Financial Performance - Net sales decreased 1.4% to $1.554 billion, with pricing/mix down 0.3% and volume down 2.7%, while the Simple Mills acquisition contributed 1.6%[6] - Net income decreased 27.4% to $53.0 million, representing 3.4% of sales, and diluted EPS decreased $0.09 to $0.25[6] - Adjusted EBITDA increased 1.6% to $162.0 million, representing 10.4% of net sales, a 30-basis point increase[6] - Net sales for the 16-week period ended April 19, 2025, were $1,554,230, a decrease of 1.4% compared to $1,576,818 for the same period in 2024[26] - Branded Retail sales decreased by 0.4% to $1,011,273 from $1,015,130 year-over-year[30] - Adjusted net income per diluted common share for the 16-week period ended April 19, 2025, was $0.35, down from $0.38 in the prior year[34] - EBITDA for the 16-week period ended April 19, 2025, was $134,518, compared to $149,941 in the prior year, reflecting a decline in profitability[39] - Adjusted net income for the 16-week period ended April 19, 2025, was $73,706, down from $80,261 in the prior year[43] - The gross margin for the 16-week period ended April 19, 2025, was $748,400, slightly lower than $753,279 in the prior year[36] Future Guidance - The company expects net sales for Fiscal 2025 to be between $5.297 billion and $5.395 billion, representing 3.8% to 5.7% growth compared to the prior year[7] - Adjusted diluted EPS is projected to be approximately $1.05 to $1.15, compared to prior guidance of $1.11 to $1.24[7] - The company provided full-year fiscal 2025 guidance for net income per diluted common share in the range of $0.95 to $1.05[43] Acquisitions and Strategic Moves - The acquisition of Simple Mills contributed $24.3 million in net sales but resulted in a net loss of $4.2 million[6] - The acquisition of Simple Mills was highlighted as a strategic move to enhance market presence and product offerings[20] - The company experienced a 2.4% increase in net sales due to acquisitions, contributing positively to overall sales performance[36] Expenses and Costs - Selling, distribution, and administrative expenses were 40.8% of net sales, a 110-basis point increase due to higher workforce-related costs[11] - Selling, distribution, and administrative expenses (SD&A) were $633,513 for the 16-week period ended April 19, 2025, compared to $625,251 in the prior year[37] - The company incurred restructuring charges of $573 and plant closure costs of $7,397 during the 16-week period[26] Cash Flow and Assets - Cash flow from operating activities increased by $30.5 million to $135.6 million in the first quarter[10] - The company reported a net cash provided by operating activities of $135,634, an increase from $105,149 in the prior year[28] - Cash and cash equivalents at the end of the period were $7,340, up from $5,005 at the beginning of the period[28] - Total assets increased to $4,326,946 as of April 19, 2025, compared to $3,400,447 at the end of the previous fiscal year[23] - Long-term debt rose significantly to $1,790,379 from $1,021,644, indicating increased leverage[23] Capital Expenditures - Capital expenditures are expected to be approximately $140 million to $150 million, with $4 million to $6 million related to an enterprise resource planning system upgrade[7]

Financial Performance - Net sales for the three months ended April 30, 2025 increased 11.4% to $382.6 million compared to $343.4 million in the same period in the prior year, driven by organic sales growth of 1.6% and acquisition-related growth of 10.5%[68] - For the nine months ended April 30, 2025, net sales increased 11.9% to $1,116.3 million compared to $998.0 million in the same period in the prior year, with organic sales growth of 2.6% and acquisition-related growth of 10.2%[69] - Operating income for the three months ended April 30, 2025 increased 5.7% to $67.2 million, while for the nine months it remained relatively stable at $177.3 million, reflecting organic sales growth in higher gross margin product lines[73] - Net income for the three months ended April 30, 2025, was $52.3 million, or 13.7% of sales, compared to $50.9 million (14.8% of sales) in the same period of 2024[74] - Total company organic sales growth was 1.6% in the three months ended April 30, 2025, compared to 4.5% in the same period of 2024[80] Expenses - Gross margin for the three months ended April 30, 2025 was $195.1 million, a 10.2% increase from $177.0 million in the same period last year, although the gross margin percentage decreased to 51.0% from 51.6%[70] - Research and development (R&D) expenses increased 8.5% to $19.2 million for the three months ended April 30, 2025, and 13.2% to $56.8 million for the nine months ended April 30, 2025, reflecting a commitment to new product development[71] - Selling, general and administrative (SG&A) expenses rose 13.4% to $108.7 million for the three months ended April 30, 2025, and 15.2% to $326.4 million for the nine months ended April 30, 2025, primarily due to increased headcount and acquisition-related costs[72] Cash Flow and Liquidity - The company had cash of $152.2 million and total available liquidity of $1,237.4 million as of April 30, 2025, supporting its growth strategy and ability to manage economic challenges[63] - Cash and cash equivalents decreased by $98.0 million to $152.2 million at April 30, 2025, primarily due to changes in working capital and increased inventory outflows[91] - Net cash provided by operating activities was $122.9 million in the nine months ended April 30, 2025, down from $171.1 million in the same period of 2024[91] - Net cash used in investing activities was $165.1 million in the nine months ended April 30, 2025, primarily for business acquisitions of $147.2 million[92] Debt and Financial Obligations - As of April 30, 2025, the outstanding balance on the Company's credit agreement was $102.8 million, with a maximum outstanding amount of $144.8 million during the nine months ended April 30, 2025[98] - The Company has $195.2 million available for future borrowing under the credit agreement, which can be increased to $1,085.2 million at the Company's option, subject to certain conditions[98] - The Company is in compliance with financial covenants, maintaining a debt to EBITDA ratio of 0.3 to 1.0 and an interest expense coverage ratio of 71.5 to 1.0 as of April 30, 2025[99] - The credit agreement has a final maturity date of November 14, 2027, and includes an increase in lending commitments to $300 million[96] - The Company had letters of credit outstanding under the credit agreement of $2.0 million as of April 30, 2025[98] Strategic Focus - The company is focused on integrating recent acquisitions to enhance its strategic position and accelerate long-term sales growth[61] - The company plans to mitigate inflationary pressures and tariff impacts through targeted price increases, strategic sourcing adjustments, and operational efficiency gains[62] - The Company aims to enhance its digital capabilities and customer service through improved sales channels and data-driven marketing automation tools[61] Tax and Compliance - The company's income tax rate was 20.5% for the three months ended April 30, 2025, down from 21.0% in the same period of 2024, with an expected ongoing annual rate of approximately 21%[78] - The Company does not believe that cash requirements for uncertain tax positions will be material[94] Future Outlook - The Company anticipates future financial position and business strategy changes, including projected sales and capital expenditures, as part of its forward-looking statements[100] - The Company has material cash requirements for known contractual obligations, including capital expenditures and lease obligations, and expects net cash from operating activities to be adequate for liquidity needs over the next 12 months[94] - The Company does not have significant agreements for minimum order quantities for inventory purchases, indicating flexibility in managing cash flow[94]

Financial Performance - Sales for the third quarter ended April 30, 2025, increased by 11.4% to $382.6 million, compared to $343.4 million in the same quarter last year[3]. - Adjusted Diluted EPS for the third quarter was $1.22, an increase of 11.9% compared to $1.09 in the same quarter last year[6]. - Adjusted Net Income for the third quarter was $58.8 million, up from $52.7 million in the same quarter last year[5]. - For the nine-month period ended April 30, 2025, sales increased by 11.9% to $1.12 billion compared to $998.0 million in the same period last year[7]. - Adjusted Income Before Income Taxes for the nine-month period was $205.4 million, an increase of 10.0% compared to the same period last year[8]. - Adjusted Net Income for the nine months ended April 30, 2025, was $161,098 million, compared to $147,201 million for the same period in 2024, reflecting a 9.4% increase[26]. - Adjusted Diluted EPS for the nine months ended April 30, 2025, was $3.34, compared to $3.03 in the same period of 2024, indicating a 10.3% increase[27]. Shareholder Returns - The Company returned $44.5 million to shareholders through dividends and share repurchases during the quarter[6]. - The Company repurchased 476,000 shares for $33.2 million during the quarter[10]. Guidance and Projections - The Company tightened its Adjusted Diluted EPS guidance for the fiscal year ending July 31, 2025, to a range of $4.48 to $4.63 per share[11]. - Fiscal 2025 guidance for Adjusted Diluted EPS is projected between $4.48 and $4.63, with a GAAP measure expectation of $3.95 to $4.10[28]. - Amortization expense for fiscal 2025 is expected to remain constant at $0.30 per Class A Nonvoting Common Share[28]. - Facility closure and other reorganization costs are projected at $0.15 per Class A Nonvoting Common Share for fiscal 2025[28]. - Non-recurring acquisition-related costs and other expenses are expected to be $0.08 per Class A Nonvoting Common Share for fiscal 2025[28]. Income and Expenses - Income before income taxes for the third quarter increased by 2.1% to $65.7 million compared to $64.4 million in the same quarter last year[4]. - Adjusted Income Before Income Taxes for the three months ended April 30, 2025, was $74.43 million, compared to $66.78 million in the same period of 2024[24]. - The company reported a net income of $139.38 million for the nine months ended April 30, 2025, slightly down from $141.76 million in the same period of 2024[21]. - The company reported a GAAP net income of $52,263 million for Q3 2025, compared to $50,890 million in Q3 2024, a 2.7% increase[26]. - The company incurred $2,947 million in facility closure and reorganization costs for Q3 2025, compared to no such costs in Q3 2024[26]. Cash and Liabilities - The company’s net cash provided by operating activities for the nine months ended April 30, 2025, was $122.87 million, down from $171.09 million in the same period of 2024[21]. - Cash and cash equivalents decreased to $152.15 million as of April 30, 2025, from $250.12 million at the beginning of the period[21]. - Total liabilities increased to $530.56 million as of April 30, 2025, compared to $448.91 million as of July 31, 2024[20]. - The company’s long-term debt increased to $102.82 million as of April 30, 2025, from $90.94 million as of July 31, 2024[20]. - The company’s total stockholders' equity rose to $1.17 billion as of April 30, 2025, up from $1.07 billion as of July 31, 2024[20]. Regional Performance - The Americas & Asia region saw organic sales growth of 5.4%, while Europe & Australia experienced an organic sales decline of 5.4%[3]. - The Americas & Asia segment reported net sales of $253.65 million, up 12.9% year-over-year, while Europe & Australia segment sales increased by 8.7% to $128.94 million[22]. - The company’s segment profit margin for the Americas & Asia was 22.5% for the three months ended April 30, 2025, compared to 22.1% in the same period of 2024[22].

Revenue Performance - Revenue for the three months ended March 31, 2025, decreased by $2,062,762 or 39% to $3,160,480 compared to $5,223,242 in the same period last year, primarily due to a strategic shift away from the recommerce business[164] - For the nine months ended March 31, 2025, revenue declined by $9,438,325 or 45% to $11,522,487, with approximately $8,277,000 of the decline related to the strategic shift away from recommerce[173] Cost and Profitability - Cost of revenue decreased by $2,354,185 or 60%, leading to a gross profit increase of approximately $290,000 and a gross profit margin increase to 49% from 24% year-over-year[165] - The net loss for the three months ended March 31, 2025, was $3,831,660, a decrease from a loss of $4,118,612 in the same period last year[172] Expenses - General and administrative expenses increased by $828,028 or 46%, attributed to legal and auditing costs, with expectations for normalization post-restructuring[168] Cash Flow and Working Capital - Cash flows used in operating activities for continuing operations were $(4,137,346) for the nine months ended March 31, 2025, compared to $(3,700,706) in the prior year[184] - The company had current assets of $3,968,157 and current liabilities of $10,796,201 as of March 31, 2025, resulting in a working capital deficit of $(6,828,044)[183] - Management expects sufficient working capital to fund operations and meet debt obligations over the next twelve months following the issuance of the financial statements[189] Investment Activities - Net cash provided by investing activities for the nine months ended March 31, 2025, was $5,757,517, primarily from the sale of a building and collection of the purchase price for E-core[186] - On April 24, 2025, the company closed a private placement offering, selling 35,970,383 shares at $2.28 per share, raising approximately $92,586,000 net[188]

Financial Performance - For the three months ended March 31, 2025, revenue decreased to $4,100,640 from $4,287,760 for the same period in 2024, representing a reduction of $187,120 or 4.4% year-over-year[143] - The company reported a net loss of $1,602,046 for the three months ended March 31, 2025, compared to a net loss of $2,256,450 for the same period in 2024[142] - Operating loss for the three months ended March 31, 2025, was $1,464,101, an improvement from the operating loss of $2,083,746 in the same period of 2024[142] - Fr8Tech had an accumulated deficit of approximately $46.5 million and reported operating losses and negative cash flows from operations for the quarter ended March 31, 2025[155] Cost Management - Cost of revenue for the three months ended March 31, 2025, decreased to $3,593,300 from $4,056,627 in the same period of 2024, a reduction of $463,327 or 11.4% year-over-year[144] - Fr8Tech's compensation and employee benefits expenses decreased by $199,552 or 13.7% year-over-year to $1,254,789 for Q1 2025, primarily due to a reduction in headcount[145] - General and administrative expenses fell by $134,784 or 18.4% to $596,753 for Q1 2025, mainly due to lower spending on professional services and insurance[146] - Sales and marketing expenses decreased by $2,749 or 14.6% to $16,045 for Q1 2025, attributed to reduced online advertising and industry event expenditures[147] - Interest expense decreased by $38,601 to $134,864 for Q1 2025, primarily due to lower borrowing against the revolving credit facility[150] Cash Flow and Liquidity - Net cash used in operating activities for Q1 2025 was $3,096,429, driven by a net loss of $1,602,046 and cash used for working capital of $1,823,320[162] - Net cash provided by financing activities increased to $3,421,713 for Q1 2025, primarily from the issuance of Series A4 shares and short-term borrowings[166] - The liquidity condition raises substantial doubt about Fr8Tech's ability to continue as a going concern for the next twelve months[158] Strategic Focus and Market Conditions - The demand for the company's platform is influenced by overall economic conditions in North America, including international trade levels[137] - The company is focused on enhancing its digital freight matching capabilities to address supply chain challenges and improve operational efficiency[138] - The company believes that the near-shoring trend will continue to create market opportunities for digital brokers in cross-border commerce[139] Financing Activities - The company raised $3,000,000 from the issuance of Series A4 preferred shares in February 2025, contributing to its financing efforts[136] - The company expects to have sufficient funds to carry out planned operations through December 31, 2025, and for at least 12 months beyond that period[136] Accounts Receivable and Payable - Accounts receivable and unbilled receivable balance increased by $1.8 million or 45.1% to $5.9 million as of March 31, 2025, due to lower collections[152] - Accounts payable, short-term borrowings, and accrued expenses rose by $750,000 or 12.4% to $6.8 million as of March 31, 2025, mainly due to higher accrued expenses[153]

Financial Performance - Revenues for Q1 2025 reached $925,635, a significant increase from $20,426 in Q1 2024, representing a growth of 4,433%[14] - Gross profit for Q1 2025 was $518,667, compared to $2,177 in Q1 2024, indicating a substantial increase[14] - The net loss for Q1 2025 was $2,850,351, compared to a net loss of $1,419,045 in Q1 2024, representing an increase in losses of 101%[14] - Operating expenses for Q1 2025 totaled $2,940,925, up from $1,308,835 in Q1 2024, indicating a rise of 125%[14] - The company reported a net loss of $2,850,351 for the three months ended March 31, 2025, compared to a net loss of $1,419,045 for the same period in 2024, representing an increase in losses of approximately 101%[18] - Adjusted EBITDA for the three months ended March 31, 2025, was $(1,960,997), compared to $(1,337,147) for the same period in 2024[201] Assets and Liabilities - Total current assets increased to $6,895,822 as of March 31, 2025, up from $4,043,098 as of December 31, 2024, reflecting a growth of 70%[11] - Total liabilities rose to $19,503,879 as of March 31, 2025, compared to $10,426,986 as of December 31, 2024, marking an increase of 87%[12] - Cash decreased to $1,204,400 as of March 31, 2025, down from $3,123,530 as of December 31, 2024, a decline of 61%[11] - The total stockholders' equity deficit was $(965,220) as of March 31, 2025, compared to $1,567,472 as of December 31, 2024, indicating a deterioration in equity position[12] Cash Flow and Financing - Cash used in operating activities was $2,267,103 for the three months ended March 31, 2025, compared to $1,527,238 in the prior year, indicating a 48% increase in cash outflow[18] - The company had a net cash decrease of $1,919,544, with cash at the end of the period amounting to $1,204,400, down from $4,838,146 at the end of the same period in 2024[18] - The company anticipates continuing operating losses for the next 12 months due to growth initiatives, while also planning to raise capital through additional debt and/or equity financings[47] - The company plans to utilize equity or debt offerings to raise funds as needed, depending on market conditions and investor demand[202] - The company may require additional financing to support operations, which could lead to unfavorable terms and dilution of stockholder ownership[206] Acquisitions and Business Strategy - The company acquired Naamche, Inc. and AiChat Pte Ltd. to enhance its AI capabilities, which is expected to strengthen its software development and engagement tools[22] - The company is transitioning to a technology-driven model with the reAlpha platform aimed at simplifying the homebuying process and generating revenue through various real estate services[21] - The company plans to continue acquiring complementary companies to enhance its service offerings and revenue potential[158] - The company has acquired several firms, including Be My Neighbor and GTG Financial, increasing its mortgage brokerage operations to 30 U.S. states[159] Stock and Equity - The Company issued 264,063 shares of Series A Preferred Stock with a stated value of $20 per share in connection with the GTG Financial acquisition[94] - The total number of shares of common stock issued and outstanding increased to 46,230,934 as of March 31, 2025, from 45,864,503 as of December 31, 2024[102] - The Company granted 550,000 Restricted Stock Units (RSUs) during the quarter ended March 31, 2025, with a weighted-average grant-date fair value of $1.84[106][107] - The Company issued 160,879 shares of common stock under its ATM program at a weighted-average price of $1.44 per share, resulting in total gross proceeds of approximately $231,235[118] Future Outlook - The company anticipates continued operating losses in the near future but expects to generate more significant revenues through commercialization of products and acquisition of complementary businesses[204] - The company estimates that its cash and cash equivalents will be sufficient to fund operating expenses and capital expenditures into the third quarter of 2025, assuming no additional capital is raised[204] - The reAlpha platform aims to expand nationwide by the end of 2026, currently available in 20 counties in Florida[157] Regulatory and Compliance - The Company is subject to SEC's "baby shelf rules," which may limit future issuances of shares under its Form S-3[120] - The Company maintains indemnification agreements with directors and officers, which may require indemnification against liabilities arising from their service[122]

KWESST MICRO SYSTEMS INC. Three and six months ended March 31, 2025 and 2024 (Expressed in Canadian dollars) KWESST MICRO SYSTEMS INC. Table of contents for the three and six months ended March 31, 2025 and 2024 | | Page | | --- | --- | | FINANCIAL STATEMENTS | | | Unaudited Condensed Consolidated Interim Statements of Financial Position | 3 | | Unaudited Condensed Consolidated Interim Statements of Net Loss and Comprehensive Loss | 4 | | Unaudited Condensed Consolidated Interim Statements of Changes in Sha ...

Revenue Performance - Total revenues decreased by approximately US$180,776 or 7.3% to approximately US$2,309,219 for the year ended December 31, 2024, from approximately US$2,489,995 for the year ended December 31, 2023[61]. - Total revenues increased by approximately US$818,878 or 49.0% to approximately US$2,489,995 for the year ended December 31, 2023, from approximately US$1,671,117 for the year ended December 31, 2022[61]. - Net income for the years ended December 31, 2022, and 2023 was US$780,648 and US$937,609, respectively, while there was a net loss of US$431,544 for the year ended December 31, 2024[61]. Market and Competition - The ERP software market is highly competitive, with increasing competition from established players and new entrants, which may harm the company's ability to grow its customer base and maintain pricing[78]. - Competitors may offer lower-priced products, leading to potential reductions in margins and revenue, adversely affecting the company's financial condition[79]. - Larger competitors possess significant advantages, including greater financial resources and broader product lines, which could impact the company's market share and competitive position[80]. - The company must continuously innovate and enhance its platform to meet evolving customer needs, or risk losing market demand[81]. - The market for ERP SaaS solutions is not as mature as traditional enterprise software, and the company faces uncertainty regarding demand and market acceptance[77]. Customer Relationships and Marketing - The company’s revenue growth for ERP SaaS services depends on maintaining and growing relationships with existing customers, with subscription plans typically having 12-month terms[65]. - The company plans to expand its marketing and sales operations both domestically and internationally to increase its customer base[71]. - Maintaining and growing brand recognition is vital for attracting and retaining customers, especially as competition increases in the market[75]. - The effectiveness of online advertising may vary due to competition and changes in search engine algorithms, which could adversely affect marketing costs and traffic to the website[72]. - The company’s ability to attract new customers cost-effectively is crucial, as reliance on client referrals and various marketing channels is essential for growth[69]. Operational Risks - The company relies on third-party data hosting services, and any disruptions or increased costs from these providers could impair functionality and harm revenue[91][95]. - Insufficient computing resources and bandwidth could lead to service disruptions, negatively impacting customer retention and acquisition[96]. - High-quality customer support is critical for the renewal and expansion of agreements with existing customers, and any failure in this area could harm the company's reputation and customer retention[110]. - The operating subsidiary does not enter into long-term sales agreements, leading to fluctuating purchase orders based on customer demand[112]. Compliance and Regulatory Challenges - Compliance with data protection laws in Hong Kong is critical, and any failure to meet these regulations could harm the company's operations and financial condition[97]. - The company is focused on compliance with evolving privacy and data protection laws in Hong Kong and internationally, which may impose significant operational costs and risks[99]. - Future international expansion may expose the company to various compliance challenges and increased operational costs, potentially affecting its ability to offer services in certain jurisdictions[106]. - The company anticipates that evolving global data privacy regulations could limit the adoption of its services and expose it to liability, impacting its international growth strategy[105]. - The company may face difficulties in managing international operations, including compliance with differing technology standards and data privacy regulations, which could hinder its market expansion efforts[109]. Financial Condition and Capital Requirements - As of December 31, 2023, the company reported a working capital deficit of $268,232, raising substantial doubt about its ability to continue as a going concern[153]. - The working capital deficit was $875,448 as of December 31, 2022, indicating a worsening financial situation year-over-year[153]. - The company plans to meet cash requirements for the next 12 months through operations and financial support from its controlling shareholder and investors[154]. - The company has funded its operations primarily through equity and debt financings, and it may require additional financing to support future capital requirements[133]. Cybersecurity and Data Privacy - Cybersecurity threats and data breaches pose significant risks, potentially harming reputation and incurring liability[117]. - The company depends on third-party service providers for data security, which limits its ability to monitor and control security practices[119]. - Concerns regarding data privacy and security may adversely affect user trust and engagement, impacting the company's revenue growth[104]. - The company is subject to potential investigations and enforcement actions related to data privacy compliance, which could result in fines and damage its reputation[103]. Strategic Growth and Acquisitions - The company may pursue acquisitions and joint ventures as part of its growth strategy, but these could expose it to potential liabilities and significant transaction costs[132]. - The company may face challenges in executing its acquisition strategy, which could disrupt operations and affect financial performance[126]. - The company may incur substantial costs in maintaining and protecting its intellectual property, which is critical for its competitive position[136]. Economic and Geopolitical Factors - The company is highly susceptible to factors adversely affecting Hong Kong, which could materially disrupt its operations and financial condition[143]. - Inflation and increases in labor costs in Hong Kong may adversely affect the company's business and results of operations[144]. - The company's business performance is significantly influenced by the economic conditions in Hong Kong, which are sensitive to changes in Mainland China's political and economic environment[186]. - Heightened international tensions, particularly between the U.S. and China, may negatively impact the Hong Kong economy and, consequently, the company's business operations[190]. Stock Market and Regulatory Compliance - The company has received a notification from Nasdaq regarding its failure to maintain a minimum bid price of $1.00 per share for 33 consecutive business days, putting it at risk of delisting[210]. - The company has a compliance period of 180 days to regain compliance with Nasdaq's Minimum Bid Price Requirement, with no assurance of success[210]. - The company is subject to the Holding Foreign Companies Accountable Act, which may prohibit its shares from trading on U.S. exchanges if its auditor is not PCAOB inspected for two consecutive years[217]. - The PCAOB has determined it is unable to inspect registered public accounting firms in China and Hong Kong, which could affect the company's compliance and trading status[219]. Internal Controls and Governance - The company identified material weaknesses in its internal control over financial reporting, including insufficient accounting personnel and lack of internal audit functions[255]. - Plans are in place to improve internal controls, including hiring qualified staff and establishing a formal financial control framework[256]. - The company may incur significant legal, accounting, and other expenses as it transitions from an emerging growth company to a public company[248].

[Management Report](index=12&type=section&id=Management%20Report) [Message from the Chairman](index=22&type=section&id=Message%20from%20the%20Chairman) The Chairman highlights consistent growth and record Q1 2025 results, attributing success to financial discipline, efficient capital allocation, and strategic market diversification. - BRF started 2025 with consistent growth and record figures, demonstrating a commitment to efficient capital allocation and financial discipline[22](index=22&type=chunk) - The company's market diversification strategy and focus on value-added products in strategic markets like Saudi Arabia and China have been crucial for its growth[23](index=23&type=chunk) [Message from Management](index=25&type=section&id=Message%20from%20Management) Management reports a strong Q1 2025 with doubled net income, 16% revenue growth, record adjusted EBITDA, and historic low leverage, driven by efficiency programs and strategic acquisitions. Q1 2025 Key Financial Highlights | Metric | Value | Change vs. Q1 2024 | | :--- | :--- | :--- | | Net Income | R$1.2 billion | +100% | | Net Revenue | R$15.5 billion | +16% | | Adjusted EBITDA | R$2.8 billion | +30% | | Free Cash Flow | R$1.3 billion | - | | Net Leverage | 0.54x | - | - The BRF+ efficiency program generated **R$305 million in savings**, contributing to increased factory occupancy and sales volume growth[26](index=26&type=chunk) - Strategic growth was advanced through the completion of an acquisition of a processed foods plant in China and a **26% stake in Addoha Poultry Company** in Saudi Arabia[29](index=29&type=chunk) - Employee engagement reached **89%**, an increase of **4 percentage points** from 2024, placing the company above the average for high-performance companies[30](index=30&type=chunk) [Operational and Financial Performance](index=28&type=section&id=Operational%20and%20Financial%20Performance) BRF's Q1 2025 consolidated net revenue grew 16.0% to R$15.5 billion, with adjusted EBITDA up 30.0% to R$2.75 billion, and net leverage significantly reduced to 0.54x. Consolidated Highlights Q1 2025 vs. Q1 2024 | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Volume (Thousand Tons) | 1,243 | 1,153 | 7.7% | | Net Revenues (R$ Million) | 15,512 | 13,378 | 16.0% | | Gross Profit (R$ Million) | 4,053 | 3,224 | 25.7% | | Net Income (R$ Million) | 1,185 | 594 | 99.6% | | Adjusted EBITDA (R$ Million) | 2,753 | 2,117 | 30.0% | | Adjusted EBITDA Margin (%) | 17.7% | 15.8% | 1.9 p.p. | | Leverage (Net Debt/Adj.EBITDA LTM) | 0.54x | 1.45x | (62.9%) | - The consolidated results for Q1 2025 were impacted by hyperinflation in Türkiye; managerial results, excluding these effects, are presented for business segment analysis[32](index=32&type=chunk) [Brazil Segment](index=31&type=section&id=Brazil%20Segment) The Brazil segment achieved strong Q1 2025 performance with 20.6% revenue growth to R$7.4 billion and 36.8% adjusted EBITDA growth to R$1.27 billion, driven by improved execution and processed product sales. Brazil Segment Financials (R$ Million) | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Net Operating Revenues | 7,435 | 6,162 | 20.6% | | Gross Profit | 2,060 | 1,587 | 29.8% | | Adjusted EBITDA | 1,274 | 931 | 36.8% | | Adjusted EBITDA Margin (%) | 17.1% | 15.1% | 2.0 p.p. | - Sales volume of processed products grew by **16% year-over-year**, highlighting strong performance in this category[35](index=35&type=chunk) - The company achieved a new record low for FIFO (First-In, First-Out) discounts, demonstrating assertiveness in demand planning and production[37](index=37&type=chunk) - Brand campaigns were prominent, with Sadia focusing on cold cuts and its presence at Lollapalooza, Perdigão sponsoring sports events like Copa do Nordeste and NFL in Brazil, and Qualy achieving record volumes and market share in margarine[40](index=40&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[46](index=46&type=chunk) [International Segment](index=40&type=section&id=International%20Segment) The International segment maintained healthy profitability in Q1 2025 with R$1.43 billion adjusted EBITDA and 19.1% margin, driven by export volume growth, favorable pricing, and strategic investments in the GCC. International Segment Financials (R$ Million) | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Net Operating Revenues | 7,483 | 6,484 | 15.4% | | Gross Profit | 1,903 | 1,497 | 27.1% | | Adjusted EBITDA | 1,426 | 1,096 | 30.1% | | Adjusted EBITDA Margin (%) | 19.1% | 16.9% | 2.2 p.p. | - The company obtained **12 new export authorizations** in the quarter, including the key resumption of poultry exports to China from the Rio Verde (GO) unit[49](index=49&type=chunk) - In the GCC, sales volumes increased driven by Ramadan seasonality; the company announced a **US$160 million investment** to build a new processed products factory in Jeddah, Saudi Arabia, which will increase local production capacity from **17,000 to 57,000 tons per year**[52](index=52&type=chunk) - In Türkiye, despite price pressure on in-natura products, the company maintained market leadership with a **25.3% total market share** and **29.8% in processed products**[53](index=53&type=chunk) [Other Segments](index=49&type=section&id=Other%20Segments) The 'Other Segments' (Ingredients and Pet Food) reported R$76 million adjusted EBITDA in Q1 2025, with reduced revenue but positive impacts from efficiency programs, an international award, and grain arbitrage. Other Segments Financials (R$ Million) | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Net Operating Revenues | 659 | 730 | (10.2%) | | Gross Profit | 133 | 174 | (23.6%) | | Adjusted EBITDA | 76 | 78 | (2.8%) | | Adjusted EBITDA Margin (%) | 11.5% | 10.7% | 0.8 p.p. | - In Ingredients, supply was reduced due to the BRF+ efficiency program; BRF Ingredients won first place in the F3 Krill Replacement Challenge 2025 with its chicken hydrolysate[67](index=67&type=chunk) - In Pet Food, the company strengthened its commercial team and unified its ERP (SAP) system across all Brazilian units to enhance synergies and savings[68](index=68&type=chunk) - One-off grain arbitrage operations contributed to the improvement in the absolute result of the Other Segments business[69](index=69&type=chunk) [Consolidated Performance](index=55&type=section&id=Consolidated%20Performance) This section details BRF's Q1 2025 consolidated financial results, covering revenue, costs, expenses, financial results, net income, EBITDA, cash flow, and indebtedness, highlighting growth, cost management, and debt reduction. [Net Operating Revenue](index=58&type=section&id=Net%20Operating%20Revenue) Consolidated net operating revenue increased by 16.0% year-over-year to R$15.5 billion in Q1 2025, driven by higher sales volume and average prices, with hedge accounting protecting against exchange rate volatility. Net Operating Revenue (NOR) - Consolidated | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Volume (Thousand Tons) | 1,243 | 1,153 | 7.7% | | Net Operational Revenues (R$ Million) | 15,512 | 13,378 | 16.0% | | Average Price (R$/kg) | 12.48 | 11.60 | 7.6% | - The company uses derivative financial instruments for cash flow hedging to protect operating results from exchange rate volatility; the net effect of settled instruments in Q1 2025 was a reduction of **R$36.771 million** in the result[78](index=78&type=chunk)[80](index=80&type=chunk) [Costs, Expenses & Other Operating Results](index=61&type=section&id=Costs%2C%20Expenses%20%26%20Other%20Operating%20Results) Consolidated cost of goods sold per kg rose 4.8% year-over-year due to higher production costs and raw material purchases, partially offset by BRF+ savings, while operating expenses as a percentage of net revenue decreased by 1.0 percentage point. Cost of Goods Sold (COGS) - Consolidated | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Cost of Goods Sold (R$ Million) | (11,459) | (10,153) | 12.9% | | COGS/kg (R$) | (9.22) | (8.80) | 4.8% | - The BRF+ efficiency program generated **R$305 million in savings** during the quarter, partially mitigating cost increases[85](index=85&type=chunk) Operating Expenses - Consolidated | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Selling Expenses (R$ Million) | (1,949) | (1,799) | 8.3% | | General & Admin Expenses (R$ Million) | (217) | (201) | 7.8% | | Operating Expenses as % of NOR | 14.0% | 15.0% | -1.0 p.p. | [Net Financial Result](index=64&type=section&id=Net%20Financial%20Result) The net financial result improved by 15.1% to an expense of R$457 million in Q1 2025, driven by increased financial revenues from a higher cash position and a positive net effect from exchange rate variations and derivatives. Net Financial Result (R$ Million) | Component | 1Q25 | 1Q24 | | :--- | :--- | :--- | | Financial Income | 366 | 274 | | Financial Expenses | (921) | (907) | | Exchange variation and derivative results, net | 98 | 95 | | **Net Financial Results** | **(457)** | **(538)** | - Financial revenues grew by **R$92 million** year-over-year, primarily due to higher interest income on a larger cash position[96](index=96&type=chunk) - The net effect of exchange rate variations on monetary assets/liabilities and their hedges was a gain of **R$39 million**, an improvement of **R$45 million** compared to Q1 2024[102](index=102&type=chunk) [Net Income (Loss)](index=70&type=section&id=Net%20Income%20%28Loss%29) The company reported a consolidated net income of R$1.185 billion in Q1 2025, a significant 99.6% increase from the prior year, driven by robust operating performance and reduced net financial expenses. Net Income (R$ Million) | Metric | 1Q25 | 1Q24 | Change % YoY | | :--- | :--- | :--- | :--- | | Net Income | 1,185 | 594 | 99.6% | | Net Margin (%) | 7.6% | 4.4% | 3.2 p.p. | [Adjusted EBITDA](index=70&type=section&id=Adjusted%20EBITDA) Consolidated adjusted EBITDA for Q1 2025 increased 30.0% to R$2.753 billion, with the margin expanding by 1.9 percentage points to 17.7%, primarily due to strong operating performance and adjustments for hyperinflation in Turkey. Adjusted EBITDA Reconciliation (R$ Million) | Description | 1Q25 | 1Q24 | | :--- | :--- | :--- | | Net Income | 1,185 | 594 | | (+) Income Tax & Social Contribution | 242 | 121 | | (+) Net Financial | 457 | 538 | | (+) Depreciation & Amortization | 838 | 848 | | **EBITDA** | **2,723** | **2,100** | | (+) Adjustments (Hyperinflation, etc.) | 30 | 17 | | **Adjusted EBITDA** | **2,753** | **2,117** | [Cash Flow](index=70&type=section&id=Cash%20Flow) BRF generated R$1.3 billion in free cash flow in Q1 2025, driven by strong operating profit and an improved cash conversion cycle, despite significant investment outflows for CAPEX and acquisitions. Managerial Free Cash Flow (R$ Million) | Component | 1Q25 | 1Q24 | | :--- | :--- | :--- | | Adjusted EBITDA | 2,753 | 2,117 | | Cash Flow from Operating Activities | 3,617 | 2,048 | | Cash Flow from Investments | (1,484) | (696) | | **Free Cash Flow** | **1,282** | **844** | - The cash conversion cycle ended Q1 2025 at **-6.6 days**, an improvement of **11.4 days** compared to Q1 2024[109](index=109&type=chunk) - Total CAPEX in Q1 2025 was **R$975 million**, with **R$383 million** allocated to growth, efficiency, and support projects[111](index=111&type=chunk) - Investment cash flow included **R$511 million** for the acquisition of **26% of Addoha Poultry Company**[110](index=110&type=chunk) [Indebtedness](index=76&type=section&id=Indebtedness) The company significantly reduced its net debt to R$5.98 billion in Q1 2025, achieving a historic low net leverage of 0.54x, and received a 'Positive' outlook upgrade from Fitch Ratings. Debt Profile (R$ Million) | Metric | 03.31.2025 | 12.31.2024 | 03.31.2024 | | :--- | :--- | :--- | :--- | | Gross Debt | 19,582 | 21,045 | 19,414 | | Total Cash Investments | 13,600 | 12,720 | 10,397 | | **Net Debt** | **5,982** | **8,325** | **9,016** | - Net leverage (Net Debt / LTM Adj. EBITDA) reached a historic low of **0.54x** in Q1 2025, compared to **0.79x** in Q4 2024[121](index=121&type=chunk) - Fitch Ratings raised the outlook for BRF's credit ratings on a global corporate scale from 'stable' to 'positive'[121](index=121&type=chunk) - Post-quarter, the company issued **R$1.25 billion in debentures**, including its first-ever 15 and 20-year series, extending the proforma average debt maturity to **8.5 years**[120](index=120&type=chunk) [ESG Highlights](index=82&type=section&id=ESG%20Highlights) BRF achieved significant ESG milestones in Q1 2025, including inclusion in B3's sustainability indices, top rankings in animal welfare benchmarks, and the publication of its 2024 Integrated Report. - The company was included in the ISE (Corporate Sustainability Index) and Carbon Efficient Index portfolios on the B3 stock exchange[125](index=125&type=chunk) - BRF was ranked as the top poultry and pork protein company in the Benchmark on Farm Animal Welfare (BBFAW), a key global ranking for farm animal welfare[127](index=127&type=chunk) - The company published its Integrated Report for 2024, reaffirming its commitment to transparency and governance[128](index=128&type=chunk) [About Us](index=97&type=section&id=About%20Us) This section provides an overview of BRF's corporate profile, detailing its integrated 'farm to table' model, extensive global operations, diverse product portfolio, and leading brands in key markets. - BRF operates a fully integrated business model, controlling the entire production chain from grain consumption and animal farming to processing, distribution, and point of sale[137](index=137&type=chunk)[138](index=138&type=chunk) - The company has a significant global footprint, with **45 industrial facilities**, a presence in approximately **120 countries**, and over **100,000 employees worldwide**[138](index=138&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) - BRF holds leading market share in key categories, including **40.5% in processed products in Brazil**, **36.6% in the Gulf countries**, and **25.3% in Türkiye**[138](index=138&type=chunk)[140](index=140&type=chunk)[150](index=150&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) This section presents the primary consolidated and parent company financial statements for Q1 2025, including the Statements of Financial Position, Income, Comprehensive Income, Changes in Equity, Cash Flows, and Value Added. [Statements of Financial Position](index=5&type=section&id=Statements%20of%20Financial%20Position) The consolidated statement of financial position as of March 31, 2025, shows total assets of R$62.89 billion, total liabilities of R$45.51 billion, and total equity of R$17.38 billion. Consolidated Balance Sheet Summary (in thousands of BRL) | Account | 03.31.2025 | 12.31.2024 | | :--- | :--- | :--- | | **Total Current Assets** | 31,458,506 | 30,830,485 | | **Total Non-Current Assets** | 31,431,162 | 31,844,576 | | **Total Assets** | **62,889,668** | **62,675,061** | | **Total Current Liabilities** | 21,571,191 | 20,820,577 | | **Total Non-Current Liabilities** | 23,942,198 | 25,355,295 | | **Total Liabilities** | **45,513,389** | **46,175,872** | | **Total Equity** | **17,376,279** | **16,499,189** | [Statements of Income (Loss)](index=7&type=section&id=Statements%20of%20Income%20%28Loss%29) For Q1 2025, consolidated net sales reached R$15.51 billion, gross profit was R$4.05 billion, and net income attributable to controlling shareholders significantly improved to R$1.12 billion. Consolidated Income Statement Summary (in thousands of BRL) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Sales | 15,512,021 | 13,377,509 | | Gross Profit | 4,052,605 | 3,224,287 | | Income Before Financial Results and Taxes | 1,884,532 | 1,252,295 | | Income (Loss) for the Year | 1,185,070 | 593,744 | | Attributable to Controlling Shareholders | 1,124,435 | 504,993 | [Statements of Comprehensive Income (Loss)](index=8&type=section&id=Statements%20of%20Comprehensive%20Income%20%28Loss%29) The consolidated statement of comprehensive income for Q1 2025 shows a total comprehensive income of R$1.29 billion, including net income and other comprehensive income items like foreign currency translation and cash flow hedges. Consolidated Comprehensive Income Summary (in thousands of BRL) | Account | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Income for the period | 1,185,070 | 593,744 | | Other comprehensive income (loss), net | 108,342 | (61,328) | | **Comprehensive income for the period** | **1,293,412** | **532,416** | [Statements of Changes in Equity](index=9&type=section&id=Statements%20of%20Changes%20in%20Equity) Consolidated equity increased from R$16.50 billion to R$17.38 billion in Q1 2025, primarily driven by net income and positive other comprehensive income, partially offset by treasury share acquisitions. - Total consolidated equity increased from **R$16.50 billion to R$17.38 billion** during Q1 2025[9](index=9&type=chunk) - Key changes included income for the year (**R$1.185 billion**), positive other comprehensive income (**R$108 million**), and acquisition of treasury shares (**R$417 million**)[9](index=9&type=chunk) [Statements of Cash Flows](index=10&type=section&id=Statements%20of%20Cash%20Flows) For Q1 2025, the company generated R$3.61 billion in net cash from operating activities, with net cash used in investing activities of R$1.30 billion and financing activities of R$1.15 billion, resulting in an R$887 million net increase in cash. Consolidated Cash Flow Summary (in thousands of BRL) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | 3,613,133 | 1,921,659 | | Net cash used in investing activities | (1,302,122) | (448,324) | | Net cash used in financing activities | (1,149,066) | (1,373,301) | | **Net increase in cash and cash equivalents** | **886,603** | **302,544** | [Statements of Value Added](index=11&type=section&id=Statements%20of%20Value%20Added) The company generated R$5.84 billion in total value added in Q1 2025, primarily distributed to employees, government, and shareholders. Distribution of Added Value - Q1 2025 (in thousands of BRL) | Distribution | Amount | | :--- | :--- | | Payroll | 2,034,325 | | Taxes, Fees and Contributions | 1,722,584 | | Capital Remuneration from Third Parties | 893,403 | | Interest on Own-Capital (Shareholders) | 1,185,070 | | **Total Value Added Distributed** | **5,835,382** | [Notes to the Financial Statements](index=117&type=section&id=Notes%20to%20the%20Financial%20Statements) This section provides detailed disclosures supporting the primary financial statements, covering operations, accounting policies, risk management, segment information, related party transactions, and post-period events. [Note 1. Company's Operations](index=117&type=section&id=Note%201.%20Company%27s%20Operations) This note describes BRF's global food business, recent climate event impacts, a plant fire, and strategic acquisitions including stakes in Addoha Poultry and Gelprime, and a processed foods factory in China. - BRF is a Brazilian multinational food company focused on raising, producing, and selling poultry and pork products, with a portfolio of well-known brands[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) - The company was affected by climate events in Rio Grande do Sul in May 2024, resulting in shutdowns and additional expenses of **R$1.184 million** recognized in COGS[163](index=163&type=chunk)[164](index=164&type=chunk) - Key strategic moves include the acquisition of **26% of Addoha Poultry Company** in Saudi Arabia for **R$511 million**, the acquisition of a processed foods factory in Henan, China, and an agreement to acquire **50% of gelatin producer Gelprime**[168](index=168&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk)[173](index=173&type=chunk) [Note 23. Financial instruments and risk management](index=149&type=section&id=Note%2023.%20Financial%20instruments%20and%20risk%20management) This note details the company's management of credit, liquidity, and market risks, outlining its capital structure, debt profile (R$19.6 billion gross, R$6.0 billion net), and derivative instruments used for hedging. Consolidated Net Debt as of March 31, 2025 (in thousands of BRL) | Component | Amount | | :--- | :--- | | Gross debt | (19,581,762) | | Cash and cash equivalents | 12,051,967 | | Marketable securities | 1,220,922 | | Restricted cash | 326,973 | | **Net debt** | **(5,981,900)** | - The company actively manages market risks using derivative financial instruments, including foreign exchange, commodity price, and interest rate hedges, with detailed positions provided for each risk category[283](index=283&type=chunk)[285](index=285&type=chunk)[296](index=296&type=chunk)[302](index=302&type=chunk) - A sensitivity analysis shows the potential impact of fluctuations in exchange rates and commodity prices on the company's results; for example, a **15% appreciation of the USD against the BRL** would have a net positive effect of **R$223.8 million** on operating results from hedged USD revenues[310](index=310&type=chunk)[314](index=314&type=chunk) [Note 24. Segment Information](index=163&type=section&id=Note%2024.%20Segment%20Information) The company reports operations across Brazil, International, and Other segments, with Brazil and International segments showing nearly equal net sales of R$7.4 billion each in Q1 2025. Consolidated Net Sales by Segment (Q1 2025, in thousands of BRL) | Segment | Net Sales | | :--- | :--- | | Brazil | 7,434,554 | | International | 7,422,052 | | Other segments | 655,415 | | **Total** | **15,512,021** | Consolidated Gross Profit by Segment (Q1 2025, in thousands of BRL) | Segment | Gross Profit | Margin (%) | | :--- | :--- | :--- | | Brazil | 2,060,004 | 27.7% | | International | 1,860,495 | 25.1% | | Other segments | 133,290 | 20.3% | [Note 28. Related parties](index=168&type=section&id=Note%2028.%20Related%20parties) This note discloses transactions with related parties, including significant intercompany balances and total remuneration for key management personnel, which amounted to R$24.4 million in Q1 2025. - The company has significant intercompany transactions, including export pre-payments from its trading subsidiaries to the parent company[336](index=336&type=chunk) Management Remuneration (Q1, in thousands of BRL) | Category | 2025 | 2024 | | :--- | :--- | :--- | | Salary and profit sharing | 21,362 | 15,404 | | Share-based payment | 1,975 | 4,515 | | **Total** | **24,364** | **21,172** | [Note 31. Events after the reporting period](index=171&type=section&id=Note%2031.%20Events%20after%20the%20reporting%20period) This note details significant post-reporting period events, including Board approval for a US$160 million factory in Saudi Arabia, a R$1.25 billion debenture issuance, and a proposed share merger with Marfrig Global Foods S.A. - On April 21, 2025, the Board approved a **~US$160 million investment** to build a new processed products factory in Jeddah, Saudi Arabia, increasing local production capacity to **57,000 tons/year**[343](index=343&type=chunk)[344](index=344&type=chunk) - On April 23, 2025, the company settled its sixth issuance of debentures, totaling **R$1.25 billion**[345](index=345&type=chunk) - On May 15, 2025, the boards of BRF and Marfrig approved a plan for a merger of shares, where BRF would become a wholly-owned subsidiary of Marfrig; BRF shareholders would receive **0.8521 Marfrig shares** for each BRF share[349](index=349&type=chunk)[350](index=350&type=chunk) [Declarations and Opinions](index=173&type=section&id=Declarations%20and%20Opinions) This section contains formal reports and opinions from independent auditors, the Audit and Integrity Committee, and the Executive Board, all supporting the approval of the Q1 2025 financial statements. [Independent Auditors' Report](index=173&type=section&id=Independent%20Auditors%27%20Report) The independent auditors, Grant Thornton Auditores Independentes Ltda., concluded that the interim financial information for Q1 2025 was prepared, in all material respects, in accordance with relevant accounting standards. - The auditors issued an unmodified conclusion on the interim financial statements, stating they are not aware of any material misstatements[360](index=360&type=chunk) [Opinion of the Audit and Integrity Committee](index=175&type=section&id=Opinion%20of%20the%20Audit%20and%20Integrity%20Committee) The Audit and Integrity Committee examined the Q1 2025 interim financial information and related reports, finding no significant divergences and recommending approval of the financial information. - The Audit and Integrity Committee found no significant disagreements and recommended the approval of the interim financial statements[364](index=364&type=chunk) [Opinion of Executive Board](index=176&type=section&id=Opinion%20of%20Executive%20Board) The Executive Board of BRF S.A. formally reviewed, discussed, and agreed with the company's Q1 2025 interim financial information and the independent auditor's report. - The Executive Board declared its agreement with the Q1 2025 financial statements and the independent auditor's report[366](index=366&type=chunk)

Financial Performance - The company incurred losses of R$154,658 thousand for the year ended December 31, 2024, R$60,771 thousand for 2023, and R$243,025 thousand for 2022, indicating a history of financial losses [43]. - The company has a negative consolidated working capital of R$355,769 thousand as of December 31, 2024, raising concerns about its ability to continue as a going concern [41]. - The company recorded provisions for disputes amounting to R$1,797 thousand and R$42,207 thousand as of December 31, 2024 and 2023, respectively, indicating a significant increase in potential liabilities [182]. Revenue Sources - 66.8% of the company's revenue for the year ended December 31, 2024, was derived from the CPaaS segment, primarily from SMS text messaging services [45]. - A significant portion of revenue, 38.2% for 2024, 33.4% for 2023, and 37.0% for 2022, was concentrated among the top 10 customers, with the largest customer accounting for over 7% of total revenue in 2024 [46]. - The Net Revenue Expansion (NRE) rate for the year ended December 31, 2024, was 106.5%, showing growth in revenue from existing customers [71]. Customer Dynamics - The number of active customers decreased from 13,336 in 2022 to 10,622 in 2024, indicating a decline in customer retention [71]. - The company is increasingly dependent on WhatsApp as a communication channel, which may be affected by changes in WhatsApp's policies [52]. Financing and Capital Structure - The company may require additional financing to support future capital requirements, which could be difficult to secure on favorable terms due to existing indebtedness [56]. - As of December 31, 2024, the total loans, borrowings, and debentures outstanding amounted to R$126,855 thousand, consisting of R$81,137 thousand in current liabilities and R$45,718 thousand in non-current liabilities [58]. - The company may need to raise additional capital in the future, which could dilute investors' interests in its share capital [233]. Market and Competitive Landscape - The market for the company's products is relatively new and unproven, with potential risks including changes in consumer behavior and competition from alternative products [44]. - The market for cloud communications is highly competitive, with low barriers to entry, and the company faces significant competition from larger competitors [85]. - The company faces challenges in adapting to rapidly changing technology and evolving industry standards, which could adversely affect sales [59]. Strategic Initiatives - The company has initiated a new strategic cycle focusing on its SaaS business, particularly the recently launched Zenvia Customer Cloud [77]. - The company completed acquisitions of SenseData, D1, and Movidesk to expand its SaaS offerings and enhance multichannel communications capabilities [89]. - The launch of the Zenvia Customer Cloud solution on October 16, 2024, aims to revolutionize customer experience through AI integration [80]. Compliance and Regulatory Risks - Compliance with the LGPD (General Data Protection Law) requires the company to adapt its data processing activities, with penalties for violations including fines up to R$50 million per violation [129]. - The company is subject to evolving privacy and data protection laws, which may increase compliance costs and impact its ability to operate effectively in various jurisdictions [134]. - The company is implementing an anti-corruption compliance program to manage risks associated with anti-corruption laws, which could result in significant fines and reputational harm if violated [139]. Economic and Political Environment - The Brazilian government enacted Constitutional Amendment No. 132 on December 20, 2023, introducing a new taxation model that replaces IPI, PIS, and COFINS with a Contribution on Goods and Services (CBS) and a Tax on Goods and Services (IBS) starting in 2026 [144]. - The ongoing economic and political instability in Brazil may lead to increased volatility in the securities market, adversely affecting the company's financial condition [186]. - High levels of inflation in Brazil historically harm the economy and capital markets, which could negatively impact the company's business and share price [191]. Shareholder Dynamics - Controlling shareholders own 100% of Class B common shares and 35.3% of Class A common shares, representing approximately 92.99% of the voting power and 64.50% of total equity ownership [215]. - The disparity in voting rights between Class A and Class B common shares may adversely affect the price of Class A common shares and limit investors' ability to influence corporate matters [216]. - The company has not adopted a dividend policy, and any future distributions will depend on various factors, including operational results and financial condition [224]. Operational Challenges - The company faces challenges in expanding operations into new market segments and geographic regions, which may require substantial expenditures and time [112]. - The company may incur unforeseen expenses to remediate the identified material weaknesses in internal control over financial reporting [165]. - Cybersecurity threats continue to increase, and any data security incidents could result in loss of confidential information and damage to the company's reputation [158].