Brilliant Earth (BRLT) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, not guarantees of future performance - The report contains forward-looking statements about future results, strategy, and financial position, which are not guarantees of performance and are subject to difficult-to-predict risks, assumptions, and uncertainties[10] - Key risks include fluctuations in diamond/precious metal pricing, labor costs, economic downturns, ability to acquire/retain customers, managing growth, supply chain issues, competition, brand maintenance, inventory management, IT system reliance, and obligations under the Tax Receivable Agreement[11] Basis of Presentation This section defines key terms and entities used throughout the financial report, including the Company, Continuing Equity Owners, and the Tax Receivable Agreement - The terms 'we,' 'us,' 'our,' the 'Company,' and 'Brilliant Earth' refer to Brilliant Earth Group, Inc. and its subsidiaries, including Brilliant Earth, LLC[16] - 'Continuing Equity Owners' are holders of LLC Interests and Class B/C common stock, who can exchange their LLC Interests for cash or Class A/D common stock[16] - The 'TRA' (Tax Receivable Agreement) obligates Brilliant Earth Group, Inc. to pay Continuing Equity Owners 85% of realized tax benefits from certain tax basis adjustments[16] Part I - Financial Information This part 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 This section presents the unaudited condensed consolidated financial statements for Brilliant Earth Group, Inc., including balance sheets, statements of operations, statements of changes in stockholders' equity, and statements of cash flows, along with accompanying notes detailing significant accounting policies, earnings per share, revenue disaggregation, inventory, accrued expenses, leases, debt, equity-based compensation, income taxes, commitments, and subsequent events Unaudited Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Total current assets | $191,227 | $211,413 | $(20,186) | (9.5%) | | Total assets | $260,875 | $281,245 | $(20,370) | (7.2%) | | Total current liabilities | $115,251 | $78,169 | $37,082 | 47.4% | | Current portion of long-term debt | $34,489 | $5,688 | $28,801 | 506.3% | | Total liabilities | $158,193 | $171,863 | $(13,670) | (7.9%) | | Total stockholders' equity | $102,682 | $109,382 | $(6,700) | (6.1%) | - Cash and cash equivalents decreased by $28.31 million from $161.93 million at December 31, 2024, to $133.62 million at June 30, 2025[19] - Inventories, net increased by $9.06 million from $38.29 million at December 31, 2024, to $47.35 million at June 30, 2025[19] Unaudited Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, including net sales, gross profit, and net income or loss Condensed Consolidated Statements of Operations Highlights (Dollars in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (YoY) | % Change (YoY) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :------------- | :-------------- | :--------------------------- | :--------------------------- | :------------- | :-------------- | | Net sales | $108,936 | $105,426 | $3,510 | 3.3% | $202,820 | $202,763 | $57 | 0.0% | | Gross profit | $63,504 | $64,077 | $(573) | (0.9%) | $118,546 | $122,383 | $(3,837) | (3.1%) | | (Loss) income from operations | $(1,213) | $1,132 | $(2,345) | (207.2%) | $(4,736) | $2,009 | $(6,745) | (335.7%) | | Net (loss) income | $(1,113) | $1,375 | $(2,488) | (180.9%) | $(4,380) | $2,442 | $(6,822) | (279.4%) | | Net (loss) income allocable to Brilliant Earth Group, Inc. | $(166) | $185 | $(351) | (189.7%) | $(632) | $324 | $(956) | (295.1%) | | Basic EPS | $(0.01) | $0.01 | $(0.02) | (200.0%) | $(0.04) | $0.03 | $(0.07) | (233.3%) | | Diluted EPS | $(0.01) | $0.01 | $(0.02) | (200.0%) | $(0.04) | $0.02 | $(0.06) | (300.0%) | - Gross margin for the three months ended June 30, 2025, decreased by 2.5 percentage points to 58.3% from 60.8% in the prior year, and for the six months, it decreased by 2.0 percentage points to 58.4% from 60.4%[21] - Operating expenses for the three months ended June 30, 2025, increased by $1.8 million (2.8%) to $64.7 million, while for the six months, they increased by $2.9 million (2.4%) to $123.3 million[21] Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's equity accounts over specific periods, including stock transactions and retained earnings Changes in Stockholders' Equity (Dollars in thousands) | Metric | Balance, January 1, 2025 | Balance, June 30, 2025 | Change | | :--------------------------------------- | :----------------------- | :--------------------- | :------- | | Class A Common Stock Amount | $1 | $1 | $0 | | Class B Common Stock Amount | $4 | $4 | $0 | | Class C Common Stock Amount | $5 | $5 | $0 | | Additional Paid-In Capital | $11,169 | $12,113 | $944 | | Treasury Stock | $(638) | $(998) | $(360) | | Retained Earnings | $4,788 | $4,156 | $(632) | | Stockholders' Equity attributable to Brilliant Earth Group, Inc. | $15,329 | $15,281 | $(48) | | Non-controlling interests attributable to Brilliant Earth, LLC | $94,053 | $87,401 | $(6,652) | | Total stockholders' equity | $109,382 | $102,682 | $(6,700) | - Repurchases of common stock amounted to $(360) thousand for the six months ended June 30, 2025[23] - Equity-based compensation contributed $4.66 million to additional paid-in capital for the six months ended June 30, 2025[23] Unaudited Condensed Consolidated Statements of Cash Flows This section reports the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (Dollars in thousands) | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (YoY) | % Change (YoY) | | :--------------------------------------- | :--------------------------- | :--------------------------- | :------------- | :-------------- | | Net cash provided by operating activities | $1,943 | $1,519 | $424 | 27.9% | | Net cash used in investing activities | $(1,882) | $(1,419) | $(463) | 32.6% | | Net cash used in financing activities | $(28,368) | $(3,697) | $(24,671) | 667.3% | | Net decrease in cash, cash equivalents and restricted cash | $(28,307) | $(3,597) | $(24,710) | 687.0% | | Cash, cash equivalents and restricted cash at end of period | $133,834 | $152,423 | $(18,589) | (12.2%) | - Payments on the SVB term loan significantly increased cash used in financing activities, from $(1,625) thousand in 2024 to $(21,220) thousand in 2025[26] - Tax distributions and TRA payments to members increased from $(1,713) thousand in 2024 to $(6,657) thousand in 2025[26] Note 1. Description of Business and Summary of Significant Accounting Policies This note provides an overview of the company's business operations and outlines the significant accounting policies applied in preparing the financial statements - Brilliant Earth Group, Inc. was formed in June 2021 for an IPO and to acquire Brilliant Earth, LLC, which was originally incorporated in 2005[27] - The Company designs, procures, and sells ethically sourced diamonds, gemstones, and jewelry online and through showrooms in the U.S., operating as one segment[28][39] - As of June 30, 2025, the non-controlling interest was 85.1%, representing the portion of earnings/loss and net assets attributable to the Continuing Equity Owners[33] Note 2. Earnings Per Share This note details the calculation of basic and diluted earnings per share, including the impact of potentially dilutive securities Basic and Diluted EPS (Dollars in thousands, except share and per share amounts) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income attributable to Brilliant Earth Group, Inc., BASIC | $(166) | $185 | $(632) | $324 | | Net (loss) income attributable to Brilliant Earth Group, Inc., after adjustment for assumed conversion, DILUTED | $(872) | $1,071 | $(3,427) | $1,901 | | BASIC earnings per share | $(0.01) | $0.01 | $(0.04) | $0.03 | | DILUTED earnings per share | $(0.01) | $0.01 | $(0.04) | $0.02 | - For the three and six months ended June 30, 2025, the dilutive impact of LLC Units and RSUs was anti-dilutive, resulting in basic and diluted EPS being the same[47][48] - Securities excluded from diluted EPS calculation due to anti-dilutive effect for the three months ended June 30, 2025, included 84,961,455 vested LLC Units and 4,328,224 RSUs[48] Note 3. Revenue This note disaggregates the company's net sales by geographic region and provides details on deferred revenue and refund liabilities Total Net Sales by Geography (Dollars in thousands) | Geography | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States | $105,326 | $101,621 | $195,957 | $195,274 | | International | $3,610 | $3,805 | $6,863 | $7,489 | | Total net sales | $108,936 | $105,426 | $202,820 | $202,763 | - Total deferred revenue increased to $24.1 million as of June 30, 2025, from $18.9 million as of December 31, 2024[50] - Refund liabilities decreased to $1.5 million as of June 30, 2025, from $2.9 million as of December 31, 2024[55] Note 4. Inventories, Net This note provides a breakdown of the company's inventory components and the allowance for inventory obsolescence Inventories, Net (Dollars in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Loose diamonds | $11,866 | $6,097 | $5,769 | 94.6% | | Fine jewelry and other | $36,168 | $32,732 | $3,436 | 10.5% | | Allowance for inventory obsolescence | $(686) | $(537) | $(149) | 27.7% | | Total inventories, net | $47,348 | $38,292 | $9,056 | 23.6% | - Consigned inventory held on behalf of suppliers decreased to $14.5 million as of June 30, 2025, from $15.6 million as of December 31, 2024[57] Note 5. Accrued Expenses and Other Current Liabilities This note details the components of the company's accrued expenses and other current liabilities Accrued Expenses and Other Current Liabilities (Dollars in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :--------------------------------------- | :------------ | :---------------- | :----- | :------- | | Vendor expenses | $11,714 | $12,609 | $(895) | (7.1%) | | Accrued payroll expenses | $6,624 | $6,191 | $433 | 7.0% | | Sales and other tax payable accrual | $2,961 | $4,276 | $(1,315) | (30.8%) | | Provision for sales returns and allowances | $1,545 | $2,869 | $(1,324) | (46.1%) | | Current portion of TRA | $93 | $0 | $93 | N/A | | Other | $5,983 | $5,769 | $214 | 3.7% | | Total accrued expenses and other current liabilities | $28,920 | $31,714 | $(2,794) | (8.8%) | - The provision for sales returns and allowances decreased by $1.32 million from December 31, 2024, to June 30, 2025[58] Note 6. Leases This note describes the company's lease arrangements, including lease costs and the weighted-average remaining lease term Total Lease Costs (Dollars in thousands) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease costs (G&A) | $2,196 | $1,928 | $4,350 | $3,783 | | Variable lease costs (G&A) | $519 | $489 | $951 | $818 | | Total lease costs | $2,785 | $2,483 | $5,429 | $4,769 | - The weighted-average remaining lease term for operating leases decreased from 6.8 years at June 30, 2024, to 5.8 years at June 30, 2025[62] - Cash paid for amounts included in the measurement of lease liabilities increased to $4.8 million for the six months ended June 30, 2025, from $4.0 million in the prior year[62] Note 7. Debt This note provides details on the company's outstanding debt, including current and long-term portions and significant repayment activities Outstanding Debt (Dollars in thousands) | Category | June 30, 2025 | December 31, 2024 | Change | % Change | | :--------------------------------------- | :------------ | :---------------- | :----- | :------- | | Current portion of long-term debt | $34,489 | $5,688 | $28,801 | 506.3% | | Long-term debt | $0 | $50,010 | $(50,010) | (100.0%) | | Total debt (net carrying amount) | $34,489 | $55,698 | $(21,209) | (38.1%) | - In May 2025, the Company made principal payments totaling $20 million on the SVB Term Loan[63] - Subsequent to June 30, 2025, on August 4, 2025, the Company prepaid the entire outstanding principal of $34.8 million under the SVB Term Loan and terminated the SVB Credit Agreement[68][84] Note 8. Equity-Based Compensation This note describes the company's equity-based compensation plans, including RSU activity and unrecognized compensation cost Restricted Stock Units (RSUs) Activity | Metric | Number of RSUs (unvested) | Weighted average grant date fair value | | :--------------------------------------- | :------------------------ | :----------------------------------- | | Balance as of December 31, 2024 | 3,847,636 | $4.29 | | Granted | 1,765,939 | $1.56 | | Vested | (1,242,333) | $4.46 | | Forfeited | (80,720) | $4.16 | | Balance as of June 30, 2025 | 4,290,522 | $3.12 | - Total compensation expense for RSUs was $4.5 million for the six months ended June 30, 2025, compared to $4.6 million for the same period in 2024[71] - As of June 30, 2025, $12.2 million in compensation cost related to unvested RSUs remains unrecognized, expected to be expensed over approximately 2.0 years[72] Note 9. Income Taxes and Tax Receivable Agreement This note explains the company's tax structure, effective tax rate, and obligations under the Tax Receivable Agreement - Brilliant Earth Group, Inc. is taxed as a C corporation, while its subsidiary Brilliant Earth, LLC is taxed as a partnership, passing taxable income/loss to its members[73][74] - The Company's effective tax rate for the six months ended June 30, 2025, was (0.27)%, differing from the 21% U.S. federal statutory tax rate primarily due to non-controlling interest income and state taxes[76] - As of June 30, 2025, the Company recorded a deferred tax asset of $8.3 million and a corresponding TRA liability of $7.8 million, representing 85% of projected tax benefits to Continuing Equity Owners[80] Note 10. Commitments and Contingencies This note discloses the company's legal proceedings and other commitments, including a representative action lawsuit - The Company is involved in a representative action lawsuit under California's Private Attorneys General Act (PAGA), alleging various labor code violations related to wages, overtime, and breaks[83] - The Company intends to vigorously defend the PAGA claims, and as of the filing date, any liability related to these alleged claims is not currently probable or reasonably estimable[83] Note 11. Subsequent Events This note reports on significant events that occurred after the reporting period, such as debt prepayment and dividend declarations - On August 4, 2025, the Company prepaid the entire $34.8 million outstanding principal of the SVB Term Loan and terminated the SVB Credit Agreement[84] - On August 7, 2025, the Board of Directors declared a one-time cash dividend of $0.25 per share for Class A common stock and LLC common units, totaling approximately $25.3 million, payable on September 8, 2025[85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, discussing key performance drivers, a detailed comparison of financial results for the three and six months ended June 30, 2025 and 2024, key business metrics, non-GAAP financial measures, liquidity, capital resources, and critical accounting policies Company Overview This section provides a strategic overview of Brilliant Earth's business model, market position, and operational approach - Brilliant Earth is an innovative, digitally native omnichannel jewelry company, a global leader in ethically sourced fine jewelry, offering exclusive designs with supply chain transparency[89] - The company leverages technology for dynamic product visualization, augmented reality try-on, blockchain-verified transparency, and data-driven decision-making to enhance customer experience and operational efficiency[93] - For the three months ended June 30, 2025, net sales were $108.9 million (up 3.3%), and net loss was $1.1 million (down 180.9%); Adjusted EBITDA was $3.2 million (down 41.9%); For the six months, net sales were $202.8 million (flat), and net loss was $4.4 million (down 279.4%); Adjusted EBITDA was $4.3 million (down 59.7%)[98] Key Factors Affecting Our Performance This section identifies the primary internal and external factors influencing the company's financial performance and strategic direction - Key factors include increasing brand awareness, cost-effective customer acquisition and retention, successful growth of the omnichannel presence, and the ability to introduce new products and expand internationally[97][99][100][102][103] - Maintaining an asset-light operating model with capital-efficient showrooms and driving continued operational improvement are crucial for future success[105] - Macroeconomic trends (inflation, tariffs, consumer spending) and the significant costs of operating as a public company pose risks to financial results[106][108][109] Results of Operations This section provides a comprehensive analysis of the company's financial performance, detailing revenue, gross profit, and operating expenses - This section provides a detailed analysis of the company's financial performance for the three and six months ended June 30, 2025, compared to the prior year, covering net sales, gross profit, and operating expenses[112] Comparison of Three Months Ended June 30, 2025 and 2024 This section analyzes the company's financial results for the three months ended June 30, 2025, compared to the same period in the prior year Financial Performance (3 Months Ended June 30, 2025 vs. 2024) (Amounts in thousands) | Metric | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------------- | :---------- | :---------- | :----- | :------- | | Net sales | $108,936 | $105,426 | $3,510 | 3.3% | | Cost of sales | $45,432 | $41,349 | $4,083 | 9.9% | | Gross profit | $63,504 | $64,077 | $(573) | (0.9%) | | Marketing and advertising | $26,271 | $27,346 | $(1,075) | (3.9%) | | General and administrative | $38,446 | $35,599 | $2,847 | 8.0% | | (Loss) income from operations | $(1,213) | $1,132 | $(2,345) | (207.2%) | | Net (loss) income | $(1,113) | $1,375 | $(2,488) | (180.9%) | - Net sales increased by 3.3% due to an 18.3% increase in order volumes, partially offset by a 12.6% decrease in Average Order Value (AOV) driven by a higher mix of lower price point products[114][115] - Gross margin decreased by 250 basis points, primarily due to higher gold costs and the impact of tariffs[116] Comparison of Six Months Ended June 30, 2025 and 2024 This section analyzes the company's financial results for the six months ended June 30, 2025, compared to the same period in the prior year Financial Performance (6 Months Ended June 30, 2025 vs. 2024) (Amounts in thousands) | Metric | 2025 Amount | 2024 Amount | Change | % Change | | :-------------------------------- | :---------- | :---------- | :----- | :------- | | Net sales | $202,820 | $202,763 | $57 | 0.0% | | Cost of sales | $84,274 | $80,380 | $3,894 | 4.8% | | Gross profit | $118,546 | $122,383 | $(3,837) | (3.1%) | | Marketing and advertising | $49,233 | $50,442 | $(1,209) | (2.4%) | | General and administrative | $74,049 | $69,932 | $4,117 | 5.9% | | (Loss) income from operations | $(4,736) | $2,009 | $(6,745) | (335.7%) | | Net (loss) income | $(4,380) | $2,442 | $(6,822) | (279.4%) | - Net sales remained flat, with a 15.5% increase in order volumes largely offset by a 13.4% decrease in AOV, driven by a higher mix of lower price point products[123][124] - Gross profit declined by 3.1%, and gross margin decreased by 190 basis points, primarily due to higher gold costs[125][126] Key Metrics This section presents and discusses key operational performance indicators, including net sales, total orders, and average order value Key Performance Metrics | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :---------------- | :--------------------------- | :--------------------------- | :----- | :------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net Sales | $108,936 | $105,426 | $3,510 | 3.3% | $202,820 | $202,763 | $57 | 0.0% | | Total Orders | 52,535 | 44,404 | 8,131 | 18.3% | 98,070 | 84,929 | 13,141 | 15.5% | | AOV | $2,074 | $2,374 | $(300) | (12.6%) | $2,068 | $2,387 | $(319) | (13.4%) | - Total orders increased by 18.3% for the three months and 15.5% for the six months ended June 30, 2025, indicating strong product desirability and customer acquisition[132][133] - Average Order Value (AOV) decreased by 12.6% for the three months and 13.4% for the six months ended June 30, 2025, primarily due to a higher mix of lower price point products[132][134] Non-GAAP Financial Measures This section provides reconciliations and explanations for non-GAAP financial measures, such as Adjusted EBITDA and Adjusted EBITDA margin Adjusted EBITDA and Adjusted EBITDA Margin Reconciliation (Amounts in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income | $(1,113) | $1,375 | $(4,380) | $2,442 | | Adjusted EBITDA | $3,182 | $5,481 | $4,260 | $10,566 | | Net (loss) income margin | (1.0)% | 1.3% | (2.2)% | 1.2% | | Adjusted EBITDA margin | 2.9% | 5.2% | 2.1% | 5.2% | - Adjusted EBITDA decreased by 41.9% for the three months and 59.7% for the six months ended June 30, 2025, compared to the prior year[138] - Adjusted EBITDA margin decreased from 5.2% to 2.9% for the three months and from 5.2% to 2.1% for the six months ended June 30, 2025[138] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and ability to meet its short-term and long-term financial obligations - As of June 30, 2025, the company had a cash balance of $133.6 million and negative working capital (excluding non-restricted cash) of ($57.6) million[140] - The company believes it has sufficient liquidity to meet projected operating, debt service, and tax distribution requirements for at least the next 12 months[146] - Future liquidity needs include significant payments under the Tax Receivable Agreement (TRA), which are contingent on future taxable income and could reduce overall cash flow[148][157] Contractual Obligations and Commitments This section outlines the company's significant contractual obligations and commitments as of the reporting date - No material changes to contractual obligations and commitments were reported as of June 30, 2025, compared to the 2024 Form 10-K[162] Critical Accounting Policies and Estimates This section describes the accounting policies and estimates that require significant judgment and can materially impact the financial statements - No changes to critical accounting policies and estimates were reported as of June 30, 2025, compared to the 2024 Form 10-K[163] Recent Accounting Pronouncements This section discusses the potential impact of recently issued accounting pronouncements on the company's financial statements and disclosures - The company is evaluating the impact of ASU 2023-09 (Income Taxes) and ASU 2024-03 (Income Statement-Reporting Comprehensive Income) on its financial statements and disclosures[41][42][164] JOBS Act This section explains the company's status as an "emerging growth company" under the JOBS Act and its implications for financial reporting - Brilliant Earth Group, Inc. qualifies as an 'emerging growth company' under the JOBS Act, allowing it to delay the adoption of new accounting standards[165] - The company will remain an emerging growth company until the earlier of December 31, 2026, achieving $1.235 billion in annual gross revenue, becoming a large accelerated filer, or issuing over $1.0 billion in non-convertible debt[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Brilliant Earth Group, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is exempt from providing market risk disclosures as it qualifies as a smaller reporting company[167] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to a previously identified material weakness related to ineffective information technology general controls (ITGCs). The company is actively implementing remediation plans, including hiring ITGC management, enhancing training, and strengthening access and change management procedures Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's disclosure controls and procedures as of the reporting period - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025[168] Material Weakness This section identifies and describes a material weakness in the company's internal control over financial reporting - A material weakness exists due to ineffective ITGCs in change management, user access, and segregation of duties related to IT systems supporting financial reporting[169] - The material weakness did not result in identified misstatements in consolidated financial statements or changes to previously issued financial results[170] Remediation This section outlines the company's plans and ongoing efforts to remediate the identified material weakness in internal controls - Remediation efforts include hiring a director of ITGC, implementing training, enhancing privileged access and segregation of duties procedures, and strengthening change management[171] - The material weakness will not be considered remediated until controls operate effectively for a sufficient period and are tested by management[172] Changes in Internal Control over Financial Reporting This section reports on any material changes in the company's internal control over financial reporting during the quarter - No other material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, apart from ongoing remediation efforts[173] Part II - Other Information This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings The company is periodically involved in legal claims in the ordinary course of business, none of which are currently expected to have a material effect on its financial condition. A specific representative action under California's PAGA, alleging labor code violations, is ongoing, with the company intending to vigorously defend the claims - The company does not believe any current legal claims will have a material effect on its business or financial condition[175] - A representative action under California's PAGA, filed by a former employee, alleges various labor code violations, but liability is not currently probable or reasonably estimable[176] Item 1A. Risk Factors This section refers to the company's 2024 Form 10-K for a comprehensive description of risk factors, stating that there have been no material changes to these risks as previously disclosed - No material changes to the company's risk factors have occurred since their disclosure in the 2024 Form 10-K[177] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the company's repurchases of Class A common stock during the three months ended June 30, 2025, under a publicly announced share repurchase program Issuer Repurchases of Class A Common Stock (3 Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per share | 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 | | :---------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | April 1 - April 30 | 41,842 | $1.52 | 41,842 | $19.1 million | | May 1 - May 31 | 41,825 | $1.49 | 41,825 | $19.1 million | | June 1 - June 30 | 48,457 | $1.34 | 48,457 | $19.0 million | - The company has an authorized share repurchase program of up to $20.0 million of Class A common stock, approved on December 8, 2023, expiring December 8, 2026[179] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities - No defaults upon senior securities were reported[180] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[181] Item 5. Other Information This section reports on Rule 10b5-1 trading arrangements, specifically noting the termination of a plan by the Chief Financial Officer, Jeffrey Kuo, on May 14, 2025 - Jeffrey Kuo, the Company's CFO, terminated an existing Rule 10b5-1 trading arrangement on May 14, 2025[183] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, certifications, and XBRL-related files - The report includes certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[184] Signatures This section formally attests to the accuracy and completeness of the report, signed by an authorized officer - The report was signed by Jeffrey Kuo, Chief Financial Officer, on August 7, 2025[188]