CEO Commentary ATLANTA, August 11, 2025 – Guardian Pharmacy Services, Inc. (NYSE: GRDN), one of the nation's leading long-term care ("LTC") pharmacy services companies, announced today its financial results for the second quarter ended June 30, 2025. Second Quarter Financial Results "We are proud to report another strong quarter for Guardian, with solid double-digit growth in revenue, resident count, and adjusted EBITDA. Our performance reflects disciplined execution by our local pharmacy teams, growing dem ...

[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=3&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, along with detailed notes on organization, accounting policies, segment reporting, key agreements, and financial performance [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $297,872 | $104,862 | | Short-term investments | — | $307,487 | | Total current assets | $309,240 | $423,750 | | Total assets | $324,037 | $435,560 | | Total current liabilities | $60,325 | $41,729 | | Total liabilities | $64,598 | $46,812 | | Total stockholders' equity | $259,439 | $388,748 | - Cash and cash equivalents increased significantly from **$104.86 million to $297.87 million**, while short-term investments were fully liquidated[16](index=16&type=chunk) - Total assets decreased by approximately **25.6%** from **$435.56 million to $324.04 million**[16](index=16&type=chunk) - Total liabilities increased by approximately **37.9%** from **$46.81 million to $64.60 million**[16](index=16&type=chunk) - Total stockholders' equity decreased by approximately **33.3%** from **$388.75 million to $259.44 million**[16](index=16&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $208,021 | $30,798 | $259,286 | $61,671 | | Acquired in-process R&D | — | $15,007 | — | $15,007 | | General and administrative | $360,416 | $13,812 | $376,002 | $25,328 | | Total operating expenses | $568,437 | $59,617 | $635,288 | $102,006 | | Net loss | $(565,708) | $(60,385) | $(628,621) | $(103,858) | | Basic and diluted EPS | $(0.76) | $(0.09) | $(0.85) | $(0.15) | - Net loss for the three months ended June 30, 2025, increased significantly to **$565.71 million** from **$60.39 million** in the prior year period[18](index=18&type=chunk) - Research and development expenses surged to **$208.02 million** in Q2 2025 from **$30.80 million** in Q2 2024, and general and administrative expenses increased to **$360.42 million** from **$13.81 million**[18](index=18&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric (in thousands) | December 31, 2024 | June 30, 2025 | | :-------------------- | :---------------- | :------------ | | Common Stock (Amount) | $7,376 | $7,428 | | Additional Paid-In Capital | $1,598,230 | $2,097,957 | | Accumulated Deficit | $(1,214,573) | $(1,843,194) | | Total Stockholders' Equity | $388,748 | $259,439 | - Total stockholders' equity decreased by **$129.31 million** from **$388.75 million** at December 31, 2024, to **$259.44 million** at June 30, 2025[21](index=21&type=chunk) - The accumulated deficit increased by **$628.62 million**, reflecting the net loss incurred during the period[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(127,912) | $(63,136) | | Net cash provided by (used in) investing activities | $310,918 | $(180,208) | | Net cash provided by financing activities | $9,899 | $200,697 | | Increase (decrease) in cash, cash equivalents and restricted cash | $193,004 | $(42,671) | | Cash, cash equivalents and restricted cash at end of period | $298,191 | $28,754 | - Net cash used in operating activities increased by over **100%** to **$127.91 million** in H1 2025 from **$63.14 million** in H1 2024[23](index=23&type=chunk) - Investing activities shifted from a net cash outflow of **$180.21 million** in H1 2024 to a net cash inflow of **$310.92 million** in H1 2025, primarily due to maturities of short-term investments[23](index=23&type=chunk) - Financing activities provided **$9.90 million** in H1 2025, a significant decrease from **$200.70 million** in H1 2024, which included proceeds from a private placement[23](index=23&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization](index=8&type=section&id=1.%20Organization) - Summit Therapeutics Inc. is a biopharmaceutical company focused on oncology, with ivonescimab as its lead development candidate, a novel bispecific antibody combining PD-1 blockade with anti-VEGF effects[25](index=25&type=chunk)[26](index=26&type=chunk) - The company's cash and cash equivalents are insufficient to fund planned operations for at least one year, raising substantial doubt about its ability to continue as a going concern[31](index=31&type=chunk)[33](index=33&type=chunk) [2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements](index=9&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies%20and%20Recent%20Accounting%20Pronouncements) - No significant changes to the company's accounting policies for the six months ended June 30, 2025[35](index=35&type=chunk) - Adopted ASU 2023-09 (Improvements to Income Tax Disclosures) on January 1, 2025, with no material impact[36](index=36&type=chunk) - Currently evaluating the impact of ASU 2024-03 (Disaggregation of Income Statement Expenses) and the One Big Beautiful Bill Act (OBBBA) on financial statements[37](index=37&type=chunk)[38](index=38&type=chunk) [3. Segment Reporting](index=10&type=section&id=3.%20Segment%20Reporting) - The company operates as a single reportable operating segment, with key operating and strategic decisions made by the Co-Chief Executive Officers and Chief Operating Officer/Chief Financial Officer[41](index=41&type=chunk) Segment Expenses (in thousands) | Segment Expenses (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Oncology clinical trial related costs | $67,824 | $19,955 | $104,187 | $41,852 | | Acquired in-process R&D | — | $15,007 | — | $15,007 | | Stock-based compensation | $478,784 | $11,088 | $489,880 | $20,595 | [4. Akeso License and Collaboration Agreement](index=11&type=section&id=4.%20Akeso%20License%20and%20Collaboration%20Agreement) - The company in-licensed ivonescimab from Akeso in December 2022, obtaining rights to develop and commercialize it in the United States, Canada, Europe, and Japan[43](index=43&type=chunk)[45](index=45&type=chunk) - In June 2024, the License Agreement was amended to expand territories to include Latin America, Middle East, and Africa, for an upfront payment of **$15 million**[47](index=47&type=chunk)[48](index=48&type=chunk) - Akeso is eligible for potential milestone payments up to **$4.56 billion** (**$1.05 billion** regulatory, **$3.51 billion** commercial) and low double-digit royalties on net sales[49](index=49&type=chunk) [5. Other Income, net](index=12&type=section&id=5.%20Other%20Income%2C%20net) Other Income, net (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Foreign currency losses | $(199) | $(244) | $(122) | $(36) | | Investment income | $2,981 | $2,578 | $6,842 | $4,407 | | Other income, net | $2,729 | $2,334 | $6,667 | $4,371 | - Other income, net, increased by **$0.4 million** (QoQ) and **$2.3 million** (YoY) primarily due to higher investment income from money market funds and short-term investments[51](index=51&type=chunk) [6. Net Loss per Share](index=12&type=section&id=6.%20Net%20Loss%20per%20Share) Net Loss per Share (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(565,708) | $(60,385) | $(628,621) | $(103,858) | | Basic and diluted net loss per share | $(0.76) | $(0.09) | $(0.85) | $(0.15) | - Basic and diluted net loss per share are identical for all periods presented because the company was in a loss position, making all potential common share equivalents anti-dilutive[52](index=52&type=chunk) [7. Fair Value Measurements and Short-Term Investments](index=12&type=section&id=7.%20Fair%20Value%20Measurements%20and%20Short-Term%20Investments) - Financial assets included in cash and cash equivalents, primarily money market funds, are classified as Level 1 in the fair value hierarchy[61](index=61&type=chunk) - As of June 30, 2025, the company held no short-term investments, compared to **$307.49 million** in U.S. Government treasury bills (Level 2) at December 31, 2024[61](index=61&type=chunk) - Realized gains on short-term investments were immaterial for all periods presented[64](index=64&type=chunk) [8. Research and Development Prepaid Expenses and Accrued Liabilities](index=14&type=section&id=8.%20Research%20and%20Development%20Prepaid%20Expenses%20and%20Accrued%20Liabilities) R&D Prepaid Expenses and Accrued Liabilities (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | R&D prepaid expenses | $8,155 | $8,338 | | Accrued R&D liabilities | $24,584 | $17,441 | - These amounts are determined based on estimated costs and the current stage of completion for ivonescimab clinical trials[66](index=66&type=chunk) [9. Promissory Note Payable to Related Parties](index=14&type=section&id=9.%20Promissory%20Note%20Payable%20to%20Related%20Parties) - The December 2022 Promissory Notes, totaling **$520 million**, issued to Mr. Duggan and Dr. Zanganeh, were fully repaid by October 1, 2024[67](index=67&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - The company had no debt as of June 30, 2025, and incurred no interest expense during the three and six months ended June 30, 2025, compared to **$3.10 million** and **$6.22 million**, respectively, in the prior year periods[74](index=74&type=chunk) [10. Stockholders' Equity](index=15&type=section&id=10.%20Stockholders'%20Equity) - The company has **1,000,000,000** shares of Common Stock authorized and **20,000,000** shares of Preferred Stock authorized, with none issued[75](index=75&type=chunk)[76](index=76&type=chunk) - In June 2024, the company sold **22,222,222** shares of Common Stock for approximately **$200 million** in a private placement[77](index=77&type=chunk) - In September 2024, the company sold **10,352,418** shares of Common Stock for approximately **$235 million** in a private placement, with significant participation from Section 16 officers[81](index=81&type=chunk)[82](index=82&type=chunk) - As of June 30, 2025, the company sold **1,807,093** shares under its ATM Agreement for gross proceeds of **$44.22 million**, with **$45.78 million** remaining available[85](index=85&type=chunk) - During the six months ended June 30, 2025, **4,629,988** warrants were exercised at a weighted average exercise price of **$1.58**[86](index=86&type=chunk) [11. Stock-Based Compensation](index=16&type=section&id=11.%20Stock-Based%20Compensation) Stock-Based Compensation (in thousands) | Stock-Based Compensation (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $128,577 | $3,513 | $132,636 | $5,927 | | General and administrative | $350,207 | $7,575 | $357,244 | $14,668 | | Total stock-based compensation expense | $478,784 | $11,088 | $489,880 | $20,595 | - Total stock-based compensation expense increased significantly to **$478.78 million** in Q2 2025 from **$11.09 million** in Q2 2024[93](index=93&type=chunk) - The increase was primarily due to a Type III modification in Q2 2025, converting **44,488,976** unvested performance-based stock options to time-based vesting, resulting in **$466.64 million** expense[92](index=92&type=chunk) - Unrecognized compensation cost associated with this modification was **$454.61 million** as of June 30, 2025, to be expensed over approximately **2.0 years**[92](index=92&type=chunk) [12. Related Party Transactions](index=18&type=section&id=12.%20Related%20Party%20Transactions) - The company has sublease agreements with Maky Zanganeh and Associates, Inc. (MZA) and affiliates of Co-CEO Robert W. Duggan (Genius 24C Inc. and Investments Research LLC)[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - Payments to Akeso for clinical services were **$14.00 million** in Q2 2025 and **$18.74 million** in H1 2025[102](index=102&type=chunk) - Section 16 officers, including Mr. Duggan and Dr. Zanganeh, participated in the September 2024 Private Placement, purchasing **$78.50 million** in shares[103](index=103&type=chunk)[104](index=104&type=chunk) - Mr. Duggan exercised **3,985,055** warrants in March and April 2025 at an exercise price of **$1.58** per share[106](index=106&type=chunk)[107](index=107&type=chunk) - Incurred **$0.4 million** (Q2 2025) and **$0.6 million** (H1 2025) in legal expenses from Wilson Sonsini Goodrich & Rosati P.C., where a board member is a partner[108](index=108&type=chunk) [13. Commitments and Contingencies](index=20&type=section&id=13.%20Commitments%20and%20Contingencies) - The company has undiscounted operating lease commitments of **$22.34 million** for a new Palo Alto office space, expected to commence in Q1 2026[110](index=110&type=chunk) - Unable to estimate the amount, timing, or likelihood of achieving milestones or future product sales for contingent payment obligations under the Akeso agreements[112](index=112&type=chunk) - A derivative lawsuit was filed on March 17, 2025, concerning the December 2022 Notes, alleging breach of fiduciary duty and unjust enrichment[114](index=114&type=chunk) - An unknown third party filed a European Patent Opposition on June 18, 2025, against the ivonescimab patent EP3882275B1, asserting lack of inventive step[199](index=199&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, focusing on its lead oncology candidate ivonescimab, clinical trial progress, financial performance drivers, liquidity challenges, and going concern issues [Company Overview](index=21&type=section&id=Company%20Overview) - Summit Therapeutics is a biopharmaceutical company focused on oncology, with ivonescimab as its lead development candidate, a novel bispecific antibody combining PD-1 blockade with anti-VEGF effects[116](index=116&type=chunk)[117](index=117&type=chunk) - The company is conducting Phase III clinical trials for ivonescimab in non-small cell lung cancer (NSCLC), including HARMONi, HARMONi-3, and HARMONi-7[118](index=118&type=chunk) - The HARMONi clinical trial completed enrollment in October 2024 and announced statistically significant and clinically meaningful improvement in progression-free survival (PFS) in May 2025 (HR **0.52**)[118](index=118&type=chunk)[140](index=140&type=chunk) - Based on HARMONi results, Summit intends to file a Biologics License Application (BLA) for ivonescimab plus chemotherapy[121](index=121&type=chunk)[142](index=142&type=chunk) [Akeso Collaboration and License Agreement](index=22&type=section&id=Akeso%20Collaboration%20and%20License%20Agreement) - Summit holds rights to develop and commercialize ivonescimab in the Licensed Territory (US, Canada, Europe, Japan, Latin America, Middle East, and Africa)[123](index=123&type=chunk) - Upfront payments to Akeso included **$474.9 million** cash and **10 million** shares in 2023, plus **$15 million** cash in Q3 2024 for expanded territories[123](index=123&type=chunk) - Akeso is eligible for up to **$4.56 billion** in regulatory and commercial milestones, plus low double-digit royalties on net sales[123](index=123&type=chunk) [Ivonescimab](index=22&type=section&id=Ivonescimab) - Ivonescimab is a novel, potential first-in-class PD-1 / VEGF bispecific antibody, engineered with Akeso's Tetrabody technology to enhance antitumor activity by cooperatively binding targets in the tumor micro-environment[125](index=125&type=chunk)[127](index=127&type=chunk) - The design aims to improve efficacy and safety profiles by directing ivonescimab to tumor tissue versus healthy tissue[127](index=127&type=chunk) - Ivonescimab has been dosed in more than **2,800** patients globally across multiple Phase III and early-phase trials[128](index=128&type=chunk) [Akeso-Sponsored Ivonescimab Trials](index=23&type=section&id=Akeso-Sponsored%20Ivonescimab%20Trials) - HARMONi-A (China-based Phase III) achieved its primary endpoint of PFS (HR: **0.46**) in NSCLC patients who progressed after EGFR-TKI, leading to approval in China[130](index=130&type=chunk) - HARMONi-2 (China-based Phase III) demonstrated statistically significant PFS improvement (HR: **0.51**) as monotherapy versus pembrolizumab in first-line PD-L1 positive NSCLC, approved in China in April 2025[132](index=132&type=chunk)[134](index=134&type=chunk) - HARMONi-6 (China-based Phase III) showed statistically significant PFS improvement when ivonescimab combined with platinum-based chemotherapy in previously untreated advanced NSCLC[135](index=135&type=chunk) - Akeso is also conducting multiple other Phase III clinical trials for ivonescimab in various solid tumors[129](index=129&type=chunk) [Product Pipeline (Summit Sponsored Ivonescimab Trials)](index=25&type=section&id=Product%20Pipeline%20(Summit%20Sponsored%20Ivonescimab%20Trials)) - Summit is investigating ivonescimab in global Phase III clinical trials for NSCLC within its Licensed Territory[138](index=138&type=chunk) - The HARMONi study (2L+ EGFRm NSCLC) completed enrollment in North America and Europe in October 2024, with topline results in May 2025 showing statistically significant PFS (HR **0.52**)[139](index=139&type=chunk)[140](index=140&type=chunk) - The HARMONi-3 study (1L metastatic NSCLC) is actively enrolling patients in North America, China, and Europe, comparing ivonescimab plus chemotherapy to pembrolizumab plus chemotherapy[144](index=144&type=chunk)[145](index=145&type=chunk) - The HARMONi-7 study is enrolling patients for first-line metastatic NSCLC with high PD-L1 expression, comparing ivonescimab monotherapy to pembrolizumab monotherapy[146](index=146&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Results of Operations (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total operating expenses | $568.4 | $59.6 | $635.3 | $102.0 | | Other income, net | $2.7 | $2.3 | $6.7 | $4.3 | | Interest expense | — | $(3.1) | — | $(6.2) | | Net loss | $(565.7) | $(60.4) | $(628.6) | $(103.9) | - Net loss for Q2 2025 was **$(565.7) million**, a significant increase from **$(60.4) million** in Q2 2024, primarily due to higher operating expenses[151](index=151&type=chunk) [Operating Expenses](index=26&type=section&id=Operating%20Expenses) Operating Expense (in millions) | Operating Expense (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $208.0 | $30.8 | $259.3 | $61.7 | | General and administrative | $360.4 | $13.8 | $376.0 | $25.3 | - Research and development expenses increased by **$162.2 million** (QoQ) and **$182.6 million** (YoY) for the three and six months ended June 30, 2025, primarily due to a **$123.7 million** increase in stock-based compensation from option modification and increased oncology clinical trial costs[155](index=155&type=chunk) - General and administrative expenses increased by **$346.6 million** (QoQ) and **$350.7 million** (YoY) for the three and six months ended June 30, 2025, mainly driven by a **$342.9 million** increase in stock-based compensation from option modification, and higher compensation and legal fees[158](index=158&type=chunk)[159](index=159&type=chunk) [Other Income, net](index=28&type=section&id=Other%20Income%2C%20net) - Other income, net, increased by **$0.4 million** (QoQ) and **$2.4 million** (YoY) for the three and six months ended June 30, 2025, primarily due to higher investment income from increased short-term investment balances[161](index=161&type=chunk) [Interest Expense](index=28&type=section&id=Interest%20Expense) - Interest expense decreased to zero for the three and six months ended June 30, 2025, compared to **$3.1 million** and **$6.2 million**, respectively, in the prior year periods, due to the full repayment of promissory notes in October 2024[162](index=162&type=chunk) [Liquidity, Capital Resources and Going Concern](index=28&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Going%20Concern) - The company incurred a net loss of **$565.7 million** (Q2 2025) and **$628.6 million** (H1 2025), with cash used in operating activities of **$127.9 million** for H1 2025[163](index=163&type=chunk) - As of June 30, 2025, the company had an accumulated deficit of **$1,843.2 million** and cash and cash equivalents of **$297.9 million**[163](index=163&type=chunk) - The company's cash and cash equivalents are insufficient to fund planned operations for at least one year, raising substantial doubt about its ability to continue as a going concern[164](index=164&type=chunk)[201](index=201&type=chunk) - The company plans to raise additional capital through equity and debt offerings, collaborations, strategic alliances, and licensing arrangements to fund ongoing operations and potential milestone payments of **$4.56 billion** to Akeso[165](index=165&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk) [Going Concern](index=28&type=section&id=Going%20Concern) - The company's cash and cash equivalents are not sufficient to fund planned operations for at least one year from the financial statement issuance date, leading to substantial doubt about its ability to continue as a going concern[164](index=164&type=chunk)[201](index=201&type=chunk) - Management is evaluating options to raise additional capital through various financing methods, but there is no assurance that funding will be available on acceptable terms[165](index=165&type=chunk) [Sources of Liquidity](index=29&type=section&id=Sources%20of%20Liquidity) - Operations have been financed primarily through common stock issuances, including a **$235.0 million** private placement in September 2024 and **$44.2 million** from an ATM Agreement in 2024[166](index=166&type=chunk) - The company has a shelf registration statement for up to **$450 million**, with **$45.8 million** remaining under its ATM program as of June 30, 2025[168](index=168&type=chunk) - Future capital requirements will depend on factors such as clinical development of ivonescimab, regulatory approvals, commercialization efforts, and potential milestone payments of **$4.56 billion** to Akeso[169](index=169&type=chunk)[170](index=170&type=chunk) [Cash Flows](index=30&type=section&id=Cash%20Flows) Cash Flow Activity (in millions) | Cash Flow Activity (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(127.9) | $(63.1) | | Net cash provided by (used in) investing activities | $310.9 | $(180.2) | | Net cash provided by financing activities | $9.9 | $200.7 | - Net cash used in operating activities increased to **$127.9 million** in H1 2025, primarily due to a net loss of **$628.6 million** and a **$15.2 million** net change in working capital, partially offset by **$485.5 million** in non-cash charges (mainly stock-based compensation)[174](index=174&type=chunk) - Net cash provided by investing activities was **$310.9 million** in H1 2025, mainly from **$311.3 million** received from maturities of short-term investments[178](index=178&type=chunk) - Net cash provided by financing activities was **$9.9 million** in H1 2025, from warrant exercises and employee stock awards, a decrease from **$200.7 million** in H1 2024 which included private placement proceeds[180](index=180&type=chunk)[181](index=181&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) - There have been no material changes to the company's critical accounting policies and estimates as disclosed in its Annual Report[183](index=183&type=chunk) - Management continues to evaluate estimates and judgments related to research and development expenses, stock-based compensation, and income taxes[182](index=182&type=chunk) [Recently Issued Accounting Pronouncements](index=31&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - Refer to Note 2 for a discussion of recently issued accounting pronouncements, including the adoption of ASU 2023-09 and the evaluation of ASU 2024-03 and the OBBBA[186](index=186&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's primary exposures to market risk, including liquidity, foreign currency, interest rate, and credit risk, highlighting significant liquidity risk due to ongoing capital needs, while foreign currency and interest rate risks are currently deemed immaterial, and credit risk is considered low [Liquidity Risk](index=32&type=section&id=Liquidity%20Risk) - The company faces significant liquidity risk due to its reliance on equity and debt securities for funding and the potential unavailability of adequate additional financing on acceptable terms[188](index=188&type=chunk) [Foreign Currency Exchange Rate Risk](index=32&type=section&id=Foreign%20Currency%20Exchange%20Rate%20Risk) - The company is exposed to foreign currency exchange rate risk from operating transactions denominated in pound sterling, U.S. dollar, Japanese Yen, and euro, but currently manages exposures through natural hedging, with no material impact[189](index=189&type=chunk) [Interest Rate Risk](index=32&type=section&id=Interest%20Rate%20Risk) - The company has minimal exposure to changes in the fair value of its investment portfolio due to the short-term nature of its cash, cash equivalents, and short-term investments[190](index=190&type=chunk) [Credit Risk](index=32&type=section&id=Credit%20Risk) - The company considers its material counterparties creditworthy and has a low concentration of credit risk, with a high likelihood of collecting **$1.4 million** in research and development tax credits[191](index=191&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms that management, including the Co-Chief Executive Officers and Chief Operating Officer/Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, and reports no material changes in internal control over financial reporting during the quarter [Disclosure Controls and Procedures](index=32&type=section&id=Disclosure%20Controls%20and%20Procedures) - Management concluded that the company's disclosure controls and procedures were effective at a reasonable level of assurance as of June 30, 2025[193](index=193&type=chunk) [Changes in Internal Control over Financial Reporting](index=33&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[194](index=194&type=chunk) [PART II - OTHER INFORMATION](index=34&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section details two significant legal proceedings: a derivative lawsuit filed in March 2025 concerning the December 2022 Promissory Notes, alleging breach of fiduciary duty, and a European Patent Opposition filed in June 2025 against the ivonescimab patent [Litigation Relating to the December 2022 Notes Entered into in Connection with the License Agreement](index=34&type=section&id=Litigation%20Relating%20to%20the%20December%202022%20Notes%20Entered%20into%20in%20Connection%20with%20the%20License%20Agreement) - A derivative lawsuit was filed on March 17, 2025, alleging breach of fiduciary duty and unjust enrichment concerning the December 2022 Promissory Notes issued to Mr. Duggan and Dr. Zanganeh[197](index=197&type=chunk)[198](index=198&type=chunk) - The suit seeks unspecified damages and rescission of shares received as prepaid interest payments under the notes[197](index=197&type=chunk) - A motion to dismiss the complaint was filed, and briefing is stayed pending a Delaware Supreme Court decision on similar constitutional questions[198](index=198&type=chunk) [European Patent Opposition](index=34&type=section&id=European%20Patent%20Opposition) - On June 18, 2025, an unknown third party filed a notice of opposition against the company's in-licensed EP3882275B1 patent for ivonescimab in the European Patent Office, asserting lack of inventive step[199](index=199&type=chunk) - The company contests these assertions and intends to work with Akeso to file a timely response[199](index=199&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report for a detailed discussion of risk factors, emphasizing the substantial doubt about the company's ability to continue as a going concern due to insufficient working capital and the uncertainty of raising additional funds - There is substantial doubt about the company's ability to continue as a going concern due to insufficient cash and cash equivalents to fund planned operations for the next twelve months[201](index=201&type=chunk) - Inability to raise additional capital could force delays or reductions in research and development programs, product portfolio expansion, or future commercialization efforts, potentially leading to a curtailment or cessation of operations[201](index=201&type=chunk) - No material changes to the risk factors disclosed in the Annual Report other than those explicitly mentioned in this Quarterly Report[202](index=202&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities during the reporting period that had not been previously disclosed in a Current Report on Form 8-K - No unregistered sales of equity securities occurred during the period covered by this Quarterly Report on Form 10-Q that were not previously included in a Current Report on Form 8-K[203](index=203&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period - None[204](index=204&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no mine safety disclosures to report - None[206](index=206&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) This section indicates that there are no 10b5-1 trading plans to disclose - No 10b5-1 trading plans are reported[208](index=208&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of exhibits filed with the Form 10-Q, including corporate governance documents, certifications from executive officers, and XBRL taxonomy files - Exhibits include the Restated Certificate of Incorporation and Amended and Restated Bylaws, along with their amendments[211](index=211&type=chunk) - Certifications from the Chairman and CEO, Executive Director, CEO, President, and Principal Financial Officer are included, pursuant to the Sarbanes-Oxley Act[211](index=211&type=chunk) - XBRL Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents, as well as the Cover Page Interactive Data File, are furnished[211](index=211&type=chunk) [SIGNATURES](index=37&type=section&id=SIGNATURES)

Executive Summary FGI Industries reported a 5.5% revenue increase in Q2 2025, driven by strategic investments and market expansion, despite tariff impacts leading to gross profit and net loss declines [Q2 2025 Performance Highlights](index=1&type=section&id=Q2%202025%20Performance%20Highlights) FGI Industries achieved a 5.5% revenue increase to $31.0 million in Q2 2025, yet gross profit and margin declined, resulting in an operating and net loss due to tariff impacts Second Quarter 2025 Key Financial Highlights (YoY Comparison) | Metric | Q2 2025 (USD) | Change vs. Q2 2024 | | :-------------------- | :-------------- | :----------------- | | Total Revenue | $31.0 million | +5.5% | | Gross Profit | $8.7 million | -2.9% | | Gross Margin | 28.1% | -240 bps | | Operating Loss | $0.8 million | (from $0.5M income) | | Net Loss Attributable to Shareholders | $1.2 million | (from $0.2M income) | | Adjusted Operating Loss | $0.8 million | | | Adjusted Net Loss | $1.2 million | | [Management Commentary & Strategic Initiatives](index=1&type=section&id=Management%20Commentary%20%26%20Strategic%20Initiatives) Management attributed revenue growth to strategic investments and market expansion in key product categories and international markets, while actively navigating tariffs and pursuing long-term growth initiatives - Revenue growth was driven by **Sanitaryware (+4.3% YoY)**, **Bath Furniture (+2.7% YoY)**, and **Covered Bridge cabinetry (+67.7% YoY)**[3](index=3&type=chunk) - International markets showed strong growth: **Canada revenue grew 2.0%** and **Europe grew 36.7% YoY**, while U.S. revenue declined **0.4%**[3](index=3&type=chunk) - The company is evaluating a **'China+1' strategy** to diversify geographic sourcing and mitigate tariff impacts[3](index=3&type=chunk) - Strategic investments include brands, products, channels, the digital custom kitchen joint venture Isla Porter (AI-backed platform), and expansion in India[3](index=3&type=chunk)[4](index=4&type=chunk) - Operating expenses increased **1.3% YoY to $9.5 million** due to investments in BPC growth strategy initiatives and one-time warehouse optimization costs[4](index=4&type=chunk) - The best use of capital is prioritized for internal investment to attract new customers, expand relationships, develop new products/manufacturing, and enter new jurisdictions[4](index=4&type=chunk) Second Quarter 2025 Financial Results FGI Industries' Q2 2025 financial results show revenue growth offset by declining gross profit and a net loss, primarily due to tariff impacts and increased operating expenses [Revenue and Gross Profit Analysis](index=1&type=section&id=Revenue%20and%20Gross%20Profit%20Analysis) FGI's Q2 2025 revenue grew 5.5% to $31.0 million, driven by product and international market expansion, though gross profit decreased 2.9% and margin declined 240 bps due to tariffs and freight costs Q2 2025 Revenue and Gross Profit (YoY Comparison) | Metric | Q2 2025 (USD) | Q2 2024 (USD) | YoY Change | | :---------------- | :-------------- | :-------------- | :--------- | | Total Revenue | $30,998,260 | $29,370,949 | +5.5% | | Cost of Revenue | $22,291,653 | $20,407,647 | +9.2% | | Gross Profit | $8,706,607 | $8,963,302 | -2.9% | | Gross Margin | 28.1% | 30.5% | -240 bps | - The decline in gross margin was primarily attributed to the ongoing tariff environment and higher freight costs[3](index=3&type=chunk)[7](index=7&type=chunk) [Operating and Net Income/Loss Analysis](index=1&type=section&id=Operating%20and%20Net%20Income%2FLoss%20Analysis) FGI reported an operating loss of $0.8 million and a GAAP net loss of $1.2 million in Q2 2025, a decline from prior-year income, driven by increased operating expenses for growth initiatives and personnel Q2 2025 Operating and Net Income/Loss (YoY Comparison) | Metric | Q2 2025 (USD) | Q2 2024 (USD) | YoY Change | | :------------------------------------ | :-------------- | :-------------- | :-------------------- | | Operating Loss | $(832,338) | $(450,362) | (from income of $0.5M) | | Adjusted Operating Loss | $(832,338) | $(328,873) | | | Operating Margin | (2.7%) | (1.5%) | -120 bps | | Adjusted Operating Margin | (2.7%) | (1.1%) | -160 bps | | GAAP Net Loss Attributable to Shareholders | $(1,231,524) | $163,565 | (from income of $0.2M) | | GAAP Diluted EPS | $(0.64) | $0.08 | | | Adjusted Net Loss | $(1,161,873) | $22,700 | | | Adjusted Diluted EPS | $(0.61) | $0.01 | | - The decline in operating income was a result of increased personnel costs, marketing and promotion expenses, warehouse expenses, and operating expenses tied to growth initiatives[8](index=8&type=chunk) - Net loss for Q2 2025 and 2024 included after-tax expenses related to business expansion and non-recurring IPO-related compensation[9](index=9&type=chunk) Financial Position and Outlook FGI Industries maintains $16.4 million in liquidity as of June 30, 2025, and reiterates its fiscal year 2025 revenue guidance of $135-145 million, with varied segment performance [Liquidity and Capital Resources](index=2&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, FGI Industries maintained $16.4 million in total available liquidity, comprising cash and credit facility availability, with total debt at $12.6 million Financial Resources and Liquidity (as of June 30, 2025) | Metric | Amount (USD) | | :-------------------------------- | :------------- | | Cash and Cash Equivalents | $2.5 million | | Total Debt | $12.6 million | | Availability under Credit Facilities (net of L/C) | $13.9 million | | Total Liquidity | $16.4 million | [Fiscal Year 2025 Guidance](index=2&type=section&id=Fiscal%20Year%202025%20Guidance) The company reiterated its fiscal year 2025 guidance, projecting total net revenue between $135-145 million, with adjusted operating income ranging from a loss of $2.0 million to a gain of $1.5 million, and adjusted net income from a loss of $1.9 million to a gain of $1.0 million Fiscal Year 2025 Guidance | Metric | Range (USD) | | :-------------------------- | :-------------------- | | Total Net Revenue | $135 - $145 million | | Total Adjusted Operating Income | $(2.0) - $1.5 million | | Total Adjusted Net Income | $(1.9) - $1.0 million | [Segment Revenue Performance](index=1&type=section&id=Segment%20Revenue%20Performance) Q2 2025 saw revenue growth in Sanitaryware, Bath Furniture, and Other (Kitchen Cabinets, including Covered Bridge), while Shower Systems revenue declined Q2 2025 Revenue by Product Category (YoY Comparison) | Product Category | Q2 2025 Revenue (USD) | Q2 2024 Revenue (USD) | YoY Change | | :----------------- | :-------------------- | :-------------------- | :--------- | | Sanitaryware | $18.1 million | $17.3 million | +4.6% | | Bath Furniture | $4.1 million | $4.0 million | +2.5% | | Shower Systems | $5.2 million | $5.9 million | -11.9% | | Other (Kitchen Cabinets) | $3.5 million | $2.1 million | +66.7% | - Bath Furniture revenue growth was driven by a shift to market-aligned program pricing and design, outpacing sales expectations due to new business wins[13](index=13&type=chunk) - Other revenue, primarily from Kitchen Cabinets (including Covered Bridge), showed strong growth due to continued order momentum, expanded geographies, and a higher dealer count[3](index=3&type=chunk)[13](index=13&type=chunk) Company Information and Disclosures FGI Industries, a global kitchen and bath product supplier, outlines its use of non-GAAP financial measures, forward-looking statement disclaimers, and updated investor relations policies [About FGI Industries](index=3&type=section&id=About%20FGI%20Industries) FGI Industries Ltd. is a global supplier of innovative kitchen and bath products, serving the repair and remodel market through diverse channels with sanitaryware, bath furniture, shower systems, and custom cabinetry - FGI Industries Ltd. is a leading global supplier of kitchen and bath products with over 30 years of industry reputation for product innovation, quality, and customer service[16](index=16&type=chunk) - Key product categories include sanitaryware (toilets, sinks), bath furniture (vanities, mirrors, cabinets), shower systems, custom kitchen cabinetry, and other accessory items[16](index=16&type=chunk) - Products are primarily sold for repair and remodel activities, and to a lesser extent, new home or commercial construction, through mass retail centers, wholesale/commercial distributors, online retailers, and specialty stores[16](index=16&type=chunk) [Non-GAAP Financial Measures](index=3&type=section&id=Non-GAAP%20Financial%20Measures) FGI Industries uses non-GAAP measures like Adjusted Operating Income and Net Income to evaluate performance and aid strategic decisions, excluding non-recurring items for enhanced investor insight and comparability - Non-GAAP measures used include **Adjusted Operating Income**, **Adjusted Operating Margins**, and **Adjusted Net Income**[17](index=17&type=chunk) - Adjusted Operating Income excludes non-recurring income/expenses like IPO-related compensation, unusual litigation, and business expansion expense[17](index=17&type=chunk) - Adjusted Net Income further excludes income taxes at historical average effective rates and net income attributable to non-controlling shareholders[17](index=17&type=chunk) - These non-GAAP measures are used to evaluate business, measure financial performance, manage expenses, identify trends, and assist in strategic decisions, providing investors with additional insight and comparability[18](index=18&type=chunk) - Beginning in Q1 2025, the presentation of non-GAAP measures was revised to provide more meaningful insight, with historical comparative figures adjusted accordingly[29](index=29&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This release contains forward-looking statements, based on current information and subject to risks and uncertainties, with actual results potentially differing materially, and no obligation to update unless legally required - Forward-looking statements are identified by words such as "anticipate," "expect," "could," "may," "intend," "plan," "see," and "believe"[19](index=19&type=chunk) - These statements are based on currently available operating, financial, economic, and other information and are subject to numerous risks and uncertainties[20](index=20&type=chunk) - Actual future events or results may differ materially from those projected, and readers are referred to FGI's SEC filings (Form 10-K, 10-Q) for a full description of risks[20](index=20&type=chunk) - FGI does not undertake any obligation to update forward-looking statements unless required by applicable securities laws[20](index=20&type=chunk) [Investor Relations](index=2&type=section&id=Investor%20Relations) FGI Industries has updated its earnings call schedule to cover only Q2 and Q4, while continuing quarterly releases, with investor inquiries directed to the CFO and Q2 2025 conference call details provided - FGI will hold quarterly earnings calls only for the second and fourth quarters, continuing to release results via press releases and SEC filings quarterly[10](index=10&type=chunk) - Investor inquiries can be submitted via email to investorrelations@fgi-industries.com or by phone at **973-515-7190**, with Jae Chung as the Chief Financial Officer and investor contact[10](index=10&type=chunk)[21](index=21&type=chunk) - A conference call to discuss Q2 2025 results was scheduled for Tuesday, August 12 at **9:00 am Eastern Time**, with webcast and teleconference details provided[13](index=13&type=chunk)[15](index=15&type=chunk) Condensed Consolidated Financial Statements This section presents FGI Industries' unaudited condensed consolidated balance sheets, statements of operations, cash flows, and non-GAAP reconciliations for the specified periods [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets present FGI Industries' financial position as of June 30, 2025, compared to December 31, 2024, showing changes in assets, liabilities, and shareholders' equity Condensed Consolidated Balance Sheets (USD) | Metric | As of June 30, 2025 | As of December 31, 2024 | | :------------------------------------ | :------------------ | :-------------------- | | **ASSETS** | | | | Cash | $2,519,117 | $4,558,160 | | Accounts receivable, net | $15,704,382 | $20,293,555 | | Inventories, net | $12,680,481 | $13,957,867 | | Total current assets | $49,125,064 | $52,897,962 | | Total assets | $71,701,684 | $75,461,415 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Short-term loans | $12,558,500 | $14,502,367 | | Accounts payable | $21,447,290 | $19,349,529 | | Total current liabilities | $40,622,359 | $42,542,826 | | Total liabilities | $51,425,660 | $53,895,765 | | Total shareholders' equity | $20,276,024 | $21,565,650 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The unaudited condensed consolidated statements of operations and comprehensive loss detail the company's financial performance for the three and six months ended June 30, 2025, and 2024, highlighting revenue, gross profit, operating loss, and net loss trends Condensed Consolidated Statements of Operations and Comprehensive Loss (USD) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $30,998,260 | $29,370,949 | $64,210,808 | $60,124,468 | | Gross profit | $8,706,607 | $8,963,302 | $17,606,865 | $17,376,785 | | Total operating expenses | $9,538,945 | $9,413,664 | $19,720,062 | $18,148,081 | | Loss from operations | $(832,338) | $(450,362) | $(2,113,197) | $(771,296) | | Net loss | $(1,364,465) | $(23,415) | $(2,180,022) | $(561,274) | | Net (loss) income attributable to FGI Industries Ltd. shareholders | $(1,231,524) | $163,565 | $(1,860,616) | $(248,624) | | Diluted (Loss) earnings per share | $(0.64) | $0.08 | $(0.97) | $(0.13) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The unaudited condensed consolidated statements of cash flows provide an overview of cash generated from or used in operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, showing a shift from cash used in operations to cash provided by operations year-over-year Condensed Consolidated Statements of Cash Flows (USD) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $195,667 | $(7,127,778) | | Net cash used in investing activities | $(631,150) | $(1,859,419) | | Net cash (used in) provided by financing activities | $(1,943,867) | $2,733,024 | | Net changes in cash | $(2,039,043) | $(6,470,149) | | Cash, End of Period | $2,519,117 | $1,307,092 | [Non-GAAP Reconciliations](index=13&type=section&id=Non-GAAP%20Reconciliations) This section provides detailed reconciliations of GAAP income from operations to Adjusted Operating (Loss) Income and Adjusted Operating Margins, and GAAP net income to Adjusted Net Income, for the three and twelve months ended June 30, 2025, and 2024, adjusting for non-recurring items Reconciliation of GAAP to Adjusted Operating (Loss) Income (USD) | Metric | Q2 2025 | Q2 2024 | LTM June 30, 2025 | LTM June 30, 2024 | | :------------------------------------ | :------ | :------ | :---------------- | :---------------- | | Loss from operations | $(832,338) | $(450,362) | $(3,441,492) | $955,799 | | Adjustments: | | | | | | Non-recurring IPO-related share-based compensation | — | $59,719 | $139,344 | $238,876 | | Business expansion expense | — | $61,770 | $123,540 | $247,082 | | Adjusted Operating Loss | $(832,338) | $(328,873) | $(3,178,608) | $1,441,757 | | Adjusted Operating Margins (%) | (2.7) | (1.1) | (2.3) | 1.2 | Reconciliation of GAAP to Adjusted Net (Loss) Income (USD) | Metric | Q2 2025 | Q2 2024 | LTM June 30, 2025 | LTM June 30, 2024 | | :------------------------------------ | :------ | :------ | :---------------- | :---------------- | | Loss before income taxes | $(1,579,041) | $(321,830) | $(4,578,826) | $541,207 | | Adjustments: | | | | | | Non-recurring IPO-related share-based compensation | — | $59,719 | $139,344 | $238,876 | | Business expansion expense | — | $61,770 | $123,540 | $247,082 | | Adjusted loss before income taxes | $(1,579,041) | $(200,341) | $(4,315,942) | $1,027,165 | | Less: income taxes at 18% rate | $(284,227) | $(36,061) | $(776,870) | $184,890 | | Less: net loss attributable to non-controlling shareholders | $(132,941) | $(186,980) | $(539,944) | $(466,690) | | Adjusted Net (Loss) Income | $(1,161,873) | $22,700 | $(2,999,128) | $1,308,965 |

Part I. Financial Information [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for Q2 2025, including balance sheets, operations, cash flows, and notes on accounting policies and key items | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$11,588,362** | **$12,645,265** | | Total loans held for investment, net | $7,510,763 | $7,909,091 | | Loans held for sale | $476,727 | $1,285,819 | | **Total Liabilities** | **$10,537,736** | **$11,591,902** | | Deposits | $8,593,693 | $9,870,279 | | Borrowings | $1,669,315 | $1,425,369 | | **Total Shareholders' Equity** | **$1,050,626** | **$1,053,363** | | (In thousands, except per share amounts) | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | | :--- | :--- | :--- | | Net interest income | $50,082 | $43,829 | | Provision for credit losses | $2,366 | $(806) | | Total noninterest income | $1,338 | $13,658 | | Total noninterest expense | $59,924 | $55,629 | | **Net (loss) income** | **$(7,690)** | **$3,085** | | **Diluted EPS** | **$(0.09)** | **$0.05** | [Note 2: Fair Value Measurements](index=10&type=section&id=NOTE%202%3A%20FAIR%20VALUE%20MEASUREMENTS) Details fair value measurements using a three-level hierarchy, with tables for recurring and non-recurring assets and liabilities, mostly Level 2 Fair Value of Financial Instruments (June 30, 2025) | (In thousands) | Carrying Value | Fair Value | | :--- | :--- | :--- | | **Assets** | | | | Securities AFS, net | $1,469,122 | $1,469,122 | | Securities HTM | $663,807 | $604,367 | | Loans held for sale | $476,727 | $476,727 | | Loans held for investment, net | $7,510,763 | $7,379,679 | | **Liabilities** | | | | Deposits | $8,593,693 | $8,601,170 | | Borrowings | $1,669,315 | $1,696,461 | | Subordinated debt | $173,490 | $156,564 | [Note 3: Securities](index=19&type=section&id=NOTE%203%3A%20SECURITIES) Details AFS and HTM securities portfolios, including cost, fair value, and credit loss allowance, with AFS at $1.47B and HTM at $664M Securities Portfolio Summary (June 30, 2025) | (In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | :--- | | **AFS Total** | **$1,485,810** | **$253** | **$(16,290)** | **$(651)** | **$1,469,122** | | **HTM Total** | **$663,807** | **$—** | **$(59,440)** | **$—** | **$604,367** | - During the six months ended June 30, 2025, the company sold **$466 million** par value of AFS securities, resulting in a gain of **$4.7 million**[58](index=58&type=chunk) - The allowance for credit losses on investments decreased from **$4.1 million** at year-end 2024 to **$651 thousand** at June 30, 2025, primarily due to a **$3.4 million** charge-off of an interest-only strip security that was previously reserved for[60](index=60&type=chunk)[61](index=61&type=chunk) [Note 4: Loans](index=27&type=section&id=NOTE%204%3A%20LOANS) Details the $7.5B loan portfolio by type, credit quality, and troubled debt restructurings, with real estate loans as the largest portion Loans Held for Investment Composition | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Multifamily | $3,288,093 | $3,341,823 | | Single-family | $822,508 | $873,491 | | Commercial properties | $818,738 | $904,167 | | Commercial and industrial loans | $2,568,621 | $2,746,351 | | **Total** | **$7,548,323** | **$7,941,393** | - Total past due and nonaccrual loans decreased to **$49.8 million** (**0.66%** of total loans) at June 30, 2025, from **$70.4 million** (**0.89%** of total loans) at December 31, 2024[70](index=70&type=chunk) - During the first six months of 2025, the company sold loans with an unpaid principal balance of **$858 million**, resulting in a net loss on sale of **$10.4 million**[69](index=69&type=chunk) [Note 5: Allowance for Credit Losses](index=34&type=section&id=NOTE%205%3A%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) Explains CECL methodology for ACL for loans, detailing its rollforward, with ACL increasing to $37.6M due to a $5.6M provision Rollforward of Allowance for Credit Losses - Loans (Six Months Ended June 30, 2025) | (In thousands) | Amount | | :--- | :--- | | **Beginning Balance (Dec 31, 2024)** | **$32,302** | | Provision for Credit Losses | $5,585 | | Charge-offs | $(895) | | Recoveries | $568 | | **Ending Balance (June 30, 2025)** | **$37,560** | [Note 9: Deposits](index=42&type=section&id=NOTE%209%3A%20DEPOSITS) Breaks down the Company's deposit base by type, showing total deposits decreased to $8.6B from $9.9B, with a slight rate decrease Deposit Composition | (In thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing | $1,467,203 | $1,956,628 | | Interest-bearing Demand | $1,672,287 | $1,995,397 | | Money market and savings | $3,604,909 | $3,524,801 | | Certificates of deposit | $1,849,294 | $2,393,453 | | **Total Deposits** | **$8,593,693** | **$9,870,279** | [Note 15: Segment Reporting](index=51&type=section&id=NOTE%2015%3A%20SEGMENT%20REPORTING) Summarizes key operating results for Banking and Wealth Management segments, with Banking reporting a $7.8M pre-tax loss and Wealth Management a $0.4M pre-tax income Segment (Loss) Income Before Income Taxes (Q2 2025 vs Q2 2024) | (In thousands) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Banking | $(7,753) | $3,280 | | Wealth Management | $371 | $2,106 | | Other | $(3,488) | $(2,722) | | **Total** | **$(10,870)** | **$2,664** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=54&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's narrative on financial performance and condition, detailing Q2 2025 net loss drivers, strategic reductions, NIM, credit quality, liquidity, and capital [Overview](index=57&type=section&id=Overview) Reports a $7.7M net loss for Q2 2025, a shift from Q2 2024 income, with total assets decreasing by $1.1B due to loan sales, reducing liabilities - The company reported a net loss of **$7.7 million** in Q2 2025, compared to net income of **$3.1 million** in Q2 2024[138](index=138&type=chunk) - Total assets decreased by **$1.1 billion** (**8.4%**) since year-end 2024, largely due to a **$1.2 billion** decrease in total loans, driven by the sale of **$858 million** in multifamily loans held for sale[139](index=139&type=chunk) - Total liabilities decreased by **$1.1 billion** (**9.1%**), mainly from a **$1.3 billion** reduction in deposits, as proceeds from loan sales were used to pay down high-cost deposits[140](index=140&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) Q2 2025 net loss driven by a $10.4M loss on loan sales, with net interest income growing and NIM expanding to 1.68%, despite increased noninterest expense - The Q2 2025 net loss was primarily caused by a **$10.4 million** loss on the sale of **$858 million** in multifamily loans held for sale, as part of a strategy to reduce exposure to low-coupon fixed-rate loans[144](index=144&type=chunk) Net Interest Margin Analysis | | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Interest Income | $50,082 | $43,829 | | Net Interest Rate Spread | 0.82% | 0.44% | | Net Interest Margin | 1.68% | 1.36% | [Financial Condition](index=74&type=section&id=Financial%20Condition) The balance sheet contracted in H1 2025, with assets and liabilities decreasing by $1.1B from loan sales and deposit reductions, maintaining a stable loan-to-deposit ratio - Total assets decreased by **$1.1 billion** in the first six months of 2025, mainly from the sale of **$858 million** in multifamily loans[173](index=173&type=chunk) - Total deposits decreased by **$1.3 billion**, with significant reductions in higher-cost specialty deposits (**$826 million**) and brokered deposits (**$591 million**)[191](index=191&type=chunk) - The loan-to-deposit ratio was **93.4%** at June 30, 2025, nearly unchanged from **93.5%** at December 31, 2024[217](index=217&type=chunk) [Delinquent Loans, Nonperforming Assets and Provision for Credit Losses](index=85&type=section&id=Delinquent%20Loans%2C%20Nonperforming%20Assets%20and%20Provision%20for%20Credit%20Losses) Credit quality improved with nonaccrual loans decreasing to $34.6M, while ACL for loans increased to $37.6M, or 0.50% of loans, reflecting a $5.6M provision - Nonaccrual loans decreased from **$40.4 million** at year-end 2024 to **$34.6 million** at June 30, 2025[204](index=204&type=chunk) Allowance for Credit Losses (ACL) Ratios | | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | ACL for Loans (in thousands) | $37,560 | $32,302 | | ACL as % of Loans Held for Investment | 0.50% | 0.41% | | ACL as % of Nonaccrual Loans | 108% | 80% | [Liquidity and Capital Resources](index=88&type=section&id=Liquidity%20and%20Capital%20Resources) Maintains strong liquidity and capital, with $2.1B in unused borrowing capacity, and both holding company and bank exceeding all regulatory capital requirements - The company had **$2.1 billion** in unused borrowing capacity as of June 30, 2025, including lines with the FHLB, Federal Reserve, and correspondent banks[201](index=201&type=chunk)[210](index=210&type=chunk) Regulatory Capital Ratios (June 30, 2025) | Ratio | FFI (Consolidated) | FFB (Bank) | Well-Capitalized Minimum (Bank) | | :--- | :--- | :--- | :--- | | Common equity tier 1 ratio | 11.08% | 13.91% | 6.50% | | Tier 1 Leverage ratio | 8.29% | 9.49% | 5.00% | | Tier 1 risk-based capital ratio | 12.13% | 13.91% | 8.00% | | Total risk-based capital ratio | 14.70% | 14.41% | 10.00% | [Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Directs readers to the 'Interest Rate Risk Management' section in Item 2 for detailed disclosures on market risk - The report refers to the 'Interest Rate Risk Management' section in Item 2 for its quantitative and qualitative disclosures about market risk[238](index=238&type=chunk) [Controls and Procedures](index=98&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were not effective due to a material weakness in ACL internal control, with remediation measures underway - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting[240](index=240&type=chunk) - The company is implementing corrective measures, including engaging a professional services firm to address deficiencies in the allowance for credit loss (ACL) process[241](index=241&type=chunk) Part II. Other Information [Legal Proceedings](index=101&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not aware of any legal proceedings expected to have a material adverse effect on its operations or financial condition[246](index=246&type=chunk) [Risk Factors](index=101&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K[247](index=247&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=101&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Notes the $75M authorized stock repurchase program, with no shares repurchased during Q2 2025 - The company has a **$75 million** stock repurchase program authorized, but no shares were repurchased in the second quarter of 2025[248](index=248&type=chunk) [Other Information](index=101&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025 - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during Q2 2025[249](index=249&type=chunk) [Exhibits](index=102&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate governance documents and CEO/CFO certifications - This section lists all exhibits filed with the report, such as the Certificate of Incorporation, Bylaws, and CEO/CFO certifications[251](index=251&type=chunk)

[Fiscal Third Quarter 2025 Performance Overview](index=1&type=section&id=Fiscal%20Third%20Quarter%202025%20Performance%20Overview) Hillenbrand's Q3 2025 results show revenue declines from divestitures, improved GAAP net income, and strategic debt reduction and synergy realization [Executive Summary & Key Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Key%20Highlights) Hillenbrand's Q3 2025 results exceeded revenue expectations, met adjusted EPS, driven by strategic divestitures and synergy achievements - Strategic portfolio refinement and debt reduction were key activities, with over **$300 million** in debt paid down during the fiscal year from the MIME divestiture and the sale of a minority interest in TerraSource[3](index=3&type=chunk) - Achieved **$30 million** in run-rate cost synergies from the Linxis and FPM acquisitions earlier than planned, and is beginning to see commercial synergy potential[3](index=3&type=chunk)[5](index=5&type=chunk) - Q3 revenue exceeded expectations and adjusted EPS met expectations, despite customer delays due to the dynamic tariff landscape[4](index=4&type=chunk) Q3 2025 Key Financial Metrics (in millions, except EPS) | Metric | Value | Change vs. Prior Year | | :--- | :--- | :--- | | Revenue | $599 million | -24% | | Pro Forma Revenue | $599 million | -10% | | GAAP EPS | $0.03 | Increased from $(3.53) | | Adjusted EPS | $0.51 | -40% | [Consolidated Financial Results (Q3 2025)](index=2&type=section&id=Consolidated%20Financial%20Results%20%28Q3%202025%29) Hillenbrand's Q3 2025 net revenue decreased **24%** to **$599 million** due to divestitures, while GAAP net income improved and adjusted EPS fell **40%** Q3 2025 Consolidated Financial Summary (in millions, except EPS) | Metric | Q3 2025 | Q3 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $598.9 | $786.6 | (24)% | | GAAP Net Income | $1.9 | $(248.9) | 101% | | Adjusted EBITDA | $84.3 | $131.0 | (36)% | | GAAP Diluted EPS | $0.03 | $(3.53) | 101% | | Adjusted Diluted EPS | $0.51 | $0.85 | (40)% | | Pro Forma Net Revenue | $598.9 | $663.0 | (10)% | | Pro Forma Adjusted EBITDA | $84.3 | $116.6 | (28)% | - The significant increase in GAAP net income was primarily due to a non-cash impairment charge related to the hot runner product line within the MTS segment recorded in the prior fiscal year[7](index=7&type=chunk) - The decrease in adjusted EPS was mainly attributed to the divestiture of the MIME business and lower sales volume[8](index=8&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Performance) Both APS and MTS segments experienced Q3 revenue declines, with APS down **11%** and MTS down **58%** (or **2%** pro forma) [Advanced Process Solutions (APS)](index=2&type=section&id=Advanced%20Process%20Solutions%20%28APS%29) APS segment revenue decreased **11%** to **$507 million** due to lower capital equipment volume, with adjusted EBITDA falling **27%** APS Q3 2025 Performance (in millions) | Metric | Q3 2025 | Q3 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $507.0 | $569.4 | (11)% | | Adjusted EBITDA | $80.1 | $109.2 | (27)% | | Adjusted EBITDA Margin | 15.8% | 19.2% | (340) bps | - The decline in revenue was primarily due to lower capital equipment volume, which was partially offset by favorable pricing[10](index=10&type=chunk) - Backlog stood at **$1.57 billion**, a **10%** decrease compared to the prior year and a **2%** sequential decrease[12](index=12&type=chunk) [Molding Technology Solutions (MTS)](index=3&type=section&id=Molding%20Technology%20Solutions%20%28MTS%29) MTS segment revenue decreased **58%** to **$92 million** due to MIME divestiture, or **2%** pro forma, with margins contracting **170 basis points** MTS Q3 2025 Performance (in millions) | Metric | Q3 2025 | Q3 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Revenue | $91.9 | $217.2 | (58)% | | Pro Forma Net Revenue | $91.9 | $93.6 | (2)% | | Adjusted EBITDA | $18.3 | $34.6 | (47)% | | Pro Forma Adjusted EBITDA | $18.3 | $20.2 | (9)% | | Pro Forma Adj. EBITDA Margin | 19.9% | 21.6% | (170) bps | - The significant year-over-year revenue decline was primarily due to the MIME divestiture[13](index=13&type=chunk) - Pro forma backlog increased **7%** compared to the prior year, reaching **$55 million**[15](index=15&type=chunk) [Balance Sheet, Cash Flow and Capital Allocation](index=3&type=section&id=Balance%20Sheet%2C%20Cash%20Flow%20and%20Capital%20Allocation) Hillenbrand's Q3 saw a **$2 million** cash use from operations, with net debt at **$1.51 billion** (3.9x leverage), reduced by **$115 million** post-quarter - Cash flow from operations was a use of **$2 million** in the quarter, primarily due to lower customer advances from decreased order volume[16](index=16&type=chunk) - As of June 30, 2025, net debt was **$1.51 billion**, with a net debt to pro forma adjusted EBITDA ratio of **3.9x**[17](index=17&type=chunk) - On July 1, 2025, the company used **~$115 million** in proceeds from the TerraSource divestiture for debt pay down, resulting in an approximate **0.2x** favorable impact on net leverage[18](index=18&type=chunk) - The company redeemed its **$375 million** notes due in 2026 and amended its credit facilities to enhance operational and financial flexibility[19](index=19&type=chunk)[20](index=20&type=chunk) [Fiscal 2025 Outlook](index=4&type=section&id=Fiscal%202025%20Outlook) Hillenbrand updated its fiscal 2025 outlook, projecting total net revenue between **$2,595 million** and **$2,630 million**, maintaining adjusted EPS midpoint [Updated Guidance](index=4&type=section&id=Updated%20Guidance) Hillenbrand updated its fiscal 2025 outlook, projecting total net revenue between **$2,595 million** and **$2,630 million**, maintaining adjusted EPS midpoint - The company is updating its core outlook for fiscal 2025 but maintaining the mid-point of its full year adjusted EPS range[21](index=21&type=chunk) Fiscal 2025 Full Year Guidance (in millions, except EPS and percentages) | Metric | Total Hillenbrand | Advanced Process Solutions | Molding Technology Solutions | | :--- | :--- | :--- | :--- | | Net Revenue | $2,595 - $2,630 M | $2,005 - $2,030 M | $590 - $600 M | | YoY Revenue Change | (18%) - (17%) | (12%) - (11%) | (34%) - (33%) | | Adj. EBITDA | $370 - $385 M | 16.6% - 16.8% Margin | 16.0% - 16.7% Margin | | Adj. EPS | $2.20 - $2.35 | - | - | | YoY Adj. EPS Change | (34%) - (29%) | - | - | | Operating Cash Flow | ~$60 M | - | - | | CapEx | ~$40 M | - | - | [Financial Statements and Reconciliations](index=8&type=section&id=Financial%20Statements%20and%20Reconciliations) This section provides detailed unaudited consolidated financial statements, including statements of operations, cash flows, and reconciliations of GAAP to non-GAAP measures [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) Unaudited Consolidated Statements of Operations show Q3 2025 net income of **$1.9 million** (or **$0.03** per diluted share), a significant improvement from prior year's **$248.9 million** net loss Consolidated Statements of Operations Highlights (Three Months Ended June 30, in millions) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | Net revenue | $598.9 | $786.6 | | Gross profit | $202.6 | $266.4 | | Impairment charges | $— | $265.0 | | Income (loss) from continuing operations | $4.1 | $(246.9) | | Net income (loss) attributable to Hillenbrand | $1.9 | $(248.9) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended June 30, 2025, cash used in operating activities was **$11.5 million**, with investing activities providing **$84.4 million** and financing activities using **$107.0 million** Cash Flow Summary (Nine Months Ended June 30, in millions) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Operating activities | $(11.5) | $24.8 | | Investing activities | $84.4 | $(40.2) | | Financing activities | $(107.0) | $13.4 | | Net cash flows | $(37.9) | $(25.6) | | Cash at end of period | $190.0 | $224.6 | [Reconciliation of Non-GAAP Measures](index=10&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) This section provides detailed reconciliations of GAAP to non-GAAP measures, adjusting Q3 2025 GAAP net income and EPS to their respective adjusted figures Q3 2025 GAAP to Adjusted EPS Reconciliation | Item | Per Share Amount | | :--- | :--- | | Diluted EPS from continuing operations | $0.03 | | Business acquisition, divestiture, and integration costs | $0.18 | | Restructuring and restructuring-related charges | $0.08 | | Intangible asset amortization | $0.32 | | Loss on divestiture | $0.02 | | Other adjustments (net) | $(0.12) | | **Adjusted Diluted EPS** | **$0.51** | Q3 2025 Consolidated Net Income to Adjusted EBITDA Reconciliation (in millions) | Item | Amount | | :--- | :--- | | Consolidated net income (loss) | $4.1 | | Interest expense, net | $21.3 | | Income tax expense (benefit) | $6.5 | | Depreciation and amortization | $32.7 | | **EBITDA** | **$64.6** | | Business acquisition, divestiture, and integration costs | $12.7 | | Restructuring and restructuring-related charges | $5.5 | | Loss on divestiture | $1.5 | | **Adjusted EBITDA** | **$84.3** | Net Debt to Pro Forma Adjusted EBITDA Ratio (as of June 30, 2025) | Metric | Amount (in millions) | | :--- | :--- | | Total debt | $1,676.2 | | Less: Cash and cash equivalents | $162.8 | | **Net debt** | **$1,513.4** | | Pro forma adjusted EBITDA (TTM) | $389.1 | | **Ratio of net debt to pro forma adjusted EBITDA** | **3.9x** | [Appendix](index=4&type=section&id=Appendix) The appendix provides details on the conference call, explanations of non-GAAP financial measures, forward-looking statements, and an overview of Hillenbrand's business [Conference Call Information](index=4&type=section&id=Conference%20Call%20Information) Hillenbrand will host a conference call and webcast on Tuesday, August 12, 2025, at **8:00 a.m. ET** to discuss fiscal Q3 2025 results - The conference call to discuss results is scheduled for Tuesday, August 12, 2025, at **8:00 a.m. ET**[23](index=23&type=chunk) [About Non-GAAP Financial Measures](index=5&type=section&id=About%20Non-GAAP%20Financial%20Measures) This section explains Hillenbrand's use of non-GAAP financial measures, clarifying their purpose for internal evaluation and investor comparison - Non-GAAP 'adjusted' measures generally exclude items such as business acquisition and divestiture costs, restructuring charges, intangible asset amortization, and other non-recurring costs[24](index=24&type=chunk)[27](index=27&type=chunk) - The company uses non-GAAP information internally to measure operating segment performance and believes it helps investors perform trend analysis by removing distortions from excluded items[25](index=25&type=chunk) - Backlog is defined as the amount of consolidated net revenue expected to be realized on awarded contracts, though it is not a term recognized under GAAP[31](index=31&type=chunk) [Forward-Looking Statements](index=14&type=section&id=Forward-Looking%20Statements) This section contains standard forward-looking statements, cautioning that future results may differ materially due to various risks and uncertainties - The document contains forward-looking statements that are subject to risks and uncertainties, and actual results could vary materially from expectations[43](index=43&type=chunk) - Key risk factors include global market conditions, trade policies, competition, supply chain disruptions, and risks related to acquisitions and divestitures[44](index=44&type=chunk) [About Hillenbrand](index=14&type=section&id=About%20Hillenbrand) Hillenbrand is a global industrial company providing highly-engineered processing equipment and solutions for end markets like durable plastics, food, and recycling - Hillenbrand is a global industrial company providing highly-engineered processing equipment and solutions to customers worldwide[47](index=47&type=chunk) - The company's portfolio serves end markets such as durable plastics, food, and recycling[47](index=47&type=chunk)

[General Information](index=2&type=section&id=General%20Information) This section provides foundational details for the MD&A, covering reporting period, accounting standards, currency, forward-looking statements, and key definitions [Introduction](index=2&type=section&id=1.1%20Introduction) This Management's Discussion and Analysis (MD&A) for EMX Royalty Corporation covers the six months ended June 30, 2025, prepared as of August 6, 2025, in accordance with IFRS Accounting Standards, with all dollar amounts in United States dollars - The MD&A covers the six months ended June 30, 2025, and was prepared as of August 6, 2025, in accordance with IFRS Accounting Standards[2](index=2&type=chunk) - All dollar amounts are presented in United States dollars unless otherwise noted[2](index=2&type=chunk) [Forward-Looking Information and Cautionary Statement](index=2&type=section&id=1.2%20Forward-Looking%20Information%20and%20Cautionary%20Statement) The MD&A contains forward-looking statements, and readers are advised to consult the dedicated 'Forward-Looking Information and Cautionary Statement' section for details on potential variations from management's expectations - The MD&A contains forward-looking statements, and actual events may differ from management's expectations[3](index=3&type=chunk) - Additional company information, including Annual Information Form and Form 40-F, is available on SEDAR+ and EDGAR[3](index=3&type=chunk) [Abbreviated Definitions](index=2&type=section&id=1.3%20Abbreviated%20Definitions) This section provides a glossary of abbreviated definitions used throughout the MD&A, covering periods, measurements (e.g., GEO, oz, t), interest types (e.g., NSR, GSR, NPI), places and currencies, and other technical terms (e.g., FS, IRR, LOM) Key Abbreviated Definitions | Category | Definition | | :--- | :--- | | Periods under review | Q4 (Dec 31), Q3 (Sep 30), Q2 (Jun 30), Q1 (Mar 31) | | Measurement | GEO (Gold equivalent ounces), oz (Ounce), t (Tonne), lb (Pound), Kt (Thousand tonnes), Mlbs (Million pounds), Tsol (Total soluble) | | Interest types | NSR (Net smelter return), GSR (Gross smelter return), NPI (Net profits interest), AMR (Advance minimum royalty), AAR (Annual advance royalty) | | Places and currencies | U.S. (United States), $ or USD (United States dollars), C$ or CAD (Canadian dollars) | | Other | FS (Feasibility study), IRR (Internal rate of return), LOM (Life of mine), NPV (Net present value), PEA (Preliminary Economic Assessment), PFS (Pre-feasibility study), MRE (Mineral Resource Estimate) | [Overview](index=4&type=section&id=Overview) EMX Royalty Corporation specializes in the acquisition and management of royalties, strategic investments, and organic generation of royalties from a diverse portfolio of 212 mineral properties globally - EMX's business involves the acquisition and management of royalties, strategic investments, and organic generation of royalties from a portfolio of mineral property interests[6](index=6&type=chunk) EMX Royalty and Mineral Property Portfolio (as of June 30, 2025) | Asset Type | Quantity | | :--- | :--- | | Producing Royalties | 7 | | Advanced Royalties | 11 | | Exploration Royalties | 121 | | **Total Royalties** | **139** | | Royalty Generation Properties | 73 | - The Company's common shares are listed on the TSX Venture Exchange and NYSE American Exchange under 'EMX', and on the Frankfurt Stock Exchange under '6E9'[7](index=7&type=chunk) [Strategy](index=4&type=section&id=Strategy) EMX's core strategy is to offer shareholders exposure to exploration success and commodity upside through a balanced portfolio of precious and base metals, with a focus on gold and copper - EMX's strategy aims to provide shareholders exposure to exploration success and commodity upside, emphasizing a balanced portfolio of precious and base metals, particularly gold and copper[8](index=8&type=chunk) - The Company's business strategy combines producing royalties, advanced royalty projects, and early-stage exploration royalty properties to provide immediate cash flow, near-term development, and long-term discovery exposure[8](index=8&type=chunk) [Royalty Acquisition](index=4&type=section&id=3.1%20Royalty%20Acquisition) EMX acquires royalty interests across various stages, from producing mines to development projects, focusing on base metals, precious metals, and battery metals, while also considering other cash-flowing opportunities, including in the energy sector - EMX acquires royalty interests ranging from producing mines to development projects[9](index=9&type=chunk) - Acquisitions target base metals, precious metals, battery metals, and other cash-flowing royalty opportunities, including the energy sector[9](index=9&type=chunk) [Royalty Generation and Project Evaluation](index=4&type=section&id=3.2%20Royalty%20Generation%20and%20Project%20Evaluation) Leveraging over 20 years of exploration expertise, EMX organically generates mineral property royalty interests by acquiring prospective ground, building value through low-cost work, and then selling or optioning these properties to partners for retained royalties, advance payments, milestone payments, and equity interests, providing early cash flow and future royalty potential - EMX organically generates mineral property royalty interests by leveraging in-country geological expertise to acquire prospective properties and build value through low-cost work programs[9](index=9&type=chunk) - Properties are sold or optioned to partner companies for retained royalty interests, advance minimum royalty (AMR) and annual advance royalty (AAR) payments, project milestone payments, and other considerations including equity interests[9](index=9&type=chunk) - This strategy provides early-stage cash flows to EMX and potential for future royalty payments upon production, with EMX participating in project upside optionality at no additional cost[9](index=9&type=chunk) [Strategic Investment](index=4&type=section&id=3.3%20Strategic%20Investment) EMX complements its royalty generation and acquisition efforts through strategic equity investments in companies with undervalued mineral assets that possess upside exploration or development potential, with exit strategies including equity sales, royalty positions, or a combination - Strategic equity investments are made in companies with undervalued mineral assets that have upside exploration or development potential[9](index=9&type=chunk) - Exit strategies for these investments can include equity sales, royalty positions, or a combination of both[9](index=9&type=chunk) [Highlights](index=5&type=section&id=Highlights) In Q2 2025, EMX Royalty Corporation demonstrated robust royalty production and benefited from strong metal prices, achieving significant debt repayment, share repurchases, and early property payments - In Q2 2025, EMX achieved robust royalty production, benefited from strong metal prices, repaid **$10,000,000** in corporate debt, and repurchased **1,202,168** common shares for **$2,554,000** under its NCIB program[10](index=10&type=chunk) - The Company received early property payments of **$6,850,000** from AbraSilver Resource Corp for Diablillos and **$1,500,000** from Aftermath Silver Ltd for Berenguela[10](index=10&type=chunk) - Adjusted cash flows from operating activities significantly increased to **$8,978,000** in Q2 2025, compared to **$1,341,000** in Q2 2024, primarily due to early property payments[11](index=11&type=chunk) [Financial Highlights](index=5&type=section&id=4.1%20Financial%20Highlights) EMX reported a net income of $642,000 in Q2 2025, a significant improvement from a net loss of $4,022,000 in Q2 2024, with adjusted royalty revenue increasing by 4.8% in Q2 2025 and 22.4% for the six-month period year-over-year Summary of Financial Highlights (in thousands of dollars) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue and other income | $6,239 | $6,005 | $14,661 | $12,245 | | Income (loss) from operations | $975 | $(837) | $1,514 | $(2,275) | | Net income (loss) | $642 | $(4,022) | $1,902 | $(6,249) | | Cash flows from operating activities | $6,892 | $(514) | $8,181 | $513 | | Adjusted revenue and other income | $8,686 | $8,758 | $20,114 | $17,051 | | Adjusted royalty revenue | $8,214 | $7,836 | $18,965 | $15,493 | | Adjusted cash flows from operating activities | $8,978 | $1,341 | $11,884 | $4,002 | | EBITDA | $3,065 | $(981) | $7,957 | $268 | | Adjusted EBITDA | $4,949 | $4,639 | $12,050 | $7,862 | | GEOs sold | 2,505 | 3,352 | 6,261 | 7,047 | | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $17,158 | $26,773 | | Working capital | $30,188 | $41,501 | - Adjusted royalty revenue increased by **4.8%** in Q2 2025 (YoY) and **22.4%** for the six months ended June 30, 2025 (YoY)[12](index=12&type=chunk) - Net income for Q2 2025 was **$642,000**, a significant improvement from a net loss of **$4,022

General Information [Filing Details](index=1&type=section&id=Filing%20Details) This section provides the administrative details of the Form 10-Q filing for Rackspace Technology, Inc., including its identification as an accelerated filer and smaller reporting company, and the number of outstanding common shares as of August 5, 2025 - Rackspace Technology, Inc. is a Delaware corporation with Commission File Number 001-39420. Its common stock trades on The Nasdaq Stock Market LLC under the symbol RXT[3](index=3&type=chunk) - The registrant is classified as an **Accelerated filer** and a **Smaller reporting company**[4](index=4&type=chunk) - As of August 5, 2025, there were **239,360,677 shares of common stock outstanding**[4](index=4&type=chunk) [Special Note Regarding Forward-Looking Statements](index=4&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section highlights that the report contains forward-looking statements, particularly in 'Risk Factors' and 'Management's Discussion and Analysis,' which involve risks and uncertainties that could cause actual results to differ materially from projections. The company disclaims any obligation to update these statements - The report contains forward-looking statements, primarily in 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations,' which are subject to risks and uncertainties[8](index=8&type=chunk) - Actual future operations and financial results could differ materially and substantially from those discussed in forward-looking statements due to various factors and assumptions about future events[9](index=9&type=chunk) - The company disclaims any obligation to publicly update or revise any forward-looking statements, except as required by law[9](index=9&type=chunk) [Trademarks, Trade Names and Service Marks](index=4&type=section&id=TRADEMARKS%2C%20TRADE%20NAMES%20AND%20SERVICE%20MARKS) This section lists the company's registered and unregistered trademarks, such as 'Rackspace Technology' and 'Fanatical Experience,' and clarifies that the absence of symbols does not waive rights to these marks. It also acknowledges that other trademarks belong to their respective holders - Key trademarks include 'Rackspace,' 'Rackspace Technology,' 'Fanatical,' 'Fanatical Experience,' 'Rackspace Fabric,' 'Rackspace Data Freedom,' 'Rackspace Services for VMware Cloud,' and 'My Rackspace'[11](index=11&type=chunk) - The absence of ® or ™ symbols does not indicate a waiver of the company's or licensor's rights to these trademarks, trade names, and service marks[11](index=11&type=chunk) Part I - Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of comprehensive income (loss), cash flows, and stockholders' deficit, along with detailed notes explaining significant accounting policies, customer contracts, debt, share-based compensation, and segment reporting. The company reported a net loss of **$54.5 million** for the three months ended June 30, 2025, and a total stockholders' deficit of **$1,119.0 million** [Unaudited Condensed Consolidated Balance Sheets](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) | Metric | December 31, 2024 (Millions) | June 30, 2025 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :--------------------------- | :------------------------- | :---------------- | :------- | | Cash and cash equivalents | $144.0 | $103.9 | $(40.1) | -27.8% | | Total current assets | $618.8 | $548.4 | $(70.4) | -11.4% | | Total assets | $3,054.1 | $2,894.9 | $(159.2) | -5.2% | | Total current liabilities | $766.6 | $715.4 | $(51.2) | -6.7% | | Total liabilities | $4,058.3 | $4,013.9 | $(44.4) | -1.1% | | Total stockholders' deficit | $(1,004.2) | $(1,119.0) | $(114.8) | 11.4% | [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2025 (Millions) | Change (Millions) | % Change | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------- | :------- | | Revenue | $684.9 | $666.3 | $(18.6) | -2.7% | | Gross profit | $131.4 | $129.2 | $(2.2) | -1.7% | | Loss from operations | $(53.8) | $(25.1) | $28.7 | -53.3% | | Net income (loss) | $25.0 | $(54.5) | $(79.5) | NM | | Basic EPS | $0.11 | $(0.23) | $(0.34) | NM | | Diluted EPS | $0.11 | $(0.23) | $(0.34) | NM | | Metric | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Change (Millions) | % Change | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------- | :------- | | Revenue | $1,375.7 | $1,331.7 | $(44.0) | -3.2% | | Gross profit | $264.2 | $256.1 | $(8.1) | -3.1% | | Loss from operations | $(706.6) | $(63.5) | $643.1 | -91.0% | | Net income (loss) | $(615.6) | $(126.0) | $489.6 | -79.5% | | Basic EPS | $(2.77) | $(0.54) | $2.23 | -80.5% | | Diluted EPS | $(2.77) | $(0.54) | $2.23 | -80.5% | [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | Change (Millions) | | :-------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------- | | Net cash provided by (used in) operating activities | $(66.2) | $21.0 | $87.2 | | Net cash used in investing activities | $(49.5) | $(29.9) | $19.6 | | Net cash provided by (used in) financing activities | $110.4 | $(35.7) | $(146.1) | | Cash, cash equivalents, and restricted cash at end of period | $193.1 | $105.7 | $(87.4) | [Unaudited Condensed Consolidated Statements of Stockholders' Deficit](index=10&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Deficit) | Metric | December 31, 2024 (Millions) | June 30, 2025 (Millions) | Change (Millions) | | :-------------------------- | :--------------------------- | :------------------------- | :---------------- | | Total stockholders' deficit | $(1,004.2) | $(1,119.0) | $(114.8) | - The accumulated deficit increased from **$(3,682.4) million** at December 31, 2024, to **$(3,808.4) million** at June 30, 2025, primarily due to net losses[13](index=13&type=chunk)[22](index=22&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [1. Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies](index=12&type=section&id=1.%20Company%20Overview%2C%20Basis%20of%20Presentation%2C%20and%20Summary%20of%20Significant%20Accounting%20Policies) - Rackspace Technology, Inc. is a holding company for Rackspace Technology Global, Inc., a global provider of modern information technology-as-a-service, controlled by investment funds affiliated with Apollo Global Management, Inc[24](index=24&type=chunk)[25](index=25&type=chunk) - The company is highly leveraged, with **$2,439.3 million** aggregate principal amount outstanding under its debt instruments as of June 30, 2025. It relies on internally-generated cash and borrowings under the New Revolving Credit Facility for liquidity[30](index=30&type=chunk) - An interim quantitative goodwill impairment analysis as of February 29, 2024, resulted in impairment charges of **$385.4 million** for Public Cloud and **$187.8 million** for Private Cloud, totaling **$573.2 million**. A **$20.0 million** impairment charge was also recorded for the Rackspace trade name[36](index=36&type=chunk)[38](index=38&type=chunk) [2. Customer Contracts](index=16&type=section&id=2.%20Customer%20Contracts) | Metric | December 31, 2024 (Millions) | June 30, 2025 (Millions) | | :-------------------------------- | :--------------------------- | :------------------------- | | Accounts receivable, net | $298.8 | $253.9 | | Current portion of contract assets | $6.2 | $3.9 | | Non-current portion of contract assets | $6.4 | $2.5 | | Current portion of deferred revenue | $84.2 | $68.4 | | Non-current portion of deferred revenue | $2.0 | $2.7 | - Amounts recognized in revenue from deferred revenue at the beginning of the period were **$48.9 million** for the three months ended June 30, 2025 (vs. **$43.9 million** in 2024) and **$68.0 million** for the six months ended June 30, 2025 (vs. **$61.3 million** in 2024)[46](index=46&type=chunk) - As of June 30, 2025, the aggregate amount of transaction price allocated to remaining performance obligations was **$515.0 million**, with approximately **35%** expected to be recognized as revenue during the remainder of 2025[49](index=49&type=chunk) [3. Sale of Receivables](index=17&type=section&id=3.%20Sale%20of%20Receivables) - The company recorded **$5.3 million** and **$10.3 million** in yield charges and fees for accounts receivable sold during the three and six months ended June 30, 2025, respectively, within 'Other expense, net'[53](index=53&type=chunk) - The outstanding portfolio of sold accounts receivable derecognized from the balance sheet was **$246.8 million** as of June 30, 2025, up from **$218.7 million** at December 31, 2024[54](index=54&type=chunk) [4. Net Earnings (Loss) Per Share](index=18&type=section&id=4.%20Net%20Earnings%20(Loss)%20Per%20Share) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) attributable to common stockholders (Millions) | $25.0 | $(54.5) | $(615.6) | $(126.0) | | Basic EPS | $0.11 | $(0.23) | $(2.77) | $(0.54) | | Diluted EPS | $0.11 | $(0.23) | $(2.77) | $(0.54) | | Weighted average shares outstanding (Basic, Millions) | 224.5 | 238.0 | 222.2 | 235.0 | | Weighted average shares outstanding (Diluted, Millions) | 229.6 | 238.0 | 222.2 | 235.0 | - Potential common shares of **24.3 million** were excluded from diluted loss per share computations for the three and six months ended June 30, 2025, as their effect would have been anti-dilutive[57](index=57&type=chunk) [5. Property, Equipment and Software, net](index=19&type=section&id=5.%20Property%2C%20Equipment%20and%20Software%2C%20net) | Category | December 31, 2024 (Millions) | June 30, 2025 (Millions) | | :-------------------------------- | :--------------------------- | :------------------------- | | Computers and equipment | $1,142.9 | $1,129.1 | | Software | $448.1 | $430.7 | | Buildings and leasehold improvements | $409.7 | $422.0 | | Property, equipment and software, net | $601.0 | $594.8 | - In March 2024, the company sold its corporate headquarters for net cash proceeds of **$16.9 million** and paid a **$9.0 million** early termination fee related to economic incentives[59](index=59&type=chunk) [6. Goodwill and Intangible Assets](index=20&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) | Metric | December 31, 2024 (Millions) | June 30, 2025 (Millions) | | :-------------------------------- | :--------------------------- | :------------------------- | | Goodwill, net | $735.7 | $741.1 | | Total definite-lived intangible assets, net | $704.7 | $630.2 | | Trade name (indefinite-lived), net | $140.0 | $140.0 | | Total intangible assets other than goodwill, net | $844.7 | $770.2 | - Goodwill impairment charges of **$573.2 million** were recorded in the first quarter of 2024 for Public Cloud (**$385.4 million**) and Private Cloud (**$187.8 million**)[36](index=36&type=chunk)[63](index=63&type=chunk) - An impairment charge of **$20.0 million** was recognized for the trade name indefinite-lived intangible asset during the six months ended June 30, 2024[38](index=38&type=chunk)[64](index=64&type=chunk) [7. Debt](index=21&type=section&id=7.%20Debt) | Debt Instrument | Maturity Date | Interest Rate (June 30, 2025) | Amount (December 31, 2024, Millions) | Amount (June 30, 2025, Millions) | | :-------------------------------- | :------------ | :------------------------------ | :----------------------------------- | :------------------------------- | | FLSO Term Loan Facility | May 15, 2028 | 7.18% | $1,626.8 | $1,618.4 | | FLFO Term Loan Facility | May 15, 2028 | 10.68% | $272.9 | $271.6 | | Term Loan Facility | Feb 15, 2028 | 7.18% | $61.8 | $61.4 | | New Revolving Credit Facility | May 15, 2028 | 7.49% | $0.0 | $65.0 | | 3.50% FLSO Senior Secured Notes | May 15, 2028 | 3.50% | $318.6 | $318.6 | | 3.50% Senior Secured Notes | Feb 15, 2028 | 3.50% | $43.9 | $43.9 | | 5.375% Senior Notes | Dec 1, 2028 | 5.375% | $125.4 | $125.4 | | Total principal amount outstanding | | | $2,449.4 | $2,504.3 | | Total debt | | | $2,785.6 | $2,800.2 | - The company completed March 2024 Refinancing Transactions, including private and public debt exchanges, and established a New Revolving Credit Facility, resulting in a **$56.7 million** gain in Q1 2024 and a **$23.3 million** gain in Q2 2024[73](index=73&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) - As of June 30, 2025, the company had **$310.0 million** of available commitments remaining under the New Revolving Credit Facility and was in compliance with all debt covenants[95](index=95&type=chunk)[96](index=96&type=chunk) [8. Commitments and Contingencies](index=28&type=section&id=8.%20Commitments%20and%20Contingencies) - The company has contingencies from various litigation, claims, and commitments, none of which are considered material[125](index=125&type=chunk)[128](index=128&type=chunk) - Accruals for loss contingencies are recorded when a loss is probable and reasonably estimable[127](index=127&type=chunk) [9. Share-Based Compensation](index=29&type=section&id=9.%20Share-Based%20Compensation) - During the six months ended June 30, 2025, the company granted **9.3 million** restricted stock units (RSUs) with a weighted-average fair value of **$1.46** and **30.2 million** long-term incentive cash units (LTIC units) with a weighted average fair value of **$0.71**[130](index=130&type=chunk)[131](index=131&type=chunk) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Equity classified awards | $13.0 | $6.9 | $26.0 | $14.5 | | Liability classified awards | $6.5 | $3.1 | $6.3 | $7.5 | | Total share-based compensation expense | $19.5 | $10.0 | $32.3 | $22.0 | - As of June 30, 2025, there was **$29.9 million** of total unrecognized compensation cost related to RSUs and performance stock units[132](index=132&type=chunk) [10. Taxes](index=29&type=section&id=10.%20Taxes) - For the three and six months ended June 30, 2025, the effective tax rate was lower than the U.S. federal statutory rate of **21%** primarily due to changes in valuation allowance, non-deductible executive compensation, and the geographic distribution of earnings[133](index=133&type=chunk) - The U.S. government enacted the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, and the company is assessing its effect on consolidated financial statements, expected to be reflected starting Q3 2025[134](index=134&type=chunk) [11. Derivatives](index=30&type=section&id=11.%20Derivatives) - The company uses interest rate swap agreements to manage exposure to interest rate risk on floating-rate debt, designating certain swaps as cash flow hedges[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) | Metric | December 31, 2024 (Millions) | June 30, 2025 (Millions) | | :-------------------------------- | :--------------------------- | :------------------------- | | Total derivatives designated as hedging instruments (Assets) | $46.2 | $25.3 | | Total derivatives designated as hedging instruments (Liabilities) | $20.3 | $11.7 | - As of June 30, 2025, **$25.3 million** of cash flow hedge gain included in 'Accumulated other comprehensive income' is expected to be reclassified as a reduction to 'Interest expense' over the next 12 months[151](index=151&type=chunk) [12. Accumulated Other Comprehensive Income](index=33&type=section&id=12.%20Accumulated%20Other%20Comprehensive%20Income) | Metric | December 31, 2024 (Millions) | June 30, 2025 (Millions) | | :-------------------------------- | :--------------------------- | :------------------------- | | Accumulated Foreign Currency Translation Adjustments | $(10.2) | $2.8 | | Accumulated Gain on Derivative Contracts | $34.3 | $18.5 | | Accumulated Other Comprehensive Income | $24.1 | $21.3 | - For the six months ended June 30, 2025, foreign currency translation adjustments resulted in a **$13.0 million** gain, and unrealized gain on derivative contracts was **$1.4 million**[156](index=156&type=chunk) [13. Segment Reporting](index=34&type=section&id=13.%20Segment%20Reporting) - The company operates in two reportable segments: Public Cloud (services-centric, capital-light) and Private Cloud (technology-forward, capital-intensive)[157](index=157&type=chunk) | Segment | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | | :---------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Public Cloud Revenue | $424.9 | $416.6 | $847.3 | $832.2 | | Public Cloud Operating Profit | $10.7 | $16.2 | $18.9 | $33.5 | | Private Cloud Revenue | $260.0 | $249.7 | $528.4 | $499.5 | | Private Cloud Operating Profit | $68.8 | $61.5 | $139.9 | $122.5 | | Total Consolidated Revenue | $684.9 | $666.3 | $1,375.7 | $1,331.7 | | Total Segment Operating Profit | $79.5 | $77.7 | $158.8 | $156.0 | - Public Cloud operating profit increased by **51.4%** for the three months and **77.2%** for the six months ended June 30, 2025, driven by operational improvements and cost optimization, despite revenue declines[201](index=201&type=chunk)[221](index=221&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an in-depth analysis of Rackspace Technology's financial performance, condition, and cash flows, highlighting a net loss of **$126.0 million** for the six months ended June 30, 2025, an improvement from the prior year's **$615.6 million** loss. It details revenue declines in both Public and Private Cloud segments, discusses key factors affecting performance, and reconciles GAAP to non-GAAP financial measures, emphasizing the company's liquidity and debt management strategies [Overview](index=37&type=section&id=Overview) - Rackspace Technology is a leading end-to-end, hybrid cloud and AI solutions company, designing, building, and operating customer cloud environments across major technology platforms[172](index=172&type=chunk) - The company operates through two reportable segments: Public Cloud (services-centric, capital-light) and Private Cloud (technology-forward, capital-intensive)[173](index=173&type=chunk) [Key Factors Affecting Our Performance](index=38&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) - Success depends on differentiating service offerings, expanding and upgrading services, deepening relationships with public cloud providers, and establishing new partnerships in a competitive market[177](index=177&type=chunk) - Customer retention and attraction are crucial, driven by an integrated cloud service portfolio, differentiated customer experience, and technology like Rackspace Fabric and Elastic Engineering[178](index=178&type=chunk) - The business mix has shifted from Private Cloud to Public Cloud infrastructure resale and services, with a focus on defending Private Cloud revenue and expanding Public Cloud operating margins through cost efficiencies and higher-margin services[179](index=179&type=chunk) [Key Components of Statement of Operations](index=39&type=section&id=Key%20Components%20of%20Statement%20of%20Operations) - Revenue is primarily generated from fixed-term contracts (12-36 months) in Private Cloud and usage-based arrangements in Public Cloud, with revenue recognized daily as services are provided[181](index=181&type=chunk) - Cost of revenue includes third-party infrastructure usage charges, personnel costs, depreciation, data center rent, and other infrastructure maintenance, driven by service demand, mix, and labor costs[182](index=182&type=chunk) - Selling, general and administrative expenses (SG&A) cover personnel costs for sales, executive, and corporate functions, R&D, facilities, advisory fees, marketing, and amortization of intangible assets[183](index=183&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) The company experienced a decrease in revenue across both Public and Private Cloud segments for the three and six months ended June 30, 2025, compared to the prior year. Despite revenue declines, gross margin remained relatively stable, and operating loss significantly improved due to reduced selling, general and administrative expenses and the absence of large impairment charges seen in the prior year [Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2025](index=40&type=section&id=Three%20Months%20Ended%20June%2030%2C%202024%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202025) | Metric | 2024 (Millions) | 2025 (Millions) | Change (Millions) | % Change | | :----------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Revenue | $684.9 | $666.3 | $(18.6) | -2.7% | | Cost of revenue | $(553.5) | $(537.1) | $16.4 | -3.0% | | Gross profit | $131.4 | $129.2 | $(2.2) | -1.7% | | Selling, general and administrative expenses | $(185.2) | $(154.3) | $30.9 | -16.7% | | Loss from operations | $(53.8) | $(25.1) | $28.7 | -53.3% | | Interest expense | $(18.4) | $(21.3) | $(2.9) | 15.8% | | Gain on debt extinguishment, net of debt modification costs | $72.5 | $0.0 | $(72.5) | -100.0% | | Net income (loss) | $25.0 | $(54.5) | $(79.5) | NM | | Segment | 2024 (Millions) | 2025 (Millions) | Actual % Change | Constant Currency % Change | | :---------------- | :-------------- | :-------------- | :-------------- | :------------------------- | | Public Cloud Revenue | $424.9 | $416.6 | -2.0% | -2.2% | | Private Cloud Revenue | $260.0 | $249.7 | -4.0% | -4.8% | - Public Cloud operating profit increased **51.4%** to **$16.2 million**, and Private Cloud operating profit decreased **10.6%** to **$61.5 million**, for the three months ended June 30, 2025, compared to the prior year[201](index=201&type=chunk)[202](index=202&type=chunk) [Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2025](index=44&type=section&id=Six%20Months%20Ended%20June%2030%2C%202024%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202025) | Metric | 2024 (Millions) | 2025 (Millions) | Change (Millions) | % Change | | :----------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Revenue | $1,375.7 | $1,331.7 | $(44.0) | -3.2% | | Cost of revenue | $(1,111.5) | $(1,075.6) | $35.9 | -3.2% | | Gross profit | $264.2 | $256.1 | $(8.1) | -3.1% | | Selling, general and administrative expenses | $(377.6) | $(319.6) | $58.0 | -15.4% | | Impairment of goodwill | $(573.2) | $0.0 | $573.2 | -100.0% | | Impairment of assets, net | $(20.0) | $0.0 | $20.0 | -100.0% | | Loss from operations | $(706.6) | $(63.5) | $643.1 | -91.0% | | Interest expense | $(62.1) | $(40.7) | $21.4 | -34.5% | | Gain on debt extinguishment, net of debt modification costs | $129.2 | $0.0 | $(129.2) | -100.0% | | Net loss | $(615.6) | $(126.0) | $489.6 | -79.5% | | Segment | 2024 (Millions) | 2025 (Millions) | Actual % Change | Constant Currency % Change | | :---------------- | :-------------- | :-------------- | :-------------- | :------------------------- | | Public Cloud Revenue | $847.3 | $832.2 | -1.8% | -1.7% | | Private Cloud Revenue | $528.4 | $499.5 | -5.5% | -5.7% | - Public Cloud operating profit increased **77.2%** to **$33.5 million**, and Private Cloud operating profit decreased **12.4%** to **$122.5 million**, for the six months ended June 30, 2025, compared to the prior year[221](index=221&type=chunk)[222](index=222&type=chunk) [Non-GAAP Financial Measures](index=49&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, including constant currency revenue, Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), Non-GAAP Operating Profit, and Adjusted EBITDA, which are used by management to assess underlying financial performance by excluding certain non-recurring or non-core items. These measures are provided to enhance comparability and analyze business trends, with all prior period non-GAAP figures recast to reflect current presentation [Update to Non-GAAP Financial Measures](index=49&type=section&id=Update%20to%20Non-GAAP%20Financial%20Measures) - Beginning in Q4 2024, the company updated its non-GAAP financial measures presentation to exclude certain cash compensation previously included in 'special bonuses and other compensation expenses' and 'restructuring and transformation expenses'[236](index=236&type=chunk) - The 'special bonuses and other compensation expenses' line item was removed, and remaining adjustments are now presented within 'restructuring and transformation expenses.' All prior period non-GAAP figures have been recast[236](index=236&type=chunk) [Constant Currency Revenue](index=49&type=section&id=Constant%20Currency%20Revenue) | Segment | Three Months Ended June 30, 2025 (Millions) | Constant Currency % Change | | :---------------- | :---------------------------------------- | :------------------------- | | Public Cloud | $415.8 | -2.2% | | Private Cloud | $247.5 | -4.8% | | Total | $663.3 | -3.2% | | Segment | Six Months Ended June 30, 2025 (Millions) | Constant Currency % Change | | :---------------- | :---------------------------------------- | :------------------------- | | Public Cloud | $832.5 | -1.7% | | Private Cloud | $498.1 | -5.7% | | Total | $1,330.6 | -3.3% | [Non-GAAP Gross Profit](index=51&type=section&id=Non-GAAP%20Gross%20Profit) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Gross profit | $131.4 | $129.2 | $264.2 | $256.1 | | Share-based compensation expense | $2.0 | $1.3 | $3.9 | $3.1 | | Purchase accounting impact on expense | $0.6 | $0.2 | $1.2 | $0.4 | | Restructuring and transformation expenses | $4.6 | $1.2 | $9.6 | $4.4 | | Non-GAAP Gross Profit | $138.6 | $131.9 | $278.9 | $264.0 | [Non-GAAP Net Income (Loss), Non-GAAP Operating Profit and Adjusted EBITDA](index=51&type=section&id=Non-GAAP%20Net%20Income%20(Loss)%2C%20Non-GAAP%20Operating%20Profit%20and%20Adjusted%20EBITDA) | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2025 (Millions) | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net income (loss) | $25.0 | $(54.5) | $(615.6) | $(126.0) | | Non-GAAP Net Loss | $(21.3) | $(15.0) | $(47.1) | $(29.7) | | Adjusted EBITDA | $55.1 | $64.4 | $105.3 | $125.7 | | Metric | Three Months Ended June 30, 2024 (Millions) | Three Months Ended June 30, 2025 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Loss from operations | $(53.8) | $(25.1) | | Non-GAAP Operating Profit | $20.3 | $27.3 | | Metric | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | | :----------------------------------- | :---------------------------------------- | :---------------------------------------- | | Loss from operations | $(706.6) | $(63.5) | | Non-GAAP Operating Profit | $34.3 | $52.9 | [Non-GAAP Earnings (Loss) Per Share](index=54&type=section&id=Non-GAAP%20Earnings%20(Loss)%20Per%20Share) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | | :----------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income (loss) attributable to common stockholders (Millions) | $25.0 | $(54.5) | $(615.6) | $(126.0) | | Non-GAAP Net Loss (Millions) | $(21.3) | $(15.0) | $(47.1) | $(29.7) | | Net earnings (loss) per share - Diluted | $0.11 | $(0.23) | $(2.77) | $(0.54) | | Non-GAAP Loss Per Share | $(0.09) | $(0.06) | $(0.21) | $(0.12) | | Non-GAAP weighted average number of shares - Diluted (Millions) | 229.6 | 239.3 | 229.5 | 242.1 | - The company uses non-GAAP measures like constant currency revenue, Non-GAAP Gross Profit, Non-GAAP Net Income (Loss), Non-GAAP Operating Profit, and Adjusted EBITDA to monitor and manage underlying financial performance, excluding certain costs, losses, and gains[235](index=235&type=chunk) - Beginning in Q4 2024, the presentation of non-GAAP financial measures was updated to no longer exclude certain cash compensation, and all prior period figures have been recast for comparability[236](index=236&type=chunk) - Non-GAAP Operating Profit and Adjusted EBITDA are management's principal metrics for measuring underlying financial performance and are used in determining performance-based compensation[248](index=248&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) The company primarily funds operations and capital expenditures through internally-generated cash and the New Revolving Credit Facility, which had **$310 million** in available commitments as of June 30, 2025. Total debt outstanding was **$2,439 million**. Operating cash flow improved significantly, moving from a net cash outflow of **$66 million** in the prior year to a net cash inflow of **$21 million**, driven by reduced operating expenses and increased accounts receivable proceeds [Overview (Liquidity)](index=55&type=section&id=Overview%20(Liquidity)) - As of June 30, 2025, the company had **$104 million** in cash and cash equivalents, with **$74 million** held by foreign entities[263](index=263&type=chunk) - The company had **$44 million** outstanding in financing obligations and **$476 million** in operating and finance lease agreements as of June 30, 2025[264](index=264&type=chunk)[265](index=265&type=chunk) [Debt (Liquidity)](index=56&type=section&id=Debt%20(Liquidity)) [New Debt Instruments](index=56&type=section&id=New%20Debt%20Instruments) - The New Senior Facilities include the FLSO Term Loan Facility (**$1,618 million** outstanding), FLFO Term Loan Facility (**$272 million** outstanding), and New Revolving Credit Facility (**$65 million** outstanding), all maturing on May 15, 2028[271](index=271&type=chunk)[274](index=274&type=chunk)[277](index=277&type=chunk) - The **3.50%** FLSO Senior Secured Notes, with **$319 million** outstanding, also mature on May 15, 2028, and bear a fixed annual interest rate of **3.50%**[281](index=281&type=chunk)[284](index=284&type=chunk) - All new debt obligations are guaranteed on a senior secured basis by Rackspace Finance Holdings and certain subsidiaries, secured by a pledge of capital stock and substantially all assets[272](index=272&type=chunk)[275](index=275&type=chunk)[279](index=279&type=chunk)[283](index=283&type=chunk) [Existing Debt Instruments](index=58&type=section&id=Existing%20Debt%20Instruments) - As of June 30, 2025, **$61 million** aggregate principal amount of the Term Loan Facility remained outstanding, maturing on February 15, 2028, with a contractual interest rate of **7.18%**[286](index=286&type=chunk)[287](index=287&type=chunk) - The **3.50%** Senior Secured Notes have **$44 million** outstanding, maturing on February 15, 2028, with a fixed annual interest rate of **3.50%**[289](index=289&type=chunk)[290](index=290&type=chunk) - The **5.375%** Senior Notes have **$125 million** outstanding, maturing on December 1, 2028, with a fixed annual interest rate of **5.375%**[291](index=291&type=chunk)[292](index=292&type=chunk) [Debt covenants](index=59&type=section&id=Debt%20covenants) - The FLSO Term Loan Facility, FLFO Term Loan Facility, and Term Loan Facility are not subject to a financial maintenance covenant[293](index=293&type=chunk) - The New Revolving Credit Facility includes a financial maintenance covenant limiting the super-priority net senior secured leverage ratio to a maximum of **5.00 to 1.00**, applicable if outstanding borrowings and letters of credit exceed **35%** of commitments[293](index=293&type=chunk) - As of June 30, 2025, the company was in compliance with all covenants under the New Senior Facilities, Senior Facilities, and Indentures[296](index=296&type=chunk) [Supplemental Financial Information](index=59&type=section&id=Supplemental%20Financial%20Information) - As of June 30, 2025, the New Credit Group (obligors under the 3.50% FLSO Senior Secured Notes) had total assets of **$2,870 million** and total liabilities of **$3,773 million**, including **$2,571 million** in total debt[298](index=298&type=chunk) [Capital Expenditures](index=60&type=section&id=Capital%20Expenditures) | Category | Six Months Ended June 30, 2024 (Millions) | Six Months Ended June 30, 2025 (Millions) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | | Customer gear | $55.0 | $31.0 | | Data center build outs | $1.8 | $4.0 | | Capitalized software and other projects | $21.5 | $22.6 | | Total capital expenditures | $78.6 | $57.6 | - Capital expenditures decreased by **$21 million**, or **26.7%**, to **$57.6 million** in the six months ended June 30, 2025, driven by optimizing current inventory, prior year large healthcare deals, and lower capital requirements on recent deals[299](index=299&type=chunk) [Cash Flows](index=60&type=section&id=Cash%20Flows) [Cash Provided by (Used in) Operating Activities](index=60&type=section&id=Cash%20Provided%20by%20(Used%20in)%20Operating%20Activities) - Net cash provided by operating activities was **$21 million** in the six months ended June 30, 2025, a significant increase from **$66 million** of net cash used in the prior year[300](index=300&type=chunk)[302](index=302&type=chunk) - This improvement was driven by a **$22 million** decrease in cash paid for operating expenses, a **$28 million** increase in cash proceeds from accounts receivable sold, and the absence of **$32 million** in refinancing fees and a **$9 million** headquarters sale termination fee incurred in 2024[302](index=302&type=chunk) [Cash Used in Investing Activities](index=60&type=section&id=Cash%20Used%20in%20Investing%20Activities) - Net cash used in investing activities decreased by **$20 million**, or **40%**, to **$29.9 million** in the six months ended June 30, 2025[300](index=300&type=chunk)[304](index=304&type=chunk) - The decrease was primarily due to a **$38 million** reduction in cash purchases of property, equipment, and software, partially offset by **$17 million** in net proceeds from the sale of the corporate headquarters in 2024[304](index=304&type=chunk) [Cash Provided by (Used in) Financing Activities](index=61&type=section&id=Cash%20Provided%20by%20(Used%20in)%20Financing%20Activities) - Net cash used in financing activities was **$36 million** in the six months ended June 30, 2025, a shift from **$110 million** provided in the prior year[300](index=300&type=chunk)[306](index=306&type=chunk) - This change was driven by **$275 million** in proceeds from the FLFO Term Loan Facility in 2024, compared to **$80 million** from the New Revolving Credit Facility in 2025, partially offset by reduced debt repayments and the absence of **$22 million** in debt extinguishment costs from 2024[306](index=306&type=chunk) [Critical Accounting Policies and Estimates](index=61&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The company's critical accounting policies and estimates have not changed from those described in its Annual Report[308](index=308&type=chunk) - The company primarily finances operations and capital expenditures with internally-generated cash from operations and hardware leases, and borrowings under the New Revolving Credit Facility[261](index=261&type=chunk) - As of June 30, 2025, the New Revolving Credit Facility provided for up to **$375 million** of borrowings, with **$65 million** drawn and **$310 million** of available commitments remaining[261](index=261&type=chunk)[280](index=280&type=chunk) - Total aggregate principal amount outstanding under debt instruments was **$2,439 million** as of June 30, 2025[266](index=266&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=62&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, primarily from interest rate fluctuations on its floating-rate debt, foreign currency translation and transaction risks, and volatility in power prices for its data centers. The company uses interest rate swaps to manage interest rate risk and may use foreign currency hedging instruments in the future [Interest Rates](index=62&type=section&id=Interest%20Rates) - The company is exposed to interest rate risk from floating-rate debt under its Senior Facilities and New Senior Facilities, totaling **$1,951 million** outstanding (Term Loan, FLSO Term Loan, FLFO Term Loan) and **$65 million** under the New Revolving Credit Facility as of June 30, 2025[309](index=309&type=chunk) - A **0.125%** change in assumed blended interest rates would result in a **$3 million** change in annual interest expense on indebtedness under the Senior Facilities and New Senior Facilities, assuming the New Revolving Credit Facility was fully drawn[309](index=309&type=chunk) - The company uses an interest rate swap agreement with a notional amount of **$1,350 million** (fixed rate **2.34150%**, maturing Feb 9, 2026) to manage risk from fluctuations in one-month Term SOFR above the **0.75%** floor[310](index=310&type=chunk)[311](index=311&type=chunk) [Foreign Currencies](index=62&type=section&id=Foreign%20Currencies) - The company is subject to foreign currency translation risk due to the translation of foreign subsidiaries' results to the U.S. dollar[312](index=312&type=chunk) - In the six months ended June 30, 2025, the company recognized foreign currency transaction gains of **$0.1 million** within 'Other expense, net'[312](index=312&type=chunk) - As international operations grow, exposure to foreign currency translation and transaction risk could become more significant, and the company may use hedging instruments in the future[312](index=312&type=chunk)[313](index=313&type=chunk) [Power Prices](index=62&type=section&id=Power%20Prices) - The company is a large consumer of power, expensing approximately **$18 million** for utility costs in the six months ended June 30, 2025, representing about **1%** of revenue[314](index=314&type=chunk) - Power costs vary by geography, generation source, and seasonal fluctuations, and are subject to potential increases from proposed legislation[314](index=314&type=chunk) - The company has power contracts for data centers in key regions (Dallas-Fort Worth, San Jose, Somerset, London) that allow for fixed or variable pricing[314](index=314&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of June 30, 2025. No material changes in internal controls over financial reporting were identified during the fiscal quarter, though the company acknowledges the inherent limitations of all control systems [Evaluation of Disclosure Controls and Procedures](index=63&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - As of June 30, 2025, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[316](index=316&type=chunk) [Changes in Internal Control](index=63&type=section&id=Changes%20in%20Internal%20Control) - There were no changes in internal controls over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[317](index=317&type=chunk) [Inherent Limitations of Internal Controls](index=63&type=section&id=Inherent%20Limitations%20of%20Internal%20Controls) - Management acknowledges that no control system can prevent all error and fraud, providing only reasonable, not absolute, assurance due to inherent limitations such as faulty judgments, simple errors, collusion, or management override[318](index=318&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to various legal proceedings and claims arising in the ordinary course of business, including potential intellectual property claims. However, no current litigation is expected to have a material adverse effect on the company's business, financial position, or results of operations - The company has contingencies from various litigation, claims, and commitments, recording accruals when losses are probable and reasonably estimable[320](index=320&type=chunk) - No current litigation is expected to have a material and adverse effect on the company's business, financial position, or results of operations[322](index=322&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K. Investors are advised to consider those risks, along with other information in this Quarterly Report - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[324](index=324&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities and no use of proceeds to report for the period - Unregistered Sales of Equity Securities: Not Applicable[325](index=325&type=chunk) - Use of Proceeds: None[326](index=326&type=chunk) [Item 3. Defaults Upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities to report for the period - No defaults upon senior securities were reported[328](index=328&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures: Not Applicable[330](index=330&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) This section reports that no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the company's directors or officers during the fiscal quarter ended June 30, 2025 - During the fiscal quarter ended June 30, 2025, none of the company's directors or officers adopted, modified, or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement'[332](index=332&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed or furnished with the Quarterly Report, including certifications from the CEO and CFO, and Inline XBRL documents - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[334](index=334&type=chunk) - The report also includes various Inline XBRL Taxonomy Extension Documents and a Cover Page Interactive Data File[334](index=334&type=chunk) [Signatures](index=66&type=section&id=Signatures) This section contains the signature confirming the due authorization and filing of the report on behalf of Rackspace Technology, Inc. by its Chief Financial Officer - The report was signed on August 11, 2025, by Mark Marino, Chief Financial Officer, on behalf of Rackspace Technology, Inc[339](index=339&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents MeridianLink's unaudited financial statements, including balance sheets, operations, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $936,933 | $961,333 | | Total liabilities | $544,292 | $533,840 | | Total stockholders' equity | $392,641 | $427,493 | | Cash | $91,088 | $92,765 | | Accounts receivable, net | $34,585 | $34,422 | | Deferred revenue (current) | $30,110 | $17,170 | - **Total assets** decreased by **$24.4 million** from December 31, 2024, to June 30, 2025, while **total liabilities** increased by **$10.4 million**, leading to a **$34.8 million** decrease in **total stockholders' equity**[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues, net | $84,597 | $78,676 | $166,085 | $156,492 | | Gross profit | $57,072 | $50,500 | $110,837 | $102,243 | | Operating income (loss) | $5,206 | $(1,097) | $8,771 | $2,255 | | Net loss | $(3,013) | $(9,670) | $(7,698) | $(14,976) | | Basic EPS | $(0.04) | $(0.13) | $(0.10) | $(0.19) | | Diluted EPS | $(0.04) | $(0.13) | $(0.10) | $(0.19) | - **Net revenues** increased by **7.5%** for the three months ended June 30, 2025, and by **6.1%** for the six months ended June 30, 2025, compared to the same periods in 2024. The company reported an **operating income** of **$5.2 million** for **Q2 2025**, a significant improvement from an **operating loss** of **$1.1 million** in **Q2 2024**. **Net loss** decreased significantly from **$(9.67) million** in **Q2 2024** to **$(3.01) million** in **Q2 2025**[13](index=13&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric (in thousands) | Balance at December 31, 2024 | Balance at June 30, 2025 | | :-------------------- | :--------------------------- | :----------------------- | | Common Stock (Amount) | $127 | $125 | | Additional Paid-in Capital | $709,057 | $734,970 | | Accumulated Deficit | $(281,691) | $(342,454) | | Total Stockholders' Equity | $427,493 | $392,641 | - **Total stockholders' equity** decreased by **$34.85 million** from December 31, 2024, to June 30, 2025, primarily due to **net losses** and **common stock repurchases** totaling **$53.07 million**, partially offset by **share-based compensation expense** of **$29.63 million**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $61,547 | $43,394 | | Net cash used in investing activities | $(3,818) | $(3,836) | | Net cash used in financing activities | $(59,406) | $(26,990) | | Net (decrease) increase in cash and cash equivalents | $(1,677) | $12,568 | | Cash and cash equivalents, end of period | $91,088 | $93,009 | - **Net cash provided by operating activities** increased by **42%** to **$61.5 million** for the six months ended June 30, 2025, compared to **$43.4 million** in the same period of 2024[20](index=20&type=chunk) - **Net cash used in financing activities** significantly increased to **$59.4 million** in **H1 2025** from **$27.0 million** in **H1 2024**, primarily due to higher **common stock repurchases** and **taxes paid related to RSU settlements**[20](index=20&type=chunk)[169](index=169&type=chunk)[175](index=175&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) [Note 1 – Organization and Description of Business](index=10&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Description%20of%20Business) MeridianLink provides secure, cloud-based SaaS solutions to financial institutions and reporting agencies - **MeridianLink, Inc.** offers secure, cloud-based digital solutions to financial services providers, primarily through a **Software-as-a-Service (SaaS) model**[23](index=23&type=chunk) - The company's customer base includes **banks**, **credit unions**, **mortgage lenders**, **specialty lending providers**, and **consumer reporting agencies**[23](index=23&type=chunk) [Note 2 – Significant Accounting Policies](index=10&type=section&id=Note%202%20%E2%80%93%20Significant%20Accounting%20Policies) Unaudited financial statements follow GAAP, reflecting management estimates; company uses extended transition period - The **financial statements** are unaudited and prepared on the **accrual basis** in accordance with **GAAP**, with **management making estimates and assumptions**[24](index=24&type=chunk)[25](index=25&type=chunk)[28](index=28&type=chunk) - **MeridianLink** is an **emerging growth company** and uses the **extended transition period** for new or revised accounting standards[30](index=30&type=chunk) - The company is evaluating the impact of **ASU 2023-09 (Income Taxes)** and **ASU 2024-03 (Expense Disaggregation Disclosures)**, effective for annual periods beginning after December 15, 2025, and December 15, 2026, respectively[31](index=31&type=chunk)[32](index=32&type=chunk) [Note 3 – Revenue Recognition](index=11&type=section&id=Note%203%20%E2%80%93%20Revenue%20Recognition) MeridianLink disaggregates net revenues by solution type and source, detailing contract balances and credit losses Net Revenues by Solution Type (in thousands) | Solution Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lending Software Solutions | $68,737 | $61,644 | $135,806 | $122,547 | | Data Verification Software Solutions | $15,860 | $17,032 | $30,279 | $33,945 | | Total | $84,597 | $78,676 | $166,085 | $156,492 | Net Revenues by Major Source (in thousands) | Major Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Subscription fees | $71,147 | $65,946 | $139,892 | $131,858 | | Professional services | $9,499 | $9,559 | $18,165 | $18,569 | | Other | $3,951 | $3,171 | $8,028 | $6,065 | | Total | $84,597 | $78,676 | $166,085 | $156,492 | Deferred Revenue (in thousands) | Metric | As of June 30, 2025 | As of December 31, 2024 | | :-------------------- | :------------------ | :---------------------- | | Deferred revenue, current | $30,110 | $17,170 | | Long-term deferred revenue | $0 | $75 | | Total deferred revenue | $30,110 | $17,245 | - **Lending Software Solutions revenue** increased by **$7.1 million** (**11.5%**) for **Q2 2025** and **$13.3 million** (**10.9%**) for **H1 2025 YoY**, while **Data Verification Software Solutions revenue** decreased by **$1.2 million** (**7.0%**) for **Q2 2025** and **$3.7 million** (**10.9%**) for **H1 2025 YoY**[33](index=33&type=chunk) [Note 4 – Balance Sheet Components](index=13&type=section&id=Note%204%20%E2%80%93%20Balance%20Sheet%20Components) Details changes in prepaid expenses, property, intangible assets, and accrued liabilities, highlighting amortization Intangible Assets, Net (in thousands) | Asset Type | June 30, 2025 (Net Carrying Amount) | December 31, 2024 (Net Carrying Amount) | | :-------------------- | :---------------------------------- | :------------------------------------ | | Customer relationships | $125,535 | $142,628 | | Developed technology | $28,058 | $33,137 | | Trademarks | $8,470 | $9,700 | | Non-competition agreements | $2,287 | $2,777 | | Capitalized software | $12,717 | $13,280 | | Total | $177,067 | $201,522 | - **Total intangible assets, net**, decreased by **$24.45 million** from December 31, 2024, to June 30, 2025, primarily due to **amortization**, partially offset by **capitalized software additions**[41](index=41&type=chunk) Accrued Liabilities (in thousands) | Accrued Liability Type | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Accrued payroll and payroll-related expenses | $11,144 | $8,188 | | Accrued bonuses and commissions | $4,747 | $6,313 | | Accrued operating costs | $4,191 | $4,127 | | Sales tax liabilities from acquisitions | $3,383 | $3,383 | | Accrued costs of revenues | $2,537 | $2,305 | | Customer deposits | $1,551 | $795 | | Total accrued liabilities | $30,700 | $29,383 | [Note 5 – Commitments and Contingencies](index=16&type=section&id=Note%205%20%E2%80%93%20Commitments%20and%20Contingencies) Company faces no material adverse legal claims; contractual commitments total $31.7 million for cloud infrastructure - The company is not aware of any **legal proceedings or claims** that could have a **material adverse effect** on its **financial position**, **results of operations**, or **cash flows**[46](index=46&type=chunk) Future Minimum Contractual Commitments (in thousands) | Years ending December 31, | Amount | | :------------------------ | :----- | | 2025 (remaining six months) | $6,324 | | 2026 | $12,855 | | 2027 | $11,808 | | 2028 | $722 | | Total | $31,709 | [Note 6 – Debt](index=16&type=section&id=Note%206%20%E2%80%93%20Debt) MeridianLink's debt is primarily a Term Loan, amended in June 2025; company is covenant compliant Debt, Net of Debt Issuance Costs (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Term Loan | $470,358 | $472,728 | | Debt issuance costs | $(3,601) | $(4,128) | | Total debt, net of debt issuance costs | $466,757 | $468,600 | | Current portion of debt, net | $3,632 | $3,678 | | Long-term debt, net | $463,125 | $464,922 | - On June 17, 2025, the company entered into the **2025 Amendment**, which reduced the **Applicable Rate** on the **Term Loan** from **2.75%** to **2.50%**. The **effective interest rate** on the **Term Loan** was **7.12%** as of June 30, 2025[54](index=54&type=chunk)[58](index=58&type=chunk) - The company was in compliance with all **financial covenants** of the **Credit Agreement** at June 30, 2025, and had no outstanding balance on the **Revolving Credit Facility**[57](index=57&type=chunk)[59](index=59&type=chunk) [Note 7 – Stockholders' Equity](index=18&type=section&id=Note%207%20%E2%80%93%20Stockholders'%20Equity) Board authorized a $129.5 million stock repurchase program in Feb 2025; $76.4 million remains - In February 2025, the board authorized a new **stock repurchase program** for up to **$129.5 million** of **common stock**[61](index=61&type=chunk) Stock Repurchase Activity (in thousands, except share data) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :------------------------------------------------------- | :------------------------------- | :----------------------------- | | Total number of shares repurchased | 3,135,583 | 3,135,583 | | Total cost of shares repurchased, including commissions, fees, and excise taxes | $53,068 | $53,068 | | Remaining for repurchase under program (as of June 30, 2025) | N/A | $76,400 | [Note 8 – Share-based Compensation](index=19&type=section&id=Note%208%20%E2%80%93%20Share-based%20Compensation) Significant share-based compensation expense from options, RSUs, and ESPP increased in Q2/H1 2025 Share-based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock Options | $2,600 | $1,100 | $3,400 | $2,500 | | Restricted Stock Units (RSUs) | $14,500 | $11,400 | $26,000 | $17,800 | | Employee Stock Purchase Program (ESPP) | $200 | $200 | $300 | $300 | | Total Share-based Compensation Expense | $17,122 | $12,626 | $29,503 | $20,429 | - As of June 30, 2025, there was **$127.2 million** of **unrecognized share-based compensation expense** related to **RSUs**, expected to be recognized over a weighted-average period of **2.74 years**[71](index=71&type=chunk) [Note 9 – Income Taxes](index=21&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) Income tax provision reflects Q2/H1 2025 effective tax rates, with a partial valuation allowance on deferred tax assets Effective Tax Rate | Period | Effective Tax Rate | | :----- | :----------------- | | Three Months Ended June 30, 2025 | (55.1)% | | Three Months Ended June 30, 2024 | (4.5)% | | Six Months Ended June 30, 2025 | (28.1)% | | Six Months Ended June 30, 2024 | (3.1)% | - The company maintains a **partial valuation allowance** of **$35.6 million** against its **deferred tax assets** as of June 30, 2025, due to uncertainty in utilizing all **deferred tax assets**[81](index=81&type=chunk) - **Gross unrecognized tax benefits** related to **research and development credits** were **$4.1 million** as of June 30, 2025[82](index=82&type=chunk) [Note 10 – Related Party Transactions](index=22&type=section&id=Note%2010%20%E2%80%93%20Related%20Party%20Transactions) MeridianLink engages in related party transactions; total expenses decreased to $0.68M for Q2 2025 Related Party Expenses (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $580 | $501 | $1,019 | $865 | | General and administrative | $67 | $520 | $184 | $686 | | Research and development | $29 | $27 | $56 | $52 | | Total related party expenses | $676 | $1,048 | $1,259 | $1,603 | [Note 11 – Net Loss Per Share](index=23&type=section&id=Note%2011%20%E2%80%93%20Net%20Loss%20Per%20Share) Basic and diluted net loss per share improved in Q2/H1 2025; anti-dilutive securities were excluded Net Loss Per Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic Net Loss Per Share | $(0.04) | $(0.13) | $(0.10) | $(0.19) | | Diluted Net Loss Per Share | $(0.04) | $(0.13) | $(0.10) | $(0.19) | - Approximately **10.5 million potentially dilutive securities** (options, **RSUs**, **ESPP** purchase rights) were excluded from diluted **EPS** calculations for the three and six months ended June 30, 2025, due to their **anti-dilutive effect**[85](index=85&type=chunk) [Note 12 – Restructuring Activities](index=23&type=section&id=Note%2012%20%E2%80%93%20Restructuring%20Activities) The 2024 Realignment Plan, completed in 2024, included a 12% workforce reduction and restructuring charges - The **2024 Realignment Plan**, completed in 2024, included a **workforce reduction** of approximately **12%**[86](index=86&type=chunk) Restructuring Charges (in thousands) | Period | Restructuring Related Costs | | :------------------------------- | :-------------------------- | | Three Months Ended June 30, 2024 | $988 | | Six Months Ended June 30, 2024 | $4,179 | [Note 13 – Segment Information](index=24&type=section&id=Note%2013%20%E2%80%93%20Segment%20Information) MeridianLink operates as a single segment, providing cloud-based digital solutions in the US - The company operates in one **operating and reportable segment**, providing **cloud-based digital solutions** in the **United States**[87](index=87&type=chunk) [Note 14 – Subsequent Events](index=24&type=section&id=Note%2014%20%E2%80%93%20Subsequent%20Events) Post-June 30, 2025, new tax legislation passed, and company entered a Merger Agreement for $20.00/share - On July 4, 2025, the U.S. Congress passed the **One Big Beautiful Bill Act of 2025 (OBBBA)**, which includes immediate expensing of domestic R&D and a favorable modification to **interest expense limitation**, expected to impact **income taxes** starting **Q3 2025**[89](index=89&type=chunk) - On August 11, 2025, the company entered into a **Merger Agreement** to be **acquired** by **ML Holdco, LLC**, with each outstanding share of **common stock** to be converted into the right to receive **$20.00** in **cash**[91](index=91&type=chunk)[92](index=92&type=chunk) - The proposed **Merger** is subject to **stockholder and regulatory approvals**, and if terminated under certain circumstances, the company may be required to pay a **termination fee** of **$47 million**[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, global factors, 2025 developments, and non-GAAP measures [Overview](index=29&type=section&id=Overview) MeridianLink is a leading SaaS provider of secure, cloud-based solutions for financial institutions - **MeridianLink** is a leading **SaaS provider** of secure, cloud-based software solutions for **financial institutions**, including **banks**, **credit unions**, **mortgage lenders**, **specialty lending providers**, and **credit reporting agencies**[105](index=105&type=chunk) - The company's solutions, delivered via a **SaaS model**, generate revenue through **subscription fees** (annual base fees, platform partner fees, volume-based fees) and grow as customers add transaction types, modules, or partner integrations[108](index=108&type=chunk)[109](index=109&type=chunk) - **MeridianLink** focuses on the middle market (institutions with **$100 million** to **$10 billion** in assets) but sees opportunity in expanding to larger customers and leveraging its **Partner Marketplace** for additional revenue and market presence[112](index=112&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) [Global Considerations](index=30&type=section&id=Global%20Considerations) Company monitors economic uncertainty, inflation, and high interest rates impacting spending and loan volumes - The company is monitoring **economic uncertainty**, **elevated inflation rates**, and **high interest rates**, which may lead to reduced spending on products, pricing pressure, and lower loan volumes from **financial institutions**[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Increased inflation could result in decreased demand for mortgages and consumer lending, increased operating costs (including labor), reduced liquidity, and limitations on accessing credit or raising capital[119](index=119&type=chunk) [Developments in 2025](index=32&type=section&id=Developments%20in%202025) Key 2025 developments include a Merger Agreement, CEO change, Term Loan amendment, and stock repurchase - On August 11, 2025, **MeridianLink** entered into a **Merger Agreement** to be acquired by **ML Holdco, LLC**, with stockholders receiving **$20.00** per share in **cash**[121](index=121&type=chunk)[122](index=122&type=chunk) - **Nicolaas Vlok** resigned as **CEO** effective October 1, 2025, with **Laurence E. Katz** appointed as the new **CEO** and **President**[123](index=123&type=chunk) - On June 17, 2025, the company amended its **Credit Agreement**, reducing the **Term Loan's Applicable Rate** from **2.75%** to **2.50%**, incurring **$0.7 million** in fees[124](index=124&type=chunk)[125](index=125&type=chunk) - In February 2025, a new **stock repurchase program** of up to **$129.5 million** was authorized; **3.1 million shares** were repurchased for **$53.1 million** in **Q2 2025**, with **$76.4 million** remaining[126](index=126&type=chunk) [Components of Operating Results](index=33&type=section&id=Components%20of%20Operating%20Results) Details revenue components (subscription, services, other) and operating expenses (G&A, R&D, S&M) - **Revenues** consist of **subscription fees** (recognized ratably over contract term, including usage-based fees), **professional services** (recognized as control is transferred), and **other revenues** (from referral/marketing agreements)[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - **Cost of revenues** includes personnel costs, third-party vendor fees, cloud-based hosting, allocated overhead, and amortization of developed technology. **Operating expenses** comprise **General and Administrative**, **Research and Development**, and **Sales and Marketing**[132](index=132&type=chunk)[135](index=135&type=chunk)[137](index=137&type=chunk)[141](index=141&type=chunk) - The company expects **general and administrative expenses** to increase in absolute dollars but decrease as a percentage of revenues over the long term, while **research and development** and **sales and marketing expenses** are expected to increase in absolute dollars[136](index=136&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Revenue Performance (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues, net | $84,597 | $78,676 | $166,085 | $156,492 | | YoY Change ($) | $5,921 | N/A | $9,593 | N/A | | YoY Change (%) | 8% | N/A | 6% | N/A | - **Revenue growth** was driven by higher **Lending Software Solutions revenue** (**$7.1M** for **Q2**, **$13.3M** for **H1**) from existing and new customers, primarily cross-selling, partially offset by lower **Data Verification Software Solutions revenue** (**$1.2M** for **Q2**, **$3.7M** for **H1**) due to a large customer downsell and lower mortgage-related volumes[149](index=149&type=chunk)[150](index=150&type=chunk) Operating Expense Performance (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative | $28,553 | $29,237 | $56,238 | $54,416 | | Research and development | $11,380 | $9,905 | $22,292 | $19,390 | | Sales and marketing | $11,933 | $11,467 | $23,536 | $22,003 | | Restructuring related costs | $0 | $988 | $0 | $4,179 | - **General and administrative expenses** decreased by **$0.7 million** (**2%**) in **Q2 2025 YoY**, mainly due to lower **legal fees** (**$3.1M** decline, including **$1.9M** class action settlement in 2024), partially offset by higher **employee-related costs** (**$3.1M** increase, including **$2.7M share-based compensation**)[157](index=157&type=chunk) - **Research and development expenses** increased by **$1.5 million** (**15%**) in **Q2 2025** and **$2.9 million** (**15%**) in **H1 2025 YoY**, primarily due to higher **share-based compensation expense**[159](index=159&type=chunk) - **Total other expenses, net**, decreased by **$1.0 million** (**12%**) in **Q2 2025** and **$2.0 million** (**12%**) in **H1 2025 YoY**, driven by lower **interest expense** and higher **interest income**, partially offset by **debt modification expenses**[163](index=163&type=chunk)[164](index=164&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses liquidity sources, cash flow activities, and contractual commitments as of June 30, 2025 - As of June 30, 2025, **principal liquidity sources** were **$91.1 million** in **cash** and **$34.6 million** in **accounts receivable**, along with an unused **$50.0 million revolving credit facility**[166](index=166&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change ($) | Change (%) | | :------------------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Operating activities | $61,547 | $43,394 | $18,153 | 42% | | Investing activities | $(3,818) | $(3,836) | $18 | —% | | Financing activities | $(59,406) | $(26,990) | $(32,416) | (120)% | | Net (decrease) increase in cash | $(1,677) | $12,568 | $(14,245) | (113)% | - **Net cash used in financing activities** increased significantly due to **$53.3 million** in **common stock repurchases** (including excise taxes) and **$4.7 million** in **taxes paid for RSU settlements** in **H1 2025**[175](index=175&type=chunk) - The company has **contractual commitments** of **$31.7 million** as of June 30, 2025, primarily for third-party cloud infrastructure, with **$22.1 million** remaining under a renewed agreement through January 2028[179](index=179&type=chunk)[180](index=180&type=chunk) [Recent Accounting Pronouncements](index=42&type=section&id=Recent%20Accounting%20Pronouncements) Refers to Note 2 for recent accounting pronouncements, adoption dates, and estimated effects - Refer to **Note 2, 'Significant Accounting Policies,'** for a description of recent accounting pronouncements, including expected adoption dates and estimated effects[181](index=181&type=chunk) [Emerging Growth Company Status](index=42&type=section&id=Emerging%20Growth%20Company%20Status) MeridianLink is an EGC, electing extended transition for new accounting standards under the JOBS Act - **MeridianLink** is an **emerging growth company (EGC)** under the **JOBS Act** and has elected to use the **extended transition period** for complying with new or revised accounting standards[182](index=182&type=chunk) - The company will remain an **EGC** until December 31, 2026, or earlier if it meets certain revenue or market value thresholds[345](index=345&type=chunk) [Non-GAAP Financial Measures](index=43&type=section&id=Non-GAAP%20Financial%20Measures) Defines and reconciles Adjusted EBITDA, a key non-GAAP financial measure, from net loss - **Adjusted EBITDA** is defined as **net loss** before **interest expense**, **provision for income taxes**, **depreciation and amortization of intangible assets**, **share-based compensation expense**, **employer payroll taxes on employee stock transactions**, **material weakness remediation expenses**, **debt modification expenses**, **acquisition-related costs**, **indemnity claim income**, **restructuring costs**, **litigation charges**, and **public offering expenses**[185](index=185&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(3,013) | $(9,670) | $(7,698) | $(14,976) | | Interest expense | $8,715 | $9,797 | $17,427 | $19,379 | | Provision for income taxes | $1,070 | $412 | $1,687 | $444 | | Depreciation and amortization of intangible assets | $14,151 | $14,573 | $28,837 | $29,096 | | Share-based compensation expense | $17,122 | $12,500 | $29,503 | $20,436 | | Adjusted EBITDA | $38,435 | $31,753 | $73,280 | $63,523 | - **Adjusted EBITDA** increased by **21.0%** to **$38.4 million** for **Q2 2025** and by **15.4%** to **$73.3 million** for **H1 2025**, compared to the same periods in 2024[187](index=187&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No significant changes in market risk exposure since December 31, 2024, per 2024 Annual Report - No significant changes in **market risk exposure** have occurred since December 31, 2024[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were ineffective due to a material weakness in internal controls over financial reporting - **Disclosure controls and procedures** were not effective as of June 30, 2025, due to a **material weakness** in **internal controls over financial reporting**[192](index=192&type=chunk) - The **material weakness** is primarily related to insufficient controls over the set-up of customer contracts for billing and maintaining complete contract support[193](index=193&type=chunk) - **Remediation efforts**, including process improvements and new key controls, are ongoing, but the **material weakness** has not yet been fully remediated[194](index=194&type=chunk)[195](index=195&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) Company is not involved in material litigation or claims, only ordinary course legal proceedings - The company is not currently a party to any **litigation or claims** that would have a **material adverse effect** on its **business, operating results, financial condition, or cash flows**[200](index=200&type=chunk) [Item 1A. Risk Factors](index=47&type=page&id=Item%201A.%20Risk%20Factors) Outlines substantial risks of investing in MeridianLink, covering merger, strategy, operations, and finance [Summary of Risk Factors](index=47&type=section&id=Summary%20of%20Risk%20Factors) Summarizes key risks: merger, strategy, operations, legal, finance, conflicts of interest, and governance - Key risk categories include uncertainties related to the proposed **Merger**, challenges in strategy and industry, operational risks, legal and regulatory compliance, financial and accounting issues, potential conflicts of interest with significant stockholders, and risks concerning common stock and governance structure[203](index=203&type=chunk)[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) [Risks Related to the Proposed Merger](index=49&type=section&id=Risks%20Related%20to%20the%20Proposed%20Merger) - **Uncertainties and potential disruptions** associated with the pending **Merger**, including delays, failure to complete, and diversion of management attention, could adversely impact the company's **business, financial results, and stock price**[211](index=211&type=chunk)[213](index=213&type=chunk) - Failure to complete the **Merger** could lead to adverse reactions from financial markets, loss of investor confidence, litigation, and the requirement to pay a **$47 million termination fee** under certain circumstances[214](index=214&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) - Regulatory approvals for the **Merger** may be delayed or impose unforeseen conditions, and the company is subject to contractual restrictions on business conduct during the pendency of the **Merger**[219](index=219&type=chunk)[220](index=220&type=chunk) [Risks Related to Our Strategy and Industry](index=52&type=section&id=Risks%20Related%20to%20Our%20Strategy%20and%20Industry) - **Lending volumes** are highly sensitive to **economic factors**, including **elevated interest rates**, which may remain low in 2025, adversely affecting the business if the company cannot increase its **market share** or cross-sell solutions[224](index=224&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) - Failure to retain existing customers or attract new ones, innovate the **platform**, or address evolving **technological requirements** could lead to obsolescence, reduced revenue growth, and increased competition from both external providers and internal customer solutions[227](index=227&type=chunk)[228](index=228&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - The market for **cloud-based solutions** may develop slower than expected, or changes in customer preferences and pricing pressure from competitors could adversely affect sales and operating results[244](index=244&type=chunk) - The **financial services industry**, a significant source of revenue, is subject to **economic downturns**, consolidation, and increased regulation, which could reduce technology spending or lead to loss of business[246](index=246&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk) [Risks Related to Our Business and Operations](index=57&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Operations) - **Uncertain economic conditions**, including **elevated interest rates** and inflation, and changes in governmental policies, can adversely affect customer spending on technology and overall transaction volumes[249](index=249&type=chunk) - **Cybersecurity incidents**, **data breaches**, or other compromises, including those involving **AI technologies**, could result in unauthorized access to customer data, reputational damage, operational disruptions, and significant legal and financial liabilities[251](index=251&type=chunk)[252](index=252&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) - **Defects, errors, or performance problems in software solutions**, or inability to effectively integrate with third-party systems, could harm reputation, increase costs, and impair sales[260](index=260&type=chunk)[262](index=262&type=chunk)[264](index=264&type=chunk) - Challenges in **customer support**, inherent inaccuracies in **key operating metrics**, volatility from **usage and volume-based pricing**, unpredictable sales cycles, and difficulties in retaining **key personnel** or managing growth can adversely affect business performance[267](index=267&type=chunk)[269](index=269&type=chunk)[271](index=271&type=chunk)[273](index=273&type=chunk)[279](index=279&type=chunk)[282](index=282&type=chunk) - Dependence on third-party data centers and cloud hosting providers, as well as contracting product development operations to third parties in India, introduces risks of service disruption, security vulnerabilities, and operational inefficiencies[284](index=284&type=chunk)[286](index=286&type=chunk) [Risks Related to Legal and Regulatory Matters](index=67&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Matters) - Rapidly evolving privacy, information security, and data protection laws (e.g., **CCPA**, **CPRA**) and potential new federal laws could limit software solution adoption, increase compliance costs, and lead to enforcement actions[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) - As a technology provider to highly regulated **financial institutions**, the company must comply with laws like **GLBA** and **FCRA**, and any failure to do so or to update solutions for regulatory changes could result in adverse business impacts, fines, or liabilities[294](index=294&type=chunk)[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Inability to protect **intellectual property** (**copyrights**, **trademarks**, **patents**, **trade secrets**) against unauthorized use or infringement claims could lead to significant expenses, litigation, and harm to reputation and business[299](index=299&type=chunk)[300](index=300&type=chunk) - Use of open-source software in solutions could subject the company to litigation or require costly re-engineering, while lawsuits by third parties for **intellectual property infringement** could result in significant expenses and harm operating results[301](index=301&type=chunk)[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) - Changes in financial services legislation, failure to comply with anti-bribery/anti-corruption laws, or successful assertions of sales/use tax obligations could adversely affect the business, increase costs, and impose operational constraints[306](index=306&type=chunk)[308](index=308&type=chunk)[311](index=311&type=chunk) [Risks Related to Finance and Accounting](index=73&type=section&id=Risks%20Related%20to%20Finance%20and%20Accounting) - **Quarterly results** may fluctuate significantly due to **economic conditions**, **customer retention**, transaction volumes, operating expenses, and other factors, potentially not fully reflecting underlying business performance[313](index=313&type=chunk) - **Forecasts** are subject to significant risks and uncertainties, and inaccuracies could materially affect revenues, expenses, and profitability, potentially leading to **impairment charges** for acquired entities[314](index=314&type=chunk)[316](index=316&type=chunk) - Due to **ratable revenue recognition**, downturns or upturns in business may not be fully reflected in results until future periods, creating a lag in financial reporting[317](index=317&type=chunk) - The company has significant **goodwill** and other **intangibles** (**$610.1M** and **$177.1M** as of June 30, 2025), and any impairment could result in a significant charge to earnings[318](index=318&type=chunk) - Realization of **deferred tax assets** is dependent on future taxable income, and the company maintains a partial **valuation allowance** (**$35.6M** as of June 30, 2025) due to uncertainty[319](index=319&type=chunk) - **High leverage** and **debt agreements** impose significant operating and financial restrictions, limiting flexibility and increasing vulnerability to adverse conditions[322](index=322&type=chunk)[323](index=323&type=chunk)[324](index=324&type=chunk)[325](index=325&type=chunk) - The company identified a **material weakness in internal controls over financial reporting related to revenue controls**, which is still undergoing remediation. Failure to remediate could lead to inaccurate financial reporting, regulatory investigations, and loss of investor confidence[328](index=328&type=chunk)[329](index=329&type=chunk)[333](index=333&type=chunk) - Changes in **tax laws**, such as the **TCJA** and **IRA**, or new unfavorable tax legislation like the **'One Big Beautiful Act of 2025,'** could adversely affect the company's **financial position** and increase **tax liabilities**[334](index=334&type=chunk) [Risks Related to Potential Conflicts of Interests and Related Parties](index=79&type=section&id=Risks%20Related%20to%20Potential%20Conflicts%20of%20Interests%20and%20Related%20Parties) - **Thoma Bravo** and its related entities beneficially own approximately **39.0%** of the **common stock**, allowing them significant influence over matters requiring stockholder approval and potentially delaying or preventing changes of control[335](index=335&type=chunk)[337](index=337&type=chunk) - **Thoma Bravo** may pursue corporate opportunities independent of the company, which could present conflicts of interest with the company and its other stockholders[338](index=338&type=chunk) [Risks Related to Our Common Stock and Governance Structure](index=80&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock%20and%20Governance%20Structure) - The **trading price of common stock** could be volatile due to numerous factors beyond the company's control, including **economic conditions**, **market sentiment**, operational results, and sales of large blocks of stock[341](index=341&type=chunk)[343](index=343&type=chunk) - As an **emerging growth company**, the company is exempt from certain public company requirements, which may make its **common stock** less attractive to some investors and increase **price volatility**[344](index=344&type=chunk)[346](index=346&type=chunk) - Future issuance or sale of capital stock, including preferred stock, could dilute existing stockholders' ownership interests and adversely affect the **market price of common stock**[347](index=347&type=chunk)[348](index=348&type=chunk) - The company does not intend to pay **dividends** on its **common stock**, meaning stockholder returns will depend solely on **stock price appreciation**[349](index=349&type=chunk) - The **stock repurchase program** may not be fully consummated or enhance long-term stockholder value, and repurchases could increase **stock price volatility** and diminish **cash reserves**[350](index=350&type=chunk)[351](index=351&type=chunk) - **Delaware law** and certain provisions in the company's charter and bylaws could delay, discourage, or prevent a change in control, limiting stockholders' ability to approve favorable transactions[352](index=352&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=84&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Summarizes the company's stock repurchase activity for the three months ended June 30, 2025 Stock Repurchase Activity (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------------------ | :------------------------------- | :--------------------------- | | April 1 to April 30, 2025 | — | $— | | May 1 to May 31, 2025 | 312,123 | $16.52 | | June 1 to June 30, 2025 | 2,823,460 | $16.87 | | Total | 3,135,583 | N/A | - As of June 30, 2025, approximately **$76.7 million** remained authorized for repurchase under the **stock repurchase program**[356](index=356&type=chunk) [Item 3. Defaults Upon Senior Securities](index=84&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[357](index=357&type=chunk) [Item 4. Mine Safety Disclosures](index=84&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Mine Safety Disclosures** are not applicable to the company[358](index=358&type=chunk) [Item 5. Other Information](index=84&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025 - No directors or officers adopted, modified, or terminated a **Rule 10b5-1** or non-**Rule 10b5-1 trading arrangement** during the quarter ended June 30, 2025[359](index=359&type=chunk) [Item 6. Exhibits](index=85&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents [Signatures](index=87&type=section&id=Signatures) Report signed by MeridianLink's CEO, Nicolaas Vlok, and CFO, Elias Olmeta, as of August 11, 2025

[Earnings Release](index=3&type=section&id=Earnings%20Release) This section presents Aimco's second quarter 2025 financial results, highlighting strategic asset sales, plans for significant stockholder returns, and ongoing efforts in portfolio management and development [Second Quarter 2025 Results and Recent Highlights](index=3&type=section&id=Second%20Quarter%202025%20Results%20and%20Recent%20Highlights) Aimco announced its second quarter 2025 financial results, highlighting strategic asset sales totaling $1.26 billion and plans to return $4.00-$4.20 per share to stockholders. The company continues to focus on effective portfolio management, development projects, and exploring opportunities to maximize stockholder value through a strategic review process - Aimco's net loss attributable to common stockholders per share, on a fully dilutive basis, was **$(0.14)** for the three months ended June 30, 2025, and **$(0.24)** for the six months ended June 30, 2025[10](index=10&type=chunk) - Property Net Operating Income ("NOI") from Aimco's Stabilized Operating Properties was **$24.2 million** in the second quarter 2025, up **1.1%** year-over-year, and **$49.3 million** year-to-date, up **1.9%** year-over-year[10](index=10&type=chunk) - Aimco has executed a contract to sell its five-property suburban Boston portfolio for **$740 million**, and combined with the pending sale of the Brickell Assemblage, expects to close **$1.26 billion** of asset sales in 2025[7](index=7&type=chunk) - These sales are expected to deliver net proceeds of approximately **$785 million** or **$5.21 per share**, with plans to return between **$4.00 and $4.20** to stockholders[7](index=7&type=chunk) [CEO Commentary](index=3&type=section&id=CEO%20Commentary) The CEO emphasizes Aimco's commitment to value creation through active portfolio management, strategic development, and capital allocation, including significant asset sales and debt reduction - Aimco is focused on creating **value** through effective management of its apartment portfolio and development projects, while actively exploring opportunities to unlock value for stockholders through **strategic transactions** and **prudent capital allocation**[6](index=6&type=chunk) - Following the Boston and Brickell asset sales, Aimco's remaining portfolio will consist of **15 Stabilized Operating Properties** (2,524 homes, **$46 million** annualized Property NOI in Q2), three newly completed residential communities (933 homes, 114K sq ft retail, projected **$40 million** Property NOI when stabilized in 2027), one active development project (Miami waterfront, completion 2027), and an experienced development and investment management platform and pipeline[8](index=8&type=chunk) - Aimco plans to utilize a portion of sales proceeds to repay its revolving credit facility and reduce third-party preferred equity funding, reducing the cost of leverage by approximately **$7 million annually**[9](index=9&type=chunk) [Highlights](index=4&type=section&id=Highlights) This section details key operational and strategic achievements, including the performance of stabilized properties, updates on development projects, significant disposition activities, balance sheet management, and the ongoing strategic review to enhance stockholder value [Operating Property Results](index=4&type=section&id=Operating%20Property%20Results) This section details the performance of stabilized operating properties, including occupancy rates, revenue growth, expense management, and effective rent increases for Q2 2025 Stabilized Operating Properties Performance (Q2 2025 vs. Q2 2024) | Metric | 2025 | 2024 | Variance | | :-------------------------------- | :----- | :----- | :------- | | Average Daily Occupancy | 95.8% | 96.3% | (0.5)% | | Revenue, before utility reimbursements (in millions) | $35.4 | $34.7 | 1.9% | | Expenses, net of utility reimbursements (in millions) | 11.2 | 10.7 | 3.9% | | Property NOI (in millions) | 24.2 | 24.0 | 1.1% | - Average monthly revenue per apartment home increased by **2.5%** to **$2,349** in Q2 2025[13](index=13&type=chunk)[14](index=14&type=chunk) - Effective rents during Q2 2025 were **6.2%** higher on average than the previous lease, with new leases up **5.5%** and renewals up **6.5%**[14](index=14&type=chunk) - The median annual household income of new residents was **$124,000** in Q2 2025, representing a rent-to-income ratio of **20%**[14](index=14&type=chunk) [Value Add and Opportunistic Investments](index=5&type=section&id=Value%20Add%20and%20Opportunistic%20Investments) This section outlines the status of Aimco's multifamily development projects, including those under construction, in lease-up, or stabilizing operations, along with capital investment details - As of June 30, 2025, Aimco had **one multifamily development project** under construction (34th Street), **two substantially completed communities** in lease-up (Upton Place, Strathmore Square), and **one that completed lease-up** and is stabilizing operations (Oak Shore)[16](index=16&type=chunk)[19](index=19&type=chunk) - During Q2 2025, **$21.4 million** of capital was invested in development and redevelopment activities, primarily funded through construction loan and preferred equity draws[17](index=17&type=chunk) - Upton Place (Washington D.C.) was **73% leased/pre-leased** and **61% occupied** as of July 31, 2025, with **92% of retail space leased**[19](index=19&type=chunk) - Construction at 34th Street (Miami) remains **on schedule and on budget**, with first residents expected in 3Q 2027 and stabilization in 4Q 2028[19](index=19&type=chunk) [Investment & Disposition Activity](index=6&type=section&id=Investment%20%26%20Disposition%20Activity) This section reports on significant asset disposition activities, including the sales of the Boston portfolio and Brickell Assemblage, and the expected net proceeds and planned stockholder returns - Aimco entered into a definitive agreement in August 2025 to sell its portfolio of five apartment properties in suburban Boston for **$740 million**, with four sales expected to close in Q3 and the final asset in Q4 2025[23](index=23&type=chunk) - The buyer of the Brickell Assemblage exercised its final closing extension option in July, increasing the non-refundable deposit to **$50 million**, with closing now scheduled for Q4 2025[23](index=23&type=chunk) - Gross proceeds from the Boston and Brickell transactions are expected to equal **$1.26 billion**, with net proceeds of approximately **$785 million**, or **$5.21 per share**[23](index=23&type=chunk) - Aimco plans to return between **$4.00 and $4.20 per share** to stockholders following the closing of the Brickell and Boston Portfolio transactions[23](index=23&type=chunk) [Balance Sheet and Financing Activity](index=6&type=section&id=Balance%20Sheet%20and%20Financing%20Activity) This section provides an overview of Aimco's liquidity, net leverage, and debt structure as of June 30, 2025, highlighting fixed-rate debt and recent financing actions - As of June 30, 2025, Aimco had access to **$173.5 million** in liquidity, including **$41.4 million** of cash on hand and **$105.7 million** capacity on its revolving credit facility[22](index=22&type=chunk) Aimco Net Leverage as of June 30, 2025 (in thousands) | Aimco Share, $ in thousands | Amount | | :---------------------------------- | :------------- | | Total non-recourse fixed rate debt | $693,017 | | Total non-recourse construction loan debt | 376,918 | | Total property debt secured by assets held for sale | 158,690 | | Revolving Credit Facility | 42,800 | | Cash and restricted cash | (67,542) | | Net Leverage | $1,203,883 | - **100%** of Aimco's total debt was either fixed rate or hedged with interest rate cap protection as of June 30, 2025, with **no debt maturing prior to June 2027** (including contractual extensions)[24](index=24&type=chunk) - In May, Aimco borrowed **$42.8 million** on its revolving credit facility to pay off a mezzanine loan with a **13.0% interest rate**, approximately **650 basis points** higher than the credit facility's average rate[28](index=28&type=chunk) [Commitment to Enhance Stockholder Value](index=7&type=section&id=Commitment%20to%20Enhance%20Stockholder%20Value) This section details Aimco's strategic review process initiated to maximize stockholder value, exploring potential sales, mergers, or accelerated asset dispositions, alongside share repurchase activities - Aimco's Board of Directors announced on January 9, 2025, its decision to **explore additional alternatives** to unlock and **maximize stockholder value**, including a potential sale or merger of Aimco, sales of major business components, or an acceleration of individual asset sales[26](index=26&type=chunk) - The strategic process was initiated due to AIV shares trading at a **meaningful discount** to Aimco's estimate of the private market value of its assets and investment platform[25](index=25&type=chunk) - Morgan Stanley & Co. LLC is serving as financial advisor to Aimco for the strategic process[26](index=26&type=chunk) - In January 2025, prior to the strategic review announcement, Aimco repurchased **29,498 shares** of its common stock at a weighted average price of **$8.66 per share**. Since the start of 2022, Aimco has repurchased **14.5 million shares**[28](index=28&type=chunk) [2025 Outlook](index=8&type=section&id=Outlook) Aimco updated its 2025 outlook, withdrawing prior guidance for Stabilized Operating Properties due to the substantial impact of the Boston transaction. The revised forecast includes a significantly higher diluted net income per share range, reflecting estimated gains from announced asset sales - Aimco **withdraws prior guidance** for revenue, expense, and Property NOI for its Stabilized Operating Properties due to the Boston transaction's substantial impact on the portfolio composition[29](index=29&type=chunk) 2025 Forecast (Full Year, $ in millions except per share amounts) | Metric | YTD Results (2Q 2025) | Forecast (2025) | Prior Forecast (2025) | | :------------------------------------------ | :-------------------- | :---------------- | :-------------------- | | Net income (loss) per share – diluted | $(0.24) | $5.20 - $5.40 | $1.50 - $1.60 | | Total Direct Costs of Projects in Occupancy Stabilization at Period End | $585 | $68 | $68 | | Total Direct Costs of Projects Under Construction at Period End | $240 | $240 | $240 | | Direct Project Costs on Active Developments | $29 | $50 - $60 | $50 - $60 | | Direct Planning Costs | $4 | $7 - $10 | $7 - $10 | | Acquisitions | None | None | None | | Dispositions | None | $1,260 - $1,280 | $520 - $540 | | General and Administrative | $16 | $32 - $33 | $33 - $34 | | Interest Expense, net of capitalization | $33 | $60 - $62 | $63 - $65 | - The diluted net income (loss) per share forecast includes **estimated gains** from the announced transactions which are under contract[30](index=30&type=chunk) [Consolidated Statements of Operations](index=11&type=section&id=Consolidated%20Statements%20of%20Operations) The consolidated statements of operations for the three and six months ended June 30, 2025, show a net loss attributable to Aimco of $(19.3) million and $(33.2) million, respectively, representing an improvement compared to the prior year. Rental and other property revenues increased year-over-year Consolidated Statements of Operations (Selected Data, in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Rental and other property revenues | $52,758 | $51,148 | $105,110 | $101,350 | | Total operating expenses | $47,353 | $52,244 | $95,019 | $101,460 | | Net income (loss) attributable to Aimco | $(19,305) | $(60,526) | $(33,221) | $(70,712) | | Net income (loss) attributable to common stockholders per share – diluted | $(0.14) | $(0.43) | $(0.24) | $(0.50) | [Consolidated Balance Sheets](index=12&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, Aimco's total assets were $1.87 billion, with total liabilities of $1.59 billion. The company reported a decrease in cash and cash equivalents compared to December 31, 2024, while total indebtedness slightly increased Consolidated Balance Sheets (Selected Data, in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :-------------- | :---------------- | | Total real estate (net) | $1,269,558 | $1,247,833 | | Cash and cash equivalents | $41,385 | $141,072 | | Assets held for sale, net | $275,892 | $276,079 | | Total assets | $1,869,810 | $1,956,910 | | Total indebtedness | $1,098,432 | $1,070,660 | | Total liabilities | $1,587,362 | $1,644,613 | | Total equity | $136,342 | $169,366 | [Supplemental Schedule 1 – EBITDAre and Adjusted EBITDAre](index=13&type=section&id=Schedule%201%20%E2%80%93%20EBITDAre%20and%20Adjusted%20EBITDAre) Aimco reported EBITDAre of $23.2 million for the three months ended June 30, 2025, and $88.7 million for the twelve months ended June 30, 2025. Adjusted EBITDAre for the same periods was $18.9 million and $76.6 million, respectively EBITDAre and Adjusted EBITDAre (in thousands) | Metric | Three Months Ended June 30, 2025 | Twelve Months Ended June 30, 2025 | | :-------------------- | :------------------------------- | :-------------------------------- | | Net income (loss) | $(16,976) | $(56,389) | | EBITDAre | $23,207 | $88,662 | | Adjusted EBITDAre | $18,894 | $76,562 | [Supplemental Schedule 2 – Aimco Leverage and Maturities](index=14&type=section&id=Schedule%202%20%E2%80%93%20Aimco%20Leverage%20and%20Maturities) As of June 30, 2025, Aimco's net leverage was $1.2 billion, with a weighted average maturity of 4.9 years for total non-recourse debt. The schedule details the composition of debt, including fixed rate and construction loans, and outlines debt maturities through 2033, as well as common stock and partnership units Aimco Net Leverage as of June 30, 2025 (in thousands) | Aimco Share, $ in thousands | Amount | Weighted Avg. Maturity (Yrs.) | | :---------------------------------- | :------------- | :---------------------------- | | Total non-recourse fixed rate debt | $693,017 | 6.3 | | Total non-recourse construction loan debt | 376,918 | 2.4 | | Total property debt secured by assets held for sale | 158,690 | | | Revolving Credit Facility | 42,800 | | | Cash and restricted cash | (67,542) | | | Net Leverage | $1,203,883 | | - Total non-recourse debt (Aimco Share) was **$1,069,935 thousand** with a weighted average maturity of **4.9 years** and a weighted average stated interest rate of **5.25%** (**5.20%** capped)[51](index=51&type=chunk) Aimco Share Non-Recourse Debt Maturities (Excluding Assets Held for Sale, in thousands) | Year | Total (in thousands) | Percent of Total | Average Rate (Capped) | | :--- | :------------------- | :--------------- | :-------------------- | | 2025 | $94,992 | 8.79% | 6.60% | | 2026 | $24,092 | 2.06% | 7.91% | | 2027 | $2,115 | — | — | | 2028 | $256,892 | 23.80% | 6.69% | | 2029 | $181,923 | 16.79% | 4.66% | | 2030 | $2,363 | — | — | | 2031 | $106,204 | 9.77% | 3.20% | | 2032 | $221,751 | 20.72% | 4.62% | | 2033 | $173,435 | 16.21% | 4.60% | | Thereafter | $6,168 | 0.58% | 3.25% | Common Stock, Partnership Units, and Equivalents (as of June 30, 2025, in thousands) | Metric | Amount (in thousands) | | :------------------------------------------ | :------- | | Class A Common Stock Outstanding | 137,377 | | Participating unvested restricted stock | 1,938 | | Potentially dilutive options, share equivalents, and non-participating unvested restricted stock | 2,323 | | Total shares and potentially dilutive share equivalents | 141,638 | | Common Partnership Units and equivalents outstanding | 9,050 | | Total shares, units and potentially dilutive share equivalents | 150,688 | [Supplemental Schedule 3 – Aimco Portfolio](index=15&type=section&id=Schedule%203%20%E2%80%93%20Aimco%20Portfolio) Aimco's total portfolio consists of 37 properties, including 6,789 apartment homes, 443.2 thousand square feet of office and retail space, and 106 hotel keys. The portfolio is diversified across stabilized operating properties, development projects, and land held for future development Aimco Portfolio (as of June 30, 2025) | Category | Number of Properties | Apartment Homes | Office and Retail Sq Ft | Hotel Keys | Development Land (Acres) | | :-------------------------------- | :------------------- | :-------------- | :---------------------- | :--------- | :----------------------- | | Stabilized Operating Properties | 20 | 5,243 | 26.4 | - | - | | Other Real Estate | 1 | - | - | 106 | - | | Development and Redevelopment - Owned | 3 | 1,023 | 121.1 | - | - | | Development and Redevelopment - Land | 5 | - | - | - | 20.8 | | Development and Redevelopment - Leased | 1 | 24 | - | - | - | | Held for Sale | 2 | 357 | 295.7 | - | - | | **Total Consolidated** | **32** | **6,647** | **443.2** | **106** | **20.8** | | Unconsolidated | 5 | 142 | - | - | - | | **Total Portfolio** | **37** | **6,789** | **443.2** | **106** | **20.8** | - Assets classified as Held for Sale as of June 30, 2025, include Aimco's 1001 Brickell Bay Drive office tower and Yacht Club Apartments[60](index=60&type=chunk) [Supplemental Schedule 4 – Aimco Capital Additions](index=16&type=section&id=Schedule%204%20%E2%80%93%20Aimco%20Capital%20Additions) Aimco's total capital additions for the second quarter of 2025 amounted to $28.1 million, with $21.4 million allocated to development and redevelopment activities. Year-to-date capital additions totaled $51.6 million Total Capital Additions (in thousands) | Category | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :-------------------------- | :------------------------------- | :------------------------------- | | Capital Replacements and Casualty | $5,063 | $7,801 | | Property Upgrades | $819 | $865 | | Tenant Improvements | $833 | $887 | | Development and Redevelopment | $21,430 | $42,039 | | **Total Capital Additions** | **$28,145** | **$51,592** | - Second quarter 2025 total capital additions include **$16.6 million** of Direct Capital Investment (**$14.1 million** on active projects and **$2.5 million** on projects in planning)[61](index=61&type=chunk) [Supplemental Schedule 5 – Aimco Development and Redevelopment Project Summaries](index=17&type=section&id=Schedule%205%20%E2%80%93%20Aimco%20Development%20and%20Redevelopment%20Project%20Summaries) This schedule provides detailed summaries of Aimco's active development projects and future pipeline, outlining units, commercial space, and estimated timelines for construction and stabilization [Aimco Active Development Project Summaries](index=17&type=section&id=Aimco%20Active%20Development%20Project%20Summaries) Aimco has four active development projects: Upton Place, Strathmore Square, 34th Street, and Oak Shore. Most are in lease-up or nearing completion, with 34th Street in Miami being the primary active construction project. The total estimated stabilized Property NOI for the development portfolio is $60.5 million Aimco Active Development Project Summaries (as of June 30, 2025, dollars in millions) | Project Name | Location | Units | Units Leased or Pre-Leased | Retail Sq Ft | Initial Occupancy | Stabilized Occupancy | Planned Direct Capital Investment | To-Date Direct Capital Investment | Remaining Direct Capital Investment | | :---------------- | :--------------- | :---- | :----------------------- | :----------- | :---------------- | :------------------- | :------------------------------- | :------------------------------ | :-------------------------------- | | Upton Place | Washington, D.C. | 689 | 69% | 105,053 | 4Q 2023 | 4Q 2025 | $242.0 | $241.2 | $0.8 | | Strathmore Square | Bethesda, MD | 220 | 75% | 9,000 | 2Q 2024 | 4Q 2025 | $156.5 | $156.1 | $0.4 | | 34th Street | Miami, FL | 114 | — | 7,000 | 3Q 2027 | 4Q 2028 | $211.7 | $60.3 | $151.4 | | Oak Shore | Corte Madera, CA | 24 | 96% | — | 4Q 2023 | 2Q 2025 | $47.2 | $47.2 | - | | **Total** | | **1,047** | | **121,053** | | | **$657.4** | **$504.8** | **$152.6** | - The estimated Stabilized Property NOI for the total development portfolio is **$60.5 million**[63](index=63&type=chunk)[65](index=65&type=chunk) [Aimco Development and Redevelopment Pipeline Projects](index=18&type=section&id=Aimco%20Development%20and%20Redevelopment%20Pipeline%20Projects) Aimco controls a robust pipeline of future development projects, primarily in Southeast Florida, the Washington D.C. Metro Area, and Colorado's Front Range, with the potential to deliver 3,708 multifamily units and over 1 million square feet of commercial space Aimco Development and Redevelopment Pipeline Projects (Estimated / Currently Planned) | Project Name/Property Location | Multifamily Units | Commercial Sq Ft | Earliest Vertical Construction Start | | :------------------------------------ | :---------------- | :--------------- | :----------------------------------- | | **Southeast Florida** | | | | | 300 Broward (Fort Lauderdale) | 935 | 40,000 | 2026 | | 901 North (Flagler Village Phase I) | 690 | 230,000 | 2026 | | One Edgewater (Miami) | 204 | — | 2027 | | Flagler Village Phase II (Fort Lauderdale) | 300 | — | 2027 | | Flagler Village Phase III (Fort Lauderdale) | 300 | — | 2028 | | **Washington D.C. Metro Area** | | | | | Strathmore Square Phase II (Bethesda) | 399 | 11,000 | 2026 | | **Colorado's Front Range** | | | | | Fitzsimons 4 (Aurora) | 285 | — | 2026 | | Flying Horse (Colorado Springs) | 95 | — | 2026 | | Bioscience 4 (Aurora) | — | 225,000 | 2026 | | Fitzsimons 2 (Aurora) | 275 | — | 2026 | | Bioscience 5 (Aurora) | — | 190,000 | 2026 | | Fitzsimons 3 (Aurora) | 225 | — | 2027 | | Bioscience 6 (Aurora) | — | 315,000 | 2028 | | **Total Future Pipeline** | **3,708** | **1,011,000** | | - Aimco expects to fund pipeline development projects with **50% to 60% loan-to-cost** construction loans, **10% to 15% Aimco equity**, and the remaining costs funded with Co-GP and/or LP equity[68](index=68&type=chunk) [Supplemental Schedule 6 – Stabilized Operating Properties](index=19&type=section&id=Schedule%206%20%E2%80%93%20Stabilized%20Operating%20Properties) Aimco's Stabilized Operating Properties generated $24.2 million in Property NOI in Q2 2025, a 1.1% increase year-over-year. Performance varied by market, with Boston showing 5.4% NOI growth, while New York City experienced a 12.6% decline due to commercial tenant vacancy, and Other Markets saw a 10.4% decline due to higher real estate taxes Stabilized Operating Results (Q2 2025 vs. Q2 2024, in thousands) | Market | Apartment Homes | Revenues, Before Utility Reimbursements (2025, in thousands) | Revenues, Before Utility Reimbursements (2024, in thousands) | Revenue Growth | Expenses, Net of Utility Reimbursements (2025, in thousands) | Expenses, Net of Utility Reimbursements (2024, in thousands) | Expense Growth | Property NOI (2025, in thousands) | Property NOI (2024, in thousands) | NOI Growth | Average Daily Occupancy (2025) | Average Daily Occupancy (2024) | Average Revenue per Apartment Home (2025) | Average Revenue per Apartment Home (2024) | | :------------- | :-------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | :-------------------- | :-------------------- | :--------- | :----------------------------- | :----------------------------- | :----------------------------------------- | :----------------------------------------- | | Boston | 2,719 | $17,434 | $16,850 | 3.5% | $4,687 | $4,760 | (1.5%) | $12,747 | $12,090 | 5.4% | 96.4% | 96.4% | $2,217 | $2,142 | | Chicago | 1,495 | $10,586 | $10,356 | 2.2% | $3,476 | $3,385 | 2.7% | $7,110 | $6,971 | 2.0% | 95.5% | 96.8% | $2,472 | $2,386 | | New York City | 150 | $2,060 | $2,129 | (3.2%) | $946 | $855 | 10.6% | $1,114 | $1,274 | (12.6%) | 98.6% | 98.4% | $4,644 | $4,809 | | Other Markets | 879 | $5,314 | $5,384 | (1.3%) | $2,057 | $1,747 | 17.7% | $3,257 | $3,637 | (10.4%) | 93.9% | 94.8% | $2,146 | $2,153 | | **Total** | **5,243** | **$35,394** | **$34,719** | **1.9%** | **$11,166** | **$10,747** | **3.9%** | **$24,228** | **$23,972** | **1.1%** | **95.8%** | **96.3%** | **$2,349** | **$2,292** | - Total Property NOI for Stabilized Operating Properties was **$49,291 thousand** year-to-date June 30, 2025, up **1.9%** compared to the same period in 2024[72](index=72&type=chunk) - Expenses in 'Other Markets' in Q2 2025 were unfavorably impacted primarily due to a multi-year property assessment at the Nashville property, which is being appealed[72](index=72&type=chunk) [Supplemental Schedule 7 – Acquisitions, Dispositions, and Leased Communities](index=20&type=section&id=Schedule%207%20%E2%80%93%20Acquisitions%2C%20Dispositions%2C%20and%20Leased%20Communities) In Q2 2025, Aimco's primary acquisition activity involved purchasing its development partner's interests in Strathmore Square for $2.1 million. This schedule also implicitly covers the significant dispositions discussed elsewhere, such as the Boston portfolio and Brickell Assemblage Partnership Acquisitions (May 2025) | Partnership Acquisitions | Location | Equity Acquired (in millions) | | :----------------------- | :----------- | :-------------- | | Strathmore Square | Bethesda, MD | $2.1 | | Total Partnership Acquisitions | | $2.1 | - In May, Aimco purchased its development partner's **5% common equity interest** in Strathmore Square for **$2.1 million** and the same partner's subordinated interest for **$2.9 million**[74](index=74&type=chunk) [Supplemental Schedule 8 – Net Asset Value Components](index=21&type=section&id=Schedule%208%20%E2%80%93%20Net%20Asset%20Value%20Components) This schedule provides a pre-tax breakdown of Aimco's Net Asset Value components as of Q2 2025, including annualized NOI from operating properties and developments, associated leverage, land investments, and expected proceeds from asset sales Net Asset Value Components (Q2 2025, in millions, pre-tax) | Component | Amount (in millions) | | :------------------------------------------------------------------------------------------------ | :----- | | Annualized NOI for Stabilized Operating Properties (proforma Boston sale) | $45.9 | | Annualized NOI for unconsolidated real estate at AIV share | $2.6 | | Projected annual NOI for DC Metro lease ups | $37.1 | | Projected annual NOI for other properties stabilizing operations | $5.4 | | Projected annual NOI for Aimco's 34th Street development | $18.0 | | Non-recourse property debt, net | $(451.8) | | Non-recourse construction loans, net | $(376.9) | | Preferred equity interests | $(146.1) | | Land, Planning and Entitlement Investment at cost (901 North) | $100.0 | | Land, Planning and Entitlement Investment at cost (Other land and development pipeline) | $41.0 | | Expected proceeds from assets held for sale | $1,260.0 | | Liabilities associated with assets held for sale (debt, taxes, transaction costs) | $(474.2) | | IQHQ and Real Estate Tech Fund Investments | $15.8 | | Cash and cash equivalents | $41.4 | | Restricted cash | $26.4 | | Notes receivable | $59.8 | | Fair value adjustment on fixed rate property debt & preferred equity | $36.5 | | Amounts drawn on Aimco's revolving secured credit facility | $(42.8) | | Other liabilities, net | $(135.9) | | Common Stock, Partnership Units and Equivalents (in millions) | 150.7 | - Aimco estimates the value of entitlements secured or accretive planning investment, not included in land inventory, to be at least **$30 million**[80](index=80&type=chunk) [Supplemental Schedule 9 – Asset List](index=22&type=section&id=Schedule%209%20%E2%80%93%20Asset%20List) This schedule provides a comprehensive list of Aimco's operating apartment communities, recently completed developments, active development projects, development land, partnership-owned properties, non-core & alternative investments, and planned/announced dispositions - Operating Apartment Communities include properties in New York, Chicago, Denver, Nashville, Atlanta, and various locations in Illinois and California[84](index=84&type=chunk) - Recently Completed Developments include Oak Shore (Corte Madera, CA), Upton Place (Washington, DC), and Strathmore Square Phase 1 (Bethesda, MD)[84](index=84&type=chunk) - Active Development is 34th Street in Miami, FL[84](index=84&type=chunk) - Planned / Announced Dispositions include the Brickell Assemblage (1001 Brickell Bay Drive, Yacht Club at Brickell) and the Boston Portfolio (Royal Crest Estates in Warwick, Nashua, Marlborough; Waterford Village; Wexford Village)[86](index=86&type=chunk) [Glossary and Reconciliations of Non-GAAP Financial and Operating Measures](index=23&type=section&id=Glossary%20and%20Reconciliations%20of%20Non-GAAP%20Financial%20and%20Operating%20Measures) This section defines key non-GAAP financial and operating measures used by Aimco and provides reconciliations to their most directly comparable GAAP measures [Non-GAAP Financial and Operating Measures Definitions](index=23&type=section&id=Non-GAAP%20Financial%20and%20Operating%20Measures%20Definitions) This subsection provides definitions for various non-GAAP financial and operating measures, including Average Revenue per Apartment Home, Capital Additions, Direct Capital Investment, EBITDAre, Adjusted EBITDAre, Net Asset Value, NOI Margin, Other Expenses, Net, Other Liabilities, Net, and Preferred Equity Interests - EBITDAre is defined as GAAP net income adjusted for interest expense, income taxes, depreciation and amortization, gains/losses on dispositions of depreciated property, impairment write-downs, and Aimco's share of unconsolidated partnerships' EBITDAre[94](index=94&type=chunk)[95](index=95&type=chunk) - Adjusted EBITDAre further adjusts EBITDAre to exclude net income/loss attributable to noncontrolling interests, realized/unrealized gains/losses on interest rate contracts, unrealized gains/losses on passive equity investments, and mezzanine investment income/loss[97](index=97&type=chunk)[102](index=102&type=chunk) - Property NOI is defined as total rental and other property revenues (excluding utility reimbursements) less property operating expenses (including utility reimbursements) for consolidated apartment communities[101](index=101&type=chunk) Capital Additions Reconciliation (in thousands) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | | Total Capital additions (per Note 8 in Aimco's 10-Q) | $27,694 | $50,915 | | Adjustment: Incidental revenues and other adjustments that reduce capital expenditures for GAAP | 451 | 677 | | **Total Capital Additions (per Schedule 4)** | **$28,145** | **$51,592** | [Property NOI Reconciliation](index=25&type=section&id=Property%20NOI%20Reconciliation) This section reconciles GAAP income (loss) before income tax benefit to total Property NOI, and further breaks down total Property NOI into Stabilized Operating, Other Real Estate, and Non-stabilized/unallocated amounts Reconciliation of GAAP Income (Loss) Before Income Tax Benefit to Total Property NOI (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income (loss) before income tax benefit | $(11,405) | $(63,291) | $(23,202) | $(73,216) | | Adjustments (Depreciation, G&A, Interest, Gains/Losses, Other) | 41,000 | 91,882 | 82,055 | 130,810 | | **Total Property NOI** | **$29,566** | **$28,591** | **$58,853** | **$57,594** | Property NOI Breakdown (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Stabilized Operating | $24,228 | $23,972 | $49,291 | $48,371 | | Other Real Estate | (340) | 207 | (984) | (365) | | Non-stabilized and other amounts not allocated | 5,678 | 4,412 | 10,546 | 9,588 | | **Total Property NOI** | **$29,566** | **$28,591** | **$58,853** | **$57,594** | [Real Estate Classifications](index=26&type=section&id=Real%20Estate%20Classifications) This section defines Aimco's classifications for its real estate portfolio, including Development and Redevelopment (Owned, Land, Leased), Stabilized Operating Properties, Other Real Estate, and Assets Held for Sale - Development and Redevelopment - Owned includes apartment communities under construction or in pre-construction that have not achieved a stabilized level of operations[109](index=109&type=chunk) - Stabilized Operating Properties are apartment communities owned and asset managed by Aimco that reached and maintained a stabilized level of operations as of January 1, 2024, and are not expected to be sold within 12 months[111](index=111&type=chunk) - Assets Held for Sale include those assets that, as of the last day of the quarter, were under contract with non-refundable deposits[112](index=112&type=chunk)

or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________________________________________________ FORM 10-Q __________________________________________________________ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 For the transition period from _______ to _______ Commission File Number: 1-10864 _ ...