related to product development and manufacturing, economic conditions, interest rate changes, supply chain disruptions, changes in the regulatory environment, availability of government subsidies, unexpected costs or consequences of restructuring plans, technological changes, competition, and the ability to obtain additional financing[118](index=118&type=chunk) [OVERVIEW](index=46&type=section&id=OVERVIEW) FuelCell Energy is dedicated to providing clean energy solutions through its proprietary fuel cell technology, including power, heat, hydrogen, and carbon capture, having been founded in 1969 and commencing commercial sales of stationary fuel cell power plants in 2003, focusing on markets with high energy costs, poor grid reliability, and support for multi-value streams and emissions reduction policies - The company offers commercial technologies capable of producing clean electricity, heat, clean hydrogen, and water, with the ability to recycle and capture carbon[124](index=124&type=chunk) - The company continues to invest in product development and commercialization technologies to enhance the solid oxide technology platform's ability to provide hydrogen and long-duration hydrogen-based energy storage, and to augment existing platforms with carbon capture solutions[124](index=124&type=chunk) - The company primarily sells its products in the U.S., European, and South Korean markets, while also seeking opportunities in other countries globally[125](index=125&type=chunk) [RESULTS OF OPERATIONS](index=48&type=section&id=RESULTS%20OF%20OPERATIONS) This section discusses the company's results of operations for the three and nine months ended July 31, 2025 and 2024, focusing on changes in revenue, cost of sales, gross loss, operating expenses, and net loss [Comparison of the Three Months Ended July 31, 2025 and 2024](index=48&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20July%2031%2C%202025%20and%202024) For the three months ended July 31, 2025, total revenue increased by **97%** to **$46.7 million** year-over-year, primarily driven by a significant increase in product revenue, but operating and net losses expanded considerably due to **$64.5 million** in impairment charges and **$4.1 million** in restructuring expenses Consolidated Statements of Operations and Comprehensive Loss (USD in thousands) | Metric (USD in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Change (USD in thousands) | Change (%) | | :------------------------ | :------------------------------- | :------------------------------- | :------------------------ | :--------- | | Total Revenue | 46,743 | 23,695 | 23,048 | 97% | | Total Cost of Sales | 51,877 | 29,897 | 21,980 | 74% | | Gross Loss | (5,134) | (6,202) | 1,068 | 17% | | Operating Loss | (95,364) | (33,617) | (61,747) | (184)% | | Net Loss | (91,896) | (35,123) | (56,773) | (162)% | Revenue by Category (USD in thousands) | Revenue Category (USD in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Change (USD in thousands) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------ | :--------- | | Product Revenue | 26,000 | 250 | 25,750 | 10300% | | Service Agreement Revenue | 3,130 | 1,411 | 1,719 | 122% | | Power Generation Revenue | 12,355 | 13,402 | (1,047) | (8)% | | Advanced Technology Revenue | 5,258 | 8,632 | (3,374) | (39)% | - Administrative and selling expenses and research and development expenses both decreased, but were significantly offset by impairment and restructuring charges[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) [Comparison of the Nine Months Ended July 31, 2025 and 2024](index=57&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20July%2031%2C%202025%20and%202024) For the nine months ended July 31, 2025, total revenue increased by **64%** to **$103.1 million** year-over-year, driven by growth in product and service revenue, but operating and net losses significantly widened due to impairment and restructuring charges Consolidated Statements of Operations and Comprehensive Loss (USD in thousands) | Metric (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | Change (USD in thousands) | Change (%) | | :------------------------ | :------------------------------ | :------------------------------ | :------------------------ | :--------- | | Total Revenue | 103,146 | 62,806 | 40,340 | 64% | | Total Cost of Sales | 122,922 | 87,807 | 35,115 | 40% | | Gross Loss | (19,776) | (25,001) | 5,225 | 21% | | Operating Loss | (164,025) | (117,456) | (46,569) | (40)% | | Net Loss | (162,031) | (117,178) | (44,853) | (38)% | Revenue by Category (USD in thousands) | Revenue Category (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | Change (USD in thousands) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------------ | :--------- | | Product Revenue | 39,099 | 250 | 38,849 | 15540% | | Service Agreement Revenue | 13,122 | 4,397 | 8,725 | 198% | | Power Generation Revenue | 35,825 | 38,013 | (2,188) | (6)% | | Advanced Technology Revenue | 15,100 | 20,146 | (5,046) | (25)% | - Administrative and selling expenses and research and development expenses both decreased, but were significantly offset by impairment and restructuring charges[176](index=176&type=chunk)[177](index=177&type=chunk)[179](index=179&type=chunk)[181](index=181&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=66&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company primarily obtains cash through product sales, power generation revenue, R&D contracts, equity issuances, and debt financing, with unrestricted cash and cash equivalents of **$174.7 million** as of July 31, 2025, and continues to raise capital through its at-the-market sales agreement, expecting sufficient liquidity for the next **12 months**, though long-term liquidity remains dependent on project completion, cash flow growth, financing access, and cost reductions, with detailed disclosures on various loans and restricted cash [Overview, Cash Position, Sources and Uses](index=66&type=section&id=Overview%2C%20Cash%20Position%2C%20Sources%20and%20Uses) The company primarily obtains cash through product sales, power generation revenue, R&D contracts, equity issuances, and debt financing, with unrestricted cash and cash equivalents of **$174.7 million** as of July 31, 2025, and all short-term U.S. Treasury securities having matured, while continuing to raise capital through its at-the-market sales agreement and expecting sufficient liquidity for the next **12 months** - As of July 31, 2025, unrestricted cash and cash equivalents were **$174.7 million**, an increase from **$148.1 million** as of October 31, 2024[196](index=196&type=chunk) - For the first nine months of fiscal year 2025, the company received **$4 million** in noncontrolling interest contributions through a tax equity financing transaction with East West Bank[197](index=197&type=chunk) - For the nine months ended July 31, 2025, approximately **9.2 million** shares of common stock were sold through the Amended Sales Agreement, generating net proceeds of approximately **$51.6 million**[198](index=198&type=chunk) - The company expects its unrestricted cash and cash equivalents, anticipated revenue from its contract backlog, and the release of short-term restricted cash to be sufficient to meet its obligations for the next **12 months**[204](index=204&type=chunk) [Generation Operating Portfolio, Project Assets, and Backlog](index=70&type=section&id=Generation%20Operating%20Portfolio%2C%20Project%20Assets%2C%20and%20Backlog) The company expands its power generation operating portfolio by investing in the development and construction of fuel cell projects, with a total operating capacity of **62.8 MW** as of July 31, 2025, and its total backlog increased to **$1.24 billion**, driven by the Hartford project and long-term service agreements with CGN and GGE - As of July 31, 2025, the company's power generation operating portfolio had a total capacity of **62.8 MW**, consistent with July 31, 2024[140](index=140&type=chunk)[214](index=214&type=chunk) Power Generation Operating Portfolio | Project Name | Location | Rated Capacity (MW) | PPA Term (Years) | | :----------- | :------- | :------------------ | :--------------- | | CCSU | CT | 1.4 | 15 | | Riverside | CA | 1.4 | 20 | | Pfizer, Inc. | CT | 5.6 | 20 | | Santa Rita Jail | CA | 1.4 | 20 | | Bridgeport Fuel Cell Project | CT | 14.9 | 15 | | Tulare BioMAT | CA | 2.8 | 20 | | San Bernardino | CA | 1.4 | 20 | | LIPA Yaphank Project | NY | 7.4 | 20 | | Groton Project | CT | 7.4 | 20 | | Toyota | CA | 2.3 | 20 | | Derby - CT RFP-2 | CT | 14.0 | 20 | | SCEF - Derby | CT | 2.8 | 20 | | **Total** | | **62.8** | | - The company has ceased development and expenditures for the Trinity College and UConn solid oxide projects and removed them from the contract backlog[217](index=217&type=chunk)[218](index=218&type=chunk) Backlog by Category (USD in thousands) | Backlog Category (USD in thousands) | July 31, 2025 | July 31, 2024 | | :-------------------------------- | :------------ | :------------ | | Service Agreements | 169,400 | 178,400 | | Power Generation | 955,000 | 839,500 | | Products | 96,200 | 136,700 | | Advanced Technology Contracts | 24,300 | 42,500 | | **Total** | **1,244,900** | **1,197,100** | [Factors that may impact our liquidity](index=75&type=section&id=Factors%20that%20may%20impact%20our%20liquidity) Factors impacting the company's liquidity include cash reserves, long decision cycles for large projects, productivity management, extended project cycles requiring upfront investment, fluctuations in accounts receivable and unbilled receivables, inventory levels, project asset investments, fuel procurement risks, capital expenditures, R&D spending, performance guarantees, and the ability to continuously implement cost-saving measures - As of July 31, 2025, unrestricted cash and cash equivalents were **$174.7 million**[225](index=225&type=chunk) - The company's annualized production rate for the first nine months of fiscal year 2025 was **30.5 MW**, slightly lower than **31.1 MW** for the first nine months of fiscal year 2024, primarily due to adjusting production levels based on contractual demand[163](index=163&type=chunk)[225](index=225&type=chunk) - As of July 31, 2025, total accounts receivable and unbilled receivables were **$108.1 million**, with **$53.4 million** classified as "other assets"[225](index=225&type=chunk) - Capital expenditures for fiscal year 2025 are projected to be between **$15 million** and **$20 million**, revised downward due to the June 2025 restructuring plan[230](index=230&type=chunk) - Company-funded research and development expenditures are expected to be between **$35 million** and **$40 million** for fiscal year 2025, also revised downward due to the restructuring plan[238](index=238&type=chunk) [Cash Flows](index=83&type=section&id=Cash%20Flows) For the nine months ended July 31, 2025, cash used in operating activities decreased to **$102.4 million**, cash provided by investing activities turned into **$89.9 million**, and cash provided by financing activities decreased to **$40.5 million**, with total cash, cash equivalents, and restricted cash at period-end increasing to **$236.9 million** Cash Flow Activities (USD in thousands) | Cash Flow Activities (USD in thousands) | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Net Cash Used in Operating Activities | (102,427) | (158,751) | | Net Cash Provided by (Used in) Investing Activities | 89,970 | (18,978) | | Net Cash Provided by Financing Activities | 40,537 | 96,238 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | 27,971 | (81,395) | - The decrease in cash used in operating activities was primarily due to non-cash adjustments to net loss and a reduction in accounts receivable[240](index=240&type=chunk) - Cash provided by investing activities primarily resulted from **$772.4 million** in maturities of U.S. Treasury securities, partially offset by U.S. Treasury security purchases and capital expenditures[243](index=243&type=chunk) - The decrease in cash provided by financing activities was mainly due to reduced noncontrolling interest contributions and increased debt repayments, despite continued funding from common stock issuances[246](index=246&type=chunk)[247](index=247&type=chunk) [Commitments and Significant Contractual Obligations](index=85&type=section&id=Commitments%20and%20Significant%20Contractual%20Obligations) As of July 31, 2025, the company's total commitments and contractual obligations amounted to **$270.5 million**, primarily including purchase commitments, term loans (principal and interest), operating lease commitments, sale-leaseback financing obligations, and natural gas and biomethane supply contracts Commitments and Contractual Obligations (USD in thousands) | Commitment Category (USD in thousands) | Total (USD in thousands) | Less than 1 Year (USD in thousands) | 1-3 Years (USD in thousands) | 3-5 Years (USD in thousands) | More than 5 Years (USD in thousands) | | :----------------------------------- | :----------------------- | :---------------------------------- | :--------------------------- | :--------------------------- | :----------------------------------- | | Purchase Commitments | 66,861 | 58,464 | 4,274 | 2,825 | 1,298 | | Term Loans (Principal and Interest) | 136,315 | 18,543 | 31,567 | 60,930 | 25,275 | | Operating Lease Commitments | 24,449 | 1,313 | 3,179 | 2,340 | 17,617 | | Sale-Leaseback Financing Obligations | 7,133 | 1,394 | 2,583 | 2,562 | 594 | | Natural Gas and Biomethane Supply Contracts | 35,727 | 9,504 | 17,672 | 8,551 | - | | **Total** | **270,485** | **89,218** | **59,275** | **77,208** | **44,784** | - The company pays **$3.2 million** annually in Series B Preferred Stock dividends, which are not included in this table as it is not reasonably determinable when they might convert to common stock[250](index=250&type=chunk) [Outstanding Loans as of July 31, 2025](index=86&type=section&id=Outstanding%20Loans%20as%20of%20July%2031%2C%202025) As of July 31, 2025, the company's outstanding loans include EXIM financing, Derby and Groton back-leverage loans, the OpCo financing facility, and the Connecticut loan, with EXIM financing supporting the GGE long-term service agreement, Derby and Groton back-leverage loans for project financing, the OpCo financing facility secured by six operational fuel cell power generation projects, and the Connecticut loan facing an accelerated repayment penalty for not meeting employment obligations - The EXIM financing, completed on October 31, 2024, generated approximately **$10.1 million** in gross proceeds to support the long-term service agreement with GGE, with a fixed interest rate of **5.81%** over a **7-year** term[251](index=251&type=chunk) - The Derby Senior and Subordinate Back-Leverage Facilities, completed on April 25, 2024, totaled **$13 million** and bear interest at **7.25%** and **8%**, respectively[254](index=254&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk) - The OpCo financing facility, completed on May 19, 2023, includes an **$80.5 million** term loan and a **$6.5 million** letter of credit, secured by six operational fuel cell power generation projects[261](index=261&type=chunk)[262](index=262&type=chunk) - The Connecticut loan is expected to incur a **$2.1 million** accelerated repayment penalty due to the company's failure to meet revised employment obligations by October 31, 2024[298](index=298&type=chunk)[300](index=300&type=chunk) [Restricted Cash](index=102&type=section&id=Restricted%20Cash) As of July 31, 2025, the company has pledged approximately **$62.2 million** in cash and cash equivalents as collateral for performance guarantees and letters of credit, including reserves for letters of credit, sale-leaseback transactions, Groton and Derby back-leverage loans, and the OpCo financing facility - As of July 31, 2025, the company has pledged approximately **$62.2 million** in cash and cash equivalents as collateral for performance guarantees and letters of credit[302](index=302&type=chunk) - Restricted cash includes **$14.2 million** for outstanding letters of credit, **$2.9 million** for the Crestmark sale-leaseback transaction, **$14 million** for the Groton Senior Back-Leverage Facility, **$1.8 million** for the Derby Senior and Subordinate Back-Leverage Facilities, and **$20.9 million** for the OpCo financing facility[302](index=302&type=chunk) [Service and warranty agreements](index=104&type=section&id=Service%20and%20warranty%20agreements) The company provides standard warranties for its products and enters into service contracts with customers to ensure power plants meet minimum operating levels for terms up to **20 years**, with service contract pricing based on future cost

[Third Quarter Fiscal 2025 Summary](index=1&type=section&id=Third%20Quarter%20Fiscal%202025%20Summary) FuelCell Energy reported significant Q3 FY2025 revenue growth and strategic execution, improving platform efficiency and focusing on distributed generation and data center markets, while restructuring actions aim for cost reduction and future profitability [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Jason Few highlighted Q3 FY2025 revenue growth, improved carbonate platform efficiency, expanded distributed generation, and data center focus, with restructuring efforts yielding cost reductions and strategic positioning for future growth - Achieved meaningful revenue growth and advanced long-term strategy execution[2](index=2&type=chunk) - Improved core carbonate platform efficiency above **50%** and focused on expanding distributed generation opportunities and deepening sales pipeline, particularly with data center customers[2](index=2&type=chunk) - Decisive restructuring actions in June are lowering costs, sharpening focus on distributed power generation, and positioning for investment in growth technologies and partnerships[2](index=2&type=chunk) - Modular power block solutions are uniquely positioned to scale with surging power demand from data centers, offering reliability and flexibility[2](index=2&type=chunk) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) Q3 FY2025 saw 97% revenue growth to $46.7 million, but increased losses from operations and net income due to non-cash impairment and restructuring, though adjusted net loss per share improved Key Financial Highlights (Millions) | Metric | Q3 FY2025 (Millions) | Q3 FY2024 (Millions) | Change (%) | | :--------------------------------------- | :------------------- | :------------------- | :--------- | | Revenue | $46.7 | $23.7 | 97% | | Gross loss | $(5.1) | $(6.2) | (17%) | | Loss from operations | $(95.4) | $(33.6) | 184% | | Net loss attributable to common stockholders | $(92.5) | $(33.5) | 176% | | Net loss per share attributable to common stockholders | $(3.78) | $(1.99) | 90% | | Adjusted net loss per share attributable to common stockholders | $(0.95) | $(1.74) | (45%) | | Backlog | $1,240.0 | $1,200.0 | 4% | - Net loss per share was primarily driven by restructuring expenses and non-cash impairment expenses[3](index=3&type=chunk) [Consolidated Financial Metrics & Results](index=2&type=section&id=Consolidated%20Financial%20Metrics%20%26%20Results) FuelCell Energy's Q3 FY2025 total revenues increased by 97%, but significant impairment and restructuring expenses led to widened losses, though adjusted non-GAAP metrics showed improvement [Overall Financial Metrics](index=2&type=section&id=Overall%20Financial%20Metrics) Q3 FY2025 total revenues rose 97% to $46.7 million, but substantial impairment and restructuring expenses widened losses from operations and net loss, while Adjusted EBITDA and Adjusted net loss per share improved Overall Financial Metrics (Amounts in thousands) | Metric (Amounts in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Change | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----- | | Total revenues | $46,743 | $23,695 | 97% | | Gross loss | $(5,134) | $(6,202) | (17%) | | Loss from operations | $(95,364) | $(33,617) | 184% | | Net loss | $(91,896) | $(35,123) | 162% | | Net loss attributable to common stockholders | $(92,456) | $(33,460) | 176% | | Net loss per basic and diluted share attributable to common stockholders | $(3.78) | $(1.99) | 90% | | EBITDA | $(85,618) | $(24,379) | 251% | | Adjusted EBITDA | $(16,380) | $(20,134) | (19%) | | Adjusted net loss per basic and diluted share attributable to common stockholders | $(0.95) | $(1.74) | (45%) | [Revenue Analysis](index=2&type=section&id=Revenue%20Analysis) Total revenues increased by 97% to $46.7 million in Q3 FY2025, primarily driven by significant product revenue growth from GGE platform module deliveries and a sales contract with Ameresco, despite decreases in generation and advanced technologies revenues Revenue by Category (Millions) | Revenue Category | Q3 FY2025 (Millions) | Q3 FY2024 (Millions) | Change | | :----------------------- | :------------------- | :------------------- | :----- | | Product revenues | $26.0 | $0.3 | Significant Increase | | Service agreements revenues | $3.1 | $1.4 | Increase | | Generation revenues | $12.4 | $13.4 | Decrease | | Advanced Technologies contract revenues | $5.3 | $8.6 | Decrease | - Product revenue increase was primarily driven by **$24.0 million** from the Gyeonggi Green Energy Co., Ltd. (GGE) long-term service agreement for fuel cell module delivery and commissioning, and **$2.0 million** from Ameresco, Inc[6](index=6&type=chunk) - Service agreements revenue increase was primarily due to services provided under the GGE long-term service agreement[6](index=6&type=chunk) - Generation revenues decreased due to lower output from plants in the Company's generation operating portfolio resulting from routine maintenance activities[12](index=12&type=chunk) - Advanced Technologies contract revenues decreased, with contributions from the Joint Development Agreement with ExxonMobil Technology and Engineering Company (EMTEC) and the Rotterdam project purchase order from Esso Nederland B.V[12](index=12&type=chunk) [Gross Loss](index=3&type=section&id=Gross%20Loss) Q3 FY2025 gross loss decreased to $(5.1) million, mainly due to reduced losses from generation and product revenues, partially offset by lower gross margins in Advanced Technologies and service agreements Gross Loss (Millions) | Metric | Q3 FY2025 (Millions) | Q3 FY2024 (Millions) | Change | | :--------- | :------------------- | :------------------- | :----- | | Gross loss | $(5.1) | $(6.2) | (17%) | - Decrease in gross loss primarily related to decreased gross loss from generation revenues and product revenues[7](index=7&type=chunk) - Partially offset by reduced gross margin on Advanced Technologies contract revenues and service agreements revenues[7](index=7&type=chunk) [Operating Expenses](index=3&type=section&id=Operating%20Expenses) Operating expenses significantly increased to $90.2 million in Q3 FY2025, primarily due to $64.5 million in non-cash impairment and $4.1 million in restructuring expenses, while administrative, selling, and R&D expenses decreased Operating Expenses (Millions) | Expense Category (Millions) | Q3 FY2025 | Q3 FY2024 | Change | | :-------------------------- | :-------- | :-------- | :----- | | Operating expenses | $90.2 | $27.4 | Increase | | Administrative and selling expenses | $14.1 | $14.6 | Decrease | | Research and development expenses | $7.6 | $12.8 | Decrease | | Impairment expense | $64.5 | $- | N/A | | Restructuring expense | $4.1 | $- | N/A | - Administrative and selling expenses decreased due to lower compensation expense from restructuring actions in September 2024, November 2024, and June 2025[9](index=9&type=chunk) - Research and development expenses decreased due to reduced spending on commercial development efforts for solid oxide power generation, electrolysis platforms, and carbon separation/recovery solutions[10](index=10&type=chunk) - Non-cash impairment expenses of **$64.5 million** included **$42.1 million** for property, plant and equipment, **$9.0 million** for inventory, **$9.3 million** for in-process R&D intangible assets, and **$4.1 million** for goodwill[11](index=11&type=chunk) [Net Loss and EPS](index=4&type=section&id=Net%20Loss%20and%20EPS) Net loss attributable to common stockholders surged to $(92.5) million in Q3 FY2025, resulting in a net loss per share of $(3.78), predominantly due to non-cash impairment and restructuring expenses Net Loss and EPS (Millions) | Metric | Q3 FY2025 (Millions) | Q3 FY2024 (Millions) | Change | | :--------------------------------------- | :------------------- | :------------------- | :----- | | Net loss | $(91.9) | $(35.1) | 162% | | Net loss attributable to common stockholders | $(92.5) | $(33.5) | 176% | | Net loss per share attributable to common stockholders | $(3.78) | $(1.99) | 90% | - The increase in net loss per share was primarily due to non-cash impairment expenses and restructuring expenses recognized during Q3 FY2025, partially offset by the benefit of a higher number of weighted average shares outstanding[15](index=15&type=chunk) - Non-cash impairment and restructuring expenses negatively impacted net loss per share by **$(2.80)** for Q3 FY2025[15](index=15&type=chunk) [Adjusted Non-GAAP Metrics](index=4&type=section&id=Adjusted%20Non-GAAP%20Metrics) Adjusted EBITDA improved to $(16.4) million and Adjusted net loss to $(23.2) million in Q3 FY2025, reflecting early benefits from cost-saving actions and a sharpened focus on the core carbonate platform Adjusted Non-GAAP Metrics (Millions) | Metric (Millions) | Q3 FY2025 | Q3 FY2024 | Change | | :--------------------------------------- | :-------- | :-------- | :----- | | Adjusted EBITDA | $(16.4) | $(20.1) | (19%) | | Adjusted net loss attributable to common stockholders | $(23.2) | $(29.2) | (21%) | | Adjusted net loss per share attributable to common stockholders | $(0.95) | $(1.74) | (45%) | - Improvements in Adjusted EBITDA and Adjusted net loss attributable to common stockholders reflect early benefits of cost-saving actions and a sharper focus on the core carbonate platform[14](index=14&type=chunk) [Liquidity and Capital Resources](index=4&type=section&id=Liquidity%20and%20Capital%20Resources) Total cash, restricted cash, and short-term investments decreased to $236.9 million as of July 31, 2025, with unrestricted cash increasing while short-term investments were fully utilized, supplemented by common stock sales [Cash, Restricted Cash and Short-Term Investments](index=4&type=section&id=Cash%2C%20Restricted%20Cash%20and%20Short-Term%20Investments) Total cash, restricted cash, and short-term investments decreased to $236.9 million as of July 31, 2025, primarily due to the full utilization of short-term investments, despite an increase in unrestricted cash Cash, Restricted Cash and Short-Term Investments (Millions) | Metric (Millions) | July 31, 2025 | October 31, 2024 | Change | | :--------------------------------------- | :------------ | :--------------- | :----- | | Total Cash, Restricted Cash, and Short-Term Investments | $236.9 | $318.0 | $(81.1) | | Unrestricted cash and cash equivalents | $174.7 | $148.1 | $26.6 | | Restricted cash and cash equivalents | $62.2 | $60.8 | $1.4 | | Short-term investments | $- | $109.1 | $(109.1) | [Common Stock Sales](index=4&type=section&id=Common%20Stock%20Sales) The company generated $38.1 million in net proceeds from selling 6.8 million common shares in Q3 FY2025, with an additional $11.8 million from 2.7 million shares sold post-quarter Common Stock Sales | Period | Shares Sold (Millions) | Average Sale Price | Net Proceeds (Millions) | | :--------------------------------------- | :--------------------- | :----------------- | :---------------------- | | Three months ended July 31, 2025 | 6.8 | $5.70 | $38.1 | | Subsequent to quarter end | 2.7 | $4.55 | $11.8 | [Backlog Analysis](index=5&type=section&id=Backlog%20Analysis) Total backlog increased by 4.0% to $1.24 billion as of July 31, 2025, driven by the Hartford Project and long-term service agreements with CGN and GGE, despite decreases in product and advanced technologies backlogs [Total Backlog Overview](index=5&type=section&id=Total%20Backlog%20Overview) Total backlog increased by 4.0% to $1.24 billion as of July 31, 2025, primarily driven by the Hartford Project and long-term service agreements with CGN and GGE Total Backlog Overview (Amounts in thousands) | Backlog Category (Amounts in thousands) | As of July 31, 2025 | As of July 31, 2024 | Change | | :--------------------------------------- | :------------------ | :------------------ | :------- | | Product | $96,183 | $136,708 | $(40,525) | | Service | $169,384 | $178,387 | $(9,003) | | Generation | $955,033 | $839,532 | $115,501 | | Advanced Technologies | $24,254 | $42,480 | $(18,226) | | **Total Backlog** | **$1,244,854** | **$1,197,107** | **$47,747** | - Overall backlog increased by approximately **4.0%** to **$1.24 billion**, primarily due to the Hartford Project, CGN LTSA, and GGE LTSA[19](index=19&type=chunk) [Service Agreements Backlog](index=5&type=section&id=Service%20Agreements%20Backlog) Service agreements backlog decreased to $169.4 million as of July 31, 2025, despite new LTSAs with CGN and GGE adding significant value, which is recognized as revenue over time Service Agreements Backlog (Millions) | Metric (Millions) | As of July 31, 2025 | As of July 31, 2024 | Change | | :----------------------- | :------------------ | :------------------ | :----- | | Service agreements backlog | $169.4 | $178.4 | $(9.0) | - CGN LTSA added approximately **$7.7 million** to service backlog during Q3 FY2025[19](index=19&type=chunk) - GGE LTSA added approximately **$33.6 million** to service backlog in Q4 FY2024, with revenue being recognized as service is performed[19](index=19&type=chunk) [Generation Backlog](index=5&type=section&id=Generation%20Backlog) Generation backlog increased to $955.0 million as of July 31, 2025, primarily due to the new 20-year Power Purchase Agreement for the Hartford Project, expected to generate $167.4 million in revenue Generation Backlog (Millions) | Metric (Millions) | As of July 31, 2025 | As of July 31, 2024 | Change | | :---------------- | :------------------ | :------------------ | :------- | | Generation backlog | $955.0 | $839.5 | $115.5 | - The Hartford Project, a **7.4 MW** carbonate fuel cell power plant, added approximately **$167.4 million** to Generation backlog through a **20-year PPA** with Eversource and United Illuminating[19](index=19&type=chunk) [Product Backlog](index=5&type=section&id=Product%20Backlog) Product backlog decreased to $96.2 million as of July 31, 2025, mainly due to revenue recognition from GGE Platform module commissioning, partially offset by the CGN LTSA Product Backlog (Millions) | Metric (Millions) | As of July 31, 2025 | As of July 31, 2024 | Change | | :-------------- | :------------------ | :------------------ | :------- | | Product backlog | $96.2 | $136.7 | $(40.5) | - Decrease primarily resulted from revenue recognition as the company completed commissioning of replacement modules for the GGE Platform[19](index=19&type=chunk) - CGN LTSA added **$24.0 million** to product backlog during Q3 FY2025[20](index=20&type=chunk) [Advanced Technologies Contract Backlog](index=6&type=section&id=Advanced%20Technologies%20Contract%20Backlog) Advanced Technologies contract backlog decreased to $24.3 million as of July 31, 2025, primarily comprising remaining revenue from the EMTEC Joint Development Agreement, an Esso purchase order, and government contracts Advanced Technologies Contract Backlog (Millions) | Metric (Millions) | As of July 31, 2025 | As of July 31, 2024 | Change | | :------------------------------ | :------------------ | :------------------ | :------- | | Advanced Technologies contract backlog | $24.3 | $42.5 | $(18.2) | - Backlog includes remaining revenue under the Joint Development Agreement with EMTEC and a purchase order from Esso valued at **$15.6 million** (with a **$4.0 million** increase from change orders)[20](index=20&type=chunk) [Backlog Definition and Terms](index=6&type=section&id=Backlog%20Definition%20and%20Terms) Backlog represents definitive customer agreements, including future contracted energy sales and product/service sales, with revenue recognition from PPAs contingent on project completion and a weighted average term of approximately 16 years for service and generation - Backlog represents definitive agreements, with PPA projects included in generation backlog and customer-sold projects in product sales and service agreements backlog[22](index=22&type=chunk) - Revenue recognition under PPAs is subject to the completion of project construction; failure to complete may result in forgone revenues, penalties, and/or impairment expenses[22](index=22&type=chunk) - The weighted average term of the service and generation portion of backlog was approximately **16 years** as of July 31, 2025, with utility service contracts up to **20 years**[22](index=22&type=chunk)[23](index=23&type=chunk) [Conference Call Information](index=7&type=section&id=Conference%20Call%20Information) FuelCell Energy hosted a conference call on September 9, 2025, to discuss Q3 FY2025 results and business highlights, accessible via webcast or telephone, with a replay available online [Conference Call Details](index=7&type=section&id=Conference%20Call%20Details) FuelCell Energy held a conference call on September 9, 2025, at 10:00 a.m. ET to discuss Q3 FY2025 results and business highlights, with live webcast and telephone access, and an online replay - Conference call held on September 9, 2025, at **10:00 a.m. ET** to discuss Q3 FY2025 results and key business highlights[24](index=24&type=chunk) - Access available via live webcast on www.fuelcellenergy.com or by dialing **888-330-3181** (Conference ID: **1099808**)[24](index=24&type=chunk)[26](index=26&type=chunk) - Replay available via webcast on the Company's Investors' page approximately two hours after the call[24](index=24&type=chunk) [Cautionary Language](index=7&type=section&id=Cautionary%20Language) This section highlights that the news release contains forward-looking statements subject to various known and unknown risks and uncertainties, including economic, regulatory, and operational factors, with no obligation to update [Forward-Looking Statements and Risks](index=7&type=section&id=Forward-Looking%20Statements%20and%20Risks) The news release contains forward-looking statements subject to various known and unknown risks and uncertainties, including general economic conditions, supply chain disruptions, regulatory changes, and the ability to convert bids to contracts or contracts to revenue, with no obligation to update - The news release contains forward-looking statements regarding future events or financial performance, which are not guarantees and are subject to risks and uncertainties[25](index=25&type=chunk) - Key risks include general economic conditions, changes in interest rates, supply chain disruptions, regulatory and utility industry changes, commodity price volatility, availability of government incentives, rapid technological change, competition, and the ability to convert bid awards to contracts or contracts to revenue[25](index=25&type=chunk) - Additional risks include the ability to maintain compliance with listing rules, market acceptance of products, factors affecting liquidity, government contract termination rights, intellectual property protection, litigation, commercialization delays, need for additional financing, ability to generate positive cash flow, and the impact of restructuring plans[27](index=27&type=chunk) - The company expressly disclaims any obligation to publicly update or revise any forward-looking statements[27](index=27&type=chunk) [About FuelCell Energy](index=8&type=section&id=About%20FuelCell%20Energy) FuelCell Energy, Inc. is a global leader providing environmentally responsible distributed baseload energy solutions through proprietary fuel cell technology, addressing critical global challenges in energy access, security, and environmental stewardship [Company Overview](index=8&type=section&id=Company%20Overview) FuelCell Energy, Inc. is a global leader in environmentally responsible distributed baseload energy solutions, utilizing proprietary fuel cell technology to address critical global challenges in energy access, security, reliability, affordability, safety, and environmental stewardship across various sectors - FuelCell Energy is a global leader in delivering environmentally responsible distributed baseload energy platform solutions using proprietary fuel cell technology[28](index=28&type=chunk) - Focuses on advancing sustainable clean energy technologies to address global challenges in energy access, security, resilience, reliability, affordability, safety, and environmental stewardship[28](index=28&type=chunk) - Serves industrial and commercial businesses, utilities, governments, municipalities, and communities worldwide[28](index=28&type=chunk) [Consolidated Financial Statements](index=9&type=section&id=Consolidated%20Financial%20Statements) Consolidated financial statements show a decrease in total assets and equity as of July 31, 2025, primarily due to reduced short-term investments and impairment, while total revenues increased for both the three and nine months ended July 31, 2025, despite significant net losses from impairment and restructuring [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) As of July 31, 2025, total assets decreased to $830.5 million, driven by reductions in short-term investments, project assets, and property, plant and equipment, while total liabilities and equity also decreased Consolidated Balance Sheets (Amounts in thousands) | Metric (Amounts in thousands) | July 31, 2025 | October 31, 2024 | | :--------------------------------------- | :------------ | :--------------- | | **ASSETS** | | | | Total current assets | $370,397 | $444,458 | | Restricted cash and cash equivalents – long-term | $46,100 | $48,589 | | Project assets, net | $224,482 | $242,131 | | Property, plant and equipment, net | $97,761 | $130,686 | | Goodwill | $- | $4,075 | | Intangible assets, net | $4,215 | $14,779 | | **Total assets** | **$830,535** | **$944,124** | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $69,027 | $73,904 | | Long-term debt and other liabilities | $119,320 | $130,850 | | **Total liabilities** | **$205,458** | **$216,658** | | Redeemable Series B preferred stock | $59,857 | $59,857 | | **Total equity** | **$565,220** | **$667,609** | - Goodwill was fully impaired, decreasing from **$4.075 million** to **$0**[31](index=31&type=chunk) - Total assets of Variable Interest Entities (VIEs) were **$322.4 million** as of July 31, 2025, which can only be used to settle VIE obligations[31](index=31&type=chunk) [Consolidated Statements of Operations and Comprehensive Loss](index=10&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The consolidated statements of operations show increased total revenues for both the three and nine months ended July 31, 2025, primarily from product and service revenues, but also a substantial rise in net loss and loss per share due to impairment and restructuring expenses [Three Months Ended July 31, 2025 and 2024](index=10&type=section&id=Three%20Months%20Ended%20July%2031%2C%202025%20and%202024) For Q3 FY2025, total revenues increased 97% to $46.7 million, with product revenues surging, but operating expenses, driven by impairment and restructuring, led to a net loss of $(91.9) million and a net loss per share of $(3.78) Consolidated Statements of Operations (Amounts in thousands) | Metric (Amounts in thousands) | July 31, 2025 | July 31, 2024 | | :--------------------------------------- | :------------ | :------------ | | Total revenues | $46,743 | $23,695 | | Product revenues | $26,000 | $250 | | Service revenues | $3,130 | $1,411 | | Generation revenues | $12,355 | $13,402 | | Advanced Technologies revenues | $5,258 | $8,632 | | Gross loss | $(5,134) | $(6,202) | | Operating expenses | $90,230 | $27,415 | | Impairment expense | $64,467 | $- | | Restructuring expense | $4,051 | $- | | Net loss | $(91,896) | $(35,123) | | Net loss attributable to common stockholders | $(92,456) | $(33,460) | | Net loss per share attributable to common stockholders | $(3.78) | $(1.99) | [Nine Months Ended July 31, 2025 and 2024](index=11&type=section&id=Nine%20Months%20Ended%20July%2031%2C%202025%20and%202024) For the nine months ended July 31, 2025, total revenues increased to $103.1 million, with product revenues significantly higher, but operating expenses more than doubled due to impairment and restructuring, resulting in a net loss of $(162.0) million and a net loss per share of $(7.22) Consolidated Statements of Operations (Amounts in thousands) | Metric (Amounts in thousands) | July 31, 2025 | July 31, 2024 | | :--------------------------------------- | :------------ | :------------ | | Total revenues | $103,146 | $62,806 | | Product revenues | $39,099 | $250 | | Service revenues | $13,122 | $4,397 | | Generation revenues | $35,825 | $38,013 | | Advanced Technologies revenues | $15,100 | $20,146 | | Gross loss | $(19,776) | $(25,001) | | Operating expenses | $144,249 | $92,455 | | Impairment expense | $64,467 | $- | | Restructuring expense | $5,593 | $- | | Net loss | $(162,031) | $(117,178) | | Net loss attributable to common stockholders | $(160,431) | $(86,993) | | Net loss per share attributable to common stockholders | $(7.22) | $(5.56) | [Appendix: Non-GAAP Financial Measures](index=12&type=section&id=Appendix%3A%20Non-GAAP%20Financial%20Measures) This appendix defines non-GAAP financial measures like EBITDA and Adjusted net loss, which management uses to analyze operating performance by excluding non-cash or non-recurring items, providing a comparative view within the fuel cell sector [Non-GAAP Measures Explanation](index=12&type=section&id=Non-GAAP%20Measures%20Explanation) This section defines non-GAAP measures such as EBITDA and Adjusted net loss, which management uses to analyze operating performance and trends by excluding non-cash or non-recurring items, offering a comparative view within the fuel cell sector - Non-GAAP measures (EBITDA, Adjusted EBITDA, Adjusted net loss, Adjusted net loss per share) are used by management to analyze operating decisions and assess performance[36](index=36&type=chunk)[37](index=37&type=chunk) - Adjusted EBITDA and Adjusted net loss exclude stock-based compensation, impairment and restructuring expenses, non-cash (gain) loss on derivative instruments, and other unusual items[37](index=37&type=chunk) - These non-GAAP measures are not prepared in accordance with GAAP and should not be considered in isolation or as a substitute for comparable GAAP financial measures[38](index=38&type=chunk) [EBITDA and Adjusted EBITDA Reconciliation](index=12&type=section&id=EBITDA%20and%20Adjusted%20EBITDA%20Reconciliation) For Q3 FY2025, Adjusted EBITDA improved to $(16.4) million, and for the nine months, it improved to $(56.8) million, reflecting the impact of non-cash and non-recurring adjustments from the net loss EBITDA and Adjusted EBITDA Reconciliation (Amounts in thousands) | Metric (Amounts in thousands) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss | $(91,896) | $(35,123) | $(162,031) | $(117,178) | | EBITDA | $(85,618) | $(24,379) | $(133,443) | $(90,067) | | Stock-based compensation expense | $1,691 | $3,350 | $8,657 | $9,227 | | Unrealized (gain) loss on natural gas contract derivative assets | $(971) | $895 | $(2,037) | $5,072 | | Impairment expense | $64,467 | $- | $64,467 | $- | | Restructuring expense | $4,051 | $- | $5,593 | $- | | **Adjusted EBITDA** | **$(16,380)** | **$(20,134)** | **$(56,763)** | **$(75,768)** | - Depreciation and amortization for the three months ended July 31, 2025, was **$9.7 million**, and for the nine months, it was **$30.6 million**[42](index=42&type=chunk) - The company recorded a non-cash impairment expense of **$64.5 million** for both the three and nine months ended July 31, 2025, related to solid oxide technology, goodwill, in-process R&D, property, plant and equipment, and solid oxide inventory[45](index=45&type=chunk) [Adjusted Net Loss Reconciliation](index=13&type=section&id=Adjusted%20Net%20Loss%20Reconciliation) Adjusted net loss attributable to common stockholders improved to $(23.2) million for Q3 FY2025 and $(83.8) million for the nine months, with Adjusted net loss per share also improving, after excluding specific non-cash and non-recurring items Adjusted Net Loss Reconciliation (Amounts in thousands except per share) | Metric (Amounts in thousands except per share) | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net loss attributable to common stockholders | $(92,456) | $(33,460) | $(160,431) | $(86,993) | | Stock-based compensation expense | $1,691 | $3,350 | $8,657 | $9,227 | | Unrealized (gain) loss on natural gas contract derivative assets | $(971) | $895 | $(2,037) | $5,072 | | Impairment expense | $64,467 | $- | $64,467 | $- | | Restructuring expense | $4,051 | $- | $5,593 | $- | | **Adjusted net loss attributable to common stockholders** | **$(23,218)** | **$(29,215)** | **$(83,751)** | **$(72,694)** | | Net loss per share attributable to common stockholders | $(3.78) | $(1.99) | $(7.22) | $(5.56) | | **Adjusted net loss per share attributable to common stockholders** | **$(0.95)** | **$(1.74)** | **$(3.77)** | **$(4.65)** | - Other (income) expense, net includes gains/losses from foreign currency transactions, interest rate swap income, and other periodic non-normal business items[43](index=43&type=chunk) - The company recorded a mark-to-market net gain of **$1.0 million** (Q3) and **$2.0 million** (9M) for natural gas contract derivative assets in FY2025, compared to losses in FY2024[44](index=44&type=chunk)

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) Forward-looking statements in this report are subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements regarding future operations, financial position, business strategy, and plans, identifiable by terms like "believes," "expects," "may," and "will," which are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk) - Key risk factors include declines in construction markets, slowdowns in municipal spending, price fluctuations in product costs, inventory management issues, acquisition risks, competitive markets, and the ability to retain key personnel[11](index=11&type=chunk)[13](index=13&type=chunk) Part I - Financial Information [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28unaudited%29) Presents Core & Main, Inc.'s unaudited condensed consolidated financial statements, covering balance sheets, operations, equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20August%203%2C%202025%20and%20February%202%2C%202025%20%28unaudited%29) Condensed Consolidated Balance Sheets (Amounts in millions) | Metric | August 3, 2025 | February 2, 2025 | Change | | :----------------------------------- | :------------- | :--------------- | :----- | | Total current assets | $2,510 | $2,025 | +$485 | | Total assets | $6,306 | $5,870 | +$436 | | Total current liabilities | $1,117 | $866 | +$251 | | Total liabilities | $4,344 | $4,096 | +$248 | | Total stockholders' equity | $1,962 | $1,774 | +$188 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20three%20and%20six%20month%20periods%20ended%20August%203%2C%202025%20and%20July%2028%2C%202024%20%28unaudited%29) Condensed Consolidated Statements of Operations (Amounts in millions, except per share data) | Metric | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net sales | $2,093 | $1,964 | $4,004 | $3,705 | | Gross profit | $560 | $518 | $1,070 | $986 | | Operating income | $213 | $204 | $384 | $372 | | Net income | $141 | $126 | $246 | $227 | | Net income attributable to Core & Main, Inc. | $134 | $119 | $234 | $214 | | Basic EPS | $0.71 | $0.62 | $1.23 | $1.11 | | Diluted EPS | $0.70 | $0.61 | $1.22 | $1.11 | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20three%20and%20six%20month%20periods%20ended%20August%203%2C%202025%20and%20July%2028%2C%202024%20%28unaudited%29) Condensed Consolidated Statements of Comprehensive Income (Amounts in millions) | Metric | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net income | $141 | $126 | $246 | $227 | | Total comprehensive income | $133 | $93 | $217 | $212 | | Total comprehensive income attributable to Core & Main, Inc. | $126 | $88 | $206 | $200 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20for%20the%20three%20and%20six%20month%20periods%20ended%20August%203%2C%202025%20and%20July%2028%2C%202024%20%28unaudited%29) Changes in Stockholders' Equity (Amounts in millions) | Metric | Balances at Feb 2, 2025 | Balances at Aug 3, 2025 | | :----------------------------------- | :---------------------- | :---------------------- | | Total Stockholders' Equity | $1,774 | $1,962 | | Net income (attributable to Core & Main, Inc.) | $100 (for 3 months ended May 4, 2025) + $134 (for 3 months ended Aug 3, 2025) | $234 | | Equity-based compensation | $5 (for 3 months ended May 4, 2025) + $5 (for 3 months ended Aug 3, 2025) | $10 | | Repurchase and Retirement of equity interests | $(39) (for 3 months ended May 4, 2025) + $(8) (for 3 months ended Aug 3, 2025) | $(47) | - The company repurchased **959,103 shares** of Class A common stock for **$47 million** during the six months ended August 3, 2025, with **$277 million** remaining authorized under the program[33](index=33&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20month%20periods%20ended%20August%203%2C%202025%20and%20July%2028%2C%202024%20%28unaudited%29) Condensed Consolidated Statements of Cash Flows (Amounts in millions) | Metric | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | Change | | :----------------------------------- | :--------------------------- | :--------------------------- | :----- | | Net cash provided by operating activities | $111 | $126 | $(15) | | Net cash used in investing activities | $(28) | $(618) | +$590 | | Net cash (used in) provided by financing activities | $(66) | $504 | $(570) | | Increase in cash and cash equivalents | $17 | $12 | +$5 | | Cash and cash equivalents at end of period | $25 | $13 | +$12 | [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20%28unaudited%29) - The financial statements are unaudited and include all normal recurring adjustments necessary for a fair statement of the Company's results, but interim results may not be indicative of full-year performance[35](index=35&type=chunk) [1) Basis of Presentation & Description of Business](index=11&type=section&id=1%29%20BASIS%20OF%20PRESENTATION%20%26%20DESCRIPTION%20OF%20BUSINESS) - The Company is a leading specialty distributor dedicated to advancing reliable infrastructure with local service, nationwide, focusing on water, wastewater, storm drainage, and fire protection products and services[31](index=31&type=chunk) - Core & Main is a holding company that indirectly owns Core & Main LP, the operating entity, through its interest in Core & Main Holdings, LP[32](index=32&type=chunk)[34](index=34&type=chunk) - The Company's board authorized a **$500 million** share repurchase program on June 12, 2024. For the six months ended August 3, 2025, **959,103 shares** were repurchased for **$47 million**, with **$277 million** remaining available[33](index=33&type=chunk) - The Company operates as a single operating and reportable segment, with performance measured by net sales and net income at the consolidated level[36](index=36&type=chunk) [2) Recent Accounting Pronouncements](index=12&type=section&id=2%29%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - ASU 2023-09 (Income Tax Disclosures) is effective for annual periods beginning after December 15, 2024, and is expected to result in additional disclosures but no material financial impact[40](index=40&type=chunk) - ASU 2024-03 (Disaggregation of Income Statement Expenses) is effective for annual periods beginning after December 15, 2026, and is being evaluated for its impact on consolidated financial statements[41](index=41&type=chunk) [3) Revenue](index=13&type=section&id=3%29%20REVENUE) Net Sales by Product Category (Amounts in millions) | Product Category | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Pipes, valves & fittings | $1,430 | $1,329 | $2,727 | $2,498 | | Storm drainage products | $335 | $306 | $630 | $559 | | Fire protection products | $155 | $143 | $307 | $310 | | Meter products | $173 | $186 | $340 | $338 | | Total net sales | $2,093 | $1,964 | $4,004 | $3,705 | [4) Acquisitions](index=13&type=section&id=4%29%20ACQUISITIONS) - The Company completed no acquisitions in the six months ended August 3, 2025. In the prior year (six months ended July 28, 2024), it made several acquisitions with an aggregate value of **$623 million**, including Dana Kepner, ACF West, EGW Utilities, GSC, and Eastern Supply[43](index=43&type=chunk)[44](index=44&type=chunk) - The Fiscal 2024 Acquisitions resulted in **$285 million** in goodwill and **$233 million** in intangible assets (primarily customer relationships)[46](index=46&type=chunk) - Pro forma net sales for the six months ended July 28, 2024, including the Dana Kepner acquisition as if it occurred on January 30, 2023, would have been **$3,734 million**, with net income of **$228 million**[53](index=53&type=chunk) [5) Goodwill and Intangible Assets](index=17&type=section&id=5%29%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Intangible Assets, Net (Amounts in millions) | Intangible Asset | August 3, 2025 | February 2, 2025 | | :----------------------- | :------------- | :--------------- | | Customer relationships | $834 | $907 | | Internal use software | $29 | $23 | | Other intangible assets | $4 | $5 | | Total | $867 | $935 | Amortization Expense (Amounts in millions) | Period | August 3, 2025 | July 28, 2024 | | :----------------------- | :------------- | :------------ | | Three Months Ended | $37 | $38 | | Six Months Ended | $74 | $73 | - Estimated aggregate amortization expense for intangible assets is **$74 million** for the remainder of fiscal 2025, **$138 million** for fiscal 2026, **$129 million** for fiscal 2027, **$120 million** for fiscal 2028, and **$106 million** for fiscal 2029[56](index=56&type=chunk) [6) Debt](index=18&type=section&id=6%29%20DEBT) Debt Obligations (Amounts in millions) | Debt Type | August 3, 2025 (Principal) | February 2, 2025 (Principal) | Weighted Average Interest Rate (Aug 3, 2025) | Maturity Date | | :----------------------------------- | :------------------------- | :--------------------------- | :----------------------------------- | :------------ | | Current maturities of long-term debt | $24 | $24 | N/A | N/A | | Senior ABL Credit Facility | $100 | $93 | 5.58% | Feb 9, 2029 | | 2028 Senior Term Loan | $1,226 | $1,233 | 6.27% | Jul 27, 2028 | | 2031 Senior Term Loan | $928 | $933 | 6.27% | Feb 9, 2031 | | Total Debt (Principal) | $2,278 | $2,283 | N/A | N/A | - The Company uses interest rate swaps to mitigate exposure to variable interest rates, effectively converting **$700 million** of variable rate debt to a fixed rate of **2.693%** until July 27, 2026, and another **$750 million** (increasing to **$1,500 million**) to a fixed rate of **5.913%** until July 27, 2028[63](index=63&type=chunk)[64](index=64&type=chunk) - The Company was in compliance with all debt covenants as of August 3, 2025[61](index=61&type=chunk) [7) Income Taxes](index=20&type=section&id=7%29%20INCOME%20TAXES) Effective Tax Rate | Period | August 3, 2025 | July 28, 2024 | | :----------------------- | :------------- | :------------ | | Three Months Ended | 22.5% | 25.0% | | Six Months Ended | 23.8% | 24.8% | - The decrease in the effective tax rate for both periods was primarily due to certain tax windfall benefits from equity award exercises[68](index=68&type=chunk) - The Company has Tax Receivable Agreements requiring payments of **85%** of realized tax benefits, with expected payments of **$41 million** within the next 12 months[69](index=69&type=chunk)[70](index=70&type=chunk) [8) Supplemental Financial Statement Information](index=20&type=section&id=8%29%20SUPPLEMENTAL%20FINANCIAL%20STATEMENT%20INFORMATION) Receivables (Amounts in millions) | Receivable Type | August 3, 2025 | February 2, 2025 | | :----------------------- | :------------- | :--------------- | | Trade receivables, net | $1,282 | $986 | | Supplier rebate receivables | $75 | $80 | | Total Receivables, net | $1,357 | $1,066 | Accrued Compensation and Benefits (Amounts in millions) | Accrued Item | August 3, 2025 | February 2, 2025 | | :----------------------- | :------------- | :--------------- | | Accrued bonuses and commissions | $63 | $91 | | Other compensation and benefits | $31 | $32 | | Total Accrued Compensation and Benefits | $94 | $123 | Depreciation Expense (Amounts in millions) | Period | August 3, 2025 | July 28, 2024 | | :----------------------- | :------------- | :------------ | | Three Months Ended | $9 | $9 | | Six Months Ended | $18 | $17 | [9) Non-Controlling Interests](index=21&type=section&id=9%29%20NON-CONTROLLING%20INTERESTS) - Non-controlling interests represented **3.5%** of Holdings as of August 3, 2025, down from **3.9%** as of February 2, 2025[76](index=76&type=chunk) [10) Basic and Diluted Earnings Per Share](index=22&type=section&id=10%29%20BASIC%20AND%20DILUTED%20EARNINGS%20PER%20SHARE) - Basic EPS is calculated by dividing net income attributable to Core & Main by the weighted average Class A common stock outstanding. Diluted EPS includes the dilutive impact of potential Class A shares from Partnership Interests exchange and outstanding awards[79](index=79&type=chunk)[80](index=80&type=chunk) Basic and Diluted EPS (Amounts in millions, except per share data) | Metric | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net income available to Class A common stock | $134 | $119 | $234 | $214 | | Basic EPS | $0.71 | $0.62 | $1.23 | $1.11 | | Diluted EPS | $0.70 | $0.61 | $1.22 | $1.11 | | Weighted average shares outstanding - basic | 189,904,002 | 192,797,961 | 189,855,388 | 192,495,255 | | Weighted average shares outstanding - diluted | 198,302,610 | 202,667,354 | 198,503,146 | 202,640,993 | [11) Related Parties](index=22&type=section&id=11%29%20RELATED%20PARTIES) - The Company has Tax Receivable Agreements and an Exchange Agreement with related parties, with no significant changes reported[82](index=82&type=chunk) [12) Subsequent Events](index=22&type=section&id=12%29%20SUBSEQUENT%20EVENTS) - Management has evaluated events or transactions that may have occurred and identified no subsequent events meriting recognition or disclosure[83](index=83&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses financial condition, operations, key factors, and results for the three and six months ended August 3, 2025, including liquidity and non-GAAP measures [Overview](index=23&type=section&id=Overview) - Core & Main is a leading specialty distributor of water, wastewater, storm drainage, and fire protection products, serving municipal, non-residential, and residential end markets through over **370 branches** across **49 U.S. states**[85](index=85&type=chunk) - The Company's fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31st, with the current fiscal year (fiscal 2025) comprising **52 weeks**[87](index=87&type=chunk) [Key Factors Affecting Our Business](index=23&type=section&id=Key%20Factors%20Affecting%20Our%20Business) - Demand for products is tied to municipal (**42%**), non-residential (**38%**), and residential (**20%**) construction markets, which are subject to cyclical pressures[88](index=88&type=chunk) - The Infrastructure Investment and Jobs Act (IIJA) includes **$55 billion** for water infrastructure, which is expected to benefit the business, although a temporary funding pause was issued in January 2025[89](index=89&type=chunk) - Operating results are impacted by seasonality, with net sales typically lower in the first and fourth fiscal quarters due to colder weather and shorter daylight hours[90](index=90&type=chunk) - Financial performance is affected by price fluctuations in product costs and the ability to pass these changes to customers. Over three-quarters of products are manufactured domestically, limiting tariff exposure[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The Company is exposed to interest rate risk on variable-rate debt (**$2,278 million** outstanding as of August 3, 2025) but mitigates this through interest rate swaps[95](index=95&type=chunk) - The Company opportunistically pursues strategic acquisitions, completing several in fiscal 2024 with an aggregate value of **$769 million**, focusing on expanding product lines and geographic reach[96](index=96&type=chunk)[97](index=97&type=chunk) [Key Business Metrics](index=25&type=section&id=Key%20Business%20Metrics) - Net sales are generated from selling water, wastewater, storm drainage, and fire protection products and services to over **60,000 customers**, categorized into pipes, valves & fittings, storm drainage, fire protection, and meter products[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - Gross profit is the difference between net sale price and product cost (including material, labor, overhead, and depreciation), influenced by the timing of supplier cost changes and customer pricing[101](index=101&type=chunk) - Operating expenses primarily consist of selling, general, and administrative costs, including personnel, rent, insurance, utilities, professional fees, and freight[102](index=102&type=chunk) - Adjusted EBITDA and Adjusted Diluted Earnings Per Share are non-GAAP measures used to assess operating results and business effectiveness, excluding items like equity-based compensation and acquisition expenses[105](index=105&type=chunk)[107](index=107&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) [Three Months Ended August 3, 2025 Compared with Three Months Ended July 28, 2024](index=27&type=section&id=Three%20Months%20Ended%20August%203%2C%202025%20Compared%20with%20Three%20Months%20Ended%20July%2028%2C%202024) Financial Performance (Three Months Ended) | Metric | Aug 3, 2025 | Jul 28, 2024 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :----------- | :--------- | :--------- | | Net sales | $2,093 | $1,964 | +$129 | +6.6% | | Gross profit | $560 | $518 | +$42 | +8.1% | | Gross profit as % of net sales | 26.8% | 26.4% | +0.4 pp | N/A | | SG&A expenses | $302 | $268 | +$34 | +12.7% | | Operating income | $213 | $204 | +$9 | +4.4% | | Interest expense | $31 | $36 | $(5) | -13.9% | | Provision for income taxes | $41 | $42 | $(1) | -2.4% | | Effective tax rate | 22.5% | 25.0% | -2.5 pp | N/A | | Net income | $141 | $126 | +$15 | +11.9% | | Net income attributable to Core & Main, Inc. | $134 | $119 | +$15 | +12.6% | | Basic EPS | $0.71 | $0.62 | +$0.09 | +14.5% | | Diluted EPS | $0.70 | $0.61 | +$0.09 | +14.8% | | Adjusted EBITDA | $266 | $257 | +$9 | +3.5% | | Adjusted Diluted EPS | $0.87 | $0.77 | +$0.10 | +13.0% | - Net sales growth was driven by higher volumes and acquisitions, though meter products declined due to project delays[109](index=109&type=chunk) - SG&A expenses increased due to higher personnel expenses, variable compensation, employee benefits, and distribution-related costs[112](index=112&type=chunk) - EPS increases were also supported by lower Class A share counts due to share repurchases[119](index=119&type=chunk)[121](index=121&type=chunk) [Six Months Ended August 3, 2025 Compared with Six Months Ended July 28, 2024](index=29&type=section&id=Six%20Months%20Ended%20August%203%2C%202025%20Compared%20with%20Six%20Months%20Ended%20July%2028%2C%202024) Financial Performance (Six Months Ended) | Metric | Aug 3, 2025 | Jul 28, 2024 | Change ($) | Change (%) | | :----------------------------------- | :---------- | :----------- | :--------- | :--------- | | Net sales | $4,004 | $3,705 | +$299 | +8.1% | | Gross profit | $1,070 | $986 | +$84 | +8.5% | | Gross profit as % of net sales | 26.7% | 26.6% | +0.1 pp | N/A | | SG&A expenses | $595 | $525 | +$70 | +13.3% | | Operating income | $384 | $372 | +$12 | +3.2% | | Interest expense | $61 | $70 | $(9) | -12.9% | | Provision for income taxes | $77 | $75 | +$2 | +2.7% | | Effective tax rate | 23.8% | 24.8% | -1.0 pp | N/A | | Net income | $246 | $227 | +$19 | +8.4% | | Net income attributable to Core & Main, Inc. | $234 | $214 | +$20 | +9.3% | | Basic EPS | $1.23 | $1.11 | +$0.12 | +10.8% | | Diluted EPS | $1.22 | $1.11 | +$0.11 | +9.9% | | Adjusted EBITDA | $490 | $474 | +$16 | +3.4% | | Adjusted Diluted EPS | $1.55 | $1.42 | +$0.13 | +9.2% | - Net sales increased due to higher volumes and acquisitions, with fire protection products seeing a decline in selling prices partially offset by acquisitions[123](index=123&type=chunk) - Gross profit percentage improved slightly due to margin initiatives and accretive acquisitions, despite higher average inventory costs[125](index=125&type=chunk) - Net income attributable to Core & Main, Inc. increased due to higher net income and a decreased allocation to non-controlling interest holders[132](index=132&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company's liquidity is primarily financed through operating cash flows, credit facilities, equity/debt issuances, and working capital management. Key requirements include working capital, capital expenditures, acquisitions, debt servicing, Tax Receivable Agreement payments, and share repurchases[136](index=136&type=chunk) - As of August 3, 2025, cash and cash equivalents totaled **$25 million**, with **$100 million** outstanding on the Senior ABL Credit Facility, which has a borrowing capacity of up to **$1,250 million**[137](index=137&type=chunk)[138](index=138&type=chunk) - Net cash provided by operating activities decreased by **$15 million** to **$111 million** for the six months ended August 3, 2025, primarily due to higher working capital investment[146](index=146&type=chunk) - Net cash used in investing activities decreased by **$590 million** to **$28 million**, mainly due to **$596 million** in cash outflows for acquisitions during fiscal 2024[147](index=147&type=chunk) - Net cash used in financing activities was **$66 million**, a **$570 million** change from the prior year, driven by decreased net borrowings and debt issuance costs, increased share repurchases, and higher Tax Receivable Agreement payments[148](index=148&type=chunk) - The Company expects current liquidity sources to be sufficient for the next 12 months, but future acquisitions may require additional equity or debt[142](index=142&type=chunk) - The Company had **$1,024 million** in purchase obligations, primarily for inventory, as of August 3, 2025, generally cancellable but with no intent to cancel[150](index=150&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) - EBITDA, Adjusted EBITDA, and Adjusted Diluted Earnings Per Share are non-GAAP measures used to assess operating results and effectiveness, providing supplemental performance information not considered GAAP measures[151](index=151&type=chunk)[155](index=155&type=chunk) - Adjusted EBITDA is defined as net income adjusted for non-controlling interests, D&A, income taxes, interest expense, loss on debt modification, equity-based compensation, and acquisition-related expenses[152](index=152&type=chunk) - Adjusted Diluted EPS is diluted EPS adjusted for amortization of intangible assets, loss on debt modification, equity-based compensation, acquisition expenses, and their tax impacts[154](index=154&type=chunk) Reconciliation of Net Income to Adjusted EBITDA (Amounts in millions) | Metric | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Net income attributable to Core & Main, Inc. | $134 | $119 | $234 | $214 | | Net income | $141 | $126 | $246 | $227 | | Depreciation and amortization | $46 | $47 | $93 | $91 | | Provision for income taxes | $41 | $42 | $77 | $75 | | Interest expense | $31 | $36 | $61 | $70 | | EBITDA | $259 | $251 | $477 | $463 | | Equity-based compensation | $5 | $4 | $10 | $7 | | Acquisition expenses | $2 | $2 | $3 | $4 | | Adjusted EBITDA | $266 | $257 | $490 | $474 | Reconciliation of Diluted EPS to Adjusted Diluted EPS | Metric | Three Months Ended Aug 3, 2025 | Three Months Ended Jul 28, 2024 | Six Months Ended Aug 3, 2025 | Six Months Ended Jul 28, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | :--------------------------- | :--------------------------- | | Diluted earnings per share | $0.70 | $0.61 | $1.22 | $1.11 | | Amortization of intangible assets | $0.19 | $0.19 | $0.37 | $0.36 | | Equity-based compensation | $0.03 | $0.02 | $0.05 | $0.03 | | Acquisition expenses | $0.01 | $0.01 | $0.02 | $0.02 | | Income tax impact of adjustments | $(0.06) | $(0.06) | $(0.11) | $(0.10) | | Adjusted Diluted Earnings Per Share | $0.87 | $0.77 | $1.55 | $1.42 | [Recently Issued and Adopted Accounting Pronouncements and Accounting Pronouncements Issued But Not Yet Adopted](index=35&type=section&id=Recently%20Issued%20and%20Adopted%20Accounting%20Pronouncements%20and%20Accounting%20Pronouncements%20Issued%20But%20Not%20Yet%20Adopted) - Refer to Note 2 of the financial statements for details on recent accounting pronouncements[159](index=159&type=chunk) [Critical Accounting Policies and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No significant changes to critical accounting policies and estimates have materially impacted the unaudited condensed consolidated financial statements during the three and six months ended August 3, 2025[160](index=160&type=chunk) [Off-Balance Sheet Arrangements](index=36&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company had no off-balance sheet arrangements as of August 3, 2025[161](index=161&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Details the Company's exposure to market risks, including interest rate, credit, price, and foreign currency, and outlines management strategies - The Company is exposed to market risks from fluctuations in interest rates, foreign currency exchange rates, and product prices[162](index=162&type=chunk) [Interest Rate Risk](index=36&type=section&id=Interest%20Rate%20Risk) - The Company is exposed to interest rate fluctuations on its **$2,278 million** variable-rate debt (Senior Term Loan and Senior ABL Credit Facility). A one percentage point change in interest rates would result in an approximately **$22 million** change in annual interest expense on the Senior Term Loan Credit Facility[163](index=163&type=chunk) [Credit Risk](index=36&type=section&id=Credit%20Risk) - Credit risk on accounts receivable is mitigated by a large, diverse customer base, with the **50 largest customers** accounting for only **12%** of net sales in fiscal 2024[164](index=164&type=chunk) [Price Risk](index=36&type=section&id=Price%20Risk) - The Company faces price fluctuations in product procurement costs, which can impact gross profit margins. It aims to mitigate this through strategic inventory investments, inventory management, and gross margin initiatives[165](index=165&type=chunk) [Foreign Currency Risk](index=36&type=section&id=Foreign%20Currency%20Risk) - Foreign currency operations are not material, and a hypothetical **10%** change in the U.S. dollar's value would not materially impact net earnings[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Discusses the effectiveness of the Company's disclosure controls and internal control over financial reporting, including management's evaluation and quarterly changes [Evaluation of Disclosure Controls and Procedures](index=37&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of August 3, 2025[167](index=167&type=chunk) [Changes in Internal Control over Financial Reporting](index=37&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the fiscal quarter[168](index=168&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=37&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) - Management acknowledges that control systems provide only reasonable, not absolute, assurance and may not prevent or detect all errors or fraud due to inherent limitations like human judgment, resource constraints, and potential for circumvention[169](index=169&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not party to material legal proceedings but faces incidental litigation, including product liability and asbestos-related matters - The Company is not currently involved in material legal proceedings but faces inherent risks of product liability, construction defect, and warranty claims, including ongoing asbestos-related litigation[171](index=171&type=chunk)[172](index=172&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Fiscal 2024 Annual Report on Form 10-K - No material changes have occurred in the risk factors since the Fiscal 2024 Annual Report on Form 10-K[173](index=173&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on the Company's equity security transactions, detailing issuer purchases of Class A common stock for the three months ended August 3, 2025 [Sales of Unregistered Securities](index=38&type=section&id=Sales%20of%20Unregistered%20Securities) - No unregistered sales of equity securities were reported[174](index=174&type=chunk) [Use of Proceeds from Public Offering of Common Stock](index=38&type=section&id=Use%20of%20Proceeds%20from%20Public%20Offering%20of%20Common%20Stock) - No use of proceeds from public offerings of common stock was reported[175](index=175&type=chunk) [Issuer Purchases of Equity Securities](index=38&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) Issuer Purchases of Class A Common Stock (Three Months Ended August 3, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Value Remaining Under Program (millions) | | :----------------------- | :----------------------------- | :--------------------------- | :----------------------------------------------- | | May 5 - May 31 | 3,350 | $51.50 | $285 | | June 1 - June 30 | 13,126 | $56.95 | $285 | | July 1 - August 3 | 126,704 | $61.61 | $277 | | Total | 143,180 | $60.95 | $277 | - The repurchases include **121,835 shares** for **$61.55 per share** through open market transactions under the Repurchase Program during the three months ended August 3, 2025[177](index=177&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities - No defaults upon senior securities were reported[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[179](index=179&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) Discloses new Rule 10b5-1(c) trading arrangements adopted by directors and officers during the quarter ended August 3, 2025 [Director and Officer Trading Arrangements](index=39&type=section&id=Director%20and%20Officer%20Trading%20Arrangements) - Several directors and officers, including Stephen O. LeClair (Executive Chair), Mark G. Whittenburg (General Counsel), Bradford A. Cowles (President), and Dennis G. Gipson (Director), adopted new Rule 10b5-1(c) trading arrangements for Class A common stock sales between October 2025 and April 2026[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including executive agreements, certifications, and XBRL documents - Exhibits include an Executive Transition Agreement, certifications by the Principal Executive Officer and Principal Financial Officer (pursuant to Sarbanes-Oxley Act Sections 302 and 906), and Inline XBRL documents[185](index=185&type=chunk) [Signatures](index=41&type=section&id=Signatures) - The report was signed on **September 9, 2025**, by Mark R. Witkowski, Chief Executive Officer and Director, and Robyn L. Bradbury, Chief Financial Officer[188](index=188&type=chunk)[189](index=189&type=chunk)

News Release FOR IMMEDIATE RELEASE Core & Main Announces Fiscal 2025 Second Quarter Results ST. LOUIS, Sept. 9, 2025—Core & Main, Inc. (NYSE: CNM) ("Core & Main"), a leading specialty distributor dedicated to advancing reliable infrastructure with local service, nationwide, today announced financial results for the second quarter ended August 3, 2025. Fiscal 2025 Second Quarter Results (Compared with Fiscal 2024 Second Quarter) "I am proud of our associates' dedication to supporting customers in delivering ...

[Fiscal Second Quarter 2026 Results Overview](index=1&type=section&id=Fiscal%20Second%20Quarter%202026%20Results%20Overview) SailPoint's strong fiscal Q2 2026 results, driven by SaaS ARR growth and record cash flow, led to raised full-year guidance [Executive Summary](index=1&type=section&id=Executive%20Summary) SailPoint reported strong fiscal second quarter 2026 results, surpassing all previous guidance metrics - SailPoint delivered strong Q2 results, exceeding all previously guided metrics[3](index=3&type=chunk) - The strong performance was driven by **37% year-over-year SaaS ARR growth** and record cash flow from operations[3](index=3&type=chunk) - The company is raising its guidance for the full year across all metrics due to strong demand for its identity security solutions in the AI era[3](index=3&type=chunk) [Fiscal 2026 Second Quarter Financial Highlights](index=1&type=section&id=Fiscal%202026%20Second%20Quarter%20Financial%20Highlights) For fiscal Q2 2026, SailPoint achieved a 28% year-over-year increase in total ARR to $982 million, with SaaS ARR growing 37% to $623 million, and total revenue rising 33% to $264 million Fiscal 2026 Second Quarter Financial Highlights | Metric | Q2 2026 Value | YoY Growth % | | :-------------------------------- | :-------------- | :----------- | | Total ARR | $982 million | 28% | | SaaS ARR | $623 million | 37% | | Total Revenue | $264 million | 33% | | Subscription Revenue | $248 million | 36% | | GAAP Operating Loss | $(41) million | N/A (vs $(66)M) | | Adjusted Income from Operations | $54 million | N/A (vs $21M) | | Cash Flows from Operating Activities | $50 million | N/A | | Free Cash Flow | $46 million | N/A | [Financial Outlook](index=1&type=section&id=Financial%20Outlook) SailPoint has raised its financial guidance for both the third quarter and the full fiscal year 2026, reflecting increased expectations across key metrics Q3 and FY 2026 Financial Guidance (in millions, except per share amounts and percentages) | Metric | Q3'26 Guidance | FY'26 Guidance | Prior FY'26 Guidance | | :-------------------------------- | :--------------- | :--------------- | :------------------- | | Total ARR | $1,027 to $1,031 | $1,105 to $1,115 | $1,095 to $1,105 | | Total ARR YoY growth % | 26% to 27% | 26% to 27% | 25% to 26% | | Total Revenue | $269 to $271 | $1,052 to $1,058 | $1,034 to $1,044 | | Total Revenue YoY growth % | 14% to 15% | 22% to 23% | 20% to 21% | | Adjusted Income from Operations | $42.5 to $43.5 | $177 to $181 | $161 to $166 | | Adjusted Operating Margin % | 15.7% to 16.2% | 16.7% to 17.2% | 15.4% to 16.1% | | Adjusted Earnings Per Share (Adjusted EPS) | $0.05 to $0.06 | $0.20 to $0.22 | $0.16 to $0.20 | [Company Information](index=2&type=section&id=Company%20Information) This section details SailPoint's enterprise identity security focus, non-GAAP financial measures, key business metrics, and corporate conversion information [About SailPoint](index=2&type=section&id=About%20SailPoint) SailPoint is a leader in enterprise identity security, providing a unified platform to manage and secure access for human and digital identities - SailPoint is a leader in enterprise identity security, focusing on securing human and digital identities[10](index=10&type=chunk) - The company offers a unified, intelligent, and extensible platform for identity-first security, helping enterprises manage access and defend against threats[10](index=10&type=chunk) [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) SailPoint uses non-GAAP financial measures to provide a clearer understanding of its core operating performance by excluding specific non-recurring or non-cash items - SailPoint uses non-GAAP measures (**Adjusted income from operations**, **Adjusted operating margin**, **Adjusted EPS**, **Free cash flow**, **Free cash flow margin**) to clarify and enhance understanding of past performance[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) - These non-GAAP measures exclude items such as equity-based compensation, payroll taxes related to IPO-accelerated awards and RSUs, amortization of acquired intangible assets, and acquisition-related expenses[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - The company believes these adjustments enable comparison of underlying business performance, evaluate cost trends, and enhance comparability with other technology companies[17](index=17&type=chunk) [Definitions and Rationale](index=2&type=section&id=Definitions%20and%20Rationale) This section defines key non-GAAP financial measures and explains the rationale behind their use, detailing specific exclusions for a clearer view of core operations - Adjusted income from operations excludes equity-based compensation, payroll taxes, amortization of acquired intangibles, acquisition-related expenses, and other specific non-recurring items[11](index=11&type=chunk) - Adjusted operating margin is defined as adjusted income from operations divided by total revenue[12](index=12&type=chunk) - Adjusted EPS is calculated based on adjusted net income divided by diluted weighted average shares outstanding, with a fixed projected tax rate of **24.5% for fiscal year 2026**[13](index=13&type=chunk)[14](index=14&type=chunk) - Free cash flow is defined as net cash provided by (used in) operating activities, less cash used for purchases of property and equipment and capitalized software development costs, used as a measure of financial progress[15](index=15&type=chunk) [Specific Adjustments](index=3&type=section&id=Specific%20Adjustments) This section details the specific adjustments made to GAAP figures for non-GAAP reporting, including exclusions for equity-based compensation, payroll taxes, and acquisition-related costs - Equity-based compensation expense is excluded due to its variability and irrelevance to core operating performance[18](index=18&type=chunk) - Payroll taxes related to IPO-accelerated awards and RSUs are excluded as they are one-time or highly variable and unrelated to core operating performance[19](index=19&type=chunk)[20](index=20&type=chunk) - Amortization of acquired intangible assets and impairment of intangible assets are excluded to provide a more meaningful comparison of operating results over time[21](index=21&type=chunk) - Acquisition-related costs are excluded as they are not indicative of ongoing operating performance[22](index=22&type=chunk) - Benefit from amortization related to acquired contract acquisition costs is adjusted to reflect the full amount of commission expense, providing a consistent basis for comparison[23](index=23&type=chunk) [Limitations of Non-GAAP Measures](index=4&type=section&id=Limitations%20of%20Non-GAAP%20Measures) Non-GAAP financial measures may not be comparable across companies and should not be considered in isolation from GAAP measures due to excluded material expenses - Non-GAAP financial measures may not be directly comparable to those of other companies due to differing calculation methodologies[24](index=24&type=chunk) - These measures are not prepared in accordance with GAAP and exclude expenses that may materially impact reported financial results, thus should not be considered in isolation or as a substitute for GAAP measures[24](index=24&type=chunk) [Definitions of Certain Key Business and Other Metrics](index=4&type=section&id=Definitions%20of%20Certain%20Key%20Business%20and%20Other%20Metrics) SailPoint defines key operating metrics such as Annual Recurring Revenue (ARR) and SaaS ARR as annualized values of subscription contracts, with subscription revenue recognized ratably - Annual Recurring Revenue (ARR) is defined as the annualized value of SaaS, maintenance, term subscription, and other subscription contracts as of the measurement date[25](index=25&type=chunk) - SaaS Annual Recurring Revenue (SaaS ARR) is specifically the annualized value of SaaS contracts[26](index=26&type=chunk) - Subscription revenue includes fees for SaaS offerings, term subscriptions, maintenance and support of perpetual license solutions, and other subscription services, recognized ratably over the agreement term[28](index=28&type=chunk)[29](index=29&type=chunk) [Explanatory Note Regarding Our Corporate Conversion](index=5&type=section&id=Explanatory%20Note%20Regarding%20Our%20Corporate%20Conversion) SailPoint Parent, LP converted to SailPoint, Inc. on February 12, 2025, in connection with its IPO, affecting how company references are interpreted - SailPoint Parent, LP converted into SailPoint, Inc. on **February 12, 2025**, in connection with its IPO[30](index=30&type=chunk) - References to 'SailPoint' refer to the limited partnership before the conversion and the corporation after[30](index=30&type=chunk) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section disclaims forward-looking statements, which are subject to uncertainties and risks that could cause actual results to differ materially from expectations - The report contains forward-looking statements subject to uncertainties, risks, and changes in circumstances that could cause actual results to differ materially[31](index=31&type=chunk) - Key risk factors include the ability to sustain growth, attract and retain customers, deepen existing customer relationships, grow the identity security market, maintain partner relationships, and compete successfully[32](index=32&type=chunk) - Other risks involve operational complexity, brand reputation, industry conditions, market opportunity accuracy, personnel management, corporate culture, AI integration, security breaches, service disruptions, and compliance with regulations[32](index=32&type=chunk) [Condensed Consolidated Financial Statements](index=7&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents SailPoint's condensed consolidated statements of operations, balance sheets, and cash flows for the reported periods [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2026, SailPoint reported total revenue of $264.36 million, significantly reducing its GAAP operating loss to $(40.80) million and net loss to $(10.55) million Condensed Consolidated Statements of Operations (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------------- | :------- | :------- | | Total Revenue | $264,359 | $198,575 | | Gross Profit | $177,806 | $123,313 | | Loss from Operations | $(40,798) | $(65,830) | | Net Loss | $(10,552) | $(87,130) | | Net Loss per Share, Basic and Diluted | $(0.02) | $(2.97) | | Weighted Average Shares Outstanding, Basic and Diluted | 555,757 | 82,703 | Condensed Consolidated Statements of Operations (Six Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------------- | :------- | :------- | | Total Revenue | $494,827 | $386,231 | | Gross Profit | $305,461 | $238,803 | | Loss from Operations | $(225,763) | $(134,023) | | Net Loss | $(197,864) | $(176,306) | | Net Loss per Share, Basic and Diluted | $(0.42) | $(5.89) | | Weighted Average Shares Outstanding, Basic and Diluted | 528,355 | 82,564 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of July 31, 2025, total assets increased to $7.45 billion, cash and equivalents rose to $271.05 million, and total liabilities decreased to $629.80 million due to debt repayment Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 | January 31, 2025 | | :----------------------------------- | :-------------- | :--------------- | | Cash and Cash Equivalents | $271,052 | $121,293 | | Total Current Assets | $626,600 | $512,382 | | Goodwill | $5,151,668 | $5,151,668 | | Intangible Assets, net | $1,460,597 | $1,560,723 | | Total Assets | $7,445,941 | $7,411,916 | | Total Current Liabilities | $504,465 | $574,693 | | Long-Term Debt, net | $— | $1,024,467 | | Total Liabilities | $629,795 | $1,804,215 | | Total Stockholders' Equity / Partners' Deficit | $6,816,146 | $(5,588,440) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For Q2 2026, SailPoint generated $49.95 million in net cash from operating activities, a significant improvement, resulting in a $42.98 million increase in cash and equivalents Condensed Consolidated Statements of Cash Flows (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------------- | :------- | :------- | | Net Cash Provided by (Used in) Operating Activities | $49,945 | $(52,797) | | Net Cash Used in Investing Activities | $(3,987) | $(3,819) | | Net Cash Provided by (Used in) Financing Activities | $(2,977) | $(415) | | Net Change in Cash, Cash Equivalents and Restricted Cash | $42,981 | $(57,031) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $277,316 | $96,557 | Condensed Consolidated Statements of Cash Flows (Six Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------------- | :-------- | :-------- | | Net Cash Provided by (Used in) Operating Activities | $(46,862) | $(108,183) | | Net Cash Used in Investing Activities | $(7,884) | $(11,503) | | Net Cash Provided by (Used in) Financing Activities | $207,672 | $(2,225) | | Net Change in Cash, Cash Equivalents and Restricted Cash | $152,926 | $(121,911) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $277,316 | $96,557 | [Supplemental Financial Information](index=10&type=section&id=Supplemental%20Financial%20Information) This section provides detailed revenue breakdowns and comprehensive reconciliations of GAAP to non-GAAP financial measures [Supplemental Schedules: Revenue Breakdown](index=10&type=section&id=Supplemental%20Schedules%3A%20Revenue%20Breakdown) SailPoint's Q2 2026 revenue breakdown shows strong growth in SaaS and Term subscriptions, with total subscription revenue increasing 36% year-over-year Revenue Breakdown (Three Months Ended July 31, in thousands) | Revenue Type | 2025 | 2024 | % Change | | :---------------------- | :------- | :------- | :------- | | SaaS | $144,758 | $105,716 | 37 % | | Maintenance and support | $38,471 | $38,909 | (1) % | | Term subscriptions | $58,120 | $32,630 | 78 % | | Other subscription services | $6,588 | $4,556 | 45 % | | **Total subscription** | **$247,937** | **$181,811** | **36 %** | | Perpetual licenses | $430 | $22 | ** | | Services and other | $15,992 | $16,742 | (4) % | | **Total revenue** | **$264,359** | **$198,575** | **33 %** | Revenue Breakdown (Six Months Ended July 31, in thousands) | Revenue Type | 2025 | 2024 | % Change | | :---------------------- | :------- | :------- | :------- | | SaaS | $276,573 | $202,783 | 36 % | | Maintenance and support | $75,860 | $77,178 | (2) % | | Term subscriptions | $98,160 | $63,315 | 55 % | | Other subscription services | $12,667 | $8,627 | 47 % | | **Total subscription** | **$463,260** | **$351,903** | **32 %** | | Perpetual licenses | $435 | $91 | ** | | Services and other | $31,132 | $34,237 | (9) % | | **Total revenue** | **$494,827** | **$386,231** | **28 %** | [Reconciliation of GAAP to Non-GAAP Financial Measures](index=11&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures) SailPoint's GAAP to non-GAAP reconciliations reveal improved adjusted profitability, with Q2 2026 adjusted operating margin at 20.4% and Adjusted EPS at $0.07 GAAP to Adjusted Gross Profit Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP Gross Profit | $177,806 | $123,313 | | GAAP Gross Profit Margin | 67.3 % | 62.1 % | | Equity-based compensation expense | 2,612 | 3,215 | | Amortization of acquired intangible assets | 26,322 | 25,890 | | **Adjusted Gross Profit** | **$206,740** | **$152,418** | | **Adjusted Gross Profit Margin** | **78.2 %** | **76.8 %** | GAAP to Adjusted Income from Operations Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP Income (Loss) from Operations | $(40,798) | $(65,830) | | GAAP Income (Loss) from Operations Margin | (15.4) % | (33.2) % | | Equity-based compensation expense | 48,418 | 24,390 | | Amortization of acquired intangible assets | 50,214 | 64,479 | | Amortization of acquired contract acquisition costs | (5,444) | (6,559) | | Acquisition-related expenses and Thoma Bravo monitoring fees | 1,609 | 4,714 | | **Adjusted Income (Loss) from Operations** | **$53,999** | **$21,194** | | **Adjusted Operating Margin** | **20.4 %** | **10.7 %** | GAAP to Adjusted Net Income and EPS Reconciliation (Three Months Ended July 31, in thousands, except per share amounts) | Metric | 2025 | 2024 | | :------------------------------------------------- | :------- | :------- | | GAAP Net Loss | $(10,552) | $(87,130) | | Equity-based compensation expense | 48,418 | N/A | | Amortization of acquired intangible assets | 50,214 | N/A | | Amortization of acquired contract acquisition costs | (5,444) | N/A | | Acquisition-related expenses and Thoma Bravo monitoring fees | 1,609 | N/A | | Tax effect of adjustments | (44,281) | N/A | | **Adjusted Net Income** | **$39,964** | N/A | | **Adjusted EPS, diluted** | **$0.07** | N/A | | Shares used in computing adjusted EPS, diluted | 557,878 | N/A | [Gross Profit Reconciliation](index=11&type=section&id=Gross%20Profit%20Reconciliation) This section reconciles GAAP to adjusted gross profit, detailing adjustments for equity-based compensation and amortization of acquired intangible assets GAAP to Adjusted Gross Profit Reconciliation (Six Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP Gross Profit | $305,461 | $238,803 | | GAAP Gross Profit Margin | 61.7 % | 61.8 % | | Equity-based compensation expense | 24,204 | 6,553 | | Amortization of acquired intangible assets | 52,382 | 51,708 | | **Adjusted Gross Profit** | **$382,681** | **$297,064** | | **Adjusted Gross Profit Margin** | **77.3 %** | **76.9 %** | [Subscription Gross Profit Reconciliation](index=11&type=section&id=Subscription%20Gross%20Profit%20Reconciliation) This section reconciles GAAP to adjusted subscription gross profit, highlighting adjustments for equity-based compensation and amortization of acquired intangible assets GAAP to Adjusted Subscription Gross Profit Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP Subscription Gross Profit | $177,494 | $123,323 | | GAAP Subscription Gross Profit Margin | 71.6 % | 67.8 % | | Equity-based compensation expense | 1,931 | 1,626 | | Amortization of acquired intangible assets | 26,322 | 25,844 | | **Adjusted Subscription Gross Profit** | **$205,747** | **$150,793** | | **Adjusted Subscription Gross Profit Margin** | **83.0 %** | **82.9 %** | [Operating Income Reconciliation](index=11&type=section&id=Operating%20Income%20Reconciliation) This section reconciles GAAP to adjusted income from operations, detailing adjustments for equity-based compensation, amortization, and acquisition-related expenses GAAP to Adjusted Income from Operations Reconciliation (Six Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :-------- | :-------- | | GAAP Income (Loss) from Operations | $(225,763) | $(134,023) | | GAAP Income (Loss) from Operations Margin | (45.6) % | (34.7) % | | Equity-based compensation expense | 208,877 | 50,247 | | Amortization of acquired intangible assets | 100,125 | 128,886 | | Amortization of acquired contract acquisition costs | (11,208) | (13,304) | | Acquisition-related expenses and Thoma Bravo monitoring fees | 2,192 | 8,580 | | **Adjusted Income (Loss) from Operations** | **$77,622** | **$40,386** | | **Adjusted Operating Margin** | **15.7 %** | **10.5 %** | [Operating Expense Reconciliations](index=12&type=section&id=Operating%20Expense%20Reconciliations) This section provides detailed reconciliations of GAAP to adjusted operating expenses, including sales and marketing, research and development, and general and administrative GAAP to Adjusted Sales and Marketing Expense Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP Sales and Marketing Expense | $131,289 | $119,565 | | Equity-based compensation expense | (18,203) | (8,934) | | Amortization of acquired intangible assets | (23,797) | (38,494) | | Amortization related to acquired contract acquisition costs | 5,444 | 6,559 | | Acquisition-related expenses | (1,609) | — | | **Adjusted Sales and Marketing Expense** | **$93,124** | **$78,696** | GAAP to Adjusted Research and Development Expense Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP Research and Development Expense | $48,111 | $43,108 | | Equity-based compensation expense | (7,512) | (6,030) | | Amortization of acquired intangible assets | (95) | (95) | | **Adjusted Research and Development Expense** | **$40,504** | **$36,983** | GAAP to Adjusted General and Administrative Expense Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :------- | :------- | | GAAP General and Administrative Expense | $39,204 | $26,470 | | Equity-based compensation expense | (20,091) | (6,211) | | Acquisition-related expenses and Thoma Bravo monitoring fees | — | (4,714) | | **Adjusted General and Administrative Expense** | **$19,113** | **$15,545** | [Free Cash Flow Reconciliation](index=12&type=section&id=Free%20Cash%20Flow%20Reconciliation) This section reconciles GAAP net cash from operating activities to free cash flow, detailing deductions for property, equipment, and capitalized software development costs GAAP to Free Cash Flow Reconciliation (Three Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------------- | :------- | :-------- | | GAAP Net Cash Provided by (Used in) Operating Activities | $49,945 | $(52,797) | | Less: Purchase of property and equipment | (962) | (889) | | Less: Capitalized software development costs | (3,025) | (2,831) | | **Free Cash Flow** | **$45,958** | **$(56,517)** | | GAAP Net Cash Provided by (Used in) Operating Activities Margin | 18.9 % | (26.6) % | | **Free Cash Flow Margin** | **17.4 %** | **(28.5) %** | GAAP to Free Cash Flow Reconciliation (Six Months Ended July 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------------- | :-------- | :-------- | | GAAP Net Cash Provided by (Used in) Operating Activities | $(46,862) | $(108,183) | | Less: Purchase of property and equipment | (3,153) | (1,476) | | Less: Capitalized software development costs | (4,731) | (5,345) | | **Free Cash Flow** | **$(54,746)** | **$(115,004)** | | GAAP Net Cash Provided by (Used in) Operating Activities Margin | (9.5) % | (28.0) % | | **Free Cash Flow Margin** | **(11.1) %** | **(29.8) %** | [Adjusted Net Income and EPS Reconciliation](index=13&type=section&id=Adjusted%20Net%20Income%20and%20EPS%20Reconciliation) This section reconciles GAAP net loss to adjusted net income and EPS, detailing various adjustments including equity-based compensation and tax effects GAAP to Adjusted Net Income and EPS Reconciliation (Six Months Ended July 31, in thousands, except per share amounts) | Metric | 2025 | 2024 | | :------------------------------------------------- | :------- | :------- | | GAAP Net Loss | $(197,864) | $(176,306) | | Equity-based compensation expense | 208,877 | N/A | | Payroll taxes for IPO-accelerated awards and RSUs | 3,399 | N/A | | Amortization of acquired intangible assets | 100,125 | N/A | | Amortization of acquired contract acquisition costs | (11,208) | N/A | | Acquisition-related expenses and Thoma Bravo monitoring fees | 2,192 | N/A | | Tax effect of adjustments | (62,334) | N/A | | **Adjusted Net Income** | **$43,187** | N/A | | **Adjusted EPS, diluted** | **$0.08** | N/A | | Shares used in computing adjusted EPS, diluted | 556,712 | N/A |

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) [First Quarter Fiscal 2026 Results Overview](index=1&type=section&id=First%20Quarter%20Fiscal%202026%20Results%20Overview) Korn Ferry announced strong first quarter fiscal 2026 results, with fee revenue reaching $708.6 million, diluted EPS at $1.26, and adjusted diluted EPS at $1.31, demonstrating the effectiveness of its strategic approach amidst a dynamic labor and economic environment - Korn Ferry reported first quarter fee revenue of **$708.6 million**[2](index=2&type=chunk) - Diluted earnings per share was **$1.26** and adjusted diluted earnings per share was **$1.31**[2](index=2&type=chunk) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Gary D. Burnison expressed satisfaction with the company's performance, attributing success to a sophisticated, holistic strategy that leverages expertise, robust IP, and relevant solutions globally. He highlighted the immense opportunity driven by diversification and demographic shifts - CEO Gary D. Burnison stated that the company's strategy is working, driving performance with a sophisticated, holistic approach[3](index=3&type=chunk) - The strategy brings together expertise, robust IP, and relevant solutions globally to address client challenges[3](index=3&type=chunk) - The CEO emphasized the immense opportunity for Korn Ferry due to its diversification strategy and demographic shifts[3](index=3&type=chunk) [Key Financial Highlights](index=1&type=section&id=Key%20Financial%20Highlights) Korn Ferry achieved significant year-over-year growth in Q1 FY'26, with fee revenue up 5% to $708.6 million, net income increasing 6% to $66.6 million, and adjusted EBITDA rising 8% to $120.4 million. Diluted EPS and adjusted diluted EPS also saw increases of 8% and 11% respectively Q1 FY'26 Key Financial Highlights (YoY Change) | Metric | Q1 FY'26 Value | YoY Change (Actual) | YoY Change (Constant Currency) | | :-------------------------------- | :---------------- | :------------------ | :----------------------------- | | Fee revenue | $708.6 million | +5% | +4% | | Net income attributable to Korn Ferry | $66.6 million | +6% | N/A | | Net income margin | 9.4% | +10bps | N/A | | Adjusted EBITDA | $120.4 million | +8% | N/A | | Adjusted EBITDA margin | 17.0% | +50bps | N/A | | Diluted earnings per share | $1.26 | +8% | N/A | | Adjusted diluted earnings per share | $1.31 | +11% | N/A | | Shares repurchased | 145,770 shares | N/A | N/A | | Value of shares repurchased | $9.9 million | N/A | N/A | [Consolidated Financial Performance](index=2&type=section&id=Consolidated%20Financial%20Performance) [Selected Consolidated Financial Results](index=2&type=section&id=Selected%20Consolidated%20Financial%20Results) Korn Ferry reported Q1 FY'26 fee revenue of $708.6 million, a 5% increase year-over-year, primarily driving a 10bps increase in net income margin to 9.4% and a 50bps increase in Adjusted EBITDA margin to 17.0%. Estimated remaining fees under existing contracts also grew to $1,674.1 million Selected Consolidated Financial Results (Q1 FY'26 vs Q1 FY'25) | Metric | Q1 FY'26 | Q1 FY'25 | | :------------------------------------------ | :------- | :------- | | Fee revenue | $708.6 | $674.9 | | Total revenue | $715.5 | $682.8 | | Estimated remaining fees under existing contracts | $1,674.1 | $1,532.6 | | Net income attributable to Korn Ferry | $66.6 | $62.6 | | Net income attributable to Korn Ferry margin | 9.4% | 9.3% | | Basic earnings per share | $1.28 | $1.19 | | Diluted earnings per share | $1.26 | $1.17 | | Adjusted EBITDA | $120.4 | $111.2 | | Adjusted EBITDA margin | 17.0% | 16.5% | | Adjusted net income attributable to Korn Ferry | $69.2 | $63.1 | | Adjusted basic earnings per share | $1.33 | $1.20 | | Adjusted diluted earnings per share | $1.31 | $1.18 | - Fee revenue in Q1 FY'26 increased by **5%** year-over-year (**4.0%** at constant currency) to **$708.6 million**[8](index=8&type=chunk) - Net income attributable to Korn Ferry margin increased by **10bps** year-over-year to **9.4%**, primarily due to increased fee revenue[8](index=8&type=chunk) - Adjusted EBITDA margin increased by **50bps** year-over-year to **17.0%**, also primarily due to increased fee revenue[9](index=9&type=chunk) [GAAP Consolidated Statements of Income](index=11&type=section&id=GAAP%20Consolidated%20Statements%20of%20Income) Korn Ferry's consolidated statements of income for Q1 FY'26 show a 4.8% increase in total revenue to $715.5 million, with operating income rising to $83.4 million. Net income attributable to Korn Ferry grew to $66.6 million, resulting in diluted EPS of $1.26 Condensed Consolidated Statements of Income (Three Months Ended July 31) | Metric (in thousands) | 2025 (unaudited) | 2024 | | :------------------------------------ | :--------------- | :----- | | Fee revenue | $708,613 | $674,946 | | Reimbursed out-of-pocket engagement expenses | $6,930 | $7,815 | | Total revenue | $715,543 | $682,761 | | Compensation and benefits | $461,411 | $451,775 | | General and administrative expenses | $63,874 | $59,999 | | Reimbursed expenses | $6,930 | $7,815 | | Cost of services | $77,194 | $67,544 | | Depreciation and amortization | $22,686 | $19,578 | | Total operating expenses | $632,095 | $606,711 | | Operating income | $83,448 | $76,050 | | Other income, net | $12,752 | $14,505 | | Interest expense, net | $(3,516) | $(3,945) | | Income before provision for income taxes | $92,684 | $86,610 | | Income tax provision | $25,250 | $22,354 | | Net income | $67,434 | $64,256 | | Net income attributable to noncontrolling interest | $(798) | $(1,652) | | Net income attributable to Korn Ferry | $66,636 | $62,604 | | Basic earnings per share | $1.28 | $1.19 | | Diluted earnings per share | $1.26 | $1.17 | | Weighted-average common shares outstanding (Basic) | 51,466 | 51,950 | | Weighted-average common shares outstanding (Diluted) | 52,368 | 52,745 | [GAAP Consolidated Balance Sheets](index=13&type=section&id=GAAP%20Consolidated%20Balance%20Sheets) As of July 31, 2025, Korn Ferry's total assets were $3,630.6 million, a decrease from April 30, 2025, primarily due to a reduction in cash and cash equivalents. Total liabilities also decreased to $1,731.8 million, while total stockholders' equity increased to $1,898.8 million Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 (unaudited) | April 30, 2025 (audited) | | :------------------------------------------ | :------------------------ | :----------------------- | | **ASSETS** | | | | Cash and cash equivalents | $684,855 | $1,006,964 | | Total current assets | $1,490,902 | $1,750,138 | | Total assets | $3,630,597 | $3,861,224 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Compensation and benefits payable | $266,671 | $530,473 | | Total current liabilities | $674,400 | $955,598 | | Total liabilities | $1,731,784 | $1,989,085 | | Total Korn Ferry stockholders' equity | $1,892,088 | $1,866,456 | | Total stockholders' equity | $1,898,813 | $1,872,139 | | Total liabilities and stockholders' equity | $3,630,597 | $3,861,224 | [Reconciliation of GAAP to Non-GAAP Measures](index=14&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) Korn Ferry provides non-GAAP financial measures, including Adjusted EBITDA and Adjusted Net Income, to offer a clearer view of ongoing operating results by excluding integration/acquisition costs and accelerated depreciation on its Digital platform. For Q1 FY'26, Adjusted EBITDA was $120.4 million and Adjusted diluted EPS was $1.31 Reconciliation of GAAP to Non-GAAP Financial Measures (Three Months Ended July 31) | Metric (in thousands, except per share) | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Net income attributable to Korn Ferry | $66,636 | $62,604 | | Integration/acquisition costs (1) | $1,508 | $1,076 | | Accelerated depreciation on Digital platform (2) | $1,977 | — | | Tax effect on the adjusted items (3) | $(883) | $(560) | | Adjusted net income attributable to Korn Ferry | $69,238 | $63,120 | | Diluted earnings per common share | $1.26 | $1.17 | | Adjusted diluted earnings per share | $1.31 | $1.18 | | Adjusted EBITDA | $120,394 | $111,209 | | Adjusted EBITDA margin | 17.0% | 16.5% | - Non-GAAP measures adjust for integration/acquisition costs and accelerated depreciation on the Digital platform to provide meaningful supplemental information on ongoing operating results[42](index=42&type=chunk) - Accelerated depreciation of **$2.0 million** in Q1 FY'26 is associated with the decision to sunset the Digital platform upon the introduction of the Korn Ferry Talent Suite platform, expected in Q3 FY'26[7](index=7&type=chunk) [Results by Solution](index=3&type=section&id=Results%20by%20Solution) [Consulting](index=3&type=section&id=Consulting) Consulting fee revenue increased by 1% year-over-year to $170.0 million in Q1 FY'26, driven by a 9% increase in average bill rates due to a shift towards larger, longer-duration engagements. However, Adjusted EBITDA decreased by 1.7% to $28.8 million, with the margin declining by 50bps to 17.0% Selected Consulting Data (Q1 FY'26 vs Q1 FY'25) | Metric | Q1 FY'26 | Q1 FY'25 | | :------------------------------------------ | :------- | :------- | | Fee revenue | $170.0 | $167.9 | | Total revenue | $172.7 | $170.8 | | Estimated remaining fees under existing contracts | $372.3 | $349.3 | | Ending number of consultants and execution staff | 1,550 | 1,663 | | Hours worked in thousands | 367 | 395 | | Average bill rate | $463 | $425 | | Adjusted EBITDA | $28.8 | $29.3 | | Adjusted EBITDA margin | 17.0% | 17.5% | - Consulting fee revenue increased by **1%** year-over-year, primarily due to a **9%** increase in average bill rates, reflecting a shift to larger and longer duration engagements[13](index=13&type=chunk) - Adjusted EBITDA margin for Consulting decreased by **50bps** year-over-year to **17.0%**[14](index=14&type=chunk) [Digital](index=4&type=section&id=Digital) Digital fee revenue grew 1% year-over-year to $89.2 million in Q1 FY'26, with subscription & license fee revenue increasing to $37.2 million. Adjusted EBITDA for the Digital segment rose to $27.6 million, and its margin improved by 80bps to 31.0% Selected Digital Data (Q1 FY'26 vs Q1 FY'25) | Metric | Q1 FY'26 | Q1 FY'25 | | :------------------------------------------ | :------- | :------- | | Fee revenue | $89.2 | $88.2 | | Total revenue | $89.2 | $88.2 | | Estimated remaining fees under existing contracts | $398.0 | $372.1 | | Ending number of consultants | 225 | 259 | | Subscription & License fee revenue | $37.2 | $34.1 | | Adjusted EBITDA | $27.6 | $26.6 | | Adjusted EBITDA margin | 31.0% | 30.2% | - Digital fee revenue increased by **1%** year-over-year to **$89.2 million** (down **1%** at constant currency)[17](index=17&type=chunk) - Adjusted EBITDA margin for Digital increased by **80bps** year-over-year to **31.0%**[17](index=17&type=chunk) [Executive Search](index=5&type=section&id=Executive%20Search) Executive Search reported a robust 8% year-over-year increase in fee revenue to $224.3 million in Q1 FY'26, primarily driven by a higher number of engagements billed. Adjusted EBITDA surged by 16% to $57.5 million, with the margin expanding by 190bps to 25.6% Selected Executive Search Data (Q1 FY'26 vs Q1 FY'25) | Metric | Q1 FY'26 | Q1 FY'25 | | :------------------------------------------ | :------- | :------- | | Fee revenue | $224.3 | $208.6 | | Total revenue | $226.3 | $210.4 | | Estimated remaining fees under existing contracts | $66.6 | $61.5 | | Ending number of consultants | 574 | 559 | | Average number of consultants | 567 | 551 | | Engagements billed | 3,751 | 3,448 | | New engagements | 1,596 | 1,556 | | Adjusted EBITDA | $57.5 | $49.4 | | Adjusted EBITDA margin | 25.6% | 23.7% | - Executive Search fee revenue increased by **8%** year-over-year (**6%** at constant currency) to **$224.3 million**, driven by an increase in engagements billed[22](index=22&type=chunk) - Adjusted EBITDA for Executive Search increased by **16%** year-over-year to **$57.5 million**, with the margin increasing by **190bps** to **25.6%**[23](index=23&type=chunk) [Executive Search Regional Performance](index=12&type=section&id=Executive%20Search%20Regional%20Performance) Executive Search experienced fee revenue growth across EMEA (17.0%), Asia Pacific (20.0%), and North America (3.6%) in Q1 FY'26, while Latin America saw a decline of 16.5% Executive Search Fee Revenue by Region (Q1 FY'26 vs Q1 FY'25) | Region | Q1 FY'26 Fee Revenue | Q1 FY'25 Fee Revenue | % Change | | :------------- | :------------------- | :------------------- | :------- | | North America | $139,654 | $134,752 | 3.6% | | EMEA | $53,781 | $45,981 | 17.0% | | Asia Pacific | $24,701 | $20,579 | 20.0% | | Latin America | $6,117 | $7,323 | (16.5%) | | Total Executive Search | $224,253 | $208,635 | 7.5% | - Executive Search experienced fee revenue growth in EMEA, North America, and APAC regions[22](index=22&type=chunk) [Professional Search & Interim](index=6&type=section&id=Professional%20Search%20%26%20Interim) Professional Search & Interim fee revenue increased by 10% year-over-year to $133.9 million in Q1 FY'26, primarily due to higher Interim fee revenue associated with the acquisition of Trilogy International. Adjusted EBITDA grew to $28.0 million, with the margin remaining essentially flat at 20.9% Selected Professional Search & Interim Data (Q1 FY'26 vs Q1 FY'25) | Metric | Q1 FY'26 | Q1 FY'25 | | :------------------------------------------ | :------- | :------- | | Fee revenue | $133.9 | $121.7 | | Total revenue | $135.1 | $122.7 | | Permanent Placement Fee revenue | $54.7 | $52.2 | | Interim Fee revenue | $79.2 | $69.5 | | Estimated remaining fees under existing contracts (Interim) | $93.3 | $79.4 | | Average weekly billable consultants (Interim) | 1,219 | 1,068 | | Adjusted EBITDA | $28.0 | $25.7 | | Adjusted EBITDA margin | 20.9% | 21.1% | - Professional Search & Interim fee revenue increased by **10%** year-over-year to **$133.9 million**, primarily due to higher Interim fee revenue associated with the acquisition of Trilogy International[26](index=26&type=chunk) - Adjusted EBITDA margin for Professional Search & Interim was **20.9%**, essentially flat year-over-year[27](index=27&type=chunk) [Recruitment Process Outsourcing (RPO)](index=7&type=section&id=Recruitment%20Process%20Outsourcing%20%28RPO%29) RPO fee revenue increased by 3% year-over-year to $91.3 million in Q1 FY'26, driven by new logo clients in North America. Adjusted EBITDA for RPO grew to $14.3 million, and its margin improved significantly by 160bps to 15.7% Selected Recruitment Process Outsourcing (RPO) Data (Q1 FY'26 vs Q1 FY'25) | Metric | Q1 FY'26 | Q1 FY'25 | | :------------------------------------------ | :------- | :------- | | Fee revenue | $91.3 | $88.5 | | Total revenue | $92.2 | $90.7 | | Estimated remaining fees under existing contracts | $728.8 | $656.1 | | RPO new business | $99.3 | $103.6 | | Adjusted EBITDA | $14.3 | $12.5 | | Adjusted EBITDA margin | 15.7% | 14.1% | - RPO fee revenue increased by **3%** year-over-year (**1%** at constant currency) to **$91.3 million**, primarily due to new logo clients in North America[30](index=30&type=chunk) - Adjusted EBITDA margin for RPO increased by **160bps** year-over-year to **15.7%**[31](index=31&type=chunk) [Outlook & Corporate Information](index=8&type=section&id=Outlook%20%26%20Corporate%20Information) [Q2 FY'26 Financial Outlook](index=8&type=section&id=Q2%20FY%2726%20Financial%20Outlook) Korn Ferry projects Q2 FY'26 fee revenue to be between $690 million and $710 million. Consolidated diluted earnings per share is expected to range from $1.10 to $1.16, with adjusted diluted earnings per share projected between $1.23 and $1.33 - Q2 FY'26 fee revenue is expected to be in the range of **$690 million** and **$710 million**[36](index=36&type=chunk) - Q2 FY'26 diluted earnings per share is expected to range between **$1.10** to **$1.16**[36](index=36&type=chunk) Q2 FY'26 Earnings Per Share Outlook | Metric | Low | High | | :---------------------------------------------------- | :---- | :---- | | Consolidated diluted earnings per share | $1.10 | $1.16 | | Integration/acquisition costs and accelerated depreciation on Digital platform | $0.19 | $0.23 | | Tax rate impact | $(0.06) | $(0.06) | | Consolidated adjusted diluted earnings per share | $1.23 | $1.33 | [Earnings Conference Call](index=8&type=section&id=Earnings%20Conference%20Call) Korn Ferry will host an earnings conference call on September 9, 2025, at 12:00 PM (EDT), featuring CEO Gary Burnison and other executives. The webcast and accompanying slides will be available on the investor relations section of their website - An earnings conference call will be held on September 9, 2025, at **12:00 PM (EDT)**[35](index=35&type=chunk) - The call will be hosted by CEO Gary Burnison, CFO Robert Rozek, SVP Business Development & Analytics Gregg Kvochak, and VP Investor Relations Tiffany Louder[35](index=35&type=chunk) - The conference call will be webcast and available online at ir.kornferry.com, along with earnings slides and other important information[35](index=35&type=chunk) [About Korn Ferry](index=9&type=section&id=About%20Korn%20Ferry) Korn Ferry is a global consulting firm focused on powering performance by unlocking potential in people and driving business transformation through synchronizing strategy, operations, and talent. They aim to accelerate performance, fuel growth, and inspire lasting change for clients across major industries - Korn Ferry is a global consulting firm that powers performance by unlocking potential in people and unleashing transformation across businesses[38](index=38&type=chunk) - The firm synchronizes strategy, operations, and talent to accelerate performance, fuel growth, and inspire a legacy of change[38](index=38&type=chunk) [Forward-Looking Statements](index=9&type=section&id=Forward-Looking%20Statements) This section cautions readers that statements regarding outlook, projections, goals, and future expectations are forward-looking and subject to various risks and uncertainties. These include global economic conditions, competition, labor market dynamics, regulatory changes, and technological advancements like AI, which could cause actual results to differ materially from current expectations - Statements regarding outlook, projections, goals, strategies, future plans, and expectations are forward-looking and involve risks and uncertainties[39](index=39&type=chunk) - Potential risks include global and local political/economic developments (inflation, trade wars, interest rates), labor market conditions, competition, geopolitical tensions, and changes in demand due to automation[39](index=39&type=chunk) - Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements[39](index=39&type=chunk) [Use of Non-GAAP Financial Measures](index=9&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) Korn Ferry utilizes non-GAAP financial measures, such as Adjusted net income, Adjusted EPS, constant currency percentages, and Adjusted EBITDA, to provide supplemental information on performance. These adjustments exclude items like integration/acquisition costs and accelerated depreciation, which management believes are not indicative of ongoing operating results, facilitating more meaningful period-to-period comparisons - Non-GAAP financial measures include Adjusted net income, Adjusted basic and diluted earnings per share, constant currency percentages, and Consolidated and Executive Search Adjusted EBITDA[41](index=41&type=chunk) - These measures exclude charges like integration/acquisition costs and accelerated depreciation on the Digital platform, which management believes are not indicative of ongoing operating results[42](index=42&type=chunk) - The use of non-GAAP measures aims to provide greater transparency, facilitate historical performance comparisons, and help investors identify operating trends by excluding the impact of exchange rate changes[42](index=42&type=chunk)

[Special Note Regarding Forward-looking Statements](index=4&type=section&id=Special%20Note%20Regarding%20Forward-looking%20Statements) This section cautions investors that forward-looking statements in the 10-Q report are subject to risks, and actual results may differ [Forward-looking Statements Disclosure](index=4&type=section&id=Forward-looking%20Statements%20Disclosure) This section details forward-looking statements in the 10-Q report, emphasizing inherent risks and potential for actual results to vary - The report contains forward-looking statements regarding future results, business strategy, and technology, identifiable by words like 'anticipate,' 'expect,' 'will,' or 'would'[10](index=10&type=chunk) - Investors should not rely on these statements as predictions, as actual results may differ materially due to risks and uncertainties outlined in the 'Risk Factors' section[11](index=11&type=chunk) - Key forward-looking statements concern revenue, expenses, profitability, customer acquisition/retention, C3 AI Software usage (including C3 Agentic AI Platform, C3 AI Applications, C3 Generative AI), and market growth rates[12](index=12&type=chunk) [Selected Risks Affecting Our Business](index=6&type=section&id=Selected%20Risks%20Affecting%20Our%20Business) This section summarizes key risks that could materially affect C3.ai's business, including losses, customer dependence, competition, and evolving AI technology [Summary of Key Business Risks](index=6&type=section&id=Summary%20of%20Key%20Business%20Risks) This section outlines selected risks that could materially affect C3.ai's business, encompassing financial, operational, and technological challenges - C3.ai has a history of **losses** and expects operating expenses to increase, making future profitability uncertain[20](index=20&type=chunk)[222](index=222&type=chunk) - A substantial portion of revenue has historically come from a **limited number of customers**, posing a risk if contracts are not renewed or relationships are impaired[20](index=20&type=chunk)[226](index=226&type=chunk) - The company faces intense competition, long and unpredictable sales cycles, and risks related to the market adoption of its C3 AI Software and rapid technological changes[20](index=20&type=chunk)[235](index=235&type=chunk)[242](index=242&type=chunk) - Risks also include macroeconomic uncertainties, stringent data privacy and security regulations, potential compromises of IT systems, and issues arising from the use of AI/ML technologies[20](index=20&type=chunk)[280](index=280&type=chunk)[292](index=292&type=chunk)[317](index=317&type=chunk) [Part I. Financial Information](index=8&type=section&id=Part%20I.%20Financial%20Information) This part presents C3.ai's unaudited condensed consolidated financial statements for the period ended July 31, 2025, with detailed notes on accounting policies and performance [Item 1. Financial Statements (Unaudited)](index=8&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents C3.ai's unaudited condensed consolidated financial statements for Q1 2025, including core statements and detailed notes [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of C3.ai's financial position, detailing assets, liabilities, and equity as of July 31, 2025, and April 30, 2025 Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 | April 30, 2025 | | :----------------------------------- | :------------ | :------------- | | Total current assets | $851,113 | $904,252 | | Total assets | $968,739 | $1,025,882 | | Total current liabilities | $111,291 | $131,884 | | Total liabilities | $169,915 | $187,579 | | Total stockholders' equity | $798,824 | $838,303 | | Accumulated deficit | $(1,495,404) | $(1,378,635) | - Total assets decreased from **$1,025,882 thousand** as of April 30, 2025, to **$968,739 thousand** as of July 31, 2025[29](index=29&type=chunk) - Accumulated deficit increased from **$(1,378,635) thousand** to **$(1,495,404) thousand**, reflecting ongoing losses[29](index=29&type=chunk) [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents C3.ai's financial performance, detailing revenue, expenses, and net loss for the three months ended July 31, 2025, and 2024 Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Total revenue | $70,261 | $87,213 | | Gross profit | $26,444 | $52,166 | | Loss from operations | $(124,819) | $(72,586) | | Net loss | $(116,769) | $(62,827) | | Net loss per share (basic and diluted) | $(0.86) | $(0.50) | - Total revenue decreased by **19%** from **$87,213 thousand** in Q1 2024 to **$70,261 thousand** in Q1 2025[31](index=31&type=chunk)[184](index=184&type=chunk) - Net loss increased significantly from **$(62,827) thousand** in Q1 2024 to **$(116,769) thousand** in Q1 2025[31](index=31&type=chunk) - Net loss per share (basic and diluted) worsened from **$(0.50)** to **$(0.86)** year-over-year[31](index=31&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details C3.ai's comprehensive loss, including net loss and other comprehensive income/loss, for the three months ended July 31, 2025, and 2024 Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net loss | $(116,769) | $(62,827) | | Other comprehensive (loss) income | $(595) | $931 | | Comprehensive loss | $(117,364) | $(61,983) | - Comprehensive loss increased from **$(61,983) thousand** in Q1 2024 to **$(117,364) thousand** in Q1 2025, primarily due to the higher net loss and an unrealized loss on marketable securities[33](index=33&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in C3.ai's stockholders' equity, including additional paid-in capital and accumulated deficit, for the period ended July 31, 2025 Changes in Stockholders' Equity (in thousands) | Metric | April 30, 2025 Balance | July 31, 2025 Balance | | :----------------------------------- | :--------------------- | :-------------------- | | Total Stockholders' Equity | $838,303 | $798,824 | | Additional Paid-In Capital | $2,216,284 | $2,294,166 | | Accumulated Deficit | $(1,378,635) | $(1,495,404) | - Total stockholders' equity decreased from **$838,303 thousand** to **$798,824 thousand**, driven by the net loss of **$(116,769) thousand**, partially offset by stock-based compensation expense of **$54,553 thousand**[35](index=35&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents C3.ai's cash flow activities from operations, investing, and financing for the three months ended July 31, 2025, and 2024 Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(33,535) | $8,042 | | Net cash used in investing activities | $(51,171) | $(41,550) | | Net cash provided by financing activities | $1,289 | $182 | | Net decrease in cash, cash equivalents and restricted cash | $(83,417) | $(33,326) | | Cash, cash equivalents and restricted cash at end of period | $93,507 | $146,386 | - Net cash used in operating activities increased to **$(33,535) thousand** in Q1 2025 from **$8,042 thousand** provided in Q1 2024, primarily due to higher payroll and contractor costs and vendor payments[38](index=38&type=chunk)[202](index=202&type=chunk) - Net cash used in investing activities increased to **$(51,171) thousand** in Q1 2025, mainly due to purchases of marketable securities (**$206,492 thousand**) partially offset by maturities and sales (**$156,081 thousand**)[38](index=38&type=chunk)[203](index=203&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and specific financial items [1. Summary of Business and Significant Accounting Policies](index=13&type=section&id=1.%20Summary%20of%20Business%20and%20Significant%20Accounting%20Policies) This section outlines C3.ai's business model as an enterprise AI software provider and details its significant accounting policies - C3.ai is an enterprise AI software provider offering the C3 Agentic AI Platform, C3 AI Applications, and C3 Generative AI[40](index=40&type=chunk) - The company operates as a **single operating and reportable segment**, with the CEO as the chief operating decision maker[46](index=46&type=chunk) - New accounting standards (ASU 2023-09, ASU 2024-03, ASU 2025-05) are being evaluated for future impact, with adoption required in fiscal years 2026, 2028, and 2027 respectively[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [2. Revenue](index=14&type=section&id=2.%20Revenue) This section details C3.ai's revenue streams, including geographical distribution and professional services, and highlights customer concentration Revenue by Geographical Region (in thousands) | Region | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------- | :------------------------------- | :------------------------------- | | North America | $64,408 | $77,128 | | Europe, the Middle East and Africa | $5,619 | $9,390 | | Asia Pacific | $21 | $247 | | Rest of World | $213 | $448 | | Total revenue | $70,261 | $87,213 | - The United States accounted for **91%** of revenue in Q1 2025, up from **87%** in Q1 2024, indicating increased domestic concentration[51](index=51&type=chunk) Professional Services Revenue (in thousands) | Service Type | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :------------------------- | :------------------------------- | :------------------------------- | | Prioritized engineering services | $8,663 | $10,649 | | Service fees | $1,297 | $3,108 | | Total professional services revenue | $9,960 | $13,757 | - Remaining performance obligations (RPO) were approximately **$223.2 million** as of July 31, 2025, with **$121.3 million** expected to be recognized in the next 12 months[59](index=59&type=chunk) - Customer concentration remains high, with three separate Customer-Entities accounting for **14%**, **13%**, and **11%** of revenue in Q1 2025[60](index=60&type=chunk) [3. Fair Value Measurements](index=16&type=section&id=3.%20Fair%20Value%20Measurements) This section details the fair value measurements of C3.ai's financial instruments, primarily cash equivalents and marketable securities Fair Value of Financial Instruments (in thousands) | Asset Type | July 31, 2025 (Total) | April 30, 2025 (Total) | | :----------------------------------- | :-------------------- | :--------------------- | | Money market funds | $50,155 | $87,872 | | Commercial paper (cash equivalents) | $7,854 | $29,122 | | U.S. treasury securities | $29,776 | $15,482 | | Certificates of deposit | $85,981 | $76,518 | | U.S. government agencies securities | $62,038 | $57,138 | | Commercial paper (marketable securities) | $135,971 | $113,787 | | Corporate debt securities | $317,191 | $315,405 | | Total cash equivalents and available-for-sale marketable securities | $688,966 | $696,339 | - The majority of financial instruments are measured at fair value using **Level 2 inputs**, based on third-party pricing services and observable market data[64](index=64&type=chunk) [4. Cash Equivalents and Marketable Securities](index=17&type=section&id=4.%20Cash%20Equivalents%20and%20Marketable%20Securities) This section provides a detailed breakdown of C3.ai's cash equivalents and available-for-sale marketable securities, including their fair values Cash Equivalents and Available-for-Sale Marketable Securities (in thousands) | Category | Amortized Cost (July 31, 2025) | Estimated Fair Value (July 31, 2025) | | :----------------------------------- | :----------------------------- | :----------------------------------- | | Cash equivalents | $58,009 | $58,009 | | Available-for-sale marketable securities | $631,029 | $630,957 | | Total | $689,038 | $688,966 | - As of July 31, 2025, the company held **$630.9 million** in available-for-sale marketable securities, with **$481.4 million** maturing within one year[67](index=67&type=chunk) - The company had **146 marketable securities** in an unrealized loss position as of July 31, 2025, totaling **$(330) thousand** in unrealized losses, but these were not deemed other-than-temporarily impaired[69](index=69&type=chunk) [5. Balance Sheet Details](index=18&type=section&id=5.%20Balance%20Sheet%20Details) This section provides detailed breakdowns of specific balance sheet accounts, including property and equipment, and accrued compensation Property and Equipment, Net (in thousands) | Category | July 31, 2025 | April 30, 2025 | | :----------------------------------- | :------------ | :------------- | | Property and equipment, gross | $105,703 | $105,055 | | Less: accumulated depreciation and amortization | $(29,103) | $(25,757) | | Property and equipment, net | $76,600 | $79,298 | Accrued Compensation and Employee Benefits (in thousands) | Category | July 31, 2025 | April 30, 2025 | | :----------------------------------- | :------------ | :------------- | | Accrued bonus | $25,277 | $37,468 | | Accrued vacation | $5,211 | $4,950 | | Accrued payroll taxes and benefits | $3,631 | $2,033 | | Accrued commissions | $6,529 | $7,244 | | ESPP contributions | $4,106 | $1,593 | | Other | $642 | $580 | | Total | $45,396 | $53,868 | - Accrued compensation and employee benefits decreased by **$8.5 million**, primarily due to a reduction in accrued bonus[74](index=74&type=chunk) [6. Commitments and Contingencies](index=20&type=section&id=6.%20Commitments%20and%20Contingencies) This section outlines C3.ai's significant contractual commitments and ongoing legal proceedings, including class action lawsuits and a trade secret dispute - As of July 31, 2025, C3.ai had non-cancellable purchase commitments of **$409.6 million** for cloud hosting and **$96.9 million** for professional services, due over the next one to five years[76](index=76&type=chunk) - The company is involved in multiple securities class action and shareholder derivative lawsuits, with new complaints filed in August 2025 related to alleged misstatements about the Executive Chairman's health and its impact on business[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - C3.ai filed a lawsuit against Enel in Italy seeking **€2.1 billion** in compensatory damages for misappropriation of trade secrets and breach of contract, with a pretrial conference scheduled for September 18, 2025[84](index=84&type=chunk) [7. Stockholders' Equity](index=22&type=section&id=7.%20Stockholders'%20Equity) This section details C3.ai's authorized common stock, including Class A and Class B shares, and their respective voting rights and conversion terms - The company has authorized **1,000,000,000 shares** of Class A common stock (one vote per share) and **3,500,000 shares** of Class B common stock (50 votes per share)[87](index=87&type=chunk) - Class B common stock can be converted to Class A at the stockholder's option or automatically upon certain events, such as six months after Mr. Siebel's death/incapacity or departure from service, or December 11, 2040[89](index=89&type=chunk) [8. Stock-Based Compensation](index=23&type=section&id=8.%20Stock-Based%20Compensation) This section details C3.ai's stock option and RSU activity, including outstanding options, unvested balances, and total stock-based compensation expense Stock Option Activity (in thousands, except per share data) | Metric | As of April 30, 2025 | As of July 31, 2025 | | :----------------------------------- | :------------------- | :------------------ | | Options Outstanding | 28,477 | 28,216 | | Weighted Average Exercise Price | $15.13 | $15.21 | | Aggregate Intrinsic Value | $195,923 | $235,602 | - Unrecognized compensation cost for stock options was **$48.0 million** as of July 31, 2025, to be recognized over an estimated weighted-average period of **2.0 years**[91](index=91&type=chunk) RSU Activity (in thousands, except per share data) | Metric | As of April 30, 2025 | As of July 31, 2025 | | :----------------------------------- | :------------------- | :------------------ | | Unvested Balance | 23,774 | 27,692 | | Weighted Average Grant Date Fair Value Per Share | $25.99 | $25.39 | - Unrecognized stock-based compensation expense for RSUs was **$651.6 million** as of July 31, 2025, to be recognized over a weighted-average period of **3.9 years**[100](index=100&type=chunk) Total Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Cost of subscription | $8,622 | $7,694 | | Cost of professional services | $668 | $714 | | Sales and marketing | $24,181 | $18,833 | | Research and development | $19,323 | $18,431 | | General and administrative | $11,981 | $9,011 | | Total stock-based compensation expense | $64,775 | $54,683 | [9. Income Taxes](index=26&type=section&id=9.%20Income%20Taxes) This section details C3.ai's income tax expense, primarily from foreign jurisdictions, and the maintenance of a full valuation allowance on U.S. deferred tax assets - Income tax expense was **$0.3 million** for both Q1 2025 and Q1 2024, primarily from foreign jurisdictions[106](index=106&type=chunk) - A full valuation allowance is maintained on substantially all U.S. deferred tax assets due to a history of losses[106](index=106&type=chunk) [10. Net Loss Per Share Attributable to Common Stockholders](index=26&type=section&id=10.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) This section presents the calculation of C3.ai's net loss per share, basic and diluted, for the three months ended July 31, 2025, and 2024 Net Loss Per Share (in thousands, except per share data) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net loss attributable to common stockholders | $(116,769) | $(62,827) | | Weighted-average shares (basic and diluted) | 135,375 | 124,979 | | Basic and diluted net loss per share | $(0.86) | $(0.50) | - Basic and diluted net loss per share are the same due to the company being in a net loss position[107](index=107&type=chunk) - Potential common stock equivalents (stock options, RSUs, ESPP) were excluded from diluted EPS calculation as they were anti-dilutive[107](index=107&type=chunk)[108](index=108&type=chunk) [11. Related Party Transactions](index=27&type=section&id=11.%20Related%20Party%20Transactions) This section discloses C3.ai's related party transactions, specifically a sublease agreement with First Virtual Group, Inc., involving the Executive Chairman - C3.ai has a sublease agreement with First Virtual Group, Inc., where Thomas M. Siebel (Executive Chairman) serves as Chairman of the subtenant[109](index=109&type=chunk) - The monthly base rent for the sublease was approximately **$8,608** through September 30, 2023, increasing annually thereafter[109](index=109&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on C3.ai's financial condition and results for Q1 2025, covering business, strategy, performance factors, and liquidity [Overview](index=28&type=section&id=Overview) This section provides a high-level overview of C3.ai's business as an Enterprise AI application software company and its core offerings - C3 AI is an Enterprise AI application software company, offering the C3 Agentic AI Platform, C3 AI Applications, and C3 Generative AI[112](index=112&type=chunk)[115](index=115&type=chunk) - These solutions aim to simplify and accelerate Enterprise AI application development, deployment, and administration through a patented model-driven architecture[113](index=113&type=chunk) [How We Generate Revenue](index=28&type=section&id=How%20We%20Generate%20Revenue) This section explains C3.ai's revenue generation model, primarily through subscription sales and professional services, including a consumption-based pricing model - Revenue is primarily generated from **subscription sales (86% of total revenue in Q1 2025)**, recognized ratably or on a usage basis[114](index=114&type=chunk)[116](index=116&type=chunk) - Professional services, including prioritized engineering and service fees, accounted for **14% of total revenue** in Q1 2025[117](index=117&type=chunk) - A consumption-based pricing model was introduced in Q1 2023, allowing customers to pay based on monthly vCPU and vGPU hours after an initial production deployment phase[116](index=116&type=chunk) [Remaining Performance Obligations](index=29&type=section&id=Remaining%20Performance%20Obligations) This section details C3.ai's remaining performance obligations (RPO), including non-cancellable commitments and expected recognition timelines - Remaining performance obligations (RPO) were **$223.2 million** as of July 31, 2025, down from **$235.1 million** as of April 30, 2025[121](index=121&type=chunk) - RPO includes **$67.4 million** of non-cancellable commitments where product selection is yet to be determined[121](index=121&type=chunk) - Approximately **$121.3 million** of RPO is expected to be recognized over the next 12 months[59](index=59&type=chunk) [Go-to-Market Strategy](index=30&type=section&id=Go-to-Market%20Strategy) This section outlines C3.ai's go-to-market strategy, focusing on large customers, consumption-based pricing, and leveraging industry and cloud partners - The strategy focuses on large 'lighthouse customers' in industries like oil & gas, utilities, and aerospace, serving as proof points for broader adoption[124](index=124&type=chunk) - A consumption-based pricing model was introduced in Q1 2023 to attract new customers with smaller initial contract sizes and accelerate growth[125](index=125&type=chunk)[129](index=129&type=chunk) - The company leverages industry partners (e.g., Baker Hughes, Booz Allen Hamilton), hyperscale cloud providers (Microsoft Azure, AWS, Google Cloud), and consulting firms to expand market reach[130](index=130&type=chunk) [Key Business Metric](index=30&type=section&id=Key%20Business%20Metric) This section identifies Initial Production Deployment count as a key business metric, reflecting market penetration and customer acquisition trends - Initial Production Deployment count is a key business metric, reflecting market penetration and customer acquisition trends[132](index=132&type=chunk) - The company executed **28 initial production deployment agreements** in Q1 2025, a decrease from **52** in Q1 2024[132](index=132&type=chunk) [Factors Affecting Our Performance](index=31&type=section&id=Factors%20Affecting%20Our%20Performance) This section discusses various internal and external factors influencing C3.ai's financial performance, including customer dynamics, organizational changes, and macroeconomic conditions [Customer Acquisition, Retention, and Expansion](index=31&type=section&id=Customer%20Acquisition,%20Retention,%20and%20Expansion) This section focuses on C3.ai's strategies for growing its customer base, retaining existing clients, and expanding software usage through new applications - Focus on growing customer base, retaining existing customers, and expanding usage of C3 AI Software through new use cases and increased runtime[134](index=134&type=chunk) - The average total subscription contract value and revenue from 'lighthouse customers' as a percentage of total revenue are decreasing due to sales organization restructuring and market-partner ecosystem expansion[137](index=137&type=chunk) [Restructuring of Sales and Services Organization](index=32&type=section&id=Restructuring%20of%20Sales%20and%20Services%20Organization) This section addresses the disruptive impact of the sales and services organization restructuring and the Executive Chairman's health issues on financial performance - A restructuring of the sales and services organization in Q1 2026 had a disruptive effect on financial performance[139](index=139&type=chunk) - The Executive Chairman's unanticipated health issues also negatively impacted sales results in Q1 2026[139](index=139&type=chunk) [Appointment of Chief Executive Officer and CEO Transition](index=32&type=section&id=Appointment%20of%20Chief%20Executive%20Officer%20and%20CEO%20Transition) This section details the appointment of Stephen Ehikian as CEO, succeeding Mr. Siebel, and highlights the importance of a successful leadership transition - Stephen Ehikian was appointed CEO, succeeding Mr. Siebel (who remains Executive Chairman), effective September 1, 2025[140](index=140&type=chunk) - Successful transition and integration of the new CEO are critical for executing the business strategy[140](index=140&type=chunk) [C3 Generative AI](index=32&type=section&id=C3%20Generative%20AI) This section highlights C3 Generative AI's role in diversifying the customer base, its foundational patent, and new functionalities for enterprise AI solutions - C3 Generative AI, launched in early fiscal year 2024, offers **28 domain-specific generative AI solutions**, diversifying the customer base and market reach[142](index=142&type=chunk)[143](index=143&type=chunk) - The company was awarded a foundational U.S. patent (No. **12,111,859**) in October 2024 for its generative AI agentic technology, detailing an AI Orchestrator, autonomy, multimodal model integration, natural language summarization, traceability, and security[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk) - New functionalities include Omni-Modal Parsing at Scale, Dynamic Planning Agent with Multi-Agent Collaboration, Easy Agent and Tool Authoring, and On-the-Fly Custom Visualizations[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) [Technology Innovation](index=33&type=section&id=Technology%20Innovation) This section emphasizes C3.ai's continued investment in R&D to enhance its software, expand accounts, and attract new customers, with expected long-term spending trends - Continued investment in R&D is expected to extend C3 AI Software, expand existing accounts, and attract new customers[155](index=155&type=chunk) - Research and development spending is anticipated to remain high in the coming years but decline as a percentage of total revenue over the longer term[156](index=156&type=chunk) [Brand Awareness](index=34&type=section&id=Brand%20Awareness) This section outlines planned investments in brand awareness, market education, and thought leadership, particularly for generative AI, with anticipated long-term marketing spend trends - Significant investments in brand awareness, market education, strategic paid media, and thought leadership are planned, especially for generative AI[157](index=157&type=chunk) - Marketing spend is expected to decline as a percentage of total revenue in the long term as the brand and reputation are established[158](index=158&type=chunk) [Grow Our Go-to-Market and Partnership Ecosystem](index=34&type=section&id=Grow%20Our%20Go-to-Market%20and%20Partnership%20Ecosystem) This section highlights the expansion of strategic partnerships with major cloud providers and consulting firms to enhance market reach and accelerate Enterprise AI adoption - Expansion of strategic partners, including Microsoft, Baker Hughes, AWS, and Google, is crucial for attracting new customers and global reach[159](index=159&type=chunk) - New global alliance agreements were formed with Microsoft (September 2024) and McKinsey & Company (January 2025) to accelerate Enterprise AI adoption and transformation[160](index=160&type=chunk)[161](index=161&type=chunk) [International Expansion](index=34&type=section&id=International%20Expansion) This section details C3.ai's plans for international expansion through direct sales and strategic partners, noting the current contribution of international customers to total revenue - The company plans to continue investing in international expansion by increasing direct sales teams and leveraging strategic partners[162](index=162&type=chunk) - International customers accounted for **9% of total revenue** in Q1 2025, down from **13%** in Q1 2024[162](index=162&type=chunk) [Impact of Macroeconomic Conditions](index=35&type=section&id=Impact%20of%20Macroeconomic%20Conditions) This section addresses the adverse impact of macroeconomic conditions and geopolitical instability on C3.ai's business, potentially leading to budget rationalization and operational disruptions - Adverse macroeconomic conditions (labor shortages, inflation, high interest rates) have impacted and may continue to impact the business, leading customers to optimize consumption and rationalize budgets[163](index=163&type=chunk) - Geopolitical instability, potential government shutdowns, and trade tensions could also negatively affect operations and performance[164](index=164&type=chunk) [Components of Results of Operations](index=35&type=section&id=Components%20of%20Results%20of%20Operations) This section breaks down the various components contributing to C3.ai's results of operations, including revenue, cost of revenue, gross profit, and operating expenses [Revenue (Components)](index=35&type=section&id=Revenue%20(Components)) This section defines C3.ai's revenue components, including subscription revenue from software licenses and SaaS, and professional services revenue from consulting and engineering - Subscription revenue includes software licenses, SaaS offerings, COE support, initial production deployments, and hosting charges, with revenue recognized ratably or on a usage basis[166](index=166&type=chunk) - Professional services revenue includes consulting, training, paid implementation, and prioritized engineering services, typically recognized over time as services are performed[167](index=167&type=chunk) [Cost of Revenue (Components)](index=35&type=section&id=Cost%20of%20Revenue%20(Components)) This section details the components of C3.ai's cost of revenue, encompassing costs for subscription services and professional services, primarily payroll and third-party resources - Cost of subscription revenue primarily consists of compensation for production/support staff, third-party system integration partners, and hosting costs[168](index=168&type=chunk) - Cost of professional services revenue includes compensation for professional service and prioritized engineering personnel, and third-party system integration partners[169](index=169&type=chunk) [Gross Profit and Gross Margin (Components)](index=36&type=section&id=Gross%20Profit%20and%20Gross%20Margin%20(Components)) This section defines gross profit and gross margin, explaining how they are calculated and the factors that can cause their fluctuations - Gross profit is total revenue minus total cost of revenue; gross margin is gross profit as a percentage of total revenue[170](index=170&type=chunk) - Gross margin can fluctuate based on product mix, customer size, industry, geography, and the use of internal vs. third-party resources for professional services[170](index=170&type=chunk) [Operating Expenses (Components)](index=36&type=section&id=Operating%20Expenses%20(Components)) This section outlines C3.ai's operating expenses, including sales and marketing, R&D, and G&A, and their expected trends relative to business growth and revenue - Operating expenses include sales and marketing, research and development, and general and administrative expenses, all expected to increase with business growth[171](index=171&type=chunk) - Sales and marketing expenses are expected to remain high in the near-term due to hiring, but decline as a percentage of revenue over time[173](index=173&type=chunk) - R&D investments will continue for product innovation, with spending as a percentage of revenue anticipated to decline over a longer horizon[175](index=175&type=chunk) - General and administrative expenses are expected to increase in absolute dollars but decline as a percentage of revenue long-term due to economies of scale[177](index=177&type=chunk) [Interest Income (Components)](index=37&type=section&id=Interest%20Income%20(Components)) This section describes C3.ai's interest income, primarily derived from cash, cash equivalents, and marketable securities, and its sensitivity to market interest rates - Interest income is primarily from cash, cash equivalents, and marketable securities, fluctuating with balances and market interest rates[178](index=178&type=chunk) [Other Income (Expense), Net (Components)](index=37&type=section&id=Other%20Income%20(Expense),%20Net%20(Components)) This section details C3.ai's other income (expense), net, including foreign currency exchange gains/losses and realized gains/losses on marketable securities - Other income (expense), net, includes foreign currency exchange gains/losses and realized gains/losses on marketable securities, expected to fluctuate with exchange rates[179](index=179&type=chunk) [Provision for Income Taxes (Components)](index=37&type=section&id=Provision%20for%20Income%20Taxes%20(Components)) This section explains C3.ai's income tax provision, an estimate based on various tax rates, credits, and deductions, and the impact of a full valuation allowance - Income tax provision is an estimate based on federal, state, and foreign tax rates, adjusted for credits, deductions, and valuation allowances[180](index=180&type=chunk) - A full valuation allowance is maintained on U.S. deferred tax assets due to a history of losses[180](index=180&type=chunk) [Results of Operations](index=37&type=section&id=Results%20of%20Operations) This section provides a comparative analysis of C3.ai's financial performance for the three months ended July 31, 2025, versus the prior year, across key operational metrics [Revenue (Comparison)](index=39&type=section&id=Revenue%20(Comparison)) This section compares C3.ai's subscription and professional services revenue for Q1 2025 and Q1 2024, highlighting year-over-year changes and customer contributions Revenue Comparison (in thousands) | Category | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Subscription | $60,301 | $73,456 | $(13,155) | (18)% | | Professional services | $9,960 | $13,757 | $(3,797) | (28)% | | Total revenue | $70,261 | $87,213 | $(16,952) | (19)% | - Subscription revenue decreased by **18% YoY**, with new customers contributing **32%** of subscription revenue in Q1 2025 (vs. **19%** in Q1 2024)[184](index=184&type=chunk) - Professional services revenue decreased by **28% YoY**, mainly due to a **$2.0 million** decrease in prioritized engineering services and a **$1.8 million** decrease in other professional services[185](index=185&type=chunk) [Cost of Revenue (Comparison)](index=39&type=section&id=Cost%20of%20Revenue%20(Comparison)) This section compares C3.ai's cost of subscription and professional services revenue for Q1 2025 and Q1 2024, detailing the primary drivers of change Cost of Revenue Comparison (in thousands) | Category | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Subscription | $41,481 | $33,292 | $8,189 | 25% | | Professional services | $2,336 | $1,755 | $581 | 33% | | Total cost of revenue | $43,817 | $35,047 | $8,770 | 25% | - Cost of subscription revenue increased by **25% YoY**, primarily due to higher payroll and contractor costs (**$7.1 million**) and data center costs (**$0.3 million**)[186](index=186&type=chunk) - Cost of professional services revenue increased by **33% YoY**, mainly due to higher payroll and contractor costs (**$0.5 million**)[187](index=187&type=chunk) [Gross Profit and Gross Margin (Comparison)](index=39&type=section&id=Gross%20Profit%20and%20Gross%20Margin%20(Comparison)) This section compares C3.ai's gross profit and gross margin for Q1 2025 and Q1 2024, analyzing the factors contributing to the year-over-year decline Gross Profit and Gross Margin Comparison (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Gross profit | $26,444 | $52,166 | $(25,722) | (49)% | | Subscription margin | 31% | 55% | -24% | | | Professional services margin | 77% | 87% | -10% | | | Total gross margin | 38% | 60% | -22% | | - Total gross profit decreased by **49% YoY**, and total gross margin declined from **60%** to **38%**[188](index=188&type=chunk) - Subscription margin decreased due to lower subscription revenue and higher payroll/contractor costs for initial production deployment projects[189](index=189&type=chunk) - Professional services margin decreased due to a decline in prioritized engineering service projects[190](index=190&type=chunk) [Operating Expenses (Comparison)](index=41&type=section&id=Operating%20Expenses%20(Comparison)) This section compares C3.ai's sales and marketing, R&D, and G&A expenses for Q1 2025 and Q1 2024, identifying the key drivers of their year-over-year changes Operating Expenses Comparison (in thousands) | Category | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Sales and marketing | $62,513 | $52,125 | $10,388 | 20% | | Research and development | $64,651 | $52,927 | $11,724 | 22% | | General and administrative | $24,099 | $19,700 | $4,399 | 22% | | Total operating expenses | $151,263 | $124,752 | $26,511 | 21% | - Sales and marketing expenses increased by **20% YoY**, driven by higher payroll costs (**$15.1 million**) and increased stock-based compensation, partially offset by lower advertising (**$6.0 million**)[191](index=191&type=chunk) - Research and development expenses increased by **22% YoY**, primarily due to higher payroll and contractor costs (**$9.4 million**) and data center costs (**$1.4 million**)[192](index=192&type=chunk) - General and administrative expenses increased by **22% YoY**, mainly due to higher payroll costs (**$4.0 million**), increased stock-based compensation, and higher professional services costs (**$0.7 million**)[193](index=193&type=chunk) [Interest Income (Comparison)](index=41&type=section&id=Interest%20Income%20(Comparison)) This section compares C3.ai's interest income for Q1 2025 and Q1 2024, attributing the year-over-year decrease to prevailing interest rates and investment volume Interest Income Comparison (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Interest income | $8,218 | $10,003 | $(1,785) | (18)% | - Interest income decreased by **18% YoY**, primarily due to higher prevailing interest rates on marketable securities and higher investment volume in the prior year[194](index=194&type=chunk) [Other Income (Expense), Net (Comparison)](index=41&type=section&id=Other%20Income%20(Expense),%20Net%20(Comparison)) This section compares C3.ai's other income (expense), net, for Q1 2025 and Q1 2024, highlighting the significant increase driven by foreign currency gains Other Income (Expense), Net Comparison (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Other income (expense), net | $132 | $28 | $104 | 371% | - Other income (expense), net, increased significantly by **371% YoY**, mainly due to higher foreign currency gains on Euro-denominated balances[195](index=195&type=chunk) [Provision for Income Taxes (Comparison)](index=42&type=section&id=Provision%20for%20Income%20Taxes%20(Comparison)) This section compares C3.ai's provision for income taxes for Q1 2025 and Q1 2024, noting the slight increase primarily from foreign and state tax expense Provision for Income Taxes Comparison (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | $ Change | % Change | | :------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Provision for income taxes | $300 | $272 | $28 | 10% | - The provision for income taxes slightly increased by **10% YoY**, primarily related to foreign and state tax expense[196](index=196&type=chunk) [Non-GAAP Financial Measure](index=42&type=section&id=Non-GAAP%20Financial%20Measure) This section presents free cash flow as a non-GAAP measure, providing a reconciliation and evaluating C3.ai's liquidity and ability to fund future operations - Free cash flow is presented as a non-GAAP measure to evaluate liquidity and ability to fund future operations[197](index=197&type=chunk) Free Cash Flow Reconciliation (in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(33,535) | $8,042 | | Less: Purchases of property and equipment | $(760) | $(924) | | Free cash flow | $(34,295) | $7,118 | - Free cash flow decreased significantly from **$7,118 thousand** provided in Q1 2024 to **$(34,295) thousand** used in Q1 2025[198](index=198&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses C3.ai's liquidity position, including cash, cash equivalents, and marketable securities, and discusses its ability to fund operations despite accumulated deficits - As of July 31, 2025, cash and cash equivalents were **$80.9 million**, and marketable securities were **$631.0 million**[199](index=199&type=chunk) - The company had an accumulated deficit of **$1.5 billion** as of July 31, 2025, and expects continued operating losses and negative cash flows in the near future[199](index=199&type=chunk) - Existing cash, cash equivalents, and marketable securities are believed to be sufficient for at least the next 12 months, but additional financing may be required for strategic initiatives[200](index=200&type=chunk) Cash Flow Summary (in thousands) | Category | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash (used in) provided by operating activities | $(33,535) | $8,042 | | Net cash used in investing activities | $(51,171) | $(41,550) | | Net cash provided by financing activities | $1,289 | $182 | | Net decrease in cash, cash equivalents, and restricted cash | $(83,417) | $(33,326) | [Contractual Obligations and Commitments](index=44&type=section&id=Contractual%20Obligations%20and%20Commitments) This section outlines C3.ai's contractual obligations, primarily operating lease commitments and non-cancellable purchase commitments for cloud hosting and professional services - Contractual obligations primarily include operating lease commitments and non-cancellable purchase commitments for cloud hosting and professional services[206](index=206&type=chunk) - No material changes in contractual obligations and commitments since April 30, 2025, other than in the ordinary course of business[207](index=207&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the critical accounting policies and estimates that require significant judgment in preparing C3.ai's financial statements - The preparation of financial statements requires significant estimates and assumptions, which could differ from actual results[208](index=208&type=chunk) - No material changes to critical accounting policies and estimates compared to the Annual Report on Form 10-K for fiscal year ended April 30, 2025[209](index=209&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses C3.ai's exposure to market risks, primarily from foreign currency and interest rate fluctuations, and addresses inflation risk [Interest Rate Risk](index=46&type=section&id=Interest%20Rate%20Risk) This section assesses C3.ai's exposure to interest rate risk on its cash, cash equivalents, and marketable securities portfolio - As of July 31, 2025, cash, cash equivalents, and marketable securities totaled **$711.9 million**[212](index=212&type=chunk) - A hypothetical **10% change** in interest rates would not have a material impact on the value of the company's cash equivalents or marketable securities portfolio[212](index=212&type=chunk) [Foreign Currency Exchange Risk](index=46&type=section&id=Foreign%20Currency%20Exchange%20Risk) This section discusses C3.ai's exposure to foreign currency exchange risk, particularly from Euro-denominated sales, and the potential impact of rate changes - Approximately **5% of sales** in Q1 2025 and **8%** in Q1 2024 were denominated in euros, exposing the company to foreign currency risk[213](index=213&type=chunk) - A hypothetical **10% change** in foreign currency exchange rates could have a material impact on the unaudited condensed financial statements[213](index=213&type=chunk) [Inflation Risk](index=46&type=section&id=Inflation%20Risk) This section addresses C3.ai's exposure to inflation risk, noting no material effect to date but potential future harm if cost increases cannot be offset - Inflation has not had a material effect on the business, results of operations, or financial condition to date[214](index=214&type=chunk) - Inability to offset higher costs from significant inflationary pressures through price increases could harm the business[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details management's evaluation of C3.ai's disclosure controls and internal control over financial reporting, concluding their effectiveness as of July 31, 2025 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of July 31, 2025[215](index=215&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period[216](index=216&type=chunk) - The effectiveness of internal controls is subject to inherent limitations, including judgment, human error, and the inability to eliminate misconduct completely[217](index=217&type=chunk) [Part II. Other Information](index=48&type=section&id=Part%20II.%20Other%20Information) This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to legal proceedings detailed in Note 6, confirming no other material litigation that would adversely affect C3.ai's business - Legal proceedings are detailed in Note 6, including securities class actions and shareholder derivative lawsuits[220](index=220&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - The company does not believe it is probable that these cases will result in an unfavorable outcome, but a material adverse impact is possible if an unfavorable outcome occurs[83](index=83&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This comprehensive section outlines various risks and uncertainties that could materially and adversely affect C3.ai's business, categorized by operational, international, tax, IP, and stock ownership [Risks Related to Our Business and Our Industry](index=48&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Our%20Industry) This section details risks inherent to C3.ai's business and industry, including financial performance, customer dependence, competition, and technological changes - C3.ai has a history of **losses** and expects increased operating expenses, making future profitability uncertain[222](index=222&type=chunk) - Dependence on a **limited number of customers** means non-renewal or impairment of relationships could significantly impact revenue and remaining performance obligations[226](index=226&type=chunk) - The company faces intense competition, long and unpredictable sales cycles, and risks if the market for C3 AI Software fails to grow as expected or if technological changes are not addressed[235](index=235&type=chunk)[242](index=242&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk) - Restructuring of the sales organization and the CEO transition, along with macroeconomic uncertainties, have had and could continue to have adverse impacts[139](index=139&type=chunk)[140](index=140&type=chunk)[163](index=163&type=chunk)[259](index=259&type=chunk)[262](index=262&type=chunk)[278](index=278&type=chunk) - Stringent and evolving data privacy and security laws (e.g., GDPR, CCPA, EU AI Act) and potential security incidents pose significant compliance burdens, litigation risks, and reputational harm[280](index=280&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk)[289](index=289&type=chunk)[292](index=292&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk)[298](index=298&type=chunk) - Issues with AI/ML use, including flawed algorithms, biased datasets, or inaccurate outputs, could lead to reputational harm, liability, and increased regulatory scrutiny[317](index=317&type=chunk)[300](index=300&type=chunk) [Risks Related to Our International Operations](index=73&type=section&id=Risks%20Related%20to%20Our%20International%20Operations) This section outlines risks associated with C3.ai's international operations, including compliance challenges, geopolitical instability, and trade controls - International expansion subjects the company to increased business and economic risks, including challenges in recruiting, compliance with diverse laws (privacy, data protection, anti-corruption), and intellectual property protection[322](index=322&type=chunk)[326](index=326&type=chunk) - Geopolitical instability, trade protection policies, and export/import controls (e.g., U.S. export control and economic sanctions laws) could impair international competitiveness or lead to liability[323](index=323&type=chunk)[327](index=327&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk) - Non-compliance with anti-corruption laws like the FCPA can lead to criminal/civil liability, fines, and reputational harm, especially with increased international sales and public sector engagement[332](index=332&type=chunk)[333](index=333&type=chunk)[335](index=335&type=chunk) [Risks Related to Taxes](index=76&type=section&id=Risks%20Related%20to%20Taxes) This section details tax-related risks, including potential liabilities for past sales taxes, changes in tax laws, and limitations on using net operating losses - The company may be subject to liabilities for past sales taxes, surcharges, and fees if taxing authorities challenge its nexus or product classification[336](index=336&type=chunk)[337](index=337&type=chunk) - Changes in accounting principles, tax laws (e.g., OBBBA), or administrative interpretations could increase tax liabilities[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - The ability to use net operating losses (NOLs) and other tax attributes to offset future taxable income may be limited by Section 382 of the Code or state-level suspensions[342](index=342&type=chunk) [Risks Related to Our Intellectual Property](index=77&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) This section addresses risks concerning C3.ai's intellectual property, including infringement claims, indemnity provisions, protection failures, and open-source software use - The company is subject to intellectual property rights claims and other litigation, which can be costly, time-consuming, and divert management attention[343](index=343&type=chunk) - Indemnity provisions in agreements expose the company to substantial liability for intellectual property infringement and other losses[344](index=344&type=chunk) - Failure to protect intellectual property rights (patents, trade secrets, trademarks) could diminish brand value and allow competitors to replicate C3 AI Software[345](index=345&type=chunk) - Use of third-party open source software could lead to litigation, requirements to disclose proprietary code, or increased security risks[347](index=347&type=chunk)[348](index=348&type=chunk) [Risks Related to Ownership of Our Class A Common Stock](index=80&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Class%20A%20Common%20Stock) This section discusses risks related to C3.ai's Class A common stock, including price volatility, concentrated voting control, potential future sales, and anti-takeover provisions - The trading price of Class A common stock is volatile due to various factors, including market fluctuations, company performance, analyst coverage, and short seller reports[353](index=353&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) - The dual-class common stock structure concentrates voting control with Class B holders (primarily Mr. Siebel), limiting other stockholders' influence on corporate matters[358](index=358&type=chunk)[359](index=359&type=chunk) - Substantial future sales of Class A and Class B common stock by existing holders could depress the market price[361](index=361&type=chunk) - Provisions in constituent documents and Delaware law may prevent or frustrate attempts to change management or acquire a controlling interest, potentially lowering the stock price[364](index=364&type=chunk)[365](index=365&type=chunk) [General Risks](index=85&type=section&id=General%20Risks) This section covers general risks, including the failure to maintain effective internal controls, costs of legal proceedings, and potential disruptions from catastrophic events - Failure to maintain effective disclosure controls and internal control over financial reporting could impair the ability to produce timely and accurate financial statements and comply with regulations[372](index=372&type=chunk)[375](index=375&type=chunk) - Involvement in legal proceedings can result in substantial costs, divert management attention, and may not be fully covered by insurance[377](index=377&type=chunk) - Catastrophic events (natural disasters, cyberattacks, war) could disrupt business operations, impair service delivery, or lead to critical data loss[378](index=378&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[379](index=379&type=chunk) [Item 3. Defaults Upon Senior Securities](index=87&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms no defaults upon senior securities to report - Not applicable; no defaults upon senior securities[380](index=380&type=chunk) [Item 4. Mine Safety Disclosures](index=87&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Not applicable; no mine safety disclosures[381](index=381&type=chunk) [Item 5. Other Information](index=87&type=section&id=Item%205.%20Other%20Information) This section discloses Rule 10b5-1 trading arrangements adopted by directors and officers for company securities during Q1 2025 Rule 10b5-1 Trading Arrangements Adopted by Directors and Officers | Name and Position | Action | Date | Rule 10b5-1* | Total Shares of Common Stock to be Sold | Expiration Date | | :----------------------------------- | :----- | :----------- | :----------- | :-------------------------------------- | :-------------- | | Hitesh Lath, SVP and CFO | Adoption | June 11, 2025 | X | 159,031 | March 31, 2026 | | Robert Schilling, EVP and CCO | Adoption | June 18, 2025 | X | *** | March 31, 2026 | | Richard C. Levin, Director | Adoption | June 18, 2025 | X | 72,000 | June 30, 2026 | - The number of shares for Robert Schilling's plan is not yet determinable, as it covers shares released upon vesting of restricted stock unit awards[385](index=385&type=chunk) [Item 6. Exhibits](index=88&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate documents, certifications, and XBRL data - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, an Offer Letter for Robert Schilling, CEO/CFO certifications (302 and 906), and XBRL interactive data files[389](index=389&type=chunk) - Certifications under 18 U.S.C. Section 1350 (Exhibits 32.1 and 32.2) are not deemed filed with the SEC[387](index=387&type=chunk)

PART I. FINANCIAL INFORMATION [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's balance sheet reflects a decrease in total assets, driven by lower cash and accounts receivable, alongside an increase in goodwill from acquisitions Key Balance Sheet Data (Amounts in thousands) | Metric | July 31, 2025 | January 31, 2025 | | :------------------------------------------ | :-------------- | :--------------- | | Total Assets | $2,592,317 | $2,865,270 | | Cash and cash equivalents | $628,617 | $879,196 | | Accounts receivable, net | $269,810 | $451,131 | | Goodwill | $120,800 | $87,304 | | Total Liabilities | $926,614 | $1,019,508 | | Total Stockholders' Equity | $1,665,703 | $1,845,762 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company achieved profitability in the recent quarter and significantly reduced its net loss for the six-month period, driven by revenue growth - Total revenue increased by **14%** for the three months ended July 31, 2025, and by **10%** for the six months ended July 31, 2025, compared to the respective prior year periods[18](index=18&type=chunk) Key Operations Data (Amounts in thousands, except per share data) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenue | $361,728 | $316,253 | $718,352 | $651,365 | | Operating Loss | $(20,185) | $(103,349) | $(36,597) | $(152,814) | | Net Income (Loss) | $1,584 | $(86,097) | $(20,971) | $(114,833) | | Net Income (Loss) per share, diluted | $0.00 | $(0.15) | $(0.04) | $(0.20) | [Condensed Consolidated Statements of Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) Comprehensive income improved significantly year-over-year, reflecting a reduced net loss and positive impacts from other comprehensive income items Key Comprehensive Income Data (Amounts in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $1,584 | $(86,097) | $(20,971) | $(114,833) | | Other comprehensive (loss) income, net | $(4,776) | $3,365 | $29,637 | $(720) | | Comprehensive (loss) income | $(3,192) | $(82,732) | $8,666 | $(115,553) | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased due to substantial stock repurchases, which were partially offset by stock-based compensation and other comprehensive income - Accumulated other comprehensive income (loss) significantly increased from **$(4,890)k** as of January 31, 2025, to **$24,747k** as of July 31, 2025, primarily due to foreign currency translation adjustments[23](index=23&type=chunk)[106](index=106&type=chunk) Key Stockholders' Equity Changes (Amounts in thousands) | Metric | Six Months Ended July 31, 2025 | | :------------------------------------ | :----------------------------- | | Balance as of January 31, 2025 | $1,845,762 | | Repurchase of Class A Common Stock | $(329,101) | | Stock-based compensation | $154,370 | | Other comprehensive income, net | $29,637 | | Net loss | $(20,971) | | Balance as of July 31, 2025 | $1,665,703 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company generated positive operating cash flow, but a net decrease in cash resulted from significant stock repurchases and business acquisition activities - Cash provided by operating activities increased by **9.7%** year-over-year for the six months ended July 31, 2025[27](index=27&type=chunk) Key Cash Flow Data (Amounts in thousands) | Metric | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $160,589 | $146,413 | | Net cash used in investing activities | $(80,578) | $(5,893) | | Net cash used in financing activities | $(346,806) | $(260,887) | | Net decrease in cash, cash equivalents, and restricted cash | $(250,579) | $(122,365) | [Note 1. Organization and Description of Business](index=10&type=section&id=Note%201.%20Organization%20and%20Description%20of%20Business) UiPath operates an intelligent platform that unifies AI agents, robots, and people to enable scalable, flexible, and compliant business automation - UiPath Platform™ unifies AI agents, robots, and people on a single intelligent system for **scalable, flexible, and compliant automation**[29](index=29&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) The company's accounting policies, prepared under U.S. GAAP, remain consistent with the prior fiscal year and are managed as a single operating segment - Unaudited condensed consolidated financial statements are prepared in accordance with **U.S. GAAP** and SEC interim reporting regulations, with no significant changes to policies from the 2025 Form 10-K[30](index=30&type=chunk)[31](index=31&type=chunk) - The Chief Executive Officer (CODM) reviews financial information at the consolidated level, managing business activities as **one operating and reportable segment**[42](index=42&type=chunk) - The company is evaluating the impact of **ASU No. 2023-09** (Income Tax Disclosures) and **ASU No. 2024-03** (Expense Disaggregation Disclosures), effective for annual periods beginning after December 15, 2024, and December 15, 2026, respectively[45](index=45&type=chunk)[46](index=46&type=chunk) Foreign Currency Transaction Gains (Losses) (Amounts in thousands) | Period | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Three Months Ended July 31, | $8,900 | $(600) | | Six Months Ended July 31, | $(4,300) | $2,200 | [Note 3. Revenue Recognition](index=13&type=section&id=Note%203.%20Revenue%20Recognition) Revenue growth was primarily driven by the Americas and EMEA regions, with the majority of remaining performance obligations expected to be recognized within 12 months - As of July 31, 2025, remaining performance obligations totaled **$1,208.7 million**, with **65%** expected to be recognized as revenue over the next 12 months[51](index=51&type=chunk) - Amortization of deferred contract acquisition costs was **$44.2 million** for the six months ended July 31, 2025, up from **$39.4 million** in the prior year period[52](index=52&type=chunk) Revenue by Geographical Region (Three Months Ended July 31, Amounts in thousands) | Region | 2025 Amount | 2025 % of Revenue | 2024 Amount | 2024 % of Revenue | | :---------------------------- | :---------- | :---------------- | :---------- | :---------------- | | Americas | $181,081 | 50 % | $150,591 | 48 % | | Europe, Middle East, and Africa | $113,026 | 31 % | $97,989 | 31 % | | Asia-Pacific | $67,621 | 19 % | $67,673 | 21 % | | Total revenue | $361,728 | 100 % | $316,253 | 100 % | Revenue by Geographical Region (Six Months Ended July 31, Amounts in thousands) | Region | 2025 Amount | 2025 % of Revenue | 2024 Amount | 2024 % of Revenue | | :---------------------------- | :---------- | :---------------- | :---------- | :---------------- | | Americas | $342,488 | 48 % | $303,702 | 47 % | | Europe, Middle East, and Africa | $236,690 | 33 % | $202,616 | 31 % | | Asia-Pacific | $139,174 | 19 % | $145,047 | 22 % | | Total revenue | $718,352 | 100 % | $651,365 | 100 % | [Note 4. Marketable Securities](index=14&type=section&id=Note%204.%20Marketable%20Securities) The company's marketable securities portfolio, primarily in U.S. government securities, holds minor unrealized losses attributed to market conditions rather than credit risk - Unrealized losses of **$630k** as of July 31, 2025, are primarily due to changes in market conditions and are **not believed to be credit-related**[54](index=54&type=chunk)[56](index=56&type=chunk) Marketable Securities Summary (As of July 31, 2025, Amounts in thousands) | Type | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | | :-------------------------------- | :------------- | :--------------------- | :---------------------- | :------------------- | | Treasury bills and U.S. government securities | $792,532 | $— | $(539) | $791,993 | | Corporate bonds | $87,145 | $— | $(90) | $87,055 | | Commercial paper | $14,974 | $— | $(1) | $14,973 | | Total marketable securities | $894,651 | $— | $(630) | $894,021 | [Note 5. Fair Value Measurement](index=15&type=section&id=Note%205.%20Fair%20Value%20Measurement) The majority of the company's financial assets are valued using observable market inputs (Level 1), with a smaller portion relying on unobservable inputs - **Level 3 assets**, such as convertible bonds of private companies and contingent consideration liability, rely on **unobservable inputs** for valuation[58](index=58&type=chunk) Fair Value Hierarchy of Financial Assets (As of July 31, 2025, Amounts in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | Money market funds | $183,542 | $— | $— | $183,542 | | Treasury bills and U.S. government securities | $791,993 | $— | $— | $791,993 | | Corporate bonds | $— | $87,055 | $— | $87,055 | | Commercial paper | $— | $14,973 | $— | $14,973 | | Other investments carried at fair value | $— | $— | $13,375 | $13,375 | | Total Financial Assets | $975,535 | $102,028 | $13,375 | $1,090,938 | [Note 6. Business Acquisition](index=16&type=section&id=Note%206.%20Business%20Acquisition) The acquisition of Peak AI Limited for $40.1 million aims to integrate specialized technology and customer relationships, resulting in $28.0 million of goodwill - Acquired Peak AI Limited on March 7, 2025, for **$40.1 million**, consisting of **$30.3 million** initial cash and **$9.8 million** in deferred and contingent consideration[60](index=60&type=chunk)[61](index=61&type=chunk) - The acquisition generated **$28.0 million in goodwill**, representing expected synergies and acquired skilled workforce[61](index=61&type=chunk) Identifiable Intangible Assets Acquired (Amounts in thousands) | Asset Type | Fair Value | Estimated Useful Life (years) | | :------------------------ | :--------- | :-------------------------- | | Customer relationships | $9,228 | 3.0 | | Developed technology | $6,447 | 5.0 | | Trade names and trademarks | $506 | 3.0 | | Total | $16,181 | | [Note 7. Intangible Assets and Goodwill](index=16&type=section&id=Note%207.%20Intangible%20Assets%20and%20Goodwill) Goodwill increased substantially to $120.8 million due to the Peak AI acquisition, while net intangible assets stood at $21.6 million - Goodwill increased from **$87.3 million** as of January 31, 2025, to **$120.8 million** as of July 31, 2025, primarily due to the acquisition of Peak AI (**$28.0 million**) and foreign currency translation effects (**$5.5 million**)[65](index=65&type=chunk) - Amortization of acquired intangible assets was **$3.7 million** for the six months ended July 31, 2025[63](index=63&type=chunk) Intangible Assets, Net (As of July 31, 2025, Amounts in thousands) | Asset Type | Intangible Assets, Net | Weighted Average Remaining Useful Life (years) | | :------------------------ | :--------------------- | :--------------------------------------------- | | Developed technology | $11,724 | 3.3 | | Customer relationships | $8,813 | 2.6 | | Trade names and trademarks | $472 | 2.7 | | Other intangibles | $595 | 6.1 | | Total | $21,604 | | [Note 8. Operating Leases](index=17&type=section&id=Note%208.%20Operating%20Leases) The company's operating lease commitments for real estate and vehicles have increased, with total future undiscounted payments amounting to $110.8 million - As of July 31, 2025, the weighted-average remaining lease term is **9.6 years**, and the weighted-average discount rate is **7.6%**[67](index=67&type=chunk) - Total operating lease liabilities as of July 31, 2025, are **$79.3 million**, with future undiscounted payments totaling **$110.8 million**[67](index=67&type=chunk) Lease Costs (Amounts in thousands) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $5,314 | $4,086 | $8,691 | $7,562 | | Short-term lease cost | $696 | $1,024 | $1,356 | $2,147 | | Variable lease cost | $711 | $411 | $1,649 | $934 | | Total | $6,721 | $5,521 | $11,696 | $10,643 | [Note 9. Condensed Consolidated Balance Sheet Components](index=19&type=section&id=Note%209.%20Condensed%20Consolidated%20Balance%20Sheet%20Components) Detailed balance sheet components show significant increases in other current assets, net property and equipment, and accrued liabilities Prepaid Expenses and Other Current Assets (Amounts in thousands) | Metric | July 31, 2025 | January 31, 2025 | | :-------------------------------- | :-------------- | :--------------- | | Prepaid expenses and service credits | $57,453 | $65,334 | | Other current assets | $52,938 | $20,942 | | Total | $110,391 | $86,276 | Property and Equipment, Net (Amounts in thousands) | Metric | July 31, 2025 | January 31, 2025 | | :------------------------ | :-------------- | :--------------- | | Property and equipment, gross | $84,471 | $72,400 | | Less: accumulated depreciation | $(42,926) | $(39,660) | | Property and equipment, net | $41,545 | $32,740 | Accrued Expenses and Other Current Liabilities (Amounts in thousands) | Metric | July 31, 2025 | January 31, 2025 | | :------------------------------------ | :-------------- | :--------------- | | Accrued expenses | $38,470 | $16,005 | | Deferred consideration for business acquisition | $8,000 | $— | | Contingent consideration for business acquisition | $1,545 | $— | | Total | $145,856 | $83,923 | [Note 10. Commitments and Contingencies](index=20&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) The company faces various commitments and contingencies, including ongoing litigation, significant tax audits, and non-cancelable purchase obligations - The Fiscal Year 2025 Workforce Restructuring was completed during the three months ended July 31, 2025, incurring **$4.4 million** in restructuring costs for the six-month period[80](index=80&type=chunk)[81](index=81&type=chunk) - Ongoing litigation includes the **2023 Securities Action** (claims of misstatements in 2021-2022, with some claims dismissed) and the **2024 Securities Action** (claims of misstatements in 2023-2024, with the amended complaint dismissed but leave to refile)[84](index=84&type=chunk)[86](index=86&type=chunk)[88](index=88&type=chunk) - Tax audits include a **$14.3 million** VAT assessment paid and appealed in Romania, an estimated possible loss of **$13.0 million** for an ongoing Romanian VAT audit, and a preliminary inquiry for **$45.6 million** GST in India[92](index=92&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - Non-cancelable purchase obligations totaled **$356.2 million** as of July 31, 2025, primarily for hosting services and software[99](index=99&type=chunk) [Note 11. Stockholders' Equity](index=23&type=section&id=Note%2011.%20Stockholders'%20Equity) Stockholders' equity activities were highlighted by an expanded stock repurchase program and a significant increase in accumulated other comprehensive income - The board authorized an additional **$500.0 million** for Class A common stock repurchases on August 30, 2024, bringing the total authorization to **$1.0 billion**[100](index=100&type=chunk) - The company repurchased **30.2 million shares** of Class A common stock for **$329.1 million** during the six months ended July 31, 2025[103](index=103&type=chunk) - **5.0 million shares** of Class B common stock beneficially owned by CEO Daniel Dines were converted into Class A common stock on March 13, 2025[105](index=105&type=chunk) Changes in Accumulated Other Comprehensive Income (Loss) (Six Months Ended July 31, Amounts in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Balance as of January 31, | $(4,890) | $8,825 | | Other comprehensive income (loss), net of tax | $29,637 | $(720) | | Balance as of July 31, | $24,747 | $8,105 | [Note 12. Equity Incentive Plans and Stock-Based Compensation](index=24&type=section&id=Note%2012.%20Equity%20Incentive%20Plans%20and%20Stock-Based%20Compensation) The company recorded $154.4 million in stock-based compensation expense for the six-month period under its various equity incentive plans - As of July 31, 2025, **229.8 million shares** of Class A common stock are reserved under the 2021 Plan, and **32.7 million shares** under the ESPP[107](index=107&type=chunk)[110](index=110&type=chunk) Unrecognized Stock-Based Compensation Expense (As of July 31, 2025, Amounts in thousands) | Award Type | Unrecognized Compensation Expense | Weighted-Average Remaining Period | | :------------------------------------ | :-------------------------------- | :------------------------------ | | Stock options | $70,000 | 1.9 years | | Restricted Stock Units (RSUs) | $349,700 | 2.2 years | | Performance Stock Units (PSUs) | $6,300 | 2.7 years | | Employee Stock Purchase Plan (ESPP) | $1,900 | 0.4 years | Total Stock-Based Compensation Expense by Function (Amounts in thousands) | Functional Area | Three Months Ended July 31, 2025 | Six Months Ended July 31, 2025 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Cost of subscription services revenue | $3,682 | $7,556 | | Sales and marketing | $23,402 | $46,988 | | Research and development | $36,087 | $70,682 | | General and administrative | $12,477 | $24,055 | | Total | $78,006 | $154,367 | [Note 13. Income Taxes](index=26&type=section&id=Note%2013.%20Income%20Taxes) The company maintains a full valuation allowance on U.S. and Romania deferred tax assets and is assessing the impact of new international tax regulations - A **full valuation allowance** is maintained on U.S. and Romania deferred tax assets, with a reasonable possibility of reversal within the next **6 to 18 months**[126](index=126&type=chunk) - Gross unrecognized tax benefits totaled **$1.6 million** as of July 31, 2025, with a liability of **$0.9 million**[127](index=127&type=chunk) - The company anticipates a Qualified Domestic Minimum Top-up Tax (QDMTT) of **$1.9 million** in Romania for the current fiscal year due to OECD Pillar Two rules. The One Big Beautiful Bill Act (OBBBA) is **not expected to have a significant impact** on the consolidated tax position[130](index=130&type=chunk)[133](index=133&type=chunk) Provision for Income Taxes and Effective Tax Rate | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $1,743k | $3,828k | $4,570k | $7,608k | | Effective tax rate | 52.4% | (4.7)% | (27.9)% | (7.1)% | [Note 14. Net Income (Loss) Per Share](index=28&type=section&id=Note%2014.%20Net%20Income%20(Loss)%20Per%20Share) The company's diluted earnings per share improved to $0.00 for the quarter and showed a reduced loss per share for the six-month period Net Income (Loss) Per Share, Diluted | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Class A common stock | $0.00 | $(0.15) | $(0.04) | $(0.20) | | Class B common stock | $0.00 | $(0.15) | $(0.04) | $(0.20) | Anti-Dilutive Common Stock Equivalents Excluded (Amounts in thousands) | Type | Three Months Ended July 31, 2025 | Six Months Ended July 31, 2025 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Unvested RSUs | 10,610 | 27,239 | | Outstanding stock options | 2,198 | 8,870 | | Shares issuable under ESPP | 416 | 900 | | Total | 13,224 | 37,570 | [Note 15. Related Party Transactions](index=29&type=section&id=Note%2015.%20Related%20Party%20Transactions) The company incurred expenses for the business use of an aircraft owned by its CEO, Daniel Dines - UiPath incurred **$0.9 million** in expenses for the business use of an aircraft owned by CEO Daniel Dines for the six months ended July 31, 2025, compared to none in the prior year period[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transition to an AI-powered platform, detailing revenue growth, improved margins, and key performance metrics like ARR [Overview](index=30&type=section&id=Overview) - UiPath has evolved from a Robotic Process Automation (RPA) tool to an **AI-powered automation platform**, unifying AI agents, robots, and people on a single intelligent system[140](index=140&type=chunk)[141](index=141&type=chunk) - The Fiscal Year 2025 Workforce Restructuring was completed during the three months ended July 31, 2025, aimed at **streamlining the organization and prioritizing AI investments**[147](index=147&type=chunk) Business Highlights (Amounts in millions) | Metric | Three Months Ended July 31, 2025 | Six Months Ended July 31, 2025 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Revenue | $361.7 (+14% YoY) | $718.4 (+10% YoY) | | ARR (as of July 31, 2025) | N/A | $1,723.4 (+11% YoY) | | Gross Margin | 82% (vs 80% in 2024) | 82% (vs 82% in 2024) | | Cash flow from operations | N/A | $160.6 (vs $146.4 in 2024) | [Key Performance Metric](index=31&type=section&id=Key%20Performance%20Metric) - Annualized Renewal Run-rate (ARR) is the key performance metric used to measure the ability to **acquire and expand relationships** with subscription customers[149](index=149&type=chunk) - ARR growth of **11%** was driven **26%** by new customers and **74%** by existing customers[149](index=149&type=chunk) ARR-Related Data (As of July 31, Amounts in thousands) | Metric | 2025 | 2024 | | :------------------------------------ | :----------- | :----------- | | ARR | $1,723,401 | $1,550,605 | | Incremental ARR (12 months ended) | $172,796 | $242,701 | | Customers with ARR ≥ $1 million | 320 | 293 | | Percent of current period revenue (ARR ≥ $1 million) | 47 % | 43 % | | Customers with ARR ≥ $100 thousand | 2,432 | 2,163 | | Percent of current period revenue (ARR ≥ $100 thousand) | 87 % | 83 % | | Dollar-based net retention rate | 108 % | 115 % | [Components of Results of Operations](index=32&type=section&id=Components%20of%20Results%20of%20Operations) - Revenue is derived from software licenses (point-in-time recognition), subscription services (ratable recognition for maintenance, support, and SaaS), and professional services (recognized as rendered)[152](index=152&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk) - Cost of subscription services revenue is expected to **increase in absolute dollars** due to SaaS business growth and increased cloud-based deployments, potentially impacting gross margin due to higher hosting fees[158](index=158&type=chunk) - Sales and marketing and general and administrative expenses are expected to **decrease as a percentage of revenue** over the longer term, while research and development expenses are expected to **increase in absolute dollars** due to continued investment in new technology and platform enhancements[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - The company maintains a **full valuation allowance** on U.S. federal and state and Romania deferred tax assets, with a reasonable possibility of reversal within **6 to 18 months**[167](index=167&type=chunk) [Results of Operations - Three Months Ended July 31, 2025 and 2024](index=35&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20July%2031,%202025%20and%202024) - Gross margin increased to **82%** from 80%, primarily driven by increased subscription services revenue and margin[172](index=172&type=chunk) - Sales and marketing expense decreased by **$28.0 million (-14%)**, mainly due to a **$30.7 million** decrease in personnel-related expenses, including reduced stock-based compensation and salary expenses[173](index=173&type=chunk)[174](index=174&type=chunk) - General and administrative expense decreased by **$10.6 million (-17%)**, primarily due to a **$6.2 million** decrease in personnel-related expenses and reductions in other taxes and software costs[176](index=176&type=chunk) Revenue Comparison (Three Months Ended July 31, Amounts in thousands) | Revenue Type | 2025 | 2024 | Change | Change % | | :-------------------------- | :----- | :----- | :----- | :------- | | Licenses | $112,161 | $112,251 | $(90) | — % | | Subscription services | $238,363 | $194,673 | $43,690 | 22 % | | Professional services and other | $11,204 | $9,329 | $1,875 | 20 % | | Total revenue | $361,728 | $316,253 | $45,475 | 14 % | [Results of Operations - Six Months Ended July 31, 2025 and 2024](index=40&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20July%2031,%202025%20and%202024) - Gross margin remained relatively constant at **82%**[184](index=184&type=chunk) - Sales and marketing expense decreased by **$48.5 million (-13%)**, primarily due to a **$51.9 million** decrease in personnel-related expenses[185](index=185&type=chunk) - Research and development expense increased by **$9.1 million (+5%)**, driven by a **$15.1 million** increase in personnel-related expenses, partially offset by decreased hosting and software services costs[186](index=186&type=chunk) - General and administrative expense decreased by **$19.5 million (-15%)**, mainly due to an **$11.4 million** decrease in personnel-related expenses, a **$4.4 million** decrease in other taxes, and a **$2.4 million** decrease in charitable donations[187](index=187&type=chunk)[188](index=188&type=chunk) Revenue Comparison (Six Months Ended July 31, Amounts in thousands) | Revenue Type | 2025 | 2024 | Change | Change % | | :-------------------------- | :----- | :----- | :----- | :------- | | Licenses | $240,447 | $252,379 | $(11,932) | (5)% | | Subscription services | $455,666 | $379,804 | $75,862 | 20 % | | Professional services and other | $22,239 | $19,182 | $3,057 | 16 % | | Total revenue | $718,352 | $651,365 | $66,987 | 10 % | [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) - As of July 31, 2025, principal sources of liquidity included **$1,522.6 million** in cash, cash equivalents, and marketable securities[192](index=192&type=chunk) - Net cash used in financing activities was primarily driven by **$329.1 million** in repurchases of Class A common stock under the stock repurchase program[203](index=203&type=chunk) - Material cash requirements include working capital, employee compensation, tax withholdings, operating lease liabilities (**$79.3 million** total), and non-cancelable purchase commitments (**$356.2 million**)[205](index=205&type=chunk)[207](index=207&type=chunk) - Management believes existing liquidity and customer payments will be **sufficient to fund anticipated cash requirements** for the next 12 months and the long term[195](index=195&type=chunk) Cash Flows Summary (Six Months Ended July 31, Amounts in thousands) | Activity | 2025 | 2024 | | :------------------------------------ | :----------- | :----------- | | Net cash provided by operating activities | $160,589 | $146,413 | | Net cash used in investing activities | $(80,578) | $(5,893) | | Net cash used in financing activities | $(346,806) | $(260,887) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's exposure to interest rate and foreign currency exchange risks is not expected to have a material impact on its financial statements - A hypothetical **10% change in interest rates** would not have a material impact on the condensed consolidated financial statements for the six months ended July 31, 2025[213](index=213&type=chunk) - For the six months ended July 31, 2025, approximately **52% of revenues** and **40% of expenses** were denominated in non-U.S. dollar currencies, resulting in net foreign currency transaction losses of **$4.3 million**[214](index=214&type=chunk) - A hypothetical **10% change in foreign currency exchange rates** would amount to a **$34.1 million** translation impact for the six months ended July 31, 2025[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, following the implementation of a new ERP system during the quarter - Disclosure controls and procedures were **effective at a reasonable assurance level** as of July 31, 2025[217](index=217&type=chunk) - A **new ERP system** was implemented during the three months ended July 31, 2025, leading to updated processes and control activities, with ongoing assessment for effectiveness[218](index=218&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10 for a detailed description of the company's current legal proceedings - Current legal proceedings are described in detail in **Note 10, Commitments and Contingencies—Litigation**[221](index=221&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - **No material changes** to the risk factors previously disclosed in the 2025 Form 10-K[223](index=223&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and continued its stock repurchase program, with $180.3 million remaining available - **No recent unregistered sales** of equity securities[224](index=224&type=chunk) - As of July 31, 2025, approximately **$180.3 million remained available** for repurchase under the stock repurchase program[225](index=225&type=chunk) Class A Common Stock Repurchase Activity (Three Months Ended July 31, 2025, Amounts in thousands, except per share data) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------- | :------------------------------- | :--------------------------- | | May 1 - 31 | — | $— | | June 1 - 30 | — | $— | | July 1 - 31 | 8,276 | $12.08 | | Total | 8,276 | | [Item 3. Defaults Upon Senior Securities](index=47&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that the company has not experienced any defaults upon senior securities - **No defaults** upon senior securities[227](index=227&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are **not applicable**[228](index=228&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) This section discloses that several directors and officers adopted Rule 10b5-1 trading plans during the quarter - CFO Ashim Gupta adopted a Rule 10b5-1 trading plan on July 10, 2025, to sell up to **808,292 Class A shares** through April 8, 2026[229](index=229&type=chunk) - CEO Daniel Dines, through IceVulcan Investments Limited, adopted a Rule 10b5-1 trading plan on July 11, 2025, to sell up to **5,000,000 Class A shares** through April 17, 2026[229](index=229&type=chunk) - Chief Accounting Officer Hitesh Ramani adopted a Rule 10b5-1 trading plan on July 14, 2025, to sell up to **75,000 Class A shares** through July 13, 2026[229](index=229&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the quarterly report, including officer certifications and XBRL data files - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2), XBRL Taxonomy Extension Documents (101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE), and the Cover Page Interactive Data File (104)[230](index=230&type=chunk) [Signatures](index=50&type=section&id=Signatures) This section contains the official signature block confirming the report's submission by the Chief Financial Officer and Chief Operating Officer - The report is signed by **Ashim Gupta, Chief Financial Officer and Chief Operating Officer**, on behalf of UiPath, Inc[233](index=233&type=chunk)

PART I [Business](index=5&type=section&id=Item%201.%20Business) Cantaloupe, Inc. is a global leader in self-service commerce solutions, with a pending acquisition by 365 Retail Markets, LLC - Cantaloupe, Inc. is a global technology leader powering self-service commerce, offering micro-payment processing, self-checkout kiosks, mobile ordering, connected POS systems, and enterprise cloud software[15](index=15&type=chunk) Customer and Device Metrics (as of June 30) | Metric | 2025 | 2024 | Change (YoY) | | :----------------- | :----- | :----- | :----------- | | Active Customers | 34,896 | 31,466 | +11% | | Active Devices | 1.28M | 1.22M | +5% | - On June 15, 2025, Cantaloupe entered into an agreement to be acquired by 365 Retail Markets, LLC in an all-cash transaction for **$11.20 per share** of common stock, expected to close in the second half of calendar year 2025[19](index=19&type=chunk)[21](index=21&type=chunk) - The company's revenue streams consist of subscription, transaction processing, and equipment sales, with the majority derived from subscription and transaction fees[17](index=17&type=chunk) - Key growth opportunities include maximizing growth in existing customers, capitalizing on cashless and mobile payment trends globally, expanding into micro markets and smart stores, and further penetrating international and adjacent markets[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its pending merger, economic conditions, supply chain, competition, cybersecurity, and financial covenants - The pending merger with 365 Retail Markets, LLC poses risks including business disruptions, uncertainty for employees, potential adverse impact on stock price if not consummated, and significant transaction costs[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk)[72](index=72&type=chunk)[76](index=76&type=chunk) - General economic conditions, including inflation, elevated interest rates, supply chain disruptions, and geopolitical conflicts, could adversely affect business by reducing consumer spending and impacting the company's ability to purchase devices[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) - The company's success depends on its ability to develop new products and services to address rapidly evolving market and technological changes, with failure to do so materially affecting the business[86](index=86&type=chunk)[87](index=87&type=chunk) - Substantially all service contracts with customers are terminable with thirty days' notice, making consistent demand and customer satisfaction critical to financial success[88](index=88&type=chunk) - Cybersecurity threats, system breaches, and failures of processing systems could adversely affect reputation, business, and results of operations, potentially leading to significant remedial expenses, fines, and litigation[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - Failure to comply with financial covenants under the **$100 million 2025 Credit Facility** could result in an event of default, accelerating outstanding indebtedness and materially impacting liquidity and financial position[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) [Unresolved Staff Comments](index=26&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[135](index=135&type=chunk) [Cybersecurity](index=26&type=section&id=Item%201C.%20Cybersecurity.) Cantaloupe maintains a robust cybersecurity program with continuous monitoring, penetration testing, and CISO oversight, adhering to industry best practices - Cantaloupe's cybersecurity program safeguards information assets by monitoring threats, developing controls, and undergoing annual third-party reviews for PCI DSS and AICPA SOC compliance[136](index=136&type=chunk)[137](index=137&type=chunk) - The program includes routine external and internal penetration testing, an Incident Management Policy (IMP), and Incident Response Plan (IRP) to detect, respond to, and recover from security incidents[138](index=138&type=chunk)[139](index=139&type=chunk) - Cybersecurity oversight is led by the CISO, who reports to the CTO and the Board of Directors, possessing over **20 years of experience** and industry-recognized certifications (CISSP, CISM, PCI ISA & PCIP)[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Properties](index=27&type=section&id=Item%202.%20Properties.) Cantaloupe leases its headquarters and other facilities, deeming them adequate for current and future operational needs - Cantaloupe's headquarters are in Malvern, Pennsylvania, and it leases other facilities in Atlanta, Georgia, Denver, Colorado (sub-leased), and River Falls, Wisconsin[143](index=143&type=chunk)[144](index=144&type=chunk) - The company believes its existing facilities are sufficient for current and future needs[143](index=143&type=chunk) [Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings.) Cantaloupe is involved in routine litigation and accrues for loss contingencies, with no material pending legal proceedings reported - The company is a party to litigation and other proceedings arising in the ordinary course of business, with accruals made for probable and estimable loss contingencies[145](index=145&type=chunk) - As of the filing date, there are no material pending legal or governmental proceedings other than routine litigation incidental to the business[146](index=146&type=chunk) [Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to Cantaloupe, Inc. - Mine Safety Disclosures are not applicable to the company[147](index=147&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=31&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) Cantaloupe's common stock trades on NASDAQ, with no cash dividends declared, and its shareholder return is benchmarked against market indices - Cantaloupe's common stock is traded on The NASDAQ Global Market under the symbol "CTLP"[148](index=148&type=chunk) Stockholder and Dividend Information (as of Sep 2, 2025 / June 30, 2025) | Metric | Amount | | :-------------------------------- | :----------- | | Common Stock Holders of Record | 436 | | Preferred Stock Holders of Record | 203 | | Outstanding Common Stock (Sep 2, 2025) | 73,368,777 shares | | Accumulated Unpaid Preferred Dividends (June 30, 2025) | $19.4 million | | Preferred Stock Liquidation Preference (June 30, 2025) | $23.3 million | - No cash dividends have been declared on the company's common stock or preferred stock to date[149](index=149&type=chunk) 5-Year Cumulative Total Return (Indexed to $100 at June 30, 2020) | Index | Jun-20 | Jun-21 | Jun-22 | Jun-23 | Jun-24 | Jun-25 | | :----------------------------- | :----- | :----- | :----- | :----- | :----- | :----- | | Cantaloupe, Inc. | $100 | $169 | $80 | $114 | $94 | $157 | | US Small-Cap Russell 2000® Index | $100 | $160 | $119 | $131 | $142 | $151 | | S&P 500 Information Technology Index | $100 | $141 | $121 | $168 | $238 | $271 | [Reserved](index=29&type=section&id=Item%206.%20%5BReserved%5D.) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Cantaloupe reported strong FY2025 revenue growth, increased net income and Adjusted EBITDA, driven by transaction and subscription fees, with a pending merger Key Financial and Operational Highlights (FY2025 vs. FY2024) | Metric | FY2025 | FY2024 | Change (YoY) | | :-------------------------------- | :------- | :------- | :----------- | | Total Revenues | $302.5M | $268.6M | +13% | | Transaction Fees Revenue | $179.5M | $156.2M | +15% | | Subscription Fees Revenue | $83.6M | $75.3M | +11% | | Equipment Sales Revenue | $39.4M | $37.1M | +6.3% | | Total Dollar Volume of Transactions | $3.4B | $3.0B | +13% | | Active Devices | 1.28M | 1.22M | +5% | | Active Customers | 34,896 | 31,466 | +11% | | Net Income | $64.5M | $12.0M | +437.5% | | Adjusted EBITDA | $46.7M | $34.0M | +37.6% | - The company's revenue breakdown for FY2025 was approximately **59% from transaction fees**, **28% from subscription fees**, and **13% from equipment sales**[159](index=159&type=chunk) - Significant product launches and initiatives in FY2025 included Suites (stadiums/venues), a modernized Seed vending management system, AdVantage digital advertising program, Smart Store self-service retail solutions, Engage Pulse card readers for amusement, and the Go Micro micro market kiosk[163](index=163&type=chunk) - Cantaloupe acquired SB Software, a UK-based vending and coffee management business, enhancing its operational capabilities and market reach in Europe[163](index=163&type=chunk) - The company amended its credit facilities in January 2025, establishing a new 2025 Credit Facility with a total borrowing capacity of **$100 million**, comprising a **$40 million term loan**, a **$30 million revolving credit**, and a **$30 million delayed draw term loan**[163](index=163&type=chunk) Gross Profit and Margin (FY2025 vs. FY2024) | Metric | FY2025 | FY2024 | Change (YoY) | | :-------------------------------- | :------- | :------- | :----------- | | Total Gross Profit | $112.1M | $95.9M | +17.0% | | Total Gross Margin | 37.1% | 35.7% | +1.4 pp | | Adjusted Gross Profit (non-GAAP) | $123.8M | $102.7M | +20.6% | | Adjusted Gross Margin (non-GAAP) | 40.9% | 38.2% | +2.7 pp | Cash Flow Summary (FY2025 vs. FY2024) | Cash Flow Activity | FY2025 | FY2024 | Change (YoY) | | :-------------------------------- | :------- | :------- | :----------- | | Net cash provided by operating activities | $20.3M | $27.7M | -$7.4M | | Net cash used in investing activities | $28.1M | $18.6M | +$9.5M | | Net cash provided by (used in) financing activities | $0.1M | -$1.1M | +$1.2M | [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) Cantaloupe faces interest rate risk on its variable-rate debt, with a 100 basis point SOFR increase impacting interest expense by $0.4 million - The company is exposed to interest rate risk on its **$39.0 million** outstanding borrowings under the 2025 Credit Facility, which has variable interest rates (SOFR-based), where a **100 basis point increase in SOFR** would result in a **$0.4 million change in interest expense**[219](index=219&type=chunk) - Excess cash is invested in highly liquid money market funds that earn a floating rate of interest, and the market risk for these investments is not material[220](index=220&type=chunk) - Cantaloupe also faces foreign currency exchange rate risks on its cash investments, inventory, accounts payable, and accounts receivable, but holds no freestanding derivative instruments[220](index=220&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents Cantaloupe's audited consolidated financial statements, with unqualified opinions from Deloitte & Touche LLP and BDO US, P.C., and detailed financial disclosures - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the years ended June 30, 2025 and 2024, and on the effectiveness of internal control over financial reporting as of June 30, 2025[227](index=227&type=chunk)[228](index=228&type=chunk) - BDO US, P.C. issued an unqualified opinion on the consolidated financial statements for the year ended June 30, 2023[237](index=237&type=chunk) - A critical audit matter identified by Deloitte was the determination of performance obligations within revenue contracts, requiring significant auditor judgment[232](index=232&type=chunk)[233](index=233&type=chunk) Consolidated Balance Sheet Highlights (as of June 30, in thousands) | Metric | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Total Assets | $381,858 | $335,568 | | Total Liabilities | $128,107 | $151,102 | | Total Shareholders' Equity | $251,031 | $181,746 | Consolidated Statements of Operations Highlights (Year ended June 30, in thousands) | Metric | 2025 | 2024 | 2023 | | :-------------------------------- | :------- | :------- | :------- | | Total Revenues | $302,548 | $268,596 | $243,641 | | Operating Income | $22,330 | $14,169 | $760 | | Net Income | $64,533 | $11,993 | $633 | | Basic EPS | $0.87 | $0.16 | $0.00 | | Diluted EPS | $0.86 | $0.15 | $0.00 | Consolidated Statements of Cash Flows Highlights (Year ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | 2023 | | :-------------------------------- | :------- | :------- | :------- | | Net cash provided by operating activities | $20,340 | $27,745 | $14,192 | | Net cash used in investing activities | $(28,135) | $(18,636) | $(51,865) | | Net cash provided by (used in) financing activities | $42 | $(1,058) | $20,475 | | Cash and cash equivalents at end of year | $51,146 | $58,920 | $50,927 | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=87&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) Cantaloupe dismissed BDO USA P.C. and appointed Deloitte & Touche LLP as its auditor, with no disagreements reported despite prior material weaknesses - Cantaloupe dismissed BDO USA P.C. and appointed Deloitte & Touche LLP as its independent registered public accounting firm on October 10, 2023[434](index=434&type=chunk)[438](index=438&type=chunk) - There were no disagreements with BDO on accounting principles, financial statement disclosure, or auditing scope/procedure[435](index=435&type=chunk) - BDO's reports for FY2023 did not contain adverse or qualified opinions, but did note material weaknesses in internal control over financial reporting[436](index=436&type=chunk)[437](index=437&type=chunk) - The company did not consult Deloitte on any accounting, auditing, or financial reporting issues prior to their appointment[439](index=439&type=chunk) [Controls and Procedures](index=87&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that Cantaloupe's disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with an unqualified attestation report - The company's disclosure controls and procedures were deemed effective as of June 30, 2025[441](index=441&type=chunk) - Management concluded that Cantaloupe maintained effective internal control over financial reporting as of June 30, 2025, based on the COSO framework[445](index=445&type=chunk) - Deloitte & Touche LLP issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting[446](index=446&type=chunk) - There were no material changes in the company's internal controls over financial reporting during the fourth quarter of fiscal year 2025[447](index=447&type=chunk) [Other Information](index=92&type=section&id=Item%209B.%20Other%20Information.) During the fiscal quarter ended June 30, 2025, none of Cantaloupe's directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans - No Rule 10b5-1 trading plans were adopted, modified, or terminated by directors or executive officers during the fiscal quarter ended June 30, 2025[448](index=448&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=92&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections.) This item is not applicable to Cantaloupe, Inc. - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[448](index=448&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=93&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance.) This section details Cantaloupe's Board of Directors, executive officers, and corporate governance practices, including committee structures and a Code of Conduct - The Board of Directors includes Douglas G. Bergeron (Chairman), Lisa P. Baird, Ian Harris, Jacob Lamm, Michael K. Passilla, Ellen Richey, Anne M. Smalling, Ravi Venkatesan (CEO), and Shannon S. Warren[449](index=449&type=chunk)[450](index=450&type=chunk)[452](index=452&type=chunk)[454](index=454&type=chunk)[456](index=456&type=chunk)[459](index=459&type=chunk)[463](index=463&type=chunk)[466](index=466&type=chunk)[469](index=469&type=chunk)[471](index=471&type=chunk) - Key executive officers include Ravi Venkatesan (CEO), Scott Stewart (CFO), Jeffrey Dumbrell (CRO), Gaurav Singal (CTO), Anna Novoseletsky (CLCO & General Counsel), and Jared Grachek (CAO)[469](index=469&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk)[478](index=478&type=chunk)[479](index=479&type=chunk)[480](index=480&type=chunk)[481](index=481&type=chunk) - The company has a Code of Business Conduct and Ethics applicable to all directors, officers, and employees, and an Insider Trading Policy to ensure compliance with securities laws[484](index=484&type=chunk)[487](index=487&type=chunk) - The Board has four standing committees: Audit & Risk, Compensation, Nominating & Corporate Governance, and Finance, with Ms. Shannon S. Warren identified as an "audit committee financial expert" and chairing the Audit and Risk Committee[485](index=485&type=chunk)[486](index=486&type=chunk) - Certain Section 16(a) reports for RSU grants to directors and executive officers were filed late due to an administrative error[483](index=483&type=chunk) [Executive Compensation](index=95&type=section&id=Item%2011.%20Executive%20Compensation.) Cantaloupe's executive compensation links pay to performance and shareholder value, with FY2025 bonuses based on Adjusted EBITDA and Revenue, and a CEO to median pay ratio of 12:1 - The company's compensation philosophy emphasizes attracting and retaining key executives, pay-for-performance, and aligning management's interests with long-term shareholder value, with a significant focus on equity awards[493](index=493&type=chunk)[494](index=494&type=chunk) FY2025 Annual Bonus Performance Metrics and Achievement | Metric | Weighting | Goal Objective | Actual Achieved | Percent Achieved | | :----------------------------- | :-------- | :------------- | :-------------- | :--------------- | | Adjusted EBITDA ($) | 40% | $47,800,000 | $46,740,000 | 93.4% | | Revenue ($) | 25% | $315,000,000 | $302,548,000 | 0% | | Monthly Recurring Revenue Growth (%) | 20% | 15% | 11% | 82.2% | | Board Discretion (%) | 15% | N/A | N/A | 120% | | **Total Corporate Percent Achieved** | | | | **71.8%** | - The estimated ratio of the annual total compensation of the CEO (**$957,707**) to the median employee (**$80,000**) for fiscal year 2025 is **12:1**[534](index=534&type=chunk)[535](index=535&type=chunk) - The Compensation Committee engaged Aon's Human Capital Solutions practice as its executive compensation consultant, determining Aon to be independent[497](index=497&type=chunk)[500](index=500&type=chunk) Potential Payments Upon Change of Control (Merger Scenario) | Named Executive Officer | Cash ($) | Equity ($) | Total ($) | | :---------------------- | :--------- | :--------- | :-------- | | Ravi Venkatesan | 1,350,000 | 1,866,538 | 3,216,538 | | Scott Stewart | 1,032,000 | 869,781 | 1,901,781 | | Jeffrey Dumbrell | 416,000 | 869,781 | 1,285,781 | | Gaurav Singal | 373,118 | 153,776 | 526,894 | | Anna Novoseletsky | 450,000 | 340,090 | 790,090 | [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=111&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters.) Hudson Executive Capital LP, BlackRock, Inc., and Oakland Hills BV are major beneficial owners of Cantaloupe's common stock, with directors and officers holding 7.3% Beneficial Ownership of Common Stock (as of September 2, 2025) | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percent of Class | | :-------------------------- | :---------------------------------- | :--------------- | | Hudson Executive Capital LP | 9,319,372 | 12.7% | | BlackRock, Inc. | 4,423,558 | 6.0% | | Oakland Hills BV | 3,667,000 | 5.0% | | All 5% Shareholders | 17,409,930 | 23.7% | | All directors and executive officers as a group (13 persons) | 5,364,197 | 7.3% | - As of September 2, 2025, there were **385,782 shares of Series A Preferred Stock** outstanding, with no directors or executive officers beneficially owning more than **5%** of this class[557](index=557&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=112&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Cantaloupe's Audit and Risk Committee reviews related-party transactions, and the Board assesses director independence, confirming key directors' independent judgment - The Audit and Risk Committee reviews and approves all related-party transactions exceeding **$120,000**, ensuring terms are no less favorable than those available to unaffiliated third parties[558](index=558&type=chunk)[559](index=559&type=chunk) - The Board determined that Mr. Passilla and Mr. Harris are independent directors, concluding that their relationships would not interfere with their independent judgment[561](index=561&type=chunk)[562](index=562&type=chunk) - The company paid Optimized Payments, Inc. **$0.2 million** for payments analytics and advisory services in both fiscal years 2025 and 2024[561](index=561&type=chunk) [Principal Accounting Fees and Services](index=113&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services.) Cantaloupe incurred audit fees from Deloitte & Touche LLP and BDO USA, P.C., with additional audit-related fees for specific services, but no tax or other fees Principal Accounting Fees (in thousands) | Fee Type | Auditor | FY2025 (Estimated) | FY2024 | | :-------------------- | :-------- | :----------------- | :------- | | Audit Fees | Deloitte | $2,393 | $2,641 | | Audit Fees (Consent) | BDO | $250 | $375 | | Audit-Related Fees | Deloitte | $153 | $30 | | Audit-Related Fees | BDO | $50 | $0 | | Tax Fees | Deloitte | $0 | $0 | | Tax Fees | BDO | $0 | $0 | | All Other Fees | Deloitte | $0 | $0 | | All Other Fees | BDO | $0 | $0 | PART IV [Exhibits, Financial Statement Schedules](index=115&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules.) This section lists all exhibits and financial statement schedules, including the Merger Agreement, organizational documents, and various credit and employment agreements - The exhibits include the Agreement and Plan of Merger with 365 Retail Markets, LLC, Amended and Restated Articles of Incorporation, Second Amended and Restated Bylaws, and various credit and payment solutions agreements[572](index=572&type=chunk)[573](index=573&type=chunk) - Other significant exhibits cover stock incentive plans, employment agreements for executives, the Insider Trading Policy, auditor consents from Deloitte & Touche LLP and BDO USA, P.C., and certifications from the CEO and CFO[572](index=572&type=chunk)[573](index=573&type=chunk) [Form 10-K Summary](index=117&type=section&id=Item%2016.%20Form%2010-K%20Summary.) This item is not applicable to the report - Form 10-K Summary is not applicable[575](index=575&type=chunk)