UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________ Commission file number 001-42276 Everus Construction Group, Inc. (Exact name of Registrant as specified in its charter) N/A (Former name, ...

[Company Overview](index=2&type=section&id=Company%20Overview) This section introduces the company's scale, regional presence, and client relations structure [Introduction to Vinci Compass](index=2&type=section&id=Vinci%20Compass%20is%20a%20leading%20full-service%20alternative%20asset%20manager%20in%20Latin%20America) Vinci Compass is a premier alternative asset manager in Latin America with R$305 billion in AUM and over 25 years of experience - Vinci Compass is a leading alternative asset manager in Latin America with **R$305 billion in AUM**[3](index=3&type=chunk)[4](index=4&type=chunk) - The company operates in 7 Latin American countries plus the USA and UK, employing over 630 professionals and has over 25 years of experience[6](index=6&type=chunk) - Core business areas include Global Investment Products & Solutions, Credit, Private Equity, Real Assets, Equities, and Corporate Advisory, supported by centralized functions like Research, ESG, and Risk management[4](index=4&type=chunk) [Pan-Regional Presence and Diversification](index=4&type=section&id=Pan-Regional%20presence%20with%20a%20diversified%20exposure%20to%20product%20offering%2C%20funding%20and%20currency) The company has a diversified pan-regional presence, with Brazil being the largest contributor to AUM and revenue | Breakdown | Top 3 Segments/Regions | Percentage | | :--- | :--- | :--- | | **AUM by Country** | Brazil | 62% | | | Mexico | 24% | | | Chile | 8% | | **Fee Related Revenues by Country** | Brazil | 43% | | | Mexico | 23% | | | Chile | 13% | | **AUM by Segment** | Global IP&S | 76% | | | Credit | 10% | | | Private Equity | 5% | | **Fee Related Revenues by Segment** | Global IP&S | 49% | | | Credit | 25% | | | Real Assets | 8% | [Client Relations Group](index=5&type=section&id=CLIENT%20RELATIONS%20GROUP) A robust client relations group of 77 professionals across 9 countries drives distribution of alternative products - The client relations team consists of **77 professionals across 9 countries**, demonstrating a unique institutional reach and expertise in alternative products[9](index=9&type=chunk) [Business Segments](index=6&type=section&id=Business%20Segments) This section details the company's core business segments, including their AUM and strategic focus [Global Investment Products and Solutions (Global IP&S)](index=6&type=section&id=Global%20Investment%20Products%20and%20Solutions%20(Global%20IP%26S)) The Global IP&S segment, the largest by assets with R$232 billion in AUM, focuses on institutional clients and third-party distribution | Metric | Value | | :--- | :--- | | AUM | R$232 billion | | AUM from Institutional Clients | 71% | | Fee Related Revenues from TPD Alternative | 32% | [Credit](index=7&type=section&id=Credit) The Credit segment manages R$29 billion in AUM across a diversified platform of local and hard currency strategies | Metric | Value | | :--- | :--- | | AUM | R$29 billion | | Liquid Credit AUM | R$12.5 billion | | Private Credit AUM | R$13.9 billion | | Team Size | +50 Portfolio Managers and Analysts | [Private Equity](index=8&type=section&id=Private%20Equity) The Private Equity segment manages R$16 billion in AUM, focusing on Growth Buyout and Impact strategies with strong historical returns | Strategy | Focus | Gross MOIC | Gross IRR | | :--- | :--- | :--- | :--- | | VCP | Growth Buyout | 2.4x | 64.6% | | VIR | Impact, Minority Growth | 1.7x | 22.1% | - Total Private Equity AUM is **R$16 billion** as of March 2025[16](index=16&type=chunk)[17](index=17&type=chunk) [Equities](index=9&type=section&id=Equities) The Equities segment manages R$15 billion in AUM, with a focus on Latin American and country-specific strategies | Geography | AUM (R$ bn) | | :--- | :--- | | Brazil | 10.0 | | Chile | 2.6 | | Mexico | 1.1 | | Argentina | 0.6 | | LatAm (Regional) | 0.5 | | **Total** | **14.8** | [Real Assets](index=10&type=section&id=Real%20Assets) The Real Assets segment holds R$12 billion in AUM invested in income-generating tangible assets with long-term lock-ups | Sector | AUM (R$ bn) | | :--- | :--- | | Real Estate | 6.4 | | Infrastructure | 3.8 | | Forestry | 1.7 | - The segment manages 130,000 hectares of net planted area in Brazil and is raising capital for VICC, an Article 9 compliant fund[20](index=20&type=chunk) [Corporate Advisory](index=11&type=section&id=Corporate%20Advisory) The Corporate Advisory division provides strategic advisory services for middle-market M&A and capital markets transactions | Service | Transaction Volume (R$) | | :--- | :--- | | M&A Transactions | +R$161 bn | | Fund Raising Transactions | +R$60 bn | | Capital Markets Transactions | +R$40 bn | [Financial Highlights](index=12&type=section&id=Financial%20Highlights) This section presents key financial results, fundraising activities, and performance metrics for the first quarter of 2025 [First Quarter 2025 Highlights](index=13&type=section&id=First%20Quarter%202025%20Highlights) Q1 2025 featured strong YoY growth in earnings, R$1.1 billion in new capital, and a quarterly dividend of US$0.15 per share | Metric | Q1 2025 Value | YoY Change | | :--- | :--- | :--- | | Fee Related Earnings (FRE) | R$ 66 mm | +22% | | Adjusted Distributable Earnings (Adj. DE) | R$ 62 mm | +26% | | Capital Subscriptions | R$ 1.1 bn | - | | Quarterly Dividend | US$ 0.15 | - | - Key fundraising successes in the quarter include the second closing of PEPCO II (private credit in Peru) and the first close of SPS IV, which matched the total commitments of its predecessor vintage[25](index=25&type=chunk) [Strategic Fundraising](index=14&type=section&id=Strategic%20Fundraising) The company has a robust 2025 fundraising pipeline focused on cross-border and local-to-local initiatives - **Cross-Border Initiatives:** - **VICC (Infrastructure):** Reached 70% of fundraising target with strong traction from international investors - **SPS IV (Credit):** Achieved a strong first closing, matching the size of its previous vintage - **VIR V (Impact):** Planned for launch in 2025 to expand the impact investing strategy - **Equities:** Plan to launch a UCITS platform in 2025 for LatAm, Brazil, and Mexico equity strategies[27](index=27&type=chunk) - **Local-to-Local Initiatives:** - **Credit:** Progressing with products in Brazil (MAV III, VCE), Peru & Chile (existing strategies), Colombia (launching COPCO I), and Mexico (new structured private credit fund) - **Global IP&S:** Expecting healthy inflows from third-party distribution (TPD) and launching a new fund of funds (VSP II) in 2025 - **Real Estate:** Preparing to raise capital for new industrial warehouse and residential products in Brazil[29](index=29&type=chunk) [First Quarter 2025 Earnings](index=16&type=section&id=First%20Quarter%202025%20Segment%20Earnings) Q1 2025 Fee Related Earnings grew 22% YoY to R$65.7 million, while Adjusted Distributable Earnings grew 26% to R$62.3 million | Metric (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total Fee Related Revenues | 231,644 | +117% | | **FEE RELATED EARNINGS (FRE)** | **65,677** | **+22%** | | **ADJUSTED DISTRIBUTABLE EARNINGS** | **62,306** | **+26%** | | Adjusted DE per share (R$/share) | 0.98 | +6% | [Total Assets Under Management (AUM) Analysis](index=17&type=section&id=Total%20Assets%20Under%20Management%20and%20Advisory) Total AUM reached R$304.6 billion, a 342% YoY increase, though it declined 7% QoQ due to FX variation - Total AUM reached **R$304.6 billion**, up 342% YoY[35](index=35&type=chunk) - AUM decreased 7% QoQ, primarily due to negative FX variation (**R$18.9 billion**)[35](index=35&type=chunk) - Capital subscriptions in Q1'25 totaled **R$1.1 billion**, and R$3.8 billion over the last twelve months, with the Credit segment being the primary contributor[32](index=32&type=chunk)[35](index=35&type=chunk) [Performance Eligible AUM & Accrued Fees](index=18&type=section&id=Additional%20Capital%20Detail) The company has R$46.4 billion in performance fee eligible AUM, generating R$275.0 million in gross accrued performance fees | Metric | Value | | :--- | :--- | | Performance Fee Eligible AUM (PEAUM) | R$46.4 billion | | Gross Accrued Performance Fees | R$275.0 million | - The Private Equity segment accounts for **80% of the gross accrued performance fees**, primarily from the VCP strategy[37](index=37&type=chunk)[38](index=38&type=chunk) [Fee Related Revenues (FRR)](index=19&type=section&id=Fee%20Related%20Revenues) Q1 2025 Fee Related Revenues grew 117% YoY to R$231.6 million, driven by strong management and advisory fees | Revenue Stream (R$mm) | 1Q'25 | 1Q'24 | YoY Change | | :--- | :--- | :--- | :--- | | Management fees | 195.5 | 96.5 | +103% | | Advisory fees | 24.9 | 10.4 | +140% | | **Total Fee Related Revenues** | **231.6** | **106.8** | **+117%** | [Financial Metrics Overview](index=20&type=section&id=Financial%20Metrics) Key financial metrics show significant LTM growth, with a 22% increase in FRE and a 7% increase in Adjusted DE | Metric (R$mm) | 1Q'25 | 1Q'25 YoY Change | 1Q'25 LTM | LTM YoY Change | | :--- | :--- | :--- | :--- | :--- | | Fee Related Earnings (FRE) | 66 | +22% | 260 | +22% | | Performance Related Earnings (PRE) | 2 | +37% | 22 | +109% | | Adjusted Distributable Earnings (DE) | 62 | +26% | 252 | +7% | [Realized GP Investment and Financial Income](index=22&type=section&id=Realized%20GP%20Investment%20and%20Financial%20Income) Q1 2025 realized GP and financial income rose 12% YoY, but LTM income declined 19% due to cash deployment for acquisitions | Income (R$mm) | 1Q'25 | YoY Change | 1Q'25 LTM | LTM YoY Change | | :--- | :--- | :--- | :--- | :--- | | Realized GP Investment Income | 4.3 | -3% | 25.3 | +43% | | Realized Financial Income | 14.4 | +17% | 51.3 | -33% | | **Total** | **18.7** | **+12%** | **76.6** | **-19%** | [Balance Sheet & GP Commitments](index=23&type=section&id=Balance%20Sheet%20Highlights%20%26%20GP%20Commitments) The company holds R$811.4 million in Net Cash and Investments and has R$1.4 billion in GP capital commitments | Balance Sheet & Commitments (R$ millions) | Value (1Q'25) | | :--- | :--- | | Net Cash and Investments | 811.4 | | Total GP Capital Committed | 1,415.0 | | Total GP Capital Called | 725.5 | | Fair Value of GP Investments | 697.4 | [Appendix I: Segment Summaries](index=25&type=section&id=Appendix%20%E2%80%93%20I%20Segment%20Summaries) This appendix provides a detailed financial breakdown for each of the company's business segments [Segment Earnings Breakdown](index=26&type=section&id=Financials%20by%20Segment) Private Equity was the largest LTM contributor to earnings, followed by Real Assets and Global IP&S, showing diversification | 1Q'25 LTM Contribution | Fee Related Earnings (FRE) | Segment Distributable Earnings (DE) | | :--- | :--- | :--- | | Private Equity | 37% | 30% | | Real Assets | 20% | 26% | | Global IP&S | 17% | 17% | | Credit | 11% | 13% | | Equities | 9% | 8% | | Corporate Advisory | 6% | 5% | [Global IP&S Segment Details](index=27&type=section&id=Global%20Investment%20Products%20%26%20Solutions%20(Global%20IP%26S)%20Segment) The Global IP&S segment's FRE grew 238% YoY to R$21.0 million in Q1 2025, driven by the Compass TPD business integration | Metric (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total Fee Related Revenues | 99,257 | +397% | | FEE RELATED EARNINGS (FRE) | 21,035 | +238% | | AUM (R$ billions) | 232 | +799% | [Credit Segment Details](index=28&type=section&id=Credit%20Segment) The Credit segment's FRE grew 67% YoY in Q1 2025, with AUM reaching R$29 billion due to organic and inorganic growth | Metric (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total Fee Related Revenues | 52,818 | +292% | | FEE RELATED EARNINGS (FRE) | 10,202 | +67% | | AUM (R$ billions) | 29 | +287% | [Private Equity Segment Details](index=29&type=section&id=Private%20Equity%20Segment) The Private Equity segment's FRE grew 23% YoY to R$19.4 million in Q1 2025, driven by successful fundraising | Metric (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total Fee Related Revenues | 31,294 | +19% | | FEE RELATED EARNINGS (FRE) | 19,433 | +23% | | AUM (R$ billions) | 16 | +14% | [Equities Segment Details](index=30&type=section&id=Equities%20Segment) The Equities segment's AUM grew 49% YoY to R$15 billion, though FRE declined due to higher post-combination expenses | Metric (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total Fee Related Revenues | 18,794 | +35% | | FEE RELATED EARNINGS (FRE) | 5,177 | -22% | | AUM (R$ billions) | 15 | +49% | [Real Assets Segment Details](index=31&type=section&id=Real%20Assets%20Segment) The Real Assets segment's AUM grew 9% YoY to R$12 billion, but FRE declined 8% due to increased expenses | Metric (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total Fee Related Revenues | 29,024 | +24% | | FEE RELATED EARNINGS (FRE) | 11,722 | -8% | | AUM (R$ billions) | 12 | +9% | [Corporate Advisory Segment Details](index=32&type=section&id=Corporate%20Advisory%20Segment) The Corporate Advisory segment had a seasonally quiet Q1 but generated R$15.8 million in FRE over the last twelve months | Metric (R$ thousands) | 1Q'25 | 1Q'25 LTM | | :--- | :--- | :--- | | Net revenue from advisory fees | 457 | 33,556 | | FEE RELATED EARNINGS (FRE) | (1,240) | 15,770 | [Appendix II: Financial Statements & Supplemental Details](index=33&type=section&id=Appendix%20%E2%80%93%20II%20Financial%20Statements%20%26%20Supplemental%20Details) This appendix contains the consolidated financial statements, non-GAAP reconciliations, and other supplemental data [Income Statement](index=34&type=section&id=Financials%20-%20Income%20Statement) The Q1 2025 consolidated income statement shows a net income of R$55.9 million, a 22% increase year-over-year | (R$ thousands) | 1Q'25 | YoY Change | | :--- | :--- | :--- | | Total net revenues from services rendered | 234,721 | +115% | | Operating profit | 67,404 | +23% | | **NET INCOME** | **55,928** | **+22%** | | **ADJUSTED NET INCOME** | **48,015** | **-6%** | [Non-GAAP Reconciliation](index=35&type=section&id=Financials%20-%20Non-GAAP%20Reconciliation) This section reconciles GAAP metrics to non-GAAP indicators like FRE, PRE, and Adjusted Distributable Earnings - This table reconciles GAAP Net Income of R$55.9M to **Adjusted Distributable Earnings of R$62.3M** for Q1 2025 by adjusting for unrealized items, non-cash expenses like depreciation and equity-based compensation, and non-operational expenses[91](index=91&type=chunk) [Balance Sheet](index=36&type=section&id=Balance%20Sheet) As of March 31, 2025, the company reported total assets of R$3.43 billion and total equity of R$1.89 billion | (R$ thousands) | 03/31/2025 | | :--- | :--- | | **Total Assets** | **3,426,917** | | Cash and cash equivalents | 163,782 | | Intangible assets | 1,054,859 | | **Total Liabilities** | **1,537,307** | | **Total Equity** | **1,889,610** | [AUM & Fee-Earning AUM Rollforward](index=38&type=section&id=AUM%C2%B9%20Rollforward) Total AUM decreased from R$327.0 billion to R$304.6 billion in Q1 2025, mainly due to negative FX variation | AUM Rollforward Q1 2025 (R$ millions) | Amount | | :--- | :--- | | Beginning balance (Q4'24) | 326,961 | | Net Capital Subscription / (Return) | 761 | | Net Inflow / (Outflow) | (7,567) | | FX Variation | (28,947) | | Appreciation / (Depreciation) | 3,344 | | **Ending balance (Q1'25)** | **304,552** | [Investment Records](index=40&type=section&id=Investment%20records) This section details historical performance data and returns for the company's various liquid and closed-end funds - Provides performance data (YTD, 12M, 24M returns) for key open-end funds across Equities, Credit, and Global IP&S against their respective benchmarks[100](index=100&type=chunk)[101](index=101&type=chunk) - Details the historical performance of closed-end funds, showing strong long-term value creation, such as the VCP Private Equity strategy's aggregate **Gross MOIC of 2.4x** and the SPS Credit strategy's **Gross MOIC of 2.7x**[102](index=102&type=chunk) [Shareholder Dividends & Share Summary](index=43&type=section&id=Shareholder%20Dividends%20%26%20Share%20Summary) The company declared a US$0.15 dividend per share for Q1 2025 and continued its share repurchase program | Metric | Q1 2025 | | :--- | :--- | | Adjusted DE per Common Share | US$0.17 | | Actual Dividend per Common Share | US$0.15 | | Shares Repurchased | 683,148 | | Total Common Shares Outstanding | 63,363,207 | - The remaining authorization for the share repurchase plan was **US$1.6 million** as of March 31, 2025[104](index=104&type=chunk)

[Part I](index=12&type=section&id=PART%20I) This section details the company's key risks, business operations, financial performance, governance, and market risk exposures [Key Information](index=12&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section outlines the principal risks of investing in the company, including business, intellectual property, international operations, and investment factors [Risks Related to Our Business, Our Industry and Our Financial Condition](index=12&type=section&id=Risks%20Related%20to%20Our%20Business%2C%20Our%20Industry%20and%20Our%20Financial%20Condition) The company faces risks from its M&A strategy, technology development, macroeconomic factors, talent retention, and customer concentration - The company's M&A growth strategy involves **significant integration risks** due to numerous acquisitions across its subsidiaries in 2024 and 2025[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Macroeconomic headwinds, including inflation and high interest rates, have **adversely affected customer capital budgets**, potentially impacting revenues, profitability, and cash flows[53](index=53&type=chunk)[54](index=54&type=chunk) - The company faces **intense competition for skilled technology professionals**, potentially leading to talent shortages and **increased wage expenses** affecting profitability[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - A **significant portion of revenue** comes from a few large customers, with **13.2%** of Sapiens' and Magic Software's 2024 revenue from their largest clients, posing a risk if business is lost[79](index=79&type=chunk) - The company is pursuing a **potential merger** between Matrix and Magic Software, which involves **integration risks** and requires shareholder and regulatory approvals[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Risks Related to Intellectual Property](index=33&type=section&id=Risks%20Related%20to%20Intellectual%20Property) The company faces significant intellectual property risks, including potential infringement claims, insufficient protection of its own IP, and risks from open-source software use - The company may face **costly litigation** from third-party infringement claims on patents, copyrights, or trademarks, potentially resulting in significant damages or unfavorable royalty agreements[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Protection of the company's own intellectual property relies on contractual provisions and trade secret law, which may not be fully effective, potentially leading to **unauthorized use of its products**[127](index=127&type=chunk) - The use of open-source software poses a risk that the company might be required to **release the source code of its proprietary software**, potentially diminishing its value[130](index=130&type=chunk)[131](index=131&type=chunk) [Risks Relating to Our International Operations](index=35&type=section&id=Risks%20Relating%20to%20Our%20International%20Operations) The company's international operations expose it to foreign currency fluctuations, regulatory complexities, and geopolitical risks, particularly in Israel and India - Approximately **37% of revenues in 2024** were derived from outside Israel, exposing the company to risks from foreign currency fluctuations, varying regulatory requirements, and geopolitical instability[135](index=135&type=chunk) - Fluctuations in exchange rates between the USD, NIS, GBP, and Euro can significantly impact reported revenues and profitability, with NIS depreciation negatively affecting 2023 revenues[133](index=133&type=chunk) - The ongoing war between Israel and terrorist groups poses a **material risk to operations**, potentially affecting workforce availability, supply chains, and business continuity[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - The company's significant presence in India (**48% of Sapiens' employees**) exposes it to challenges such as volatile economic conditions, poor IP protection, and compliance with anti-corruption laws[169](index=169&type=chunk)[170](index=170&type=chunk) [Risks Related to an Investment in Our Traded Securities and to Our Consolidated Holdings](index=37&type=section&id=Risks%20Related%20to%20an%20Investment%20in%20Our%20Traded%20Securities%20and%20to%20Our%20Consolidated%20Holdings) Investing in the company's securities involves risks such as limited trading volume, influence from the largest shareholder, and potential adverse tax consequences - There is **limited trading volume** for the company's ADSs on Nasdaq and ordinary shares on the TASE, which can reduce liquidity and increase price volatility for investors[140](index=140&type=chunk) - Asseco Poland S.A., the largest shareholder with approximately **25.82% ownership** as of May 1, 2025, can significantly influence shareholder votes and major corporate transactions[146](index=146&type=chunk) - A **material weakness in internal control over financial reporting** was identified at the subsidiary Magic Software as of December 31, 2024, related to revenue cycle documentation[148](index=148&type=chunk) - As a foreign private issuer, the company follows certain Israeli corporate governance practices instead of Nasdaq requirements, potentially resulting in **less information and protection for shareholders**[176](index=176&type=chunk)[177](index=177&type=chunk) [Information on the Company](index=48&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Formula Systems is a global IT company operating through its investees, detailing its history, M&A strategy, and subsidiary operations [A. History and Development of the Company](index=48&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) This section details the company's M&A-driven growth strategy and recent acquisition activities by Formula and its subsidiaries since 2022 - Formula's growth strategy is centered on **M&A** to expand its customer base, geographic footprint, and service offerings[191](index=191&type=chunk) Recent M&A Activity (2024-2025) | Acquiring Entity | Target Company | Date | Deal Value / Details | | :--- | :--- | :--- | :--- | | Sapiens | AdvantageGo | April 2025 (Announced) | GBP 43.0 million (approx. $55.9 million) enterprise value | | Sapiens | Candela Labs | April 2025 (Announced) | $22.0 million cash | | Matrix | Gav Systems Ltd. & Gav Expert Ltd. | Feb 2025 | Acquired 70% for approx. $12.5 million | | Matrix | Alacer Group | Nov 2024 | Acquired 51% for approx. $1.95 million cash + contingent consideration | | Matrix | Moshe Ort Holdings Ltd. (Ortec) | Dec 2024 | Approx. $5.4 million cash + contingent consideration | | Magic Software | Theoris Group Inc. | April 2024 | $13.1 million (including deferred payments) | | Magic Software | Executive Life Ltd. | Oct 2024 | $1.5 million (including deferred payment) | | Michpal | Formally Smart Form System Ltd. | March 2025 | Acquired remaining shares for approx. $7.7 million | | Michpal | Meida Computers Software Solutions | July 2024 | Acquired 60% for approx. $12.49 million + contingent consideration | | Michpal | Y-IT Ltd. | Oct 2024 | Acquired 60% for approx. $22.2 million + contingent consideration | | Michpal | Paperless Ltd. | Dec 2024 | Acquired 70% for approx. $2.3 million + contingent consideration | | Formula | Hashahar Telecom and Electricity Ltd. | Oct 2024 | Acquired 51% for $1.3 million | - A non-binding Memorandum of Understanding (MOU) was signed in March 2025 for a **potential merger** between subsidiaries Matrix and Magic Software[196](index=196&type=chunk) [B. Business Overview](index=56&type=section&id=B.%20Business%20Overview) Formula Systems is a global IT company providing software consulting, proprietary software solutions, and IT services through its group of investees - The company operates through a group of subsidiaries and affiliates, with the largest being Matrix, Sapiens, and Magic Software, where Formula directs overall strategy[233](index=233&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) - The business is divided into two main activities: **IT Services** (custom software development, implementation, outsourcing) and **Proprietary Software Solutions** (design, development, and marketing of niche software)[233](index=233&type=chunk)[235](index=235&type=chunk) Geographical Revenue Distribution (2023-2024) | Region | 2024 Revenue (in thousands) | 2023 Revenue (in thousands) | | :--- | :--- | :--- | | Israel | $1,745,132 | $1,600,763 | | United States | $612,196 | $644,918 | | Europe | $336,285 | $315,081 | | Africa | $26,935 | $26,035 | | Japan | $13,678 | $11,881 | | Other (mainly Asia pacific) | $23,285 | $22,225 | | **Total** | **$2,757,511** | **$2,620,903** | - The global economic environment in 2024 was marked by moderate growth, reduced inflation, and stabilized interest rates, with the Israeli economy growing by **1%** despite the ongoing war[238](index=238&type=chunk)[241](index=241&type=chunk) [C. Organizational Structure](index=124&type=section&id=C.%20Organizational%20Structure) Formula Systems operates as the parent company of the Formula Group, holding controlling or significant interests in several publicly traded and private companies Ownership of Directly Held Investments (as of April 30, 2025) | Subsidiary/Affiliate | Country of Incorporation | Percentage of Ownership | | :--- | :--- | :--- | | Matrix IT Ltd. | Israel | 48.14% | | Sapiens International Corporation N.V. | Cayman Islands | 43.50% | | Magic Software Enterprises Ltd. | Israel | 46.71% | | Michpal Micro Computers (1983) Ltd. | Israel | 100.0% | | TSG IT Advanced Systems Ltd. | Israel | 42.34% | | InSync Staffing Solutions, Inc. | Delaware | 90.09% | | Ofek Aerial Photography Ltd | Israel | 80% | | Zap Group Ltd. | Israel | 100% | | Shamrad Electronic (1997) Ltd | Israel | 100% | | Hashahar Telecom and Electricity Ltd | Israel | 51.0% | | Other associated company | Israel | 21.45% | [D. Property, Plants and Equipment](index=126&type=section&id=D.%20Property%2C%20Plants%20and%20Equipment) The company and its subsidiaries lease office spaces globally, with headquarters in Israel and significant operations in India, the US, and Europe 2024 Annual Rent Costs for Major Subsidiaries | Subsidiary | 2024 Rent Cost (USD) | | :--- | :--- | | Matrix | ~$20.1 million | | Sapiens | ~$8.4 million | | Magic Software (incl. Formula) | ~$4.2 million ($0.7 million + $3.5 million) | | Michpal | ~$1.4 million | | Zap Group | ~$1.0 million | - In 2024, Matrix relocated its headquarters to a new, large campus in Kfar Saba, Israel, under a lease expiring in 2032[582](index=582&type=chunk) [Operating and Financial Review and Prospects](index=127&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, liquidity, capital resources, market trends, and critical accounting policies [A. Operating Results](index=129&type=section&id=A.%20Operating%20Results) For 2024, total revenues increased by **5.2%** to **$2.76 billion**, driven by growth in both software services and proprietary software segments, leading to higher operating and net income Consolidated Statement of Profit or Loss (2023 vs. 2024) | (U.S. dollars, in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | **Revenues** | **$2,757,511** | **$2,620,903** | | Gross profit | $684,683 | $643,711 | | Operating income | $270,521 | $239,368 | | Net income | $193,790 | $165,732 | | *Attributable to Equity holders* | *$79,670* | *$64,014* | | *Attributable to Non-controlling interests* | *$114,120* | *$101,718* | Revenue by Category (2023 vs. 2024) | Revenue Category | 2024 Revenue ($ in thousands) | 2023 Revenue ($ in thousands) | % Change | | :--- | :--- | :--- | :--- | | Proprietary software products and related services | 724,900 | 693,426 | +4.5% | | Software services and other | 2,032,611 | 1,927,477 | +5.5% | - The increase in software services revenue was primarily driven by Matrix, whose revenues in this stream grew by **6.4%** (in NIS) due to expansion in its Israeli IT solutions and services segment[610](index=610&type=chunk)[611](index=611&type=chunk) - The increase in proprietary software revenue was led by Sapiens, whose revenues grew by **5.4%** to **$542.4 million**, and Michpal, whose revenues grew by **19.8%** to **$34.2 million**[616](index=616&type=chunk)[617](index=617&type=chunk)[618](index=618&type=chunk) [B. Liquidity and Capital Resources](index=147&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company finances operations through cash from operations, debt, and equity, with cash and short-term investments totaling **$563.2 million** and total debt at **$479.4 million** as of December 31, 2024 Liquidity Position (as of Dec 31) | (U.S. dollars, in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents & short-term investments | $563.2 | $528.2 | | Total Indebtedness (banks and debentures) | $479.4 | $541.3 | Cash Flow Summary (2023 vs. 2024) | (U.S. dollars, in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $324.5 | $295.0 | | Net cash used in investing activities | ($78.2) | ($139.2) | | Net cash used by financing activities | ($185.0) | ($243.2) | - In September 2024, Formula issued **NIS 150.0 million** (approx. **$39.8 million**) of Series D Secured Debentures to finance its operations[693](index=693&type=chunk) - Significant cash outflows for financing in 2024 included **$85.1 million** in dividends (**$66.3 million** to non-controlling interests, **$18.8 million** to Formula shareholders) and net repayment of debt[718](index=718&type=chunk) [D. Trend Information](index=158&type=section&id=D.%20Trend%20Information) The company's performance is influenced by global IT spending recovery, the Israeli high-tech sector slowdown, and increased demand for defense and cybersecurity solutions - Global IT spending is recovering, with Gartner forecasting **7.7% growth in 2024** and **9.8% in 2025**, driven by software, data centers, and cloud services[735](index=735&type=chunk)[737](index=737&type=chunk) - The Israeli high-tech sector faced a slowdown in 2024 due to geopolitical issues, leading to a decline in investments and demand for tech personnel[742](index=742&type=chunk)[743](index=743&type=chunk) - Heightened geopolitical tensions and the "Iron Swords" War are driving **strong demand for defense and cybersecurity solutions**, benefiting the company's subsidiaries[752](index=752&type=chunk)[758](index=758&type=chunk)[760](index=760&type=chunk) - Key trends in the insurance technology market include a focus on application modernization, integration technologies, Generative AI, and a shift to cloud-based SaaS models, aligning with Sapiens' offerings[766](index=766&type=chunk)[773](index=773&type=chunk)[774](index=774&type=chunk) [E. Critical Accounting Policies and Estimates](index=166&type=section&id=E.%20Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements, prepared under IFRS, require significant judgments and estimates, particularly for 'effective control' over subsidiaries, long-term contract revenue recognition, and goodwill impairment - A key judgment is the determination of **'effective control'** over subsidiaries like Matrix, Sapiens, and Magic Software, where the company holds less than **50%** of voting rights, based on factors like holding size and board influence[793](index=793&type=chunk)[1241](index=1241&type=chunk) - Revenue from long-term, fixed-price contracts is recognized over time using a cost-based input method (percentage of completion), which requires **significant management estimates of total costs** to complete the project[794](index=794&type=chunk)[1272](index=1272&type=chunk) - Goodwill and intangible assets are tested for impairment annually, with recoverable amounts determined using discounted cash flow projections sensitive to assumptions about discount rates and future growth[863](index=863&type=chunk)[1304](index=1304&type=chunk) - Put options granted to non-controlling interests are classified as a financial liability and remeasured at fair value, with changes affecting equity or profit and loss depending on the option's nature[874](index=874&type=chunk)[1311](index=1311&type=chunk) [Directors, Senior Management, and Employees](index=186&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, compensation, board practices, and employee information, including key management remuneration and workforce 2024 Compensation of Key Management | Name and Position | Salary ($, in thousands) | Benefits & Perquisites ($, in thousands) | Variable Compensation ($, in thousands) | Equity Based Compensation ($, in thousands) | | :--- | :--- | :--- | :--- | :--- | | Guy Bernstein – CEO | 578 | - | 3,641 | 6,438 | | Asaf Berenstin – CFO | - | - | - | 249 | | Tammy Ohana Koll – CTO | 315 | 75 | 108 | - | | Maya Solomon-Ella – COO | 175 | 39 | 68 | 343 | - Total remuneration for directors and executive officers in 2024 was approximately **$12.4 million**, including **$7.0 million** in share-based compensation expenses[922](index=922&type=chunk) Average Number of Employees by Subsidiary (2024) | Subsidiary | 2024 Average Employees | | :--- | :--- | | Matrix | 11,570 | | Sapiens | 4,850 | | Magic Software | 3,787 | | Insync | 949 | | TSG Systems | 784 | | Michpal | 321 | | Zap Group | 277 | | Ofek | 120 | | **Total (incl. others)** | **22,720** | [Major Shareholders and Related Party Transactions](index=206&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's major shareholders and outlines significant related party transactions, including the potential Matrix-Magic Software merger Major Shareholders (as of March 31, 2025) | Name | Percentage of Ownership | | :--- | :--- | | Asseco Poland S.A. | 25.82% | | Guy Bernstein | 11.73% | | Harel Insurance Investments & Financial Services Ltd. | 7.72% | | Menora Mivtachim Holdings Ltd. | 7.10% | | Phoenix Holdings Ltd. | 6.97% | | Yelin Lapidot Holdings Management Ltd. | 6.71% | | Clal Insurance Enterprises Holdings Ltd. | 5.38% | - A non-binding Memorandum of Understanding (MOU) was signed on March 11, 2025, for a **potential merger** between subsidiaries Matrix and Magic Software, where Magic Software would become a private, wholly-owned subsidiary of Matrix[1025](index=1025&type=chunk) - The company maintains a Directors & Officers (D&O) liability insurance policy with a total coverage of **$70 million** for February 2025 to February 2026, with an annual premium of **$1.2 million** for the group[1018](index=1018&type=chunk) [Financial Information](index=211&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section covers other financial information, including ongoing legal proceedings and the company's dividend policy - A derivative action challenging the CEO's RSU grant was dismissed in December 2023, but the plaintiff filed an appeal in January 2024, with a hearing scheduled for March 2026[1035](index=1035&type=chunk)[1036](index=1036&type=chunk) - Subsidiary Zap Group is involved in a class action lawsuit regarding its price comparison website and another claim alleging monopolistic practices, both covered by indemnification from former shareholders[1039](index=1039&type=chunk)[1040](index=1040&type=chunk) - Formula and its publicly traded subsidiaries (Matrix, Sapiens, Magic Software) have active dividend policies and all declared and paid dividends during 2024 and early 2025[1043](index=1043&type=chunk)[1048](index=1048&type=chunk)[1052](index=1052&type=chunk)[1059](index=1059&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=227&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to market risks primarily from foreign currency exchange rate fluctuations, interest rate changes, and subsidiary security price volatility - The company is significantly exposed to foreign currency exchange risk; a hypothetical **10%** devaluation or appreciation of foreign currencies against the US dollar would have impacted 2024 sales revenues by approximately **$197 million** or **$232 million**, respectively[1120](index=1120&type=chunk) - The company is exposed to interest rate risk on its variable-rate loans; a **1%** increase in interest rates would have increased the combined financial expenses of Matrix, Magic Software, Zap Group, and Michpal by approximately **$1.6 million** in 2024[1124](index=1124&type=chunk) - The company holds securities of its publicly traded subsidiaries (Magic Software, Sapiens, Matrix, TSG Systems) and is exposed to fluctuations in their market prices, but typically does not hedge this exposure[1125](index=1125&type=chunk) [Part II](index=230&type=section&id=PART%20II) This section details the company's internal controls, disclosure procedures, and other governance information, including audit committee expertise and cybersecurity [Controls and Procedures](index=230&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2024[1136](index=1136&type=chunk) - Based on an evaluation against the COSO 2013 framework, management concluded that the company's **internal control over financial reporting was effective** as of December 31, 2024[1137](index=1137&type=chunk)[1138](index=1138&type=chunk) [Other Information](index=231&type=section&id=ITEM%2016.%20OTHER%20INFORMATION) This section covers governance and compliance, including audit committee expertise, auditor fees, and cybersecurity risk management - The company's board of directors has determined that Mr. Tomer Jacob qualifies as the "**audit committee financial expert**"[1142](index=1142&type=chunk) Principal Accountant Fees (in thousands USD) | Auditor | Year | Audit Fees | Tax and Other Fees | Total | | :--- | :--- | :--- | :--- | :--- | | EY Israel | 2023 | $2,556 | $494 | $3,050 | | EY Israel | 2024 | $835 | $517 | $1,352 | | BDO Israel | 2024 | $1,736 | $182 | $1,918 | - The company follows Israeli home country practice in lieu of certain Nasdaq corporate governance rules, including those related to majority board independence, director nominations, and shareholder approval for certain dilutive events[1159](index=1159&type=chunk)[1163](index=1163&type=chunk) - The company has a cybersecurity risk management program overseen by the board of directors and managed by the CFO, designed to identify and manage material risks from cybersecurity threats[1164](index=1164&type=chunk)[1167](index=1167&type=chunk)[1168](index=1168&type=chunk) [Part III](index=237&type=section&id=PART%20III) This section presents the company's audited consolidated financial statements for 2024, prepared under IFRS, including key financial statements and notes [Financial Statements](index=237&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the company's audited consolidated financial statements for 2024, prepared under IFRS, including auditor reports and detailed financial statements Consolidated Statement of Financial Position (Assets) | (U.S. dollars, in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | **Total current assets** | **$1,487,045** | **$1,375,856** | | Cash and cash equivalents | $507,799 | $451,946 | | Trade receivables, net | $803,235 | $721,008 | | **Total non-current assets** | **$1,527,851** | **$1,436,745** | | Goodwill | $975,080 | $936,581 | | Intangible assets, net | $217,076 | $206,928 | | **Total assets** | **$3,014,896** | **$2,812,601** | Consolidated Statement of Financial Position (Liabilities and Equity) | (U.S. dollars, in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | **Total current liabilities** | **$1,138,476** | **$985,663** | | **Total long-term liabilities** | **$487,075** | **$518,753** | | **Total liabilities** | **$1,625,551** | **$1,504,416** | | **Total equity** | **$1,389,345** | **$1,308,185** | | *Equity attributable to Formula shareholders* | *$679,338* | *$625,762* | | *Non-controlling interests* | *$710,007* | *$682,423* | | **Total liabilities and equity** | **$3,014,896** | **$2,812,601** |

[Introduction and Forward-Looking Statements](index=4&type=section&id=INTRODUCTION) [Company Overview](index=4&type=section&id=INTRODUCTION) Magic Software Enterprises Ltd. provides global software services, IT outsourcing, and low-code application platforms to clients in 50 countries - The company operates in four main areas: (i) software and IT outsourcing services, (ii) application development and business process integration platforms, (iii) vertical software solutions, and (iv) cloud-based digital transformation services[15](index=15&type=chunk) - Key proprietary platforms include Magic xpa (low-code application platform), AppBuilder (mainframe-grade application platform), and Magic xpi (application integration platform)[20](index=20&type=chunk) - The company offers specialized vertical solutions such as Clicks™ for healthcare, Hermes for air cargo, HR Pulse for human capital management, and FactoryEye for smart manufacturing[18](index=18&type=chunk)[23](index=23&type=chunk) - As of the report date, the company has approximately **3,787** employees and serves customers in about **50** countries through a network of partners and direct operations[19](index=19&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=7&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This report contains forward-looking statements subject to risks from M&A integration, sales cycles, competition, cybersecurity, Israeli operations, and the Matrix IT merger - The forward-looking statements are based on current beliefs and expectations and are subject to risks that could cause material differences in actual results[30](index=30&type=chunk) - Key risks highlighted include M&A integration, lengthy development and sales cycles, competition, managing operational changes, cybersecurity breaches, risks related to operating in Israel, and the proposed merger with Matrix IT[33](index=33&type=chunk) [Key Information](index=10&type=section&id=ITEM%203.%20KEY%20INFORMATION) [Risk Factors](index=10&type=section&id=D.%20Risk%20Factors) The company faces significant business, investment, and operational risks, including M&A integration, market competition, cybersecurity, and geopolitical instability in Israel [Risks Related to Business and Industry](index=14&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Our%20Industry) The company faces business and industry risks from M&A integration, product dependency, lengthy sales cycles, macroeconomic factors, intense competition, and cybersecurity threats - The M&A growth strategy carries significant integration risks, including combining different cultures, IT systems, and retaining key employees and customers. The company completed several acquisitions in 2023 and 2024, including Theoris Group Inc[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) - A significant portion of revenue comes from a limited number of core product families (e.g., Magic xpa, Magic xpi, Clicks, Hermes), making the company vulnerable to decreased demand for these products[57](index=57&type=chunk)[58](index=58&type=chunk) - The company's two largest clients accounted for **13.2%** of revenues in 2024, down from **16.8%** in 2023. This decrease was partly due to a major client suspending significant services in late 2023[84](index=84&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk) - A material weakness in internal control over financial reporting was identified as of December 31, 2024. Documentation supporting certain revenue cycle controls for U.S. entities was not comprehensively retained, limiting management's ability to evidence control performance[147](index=147&type=chunk)[148](index=148&type=chunk) - The company faces intense competition from multinational IT providers, offshore firms, consulting firms, and specialized service providers. Some competitors have greater financial and marketing resources[88](index=88&type=chunk)[89](index=89&type=chunk) [Risks Related to an Investment in Our Ordinary Shares](index=38&type=section&id=Risks%20Related%20to%20an%20Investment%20in%20Our%20Ordinary%20Shares) Investment risks include share price volatility from dual listing, controlling shareholder influence, and potential adverse U.S. tax consequences (PFIC/CFC) - The company's Ordinary Shares are traded on both the NASDAQ Global Select Market (in USD) and the Tel Aviv Stock Exchange (in NIS), which may result in price variations[152](index=152&type=chunk) - As of April 1, 2025, Formula Systems (1985) Ltd. beneficially owns approximately **46.71%** of outstanding Ordinary Shares, giving it controlling influence over matters requiring shareholder approval[156](index=156&type=chunk) - U.S. shareholders may suffer adverse tax consequences if the company is classified as a Passive Foreign Investment Company (PFIC) or a Controlled Foreign Corporation (CFC). The company believes it was not a PFIC for the 2024 taxable year but cannot provide assurance for future years[159](index=159&type=chunk)[160](index=160&type=chunk) [Risks Related to Our Location in Israel](index=42&type=section&id=Risks%20Related%20to%20Our%20Location%20in%20Israel) Operations in Israel expose the company to political, economic, and military instability, including the ongoing conflict and potential employee call-ups - The company is exposed to political, economic, and military instability in Israel, where its headquarters and significant R&D facilities are located[167](index=167&type=chunk)[168](index=168&type=chunk) - The war with Hamas that began on October 7, 2023, and hostilities with Hezbollah have led to the call-up of over **350,000** IDF reservists, including approximately **250** of the company's Israeli employees, which could disrupt operations[169](index=169&type=chunk)[170](index=170&type=chunk)[178](index=178&type=chunk) - Provisions of Israeli law, such as those regulating mergers and tender offers, may delay, prevent, or complicate an acquisition of the company, potentially depressing the share price[181](index=181&type=chunk) [Risks Related to our Proposed Merger with Matrix IT](index=44&type=section&id=Risks%20Related%20to%20our%20Proposed%20Merger%20with%20Matrix%20IT) The proposed merger with Matrix IT carries risks of unrealized benefits, integration challenges, and failure to obtain regulatory or shareholder approvals - On March 11, 2025, the company entered into a non-binding MOU for a reverse triangular merger with Matrix I.T Ltd., which is also controlled by Formula Systems[183](index=183&type=chunk) - Key risks include the failure to realize anticipated benefits, the possibility of not reaching a definitive agreement, and disruptions from the complex integration process[184](index=184&type=chunk)[186](index=186&type=chunk) - The merger is contingent on regulatory approvals and approval by a special majority of minority shareholders of both companies, which may delay or prevent the merger[187](index=187&type=chunk)[189](index=189&type=chunk) [Information on the Company](index=46&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) [History and Development](index=46&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Founded in 1983, the company has grown through acquisitions, with capital expenditures of $1.5 million in 2024 primarily for IT and office improvements - The company was organized in Israel on February 10, 1983, and its shares are listed on the NASDAQ Global Select Market (MGIC) and the Tel Aviv Stock Exchange[190](index=190&type=chunk) - Recent acquisitions include Theoris Group Inc. in April 2024 for **$13.1 million**, K.M.T. in June 2023 for up to **$16.2 million**, and The Goodkind Group in August 2022 for **$11.6 million**[191](index=191&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) Capital Expenditures | Year | Capital Expenditures (in millions) | | :--- | :--- | | 2022 | $4.4 | | 2023 | $1.6 | | 2024 | $1.5 | [Business Overview](index=47&type=section&id=B.%20Business%20Overview) Magic Software offers low-code platforms, vertical software, and IT professional services, focusing on customer expansion, technology trends, and strategic acquisitions - The company's software technology platforms, such as Magic xpa and Magic xpi, are low-code and designed to help organizations build and integrate business applications quickly[202](index=202&type=chunk)[204](index=204&type=chunk) - Key vertical software packages include Clicks™ for healthcare, Hermes Cargo for air cargo management, and HR Pulse for human capital management[209](index=209&type=chunk) - The company has strong partnerships with major cloud providers, achieving AWS Generative AI Competency in December 2024 and being named Google Cloud EMEA Partner of the Year for Israel in 2025[215](index=215&type=chunk)[216](index=216&type=chunk) - The company's growth strategy includes expanding sales to existing customers, capitalizing on new technology trends, attracting new customers with new offerings, and acquiring complementary businesses[280](index=280&type=chunk) - The company competes in the low-code and integration platform markets against players like Microsoft, Salesforce, OutSystems, IBM, and MuleSoft, based on factors like platform features, ease of use, and total cost of ownership[307](index=307&type=chunk)[308](index=308&type=chunk) [Organizational Structure](index=73&type=section&id=C.%20Organizational%20Structure) Magic Software Enterprises Ltd. operates globally through a network of wholly-owned and majority-owned subsidiaries across the US, Israel, Europe, and Asia - The company operates through a complex structure of subsidiaries across the US, Israel, Europe, and Asia[320](index=320&type=chunk)[321](index=321&type=chunk) - Notable subsidiaries include Coretech Consulting Group LLC (**100%**, Delaware), CommIT Technology Solutions Ltd (**76.07%**, Israel), and Hermes Logistics Technologies Limited (**100%**, UK)[320](index=320&type=chunk)[321](index=321&type=chunk) [Property, Plants and Equipment](index=74&type=section&id=D.%20Property,%20Plants%20and%20Equipment) The company's headquarters and subsidiary offices are leased globally, with total annual rent of $3.5 million in 2024 - The main headquarters is a leased facility in Or Yehuda, Israel, with the lease expiring in June 2033[322](index=322&type=chunk) - Aggregate annual rent for all leased facilities, including subsidiary offices in the US, Europe, and Asia, was **$3.5 million** in 2024[323](index=323&type=chunk) [Operating and Financial Review and Prospects](index=75&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) [Operating Results](index=75&type=section&id=A.%20Operating%20Results) In 2024, revenues grew 3.3% to $552.5 million, driven by IT services in Israel and Europe, despite a North American client project suspension Consolidated Statement of Operations Data (% of Total Revenues) | | 2023 | 2024 | | :--- | :--- | :--- | | Total revenues | 100.0% | 100.0% | | Gross profit | 28.6% | 28.6% | | Operating income | 10.7% | 11.1% | | Net income attributable to Magic's shareholders | 6.9% | 6.7% | Revenues by Segment (in millions) | Segment | 2023 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Software Services | $92.9 | $94.9 | +2.1% | | IT Professional Services | $442.2 | $457.6 | +3.5% | | **Total Revenues** | **$535.1** | **$552.5** | **+3.3%** | Revenues by Geography (in millions) | Geography | 2023 | 2024 | % Change | | :--- | :--- | :--- | :--- | | United States | $250.8 | $229.1 | -8.6% | | Israel | $214.1 | $244.5 | +14.2% | | Europe | $55.2 | $62.4 | +13.0% | | Japan | $10.8 | $12.7 | +17.6% | | Other | $4.1 | $3.8 | -7.3% | | **Total** | **$535.1** | **$552.5** | **+3.3%** | - The revenue increase in 2024 was driven by strong demand for professional services in Israel and Europe, offsetting a decline in North America after a major client suspended projects in Q3 2023[361](index=361&type=chunk) - Net financial expenses increased from **$4.6 million** in 2023 to **$6.2 million** in 2024, primarily due to a **$2.5 million** decrease in interest income from deposits[370](index=370&type=chunk)[371](index=371&type=chunk) [Liquidity and Capital Resources](index=84&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) As of December 31, 2024, the company had $114.6 million in liquidity, $59.3 million in debt, and generated $74.8 million in operating cash flow Key Liquidity Figures (as of Dec 31, 2024) | Metric | Amount (in millions) | | :--- | :--- | | Cash, cash equivalents, and marketable securities | $114.6 | | Net working capital | $105.9 | | Long-term debt | $36.1 | | Total debt (short & long-term) | $59.3 | Cash Flow Summary (Year ended Dec 31) | Cash Flow Activity | 2023 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $69.0 | $74.8 | | Net cash used in investing activities | ($27.6) | ($22.6) | | Net cash used in financing activities | ($17.3) | ($45.1) | - The company has several loans with financial covenants, including maintaining equity above **$150 million** and specific debt-to-EBITDA ratios. As of December 31, 2024, the company was in compliance with all covenants[380](index=380&type=chunk)[381](index=381&type=chunk)[881](index=881&type=chunk) - The company maintains a dividend policy to distribute up to **75%** of its annual net income. In 2024, it paid **$10 million** in dividends and declared an additional **$11.6 million** to be paid in January 2025[393](index=393&type=chunk)[916](index=916&type=chunk) [Research and Development](index=86&type=section&id=C.%20Research%20and%20Development) R&D investment increased to $16.8 million in 2024, with 224 employees primarily in Israel and India, focusing on product enhancement and new applications R&D Investment | Year | R&D Investment (in millions) | | :--- | :--- | | 2022 | $13.2 | | 2023 | $13.5 | | 2024 | $16.8 | - As of December 31, 2024, the R&D team consisted of **224** employees, with **98** in Israel, **99** in India, **21** in Russia, and **5** in Japan[395](index=395&type=chunk) [Critical Accounting Policies and Estimations](index=87&type=section&id=E.%20Critical%20Accounting%20Policies%20and%20Estimations.) Financial statements under IFRS require estimates for long-term contracts, revenue recognition, business combinations, capitalized software, and put options - A critical accounting estimate involves the percentage of completion for long-term fixed-price contracts, which is based on the ratio of actual costs incurred to total estimated costs[400](index=400&type=chunk)[759](index=759&type=chunk) - Revenue from software licenses without significant implementation is recognized at the point of delivery. Revenue from long-term contracts with significant customization is recognized over time using the percentage of completion method[405](index=405&type=chunk)[408](index=408&type=chunk)[771](index=771&type=chunk) - Business combinations are accounted for using the acquisition method. Goodwill is tested for impairment annually on December 31, and no impairment was identified for 2022, 2023, or 2024[428](index=428&type=chunk)[433](index=433&type=chunk)[435](index=435&type=chunk) - Software development costs are capitalized upon establishing technological feasibility and are amortized on a straight-line basis over an estimated useful life of **3-5** years once the product is available for sale[418](index=418&type=chunk)[420](index=420&type=chunk)[421](index=421&type=chunk) - Put options granted to non-controlling interests are classified as a financial liability, measured at the present value of the exercise price, with changes recognized in equity[426](index=426&type=chunk)[813](index=813&type=chunk) [Directors, Senior Management and Employees](index=96&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) [Directors and Senior Management](index=96&type=section&id=A.%20Directors%20and%20Senior%20Management) Leadership includes CEO Guy Bernstein and CFO Asaf Berenstin, with a board featuring external directors overseeing audit and compensation committees - Guy Bernstein serves as the Chief Executive Officer and a Director. He is also the CEO of the parent company, Formula Systems[459](index=459&type=chunk) - Asaf Berenstin is the Chief Financial Officer and also serves as CFO of Formula Systems[466](index=466&type=chunk) - The board includes two external directors, Sagi Schliesser and Ron Ettlinger, as required by Israeli law[456](index=456&type=chunk)[457](index=457&type=chunk) [Compensation](index=100&type=section&id=B.%20Compensation) Total compensation for directors and executive officers was approximately $7.4 million in 2024, with specific details for the five most highly compensated officers Aggregate Compensation for Directors and Executive Officers (2024) | Category | Amount | | :--- | :--- | | Salaries, fees, commissions, stock-based compensation and bonuses | $7,132,876 | | Pension, retirement and similar benefits | $239,309 | | **Total** | **$7,372,185** | Compensation of 5 Most Highly Compensated Officers (2024) | Name and Position | Salary | Bonus | Equity Based Compensation | All Other Compensation | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Yakov Tsaroya, CEO of Coretech | $400,000 | $1,100,376 | $ - | $9,000 | $1,509,376 | | Arik Faingold, President, Integration Solutions | $425,741 | $236,939 | $438,059 | $ - | $1,100,739 | | Idan Faingold, CEO of CommIT | $294,150 | $236,939 | $438,059 | $101,624 | $1,070,739 | | Eli Schwartz, CEO of Comblack I.T. | $421,656 | $247,299 | $ - | $ - | $668,955 | | Arik Kilman, Chairman, Software Group | $ - | $602,772 | $ - | $ - | $602,772 | - Outside and independent directors received an annual fee of **$20,883** and a per-meeting attendance fee of **$777** in 2024[487](index=487&type=chunk) [Board Practices](index=102&type=section&id=C.%20Board%20Practices) The board of five directors, including external members, adheres to Israeli law and NASDAQ rules for committees and related party transaction approvals - The board of directors is currently composed of **five** members. Israeli law requires at least two external directors[489](index=489&type=chunk)[493](index=493&type=chunk) - The Audit Committee and Compensation Committee are composed of independent and external directors, in compliance with both SEC/NASDAQ and Israeli regulations[504](index=504&type=chunk)[505](index=505&type=chunk)[507](index=507&type=chunk) - Transactions with controlling shareholders or in which an office holder has a personal interest are subject to stringent approval processes under the Israeli Companies Law, requiring committee, board, and sometimes special shareholder majority approval[513](index=513&type=chunk)[514](index=514&type=chunk) - The company has provisions for exculpation, indemnification, and insurance for its directors and officers to the fullest extent permitted by Israeli law, with coverage up to **$60 million**[521](index=521&type=chunk)[530](index=530&type=chunk) [Employees](index=112&type=section&id=D.%20Employees) As of December 31, 2024, the company had 3,787 employees, primarily in North America and Israel, with most in technical support and consulting roles Employees by Geographic Location | Region | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Israel | 1,415 | 1,554 | 1,654 | | North America | 1,965 | 1,321 | 1,387 | | Europe | 557 | 516 | 514 | | Asia | 216 | 226 | 223 | | South Africa | 8 | 11 | 10 | | **Total** | **4,161** | **3,628** | **3,787** | Employees by Activity | Activity | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Technical support and consulting | 3,513 | 3,001 | 3,166 | | Research and development | 257 | 256 | 224 | | Marketing and sales | 231 | 202 | 217 | | Operations and administrations | 160 | 169 | 181 | | **Total** | **4,161** | **3,628** | **3,787** | [Share Ownership](index=113&type=section&id=E.%20Share%20Ownership) CEO Guy Bernstein holds 150,000 shares, and the 2007 Incentive Compensation Plan has 952,500 shares available for future grants to employees and directors - As of May 1, 2025, CEO Guy Bernstein beneficially owned **150,000** Ordinary Shares[535](index=535&type=chunk) - The 2007 Incentive Compensation Plan allows for the grant of options, restricted shares, and other awards. The plan was extended until August 2027, and as of Dec 31, 2024, **952,500** shares were available for future grants[536](index=536&type=chunk)[539](index=539&type=chunk)[540](index=540&type=chunk) [Major Shareholders and Related Party Transactions](index=115&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) [Major Shareholders](index=115&type=section&id=A.%20Major%20Shareholders) Formula Systems (1985) Ltd. is the controlling shareholder with 46.71% ownership, alongside other major institutional shareholders Major Shareholders (as of Dec 31, 2024) | Shareholder | Percentage of Ownership | | :--- | :--- | | Formula Systems (1985) Ltd. | 46.71% | | Harel Insurance | 11.52% | | Clal Insurance Enterprises Holdings Ltd. | 6.97% | - Formula Systems is the controlling shareholder with **46.71%** ownership as of April 1, 2025. Formula Systems is, in turn, controlled by Asseco Poland S.A[548](index=548&type=chunk) [Related Party Transactions](index=116&type=section&id=B.%20Related%20Party%20Transactions) In 2024, the company conducted $3.6 million in sales and $5.4 million in purchases with affiliates of its controlling shareholder - In 2024, the company sold **$3.6 million** of services to and purchased **$5.4 million** of goods/services from affiliated companies of its controlling shareholder, Formula Systems[515](index=515&type=chunk) [Financial Information](index=117&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) [Consolidated Statements and Other Financial Information](index=117&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) The company faces ordinary course legal proceedings and maintains a dividend policy to distribute up to 75% of annual net income - The company is subject to ordinary course legal proceedings which are not expected to materially affect its financial position[556](index=556&type=chunk) - The company has a dividend policy to distribute up to **75%** of its annual net income, subject to Board discretion and legal requirements[557](index=557&type=chunk) [Significant Changes](index=117&type=section&id=B.%20Significant%20Changes) Post-year-end, the company announced a non-binding merger MOU with Matrix IT and increased its ownership in subsidiary CommIT for NIS 50.4 million - On March 11, 2025, the company entered into a non-binding MOU for a reverse triangular merger with Matrix I.T Ltd. Post-merger, Magic shareholders would hold **31.125%** of the combined company, and Magic would become a private, wholly-owned subsidiary of Matrix[559](index=559&type=chunk)[562](index=562&type=chunk) - The merger is subject to several conditions, including due diligence, obtaining fairness opinions, definitive agreement execution, and regulatory and shareholder approvals (including a special majority of minority shareholders)[563](index=563&type=chunk)[564](index=564&type=chunk) - In April 2025, the company acquired additional shares in its subsidiary CommIT, increasing its ownership from **68.15%** to approximately **79.32%** for a consideration of approximately **NIS 50.4 million**[565](index=565&type=chunk) [Additional Information](index=119&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) [Taxation](index=120&type=section&id=E.%20Taxation) The company is subject to Israeli corporate tax, benefiting from reduced rates, and monitors OECD Pillar Two rules, with U.S. Holders facing PFIC/CFC risks - The general corporate tax rate in Israel is **23%**. However, the company benefits from reduced rates under the Law for the Encouragement of Capital Investments, with parts of its income taxed at preferred rates as low as **6%** under the Special Preferred Technology Enterprise (SPTE) regime[585](index=585&type=chunk)[600](index=600&type=chunk)[602](index=602&type=chunk) - For non-Israeli resident shareholders, gains from selling shares are generally exempt from Israeli capital gains tax, provided the shares are publicly traded and the gains are not from a permanent establishment in Israel. Dividends are subject to withholding tax, typically **20-30%**, but may be reduced by applicable tax treaties[610](index=610&type=chunk)[615](index=615&type=chunk) - For U.S. Holders, there is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC), which would result in adverse U.S. federal income tax consequences. The company believes it was not a PFIC in 2024 but cannot guarantee future status[633](index=633&type=chunk)[634](index=634&type=chunk) - The company is part of the Asseco Group, which exceeds the **€750 million** revenue threshold for the OECD's Pillar Two global minimum tax rules. These rules, imposing a **15%** minimum tax on a jurisdictional basis, will become effective in Israel on January 1, 2026, and are being monitored for their potential impact[646](index=646&type=chunk)[647](index=647&type=chunk) [Quantitative and Qualitative Disclosures about Market Risks](index=133&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISKS) The company is exposed to foreign currency and interest rate risks, primarily from NIS, Euro, and JPY fluctuations, mitigated by hedging strategies - The company's primary market risks are foreign currency exchange risk and interest rate risk[653](index=653&type=chunk) - A significant portion of sales and expenses are denominated in currencies other than the U.S. dollar, primarily the New Israeli Shekel (NIS), Euro, and Japanese Yen, creating exposure to currency fluctuations[656](index=656&type=chunk) - A **10%** increase in the value of the NIS against the USD in 2024 would have increased revenues by **$27.2 million**, while a **10%** decrease would have reduced revenues by **$22.3 million**[658](index=658&type=chunk) [Controls and Procedures](index=135&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were ineffective due to a material weakness in revenue cycle documentation, leading to an adverse audit opinion - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures were **ineffective**[664](index=664&type=chunk) - A material weakness in internal control over financial reporting was identified: documentation supporting certain internal controls within the U.S. entities' revenue cycle was not comprehensively retained[666](index=666&type=chunk)[721](index=721&type=chunk) - Management has implemented a remediation plan, which includes hiring personnel, upgrading financial systems, and enhancing oversight, to address the material weakness[669](index=669&type=chunk)[670](index=670&type=chunk)[671](index=671&type=chunk) - The independent registered public accounting firm issued an **adverse opinion** on the company's internal control over financial reporting as of December 31, 2024[674](index=674&type=chunk)[715](index=715&type=chunk) [Corporate Governance and Other Matters](index=136&type=section&id=ITEM%2016.%20RESERVED) [Principal Accountant Fees and Services](index=137&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The company changed auditors in 2024, with fees paid to EY Israel ($126,000) and BDO Israel ($510,075) for audit and other services Auditor Fees (EY Israel) | Service | 2023 | 2024 | | :--- | :--- | :--- | | Audit | $629,000 | $27,000 | | Tax and other | $210,000 | $99,000 | | **Total** | **$839,000** | **$126,000** | Auditor Fees (BDO Israel) | Service | 2024 | | :--- | :--- | | Audit | $510,075 | | **Total** | **$510,075** | [Changes in Registrant's Certifying Accountant](index=138&type=section&id=ITEM%2016F.%20CHANGES%20IN%20REGISTRANT'S%20CERTIFYING%20ACCOUNTANT) Effective July 31, 2024, the company replaced its independent auditor, EY Israel, with BDO Israel, following necessary approvals - The company replaced its auditor EY Israel with BDO Israel, effective July 31, 2024[683](index=683&type=chunk) [Corporate Governance](index=138&type=section&id=ITEM%2016G.%20CORPORATE%20GOVERNANCE) As a foreign private issuer, the company follows Israeli home country governance practices, differing from some NASDAQ rules regarding board independence - The company follows Israeli home country practices in lieu of certain NASDAQ rules, such as not requiring a majority-independent board and not holding regular executive sessions for independent directors[685](index=685&type=chunk)[693](index=693&type=chunk) [Cybersecurity](index=139&type=section&id=ITEM%2016K.%20CYBERSECURITY) The company maintains an ISO-aligned cybersecurity program overseen by the Board, with the CISO managing daily threats, acknowledging system failure risks - The company has a cybersecurity risk management system aligned with industry best practices (e.g., ISO standards) and engages third-party experts for testing and incident management[689](index=689&type=chunk) - The Board of Directors has ultimate oversight of cybersecurity risk, receiving quarterly updates. The Chief Information Security Officer (CISO) is responsible for the daily management and assessment of cyber threats[691](index=691&type=chunk)[692](index=692&type=chunk) - While no prior cybersecurity incidents have materially affected the company, it acknowledges that a failure of IT systems could disrupt business and cause reputational damage[690](index=690&type=chunk) [Financial Statements](index=141&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) [Consolidated Financial Statements](index=143&type=section&id=Consolidated%20Financial%20Statements) The 2024 consolidated financial statements, prepared under IFRS, include an unqualified audit opinion but an adverse opinion on internal controls Consolidated Financial Position (in thousands) | | Dec 31, 2023 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$522,406** | **$540,331** | | Total Current Assets | $256,625 | $276,199 | | Total Long-Term Assets | $265,781 | $264,132 | | **Total Liabilities and Equity** | **$522,406** | **$540,331** | | Total Current Liabilities | $141,699 | $170,305 | | Total Long-Term Liabilities | $89,763 | $68,957 | | Total Equity | $290,944 | $301,069 | Consolidated Statement of Profit or Loss (in thousands) | | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Total Revenues | $566,792 | $535,052 | $552,520 | | Gross Profit | $155,355 | $152,987 | $157,827 | | Operating Income | $61,762 | $57,108 | $61,237 | | Net Income | $46,279 | $42,502 | $43,291 | | Net Income Attributable to Equity Holders | $40,470 | $37,031 | $36,883 | Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $56,615 | $68,992 | $74,833 | | Net cash used in investing activities | ($34,458) | ($27,616) | ($22,612) | | Net cash used in financing activities | ($18,276) | ($17,293) | ($45,145) |

Part I FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) Unaudited statements show a slight revenue increase but a significant drop in net income due to higher expenses [Condensed Balance Sheets](index=5&type=section&id=Condensed%20Balance%20Sheets) Total assets and stockholders' equity decreased, primarily driven by a reduction in cash and share repurchases Condensed Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $297,125 | $349,282 | | Total current assets | $527,986 | $581,741 | | **Total assets** | **$639,264** | **$678,429** | | Total current liabilities | $196,504 | $204,165 | | **Total liabilities** | **$237,988** | **$221,146** | | **Total stockholders' equity** | **$401,276** | **$457,283** | [Condensed Statements of Operations](index=6&type=section&id=Condensed%20Statements%20of%20Operations) A slight revenue increase was offset by higher costs, resulting in a sharp decline in operating and net income Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $84,574 | $82,327 | | Gross profit | $67,482 | $71,812 | | (Loss) income from operations | $(2,803) | $15,905 | | **Net income** | **$555** | **$9,297** | | Net income per share, basic | $0.02 | $1.00 | | Net income per share, diluted | $0.02 | $0.33 | [Condensed Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity](index=7&type=section&id=Condensed%20Statements%20of%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity) Stockholders' equity decreased significantly due to a substantial common stock repurchase of $73.4 million - The company repurchased **common stock for $73.4 million** during the three months ended March 31, 2025, which is recorded as treasury stock[20](index=20&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) A significant cash outflow from financing activities for stock repurchases led to a net decrease in cash Q1 2025 vs. Q1 2024 Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19,860 | $19,366 | | Net cash used in investing activities | $(4,968) | $(2,467) | | Net cash (used in) provided by financing activities | $(67,049) | $9 | | **Net change in cash, cash equivalents, and restricted cash** | **$(52,157)** | **$16,908** | [Notes to the Condensed Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20the%20Condensed%20Financial%20Statements%20(Unaudited)) Key disclosures cover revenue sources, a share repurchase program, a new credit facility, and a pending lawsuit - The company's revenue is primarily derived from client fees on the **Ibotta Performance Network (IPN)**[27](index=27&type=chunk) - The company repurchased **1,840,554 shares for $73.4 million** in Q1 2025 under its expanded **$200 million** share repurchase program[89](index=89&type=chunk)[91](index=91&type=chunk) - A securities class action complaint related to the IPO was filed, which the **company believes is without merit**[120](index=120&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Growth in third-party channels was offset by a decline in the D2C business, leading to decreased profitability Financial and Operational Highlights (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Redemptions (thousands) | 82,840 | 71,466 | | Redeemers (thousands) | 17,089 | 12,487 | | Revenue (thousands) | $84,574 | $82,327 | | Gross Margin | 80% | 87% | | Net Income (thousands) | $555 | $9,297 | | Adjusted EBITDA (thousands) | $14,673 | $22,659 | - The business is subject to macroeconomic risks, including inflation and potential declines in consumer spending[126](index=126&type=chunk) [Performance Metrics and Non-GAAP Measures](index=28&type=section&id=Performance%20Metrics%20and%20Non-GAAP%20Measures) Total redemptions grew, fueled by third-party publishers, while D2C metrics and Adjusted EBITDA declined Performance Metrics by Channel (Q1 2025 vs Q1 2024) | Metric | Channel | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | :--- | | Redemptions (thousands) | D2C | 21,629 | 27,675 | | | Third-party | 61,211 | 43,791 | | **Redeemers (thousands)** | **D2C** | **1,656** | **1,928** | | | **Third-party** | **15,433** | **10,559** | - Growth in third-party publisher redemptions was primarily driven by the launch of **Family Dollar and Instacart**[138](index=138&type=chunk) - The decrease in D2C metrics was driven by the **quantity and quality of available offers**[137](index=137&type=chunk)[142](index=142&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Revenue grew 3% as third-party growth offset D2C decline, but surging costs drove an operating loss Revenue by Channel (in thousands) | Revenue Type | Q1 2025 | Q1 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total D2C revenue | $36,379 | $47,320 | $(10,941) | (23)% | | Total third-party publishers revenue | $48,195 | $35,007 | $13,188 | 38% | | **Total revenue** | **$84,574** | **$82,327** | **$2,247** | **3%** | - **Cost of revenue increased by $6.6 million (63%)** primarily due to the addition of new publishers[178](index=178&type=chunk) - **General and administrative expenses increased by $8.2 million (63%)** due to higher stock-based compensation and public company costs[181](index=181&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with nearly $300 million in cash and an undrawn $100 million credit facility - The company has a **$100 million revolving credit facility** with no outstanding borrowings as of March 31, 2025[190](index=190&type=chunk) - During Q1 2025, the company repurchased **1,840,554 shares of its Class A common stock for $73.4 million**[195](index=195&type=chunk) - Net cash used in financing activities increased by $67.1 million year-over-year, driven by **$69.8 million in treasury stock purchases**[201](index=201&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks are identified as interest rate and inflation risk, with no material effect to date - The company is exposed to interest rate risk on its **$297.5 million of cash and cash equivalents** and its floating-rate line of credit[210](index=210&type=chunk)[211](index=211&type=chunk) - The company does not believe that inflation has had a material effect on its business but acknowledges potential future harm[212](index=212&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of the quarter-end - Based on an evaluation, the principal executive and financial officers concluded that **disclosure controls and procedures were effective**[213](index=213&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter[214](index=214&type=chunk) Part II OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201%20Legal%20Proceedings) A securities class action lawsuit related to the IPO was filed, which the company intends to defend vigorously - A securities class action complaint, **Fortune v. Ibotta Inc., et al.**, was filed on April 17, 2025, alleging false statements in the IPO registration[219](index=219&type=chunk) - The company believes the complaint is **without merit** and cannot estimate a potential range of loss[219](index=219&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A%20Risk%20Factors) Key risks include a history of net losses, dependence on Walmart, and concentrated voting control with the CEO - The company has a history of net losses, with an **accumulated deficit of $139.9 million** as of March 31, 2025[224](index=224&type=chunk) - The business is **highly dependent on its relationship with Walmart**, and a termination could materially harm the company[232](index=232&type=chunk) - The dual-class stock structure concentrates approximately **70.5% of voting power with the Founder and CEO**[397](index=397&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Securities](index=93&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Securities) The company repurchased 1.84 million shares for $73.4 million in March 2025 under its repurchase program Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining for Repurchase (in thousands) | | :--- | :--- | :--- | :--- | | Jan 2025 | — | — | $68,762 | | Feb 2025 | — | — | $68,762 | | Mar 2025 | 1,840,554 | $39.47 | $96,109 | [Item 3. Defaults Upon Senior Securities](index=93&type=section&id=Item%203%20Defaults%20upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - Not applicable[432](index=432&type=chunk) [Item 4. Mine Safety Disclosures](index=93&type=section&id=Item%204%20Mine%20Safety%20Disclosures) The company reports that this item is not applicable - Not applicable[433](index=433&type=chunk) [Item 5. Other Information](index=93&type=section&id=Item%205%20Other%20Information) The Chief Technology Officer adopted a Rule 10b5-1 trading plan for the potential sale of company stock - On March 5, 2025, Chief Technology Officer Luke Swanson adopted a **Rule 10b5-1 trading arrangement** for the sale of up to 252,000 shares[434](index=434&type=chunk) [Item 6. Exhibits](index=94&type=section&id=Item%206%20Exhibits) This section lists exhibits filed with the report, including officer certifications and XBRL data files [Signatures](index=95&type=section&id=Signatures) The report is duly signed by the Principal Executive, Financial, and Accounting Officers on May 14, 2025

Product Development - The company is developing IKT-001, a prodrug of imatinib mesylate, for the treatment of Pulmonary Arterial Hypertension (PAH), with a Phase 2b study expected to start in the second half of 2025[114]. - A bioequivalence study established that a 300 mg dose of IKT-001 is equivalent to 230 mg of imatinib mesylate, and a 500 mg dose is equivalent to 383 mg of imatinib mesylate[116]. - The company has commercialization rights to IKT-001 with patent protection in the U.S. until 2033, with potential extensions until 2045[124]. - The FDA has indicated that the 505(b)(2) pathway is appropriate for the approval of IKT-001, which may grant New Molecular Entity status and market exclusivity[122]. - A recent study confirmed that imatinib was well tolerated in PAH patients, supporting the efficacy of IKT-001[123]. - The company plans to apply for Orphan Drug Designation for IKT-001 once pre-clinical studies are complete[122]. Financial Performance - Research and development expenses for the first quarter of 2025 totaled $10.51 million, a significant increase from $2.75 million in the same period of 2024[131]. - Research and development expenses increased by $7,762,300 or 282.1% to $10,513,579 from $2,751,279 in the prior comparable period[135]. - Selling, general and administrative expenses rose by $3,218,210 or 158.4% to $5,249,291 from $2,031,081 in the prior comparable period[136]. - Net loss for the three months ended March 31, 2025, was $13,678,735, compared to a net loss of $4,649,635 in the prior comparable period, representing an increase of 194.2%[134]. - Interest income surged by $786,546 or 592.6% to $919,271 from $132,725 in the prior comparable period[138]. - As of March 31, 2025, the company had cash, cash equivalents, and marketable securities totaling $93,180,291[140]. - The company incurred net cash used in operating activities of $4,103,530 for the three months ended March 31, 2025, compared to $3,867,018 for the same period in 2024[148]. - Net cash provided by investing activities for the three months ended March 31, 2025, was $21,054,342, significantly higher than $3,311,814 in the prior comparable period[152]. - The company has an accumulated deficit of $108,099,346 as of March 31, 2025[141]. Funding and Future Outlook - The company raised approximately $110 million in a private placement to support the Phase 2b trial for IKT-001, with potential total gross proceeds of up to $275 million if warrants are exercised[122]. - Future funding requirements are anticipated to be substantial as the company continues to develop and seek regulatory approvals for its product candidates[142]. - The company expects to finance its cash needs through a combination of equity offerings, debt financings, and potential collaboration agreements[143]. Corporate Actions - The company has discontinued the development of risvodetinib for Parkinson's disease and has outlicensed the program[115]. - The company agreed to issue 4,979,101 shares of common stock to CorHepta shareholders, with 829,849 shares fully vested at acquisition, 2,489,030 shares as contingent consideration, and 1,660,222 shares for post-merger compensation[163]. - A change in fair value of contingent consideration of $1,164,864 was recorded for the period ended March 31, 2025, included within operating expenses[164]. - The acquired IPR&D asset of $7,357,294 was written off as research and development expense immediately following the acquisition[165].

Corporate Governance and Compliance - The Company is classified as an "emerging growth company" and will maintain this status until it reaches total annual gross revenue of $1.07 billion or other specified conditions [143]. - The Company has received three deficiency letters from Nasdaq regarding non-compliance with the Minimum Bid Price Requirement, as the bid price was below $1.00 for 30 consecutive business days [148]. - The Company is subject to less stringent corporate governance requirements as a foreign private issuer, which may result in less publicly available information [159]. - If the Company is delisted from Nasdaq, it may face significant adverse consequences, including reduced liquidity and increased regulatory scrutiny [151]. - The Company intends to follow Irish corporate governance practices instead of Nasdaq standards, which may lead to less stringent oversight [161]. - The Company may lose its foreign private issuer status in the future, which could result in significant additional costs and compliance challenges [162]. - The Company has elected to take advantage of extended transition periods for complying with new accounting standards under the JOBS Act [143]. - There is no guarantee that the exemptions under the JOBS Act will result in significant savings, and opting out of these exemptions may incur additional compliance costs [144]. Financial Position and Capital Needs - The Company may need to raise additional capital to fund operations, pay existing liabilities, and finance future growth, which may not be available on favorable terms [145]. - Future capital raising efforts may dilute existing shareholders and could reduce the market price of Ordinary Shares [156]. - The Company’s liquidity risk is managed by maintaining sufficient cash and liquid assets, alongside committed credit facilities [413]. - The Company’s credit risk is monitored closely, with main financial assets being cash and cash equivalents, ensuring prompt collection from counterparties [412]. Business Operations and Innovations - The Company successfully completed the marking of 21 tons of natural rubber sourced in Latin America, achieving a 100% success rate for origin authentication and full traceability from tree to tire [421]. - In 2022, the Company conducted successful trials for marking recycled plastics, demonstrating the ability to manage the process remotely, indicating potential for industrial scale adoption [415]. - The Company announced the planned launch of a plastic cycle token, scheduled for release at the end of 2025, aimed at creating a reliable digital credit platform for recyclable plastics [422]. - The Company has marked 2.2 tons of silver in cooperation with Sunshine, successfully completing proof of concept for ethical sourcing and authentication of silver [435]. - Security Matters PTY achieved a 100% success rate on all marked products throughout the production process, ensuring quality and brand authentication for stakeholders [438]. - Security Matters PTY has a target to reach $35 million in sales over the coming years through its exclusive distribution agreement with Sumitomo [441]. - The company has advanced source tracing technology for alcoholic beverages, focusing on key ingredients and packaging solutions [442]. - Security Matters PTY is part of the Circular Electronics Partnership, aiming to reduce e-waste and promote a circular economy for electronics by 2030 [450]. - The company launched a Fashion Sustainability Competence Centre to help fashion brands transition to a sustainable circular economy [451]. - Security Matters PTY's technology is applicable across various materials, including leather and plastics, for recycling and sustainability efforts [451]. - The company plans to integrate its markers in wearable technology and active wear, with a coating that withstands temperatures up to 150 degrees Celsius [452]. Intellectual Property and Technology - The company has over 20 patent families and more than 100 patents filed globally, crucial for maintaining proprietary technology [453]. - The company has a total of 20 patent families related to X-ray fluorescence (XRF) technology, with several patents granted and pending in various countries [456][457][458][459][460][461][462][463]. - Patent Family 1 includes a system for reading XRF markings, with patents granted that expire in 2036 [458]. - Patent Family 2 focuses on an anti-counterfeit marking technique for verifying the authenticity of metallic objects, with a patent expiring in 2040 [459]. - Patent Family 4 presents a method for verifying compatibility of electronic system components using XRF signatures, with patents expiring in 2037 [461]. - Patent Family 5 introduces a novel XRF analyzer capable of identifying multiple solid objects simultaneously, with a patent expiring in 2037 [462]. - Patent Family 6 details a method for marking and authenticating precious stones, with patents expiring in 2038 [463]. - The company has filed applications for new technologies, including a method for detecting mishandling of food products and a system for virtual currency based on blockchain architecture [456][457]. - The company is actively pursuing market expansion through innovative product development and strategic patent filings across multiple jurisdictions [456][457]. - The company aims to enhance its product offerings by integrating advanced XRF technology into various applications, including supply chain management and authentication systems [460][461]. - The company is focused on maintaining a robust intellectual property portfolio to support its growth and competitive advantage in the market [456][457]. Mergers and Acquisitions - The merger with Security Matters PTY resulted in the Company owning the entire share capital of Security Matters PTY, with a deemed issuance of shares valued at $11,599 thousand [482]. - The difference of $16,802 thousand between the fair value of shares deemed issued and the fair value of the Company's identifiable net assets is expensed immediately to profit or loss [483]. - The Company acquired an additional 7.5% of trueGold, increasing its holdings to 51.9%, gaining control over trueGold and diversifying operations into research and development [485]. - The fair value of the previous investment in trueGold was remeasured at $22,164 thousand upon obtaining control, resulting in a recognized gain of the same amount [487]. - The consolidated financial statements for the year ended December 31, 2023, reflect the retained earnings and equity balances of Security Matters PTY immediately before the Business Combination [486]. - Substantially all assets of the Company comprised marketable securities valued at $4,921 thousand and trade payables and warrants valued at $10,127 thousand [484]. - The Company’s financial statements post-acquisition include the full period results of Security Matters PTY along with the post-acquisition results from the Closing Date [486]. - The equity structure of Security Matters PTY is restated to reflect the number and par value of shares of the Company issued in the reverse acquisition transaction [486]. - The Company’s consolidated financial statements for 2023 include the results of Security Matters PTY for the full period and the post-acquisition results [486]. - The fair value of non-controlling interests in trueGold was estimated using the discounted cash flow method, reflecting the entire goodwill of trueGold [488]. - The total cost of the business combination included a full forgiveness of outstanding payables from trueGold to the Company amounting to AUD 475 thousand (approximately $307 thousand) at acquisition date [488]. - The Company's ownership percentage in trueGold increased from 51.9% to 52.9% after restructuring $1.3 million of debt owed to PMB [490]. - PMB exchanged its shares in trueGold for 1,022 (1%) Company shares as part of the restructuring agreement [490]. Market Trends and Economic Factors - As of December 31, 2024, the ILS increased against the U.S. dollar by approximately 0.6%, while the AUD, EUR, and SGD decreased by approximately 8.5%, 5.5%, and 2.6% respectively [410]. - The company’s policy is not to enter into any currency hedging transactions, exposing it to potential adverse effects from future currency fluctuations [411]. - The Company is not aware of any trends or events likely to materially affect its revenue, income, profitability, liquidity, or capital resources [480].

Financial Performance - Tevogen Bio reported a net loss of $10.4 million for the three months ended March 31, 2025, compared to a net loss of $11.3 million for the same period in 2024, primarily due to non-cash stock-based compensation expenses [136]. - The net loss for the three months ended March 31, 2025, was $10.4 million, compared to a net loss of $11.3 million for the same period in 2024 [156]. - Research and development expenses for the three months ended March 31, 2025, were $3.2 million, a decrease of 84.7% from $20.8 million for the same period in 2024 [157]. - General and administrative expenses for the three months ended March 31, 2025, were $7.2 million, down 17.7% from $8.7 million in the same period in 2024 [158]. - Cash used in operating activities for the three months ended March 31, 2025, was $3.3 million, compared to $2.2 million for the same period in 2024 [165][166]. Cash and Funding - As of March 31, 2025, Tevogen Bio had an accumulated deficit of $123.8 million and cash reserves of $2.0 million [136]. - As of March 31, 2025, the company had $2.0 million in cash, an increase from $1.3 million as of December 31, 2024 [163]. - The company raised aggregate gross proceeds of $24.0 million from the sale of convertible promissory notes since January 2021 [163]. - The company has drawn $3.0 million from a Loan Agreement with a remaining $27.0 million available for future financing [163]. - The company expects to utilize $8.0 million in grant funding from KRHP for ongoing operational expenses through March 31, 2026 [176]. - The company is exploring various funding strategies, including private placements and partnerships, to support operations [177]. Clinical Development - The first clinical product, TVGN 489, has completed a Phase 1 proof-of-concept trial with no dose-limiting toxicities observed, and secondary endpoints showed a rapid reduction in viral load [126]. - The company aims to commercialize TVGN 489 and other product candidates, expecting to incur expenses related to expanding research and development capabilities and building manufacturing infrastructure [141]. - The company plans to conduct clinical trials for TVGN 489 and other product candidates, which will require considerable financial resources [172]. - The company anticipates increased expenses related to commercialization if marketing approval for TVGN 489 is obtained [174]. Patent and Technology - Tevogen Bio's patent portfolio includes three issued U.S. patents related to TVGN 489, all expiring on December 9, 2040, and nine pending U.S. patent applications [130][131]. - Tevogen Bio's ExacTcell technology is designed to develop off-the-shelf T cell therapies with applications in infectious diseases and cancers [124]. Future Expectations - The company has not generated any revenue to date and does not expect to do so until marketing approval is obtained for its product candidates [141]. - The company expects general and administrative expenses to increase in the future to support ongoing research and development and potential commercialization efforts [149]. - The company expects to incur costs associated with operating as a public company, necessitating additional funding [174]. Obligations and Agreements - Total contractual obligations as of March 31, 2025, amount to $4,846,712, with $1,846,712 due within one year [179]. - The company has committed to a securities purchase agreement with the Patel Family for $6.0 million in Series C Preferred Stock [170]. - The company has not yet received $3.0 million of the $6.0 million purchase price for Series A-1 Preferred Stock [170]. - The company has entered into a Loan Agreement allowing for monthly draws of up to $1.0 million over 27 months, with a maximum loan amount of $36.0 million [171]. - The company has drawn an aggregate of $3.0 million under the Loan Agreement as of March 31, 2025, with an additional $0.5 million drawn in April 2025 [171].

Financial Performance - Tevogen Bio reported a net loss of $10.4 million for the three months ended March 31, 2025, compared to a net loss of $11.3 million for the same period in 2024, primarily due to non-cash stock-based compensation expenses [136]. - As of March 31, 2025, Tevogen Bio had an accumulated deficit of $123.8 million and cash reserves of $2.0 million [136]. - Research and development expenses for the three months ended March 31, 2025, were $3.2 million, a decrease of 84.7% from $20.8 million for the same period in 2024 [157]. - General and administrative expenses for the three months ended March 31, 2025, were $7.2 million, down 17.7% from $8.7 million in the same period in 2024 [158]. - Cash used in operating activities for the three months ended March 31, 2025, was $3.3 million, compared to $2.2 million for the same period in 2024 [165]. - The company has net operating loss carryforwards of $25.6 million for federal and $27.8 million for state income tax purposes as of March 31, 2025 [154]. Funding and Financial Resources - Tevogen Bio has entered into a Loan Agreement with the Patel Family, providing up to $36.0 million in term loans over a draw period of thirty-six months [138]. - The company raised aggregate gross proceeds of $24.0 million from the sale of convertible promissory notes since January 2021 [163]. - The company has drawn $3.0 million from a Loan Agreement with a remaining $27.0 million available for future financing [163]. - The company has committed to providing the Patel Family an option to purchase $14.0 million of shares of Common Stock under the Loan Agreement [171]. - The company is exploring various funding strategies, including private placements and partnerships, to support future operations [177]. - The company expects to utilize $8.0 million in grant funding from KRHP for ongoing operational expenses through March 31, 2026 [176]. Product Development and Clinical Trials - The first clinical product, TVGN 489, has completed a Phase 1 proof-of-concept trial with no dose-limiting toxicities observed, and secondary endpoints showed a rapid reduction in viral load [126]. - Tevogen Bio's ExacTcell technology aims to develop off-the-shelf T cell therapies for infectious diseases and cancers, with a focus on maximizing immunologic specificity [124]. - The company has filed three U.S. patents related to TVGN 489, with expiration dates extending to December 2040 [131]. - The company plans to conduct clinical trials for TVGN 489 and other product candidates, which will require considerable financial resources [172]. - The company expects to incur significantly increased expenses associated with sales and marketing efforts if any product candidates obtain marketing approval [149]. - The company anticipates increased expenses related to commercialization efforts if marketing approval for TVGN 489 is obtained [174]. Operational Outlook - Tevogen Bio has not generated any revenue to date and does not expect to do so until marketing approval for TVGN 489 or another product candidate is obtained [141]. - The company is focused on expanding its research and development capabilities and building its manufacturing infrastructure [141]. - Tevogen Bio's cash on hand, combined with available loan amounts and grant funding, is expected to sustain operations for at least the next 12 months [140]. - The company expects to incur additional costs associated with operating as a public company, necessitating further funding [174]. - Total contractual obligations as of March 31, 2025, amount to $4,846,712, with $1,846,712 due within one year [179].

Financial Performance - For the three months ended March 31, 2025, the company generated net revenue of $20.1 million, a 42.5% increase from $14.1 million in the same period of 2024[188]. - The company reported a net loss of $1.9 million for Q1 2025, slightly higher than the $1.8 million loss in Q1 2024[188]. - Net revenues for the three months ended March 31, 2025, increased by $6.0 million, or 42.5%, compared to the same period in 2024, driven by increased sales of ARK products and a reduction in deferred sales[210]. - Gross profit for the three months ended March 31, 2025, was $5.8 million, reflecting a significant increase of $3.8 million, or 181.9%, from $2.0 million in 2024[209]. - EBITDA for the three months ended March 31, 2025, decreased by $1.3 million, or 75.5%, primarily due to an increase in income tax benefits and a slight increase in net loss[234]. Revenue Sources - The ARK franchise accounted for 91.6% of total revenues in Q1 2025, up from 78.6% in Q1 2024[187]. - Daily active users for ARK: Survival Evolved and ARK: Survival Ascended averaged 243,000 in Q1 2025, compared to 209,000 in Q1 2024, representing a 16.2% increase[187]. - The company sold 1.5 million units of games in Q1 2025, an increase of 36.4% from 1.1 million units in Q1 2024[191]. - The ARK franchise has achieved 96.3 million installs on consoles and PCs as of March 31, 2025[187]. - Bookings for the three months ended March 31, 2025, increased by $2.6 million, or 13.6%, compared to the same period in 2024, due to new game releases[228]. Expenses - Cost of revenues for the three months ended March 31, 2025, rose by $2.2 million, or 18.4%, compared to the same period in 2024, primarily due to increased software license royalties related to higher ARK sales[211]. - General and administrative expenses increased by $2.6 million, or 117.5%, for the three months ended March 31, 2025, largely due to higher salaries and stock compensation expenses[213]. - Research and development expenses rose by $1.8 million, or 103.2%, for the three months ended March 31, 2025, as the company expanded its internal development team[214]. - Advertising and marketing expenses surged by $1.2 million, or 826.3%, for the three months ended March 31, 2025, attributed to increased presence at industry events and marketing campaigns[215]. Cash Flow and Financing - As of March 31, 2025, the company's unrestricted cash was $9.4 million, an increase from $7.3 million as of December 31, 2024[236]. - Net cash flows provided by operating activities decreased by $6.0 million, totaling $0.8 million for the three months ended March 31, 2025, compared to $6.8 million for the same period in 2024, representing an 88.5% decline[242]. - Net cash flows used in investing activities were $1.9 million for the three months ended March 31, 2025, compared to none in the same period of 2024[248]. - Financing activities generated $3.1 million in net cash flows for the three months ended March 31, 2025, a significant increase from the $5.9 million used in financing activities in the same period of 2024[249]. - The company issued convertible notes with a principal amount of $3.3 million in February 2025, maturing in February 2026[239]. Future Plans and Developments - The company plans to release a new DLC, ARK: Aquatica, in June 2025, as part of the 10-year celebration of ARK: Survival Evolved[200]. - The newly released DLC map ARK: Astraeos sold 253,000 units across platforms since its launch in February 2025[199]. - The company has released 49 short film dramas through its Salty TV mobile application and expects to continue rolling out new content throughout 2025[201]. - The company has established a new division under the Interactive Films brand to focus on creating content in the vertical short film segment[190]. Accounting and Compliance - The company is classified as an "emerging growth company" and is eligible for exemptions from various reporting requirements, including reduced disclosure obligations regarding executive compensation[270]. - The company will remain an emerging growth company until it meets certain criteria, including total annual gross revenue of at least $1.235 billion or a market value of common stock held by non-affiliates exceeding $700 million[273]. - The company is also classified as a "smaller reporting company," allowing it to take advantage of scaled disclosures as long as its voting and non-voting common stock held by non-affiliates is less than $250 million[274]. - The company recognizes deferred revenues based on estimates of release dates and technical support obligations, which may change and impact financial statements[266]. - Deferred income tax assets are based on estimates of future taxable income and the utilization of tax loss carryforwards, which require significant judgment and may materially impact financial statements[268]. Risks and Estimates - The company expects accounts receivable from SDE Inc. to be repaid within the next two fiscal years, with outstanding balances of $6.0 million as of March 31, 2025[246]. - The company is projected to fail its debt covenants within the next 12 months, leading to the classification of the long-term portion of its promissory note as current[239]. - Changes in estimates related to release schedules and technical support obligations could materially affect the classification of deferred revenues[266]. - The company reviews its estimates on an ongoing basis to ensure they reflect changes in business or new information[265]. - The company has elected to delay the adoption of certain accounting standards, which may result in its financial statements being less comparable to those of other public companies[272].