PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, covering balance sheets, income, cash flows, equity, and related notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased to **$2.226 billion**, while total liabilities significantly decreased to **$922.952 million**, and shareholders' equity increased to **$1.303 billion** | Metric | As of Aug 31, 2025 (in thousands) | As of Feb 28, 2025 (in thousands) | Change (in thousands) | | :----- | :-------------------------------- | :-------------------------------- | :-------------------- | | Total Assets | $2,225,983 | $2,227,101 | $(1,118) | | Total Liabilities | $922,952 | $1,181,606 | $(258,654) | | Total Shareholders' Equity | $1,303,031 | $1,045,495 | $257,536 | | Long-term debt, net | $566,864 | $852,365 | $(285,501) | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net income for the three months ended August 31, 2025, significantly increased to **$89.346 million**, and for the six months, net income available to common shareholders was **$260.254 million** | Metric | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Sales | $417,275 | $409,007 | $8,268 | 2.0% | | Gross margin | $101,292 | $103,514 | $(2,222) | -2.1% | | Operating income | $68,461 | $67,646 | $815 | 1.2% | | Net income | $89,346 | $35,419 | $53,927 | 152.2% | | Basic EPS | $2.97 | $1.19 | $1.78 | 149.6% | | Diluted EPS | $2.95 | $1.18 | $1.77 | 150.0% | | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Sales | $839,237 | $822,215 | $17,022 | 2.1% | | Gross margin | $205,422 | $206,184 | $(762) | -0.4% | | Operating income | $138,010 | $137,395 | $615 | 0.4% | | Net income available to common shareholders | $260,254 | $(1,377) | $261,631 | N/A | | Basic EPS | $8.68 | $(0.05) | $8.73 | N/A | | Diluted EPS | $8.61 | $(0.05) | $8.66 | N/A | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Comprehensive income for the three months ended August 31, 2025, was **$88.761 million**, and for the six months, it was **$262.160 million**, a significant improvement from the prior year | Metric | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Net income (loss) available to common shareholders | $89,346 | $35,419 | $53,927 | 152.2% | | Other comprehensive income (loss) | $(585) | $(3,836) | $3,251 | -84.7% | | Comprehensive income (loss) | $88,761 | $31,583 | $57,178 | 181.0% | | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Net income (loss) available to common shareholders | $260,254 | $(1,377) | $261,631 | N/A | | Other comprehensive income (loss) | $1,906 | $(3,001) | $4,907 | N/A | | Comprehensive income (loss) | $262,160 | $(4,378) | $266,538 | N/A | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly increased to **$373.169 million** for the six months ended August 31, 2025, primarily used for debt payments, capital expenditures, and dividends | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- |\n| Net cash provided by operating activities | $373,169 | $119,430 | $253,739 | 212.5% | | Net cash used in investing activities | $(66,491) | $(58,740) | $(7,751) | 13.2% | | Net cash used in financing activities | $(306,614) | $(62,750) | $(243,864) | 388.6% | | Net decrease in cash and cash equivalents | $(591) | $(2,197) | $1,606 | -73.1% | - Operating cash flows were significantly boosted by a **$273.2 million** cash distribution from the AVAIL JV[17](index=17&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Total shareholders' equity increased from **$1.045 billion** to **$1.303 billion** at August 31, 2025, primarily due to net income | Metric | As of Aug 31, 2025 (in thousands) | As of Feb 28, 2025 (in thousands) | Change (in thousands) | | :----- | :-------------------------------- | :-------------------------------- | :-------------------- | | Total Shareholders' Equity | $1,303,031 | $1,045,495 | $257,536 | | Retained Earnings | $858,315 | $609,158 | $249,157 | | Common Stock Shares Outstanding | 30,057 | 29,913 | 144 | - The increase in shareholders' equity was primarily driven by net income of **$260.254 million** for the six months ended August 31, 2025[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering company operations, accounting policies, and various financial items - AZZ Inc. operates in three segments: Metal Coatings, Precoat Metals, and Infrastructure Solutions (**40%** interest in AVAIL JV)[24](index=24&type=chunk) - The company acquired Canton Galvanizing for **$30.1 million** on July 1, 2025, expanding its Metal Coatings segment[32](index=32&type=chunk) - The AVAIL JV sold its Electrical Products Group for **$975.0 million** in May 2025, leading to a significant gain recognized by AZZ, partially offset by an impairment charge on the AVAIL JV investment[62](index=62&type=chunk)[65](index=65&type=chunk) - The company entered into a new fixed-rate interest rate swap (2025 Swap) for **$290.0 million** at **5.509%** to manage interest rate exposure, replacing a terminated 2022 Swap[72](index=72&type=chunk) - Long-term debt decreased significantly from **$852.365 million** to **$566.864 million**, partly due to proceeds from a new **$150.0 million** Receivables Securitization Facility used to pay down the Term Loan B[74](index=74&type=chunk)[82](index=82&type=chunk) - The company initiated a restructuring plan in the Metal Coatings segment, closing two facilities and incurring **$3.8 million** in charges to improve operational efficiency[120](index=120&type=chunk)[121](index=121&type=chunk) - A new **25-acre** aluminum coil coating facility in Washington, Missouri, became operational in Q1 fiscal 2026, supported by a take-or-pay contract for **75%** of its output[131](index=131&type=chunk) - The effective tax rate decreased to **21.9%** for the three months and **23.5%** for the six months ended August 31, 2025, primarily due to higher R&D tax credits from the new aluminum coil coating facility[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - The Series A Preferred Stock was fully redeemed on May 9, 2024, for **$308.9 million**, using proceeds from a secondary public offering[109](index=109&type=chunk)[114](index=114&type=chunk) - The company recorded a legal accrual of **$5.5 million** for a breach of contract lawsuit verdict against AZZ Beaumont, which is currently under appeal[126](index=126&type=chunk) - Environmental liabilities reserve balance was **$18.4 million** as of August 31, 2025[128](index=128&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and results, including business updates, outlook, segment performance, liquidity, and non-GAAP measures [Forward Looking Statements](index=30&type=section&id=Forward%20Looking%20Statements) This section outlines cautionary statements regarding forward-looking information, emphasizing that actual results may differ due to various risks - Forward-looking statements are subject to risks such as changes in customer demand, increased labor and raw material costs (zinc, natural gas, paint), supply-chain delays, and interest rate fluctuations[133](index=133&type=chunk) - Investors are cautioned not to place undue reliance on forward-looking statements, which are based on information as of the report date and are not updated[134](index=134&type=chunk) [Business Operations Update](index=30&type=section&id=Business%20Operations%20Update) The company's financial results for the six months ended August 31, 2025, were positively impacted by significant equity in earnings from the AVAIL JV and increased demand - Results for the current six-month period were favorably impacted by equity in earnings from the AVAIL JV, including a gain from the sale of its Electrical Products Group[136](index=136&type=chunk) - Growth in demand for manufactured solutions in the construction and utilities industries also contributed positively[136](index=136&type=chunk) - Net income for the current six-month period was **$260.3 million**, primarily due to the AVAIL JV equity in earnings[137](index=137&type=chunk) - Operations generated **$373.2 million** of cash during the current six-month period[137](index=137&type=chunk) [Outlook](index=31&type=section&id=Outlook) The company anticipates consistent sales prices in Metal Coatings and price increases in Precoat Metals, with demand following typical seasonal patterns - AZZ Metal Coatings segment expects sales prices to remain consistent, with potential impact from product mix and competitive pressures[140](index=140&type=chunk) - AZZ Precoat Metals segment expects sales prices to increase due to passing through higher material costs and overall selling price increases[140](index=140&type=chunk) - Demand and volumes for both Metal Coatings and Precoat Metals segments are expected to follow normal seasonal patterns[140](index=140&type=chunk) [RESULTS OF OPERATIONS](index=31&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the financial performance of AZZ's three operating segments for the three and six months ended August 31, 2025, analyzing sales, operating income, and other financial metrics [Overview](index=31&type=section&id=Overview) AZZ Inc. provides hot-dip galvanizing and coil coating solutions through three segments: Metal Coatings, Precoat Metals, and Infrastructure Solutions, with performance evaluated by sales and operating income - AZZ operates three segments: AZZ Metal Coatings, AZZ Precoat Metals, and AZZ Infrastructure Solutions[139](index=139&type=chunk) - Segment performance is evaluated using sales and operating income for Metal Coatings and Precoat Metals, and net income for Infrastructure Solutions[139](index=139&type=chunk) [QUARTER ENDED AUGUST 31, 2025 COMPARED TO THE QUARTER ENDED AUGUST 31, 2024](index=32&type=section&id=QUARTER%20ENDED%20AUGUST%2031,%202025%20COMPARED%20TO%20THE%20QUARTER%20ENDED%20AUGUST%2031,%202024) Consolidated sales increased by **2.0%** to **$417.3 million**, and net income significantly increased by **152.2%** to **$89.3 million**, driven by the AVAIL JV gain | Metric | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Consolidated Sales | $417,275 | $409,007 | $8,268 | 2.0% | | Consolidated Operating Income | $68,461 | $67,646 | $815 | 1.2% | | Net Income | $89,346 | $35,419 | $53,927 | 152.2% | [Sales](index=33&type=section&id=Sales_QoQ) Consolidated sales increased by **$8.3 million** (**2.0%**) year-over-year, with Metal Coatings sales up **10.8%** and Precoat Metals sales down **4.3%** - Consolidated sales increased by **$8.3 million** (**2.0%**) YoY[144](index=144&type=chunk) | Segment | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :------ | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | AZZ Metal Coatings Sales | $189,984 | $171,500 | $18,484 | 10.8% | | AZZ Precoat Metals Sales | $227,291 | $237,507 | $(10,216) | -4.3% | [Operating Income](index=33&type=section&id=Operating%20Income_QoQ) Consolidated operating income increased by **$0.8 million** (**1.2%**), with Metal Coatings up **8.4%** and Precoat Metals down **14.1%** due to lower sales volume and new plant costs - Consolidated operating income increased by **$0.8 million** (**1.2%**) YoY[147](index=147&type=chunk) | Segment | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :------ | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | AZZ Metal Coatings Operating Income | $51,706 | $47,688 | $4,018 | 8.4% | | AZZ Precoat Metals Operating Income | $36,521 | $42,530 | $(6,009) | -14.1% | [Corporate Expenses](index=34&type=section&id=Corporate%20Expenses_QoQ) Corporate SG&A expenses decreased by **$2.8 million** (**12.5%**) due to lower compensation costs from prior year retirement and severance - Corporate SG&A expenses decreased by **$2.8 million** (**12.5%**) YoY[150](index=150&type=chunk) - The decrease was mainly due to lower compensation costs, including retirement and severance expenses recognized in the prior year[150](index=150&type=chunk) [Interest Expense](index=34&type=section&id=Interest%20Expense_QoQ) Interest expense decreased by **$8.2 million** to **$13.7 million**, primarily due to a **$304.4 million** decrease in weighted average debt and a **1.77%** lower interest rate - Interest expense decreased by **$8.2 million** to **$13.7 million** YoY[151](index=151&type=chunk) - This reduction was driven by a **$304.4 million** decrease in weighted average debt outstanding and a **1.77%** decrease in the weighted average interest rate[151](index=151&type=chunk) [Equity in Earnings of Unconsolidated Entities](index=34&type=section&id=Equity%20in%20Earnings%20of%20Unconsolidated%20Entities_QoQ) Equity in earnings from unconsolidated subsidiaries increased significantly by **$57.9 million** to **$59.3 million**, mainly due to a **$109.4 million** gain from the AVAIL JV sale - Equity in earnings increased by **$57.9 million** to **$59.3 million** YoY[152](index=152&type=chunk) - The increase was mainly due to a **$109.4 million** gain from the sale of AVAIL's Electrical Products Group, offset by a **$45.9 million** impairment loss on the AVAIL JV[152](index=152&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes_QoQ) The effective tax rate decreased to **21.9%** from **25.6%**, primarily due to higher R&D tax credits from the new aluminum coil coating facility - Effective tax rate decreased to **21.9%** from **25.6%** YoY[153](index=153&type=chunk) - The decrease is attributed to higher R&D tax credits from the new aluminum coil coating facility[153](index=153&type=chunk) [SIX MONTHS ENDED AUGUST 31, 2025 COMPARED TO THE SIX MONTHS ENDED AUGUST 31, 2024](index=35&type=section&id=SIX%20MONTHS%20ENDED%20AUGUST%2031,%202025%20COMPARED%20TO%20THE%20SIX%20MONTHS%20ENDED%20AUGUST%2031,%202024) Consolidated sales increased by **2.1%** to **$839.2 million**, and net income available to common shareholders dramatically improved to **$260.3 million** from a prior year loss | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Consolidated Sales | $839,237 | $822,215 | $17,022 | 2.1% | | Consolidated Operating Income | $138,010 | $137,395 | $615 | 0.4% | | Net Income (Loss) available to common shareholders | $260,254 | $(1,377) | $261,631 | N/A | [Sales](index=36&type=section&id=Sales_YoY) Consolidated sales increased by **$17.0 million** (**2.1%**) year-over-year, with Metal Coatings sales up **8.3%** and Precoat Metals sales down **2.5%** - Consolidated sales increased by **$17.0 million** (**2.1%**) YoY[157](index=157&type=chunk) | Segment | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :------ | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | AZZ Metal Coatings Sales | $377,199 | $348,152 | $29,047 | 8.3% | | AZZ Precoat Metals Sales | $462,038 | $474,063 | $(12,025) | -2.5% | [Operating Income](index=36&type=section&id=Operating%20Income_YoY) Consolidated operating income increased by **$0.6 million** (**0.4%**), with Metal Coatings up **7.1%** and Precoat Metals down **8.2%** due to lower sales volume and new plant costs - Consolidated operating income increased by **$0.6 million** (**0.4%**) YoY[160](index=160&type=chunk) | Segment | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :------ | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | AZZ Metal Coatings Operating Income | $102,438 | $95,621 | $6,817 | 7.1% | | AZZ Precoat Metals Operating Income | $75,875 | $82,623 | $(6,748) | -8.2% | [Corporate Expenses](index=36&type=section&id=Corporate%20Expenses_YoY) Corporate SG&A expenses decreased by **$0.6 million** (**1.5%**) due to lower compensation costs from prior year retirement and severance - Corporate SG&A expenses decreased by **$0.6 million** (**1.5%**) YoY[163](index=163&type=chunk) - The decrease was mainly due to lower compensation costs from prior year retirement/severance, partially offset by increased stock-based compensation from the Executive Retiree LTI Program[163](index=163&type=chunk) [Interest Expense](index=36&type=section&id=Interest%20Expense_YoY) Interest expense decreased by **$12.5 million** to **$32.2 million**, primarily due to a **$136.4 million** decrease in weighted average debt and a **1.54%** lower interest rate - Interest expense decreased by **$12.5 million** to **$32.2 million** YoY[164](index=164&type=chunk) - This reduction was driven by a **$136.4 million** decrease in weighted average debt outstanding and a **1.54%** decrease in the weighted average interest rate[164](index=164&type=chunk) [Equity in Earnings of Unconsolidated Entities](index=36&type=section&id=Equity%20in%20Earnings%20of%20Unconsolidated%20Entities_YoY) Equity in earnings from unconsolidated subsidiaries increased significantly by **$227.6 million** to **$232.9 million**, mainly due to a **$275.2 million** gain from the AVAIL JV sale - Equity in earnings increased by **$227.6 million** to **$232.9 million** YoY[165](index=165&type=chunk) - The increase was mainly due to a **$275.2 million** gain from the sale of AVAIL's Electrical Products Group, offset by a **$45.9 million** impairment loss on the AVAIL JV[165](index=165&type=chunk) [Income Taxes](index=36&type=section&id=Income%20Taxes_YoY) The effective tax rate decreased to **23.5%** from **23.9%**, primarily due to higher R&D tax credits, with the One Big Beautiful Bill Act expected to reduce fiscal 2026 cash tax payments - Effective tax rate decreased to **23.5%** from **23.9%** YoY[166](index=166&type=chunk) - The decrease is attributed to higher R&D tax credits from the new aluminum coil coating facility[166](index=166&type=chunk) - The One Big Beautiful Bill Act is expected to reduce fiscal 2026 cash tax payments[167](index=167&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=38&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity as of August 31, 2025, was **$362.2 million**, with operating activities generating **$373.2 million** in cash, primarily used for debt payments and capital expenditures - Total liquidity as of August 31, 2025, was **$362.2 million**, including **$361.3 million** from credit facilities and **$0.9 million** cash[169](index=169&type=chunk) - Net cash provided by operating activities for the six months ended August 31, 2025, was **$373.2 million**, a significant increase from **$119.4 million** in the prior year[170](index=170&type=chunk) - Operating cash was used to fund **$40.2 million** in capital expenditures, **$291.4 million** in net debt/finance lease payments, and **$11.1 million** in dividends[170](index=170&type=chunk) [Cash Flows](index=38&type=section&id=Cash%20Flows) Net cash provided by operating activities for the six months ended August 31, 2025, was **$373.2 million**, a substantial increase from **$119.4 million** in the prior year, driven by higher net income and a cash distribution from the AVAIL JV | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Net cash provided by operating activities | $373,169 | $119,430 | $253,739 | 212.5% | | Net cash used in investing activities | $(66,491) | $(58,740) | $(7,751) | 13.2% | | Net cash used in financing activities | $(306,614) | $(62,750) | $(243,864) | 388.6% | | Net decrease in cash and cash equivalents | $(591) | $(2,197) | $1,606 | -73.1% | - The increase in operating cash flow was primarily due to net income of **$260.3 million** and a **$273.2 million** cash distribution from the AVAIL JV[170](index=170&type=chunk) [Financing and Capital](index=38&type=section&id=Financing%20and%20Capital) Long-term debt decreased to **$566.9 million** from **$852.4 million**, with the Term Loan B repriced and a new **$150.0 million** Receivables Securitization Facility established, reducing the weighted average interest rate to **6.49%** - Term Loan B outstanding balance was **$434.9 million** as of August 31, 2025, and was repriced to SOFR plus **1.75%** (from **2.50%**)[173](index=173&type=chunk)[174](index=174&type=chunk) - A new **$150.0 million** Receivables Securitization Facility was entered into, with proceeds used to pay down the Term Loan B[176](index=176&type=chunk)[177](index=177&type=chunk)[179](index=179&type=chunk) - The weighted average interest rate for outstanding debt decreased to **6.49%** for the six months ended August 31, 2025, from **8.03%** in the prior year[180](index=180&type=chunk) - The company was in compliance with all debt covenants, including a maximum Total Net Leverage Ratio of **4.5** (actual **1.7x**)[181](index=181&type=chunk)[207](index=207&type=chunk) [Capital Commitments—Greenfield Aluminum Coil Coating Facility](index=40&type=section&id=Capital%20Commitments%E2%80%94Greenfield%20Aluminum%20Coil%20Coating%20Facility) The new aluminum coil coating facility became operational in Q1 fiscal 2026, with total project capital payments expected to be **$121.8 million**, and **$4.1 million** remaining to be paid - The new greenfield aluminum coil coating facility became operational in Q1 fiscal 2026[186](index=186&type=chunk) - Total capital payments for the project are expected to be **$121.8 million**, with **$4.1 million** remaining to be paid in H2 fiscal 2026[186](index=186&type=chunk) [AVAIL JV](index=40&type=section&id=AVAIL%20JV) The AVAIL JV sold its Electrical Products Group for **$975.0 million**, resulting in a **$275.2 million** gain for AZZ, offset by a **$45.9 million** impairment loss, leading to **$232.9 million** in equity in earnings - AVAIL JV sold its Electrical Products Group for **$975.0 million** in May 2025[187](index=187&type=chunk) - AZZ recognized a **$275.2 million** gain from the sale, offset by a **$45.9 million** impairment loss on the AVAIL JV investment[189](index=189&type=chunk)[190](index=190&type=chunk) - Total equity in earnings from unconsolidated subsidiaries for the six months ended August 31, 2025, was **$232.9 million**[189](index=189&type=chunk) [Share Repurchase Program](index=41&type=section&id=Share%20Repurchase%20Program) No shares were repurchased during the six months ended August 31, 2025, with **$53.2 million** remaining authorized for repurchases - No common stock repurchases were made during the six months ended August 31, 2025[191](index=191&type=chunk) - **$53.2 million** remains available under the 2020 Share Authorization for future repurchases[191](index=191&type=chunk) [Other Exposures](index=41&type=section&id=Other%20Exposures) The company faces commodity price exposure, primarily to zinc, natural gas, steel, and aluminum scrap, with mitigation strategies including fixed-price agreements and price increases - Commodity price exposure includes zinc and natural gas (Metal Coatings), and natural gas, steel, and aluminum scrap (Precoat Metals)[191](index=191&type=chunk) - Mitigation strategies include fixed-premium agreements with zinc suppliers, fixed-price natural gas contracts, and price increases to customers[191](index=191&type=chunk) [Off Balance Sheet Arrangements and Contractual Obligations](index=41&type=section&id=Off%20Balance%20Sheet%20Arrangements%20and%20Contractual%20Obligations) As of August 31, 2025, the company had no material off-balance sheet arrangements as defined by SEC rules - No material off-balance sheet arrangements existed as of August 31, 2025[192](index=192&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There were no significant changes to the company's critical accounting policies and estimates compared to those disclosed in the Annual Report on Form 10-K - No significant changes to critical accounting policies and estimates were reported[194](index=194&type=chunk) [Recent Accounting Pronouncements](index=41&type=section&id=Recent%20Accounting%20Pronouncements) The company provided a full description of recent accounting pronouncements, including adoption dates and estimated effects, in Note 1 of the financial statements - Details on recent accounting pronouncements, adoption dates, and estimated effects are provided in Note 1[195](index=195&type=chunk) [Non-GAAP Disclosures](index=42&type=section&id=Non-GAAP%20Disclosures) The company provides non-GAAP measures like adjusted net income, adjusted EPS, and Adjusted EBITDA for greater transparency, excluding items such as intangible asset amortization and restructuring charges - Non-GAAP measures (adjusted net income, adjusted EPS, Adjusted EBITDA) are provided for greater transparency and understanding of financial performance[196](index=196&type=chunk) - Adjustments typically exclude intangible asset amortization, restructuring charges, severance expenses, preferred stock redemption premium, executive retiree LTI program expense, and AVAIL JV equity in earnings adjustments[197](index=197&type=chunk) [Adjusted Net Income and Adjusted Earnings Per Share](index=43&type=section&id=Adjusted%20Net%20Income%20and%20Adjusted%20Earnings%20Per%20Share) Adjusted net income for the three months ended August 31, 2025, was **$46.9 million** (**$1.55** diluted EPS), and for the six months, it was **$100.7 million** (**$3.33** diluted EPS) | Metric | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Adjusted Net Income | $46,926 | $41,252 | $5,674 | 13.8% | | Adjusted Diluted EPS | $1.55 | $1.37 | $0.18 | 13.1% | | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Adjusted Net Income | $100,733 | $85,257 | $15,476 | 18.2% | | Adjusted Diluted EPS | $3.33 | $2.83 | $0.50 | 17.7% | [Adjusted EBITDA](index=44&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA for the three months ended August 31, 2025, was **$88.7 million**, and for the six months, it increased to **$195.1 million** | Metric | 3 Months Ended Aug 31, 2025 (in thousands) | 3 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Adjusted EBITDA | $88,727 | $91,858 | $(3,131) | -3.4% | | Metric | 6 Months Ended Aug 31, 2025 (in thousands) | 6 Months Ended Aug 31, 2024 (in thousands) | Change (in thousands) | YoY Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :-------------------- | :------------- | | Adjusted EBITDA | $195,139 | $185,956 | $9,183 | 4.9% | [Adjusted EBITDA by Segment](index=44&type=section&id=Adjusted%20EBITDA%20by%20Segment) This section provides a reconciliation of Adjusted EBITDA by segment, detailing the contribution of Metal Coatings, Precoat Metals, and Infrastructure Solutions to the overall Adjusted EBITDA - Adjusted EBITDA for Metal Coatings was **$58.5 million** (3 months) and **$120.1 million** (6 months)[203](index=203&type=chunk)[205](index=205&type=chunk) - Adjusted EBITDA for Precoat Metals was **$45.9 million** (3 months) and **$94.4 million** (6 months)[203](index=203&type=chunk)[205](index=205&type=chunk) - Infrastructure Solutions Adjusted EBITDA was negative **$(2.3) million** (3 months) and positive **$5.3 million** (6 months), reflecting the AVAIL JV adjustments[203](index=203&type=chunk)[205](index=205&type=chunk) [Debt Leverage Ratio Reconciliation](index=46&type=section&id=Debt%20Leverage%20Ratio%20Reconciliation) The company's net leverage ratio improved to **1.7x** as of August 31, 2025, from **2.5x** as of February 28, 2025, indicating a significant reduction in leverage | Metric | Trailing Twelve Months Ended Aug 31, 2025 | Trailing Twelve Months Ended Feb 28, 2025 | | :----- | :---------------------------------------- | :---------------------------------------- | | Consolidated Indebtedness | $616,372 | $894,227 | | Adjusted EBITDA per Credit Agreement | $365,273 | $358,058 | | Net Leverage Ratio | 1.7x | 2.5x | - The net leverage ratio improved from **2.5x** to **1.7x**, demonstrating reduced debt relative to Adjusted EBITDA[207](index=207&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There were no material changes to the company's market risk disclosures during the three and six months ended August 31, 2025, referring to the Annual Report on Form 10-K for detailed information - No material changes to market risk disclosures were reported for the current periods[208](index=208&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were effective as of August 31, 2025, with no material changes in internal control over financial reporting during the period - Disclosure controls and procedures were deemed effective at a reasonable assurance level[209](index=209&type=chunk) - No material changes in internal control over financial reporting occurred during the period[210](index=210&type=chunk) PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, exhibits, and signatures [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) AZZ and its subsidiaries are involved in various routine lawsuits, with a **$5.5 million** legal accrual recorded for a breach of contract verdict currently under appeal - The company is involved in routine lawsuits, but management does not expect a material financial impact[212](index=212&type=chunk) - A **$5.5 million** legal accrual was recorded for a breach of contract verdict against AZZ Beaumont, which is currently under appeal[212](index=212&type=chunk)[126](index=126&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's most recent Annual Report on Form 10-K - No material changes to risk factors were reported from the previous Annual Report on Form 10-K[213](index=213&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares of common stock were repurchased during the six months ended August 31, 2025, with **$53.2 million** remaining available for repurchases - No common stock repurchases were made during the six months ended August 31, 2025[215](index=215&type=chunk) - **$53.2 million** remains available under the 2020 Share Authorization[215](index=215&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) The Chief Legal Officer entered into a Rule 10b5-1 trading arrangement for the potential sale of up to **8,281** shares of common stock from vested restricted and performance stock units - Chief Legal Officer and Secretary, Tara D. Mackey, entered into a Rule 10b5-1 trading arrangement on August 14, 2025[217](index=217&type=chunk) - The arrangement allows for the potential sale of up to **8,281** shares from vested RSUs and PSUs, with sales starting November 13, 2025, and expiring August 15, 2027[217](index=217&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including amendments to credit agreements, securitization agreements, and certifications - Exhibits include the Sixth Amendment to Credit Agreement (August 5, 2025) and various agreements related to the Receivables Securitization Facility (July 10, 2025)[219](index=219&type=chunk) - Certifications from the CEO and CFO (pursuant to Sarbanes-Oxley Act Sections 302 and 906) are filed/furnished[219](index=219&type=chunk) [SIGNATURES](index=51&type=section&id=SIGNATURES) The report was duly signed on October 8, 2025, by Jason Crawford, Senior Vice President, Chief Financial Officer, and Principal Accounting Officer of AZZ Inc - The report was signed by Jason Crawford, SVP, CFO, and Principal Accounting Officer, on October 8, 2025[222](index=222&type=chunk)

PART I - FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents unaudited condensed consolidated financial statements, showing a significant shift from losses to profits and improved operating cash flow for the quarter and nine months ended August 30, 2025 [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's financial performance, showing a significant turnaround from net losses to net income and improved operational profitability for both the quarter and nine months Quarter Ended August 30, 2025 vs. August 31, 2024 (in thousands) | Metric | Aug 30, 2025 | Aug 31, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Net sales of furniture and accessories | $80,103 | $75,619 | +$4,484 | | Gross profit | $44,994 | $40,093 | +$4,901 | | Income (loss) from operations | $593 | $(6,357) | +$6,950 | | Net income (loss) | $801 | $(4,505) | +$5,306 | | Basic earnings (loss) per share | $0.09 | $(0.52) | +$0.61 | | Diluted earnings (loss) per share | $0.09 | $(0.52) | +$0.61 | | Regular dividends per share | $0.20 | $0.20 | $0 | Nine Months Ended August 30, 2025 vs. August 31, 2024 (in thousands) | Metric | Aug 30, 2025 | Aug 31, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Net sales of furniture and accessories | $246,613 | $245,583 | +$1,030 | | Gross profit | $138,733 | $131,720 | +$7,013 | | Income (loss) from operations | $5,545 | $(17,176) | +$22,721 | | Net income (loss) | $4,573 | $(12,899) | +$17,472 | | Basic earnings (loss) per share | $0.53 | $(1.48) | +$2.01 | | Diluted earnings (loss) per share | $0.53 | $(1.48) | +$2.01 | | Regular dividends per share | $0.60 | $0.54 | +$0.06 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This statement presents the company's comprehensive income (loss), reflecting a significant positive change from a loss to income for both the quarter and nine months Quarter Ended August 30, 2025 vs. August 31, 2024 (in thousands) | Metric | Aug 30, 2025 | Aug 31, 2024 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Net income (loss) | $801 | $(4,505) | +$5,306 | | Other comprehensive loss, net of tax | $(12) | $(16) | +$4 | | Total comprehensive income (loss) | $789 | $(4,521) | +$5,310 | Nine Months Ended August 30, 2025 vs. August 31, 2024 (in thousands) | Metric | Aug 30, 2025 | Aug 31, 2024 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Net income (loss) | $4,573 | $(12,899) | +$17,472 | | Other comprehensive loss, net of tax | $(36) | $(176) | +$140 | | Total comprehensive income (loss) | $4,537 | $(13,075) | +$17,612 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's financial position, showing a decrease in total assets and liabilities, and a slight reduction in stockholders' equity Balance Sheet Comparison (August 30, 2025 vs. November 30, 2024, in thousands) | Metric | Aug 30, 2025 | Nov 30, 2024 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total assets | $324,241 | $341,170 | $(16,929) | | Cash and cash equivalents | $34,413 | $39,551 | $(5,138) | | Inventories | $61,459 | $54,965 | +$6,494 | | Property and equipment, net | $74,665 | $77,047 | $(2,382) | | Right of use assets under operating leases | $80,587 | $93,624 | $(13,037) | | Total liabilities | $158,523 | $173,843 | $(15,320) | | Total stockholders' equity | $165,718 | $167,327 | $(1,609) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement outlines the company's cash movements, indicating a substantial improvement in cash provided by operating activities despite an overall decline in cash and cash equivalents Nine Months Ended August 30, 2025 vs. August 31, 2024 (in thousands) | Metric | Aug 30, 2025 | Aug 31, 2024 | Change | | :------------------------------------------ | :----------- | :----------- | :----- | | Net cash provided by (used in) operating activities | $5,726 | $(2,323) | +$8,049 | | Net cash used in investing activities | $(4,145) | $(5,629) | +$1,484 | | Net cash used in financing activities | $(6,719) | $(6,132) | $(587) | | Change in cash and cash equivalents | $(5,138) | $(14,078) | +$8,940 | | Cash and cash equivalents - end of period | $34,413 | $38,329 | $(3,916) | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanatory notes supporting the condensed consolidated financial statements, offering further context on accounting policies and specific financial items [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) This note clarifies the basis of financial statement presentation, highlighting the difference in operational weeks between the current and prior fiscal nine-month periods - The nine months ended August 30, 2025, included **39 weeks of operations**, compared to **40 weeks** for the nine months ended August 31, 2024, due to the prior fiscal year being a 53-week year[21](index=21&type=chunk) [2. Interim Financial Presentation and Other Information](index=8&type=section&id=2.%20Interim%20Financial%20Presentation%20and%20Other%20Information) This note details interim financial presentation aspects, including effective tax rates and the anticipated immaterial impact of new tax legislation - The effective tax rate for the three and nine months ended August 30, 2025, was **26.8%**, primarily due to state income taxes and permanent differences[24](index=24&type=chunk) - The effective tax rate for the three and nine months ended August 31, 2024, was **22.0%** and **17.3%** respectively, influenced by increases in the valuation allowance on deferred tax assets associated with Noa Home[25](index=25&type=chunk) - New tax legislation (One Big Beautiful Bill Act) enacted in July 2025 is not expected to have a material impact on current fiscal year results[26](index=26&type=chunk) [3. Financial Instruments and Investments](index=10&type=section&id=3.%20Financial%20Instruments%20and%20Investments) This note describes the company's financial instruments and investments, specifically detailing short-term certificates of deposit and a pledged security for merchant services - Short-term investments in certificates of deposit (CDs) totaled **$20,221 thousand** at August 30, 2025, with a weighted average yield of approximately **3.8%** and a remaining maturity of about five months[32](index=32&type=chunk) - A **$2,500 thousand** CD is pledged as security for merchant services, maturing in October 2025, and exceeds federal deposit insurance limits[33](index=33&type=chunk) [4. Accounts Receivable](index=10&type=section&id=4.%20Accounts%20Receivable) This note provides details on accounts receivable, including gross amounts, allowance for credit losses, and the impact of write-offs on the allowance Accounts Receivable (in thousands) | Metric | August 30, 2025 | November 30, 2024 | | :---------------------- | :-------------- | :---------------- | | Gross accounts receivable | $13,575 | $14,278 | | Allowance for credit losses | $(440) | $(1,097) | | Accounts receivable, net | $13,135 | $13,181 | - The allowance for credit losses decreased significantly from **$1,097 thousand** at November 30, 2024, to **$440 thousand** at August 30, 2025, primarily due to **$590 thousand** in write-offs against the allowance during the nine months[34](index=34&type=chunk)[35](index=35&type=chunk) [5. Inventories](index=11&type=section&id=5.%20Inventories) This note details the company's inventory composition, including total inventories, LIFO adjustments, and the reserve for excess and obsolete items Inventories (in thousands) | Metric | August 30, 2025 | November 30, 2024 | | :------------------------------------ | :-------------- | :---------------- | | Total inventories on first-in, first-out method | $79,375 | $72,025 | | LIFO adjustment | $(12,096) | $(11,665) | | Reserve for excess and obsolete inventory | $(5,820) | $(5,395) | | **Total inventories** | **$61,459** | **$54,965** | - Additions charged to expense for the reserve for excess quantities and obsolete inventory totaled **$1,726 thousand** for the nine months ended August 30, 2025[38](index=38&type=chunk) [6. Goodwill](index=12&type=section&id=6.%20Goodwill) This note presents the carrying amount of goodwill, which remained constant at **$7,217 thousand** for the wholesale segment across both periods Goodwill by Segment (in thousands) | Segment | Carrying Amount (Aug 30, 2025) | Carrying Amount (Nov 30, 2024) | | :---------- | :----------------------------- | :----------------------------- | | Wholesale | $7,217 | $7,217 | | Retail | $0 | $0 | | Corporate and other | $0 | $0 | | **Total goodwill** | **$7,217** | **$7,217** | [7. Intangible Assets](index=12&type=section&id=7.%20Intangible%20Assets) This note details intangible assets, distinguishing between those subject to amortization and non-amortizable trade names, along with associated amortization expense Intangible Assets (in thousands) | Metric | August 30, 2025 | November 30, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Intangibles subject to amortization, net | $76 | $120 | | Intangibles not subject to amortization (Trade names) | $6,848 | $6,848 | | **Total intangible assets** | **$6,924** | **$6,968** | - Amortization expense for intangible assets was **$43 thousand** for both the three and nine months ended August 30, 2025 and August 31, 2024[40](index=40&type=chunk) [8. Bank Credit Facility](index=14&type=section&id=8.%20Bank%20Credit%20Facility) This note outlines the company's bank credit facility, detailing available credit, outstanding letters of credit, and compliance with financial covenants - The company has a Credit Facility of up to **$25,000 thousand**, with **$8,182 thousand** outstanding under standby letters of credit at August 30, 2025, leaving **$16,818 thousand** available[42](index=42&type=chunk) - The company was not required to test its financial covenants as its used commitment was below the **$8,250 thousand** threshold, but would have been in full compliance[42](index=42&type=chunk)[46](index=46&type=chunk) [9. Post Employment Benefit Obligations](index=14&type=section&id=9.%20Post%20Employment%20Benefit%20Obligations) This note details the company's post-employment benefit obligations, including combined pension liability, net periodic pension costs, and total deferred compensation liability Combined Pension Liability (in thousands) | Metric | August 30, 2025 | November 30, 2024 | | :-------------------------- | :-------------- | :---------------- | | Accrued compensation and benefits | $792 | $792 | | Post employment benefit obligations | $6,217 | $6,125 | | **Total pension liability** | **$7,009** | **$6,917** | Net Periodic Pension Cost (in thousands) | Period | August 30, 2025 | August 31, 2024 | | :---------------- | :-------------- | :-------------- | | Quarter Ended | $69 | $111 | | Nine Months Ended | $206 | $332 | Total Deferred Compensation Liability (in thousands) | Metric | August 30, 2025 | November 30, 2024 | | :-------------------------------- | :-------------- | :---------------- | | Accrued compensation and benefits | $330 | $330 | | Post employment benefit obligations | $4,870 | $4,757 | | **Total deferred compensation liability** | **$5,200** | **$5,087** | [10. Other Gains and Losses](index=15&type=section&id=10.%20Other%20Gains%20and%20Losses) This note outlines other significant gains and losses, including a business interruption insurance claim, non-cash asset impairment charges, and a contract abandonment charge - For the nine months ended August 30, 2025, a **$698 thousand** gain was recognized from a business interruption insurance claim related to a cybersecurity incident in fiscal 2024[51](index=51&type=chunk) - During the nine months ended August 31, 2024, the company recognized **$5,515 thousand** in non-cash asset impairment charges, including **$2,887 thousand** in retail, **$727 thousand** in wholesale, and **$1,901 thousand** for Noa Home (due to cessation of operations)[53](index=53&type=chunk)[58](index=58&type=chunk) - A **$1,240 thousand** charge was recognized in fiscal 2024 for contract abandonment related to logistical services, which has since been settled[52](index=52&type=chunk) [11. Commitments and Contingencies](index=16&type=section&id=11.%20Commitments%20and%20Contingencies) This note details the company's commitments and contingencies, including contingent liabilities from licensee lease guarantees and upcoming real property leases - Contingent liability under licensee lease obligation guarantees was **$4,393 thousand** at August 30, 2025, down from **$5,131 thousand** at November 30, 2024, with a remaining term of six years[56](index=56&type=chunk) - Two new real property leases are expected to commence by the end of fiscal 2025, with total annual rents averaging **$702 thousand** for an initial ten-year term[59](index=59&type=chunk) [12. Earnings (Loss) Per Share](index=17&type=section&id=12.%20Earnings%20(Loss)%20Per%20Share) This note presents the basic and diluted earnings (loss) per share for both the quarter and nine months ended August 30, 2025, and August 31, 2024 Earnings (Loss) Per Share | Period | Basic EPS (2025) | Diluted EPS (2025) | Basic EPS (2024) | Diluted EPS (2024) | | :-------------------------- | :--------------- | :----------------- | :--------------- | :----------------- | | Quarter Ended August 30/31 | $0.09 | $0.09 | $(0.52) | $(0.52) | | Nine Months Ended August 30/31 | $0.53 | $0.53 | $(1.48) | $(1.48) | [13. Segment Information](index=18&type=section&id=13.%20Segment%20Information) This note provides detailed segment information, outlining the company's operational structure and disaggregated sales revenue for its Wholesale and Retail segments - The company operates in two reportable segments: **Wholesale** (design, manufacture, sourcing, sale, and distribution of furniture) and **Retail** (Company-owned stores)[64](index=64&type=chunk) - The 'Corporate and other' category includes shared corporate costs and previously Noa Home, which was closed and substantially liquidated in fiscal 2024[62](index=62&type=chunk) Segment Sales Revenue (Nine Months Ended August 30, 2025 vs. August 31, 2024, in thousands) | Segment | Aug 30, 2025 | Aug 31, 2024 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Wholesale sales to external customers | $87,196 | $90,171 | $(2,975) | | Retail sales of furniture and accessories | $159,417 | $151,478 | +$7,939 | | Corporate and other - Noa Home | $0 | $3,934 | $(3,934) | | **Consolidated net sales** | **$246,613** | **$245,583** | **+$1,030** | [14. Revenue Recognition](index=20&type=section&id=14.%20Revenue%20Recognition) This note details the company's revenue recognition policies for wholesale and retail sales, customer deposits, and provides disaggregated revenue by product category - Wholesale revenue is recognized upon shipment of goods, and retail revenue is recognized upon delivery to the customer[66](index=66&type=chunk) - Customer deposits, totaling **$23,149 thousand** at August 30, 2025, are carried as current liabilities and are expected to be recognized as revenue within the next twelve months[66](index=66&type=chunk) Disaggregated Revenue (Nine Months Ended August 30, 2025 vs. August 31, 2024, in thousands) | Product Category | Wholesale (2025) | Retail (2025) | Total (2025) | Wholesale (2024) | Retail (2024) | Corporate & Other (2024) | Total (2024) | | :----------------------- | :--------------- | :------------ | :----------- | :--------------- | :------------ | :----------------------- | :----------- | | Bassett Custom Upholstery | $57,555 | $87,641 | $145,196 | $59,169 | $82,690 | $0 | $141,859 | | Bassett Leather | $11,894 | $5,990 | $17,884 | $11,254 | $3,173 | $0 | $14,427 | | Bassett Custom Wood | $9,016 | $22,957 | $31,973 | $10,510 | $24,336 | $0 | $34,846 | | Bassett Casegoods | $8,731 | $21,031 | $29,762 | $9,238 | $19,684 | $0 | $28,922 | | Accessories, mattresses and other | $0 | $21,798 | $21,798 | $0 | $21,595 | $3,934 | $25,529 | | **Consolidated Net Sales** | **$87,196** | **$159,417** | **$246,613** | **$90,171** | **$151,478** | **$3,934** | **$245,583** | [15. Changes to Stockholders' Equity](index=22&type=section&id=15.%20Changes%20to%20Stockholders'%20Equity) This note details changes in stockholders' equity, including decreases in total equity, retained earnings, and common shares outstanding, primarily due to dividends and share repurchases - Total stockholders' equity decreased by **$1,609 thousand** to **$165,718 thousand** at August 30, 2025, from **$167,327 thousand** at November 30, 2024[13](index=13&type=chunk)[70](index=70&type=chunk) - Retained earnings decreased by **$1,264 thousand** for the nine months ended August 30, 2025, due to **$5,210 thousand** in cash dividends and **$627 thousand** in common stock repurchases, partially offset by **$4,573 thousand** in net income[70](index=70&type=chunk) - Common shares outstanding decreased by **60,528 shares** for the nine months ended August 30, 2025, primarily due to repurchases[70](index=70&type=chunk) [16. Recent Accounting Pronouncements](index=23&type=section&id=16.%20Recent%20Accounting%20Pronouncements) This note discusses recent accounting pronouncements, including ASU 2023-07 on segment reporting and the early adoption of ASU 2025-05 on credit losses - ASU 2023-07 (Segment Reporting) will be effective for fiscal 2025, leading to significant changes in segment disclosures but no material impact on financial position or results[71](index=71&type=chunk) - ASU 2025-05 (Credit Losses for Accounts Receivable) was early adopted in the third quarter of fiscal 2025, with no material impact on financial position or results of operations[74](index=74&type=chunk) [Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=24&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's financial performance, condition, liquidity, and capital resources, highlighting improved profitability driven by increased sales and enhanced gross margins [Safe-harbor, forward-looking statements](index=24&type=section&id=Safe-harbor,%20forward-looking%20statements) This section outlines the inherent risks associated with forward-looking statements, encompassing factors such as raw material costs, consumer demand, and supply chain disruptions - Forward-looking statements are subject to risks including fluctuations in raw material, fuel, labor, and delivery costs; competitive conditions; consumer demand; credit availability; store profitability; asset impairment charges; cybersecurity threats; future tax legislation; and supply chain disruptions[79](index=79&type=chunk) [Overview](index=25&type=section&id=Overview) This overview introduces Bassett as a leading home furnishings retailer and manufacturer, noting significant e-commerce growth and the closure of Noa Home Inc - Bassett is a **123-year-old** leading retailer, manufacturer, and marketer of branded home furnishings, with approximately **60%** of wholesale sales from its network of **87** Company-owned and licensee-owned Bassett Home Furnishings stores[81](index=81&type=chunk)[82](index=82&type=chunk) - E-commerce sales increased by over **30%** for the nine months ended August 30, 2025, compared to the same period in 2024, following the introduction of a new web platform in late 2023[84](index=84&type=chunk) - Noa Home Inc., an e-commerce retailer acquired in 2022, ceased operations and was substantially liquidated by November 30, 2024, due to nearly two years of operating losses[85](index=85&type=chunk) [Results of Operations – Periods ended August 30, 2025 compared with the periods ended August 31, 2024](index=26&type=section&id=Results%20of%20Operations%20%E2%80%93%20Periods%20ended%20August%2030,%202025%20compared%20with%20the%20periods%20ended%20August%2031,%202024) This section analyzes the company's consolidated results of operations, detailing net sales, gross profit, and operating income for the quarter and nine months ended August 30, 2025, compared to the prior year Consolidated Results of Operations (in thousands, except percentages) | Metric | Quarter Ended Aug 30, 2025 | Quarter Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Net sales | $80,103 | $75,619 | $4,484 | 5.9% | | Gross profit | $44,994 | $40,093 | $4,901 | 12.2% | | SG&A expenses | $44,401 | $45,210 | $(809) | -1.8% | | Income (loss) from operations | $593 | $(6,357) | $6,950 | N/M | Consolidated Results of Operations (in thousands, except percentages) | Metric | Nine Months Ended Aug 30, 2025 | Nine Months Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------- | :--------------- | | Net sales | $246,613 | $245,583 | $1,030 | 0.4% | | Gross profit | $138,733 | $131,720 | $7,013 | 5.3% | | SG&A expenses | $133,188 | $142,141 | $(8,953) | -6.3% | | Income (loss) from operations | $5,545 | $(17,176) | $22,721 | N/M | [Analysis of Quarterly Results](index=26&type=section&id=Analysis%20of%20Quarterly%20Results) This analysis highlights a **5.9%** increase in total quarterly sales revenue, driven by retail and wholesale growth, alongside significant improvements in gross margins and reduced SG&A expenses - Total sales revenue for the three months ended August 30, 2025, increased by **$4,484 thousand (5.9%)**, driven by a **9.8%** increase in retail sales and a **3.1%** increase in external wholesale sales, partially offset by a **$988 thousand** decline from Noa Home's closure[89](index=89&type=chunk) - Gross margins increased by **320 basis points**, primarily due to wholesale margin improvements, with the prior year period negatively impacted by **$609 thousand** in unproductive labor costs from a cybersecurity incident[90](index=90&type=chunk) - Selling, general and administrative (SG&A) expenses as a percentage of sales decreased by **440 basis points** due to cost reductions, ongoing cost containment, and greater leverage from higher sales[91](index=91&type=chunk) [Analysis of Year-to-Date Results](index=26&type=section&id=Analysis%20of%20Year-to-Date%20Results) This analysis shows a **0.4%** increase in year-to-date sales revenue, or **3.0%** normalized for an extra week, with improved gross margins and reduced SG&A expenses - Total sales revenue for the nine months ended August 30, 2025, increased by **$1,030 thousand (0.4%)**; normalized for the additional week in 2024, consolidated sales increased **3.0%**, with a **7.9%** increase in retail sales partially offset by a **0.8%** decrease in external wholesale sales and a **$3,934 thousand** decline from Noa Home's closure[92](index=92&type=chunk) - Gross margins increased by **270 basis points**, with the prior year adversely impacted by **$1,729 thousand** in increased inventory valuation charges and **$609 thousand** in unproductive labor costs from a cybersecurity incident[93](index=93&type=chunk) - SG&A expenses as a percentage of sales decreased by **390 basis points** due to cost reductions implemented in the second half of fiscal 2024 and ongoing cost containment activities[94](index=94&type=chunk) [Segment Information](index=27&type=section&id=Segment%20Information) This section provides a detailed breakdown of financial performance by segment, including reconciliation to consolidated income and specific results for Wholesale, Retail, and Corporate & Other [Reconciliation of Segment Results to Consolidated Income (Loss) Before Income Taxes](index=28&type=section&id=Reconciliation%20of%20Segment%20Results%20to%20Consolidated%20Income%20(Loss)%20Before%20Income%20Taxes) This reconciliation details segment-level net sales, gross profit, and income (loss) from operations, aligning them with the consolidated income (loss) before income taxes Quarter Ended August 30, 2025 (in thousands) | Metric | Wholesale | Retail | Corporate & Other | Eliminations | Consolidated | | :-------------------------- | :-------- | :----- | :---------------- | :----------- | :----------- | | Net sales | $50,787 | $51,891 | $0 | $(22,575) | $80,103 | | Gross profit | $17,837 | $27,181 | $0 | $(24) | $44,994 | | Income (loss) from operations | $8,055 | $(333) | $(7,419) | $290 | $593 | Nine Months Ended August 30, 2025 (in thousands) | Metric | Wholesale | Retail | Corporate & Other | Eliminations | Consolidated | | :-------------------------- | :-------- | :----- | :---------------- | :----------- | :----------- | | Net sales | $157,943 | $159,417 | $0 | $(70,747) | $246,613 | | Gross profit | $55,154 | $83,932 | $0 | $(353) | $138,733 | | Income (loss) from operations | $25,030 | $101 | $(20,166) | $580 | $5,545 | [Wholesale Segment](index=30&type=section&id=Wholesale%20Segment) This section presents the Wholesale segment's financial results, showing increased net sales, gross profit, and operating income, alongside a decrease in backlog Wholesale Segment Results (in thousands, except percentages) | Metric | Quarter Ended Aug 30, 2025 | Quarter Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Net sales | $50,787 | $47,828 | $2,959 | 6.2% | | Gross profit | $17,837 | $14,681 | $3,156 | 21.5% | | Income from operations | $8,055 | $4,440 | $3,615 | 81.4% | Wholesale Segment Results (in thousands, except percentages) | Metric | Nine Months Ended Aug 30, 2025 | Nine Months Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------- | :--------------- | | Net sales | $157,943 | $155,138 | $2,805 | 1.8% | | Gross profit | $55,154 | $49,375 | $5,779 | 11.7% | | Income from operations | $25,030 | $16,886 | $8,144 | 48.2% | - Wholesale backlog at August 30, 2025, was **$16,596 thousand**, down from **$21,750 thousand** at November 30, 2024, and **$18,481 thousand** at August 31, 2024[108](index=108&type=chunk) [Retail – Company-owned Stores Segment](index=31&type=section&id=Retail%20%E2%80%93%20Company-owned%20Stores%20Segment) This section details the Retail segment's financial performance, showing increased net sales and gross profit, a reduced operating loss, and a decrease in backlog Retail Segment Results (in thousands, except percentages) | Metric | Quarter Ended Aug 30, 2025 | Quarter Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Net sales | $51,891 | $47,256 | $4,635 | 9.8% | | Gross profit | $27,181 | $24,971 | $2,210 | 8.9% | | Loss from operations | $(333) | $(2,840) | $2,507 | -88.3% | Retail Segment Results (in thousands, except percentages) | Metric | Nine Months Ended Aug 30, 2025 | Nine Months Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------- | :--------------- | | Net sales | $159,417 | $151,478 | $7,939 | 5.2% | | Gross profit | $83,932 | $80,673 | $3,259 | 4.0% | | Loss from operations | $101 | $(6,674) | $6,775 | -101.5% | - Retail backlog at August 30, 2025, was **$32,206 thousand**, compared to **$37,053 thousand** at November 30, 2024, and **$33,251 thousand** at August 31, 2024[115](index=115&type=chunk) [Corporate and Other](index=33&type=section&id=Corporate%20and%20Other) This section reports on the Corporate and Other segment, reflecting zero sales and gross profit due to Noa Home's closure, alongside managed SG&A expenses Corporate and Other Results (in thousands, except percentages) | Metric | Quarter Ended Aug 30, 2025 | Quarter Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Net sales | $0 | $988 | $(988) | -100.0% | | Gross profit | $0 | $484 | $(484) | -100.0% | | SG&A expenses | $7,419 | $7,447 | $(28) | -0.4% | | Net expenses | $(7,419) | $(6,963) | $(456) | 6.5% | Corporate and Other Results (in thousands, except percentages) | Metric | Nine Months Ended Aug 30, 2025 | Nine Months Ended Aug 31, 2024 | Change (Dollars) | Change (Percent) | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------- | :--------------- | | Net sales | $0 | $3,934 | $(3,934) | -100.0% | | Gross profit | $0 | $1,695 | $(1,695) | -100.0% | | SG&A expenses | $20,166 | $23,195 | $(3,029) | -13.1% | | Net expenses | $(20,166) | $(21,500) | $1,334 | -6.2% | - Sales and gross profit declined to zero due to the closure and liquidation of Noa Home during fiscal 2024[117](index=117&type=chunk) [Other Items Affecting Net Income (Loss)](index=34&type=section&id=Other%20Items%20Affecting%20Net%20Income%20(Loss)) This section examines other financial items impacting net income (loss), including interest income, other net income/loss, and income tax considerations [Interest Income](index=34&type=section&id=Interest%20Income) This note reports a decline in interest income, primarily attributed to lower balances of interest-bearing cash and cash equivalents, and reduced average investment rates Interest Income (in thousands) | Period | August 30, 2025 | August 31, 2024 | Change | | :-------------------------- | :-------------- | :-------------- | :----- | | Quarter Ended | $472 | $692 | $(220) | | Nine Months Ended | $1,552 | $2,075 | $(523) | - The decline in interest income is primarily due to lower balances of interest-bearing cash and cash equivalents, as well as lower average rates earned on investments[118](index=118&type=chunk) [Other Income (Loss), Net](index=34&type=section&id=Other%20Income%20(Loss),%20Net) This note details other net income (loss), with changes primarily driven by costs associated with company-owned life insurance Other Income (Loss), Net (in thousands) | Period | August 30, 2025 | August 31, 2024 | | :-------------------------- | :-------------- | :-------------- | | Quarter Ended | $30 | $(109) | | Nine Months Ended | $(851) | $(489) | - The net change was primarily due to changes in the net costs associated with Company-owned life insurance[119](index=119&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes) This note discusses income taxes, including the effective tax rate and the expected immaterial impact of the One Big Beautiful Bill Act - The effective tax rate was **26.8%** for both the three and nine months ended August 30, 2025, differing from the federal statutory rate of **21%** primarily due to state income taxes and permanent differences[121](index=121&type=chunk) - The One Big Beautiful Bill Act, enacted in July 2025, is not expected to have a material impact on the company's results of operations or financial condition in the current fiscal year[123](index=123&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) This section analyzes the company's liquidity and capital resources, covering cash flows, debt obligations, real estate investments, and critical accounting policies [Cash Flows](index=34&type=section&id=Cash%20Flows) This note details cash flow activities, highlighting a significant improvement in operating cash flow despite an overall decline in cash position due to investments, dividends, and share repurchases - Cash provided by operating activities for the first nine months of fiscal 2025 was **$5,726 thousand**, an **$8,049 thousand** improvement compared to cash used in operations of **$2,323 thousand** in the prior year[124](index=124&type=chunk) - The overall cash position declined by **$5,138 thousand** during the first nine months of 2025, with **$3,737 thousand** spent on property and equipment, **$5,210 thousand** in dividends, and **$1,522 thousand** in share repurchases[125](index=125&type=chunk) - As of August 30, 2025, **$18,882 thousand** remained available for future purchases under the stock repurchase plan[125](index=125&type=chunk) [Debt and Other Obligations](index=35&type=section&id=Debt%20and%20Other%20Obligations) This note outlines the company's debt and other obligations, including details of its credit facility, present value of lease obligations, and contingent licensee lease guarantees - The company has a **$25,000 thousand** Credit Facility, with **$8,182 thousand** outstanding under standby letters of credit and **$16,818 thousand** available at August 30, 2025[126](index=126&type=chunk) - The present value of lease obligations with terms exceeding one year was **$93,300 thousand** at August 30, 2025[127](index=127&type=chunk) - Contingent liability under licensee lease obligation guarantees was **$4,393 thousand** at August 30, 2025[127](index=127&type=chunk) [Investment in Retail Real Estate](index=35&type=section&id=Investment%20in%20Retail%20Real%20Estate) This note details the company's investment in retail real estate, specifying the net book value of its eight owned properties - The company has an investment in eight retail properties with a net book value of **$23,680 thousand** at August 30, 2025[128](index=128&type=chunk) [Critical Accounting Policies and Estimates](index=35&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This note confirms no material changes to critical accounting policies and estimates since the prior fiscal year's Annual Report on Form 10-K - There have been no material changes to critical accounting policies and estimates from the information provided in the Annual Report on Form 10-K for the fiscal year ended November 30, 2024[129](index=129&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) This note identifies off-balance sheet arrangements, including standby letters of credit and guaranteed lease obligations of licensee operators - Off-balance sheet arrangements include standby letters of credit and guaranteed lease obligations of licensee operators[130](index=130&type=chunk) [Contingencies](index=35&type=section&id=Contingencies) This note addresses contingencies, stating that legal and environmental matters are not expected to materially adversely affect the company's financial position or future results - The company is involved in various legal and environmental matters, but their final resolution is not expected to have a material adverse effect on financial position or future results of operations[131](index=131&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, including immaterial foreign currency risk, commodity price fluctuations for raw materials and fuel, and commercial real estate market risks - Foreign currency risk is not material as substantially all imports purchased outside North America are denominated in U.S. dollars[132](index=132&type=chunk) - Exposure to commodity price risk from raw materials (wood, woven fabric, foam products) and diesel fuel prices (managed by fuel surcharges)[134](index=134&type=chunk)[135](index=135&type=chunk) - Exposure to commercial real estate market risk, including potential impairment of retail real estate holdings (**$23,680 thousand** net book value) and right-of-use assets (**$80,532 thousand** unamortized balance), and the risk of loss on guaranteed licensee lease obligations (**$4,393 thousand**)[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures, with no material changes to internal control over financial reporting during the most recent fiscal quarter - The Company's disclosure controls and procedures were evaluated as effective by the principal executive officer and principal financial officer[137](index=137&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[137](index=137&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) This section reports that there are no legal proceedings to disclose for the current period - No legal proceedings to report[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details common stock repurchase activity during the quarter, noting **23,311 shares** repurchased and **$18,882 thousand** remaining for future repurchases Stock Repurchase Activity (Three Months Ended August 30, 2025, in thousands except shares and price) | Period | Total Shares Purchased | Average Price Paid | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :-------------------------- | :--------------------- | :----------------- | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | June 1, 2025 - July 5, 2025 | 23,000 | $15.59 | 23,000 | $18,887 | | July 6, 2025 - August 2, 2025 | 311 | $16.02 | 311 | $18,882 | | August 3, 2025 - August 30, 2025 | - | $- | - | $18,882 | - As of August 30, 2025, **$18,882 thousand** remained available for share repurchases under the plan[139](index=139&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there are no defaults upon senior securities to report for the current period - No defaults upon senior securities[140](index=140&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) This section reports that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter - None of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended August 30, 2025[141](index=141&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, the credit agreement, and CEO/CFO certifications - Exhibits include Articles of Incorporation, By-laws, the Eighth Amended and Restated Credit Agreement with Truist Bank, CEO and CFO certifications (pursuant to Sarbanes-Oxley Act), and Inline XBRL interactive data files[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)

[Commonly Used or Defined Terms](index=4&type=section&id=Commonly%20Used%20or%20Defined%20Terms) This section defines key terms used throughout the financial report to ensure clarity and consistent understanding [Cautionary Note Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This note advises readers that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from projections - Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected[11](index=11&type=chunk) - Key risk factors include future cash positions, liquidity, strategy, anticipated benefits of the Separation, financial and operational performance, pricing trends for raw materials, demand trends, and effects of judicial rulings and regulations[11](index=11&type=chunk)[12](index=12&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements and the Company disclaims any obligation to update them, except as required by law[13](index=13&type=chunk) [Use of Non-GAAP Financial Measures and Definitions](index=9&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures%20and%20Definitions) This section defines and reconciles non-GAAP financial measures used by management to assess performance, excluding non-recurring or non-operational items - Non-GAAP financial measures (Adjusted operating income, Adjusted net earnings, Adjusted EPS - diluted, Adjusted EBITDA) are used by management to evaluate ongoing performance, financial planning, and incentive compensation, excluding items not reflective of ongoing operations[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk) - Exclusions from non-GAAP measures include impairment charges and restructuring activities, as they are non-recurring or not part of ordinary business operations[19](index=19&type=chunk)[20](index=20&type=chunk) Consolidated Results – Selected Non-GAAP Adjusted Results (Three Months Ended August 31) | Metric | 2025 (GAAP) | 2025 (Non-GAAP) | 2024 (GAAP) | 2024 (Non-GAAP) | | :------------------------------ | :------------ | :-------------- | :------------ | :-------------- | | Operating Income (Loss) ($) | 9,243 | 11,719 | (4,699) | (3,541) | | Earnings Before Income Taxes ($) | 45,681 | 48,157 | 30,790 | 31,948 | | Net Earnings ($) | 35,148 | 37,247 | 24,253 | 25,121 | | Diluted EPS ($) | 0.70 | 0.74 | 0.48 | 0.50 | Consolidated Results – Adjusted EBITDA (Three Months Ended August 31) | Metric | 2025 ($ thousands) | 2024 ($ thousands) | | :-------------------------------- | :----------------- | :----------------- | | Net earnings (GAAP) | 34,821 | 24,008 | | Net earnings attributable to controlling interest | 35,148 | 24,253 | | Interest expense, net | 63 | 489 | | Income tax expense | 10,860 | 6,782 | | EBIT | 46,071 | 31,524 | | Restructuring and other expense, net | 2,476 | 1,158 | | Adjusted EBIT | 48,547 | 32,682 | | Depreciation and amortization | 13,086 | 11,830 | | Stock-based compensation | 3,427 | 3,925 | | **Adjusted EBITDA (non-GAAP)** | **65,060** | **48,437** | [Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This part presents the company's comprehensive financial information, including statements, notes, and management's discussion and analysis of operations and liquidity [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited consolidated financial statements, including balance sheets, statements of earnings, comprehensive income, and cash flows, along with detailed notes explaining accounting policies, segment operations, acquisitions, and financial instruments for the three months ended August 31, 2025, and comparable periods [Consolidated Balance Sheets](index=11&type=section&id=Consolidated%20Balance%20Sheets%20%E2%80%93%20August%2031%2C%202025%20and%20May%2031%2C%202025) This section presents the company's financial position, detailing assets, liabilities, and equity as of August 31, 2025, and May 31, 2025 Consolidated Balance Sheet Highlights (In thousands) | Metric | August 31, 2025 | May 31, 2025 | | :------------------------------------------ | :-------------- | :----------- | | Total Assets | $1,738,137 | $1,695,152 | | Total Current Assets | $626,040 | $685,370 | | Cash and cash equivalents | $167,122 | $250,075 | | Total Inventories | $201,560 | $169,393 | | Total Liabilities | $778,306 | $756,915 | | Total Equity | $959,831 | $938,237 | [Consolidated Statements of Earnings](index=13&type=section&id=Consolidated%20Statements%20of%20Earnings%20%E2%80%93%20Three%20Months%20Ended%20August%2031%2C%202025%20and%202024) This section presents the company's financial performance, detailing revenues, expenses, and net earnings for the three months ended August 31, 2025, and 2024 Consolidated Statements of Earnings Highlights (Three Months Ended August 31, in thousands, except per common share amounts) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net sales | $303,707 | $257,308 | | Gross profit | $82,284 | $62,495 | | Operating income (loss) | $9,243 | $(4,699) | | Earnings before income taxes | $45,681 | $30,790 | | Net earnings | $34,821 | $24,008 | | Net earnings attributable to controlling interest | $35,148 | $24,253 | | Diluted EPS | $0.70 | $0.48 | | Cash dividends declared per common share | $0.19 | $0.17 | [Consolidated Statements of Comprehensive Income](index=14&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%93%20Three%20Months%20Ended%20August%2031%2C%202025%20and%202024) This section presents the company's comprehensive income, including net earnings and other comprehensive income components, for the three months ended August 31, 2025, and 2024 Consolidated Statements of Comprehensive Income Highlights (Three Months Ended August 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net earnings | $34,821 | $24,008 | | Other comprehensive income, net of tax | $1,083 | $484 | | Comprehensive income attributable to controlling interest | $36,231 | $24,737 | [Consolidated Statements of Cash Flows](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Three%20Months%20Ended%20August%2031%2C%202025%20and%202024) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended August 31, 2025, and 2024 Consolidated Statements of Cash Flows Highlights (Three Months Ended August 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash provided by operating activities | $41,061 | $41,146 | | Net cash used by investing activities | $(105,430) | $(88,747) | | Net cash used by financing activities | $(18,584) | $(18,077) | | Decrease in cash and cash equivalents | $(82,953) | $(65,678) | | Cash and cash equivalents at end of period | $167,122 | $178,547 | [Condensed Notes to Consolidated Financial Statements (Unaudited)](index=16&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering accounting policies, segment data, and financial instruments [Note A – Basis of Presentation](index=16&type=section&id=Note%20A%20%E2%80%93%20Basis%20of%20Presentation) This note outlines the basis for preparing the interim unaudited consolidated financial statements, including consolidation principles for subsidiaries like Halo, equity method accounting for unconsolidated affiliates, and details related party transactions with Worthington Steel. It also mentions the impact of recently issued accounting pronouncements on future disclosures - Worthington Enterprises consolidates its **80% controlling interest in Halo**, with noncontrolling interests reported separately[35](index=35&type=chunk) - Investments in unconsolidated affiliates are accounted for using the equity method[36](index=36&type=chunk) Purchases from Worthington Steel (Three Months Ended August 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Purchases under Steel Supply and Services Agreement | $37,036 | $28,431 | - ASU 2023-09 (Income Taxes) will require enhanced income tax disclosures starting fiscal 2025, and ASU 2024-03 (Expense Disaggregation Disclosures) will expand cost and expense disclosures starting fiscal 2027[41](index=41&type=chunk)[42](index=42&type=chunk) [Note B – Investments in Unconsolidated Affiliates](index=18&type=section&id=Note%20B%20%E2%80%93%20Investments%20in%20Unconsolidated%20Affiliates) This note details the company's equity method investments in unconsolidated joint ventures, including ClarkDietrich, Sustainable Energy Solutions, WAVE, and Workhorse, and provides summarized financial information for these affiliates, highlighting distributions received and the accounting treatment for excess distributions - The company holds investments in unconsolidated joint ventures: ClarkDietrich (**25%**), Sustainable Energy Solutions (**49%**), WAVE (**50%**), and Workhorse (**20%**)[43](index=43&type=chunk) - Distributions from unconsolidated affiliates totaled **$36,476,000** during the three months ended August 31, 2025[44](index=44&type=chunk) Summarized Financial Information for Unconsolidated Affiliates (Three Months Ended August 31, in thousands) | Affiliate | Metric | 2025 | 2024 | | :---------------- | :---------------- | :----- | :----- | | **WAVE** | Net sales | $134,717 | $125,905 | | | Net earnings | $63,597 | $56,209 | | **ClarkDietrich** | Net sales | $289,991 | $301,855 | | | Net earnings | $23,735 | $34,976 | | **Other** | Net sales | $72,485 | $87,913 | | | Net earnings (loss) | $(3,623) | $(503) | [Note C – Restructuring and Other Expense, Net](index=20&type=section&id=Note%20C%20%E2%80%93%20Restructuring%20and%20Other%20Expense%2C%20Net) This note describes the company's restructuring activities, which aim to fundamentally change operations through facility closures, consolidations, or headcount rationalization. It also provides a summary of the associated liabilities and expenses for the three months ended August 31, 2025 - Restructuring activities include employee-related costs (severance) and facility-related costs (exit costs, asset disposals)[48](index=48&type=chunk) Restructuring Activities Liabilities and Expense (Three Months Ended August 31, 2025, in thousands) | Category | Balance at May 31, 2025 | Expense | Payments | Balance at August 31, 2025 | | :-------------------------- | :---------------------- | :------ | :------- | :----------------------- | | Early retirement and severance | $585 | $775 | $(365) | $995 | | Other restructuring charges | $100 | $1,701 | $(1,801) | $- | | **Total** | **$685** | **$2,476** | **$(2,166)** | **$995** | - The total liability of **$995,000** associated with restructuring activities as of August 31, 2025, is expected to be paid within the next 12 months[49](index=49&type=chunk) [Note D – Contingent Liabilities and Commitments](index=20&type=section&id=Note%20D%20%E2%80%93%20Contingent%20Liabilities%20and%20Commitments) Management believes that the outcome of current legal actions and environmental issues will not significantly affect the company's consolidated financial position or future results of operations - Management does not expect current legal actions or environmental issues to significantly affect financial position or future results[50](index=50&type=chunk) [Note E – Guarantees](index=20&type=section&id=Note%20E%20%E2%80%93%20Guarantees) The company reports that it does not have guarantees that are reasonably likely to have a material current or future effect on its financial condition. It also discloses outstanding stand-by letters of credit - The company does not have guarantees with a material current or future effect on its financial condition[51](index=51&type=chunk) - Outstanding stand-by letters of credit totaled **$9,204,000** as of August 31, 2025, with no amounts drawn[52](index=52&type=chunk) [Note F – Debt](index=20&type=section&id=Note%20F%20%E2%80%93%20Debt) This note provides information on the company's $500 million unsecured revolving Credit Facility, which matures on September 27, 2028. It states that there were no outstanding borrowings under the facility at August 31, 2025, or May 31, 2025 - The company has a **$500,000,000** unsecured revolving Credit Facility maturing on September 27, 2028[53](index=53&type=chunk) - There were no borrowings outstanding under the Credit Facility at August 31, 2025, or May 31, 2025, leaving the full **$500,000,000** available[53](index=53&type=chunk) [Note G – Other Comprehensive Income (Loss)](index=21&type=section&id=Note%20G%20%E2%80%93%20Other%20Comprehensive%20Income%20(Loss)) This note summarizes the tax effects on each component of Other Comprehensive Income (OCI) for the three months ended August 31, 2025, and 2024, including foreign currency translation, pension liability adjustments, and cash flow hedges Other Comprehensive Income (Loss), Net of Tax (Three Months Ended August 31, in thousands) | Component | 2025 (Net-of-Tax) | 2024 (Net-of-Tax) | | :-------------------------- | :---------------- | :---------------- | | Foreign currency translation | $1,407 | $541 | | Pension liability adjustment | $(11) | $(7) | | Cash flow hedges | $(313) | $(50) | | **Total OCI (loss)** | **$1,083** | **$484** | [Note H – Changes in Equity](index=21&type=section&id=Note%20H%20%E2%80%93%20Changes%20in%20Equity) This note summarizes the changes in equity by component for the three months ended August 31, 2025, and 2024, detailing net earnings, other comprehensive income, common shares issued and repurchased, and cash dividends declared. It also provides an update on the common share repurchase authorization Changes in Equity Highlights (Three Months Ended August 31, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net earnings attributable to controlling interest | $35,148 | $24,253 | | Other comprehensive income | $1,083 | $484 | | Repurchases and retirement of common shares | $(6,259) | $(6,803) | | Cash dividends declared | $(9,433) | $(8,550) | | Balance at August 31 | $959,831 | $903,241 | - During the three months ended August 31, 2025, the company repurchased **100,000** common shares, leaving **5,265,000** common shares available for repurchase under the existing authorization[57](index=57&type=chunk) [Note I – Stock-Based Compensation](index=22&type=section&id=Note%20I%20%E2%80%93%20Stock-Based%20Compensation) This note describes the company's stock-based compensation plans, including service-based restricted common shares, market-based restricted common shares, and performance shares. It details the grants, fair values, vesting conditions, and key assumptions used for valuation during the three months ended August 31, 2025 - Granted **63,330** service-based restricted common shares with a weighted average fair value of **$63.05** per share, vesting over three years[59](index=59&type=chunk) - Granted **92,500** market-based restricted common shares (at target) on June 30, 2025, with an estimated grant date fair value of **$45.39** per share, contingent on ATSR achievement over a three-year service period[60](index=60&type=chunk) Assumptions for Market-Based Restricted Common Shares (Three Months Ended August 31, 2025) | Assumption | Value | | :------------------ | :---- | | Dividend yield | 1.19% | | Expected volatility | 38.00% | | Risk-free interest rate | 3.68% | - Granted performance share awards covering **53,130** common shares (at target) with an aggregate grant-date fair value of **$3,395,000**, earned based on corporate and business unit targets over three-year performance periods[65](index=65&type=chunk) [Note J – Income Taxes](index=23&type=section&id=Note%20J%20%E2%80%93%20Income%20Taxes) This note reports the income tax expense and estimated annual effective tax rates (ETRs) for the three months ended August 31, 2025, and 2024. It highlights that the increase in tax expense is primarily due to higher pre-tax earnings and notes that the actual ETR for fiscal 2026 could differ from the forecasted rate Income Tax Expense and Estimated Annual ETR (Three Months Ended August 31) | Metric | 2025 | 2024 | | :------------------ | :----- | :----- | | Income tax expense ($ thousands) | $10,860 | $6,782 | | Estimated Annual ETR | 23.8% | 24.5% | - The increase in income tax expense was primarily driven by higher pre-tax earnings[127](index=127&type=chunk) [Note K – Earnings per Share](index=23&type=section&id=Note%20K%20%E2%80%93%20Earnings%20per%20Share) This note provides the computation of basic and diluted Earnings Per Share (EPS) attributable to controlling interest for the three months ended August 31, 2025, and 2024, along with the weighted average common shares outstanding for each period Earnings per Share Attributable to Controlling Interest (Three Months Ended August 31) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net earnings attributable to controlling interest ($ thousands) | $35,148 | $24,253 | | Basic EPS – weighted average common shares (thousands) | 49,264 | 49,487 | | Diluted EPS – weighted average common shares (thousands) | 50,026 | 50,365 | | Basic EPS ($) | $0.71 | $0.49 | | Diluted EPS ($) | $0.70 | $0.48 | - Stock options and restricted common shares totaling **13,610** (2025) and **77,837** (2024) were excluded from diluted EPS computation due to their antidilutive effect[67](index=67&type=chunk) [Note L – Segment Operations](index=23&type=section&id=Note%20L%20%E2%80%93%20Segment%20Operations) This note describes the company's two operating segments, Consumer Products and Building Products, and provides summarized financial information, including net sales, adjusted EBITDA, total assets, and capital expenditures for each segment, along with Unallocated Corporate and Other categories - The company operates under two reportable segments: Consumer Products and Building Products, with performance evaluated based on adjusted EBITDA[68](index=68&type=chunk) Net Sales by Segment (Three Months Ended August 31, in thousands) | Segment | 2025 | 2024 | | :------------------ | :------- | :------- | | Consumer Products | $118,938 | $117,596 | | Building Products | $184,769 | $139,712 | | **Consolidated** | **$303,707** | **$257,308** | Adjusted EBITDA by Segment (Three Months Ended August 31, in thousands) | Segment | 2025 | 2024 | | :-------------------------- | :------- | :------- | | Consumer Products | $16,148 | $17,775 | | Building Products | $57,793 | $39,729 | | Other | $(1,663) | $(1,153) | | Unallocated Corporate | $(7,218) | $(7,914) | | **Consolidated** | **$65,060** | **$48,437** | Total Assets by Segment (in thousands) | Segment | August 31, 2025 | May 31, 2025 | | :-------------------------- | :-------------- | :----------- | | Consumer Products | $534,316 | $531,187 | | Building Products | $928,012 | $795,837 | | Unallocated Corporate and Other | $275,809 | $368,128 | | **Total Assets** | **$1,738,137** | **$1,695,152** | Capital Expenditures by Segment (Three Months Ended August 31, in thousands) | Segment | 2025 | 2024 | | :-------------------------- | :----- | :----- | | Consumer Products | $9,041 | $4,943 | | Building Products | $3,509 | $3,709 | | Unallocated Corporate | $645 | $977 | | **Total** | **$13,195** | **$9,629** | [Note M – Acquisitions](index=26&type=section&id=Note%20M%20%E2%80%93%20Acquisitions) This note details the acquisition of Elgen on June 18, 2025, for approximately $91.2 million, net of cash acquired. Elgen, a provider of HVAC parts, was integrated into the Building Products segment. The note also provides a preliminary allocation of the purchase price, including identified intangible assets and goodwill - Acquired Elgen, a provider of HVAC parts and components, on June 18, 2025, for **$91,185,000**, net of cash acquired[74](index=74&type=chunk) - Elgen's results have been included in consolidated statements of earnings since the acquisition date as part of the Building Products segment[74](index=74&type=chunk) Acquired Identifiable Intangible Assets from Elgen Acquisition (in thousands) | Category | Amount | Useful Life (Years) | | :-------------------------- | :----- | :------------------ | | Customer relationships | $17,800 | 15 | | Trade name | $7,900 | 10 | | Technological know-how | $7,000 | 10 | | Non-compete agreement | $1,700 | 5 | | **Total** | **$34,400** | | - Goodwill of **$33,617,000** was recognized from the Elgen acquisition, representing the excess of purchase price over fair value of net identifiable assets[79](index=79&type=chunk) [Note N – Derivative Financial Instruments and Hedging Activities](index=27&type=section&id=Note%20N%20%E2%80%93%20Derivative%20Financial%20Instruments%20and%20Hedging%20Activities) This note explains the company's use of derivative financial instruments to manage exposure to interest rate, foreign currency exchange, and commodity price risks. It details cash flow hedges, net investment hedges, and economic (non-designated) hedges, including their notional positions and recognized gains/losses - The company uses derivative financial instruments to manage interest rate risk, foreign currency exchange rate risk, and commodity price risk (steel, natural gas, copper, zinc, aluminum)[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) Fair Value of Derivative Financial Instruments (in thousands) | Category | August 31, 2025 (Assets) | May 31, 2025 (Assets) | August 31, 2025 (Liabilities) | May 31, 2025 (Liabilities) | | :------------------------------------------ | :----------------------- | :-------------------- | :-------------------------- | :----------------------- | | Derivatives designated as hedging instruments | $594 | $961 | $378 | $86 | | Derivatives not designated as hedging instruments | $36 | $81 | $7,642 | $7,375 | | **Total** | **$630** | **$1,042** | **$8,020** | **$7,461** | Net Notional Positions of Cash Flow Hedges (August 31, 2025, in thousands) | Contract Type | Notional Amount | Maturity Date(s) | | :-------------------------- | :-------------- | :-------------------------------- | | Commodity contracts | $9,423 | September 2025 - December 2027 | | Foreign currency exchange contracts | $6,895 | September 2025 - April 2026 | - Euro-denominated debt of **€91,700,000** (**$99,479,000**) is designated as a non-derivative net investment hedge of foreign operations in Portugal[90](index=90&type=chunk) Gain (Loss) Recognized in Earnings for Economic (Non-designated) Derivative Financial Instruments (Three Months Ended August 31, in thousands) | Location of Gain (Loss) | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Cost of goods sold (Commodity contracts) | $(47) | $87 | | Miscellaneous income (expense), net (Foreign currency exchange contracts) | $674 | $1,047 | | **Total** | **$627** | **$1,134** | [Note O – Fair Value Measurements](index=32&type=section&id=Note%20O%20%E2%80%93%20Fair%20Value%20Measurements) This note defines fair value and outlines the three-tier fair value hierarchy (Level 1, 2, 3) used for recurring and non-recurring measurements. It provides tables for derivative financial instruments measured at fair value and discloses the fair value of long-term debt - Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants[93](index=93&type=chunk) Recurring Fair Value Measurements of Derivative Financial Instruments (Level 2, in thousands) | Metric | August 31, 2025 | May 31, 2025 | | :------------------------------------------ | :-------------- | :----------- | | Assets | $630 | $1,042 | | Liabilities | $8,020 | $7,461 | Fair Value and Carrying Amount of Long-Term Debt (in thousands) | Metric | August 31, 2025 | May 31, 2025 | | :------------------------------------------ | :-------------- | :----------- | | Fair value of long-term debt | $276,990 | $263,547 | | Carrying amount of long-term debt | $306,010 | $302,868 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, covering business overview, recent acquisitions, demand trends, factors affecting operating costs, detailed results of operations, and liquidity and capital resources for the three months ended August 31, 2025 [Introduction](index=34&type=section&id=Introduction) This introduction sets the context for the Management's Discussion and Analysis (MD&A), emphasizing its role in providing material information on market trends, business developments, and financial performance, and advises reading it in conjunction with the consolidated financial statements and the 2025 Form 10-K - The MD&A provides material information relevant to an assessment of the company's financial condition and results of operations[99](index=99&type=chunk) - It should be read in conjunction with the consolidated financial statements and notes in Part I, Item 1 of this Form 10-Q, and the 2025 Form 10-K[99](index=99&type=chunk) [Business Overview](index=34&type=section&id=Business%20Overview) Worthington Enterprises is a market-leading designer and manufacturer of innovative metal products, operating through two reportable segments: Consumer Products and Building Products. The company aims to create shareholder value by optimizing operations, developing new products, and pursuing strategic investments and acquisitions - The company operates two market-leading segments: Consumer Products and Building Products[100](index=100&type=chunk) - Consumer Products offers tools, outdoor living, and celebrations products, including propane cylinders, torches, and helium kits[101](index=101&type=chunk) - Building Products provides pressurized containment solutions (e.g., refrigerant and LPG cylinders, well water tanks) and, through joint ventures, ceiling suspension systems and light gauge metal framing products[102](index=102&type=chunk) - The acquisition of Elgen expanded the Building Products portfolio to include HVAC parts and components[102](index=102&type=chunk) [Acquisitions and Divestitures](index=35&type=section&id=Acquisitions%20and%20Divestitures) This section highlights the company's recent acquisition activities, including the purchase of Elgen in fiscal 2026, which expanded the Building Products segment into HVAC parts, and the acquisition of Ragasco in fiscal 2025, a global manufacturer of composite propane cylinders - On June 18, 2025, the company acquired Elgen, a leading provider of HVAC parts and components, for approximately **$91,200,000**, net of cash acquired, integrating it into the Building Products segment[105](index=105&type=chunk) - On June 3, 2024, the company acquired Ragasco, a global manufacturer of composite propane cylinders, for **$108,600,000**, also integrated into Building Products[106](index=106&type=chunk) [Demand Trends](index=35&type=section&id=Demand%20Trends) This section analyzes the macroeconomic environment, inventory management strategies of customers, and specific end market trends impacting product demand. It notes a mixed macroeconomic environment with easing inflation but elevated borrowing costs, cautious customer inventory management, and uneven conditions in construction and repair/remodel markets [General Economic Conditions](index=35&type=section&id=General%20Economic%20Conditions) The macroeconomic environment during the first quarter of fiscal 2026 was mixed, with easing inflation offset by elevated borrowing costs and policy uncertainty. This led to cautious consumer and business sentiment, impacting discretionary purchases and new construction demand, with uneven demand expected in the near term - The macroeconomic environment in Q1 fiscal 2026 was mixed, with easing inflation but elevated borrowing costs and policy uncertainty[108](index=108&type=chunk) - U.S. GDP increased at a **3.3%** annualized rate in June 2025, while CPI rose **3.1%** year-over-year in August 2025[108](index=108&type=chunk) - Elevated mortgage costs (**6.56%** average 30-year fixed rate at August 31, 2025) constrained new construction demand[108](index=108&type=chunk) - Demand is expected to remain uneven in the near term due to tight credit conditions, softening industrial activity, and global uncertainty[109](index=109&type=chunk) [Inventory Demand Cycles](index=35&type=section&id=Inventory%20Demand%20Cycles) Demand for the company's products is significantly influenced by the inventory management strategies of its retail and distribution partners. In the first quarter of fiscal 2026, customer inventory levels were generally aligned with end-user demand, with replenishment activity mirroring point-of-sale trends and cautious buying due to tariff-related cost pressures - Customer destocking and restocking cycles can significantly impact the company's reported revenue and margin performance, particularly in Consumer Products[110](index=110&type=chunk) - During Q1 fiscal 2026, inventory levels at key retailer and distributor customers remained aligned with end-user demand, with no material build-up[111](index=111&type=chunk) - Customers maintained a cautious approach, selectively trimming orders for lower-volume items due to tariff-related cost pressures[111](index=111&type=chunk) [End Market Trends](index=35&type=section&id=End%20Market%20Trends) Conditions across key end markets remained uneven in Q1 fiscal 2026. U.S. residential and non-residential construction spending trended lower, with a subdued new home pipeline (HMI at 32). However, non-residential project planning activity showed improvement (DMI rose 7.5% to 301.4), and homeowner improvement spending is projected for modest growth - U.S. residential and non-residential construction spending trended lower in Q1 fiscal 2026[113](index=113&type=chunk) - The HMI weakened to **32** in August 2025, indicating a notably subdued new home pipeline[113](index=113&type=chunk) - The DMI rose **7.5%** in August 2025 to a record **301.4**, signaling stronger non-residential project planning activity despite current spending softness[113](index=113&type=chunk) - The LIRA projects approximately **1.2%** growth in homeowner improvement spending through Q2 calendar year 2026[113](index=113&type=chunk) [Factors Affecting Operating Costs](index=37&type=section&id=Factors%20Affecting%20Operating%20Costs) This section examines the impact of raw material price fluctuations and seasonality on the company's operating costs. It notes moderation in steel prices, increased aluminum costs due to tariffs, stable or declining propane/propylene/helium costs, and outlines the seasonal sales patterns for Consumer and Building Products [Raw Materials](index=37&type=section&id=Raw%20Materials) Raw material expenditures, primarily steel, propane, propylene, and aluminum, significantly impact operating costs. In Q1 fiscal 2026, steel prices moderated, aluminum costs increased due to higher global prices and U.S. tariffs, while propane, propylene, and other industrial gas costs were stable or declined - Steel is the most significant direct cost across both Consumer Products and Building Products segments[115](index=115&type=chunk) - Prices for hot-rolled and cold-rolled steel moderated from April 2025 peaks in Q1 fiscal 2026, contributing to improved spread[115](index=115&type=chunk) - Aluminum costs increased year-over-year in Q1 fiscal 2026 due to higher global benchmark prices and a June 2025 increase in U.S. Section 232 tariffs to **50%**[116](index=116&type=chunk) - Propane, propylene, and other industrial gases (helium) costs were stable or declined in Q1 fiscal 2026[117](index=117&type=chunk) [Seasonality](index=39&type=section&id=Seasonality) The company's net sales exhibit seasonal patterns. Consumer Products typically experience stronger sales in the fiscal third and fourth quarters, while Building Products generally sees stronger sales in the first and fourth quarters, influenced by weather, customer business cycles, and construction project timing - Net sales for Consumer Products tend to be stronger in fiscal third and fourth quarters[119](index=119&type=chunk) - Sales in Building Products are generally stronger in the first and fourth quarters of the fiscal year[119](index=119&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance for the three months ended August 31, 2025, compared to the prior year. It highlights significant increases in consolidated net sales, gross profit, operating income, net earnings, and adjusted EBITDA, primarily driven by strong performance in the Building Products segment [Net Sales](index=39&type=section&id=Net%20Sales) Consolidated net sales increased by 18.0% to $303.7 million, primarily driven by a 32.2% increase in Building Products sales, which included a $20.9 million contribution from the Elgen acquisition. Consumer Products sales saw a modest 1.1% increase due to favorable product mix Consolidated Net Sales by Operating Segment (Three Months Ended August 31, in millions) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :---------------- | :----- | :----- | :--------- | :--------- | | Consumer Products | $118.9 | $117.6 | $1.3 | 1.1% | | Building Products | $184.8 | $139.7 | $45.1 | 32.3% | | **Consolidated** | **$303.7** | **$257.3** | **$46.4** | **18.0%** | - Building Products' net sales increase included **$20,900,000** in contributions from the Elgen acquisition[121](index=121&type=chunk) [Gross Profit](index=40&type=section&id=Gross%20Profit) Gross profit for the current year quarter increased by $19.8 million, or 31.7%, to $82.3 million, with the gross margin improving to 27.1%. This increase was primarily driven by higher overall volumes in the wholly-owned businesses of the Building Products segment Gross Profit (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :----------- | :----- | :----- | :--------- | :--------- | | Gross profit | $82.3 | $62.5 | $19.8 | 31.7% | | Gross margin | 27.1% | 24.3% | | | - The increase in gross profit was primarily driven by higher overall volumes in the wholly owned businesses of Building Products[122](index=122&type=chunk) [SG&A](index=40&type=section&id=SG%26A) Selling, General and Administrative (SG&A) expenses increased by $4.6 million, or 7.0%, primarily due to the addition of Elgen. However, as a percentage of net sales, SG&A decreased from 25.7% in the prior year quarter to 23.2% due to slightly lower overall corporate overhead expenses SG&A (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :----------- | :----- | :----- | :--------- | :--------- | | SG&A | $70.6 | $66.0 | $4.6 | 7.0% | | Net Sales % | 23.2% | 25.7% | | | - The increase in SG&A was primarily due to the addition of Elgen[123](index=123&type=chunk) [Restructuring and Other Expense, Net](index=40&type=section&id=Restructuring%20and%20Other%20Expense%2C%20Net) Restructuring and other expense, net, increased to $2.5 million in the current year quarter from $1.2 million in the prior year. These expenses primarily consisted of employee severance and transaction costs related to acquisitions and divestitures Restructuring and Other Expense, Net (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | Change ($) | | :------------------------------------------ | :----- | :----- | :--------- | | Restructuring and other expense, net | $2.5 | $1.2 | $1.3 | - Expenses primarily consisted of employee severance and transaction costs related to acquisitions and divestitures[124](index=124&type=chunk) [Equity Income](index=40&type=section&id=Equity%20Income) Equity income increased by $1.2 million, or 3.4%, to $36.7 million. This growth was driven by higher contributions from WAVE, which increased by $4.5 million, partially offset by a $2.8 million decline at ClarkDietrich due to pricing pressure Equity Income (Three Months Ended August 31, in millions) | Affiliate | 2025 | 2024 | Change ($) | Change (%) | | :---------------- | :----- | :----- | :--------- | :--------- | | WAVE | $32.4 | $27.9 | $4.5 | 16.1% | | ClarkDietrich | $5.9 | $8.7 | $(2.8) | (32.2%) | | Other | $(1.6) | $(1.1) | $(0.5) | (45.5%) | | **Equity income** | **$36.7** | **$35.5** | **$1.2** | **3.4%** | - The decline at ClarkDietrich was due to pricing pressure leading to lower gross profit[126](index=126&type=chunk) [Income Tax Expense](index=41&type=section&id=Income%20Tax%20Expense) Income tax expense increased to $10.9 million in the current year quarter from $6.8 million in the prior year, primarily due to higher pre-tax earnings. The estimated annual effective tax rate (ETR) decreased slightly from 24.5% to 23.8% Income Tax Expense (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | Change ($) | | :------------------ | :----- | :----- | :--------- | | Income tax expense | $10.9 | $6.8 | $4.1 | | Estimated Annual ETR | 23.8% | 24.5% | | - The increase in income tax expense was primarily driven by higher pre-tax earnings[127](index=127&type=chunk) [Adjusted EBITDA](index=41&type=section&id=Adjusted%20EBITDA) Consolidated Adjusted EBITDA increased by 34.3% to $65.0 million. This was primarily driven by a 45.6% increase in Building Products' Adjusted EBITDA due to volume growth, despite a 9.6% decrease in Consumer Products' Adjusted EBITDA. Unallocated Corporate's Adjusted EBITDA improved due to lower accruals and increased cost recovery Adjusted EBITDA by Segment (Three Months Ended August 31, in millions) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Consumer Products | $16.1 | $17.8 | $(1.7) | (9.6%) | | Building Products | $57.8 | $39.7 | $18.1 | 45.6% | | Other | $(1.7) | $(1.2) | $(0.5) | 41.7% | | Unallocated Corporate | $(7.2) | $(7.9) | $0.7 | 8.9% | | **Consolidated** | **$65.0** | **$48.4** | **$16.6** | **34.3%** | - Building Products' Adjusted EBITDA was negatively impacted by **$2,200,000** of nonrecurring items related to the Elgen acquisition[128](index=128&type=chunk) - Unallocated Corporate's Adjusted EBITDA improved due to lower profit sharing and bonus accruals, and increased costs recovered through the Transition Services Agreement with Worthington Steel[128](index=128&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flow generation, investments, and financing activities, affirming adequate resources for current operations and future needs. It highlights stable operating cash flow, increased cash used in investing activities due to acquisitions, and details financing activities including share repurchases and dividends, while maintaining a $500 million available credit facility [Operating Activities](index=42&type=section&id=Operating%20Activities) Net cash provided by operating activities remained flat at $41.1 million for the three months ended August 31, 2025. Higher net earnings in the current quarter were offset by an increase in operating working capital requirements and a $2.5 million decrease in dividends received from unconsolidated affiliates Net Cash Provided by Operating Activities (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | | :------------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $41.1 | $41.1 | - Higher net earnings were offset by increased operating working capital requirements and a **$2,500,000** decrease in dividends from unconsolidated affiliates[134](index=134&type=chunk) [Investing Activities](index=42&type=section&id=Investing%20Activities) Net cash used by investing activities increased to $105.4 million for the three months ended August 31, 2025, compared to $88.7 million in the prior year. This was primarily driven by the cash paid to acquire Elgen and capital expenditures, including $8.6 million related to ongoing facility modernization projects Net Cash Used by Investing Activities (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash used by investing activities | $(105.4) | $(88.7) | - Primary drivers were the acquisition of Elgen (approximately **$92,000,000**) and capital expenditures (**$13,200,000**, including **$8,600,000** for facility modernization)[129](index=129&type=chunk)[135](index=135&type=chunk) [Financing Activities](index=44&type=section&id=Financing%20Activities) Net cash used by financing activities was $18.6 million for the three months ended August 31, 2025. This included $6.3 million for the repurchase of 100,000 common shares and $8.6 million in dividend payments. The company has 5,265,000 common shares remaining available for repurchase and no outstanding borrowings on its $500 million Credit Facility Net Cash Used by Financing Activities (Three Months Ended August 31, in millions) | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash used by financing activities | $(18.6) | $(18.1) | - Paid **$6,300,000** to repurchase **100,000** common shares and **$8,600,000** in dividends[129](index=129&type=chunk)[137](index=137&type=chunk) - As of August 31, 2025, **5,265,000** common shares remained available for repurchase under the Board's authorization[138](index=138&type=chunk) - No outstanding borrowings were drawn against the **$500,000,000** Credit Facility at August 31, 2025[140](index=140&type=chunk) [Dividend Policy](index=44&type=section&id=Dividend%20Policy) The Board of Directors reviews the dividend quarterly, establishing the rate based on the company's consolidated financial condition, results of operations, capital requirements, cash flows, business prospects, and other relevant factors. There are no material contractual or regulatory restrictions on dividend payments - A quarterly dividend of **$0.19** per common share was declared on September 23, 2025, payable on December 29, 2025[138](index=138&type=chunk) - The Board reviews dividends quarterly based on financial condition, results, capital requirements, cash flows, and business prospects[141](index=141&type=chunk) - There are no material contractual or regulatory restrictions on dividend payments, though future payments are not guaranteed[141](index=141&type=chunk) [Critical Accounting Estimates](index=44&type=section&id=Critical%20Accounting%20Estimates) The company's critical accounting estimates, which involve significant judgments and assumptions affecting reported financial amounts, have not materially changed from those discussed in the 2025 Form 10-K. These estimates are based on historical experience, current trends, and other relevant factors - Critical accounting estimates, involving significant judgments and assumptions, have not significantly changed from those discussed in the 2025 Form 10-K[142](index=142&type=chunk) - Estimates are based on historical experience, current trends, and other relevant factors, but actual results could differ materially from those implied by assumptions[142](index=142&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that the company's market risks have not materially changed from those disclosed in "Part II – Item 7A. – Quantitative and Qualitative Disclosures About Market Risk" of the 2025 Form 10-K - Market risks have not materially changed from those disclosed in the 2025 Form 10-K[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting. Management concluded that disclosure controls were effective at a reasonable assurance level, and no material changes occurred in internal control during the period [Evaluation of Disclosure Controls and Procedures](index=46&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, under the supervision of the principal executive officer and principal financial officer, evaluated the effectiveness of the company's disclosure controls and procedures. They concluded that these controls were designed and effective at a reasonable assurance level as of the end of the quarterly period - Disclosure controls and procedures were designed and effective at a reasonable assurance level as of August 31, 2025[145](index=145&type=chunk) [Changes in Internal Control Over Financial Reporting](index=46&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports that no changes occurred during the period covered by this Form 10-Q in the company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No changes occurred during the period that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[146](index=146&type=chunk) [Part II. Other Information](index=47&type=section&id=Part%20II.%20Other%20Information) This part provides additional disclosures on legal proceedings, risk factors, equity security sales, and other relevant corporate information [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various judicial and administrative proceedings arising in the ordinary course of business. Management does not believe that any such proceedings, individually or in aggregate, will have a material adverse effect on its business, financial position, results of operations, or cash flows - The company is involved in various legal proceedings in the ordinary course of business[149](index=149&type=chunk) - Management does not believe these proceedings will have a material adverse effect on the business, financial position, results of operations, or cash flows[149](index=149&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section states that the company's risk factors have not significantly changed from those detailed in "PART I – Item 1A. – Risk Factors" of the 2025 Form 10-K. It advises readers to carefully review those factors in connection with evaluating the business and investments - Risk factors have not significantly changed from those disclosed in the 2025 Form 10-K[150](index=150&type=chunk) - Readers should carefully review the risk factors from the 2025 Form 10-K when evaluating the business and forward-looking statements[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports that Worthington Enterprises had no unregistered sales of equity securities during the three months ended August 31, 2025. It also details issuer purchases of equity securities, including common shares withheld for tax obligations and repurchases under publicly announced plans [Unregistered Sales of Equity Securities](index=47&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) There were no equity securities of Worthington Enterprises sold by the company during the three months ended August 31, 2025, that were not registered under the Securities Act of 1933, as amended - No unregistered sales of equity securities by Worthington Enterprises during the three months ended August 31, 2025[151](index=151&type=chunk) [Issuer Purchases of Equity Securities](index=47&type=section&id=Issuer%20Purchases%20of%20Equity%20Securities) The company purchased a total of 165,909 common shares at an average price of $62.33 during the three months ended August 31, 2025. This included 100,000 common shares repurchased under publicly announced plans, leaving 5,265,000 common shares available for repurchase under the existing authorization Issuer Purchases of Equity Securities (Three Months Ended August 31, 2025) | Period | Total Number of Common Shares Purchased | Average Price Paid per Common Share | Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs | | :---------------- | :-------------------------------------- | :---------------------------------- | :---------------------------------------------------------------------------------- | | June 1-30, 2025 | 40,862 | $60.46 | - | | July 1-31, 2025 | 124,730 | $62.93 | 100,000 | | August 1-31, 2025 | 317 | $67.05 | - | | **Total** | **165,909** | **$62.33** | **100,000** | - As of August 31, 2025, **5,265,000** common shares remained available for repurchase under the authorization[153](index=153&type=chunk) [Item 3. Defaults Upon Senior Securities](index=49&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to Worthington Enterprises for the reporting period - Not applicable[155](index=155&type=chunk) [Item 4. Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Worthington Enterprises for the reporting period - Not applicable[156](index=156&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.%20Other%20Information) During the quarter ended August 31, 2025, no director or officer adopted or terminated any Rule 10b5-1 trading arrangements or any non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[157](index=157&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, equity plans, certifications from executive officers, and interactive data files in XBRL format - Exhibits include Amended Articles of Incorporation, Code of Regulations, 2025 Equity Plan for Non-Employee Directors, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Interactive Data Files (XBRL)[158](index=158&type=chunk) [Signatures](index=50&type=section&id=Signatures) This section contains the official certification and signatures for the Form 10-Q, confirming its submission by an authorized officer - The report was signed on October 8, 2025, by Colin J. Souza, Vice President and Chief Financial Officer[164](index=164&type=chunk)

[Commonly Used or Defined Terms](index=4&type=section&id=Commonly%20Used%20or%20Defined%20Terms) This section defines key terms and acronyms used throughout the Form 10-Q for clarity and consistent understanding [Definitions](index=4&type=section&id=Definitions) This section provides definitions for key terms and acronyms used throughout the Form 10-Q, ensuring clarity and consistent understanding of financial and operational terminology - The document defines various terms such as ABI, ATSR, AOCI, ASU, Board, CARES Act, CEO, ClarkDietrich, CODM, common shares, COVID-19, CPI, Credit Facility, current year quarter, DIY, DMI, EBIT, EBITDA, Elgen, EPS, equity income, ETR, Exchange Act, FASB, first quarter of fiscal 2026, fiscal 2024, fiscal 2025, fiscal 2026, Form 10-Q, GAAP, GDP, Halo, HMI, HVAC, LIRA, MD&A, N.M., OCI, prior year quarter, PSLRA, Ragasco, SEC, Separation, SG&A, simple SOFR, U.S., WAVE, Workhorse, Worthington Enterprises, Worthington Steel, 2025 Form 10-K, and 2026 Form 10-K[9](index=9&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns that actual results may differ from forward-looking statements due to various risks and uncertainties [Forward-Looking Statements Disclosure](index=5&type=section&id=Forward-Looking%20Statements%20Disclosure) This section outlines the company's forward-looking statements, emphasizing that actual results may differ materially due to various risks and uncertainties - Forward-looking statements are identified by words like 'believe,' 'expect,' 'anticipate,' and similar phrases, reflecting current expectations, estimates, or projections concerning future results or events[10](index=10&type=chunk) - Key risk factors include future cash positions, liquidity, strategy, anticipated benefits of the Separation, financial and operational performance, pricing trends for raw materials, ability to improve margins, demand trends, and effects of judicial rulings and regulations[11](index=11&type=chunk) - Other significant risks include conditions in financial markets (inflation, interest rates, recession), tariffs, supply chain constraints, adverse claims experience, facility closures, customer demand changes, international business risks, reliance on AI technologies, and environmental regulations[12](index=12&type=chunk) [Use of Non-GAAP Financial Measures and Definitions](index=9&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures%20and%20Definitions) This section explains the company's use of non-GAAP financial measures and provides their definitions for performance evaluation [Non-GAAP Financial Measures Overview](index=9&type=section&id=Non-GAAP%20Financial%20Measures%20Overview) The company uses non-GAAP financial measures like Adjusted operating income (loss), Adjusted net earnings, Adjusted EPS - diluted, and Adjusted EBITDA to evaluate ongoing performance, financial planning, and incentive compensation - Non-GAAP financial measures are used by management to evaluate ongoing performance, engage in financial and operational planning, and determine incentive compensation, providing supplemental information not reflective of ongoing operations[15](index=15&type=chunk) - **Adjusted operating income (loss)** and **Adjusted net earnings** exclude specific items, while **Adjusted EPS - diluted** is calculated by dividing adjusted net earnings by diluted weighted-average common shares outstanding[16](index=16&type=chunk)[17](index=17&type=chunk) - **Adjusted EBITDA**, a key measure for segment performance, excludes interest, taxes, depreciation, amortization, stock-based compensation, impairment charges, and restructuring activities, as these are considered non-recurring or non-cash[18](index=18&type=chunk)[20](index=20&type=chunk) [Consolidated Results – Selected Non-GAAP Adjusted Results](index=10&type=section&id=Consolidated%20Results%20%E2%80%93%20Selected%20Non-GAAP%20Adjusted%20Results) The company reported significant improvements in non-GAAP adjusted financial metrics for the three months ended August 31, 2025, compared to the prior year, reflecting better operational performance Consolidated Non-GAAP Adjusted Results (Three Months Ended August 31, In thousands) | Metric | August 31, 2025 | August 31, 2024 | | :----------------------------- | :-------------- | :-------------- | | Adjusted Operating Income | $11,719 | $(3,541) | | Adjusted Net Earnings | $37,247 | $25,121 | | Adjusted Diluted EPS | $0.74 | $0.50 | Consolidated Adjusted EBITDA (Three Months Ended August 31, In thousands) | Metric | August 31, 2025 | August 31, 2024 | | :----------------------------- | :-------------- | :-------------- | | Net earnings (GAAP) | $34,821 | $24,008 | | Net earnings attributable to controlling interest | $35,148 | $24,253 | | Interest expense, net | $63 | $489 | | Income tax expense | $10,860 | $6,782 | | EBIT | $46,071 | $31,524 | | Restructuring and other expense, net | $2,476 | $1,158 | | Adjusted EBIT | $48,547 | $32,682 | | Depreciation and amortization | $13,086 | $11,830 | | Stock-based compensation | $3,427 | $3,925 | | Adjusted EBITDA (non-GAAP) | $65,060 | $48,437 | - Adjusted EBITDA increased by **$16.6 million** (34.3%) from **$48.4 million** in the prior year quarter to **$65.1 million** in the current year quarter[22](index=22&type=chunk) [Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This part presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial performance [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Worthington Enterprises, Inc., including balance sheets, statements of earnings, comprehensive income, and cash flows [Consolidated Balance Sheets](index=11&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (In thousands) | Metric | August 31, 2025 | May 31, 2025 | | :-------------------------------- | :-------------- | :------------- | | Total Assets | $1,738,137 | $1,695,152 | | Total Current Assets | $626,040 | $685,370 | | Cash and cash equivalents | $167,122 | $250,075 | | Total Inventories | $201,560 | $169,393 | | Total Liabilities | $778,306 | $756,915 | | Total Current Liabilities | $189,788 | $196,842 | | Long-term debt | $306,010 | $302,868 | | Total Equity | $959,831 | $938,237 | - Total assets increased by **$43.0 million** (2.5%) from May 31, 2025, to August 31, 2025, primarily driven by increases in goodwill and other intangible assets[24](index=24&type=chunk) - Cash and cash equivalents decreased by **$83.0 million** (33.2%) from May 31, 2025, to August 31, 2025[24](index=24&type=chunk) [Consolidated Statements of Earnings](index=13&type=section&id=Consolidated%20Statements%20of%20Earnings) This section details the company's financial performance over a period, including net sales, gross profit, operating income, and net earnings Consolidated Statements of Earnings Highlights (Three Months Ended August 31, In thousands) | Metric | August 31, 2025 | August 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Net sales | $303,707 | $257,308 | $46,399 | 18.0% | | Gross profit | $82,284 | $62,495 | $19,789 | 31.7% | | Operating income (loss) | $9,243 | $(4,699) | $13,942 | N.M. | | Earnings before income taxes | $45,681 | $30,790 | $14,891 | 48.4% | | Net earnings | $34,821 | $24,008 | $10,813 | 45.0% | | Diluted EPS | $0.70 | $0.48 | $0.22 | 45.8% | | Cash dividends declared per common share | $0.19 | $0.17 | $0.02 | 11.8% | - Net sales increased by **$46.4 million** (18.0%) year-over-year, driven by higher volumes in Building Products and contributions from the Elgen acquisition[26](index=26&type=chunk)[121](index=121&type=chunk) - Operating income significantly improved from a loss of **$4.7 million** in the prior year to an income of **$9.2 million** in the current year quarter[26](index=26&type=chunk) [Consolidated Statements of Comprehensive Income](index=14&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the total change in equity from non-owner sources, including net earnings and other comprehensive income items Consolidated Statements of Comprehensive Income Highlights (Three Months Ended August 31, In thousands) | Metric | August 31, 2025 | August 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Net earnings | $34,821 | $24,008 | $10,813 | 45.0% | | Other comprehensive income, net of tax | $1,083 | $484 | $599 | 123.8% | | Comprehensive income | $35,904 | $24,492 | $11,412 | 46.6% | | Comprehensive income attributable to controlling interest | $36,231 | $24,737 | $11,494 | 46.5% | - Other comprehensive income, net of tax, more than doubled year-over-year, primarily due to **foreign currency translation gains**[29](index=29&type=chunk)[55](index=55&type=chunk) [Consolidated Statements of Cash Flows](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by operating, investing, and financing activities, showing changes in liquidity Consolidated Statements of Cash Flows Highlights (Three Months Ended August 31, In thousands) | Metric | August 31, 2025 | August 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :-------------- | :-------------- | :--------- | :--------- | | Net cash provided by operating activities | $41,061 | $41,146 | $(85) | (0.2%) | | Net cash used by investing activities | $(105,430) | $(88,747) | $(16,683) | 18.8% | | Net cash used by financing activities | $(18,584) | $(18,077) | $(507) | 2.8% | | Decrease in cash and cash equivalents | $(82,953) | $(65,678) | $(17,275) | 26.3% | | Cash and cash equivalents at end of period | $167,122 | $178,547 | $(11,425) | (6.4%) | - Net cash provided by operating activities remained relatively flat year-over-year at **$41.1 million**[32](index=32&type=chunk)[134](index=134&type=chunk) - Net cash used by investing activities increased by **$16.7 million**, primarily due to the acquisition of Elgen for **$92.2 million** and higher capital expenditures[32](index=32&type=chunk)[135](index=135&type=chunk) [Condensed Notes to Consolidated Financial Statements (Unaudited)](index=16&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and additional information supporting the unaudited consolidated financial statements [Note A – Basis of Presentation](index=16&type=section&id=Note%20A%20%E2%80%93%20Basis%20of%20Presentation) This note describes the principles and methods used in preparing the interim unaudited consolidated financial statements - The interim unaudited consolidated financial statements include Worthington Enterprises and its consolidated subsidiaries, with significant intercompany accounts eliminated[34](index=34&type=chunk) - The company holds an **80% controlling interest in Halo**, which is consolidated, with other joint venture members' equity shown as noncontrolling interests[35](index=35&type=chunk) - Purchases from Worthington Steel under the Steel Supply and Services Agreement totaled **$37.0 million** and **$28.4 million** for the three months ended August 31, 2025 and 2024, respectively[39](index=39&type=chunk) - New accounting standards (ASU 2023-09 and ASU 2024-03) will enhance income tax and expense disaggregation disclosures, effective for fiscal years beginning after December 15, 2024, and December 15, 2026, respectively, with no material impact on financial condition or cash flows[41](index=41&type=chunk)[42](index=42&type=chunk) [Note B – Investments in Unconsolidated Affiliates](index=18&type=section&id=Note%20B%20%E2%80%93%20Investments%20in%20Unconsolidated%20Affiliates) This note details the company's equity method investments in unconsolidated joint ventures and their summarized financial information - The company holds investments in unconsolidated joint ventures: **ClarkDietrich (25%)**, **Sustainable Energy Solutions (49%)**, **WAVE (50%)**, and **Workhorse (20%)**[43](index=43&type=chunk) - Distributions from unconsolidated affiliates totaled **$36.5 million** during the three months ended August 31, 2025[44](index=44&type=chunk) Summarized Financial Information for Unconsolidated Affiliates (Three Months Ended August 31, In thousands) | Metric | WAVE 2025 | WAVE 2024 | ClarkDietrich 2025 | ClarkDietrich 2024 | Other 2025 | Other 2024 | | :-------------------- | :-------- | :-------- | :----------------- | :----------------- | :--------- | :--------- | | Net sales | $134,717 | $125,905 | $289,991 | $301,855 | $72,485 | $87,913 | | Operating income | $67,683 | $60,065 | $22,789 | $34,081 | $(3,257) | $200 | | Net earnings (loss) | $63,597 | $56,209 | $23,735 | $34,976 | $(3,623) | $(503) | [Note C – Restructuring and Other Expense, Net](index=20&type=section&id=Note%20C%20%E2%80%93%20Restructuring%20and%20Other%20Expense,%20Net) This note details the costs associated with restructuring activities, including severance and facility-related expenses - Restructuring activities, including employee severance and facility-related costs, resulted in a net expense of **$2.5 million** for the three months ended August 31, 2025, up from **$1.2 million** in the prior year[48](index=48&type=chunk)[49](index=49&type=chunk) Restructuring Liabilities Progression (Three Months Ended August 31, 2025, In thousands) | Category | Balance at May 31, 2025 | Expense | Payments | Balance at August 31, 2025 | | :------------------------ | :---------------------- | :------ | :------- | :----------------------- | | Early retirement and severance | $585 | $775 | $(365) | $995 | | Other restructuring charges | $100 | $1,701 | $(1,801) | $- | | Total | $685 | $2,476 | $(2,166) | $995 | [Note D – Contingent Liabilities and Commitments](index=20&type=section&id=Note%20D%20%E2%80%93%20Contingent%20Liabilities%20and%20Commitments) This note addresses potential future obligations arising from legal actions and environmental matters, which management deems immaterial - Management believes the outcome of current legal actions and environmental issues will not significantly affect the company's consolidated financial position or future results of operations[50](index=50&type=chunk) [Note E – Guarantees](index=20&type=section&id=Note%20E%20%E2%80%93%20Guarantees) This note clarifies that the company has no guarantees expected to materially affect its financial condition or operations - The company does not have guarantees expected to have a material effect on its financial condition or results of operations[51](index=51&type=chunk) - Outstanding stand-by letters of credit totaled **$9.2 million** at August 31, 2025, with no material fair value or amounts drawn[52](index=52&type=chunk) [Note F – Debt](index=20&type=section&id=Note%20F%20%E2%80%93%20Debt) This note outlines the company's debt structure, including its revolving credit facility and outstanding borrowings - The company's **$500.0 million** multi-year revolving Credit Facility matures on September 27, 2028, with no outstanding borrowings at August 31, 2025, leaving the full amount available[53](index=53&type=chunk) [Note G – Other Comprehensive Income (Loss)](index=21&type=section&id=Note%20G%20%E2%80%93%20Other%20Comprehensive%20Income%20(Loss)) This note details the components of other comprehensive income (loss) and their tax effects, such as foreign currency translation adjustments Tax Effects on Other Comprehensive Income (Loss) (Three Months Ended August 31, In thousands) | Component | Before-Tax 2025 | Tax 2025 | Net-of-Tax 2025 | Before-Tax 2024 | Tax 2024 | Net-of-Tax 2024 | | :------------------------ | :-------------- | :------- | :-------------- | :-------------- | :------- | :-------------- | | Foreign currency translation | $1,280 | $127 | $1,407 | $(12) | $553 | $541 | | Pension liability adjustment | $(14) | $3 | $(11) | $(7) | $- | $(7) | | Cash flow hedges | $(439) | $126 | $(313) | $(65) | $15 | $(50) | | Total OCI (loss) | $827 | $256 | $1,083 | $(84) | $568 | $484 | [Note H – Changes in Equity](index=21&type=section&id=Note%20H%20%E2%80%93%20Changes%20in%20Equity) This note outlines the movements in total equity, including net earnings, comprehensive income, share repurchases, and dividends Changes in Equity (Three Months Ended August 31, In thousands) | Metric | May 31, 2025 | August 31, 2025 | May 31, 2024 | August 31, 2024 | | :-------------------------------- | :----------- | :-------------- | :----------- | :-------------- | | Total Equity | $938,237 | $959,831 | $891,012 | $903,241 | | Net earnings (loss) | - | $34,821 | - | $24,008 | | Other comprehensive income | - | $1,083 | - | $484 | | Repurchases and retirement of common shares | - | $(6,259) | - | $(6,803) | | Cash dividends declared | - | $(9,433) | - | $(8,550) | - Total equity increased by **$21.6 million** (2.3%) from May 31, 2025, to August 31, 2025, primarily due to net earnings and other comprehensive income, partially offset by cash dividends and share repurchases[56](index=56&type=chunk) - The company repurchased **100,000 common shares** during the three months ended August 31, 2025, under an existing authorization, leaving **5,265,000 common shares** available for repurchase[57](index=57&type=chunk) [Note I – Stock-Based Compensation](index=22&type=section&id=Note%20I%20%E2%80%93%20Stock-Based%20Compensation) This note describes the various stock-based compensation awards granted, including service-based, market-based, and performance share awards - **63,330 service-based restricted common shares** were granted, with a weighted average fair value of **$63.05 per share**, vesting over three years[59](index=59&type=chunk) - **92,500 market-based restricted common shares** (at target) were granted, contingent on ATSR achievement over a three-year service period, with an estimated grant date fair value of **$45.39 per share**[60](index=60&type=chunk) - **53,130 performance share awards** (at target) were granted, earned based on corporate and business unit targets over three-year performance periods, with an aggregate grant-date fair value of **$3.4 million**[65](index=65&type=chunk) [Note J – Income Taxes](index=23&type=section&id=Note%20J%20%E2%80%93%20Income%20Taxes) This note provides details on the company's income tax expense and estimated annual effective tax rate - Income tax expense for the three months ended August 31, 2025, was **$10.9 million**, reflecting an estimated annual effective tax rate (ETR) of **23.8%**, compared to **24.5%** in the prior year quarter[26](index=26&type=chunk)[66](index=66&type=chunk) [Note K – Earnings per Share](index=23&type=section&id=Note%20K%20%E2%80%93%20Earnings%20per%20Share) This note presents the computation of basic and diluted earnings per share, including weighted-average common shares outstanding Earnings per Share Computation (Three Months Ended August 31, In thousands, except per common share amounts) | Metric | August 31, 2025 | August 31, 2024 | | :-------------------------------- | :-------------- | :-------------- | | Net earnings attributable to controlling interest | $35,148 | $24,253 | | Basic EPS – weighted average common shares | 49,264 | 49,487 | | Diluted EPS – weighted average common shares | 50,026 | 50,365 | | Basic EPS | $0.71 | $0.49 | | Diluted EPS | $0.70 | $0.48 | - **Diluted EPS** increased by **$0.22** (45.8%) year-over-year, from **$0.48** to **$0.70**[67](index=67&type=chunk) [Note L – Segment Operations](index=23&type=section&id=Note%20L%20%E2%80%93%20Segment%20Operations) This note provides financial information for the Consumer Products and Building Products segments, with performance evaluated by adjusted EBITDA - The company operates in two segments: **Consumer Products** and **Building Products**, with performance evaluated based on **adjusted EBITDA**[68](index=68&type=chunk) Segment Net Sales (Three Months Ended August 31, In thousands) | Segment | August 31, 2025 | August 31, 2024 | Change ($) | Change (%) | | :---------------- | :-------------- | :-------------- | :--------- | :--------- | | Consumer Products | $118,938 | $117,596 | $1,342 | 1.1% | | Building Products | $184,769 | $139,712 | $45,057 | 32.2% | | Consolidated | $303,707 | $257,308 | $46,399 | 18.0% | Segment Adjusted EBITDA (Three Months Ended August 31, In thousands) | Segment | August 31, 2025 | % of Net Sales 2025 | August 31, 2024 | % of Net Sales 2024 | Change ($) | Change (%) | | :---------------- | :-------------- | :------------------ | :-------------- | :------------------ | :--------- | :--------- | | Consumer Products | $16,148 | 13.5% | $17,775 | 15.1% | $(1,627) | (9.1%) | | Building Products | $57,793 | 31.3% | $39,729 | 28.4% | $18,064 | 45.5% | | Consolidated | $65,060 | 21.4% | $48,437 | 18.8% | $16,623 | 34.3% | - Building Products' **Adjusted EBITDA** increased significantly by **$18.1 million** (45.6%) due to volume growth, despite a negative impact from Elgen acquisition-related nonrecurring items[128](index=128&type=chunk) Segment Capital Expenditures (Three Months Ended August 31, In thousands) | Segment | August 31, 2025 | August 31, 2024 | | :---------------- | :-------------- | :-------------- | | Consumer Products | $9,041 | $4,943 | | Building Products | $3,509 | $3,709 | | Total | $13,195 | $9,629 | [Note M – Acquisitions](index=26&type=section&id=Note%20M%20%E2%80%93%20Acquisitions) This note details recent acquisitions, including the purchase of Elgen and the resulting goodwill and intangible assets - On June 18, 2025, the company acquired Elgen, a provider of HVAC parts, for approximately **$91.2 million** (net of cash acquired), integrating it into the Building Products segment[74](index=74&type=chunk) - The acquisition resulted in **$33.6 million in goodwill**, representing the excess of purchase price over the fair value of net identifiable assets, and **$34.4 million** in acquired identifiable intangible assets[76](index=76&type=chunk)[77](index=77&type=chunk)[79](index=79&type=chunk) Elgen Acquisition: Acquired Intangible Assets (In thousands) | Category | Amount (In thousands) | Useful Life (Years) | | :------------------------ | :-------------------- | :------------------ | | Customer relationships | $17,800 | 15 | | Trade name | $7,900 | 10 | | Technological know-how | $7,000 | 10 | | Non-compete agreement | $1,700 | 5 | | Total | $34,400 | | [Note N – Derivative Financial Instruments and Hedging Activities](index=27&type=section&id=Note%20N%20%E2%80%93%20Derivative%20Financial%20Instruments%20and%20Hedging%20Activities) This note explains the company's use of derivative instruments to manage interest rate, foreign currency, and commodity price risks - The company uses derivative financial instruments to manage interest rate, foreign currency exchange, and commodity price risks, employing both designated hedging instruments and non-designated economic hedges[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) Fair Value of Derivative Financial Instruments (In thousands) | Category | August 31, 2025 Assets | May 31, 2025 Assets | August 31, 2025 Liabilities | May 31, 2025 Liabilities | | :-------------------------------- | :--------------------- | :------------------ | :-------------------------- | :----------------------- | | Derivatives designated as hedging instruments | $594 | $961 | $378 | $86 | | Derivatives not designated as hedging instruments | $36 | $81 | $7,642 | $7,375 | | Total | $630 | $1,042 | $8,020 | $7,461 | Gain (Loss) Reclassified from AOCI into Net Earnings for Cash Flow Hedges (Three Months Ended August 31, In thousands) | Category | 2025 Gain (Loss) | 2024 Gain (Loss) | | :------------------------ | :--------------- | :--------------- | | Commodity contracts | $393 | $(385) | | Interest rate contracts | $52 | $52 | | Foreign currency exchange contracts | $328 | $- | | Total | $773 | $(333) | - The company designated Euro-denominated debt of **€91.7 million** (**$99.5 million**) as a non-derivative net investment hedge of foreign operations in Portugal, recognizing a foreign currency loss of **$3.1 million** in OCI for the three months ended August 31, 2025[90](index=90&type=chunk) [Note O – Fair Value Measurements](index=32&type=section&id=Note%20O%20%E2%80%93%20Fair%20Value%20Measurements) This note categorizes fair value measurements into a three-tier hierarchy based on the observability of inputs used in valuation techniques - Fair value measurements are categorized into a three-tier hierarchy (**Level 1, 2, 3**) based on the observability of inputs[93](index=93&type=chunk)[97](index=97&type=chunk) Recurring Fair Value Measurements (August 31, 2025, In thousands) | Category | Level 1 | Level 2 | Level 3 | Totals | | :-------------------------------- | :------ | :------ | :------ | :----- | | Assets: Derivative financial instruments | $- | $630 | $- | $630 | | Liabilities: Derivative financial instruments | $- | $8,020 | $- | $8,020 | - The fair value of long-term debt was **$277.0 million** at August 31, 2025, compared to a carrying amount of **$306.0 million**[96](index=96&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations for the three months ended August 31, 2025 - Worthington Enterprises is a market-leading designer and manufacturer of innovative metal products and services, operating in Consumer Products and Building Products segments, focused on shareholder value creation[100](index=100&type=chunk) - The Consumer Products segment offers tools, outdoor living, and celebrations products, while Building Products provides pressurized containment solutions and, through joint ventures, ceiling suspension systems and metal framing products[101](index=101&type=chunk)[102](index=102&type=chunk) [Acquisitions and Divestitures](index=35&type=section&id=Acquisitions%20and%20Divestitures) This section discusses recent acquisitions, including Elgen and Ragasco, and their integration into the Building Products segment - In fiscal 2026, the company acquired Elgen, an HVAC parts provider, for approximately **$91.2 million**, integrating it into the Building Products segment[105](index=105&type=chunk) - In fiscal 2025, the company acquired Ragasco, a global manufacturer of composite propane cylinders, for **$108.6 million**, also integrated into Building Products[106](index=106&type=chunk) [Demand Trends](index=35&type=section&id=Demand%20Trends) This section analyzes macroeconomic conditions, including GDP growth, inflation, interest rates, and their impact on construction and consumer demand - Macroeconomic conditions in Q1 fiscal 2026 were mixed, with easing inflation offset by elevated borrowing costs and policy uncertainty; U.S. GDP rebounded to **3.3% annualized growth** in June 2025, but inflation remained near **3%**[108](index=108&type=chunk) - High mortgage costs (average 30-year fixed rate at **6.56%** in August 2025) constrained new construction, while inflation-driven cost consciousness impacted discretionary consumer purchases[108](index=108&type=chunk)[109](index=109&type=chunk) - Inventory levels at key retailer and distributor customers remained aligned with end-user demand, with no material build-up, indicating cautious inventory management[111](index=111&type=chunk) - U.S. residential and non-residential construction spending trended lower, with the HMI weakening to **32** in August 2025, while the DMI rose **7.5%** to a record **301.4**, signaling stronger project planning despite current spending softness[113](index=113&type=chunk) [Factors Affecting Operating Costs](index=37&type=section&id=Factors%20Affecting%20Operating%20Costs) This section examines the impact of raw material prices, tariffs, and seasonal demand on the company's cost of goods sold and financial performance - Raw material expenditures, primarily **steel, propane, propylene, and aluminum**, significantly impact cost of goods sold and financial performance[114](index=114&type=chunk) - Steel prices moderated from April 2025 peaks, improving spreads, while aluminum costs increased due to higher global benchmarks and a **50% U.S. Section 232 tariff increase** in June 2025[115](index=115&type=chunk)[116](index=116&type=chunk) - Propane and propylene costs were stable, partly due to fixed-price agreements, and helium/industrial gas costs declined, benefiting Consumer Products[117](index=117&type=chunk) - Net sales are seasonally stronger in fiscal Q3 and Q4 for Consumer Products, and Q1 and Q4 for Building Products, influenced by weather, customer cycles, and construction projects[119](index=119&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's consolidated GAAP and non-GAAP financial performance, including sales, gross profit, and EBITDA Consolidated GAAP Financial Measures (Three Months Ended August 31, In millions) | Metric | August 31, 2025 | August 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------- | :-------------- | :--------- | :--------- | | Net sales | $303.7 | $257.3 | $46.4 | 18.0% | | Operating income (loss) | $9.2 | $(4.7) | $13.9 | N.M. | | Earnings before income taxes | $45.7 | $30.8 | $14.9 | 48.4% | | Net earnings | $34.8 | $24.0 | $10.8 | 45.0% | | Equity income | $36.7 | $35.5 | $1.2 | 3.4% | | EPS - diluted | $0.70 | $0.48 | $0.22 | 45.8% | Consolidated Non-GAAP Financial Measures (Three Months Ended August 31, In millions) | Metric | August 31, 2025 | August 31, 2024 | Change ($) | Change (%) | | :-------------------- | :-------------- | :-------------- | :--------- | :--------- | | Adjusted operating income (loss) | $11.7 | $(3.5) | $15.2 | N.M. | | Adjusted EBITDA | $65.1 | $48.4 | $16.7 | 34.5% | | Adjusted EPS – diluted | $0.74 | $0.50 | $0.24 | 48.0% | - Net sales increased by **$46.4 million** (18.0%) year-over-year, driven by a **32.2% increase in Building Products sales**, including **$20.9 million** from Elgen, while Consumer Products sales rose **1.1%**[121](index=121&type=chunk) - Gross profit increased by **$19.8 million** (31.7%) to **$82.3 million**, primarily due to higher volumes in Building Products; Gross margin improved from **24.3% to 27.1%**[122](index=122&type=chunk) - SG&A expenses increased by **$4.6 million** (7.0%) due to the Elgen acquisition, but decreased as a percentage of net sales from **25.7% to 23.2%** due to lower corporate overhead[123](index=123&type=chunk) - Equity income increased by **$1.2 million** (3.4%) to **$36.7 million**, driven by a **$4.5 million increase from WAVE**, partially offset by a **$2.8 million decline at ClarkDietrich** due to pricing pressure[125](index=125&type=chunk)[126](index=126&type=chunk) - Adjusted EBITDA increased by **$16.6 million** (34.3%) to **$65.0 million**, with Building Products contributing an **$18.1 million increase**, while Consumer Products saw a **$1.7 million decrease**[128](index=128&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flows from operating, investing, and financing activities, and its ability to meet future operational needs - Net cash provided by operating activities was **$41.1 million**, flat year-over-year, as higher net earnings were offset by increased working capital requirements and lower distributions from unconsolidated affiliates[129](index=129&type=chunk)[134](index=134&type=chunk) - Net cash used by investing activities increased to **$105.4 million**, primarily due to the **$92.0 million acquisition of Elgen** and **$13.2 million in capital expenditures**[129](index=129&type=chunk)[135](index=135&type=chunk) - Net cash used by financing activities was **$18.6 million**, including **$6.3 million for share repurchases** and **$8.6 million for dividends**[129](index=129&type=chunk)[137](index=137&type=chunk) - The company believes it has adequate resources, including **$167.2 million in cash and cash equivalents** and **$500.0 million available under its Credit Facility**, to meet operational needs for the foreseeable future[130](index=130&type=chunk) - The Board declared a quarterly dividend of **$0.19 per common share** payable on December 29, 2025, an increase from **$0.17** in the prior year[26](index=26&type=chunk)[138](index=138&type=chunk) [Critical Accounting Estimates](index=44&type=section&id=Critical%20Accounting%20Estimates) This section confirms that the company's critical accounting estimates, involving significant judgments and assumptions, remain consistent with prior disclosures - The company's critical accounting estimates, involving significant judgments and assumptions (e.g., valuation of receivables, inventories, intangible assets, accrued liabilities, income taxes, contingencies, and business combinations), have not significantly changed from those discussed in the 2025 Form 10-K[142](index=142&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the company's market risks compared to those disclosed in the 2025 Form 10-K - Market risks have not materially changed from those disclosed in the 2025 Form 10-K[143](index=143&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management, under the supervision of the principal executive and financial officers, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of August 31, 2025[145](index=145&type=chunk) - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during the period[146](index=146&type=chunk) [Part II. Other Information](index=47&type=section&id=Part%20II.%20Other%20Information) This part covers legal proceedings, risk factors, equity security sales, and other required disclosures [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal and administrative proceedings, but management does not believe any will have a material adverse effect on its financial position or operations - The company is involved in various legal and administrative proceedings, but management believes the outcome will not materially affect its business, financial position, results of operation, or cash flows[149](index=149&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) This section reiterates that the company's risk factors have not significantly changed from those detailed in the 2025 Form 10-K - The company's risk factors have not changed significantly from those disclosed in the 2025 Form 10-K, and readers are advised to review them carefully[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities and details common share repurchases, including those withheld for tax obligations - No unregistered sales of equity securities occurred during the three months ended August 31, 2025[151](index=151&type=chunk) Issuer Purchases of Equity Securities (Three Months Ended August 31, 2025) | Period | Total Number of Common Shares Purchased | Average Price Paid per Common Share | Total Number of Common Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Common Shares that May Yet Be Purchased Under the Plans or Programs | | :---------------- | :-------------------------------------- | :---------------------------------- | :------------------------------------------------------------------------------------ | :------------------------------------------------------------------------------------ | | June 1-30, 2025 | 40,862 | $60.46 | - | 5,365,000 | | July 1-31, 2025 | 124,730 | $62.93 | 100,000 | 5,265,000 | | August 1-31, 2025 | 317 | $67.05 | - | 5,265,000 | | Total | 165,909 | $62.33 | 100,000 | | - As of August 31, 2025, **5,265,000 common shares** remained available for repurchase under the authorization approved on March 24, 2021[153](index=153&type=chunk) [Item 3. Defaults Upon Senior Securities](index=30&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reporting period - This item is not applicable[155](index=155&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company for the reporting period - This item is not applicable[156](index=156&type=chunk) [Item 5. Other Information](index=30&type=section&id=Item%205.%20Other%20Information) This section states that no director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No director or officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended August 31, 2025[157](index=157&type=chunk) [Item 6. Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, equity plans, certifications, and interactive data files - Exhibits include Amended Articles of Incorporation, Code of Regulations, 2025 Equity Plan for Non-Employee Directors, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and Interactive Data Files (XBRL)[158](index=158&type=chunk) [Signatures](index=50&type=section&id=Signatures) This section contains the official signatures certifying the accuracy and authorization of the Form 10-Q filing [Report Signatures](index=50&type=section&id=Report%20Signatures) This section contains the required signatures, certifying the due authorization and filing of the report on behalf of Worthington Enterprises, Inc. - The report was signed on October 8, 2025, by Colin J. Souza, Vice President and Chief Financial Officer, on behalf of Worthington Enterprises, Inc.[164](index=164&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 August 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 0-11399 Cintas Corporation (Exact name of registrant as specified in its charter) Washington 31-1188630 (State or Other Jurisdiction of Incorpor ...

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD%2DLOOKING%20STATEMENTS) [Forward-Looking Statements](index=3&type=section&id=Forward%2DLooking%20Statements) This section defines forward-looking statements and advises against undue reliance due to inherent risks and uncertainties - Forward-looking statements are identified by terms such as "may," "will," "expect," "anticipate," "estimate," "hope," "plan," "believe," "predict," "envision," "intend," "will," "continue," "potential," "should," "confident," "could" and similar words and expressions[9](index=9&type=chunk) - Actual results could differ materially from those contained in forward-looking statements due to known and unknown risks, uncertainties, and other factors[9](index=9&type=chunk)[10](index=10&type=chunk) - Key factors influencing future results include the company's ability to execute growth strategies, find favorable manufacturing partners, general economic conditions, and anticipated working capital needs[12](index=12&type=chunk) [PART I – Financial Information](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed notes [Unaudited Condensed Consolidated Balance Sheets](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets and stockholders' equity significantly increased, driven by digital assets, alongside rising current and deferred tax liabilities Condensed Consolidated Balance Sheet Highlights | Metric | As of Sep 30, 2025 (USD) | As of Dec 31, 2024 (Audited) (USD) | Change (USD) | Percentage Change (%) | | :-------------------------- | :------------------- | :--------------------------- | :------- | :------------------ | | Cash and cash equivalents | $12,357,568 | $668,387 | +$11,689,181 | +1748.8% | | Digital assets | $666,804,429 | $78,322,430 | +$588,481,999 | +751.4% | | Total current assets | $679,538,464 | $92,916,317 | +$586,622,147 | +631.3% | | Total assets | $679,538,464 | $92,916,317 | +$586,622,147 | +631.3% | | Total current liabilities | $5,953,164 | $3,053,752 | +$2,899,412 | +95.0% | | Deferred tax liabilities | $98,478,710 | $8,234,503 | +$90,244,207 | +1096.0% | | Total liabilities | $104,431,874 | $11,288,255 | +$93,143,619 | +825.1% | | Total Stockholders' Equity | $575,106,590 | $81,628,062 | +$493,478,528 | +604.5% | - On September 16, 2025, the Company effected a **200-for-1 reverse stock split**, reducing outstanding shares from approximately **566,265,135 to 2,865,730**[15](index=15&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) Significant turnaround from net loss to net income, driven by fair value gains on digital assets and new service revenue, with increased share-based compensation Condensed Consolidated Statements of Operations Highlights | Metric | 3 Months Ended Sep 30, 2025 (USD) | 3 Months Ended Sep 30, 2024 (USD) | 9 Months Ended Sep 30, 2025 (USD) | 9 Months Ended Sep 30, 2024 (USD) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Service revenue | $1,788,205 | $0 | $1,788,205 | $0 | | Gross Profit | $806,849 | $0 | $806,849 | $0 | | General and administrative expense | $(488,975) | $(566,983) | $(1,194,795) | $(1,242,128) | | Selling expense | $(276,068) | $0 | $(276,068) | $0 | | Share-based compensation expense | $(44,367,409) | $0 | $(44,367,409) | $0 | | Other income, net | $34,736,876 | $2,303,789 | $430,398,332 | $17,899,568 | | Income tax expenses | $(7,303,523) | $(364,730) | $(90,244,207) | $(2,666,078) | | Net (loss) income from continuing operation | $(16,892,250) | $1,372,076 | $295,122,702 | $13,991,362 | | Net (loss) income per share, basic and diluted from continuing operation (USD/Share) | $(6.86) | $39.33 | $171.85 | $517.80 | | Weighted-average shares outstanding, basic and diluted (Shares) | 2,461,018 | 34,882 | 1,717,348 | 27,021 | - The company **dissolved its subsidiary, WeTrade Technology (Shanghai) Co., Ltd. in July 2024**, which qualified as a discontinued operation[19](index=19&type=chunk) [Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders%27%20Equity) Total stockholders' equity increased due to net income, share-based compensation, Bitcoin acquisition, and common share issuances, impacted by a reverse stock split Changes in Stockholders' Equity (9 Months Ended Sep 30, 2025) | Item | Amount (USD) | | :-------------------------------------------------- | :------------- | | Balance as of December 31, 2024 | $81,628,062 | | Stock issued for the acquisition of Bitcoin | $145,958,167 | | Net income for the period | $295,122,702 | | Share-based compensation to advisors | $44,367,409 | | Issuance of common shares and pre-funded warrants | $8,030,250 | | Common stock issuance from fractional share elimination | $0 | | Balance as of September 30, 2025 | $575,106,590 | - The company's common stock outstanding **increased from 34,882 shares as of December 31, 2024, to 2,865,730 shares as of September 30, 2025**, after accounting for a **200-for-1 reverse stock split** on September 16, 2025[25](index=25&type=chunk)[27](index=27&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Positive cash flow from operating and financing activities led to a significant increase in cash, with substantial non-cash issuance for digital asset acquisition Condensed Consolidated Statements of Cash Flows Highlights | Cash Flow Activity | 9 Months Ended Sep 30, 2025 (USD) | 9 Months Ended Sep 30, 2024 (USD) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash flows provided by operating activities | $3,658,931 | $0 | | Net cash flows provided by investing activities | $0 | $0 | | Net cash flows provided by financing activities | $8,030,250 | $0 | | Change in Cash and Cash Equivalents | $11,689,181 | $0 | | Cash and Cash Equivalents, End of the Period | $12,357,568 | $668,387 | Supplemental Disclosure of Non-Cash Financing Activities | Non-Cash Activity | 9 Months Ended Sep 30, 2025 (USD) | 9 Months Ended Sep 30, 2024 (USD) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Issuance of common stock to acquire digital assets | $145,958,167 | $0 | | Advance payment for acquisition of digital assets | $12,125,500 | $0 | | Repayment of other payable through issuance of common stock | $0 | $1,380,000 | | Repayment of former executives through issuance of common stock | $0 | $594,140 | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes provide comprehensive details supporting financial statements, covering business transformation, accounting policies, digital assets, and legal contingencies [NOTE 1 – Nature of Business](index=9&type=section&id=NOTE%201%20%E2%80%93%20NATURE%20OF%20BUSINESS) Next Technology Holding Inc. transitioned to AI-enabled software development and Bitcoin acquisition, terminating PRC operations in Q3 2024 - The Company changed its name to Next Technology Holding Inc. on March 18, 2024, and **terminated all operations in the PRC in Q3 2024** to shift software development services to overseas markets and commence a Bitcoin acquisition strategy[32](index=32&type=chunk) - Current business strategies include providing AI-enabled software development services (SaaS+AI model) to customers in Hong Kong, Singapore, and other Asian countries, and acquiring and holding Bitcoin[32](index=32&type=chunk)[33](index=33&type=chunk) Bitcoin Holdings Roll-Forward | Item | Balance on Dec 31, 2023 (USD) | Balance on Dec 31, 2024 (USD) | Balance on Sep 30, 2025 (USD) | | :-------------------------- | :---------------------- | :---------------------- | :---------------------- | | Digital asset original cost basis | $24,990,000 | $24,990,000 | $183,073,667 | | Fair value change in digital asset | $10,147,576 | $53,332,430 | $483,730,762 | | Digital asset fair value | $35,137,576 | $78,322,430 | $666,804,429 | | Number of bitcoin held (Shares) | 833 | 833 | 5,833 | [NOTE 2 – Summary of Significant Accounting Policies](index=10&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Details accounting principles, including early adoption of ASU 2023-08 for crypto assets at fair value, five-step revenue recognition, and dividend policy - The Company elected **early adoption of ASU 2023-08**, Intangibles—Goodwill and Other—Crypto Assets (Subtopic 350-60), in the 2024 fiscal year. Crypto assets (digital assets) are **measured at fair value**, with unrealized gains and losses recognized as "other income" in net income[51](index=51&type=chunk)[52](index=52&type=chunk) - Revenue from custom software development contracts is recognized over time using the cost-to-cost input method, as the customized work-in-process has no alternative use and the Company has an enforceable right to payment[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk) - On August 8, 2025, the Company approved a dividend policy to distribute **no less than 80% of annual profits** to shareholders, payable in cash, stock, or other forms. However, **no dividends were declared** for the three and nine months ended September 30, 2025 and 2024[72](index=72&type=chunk) [NOTE 3 – Cash and Cash Equivalents](index=17&type=section&id=NOTE%203%20%E2%80%93%20CASH%20AND%20CASH%20EQUIVALENTS) Cash and cash equivalents significantly increased, with a notable shift in holdings to bank deposits inside the USA Cash and Cash Equivalents Breakdown | Category | September 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------- | :----------------- | :---------------- | | Bank Deposits- Outside USA | $4,437,518 | $668,387 | | Bank Deposits- Inside USA | $7,920,050 | $0 | | Total | $12,357,568 | $668,387 | [NOTE 4 – Digital Assets](index=17&type=section&id=NOTE%204%20%E2%80%93%20DIGITAL%20ASSETS) Digital asset holdings, primarily Bitcoin, substantially increased in value and quantity due to acquisitions and significant fair value gains, held for trading Digital Asset Holdings and Gains | Metric | September 30, 2025 (Shares) | December 31, 2024 (Shares) | | :-------------------------- | :----------------- | :---------------- | | Approximate number of bitcoins held | 5,833 | 833 | | Digital assets carrying value (USD) | $666,804,429 | $78,322,430 | | Fair value gain on digital assets (period/year) (USD) | $430,398,332 | $43,184,854 | - In March 2025, the Company **acquired 5,000 BTC for a total consideration of $158,083,667**, paid through the issuance of common stock and warrants[88](index=88&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk) - The Company's strategy is to hold digital assets for trading, accumulating Bitcoin when prices are low and selling when prices are high[90](index=90&type=chunk) [NOTE 5 – Prepayments](index=20&type=section&id=NOTE%205%20%E2%80%93%20PREPAYMENTS) Prepayments for digital assets were fully utilized, while a new category of 'Advance to suppliers' emerged Prepayments Breakdown | Category | September 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------- | :----------------- | :---------------- | | Prepayment for digital assets | $0 | $12,125,500 | | Advance to suppliers | $306,720 | $0 | | Total | $306,720 | $12,125,500 | [NOTE 6 – Accounts Receivable, Net](index=20&type=section&id=NOTE%206%20%E2%80%93%20ACCOUNTS%20RECEIVABLE%2C%20NET) Accounts receivable, net, significantly decreased, reflecting improved collection or reduced outstanding balances from software development fees Accounts Receivable, Net | Metric | September 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------- | :----------------- | :---------------- | | Accounts Receivable | $69,747 | $1,800,000 | | Less: Allowance for credit loss | $0 | $0 | | Accounts Receivable, net | $69,747 | $1,800,000 | [NOTE 7 – Investment](index=20&type=section&id=NOTE%207%20%E2%80%93%20INVESTMENT) Investment in an associate company was fully impaired by September 30, 2025, after acquiring a 20% stake in April 2024 Investment in Associate Company | Metric | September 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------- | :----------------- | :---------------- | | Investment in an associate company | $13,396,000 | $13,396,000 | | Impairment of the investment | $(13,396,000) | $(13,396,000) | | Net Investment | $0 | $0 | - In April 2024, **3,940,000 shares were issued for $13,396,000 to acquire 20%** of an associate company[103](index=103&type=chunk) - The Company has **fully provided for impairment losses** on this long-term equity investment[104](index=104&type=chunk) [NOTE 8 – Amount Due to Related Parties](index=21&type=section&id=NOTE%208%20%E2%80%93%20AMOUNT%20DUE%20TO%20RELATED%20PARTIES) Amount due to related parties, specifically director fees payable, decreased, with amounts being interest-free and having no fixed repayment terms Amount Due to Related Parties | Category | September 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------- | :----------------- | :---------------- | | Director fee payable | $264,887 | $972,000 | - The amount due to related parties is **interest-free and has no fixed terms of repayment**[106](index=106&type=chunk) [NOTE 9 – Other Payables](index=21&type=section&id=NOTE%209%20%E2%80%93%20OTHER%20PAYABLES) Total other payables increased, primarily driven by a significant rise in short-term loans, while professional fees decreased Other Payables Breakdown | Category | September 30, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------- | :----------------- | :---------------- | | Professional fees and operating expenses | $168,007 | $460,985 | | Short term loans | $2,004,042 | $760,352 | | Payroll | $15,271 | $0 | | Total | $2,187,320 | $1,221,337 | - Short-term loans were borrowed from former executives and third parties to cover daily operational expenses, are **unsecured, interest-free, and expected to be repaid in cash or common stock**[107](index=107&type=chunk) [NOTE 10 – Shareholders' Equity](index=21&type=section&id=NOTE%2010%20%E2%80%93%20SHAREHOLDERS%27%20EQUITY) Significant changes in shareholders' equity include stock issuances for acquisitions and offerings, and a 200-for-1 reverse stock split - The number of issued and outstanding common shares **increased from 34,882 as of December 31, 2024, to 2,865,730 as of September 30, 2025**, after a **200-for-1 reverse stock split**[108](index=108&type=chunk)[117](index=117&type=chunk) - In March 2025, **135,171,078 shares and warrants for 294,117,647 shares were issued for the acquisition of 5,000 Bitcoin, with a total consideration of $158.08 million**[114](index=114&type=chunk) - A registered direct offering completed on September 3, 2025, **raised approximately $8,030,250 in net proceeds** for working capital, through the issuance of common stock and pre-funded warrants[116](index=116&type=chunk) [NOTE 11 – Revenue](index=23&type=section&id=NOTE%2011%20%E2%80%93%20REVENUE) The company generated service revenue from AI-enabled software development, marking the commencement of revenue generation in this segment Service Revenue | Metric | 3 Months Ended Sep 30, 2025 (USD) | 3 Months Ended Sep 30, 2024 (USD) | 9 Months Ended Sep 30, 2025 (USD) | 9 Months Ended Sep 30, 2024 (USD) | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Service revenue | $1,788,205 | $0 | $1,788,205 | $0 | [NOTE 12 – Share-based Compensation Expense](index=23&type=section&id=NOTE%2012%20%E2%80%93SHARE%2DBASED%20COMPENSATION%20EXPENSE) Share-based compensation expense significantly increased due to fully vested stock awards granted to advisors for Bitcoin acquisition and other grants Share-based Compensation Expense | Period | Share-based Compensation Expense (USD) | | :-------------------------- | :------------------------------- | | 9 Months Ended Sep 30, 2025 | $44,370,000 | | 9 Months Ended Sep 30, 2024 | $0 | - The Company recognized **$42,840,000 in share-based compensation expense for 18,000,000 fully vested stock awards** granted to advisors for the **5,000 BTC acquisition** on July 8, 2025[123](index=123&type=chunk) - An **additional $1,527,409 in share-based compensation expense was recognized for 2,000,000 fully vested shares and 50,000,000 shares** subject to a four-year service-based vesting period, granted in July and August 2025[124](index=124&type=chunk) [NOTE 13 – Income Taxes](index=23&type=section&id=NOTE%2013%20%E2%80%93%20INCOME%20TAXES) Income tax expense significantly increased due to deferred tax liabilities from Bitcoin fair value gains, impacting the effective tax rate Income Tax Expenses | Period | US Income Tax Expense (USD) | Hongkong and BVI Income Tax Expense (USD) | Total Income Tax Expense (USD) | | :-------------------------- | :-------------------- | :---------------------------------- | :----------------------- | | 3 Months Ended Sep 30, 2025 | $7,303,523 | $0 | $7,303,523 | | 3 Months Ended Sep 30, 2024 | $364,730 | $0 | $364,730 | | 9 Months Ended Sep 30, 2025 | $90,244,207 | $0 | $90,244,207 | | 9 Months Ended Sep 30, 2024 | $2,666,078 | $0 | $2,666,078 | Effective Income Tax Rate Reconciliation | Item | 3 Months Ended Sep 30, 2025 (%) | 3 Months Ended Sep 30, 2024 (%) | 9 Months Ended Sep 30, 2025 (%) | 9 Months Ended Sep 30, 2024 (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | US Statutory income tax rates | 21.0% | 21.0% | 21.0% | 21.0% | | Share-based compensation expense | (97.2)% | 0% | 0% | 0% | | Changes in valuation allowance | 0% | 0% | 2.4% | (5.0)% | | Effective Income Tax Rate | (76.2)% | 21.0% | 23.4% | 16.0% | - Deferred tax liabilities primarily consist of **$98,478,710 from the fair value gain of Bitcoin** as of September 30, 2025, a **significant increase from $8,234,503** at December 31, 2024[128](index=128&type=chunk) [NOTE 14 – Segment Information](index=25&type=section&id=NOTE%2014%20%E2%80%93%20SEGMENT%20INFORMATION) The company operates as a single reportable segment, with the CEO allocating resources and assessing performance on a consolidated basis using Net Income - The Company operates as a single reportable segment, consistent with how the Chief Operating Decision Maker (CEO) allocates resources and assesses performance[129](index=129&type=chunk) - Net Income is the primary measure of segment performance, defined as revenue less cost of goods sold, operating expenses, other segment items, and income taxes[130](index=130&type=chunk) [NOTE 15 – Basic and Diluted Net Income Per Share](index=25&type=section&id=NOTE%2015%20%E2%80%93%20BASIC%20AND%20DILUTED%20NET%20INCOME%20PER%20SHARE) Basic and diluted net income per share changed significantly, reflecting increased net income and weighted-average shares outstanding, impacted by the reverse stock split Net Income Per Share (Basic and Diluted) | Metric | 3 Months Ended Sep 30, 2025 (USD) | 3 Months Ended Sep 30, 2024 (USD) | 9 Months Ended Sep 30, 2025 (USD) | 9 Months Ended Sep 30, 2024 (USD) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (loss) income | $(16,892,250) | $1,378,372 | $295,122,702 | $13,997,658 | | Weighted-average common shares outstanding - basic and diluted (Shares) | 2,461,018 | 34,882 | 1,717,348 | 27,021 | | (Loss) earnings per share, basic and diluted (USD/Share) | $(6.86) | $39.51 | $171.85 | $518.03 | [NOTE 16 – Commitments and Contingencies](index=26&type=section&id=NOTE%2016%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in ongoing legal proceedings, defending against unauthorized individuals attempting to interfere with operations and control - Since September 2023, unauthorized individuals (Zheng Dai and Pijun Liu) have repeatedly attempted to illegally interfere with the Company's operations through false documents and multiple lawsuits[135](index=135&type=chunk) - The Chancery Court of Wyoming issued a **preliminary injunction on January 5, 2024**, explicitly prohibiting these individuals from acting on behalf of the Company, including contacting regulatory authorities, issuing shares, or disseminating false statements[135](index=135&type=chunk) - The Company is actively defending against additional lawsuits, including claims for corporate records inspection and alleged loan contract disputes, and firmly believes the opposing party's claims lack factual or legal basis[136](index=136&type=chunk) [NOTE 17 – Subsequent Events](index=26&type=section&id=NOTE%2017%20%E2%80%93%20SUBSEQUENT%20EVENTS) No other material events occurred after September 30, 2025, requiring disclosure in this report [NOTE 18 – Discontinued Operations](index=26&type=section&id=NOTE%2018%20%E2%80%93%20DISCONTINUED%20OPERATIONS) The company dissolved its PRC subsidiary in July 2024, which qualified as a discontinued operation, leading to retrospective adjustments - The Company **dissolved its subsidiary, WeTrade Technology (Shanghai) Co., Ltd. in the PRC in July 2024**, terminating all operations in the region[139](index=139&type=chunk) - This transaction qualified as a discontinued operation under ASC 205-20, leading to retrospective adjustments of prior year comparative consolidated financial statements[140](index=140&type=chunk) Disposal of Discontinued Operation | Item | July 18, 2024 (USD) | | :-------------------------------- | :------------ | | Total consideration, net of transaction costs | $0 | | Total net assets value of discontinued business | $(6,296) | | Disposal of discontinued operation | $6,296 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, strategic shift, performance drivers, liquidity, and critical accounting policies, highlighting digital asset impact [Business](index=27&type=section&id=Business) The company transformed its business, focusing on AI-enabled software development services and acquiring/holding Bitcoin after terminating PRC operations - Next Technology Holding Inc. **terminated all operations in the PRC in Q3 2024** to shift software development services to overseas markets and commenced a new business strategy of acquiring and holding Bitcoin[143](index=143&type=chunk) - The company provides AI-enabled software development services under a SaaS+AI model, focusing on customized projects for industries like retail, e-commerce, tourism, healthcare, and industrial sectors in Hong Kong, Singapore, and other Asian markets[144](index=144&type=chunk)[145](index=145&type=chunk) - The Bitcoin acquisition strategy involves using liquid assets, issuing debt or equity, and potentially selling Bitcoin for treasury management or tax benefits, viewing Bitcoin as an opportunity for value appreciation and a long-term inflation hedge[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Net income significantly increased, driven by fair value gains from digital assets and service revenue, partially offset by higher share-based compensation and income tax Results of Operations (9 Months Ended Sep 30) | Metric | 2025 (USD) | 2024 (USD) | Change (USD) | Percentage Change (%) | | :-------------------------- | :----------- | :----------- | :----------- | :------------------ | | Service revenue | $1,788,205 | $0 | +$1,788,205 | N/A | | Gross profit | $806,849 | $0 | +$806,849 | N/A | | General and administrative expense | $(1,194,795) | $(1,242,128) | +$47,333 | -3.8% | | Selling expense | $(276,068) | $0 | $(276,068) | N/A | | Share-based compensation expense | $(44,367,409) | $0 | $(44,367,409) | N/A | | Other income | $430,398,332 | $17,899,568 | +$412,498,764 | +2304.5% | | Income tax expense | $(90,244,207) | $(2,666,078) | $(87,578,129) | +3284.9% | | Net income | $295,122,702 | $13,991,362 | +$281,131,340 | +2009.3% | - The **increase in selling expenses to $276,068** was primarily due to new commercial customer agreements **totaling $12.59 million in contract value, with $5.09 million already collected**[159](index=159&type=chunk) - The significant increase in net income was mainly due to the fair value gain from digital assets and gross profit from service revenue, partly offset by increased share-based compensation and income tax expenses[166](index=166&type=chunk)[167](index=167&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company has sufficient cash and digital assets for anticipated needs, with positive cash flow from operating and financing activities - As of September 30, 2025, the company had **$12.4 million in cash on hand**[168](index=168&type=chunk) - **Net cash flow from operating activities was $3.7 million** for the nine months ended September 30, 2025, compared to nil in the prior year[169](index=169&type=chunk) - **Net cash flow from financing activities was $8.03 million** for the nine months ended September 30, 2025, primarily from a registered direct offering completed on September 3, 2025, designated for working capital[170](index=170&type=chunk)[171](index=171&type=chunk) [Critical Accounting Policies](index=31&type=section&id=Critical%20Accounting%20Policies) Financial statements adhere to U.S. GAAP, requiring management estimates and assumptions, with proactive monthly reviews to manage deviations - Financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and assumptions that affect reported amounts[174](index=174&type=chunk) - The company uses historical data for forecasting and conducts monthly reviews to proactively manage business and address deviations from projections[174](index=174&type=chunk) [Recent Accounting Pronouncements](index=31&type=section&id=Recent%20Accounting%20Pronouncements) The company reviewed recent accounting pronouncements and anticipates no material impact on its financial statements - The Company does not believe any recently issued, but not yet effective, accounting pronouncements will have a material impact on its financial statements[175](index=175&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a "smaller reporting company" under Regulation S-K, the company is exempt from providing detailed quantitative and qualitative disclosures about market risk - The Company is a "smaller reporting company" and is not required to provide detailed quantitative and qualitative disclosures about market risk[176](index=176&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were ineffective due to material weaknesses, including limited resources and lack of segregation of duties, with remediation planned - As of September 30, 2025, the Company's management concluded that its disclosure controls and procedures were **not effective**[178](index=178&type=chunk)[179](index=179&type=chunk) - Material weaknesses identified include limited internal resources, lack of multiple levels of transaction review, lack of a majority of outside directors on the board, management dominated by two individuals, ineffective internal audit functions, and lack of segregation of duties within accounting functions[179](index=179&type=chunk)[180](index=180&type=chunk) - The company plans to implement procedures to assure segregation of conflicting duties and remediate identified significant deficiencies with proper funding[181](index=181&type=chunk) [PART II – Other Information](index=33&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Ongoing legal proceedings involve defending against unauthorized individuals attempting to interfere with operations, with a preliminary injunction issued against them - Since mid-September 2023, unauthorized individuals, including Zheng Dai and Pijun Liu, have falsely represented the Company and initiated multiple lawsuits to gain control[185](index=185&type=chunk) - The Chancery Court of Wyoming issued a **preliminary injunction on January 5, 2024**, specifically restraining Mr. Zheng Dai and his affiliates from acting on behalf of the Company, contacting regulatory authorities, or issuing shares[189](index=189&type=chunk)[192](index=192&type=chunk) - The Company is actively defending against ongoing lawsuits, including a pending motion for summary judgment regarding corporate records inspection and a motion to dismiss claims for breach of alleged loan contracts[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) As a "smaller reporting company," the registrant is not required to provide specific disclosures about risk factors in this report - The Company is a "smaller reporting company" and is not required to provide detailed risk factor disclosures[199](index=199&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds to report[200](index=200&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No senior securities were issued and outstanding during the nine months ended September 30, 2025 - No senior securities were issued and outstanding during the nine months ended September 30, 2025[201](index=201&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the Company[202](index=202&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20information) There is no other information to report under this item - No other information to report[203](index=203&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial Officer, and the financial statements formatted in XBRL - Exhibits include **certifications of Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) and financial statements formatted in XBRL (101)**[203](index=203&type=chunk) [Signatures](index=36&type=section&id=SIGNATURES) [Official Signatures](index=36&type=section&id=Official%20Signatures) This section contains the official signatures of the Chief Executive Officer, Wei Hong Liu, and Chief Financial Officer, Eve Chan, certifying the submission of the Form 10-Q report - The report is duly signed on behalf of NEXT TECHNOLOGY HOLDING INC. by **Wei Hong Liu, Chief Executive Officer, and Eve Chan, Chief Financial Officer**, dated October 8, 2025[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)

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: September 30, 2025 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ NEXT TECHNOLOGY HOLDING INC. (Exact name of small business issuer as specified in its charter) (State or other jurisdiction of incorporati ...

[Company Overview](index=1&type=section&id=Company%20Overview) Art's Way Manufacturing is a small, publicly traded company with over 65 years of experience in equipment manufacturing, specializing in high-quality machinery for agricultural and research needs [About Art's Way Manufacturing Co., Inc.](index=4&type=section&id=About%20Art's%20Way%20Manufacturing%20Co.,%20Inc.) Art's Way Manufacturing Co., Inc. is a small, publicly traded company with over 65 years of experience in equipment manufacturing, specializing in high-quality machinery for agricultural and research needs - Art's Way Manufacturing is a small, publicly traded company specializing in equipment manufacturing for over 65 years, with approximately **100 employees** across two locations[11](index=11&type=chunk) - The company operates with two reporting segments: Agricultural Products and Modular Buildings, offering products like manure spreaders, forage boxes, and custom research/laboratory buildings[11](index=11&type=chunk) [Third Quarter Fiscal 2025 Highlights](index=1&type=section&id=Third%20Quarter%20Fiscal%202025%20Highlights) Art's Way Manufacturing reported improved results for Q3 fiscal 2025, driven by growth in its Modular Buildings segment, which helped offset ongoing challenges in the agricultural market - Improved results in Q3 fiscal 2025, with Modular Buildings growth offsetting Ag market challenges[1](index=1&type=chunk) [Consolidated Financial Results](index=1&type=section&id=Consolidated%20Financial%20Results) The company reported improved financial performance for both the third quarter and the first nine months of fiscal 2025, driven by increased net income and strategic cost reductions [Three Months Ended August 31, 2025](index=1&type=section&id=Three%20Months%20Ended%20August%2031,%202025) For the third quarter of fiscal 2025, the company reported a significant increase in net income and operating income, with sales also showing a positive year-over-year growth | Metric | August 31, 2025 ($) | August 31, 2024 ($) | YoY Change | | :--- | :--- | :--- | :--- | | Sales | 6,432,000 | 5,876,000 | +9.5% | | Operating Income | 345,000 | 154,000 | +124.0% | | Net Income | 254,000 | 2,000 | +12600.0% | | EPS (Basic) | 0.05 | 0.00 | N/A | | EPS (Diluted) | 0.05 | 0.00 | N/A | [Nine Months Ended August 31, 2025](index=2&type=section&id=Nine%20Months%20Ended%20August%2031,%202025) For the first nine months of fiscal 2025, the company achieved a significant turnaround from a net loss to a net income, primarily driven by improved operating income, reduced operating expenses, and a positive impact from an Employee Retention Credit refund, despite a slight decline in overall sales | Metric | August 31, 2025 ($) | August 31, 2024 ($) | YoY Change | | :--- | :--- | :--- | :--- | | Sales | 17,910,000 | 18,329,000 | -2.3% | | Operating Income (Loss) | 858,000 | (58,000) | N/A (from loss to profit) | | Net Income (Loss) | 1,680,000 | (427,000) | N/A (from loss to profit) | | EPS (Basic) | 0.33 | (0.08) | N/A (from loss to profit) | | EPS (Diluted) | 0.33 | (0.08) | N/A (from loss to profit) | - Nine-month gross profit as a percentage of sales improved by **1.2%** compared to the first nine months of fiscal 2024[4](index=4&type=chunk) - Operating expenses decreased by **13.1%** for the nine months ended August 31, 2025, compared to the same period in fiscal 2024[4](index=4&type=chunk) - Net income for the nine months ended August 31, 2025, was positively impacted by a **$1,154,000 Employee Retention Credit refund**[4](index=4&type=chunk) [CEO's Commentary](index=2&type=section&id=CEO's%20Commentary) The CEO expressed satisfaction with operational progress and improved profitability despite agricultural market headwinds, highlighting strong performance in Modular Buildings and modest demand in Agricultural Products - Operational progress and improved profitability achieved despite persistent headwinds in the ag equipment space[3](index=3&type=chunk) - Modular Buildings segment showed **strong performance**, while Agricultural Products experienced **modest demand**[3](index=3&type=chunk) - Company remains focused on enhancing products, customer experience, improving market position, and strengthening balance sheet and cash flow[3](index=3&type=chunk) - Cautiously optimistic that strong profitability among livestock producers will lead to improved demand in the near term and into 2026 for the ag sector[3](index=3&type=chunk) [Segment Performance Analysis](index=3&type=section&id=Segment%20Performance%20Analysis) This section analyzes the distinct financial and operational performance of the Agricultural Products and Modular Buildings segments, highlighting market challenges and growth drivers [Agricultural Products Segment](index=3&type=section&id=Agricultural%20Products%20Segment) The Agricultural Products segment continued to face decreased demand for six consecutive quarters due to challenging market conditions, including high interest rates and low crop prices [Market Conditions and Strategic Response](index=3&type=section&id=Market%20Conditions%20and%20Strategic%20Response%20(Agricultural%20Products)) The Agricultural Products segment faced six consecutive quarters of decreased demand due to challenging market conditions, but saw strong grinder mixer sales and implemented cost reduction measures - Experienced decreased demand for **six fiscal quarters** due to difficult agricultural market conditions (high interest rates, increasing input costs, low row crop prices)[6](index=6&type=chunk) - Strategically building inventory through fiscal year-end to capitalize on retail opportunities and year-end tax buying, despite low current demand[6](index=6&type=chunk) - Strong grinder mixer sales activity driven by **all-time high livestock prices**, particularly cattle[6](index=6&type=chunk) - Anticipates market conditions to improve in the next **9 to 15 months**, believing this is the bottom of the cycle[6](index=6&type=chunk) - Operating expenses reduced through right-sizing production and administrative staff in fiscal 2024[6](index=6&type=chunk) - Expects to pass on a **3-5% price increase** to customers with the fall early order program due to rising supplier costs, steel prices, and tariff charges[6](index=6&type=chunk) [Financial Performance](index=3&type=section&id=Financial%20Performance%20(Agricultural%20Products)) The Agricultural Products segment reported a slight Q3 sales decline and a more significant 9-month sales decline, but net income improved substantially due to decreased operating expenses and an Employee Retention Credit refund | Metric | Q3 2025 ($) | Q3 2024 ($) | YoY Change (Q3) | 9 Months 2025 ($) | 9 Months 2024 ($) | YoY Change (9 Months) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | 2,983,000 | N/A | -0.2% | 9,956,000 | N/A | -15.5% | - Nine-month gross profit as a percentage of sales declined **3.4%** compared to the first nine months of fiscal 2024[7](index=7&type=chunk) - Operating expenses decreased by **23.0%** for the nine months ended August 31, 2025, compared to the same period in fiscal 2024[7](index=7&type=chunk) - Net income of **$139,000** for the nine months ended August 31, 2025, an improvement of **$1,337,000** from the same period in fiscal 2024, positively impacted by a **$976,000 Employee Retention Credit refund**[7](index=7&type=chunk) [Modular Buildings Segment](index=4&type=section&id=Modular%20Buildings%20Segment) The Modular Buildings segment demonstrated strong growth in both Q3 and year-to-date sales, driven by consistent execution on backlog and a growing reputation in custom research and laboratory fields [Operational Highlights and Growth Strategy](index=4&type=section&id=Operational%20Highlights%20and%20Growth%20Strategy%20(Modular%20Buildings)) The Modular Buildings segment achieved strong sales growth through consistent backlog execution and reputation building, while exploring new markets and maintaining strong margins - Consistent execution on backlog and growing reputation in custom research and laboratory fields drove approximately **20% sales increase** for the quarter and year-to-date[9](index=9&type=chunk) - Quoting activity and custom build inquiries remain strong, despite earlier concerns about government funding pullbacks[9](index=9&type=chunk) - Exploring new markets including datacenters, wastewater treatment facilities, petroleum and mining analysis labs, and chemical production offices[9](index=9&type=chunk) - Strong margins maintained due to increased workforce proficiency and software improvements enhancing data analytics and budget adherence[9](index=9&type=chunk) [Financial Performance](index=4&type=section&id=Financial%20Performance%20(Modular%20Buildings)) The Modular Buildings segment reported robust sales growth for both Q3 and the nine months ended August 31, 2025, with significant improvements in gross profit and net income | Metric | Q3 2025 ($) | Q3 2024 ($) | YoY Change (Q3) | 9 Months 2025 ($) | 9 Months 2024 ($) | YoY Change (9 Months) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | 3,449,000 | N/A | +19.4% | 7,954,000 | N/A | +21.4% | - Nine-month gross profit as a percentage of sales improved **8.9%** compared to the first nine months of fiscal 2024[12](index=12&type=chunk) - Operating expenses increased by **40.3%** for the nine months ended August 31, 2025, due to overlap in sales positions and increased commission expense from higher sales[12](index=12&type=chunk) - Net income of **$1,542,000** for the nine months ended August 31, 2025, an improvement of **$771,000** from the same period in fiscal 2024, positively impacted by a **$179,000 Employee Retention Credit refund**[12](index=12&type=chunk) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section serves as a cautionary notice regarding forward-looking statements within the release, identifying them by specific terminology and outlining various risks and uncertainties that could cause actual results to differ materially from management's expectations - The release contains forward-looking statements identifiable by terms such as 'may,' 'should,' 'anticipate,' 'believe,' 'expect,' 'plan,' 'future,' 'intend,' 'could,' 'estimate,' 'predict,' 'hope,' 'potential,' 'continue,' 'foresee,' 'optimistic,' 'opportunity,' or their negatives[13](index=13&type=chunk) - Statements of anticipated future results are subject to various risks and uncertainties, including customer demand, credit-worthiness, operational efficiency, financing, debt obligations, inflation, tariffs, economic conditions, labor market, raw material costs, and unexpected segment performance[13](index=13&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, and the Company does not intend to update them other than as required by law[13](index=13&type=chunk)

[Filing Information](index=1&type=section&id=Filing%20Information) This report is a Quarterly Report on Form 10-Q for WETOUCH TECHNOLOGY INC. for Q1 2025, identifying the registrant as a non-accelerated, smaller reporting, and emerging growth company - The document is a Quarterly Report on Form 10-Q for WETOUCH TECHNOLOGY INC. for the period ended March 31, 2025[1](index=1&type=chunk) - The registrant is classified as a non-accelerated filer, smaller reporting company, and emerging growth company[4](index=4&type=chunk) - As of October 7, 2025, there were **11,931,534 shares of common stock outstanding**[4](index=4&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward%20Looking%20Statements) This report contains forward-looking statements subject to risks like customer reliance, uncollectible receivables, government fines, and financing needs - This report contains forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations[8](index=8&type=chunk)[10](index=10&type=chunk) - Key risks include significant reliance on top customers, potential uncollectible accounts receivable, fines from the Chinese government, and the need for substantial additional financing[9](index=9&type=chunk) - Other risks involve adverse regulatory developments in Mainland China, potential delisting under the Holding Foreign Companies Accountable Act, and fluctuations in exchange rates[12](index=12&type=chunk) [PART I FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion for Q1 2025 [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Wetouch Technology Inc. and its subsidiaries for Q1 2025 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased by $5.66 million, driven by cash and accounts receivable, while liabilities rose due to payables | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Total Assets | $133,677,892 | $128,019,463 | $5,658,429 | 4.42% | | Cash | $106,407,564 | $103,760,324 | $2,647,240 | 2.55% | | Accounts receivable, net | $11,101,555 | $7,504,630 | $3,596,925 | 47.93% | | Total Current Liabilities | $5,444,381 | $2,951,192 | $2,493,189 | 84.48% | | Total Liabilities | $5,797,125 | $3,433,798 | $2,363,327 | 68.82% | | Total Stockholders' Equity | $127,880,767 | $124,585,665 | $3,295,102 | 2.64% | [Condensed Consolidated Statements of Income and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20%28Loss%29) Net income surged over 300% year-over-year due to revenue growth, lower cost of revenues, and eliminated interest expense | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :------------------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Revenues | $15,289,578 | $14,877,259 | $412,319 | 2.77% | | Cost of revenues | $(9,647,947) | $(11,539,301) | $1,891,354 | -16.39% | | Gross Profit | $5,641,631 | $3,337,958 | $2,303,673 | 69.01% | | Income from Operations | $3,972,734 | $2,304,904 | $1,667,830 | 72.36% | | Interest expense | $0 | $(1,169,974) | $1,169,974 | -100.00% | | Net Income | $2,562,722 | $558,870 | $2,003,852 | 358.55% | | Basic EPS | $0.21 | $0.04 | $0.17 | 425.00% | | Diluted EPS | $0.21 | $0.04 | $0.17 | 425.00% | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased to $127.88 million, primarily from net income and foreign currency translation adjustment | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------- | :---------------- | | Total Stockholders' Equity | $127,880,767 | $124,585,665 | | Net income contribution | $2,562,722 | N/A (part of prior year) | | Foreign currency translation adjustment | $732,380 | N/A (part of prior year) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow turned positive in Q1 2025, a significant improvement from the prior year's negative cash flow | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------- | | Net cash provided by (used in) operating activities | $2,039,728 | $(9,217,544) | $11,257,272 | | Net cash used in investing activities | $0 | $(111,289) | $111,289 | | Net cash provided by financing activities | $0 | $7,506,140 | $(7,506,140) | | Net increase (decrease) in cash | $2,647,238 | $(3,244,104) | $5,891,342 | | Cash, end of period | $106,407,562 | $94,796,450 | $11,611,112 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures for financial statements, covering accounting policies, related party transactions, and risks [NOTE 1 — BUSINESS DESCRIPTION](index=10&type=section&id=NOTE%201%20%E2%80%94%20BUSINESS%20DESCRIPTION) Wetouch Technology Inc. operates through Sichuan Vtouch, focusing on touchscreen R&D, manufacturing, and distribution in PRC - Wetouch Technology Inc. acquired BVI Wetouch in a reverse merger in October 2020[24](index=24&type=chunk) - The company's primary business is R&D, manufacturing, and distribution of touchscreen displays for financial terminals, automotive, POS, gaming, medical, and HMI industries[25](index=25&type=chunk) - Sichuan Vtouch took over operating business from Sichuan Wetouch in March 2021 due to a government-directed relocation order, and Sichuan Wetouch was deconsolidated in March 2023[30](index=30&type=chunk)[31](index=31&type=chunk)[37](index=37&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Financial statements adhere to U.S. GAAP, with key policies including consolidation, estimates, and recent ASU evaluations - Financial statements are prepared under U.S. GAAP, with management making significant estimates[35](index=35&type=chunk)[39](index=39&type=chunk) - The company adopted ASU 2016-02 (Leases), recognizing right-of-use assets and lease liabilities[42](index=42&type=chunk)[43](index=43&type=chunk) - The company operates in one reporting segment, focusing on touchscreen business, with all assets located in the PRC[46](index=46&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - Recent FASB ASUs (2023-07, 2023-09, 2024-03, 2025-02) are being evaluated for their impact on future financial statements and disclosures[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [NOTE 3 — ACCOUNTS RECEIVABLE](index=16&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE) Accounts receivable, net, increased significantly to $11.10 million, with a notable rise in 1-3 months past due receivables | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :------------- | :---------------- | :------- | :------- | | Accounts receivable, net | $11,101,555 | $7,504,630 | $3,596,925 | 47.93% | | Current (aging) | $4,365,438 | $3,726,124 | $639,314 | 17.16% | | 1-3 months past due | $5,828,772 | $2,536,815 | $3,291,957 | 129.77% | [NOTE 4 — PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=16&type=section&id=NOTE%204%20%E2%80%94%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) Prepaid expenses and other current assets decreased to $2.17 million, mainly due to reduced prepaid consulting fees | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Prepaid expenses and other current assets | $2,167,153 | $2,762,580 | $(595,427) | -21.55% | | Prepaid consulting service fees | $357,390 | $884,687 | $(527,297) | -59.60% | | Prepayment for land use right | $540,912 | $537,755 | $3,157 | 0.59% | | Prepaid market research fees | $955,000 | $955,000 | $0 | 0.00% | [NOTE 5 — PROPERTY, PLANT AND EQUIPMENT, NET](index=18&type=section&id=NOTE%205%20%E2%80%94%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT%2C%20NET) Property, plant and equipment, net, slightly increased to $12.86 million, driven by construction in progress | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Property, plant and equipment, net | $12,855,562 | $12,782,997 | $72,565 | 0.57% | | Construction in progress | $12,830,673 | $12,755,791 | $74,882 | 0.59% | | Depreciation expense (3 months) | $2,471 | $2,316 | $155 | 6.69% | [NOTE 6 — OPERATING LEASE](index=18&type=section&id=NOTE%206%20%E2%80%94%20OPERATING%20LEASE) New facility construction is delayed to Q2 2026, with operating lease expenses at $151,375 for Q1 2025 - New facility construction delayed, expected completion by end of 2025, production to start **Q2 2026**[60](index=60&type=chunk) | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | | :---------------------- | :-------------------------- | :-------------------------- | | Operating lease expense | $151,375 | $0 | | Short-term lease expense | $0 | $147,729 | | Total lease expense | $151,375 | $147,729 | | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $952,398 | $1,055,208 | | Total operating lease liabilities | $952,398 | $1,054,145 | [NOTE 7 — RELATED PARTY TRANSACTIONS](index=20&type=section&id=NOTE%207%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) Amounts due to a related party increased significantly to $400,513 for expenses paid on behalf of the company | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :------------- | :---------------- | :------- | :------- | | Due to a related party | $400,513 | $149,211 | $251,302 | 168.42% | [NOTE 8 — INCOME TAXES](index=20&type=section&id=NOTE%208%20%E2%80%94%20INCOME%20TAXES) Income tax expense increased to $1.47 million in Q1 2025, with an effective tax rate of 36.5% - PRC subsidiaries (Sichuan Wetouch, Sichuan Vtouch) are subject to **25% CIT**, with Sichuan Wetouch previously benefiting from a **15% HNTE rate until Oct 2023**[68](index=68&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Income tax provision | $1,471,106 | $661,848 | $809,258 | 122.28% | | Effective tax rate | 36.5% | 54.2% | -17.7% | -32.66% | | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :------------- | :---------------- | :------- | :------- | | Deferred tax assets, net | $47,035 | $41,397 | $5,638 | 13.62% | [NOTE 9 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=22&type=section&id=NOTE%209%20%E2%80%94%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses and other current liabilities rose to $1.56 million, driven by increases in other payables | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------------- | :---------------- | :------- | :------- | | Accrued expenses and other current liabilities | $1,558,615 | $966,461 | $592,154 | 61.27% | | Other payable to third parties | $629,694 | $147,102 | $482,592 | 328.07% | | Other tax payables | $296,946 | $162,888 | $134,058 | 82.30% | [NOTE 10 — CONVERTIBLE PROMISSORY NOTES PAYABLE](index=23&type=section&id=NOTE%2010%20%E2%80%94%20CONVERTIBLE%20PROMISSORY%20NOTES%20PAYABLE) All convertible promissory notes were repaid in February 2024, eliminating interest expenses in Q1 2025 - All remaining five outstanding convertible promissory notes were fully repaid on February 23, 2024, for **$2,586,960**[87](index=87&type=chunk) | Metric | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :---------------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Interest expenses of Notes | $0 | $1,169,974 | $(1,169,974) | -100.00% | - Warrants issued with the notes expired during the year ended December 31, 2024[94](index=94&type=chunk) [NOTE 11 — STOCKHOLDERS' EQUITY](index=25&type=section&id=NOTE%2011%20%E2%80%94%20STOCKHOLDERS'%20EQUITY) Stockholders' equity includes 11,931,534 shares outstanding, a 1-for-20 reverse split, and a statutory reserve - **11,931,534 shares of common stock** were issued and outstanding as of March 31, 2025, and December 31, 2024[102](index=102&type=chunk) - A **1-for-20 reverse stock split** was effective on September 12, 2023[104](index=104&type=chunk) - In February 2024, a public offering of **2,160,000 shares generated $10.8 million gross proceeds**[105](index=105&type=chunk) | Metric | March 31, 2025 (USD) | December 31, 2024 (USD) | | :---------------- | :------------- | :---------------- | | Statutory reserve | $8,073,968 | $8,073,968 | [NOTE 12 — SHARE BASED COMPENSATION](index=27&type=section&id=NOTE%2012%20%E2%80%94%20SHARE%20BASED%20COMPENSATION) No share-based compensation expense was recognized in Q1 2025 or Q1 2024 as all warrants expired - No share-based compensation expense was recognized for the three months ended March 31, 2025, or 2024[116](index=116&type=chunk) - Warrants related to legal and consulting services were exercised or expired by December 31, 2024[116](index=116&type=chunk) [NOTE 13 — WEIGHTED AVERAGE NUMBER OF SHARES](index=28&type=section&id=NOTE%2013%20%E2%80%94%20WEIGHTED%20AVERAGE%20NUMBER%20OF%20SHARES) Weighted-average shares are computed per ASC 260, adjusting for reverse merger exchange ratios - Weighted-average shares are computed per ASC 260, adjusting for reverse merger exchange ratios[118](index=118&type=chunk) [NOTE 14 — RISKS AND UNCERTAINTIES](index=28&type=section&id=NOTE%2014%20%E2%80%94%20RISKS%20AND%20UNCERTAINTIES) The company faces credit, interest rate, and currency risks, alongside high customer and supplier concentration - Significant credit risk from accounts receivable and currency risk due to RMB non-convertibility[119](index=119&type=chunk)[122](index=122&type=chunk) - High customer concentration: top ten customers accounted for **99.7% of total revenue in Q1 2025**[124](index=124&type=chunk) - High supplier concentration: four suppliers accounted for **48.2% of raw material purchases in Q1 2025**[125](index=125&type=chunk) [NOTE 15 — COMMITMENTS AND CONTINGENCIES](index=28&type=section&id=NOTE%2015%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) No material legal proceedings are active, and there is a $0.7 million capital expenditure commitment - No material legal proceedings are active, pending, or threatened[127](index=127&type=chunk) - Capital expenditure commitment of **$0.7 million** for construction in progress as of March 31, 2025[128](index=128&type=chunk) [NOTE 16 — SEGMENT REPORTING](index=30&type=section&id=NOTE%2016%20%E2%80%94%20SEGMENT%20REPORTING) The company operates in a single touchscreen segment, with domestic sales increasing to 67.3% of total revenues - The company operates in one operating segment: touchscreen business[130](index=130&type=chunk) - Substantially all long-lived assets are located in the PRC[131](index=131&type=chunk) | Region | 3 Months Ended Mar 31, 2025 (USD) | 3 Months Ended Mar 31, 2024 (USD) | Change (USD) | % Change | | :---------------- | :-------------------------- | :-------------------------- | :------- | :------- | | Sales in PRC | $10,301,069 | $9,374,473 | $926,596 | 9.88% | | Sales in Overseas | $4,988,509 | $5,502,786 | $(514,277) | -9.34% | | Total revenues | $15,289,578 | $14,877,259 | $412,319 | 2.77% | [NOTE 17 — SUBSEQUENT EVENTS](index=30&type=section&id=NOTE%2017%20%E2%80%94%20SUBSEQUENT%20EVENTS) Sichuan Vtouch signed a $0.6 million supplemental construction contract for its R&D facility in April 2025 - Sichuan Vtouch signed a **$0.6 million supplemental construction contract** for R&D facility completion on April 11, 2025, with **50% prepaid**[132](index=132&type=chunk)[133](index=133&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, liquidity, and capital resources for Q1 2025, highlighting key operational aspects [Overview](index=32&type=section&id=Overview) Wetouch Technology operates through Sichuan Vtouch in touchscreen R&D and manufacturing, facing PRC regulatory risks - Company operates through PRC subsidiary Sichuan Vtouch, specializing in medium- to large-sized projected capacitive touchscreens[137](index=137&type=chunk) - Domestic sales in China accounted for **67.3% of revenues in Q1 2025**, up from 63.1% in Q1 2024[139](index=139&type=chunk) - New production facility construction expected to finish by end of 2025, with production commencing in **Q2 2026**[142](index=142&type=chunk) | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :---------------------- | :------------- | :------------- | :------- | :------- | | Revenues | $15.3 | $14.9 | $0.4 | 2.7% | | Gross profit | $5.6 | $3.3 | $2.3 | 69.7% | | Gross profit margin | 36.9% | 22.4% | 14.5% | 64.73% | | Net income | $2.5 | $0.6 | $1.9 | 316.7% | | Total volume shipped | 762,545 units | 681,370 units | 81,175 units | 11.9% | [Results of Operations](index=34&type=section&id=Results%20of%20Operations) The company achieved a 2.7% revenue increase and a 316.7% net income surge in Q1 2025, driven by improved margins [Revenues](index=34&type=section&id=Revenues) Total revenues increased by 2.7% to $15.3 million, driven by sales volume growth despite lower average selling prices - Revenue increase of **2.7% driven by 11.9% sales volume increase**, offset by 6.9% lower average selling price and 1.2% negative exchange rate impact[145](index=145&type=chunk) | Market | Q1 2025 Revenue (USD millions) | Q1 2024 Revenue (USD millions) | Change (USD millions) | % Change | | :---------------- | :-------------- | :-------------- | :------- | :------- | | Mainland China | $10.3 | $9.4 | $0.9 | 9.6% | | Overseas | $5.0 | $5.5 | $(0.5) | -9.1% | | Total Revenue | $15.3 | $14.9 | $0.4 | 2.7% | | Product Category | Q1 2025 Revenue (USD) | Q1 2024 Revenue (USD) | Change (USD) | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | :------- | | Automotive Touchscreens | $3,960,497 | $4,185,270 | $(224,773) | -5.4% | | Industrial Control Computer Touchscreens | $3,235,073 | $2,847,660 | $387,413 | 13.6% | | POS Touchscreens | $2,411,031 | $2,114,099 | $296,932 | 14.0% | | Gaming Touchscreens | $2,320,592 | $2,172,475 | $148,117 | 6.8% | | Medical Touchscreens | $1,949,656 | $2,414,961 | $(465,305) | -19.3% | | Multi-Functional Printer Touchscreens | $1,412,727 | $1,142,794 | $269,933 | 23.6% | - Company is shifting production mix to higher-end products like industrial control computer, POS, gaming, and multi-functional printer touchscreens due to growth potential and stronger demand[151](index=151&type=chunk) [Gross Profit and Gross Profit Margin](index=35&type=section&id=Gross%20Profit%20and%20Gross%20Profit%20Margin) Gross profit increased by 69.7% to $5.6 million, with margin expanding to 36.9% due to lower raw material costs | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :---------------- | :------------- | :------------- | :------- | :------- | | Gross Profit | $5.6 | $3.3 | $2.3 | 69.7% | | Gross Profit Margin | 36.9% | 22.4% | 14.5% | 64.73% | - Gross profit margin increase driven by lower raw material costs, partially offset by higher labor costs[153](index=153&type=chunk) [Selling Expenses](index=36&type=section&id=Selling%20Expenses) Selling expenses decreased by 80.0% to $0.1 million, primarily due to reduced traveling expenses and online communication | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------- | :------- | | Selling Expenses | $0.1 | $0.5 | $(0.4) | -80.0% | | As a percentage of revenues | 0.6% | 3.4% | -2.8% | -82.35% | - Decrease in selling expenses attributed to less traveling and increased use of online communication[154](index=154&type=chunk) [General and Administrative Expenses](index=36&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses increased by 220.0% to $1.6 million, driven by higher professional and marketing fees | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :-------------------------------- | :-------------------- | :-------------------- | :------- | :------- | | General and Administrative Expenses | $1.6 | $0.5 | $1.1 | 220.0% | | As a percentage of revenues | 10.5% | 3.4% | 7.1% | 208.82% | - Increase driven by higher professional fees, amortization of prepaid marketing research fees, and allowance for credit losses[155](index=155&type=chunk) [Research and Development Expenses](index=36&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses were nil in Q1 2025, representing a 100% decrease from the prior year | Metric | Q1 2025 (USD) | Q1 2024 (USD) | Change (USD) | % Change | | :-------------------------------- | :------ | :------ | :------- | :------- | | Research and Development Expenses | $0 | $42,738 | $(42,738) | -100.0% | [Operating Income](index=37&type=section&id=Operating%20Income) Operating income increased by 73.9% to $4.0 million, driven by higher gross margin and lower selling expenses | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :--------------- | :-------------------- | :-------------------- | :------- | :------- | | Operating Income | $4.0 | $2.3 | $1.7 | 73.9% | [Interest Expenses](index=37&type=section&id=Interest%20Expenses) Interest expenses were nil in Q1 2025 due to the full repayment of all outstanding convertible promissory notes | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :--------------- | :-------------------- | :-------------------- | :------- | :------- | | Interest Expenses | $0.0 | $1.2 | $(1.2) | -100.0% | - Elimination of interest expenses due to full repayment of convertible promissory notes in February 2024[158](index=158&type=chunk) [Income Taxes](index=37&type=section&id=Income%20Taxes) Income tax expense increased by 150.0% to $1.5 million, while the effective tax rate decreased to 36.5% | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------- | :------- | | Income Tax (Expense) | $(1.5) | $(0.6) | $(0.9) | 150.0% | | Effective income tax rate | 36.5% | 54.2% | -17.7% | -32.66% | [Net Income](index=37&type=section&id=Net%20Income) Net income significantly increased to $2.5 million, a 316.7% rise, driven by improved margins and lower expenses | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | % Change | | :--------- | :-------------------- | :-------------------- | :------- | :------- | | Net Income | $2.5 | $0.6 | $1.9 | 316.7% | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity improved with $106.4 million cash, and operating activities generated $2.0 million in Q1 2025 - Current assets were **$119.8 million** and current liabilities were **$5.4 million** as of March 31, 2025[163](index=163&type=chunk) | Metric | Q1 2025 (USD millions) | Q1 2024 (USD millions) | Change (USD millions) | | :------------------------------------------ | :------ | :------ | :------- | | Net cash provided by (used in) operating activities | $2.0 | $(9.2) | $11.2 | | Net cash used in investing activities | $0.0 | $(0.1) | $0.1 | | Net cash provided by financing activities | $0.0 | $7.5 | $(7.5) | | Net increase (decrease) in cash | $2.7 | $(3.2) | $5.9 | | Cash, end of period | $106.4 | $94.8 | $11.6 | - Positive cash flow from operating activities in Q1 2025 (**$2.0 million**) compared to negative in Q1 2024 (**$9.2 million**)[165](index=165&type=chunk) - Days Sales Outstanding (DSO) decreased to **55 days in Q1 2025** from 64 days in FY 2024[170](index=170&type=chunk) - Company expects to meet liquidity needs for the next 12 months with existing cash and operating cash flows[172](index=172&type=chunk) [Off-Balance Sheet Arrangements](index=39&type=section&id=Off-Balance%20Sheet%20Arrangements) The company had no off-balance sheet arrangements as of March 31, 2025 - No off-balance sheet arrangements as of March 31, 2025[176](index=176&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) No material changes to critical accounting estimates have occurred since the 2024 Form 10-K - No material changes to critical accounting estimates since the 2024 Form 10-K[177](index=177&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable for smaller reporting companies - Not applicable for smaller reporting companies[178](index=178&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to material weaknesses, but management believes financial statements are fairly presented [Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Disclosure controls were ineffective due to material weaknesses, yet financial statements are deemed fairly presented - Disclosure controls and procedures were not effective as of March 31, 2025, due to material weaknesses[179](index=179&type=chunk) - Despite material weaknesses, management believes financial statements fairly represent the company's financial condition[180](index=180&type=chunk) [Material Weakness](index=40&type=section&id=Material%20Weakness) Identified material weaknesses include a lack of competent financial reporting personnel and insufficient risk assessment - Material weaknesses include lack of competent financial reporting personnel with U.S. GAAP understanding[185](index=185&type=chunk) - Material weaknesses also include lack of risk assessment procedures on internal controls[185](index=185&type=chunk) [Management's Plan to Remediate the Material Weakness](index=41&type=section&id=Management's%20Plan%20to%20Remediate%20the%20Material%20Weakness) Remediation plans are ongoing, focusing on skill gaps, control environment, and Sarbanes-Oxley Act compliance - Remediation plans include identifying skill gaps, improving the control environment, and establishing Sarbanes-Oxley Act compliance procedures[186](index=186&type=chunk)[190](index=190&type=chunk) - Remediation efforts are ongoing, and effectiveness cannot be assured until controls operate for a sufficient period and are tested[187](index=187&type=chunk) [Changes in Internal Control over Financial Reporting](index=41&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No other material changes in internal control over financial reporting occurred, apart from ongoing remediation efforts - No other material changes in internal control over financial reporting during Q1 2025, apart from remediation efforts[189](index=189&type=chunk) [PART II OTHER INFORMATION](index=42&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides disclosures on legal, equity, and other corporate matters, along with a list of filed exhibits [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any material legal or administrative claims or proceedings as of the report date - No material legal proceedings are active, pending, or threatened[192](index=192&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or share repurchases occurred during Q1 2025 - No unregistered sales of equity securities or share repurchases during Q1 2025[193](index=193&type=chunk)[194](index=194&type=chunk) [Item 3. Defaults Upon Senior Securities](index=42&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the quarter ended March 31, 2025 - No defaults upon senior securities[195](index=195&type=chunk) [Item 4. Mine Safety Disclosures](index=42&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[196](index=196&type=chunk) [Item 5. Other Information](index=42&type=section&id=Item%205.%20Other%20Information) No other information is reported under this item - Not applicable[197](index=197&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and data files - Lists various exhibits including organizational documents, warrants, and certifications[198](index=198&type=chunk) [Signatures](index=44&type=section&id=Signatures) The report is signed by CEO Zongyi Lian and CFO Xing Tang on October 8, 2025 - The report is signed by CEO Zongyi Lian and CFO Xing Tang on October 8, 2025[201](index=201&type=chunk)

[Filing Information](index=1&type=section&id=Filing%20Information) This section provides essential administrative and regulatory details regarding the company's filing [Company Details](index=1&type=section&id=Company%20Details) This section provides the fundamental identification and contact information for LM FUNDING AMERICA, INC., as filed with the SEC - LM FUNDING AMERICA, INC. is incorporated in Delaware with Commission File Number **001-37605**[2](index=2&type=chunk) - The principal executive offices are located at 1200 West Platt Street, Suite 100, Tampa, Florida 33606, with a telephone number of **813 222-8996**[2](index=2&type=chunk) [Securities Information](index=1&type=section&id=Securities%20Information) This section details the company's registered securities and its status regarding emerging growth company regulations | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :-------------------------- | :---------------- | :---------------------------------------- | | Common Stock par value $0.001 per share | LMFA | The Nasdaq Stock Market LLC | - The registrant is not an emerging growth company[5](index=5&type=chunk) [Current Report Items](index=3&type=section&id=Current%20Report%20Items) This section outlines the specific items reported in the current filing, including operational results and accompanying exhibits [Item 2.02 Results of Operations and Financial Condition](index=3&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) LM Funding America, Inc. issued a press release on October 8, 2025, providing an update on Bitcoin production and mining for the month ended September 30, 2025 - A press release was issued on **October 8, 2025**, detailing Bitcoin production and mining updates for the month ended **September 30, 2025**[6](index=6&type=chunk) - The information in Item 2.02, including Exhibit 99.1, is furnished and not deemed 'filed' for purposes of Section 18 of the Securities Exchange Act of 1934, limiting liability[7](index=7&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=3&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This section lists the exhibits accompanying the Form 8-K filing, which include the press release mentioned in Item 2.02 and the interactive data file | Exhibit Number | Description | | :------------- | :---------------------------------------------- | | 99.1 | Press release issued October 8, 2025 | | 104 | Cover Page Interactive Data File (embedded within the inline XBRL document) | [Legal Disclosures](index=3&type=section&id=Legal%20Disclosures) This section provides crucial legal disclaimers and cautionary statements regarding the report's content [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This standard disclosure warns investors that the report may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially - The report may contain forward-looking statements, identified by words like 'anticipate,' 'estimate,' 'expect,' 'intend,' 'plan,' and 'project,' which are not guarantees of future results[9](index=9&type=chunk) - Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those described[9](index=9&type=chunk) - Investors are advised to refer to the Company's SEC filings (10-K, 10-Q, 8-K) for detailed risk factors, and the Company disclaims any intention or obligation to update these statements unless required by law[9](index=9&type=chunk) [Signatures](index=4&type=section&id=Signatures) This section formally authenticates the report through authorized signatures [Report Signatures](index=4&type=section&id=Report%20Signatures) This section confirms the official signing of the Form 8-K report by an authorized representative of LM Funding America, Inc. - The report was signed on behalf of LM Funding America, Inc. by **Richard Russell, CFO**[12](index=12&type=chunk)[13](index=13&type=chunk) - The signing date for the report was **October 8, 2025**[13](index=13&type=chunk)