UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Table of Contents FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 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: 0-15535 LAKELAND INDUSTRIES, INC. (Exact name of Registrant as specified in its ch ...

PART I. [FINANCIAL INFORMATION](index=4&type=section&id=Part%20I%3A%20Financial%20Information) [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=Item%201%20Financial%20Statements) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed notes for July 31, 2025, and 2024 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and equity as of July 31, 2025, and January 31, 2025, highlighting changes over the period Condensed Consolidated Balance Sheets | ASSETS | July 31, 2025 (Unaudited) | January 31, 2025 | Change (Absolute) | Change (%) | | :-------------------------- | :------------------------ | :----------------- | :---------------- | :--------- | | Cash and cash equivalents | $6,995,101 | $4,311,719 | $2,683,382 | 62.23% | | Accounts receivable-net | $160,804 | $73,847 | $86,957 | 117.75% | | Inventory | $138,031 | $212,041 | $(74,010) | -34.90% | | Prepaid expenses | $226,500 | $196,658 | $29,842 | 15.17% | | Total Current Assets | $7,520,436 | $4,794,265 | $2,726,171 | 56.86% | | PROPERTY & EQUIPMENT-net | $615,857 | $695,063 | $(79,206) | -11.40% | | Goodwill | $1,719,535 | $1,719,535 | $0 | 0.00% | | Operating lease right of use asset | $90,000 | $- | $90,000 | N/A | | Intangible assets-net | $230,760 | $261,092 | $(30,332) | -11.62% | | TOTAL ASSETS | $10,176,588 | $7,469,955 | $2,706,633 | 36.24% | | LIABILITIES | | | | | | Accounts payable and accrued expenses | $1,393,013 | $698,821 | $694,192 | 99.34% | | Deferred revenue | $19,419 | $155,880 | $(136,461) | -87.54% | | Operating lease liability-current portion | $31,007 | $- | $31,007 | N/A | | Notes payable-current portion | $128,369 | $128,144 | $225 | 0.18% | | Total Current Liabilities | $1,571,808 | $982,845 | $588,963 | 59.92% | | Note payable-net of current portion | $47,290 | $58,205 | $(10,915) | -18.75% | | Operating lease liability-net of current portion | $63,682 | $- | $63,682 | N/A | | Total Liabilities | $1,682,780 | $1,041,050 | $641,730 | 61.64% | | STOCKHOLDERS' EQUITY | | | | | | Preferred stock | $3,009 | $- | $3,009 | N/A | | Common stock | $12,016 | $11,075 | $941 | 8.49% | | Additional paid-in-capital | $50,417,781 | $45,029,317 | $5,388,464 | 11.97% | | Accumulated deficit | $(41,851,842) | $(38,462,636) | $(3,389,206) | 8.81% | | Total Stockholders' Equity | $8,493,808 | $6,428,905 | $2,064,903 | 32.12% | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $10,176,588 | $7,469,955 | $2,706,633 | 36.24% | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Details the company's revenues, expenses, and net loss for the three and six months ended July 31, 2025, and 2024 Three Months Ended July 31, 2025 and 2024 | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Change (Absolute) | Change (%) | | :------------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | | Revenue | $622,452 | $442,830 | $179,622 | 40.56% | | Cost of revenues | $465,571 | $341,272 | $124,299 | 36.42% | | Research and development | $562,554 | $773,975 | $(211,421) | -27.32% | | Selling, general and administrative | $1,597,540 | $737,325 | $860,215 | 116.67% | | Total Costs and Expenses | $2,625,665 | $1,852,572 | $773,093 | 41.73% | | Loss from operations | $(2,003,213) | $(1,409,742) | $(593,471) | 42.10% | | Interest income | $8,649 | $77,332 | $(68,683) | -88.81% | | Loss on extinguishment of debt | $- | $(368,036) | $368,036 | -100.00% | | Interest expense | $(5,773) | $(5,019) | $(754) | 15.02% | | Net loss | $(2,000,337) | $(1,705,465) | $(294,872) | 17.29% | | Preferred shares dividend | $(21,814,166) | $- | $(21,814,166) | N/A | | Net loss available to common stockholders - basic and diluted | $(23,814,503) | $(1,705,465) | $(22,109,038) | 1296.35% | | Net loss per share available to common stockholders - basic and diluted | $(2.12) | $(0.15) | $(1.97) | 1313.33% | | Weighted average common shares outstanding - basic and diluted | 11,218,581 | 11,061,725 | 156,856 | 1.42% | Six Months Ended July 31, 2025 and 2024 | Metric | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | Change (Absolute) | Change (%) | | :------------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | | Revenue | $1,289,884 | $851,362 | $438,522 | 51.51% | | Cost of revenues | $881,022 | $585,018 | $296,004 | 50.60% | | Research and development | $1,245,980 | $1,748,510 | $(502,530) | -28.74% | | Selling, general and administrative | $2,579,592 | $1,817,053 | $762,539 | 41.96% | | Total Costs and Expenses | $4,706,594 | $4,150,581 | $556,013 | 13.39% | | Loss from operations | $(3,416,710) | $(3,299,219) | $(117,491) | 3.56% | | Interest income | $39,157 | $77,350 | $(38,193) | -49.38% | | Loss on extinguishment of debt | $- | $(368,036) | $368,036 | -100.00% | | Interest expense | $(11,653) | $(13,637) | $1,984 | -14.55% | | Net loss | $(3,389,206) | $(3,603,542) | $214,336 | -5.95% | | Preferred shares dividend | $(21,814,166) | $- | $(21,814,166) | N/A | | Net loss available to common stockholders - basic and diluted | $(25,203,372) | $(3,603,542) | $(21,599,830) | 599.39% |\n| Net loss per share available to common stockholders - basic and diluted | $(2.26) | $(0.36) | $(1.90) | 527.78% | | Weighted average common shares outstanding - basic and diluted | 11,172,543 | 10,111,357 | 1,061,186 | 10.50% | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Outlines changes in stockholders' equity, including preferred stock, common stock, additional paid-in capital, and accumulated deficit for the periods presented - For the six months ended July 31, 2025, total stockholders' equity increased by **$2,064,903** to **$8,493,808**. Key activities included the issuance of **3,008,642** preferred shares as a common stock dividend valued at **$3,009**, and significant proceeds from the exercise of warrants (**$5,305,503**) and employee stock options (**$44,206**). The accumulated deficit increased by **$3,389,206** due to net loss[12](index=12&type=chunk)[15](index=15&type=chunk) - For the six months ended July 31, 2024, total stockholders' equity increased by **$6,022,751** to **$12,460,986**. This was primarily driven by **$8,400,000** in proceeds from the sale of common stock and warrants, and **$553,335** from options issued for services. The period also saw a net loss of **$3,603,542**[13](index=13&type=chunk)[14](index=14&type=chunk)[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents the cash inflows and outflows from operating, investing, and financing activities for the six months ended July 31, 2025, and 2024 Cash Flow Activity Summary | Cash Flow Activity | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | Change (Absolute) | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :---------------- | :--------- | | Net Cash Used In Operating Activities | $(2,650,313) | $(2,377,673) | $(272,640) | 11.47% | | Net Cash Used in Investing Activities | $(5,324) | $(45,085) | $39,761 | -88.19% | | Net Cash Provided by Financing Activities | $5,339,019 | $8,689,783 | $(3,350,764) | -38.56% | | Net change in cash | $2,683,382 | $6,267,025 | $(3,583,643) | -57.18% | | Cash and cash equivalents - End of period | $6,995,101 | $6,759,967 | $235,134 | 3.48% | - Non-cash financing activities for the six months ended July 31, 2025, included **$21,814,166** for Preferred Shares issued as Common stock dividend and **$108,000** for the measurement of operating lease right-of-use assets and liabilities[19](index=19&type=chunk) - Non-cash financing activities for the six months ended July 31, 2024, included **$672,956** for debt settlement issued by the issuance of common stock and warrants[19](index=19&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements [1. ORGANIZATION AND DESCRIPTION OF BUSINESS](index=13&type=section&id=1.%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) Nutriband Inc. develops transdermal pharmaceutical products using Aversa technology, operating through 4P Therapeutics (drug development) and Pocono Pharmaceuticals (contract manufacturing) - Nutriband Inc. was incorporated in Nevada on January 4, 2016, and acquired Nutriband Ltd. in the same month[22](index=22&type=chunk) - On August 1, 2018, the Company acquired 4P Therapeutics LLC for **$2,250,000**, making its drug development business the principal focus, particularly incorporating Aversa abuse deterrent technology into transdermal patches[23](index=23&type=chunk)[24](index=24&type=chunk) - On August 31, 2020, the Company acquired assets and liabilities of Pocono Coated Products LLC and **100%** of Active Intelligence LLC, contributing them to its wholly-owned subsidiary Pocono Pharmaceuticals Inc., which specializes in coated products contract development and manufacturing[25](index=25&type=chunk)[26](index=26&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=13&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Outlines Nutriband Inc.'s significant accounting policies, including going concern, consolidation, revenue recognition, and asset valuation, with no major changes from the prior fiscal year - As of July 31, 2025, the Company had cash and cash equivalents of **$6,995,101** and working capital of **$5,948,628**. For the six months ended July 31, 2025, the Company incurred a net loss from operations of **$3,416,710** and used cash flow from operations of **$2,650,313**[31](index=31&type=chunk) - Management believes sufficient funds will be generated from operations and recent financing activities (including **$8,400,000** from equity financing in April 2024 and **$5,305,503** from warrant exercises in the six months ended July 31, 2025) to fund operations for one year, alleviating substantial doubt about going concern[31](index=31&type=chunk)[32](index=32&type=chunk) Revenue Disaggregation by Type and Geographic Location | Revenue by type | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Sale of goods | $1,289,884 | $851,362 | $622,452 | $442,830 | | Services | $- | $- | $- | $- | | Total | $1,289,884 | $851,362 | $622,452 | $442,830 | | Revenue by geographic location | Six Months Ended July 31, 2025 | Six Months Ended July 31, 2024 | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | United States | $1,282,254 | $851,362 | $614,822 | $442,830 | | Foreign | $7,630 | $- | $7,630 | $- | | Total | $1,289,884 | $851,362 | $622,452 | $442,830 | [3. PROPERTY AND EQUIPMENT](index=22&type=section&id=3.%20PROPERTY%20AND%20EQUIPMENT) Net property and equipment decreased to $615,857 by July 31, 2025, primarily due to accumulated depreciation, with $84,530 in depreciation expenses Property and Equipment Details | Category | July 31, 2025 | January 31, 2025 | | :-------------------------- | :-------------- | :--------------- | | Lab equipment | $144,585 | $144,585 | | Machinery and equipment | $1,389,756 | $1,384,432 | | Furniture and fixtures | $19,643 | $19,643 | | Total | $1,553,984 | $1,548,660 | | Less: Accumulated depreciation | $(938,127) | $(853,597) | | Net Property and Equipment | $615,857 | $695,063 | - Depreciation expenses amounted to **$84,530** for the six months ended July 31, 2025, compared to **$82,475** for the same period in 2024. **$67,624** of the 2025 depreciation expense was allocated to the cost of goods sold[64](index=64&type=chunk) [4. NOTES PAYABLE](index=23&type=section&id=4.%20NOTES%20PAYABLE) Details various notes payable, including a $160,000 line of credit, a converted $5,000,000 related-party credit line, and a $106,528 secured borrowing liability - Active Intelligence has a **$160,000** line of credit due October 16, 2028, with **5%** annual interest. As of July 31, 2025, **$60,748** was due, with **$17,109** current[66](index=66&type=chunk) - A **$5,000,000** related-party credit line note was amended on July 17, 2023. On May 15, 2024, **$300,000** of principal and **$4,922** of accrued interest were converted into **76,230** common shares and **152,460** warrants, resulting in a **$368,036** loss on extinguishment. The balance due as of July 31, 2025, was **$-0-**[68](index=68&type=chunk) - A secured borrowing liability of **$106,528** was recorded on July 19, 2023, from an accounts receivable sale related to a bankruptcy claim, bearing **10%** interest. This is classified as a current liability[69](index=69&type=chunk) - Total interest expenses for the six months ended July 31, 2025, were **$11,653**, compared to **$12,401** for the same period in 2024[70](index=70&type=chunk) [5. INTANGIBLE ASSETS](index=23&type=section&id=5.%20INTANGIBLE%20ASSETS) Net intangible assets decreased to $230,760 by July 31, 2025, due to amortization expenses and a prior impairment charge to intellectual property Intangible Asset Details | Intangible Asset Category | July 31, 2025 | January 31, 2025 | | :-------------------------------- | :-------------- | :--------------- | | Customer base | $214,640 | $214,640 | | Intellectual property and trademarks | $623,822 | $623,822 | | Total | $838,462 | $838,462 | | Less: Accumulated amortization | $(607,702) | $(577,370) |\n| Net Intangible Assets | $230,760 | $261,092 | - Amortization expenses for the six months ended July 31, 2025, amounted to **$30,332**, a decrease from **$56,575** for the same period in 2024[71](index=71&type=chunk) - During the year ended January 31, 2025, the Company recorded an impairment charge of **$293,038** to its Intellectual property[71](index=71&type=chunk) [6. RELATED PARTY TRANSACTIONS](index=24&type=section&id=6.%20RELATED%20PARTY%20TRANSACTIONS) Details related party transactions, including warrant exercises, participation in equity financing, and conversion of a credit line into common stock and warrants - During the six months ended July 31, 2025, a director and a related party exercised warrants, resulting in the issuance of **311,041** and **160,000** shares of common stock, respectively[73](index=73&type=chunk) - On April 19, 2024, related parties invested **$7,120,000** in an **$8,400,000** equity financing, receiving **1,780,000** shares of common stock and warrants to purchase **3,560,000** shares[78](index=78&type=chunk) - On May 14, 2024, a **$300,000** credit line facility from TII Jet Services LDA (a related party) was converted into **76,240** shares of common stock and **152,460** warrants[78](index=78&type=chunk) [7. STOCKHOLDERS' EQUITY](index=24&type=section&id=7.%20STOCKHOLDERS%27%20EQUITY) Covers the issuance of Series A Convertible Preferred Stock dividend, convertible upon FDA approval, and various common stock activities including warrant conversions and option exercises - On July 9, 2025, the board authorized a preferred stock dividend, issuing one share of Series A Preferred Stock for each four shares of common stock held. On August 5, 2025, **3,008,642** shares of Series A Preferred Stock were issued, with a fair value of **$21,814,166**[75](index=75&type=chunk)[127](index=127&type=chunk) - Series A Preferred Stock is convertible into one share of Common Stock at the holder's option following FDA approval for commercial sale of the Company's AVERSA abuse deterrent transdermal products[76](index=76&type=chunk)[82](index=82&type=chunk)[127](index=127&type=chunk) - During the six months ended July 31, 2025, common stock activities included issuing **8,500** treasury shares for services (**$65,410** expense), issuing **5,000** common shares to a consultant (**$39,050** expense), cashless conversions of warrants resulting in **46,961** and **35,540** common shares, and employee stock option exercises for **20,055** common shares (**$44,206** proceeds)[86](index=86&type=chunk) [8. OPTIONS and WARRANTS](index=28&type=section&id=8.%20OPTIONS%20and%20WARRANTS) Details outstanding warrants and stock options as of July 31, 2025, including issuance, exercise activities, and Black-Scholes valuation parameters Warrants Outstanding Summary | | Shares | Exercise Price | Remaining Life | Intrinsic Value | | :-------------------------- | :----- | :------------- | :------------- | :-------------- | | Outstanding, January 31, 2025 | 5,546,973 | $6.37 | 3.68 years | $- | | Exercised | (982,010) | $6.15 | - | $- | | Outstanding- July 31, 2025 | 4,564,963 | $6.42 | 3.19 years | $3,614,071 | | Exercisable - July 31, 2025 | 4,564,963 | $6.42 | 3.19 years | $3,614,071 | Options Outstanding Summary | | Shares | Exercise Price | Remaining Life | Intrinsic Value | | :-------------------------- | :----- | :------------- | :------------- | :-------------- | | Outstanding, January 31, 2025 | 1,373,668 | $3.68 | 1.90 years | $- | | Exercised | (20,055) | $1.07 | - | $- | | Outstanding- July 31, 2025 | 1,353,613 | $3.70 | 1.40 years | $4,822,505 | | Exercisable - July 31, 2025 | 1,353,613 | $3.70 | 1.40 years | $4,822,505 | - The Company used the Black-Scholes valuation model for warrants and options, with dividend rates of **0%**, expected terms of **1.5-2.5** years for warrants and **1.5** years for options, volatility rates of **105.98%-145.05%** for warrants and **97.83%-114.86%** for options, and risk-free rates of **3.65%-4.45%** for warrants and **4.00%-4.87%** for options[91](index=91&type=chunk)[97](index=97&type=chunk) [9. SEGMENT REPORTING](index=31&type=section&id=9.%20SEGMENT%20REPORTING) Reports financial performance for Pocono Pharmaceuticals (contract manufacturing) and 4P Therapeutics (drug development), with Pocono generating $1,289,884 in net sales Net Sales and Gross Profit by Segment | Segment | Six Months Ended July 31, 2025 (Net Sales) | Six Months Ended July 31, 2024 (Net Sales) | Six Months Ended July 31, 2025 (Gross Profit) | Six Months Ended July 31, 2024 (Gross Profit) | | :--------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Pocono Pharmaceuticals | $1,289,884 | $851,362 | $408,862 | $266,344 | | 4P Therapeutics | $- | $- | $- | $- | | Total | $1,289,884 | $851,362 | $408,862 | $266,344 | Operating Expenses by Segment (Six Months Ended July 31, 2025) | Operating Expense Category | Amount | | :--------------------------------------- | :----- | | Selling, general and administrative-Pocono Pharmaceuticals | $311,354 | | Selling, general and administrative-4P Therapeutics | $52,627 | | Selling, general and administrative-Corporate | $2,215,615 | | Research and development-4P Therapeutics | $1,245,980 | | Total Operating Expenses | $3,825,576 | Assets by Segment (July 31, 2025) | Segment | Assets | | :--------------------- | :------------- | | Corporate | $6,435,611 | | Pocono Pharmaceuticals | $1,899,844 | | 4P Therapeutics | $1,841,133 | | Total | $10,176,588 | [10. COMMITMENTS AND CONTINGENCIES](index=32&type=section&id=10.%20COMMITMENTS%20AND%20CONTIGENCIES) Details employment agreements, Aversa Fentanyl development budget and milestone, a secured loan, and ongoing litigation with Joseph Gunnar, LLC - CEO Gareth Sheridan and President Serguei Melnik have three-year employment agreements (effective Feb 1, 2022) with annual salaries of **$150,000** (reduced from **$250,000**). CFO Gerald Goodman's agreement (effective Feb 1, 2022) has an annual salary of **$110,000** (reduced from **$210,000**)[105](index=105&type=chunk)[106](index=106&type=chunk) - The commercial development and clinical supply agreement with Kindeva Drug Delivery for Aversa Fentanyl has a remaining budget of approximately **$3.6 million** through NDA submission (amended from **$5.2 million**) and includes a **$3.0 million** milestone payment upon FDA approval[107](index=107&type=chunk) - The Company is a defendant in a lawsuit by Joseph Gunnar, LLC and Lucosky Brookman LLP, alleging breach of contract and seeking over **$500,000** in damages. The Company denies allegations and has initiated counterclaims seeking **$1,000,000** for each claim[110](index=110&type=chunk)[111](index=111&type=chunk) [11. SUBSEQUENT EVENTS](index=33&type=section&id=11.%20SUBSEQUENT%20EVENTS) Reports subsequent grants of stock options to executive officers and employees in August 2025, totaling 409,167 options with a combined fair value of $1,285,142 - On August 11, 2025, **40,000** options to purchase common shares were issued to an executive officer at **$6.85** per share, with a fair value of **$137,040**[113](index=113&type=chunk) - On August 20, 2025, **369,167** options to purchase common shares were issued to executive officers and employees at prices of **$6.22 - $6.84** per share, with a fair value of **$1,148,102**[113](index=113&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=34&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion and analysis of financial condition and results of operations, covering transdermal products, recent developments, performance comparison, liquidity, and critical accounting policies [FORWARD LOOKING STATEMENTS](index=34&type=section&id=Forward%20Looking%20Statements) Discusses the nature of forward-looking statements in the report, their inherent risks, and the Company's policy on updates - This report contains forward-looking statements identified by words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions[115](index=115&type=chunk) - Forward-looking statements are subject to inherent risks and uncertainties, and actual results may differ materially due to factors discussed in the 10-K and 10-Q reports[116](index=116&type=chunk) - The Company undertakes no obligation to revise or update any forward-looking statements, except as required by law[117](index=117&type=chunk) [Overview](index=34&type=section&id=Overview) Provides a general description of Nutriband Inc.'s primary business, revenue generation through subsidiaries, and operational locations - Nutriband Inc.'s primary business is the development of transdermal pharmaceutical products, particularly those based on its proprietary AVERSA abuse deterrent transdermal technology[118](index=118&type=chunk) - Revenues are generated through subsidiaries Pocono Pharmaceuticals (contract manufacturing for health, wellness, and OTC products) and 4P Therapeutics (contract research and development for pharmaceutical and medical devices)[119](index=119&type=chunk) - The Company's principal offices are in Orlando, Florida, with a manufacturing facility in Cherryville, North Carolina, and primarily operates in the United States[120](index=120&type=chunk) [Recent Developments](index=34&type=section&id=Recent%20Developments) Highlights key recent events, including the revised agreement with Kindeva Drug Delivery for Aversa™ Fentanyl and an $8,400,000 equity financing - On February 13, 2025, Nutriband and Kindeva Drug Delivery revised their Commercial Development and Clinical Supply Agreement for Aversa™ Fentanyl, formalizing an exclusive product development partnership with shared development costs and milestone payments[121](index=121&type=chunk) - On April 19, 2024, the Company completed an **$8,400,000** equity financing with European investors, issuing **2,100,000** units (each consisting of one common stock share and two warrants exercisable at **$6.43**)[122](index=122&type=chunk) [Our Business](index=35&type=section&id=Our%20Business) Details the Company's core business activities, including its AVERSA abuse deterrent transdermal products, employee stock option plan, and preferred stock dividend [AVERSA Abuse Deterrent Transdermal Products](index=35&type=section&id=AVERSA%20Abuse%20Deterrent%20Transdermal%20Products) Focuses on the development of AVERSA Fentanyl and the expansion of AVERSA technology to other transdermal pharmaceutical products - The lead product under development is AVERSA Fentanyl, an abuse deterrent fentanyl transdermal system, which combines an approved generic fentanyl patch with the Company's AVERSA technology[123](index=123&type=chunk) - The AVERSA technology is being expanded to include AVERSA Buprenorphine and AVERSA Methylphenidate, and other transdermal pharmaceutical products for drugs typically delivered by injection[123](index=123&type=chunk) - In January 2024, a commercial development and clinical supply agreement was signed with Kindeva Drug Delivery for AVERSA Fentanyl, focusing on developing the commercial manufacturing process[124](index=124&type=chunk) [Employee Stock Option Plan](index=35&type=section&id=Employee%20Stock%20Option%20Plan) Describes the 2021 Employee Stock Option Plan, including reserved shares, automatic annual increases, and recent amendments - The 2021 Employee Stock Option Plan initially reserved **350,000** shares, increasing to **1,645,751** shares as of September 8, 2025[125](index=125&type=chunk) - The Plan includes an automatic annual increase on February 1st, equal to the lesser of **250,000** shares or **5%** of outstanding common stock[126](index=126&type=chunk) - An amendment to the Plan, increasing shares to **1,400,000**, was approved by stockholders at the 2025 Annual Meeting[126](index=126&type=chunk) [Preferred Stock Dividend](index=35&type=section&id=Preferred%20Stock%20Dividend) Details the issuance of Series A Convertible Preferred Stock dividend on August 5, 2025, and its conversion terms upon FDA approval - On August 5, 2025, the Company issued a preferred stock dividend of Series A Convertible Preferred Stock to shareholders of record July 25, 2025[127](index=127&type=chunk) - **3,008,643** shares of Series A Preferred Stock were issued, with a fair value of **$21,814,166**[127](index=127&type=chunk) - Each Series A Preferred Stock share is convertible into one common stock share following FDA approval for commercial sale of the Company's AVERSA abuse deterrent transdermal technology[127](index=127&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Analyzes the Company's financial performance, including revenue, gross profit, expenses, and net loss for the three and six months ended July 31, 2025, and 2024 [Three Months Ended July 31, 2025 and 2024](index=36&type=section&id=Three%20Months%20Ended%20July%2031%2C%202025%20and%202024) Compares key financial metrics for the three months ended July 31, 2025, and 2024, highlighting revenue growth, expense increases, and net loss - Revenue increased by **40.56%** to **$622,452** for the three months ended July 31, 2025, primarily from the Pocono Pharmaceuticals segment due to increased demand and equipment implementation[128](index=128&type=chunk) - Gross profit increased by **54.42%** to **$156,881**, driven by higher margins in the sales mix[128](index=128&type=chunk) - Selling, general and administrative expenses surged by **116.67%** to **$1,597,540**, mainly due to increases in compensation-based expenses[129](index=129&type=chunk) - Net loss available to common stockholders significantly increased to **$(23,814,503)** or **$(2.12)** per share, primarily due to a preferred stock dividend of **$(21,814,166)**[132](index=132&type=chunk) [Six Months Ended July 31, 2025 and 2024](index=36&type=section&id=Six%20Months%20Ended%20July%2031%2C%202025%20and%202024) Compares key financial metrics for the six months ended July 31, 2025, and 2024, detailing revenue growth, expense changes, and net loss - Revenue increased by **51.51%** to **$1,289,884** for the six months ended July 31, 2025, driven by sales from the Pocono Pharmaceuticals segment[133](index=133&type=chunk) - Gross profit increased by **53.51%** to **$408,862**, attributed to higher margins in the sales mix[133](index=133&type=chunk) - Selling, general and administrative expenses rose by **41.96%** to **$2,579,592**, mainly due to increases in equity-based expenses[134](index=134&type=chunk) - Net loss available to common stockholders significantly increased to **$(25,203,372)** or **$(2.26)** per share, primarily due to a preferred stock dividend of **$(21,814,166)**[137](index=137&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the Company's cash position, working capital, and cash flow activities from operations, investing, and financing Liquidity and Capital Resources Summary | Metric | July 31, 2025 | January 31, 2025 | Change (Absolute) | Change (%) | | :-------------------------- | :-------------- | :--------------- | :---------------- | :--------- | | Cash and cash equivalents | $6,995,101 | $4,311,719 | $2,683,382 | 62.23% | | Working capital | $5,948,628 | $3,811,420 | $2,137,208 | 56.07% | - For the six months ended July 31, 2025, the Company used **$2,650,313** in operating activities, **$5,324** in investing activities (primarily equipment purchases), and generated **$5,339,019** from financing activities (primarily warrant exercises)[139](index=139&type=chunk)[140](index=140&type=chunk) [Off Balance Sheet Arrangements](index=37&type=section&id=Off%20Balance%20Sheet%20Arrangements) States the Company has no off-balance sheet arrangements with a material effect on its financial condition or results of operations - The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources[141](index=141&type=chunk) [Critical Accounting Policies](index=37&type=section&id=Critical%20Accounting%20Policies) Confirms that critical accounting policies remained consistent from the prior fiscal year - Critical accounting policies remained relatively consistent from the year ended January 31, 2025[142](index=142&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=37&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) States that quantitative and qualitative disclosures about market risk are not applicable to the Company - Quantitative and qualitative disclosures about market risk are not applicable[143](index=143&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=37&type=section&id=Item%204%20Controls%20and%20Procedures) Details the evaluation of disclosure controls and procedures, identifying material weaknesses and outlining corrective actions, with no material changes to internal controls [Disclosure controls and procedures](index=37&type=section&id=Disclosure%20controls%20and%20procedures) Reports that disclosure controls and procedures were not effective as of July 31, 2025, due to material weaknesses, and outlines corrective actions - As of July 31, 2025, the Company's disclosure controls and procedures were evaluated and concluded to be not effective[145](index=145&type=chunk) - Material weaknesses identified include the absence of segregation of duties, lack of qualified accounting personnel, and excessive reliance on third-party consultants[146](index=146&type=chunk) - Corrective actions include adding qualified accounting personnel, establishing additional monitoring controls, and improving internal controls for detailed accounting review of revenue, accounts receivable, and accounts payable transactions[146](index=146&type=chunk) [Changes in internal controls over financial reporting](index=37&type=section&id=Changes%20in%20internal%20controls%20over%20financial%20reporting) States that no material changes were made to internal controls over financial reporting during the quarter - No changes were made to internal controls in the quarterly period covered by this report that have materially affected, or are reasonably likely materially to affect, internal control over financial reporting[148](index=148&type=chunk) PART II. [OTHER INFORMATION](index=38&type=section&id=Part%20II%3A%20Other%20Information) [ITEM 1. LEGAL PROCEEDINGS](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Details ongoing litigation where Nutriband Inc. is a defendant, denying allegations and pursuing counterclaims for breach of contract and other claims - The Company is a defendant in a lawsuit by Joseph Gunnar, LLC and Lucosky Brookman LLP, alleging breach of contract, fraudulent activities, and tortious interference, seeking over **$500,000** in damages[151](index=151&type=chunk) - Nutriband denies all allegations, claiming the engagement letter was unenforceable, and has initiated counterclaims against Joseph Gunnar & Co. for intentional interference and breach of fiduciary duty, seeking **$1,000,000** for each claim[152](index=152&type=chunk) - The case is in the discovery stage, and the Company has not responded to a settlement offer of **$100,000** proposed by the plaintiffs in early 2024[153](index=153&type=chunk) [ITEM 1A. RISK FACTORS](index=38&type=section&id=Item%201A%20Risk%20Factors) Outlines significant risks including economic uncertainty, substantial losses in drug development, stock price volatility, potential dilution, and rapid technological changes - Economic uncertainty, including U.S. economic policies and inflationary factors, may affect product costs, timing of FDA approvals, and overall profitability[155](index=155&type=chunk) - As a low-revenue start-up in drug development, the Company incurs substantial losses during product development and FDA testing, with no assurance of achieving profitability or positive cash flow[156](index=156&type=chunk)[157](index=157&type=chunk) - The Company's stock price is likely to remain volatile, and future equity offerings or sales of common stock could lead to significant dilution for stockholders[159](index=159&type=chunk)[160](index=160&type=chunk) - The drug delivery industry is subject to rapid technological change, and the Company's future success depends on its ability to keep pace with these advancements to avoid product obsolescence[161](index=161&type=chunk) [ITEM 5. OTHER INFORMATION](index=41&type=section&id=Item%205%20Other%20Information) Reports CEO Gareth Sheridan's temporary leave for an election campaign, with Co-Founder Serguei Melnik assuming interim CEO responsibilities - On August 11, 2025, CEO Gareth Sheridan stepped aside for three months to enter the Irish Presidential election campaign[163](index=163&type=chunk) - Serguei Melnik, co-Founder and Chairman, has taken over as interim CEO, guiding the Company towards its target NDA filing with the FDA in 2026 and focusing on strategic development and shareholder value[164](index=164&type=chunk) [ITEM 6. EXHIBITS](index=41&type=section&id=Item%206%20Exhibits) Lists exhibits filed with the Form 10-Q, including Section 302 and 906 certifications and various Inline XBRL documents - The exhibits include Section 302 Certifications from the CEO and CFO, Section 906 Certifications from the CEO and CFO, and various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents, and Cover Page Interactive Data File)[165](index=165&type=chunk)

[FORWARD-LOOKING STATEMENTS](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines that the Form 10-Q contains forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to **risks, uncertainties, and assumptions**, based on current expectations and not guarantees of future performance[5](index=5&type=chunk) - Factors that may cause actual results to differ materially include **projections of revenue, gross profit, expenses, and earnings per share**, impact of acquisitions, macroeconomic trends, legal matters, and supply chain disruptions[8](index=8&type=chunk) - The company does not undertake any obligation to update or revise forward-looking statements, except as required by applicable securities laws[7](index=7&type=chunk) [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=6&type=section&id=Item%201.Financial%20Statements%3A) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and shareholders' equity, with detailed explanatory notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets remained stable at $301.2 million as of July 31, 2025, compared to $301.1 million at October 31, 2024, with improved working capital and increased shareholders' equity | Metric | July 31, 2025 | October 31, 2024 | Change (2025 vs 2024) | | :-------------------------------- | :------------ | :--------------- | :-------------------- | | **Assets** | | | | | Cash and cash equivalents | $63,754 | $57,031 | +$6,723 | | Total current assets | $159,112 | $158,579 | +$533 | | Property, plant, and equipment, net | $50,603 | $54,200 | -$3,597 | | Total assets | $301,249 | $301,119 | +$130 | | **Liabilities** | | | | | Payable to growers | $31,849 | $18,377 | +$13,472 | | Accrued expenses | $10,459 | $28,149 | -$17,690 | | Income tax payable | $1,721 | $2,767 | -$1,046 | | Total current liabilities | $69,201 | $73,205 | -$4,004 | | Total long-term liabilities | $24,048 | $26,138 | -$2,090 | | **Shareholders' Equity** | | | | | Total shareholders' equity | $208,000 | $201,776 | +$6,224 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended July 31, 2025, net sales remained stable, but gross profit and operating income decreased, while net income significantly improved due to the absence of discontinued operations, and for the nine months, net sales, gross profit, and net income all showed positive growth | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :------------------------------------------ | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Net sales | $178,822 | $179,596 | -0.4% | $523,753 | $491,585 | +6.5% | | Gross profit | $18,198 | $20,093 | -9.4% | $52,015 | $51,514 | +1.0% | | Operating income | $8,659 | $9,358 | -7.5% | $21,335 | $13,711 | +55.6% | | Net income (loss) from discontinued operations | — | $(6,127) | N/A | — | $(10,218) | N/A | | Net income (loss) attributable to Calavo Growers, Inc. | $4,714 | $(732) | N/A | $15,979 | $(937) | N/A | | Basic EPS (Continuing Operations) | $0.26 | $0.30 | -13.3% | $0.90 | $0.52 | +73.1% | | Basic EPS (Net income (loss)) | $0.26 | $(0.04) | N/A | $0.90 | $(0.05) | N/A | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended July 31, 2025, net cash provided by operating activities increased significantly to $19.2 million, while cash used in investing activities decreased and financing activities remained stable | Metric | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Net income (loss) | $16,111 | $(920) | N/A | | Net cash provided by operating activities | $19,234 | $13,583 | +41.6% | | Net cash used in investing activities | $(1,066) | $(2,519) | -57.7% | | Net cash (used in) financing activities | $(11,445) | $(12,790) | -10.5% | | Net increase (decrease) in cash | $6,723 | $(1,726) | N/A | | Cash, cash equivalents, end of period | $63,754 | $1,126 | +5576.2% | [Condensed Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Total shareholders' equity increased to $208.0 million by July 31, 2025, driven by net income, partially offset by dividend payments | Metric | Balance, October 31, 2024 | Balance, July 31, 2025 | Change | | :-------------------------------------- | :------------------------ | :--------------------- | :------- | | Common Stock (Amount) | $18 | $18 | $0 | | Additional Paid-in Capital | $177,973 | $178,803 | +$830 | | Retained Earnings | $22,341 | $27,603 | +$5,262 | | Noncontrolling Interest | $1,444 | $1,576 | +$132 | | Total Shareholders' Equity | $201,776 | $208,000 | +$6,224 | - **Net income attributable to Calavo Growers, Inc.** for the nine months ended July 31, 2025, was **$15,979 thousand**, contributing significantly to the increase in retained earnings[15](index=15&type=chunk) - **Dividends declared to shareholders** for the nine months ended July 31, 2025, totaled **$10,717 thousand**[15](index=15&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on business operations, segment reporting, inventory, related party transactions, significant events, and tax matters [1. Description of the business](index=10&type=section&id=1.%20Description%20of%20the%20business) Calavo Growers, Inc. is a global leader in sourcing, packing, and distributing fresh avocados, tomatoes, papayas, and processing guacamole and other avocado products - Calavo is a global leader in **fresh avocados, tomatoes, papayas, and processed avocado products** (guacamole)[17](index=17&type=chunk) - The "Grown" segment was renamed "**Fresh**" in Q1 fiscal 2025 to better reflect activities, with no change to its composition or financial results[18](index=18&type=chunk) [2. Information regarding our operations in different segments](index=12&type=section&id=2.%20Information%20regarding%20our%20operations%20in%20different%20segments) Calavo operates in Fresh and Prepared segments, with Fresh sales increasing 6.2% and Prepared sales increasing 10.0% for the nine months ended July 31, 2025 - The "Grown" segment was renamed "**Fresh**" in Q1 fiscal 2025, comprising fresh avocados, tomatoes, and papayas, while the "**Prepared**" segment includes guacamole and avocado pulp[23](index=23&type=chunk) Net Sales by Segment | Segment | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :------ | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Fresh | $155,851 | $163,218 | -4.5% | $470,307 | $442,999 | +6.2% | | Prepared | $22,971 | $16,378 | +40.2% | $53,446 | $48,586 | +10.0% | | Total | $178,822 | $179,596 | -0.4% | $523,753 | $491,585 | +6.5% | Gross Profit by Segment | Segment | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :------ | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Fresh | $12,427 | $18,175 | -31.6% | $38,617 | $40,958 | -5.7% | | Prepared | $5,771 | $1,918 | +200.9% | $13,398 | $10,556 | +26.9% | | Total | $18,198 | $20,093 | -9.4% | $52,015 | $51,514 | +1.0% | [3. Inventories](index=13&type=section&id=3.%20Inventories) Total inventories decreased to $30.3 million by July 31, 2025, with a significant increase in inventory reserves due to slow-moving items and market factors | Inventory Type | July 31, 2025 | October 31, 2024 | Change | | :---------------------- | :------------ | :--------------- | :----- | | Fresh fruit | $16,233 | $20,002 | -$3,769 | | Packing supplies and ingredients | $6,932 | $6,936 | -$4 | | Finished prepared foods | $7,163 | $7,219 | -$56 | | Total | $30,328 | $34,157 | -$3,829 | - **Inventory reserves increased to $2.6 million** as of July 31, 2025, from $0.4 million at October 31, 2024, reflecting higher slow-moving inventories and market factors, including the FDA detention hold on Mexican avocados[26](index=26&type=chunk)[27](index=27&type=chunk) [4. Related party transactions](index=15&type=section&id=4.%20Related%20party%20transactions) Calavo engages in various related party transactions, including avocado procurement from affiliated entities and advances with unconsolidated entities - Avocados procured from entities owned or controlled by Board members totaled **$2.7 million (3 months) and $4.3 million (9 months)** for July 31, 2025[28](index=28&type=chunk) - Avocados procured from entities affiliated with the CEO totaled **$2.5 million (3 months) and $6 million (9 months)** for July 31, 2025[29](index=29&type=chunk) - Calavo has a **50% ownership in Agricola Don Memo**, with outstanding advances of **$8.2 million** as of July 31, 2025, and incurred **$10.6 million in cost of sales** for the nine months ended July 31, 2025[31](index=31&type=chunk) - Calavo had grower advances due from Belher totaling **$4.3 million** as of July 31, 2025, and incurred **$16 million in cost of sales** for the nine months ended July 31, 2025[32](index=32&type=chunk)[34](index=34&type=chunk) - Avocados de Jalisco, **83% owned by Calavo**, purchased approximately **$3 million of avocados** from its partners for the nine months ended July 31, 2025[35](index=35&type=chunk) [5. Other assets](index=17&type=section&id=5.%20Other%20assets) Other assets primarily consist of Mexican IVA taxes receivable, net, which increased to $53.9 million as of July 31, 2025 | Asset Type | July 31, 2025 | October 31, 2024 | Change | | :-------------------------------------- | :------------ | :--------------- | :----- | | Mexican IVA taxes receivable, net | $53,854 | $48,739 | +$5,115 | | Infrastructure advances | — | $467 | -$467 | | Other | $581 | $710 | -$129 | | Total | $54,435 | $49,916 | +$4,519 | [6. Other events](index=17&type=section&id=6.%20Other%20events) This note details significant events including quarterly dividends, an FDA detention hold, FCPA inquiry closure, new tax law, ongoing Mexican tax litigation, and a lease contingency - Calavo paid quarterly dividends of **$0.20 per share** on January 31, April 29, and July 28, 2025, each totaling **$3.6 million**, with another $0.20 dividend declared for October 31, 2025[37](index=37&type=chunk) - In July 2025, the FDA placed Calavo de México (CDM) on a Red List Detention Hold due to trace levels of Imazalil, resulting in approximately **$4.2 million in incremental costs** (inspection, logistics, inventory write-downs), which was resolved in September 2025[38](index=38&type=chunk) - The U.S. Department of Justice closed its **Foreign Corrupt Practices Act (FCPA) inquiry** related to Mexican operations on September 2, 2025[43](index=43&type=chunk) - The **One Big Beautiful Bill Act (OBBBA)** was enacted in July 2025, affecting corporate taxation, but its impacts did not materially affect the tax rate for the three and nine months ended July 31, 2025[44](index=44&type=chunk) - Calavo is appealing a 2013 Mexican tax assessment totaling approximately **$160 million USD** (including inflation and fines) and a **$6.3 million employee profit-sharing liability**, with a provision of **$11 million** recorded in Q3 fiscal 2021 for this matter[47](index=47&type=chunk)[52](index=52&type=chunk) - As a guarantor for assigned leases from the Fresh Cut business sale, Calavo has a maximum exposure of **$32.0 million** in undiscounted future minimum lease payments, plus **$13.3 million** in potential additional payments[54](index=54&type=chunk)[58](index=58&type=chunk) [7. Noncontrolling interest](index=22&type=section&id=7.%20Noncontrolling%20interest) Noncontrolling interest, primarily related to Avocados de Jalisco, increased to $1.576 million by July 31, 2025, reflecting net income attribution | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :---------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Noncontrolling interest, beginning | $1,554 | $1,439 | $1,444 | $1,392 | | Net income (loss) attributable to noncontrolling interest | $22 | $(30) | $132 | $17 | | Noncontrolling interest, ending | $1,576 | $1,409 | $1,576 | $1,409 | [8. Earnings per share](index=22&type=section&id=8.%20Earnings%20per%20share) Basic and diluted EPS from continuing operations for the nine months ended July 31, 2025, increased significantly to $0.90 from $0.52 | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income from continuing operations attributable to Calavo Growers, Inc. (Numerator) | $4,714 | $5,395 | $15,979 | $9,281 | | Weighted average shares - Basic (Denominator) | 17,853 | 17,801 | 17,842 | 17,800 | | Effect on dilutive securities – Restricted stock/units/options | 46 | 41 | 51 | 48 | | Basic EPS (Continuing Operations) | $0.26 | $0.30 | $0.90 | $0.52 | | Diluted EPS (Continuing Operations) | $0.26 | $0.30 | $0.89 | $0.52 | | Basic EPS (Net income (loss)) | $0.26 | $(0.04) | $0.90 | $(0.05) | | Diluted EPS (Net income (loss)) | $0.26 | $(0.04) | $0.89 | $(0.05) | [9. Mexican IVA taxes receivable](index=24&type=section&id=9.%20Mexican%20IVA%20taxes%20receivable) Mexican IVA taxes receivable, net, increased to $53.9 million, with ongoing efforts to recover VAT amounts and a recent favorable court ruling under appeal - CDM VAT receivables, net of provision, totaled **$53.9 million (1.0 billion Mexican pesos)** as of July 31, 2025, up from $48.7 million (976.0 million Mexican pesos) at October 31, 2024[64](index=64&type=chunk) - In Q2 fiscal 2025, the SAT refunded **36.7 million Mexican pesos (approx. $1.9 million USD)** in VAT relating to claims for March, April, and November 2019, secured directly from the tax authority[68](index=68&type=chunk) - In August 2025, the Fifth Collegiate Circuit Court ruled in favor of CDM, recognizing it as a maquila and directing the SAT to refund IVA balances for January-June 2013, though the SAT has appealed this to the Mexican Supreme Court[69](index=69&type=chunk) [10. Assets Held for Sale and Discontinued Operations](index=26&type=section&id=10.%20Assets%20Held%20for%20Sale%20and%20Discontinued%20Operations) The Fresh Cut business was sold in August 2024 for $83 million, resulting in a goodwill impairment charge and a net loss from discontinued operations - The **Fresh Cut business was sold in August 2024 for $83 million** and was classified as discontinued operations[70](index=70&type=chunk)[75](index=75&type=chunk) - A **$9.3 million goodwill impairment charge** was recorded in Q3 fiscal 2024 in connection with the sale[71](index=71&type=chunk) Discontinued Operations Financial Summary | Metric | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2024 | | :-------------------------------------- | :--------------------------- | :--------------------------- | | Net sales | $88,586 | $258,958 | | Gross profit | $7,362 | $12,003 | | Operating loss | $(6,111) | $(10,173) | | Net loss from discontinued operations | $(6,127) | $(10,218) | [11. Sale of Fresh Cut Business](index=28&type=section&id=11.%20Sale%20of%20Fresh%20Cut%20Business) The Fresh Cut business was sold for $83 million in August 2024, leading to an amendment of the company's credit agreement - The Fresh Cut business and related real estate were sold for a total transaction value of **$83 million** on August 15, 2024[75](index=75&type=chunk) - The sale included **$52.0 million for business assets** and **$31.0 million for real estate**[76](index=76&type=chunk) - The credit agreement was amended to reduce revolving commitments from **$90.0 million to $75.0 million**, aligning with the asset base excluding the Fresh Cut business[77](index=77&type=chunk) [12. Subsequent Events](index=28&type=section&id=12.%20Subsequent%20Events) Subsequent events include a favorable court ruling on IVA refunds (under appeal) and the declaration of a $0.20 per share quarterly cash dividend - In August 2025, the Fifth Collegiate Circuit Court ruled recognizing CDM as a maquila and directing the SAT to refund IVA balances for January-June 2013, though the SAT appealed this decision[78](index=78&type=chunk) - A quarterly cash dividend of **$0.20 per share** was declared, payable on October 31, 2025, to shareholders of record on September 30, 2025[79](index=79&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial performance, liquidity, and capital resources, highlighting recent developments, market trends, and operational results [Recent Developments](index=30&type=section&id=Recent%20Developments) Recent developments include quarterly dividends, closure of the FCPA inquiry, and positive progress in Mexican tax matters with a VAT refund and favorable court ruling - A quarterly cash dividend of **$0.20 per share** was paid on July 28, 2025, and another declared for October 31, 2025[81](index=81&type=chunk) - The U.S. Department of Justice closed its **Foreign Corrupt Practices Act (FCPA) inquiry** related to Calavo's Mexican operations on September 2, 2025[82](index=82&type=chunk) - Calavo received a **$1.9 million VAT refund** from the SAT in Q2 fiscal 2025 and a favorable August 2025 court ruling recognizing CDM as a maquila for IVA refunds, which the SAT has appealed[83](index=83&type=chunk)[84](index=84&type=chunk) [Market Trends and Uncertainties](index=30&type=section&id=Market%20Trends%20and%20Uncertainties) Calavo faces macroeconomic challenges, a temporary FDA detention hold, ongoing U.S.-Mexico trade policy uncertainty, and supply chain disruption risks - Macroeconomic challenges, including **inflationary pressures and shifts in trade policies**, continue to affect operations, driving cost fluctuations in fruit, labor, packaging, and operating expenses[85](index=85&type=chunk)[86](index=86&type=chunk) - A temporary **FDA detention hold on Calavo de México (CDM)** in July 2025, due to trace Imazalil, resulted in approximately **$4.2 million in incremental costs** (inspection, logistics, inventory write-downs), though the hold was lifted in September 2025[87](index=87&type=chunk) - Ongoing uncertainty in U.S. trade policy with Mexico, including potential tariffs (e.g., **25% on imports, briefly in effect March 2025**) and the termination of the U.S.–Mexico Tomato Suspension Agreement (imposing a **17% anti-dumping duty**), could raise input costs and disrupt supply chains[89](index=89&type=chunk)[90](index=90&type=chunk)[92](index=92&type=chunk) - A temporary pause in operations at a Mexican packinghouse in Q1 fiscal 2025 due to **avocado weevils**, though resolved, highlights ongoing supply chain disruption risks from pests or phytosanitary issues[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) [Critical Accounting Estimates](index=34&type=section&id=Critical%20Accounting%20Estimates) No material changes occurred in Calavo's critical accounting estimates during the three and nine months ended July 31, 2025 - No material changes in critical accounting estimates for the three and nine months ended July 31, 2025[99](index=99&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) Calavo's nine-month results show increased net sales and gross profit, driven by higher avocado pricing and Prepared segment growth, alongside reduced SG&A expenses [Net Sales](index=34&type=section&id=Net%20Sales) For the nine months, net sales grew 7% to $523.8 million, driven by higher avocado pricing in Fresh and increased volumes in Prepared, despite a slight decline in the three-month period Net Sales by Segment | Segment | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :------ | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Fresh | $155,851 | $163,218 | -4.5% | $470,307 | $442,999 | +6.2% | | Prepared | $22,971 | $16,378 | +40.2% | $53,446 | $48,586 | +10.0% | | Total | $178,822 | $179,596 | -0.4% | $523,753 | $491,585 | +6.5% | - For the three months, Fresh avocado sales decreased **3%** due to a **5% volume decline**, partially offset by a **2% price increase**, while tomato sales decreased **40%** due to a **27% volume decline** and **18% price decrease**, impacted by the termination of the Tomato Suspension Agreement[107](index=107&type=chunk) - For the nine months, Fresh avocado sales increased **12%** due to a **22% price increase**, partially offset by a **9% volume decline**, while tomato sales decreased **37%** due to a **34% volume decline** and **6% price decrease**, impacted by adverse weather and abundant domestic supply[107](index=107&type=chunk) - Prepared segment sales increased **40% (3 months) and 10% (9 months)** primarily due to increased pounds sold (**35% and 11% respectively**), expanded sales to existing customers, and new customer wins[107](index=107&type=chunk)[110](index=110&type=chunk) [Gross Profit](index=38&type=section&id=Gross%20Profit) Consolidated gross profit decreased 9% for the three months due to FDA detention costs, but increased 1% for the nine months, driven by Prepared segment growth Gross Profit by Segment | Segment | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :------ | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Fresh | $12,427 | $18,175 | -31.6% | $38,617 | $40,958 | -5.7% | | Prepared | $5,771 | $1,918 | +200.9% | $13,398 | $10,556 | +26.9% | | Total | $18,198 | $20,093 | -9.4% | $52,015 | $51,514 | +1.0% | - The **$4.2 million in discrete costs** associated with the FDA detention hold on Mexican avocados significantly impacted Q3 2025 gross profit, recorded in cost of sales[113](index=113&type=chunk) - Fresh segment gross profit decreased due to **lower avocado and tomato volumes** and **regulatory costs** (FDA detention, temporary tariff event)[115](index=115&type=chunk)[116](index=116&type=chunk)[119](index=119&type=chunk) - Prepared segment gross profit increased due to **higher sales volumes, lower fruit input costs, and improved operating efficiencies**[114](index=114&type=chunk)[117](index=117&type=chunk) [Selling, General and Administrative](index=40&type=section&id=Selling%2C%20General%20and%20Administrative) SG&A expenses decreased by 12% for the three months and 19% for the nine months, primarily due to reduced professional, consulting, and compensation expenses Selling, General and Administrative Expenses | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Selling, general and administrative | $9,232 | $10,510 | -12.2% | $29,822 | $36,993 | -19.4% | | Percentage of net sales | 5% | 6% | -1% | 6% | 8% | -2% | - The decrease in SG&A was driven by a **$2.0 million reduction in professional and consulting fees** (including lower FCPA-related legal expenses) for the three months, and a **$5.1 million reduction** for the nine months, along with lower compensation and stock-based compensation expenses[120](index=120&type=chunk)[121](index=121&type=chunk) [Foreign currency loss](index=42&type=section&id=Foreign%20currency%20loss) Foreign currency remeasurement losses decreased by 41% for the three months and 11% for the nine months, reflecting Mexican peso exchange rate fluctuations Foreign Currency Loss | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :-------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Foreign currency loss | $(2,483) | $(4,203) | -41.0% | $(2,488) | $(2,799) | -11.1% | [Income (loss) from unconsolidated entities](index=42&type=section&id=Income%20%28loss%29%20from%20unconsolidated%20entities) Income from unconsolidated entities improved significantly, moving from a loss to income for the nine months ended July 31, 2025 Income (Loss) from Unconsolidated Entities | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Income (loss) from unconsolidated entities | $(402) | $(579) | -30.6% | $178 | $(374) | +147.6% | [Income tax benefit (expense)](index=42&type=section&id=Income%20tax%20benefit%20%28expense%29) The company recorded an income tax expense of $1.8 million for the three months and $5.6 million for the nine months, with an effective tax rate of 26% Income Tax Benefit (Expense) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | Change (YoY) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | Change (YoY) | | :---------------------------- | :--------------------------- | :--------------------------- | :----------- | :--------------------------- | :--------------------------- | :----------- | | Income tax benefit (expense) | $(1,807) | $1,441 | -225.4% | $(5,598) | $478 | -1271.1% | | Effective tax rate | 26% | -37% | N/A | 26% | -5% | N/A | - The effective tax rate for both periods in 2025 was **26%**, differing from the U.S. federal statutory rate of 21% due to U.S. state tax and foreign tax rate differentials in Mexico[125](index=125&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Cash provided by operating activities increased to $19.2 million, with strong liquidity maintained through cash and cash equivalents, an amended credit facility, and a stock repurchase program - Cash provided by operating activities was **$19.2 million** for the nine months ended July 31, 2025, up from $13.6 million in the prior year[127](index=127&type=chunk) - Cash and cash equivalents totaled **$63.8 million** as of July 31, 2025, and working capital was **$89.9 million**, up from $57.0 million and $85.4 million, respectively, at October 31, 2024[132](index=132&type=chunk) - The revolving credit facility was amended to **$75.0 million** (from $90.0 million) in August 2024, with approximately **$50.5 million available for borrowing** as of July 31, 2025, at a weighted-average interest rate of **8.0%**[135](index=135&type=chunk)[139](index=139&type=chunk) - A stock repurchase program of up to **$25 million** was authorized in March 2025, though no shares have been repurchased to date[140](index=140&type=chunk) [Contractual Commitments](index=46&type=section&id=Contractual%20Commitments) No material changes have occurred in Calavo's contractual commitments since the prior fiscal year's Annual Report on Form 10-K - No material changes to contractual commitments since the last Annual Report on Form 10-K[141](index=141&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk disclosures have occurred since the Annual Report on Form 10-K for the year ended October 31, 2024 - No material changes in market risk disclosures[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.Controls%20and%20Procedures) Calavo's disclosure controls and procedures were effective as of July 31, 2025, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were **effective** as of July 31, 2025[143](index=143&type=chunk) - No material changes in internal control over financial reporting during the quarter ended July 31, 2025[144](index=144&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.Legal%20Proceedings) Information regarding legal proceedings is referenced in Note 6 to the unaudited condensed consolidated financial statements - Legal proceedings information is detailed in **Note 6** of the financial statements[146](index=146&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%20Risk%20Factors%201A.) No material changes to the risk factors have been disclosed since the Annual Report on Form 10-K for fiscal year ended October 31, 2024 - No material changes to risk factors from previous filings[148](index=148&type=chunk) [Item 5. Other Information](index=49&type=section&id=Item%205.Other%20Information) This section confirms no new Rule 10b5-1 trading arrangements and provides an update on cybersecurity governance and program enhancements [Trading Plans](index=49&type=section&id=Trading%20Plans) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended July 31, 2025 - No new Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers[150](index=150&type=chunk) [Supplemental Cybersecurity Governance and Program Update](index=49&type=section&id=Supplemental%20Cybersecurity%20Governance%20and%20Program%20Update) The Board of Directors provides direct oversight of cybersecurity risk, with an ongoing NIST Framework evaluation and systematic program enhancement initiative - The Board of Directors provides **direct oversight of cybersecurity risk**, supported by directors with relevant experience[151](index=151&type=chunk) - An ongoing evaluation against the **NIST Cybersecurity Framework 2.0** is expected to be completed in Q4 2025, indicating the residual risk profile is within acceptable parameters[152](index=152&type=chunk) - A twelve-month systematic program enhancement initiative has been launched to **elevate cybersecurity program maturity** through structured documentation, policy refinement, and capability advancement[153](index=153&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents for financial data - Includes certifications from the **CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**[154](index=154&type=chunk) - Contains **Inline XBRL documents** for the consolidated financial statements and other financial information[156](index=156&type=chunk)[157](index=157&type=chunk) [Signatures](index=51&type=section&id=Signatures) The report is duly signed on behalf of Calavo Growers, Inc. by the Chief Executive Officer and Chief Financial Officer on September 9, 2025 - The report was signed by **Lecil E. Cole (CEO)** and **James Snyder (CFO)** on September 9, 2025[160](index=160&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Lands' End's unaudited condensed consolidated financial statements for Q2 and YTD 2025, covering operations, balance sheets, cash flows, equity, and detailed notes [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss for both the 13 and 26 weeks ended August 1, 2025, which worsened year-over-year for the 26-week period, despite a slight improvement in gross profit margins for the 13-week period Condensed Consolidated Statements of Operations (13 Weeks Ended, in thousands) | Metric | 13 Weeks Ended Aug 1, 2025 (in thousands) | 13 Weeks Ended Aug 2, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net revenue | $294,079 | $317,173 | | Gross profit | $143,418 | $151,885 | | Operating income | $3,983 | $2,486 | | Interest expense | $9,262 | $10,447 | | NET LOSS | $(3,667) | $(5,251) | | Loss per common share (Basic & Diluted) | $(0.12) | $(0.17) | Condensed Consolidated Statements of Operations (26 Weeks Ended, in thousands) | Metric | 26 Weeks Ended Aug 1, 2025 (in thousands) | 26 Weeks Ended Aug 2, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net revenue | $555,287 | $602,644 | | Gross profit | $276,144 | $290,865 | | Operating income | $1,613 | $4,719 | | Interest expense | $18,527 | $20,783 | | NET LOSS | $(11,929) | $(11,693) | | Loss per common share (Basic & Diluted) | $(0.39) | $(0.37) | [Condensed Consolidated Statements of Comprehensive Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Operations) The company reported a comprehensive loss for both the 13 and 26 weeks ended August 1, 2025, with foreign currency translation adjustments impacting the loss Condensed Consolidated Statements of Comprehensive Operations (13 Weeks Ended, in thousands) | Metric | 13 Weeks Ended Aug 1, 2025 (in thousands) | 13 Weeks Ended Aug 2, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | NET LOSS | $(3,667) | $(5,251) | | Foreign currency translation adjustments | $(565) | $299 | | COMPREHENSIVE LOSS | $(4,232) | $(4,952) | Condensed Consolidated Statements of Comprehensive Operations (26 Weeks Ended, in thousands) | Metric | 26 Weeks Ended Aug 1, 2025 (in thousands) | 26 Weeks Ended Aug 2, 2024 (in thousands) | | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | NET LOSS | $(11,929) | $(11,693) | | Foreign currency translation adjustments | $933 | $(214) | | COMPREHENSIVE LOSS | $(10,996) | $(11,907) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets slightly decreased year-over-year but increased compared to January 31, 2025, with current assets decreasing due to lower inventories and prepaid expenses, while total liabilities remained stable and stockholders' equity decreased Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | August 1, 2025 | August 2, 2024 | January 31, 2025 | | :------------------------------------ | :------------- | :------------- | :--------------- | | Total current assets | $405,062 | $414,764 | $370,480 | | Inventories | $301,797 | $312,014 | $265,132 | | Property and equipment, net | $117,205 | $106,758 | $115,618 | | Intangible asset | $257,000 | $257,000 | $257,000 | | TOTAL ASSETS | $800,641 | $802,516 | $765,481 | | Total current liabilities | $250,539 | $253,427 | $227,623 | | Long-term borrowings under ABL Facility | $35,000 | $20,000 | $— | | Long-term debt, net | $219,550 | $230,227 | $224,888 | | TOTAL LIABILITIES | $575,517 | $576,002 | $526,259 | | TOTAL STOCKHOLDERS' EQUITY | $225,124 | $226,514 | $239,222 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly decreased year-to-date 2025, while net cash used in investing activities and net cash provided by financing activities both increased Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 26 Weeks Ended Aug 1, 2025 | 26 Weeks Ended Aug 2, 2024 | | :------------------------------------ | :------------------------- | :------------------------- | | Net cash provided by operating activities | $469 | $4,909 | | Net cash used in investing activities | $(17,152) | $(11,450) | | Net cash provided by financing activities | $22,074 | $6,890 | | Net increase in cash, cash equivalents and restricted cash | $4,734 | $597 | | Cash, cash equivalents and restricted cash, end of period | $23,546 | $27,887 | - Purchases of property and equipment increased to **$17.2 million** in Year-to-Date 2025 from **$11.5 million** in Year-to-Date 2024[19](index=19&type=chunk) - Proceeds from borrowings under ABL Facility increased to **$68.0 million** in Year-to-Date 2025 from **$49.0 million** in Year-to-Date 2024[19](index=19&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity decreased from $239.2 million at January 31, 2025, to $225.1 million at August 1, 2025, primarily due to net losses and common stock repurchases Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric (in thousands) | Balance at Jan 31, 2025 | Balance at Aug 1, 2025 | | :------------------------------------ | :---------------------- | :--------------------- | | Total Stockholders' Equity | $239,222 | $225,124 | | Net loss (26 weeks) | N/A | $(11,929) | | Purchases and retirement of common stock (26 weeks) | N/A | $(4,502) | | Stock-based compensation expense (26 weeks) | N/A | $2,250 | | Cumulative translation adjustment, net of tax (26 weeks) | N/A | $933 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover the company's business, accounting policies, loss per share, debt, equity, accrued liabilities, fair value, income taxes, commitments, segment reporting, and revenue recognition [NOTE 1. BACKGROUND AND BASIS OF PRESENTATION](index=8&type=section&id=NOTE%201.%20BACKGROUND%20AND%20BASIS%20OF%20PRESENTATION) Lands' End is a digital retailer facing macroeconomic challenges, and has incurred restructuring charges, including a 6% reduction in corporate office positions, to optimize operations - Lands' End, Inc. is a leading digital retailer of solution-based apparel, swimwear, outerwear, accessories, footwear, home products, and uniforms, operating through online, third-party, company-operated stores, and Outfitters channels[23](index=23&type=chunk) - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP for interim financial information and with instructions to Form 10-Q, and should be read in conjunction with the Annual Report on Form 10-K filed on March 27, 2025[26](index=26&type=chunk) - Macroeconomic issues such as inflation and high interest rates continue to impact consumer discretionary spending, potentially leading to lower customer demand, higher promotion levels, increased costs for raw materials, labor, and debt, and supply chain disruptions due to trade policy uncertainty[27](index=27&type=chunk) - The Company incurred restructuring charges, primarily severance and benefit costs, related to cost optimization and strategic initiatives, including a reduction of approximately **6%** of its corporate office positions to align with evolving business needs and invest in key growth areas[28](index=28&type=chunk) Total Restructuring Costs (in thousands) | Period | August 1, 2025 | August 2, 2024 | | :------------------- | :------------- | :------------- | | 13 Weeks Ended | $2,434 | $2,338 | | 26 Weeks Ended | $5,766 | $2,680 | Accrued Restructuring Costs as of August 1, 2025 (in thousands) | Category | Amount | | :----------------------------- | :----- | | Employee Severance and Benefit Costs | $626 | | Strategic Alternatives and Other Costs | $2,596 | | **Total Restructuring** | **$3,222** | [NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED](index=11&type=section&id=NOTE%202.%20RECENTLY%20ISSUED%20ACCOUNTING%20PRONOUNCEMENTS%20NOT%20YET%20ADOPTED) The company is assessing the impact of three recently issued FASB Accounting Standards Updates (ASUs) on financial instruments, expense disaggregation, and income tax disclosures - ASU 2025-05, 'Financial Instruments—Credit Losses,' effective for annual periods beginning after December 15, 2025, provides targeted relief for estimating expected credit losses on short-term receivables[32](index=32&type=chunk) - ASU 2024-03, 'Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,' effective for annual periods beginning after December 15, 2026, requires public entities to disclose information about purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion[33](index=33&type=chunk) - ASU 2023-09, 'Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024, requires specific categories in the rate reconciliation table and disaggregation of income/loss and tax expense/benefit between domestic and foreign[34](index=34&type=chunk) [NOTE 3. LOSS PER SHARE](index=11&type=section&id=NOTE%203.%20LOSS%20PER%20SHARE) The company reported basic and diluted loss per share of $(0.12) for the 13 weeks and $(0.39) for the 26 weeks ended August 1, 2025, with stock awards considered anti-dilutive Loss Per Share (13 Weeks Ended) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------------------ | :------------- | :------------- | | Net loss (in thousands) | $(3,667) | $(5,251) | | Basic weighted average common shares outstanding (in thousands) | 30,743 | 31,376 | | Diluted weighted average common shares outstanding (in thousands) | 30,743 | 31,376 | | Basic Loss per share | $(0.12) | $(0.17) | | Diluted Loss per share | $(0.12) | $(0.17) | | Anti-dilutive shares excluded (in thousands) | 736 | 509 | Loss Per Share (26 Weeks Ended) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------------------ | :------------- | :------------- | | Net loss (in thousands) | $(11,929) | $(11,693) | | Basic weighted average common shares outstanding (in thousands) | 30,721 | 31,407 | | Diluted weighted average common shares outstanding (in thousands) | 30,721 | 31,407 | | Basic Loss per share | $(0.39) | $(0.37) | | Diluted Loss per share | $(0.39) | $(0.37) | | Anti-dilutive shares excluded (in thousands) | 703 | 806 | - Stock awards were considered anti-dilutive based on the application of the treasury stock method or in the event of a net loss[36](index=36&type=chunk) [NOTE 4. OTHER COMPREHENSIVE LOSS](index=13&type=section&id=NOTE%204.%20OTHER%20COMPREHENSIVE%20LOSS) Other comprehensive loss is primarily driven by foreign currency translation adjustments, with no reclassifications out of Accumulated other comprehensive loss during the periods - Other comprehensive income (loss) encompasses all changes in equity other than those from transactions with stockholders and is solely comprised of foreign currency translation adjustments[37](index=37&type=chunk) Foreign Currency Translation Adjustments (net of tax, in thousands) | Period | August 1, 2025 | August 2, 2024 | | :------------------- | :------------- | :------------- | | 13 Weeks Ended | $(565) | $299 | | 26 Weeks Ended | $933 | $(214) | - No amounts were reclassified out of Accumulated other comprehensive loss during any of the periods presented[38](index=38&type=chunk) [NOTE 5. DEBT](index=13&type=section&id=NOTE%205.%20DEBT) The company's debt facilities include a $225.0 million ABL Facility and a Term Loan Facility, with $35.0 million outstanding under the ABL and $240.5 million under the Term Loan as of August 1, 2025, and the company was in compliance with all covenants - The ABL Facility is a **$225.0 million** committed revolving credit agreement, with a **$35.0 million** sublimit for letters of credit, available for working capital and general corporate liquidity needs[39](index=39&type=chunk) ABL Facility Summary (in thousands) | Metric | August 1, 2025 | August 2, 2024 | January 31, 2025 | | :----------------------------- | :------------- | :------------- | :--------------- | | ABL Facility limit | $225,000 | $275,000 | $275,000 | | Outstanding borrowings | $35,000 | $20,000 | $— | | Outstanding letters of credit | $10,911 | $8,101 | $10,888 | | ABL Facility borrowing availability | $87,625 | $117,519 | $129,314 | - The Fifth Amendment to the ABL Facility, dated March 28, 2025, reduced aggregate commitments from **$275 million** to **$225 million** and extended the maturity date to March 28, 2030 (or September 29, 2028 if the Term Loan Facility is not refinanced)[41](index=41&type=chunk)[42](index=42&type=chunk) Long-Term Debt Summary (in thousands) | Metric | August 1, 2025 | August 2, 2024 | January 31, 2025 | | :----------------------------- | :------------- | :------------- | :--------------- | | Term Loan Facility (Amount) | $240,500 | $253,500 | $247,000 | | Term Loan Facility (Interest Rate) | 12.71% | 13.70% | 12.66% | | Long-term debt, net | $219,550 | $230,227 | $224,888 | - The Term Loan Facility matures on December 29, 2028, and amortizes at **1.25%** per quarter, with mandatory prepayments based on the Company's Total Leverage Ratio and prepayment premiums for voluntary prepayments within certain periods[43](index=43&type=chunk) - All obligations under the Debt Facilities are unconditionally guaranteed by Lands' End, Inc. and its subsidiaries, secured by first and second priority security interests in working capital and certain fixed assets[46](index=46&type=chunk)[47](index=47&type=chunk) - The Debt Facilities contain various restrictive covenants, including financial covenants such as a quarterly maximum total leverage ratio test and a monthly minimum liquidity test for the Term Loan Facility, and a minimum fixed charge coverage ratio for the ABL Facility if excess availability falls below certain thresholds[48](index=48&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - As of August 1, 2025, the Company was in compliance with its financial covenants[51](index=51&type=chunk) [NOTE 6. STOCK-BASED COMPENSATION](index=17&type=section&id=NOTE%206.%20STOCK-BASED%20COMPENSATION) The company grants Deferred Awards, Performance Awards, and Option Awards to employees, expensing their fair value over the requisite service period, with total stock-based compensation expense for the 26 weeks ended August 1, 2025, at $2.25 million - The Company expenses the fair value of all stock awards (Deferred, Performance, and Option Awards) over their requisite service period, adjusting for estimated forfeitures and recognizing expense on a straight-line basis for service-only awards[53](index=53&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) Total Stock-Based Compensation Expense (in thousands) | Award Type | 13 Weeks Ended Aug 1, 2025 | 13 Weeks Ended Aug 2, 2024 | 26 Weeks Ended Aug 1, 2025 | 26 Weeks Ended Aug 2, 2024 | | :----------------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Deferred awards | $934 | $943 | $1,752 | $1,865 | | Performance awards | $292 | $385 | $290 | $585 | | Option awards | $104 | $104 | $208 | $208 | | **Total** | **$1,330** | **$1,432** | **$2,250** | **$2,658** | - Total unrecognized stock-based compensation expense for unvested Deferred Awards was approximately **$5.5 million** as of August 1, 2025, expected to be recognized over a weighted average period of **2.0 years**[59](index=59&type=chunk) - Total unrecognized stock-based compensation expense for unvested Performance Awards was approximately **$2.1 million** as of August 1, 2025, expected to be recognized over a weighted average period of **2.0 years**[60](index=60&type=chunk) - An additional **$3.6 million** for Performance Awards with event criteria is not recognized until the event is probable[60](index=60&type=chunk) - Total unrecognized stock-based compensation expense for Option Awards expected to vest was approximately **$0.1 million** as of August 1, 2025, expected to be recognized over a weighted average period of **0.3 years**[62](index=62&type=chunk) [NOTE 7. STOCKHOLDERS' EQUITY](index=21&type=section&id=NOTE%207.%20STOCKHOLDERS'%20EQUITY) The Board authorized a $25.0 million share repurchase program through March 31, 2026, with $8.8 million remaining available and $4.5 million in repurchases during the 26 weeks ended August 1, 2025 - On March 15, 2024, the Board of Directors authorized a **$25.0 million** share repurchase program (the "2024 Share Repurchase Program") through March 31, 2026[63](index=63&type=chunk) - As of August 1, 2025, an additional **$8.8 million** could be purchased under the 2024 Share Repurchase Program[63](index=63&type=chunk) Share Repurchases (in thousands, except per share cost) | Period | Number of Shares Repurchased | Total Cost | Average Per Share Cost | | :------------------- | :--------------------------- | :--------- | :--------------------- | | 13 Weeks Ended Aug 1, 2025 | 199 | $1,731 | $8.71 | | 13 Weeks Ended Aug 2, 2024 | 254 | $3,731 | $14.70 | | 26 Weeks Ended Aug 1, 2025 | 490 | $4,502 | $9.20 | | 26 Weeks Ended Aug 2, 2024 | 339 | $4,744 | $13.99 | - All repurchased shares were retired, with the par value charged against Common stock and the remaining purchase price allocated between Additional paid-in capital and Retained earnings, or directly against Additional paid-in capital[64](index=64&type=chunk) [NOTE 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=23&type=section&id=NOTE%208.%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Accrued expenses and other current liabilities totaled $85.1 million as of August 1, 2025, a decrease from prior periods, primarily comprising deferred gift card revenue, employee compensation, and sales return reserves Accrued Expenses and Other Current Liabilities (in thousands) | Category | August 1, 2025 | August 2, 2024 | January 31, 2025 | | :------------------------------------ | :------------- | :------------- | :--------------- | | Deferred gift card revenue | $33,236 | $34,179 | $34,746 | | Accrued employee compensation and benefits | $16,692 | $20,238 | $26,105 | | Reserve for sales returns and allowances | $13,669 | $14,907 | $15,156 | | Deferred revenue | $8,822 | $9,302 | $6,584 | | Accrued property, sales and other taxes | $6,174 | $7,412 | $6,338 | | Accrued interest | $2,385 | $685 | $2,662 | | Other | $4,106 | $4,467 | $7,145 | | **Total** | **$85,084** | **$91,190** | **$98,736** | [NOTE 9. FAIR VALUE MEASUREMENTS OF FINANCIAL ASSETS AND LIABILITIES](index=23&type=section&id=NOTE%209.%20FAIR%20VALUE%20MEASUREMENTS%20OF%20FINANCIAL%20ASSETS%20AND%20LIABILITIES) Cash and cash equivalents are reported at fair value using Level 1 inputs, while long-term debt is a Level 3 instrument, with a carrying amount of $240.5 million and fair value of $241.0 million as of August 1, 2025 - Cash and cash equivalents and restricted cash are reflected on the Condensed Consolidated Balance Sheets at fair value based on **Level 1 inputs**[67](index=67&type=chunk) Long-Term Debt (including current portion) Fair Value (in thousands) | Metric | August 1, 2025 | August 2, 2024 | January 31, 2025 | | :----------------------------- | :------------- | :------------- | :--------------- | | Carrying Amount | $240,500 | $253,500 | $247,000 | | Fair Value | $240,980 | $246,160 | $251,690 | - The valuation of long-term debt at fair value is considered a **Level 3 instrument**, utilizing the Black-Derman-Toy (BDT) model and market inputs from management, particularly relevant due to the Term Loan Facility's optional redemption provision[68](index=68&type=chunk) [NOTE 10. INCOME TAXES](index=23&type=section&id=NOTE%2010.%20INCOME%20TAXES) The company recorded an income tax benefit for both the 13 and 26 weeks ended August 1, 2025, with effective tax rates of 30.5% and 29.4% respectively, influenced by state taxes and non-deductible expenses Effective Income Tax Rate | Period | August 1, 2025 | August 2, 2024 | | :------------------- | :------------- | :------------- | | 13 Weeks Ended | 30.5% | 33.4% | | 26 Weeks Ended | 29.4% | 26.4% | - The effective tax rates vary from the U.S. statutory rate of **21%** primarily due to state taxes and non-deductible expenses[70](index=70&type=chunk) - The One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025, which includes changes to corporate taxation, did not have a material impact on the Company's financial statements for the 13 and 26 weeks ended August 1, 2025[71](index=71&type=chunk)[72](index=72&type=chunk) [NOTE 11. COMMITMENTS AND CONTINGENCIES](index=25&type=section&id=NOTE%2011.%20COMMITMENTS%20AND%20CONTINGENCIES) The company is involved in various legal proceedings, but management believes their ultimate resolution will not materially adversely affect financial results or position - The Company is party to various claims, legal proceedings and investigations arising in the ordinary course of business[73](index=73&type=chunk) - Management believes that the ultimate resolution of these pending claims, proceedings, and investigations should not have a **material adverse effect** on results of operations, cash flows, or financial position taken as a whole[73](index=73&type=chunk) [NOTE 12. SEGMENT REPORTING](index=25&type=section&id=NOTE%2012.%20SEGMENT%20REPORTING) Lands' End operates through U.S. eCommerce, Europe eCommerce, Outfitters, Third Party, Licensing, and Retail segments, with U.S. Digital aggregating U.S. eCommerce, Outfitters, and Third Party, and segment performance assessed by variable profit - Lands' End's operating segments consist of U.S. eCommerce, Europe eCommerce, Outfitters, Third Party, Licensing, and Retail, following internal organizational changes in Fourth Quarter 2024[74](index=74&type=chunk) - The U.S. eCommerce, Outfitters, and Third Party operating segments are aggregated into the **U.S. Digital segment** due to similar economic and qualitative characteristics[76](index=76&type=chunk) - Segment performance is assessed based on **variable profit**, defined as net revenue minus cost of sales and variable selling expenses, which is a non-GAAP financial measure[75](index=75&type=chunk) U.S. Digital Segment Net Revenue (in thousands) | Period | August 1, 2025 | August 2, 2024 | | :------------------- | :------------- | :------------- | | 13 Weeks Ended | $255,254 | $270,361 | | 26 Weeks Ended | $483,006 | $499,089 | U.S. Digital Segment Variable Profit (in thousands) | Period | August 1, 2025 | August 2, 2024 | | :------------------- | :------------- | :------------- | | 13 Weeks Ended | $56,690 | $62,810 | | 26 Weeks Ended | $109,584 | $117,686 | Net Revenue by Distribution Channel (13 Weeks Ended, in thousands) | Channel | August 1, 2025 | % of Net Revenue | August 2, 2024 | % of Net Revenue | | :----------------------------- | :------------- | :--------------- | :------------- | :--------------- | | U.S. eCommerce | $167,268 | 56.9% | $188,336 | 59.4% | | Outfitters | $66,424 | 22.6% | $63,159 | 19.9% | | Third Party | $21,562 | 7.3% | $18,866 | 6.0% | | Europe eCommerce | $19,639 | 6.7% | $22,950 | 7.2% | | Licensing and Retail | $19,186 | 6.5% | $23,862 | 7.5% | | **Total Net Revenue** | **$294,079** | | **$317,173** | | Net Revenue by Distribution Channel (26 Weeks Ended, in thousands) | Channel | August 1, 2025 | % of Net Revenue | August 2, 2024 | % of Net Revenue | | :----------------------------- | :------------- | :--------------- | :------------- | :--------------- | | U.S. eCommerce | $338,016 | 60.9% | $358,868 | 59.5% | | Outfitters | $109,346 | 19.7% | $105,836 | 17.6% | | Third Party | $35,644 | 6.4% | $34,385 | 5.7% | | Europe eCommerce | $37,490 | 6.7% | $47,918 | 8.0% | | Licensing and Retail | $34,791 | 6.3% | $55,637 | 9.2% | | **Total Net Revenue** | **$555,287** | | **$602,644** | | [NOTE 13. REVENUE](index=28&type=section&id=NOTE%2013.%20REVENUE) Revenue is recognized when control of merchandise passes to customers, net of promotions and estimated returns, and includes royalty revenue from licensing trademarks, with contract liabilities recognized upon delivery or redemption - Revenue includes sales of merchandise and delivery revenue, recognized when control of product passes to customers (upon receipt for most channels, at sale for retail), and is presented net of promotions, sales returns, discounts, and other incentives[80](index=80&type=chunk) Net Revenue by Geographic Location (in thousands) | Region | 13 Weeks Ended Aug 1, 2025 | 13 Weeks Ended Aug 2, 2024 | 26 Weeks Ended Aug 1, 2025 | 26 Weeks Ended Aug 2, 2024 | | :------------------- | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | United States | $271,626 | $291,041 | $512,689 | $548,548 | | Europe | $20,169 | $23,330 | $38,488 | $48,638 | | Other | $2,284 | $2,802 | $4,110 | $5,458 | | **Total Net Revenue** | **$294,079** | **$317,173** | **$555,287** | **$602,644** | - The Company generates royalty revenue from licensing its trademarks to third parties, with revenue recognized based on contractually guaranteed minimums or when related sales occur[82](index=82&type=chunk)[83](index=83&type=chunk) Deferred Revenue Activity (in thousands) | Metric | 13 Weeks Ended Aug 1, 2025 | 13 Weeks Ended Aug 2, 2024 | 26 Weeks Ended Aug 1, 2025 | 26 Weeks Ended Aug 2, 2024 | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Deferred revenue beginning of period | $5,049 | $9,340 | $6,584 | $4,314 | | Deferred revenue recognized in period | $(4,834) | $(9,125) | $(6,370) | $(4,100) | | Revenue deferred in period | $8,607 | $9,087 | $8,608 | $9,088 | | Deferred revenue end of period | $8,822 | $9,302 | $8,822 | $9,302 | Gift Card Liability Activity (in thousands) | Metric | 13 Weeks Ended Aug 1, 2025 | 13 Weeks Ended Aug 2, 2024 | 26 Weeks Ended Aug 1, 2025 | 26 Weeks Ended Aug 2, 2024 | | :------------------------------------ | :------------------------- | :------------------------- | :------------------------- | :------------------------- | | Balance as of beginning of period | $33,364 | $35,119 | $34,746 | $35,604 | | Gift cards issued | $15,693 | $14,562 | $30,305 | $29,617 | | Gift cards redeemed | $(10,785) | $(14,019) | $(26,095) | $(28,212) | | Gift card breakage | $(5,036) | $(1,483) | $(5,720) | $(2,830) | | Balance as of end of period | $33,236 | $34,179 | $33,236 | $34,179 | - Refund liabilities, primarily for product sales returns, were **$13.7 million** as of August 1, 2025, estimated based on historical experience and recorded as a reduction to Net revenue[86](index=86&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance and condition, detailing decreased net revenue and increased net loss year-to-date, channel performance, gross profit, operating expenses, liquidity, macroeconomic challenges, and restructuring efforts, with non-GAAP reconciliations [Executive Overview](index=33&type=section&id=Executive%20Overview) Lands' End is a digital retailer operating through six channels, facing macroeconomic challenges and undertaking restructuring initiatives, including a 6% reduction in corporate office positions, incurring $5.8 million in restructuring costs year-to-date 2025 - Lands' End is a leading digital retailer of solution-based apparel, swimwear, outerwear, accessories, footwear, home products and uniforms, operating through online, third-party, company-operated stores, and Outfitters channels[89](index=89&type=chunk) - The company's operating segments are U.S. eCommerce, Europe eCommerce, Outfitters, Third Party, Licensing, and Retail, with U.S. eCommerce, Outfitters, and Third Party aggregated into the **U.S. Digital segment**[90](index=90&type=chunk)[91](index=91&type=chunk) - Macroeconomic issues, including inflation and high interest rates, continue to negatively impact consumer discretionary spending, potentially leading to lower customer demand, increased promotional activity, and higher costs for raw materials, labor, and debt[92](index=92&type=chunk) - The company incurred restructuring charges, primarily severance and benefit costs, related to cost optimization and strategic initiatives, including a **6% reduction** in corporate office positions[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - Restructuring costs were **$2.4 million** for Q2 2025 and **$5.8 million** for Year-to-Date 2025[95](index=95&type=chunk) - The company experiences seasonal fluctuations, with a significant portion of net revenue and earnings historically realized in the **fourth fiscal quarter**, and working capital requirements typically increasing in Q2 and Q3[97](index=97&type=chunk)[98](index=98&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section details the company's operating results, showing decreased net revenue and varied profitability for both the second quarter and year-to-date periods, alongside changes in gross margin and adjusted EBITDA Selected Income Statement Data (13 Weeks Ended, in thousands) | Metric | August 1, 2025 | % of Net Revenue | August 2, 2024 | % of Net Revenue | | :------------------------------------ | :------------- | :--------------- | :------------- | :--------------- | | Net revenue | $294,079 | 100.0% | $317,173 | 100.0% | | Gross profit | $143,418 | 48.8% | $151,885 | 47.9% | | Selling and administrative | $129,356 | 44.0% | $135,510 | 42.7% | | Operating income | $3,983 | 1.4% | $2,486 | 0.8% | | Interest expense | $9,262 | 3.1% | $10,447 | 3.3% | | Loss before income taxes | $(5,276) | (1.8)% | $(7,877) | (2.5)% | | NET LOSS | $(3,667) | (1.2)% | $(5,251) | (1.7)% | Selected Income Statement Data (26 Weeks Ended, in thousands) | Metric | August 1, 2025 | % of Net Revenue | August 2, 2024 | % of Net Revenue | | :------------------------------------ | :------------- | :--------------- | :------------- | :--------------- | | Net revenue | $555,287 | 100.0% | $602,644 | 100.0% | | Gross profit | $276,144 | 49.7% | $290,865 | 48.3% | | Selling and administrative | $252,818 | 45.5% | $262,911 | 43.6% | | Operating income | $1,613 | 0.3% | $4,719 | 0.8% | | Interest expense | $18,527 | 3.3% | $20,783 | 3.4% | | Loss before income taxes | $(16,900) | (3.0)% | $(15,892) | (2.6)% | | NET LOSS | $(11,929) | (2.1)% | $(11,693) | (1.9)% | Adjusted Net Loss and Diluted Loss Per Share (13 Weeks Ended, in thousands, except per share amounts) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------------------ | :------------- | :------------- | | Net loss | $(3,667) | $(5,251) | | Corporate restructuring | $2,434 | $2,338 | | Long-lived asset impairment | $— | $2,805 | | Exit costs | $— | $687 | | Tax effects on adjustments | $(619) | $(1,297) | | **ADJUSTED NET LOSS** | **$(1,852)** | **$(718)** | | **ADJUSTED DILUTED LOSS PER SHARE** | **$(0.06)** | **$(0.02)** | Adjusted Net Loss and Diluted Loss Per Share (26 Weeks Ended, in thousands, except per share amounts) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------------------ | :------------- | :------------- | | Net loss | $(11,929) | $(11,693) | | Corporate restructuring | $5,766 | $2,680 | | Exit costs | $257 | $687 | | Long-lived asset impairment | $— | $2,805 | | Tax effects on adjustments | $(1,365) | $(1,384) | | **ADJUSTED NET LOSS** | **$(7,271)** | **$(6,905)** | | **ADJUSTED DILUTED LOSS PER SHARE** | **$(0.24)** | **$(0.22)** | Adjusted EBITDA (13 Weeks Ended, in thousands) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------------------ | :------------- | :------------- | | Net loss | $(3,667) | $(5,251) | | Income tax benefit | $(1,609) | $(2,626) | | Interest expense | $9,262 | $10,447 | | Depreciation and amortization | $7,656 | $8,692 | | Corporate restructuring | $2,434 | $2,338 | | Exit costs | $— | $687 | | Long-lived asset impairment | $— | $2,805 | | (Gain) loss on disposal of property and equipment | $(11) | $53 | | **Adjusted EBITDA** | **$14,062** | **$17,061** | Adjusted EBITDA (26 Weeks Ended, in thousands) | Metric | August 1, 2025 | August 2, 2024 | | :------------------------------------ | :------------- | :------------- | | Net loss | $(11,929) | $(11,693) | | Income tax benefit | $(4,971) | $(4,199) | | Interest expense | $18,527 | $20,783 | | Depreciation and amortization | $15,947 | $17,697 | | Corporate restructuring | $5,766 | $2,680 | | Exit costs | $257 | $687 | | Long-lived asset impairment | $— | $2,805 | | Loss on disposal of property and equipment | $— | $52 | | **Adjusted EBITDA** | **$23,583** | **$28,640** | [Second Quarter 2025 compared with Second Quarter 2024](index=41&type=section&id=Second%20Quarter%202025%20compared%20with%20Second%20Quarter%202024) Q2 2025 net revenue decreased by **7.3%** to **$294.1 million**, with mixed channel performance, while gross margin improved by **90 basis points** to **48.8%**, leading to increased operating income and an improved net loss - Gross Merchandise Value (GMV) was approximately **flat** compared to Second Quarter 2024[110](index=110&type=chunk) - Net revenue decreased by **$23.1 million (7.3%)** to **$294.1 million** in Q2 2025 from **$317.2 million** in Q2 2024[111](index=111&type=chunk) Net Revenue by Channel (Q2, in millions) | Channel | Q2 2025 | Q2 2024 | Change (%) | | :------------------- | :------ | :------ | :--------- | | U.S. eCommerce | $167.3 | $188.3 | -11.2% | | Outfitters | $66.4 | $63.2 | +5.1% | | Third Party | $21.6 | $18.9 | +14.3% | | Europe eCommerce | $19.6 | $23.0 | -14.8% | | Licensing and Retail | $19.2 | $23.9 | -19.7% | - Gross profit decreased by **$8.5 million (5.6%)** to **$143.4 million**, but gross margin increased by **90 basis points** to **48.8%** in Q2 2025, driven by improved promotional productivity and licensing business expansion[117](index=117&type=chunk) - Operating income increased to **$4.0 million** in Q2 2025 from **$2.5 million** in Q2 2024[121](index=121&type=chunk) - Net loss improved to **$3.7 million** in Q2 2025 from **$5.3 million** in Q2 2024, with diluted loss per share improving from **$(0.17)** to **$(0.12)**[125](index=125&type=chunk) - Adjusted EBITDA decreased to **$14.1 million** in Q2 2025 from **$17.1 million** in Q2 2024[127](index=127&type=chunk) [Year-to-Date 2025 compared with Year-to-Date 2024](index=45&type=section&id=Year-to-Date%202025%20compared%20with%20Year-to-Date%202024) Year-to-Date 2025 net revenue decreased by **7.8%** to **$555.3 million**, or 5.8% excluding licensing impact, with U.S. eCommerce down 5.8%, while Outfitters and Third Party channels increased, and gross margin improved by **140 basis points** to **49.7%**, resulting in decreased operating income and a slightly worsened net loss - Gross Merchandise Value (GMV) decreased low-single digits, but increased low-single digits excluding the **$12.7 million** impact of transitioning kids and footwear inventory to licensees in Q1 2024[131](index=131&type=chunk) - Net revenue decreased by **$47.3 million (7.8%)** to **$555.3 million** for Year-to-Date 2025, or **5.8%** excluding the impact of transitioning kids and footwear inventory to licensees[132](index=132&type=chunk) Net Revenue by Channel (YTD, in millions) | Channel | YTD 2025 | YTD 2024 | Change (%) | | :------------------- | :------- | :------- | :--------- | | U.S. eCommerce | $338.0 | $358.9 | -5.8% | | Outfitters | $109.3 | $105.8 | +3.3% | | Third Party | $35.6 | $34.4 | +3.5% | | Europe eCommerce | $37.5 | $47.9 | -21.7% | | Licensing and Retail | $34.8 | $55.6 | -37.4% | - Gross profit decreased by **$14.8 million (5.1%)** to **$276.1 million**, but gross margin increased by **140 basis points** to **49.7%** for Year-to-Date 2025, driven by improved promotional productivity and licensing business expansion[138](index=138&type=chunk) - Operating income decreased to **$1.6 million** in Year-to-Date 2025 from **$4.7 million** in Year-to-Date 2024[142](index=142&type=chunk) - Net loss slightly worsened to **$11.9 million** in Year-to-Date 2025 from **$11.7 million** in Year-to-Date 2024, with diluted loss per share increasing from **$(0.37)** to **$(0.39)**[146](index=146&type=chunk) - Adjusted EBITDA decreased to **$23.6 million** in Year-to-Date 2025 from **$28.6 million** in Year-to-Date 2024[148](index=148&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily used for working capital, debt payments, and capital expenditures, funded by cash on hand, cash flows from operations, and the ABL Facility, with $25.0 million planned for capital expenditures in Fiscal 2025 - Primary liquidity needs are for working capital, debt payments, capital expenditures, and general corporate purposes, funded by cash on hand, cash flows from operations, and the ABL Facility[152](index=152&type=chunk) - As of August 1, 2025, the ABL Facility had **$35.0 million** outstanding borrowings and **$87.6 million** in borrowing availability[153](index=153&type=chunk) - Net cash provided by operating activities decreased to **$0.5 million** during Year-to-Date 2025 from **$4.9 million** in Year-to-Date 2024, primarily due to a decrease in adjusted EBITDA[168](index=168&type=chunk) - Net cash used in investing activities increased to **$17.2 million** during Year-to-Date 2025 from **$11.5 million** in Year-to-Date 2024, primarily for investments in digital information technology infrastructure[169](index=169&type=chunk) - Net cash provided by financing activities increased to **$22.1 million** during Year-to-Date 2025 from **$6.9 million** in Year-to-Date 2024, primarily due to increased borrowings under the ABL Facility[170](index=170&type=chunk) - For Fiscal 2025, the company plans to invest approximately **$25.0 million** in capital expenditures for strategic investments and infrastructure, primarily in technology and general corporate needs[169](index=169&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to foreign currency exchange risk, primarily from its Europe eCommerce channel, and interest rate risk due to variable rates on its Term Loan Facility and ABL Facility - The Company's international subsidiaries operate with functional currencies other than the U.S. dollar, exposing it to foreign currency exchange risk, particularly from the Europe eCommerce distribution channel (**7%** of Year-to-Date 2025 Net revenue)[179](index=179&type=chunk) - A **10% change** in foreign currency exchange rates would have increased or decreased Net revenue for Year-to-Date 2025 by approximately **$3.7 million**[179](index=179&type=chunk) - The Company is subject to interest rate risk with its Term Loan Facility and ABL Facility, which have variable interest rates[181](index=181&type=chunk) - Each **one percentage point change** in interest rates (above the **2.00% SOFR floor**) on the Term Loan Facility would result in a **$2.4 million** change in annual cash interest expenses[181](index=181&type=chunk) - Assuming the ABL Facility was fully drawn to **$225.0 million**, each **one percentage point change** in interest rates would result in a **$2.3 million** change in annual cash interest expense[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) As of August 1, 2025, management concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - As of August 1, 2025, the Company's disclosure controls and procedures were evaluated by management, with the participation of the CEO and CFO, and concluded to be **effective**[183](index=183&type=chunk) - There have been **no material changes** in the Company's internal controls over financial reporting during the fiscal quarter ended August 1, 2025[184](index=184&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=57&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings in the ordinary course of business, but management believes their ultimate resolution will not have a material adverse effect on the company's financial position - The Company is party to various claims, legal proceedings and investigations arising in the ordinary course of business[186](index=186&type=chunk) - Management is of the opinion that the ultimate resolution of these proceedings should not have a **material adverse effect** on the company's results of operations, cash flows, or financial position[186](index=186&type=chunk) - There have been **no material developments** to the legal proceedings disclosed in the Company's Annual Report on Form 10-K for the year ended January 31, 2025[186](index=186&type=chunk) [Item 1A. Risk Factors](index=57&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended January 31, 2025, or its Quarterly Report on Form 10-Q for the quarter ended May 2, 2025 - There have been **no material changes** to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended January 31, 2025, and its Quarterly Report on Form 10-Q for the quarter ended May 2, 2025[187](index=187&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2025, the company repurchased **198,751 shares** for **$1.73 million** under its 2024 Share Repurchase Program, with **$8.8 million** remaining available Issuer Purchases of Equity Securities (Second Quarter 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------- | :------------------------------- | :--------------------------- | | May 3 - May 30 | 168,751 | $8.78 | | May 31 - July 4 | 30,000 | $8.33 | | July 5 - August 1 | — | $— | | **Total** | **198,751** | **$8.71** | - As of August 1, 2025, approximately **$8.8 million** remained available for repurchase under the 2024 Share Repurchase Program, which authorizes repurchases up to **$25.0 million** through March 31, 2026[189](index=189&type=chunk) - All shares of common stock repurchased during the period were retired[189](index=189&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) None of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the fiscal quarter ended August 1, 2025 - None of the Company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the fiscal quarter ended August 1, 2025[190](index=190&type=chunk) [Item 6. Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications from the Principal Executive Officer and Principal Financial Officer - Exhibits filed include the Amended and Restated Certificate of Incorporation, Second Amended and Restated Bylaws, Certifications of Principal Executive Officer and Principal Financial Officer (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL Taxonomy Extension documents[191](index=191&type=chunk) [Signatures](index=60&type=section&id=Signatures) The report is duly signed on behalf of Lands' End, Inc. by Bernard McCracken, Chief Financial Officer and Treasurer, on September 9, 2025 - The report is signed by Bernard McCracken, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) of Lands' End, Inc. on September 9, 2025[195](index=195&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________ FORM 10-K _______________________________________________ (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2025 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________to Commission File Number: 001-40159 InnovA ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number: 001-42570 AELUMA, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation) ...

[Executive Summary](index=1&type=section&id=Executive%20Summary) [Management Commentary](index=1&type=section&id=Management%20Commentary) Aeluma's CEO highlighted significant FY2025 momentum and strategic positioning for substantial FY2026 progress - Aeluma built momentum in **FY2025** with increased manufacturing readiness, commercialization traction, and elevated market visibility after its **Nasdaq uplist**[2](index=2&type=chunk) - The company's semiconductor technology addresses critical needs in **AI infrastructure, defense and aerospace, mobile and consumer electronics, and quantum computing**[2](index=2&type=chunk) - **Fiscal 2026** is expected to be a year of significant progress in executing go-to-market strategy and creating long-term value[2](index=2&type=chunk) [Recent Company Highlights](index=1&type=section&id=Recent%20Company%20Highlights) Aeluma achieved key FY2025 milestones, including R&D contract wins, a manufacturing breakthrough, and a strong financial position - Secured **six R&D contracts** in **fiscal year 2025**, including two in the fourth quarter[3](index=3&type=chunk) - Key contract wins include **NASA** for quantum computing, **U.S. Navy** for submarine imaging sensors and optical interconnects, and **Department of Energy** for photodetector sensors[3](index=3&type=chunk) - Unveiled a **manufacturing breakthrough** in collaboration with Thorlabs, applicable to quantum computing and communication systems[3](index=3&type=chunk) - Closed FY2025 with a strong financial position: **$15.7 million in cash** and **no debt**[3](index=3&type=chunk) - Added to the **Russell 3000 Index** (effective June 30, 2025) and the **MSCI Global Micro Cap Index** (effective August 26, 2025)[3](index=3&type=chunk) - Appointed **Christopher Stewart as CFO**, effective August 4, 2025, bringing over 20 years of financial leadership experience[3](index=3&type=chunk) [Financial Performance](index=2&type=section&id=Financial%20Performance) [Fiscal Q4 2025 Financial Results](index=2&type=section&id=Fiscal%20Q4%202025%20Financial%20Results) Aeluma reported significant Q4 2025 revenue growth from R&D contracts, with improved GAAP net loss and Adjusted EBITDA loss | Metric | Q4 2025 (in thousands) | Q4 2024 (in thousands) | Q3 2025 (in thousands) | | :------------------- | :--------------------- | :--------------------- | :--------------------- | | Revenue | $1,300 | $279 | $1,300 | | GAAP Net Loss | $859 | $988 | ($1,500 income) | | Adjusted EBITDA Loss | $113 | $718 | ($109 gain) | - Revenue in **Q4 2025** was primarily from **R&D contracts**[7](index=7&type=chunk) - GAAP net income decreased from the prior quarter primarily due to a **$2.6 million non-cash gain** in fair value of derivative liabilities recorded in **Q3 2025**[7](index=7&type=chunk) [Full Fiscal Year 2025 Financial Results](index=2&type=section&id=Full%20Fiscal%20Year%202025%20Financial%20Results) Aeluma achieved substantial FY2025 revenue growth, improved GAAP net loss and Adjusted EBITDA, and ended with strong cash | Metric | FY 2025 (in thousands) | FY 2024 (in thousands) | | :------------------- | :--------------------- | :--------------------- | | Full Year Revenue | $4,700 | $919 | | GAAP Net Loss | $3,000 | $4,600 | | Adjusted EBITDA | $186 | ($3,500 loss) | - **2025 revenue** was primarily from **R&D contracts**[7](index=7&type=chunk) - **GAAP and non-GAAP net loss**, and **adjusted EBITDA** all improved year over year primarily due to **increased revenue from R&D contracts**[7](index=7&type=chunk) - Cash and cash equivalents totaled **$15.7 million** at **June 30, 2025**, compared to **$1.3 million** as of **June 30, 2024**[7](index=7&type=chunk) [Outlook and Strategic Priorities](index=2&type=section&id=Outlook%20and%20Strategic%20Priorities) [Fiscal Year 2026 Guidance](index=2&type=section&id=Fiscal%20Year%202026%20Guidance) Aeluma provided its revenue guidance for fiscal year 2026, projecting continued growth - Aeluma expects revenue for the full fiscal year 2026 to be in the range of **$4.0 million to $6.0 million**[6](index=6&type=chunk) [Strategic Priorities for FY2026](index=2&type=section&id=Strategic%20Priorities%20for%20FY2026) Aeluma's FY2026 strategic priorities focus on new contracts, team expansion, manufacturing, and go-to-market traction - New Contract Wins: Target **three to seven new development contracts** to provide non-dilutive funding for R&D and grow partnership opportunities[7](index=7&type=chunk) - Team Expansion: Addition of **business development and go-to-market teams**, expanded **technical leadership and staff**, and an expansion of **operations team**[7](index=7&type=chunk) - Enhanced Manufacturing Readiness: Focus on higher levels of **outsourced wafer manufacturing productivity**, expanded **test and validation capabilities**, **technology qualification** for targeted industries, and expanded **supply chain partnerships**[7](index=7&type=chunk) - Go-to-Market Traction: Continued progress on opportunities in **targeted commercial markets** and increasing the number of **customer engagements** in the pipeline[7](index=7&type=chunk) [Note about Non-GAAP Financial Measures](index=3&type=section&id=Note%20about%20Non-GAAP%20Financial%20Measures) [Non-GAAP Financial Measures Explanation](index=3&type=section&id=Non-GAAP%20Financial%20Measures%20Explanation) This section clarifies non-GAAP financial measures for supplemental investor insight into performance and core operations - Non-GAAP financial measures are presented as **supplemental information** to management and investors, **not as a substitute for GAAP**[8](index=8&type=chunk) - Non-GAAP net income (loss) excludes **stock-based compensation, amortization of discount on convertible notes, and changes in fair value of derivative liabilities**[12](index=12&type=chunk) - Adjusted EBITDA is defined as **non-GAAP net income (loss) plus depreciation and amortization expenses, less interest income**[12](index=12&type=chunk) - A **reconciliation** between GAAP and non-GAAP financial results is provided in the financial statements portion of the press release[9](index=9&type=chunk) [Company Information](index=3&type=section&id=Company%20Information) [About Aeluma, Inc.](index=3&type=section&id=About%20Aeluma%2C%20Inc.) Aeluma, Inc. is a transformative semiconductor company specializing in high-performance photonic and electronic technologies - Aeluma is a **transformative semiconductor company** specializing in **high-performance photonic and electronic technologies** that scale[11](index=11&type=chunk) - The company's **proprietary platform** combines **compound semiconductors** with **scalable manufacturing** for mass market microelectronics, enabling **volume production** and **large-scale integration**[11](index=11&type=chunk) - Applications for Aeluma's technology include **mobile, AI, defense and aerospace, robotics, automotive, AR/VR, and quantum**[11](index=11&type=chunk) - Headquartered in **Goleta, California**, Aeluma operates state-of-the-art **R&D and manufacturing capabilities** and partners with **production-scale fabrication foundries**[11](index=11&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section cautions that non-historical statements are forward-looking, subject to risks, and actual results may differ - All statements not historical are **forward-looking**, based on current expectations, estimates, and projections[10](index=10&type=chunk) - Forward-looking statements involve **known and unknown risks, uncertainties, and assumptions** that are difficult or impossible to predict[10](index=10&type=chunk) - **Actual results may differ materially** from those in forward-looking statements due to various factors, including those described in SEC filings[10](index=10&type=chunk) - The Company undertakes **no obligation to revise or update** information in this release to reflect future events or circumstances[10](index=10&type=chunk) [Contact Information](index=3&type=section&id=Contact%20Information) This section provides contact details for Aeluma, Inc. and its investor relations team - Company Contact: **Aeluma, Inc.**, **(805) 351-2707**, **info@aeluma.com**[12](index=12&type=chunk) - Investor Contact: **Financial Profiles, Inc.**, **Tony Rossi (310) 622-8221**, **Jeff Haas (310) 622-8240**, **ir@aeluma.com**[12](index=12&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets show Aeluma's FY2025 financial position, with significant increases in total assets and equity | ($ in thousands) | June 30, 2025 | June 30, 2024 | | :--------------------------------- | :------------ | :------------ | | Cash and cash equivalents | $3,628 | $1,291 | | Certificate of deposit | $12,112 | - | | Total current assets | $17,335 | $1,393 | | Total assets | $19,406 | $3,844 | | Total liabilities | $1,508 | $1,568 | | Total stockholders' equity | $17,898 | $2,276 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show Aeluma's financial performance for Q4 and FY2025, with substantial revenue growth and reduced net loss | ($ in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $1,317 | $279 | $4,665 | $919 | | Loss from operations | $(969) | $(989) | $(2,142) | $(4,563) | | Net income (loss) | $(859) | $(988) | $(3,022) | $(4,562) | | Net income (loss) per share: Basic | $(0.05) | $(0.08) | $(0.23) | $(0.37) | [Reconciliation of GAAP and Non-GAAP Financial Measures](index=6&type=section&id=Reconciliation%20of%20GAAP%20and%20Non-GAAP%20Financial%20Measures) This reconciliation details adjustments from GAAP net income (loss) to Non-GAAP net income (loss) and Adjusted EBITDA | ($ in thousands, except per share data) | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | GAAP net income (loss) | $(3,022) | $(4,562) | | Total adjustments to GAAP net income (loss) | $2,906 | $765 | | Non-GAAP net income (loss) | $(116) | $(3,797) | | Adjusted EBITDA | $186 | $(3,487) | - Key non-GAAP adjustments include **stock-based compensation, amortization of discount on convertible notes, and changes in fair value of derivative liabilities**[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The Consolidated Statements of Cash Flows show a significant FY2025 increase in cash, driven by financing activities | ($ in thousands) | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(1,148) | $(3,455) | | Net cash used in investing activities | $(161) | $(322) | | Net cash provided by (used in) financing activities | $15,758 | $(4) | | Net change in cash and cash equivalents, and certificate of deposit | $14,449 | $(3,781) | | Cash and cash equivalents, and certificate of deposit, end of period | $15,740 | $1,291 | - Financing activities provided significant cash, including **$3,145 thousand from convertible notes issuance** and **$12,588 thousand from a public offering**[22](index=22&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) Connecticut 06-0854886 ☐ 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 0-15451 PHOTRONICS, INC. For the quarterly period ended August 3, 2025 OR (State or other jurisdi ...

[FORM 8-K Filing Information](index=1&type=section&id=FORM%208-K%20Filing%20Information) This section details the essential identification information for AMREP Corporation's Form 8-K filing, including registrant details and filing classification [Registrant Information](index=1&type=section&id=AMREP%20CORPORATION) This section details AMREP Corporation's essential identification, including legal name, incorporation state, SEC numbers, and registered securities - Registrant Name: **AMREP CORPORATION**[2](index=2&type=chunk) - State of Incorporation: **Oklahoma**[2](index=2&type=chunk) Registered Securities | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock $.10 par value | AXR | New York Stock Exchange | [Filing Type and Emerging Growth Company Status](index=1&type=section&id=Check%20the%20appropriate%20box%20below) This section clarifies the Form 8-K filing as a Current Report and confirms AMREP is not an emerging growth company - Filing Type: **Current Report on Form 8-K**[1](index=1&type=chunk) - Emerging Growth Company: **No**[4](index=4&type=chunk) [Current Report Items](index=2&type=section&id=Current%20Report%20Items) This section details the specific items reported in the Form 8-K, including financial results and accompanying exhibits [Item 2.02 Results of Operations and Financial Condition](index=2&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) AMREP Corporation announced financial results for the three months ended July 31, 2025, via a press release furnished as Exhibit 99.1 - Event Date: **September 9, 2025**[5](index=5&type=chunk) - Reported Period: **Three months ended July 31, 2025**[5](index=5&type=chunk) - Method of Disclosure: **Press Release (Exhibit 99.1)**[5](index=5&type=chunk) - Information in Item 2.02 and Exhibit 99.1 is not deemed 'filed' for Section 18 of the Securities Exchange Act of 1934[6](index=6&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=2&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits.) This section lists all exhibits accompanying the Form 8-K, including the press release and interactive data file Form 8-K Exhibits | Exhibit Number | Description | | :------------- | :---------------------------------------------------------- | | 99.1 | Press Release, dated September 9, 2025, issued by AMREP Corporation. | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | [Signatures and Exhibit Index](index=3&type=section&id=SIGNATURES) This section includes the formal signatures authorizing the Form 8-K filing and a comprehensive index of all attached exhibits [Signatures](index=3&type=section&id=SIGNATURES) The report was formally signed by Adrienne M. Uleau, CFO and VP, on September 9, 2025, confirming authorization - Signatory: **Adrienne M. Uleau**[12](index=12&type=chunk) - Title: **Chief Financial Officer and Vice President**[12](index=12&type=chunk) - Date of Signature: **September 9, 2025**[12](index=12&type=chunk) [Exhibit Index](index=4&type=section&id=EXHIBIT%20INDEX) This section provides a comprehensive list of all exhibits accompanying the Form 8-K filing Comprehensive Exhibit List | Exhibit Number | Description | | :------------- | :---------------------------------------------------------- | | 99.1 | Press Release, dated September 9, 2025, issued by AMREP Corporation. | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |

PART I. FINANCIAL INFORMATION [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, including the balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, business acquisitions, revenue recognition, and other financial details for the periods ended July 31, 2025, and October 31, 2024 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets show a significant increase in total assets and liabilities from October 31, 2024, to July 31, 2025, primarily driven by the acquisition of Ansys, which led to substantial increases in goodwill, intangible assets, and long-term debt Condensed Consolidated Balance Sheets (in thousands) | Metric | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | **ASSETS** | | | | Total current assets | $5,595,628 | $6,469,666 | | Property and equipment, net | $699,688 | $563,006 | | Goodwill | $26,945,723 | $3,448,850 | | Intangible assets, net | $13,079,912 | $195,164 | | Total assets | $48,230,256 | $13,073,561 | | **LIABILITIES & EQUITY** | | | | Total current liabilities | $3,444,207 | $2,650,120 | | Long-term debt | $14,318,016 | $15,601 | | Total liabilities | $20,616,070 | $4,050,355 | | Total stockholders' equity | $27,614,186 | $8,993,206 | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The Condensed Consolidated Statements of Income show revenue growth for both the three and nine months ended July 31, 2025, compared to the prior year. However, net income attributed to Synopsys decreased significantly due to higher cost of revenue, increased operating expenses (especially R&D and G&A), and a substantial rise in interest expense, largely influenced by the Ansys acquisition Condensed Consolidated Statements of Income (in thousands) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total revenue | $1,739,737 | $1,525,749 | $4,799,318 | $4,491,450 | | Total cost of revenue | $380,564 | $290,676 | $968,886 | $870,266 | | Gross margin | $1,359,173 | $1,235,073 | $3,830,432 | $3,621,184 | | Total operating expenses | $1,193,904 | $874,862 | $3,036,898 | $2,576,275 | | Operating income | $165,269 | $360,211 | $793,534 | $1,044,909 | | Interest expense | $(146,502) | $(11,742) | $(251,977) | $(20,547) | | Net income attributed to Synopsys | $242,509 | $408,055 | $883,524 | $1,149,274 | | Diluted net income per share | $1.50 | $2.61 | $5.59 | $7.37 | [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) The Condensed Consolidated Statements of Comprehensive Income show a decrease in total comprehensive income for both the three and nine months ended July 31, 2025, compared to the prior year, primarily due to a decrease in net income and a significant deferred loss from cash flow hedges in the nine-month period Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $242,277 | $404,894 | $884,798 | $1,140,190 | | Other comprehensive income (loss), net of tax effects | $8,241 | $7,901 | $(51,515) | $16,302 | | Comprehensive income attributed to Synopsys | $250,750 | $415,956 | $832,009 | $1,165,576 | [Condensed Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) The Condensed Consolidated Statements of Stockholders' Equity reflect a substantial increase in total stockholders' equity from October 31, 2024, to July 31, 2025, primarily driven by the issuance of common stock and capital in excess of par value related to the Ansys acquisition, alongside retained earnings from net income Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Common Stock | $1,855 | $1,541 | | Capital in excess of par value | $18,549,871 | $1,211,206 | | Retained earnings | $9,866,791 | $8,984,105 | | Treasury stock, at cost | $(572,091) | $(1,025,770) | | Accumulated other comprehensive income (loss) | $(231,895) | $(180,380) | | Total Synopsys stockholders' equity | $27,614,531 | $8,990,702 | - Common stock issued upon the acquisition of Ansys contributed **$17,105,538 thousand** to capital in excess of par value and common stock amount[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Condensed Consolidated Statements of Cash Flows show a significant increase in cash used in investing activities, primarily due to the Ansys acquisition, which was largely offset by a substantial increase in cash provided by financing activities through debt issuance. Operating cash flows remained positive, with a slight increase year-over-year Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by operating activities | $878,870 | $844,211 | | Net cash used in investing activities | $(16,445,686) | $(219,979) | | Net cash provided by (used in) financing activities | $14,191,608 | $(211,391) | | Net change in cash, cash equivalents and restricted cash | $(1,366,559) | $418,299 | | Cash, cash equivalents and restricted cash, end of period | $2,532,170 | $1,859,486 | - Acquisitions, net of cash acquired, resulted in a cash outflow of **$16,681,257 thousand** for the nine months ended July 31, 2025, primarily due to the Ansys Merger[22](index=22&type=chunk) - Proceeds from debt, net of issuance costs, amounted to **$14,329,340 thousand** for the nine months ended July 31, 2025, funding the Ansys acquisition[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business description, accounting policies, discontinued operations, the Ansys acquisition, revenue breakdown, goodwill and intangible assets, financial instruments, debt, leases, equity, and tax matters [Note 1. Description of Business](index=12&type=section&id=Note%201.%20Description%20of%20Business) Synopsys is a leader in engineering solutions from silicon to systems, specializing in EDA software, AI-driven chip design, and semiconductor IP. The acquisition of Ansys has expanded its leadership in simulation and analysis (S&A) software, integrating these solutions into its Design Automation segment - Synopsys is a global leader in EDA software, pioneering AI-driven chip design across the full-stack EDA suite[26](index=26&type=chunk) - Following the Ansys Merger, Synopsys is the global leader in engineering S&A software, with solutions used across high-tech, aerospace, automotive, and other industries[27](index=27&type=chunk) - The company offers a broad portfolio of semiconductor IP solutions, including logic libraries, embedded memories, analog IP, and interface IP, as part of its Design IP segment[28](index=28&type=chunk) [Note 2. Summary of Significant Accounting Policies and Basis of Presentation](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Basis%20of%20Presentation) This note outlines the basis of financial statement preparation, including the use of estimates and principles of consolidation. It highlights a change in the fiscal year end to October 31, the accounting method for the Ansys acquisition, and an updated revenue recognition policy for S&A software solutions - Synopsys changed its fiscal year end from the Saturday nearest to October 31 to **October 31** each year, effective fiscal 2025[32](index=32&type=chunk) - The acquisition of Ansys on **July 17, 2025**, was accounted for using the acquisition method, with Ansys' financial results included prospectively from that date[34](index=34&type=chunk)[35](index=35&type=chunk) - The revenue recognition policy for S&A software solutions was updated, distinguishing between time-based software licenses (upfront products revenue) and support services (maintenance and service revenue), and similarly for perpetual licenses[37](index=37&type=chunk) [Note 3. Discontinued Operations](index=14&type=section&id=Note%203.%20Discontinued%20Operations) This note details the sale of the Software Integrity business on September 30, 2024, for an aggregate consideration of $1.65 billion, resulting in a pre-tax gain of $860.5 million. The financial results of this business are presented as income from discontinued operations - Synopsys completed the sale of its Software Integrity business on **September 30, 2024**, for **$1.65 billion**[43](index=43&type=chunk) - The divestiture resulted in a total pre-tax gain, net of transaction costs, of **$860.5 million** in fiscal 2024[44](index=44&type=chunk) Discontinued Operations (in thousands) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $— | $127,917 | $— | $392,579 | | Income (loss) from discontinued operations, net of income taxes | $— | $(17,813) | $(3,900) | $(13,155) | [Note 4. Acquisition of Ansys](index=15&type=section&id=Note%204.%20Acquisition%20of%20Ansys) Synopsys completed the acquisition of Ansys on July 17, 2025, for approximately $34.9 billion, comprising cash and Synopsys common stock. The acquisition aims to combine EDA expertise with S&A capabilities. The purchase price was preliminarily allocated, resulting in significant goodwill and intangible assets. Regulatory divestitures of OSG and PowerArtist RTL business are ongoing - Synopsys acquired Ansys on **July 17, 2025**, for approximately **$34.9 billion**, consisting of **$17.6 billion** in cash and **$17.1 billion** in Synopsys Common Stock[49](index=49&type=chunk) - The acquisition resulted in **$23.5 billion** in goodwill, primarily attributed to the assembled workforce and anticipated synergies[54](index=54&type=chunk)[77](index=77&type=chunk) Identified Intangible Assets from Ansys Acquisition (in thousands) | Intangible Asset | Fair Value (in thousands) | Useful Lives (in years) | | :------------------------- | :------------------------ | :---------------------- | | Core/developed technologies | $6,500,000 | 6 - 9 | | Customer relationships | $5,100,000 | 9 | | Contract rights intangible | $440,000 | 2 | | Trademarks and trade names | $950,000 | 23 | | Total identified intangible assets | $12,990,000 | | - The Optical Solutions Group (OSG) and Ansys' PowerArtist RTL business were classified as assets held for sale due to regulatory divestitures required for the Ansys Merger[63](index=63&type=chunk)[65](index=65&type=chunk) [Note 5. Revenue](index=18&type=section&id=Note%205.%20Revenue) Revenue is disaggregated by product groups, showing EDA as the largest contributor, followed by Design IP, with Simulation and Analysis revenue introduced post-Ansys merger. Contract balances, including contract assets and deferred revenue, increased significantly, and the backlog stands at $10.1 billion as of July 31, 2025 Revenue by Product Group | Product Group | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | EDA | 68.6 % | 66.9 % | 67.6 % | 66.8 % | | Design IP | 24.6 % | 30.4 % | 28.0 % | 30.9 % | | Simulation and Analysis | 4.5 % | — % | 1.6 % | — % | | Other | 2.3 % | 2.7 % | 2.8 % | 2.3 % | | Total | 100.0 % | 100.0 % | 100.0 % | 100.0 % | Contract Balances (in thousands) | Contract Balance | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------- | :--------------------------- | :---------------------------- | | Contract assets, net | $1,177,744 | $757,075 | | Deferred revenue | $2,374,834 | $1,732,568 | - Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) were approximately **$10.1 billion** as of July 31, 2025, with **46%** expected to be recognized as revenue over the next 12 months[73](index=73&type=chunk) [Note 6. Goodwill and Intangible Assets](index=20&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased significantly by $23.5 billion, primarily due to the Ansys Merger. The company's intangible assets, including core/developed technology, customer relationships, contract rights, and trademarks, also saw substantial increases in gross carrying amount and associated amortization expense Goodwill and Intangible Assets (in thousands) | Metric | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Goodwill balance | $26,945,723 | $3,448,850 | | Intangible assets, net | $13,079,912 | $195,164 | - The change in goodwill during the nine months ended July 31, 2025, primarily resulted from **$23.5 billion** related to the Ansys Merger[77](index=77&type=chunk) Amortization Expense of Intangible Assets (in thousands) | Intangible Asset | Three Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | | :------------------------- | :---------------------------------------------- | :--------------------------------------------- | | Core/developed technology | $37,357 | $52,883 | | Customer relationships | $26,907 | $34,895 | | Contract rights intangible | $9,011 | $9,741 | | Trademarks and trade names | $1,666 | $1,674 | | Total amortization expense | $74,941 | $99,193 | [Note 7. Balance Sheet Components](index=21&type=section&id=Note%207.%20Balance%20Sheet%20Components) This note provides a detailed breakdown of selected balance sheet components, showing significant increases in other long-term assets (driven by contract assets) and other long-term liabilities (primarily deferred tax liability) from October 31, 2024, to July 31, 2025 Selected Balance Sheet Components (in thousands) | Component | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | **Other long-term assets:** | | | | Deferred compensation plan assets | $426,862 | $386,757 | | Contract assets, net | $355,802 | $— | | Other | $269,640 | $124,142 | | Total other long-term assets | $1,118,876 | $583,700 | | **Accounts payable and accrued liabilities:** | | | | Payroll and related benefits | $733,539 | $624,823 | | Interest payable | $201,103 | $— | | Total accounts payable and accrued liabilities | $1,283,204 | $1,163,592 | | **Other long-term liabilities:** | | | | Deferred tax liability | $1,188,824 | $36,557 | | Deferred compensation plan liabilities | $426,862 | $386,757 | | Total other long-term liabilities | $1,797,713 | $469,738 | [Note 8. Financial Assets and Liabilities](index=21&type=section&id=Note%208.%20Financial%20Assets%20and%20Liabilities) This note details the company's cash equivalents, short-term investments, and restricted cash, along with its use of derivative instruments to hedge foreign currency and interest rate exposures. It highlights the settlement of 2025 Rate Lock Agreements, resulting in a $121.6 million loss deferred in OCI and amortized to interest expense Cash, Cash Equivalents, and Short-Term Investments (in thousands) | Metric | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Cash and cash equivalents | $2,526,475 | $3,896,532 | | Short-term investments | $67,235 | $153,869 | | Total cash, cash equivalents and short-term investments | $2,593,710 | $4,050,401 | | Restricted cash | $5,695 | $2,197 | - Synopsys uses foreign currency forward contracts to hedge exposure to foreign currency rate changes on forecasted transactions and balance sheet positions[84](index=84&type=chunk) - In the first quarter of fiscal 2025, Synopsys entered into treasury rate lock agreements to hedge against unfavorable interest rate changes for anticipated debt transactions. These settled in Q2 2025, resulting in a **$121.6 million** loss recorded in OCI, amortized to interest expense over the debt's life[87](index=87&type=chunk)[90](index=90&type=chunk) [Note 9. Fair Value Measurements](index=26&type=section&id=Note%209.%20Fair%20Value%20Measurements) This note defines the fair value hierarchy (Level 1, 2, and 3) and classifies the company's financial assets and liabilities measured at fair value on a recurring basis. Most cash equivalents, short-term investments, and derivatives are classified within Level 1 or 2, while contingent consideration receivable is Level 3 - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[97](index=97&type=chunk) - Cash equivalents, short-term investments, marketable securities, and non-qualified deferred compensation plan assets are primarily classified within Level 1 or Level 2[99](index=99&type=chunk)[100](index=100&type=chunk) - Foreign currency derivative contracts are classified within Level 2, and contingent consideration receivable from the Software Integrity Divestiture is classified within Level 3[100](index=100&type=chunk)[102](index=102&type=chunk) [Note 10. Senior Notes, Bridge Commitment Letter, Term Loan and Revolving Credit Facilities](index=28&type=section&id=Note%2010.%20Senior%20Notes%2C%20Bridge%20Commitment%20Letter%2C%20Term%20Loan%20and%20Revolving%20Credit%20Facilities) Synopsys issued $10.0 billion in Senior Notes and borrowed $4.3 billion under a Term Loan Agreement, primarily to finance the Ansys Merger. The Bridge Commitment was terminated, and the company maintains an $850.0 million Revolving Credit Facility, with no outstanding balance as of July 31, 2025. The company was in compliance with all debt covenants Debt Instruments (in thousands) | Debt Instrument | Amount (in thousands) | | :----------------------------------- | :-------------------- | | Fixed-rate Senior Notes | $10,000,000 | | Term Loan | $4,300,000 | | Total Senior Notes and Term Loan | $14,205,526 | | Deferred payment on interest rate treasury lock | $121,643 | | Other borrowings | $12,964 | | Total debt | $14,340,133 | - The net proceeds from the Senior Notes and Term Loan were used to fund a portion of the cash consideration for the Ansys Merger, pay related transaction fees, and repay Ansys' outstanding indebtedness[111](index=111&type=chunk)[118](index=118&type=chunk) - The Bridge Commitment of **$10.6 billion** was reduced and subsequently terminated on the Ansys Acquisition Date[117](index=117&type=chunk) - Synopsys maintains an unsecured **$850.0 million** multicurrency revolving credit facility, with no outstanding balance as of July 31, 2025[123](index=123&type=chunk)[127](index=127&type=chunk) [Note 11. Leases](index=31&type=section&id=Note%2011.%20Leases) Synopsys has operating lease arrangements for various assets, with lease expenses increasing for both the three and nine months ended July 31, 2025. The weighted-average remaining lease term is 6.81 years, and total future minimum lease payments are $895.5 million Lease Expense (in thousands) | Lease Expense Component | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Operating lease expense | $29,398 | $23,800 | $80,513 | $67,848 | | Variable lease expense | $8,686 | $5,182 | $22,243 | $16,761 | | Total lease expense | $38,084 | $28,982 | $102,756 | $84,609 | - The weighted-average remaining lease term for operating leases is **6.81 years** as of July 31, 2025[132](index=132&type=chunk) Future Minimum Lease Payments (in thousands) | Fiscal Year | Principal Payments (in thousands) | | :-------------------- | :------------------------------ | | Remainder of fiscal 2025 | $34,397 | | 2026 | $152,997 | | 2027 | $149,967 | | 2028 | $136,922 | | 2029 | $127,192 | | 2030 and thereafter | $294,037 | | Total future minimum lease payments | $895,512 | [Note 12. Redeemable Non-controlling Interest](index=33&type=section&id=Note%2012.%20Redeemable%20Non-controlling%20Interest) Synopsys divested its entire ownership interest in OpenLight Photonics, Inc. on December 30, 2024, after exercising a call option to purchase the remaining interest. The resulting loss on divestiture was not material to operations - Synopsys acquired a **75%** equity interest in OpenLight Photonics, Inc. in fiscal 2022 and later exercised a call option to increase ownership to **95%**[134](index=134&type=chunk)[136](index=136&type=chunk) - The company divested its entire ownership interest in OpenLight on **December 30, 2024**, with the resulting loss on divestiture being immaterial[137](index=137&type=chunk) [Note 13. Accumulated Other Comprehensive Income (Loss)](index=33&type=section&id=Note%2013.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive income (loss) shifted from a loss of $180.4 million in October 2024 to a larger loss of $231.9 million in July 2025, primarily due to increased unrealized losses on derivative instruments, net of taxes Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | July 31, 2025 (in thousands) | October 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------ | | Cumulative currency translation adjustments | $(143,080) | $(161,954) | | Unrealized gains (losses) on derivative instruments, net of taxes | $(88,811) | $(18,800) | | Unrealized gains (losses) on available-for-sale securities, net of taxes | $(4) | $374 | | Total | $(231,895) | $(180,380) | - Amounts reclassified out of AOCI into net income for the nine months ended July 31, 2025, primarily consisted of losses from cash flow hedging activities, totaling **$(6,547) thousand**[140](index=140&type=chunk) [Note 14. Stock Repurchase Program](index=34&type=section&id=Note%2014.%20Stock%20Repurchase%20Program) Synopsys' stock repurchase program, with $194.3 million remaining authorization, has been suspended in connection with the Ansys Merger to prioritize debt reduction - As of July 31, 2025, **$194.3 million** remained available for future repurchases under the stock repurchase program[141](index=141&type=chunk) - The stock repurchase program has been suspended until debt levels are reduced, in connection with the Ansys Merger[141](index=141&type=chunk) - No shares were repurchased during the three and nine months ended July 31, 2025[142](index=142&type=chunk) [Note 15. Stock-Based Compensation](index=34&type=section&id=Note%2015.%20Stock-Based%20Compensation) Stock-based compensation expense increased significantly, partly due to the assumption of Ansys equity awards, with $67.2 million recognized in the three months ended July 31, 2025, related to these awards. Total unrecognized stock-based compensation expense is $1.7 billion, expected to be recognized over 2.0 years - Synopsys assumed Ansys equity awards with an estimated fair value of **$639.7 million**, of which **$131.0 million** was recognized as goodwill and **$508.7 million** will be recognized as stock-based compensation expense[146](index=146&type=chunk) Stock-Based Compensation Expense (in thousands) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total stock-based compensation expense before taxes | $267,723 | $181,539 | $655,909 | $540,026 | | Income tax benefit | $(38,686) | $(29,972) | $(94,779) | $(89,158) | | Stock-based compensation expense after taxes | $229,037 | $151,567 | $561,130 | $450,868 | - As of July 31, 2025, total unrecognized stock-based compensation expense was **$1.7 billion**, with a weighted-average recognition period of **2.0 years**[148](index=148&type=chunk) [Note 16. Net Income (Loss) Per Share](index=36&type=section&id=Note%2016.%20Net%20Income%20(Loss)%20Per%20Share) Basic and diluted net income per share decreased for both the three and nine months ended July 31, 2025, compared to the prior year, reflecting lower net income attributed to Synopsys, despite an increase in weighted average common shares outstanding Net Income (Loss) Per Share (in thousands, except per share data) | Metric | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | Nine Months Ended July 31, 2025 | Nine Months Ended July 31, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income attributed to Synopsys | $242,509 | $408,055 | $883,524 | $1,149,274 | | Basic net income per share | $1.51 | $2.66 | $5.64 | $7.52 | | Diluted net income per share | $1.50 | $2.61 | $5.59 | $7.37 | | Weighted average common shares for basic EPS | 160,174 | 153,417 | 156,536 | 152,885 | | Weighted average common shares for diluted EPS | 161,682 | 156,131 | 158,176 | 155,863 | [Note 17. Segment Disclosure](index=37&type=section&id=Note%2017.%20Segment%20Disclosure) Synopsys operates in two reportable segments: Design Automation and Design IP. The Ansys business is now included within the Design Automation segment. Design Automation showed strong revenue and adjusted operating income growth, while Design IP experienced declines due to various headwinds - Synopsys has two reportable segments: Design Automation (advanced silicon design, verification, S&A solutions) and Design IP (interface, foundation, security, embedded processor IP)[153](index=153&type=chunk) - The Ansys Merger led to Ansys being included within the Design Automation segment[154](index=154&type=chunk) Segment Performance (in thousands) | Segment Performance | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | **Design Automation:** | | | | | | Revenue | $1,312,166 | $1,062,666 | $3,454,617 | $3,102,938 | | Adjusted operating income | $583,755 | $440,864 | $1,447,181 | $1,218,574 | | Adjusted operating margin | 44 % | 41 % | 42 % | 39 % | | **Design IP:** | | | | | | Revenue | $427,571 | $463,083 | $1,344,701 | $1,388,512 | | Adjusted operating income | $86,023 | $169,725 | $363,084 | $540,249 | | Adjusted operating margin | 20 % | 37 % | 27 % | 39 % | Geographic Revenue (in thousands) | Geographic Revenue | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | United States | $816,194 | $660,479 | $2,076,203 | $2,015,066 | | China | $247,288 | $266,699 | $578,742 | $729,583 | [Note 18. Other Income (Expense), Net](index=39&type=section&id=Note%2018.%20Other%20Income%20(Expense)%2C%20Net) Other income (expense), net, increased significantly for both the three and nine months ended July 31, 2025, primarily driven by higher interest income and a gain on the sale of an office building, partially offset by a loss on strategic investments Other Income (Expense), Net (in thousands) | Component | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Interest income | $131,417 | $15,717 | $257,027 | $40,508 | | Gains (losses) on assets related to deferred compensation plan | $43,417 | $25,780 | $42,949 | $76,276 | | Foreign currency exchange gains (losses) | $1,221 | $329 | $1,106 | $3,438 | | Gain (loss) on sale of strategic investments | $(1,200) | $— | $(3,635) | $55,077 | | Gain on sale of building | $— | $— | $51,385 | $— | | Total | $170,543 | $43,526 | $335,061 | $166,617 | - A pre-tax gain of **$51.4 million** was recognized from the sale of an office building during the second quarter of fiscal 2025[161](index=161&type=chunk) [Note 19. Income Taxes](index=39&type=section&id=Note%2019.%20Income%20Taxes) The effective tax rate decreased for both the three and nine months ended July 31, 2025, primarily due to tax benefits from a full valuation allowance release against California research credits and a capital loss on the sale of OpenLight. The company is evaluating impacts of new legislative developments like the OBBB and Pillar Two Income Taxes (in thousands, except percentages) | Metric | Three Months Ended July 31, 2025 (in thousands) | Three Months Ended July 31, 2024 (in thousands) | Nine Months Ended July 31, 2025 (in thousands) | Nine Months Ended July 31, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Income before income taxes | $189,310 | $391,995 | $876,618 | $1,190,979 | | Provision (benefit) for income taxes | $(52,967) | $(30,712) | $(12,080) | $37,634 | | Effective tax rate | (28.0)% | (7.8)% | (1.4)% | 3.2 % | - The effective tax rate decreased due to tax benefits from a full valuation allowance release against California research credits and a capital loss on the sale of OpenLight[162](index=162&type=chunk)[163](index=163&type=chunk) - Synopsys is evaluating the impacts of new legislative developments, including the One Big Beautiful Bill Act (OBBB) and the OECD's Pillar Two Model Rules, which define global minimum tax rules[168](index=168&type=chunk)[172](index=172&type=chunk) [Note 20. Contingencies](index=40&type=section&id=Note%2020.%20Contingencies) Synopsys is subject to routine legal proceedings and tax examinations but has determined that no disclosure of estimated loss is required for any claim, as potential losses are not probable or estimable, or are immaterial - Synopsys is subject to routine legal proceedings, demands, claims, and threatened litigation in the normal course of business[173](index=173&type=chunk) - No disclosure of estimated loss is required for any claim, as there is no reasonable possibility of a loss exceeding recognized amounts, or the loss cannot be estimated or is immaterial[174](index=174&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Synopsys' financial condition and results of operations, focusing on continuing operations. It covers financial performance, business segments, critical accounting estimates, and detailed analysis of revenue, expenses, and cash flows, highlighting the significant impact of the Ansys acquisition and macroeconomic factors [Forward-Looking Statements](index=42&type=section&id=Forward-Looking%20Statements) This subsection provides a cautionary statement regarding forward-looking statements, emphasizing that actual results may differ materially due to various risks and uncertainties, including those related to acquisitions, macroeconomic conditions, and regulatory changes - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[177](index=177&type=chunk) - Key areas of uncertainty include strategies, market outlook, acquisitions (like Ansys), planned dispositions, indebtedness, China export controls, macroeconomic environment, customer demand, and legal proceedings[177](index=177&type=chunk) [Overview](index=42&type=section&id=Overview) This overview clarifies that the Management's Discussion and Analysis (MD&A) focuses solely on Synopsys' continuing operations, excluding the former Software Integrity business, which was divested - The MD&A relates solely to continuing operations, excluding the former Software Integrity business[179](index=179&type=chunk) [Financial Performance Summary](index=42&type=section&id=Financial%20Performance%20Summary) For the third quarter of fiscal 2025, Synopsys reported revenue growth driven by its Design Automation segment, offset by weakness in Design IP due to China export controls and customer demand issues. Total costs and expenses increased significantly, leading to a decrease in operating income and net income compared to the prior year - Third quarter fiscal 2025 results reflect strength in Design Automation, including strong hardware demand, offset by weakness in Design IP due to China export control restrictions and weaker demand from a major foundry customer[180](index=180&type=chunk) Financial Performance Summary (in millions) | Metric | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | $1,739.7 | $1,525.7 | $4,799.3 | $4,491.5 | | Operating income | $165.3 | $360.2 | $793.5 | $1,044.9 | | Net income from continuing operations attributed to Synopsys | $242.5 | $425.9 | $887.4 | $1,162.4 | | Diluted net income per share (Continuing operations) | $1.50 | $2.73 | $5.61 | $7.46 | - Total cost of revenue and operating expenses increased by **$408.9 million (35%)** for the three months ended July 31, 2025, primarily due to employee-related costs, legal/consulting fees for the Ansys Merger, and amortization of acquired intangible assets[183](index=183&type=chunk) [Business Summary](index=43&type=section&id=Business%20Summary) Synopsys provides silicon design, IP, simulation and analysis solutions, and design services, consistently growing revenue since 2005. Its growth strategy focuses on expanding its total addressable market through technology leadership and efficient scaling, with revenue growth expected to vary based on product mix - Synopsys delivers industry-leading silicon design, IP, simulation and analysis (S&A) solutions, and design services, partnering with customers across various industries[182](index=182&type=chunk) - The company has consistently grown revenue since **2005**, with revenue recognition for software licenses typically over **three years**, leading to a delayed impact of customer spending changes[184](index=184&type=chunk) - The growth strategy focuses on expanding the total addressable market by maximizing R&D capabilities across industries, with priorities on technology leadership, sustainable growth, and efficient scaling[185](index=185&type=chunk) [Acquisition of Ansys](index=44&type=section&id=Acquisition%20of%20Ansys) This section briefly notes the completion of the Ansys acquisition on July 17, 2025, and directs readers to Note 4 for detailed information and Part II, Item 1A for related risks - The acquisition of ANSYS, Inc. was completed on **July 17, 2025**[186](index=186&type=chunk) [Impact of the Current Macroeconomic and Geopolitical Environment](index=44&type=section&id=Impact%20of%20the%20Current%20Macroeconomic%20and%20Geopolitical%20Environment) Macroeconomic uncertainty, including inflation, interest rates, and geopolitical pressures, has led to customer caution, delaying decision-making and spending. While AI and high-performance computing sectors show strength, industrial, automotive, and consumer electronics have recovered slowly, particularly in China due to trade restrictions - Uncertain macroeconomic environment has led customers to postpone decision-making, delay drawdowns, and decrease spending[188](index=188&type=chunk) - Continued strength is observed in AI and high-performance computing, but industrial, automotive, and consumer electronics sectors have recovered slowly[188](index=188&type=chunk) - Growth is expected across geographies in fiscal 2025, except for China, which faces challenges from macroeconomic factors and trade restrictions[189](index=189&type=chunk) [Developments in Export Control Regulations](index=45&type=section&id=Developments%20in%20Export%20Control%20Regulations) U.S. export control regulations, including the Q3 2025 BIS Restrictions (later rescinded), have negatively impacted Synopsys' business in China, particularly its Design IP segment. The evolving nature of these restrictions creates ongoing uncertainty regarding future impacts on the business - U.S. export control regulations, including restrictions on ECAD software and technology, have negatively impacted Synopsys' business in China, especially the Design IP segment[193](index=193&type=chunk)[194](index=194&type=chunk) - The Q3 2025 BIS Restrictions, which imposed a license requirement for certain EDA software exports to China or Chinese 'military end users,' were subsequently rescinded on **July 2, 2025**[193](index=193&type=chunk) - The evolving nature of these regulations creates uncertainty regarding current and future impacts on the business, with potential for new or expanded license requirements[194](index=194&type=chunk) [Business Segments](index=45&type=section&id=Business%20Segments) Synopsys operates two primary business segments: Design Automation, which includes EDA, S&A solutions (now with Ansys), and system integration products; and Design IP, offering semiconductor IP solutions for various markets. These segments cater to accelerating chip design and enabling SoC development - The Design Automation segment includes advanced silicon design, verification products, S&A solutions, and system integration products, helping engineers accelerate and automate chip design[195](index=195&type=chunk) - The Design IP segment provides interface, foundation, security, and embedded processor IP, IP subsystems, and IP implementation services for system-on-chips (SoCs) in markets like mobile, automotive, and AI/data centers[196](index=196&type=chunk)[197](index=197&type=chunk) [Fiscal Year and Fiscal Quarter End](index=47&type=section&id=Fiscal%20Year%20and%20Fiscal%20Quarter%20End) Synopsys changed its fiscal year end to October 31, effective fiscal 2025. The third quarter of fiscal 2025 ended on July 31, 2025, and the first nine months of fiscal 2024 included an extra week, impacting comparative financial results - Synopsys changed its fiscal year end to **October 31** each year, effective fiscal 2025[199](index=199&type=chunk) - The first nine months of fiscal 2024 included an extra week, which resulted in approximately **$63.2 million** of additional revenue and **$52.5 million** of additional expenses[200](index=200&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=Critical%20Accounting%20Estimates) Revenue Recognition and Business Combinations are identified as critical accounting estimates. The note details the significant estimates and assumptions involved in valuing intangible assets during business combinations, particularly following the Ansys acquisition, using methods like relief-from-royalty and multi-period excess earnings - Critical accounting estimates include Revenue Recognition and Business Combinations, with updates to Business Combinations in Q3 fiscal 2025[203](index=203&type=chunk) - Valuation of intangible assets in business combinations involves significant estimates for future cash flows, projected expenses, customer attrition rates, royalty rates, useful lives, and discount rates[205](index=205&type=chunk)[213](index=213&type=chunk) - For the Ansys acquisition, developed technologies and trade names were valued using the relief-from-royalty method, and customer relationships and contract rights using the multi-period excess earnings method[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) [Results of Operations - Revenue](index=49&type=section&id=Results%20of%20Operations%20-%20Revenue) Total revenue increased for both the three and nine months ended July 31, 2025, driven by Design Automation, but partially offset by weakness in Design IP due to China export controls and customer demand. Time-based products revenue grew due to prior period bookings, while upfront products revenue increased from hardware sales. Maintenance revenue also rose, partly from Ansys contributions Revenue by Segment (in millions) | Segment | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Design Automation | $1,312.1 | $1,062.6 | $3,454.6 | $3,103.0 | | Design IP | $427.6 | $463.1 | $1,344.7 | $1,388.5 | | Total Revenue | $1,739.7 | $1,525.7 | $4,799.3 | $4,491.5 | - Total revenues increased by **14%** for the three months and **7%** for the nine months ended July 31, 2025, primarily due to growth across product groups and geographies, offset by Design IP weakness[218](index=218&type=chunk)[221](index=221&type=chunk) Revenue by Type (in millions) | Revenue Type | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Time-based products | $892.4 | $803.1 | $2,548.9 | $2,389.9 | | Upfront products | $516.4 | $442.5 | $1,395.2 | $1,281.3 | | Maintenance and service | $331.0 | $280.1 | $855.2 | $820.2 | [Results of Operations - Cost of Revenue](index=53&type=section&id=Results%20of%20Operations%20-%20Cost%20of%20Revenue) Cost of revenue increased significantly for both the three and nine months ended July 31, 2025, driven by higher hardware-related costs, increased amortization of acquired intangible assets (mainly from the Ansys Merger), and higher employee-related costs due to headcount increases Cost of Revenue (in millions) | Cost of Revenue Component | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cost of products revenue | $230.9 | $179.5 | $616.0 | $553.8 | | Cost of maintenance and service revenue | $103.3 | $96.6 | $290.3 | $275.3 | | Amortization of acquired intangible assets | $46.4 | $14.5 | $62.6 | $41.2 | | Total Cost of Revenue | $380.6 | $290.6 | $968.9 | $870.3 | - The increase in cost of revenue for the three months ended July 31, 2025, was primarily due to increases of **$35.7 million** in hardware-related costs, **$31.9 million** in amortization of acquired intangible assets (Ansys Merger), and **$24.1 million** in employee-related costs[231](index=231&type=chunk) [Results of Operations - Operating Expenses](index=54&type=section&id=Results%20of%20Operations%20-%20Operating%20Expenses) Operating expenses, including Research and Development, Sales and Marketing, General and Administrative, and Amortization of Acquired Intangible Assets, all increased for the three and nine months ended July 31, 2025. These increases were largely driven by higher employee-related costs, legal and professional fees associated with the Ansys Merger, and amortization from acquired intangibles Operating Expenses (in millions) | Operating Expense | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $625.3 | $508.9 | $1,732.5 | $1,527.5 | | Sales and marketing | $259.5 | $211.5 | $683.7 | $640.1 | | General and administrative | $280.6 | $150.4 | $584.1 | $396.5 | | Amortization of acquired intangible assets | $28.6 | $4.1 | $36.6 | $12.2 | - General and administrative expenses increased by **$130.2 million (87%)** for the three months ended July 31, 2025, primarily due to **$65.7 million** in legal, consulting, and professional fees related to the Ansys Merger and **$57.0 million** in employee-related costs[238](index=238&type=chunk) - Amortization of acquired intangible assets in operating expenses increased by **$24.5 million (598%)** for the three months ended July 31, 2025, mainly due to intangible assets from the Ansys Merger[242](index=242&type=chunk) [Results of Operations - Interest Expense](index=55&type=section&id=Results%20of%20Operations%20-%20Interest%20Expense) Interest expense increased dramatically for both the three and nine months ended July 31, 2025, primarily due to the interest on the Senior Notes issued and the Term Loan Agreement borrowings, both incurred to finance the Ansys Merger Interest Expense (in millions) | Metric | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest expense | $(146.5) | $(11.7) | $(252.0) | $(20.5) | - The increase in interest expense was primarily due to interest on the Senior Notes issued in Q2 fiscal 2025 and borrowings under the Term Loan Agreement in Q3 fiscal 2025, both related to the Ansys Merger[243](index=243&type=chunk) [Results of Operations - Other Income (Expense), Net](index=56&type=section&id=Results%20of%20Operations%20-%20Other%20Income%20(Expense)%2C%20Net) Other income (expense), net, increased significantly for both periods, driven by higher interest income from increased cash balances and a gain from the sale of an office building, partially offset by a decrease in gains on deferred compensation plan assets and a loss on strategic investments Other Income (Expense), Net (in millions) | Component | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest income | $131.4 | $15.7 | $257.0 | $40.5 | | Gains (losses) on assets related to deferred compensation plan | $43.4 | $25.8 | $42.9 | $76.3 | | Gain (loss) on sale of strategic investments | $(1.2) | $— | $(3.6) | $55.1 | | Gain on sale of building | $— | $— | $51.4 | $— | | Total | $170.5 | $43.5 | $335.1 | $166.6 | - The increase in other income (expense) for the nine months ended July 31, 2025, was primarily due to higher interest income and a **$51.4 million** gain from the sale of an office building[246](index=246&type=chunk) [Segment Operating Results](index=56&type=section&id=Segment%20Operating%20Results) The Design Automation segment showed strong growth in adjusted operating income and margin, driven by hardware business and prior period arrangements. Conversely, the Design IP segment experienced a significant decrease in adjusted operating income and margin due to lower revenue from China export controls, weaker foundry demand, and increased employee-related costs Segment Operating Results (in millions) | Segment Performance | Three Months Ended July 31, 2025 (in millions) | Three Months Ended July 31, 2024 (in millions) | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | **Design Automation:** | | | | | | Adjusted operating income | $583.8 | $440.9 | $1,447.2 | $1,218.6 | | Adjusted operating margin | 44 % | 41 % | 42 % | 39 % | | **Design IP:** | | | | | | Adjusted operating income | $86.0 | $169.7 | $363.1 | $540.2 | | Adjusted operating margin | 20 % | 37 % | 27 % | 39 % | - The decrease in Design IP adjusted operating income was primarily due to lower revenue from China export control restrictions, weaker demand from a major foundry customer, and increased employee-related costs[249](index=249&type=chunk) [Income Taxes](index=57&type=section&id=Income%20Taxes) The effective tax rate decreased for both the three and nine months ended July 31, 2025, primarily due to tax benefits from a full valuation allowance release against California research credits and a capital loss on the sale of OpenLight - The effective tax rate decreased in the three months ended July 31, 2025, due to tax benefits from a full valuation allowance release against California research credits[250](index=250&type=chunk) - The effective tax rate decreased in the nine months ended July 31, 2025, due to a capital loss on the sale of OpenLight and tax benefits from a full valuation allowance release against California research credits[251](index=251&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) Synopsys' primary liquidity sources are operations and credit facilities. As of July 31, 2025, it held $2.6 billion in cash and investments. The Ansys Merger significantly increased debt and liquidity needs, leading to the suspension of the stock repurchase program to prioritize debt reduction - Principal sources of liquidity are funds from business operations and available revolving credit and term loan facilities[252](index=252&type=chunk) - As of July 31, 2025, Synopsys held **$2.6 billion** in cash, cash equivalents, and short-term investments[253](index=253&type=chunk) - The Ansys Merger increased debt and liquidity needs, funded by Senior Notes and Term Loan. The stock repurchase program has been suspended to reduce debt levels[255](index=255&type=chunk)[256](index=256&type=chunk) [Cash Flows](index=58&type=section&id=Cash%20Flows) Cash provided by operating activities increased slightly, while cash used in investing activities surged due to the Ansys Merger. This was largely offset by a substantial increase in cash provided by financing activities through debt issuance to fund the acquisition Cash Flows (in millions) | Cash Flow Activity | Nine Months Ended July 31, 2025 (in millions) | Nine Months Ended July 31, 2024 (in millions) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cash provided by operating activities | $878.9 | $844.2 | | Cash used in investing activities | $(16,445.7) | $(220.0) | | Cash provided by (used in) financing activities | $14,191.6 | $(211.4) | - The increase in net cash used in investing activities was driven by **$16.5 billion** for acquisitions, net of cash acquired, mainly for the Ansys Merger[268](index=268&type=chunk) - Net cash provided by financing activities was **$14.2 billion**, primarily from **$14.3 billion** in net proceeds from Senior Notes issuance and Term Loan borrowing to fund the Ansys Merger[270](index=270&type=chunk) [Bridge Commitment Letter, Term Loan, Revolving Credit Facilities and Senior Notes](index=59&type=section&id=Bridge%20Commitment%20Letter%2C%20Term%20Loan%2C%20Revolving%20Credit%20Facilities%20and%20Senior%20Notes) Synopsys terminated its Bridge Commitment after issuing $10.0 billion in Senior Notes and borrowing $4.3 billion under a Term Loan Agreement to finance the Ansys Merger. The company also maintains an $850.0 million Revolving Credit Agreement, with no outstanding balance, and was in compliance with all debt covenants as of July 31, 2025 - The Bridge Commitment of approximately **$690.0 million** was terminated on the Ansys Acquisition Date after being reduced by Senior Notes issuance[271](index=271&type=chunk) - Synopsys borrowed the full **$4.3 billion** available under the Term Loan Agreement on **July 17, 2025**, to fund a portion of the Ansys Merger cash consideration[272](index=272&type=chunk) - Synopsys issued **$10.0 billion** in Senior Notes in **March 2025**, with net proceeds of **$9.9 billion**, to fund the Ansys Merger and repay Ansys' debt[281](index=281&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Synopsys' exposure to market risk has not materially changed since November 2, 2024. While Senior Notes have fixed interest rates, their fair values are exposed to interest rate risk, meaning they will increase as interest rates fall and decrease as rates rise - Market risk exposure has not materially changed since **November 2, 2024**[285](index=285&type=chunk) - Senior Notes have fixed annual interest rates, but their fair values are exposed to interest rate risk, increasing as rates fall and decreasing as rates rise[286](index=286&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that Synopsys' disclosure controls and procedures were effective as of July 31, 2025, providing reasonable assurance for financial reporting. No material changes in internal control over financial reporting were identified, though the integration of Ansys operations, control processes, and information systems is ongoing - Synopsys' management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of **July 31, 2025**[289](index=289&type=chunk) - No material changes in internal control over financial reporting were identified during the period[289](index=289&type=chunk) - The integration of Ansys operations, control processes, and information systems into Synopsys' environment is currently in process[289](index=289&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) Synopsys is subject to routine legal proceedings and claims arising in the normal course of business. While litigation outcomes are uncertain, the company is not aware of any legal proceedings that would materially impact its business, operating results, or financial condition - Synopsys is subject to routine legal proceedings, demands, claims, and threatened litigation[291](index=291&type=chunk) - The company is not aware of any legal proceedings that would materially impact its business, operating results, or financial condition[293](index=293&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) This section outlines numerous risks and uncertainties that could materially and adversely affect Synopsys' business, financial condition, operating results, and stock price. These risks are categorized into industry, business operations, Ansys Merger-related, legal and regulatory, and general risks [Risk Factor Summary](index=64&type=section&id=Risk%20Factor%20Summary) Synopsys' business faces numerous risks, including macroeconomic uncertainty, intense competition, global operational challenges, cybersecurity threats, and specific risks related to the Ansys Merger, such as integration difficulties and significant debt - Key risks include macroeconomic uncertainty, dependence on semiconductor/electronics industries, intense competition, governmental export/import requirements, and customer consolidation[296](index=296&type=chunk) - Business operations risks cover global operations, operating result fluctuations, acquisition integration (including Ansys), cybersecurity, IP protection, AI initiatives, talent retention, and product defects[296](index=296&type=chunk) - Risks specific to the Ansys Merger include divestiture commitments, failure to realize expected benefits, and the impact of significant debt[296](index=296&type=chunk) [Factors that May Affect Future Results](index=65&type=section&id=Factors%20that%20May%20Affect%20Future%20Results) This section emphasizes that the detailed risks and uncertainties presented could materially and adversely affect Synopsys' business, financial condition, operating results, and stock price, causing actual results to differ from forward-looking statements - The occurrence of any identified risks or additional unknown risks could materially and adversely affect Synopsys' business, financial condition, operating results, and stock price[299](index=299&type=chunk) - These risks and uncertainties could cause actual results to differ materially from forward-looking statements[299](index=299&type=chunk) [Industry Risks](index=65&type=section&id=Industry%20Risks) Synopsys faces industry risks from macroeconomic uncertainty, which can reduce customer spending and demand. Its business heavily relies on the semiconductor and electronics industries, which are highly competitive and require continuous innovation at lower costs. Governmental export and import requirements also pose significant challenges, potentially restricting sales and impairing international competitiveness - Uncertain macroeconomic conditions (inflation, interest rates, geopolitical pressures) can lead to postponed customer decisions, delayed drawdowns, and decreased spending[300](index=300&type=chunk) - Business growth is primarily dependent on the semiconductor and electronics industries, which are susceptible to slowdowns and increased complexity leading to decreased design starts[305](index=305&type=chunk) - Synopsys operates in highly competitive industries, facing rivals like Cadence Design Systems and Siemens EDA, and must continuously innovate to meet demand for advanced technology at lower costs[307](index=307&type=chunk)[309](index=309&type=chunk) - Governmental export and import requirements, including U.S. Export Regulations and Trade Restrictions, can subject Synopsys to liability and restrict its ability to sell products and services internationally[311](index=311&type=chunk)[312](index=312&type=chunk) [Business Operations Risks](index=68&type=section&id=Business%20Operations%20Risks) Operational risks include challenges from global operations (economic slowdowns, trade restrictions, currency fluctuations), potential fluctuations in operating results due to various factors (demand changes, sales cycles, product mix), and difficulties in integrating acquisitions like Ansys. Cybersecurity threats, the need to protect proprietary technology, and the success of AI initiatives are also critical. Additionally, the company faces risks related to talent retention, new product development, R&D investments, product defects, hardware product sales, third-party IP infringement claims, and U.S. liquidity requirements - Global operations expose Synopsys to risks such as economic slowdowns, geopolitical pressures, government trade restrictions (tariffs, export controls), and foreign currency exchange rate fluctuations[318](index=318&type=chunk)[319](index=319&type=chunk)[322](index=322&type=chunk) - Operating results may fluctuate due to changes in demand for products (especially hardware and IP), lengthy sales cycles, product competition, and the timing of revenue recognition[323](index=323&type=chunk)[324](index=324&type=chunk) - Acquisitions and strategic investments, including the Ansys Merger, pose risks such as integration problems, failure to achieve projected sales or synergies, and substantial reductions of cash resources[327](index=327&type=chunk)[328](index=328&type=chunk) - Cybersecurity threats and security breaches could compromise sensitive information, disrupt operations, and harm reputation, with increasing risks from third-party solutions and remote work[331](index=331&type=chunk)[332](index=332&type=chunk) - Failure to protect proprietary technology through agreements, intellectual property laws, or litigation could harm the business, especially in countries with ineffective legal protection[336](index=336&type=chunk)[338](index=338&type=chunk) - Success in AI initiatives is critical, but risks include failure to develop timely products, market accept