CPI Card Group(PMTS) - 2025 Q2 - Quarterly Report

Part I — Financial Information Item 1 — Condensed Consolidated Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income, changes in stockholders' deficit, and cash flows, for the periods ended June 30, 2025, along with detailed notes on business overview, accounting policies, recent accounting pronouncements, and key financial accounts Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets Key Data (As of June 30, 2025 and December 31, 2024) | Indicator (Thousands of USD) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $17,124 | $33,544 | | Accounts receivable, net | $87,495 | $85,491 | | Inventories, net | $83,872 | $72,660 | | Total current assets | $204,341 | $203,042 | | Plant, equipment, leasehold improvements and operating lease right-of-use assets, net | $104,774 | $68,648 | | Intangible assets, net | $20,945 | $10,492 | | Goodwill | $48,211 | $47,150 | | Total assets | $399,795 | $349,657 | | Liabilities and Stockholders' Deficit | | | | Accounts payable | $24,564 | $16,123 | | Accrued expenses | $52,933 | $57,979 | | Total current liabilities | $79,032 | $75,587 | | Long-term debt | $310,911 | $280,405 | | Total liabilities | $428,821 | $385,278 | | Total stockholders' deficit | $(29,026) | $(35,621) | | Total liabilities and stockholders' deficit | $399,795 | $349,657 | Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations and Comprehensive Income Key Data (For the Periods Ended June 30, 2025) | Indicator (Thousands of USD) | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | | | | | | | | Products | $80,950 | $63,844 | 26.8% | $150,125 | $122,002 | 23.1% | | Services | $48,803 | $54,974 | -11.2% | $102,389 | $108,752 | -5.9% | | Total Net Sales | $129,753 | $118,818 | 9.2% | $252,514 | $230,754 | 9.4% | | Cost of sales | $89,633 | $76,430 | 17.3% | $171,698 | $146,848 | 16.9% | | Gross Profit | $40,120 | $42,388 | -5.4% | $80,816 | $83,906 | -3.7% | | Operating expenses | $30,697 | $27,479 | 11.7% | $57,289 | $54,852 | 4.4% | | Operating Income | $9,423 | $14,909 | -36.8% | $23,527 | $29,054 | -19.0% | | Interest, net | $(8,069) | $(6,530) | 23.6% | $(15,754) | $(12,955) | 21.6% | | Income before income taxes | $1,341 | $8,301 | -83.8% | $7,778 | $15,956 | -51.3% | | Income tax expense | $(823) | $(2,300) | -64.2% | $(2,486) | $(4,500) | -44.8% | | Net Income | $518 | $6,001 | -91.4% | $5,292 | $11,456 | -53.8% | | Basic earnings per share | $0.05 | $0.54 | -90.7% | $0.47 | $1.03 | -54.3% | | Diluted earnings per share | $0.04 | $0.51 | -92.2% | $0.44 | $0.97 | -54.7% | Condensed Consolidated Statements of Stockholders' Deficit Condensed Consolidated Statements of Stockholders' Deficit Key Data (As of June 30, 2025) | Indicator (Thousands of USD) | March 31, 2025 | June 30, 2025 | | :--- | :--- | :--- | | Common shares outstanding | 11,281,489 | 11,334,910 | | Common stock amount | $11 | $11 | | Capital deficit | $(104,299) | $(104,126) | | Accumulated earnings | $74,571 | $75,089 | | Total stockholders' deficit | $(29,717) | $(29,026) | | Changes | | | | Shares issued under stock incentive plans | 53,421 | - | | Stock-based compensation expense | - | $709 | | Net income | - | $518 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Key Data (Six Months Ended June 30, 2025) | Cash Flow Activities (Thousands of USD) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $9,937 | $4,108 | | Net cash from investing activities | $(51,504) | $(2,744) | | Net cash from financing activities | $25,147 | $(6,298) | | Net decrease in cash and cash equivalents | $(16,420) | $(4,934) | | Cash and cash equivalents at beginning of period | $33,544 | $12,413 | | Cash and cash equivalents at end of period | $17,124 | $7,479 | Notes to Condensed Consolidated Financial Statements 1. Business Overview and Summary of Significant Accounting Policies The company is a payment technology provider offering comprehensive payment card and digital solutions, leading the US market in debit and credit card production, personalization, and SaaS instant issuance services - CPI Card Group Inc. is a payment technology company providing payment card and digital solutions, a market leader in US debit and credit card production, personalization, and SaaS instant issuance services[12] - The company's operations are divided into three reporting segments: Debit and Credit, Prepaid Debit, and Other[15] - Effective Q2 2025, the company adjusted revenue recognition for certain product contracts from "over time" to "at a point in time" (typically shipment or customer acceptance), reflecting business practice changes and the integration of Arroweye Solutions, Inc.[19] Recent Accounting Pronouncements This section outlines recent accounting pronouncements, including ASU 2023-09 (income tax disclosure improvements) and ASU 2024-03 (income statement expense disaggregation disclosures), which the company does not plan to early adopt - ASU 2023-09 (income tax disclosure improvements) is effective for fiscal years beginning after December 15, 2024, and is expected to result in additional income tax disclosures without a material impact on financial position or operating results[24] - ASU 2024-03 (income statement expense disaggregation disclosures) is effective for fiscal years beginning after December 15, 2026, and is not expected to materially impact financial position or operating results[25] 2. Accounts Receivable This section details the composition of the company's accounts receivable, including trade receivables and allowance for credit losses, showing an increase to $87,495 thousand as of June 30, 2025 Accounts Receivable Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Trade accounts receivable | $87,885 | $78,464 | | Unbilled accounts receivable | $0 | $7,213 | | Less: Allowance for credit losses | $(390) | $(186) | | Total Accounts Receivable, Net | $87,495 | $85,491 | 3. Inventories This section presents the detailed breakdown of the company's inventories, including raw materials, work-in-process, and finished goods, which increased to $83,872 thousand as of June 30, 2025 Inventories Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Raw materials | $72,208 | $63,863 | | Work-in-process | $4,850 | $955 | | Finished goods | $6,814 | $7,842 | | Total Inventories, Net | $83,872 | $72,660 | 4. Acquisition The company acquired Arroweye Solutions, Inc. for an estimated adjusted purchase price of $46.0 million on May 6, 2025, integrating its financial results into the Debit and Credit segment - The company acquired Arroweye Solutions, Inc., an on-demand payment card solutions provider, for $46.0 million on May 6, 2025[28] - Arroweye's financial results have been integrated into the company's Debit and Credit segment[29] Arroweye Acquisition Preliminary Purchase Price Allocation (As of June 30, 2025, Thousands of USD) | Assets/Liabilities | Amount | | :--- | :--- | | Cash and cash equivalents | $1,603 | | Accounts receivable | $9,427 | | Inventories | $4,071 | | Plant, equipment, leasehold improvements and operating lease right-of-use assets | $18,275 | | Intangible assets | $12,400 | | Goodwill | $1,061 | | Total assets | $55,074 | | Accounts payable | $2,837 | | Accrued expenses | $3,849 | | Accrued long-term operating lease | $2,371 | | Total Purchase Price | $46,017 | Arroweye Acquisition Preliminary Estimated Fair Value of Identifiable Intangible Assets (As of June 30, 2025, Thousands of USD) | Intangible Asset | Weighted Average Life (Years) | Amount | | :--- | :--- | :--- | | Trademarks | 2.5 | $600 | | Acquired technology | 7.0 | $4,400 | | Customer relationships | 15.0 | $7,400 | | Total | | $12,400 | 5. Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-Use Assets This section details the composition of the company's plant, equipment, leasehold improvements, and operating lease right-of-use assets, which significantly increased to $104,774 thousand as of June 30, 2025 Plant, Equipment, Leasehold Improvements and Operating Lease Right-of-Use Assets Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Machinery and equipment | $82,362 | $71,781 | | Machinery and equipment under finance leases | $41,030 | $32,272 | | Operating lease right-of-use assets | $27,459 | $15,090 | | Less: Accumulated depreciation and amortization | $(84,695) | $(75,634) | | Total Net | $104,774 | $68,648 | 6. Fair Value of Financial Instruments This section defines fair value and its three-level hierarchy, disclosing the carrying amounts and estimated fair values of financial assets and liabilities not remeasured at fair value, with senior notes having a fair value of $302,456 thousand as of June 30, 2025 Carrying Value and Fair Value of Financial Liabilities (Thousands of USD) | Liability | June 30, 2025 Carrying Value | June 30, 2025 Fair Value | December 31, 2024 Carrying Value | December 31, 2024 Fair Value | | :--- | :--- | :--- | :--- | :--- | | Senior Notes | $285,000 | $302,456 | $285,000 | $304,571 | | ABL Revolving Credit Facility | $30,000 | $30,000 | $0 | $0 | - The fair value of senior notes is based on quoted prices for identical or similar liabilities in inactive markets, classified as Level 2 inputs[34] - The carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their fair values due to their short-term nature[37] 7. Accrued Expenses This section details the composition of the company's accrued expenses, which decreased to $52,933 thousand as of June 30, 2025, primarily due to reduced accrued employee performance incentives and capitalized contract costs payable Accrued Expenses Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued salaries and related employee costs | $10,304 | $9,493 | | Accrued employee performance incentive compensation | $2,220 | $4,664 | | Capitalized contract costs payable | $0 | $8,000 | | Accrued interest | $13,446 | $13,506 | | Current operating and finance lease liabilities | $11,630 | $9,065 | | Total Accrued Expenses | $52,933 | $57,979 | 8. Long-Term Debt This section details the company's long-term debt, including senior notes and the ABL revolving credit facility, totaling $310,911 thousand as of June 30, 2025, an increase primarily due to ABL borrowings Long-Term Debt Composition (Thousands of USD) | Indicator | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior Notes | $285,000 | $285,000 | | ABL Revolving Credit Facility | $30,000 | $0 | | Unamortized deferred financing costs | $(4,089) | $(4,595) | | Total Long-Term Debt | $310,911 | $280,405 | - The company completed a private offering of $285.0 million of 10.000% Senior Secured Notes due July 15, 2029, on July 11, 2024[40] - The company has an asset-backed senior secured revolving credit facility (ABL Revolving Credit Facility) with JPMorgan Chase Bank, N.A., for up to $75.0 million, with $30.0 million borrowed as of June 30, 2025[42][45] 9. Income Taxes This section discloses the company's effective tax rates for the three and six months ended June 30, 2025, which increased to 61.4% and 32.0% respectively, primarily due to executive compensation deduction limitations and acquisition-related non-deductible costs Effective Tax Rates (As of June 30, 2025) | Period | 3 Months 2025 | 3 Months 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Effective Tax Rate | 61.4% | 27.7% | 32.0% | 28.2% | - The increase in effective tax rate is primarily due to executive compensation deduction limitations, non-deductible acquisition costs related to the Arroweye acquisition, and increased state tax expense[47] - The company acquired over $85.8 million in net operating loss (NOL) carryforwards through the Arroweye acquisition, utilizing $2.2 million in the first half of 2025[49][50] 10. Stockholders' Deficit This section discloses the company's stock repurchase program, which authorized up to $20.0 million in common stock repurchases and expired on December 31, 2024, with $11.2 million remaining unused - The Board of Directors approved a stock repurchase program on November 2, 2023, authorizing up to $20.0 million in common stock repurchases, which expired on December 31, 2024, with $11.2 million remaining unused[52] - For the six months ended June 30, 2024, the company repurchased 352,750 shares of common stock for a total of $6.4 million, at an average price of $18.14 per share[53] 11. Earnings per Share This section provides the calculation and data for basic and diluted earnings per share, showing a significant decrease for both the three and six months ended June 30, 2025, compared to the prior year Earnings per Share Calculation (As of June 30, 2025) | Indicator | 3 Months 2025 | 3 Months 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (Thousands of USD) | $518 | $6,001 | $5,292 | $11,456 | | Basic weighted average common shares | 11,297,785 | 11,049,968 | 11,271,815 | 11,158,334 | | Diluted weighted average common shares | 11,927,943 | 11,776,894 | 11,969,909 | 11,817,584 | | Basic Earnings per Share | $0.05 | $0.54 | $0.47 | $1.03 | | Diluted Earnings per Share | $0.04 | $0.51 | $0.44 | $0.97 | 12. Commitments and Contingencies This section discusses the company's contingent matters, including legal proceedings and the Delaware unclaimed property voluntary disclosure program, with potential losses for the latter currently not reasonably estimable - The company faces routine legal proceedings but believes their ultimate resolution will not materially adversely affect its business, financial condition, or results of operations[56] - The company is participating in the Delaware unclaimed property voluntary disclosure program, but potential losses are not reasonably estimable at this time[57] 13. Stock-Based Compensation This section details the company's Amended and Restated Omnibus Incentive Plan, which increased the total shares available for issuance to 3,200,000, with 780,053 common shares available as of June 30, 2025 - The company's Omnibus Incentive Plan was amended, increasing total shares available for issuance to 3,200,000, with 780,053 common shares available as of June 30, 2025[58] - In January 2024, the CEO was granted 60,000 Performance Stock Units (PSUs) with a fair value of $0.9 million, vesting in three tranches based on stock price targets[59] - In February 2025, executives were granted Performance Cash Awards (PCAs) with a fair value of $2.0 million, vesting on December 31, 2025, contingent on company performance targets[60] - As of June 30, 2025, 545,360 Restricted Stock Units and 747,937 options were unexercised[61][62] 14. Segment Reporting This section provides segment-level financial performance for Debit and Credit, Prepaid Debit, and Other segments, with the CEO assessing performance based on net sales and EBITDA - The company assesses the operating performance of its Debit and Credit, Prepaid Debit, and Other reporting segments based on net sales and EBITDA[65][70] Segment Net Sales (Thousands of USD) | Segment | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Debit and Credit | $110,757 | $95,620 | 15.8% | $207,277 | $183,593 | 12.9% | | Prepaid Debit | $19,222 | $23,815 | -19.3% | $45,935 | $48,013 | -4.3% | | Total Net Sales | $129,753 | $118,818 | 9.2% | $252,514 | $230,754 | 9.4% | Segment EBITDA (Thousands of USD) | Segment | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Debit and Credit | $26,548 | $27,625 | -3.8% | $50,515 | $52,467 | -3.7% | | Prepaid Debit | $5,297 | $7,803 | -32.1% | $14,418 | $17,418 | -17.2% | | Other | $(16,920) | $(16,549) | 2.2% | $(31,639) | $(32,909) | -3.9% | | Total EBITDA | $14,925 | $18,879 | -20.9% | $33,294 | $36,976 | -10.0% | Segment Total Assets (Thousands of USD) | Segment | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Debit and Credit | $330,132 | $248,970 | | Prepaid Debit | $48,323 | $60,621 | | Other | $21,340 | $40,066 | | Total Assets | $399,795 | $349,657 | Segment Capital Expenditures (Thousands of USD) | Segment | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Debit and Credit | $7,516 | $1,371 | | Prepaid Debit | $1,341 | $1,373 | | Other | $255 | $0 | | Total Capital Expenditures | $9,112 | $2,744 | 15. Subsequent Events This section discloses significant post-reporting period events, including the amendment of the ABL revolving credit facility to increase borrowing capacity to $100.0 million and the redemption of $20.0 million in senior notes - On July 2, 2025, the company amended its ABL revolving credit facility, increasing available borrowing capacity from $75.0 million to $100.0 million[78] - On July 15, 2025, the company redeemed $20.0 million of its Senior Notes at a redemption price of 103.000% of the principal amount plus accrued and unpaid interest[79] Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's detailed discussion and analysis of the company's financial condition and operating results for the quarter and six months ended June 30, 2025, covering forward-looking statements, company and segment overviews, trends, operating performance, and liquidity Cautionary Statement Regarding Forward-Looking Information This report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from expectations - This report contains forward-looking statements regarding future events and beliefs, subject to significant risks and uncertainties that may cause actual results to differ materially from expectations[81] - Risk factors include deteriorating macroeconomic conditions, failure to retain customers, intense market competition, technological obsolescence, supply chain disruptions, cybersecurity risks, use of AI technology, debt burden, failure to integrate acquisitions, internal control deficiencies, and ESG-related risks[82][83] Company Overview CPI is a payment technology company offering comprehensive payment card and digital solutions, a market leader in US debit and credit card production, personalization, and SaaS instant issuance services - CPI is a payment technology company providing comprehensive payment card and digital solutions, a market leader in US debit and credit card production, personalization, and SaaS instant issuance services[86] - The company's revenue primarily derives from the production of secure debit and credit cards and related services, including prepaid debit cards[87] - On May 6, 2025, the company acquired Arroweye Solutions, Inc., a provider of on-demand payment card solutions[87] Segment Overview The company's operations consist of three reporting segments: Debit and Credit, Prepaid Debit, and Other, each serving distinct payment card solution markets - The company's operations comprise three reporting segments: Debit and Credit, Prepaid Debit, and Other[88] - The Debit and Credit segment primarily produces secure debit and credit cards for US issuing financial institutions, offering personalization, instant issuance, and digital push services[89] - The Prepaid Debit segment primarily provides integrated prepaid card services, including payment cards and related tamper-evident security packaging, for US prepaid program managers[90] - The Other segment primarily includes corporate expenses[91] Trends and Uncertainties That May Affect our Financial Performance The company monitors macroeconomic trends and uncertainties, such as tariffs and trade restrictions, which have adversely impacted net sales and profitability - The company continuously monitors macroeconomic trends and uncertainties, such as recently implemented tariffs and potential additional tariffs, which have adversely affected net sales and profitability[92] - Tariffs and trade restrictions have exacerbated supply chain challenges, led to volatile raw material and component costs, and may reduce demand for products and services[92] Results of Operations This section analyzes the company's operating results, highlighting changes in net sales, gross profit, operating expenses, interest expense, and net income for the periods ended June 30, 2025 Consolidated Results of Operations Summary (Thousands of USD) | Indicator | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Net Sales | $129,753 | $118,818 | 9.2% | $252,514 | $230,754 | 9.4% | | Product net sales | $80,950 | $63,844 | 26.8% | $150,125 | $122,002 | 23.1% | | Service net sales | $48,803 | $54,974 | -11.2% | $102,389 | $108,752 | -5.9% | | Gross Profit | $40,120 | $42,388 | -5.4% | $80,816 | $83,906 | -3.7% | | Gross margin | 30.9% | 35.7% | -4.8pp | 32.0% | 36.4% | -4.4pp | | Operating expenses | $30,697 | $27,479 | 11.7% | $57,289 | $54,852 | 4.4% | | Operating Income | $9,423 | $14,909 | -36.8% | $23,527 | $29,054 | -19.0% | | Interest, net | $(8,069) | $(6,530) | 23.6% | $(15,754) | $(12,955) | 21.6% | | Income tax expense | $(823) | $(2,300) | -64.2% | $(2,486) | $(4,500) | -44.8% | | Net Income | $518 | $6,001 | -91.4% | $5,292 | $11,456 | -53.8% | - Total net sales increased by 9.2% in Q2 2025 and 9.4% for the first half of 2025, driven by growth in product net sales within the Debit and Credit segment, including contributions from the Arroweye acquisition, partially offset by a decline in service net sales[97] - Gross profit and gross margin decreased due to reduced revenue recognition for prepaid debit card product orders from an accounting policy change, unfavorable sales mix, and increased production costs, including tariffs[98][99] - Operating expenses increased primarily due to professional service fees and integration costs associated with the Arroweye acquisition[100] - Interest expense increased due to higher interest rates and increased average borrowings from the Senior Secured Notes issued in July 2024[101] - Net income decreased by 91.4% in Q2 2025 and 53.8% for the first half of 2025, primarily impacted by lower gross profit and higher interest expense[94] Segment Results of Operations Summary (Thousands of USD) | Segment | Indicator | 3 Months 2025 | 3 Months 2024 | Change (%) | 6 Months 2025 | 6 Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Debit and Credit | Net Sales | $110,757 | $95,620 | 15.8% | $207,277 | $183,593 | 12.9% | | | Gross Profit | $34,649 | $34,164 | 1.4% | $65,903 | $65,659 | 0.4% | | | Operating Income | $23,053 | $25,389 | -9.2% | $44,756 | $48,143 | -7.0% | | Prepaid Debit | Net Sales | $19,222 | $23,815 | -19.3% | $45,935 | $48,013 | -4.3% | | | Gross Profit | $5,471 | $8,224 | -33.5% | $14,913 | $18,247 | -18.3% | | | Operating Income | $4,171 | $6,909 | -39.6% | $12,170 | $15,654 | -22.3% | | Other | Operating Expenses | $17,801 | $17,389 | 2.4% | $33,399 | $34,743 | -3.9% | Liquidity and Capital Resources This section discusses the company's liquidity, primarily from cash and cash equivalents and operating cash flows, and its capital resources, including the ABL revolving credit facility and long-term debt - As of June 30, 2025, the company held $17.1 million in cash and cash equivalents, with operating activities being the primary source of liquidity[117] - The ABL revolving credit facility had $42.9 million in available borrowing capacity as of June 30, 2025[118] - Cash flow from operating activities increased to $9.9 million for the six months ended June 30, 2025, primarily due to reduced working capital usage, partially offset by lower net income[119] - On May 6, 2025, the company acquired Arroweye for an initial cash consideration of $42.4 million, funded by cash on hand and the ABL revolving credit facility[120] - Capital expenditures totaled $9.1 million for the six months ended June 30, 2025, primarily for investments in a new production facility in Indiana[121] Long-Term Debt Balances (Thousands of USD) | Debt Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Senior Notes | $285,000 | $285,000 | | ABL Revolving Credit Facility | $30,000 | $0 | | Unamortized deferred financing costs | $(4,089) | $(4,595) | | Total Long-Term Debt | $310,911 | $280,405 | - The company expects to pay $29.5 million in interest over the next 12 months, primarily related to the Senior Notes[131] - In February 2024, the company entered into a build-to-suit lease agreement for a new production facility in Indiana, with annual base rent of $0.9 million commencing in 2026[134] Item 3 — Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[138] Item 4 — Controls and Procedures As of June 30, 2025, management assessed and concluded that disclosure controls and procedures were effective, with ongoing integration of Arroweye's controls into the company's control environment - As of June 30, 2025, the company's management (under the supervision and with the participation of the CEO and CFO) assessed and concluded that disclosure controls and procedures were effective[139] - The company is integrating Arroweye's controls and processes into its control environment and plans to assess their internal control effectiveness by the end of 2026[140] Part II — Other Information Item 1 — Legal Proceedings This section refers to the information on legal proceedings provided in Note 12, "Commitments and Contingencies," of the condensed consolidated financial statements - Information on legal proceedings can be found in Note 12, "Commitments and Contingencies," to the condensed consolidated financial statements[141] Item 1A — Risk Factors This section states that the risk factors disclosed in the company's annual report on Form 10-K and quarterly report on Form 10-Q remain applicable for understanding its business, financial condition, and results of operations - The risk factors disclosed in the company's annual report on Form 10-K and quarterly report on Form 10-Q remain applicable for understanding its business, financial condition, and results of operations[142] Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds This section states that the company had no unregistered sales of equity securities or use of proceeds during the reporting period - During the reporting period, the company had no unregistered sales of equity securities or use of proceeds[143] Item 3 — Defaults Upon Senior Securities This section states that the company had no defaults upon senior securities during the reporting period - During the reporting period, the company had no defaults upon senior securities[145] Item 4 — Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[146] Item 5 — Other Information This section discloses that no directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the three and six months ended June 30, 2025 - During the three and six months ended June 30, 2025, no directors or officers adopted or terminated Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements[147] Item 6 — Exhibits This section lists the exhibits filed with the Form 10-Q report, including the 2025 Executive Short-Term Incentive Plan, credit agreement amendment, CEO and CFO certifications, and XBRL data files - Exhibits include the 2025 Executive Short-Term Incentive Plan, credit agreement amendment, CEO and CFO Sarbanes-Oxley Act certifications, and XBRL data files[149] Signatures This section contains the report's signatures by the President and Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, as required by the Securities Exchange Act of 1934 - The report was signed on August 8, 2025, by John Lowe (President and Chief Executive Officer), Jeffrey Hochstadt (Chief Financial Officer), and Donna Abbey Carmignani (Chief Accounting Officer)[154]