PART I FINANCIAL INFORMATION This section covers the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including cash flows, income, equity, and balance sheets, with detailed explanatory notes [Condensed Consolidated Statements of Cash Flows (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) This section provides the unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities | Nine Months Ended June 30, | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $35,684 | $40,233 | | Net cash used in investing activities | $(22,087) | $(17,090) | | Net cash used in financing activities | $(16,350) | $(9,219) | | Net increase (decrease) in cash | $(2,753) | $13,924 | | Cash, cash equivalents, and restricted cash at end of period | $29,597 | $34,947 | - Net cash provided by operating activities decreased by **$4,549 thousand (11.3%)** for the nine months ended June 30, 2025, compared to the same period in 2024[12](index=12&type=chunk) - Net cash used in investing activities increased by **$4,997 thousand (29.2%)** for the nine months ended June 30, 2025, primarily due to business acquisitions[12](index=12&type=chunk) [Condensed Consolidated Statements of Income (unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20(unaudited)) This section presents the unaudited condensed consolidated statements of income, highlighting revenues, operating income, and net income | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total revenues | $71,145 | $76,180 | $208,504 | $222,370 | | Income (loss) from operations | $8,713 | $(2,536) | $30,790 | $15,286 | | Net income (loss) attributable to RCIHH common stockholders | $4,058 | $(5,233) | $16,313 | $2,767 | | Basic and diluted EPS | $0.46 | $(0.56) | $1.84 | $0.30 | - Total revenues decreased by **6.6%** for the three months and **6.2%** for the nine months ended June 30, 2025, compared to the prior year periods[14](index=14&type=chunk) - The company reported a significant improvement in net income and EPS for both the three and nine months ended June 30, 2025, turning a loss into profit for the quarter and substantially increasing profit for the nine-month period[14](index=14&type=chunk) [Condensed Consolidated Statements of Changes in Equity (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20(unaudited)) This section details the unaudited condensed consolidated statements of changes in equity, showing movements in common stock, additional paid-in capital, and retained earnings | Equity Component (in thousands) | Balance at September 30, 2024 | Balance at June 30, 2025 | | :------------------------------ | :---------------------------- | :----------------------- | | Common Stock (Amount) | $90 | $87 | | Additional Paid-In Capital | $61,511 | $53,244 | | Retained Earnings | $201,759 | $216,216 | | Total RCIHH Stockholders' Equity| $263,360 | $269,547 | - Total RCIHH stockholders' equity increased from **$263.36 million** at September 30, 2024, to **$269.55 million** at June 30, 2025[15](index=15&type=chunk)[17](index=17&type=chunk) - The company repurchased treasury shares, leading to a decrease in common stock shares outstanding and additional paid-in capital, while retained earnings increased due to net income[15](index=15&type=chunk) [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets, outlining assets, liabilities, and equity at period-end | Balance Sheet Item (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------------------- | :------------ | :----------------- | | Total current assets | $45,307 | $47,285 | | Total assets | $597,412 | $584,364 | | Total current liabilities | $49,042 | $48,078 | | Total liabilities | $328,109 | $321,254 | | Total equity | $269,303 | $263,110 | - Total assets increased by **$13.05 million** from September 30, 2024, to June 30, 2025, primarily driven by increases in property and equipment, goodwill, and intangibles[17](index=17&type=chunk) - The company maintained a negative working capital position, with current liabilities exceeding current assets[17](index=17&type=chunk)[146](index=146&type=chunk) [Notes to Condensed Consolidated Financial Statements (unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(unaudited)) This section provides detailed notes explaining the basis of presentation, accounting standards, and specific financial accounts [1. Basis of Presentation](index=8&type=section&id=1.%20Basis%20of%20Presentation) This note describes the basis for preparing the unaudited condensed consolidated financial statements in accordance with GAAP - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, and do not include all GAAP disclosures for complete financial statements[19](index=19&type=chunk) - Management believes all necessary adjustments for fair statement, consisting solely of normal recurring adjustments, have been made[19](index=19&type=chunk) [2. Recent Accounting Standards and Pronouncements](index=8&type=section&id=2.%20Recent%20Accounting%20Standards%20and%20Pronouncements) This note outlines the adoption and evaluation of recent accounting standards and their impact on the financial statements - The Company adopted ASU 2022-03 (Fair Value Measurement) and ASU 2023-01 (Leases - Common Control Arrangements) on October 1, 2024, with no significant impact on consolidated financial statements[20](index=20&type=chunk)[21](index=21&type=chunk) - ASU 2023-05 (Business Combinations—Joint Venture Formations) was adopted on October 1, 2024, and will be applied to future joint ventures, requiring assets and liabilities to be measured at fair value upon formation[22](index=22&type=chunk) - The Company is evaluating the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) on its financial statements, with ASU 2024-03 (Expense Disaggregation Disclosures) also under evaluation[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) [3. Revenues](index=10&type=section&id=3.%20Revenues) This note provides a detailed breakdown of total revenues by type and discusses contract liabilities with customers | Revenue Type (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Sales of alcoholic beverages| $30,780 | $34,442 | $91,834 | $100,665 | | Sales of food and merchandise | $10,037 | $11,736 | $29,554 | $33,606 | | Service revenues | $25,169 | $25,268 | $72,262 | $73,951 | | Other revenues | $5,159 | $4,734 | $14,854 | $14,148 | | Total revenues | $71,145 | $76,180 | $208,504 | $222,370 | - Total revenues decreased by **6.6%** for the three months and **6.2%** for the nine months ended June 30, 2025, primarily due to declines in alcoholic beverage and food/merchandise sales[28](index=28&type=chunk) - Contract liabilities with customers, primarily for ad, expo, and franchise fees, increased from **$99 thousand** at September 30, 2024, to **$451 thousand** at June 30, 2025[31](index=31&type=chunk) [4. Segment Information](index=12&type=section&id=4.%20Segment%20Information) This note presents financial information by operating segment, including revenues and income from operations for Nightclubs and Bombshells | Segment (in thousands) | Three Months Ended June 30, 2025 (Revenues) | Three Months Ended June 30, 2024 (Revenues) | Nine Months Ended June 30, 2025 (Revenues) | Nine Months Ended June 30, 2024 (Revenues) | | :--------------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Nightclubs | $62,336 | $62,823 | $181,601 | $183,228 | | Bombshells | $8,609 | $13,139 | $26,425 | $38,641 | | Other | $200 | $218 | $478 | $501 | | Total | $71,145 | $76,180 | $208,504 | $222,370 | | Segment (in thousands) | Three Months Ended June 30, 2025 (Income from Operations) | Three Months Ended June 30, 2024 (Income from Operations) | Nine Months Ended June 30, 2025 (Income from Operations) | Nine Months Ended June 30, 2024 (Income from Operations) | | :--------------------- | :-------------------------------------------------------- | :-------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | | Nightclubs | $17,761 | $13,640 | $53,246 | $45,030 | | Bombshells | $87 | $(8,914) | $1,831 | $(8,129) | | Other | $(441) | $(108) | $(1,292) | $(581) | | Corporate | $(8,694) | $(7,154) | $(22,995) | $(21,034) | | Total | $8,713 | $(2,536) | $30,790 | $15,286 | - Nightclubs revenue decreased slightly by **0.8%** for the quarter and **0.9%** for the nine months, while Bombshells revenue saw a significant decrease of **34.5%** for the quarter and **31.6%** for the nine months, primarily due to closed/sold locations and same-store sales decline[35](index=35&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) - Nightclubs' income from operations increased significantly, while Bombshells improved from a loss to a slight profit for the quarter and a profit for the nine months[35](index=35&type=chunk) [5. Selected Account Information](index=13&type=section&id=5.%20Selected%20Account%20Information) This note provides details on selected balance sheet and income statement accounts, including receivables, liabilities, and expenses | Account (in thousands) | June 30, 2025 | September 30, 2024 | | :--------------------- | :------------ | :----------------- | | Total receivables, net | $4,606 | $5,832 | | Total prepaid expenses and other current assets | $3,214 | $4,427 | | Total accrued liabilities | $21,764 | $20,280 | | Total other long-term liabilities | $7,765 | $398 | - Accrued liabilities increased by **$1.48 million**, primarily due to a **$3.26 million** increase in lawsuit settlement accruals and the recognition of an estimated self-insurance liability[42](index=42&type=chunk)[77](index=77&type=chunk) - Selling, general and administrative expenses increased by **4.3%** for the quarter and **0.4%** for the nine months, driven by higher insurance and legal expenses, partially offset by decreases in taxes and permits, advertising, and security[44](index=44&type=chunk)[124](index=124&type=chunk) - Impairments and other charges, net, decreased significantly from **$18.26 million** to **$2.35 million** for the quarter and from **$26.45 million** to **$2.23 million** for the nine months, mainly due to lower asset impairments in the current period[44](index=44&type=chunk) [6. Debt](index=16&type=section&id=6.%20Debt) This note details the company's debt obligations, including new loans, promissory notes, and future maturity schedules - The Company converted a bank loan into a **$6.3 million** construction loan at **6.99%** interest, payable interest-only for 24 months[47](index=47&type=chunk) - New seller-financed promissory notes totaling **$8.0 million** were executed for club acquisitions, bearing interest rates of **7% to 8%** per annum[48](index=48&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) | Future Maturities of Debt Obligations (in thousands) | Total Payments | | :----------------------------------- | :------------- | | July 2025 - June 2026 | $19,117 | | July 2026 - June 2027 | $31,684 | | July 2027 - June 2028 | $27,665 | | July 2028 - June 2029 | $16,927 | | July 2029 - June 2030 | $18,005 | | Thereafter | $130,400 | | Total | $243,798 | [7. Stock-based Compensation](index=16&type=section&id=7.%20Stock-based%20Compensation) This note outlines stock-based compensation expense, unrecognized costs, and activity related to stock options - Stock-based compensation expense was **$392 thousand** for the three months and **$980 thousand** for the nine months ended June 30, 2025, a decrease from the prior year[54](index=54&type=chunk) - As of June 30, 2025, unrecognized compensation cost was **$981 thousand**, expected to be recognized over a weighted average period of **0.6 years**[54](index=54&type=chunk) | Stock Option Activity (Nine Months Ended June 30, 2025) | Number of Shares | | :-------------------------------------- | :--------------- | | Outstanding at September 30, 2024 | 300,000 | | Forfeited | (50,000) | | Outstanding at June 30, 2025 | 250,000 | | Exercisable at June 30, 2025 | 200,000 | [8. Income Taxes](index=17&type=section&id=8.%20Income%20Taxes) This note details income tax expense, benefit, and effective tax rates for the reporting periods | Income Tax Expense (Benefit) (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total income tax expense (benefit) | $733 | $(1,426) | $3,648 | $378 | | Effective income tax rate | 15.3% | 21.5% | 18.3% | 12.0% | - Income tax expense increased significantly for both the three and nine months ended June 30, 2025, compared to the prior year, primarily due to higher pretax income[57](index=57&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk) - The effective income tax rate for the nine months ended June 30, 2025, was **18.3%**, influenced by state taxes, permanent differences, and tax credits[57](index=57&type=chunk)[60](index=60&type=chunk) [9. Commitments and Contingencies](index=18&type=section&id=9.%20Commitments%20and%20Contingencies) This note outlines the company's legal matters, regulatory investigations, class action settlements, and self-insurance liabilities - The Company is involved in various legal matters, including a remaining unresolved claim from the IIC liquidation (Dupray case) where JAI Phoenix was found **6%** responsible for **$332,884** in damages[66](index=66&type=chunk)[68](index=68&type=chunk) - An assessment of **$2.8 million** and **$280,000** was made by the NY State Department of Labor for state unemployment tax matters for 2009-2022[70](index=70&type=chunk) - The Company is cooperating with investigations by the NY AG and NY DTF regarding tax filings and entertainment benefits, and by the SEC related to the NY AG investigation[71](index=71&type=chunk)[73](index=73&type=chunk) - A class action settlement agreement for **$2.95 million** (cash and VIP cards) was reached to resolve claims under the Illinois Biometric Information Privacy Act (BIPA), subject to court approval[74](index=74&type=chunk)[75](index=75&type=chunk) - The Company began self-insuring a significant portion of general liability and liquor insurance programs in fiscal 2025 due to prohibitive third-party costs, recording a **$9.4 million** liability as of June 30, 2025[78](index=78&type=chunk)[79](index=79&type=chunk) [10. Related Party Transactions](index=21&type=section&id=10.%20Related%20Party%20Transactions) This note discloses transactions and relationships with related parties, including guarantees and payments for services - Chairman and President Eric Langan personally guarantees all commercial bank indebtedness of the Company, totaling **$136.9 million** as of June 30, 2025, without direct compensation[81](index=81&type=chunk) - The Company has notes borrowed from related parties totaling **$650,000**, with terms consistent with other lenders[82](index=82&type=chunk) - Payments to Tall Oak Custom Furniture (owned by Eric Langan's brother) for furniture and maintenance were **$19,098** for the nine months ended June 30, 2025[83](index=83&type=chunk) - Payments to TW Mechanical LLC (50% owned by Eric Langan's son-in-law) for plumbing and HVAC services were **$1,856** for the nine months ended June 30, 2025[84](index=84&type=chunk) [11. Leases](index=21&type=section&id=11.%20Leases) This note provides details on lease expenses, including fixed, variable, and short-term payments, and weighted average lease terms | Lease Expense (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Operating lease expense – fixed payments | $1,078 | $1,292 | $3,266 | $3,876 | | Variable lease expense | $435 | $412 | $1,194 | $1,273 | | Short-term and other lease expense | $337 | $365 | $995 | $1,042 | | Total lease expense, net | $1,850 | $2,069 | $5,455 | $6,191 | - Total lease expense, net, decreased by **10.6%** for the three months and **12.0%** for the nine months ended June 30, 2025, compared to the prior year[85](index=85&type=chunk) - The weighted average remaining lease term for operating leases was **9.1 years**, with a weighted average discount rate of **5.8%** as of June 30, 2025[85](index=85&type=chunk) [12. Supplemental Disclosure of Cash Flow Information](index=22&type=section&id=12.%20Supplemental%20Disclosure%20of%20Cash%20Flow%20Information) This note provides supplemental cash flow details, including cash paid for interest and taxes, restricted cash, and non-cash investing activities | Cash Flow Item (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------- | :------------------------------ | :------------------------------ | | Cash paid for interest, net | $11,827 | $12,015 | | Cash paid for income taxes | $4,361 | $3,861 | | Restricted cash | $250 | $0 | | Debt incurred for acquisitions| $8,000 | $0 | - The Company incurred **$8.0 million** in debt for business acquisitions during the nine months ended June 30, 2025[88](index=88&type=chunk) - Subsequent to June 30, 2025, the Company repurchased **36,339 shares** of common stock at an average price of **$38.09** per share[89](index=89&type=chunk) [13. Acquisitions and Dispositions](index=22&type=section&id=13.%20Acquisitions%20and%20Dispositions) This note details the company's acquisitions and dispositions, including sale of Bombshells Austin and acquisition of Flight Club and Platinum clubs - The Company sold Bombshells Austin for **$130,000** (cash and promissory note), recognizing a **$1.3 million** gain[90](index=90&type=chunk) - Acquired Flight Club in Detroit for **$11.0 million** (**$6.0 million** cash, **$5.0 million** seller-financed note), contributing **$1.83 million** in revenues and **$598 thousand** in operating income for the nine months ended June 30, 2025[91](index=91&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) - Acquired Platinum West (South Carolina) for **$8.0 million** (**$5.5 million** cash, **$2.5 million** seller-financed note) and Platinum Plus (Pennsylvania) for **$2.0 million** (**$1.5 million** cash, **$500,000** seller-financed note)[98](index=98&type=chunk) - The acquired Platinum clubs contributed **$1.12 million** in revenues and **$394 thousand** in operating income for the nine months ended June 30, 2025[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&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, highlighting key performance indicators, revenue and expense trends by segment, and non-GAAP financial measures. It also discusses liquidity, capital resources, and the Company's capital allocation and growth strategies [Overview](index=25&type=section&id=Overview) This section provides a general overview of RCI Hospitality Holdings, Inc.'s operations and business model - RCI Hospitality Holdings, Inc. operates **70 establishments** offering live adult entertainment and high-quality dining experiences (Nightclubs and Bombshells Restaurants and Bars) as of June 30, 2025[101](index=101&type=chunk)[102](index=102&type=chunk) - The Company also operates a business communications company serving the adult nightclubs industry[102](index=102&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses management's critical accounting policies and estimates, including assumptions and self-insurance programs - Management's estimates and assumptions are crucial for financial statements, based on historical experience and reasonable circumstances, with actual results potentially differing[103](index=103&type=chunk) - In fiscal 2025, the Company began self-insuring a significant portion of general liability and liquor insurance programs due to prohibitive third-party costs, recording a liability for unresolved and incurred but not reported claims[105](index=105&type=chunk)[106](index=106&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, operating expenses, and income from operations [Revenues](index=26&type=section&id=Revenues) This section provides a detailed analysis of total revenues, segment revenues, and same-store sales performance | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :-------------------------------- | :------------------------------- | :------------------------------- | :--------- | | Total revenues | $71.1 million | $76.2 million | -6.6% | | Nightclubs revenue | $62.3 million | $62.8 million | -0.8% | | Bombshells revenue | $8.6 million | $13.1 million | -34.5% | | Consolidated same-store sales | -4.9% | N/A | N/A | | Nightclubs same-store sales | -3.7% | N/A | N/A | | Bombshells same-store sales | -13.5% | N/A | N/A | | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :--------- | | Total revenues | $208.5 million | $222.4 million | -6.2% | | Nightclubs revenue | $181.6 million | $183.2 million | -0.9% | | Bombshells revenue | $26.4 million | $38.6 million | -31.6% | | Consolidated same-store sales | -2.5% | N/A | N/A | | Nightclubs same-store sales | -1.3% | N/A | N/A | | Bombshells same-store sales | -11.5% | N/A | N/A | - Consolidated revenue decline was primarily due to closed locations (**$4.7 million** for Q3, **$13.2 million** for 9M) and a decrease in consolidated same-store sales (**$3.4 million** for Q3, **$5.0 million** for 9M)[111](index=111&type=chunk)[112](index=112&type=chunk) [Operating Expenses](index=28&type=section&id=Operating%20Expenses) This section analyzes trends in operating expenses, including cost of goods sold, salaries, SG&A, and impairments - Total operating expenses decreased by **20.7%** for the third quarter and **14.2%** for the nine-month period, improving as a percentage of revenues from **103.3%** to **87.8%** (Q3) and **93.1%** to **85.2%** (9M)[119](index=119&type=chunk) | Expense Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Cost of goods sold | $9,135 | $10,506 | $27,027 | $30,784 | | Salaries and wages | $20,916 | $20,992 | $61,971 | $63,299 | | Selling, general and administrative | $26,140 | $25,057 | $75,247 | $74,911 | | Depreciation and amortization | $3,892 | $3,901 | $11,237 | $11,638 | | Impairments and other charges, net | $2,349 | $18,260 | $2,232 | $26,452 | - Insurance expense increased significantly due to the estimated self-insurance for general liability and liquor liability[124](index=124&type=chunk) [Income (Loss) from Operations](index=30&type=section&id=Income%20(Loss)%20from%20Operations) This section examines income from operations by segment and the consolidated operating margin performance | Segment (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Nightclubs | $17,761 | $13,640 | $53,246 | $45,030 | | Bombshells | $87 | $(8,914) | $1,831 | $(8,129) | | Total Income (loss) from operations | $8,713 | $(2,536) | $30,790 | $15,286 | | Consolidated operating margin | 12.2% | (3.3)% | 14.8% | 6.9% | - Consolidated operating margin improved significantly to **12.2%** for the three months and **14.8%** for the nine months ended June 30, 2025, compared to negative **3.3%** and **6.9%** in the prior year periods, respectively[128](index=128&type=chunk) - Nightclubs segment showed strong growth in operating income, while Bombshells turned profitable for both periods[128](index=128&type=chunk) [Other Income/Expenses](index=32&type=section&id=Other%20Income%2FExpenses) This section reviews other income and expenses, including interest expense and total occupancy costs - Interest expense decreased by **4.9%** for the quarter and **1.8%** for the nine months ended June 30, 2025[133](index=133&type=chunk) - Total occupancy costs (operating lease expense + interest expense) decreased in dollar amounts but remained stable as a percentage of revenue (**7.9%** for Q3, **8.1%** for 9M) due to lower sales[134](index=134&type=chunk) [Income Taxes](index=33&type=section&id=Income%20Taxes) This section analyzes income tax expense, benefit, and effective tax rates in relation to pretax income | Income Tax Expense (Benefit) (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total income tax expense (benefit) | $733 | $(1,426) | $3,648 | $378 | | Effective income tax rate | 15.3% | 21.5% | 18.3% | 12.0% | - Income taxes increased due to higher pretax income in the current periods[136](index=136&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures used by management to assess ongoing business operations - Management uses non-GAAP measures like Non-GAAP Operating Income, Non-GAAP Net Income, and Adjusted EBITDA to provide a clearer understanding of ongoing business operations by excluding non-recurring or non-operational items[137](index=137&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk) | Non-GAAP Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :----------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Adjusted EBITDA | $15,339 | $20,083 | $45,228 | $54,782 | | Non-GAAP net income | $6,813 | $12,542 | $19,764 | $29,053 | | Non-GAAP diluted EPS | $0.77 | $1.35 | $2.23 | $3.11 | | Non-GAAP operating income | $12,030 | $16,793 | $35,735 | $45,047 | - Adjusted EBITDA decreased by **23.6%** for the three months and **17.4%** for the nine months ended June 30, 2025, compared to the prior year periods[141](index=141&type=chunk)[159](index=159&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity, capital resources, and cash flow activities from operations, investing, and financing [Cash Flows from Operating Activities](index=37&type=section&id=Cash%20Flows%20from%20Operating%20Activities) This section analyzes net cash provided by operating activities and factors influencing its changes | Operating Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $35,684 | $40,233 | - Net cash provided by operating activities decreased by **11.3%** for the nine months ended June 30, 2025, due to lower cash generated from revenues and higher income tax payments, partially offset by lower operating liability payments and insurance recovery[149](index=149&type=chunk) - The Company expects volatility in payments for self-insured general liability and liquor insurance programs until a trust is fully established[150](index=150&type=chunk) [Cash Flows from Investing Activities](index=38&type=section&id=Cash%20Flows%20from%20Investing%20Activities) This section details net cash used in investing activities, including capital expenditures and business acquisitions | Investing Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Payments for property and equipment and intangible assets | $(12,289) | $(19,219) | | Acquisition of businesses | $(13,000) | $0 | | Net cash used in investing activities | $(22,087) | $(17,090) | - Net cash used in investing activities increased by **$4.997 million**, primarily due to **$13.0 million** in business acquisitions during the nine months ended June 30, 2025[151](index=151&type=chunk)[152](index=152&type=chunk) - Capital expenditures decreased from **$19.22 million** to **$12.29 million**, with new facilities/equipment accounting for **$8.95 million** and maintenance capital expenditures for **$3.34 million**[153](index=153&type=chunk) [Cash Flows from Financing Activities](index=38&type=section&id=Cash%20Flows%20from%20Financing%20Activities) This section analyzes net cash used in financing activities, including debt obligations, stock repurchases, and dividend payments | Financing Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------ | :------------------------------ | | Proceeds from debt obligations | $9,175 | $22,657 | | Payments on debt obligations | $(14,431) | $(17,137) | | Purchase of treasury stock | $(9,158) | $(12,775) | | Payment of dividends | $(1,856) | $(1,674) | | Net cash used in financing activities | $(16,350) | $(9,219) | - Net cash used in financing activities increased by **$7.131 million**, primarily due to lower proceeds from debt obligations and increased dividend payments, partially offset by lower treasury stock purchases[154](index=154&type=chunk) - The Company repurchased **198,200 shares** of common stock for **$9.16 million** at an average price of **$46.21**, with **$11.9 million** remaining authorization[154](index=154&type=chunk) - Quarterly dividends increased from **$0.06** to **$0.07** per share[155](index=155&type=chunk) [Free Cash Flow](index=39&type=section&id=Free%20Cash%20Flow) This section defines and analyzes free cash flow, outlining its calculation and role in capital allocation strategy | Free Cash Flow (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $35,684 | $40,233 | | Less: Maintenance capital expenditures | $3,341 | $4,980 | | Free cash flow | $32,343 | $35,253 | - Free cash flow decreased by **8.3%** for the nine-month period, mainly due to lower conversion of revenues to cash, partially offset by lower maintenance capital expenditures[156](index=156&type=chunk) - Free cash flow is used as the baseline for the Company's capital allocation strategy, prioritizing acquisitions and development over other uses[156](index=156&type=chunk)[157](index=157&type=chunk) [Impact of Inflation](index=41&type=section&id=Impact%20of%20Inflation) This section discusses the company's ability to mitigate the impact of inflation through price adjustments - The Company has managed to recover increased costs through price increases, to the extent permitted by competition, but cannot assure this will continue[161](index=161&type=chunk) [Seasonality](index=41&type=section&id=Seasonality) This section describes the seasonal nature of nightclub operations and its impact on revenues - Nightclub operations are seasonal, with reduced revenues from April through September (fiscal Q3 and Q4) and strongest results from October through March (fiscal Q1 and Q2)[162](index=162&type=chunk) [Capital Allocation Strategy](index=41&type=section&id=Capital%20Allocation%20Strategy) This section outlines the company's strategy for allocating capital, prioritizing acquisitions, development, and share repurchases - The capital allocation strategy prioritizes acquiring or developing clubs/restaurants with a minimum **25%-33%** cash-on-cash return, disposing of underperforming units, buying back stock if after-tax yield on free cash flow exceeds **10%**, and paying down expensive debt[163](index=163&type=chunk)[167](index=167&type=chunk) [Growth Strategy](index=41&type=section&id=Growth%20Strategy) This section details the company's growth strategy, focusing on organic expansion, acquisitions, and diversification with new concepts - The Company aims for organic growth and careful market entry through acquiring existing units, opening new units, and developing new club concepts[164](index=164&type=chunk) - A key part of the growth strategy is diversifying operations with Bombshells restaurants, which do not require difficult-to-obtain SOB licenses[165](index=165&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) This section states that there were no material changes to the market risk disclosures previously provided in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024 - No material changes to market risk disclosures were reported as of June 30, 2025, compared to the Annual Report on Form 10-K for fiscal year ended September 30, 2024[168](index=168&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, identifying material weaknesses in internal control over financial reporting related to ITGCs, accounting for business combinations, and impairment assessments. It also outlines the remediation efforts underway to address these weaknesses [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as of June 30, 2025 - The Company's disclosure controls and procedures were deemed not effective as of June 30, 2025, due to previously reported material weaknesses in internal control over financial reporting[170](index=170&type=chunk) [Previously Reported Material Weakness in Internal Control Over Financial Reporting](index=42&type=section&id=Previously%20Reported%20Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section details identified material weaknesses in internal control over financial reporting, including ITGCs and management review controls - Material weaknesses identified include ineffective IT general controls (program change management, user access, vendor management), and ineffective management review controls over accounting for business combinations and impairment assessments[171](index=171&type=chunk) - These deficiencies stem from inadequate IT controls, imprecise documentation, and reliance on outsourced IT service providers without sufficient SOC reports[171](index=171&type=chunk) [Remediation Efforts to Address Material Weakness](index=43&type=section&id=Remediation%20Efforts%20to%20Address%20Material%20Weakness) This section outlines the company's ongoing remediation efforts to address identified material weaknesses in internal controls - Remediation efforts include enhancing management review for business combinations and impairment analyses, potentially engaging third-party consultants for valuations[172](index=172&type=chunk)[173](index=173&type=chunk) - ITGC remediation involves strengthening user access review, defining program change management policies, enhancing audit log reporting, and evaluating options to mitigate risks from lacking SOC reports from third-party providers[174](index=174&type=chunk) - Management intends to remediate these material weaknesses before the end of fiscal 2025, but some initiatives, like obtaining SOC reports, face feasibility challenges[176](index=176&type=chunk) [Changes in Internal Control Over Financial Reporting](index=43&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section confirms no other material changes to internal control over financial reporting during the quarter - No other changes in internal control over financial reporting occurred 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, beyond the remediation efforts described[177](index=177&type=chunk) PART II—OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, exhibits, and signatures [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed legal matters discussed in Note 9 of the unaudited condensed consolidated financial statements, covering ongoing lawsuits, regulatory investigations, and settlement agreements - Legal proceedings information is incorporated by reference from Note 9 of the financial statements[178](index=178&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section states that there were no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K, except for those arising from the additional disclosures in the 'Legal Matters' and 'Self-insurance Liability' sections within Note 9 - No material changes to risk factors were reported, except for those related to 'Legal Matters' and 'Self-insurance Liability' as detailed in Note 9[179](index=179&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase activity during the three months ended June 30, 2025, including the number of shares purchased, average price paid, and remaining authorization under the repurchase plans | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------------- | :--------------------------- | | April 1 - 30, 2025 | 25,125 | $39.17 | | May 1 - 31, 2025 | 25,200 | $41.71 | | June 1 - 30, 2025 | 25,000 | $40.34 | | Total (Q3 2025) | 75,325 | $40.41 | - The Company repurchased **75,325 shares** of common stock during the three months ended June 30, 2025, at an average price of **$40.41** per share[180](index=180&type=chunk) - As of June 30, 2025, approximately **$11.88 million** remained authorized for share repurchases under existing plans[180](index=180&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial information formatted in Inline XBRL - Exhibits include CEO and CFO certifications (Rule 13a-14(1) or 15d-14(a) and Section 906 of Sarbanes-Oxley Act) and financial information in Inline XBRL format[181](index=181&type=chunk) [Signatures](index=46&type=section&id=Signatures) This section contains the duly authorized signatures of the registrant's Chief Executive Officer and President, Eric S. Langan, and Chief Financial Officer and Principal Accounting Officer, Bradley Chhay, confirming the filing of the report - The report is signed by Eric S. Langan, CEO and President, and Bradley Chhay, CFO and Principal Accounting Officer, on August 11, 2025[185](index=185&type=chunk)

[Merger Announcement & Overview](index=1&type=section&id=Merger%20Announcement%20%26%20Overview) This section outlines the definitive merger agreement, asset purchase, shareholder exchange, and management commentary on the strategic rationale [Definitive Merger Agreement](index=1&type=section&id=Definitive%20Merger%20Agreement) MRCC will merge into HRZN, with HRZN as the surviving public entity managed by HTFM and trading on NASDAQ - Monroe Capital Corporation (MRCC) and Horizon Technology Finance Corporation (HRZN) have entered into a definitive merger agreement[1](index=1&type=chunk) - **HRZN** will be the surviving public entity, managed by Horizon Technology Finance Management LLC (HTFM), and will continue to trade on NASDAQ under the symbol "**HRZN**"[1](index=1&type=chunk) [Asset Purchase Agreement](index=1&type=section&id=Asset%20Purchase%20Agreement) MCIP will acquire substantially all of MRCC's assets for cash, leaving MRCC with net cash proceeds before its merger into HRZN - Monroe Capital Income Plus Corporation (MCIP) will acquire substantially all of MRCC's assets at fair value for cash immediately prior to the Merger[2](index=2&type=chunk) - Following the Asset Sale, MRCC's only assets will be net cash proceeds after liabilities and transaction costs[2](index=2&type=chunk) [Shareholder Exchange & Ownership](index=1&type=section&id=Shareholder%20Exchange%20%26%20Ownership) MRCC shareholders will receive HRZN shares based on a NAV-for-NAV exchange, resulting in approximately 37% ownership of HRZN post-merger - MRCC shareholders will receive HRZN shares with a net asset value (NAV) equal to the NAV of their MRCC shares[3](index=3&type=chunk) - The merger transaction is structured as a **NAV-for-NAV exchange** of shares[3](index=3&type=chunk) - Former MRCC shareholders are expected to own approximately **37%** of HRZN upon closing[3](index=3&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management expects the transaction to unlock MRCC shareholder value, position HRZN for strategic growth, and be accretive to both shareholder bases - Theodore L. Koenig (Monroe Capital CEO) believes the transaction unlocks MRCC shareholder value and positions HRZN better for strategic initiatives[4](index=4&type=chunk) - The transaction is expected to be accretive to both MRCC and HRZN shareholders, offering compelling synergies and cost-savings[4](index=4&type=chunk) - Michael P. Balkin (Horizon Technology Finance CEO) states the transaction provides HRZN with significant incremental leverageable capital and a larger shareholder base, enhancing earnings power and expanding investment opportunities[5](index=5&type=chunk) [Key Transaction Highlights](index=2&type=section&id=Key%20Transaction%20Highlights) This section details the anticipated benefits of the merger, including enhanced scale, financial accretion, and tax implications [Enhanced Scale & Operational Efficiency](index=2&type=section&id=Enhanced%20Scale%20%26%20Operational%20Efficiency) The merger is expected to significantly increase HRZN's scale, reduce per-share operating expenses, and improve trading liquidity - The Merger will increase the size and scale of HRZN[6](index=6&type=chunk) Projected Financial Impact of Merger | Metric | Value (Millions USD) | | :-------------------------------- | :------------------- | | Additional Equity Capital | ~$165 | | Current Combined NAV (June 30, 2025) | ~$446 | - Expected reduction in per-share operating expenses for HRZN shareholders on a pro forma basis[6](index=6&type=chunk) - Shareholders of the combined company are expected to benefit from improved trading liquidity[6](index=6&type=chunk) [Financial Accretion & Capital Access](index=2&type=section&id=Financial%20Accretion%20%26%20Capital%20Access) The merger is projected to be NII neutral initially, then accretive over time, providing HRZN with incremental capital and enhanced debt access - The Merger is expected to be neutral to net investment income (NII) for the combined company during the first year post-closing, and accretive over time[6](index=6&type=chunk) - Accretion driven by operational savings, portfolio mix optimization, and cost savings from capital structure improvements[6](index=6&type=chunk) - The Merger will provide HRZN with incremental capital to execute its current investment strategy and broaden its platform to public small-cap growth companies[6](index=6&type=chunk) - The Merger should enable HRZN to better access a wider array of debt funding solutions, including potential borrowing cost reductions[6](index=6&type=chunk) [Tax & Advisory Fee Implications](index=2&type=section&id=Tax%20%26%20Advisory%20Fee%20Implications) The merger is structured as a tax-free reorganization for MRCC shareholders, with HTFM waiving $4 million in fees to support the transaction - The Merger is structured as a **tax-free reorganization** under Section 368(a) for MRCC shareholders[6](index=6&type=chunk) - The Asset Sale will be treated as a taxable transaction, but MRCC is not expected to incur any tax liability from realized gains[6](index=6&type=chunk) - HTFM has agreed to waive an aggregate of **$4 million** of base management fees and incentive fees over the first four full fiscal quarters following the closing[6](index=6&type=chunk) [Transaction Mechanics & Approvals](index=3&type=section&id=Transaction%20Mechanics%20%26%20Approvals) This section covers board approvals, the anticipated closing timeline, exchange ratio details, and other key transaction provisions [Board Approvals & Recommendations](index=3&type=section&id=Board%20Approvals%20%26%20Recommendations) The Boards of MRCC, HRZN, and MCIP have unanimously approved the transactions and recommend shareholder votes in favor - The Boards of Directors of MRCC, HRZN, and MCIP unanimously approved the Merger and/or Asset Sale[7](index=7&type=chunk) - MRCC's Board will recommend shareholders vote in favor of the Merger and Asset Sale[7](index=7&type=chunk) - HRZN's Board will recommend shareholders vote in favor of the issuance of HRZN common stock in connection with the Merger[7](index=7&type=chunk) [Closing Timeline & Conditions](index=3&type=section&id=Closing%20Timeline%20%26%20Conditions) The transactions are anticipated to close in Q4 2025, subject to regulatory and shareholder approvals, and mutual consummation - The transactions are expected to close in the **fourth quarter of 2025**[8](index=8&type=chunk) - Closing is subject to customary regulatory approvals, MRCC and HRZN shareholder approvals, and other closing conditions[8](index=8&type=chunk) - The Asset Sale and the Merger are conditioned upon the substantially concurrent consummation of the other[8](index=8&type=chunk) [Exchange Ratio & Distributions](index=3&type=section&id=Exchange%20Ratio%20%26%20Distributions) MRCC shareholders will receive HRZN common stock based on a NAV-for-NAV exchange ratio determined prior to closing, with regular distributions expected - MRCC shareholders will receive newly issued HRZN common stock based on an Exchange Ratio[9](index=9&type=chunk) - The Exchange Ratio is calculated as MRCC NAV per share divided by HRZN NAV per share, determined shortly before closing[9](index=9&type=chunk) - Prior to closing, HRZN and MRCC expect to declare and make regular distributions[10](index=10&type=chunk) - MRCC will declare a distribution to its shareholders equal to any undistributed net investment income remaining as of the closing[10](index=10&type=chunk) [Other Transaction Details](index=3&type=section&id=Other%20Transaction%20Details) The agreements include termination fee provisions, HRZN's stock repurchase program will remain, and HRZN's post-merger board composition is outlined - The Merger Agreement and Asset Purchase Agreement require payment of a termination fee if agreements are terminated under certain circumstances[11](index=11&type=chunk) - HRZN's existing stock repurchase program, authorizing repurchases of up to **2%** of outstanding shares when trading below **90% of NAV**, will remain in place[12](index=12&type=chunk) - Upon closing, HRZN's board will consist of two independent HRZN members, one independent MRCC member (subject to HRZN shareholder approval), and HRZN's CEO[13](index=13&type=chunk) [Advisors & Corporate Information](index=4&type=section&id=Advisors%20%26%20Corporate%20Information) This section lists the financial and legal advisors involved, conference call details, and background information on HRZN and MRCC [Transaction Advisors](index=4&type=section&id=Transaction%20Advisors) This section lists the financial and legal advisors for MRCC, MCIP, and HRZN Special Committees, and legal counsel for the BDC investment advisers - Houlihan Lokey is financial advisor and Nelson Mullins Riley & Scarborough LLP is legal counsel to MRCC's Special Committee[14](index=14&type=chunk) - Keefe, Bruyette & Woods is financial advisor and Eversheds Sutherland is legal counsel to MCIP's Special Committee[14](index=14&type=chunk) - Oppenheimer & Co. is financial advisor and Blank Rome LLP is legal counsel to HRZN's Special Committee[15](index=15&type=chunk) - Dechert LLP is legal counsel to each BDC's investment adviser[16](index=16&type=chunk) [Conference Call Details](index=4&type=section&id=Conference%20Call%20Details) A joint conference call is scheduled for August 7, 2025, at 5:00 PM ET to discuss the transaction, with an accompanying investor presentation - Joint conference call to discuss the transaction on **Thursday, August 7, 2025, at 5:00 PM ET**[17](index=17&type=chunk) - Dial-in numbers: **(877) 407-9716** (domestic) or **(201) 493-6779** (international), Conference ID: **13754326**[17](index=17&type=chunk) - An investor presentation will be available at https://ir.horizontechfinance.com[17](index=17&type=chunk) [About Horizon Technology Finance Corporation (HRZN)](index=4&type=section&id=About%20Horizon%20Technology%20Finance%20Corporation%20(HRZN)) HRZN is a specialty finance company providing secured loans to venture capital and private equity-backed companies across various sectors - Horizon Technology Finance Corporation (NASDAQ: HRZN) is a leading specialty finance company[18](index=18&type=chunk) - Provides secured loans to venture capital and private equity-backed companies and publicly traded companies in technology, life science, healthcare, and sustainability industries[18](index=18&type=chunk) - Investment objective: maximize investment portfolio's return by generating current income from debt and capital appreciation from warrants[18](index=18&type=chunk) [About Monroe Capital Corporation (MRCC)](index=4&type=section&id=About%20Monroe%20Capital%20Corporation%20(MRCC)) MRCC is a publicly-traded specialty finance company primarily investing in secured debt and equity in middle-market companies - Monroe Capital Corporation is a publicly-traded specialty finance company[19](index=19&type=chunk) - Principally invests in senior, unitranche, and junior secured debt, and to a lesser extent, unsecured debt and equity investments in middle-market companies[19](index=19&type=chunk) - Investment objective: maximize total return to stockholders in the form of current income and capital appreciation[19](index=19&type=chunk) [Legal & Regulatory Disclosures](index=5&type=section&id=Legal%20%26%20Regulatory%20Disclosures) This section provides important legal disclaimers regarding forward-looking statements, additional information, and the nature of the press release [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section warns that the press release contains forward-looking statements subject to risks and uncertainties, with no obligation to update - The press release contains forward-looking statements related to future events, performance, or financial condition of MRCC, HRZN, MCIP, and the proposed transactions[20](index=20&type=chunk) - Forward-looking statements are based on current plans, estimates, and expectations, subject to risks, uncertainties, and assumptions[20](index=20&type=chunk) - Actual events and results may vary materially from those indicated or anticipated due to various factors, including timing of closing, synergies, regulatory approvals, and economic changes[20](index=20&type=chunk) - MRCC, HRZN, and MCIP assume no obligation to update forward-looking statements; readers are advised to consult SEC filings for additional disclosures[20](index=20&type=chunk) [Additional Information & Solicitation Participants](index=6&type=section&id=Additional%20Information%20%26%20Solicitation%20Participants) HRZN and MRCC will file a joint proxy statement and registration statement with the SEC, urging shareholders to review these documents - HRZN and MRCC plan to file a joint proxy statement (Schedule 14A), and HRZN plans to file a registration statement (Form N-14) with the SEC[21](index=21&type=chunk) - These documents will contain important information about HRZN, MRCC, the Merger, the Asset Sale, and related matters[21](index=21&type=chunk) - Shareholders of HRZN and MRCC are urged to read these documents carefully when they become available[21](index=21&type=chunk) - Information about participants in the solicitation of proxies will be contained in the Joint Proxy Statement[23](index=23&type=chunk) [No Offer or Solicitation](index=7&type=section&id=No%20Offer%20or%20Solicitation) This press release is explicitly not an offer to sell or a solicitation of an offer to purchase any securities - This press release is not an offer to sell or a solicitation of an offer to purchase any securities in MRCC, HRZN, MCIP, or any fund managed by Monroe Capital or its affiliates[24](index=24&type=chunk) [Contacts](index=7&type=section&id=Contacts) This section provides investor relations contacts for HRZN and MRCC, and media relations contact for Monroe Capital Corporation - Contact information for Investor Relations for Horizon Technology Finance Corporation: Dan Trolio (EVP & CFO) and ICR (Garrett Edson)[25](index=25&type=chunk) - Contact information for Investor Relations for Monroe Capital Corporation: Mick Solimene (CFO & CIO)[25](index=25&type=chunk) - Contact information for Media Relations for Monroe Capital Corporation: BackBay Communications (Daniel Abramson)[25](index=25&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to __________ Commission File Number: 001-41711 USA Rare Earth, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 98-1720278 (S ...

[Executive Summary & Recent Developments](index=1&type=section&id=Executive%20Summary%20%26%20Recent%20Developments) This section summarizes Portman Ridge Finance Corporation's Q2 2025 performance, strategic merger, and rebranding initiatives [Second Quarter 2025 Highlights](index=1&type=section&id=Second%20Quarter%202025%20Highlights) Portman Ridge Finance Corporation announced its Q2 2025 financial results, highlighted by the completion of the Logan Ridge merger, which is expected to enhance scale, diversification, and liquidity. The company also plans to rebrand as BCP Investment Corporation. Key financial metrics for the quarter showed an increase in total investment income and net investment income compared to the prior quarter - On July 15, 2025, Portman Ridge completed the merger with Logan Ridge Finance Corporation, with Portman Ridge as the surviving company[5](index=5&type=chunk) - The combined company's total assets are expected to exceed **$600 million** (as of July 11, 2025), aiming for enhanced scale, diversified portfolio, cost savings, and improved stock trading liquidity[5](index=5&type=chunk) - Portman Ridge will rebrand and operate under the name BCP Investment Corporation, trading on Nasdaq under the new ticker symbol '**BCIC**'[5](index=5&type=chunk) Q2 2025 Financial Highlights (vs. Q1 2025) | Metric | Q2 2025 (Millions) | Q1 2025 (Millions) | Change (Millions) | Change (%) | | :---------------------- | :----------------- | :----------------- | :---------------- | :--------- | | Total Investment Income | $12.6 | $12.1 | $0.5 | 4.1% | | Core Investment Income | $12.6 | $12.1 | $0.5 | 4.1% | | Net Investment Income | $4.6 | $4.3 | $0.3 | 7.0% | | NII Per Share | $0.50 | $0.47 | $0.03 | 6.4% | [Management Commentary](index=2&type=section&id=Management%20Commentary) CEO Ted Goldthorpe emphasized the company's strategic progress in Q2, including strong net investment income and the successful Logan Ridge merger. He highlighted the merger's potential for increased scale, diversification, and financial flexibility, and announced the upcoming rebranding to BCP Investment Corporation to align with BC Partners - CEO Ted Goldthorpe noted the generation of net investment income of **$4.6 million** (**$0.50 per share**) in Q2, up from **$4.3 million** (**$0.47 per share**) in the prior quarter, maintaining focus on a high-quality portfolio and long-term shareholder value[7](index=7&type=chunk) - The Logan Ridge merger is a 'transformational milestone' expected to provide increased scale, broader portfolio diversification, enhanced financial flexibility, and earnings accretion through cost synergies[8](index=8&type=chunk) - The company will change its corporate name to BCP Investment Corporation (Nasdaq: **BCIC**) to reflect alignment with BC Partners, a global alternative investment platform[9](index=9&type=chunk) [Subsequent Events & Merger Details](index=2&type=section&id=Subsequent%20Events) Subsequent events include the declaration of Q3 2025 quarterly base and supplemental distributions. Detailed terms of the Logan Ridge acquisition were provided, outlining the share conversion ratio and additional cash payments to former Logan Ridge shareholders Net Asset Value (NAV) Comparison | Metric | June 30, 2025 | March 31, 2025 | | :----- | :------------ | :------------- | | NAV | $164.7 million| $173.5 million | | NAV/Share | $17.89 | $18.85 | - On August 7, 2025, the Company declared a regular quarterly base distribution of **$0.47 per share** and a supplemental cash distribution of **$0.02 per share**, payable on August 29, 2025[10](index=10&type=chunk) - In the Logan Ridge acquisition, each share of LRFC common stock was converted into **1.500 newly-issued shares** of Portman Ridge common stock, with additional cash payments to LRFC shareholders[10](index=10&type=chunk) [Financial Performance Overview](index=3&type=section&id=Financial%20Performance%20Overview) This section details Portman Ridge Finance Corporation's financial results for Q2 2025, including investment income, expenses, and net asset changes [Selected Financial Highlights](index=3&type=section&id=Selected%20Financial%20Highlights) The company reported a decrease in total investment income and net investment income for Q2 2025 compared to Q2 2024. Net asset value also declined from the previous quarter. The investment portfolio fair value decreased, though debt investments on non-accrual remained stable, and the weighted average annualized yield was 10.7% Key Financial Highlights (Q2 2025 vs Q2 2024) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | Change (%) | | :---------------------- | :----------------- | :----------------- | :---------------- | :--------- | | Total Investment Income | $12.6 | $16.3 | $(3.7) | -22.7% | | Core Investment Income | $12.6 | $16.2 | $(3.6) | -22.2% | | Net Investment Income | $4.6 | $6.5 | $(1.9) | -29.2% | | NII Per Share | $0.50 | $0.70 | $(0.20) | -28.6% | Investment Portfolio & Debt Metrics (June 30, 2025) | Metric | Value (June 30, 2025) | Value (March 31, 2025) | | :----------------------------------- | :-------------------- | :--------------------- | | Investment Portfolio (Fair Value) | $395.1 million | $406.4 million | | Number of Portfolio Companies | 96 | 93 | | Debt Investments on Non-Accrual (Fair Value) | 2.1% | 2.6% | | Weighted Average Annualized Yield | 10.7% | N/A | | Asset Coverage Ratio | 165% | 168% | | Net Leverage | 1.4x | 1.3x | [Results of Operations](index=4&type=section&id=Results%20of%20Operations) The consolidated statements of operations show a decline in total investment income and net investment income for both the three and six months ended June 30, 2025, compared to the same periods in 2024. Net realized losses on investments increased significantly, contributing to a net decrease in net assets from operations Consolidated Results of Operations (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 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $12,630 | $16,337 | $24,748 | $32,863 | | Total expenses | $8,073 | $9,860 | $15,851 | $20,161 | | Net Investment Income | $4,557 | $6,477 | $8,897 | $12,702 | | Net realized gain (loss) on investments | $(15,840) | $(6,922) | $(16,013) | $(8,979) | | Net change in unrealized gain (loss) on investments | $6,628 | $(5,966) | $2,725 | $(5,895) | | Net Increase (Decrease) in Net Assets Resulting from Operations | $(4,518) | $(6,372) | $(4,600) | $(1,887) | | Net Investment Income Per Common Share | $0.50 | $0.70 | $0.97 | $1.36 | [Investment Income Composition](index=4&type=section&id=Investment%20Income) Investment income for Q2 2025 was primarily driven by interest income, which saw a decrease compared to Q2 2024. Payment-in-kind (PIK) income increased, while CLO and JV income decreased year-over-year Investment Income Composition (in thousands) | Income 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 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income (excl. CLO & purchase discount) | $8,573 | $11,589 | $16,095 | $23,675 | | Purchase discount accretion | $0 | $112 | $16 | $185 | | PIK income | $2,449 | $2,201 | $5,510 | $4,207 | | CLO income | $214 | $524 | $292 | $1,081 | | JV income | $1,213 | $1,800 | $2,630 | $3,453 | | Fees and other income | $181 | $111 | $205 | $262 | | **Total Investment Income** | **$12,630** | **$16,337** | **$24,748** | **$32,863** | | **Core Investment Income** | **$12,630** | **$16,225** | **$24,732** | **$32,678** | [Investment Portfolio and Capital Structure](index=5&type=section&id=Investment%20Portfolio%20and%20Capital%20Structure) This section outlines the composition and fair value of the investment portfolio, along with the company's liquidity, capital resources, and interest rate risk exposure [Fair Value of Investments](index=5&type=section&id=Fair%20Value%20of%20Investments) As of June 30, 2025, the investment portfolio at fair value was $395.1 million, primarily composed of First Lien Debt (73.7%). The total portfolio decreased slightly from December 31, 2024, with minor shifts in the percentage allocation across security types Investment Portfolio Composition by Security Type (Fair Value, in thousands) | Security Type | June 30, 2025 Fair Value | Percentage of Total Portfolio | December 31, 2024 Fair Value | Percentage of Total Portfolio | | :------------------------ | :----------------------- | :---------------------------- | :--------------------------- | :---------------------------- | | First Lien Debt | $291,071 | 73.7% | $289,957 | 71.6% | | Second Lien Debt | $30,276 | 7.7% | $28,996 | 7.2% | | Subordinated Debt | $1,750 | 0.4% | $1,740 | 0.4% | | Collateralized Loan Obligations | $3,263 | 0.8% | $5,193 | 1.3% | | Joint Ventures | $44,634 | 11.3% | $54,153 | 13.4% | | Equity | $23,919 | 6.1% | $24,762 | 6.1% | | Derivatives | $196 | 0.0% | $220 | 0.0% | | **Total** | **$395,109** | **100.0%** | **$405,021** | **100.0%** | [Liquidity and Capital Resources](index=5&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company had $255.4 million in outstanding borrowings with a weighted average interest rate of 6.0%. Cash and cash equivalents totaled $11.2 million (unrestricted) and $13.4 million (restricted), with $52.6 million available under the JPM Credit Facility - Outstanding borrowings as of June 30, 2025, were **$255.4 million** (par value) at a weighted average interest rate of **6.0%**[15](index=15&type=chunk) Cash and Cash Equivalents (in thousands) | Cash Type | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Cash and Cash Equivalents | $11,222 | $17,532 | | Restricted Cash | $13,357 | $22,421 | - The Company had **$52.6 million** of available borrowing capacity under the JPM Credit Facility as of June 30, 2025[16](index=16&type=chunk) [Interest Rate Risk](index=6&type=section&id=Interest%20Rate%20Risk) The company's investment income is significantly influenced by interest rate fluctuations, with approximately 86.9% of its Debt Securities Portfolio being floating rate. A sensitivity analysis indicates that a 1% increase in interest rates would increase net investment income by $1.477 million, while a 1% decrease would reduce it by the same amount - Approximately **86.9%** of the Debt Securities Portfolio (at par value) were floating rate as of June 30, 2025, with **86.5%** of these loans containing interest rate floors[17](index=17&type=chunk) Impact on Net Investment Income from Interest Rate Changes (in thousands) | Change in Interest Rate | Impact on Net Investment Income | | :---------------------- | :------------------------------ | | +1% | $1,477 | | +2% | $2,955 | | +3% | $4,432 | | -1% | $(1,477) | | -2% | $(2,912) | | -3% | $(4,105) | [Corporate Information](index=6&type=section&id=Corporate%20Information) This section provides details on the company's corporate structure, investor relations, and important legal disclaimers regarding forward-looking statements [Conference Call and Webcast](index=6&type=section&id=Conference%20Call%20and%20Webcast) Portman Ridge Finance Corporation will host a conference call and webcast on August 8, 2025, to discuss its second quarter 2025 financial results, with replay and online archive available - A conference call to discuss Q2 2025 financial results will be held on Friday, August 8, 2025, at **10:00 am Eastern Time**[21](index=21&type=chunk) - A live audio webcast and replay will be available on the Company's website www.portmanridge.com in the Investor Relations section[23](index=23&type=chunk) [About Portman Ridge Finance Corporation](index=6&type=section&id=About%20Portman%20Ridge%20Finance%20Corporation) Portman Ridge Finance Corporation is a publicly traded Business Development Company (BDC) that originates, structures, finances, and manages a portfolio of middle-market investments. Its investment activities are managed by Sierra Crest Investment Management LLC, an affiliate of BC Partners Advisors L.P - Portman Ridge Finance Corporation is a publicly traded, externally managed investment company regulated as a **Business Development Company (BDC)**[24](index=24&type=chunk) - The company's business focuses on originating, structuring, financing, and managing a portfolio of term loans, mezzanine investments, and selected equity securities in middle-market companies[24](index=24&type=chunk) - Investment activities are managed by Sierra Crest Investment Management LLC, an affiliate of BC Partners Advisors L.P[24](index=24&type=chunk) [About BC Partners Advisors L.P. and BC Partners Credit](index=7&type=section&id=About%20BC%20Partners%20Advisors%20L.P.%20and%20BC%20Partners%20Credit) BC Partners is a prominent international investment firm specializing in private equity, private credit, and real estate. BC Partners Credit, launched in 2017, leverages the firm's extensive expertise to identify attractive credit opportunities across various market environments and sectors - BC Partners is a leading international investment firm with strategies in private equity, private credit, and real estate[26](index=26&type=chunk) - BC Partners Credit, launched in **February 2017**, focuses on identifying attractive credit opportunities by leveraging BC Partners' deal sourcing and infrastructure[27](index=27&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=7&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section serves as a standard legal disclaimer, advising that forward-looking statements are based on current expectations and involve substantial risks and uncertainties. It lists various factors that could cause actual results to differ materially from projections, including economic conditions, competition, and regulatory changes - The press release contains forward-looking statements based on current management expectations, subject to substantial risks and uncertainties[28](index=28&type=chunk) - Important factors that could cause actual results to differ include uncertainty of financial performance, expected synergies from mergers, business strategy implementation, evolving legal/regulatory/tax regimes, and changes in economic conditions[29](index=29&type=chunk)[30](index=30&type=chunk) - Readers are advised to consult the Company's SEC filings, including Form 10-K, 10-Q, and 8-K, for more information on risks and uncertainties[30](index=30&type=chunk) [Contacts](index=8&type=section&id=Contacts) Contact information is provided for Portman Ridge Finance Corporation, including its Chief Financial Officer, and for investor relations through The Equity Group Inc - Contact for Portman Ridge Finance Corporation: Brandon Satoren, Chief Financial Officer (Brandon.Satoren@bcpartners.com, **(212) 891-2880**)[31](index=31&type=chunk) - Investor Relations contacts: Lena Cati (lcati@equityny.com, **(212) 836-9611**) and Val Ferraro (vferraro@equityny.com, **(212) 836-9633**) at The Equity Group Inc[31](index=31&type=chunk) [Consolidated Financial Statements](index=9&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated balance sheets and statements of operations, providing a detailed view of its financial position and performance [Consolidated Statements of Assets and Liabilities](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20ASSETS%20AND%20LIABILITIES) The consolidated balance sheet as of June 30, 2025, shows total assets of $427.995 million, a decrease from $453.634 million at December 31, 2024. Total investments at fair value also decreased, while total liabilities and net assets saw corresponding changes Consolidated Statements of Assets and Liabilities (in thousands) | ASSETS | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Total Investments at fair value | $395,109 | $405,021 | | Cash and cash equivalents | $11,222 | $17,532 | | Restricted cash | $13,357 | $22,421 | | Total Assets | $427,995 | $453,634 | | LIABILITIES | | | | 4.875% Notes Due 2026 | $107,356 | $106,983 | | Great Lakes Portman Ridge Funding LLC Revolving Credit Facility | $146,306 | $158,157 | | Total Liabilities | $263,266 | $275,141 | | NET ASSETS | | | | Total Net Assets | $164,729 | $178,493 | | Net Asset Value Per Common Share | $17.89 | $19.41 | [Consolidated Statements of Operations](index=10&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The consolidated income statement for the three and six months ended June 30, 2025, shows a decrease in total investment income and net investment income compared to the prior year. Net realized losses on investments significantly impacted the net increase (decrease) in net assets resulting from operations Consolidated Statements of Operations (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 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $12,630 | $16,337 | $24,748 | $32,863 | | Total expenses | $8,073 | $9,860 | $15,851 | $20,161 | | Net Investment Income | $4,557 | $6,477 | $8,897 | $12,702 | | Net realized gain (loss) on investments | $(15,840) | $(6,922) | $(16,013) | $(8,979) | | Net change in unrealized appreciation (depreciation) on investments | $6,628 | $(5,966) | $2,725 | $(5,895) | | Net Increase (Decrease) in Net Assets Resulting from Operations | $(4,518) | $(6,372) | $(4,600) | $(1,887) | | Net Investment Income Per Common Share | $0.50 | $0.70 | $0.97 | $1.36 |

[Executive Summary & Q2 2025 Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Q2%202025%20Highlights) [Q2 2025 Financial Milestones](index=1&type=section&id=Q2%202025%20Financial%20Milestones) Gevo achieved positive net income and adjusted EBITDA in Q2 2025, marking a significant improvement in financial performance and exceeding targets - The company achieved **positive net income** and **positive adjusted EBITDA** in Q2 2025, reaching its targets ahead of schedule[2](index=2&type=chunk)[12](index=12&type=chunk) Key Financial Metrics for Q2 2025 | Metric | Amount (Million USD) | | :----------------------------------- | :---------- | | Net Income Attributable to Gevo | $2.1 | | Adjusted EBITDA | $17 | | Revenue QoQ Growth | $14 | | EPS Attributable to Gevo | $0.01 | | Net Income Attributable to Gevo YoY Growth (Six Months) | $20 | | Adjusted EBITDA YoY Growth (Six Months) | $32 | [Key Growth Drivers & New Revenue Streams](index=1&type=section&id=Key%20Growth%20Drivers%20%26%20New%20Revenue%20Streams) Performance growth is primarily driven by successful low-carbon ethanol and carbon capture operations, alongside the launch of Clean Fuel Production Credits (CFPC) and Carbon Dioxide Removal (CDR) credit sales, which significantly contribute to new revenue streams - Performance growth is driven by the successful execution of low-carbon ethanol and carbon capture acquisitions, and the initial sales of Clean Fuel Production Credits (CFPC)[5](index=5&type=chunk) - Carbon Dioxide Removal (CDR) credit sales have commenced, adding new co-products and revenue streams, projected to grow to **$3-5 million by year-end** and potentially exceeding **$30 million per year** in long-term sales[6](index=6&type=chunk) - Clean Fuel Production Credits (CFPC) sales have begun, contributing approximately **$21 million** combined to net income and adjusted EBITDA for the six months ended June 30, 2025[8](index=8&type=chunk) [Strategic Initiatives & Management Outlook](index=5&type=section&id=Strategic%20Initiatives%20%26%20Management%20Outlook) Management highlights this quarter as a milestone, achieving real cash flow growth and laying the groundwork for future Sustainable Aviation Fuel (SAF) production expansion, while creating value through carbon credit sales and efficient operations - CEO Dr. Patrick Gruber stated this quarter is a milestone, with the company achieving its goals and generating real cash flow, laying the foundation for SAF production growth[12](index=12&type=chunk) - CFO Leke Agiri commented that the company achieved **positive net income** and **positive adjusted EBITDA**, a significant financial milestone reflecting the real value created by GevoND and GevoRNG business units and CFPC monetization[15](index=15&type=chunk) - The company is committed to achieving rural economic growth, increased protein and feed production, and enhanced farmer profits through carbon reduction and cost-competitive renewable liquid fuels[14](index=14&type=chunk) [Operational Review](index=3&type=section&id=Operational%20Review) [Carbon Dioxide Removal (CDR) Credits](index=1&type=section&id=Carbon%20Dioxide%20Removal%20(CDR)%20Credits) Gevo has initiated CDR credit sales, leveraging its bio-sourced CO2 removal capabilities from Carbon Capture and Sequestration (CCS) assets, opening new global revenue streams, and plans to expand its CCS sites by introducing third-party CO2 volumes - CDR credit sales have commenced, adding new co-products and revenue streams for the company[6](index=6&type=chunk) - CDR credit sales are projected to grow to **$3-5 million by the end of 2025**, with long-term sales potentially exceeding **$30 million per year**[6](index=6&type=chunk) - Over **$1 million** in CDR credits were sold in Q2, and growth options are being explored to expand CCS sites by introducing third-party CO2 volumes[8](index=8&type=chunk) [Clean Fuel Production Credits (CFPC)](index=3&type=section&id=Clean%20Fuel%20Production%20Credits%20(CFPC)) CFPC sales, derived from low-carbon ethanol with CCS and Renewable Natural Gas (RNG) production, contributed approximately $21 million to revenue and adjusted EBITDA in H1 2025, expected to exceed $10 million quarterly, supporting GevoND optimization and SAF project development - CFPC sales contributed approximately **$21 million** combined to net income and adjusted EBITDA for the six months ended June 30, 2025[8](index=8&type=chunk) - This credit is expected to exceed **$10 million per quarter** through the end of 2029, unless legislation is further extended[8](index=8&type=chunk) - Cash proceeds from CFPC sales will be reinvested in GevoND site improvements and fund upfront construction development costs for SAF projects[8](index=8&type=chunk) - The company has initially sold **$22 million** of generated credits to a bank and expects to sell its full capacity annually, with market demand for similar investment and production tax credits estimated at approximately **$30 billion**[16](index=16&type=chunk) [Low-Carbon Ethanol & Co-products Operations (GevoND)](index=3&type=section&id=Low-Carbon%20Ethanol%20%26%20Co-products%20Operations%20(GevoND)) GevoND's low-carbon ethanol and co-products business significantly contributed to operating income and adjusted EBITDA in H1 2025, boasting an industry-leading carbon intensity score and producing cellulosic D3 RIN-eligible corn fiber ethanol - Low-carbon ethanol and co-products operations contributed approximately **$18 million** to operating income and **$7 million** to adjusted EBITDA (totaling **$26 million** including CFPC sales) for the six months ended June 30, 2025 (excluding January)[8](index=8&type=chunk) - **28 million gallons** of low-carbon ethanol, **93,000 tons** of feed, and **8 million pounds** of distiller's corn oil co-products were produced[8](index=8&type=chunk) - The company's on-site CCS provides an industry-leading carbon intensity score for low-carbon ethanol, giving it an advantage in the LCFS market[8](index=8&type=chunk) - Approximately **2 million gallons** of corn fiber ethanol are produced annually, qualifying for cellulosic D3 RINs with near-zero carbon intensity[8](index=8&type=chunk) [Renewable Natural Gas (RNG) Operations (GevoRNG)](index=5&type=section&id=Renewable%20Natural%20Gas%20(RNG)%20Operations%20(GevoRNG)) GevoRNG operations positively contributed to operating income and adjusted EBITDA in H1 2025, and subsequently released approximately $30 million in restricted cash through refinancing after Q2 - GevoRNG contributed approximately **$2 million** to operating income and **$3 million** to adjusted EBITDA (totaling **$5 million** including CFPC sales) for the six months ended June 30, 2025[8](index=8&type=chunk) - Approximately **172 thousand MMBtu** of renewable natural gas were produced[8](index=8&type=chunk) - Post-Q2, GevoRNG's refinancing released approximately **$30 million** in restricted cash from the balance sheet[9](index=9&type=chunk) [Other Recent Transactions](index=3&type=section&id=Other%20Recent%20Transactions) Gevo has entered into an agreement to sell its subsidiary Agri-Energy, LLC for $7 million, with the transaction expected to close by the end of 2025 - The company has entered into a definitive agreement to sell its subsidiary Agri-Energy, LLC to A.E. Innovation, LLC for **$7 million**[7](index=7&type=chunk) - The transaction includes Agri's **18 million gallon** per year ethanol production facility located in Luverne, Minnesota[7](index=7&type=chunk) - The transaction is expected to close by the end of 2025, subject to A.E. securing financing and other customary closing conditions[7](index=7&type=chunk) [Renewable Jet Fuel Platform & Long-Term Strategy](index=5&type=section&id=Renewable%20Jet%20Fuel%20Platform%20%26%20Long-Term%20Strategy) [Market Opportunity & Plant Designs](index=5&type=section&id=Market%20Opportunity%20%26%20Plant%20Designs) Gevo is strategically positioning itself with standardized plant designs (ATJ-30 and ATJ-60) to meet the projected demand for over 2 billion gallons of jet fuel growth in the US over the next decade, planning to deploy dozens of ATJ SAF facilities - According to the U.S. Energy Information Administration (EIA), U.S. jet fuel consumption is projected to grow by over **2 billion gallons annually** over the next decade[13](index=13&type=chunk) - To meet growing jet fuel demand, dozens of ATJ SAF facilities will need to be deployed in the U.S. alone over the next decade, utilizing **3.5 billion gallons of ethanol** to produce over **2 billion gallons of cost-competitive domestic jet fuel**[13](index=13&type=chunk) - The company has developed standardized plant designs, including ATJ-30 and ATJ-60, for converting low-carbon ethanol into SAF[13](index=13&type=chunk) - GevoND is considered a potential site for ATJ-30, while the ATJ-60 facility is in communication with the Department of Energy Loan Programs Office regarding a **$1.63 billion** loan guarantee[13](index=13&type=chunk) [Growth Strategy & Intellectual Property](index=5&type=section&id=Growth%20Strategy%20%26%20Intellectual%20Property) Gevo's long-term growth strategy involves developing its SAF platform and proprietary systems through various models (build-own-operate, joint ventures, or licensing), supported by an extensive intellectual property portfolio around its SAF platform, Ethanol-to-Olefins (ETO) technology, and Verity carbon tracking software - The company anticipates further growth by developing its SAF platform and proprietary systems through various models such as build-own-operate, joint ventures, or licensing[13](index=13&type=chunk) - Given the **180 existing brownfield ethanol production sites** in the U.S. and other greenfield locations domestically and internationally, the company recognizes significant market opportunities for its plant designs, systems, and technologies[13](index=13&type=chunk) - The company has developed an extensive intellectual property portfolio around its SAF platform, Ethanol-to-Olefins (ETO) technology, and Verity carbon tracking software, including **over 300 patents**[13](index=13&type=chunk) [Financial Performance Analysis](index=5&type=section&id=Financial%20Performance%20Analysis) [Summary of Q2 2025 Financial Results](index=5&type=section&id=Summary%20of%20Q2%202025%20Financial%20Results) Gevo achieved strong financial performance in Q2 2025, with positive operating income and adjusted EBITDA, primarily driven by revenue growth and improved cost efficiency Key Financial Data for Q2 2025 | Metric | Amount (Million USD) | | :----------------------------------- | :-------------- | | Cash, Cash Equivalents, and Restricted Cash (End of Period) | $126.9 | | Consolidated Operating, Interest, and Investment Income | $44.7 | | Operating Income | $5.8 | | Non-GAAP Adjusted EBITDA | $17.3 | | GevoND Operating Income | $17.1 | | GevoND Non-GAAP Adjusted EBITDA | $24.2 | | GevoRNG Operating Income | $1.5 | | GevoRNG Non-GAAP Adjusted EBITDA | $2.6 | | Net Income Per Share | $0.01 | [Detailed Income Statement Analysis (QoQ Changes)](index=6&type=section&id=Detailed%20Income%20Statement%20Analysis%20(QoQ%20Changes)) In Q2 2025, the company saw a significant increase in operating income and a substantial reduction in operating loss, primarily due to the GevoND acquisition and the positive impact of 45Z tax credits on production costs Q2 2025 Operating Income Change (YoY) | Metric | Q2 2025 (Thousand USD) | Q2 2024 (Thousand USD) | Change (Thousand USD) | Change (%) | | :------------------- | :--------------------- | :--------------------- | :-------------------- | :--------- | | Total Operating Income | $43,413 | $5,260 | $38,153 | 725.3% | | *Primary Drivers:* | | | | | | GevoND Revenue | $37,200 | N/A | N/A | N/A | | Isobutanol and Other Sales | $900 | N/A | N/A | N/A | Q2 2025 Production Cost Change (YoY) | Metric | Q2 2025 (Thousand USD) | Q2 2024 (Thousand USD) | Change (Thousand USD) | | :-------------------- | :--------------------- | :--------------------- | :-------------------- | | Cost of Production | $17,265 | $3,423 | $13,842 | | *Partially Offset By:* | | | | | 45Z Tax Credit | ($20,800) | N/A | N/A | - Depreciation and amortization expenses increased by **$2.9 million**, primarily due to a **$4.8 million** increase from GevoND depreciation, partially offset by a **$2.5 million** decrease in depreciation of Luverne facility assets[19](index=19&type=chunk) - Research and development expenses decreased by **$0.7 million**, primarily due to reduced consulting fees[20](index=20&type=chunk) - General and administrative expenses decreased by **$0.7 million**, primarily due to a **$1.9 million** reduction in stock-based compensation, partially offset by a **$1.2 million** increase in insurance, professional consulting services, and computer software costs[20](index=20&type=chunk)[21](index=21&type=chunk) - Project development costs decreased by **$6.9 million**, primarily due to a **$3.3 million** reduction in consulting and professional services fees, and a **$3.5 million** reimbursement from a USDA project received in Q2[22](index=22&type=chunk) - Operating income (loss) improved by **$29.8 million**, primarily driven by increased GevoND revenue, lower production costs due to 45Z tax credits, reduced project development expenses, and decreased general and administrative expenses[23](index=23&type=chunk) - Interest expense increased by **$3.2 million**, primarily due to debt incurred for the GevoND acquisition and higher interest rates on remarketed RNG bonds[24](index=24&type=chunk) - Interest and investment income decreased by **$2.8 million**, primarily due to a reduction in cash equivalent investment balances resulting from the GevoND acquisition and funding for capital projects and operating costs[25](index=25&type=chunk) [Balance Sheet Highlights](index=10&type=section&id=Balance%20Sheet%20Highlights) As of June 30, 2025, Gevo's total assets significantly increased, primarily driven by acquisition activities, while liabilities also rose due to new loans Consolidated Balance Sheet Key Data | Metric | June 30, 2025 (Thousand USD) | Dec 31, 2024 (Thousand USD) | Change (Thousand USD) | | :-------------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Total Assets | $702,117 | $583,941 | $118,176 | | Cash and Cash Equivalents | $57,257 | $189,389 | ($132,132) | | Restricted Cash | $69,644 | $1,489 | $68,155 | | Property, Plant, and Equipment, Net | $344,914 | $221,642 | $123,272 | | Intangible Assets, Net | $70,327 | $8,129 | $62,198 | | Goodwill | $43,558 | $3,740 | $39,818 | | Total Liabilities | $222,349 | $94,453 | $127,896 | | Loans Payable | $99,966 | $0 | $99,966 | [Cash Flow Statement Highlights](index=13&type=section&id=Cash%20Flow%20Statement%20Highlights) For the six months ended June 30, 2025, Gevo's operating and investing activities resulted in net cash outflows, primarily due to the Red Trail Energy acquisition, partially offset by significant loan proceeds from financing activities Consolidated Cash Flow Statement Key Data | Metric | Six Months Ended June 30, 2025 (Thousand USD) | Six Months Ended June 30, 2024 (Thousand USD) | | :---------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net Cash Outflow from Operating Activities | $(26,570) | $(27,520) | | Net Cash Outflow from Investing Activities | $(209,538) | $(26,708) | | *Acquisition of Red Trail Energy* | $(198,461) | N/A | | Net Cash Inflow (Outflow) from Financing Activities | $103,976 | $(6,049) | | *Loan Proceeds* | $105,000 | N/A | | Net Decrease in Cash and Cash Equivalents | $(132,132) | $(60,277) | | Cash, Cash Equivalents, and Restricted Cash (End of Period) | $126,901 | $315,320 | [Non-GAAP Financial Measures (Adjusted EBITDA)](index=14&type=section&id=Non-GAAP%20Financial%20Measures%20(Adjusted%20EBITDA)) Gevo achieved positive consolidated adjusted EBITDA in Q2 2025 and for the six months ended June 30, 2025, a significant improvement from the prior year, with GevoND being the primary contributor Consolidated Adjusted EBITDA (Non-GAAP) | Metric | Q2 2025 (Thousand USD) | Q2 2024 (Thousand USD) | Six Months Ended June 30, 2025 (Thousand USD) | Six Months Ended June 30, 2024 (Thousand USD) | | :-------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Non-GAAP Adjusted EBITDA (Loss) | $17,333 | $(15,286) | $1,982 | $(29,743) | Q2 2025 Adjusted EBITDA by Segment | Segment | Adjusted EBITDA (Thousand USD) | | :-------- | :----------------------------- | | GevoND | $24,224 | | GevoRNG | $2,583 | | Gevo | $(9,098) | | GevoFuels | $(376) | Adjusted EBITDA by Segment for Six Months Ended June 30, 2025 | Segment | Adjusted EBITDA (Thousand USD) | | :-------- | :----------------------------- | | GevoND | $26,064 | | GevoRNG | $5,306 | | Gevo | $(28,288) | | GevoFuels | $(1,100) | [Company Overview & Additional Information](index=8&type=section&id=Company%20Overview%20%26%20Additional%20Information) [About Gevo](index=8&type=section&id=About%20Gevo) Gevo is a next-generation diversified energy company dedicated to providing cost-effective renewable fuels and chemicals to ensure U.S. energy security, reduce carbon emissions, and foster economic growth in rural communities - Gevo is a next-generation diversified energy company committed to providing cost-effective, alternative fuels to promote energy security, reduce carbon emissions, and strengthen rural community economic growth[29](index=29&type=chunk) - The company's innovative technologies can be used to produce SAF, automotive fuels, chemicals, and other U.S.-made solutions[29](index=29&type=chunk) - Gevo owns and operates one of the largest dairy RNG facilities in the U.S., an ethanol plant with an adjacent CCS facility, and the world's first specialty ATJ fuel and chemical production facility[29](index=29&type=chunk) - Through its Verity subsidiary, Gevo provides transparency, accountability, and efficiency in attribute tracking, measurement, and verification across the entire supply chain[29](index=29&type=chunk) [Forward-Looking Statements](index=9&type=section&id=Forward-Looking%20Statements) This press release contains forward-looking statements regarding future CDR sales, CFPC generation, jet fuel market growth, ATJ-60 project financing, and timing, which are based on management's current beliefs and expectations but are subject to significant risks and uncertainties, with actual results potentially differing materially - Forward-looking statements cover future CDR sales and growth, the CDR market, CCS capacity, future CFPC credit generation and sales, jet fuel market growth, ATJ-60 project financing, and timing[31](index=31&type=chunk) - These statements are based on management's current beliefs, expectations, and assumptions, and are subject to significant risks and uncertainties[31](index=31&type=chunk) - Investors should not place undue reliance on any such forward-looking statements, and Gevo undertakes no obligation to update or revise these statements[31](index=31&type=chunk) [Non-GAAP Financial Information Disclosure](index=9&type=section&id=Non-GAAP%20Financial%20Information%20Disclosure) This press release includes non-GAAP adjusted EBITDA, calculated by adding back depreciation and amortization, allocated intercompany expenses, non-cash stock-based compensation, and changes in fair value of derivatives to GAAP operating loss, which management believes aids internal planning and comparison and provides greater transparency to investors - Non-GAAP adjusted EBITDA is calculated by adding back depreciation and amortization, allocated intercompany expenses, non-cash stock-based compensation, and changes in fair value of derivatives to GAAP operating loss[32](index=32&type=chunk) - Management believes this metric aids internal operations, budgeting, and financial planning, and facilitates comparisons with historical performance and other companies[32](index=32&type=chunk) - Non-GAAP information should be read in conjunction with U.S. GAAP financial information for a complete understanding of Gevo's operating performance[32](index=32&type=chunk) [Webcast & Contact Information](index=8&type=section&id=Webcast%20%26%20Contact%20Information) Gevo provides details for its Q2 2025 financial results webcast and conference call, along with media and investor contact information - A conference call to discuss financial results and provide company updates will be held on August 11, 2025, at 4:30 PM ET[26](index=26&type=chunk) - A webcast replay will be available in the investor relations section of Gevo's website within two hours following the call[28](index=28&type=chunk) - Email addresses for media contact Heather Manuel and investor contact Dr. Eric Frey are provided[40](index=40&type=chunk)

PART I. FINANCIAL INFORMATION [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 for the three and six months ended June 30, 2025, highlighting a significant increase in total assets and a turnaround to net income driven by digital asset appreciation [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash and cash equivalents | $52,933 | $37,883 | $15,050 | | Digital assets | $233,190 | $196,359 | $36,831 | | **Total Assets** | **$313,706** | **$287,995** | **$25,711** | | **Liabilities & Equity** | | | | | Total current liabilities | $11,151 | $8,345 | $2,806 | | Total liabilities | $36,586 | $30,468 | $6,118 | | Total stockholders' equity | $277,120 | $257,527 | $19,593 | - Total assets grew by **$25.7 million**, primarily driven by a **$36.8 million** increase in the fair value of digital assets held by the company[17](index=17&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) Statement of Operations Summary (in thousands, except EPS) | Metric | Q2 2025 | Q2 2024 | YoY Change | Six Months 2025 | Six Months 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **$25,827** | **$22,308** | **+16%** | **$61,823** | **$51,368** | **+20%** | | (Gain) loss on digital assets, net | ($52,500) | $17,232 | Favorable | ($23,691) | ($39,567) | Unfavorable | | Technology, development and user support | $14,730 | $10,767 | +37% | $29,623 | $21,471 | +38% | | General and administrative | $18,817 | $9,054 | +108% | $33,135 | $17,109 | +94% | | **Net Income (Loss)** | **$37,667** | **($9,606)** | **Favorable** | **$24,794** | **$45,181** | **-45%** | | Diluted EPS - Class A | $1.12 | ($0.37) | Favorable | $0.78 | $1.42 | -45% | - The company achieved a net income of **$37.7 million** in Q2 2025, a significant improvement from a **$9.6 million** loss in Q2 2024, primarily due to a **$52.5 million** gain on digital assets, though six-month net income decreased by **45%** YoY due to a smaller gain on digital assets compared to the prior year period[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | ($11,433) | ($1,916) | ($9,517) | | Net cash provided by investing activities | $36,331 | $19,536 | $16,795 | | Net cash used in financing activities | ($9,848) | ($1,227) | ($8,621) | | **Change in cash and cash equivalents** | **$15,050** | **$16,393** | **($1,343)** | - For the first six months of 2025, cash used in operating activities increased significantly to **$11.4 million**, while investing activities provided **$36.3 million** in cash, largely from treasury bill redemptions, and financing activities used **$9.8 million** primarily for share repurchases[24](index=24&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies, revenue concentration, digital asset holdings, stock-based compensation, and legal contingencies, including a proposed **$2.47 million** OFAC settlement - For the six months ended June 30, 2025, five API providers (Companies A, B, C, D, and E) each accounted for over **10%** of total revenues, indicating a concentration of revenue sources[31](index=31&type=chunk) Digital Asset Holdings (as of June 30, 2025, in thousands) | Digital Asset | Units | Cost Basis | Fair Value | | :--- | :--- | :--- | :--- | | Bitcoin | 2,058 | $87,826 | $220,510 | | Ethereum | 2,729 | $5,162 | $6,790 | | Other | 4,785,240 | $9,081 | $5,890 | | **Total** | | **$102,069** | **$233,190** | - The company reached a proposed settlement with OFAC, agreeing to pay a civil monetary penalty of **$2,473,360** and invest an additional **$630,000** in sanctions compliance controls, with a liability for the penalty recognized[65](index=65&type=chunk) - In June 2025, the company sold its right to receive a portion of future Magic Eden tokens, recognizing a gain of **$2.0 million**[44](index=44&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, highlighting a **20%** year-over-year revenue increase for the first six months of 2025, driven by exchange aggregation services and business-to-business partnerships, alongside significant operating expense increases and profitability influenced by digital asset market fluctuations [Results of Operations](index=23&type=section&id=Results%20of%20Operations) - Revenue for the six months ended June 30, 2025, increased by **$10.5 million (20%)** compared to the same period in 2024, primarily driven by a **23%** increase in exchange aggregation revenue from business-to-business partner efforts[90](index=90&type=chunk) - Technology, development, and user support expenses increased by **38%** for the first six months of 2025, mainly due to a **$5.8 million** rise in partner fee expenses correlated with revenue growth from partnerships[93](index=93&type=chunk) - General and administrative expenses grew by **94%** for the first six months of 2025, driven by increased spending on marketing (**$4.5M**), meetings and travel (**$4.5M**), and legal/consulting (**$5.8M**)[96](index=96&type=chunk) - The company recognized a net gain on digital assets of **$23.7 million** for the first six months of 2025, compared to a net gain of **$39.6 million** in the prior year period, with the Q2 2025 gain at **$52.5 million** contrasting a **$17.2 million** loss in Q2 2024[97](index=97&type=chunk)[98](index=98&type=chunk) [Key Performance Indicators](index=21&type=section&id=Key%20Performance%20Indicators) User Metrics as of June 30 | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Monthly Active Users (MAUs) | 1.5 million | 1.5 million | 0% | | Quarterly Funded Users (QFUs) | 1.7 million | 1.5 million | +13% | - While Monthly Active Users (MAUs) remained flat year-over-year, Quarterly Funded Users (QFUs), which management considers a more stable cohort, grew by approximately **200,000** or **13%**[87](index=87&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) - The company believes its existing cash, digital assets, and cash generated from operations will be sufficient to fund operations for the next twelve months[100](index=100&type=chunk) Liquid Asset Holdings (in thousands) | Asset Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $52,933 | $37,883 | | USDC | $158 | $12 | | Treasury bills | $4,961 | $30,490 | | **Total liquid assets** | **$58,052** | **$68,385** | Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($11,433) | ($1,916) | | Net cash provided by investing activities | $36,331 | $19,536 | | Net cash used in financing activities | ($9,848) | ($1,227) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are related to the price volatility of its digital asset holdings, interest rate fluctuations, and foreign currency risk, with a hypothetical **10%** change in digital asset prices impacting fair value by **$23.3 million** - A hypothetical **10%** increase or decrease in the price of digital assets held as of June 30, 2025, would result in a change to their fair value of **$23.3 million**[110](index=110&type=chunk) - A hypothetical **100 basis point (1%)** change in average interest rates would have resulted in a **$0.6 million** change in interest earned on cash, cash equivalents, and treasury bills as of June 30, 2025[112](index=112&type=chunk) - The company recognized net foreign currency gains of **$1.9 million** for the six months ended June 30, 2025, compared to losses of **$0.9 million** in the same period of 2024[114](index=114&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to previously identified material weaknesses in internal control over financial reporting, despite ongoing remediation efforts - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting[117](index=117&type=chunk) - The material weaknesses relate to not having a sufficient quantity of personnel with appropriate expertise and not designing effective control activities, including issues with segregation of duties[118](index=118&type=chunk) - Remediation efforts are ongoing and include hiring additional personnel, engaging a third-party consultant, and enhancing the financial close process, but the material weaknesses are not yet considered fully remediated[119](index=119&type=chunk)[120](index=120&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 10 of the financial statements, which details a proposed settlement with the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), involving a civil monetary penalty of **$2,473,360** and an additional **$630,000** investment in compliance controls - The company's legal proceedings are detailed in Note 10 of the financial statements, primarily concerning the OFAC matter[125](index=125&type=chunk)[65](index=65&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - There have been no material changes in risk factors from those previously disclosed in the Annual Report on Form 10-K[126](index=126&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) This section discloses that three company executives, including the CEO and CFO, have adopted Rule 10b5-1(c) trading plans to sell shares of the company's common stock over a future period - The Chief Financial Officer, James Gernetzke, adopted a Rule 10b5-1(c) trading plan to sell up to **96,000 shares** between August 2025 and December 2026[130](index=130&type=chunk) - The CEO, Jon Paul Richardson, and Director Daniel Castagnoli also adopted Rule 10b5-1(c) trading plans to sell up to **1,000,000** and **400,000 shares**, respectively, between September 2025 and June 2026[131](index=131&type=chunk)[132](index=132&type=chunk)

Second Quarter 2025 Overview [Executive Summary](index=1&type=section&id=1.1%20Executive%20Summary) Getty Images achieved robust growth in Q2 2025, driven by sustained subscription business momentum, accelerated enterprise growth, and media business recovery, reaffirming full-year guidance with an emphasis on execution and fiscal discipline - The company achieved robust growth in the second quarter, with sustained momentum in its subscription business, accelerated enterprise growth, and a recovery in its media business[3](index=3&type=chunk) - The company is confident in its strategy and on track to achieve its full-year 2025 guidance[3](index=3&type=chunk) - The company has achieved five consecutive quarters of revenue growth, maintaining healthy operating metrics, and will continue to emphasize execution, fiscal discipline, and building momentum for the second half[3](index=3&type=chunk) [Q2 2025 Financial Highlights](index=1&type=section&id=1.2%20Q2%202025%20Financial%20Highlights) In Q2 2025, total revenue grew 2.5% YoY to $234.9 million, but the company reported a net loss of $34.4 million, primarily due to foreign exchange losses and M&A-related expenses, with Adjusted EBITDA decreasing 1.2% to $68.0 million Q2 2025 Key Financial Data | Metric | Q2 2025 | Q2 2024 | Change (YoY) | Currency Neutral Change (YoY) | | :-------------------------------- | :--------------- | :--------------- | :---------- | :---------------------------- | | **Revenue** | $234.9 million | $229.1 million | +2.5% | +1.8% | | Creative Revenue | $130.8 million | $137.9 million | -5.1% | -5.7% | | Editorial Revenue | $88.3 million | $83.6 million | +5.6% | +4.6% | | Annual Subscription Revenue as % of Total Revenue | 53.5% | 52.9% | +0.6% | - | | **Net (Loss) Income** | $(34.4) million | $3.7 million | - | - | | Net Income Margin | -14.6% | 1.6% | - | - | | **Adjusted Net Income** | $22.2 million | $7.1 million | +212.7% | - | | **Adjusted EBITDA** | $68.0 million | $68.8 million | -1.2% | -2.2% | | Adjusted EBITDA Margin | 28.9% | 30.0% | -1.1% | - | | Net Cash from Operating Activities | $6.5 million | $46.4 million | -86.0% | - | | Free Cash Flow | $(9.6) million | $31.1 million | - | - | | Cash Balance at Period End | $110.3 million | $121.7 million | -9.3% | - | - The net loss was primarily due to **$57.2 million in foreign exchange losses** (mainly from the revaluation of Euro-denominated term loans) and a **$10.9 million decrease in operating income** (primarily due to approximately **$14.4 million in M&A-related expenses**)[7](index=7&type=chunk) - The company has **$150 million** in undrawn revolving credit facilities, with total available liquidity of **$260.3 million**[8](index=8&type=chunk) [Key Performance Indicators (KPIs)](index=2&type=section&id=1.3%20Key%20Performance%20Indicators%20(KPIs)) For the twelve months ended June 30, 2025, annual active subscribers grew 13.8% to 321 thousand, and the annual subscription revenue retention rate increased by 400 basis points to 93.4%, despite slight decreases in total purchasing customers and paid downloads Key Performance Indicators for the Twelve Months Ended June 30, 2025 | Metric | June 30, 2025 (LTM) | June 30, 2024 (LTM) | Change | | :--------------------------------- | :------------------- | :------------------- | :------- | | Total Purchasing Customers (thousands) | 707 | 740 | (4.4)% | | Annual Active Subscribers (thousands) | 321 | 282 | 13.8% | | Paid Downloads (millions) | 93 | 95 | (1.7)% | | Annual Subscription Revenue Retention Rate | 93.4% | 89.4% | 400 bps | | Image Library (millions) | 591 | 553 | 7.0% | | Video Library (millions) | 34 | 30 | 14.7% | | Video Attach Rate | 16.7% | 15.6% | 110 bps | - The comparison of KPIs reflects the impact of the Hollywood strikes[9](index=9&type=chunk) [Business Highlights](index=2&type=section&id=1.4%20Business%20Highlights) This quarter, the company completed a $580 million loan-to-bond exchange for its fixed-rate USD term loan, bringing total debt to $1.39 billion, while solidifying its leadership in visual content through exclusive partnerships and upgraded AI services - The company completed a loan-to-bond exchange for **$580 million** of its fixed-rate USD term loan, with **$539.9 million** of the loan exchanged for new fixed-rate notes sharing the same maturity and an **11.25% interest rate** as the original loan[13](index=13&type=chunk) Total Debt Composition as of June 30, 2025 | Debt Type | Amount (million USD) | | :----------------- | :------------------- | | Senior Secured Notes | 539.9 | | Term Loan Balance | 550.3 | | Senior Unsecured Notes | 300.0 | | **Total Debt** | **1,390.2** | - Getty Images became the exclusive photography partner for the Coachella Valley Music and Arts Festival, the Met Gala, the BAFTA Television Awards, and the Tribeca Film Festival, and was appointed the official photography partner of the British Academy of Film and Television Arts[14](index=14&type=chunk) - The company upgraded its AI service suite to generate higher quality outputs and better prompt adherence, with the model trained exclusively on licensed creative content, respecting intellectual property holders and artists' rights[14](index=14&type=chunk) - A bundle of pre-shot modification AI features with image subscriptions was launched on iStock, allowing customers to access iStock's pre-shot creative library and AI services through a single plan[15](index=15&type=chunk) Financial Outlook and Strategic Developments [Full Year 2025 Guidance](index=3&type=section&id=2.1%20Full%20Year%202025%20Guidance) Getty Images reaffirmed its full-year 2025 guidance, projecting revenue between $931 million and $968 million and Adjusted EBITDA between $277 million and $297 million, including an approximate $8 million one-time increase in SG&A for SOX compliance related to the Shutterstock merger Full Year 2025 Guidance | Metric | 2025 Guidance | | :-------------------------------- | :------------------- | | Revenue | $931 million to $968 million | | Revenue YoY Change | -0.9% to 3.1% | | Revenue YoY Change (Currency Neutral) | -1.0% to 3.0% | | Adjusted EBITDA | $277 million to $297 million | | Adjusted EBITDA YoY Change | -7.6% to -1.2% | | Adjusted EBITDA YoY Change (Currency Neutral) | -7.9% to -1.4% | - The Adjusted EBITDA guidance includes an approximate **$8 million** one-time increase in selling, general and administrative expenses, with **$5.5 million** expected in the second half, to accelerate 2025 SOX compliance efforts in response to resource and focus shifts related to the Shutterstock merger[16](index=16&type=chunk) [Shutterstock Merger Agreement Update](index=3&type=section&id=2.2%20Shutterstock%20Merger%20Agreement%20Update) The merger agreement between Getty Images and Shutterstock is progressing, with both parties committed to obtaining regulatory approvals as soon as possible, despite additional information requests from the U.S. Department of Justice and the UK Competition and Markets Authority, with the transaction expected to close by the end of 2025 - Getty Images announced a merger agreement with Shutterstock on January 7, 2025, aiming to create a premier visual content company through a merger of equals[17](index=17&type=chunk) - The company has received additional information requests from the U.S. Department of Justice and the UK Competition and Markets Authority, with the review process currently ongoing[18](index=18&type=chunk) - Shutterstock shareholders approved the proposed transaction on June 10, 2025, and both parties still expect the transaction to close by the end of 2025[19](index=19&type=chunk)[20](index=20&type=chunk) About Getty Images [Company Profile and Offerings](index=4&type=section&id=3.1%20Company%20Profile%20and%20Offerings) Getty Images is a leading global visual content creator and marketplace, offering comprehensive content solutions through its Getty Images, iStock, and Unsplash brands, collaborating with nearly 600,000 content creators and 355 content partners, and leveraging generative AI technology for commercially safe visual content creation - Getty Images (NYSE: GETY) is a premier global visual content creator and marketplace, offering comprehensive content solutions through its Getty Images, iStock, and Unsplash brands[22](index=22&type=chunk) - The company partners with nearly **600,000 content creators** and over **355 content partners**, covering over **160,000 news, sports, and entertainment events** annually, and possesses one of the world's largest private photographic archives[22](index=22&type=chunk) - By adopting and distributing generative AI technology and tools trained on licensed content, Getty Images and iStock clients can use text-to-image generation capabilities to conceptualize and create commercially safe, compelling visual content[23](index=23&type=chunk) Financial Statements [Condensed Consolidated Statements of Operations](index=6&type=section&id=4.1%20Condensed%20Consolidated%20Statements%20of%20Operations) In Q2 2025, the company's revenue was $234.9 million, a 2.5% YoY increase, but it recorded a net loss of $34.4 million, primarily due to increased interest expense, foreign exchange losses, and a significant rise in M&A-related "other operating expenses" Condensed Consolidated Statements of Operations (Summary) | Metric (thousands USD) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------ | :--------------- | :--------------- | :----------- | :----------- | | Revenue | 234,882 | 229,140 | 458,959 | 451,418 | | Total Operating Expenses | 199,322 | 182,682 | 396,057 | 363,926 | | Operating Income | 35,560 | 46,458 | 62,902 | 87,492 | | Interest Expense | (36,556) | (33,890) | (69,231) | (66,614) | | Foreign Exchange (Loss) Gain – Net | (54,771) | 2,439 | (79,849) | 18,861 | | Net (Loss) Income | (34,359) | 3,689 | (136,931) | 17,276 | | Net (Loss) Income Attributable to Getty Images Holdings, Inc. | (35,069) | 3,847 | (137,641) | 17,302 | | Basic Net (Loss) Income Per Share | (0.08) | 0.01 | (0.33) | 0.04 | | Diluted Net (Loss) Income Per Share | (0.08) | 0.01 | (0.33) | 0.04 | - In Q2 2025, other operating expenses, net, significantly increased from **$2.8 million** in the prior year to **$10.512 million**, primarily reflecting M&A-related expenses[31](index=31&type=chunk) [Condensed Consolidated Balance Sheets](index=8&type=section&id=4.2%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $2.596 billion, a slight increase from December 31, 2024, with cash and cash equivalents decreasing while accounts receivable and deferred revenue rose, and total liabilities increased to $1.936 billion due to higher short-term and long-term debt Condensed Consolidated Balance Sheets (Summary) | Metric (thousands USD) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :--------------- | :--------------- | | **Assets** | | | | Cash and Cash Equivalents | 110,275 | 121,173 | | Total Current Assets | 348,809 | 358,815 | | Goodwill | 1,516,960 | 1,510,477 | | Intangible Assets, Net | 416,030 | 389,906 | | **Total Assets** | **2,595,961** | **2,563,708** | | **Liabilities and Stockholders' Equity** | | | | Short-Term Debt, Net | 21,101 | — | | Deferred Revenue | 184,934 | 172,090 | | Total Current Liabilities | 499,682 | 453,255 | | Long-Term Debt, Net | 1,341,305 | 1,314,424 | | **Total Liabilities** | **1,935,949** | **1,845,368** | | Stockholders' Equity Attributable to Getty Images Holdings, Inc. | 611,158 | 670,196 | | **Total Stockholders' Equity** | **660,012** | **718,340** | - As of June 30, 2025, short-term debt, net, was **$21.101 million**, compared to zero as of December 31, 2024, reflecting changes in debt structure[33](index=33&type=chunk) - Long-term debt, net, increased from **$1.314 billion** as of December 31, 2024, to **$1.341 billion** as of June 30, 2025[35](index=35&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=4.3%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In the first half of 2025, net cash from operating activities significantly decreased to $21.9 million, primarily due to increased net loss and foreign exchange losses on foreign currency-denominated debt, while investing activities focused on property and equipment, and financing activities were impacted by debt issuance and refinancing costs Condensed Consolidated Statements of Cash Flows (Summary) | Metric (thousands USD) | H1 2025 | H1 2024 | | :--------------------------------- | :----------- | :----------- | | Net (Loss) Income | (136,931) | 17,276 | | Net Cash from Operating Activities | 21,930 | 67,971 | | Net Cash from Investing Activities | (31,817) | (44,739) | | Net Cash from Financing Activities | (21,299) | (34,774) | | Effect of Exchange Rate Changes | 20,262 | (3,076) | | Net Decrease in Cash, Cash Equivalents, and Restricted Cash | (10,924) | (14,618) | | Cash, Cash Equivalents, and Restricted Cash at End of Period | 114,380 | 126,232 | - The decrease in net cash from operating activities was primarily attributable to the increased net loss and foreign exchange losses on foreign currency-denominated debt[37](index=37&type=chunk) - In financing activities, proceeds from debt issuance were **$1.04 billion**, but debt refinancing costs and debt prepayments resulted in a net cash outflow of **$21.3 million**[37](index=37&type=chunk) Non-GAAP Financial Measures & Reconciliations [Non-GAAP Measures Overview](index=12&type=section&id=5.1%20Non-GAAP%20Measures%20Overview) The company provides non-GAAP financial metrics such as Adjusted EBITDA, Adjusted Net Income, and Free Cash Flow to offer a clearer understanding of core operating results and liquidity, which are widely used by management, industry analysts, and investors for evaluation and planning - The company provides non-GAAP financial measures including Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBITDA less Capital Expenditures, Adjusted EBITDA less Capital Expenditures Margin, Adjusted Net Income and Adjusted EPS, and Free Cash Flow[38](index=38&type=chunk) - These non-GAAP metrics are intended to provide a more direct understanding of core operating results and liquidity, and are widely used for evaluating and comparing operating performance[39](index=39&type=chunk) - The company does not provide a reconciliation of forward-looking non-GAAP financial measures to their corresponding GAAP measures due to the variability of forecasts and projections, and the difficulty in obtaining certain information[41](index=41&type=chunk) [Adjusted EBITDA Reconciliation](index=13&type=section&id=5.2%20Adjusted%20EBITDA%20Reconciliation) In Q2 2025, Adjusted EBITDA was $67.974 million, a slight decrease of 1.2% from the prior year, with an Adjusted EBITDA margin of 28.9% Adjusted EBITDA and Related Metrics Reconciliation (Summary) | Metric (thousands USD) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------------- | :--------------- | :--------------- | :----------- | :----------- | | Net (Loss) Income | (34,359) | 3,689 | (136,931) | 17,276 | | **Adjusted EBITDA** | **67,974** | **68,824** | **138,098** | **139,037** | | Capital Expenditures | 16,114 | 15,380 | 31,817 | 29,833 | | **Adjusted EBITDA less Capital Expenditures** | **51,860** | **53,444** | **106,281** | **109,204** | | Adjusted EBITDA Margin | 28.9% | 30.0% | 30.1% | 30.8% | | Adjusted EBITDA less Capital Expenditures Margin | 22.1% | 23.3% | 23.2% | 24.2% | [Adjusted Net Income and EPS Reconciliation](index=13&type=section&id=5.3%20Adjusted%20Net%20Income%20and%20EPS%20Reconciliation) In Q2 2025, Adjusted Net Income significantly increased to $22.193 million, and Adjusted diluted EPS rose to $0.05, primarily due to non-GAAP adjustments for foreign exchange losses, M&A-related costs, and loss on extinguishment of debt Adjusted Net Income and EPS Reconciliation (Summary) | Metric (thousands USD) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------------- | :--------------- | :--------------- | :----------- | :----------- | | Net (Loss) Income | (34,359) | 3,689 | (136,931) | 17,276 | | Share-Based Compensation Expense | 3,787 | 4,013 | 8,311 | 13,148 | | Litigation Losses | 2,007 | 2,792 | 6,350 | 4,814 | | Foreign Exchange | 54,771 | (2,439) | 79,849 | (18,861) | | M&A-Related Costs | 14,376 | — | 32,419 | 1,100 | | Loss on Extinguishment of Debt and Expensed Financing Costs | 2,857 | — | 11,508 | — | | **Adjusted Net (Loss) Income** | **22,193** | **7,062** | **(36,087)** | **17,718** | | Diluted EPS | (0.08) | 0.01 | (0.33) | 0.04 | | **Adjusted Diluted EPS** | **0.05** | **0.02** | **(0.09)** | **0.04** | - Adjusted Net Income and EPS exclude the impact of non-core operating items such as foreign exchange gains/losses, M&A-related costs, and loss on extinguishment of debt, to provide a more comparable view of core operating performance[43](index=43&type=chunk)[44](index=44&type=chunk) [Free Cash Flow Reconciliation](index=14&type=section&id=5.4%20Free%20Cash%20Flow%20Reconciliation) In Q2 2025, free cash flow was negative $9.565 million, a significant decrease from the prior year's positive $31.062 million, primarily due to a substantial reduction in net cash from operating activities Free Cash Flow Reconciliation (Summary) | Metric (thousands USD) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------------- | :--------------- | :--------------- | :----------- | :----------- | | Net Cash from Operating Activities | 6,546 | 46,443 | 21,930 | 67,971 | | Purchases of Property and Equipment | (16,111) | (15,381) | (31,817) | (29,833) | | **Free Cash Flow** | **(9,565)** | **31,062** | **(9,887)** | **38,138** | Other Financial Data [Revenue by Product](index=15&type=section&id=6.1%20Revenue%20by%20Product) In Q2 2025, total revenue increased by 2.5% YoY, with editorial revenue growing 5.6% to $88.3 million and other revenue significantly increasing by 106.1% to $15.7 million, while creative revenue decreased by 5.1% to $130.8 million Revenue by Product (Summary) | Product Category (thousands USD) | Q2 2025 | Percentage of Revenue | Q2 2024 | Percentage of Revenue | USD Change | Percentage Change | Currency Neutral Percentage Change | | :------------------------------- | :--------------- | :-------------------- | :--------------- | :-------------------- | :--------- | :---------------- | :------------------------------- | | Creative | 130,824 | 55.7% | 137,897 | 60.2% | (7,073) | (5.1)% | (5.7)% | | Editorial | 88,342 | 37.6% | 83,619 | 36.5% | 4,723 | 5.6% | 4.6% | | Other | 15,716 | 6.7% | 7,624 | 3.3% | 8,092 | 106.1% | 105.5% | | **Total Revenue** | **234,882** | **100.0%** | **229,140** | **100.0%** | **5,742** | **2.5%** | **1.8%** | - In the first half of 2025, creative revenue decreased by **5.0%**, editorial revenue increased by **4.9%**, and other revenue significantly grew by **115.0%**[46](index=46&type=chunk) [Balance Sheet & Liquidity Details](index=15&type=section&id=6.2%20Balance%20Sheet%20%26%20Liquidity%20Details) As of June 30, 2025, the company reported $110.3 million in cash and cash equivalents, with total liquidity of $260.3 million including a $150 million revolving credit facility, and a total term loan balance of $550.3 million reflecting changes in debt structure with the introduction of senior secured notes Balance Sheet & Liquidity Details (Summary) | Metric (million USD) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :-------------------------------- | :--------------- | :--------------- | :--------------- | | Cash and Cash Equivalents | 110.3 | 121.2 | 121.7 | | Revolving Credit Facility Availability | 150.0 | 150.0 | 150.0 | | **Total Liquidity** | **260.3** | **271.2** | **271.7** | | Old Term Loan Outstanding - USD Portion | — | 579.2 | 601.8 | | Old Term Loan Outstanding - EUR Portion | — | 435.2 | 448.5 | | New Term Loan Outstanding - USD Portion | 40.1 | — | — | | New Term Loan Outstanding - EUR Portion | 510.2 | — | — | | **Total Term Loan Outstanding** | **550.3** | **1,014.4** | **1,050.3** | | Short-Term Debt, Net | 21.1 | — | — | | Senior Unsecured Notes | 300.0 | 300.0 | 300.0 | | Senior Secured Notes | 539.9 | — | — | - As of June 30, 2025, the company completed a loan-to-bond exchange, resulting in zero old term loan balance and the addition of **$40.1 million** in new term loans (USD portion), **$510.2 million** in new term loans (EUR portion), and **$539.9 million** in senior secured notes[47](index=47&type=chunk) Additional Information [Webcast & Conference Call Information](index=3&type=section&id=7.1%20Webcast%20%26%20Conference%20Call%20Information) The company held a conference call and webcast on August 11, 2025, to discuss its Q2 results, with access available via the investor relations section of its website or by phone, and a replay provided for fourteen days - The company held a conference call and webcast on August 11, 2025, to discuss its Q2 2025 results[21](index=21&type=chunk) - The webcast is accessible via the investor relations section of the company's website, with the conference call providing U.S. and international dial-in numbers and a conference ID[21](index=21&type=chunk) - A replay of the call will be available shortly after the conclusion of the conference and accessible for fourteen days via provided dial-in numbers and access codes[21](index=21&type=chunk) [Forward-Looking Statements](index=4&type=section&id=7.2%20Forward-Looking%20Statements) This press release contains forward-looking statements, which are predictions of future events or trends based on various assumptions and subject to numerous risks and uncertainties, including content licensing, customer acquisition, AI technology, international operations, technological disruptions, industry strikes, and the Shutterstock merger, where actual results may differ materially - Certain statements in this press release are forward-looking statements, intended to predict future events or trends rather than historical facts[25](index=25&type=chunk) - These statements are based on various assumptions and subject to numerous risks and uncertainties, including the inability to consistently license third-party content, attract and retain customers, risks of AI technology application, international market operations, technological disruptions or cybersecurity breaches, impacts of industry strikes, and risks related to the Shutterstock merger[26](index=26&type=chunk)[27](index=27&type=chunk) - Should any of these risks materialize or assumptions prove incorrect, actual results could differ materially from those implied by forward-looking statements[27](index=27&type=chunk) [Investor and Media Contacts](index=15&type=section&id=7.3%20Investor%20and%20Media%20Contacts) This report provides Getty Images' investor relations and media contact information for further inquiries - Investor Contact: Steven Kanner, Email: Investorrelations@gettyimages.com[48](index=48&type=chunk) - Media Contact: Julia Holmes, Email: Julia.Holmes@gettyimages.com[48](index=48&type=chunk)

[Item 2.02: Results of Operations and Financial Condition](index=4&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) ZipRecruiter announced Q2 2025 financial results and outlook, with GAAP to non-GAAP reconciliation in accompanying documents - The company announced Q2 2025 financial results on August 11, 2025, through a press release and shareholder letter[5](index=5&type=chunk) - Non-GAAP financial information is included in the shareholder letter and earnings call, with GAAP reconciliation in the shareholder letter (Exhibit 99.2)[7](index=7&type=chunk) [Item 7.01: Regulation FD Disclosure](index=4&type=section&id=Item%207.01%20Regulation%20FD%20Disclosure) The company discloses material information through SEC filings, its investor relations website, press releases, public calls, and social media - ZipRecruiter utilizes its investor relations website, SEC filings, press releases, and social media (X, Facebook, LinkedIn) to disseminate material information to investors[8](index=8&type=chunk) [Item 8.01: Other Events](index=4&type=section&id=Item%208.01%20Other%20Events) The Board of Directors authorized an additional **$100.0 million** for the existing share repurchase program on August 8, 2025 [Share Repurchase Program Authorization](index=4&type=section&id=Share%20Repurchase%20Program%20Authorization) The Board authorized an additional **$100.0 million** for the share repurchase program, with **$39.2 million** remaining from prior authorization - On August 8, 2025, the Board of Directors authorized an additional **$100.0 million** for the company's share repurchase program[9](index=9&type=chunk) Share Repurchase Program Status | Description | Amount (USD) | | :--- | :--- | | Previous Aggregate Authorization | $650.0 million | | Additional Authorization (Aug 8, 2025) | $100.0 million | | Available for Repurchase (as of Jun 30, 2025) | ~$39.2 million | - The share repurchase program has no expiration date and does not obligate the company to repurchase a specific number of shares, with timing and volume dependent on market conditions[10](index=10&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=5&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) The report includes forward-looking statements, especially regarding the share repurchase program, subject to risks detailed in SEC filings - The report contains forward-looking statements regarding the share repurchase program, which are not guarantees of future performance[12](index=12&type=chunk) - Actual results may differ materially due to risks and uncertainties detailed in the company's SEC filings, including Form 10-K and Form 10-Q[12](index=12&type=chunk) [Item 9.01: Financial Statements and Exhibits](index=5&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This section lists the Form 8-K exhibits, comprising the Q2 2025 earnings press release, shareholder letter, and Inline XBRL cover page Exhibits Filed | Exhibit | Description | | :--- | :--- | | 99.1 | Press Release, dated August 11, 2025 | | 99.2 | Shareholder Letter, dated August 11, 2025 | | 104 | The cover page from this Current Report on Form 8-K, formatted in Inline XBRL |

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Unaudited H1 2025 financials reveal decreased assets to $415.2 million, a widened net loss of $46.3 million, and increased operating cash outflow [Condensed Balance Sheets](index=7&type=section&id=Condensed%20Balance%20Sheets) As of June 30, 2025, total assets decreased to $415.2 million from $456.6 million, primarily due to a drop in cash, while equity declined Condensed Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $189,311 | $238,196 | | Total current assets | $334,141 | $356,824 | | **Total assets** | **$415,231** | **$456,554** | | **Liabilities & Equity** | | | | Total current liabilities | $15,127 | $12,849 | | **Total liabilities** | **$37,674** | **$36,507** | | **Total stockholders' equity** | **$377,557** | **$420,047** | | Accumulated deficit | $(164,688) | $(118,374) | [Condensed Statements of Operations and Comprehensive Loss](index=8&type=section&id=Condensed%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Net loss for H1 2025 widened to $46.3 million from $30.6 million, driven by increased R&D and G&A expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Revenue | $338 | $687 | | Research and development | $41,459 | $28,188 | | General and administrative | $13,767 | $6,054 | | **Total operating expenses** | **$55,226** | **$34,242** | | Loss from operations | $(54,888) | $(33,555) | | **Net loss** | **$(46,314)** | **$(30,607)** | | Net loss per share | $(1.05) | $(13.40) | [Condensed Statements of Cash Flows](index=10&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to $43.6 million in H1 2025, with minimal financing cash compared to prior year Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(43,630) | $(29,698) | | Net cash used in investing activities | $(5,660) | $(2,565) | | Net cash provided by financing activities | $405 | $74,952 | | **Net (decrease) increase in cash** | **$(48,885)** | **$42,689** | [Notes to Unaudited Condensed Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Condensed%20Financial%20Statements) Notes detail the company's IPO, a major collaboration with Novo Nordisk, and confirm sufficient capital for 12 months - The company is a biotechnology firm focused on GPCR oral small molecule drug discovery using its proprietary Native Complex Platform™[31](index=31&type=chunk) - In October 2024, the company completed its IPO, raising net proceeds of **$302.8 million**[35](index=35&type=chunk) - The company believes its cash, cash equivalents, and marketable securities of **$379.2 million** as of June 30, 2025, are sufficient to fund operations for at least **12 months**[40](index=40&type=chunk) - In May 2025, the company entered into a collaboration with Novo Nordisk, effective July 1, 2025, receiving a **$195.0 million** upfront payment in July 2025 and eligible for up to **$498.0 million** in milestones per R&D program, plus tiered royalties[52](index=52&type=chunk)[54](index=54&type=chunk) - A milestone related to the 2023 asset purchase agreement with Vertex was achieved in July 2025, resulting in a **$12.5 million** payment received in August 2025[57](index=57&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the GPCR platform, increased H1 2025 operating losses, and the Novo Nordisk collaboration, projecting funding into 2029 [Overview and Pipeline](index=29&type=section&id=Overview%20and%20Pipeline) Septerna, a biotechnology company, pioneers GPCR oral small molecule drug discovery with its Native Complex Platform™ and a pipeline in endocrinology, immunology, and metabolic diseases - The company's proprietary Native Complex Platform™ replicates the natural structure and function of GPCRs, enabling an industrialized, structure-based drug design approach[100](index=100&type=chunk) Development Pipeline Summary | Program / Target | Therapeutic Area | Development Status | | :--- | :--- | :--- | | **Wholly-Owned Programs** | | | | PTH1R Program | Endocrinology | Discovery | | SEP-631 (MRGPRX2) | Immunology and Inflammation | Discovery | | TSHR Program | Endocrinology | Discovery | | **Partnered Programs** | | | | Metabolic Programs (GLP-1R, etc.) | Obesity & Cardiometabolic | Partnered (Novo) | [Results of Operations](index=39&type=section&id=Results%20of%20Operations) Net loss increased to $46.3 million in H1 2025, driven by a $13.3 million rise in R&D expenses and a $7.7 million increase in G&A expenses Comparison of Results of Operations (in thousands) | Line Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $338 | $687 | $(349) | | Research and development | $41,459 | $28,188 | $13,271 | | General and administrative | $13,767 | $6,054 | $7,713 | | **Net loss** | **$(46,314)** | **$(30,607)** | **$(15,707)** | Research and Development Expense Breakdown (in thousands) | Program | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | PTH1R | $6,733 | $4,746 | $1,987 | | SEP-631 (MRGPRX2) | $3,765 | $874 | $2,891 | | Other programs | $9,996 | $2,153 | $7,843 | | Unallocated costs | $20,965 | $20,415 | $550 | | **Total R&D Expense** | **$41,459** | **$28,188** | **$13,271** | [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) With $379.2 million in cash as of June 30, 2025, bolstered by $195.0 million from Novo and $12.5 million from Vertex, the company projects funding into 2029 - The company historically financed operations through convertible notes, preferred stock, and its October 2024 IPO, which raised **$302.8 million** in net proceeds[143](index=143&type=chunk) - Management projects that its cash position of **$379.2 million** as of June 30, 2025, combined with the **$195.0 million** from Novo and **$12.5 million** from Vertex, will fund operations into **2029**[144](index=144&type=chunk) Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(43,630) | $(29,698) | | Net cash used in investing activities | $(5,660) | $(2,565) | | Net cash provided by financing activities | $405 | $74,952 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Septerna, Inc. is not required to provide the information requested under this item - The company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide quantitative and qualitative disclosures about market risk[161](index=161&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Based on an evaluation as of the end of the period, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[163](index=163&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[164](index=164&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings deemed probable to have a material adverse effect on its business - The company is not currently involved in any litigation or legal proceedings expected to have a material adverse effect on its business, financial condition, or results of operations[168](index=168&type=chunk) [Item 1A. Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors include potential FDA disruptions, unfavorable global economic conditions, geopolitical instability, and healthcare legislative reforms impacting drug pricing - Risks include potential disruptions at the FDA and other agencies due to staffing reductions, funding shortages, or government shutdowns, which could delay product development and approval[170](index=170&type=chunk)[171](index=171&type=chunk) - Unfavorable global economic conditions, political instability, and geopolitical events such as military conflicts and trade tariffs could adversely affect the business, financial condition, and stock price[172](index=172&type=chunk)[173](index=173&type=chunk) - Healthcare legislative reforms, including the Inflation Reduction Act (IRA) and recent Executive Orders, may negatively impact the business by containing healthcare costs and affecting drug pricing and reimbursement[176](index=176&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - Recent changes to U.S. tax law, such as the One Big Beautiful Bill Act (H.R.1), could materially affect the company's business and cash flow, particularly regarding the capitalization and amortization of R&D expenses[186](index=186&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales occurred; IPO proceeds of $302.8 million are reallocated to advance other pipeline candidates after discontinuing the SEP-786 program - The company's October 2024 IPO generated net proceeds of **$302.8 million**[189](index=189&type=chunk) - The planned use of IPO proceeds has changed due to the discontinuation of the SEP-786 product candidate; funds will now advance other programs, including a next-generation PTH1R agonist and SEP-631[190](index=190&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable - No defaults upon senior securities were reported[192](index=192&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - No mine safety disclosures were required[193](index=193&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated Rule 10b5-1 trading plans during the fiscal quarter ended June 30, 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan or other similar trading arrangement during the quarter[194](index=194&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, the Novo Collaboration Agreement, and certifications - The list of exhibits includes the Novo Collaboration Agreement, CEO/CFO certifications, and XBRL data files[196](index=196&type=chunk)

[CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=3&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section serves as a cautionary note regarding forward-looking statements within the report, emphasizing that such statements involve risks and uncertainties and actual results may differ materially. The company does not undertake to update these statements - Forward-looking statements pertain to future financial and/or operating results, future growth in research, technology, clinical development, and potential opportunities for **Insight Molecular Diagnostics Inc.** (**iMDx**)[7](index=7&type=chunk) - These statements involve risks and uncertainties, including those inherent in product development, clinical trials, regulatory approvals, capital needs, and intellectual property rights[7](index=7&type=chunk) - **iMDx** undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by law[7](index=7&type=chunk) [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies and specific financial items [CONDENSED CONSOLIDATED BALANCE SHEETS](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) The condensed consolidated balance sheets show a significant increase in total assets, primarily driven by a substantial rise in cash and cash equivalents, while total liabilities also increased, leading to a positive shift in shareholders' equity from a deficit position Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :----------------------------------- | :-------------------------- | :------------------ | | Cash and cash equivalents | $24,287 | $8,636 | | Total current assets | $26,842 | $11,759 | | Total assets | $50,517 | $35,081 | | Total current liabilities | $6,652 | $7,275 | | Total liabilities | $49,419 | $47,355 | | Total shareholders' equity (deficit) | $1,098 | $(12,274) | - Cash and cash equivalents increased by **$15.7 million** from December 31, 2024, to June 30, 2025[13](index=13&type=chunk) - Total shareholders' equity shifted from a deficit of **$(12.3 million)** to a positive **$1,098 thousand**[13](index=13&type=chunk) [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS](index=5&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The company experienced a substantial increase in net revenue for both the three and six months ended June 30, 2025, compared to the prior year, but also saw a significant rise in operating expenses, particularly due to changes in contingent consideration fair value, leading to an increased net loss Unaudited Condensed Consolidated Statements of Operations Highlights (In thousands, except per share data) | 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 revenue | $518 | $104 | $2,656 | $280 | | Gross profit | $350 | $50 | $1,675 | $95 | | Total operating expenses | $10,192 | $4,682 | $18,316 | $13,994 | | Loss from operations | $(9,842) | $(4,632) | $(16,641) | $(13,899) | | Net loss | $(9,742) | $(4,530) | $(16,413) | $(13,659) | | Net loss per share - basic and diluted | $(0.30) | $(0.36) | $(0.57) | $(1.32) | - Net revenue increased by **398%** for the three months ended June 30, 2025, and by **849%** for the six months ended June 30, 2025, compared to the respective prior periods[14](index=14&type=chunk) - Net loss increased by **115%** for the three months ended June 30, 2025, and by **20%** for the six months ended June 30, 2025, primarily due to a significant change in the fair value of contingent consideration and increased operating expenses[14](index=14&type=chunk) [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS](index=6&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20LOSS) The unaudited condensed consolidated statements of comprehensive loss show that the net loss is the primary component of comprehensive loss, with minor adjustments from foreign currency translation Unaudited Condensed Consolidated Statements of Comprehensive Loss Highlights (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 | $(9,742) | $(4,530) | $(16,413) | $(13,659) | | Foreign currency translation adjustments | $44 | $(3) | $64 | $(12) | | Comprehensive loss | $(9,698) | $(4,533) | $(16,349) | $(13,671) | [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY](index=7&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20SERIES%20A%20REDEEMABLE%20CONVERTIBLE%20PREFERRED%20STOCK%20AND%20SHAREHOLDERS%27%20EQUITY) The statements of Series A Redeemable Convertible Preferred Stock and Shareholders' Equity reflect the redemption of all Series A Preferred Stock in 2024, significant increases in common stock due to new issuances, and a substantial accumulated deficit, which improved to a positive equity position by June 30, 2025 Shareholders' Equity Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Common Stock Amount | $367,965 | $338,244 | | Accumulated Deficit | $(366,952) | $(350,539) | | Total Shareholders' Equity (Deficit) | $1,098 | $(12,274) | - All Series A Redeemable Convertible Preferred Stock was redeemed by **April 15, 2024**[19](index=19&type=chunk)[21](index=21&type=chunk) - Common stock increased significantly due to the sale of **11,146 thousand** shares, generating **$28.7 million** in net proceeds during the six months ended June 30, 2025[21](index=21&type=chunk) [UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS](index=9&type=section&id=UNAUDITED%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The unaudited condensed consolidated statements of cash flows show that while operating activities continued to use cash, significant cash was provided by financing activities, primarily from the sale of common shares, resulting in a substantial net increase in cash, cash equivalents, and restricted cash for the six months ended June 30, 2025 Unaudited Condensed Consolidated Statements of Cash Flows Highlights (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(12,137) | $(9,808) | | Net cash used in investing activities | $(656) | $(215) | | Net provided by financing activities | $28,444 | $9,847 | | NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $15,651 | $(176) | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING | $25,987 | $10,956 | - Net cash provided by financing activities increased by **$18.6 million**, primarily due to proceeds from the sale of common shares in 2025[23](index=23&type=chunk) - The company's ending cash, cash equivalents, and restricted cash significantly increased from **$11.0 million** in 2024 to **$26.0 million** in 2025[23](index=23&type=chunk) [NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=10&type=section&id=NOTES%20TO%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes provide detailed explanations and breakdowns for various financial statement line items, accounting policies, business acquisitions, commitments, and related party transactions, offering crucial context for the condensed consolidated financial statements [1. Organization and Description of the Business](index=10&type=section&id=1.%20Organization%20and%20Description%20of%20the%20Business) **Insight Molecular Diagnostics Inc.** (**iMDx**) is a diagnostics technology company focused on organ transplant and oncology, which recently changed its name and relocated its headquarters. The company has incurred operating losses but believes it has sufficient liquidity for the next twelve months, supported by recent financing and commercialization efforts for its **GraftAssureCore** and **GraftAssureIQ** products - **iMDx**'s mission is to democratize access to novel molecular diagnostic testing to improve patient outcomes, with an intellectual property portfolio in organ transplant, oncology therapy selection, and oncology therapy monitoring[25](index=25&type=chunk) - In **June 2025**, the company changed its name from 'Oncocyte Corporation' to '**Insight Molecular Diagnostics Inc.**' and moved its headquarters from Irvine, California, to Nashville, Tennessee[26](index=26&type=chunk) - **GraftAssureCore** (Kidney) received a positive coverage decision from **MolDx** in **August 2023**, became commercially available in **January 2024**, and received a boosted reimbursement rate of **$2,753** per result in **May 2025**[29](index=29&type=chunk) - The company began commercializing **GraftAssureIQ** (RUO kitted test) in **July 2024** and sold its first kits in **May 2025**, with plans to commercialize its oncology product line, including **DetermaIO**, over the next **9 months**[29](index=29&type=chunk)[30](index=30&type=chunk) - **iMDx** had an accumulated deficit of **$367.0 million** as of **June 30, 2025**, but management believes it has sufficient cash to meet projected operating requirements for at least the next twelve months following a **$29.1 million** gross proceeds offering in **February 2025**[28](index=28&type=chunk)[32](index=32&type=chunk)[36](index=36&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note details the company's accounting practices, including GAAP compliance, principles of consolidation, use of estimates, segment reporting (single segment), fair value measurements (Level 1, 2, 3 inputs), revenue recognition (five-step model), and stock-based compensation. It also covers recent accounting pronouncements and income tax policies, noting a full valuation allowance - The financial statements are prepared in accordance with U.S. GAAP, and the company operates as one reportable segment[37](index=37&type=chunk)[42](index=42&type=chunk) - Fair value measurements utilize a hierarchy of inputs (Level 1, 2, 3), with contingent consideration liabilities being Level 3 due to unobservable inputs[43](index=43&type=chunk)[49](index=49&type=chunk)[52](index=52&type=chunk) - Revenue is recognized when control of goods or services is transferred to customers, following a five-step model, with Laboratory Services, Laboratory Developed Test Services, and Kitted Products as revenue types[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) - Stock-based compensation expense is recognized over the vesting period, with fair value estimated using the Black-Scholes model for time-based options and Monte Carlo simulation for market/performance-based awards[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The company did not record any income tax provision or benefit due to a full valuation allowance against deferred tax assets for all periods presented[98](index=98&type=chunk)[99](index=99&type=chunk) [3. Business Combinations and Contingent Consideration Liabilities](index=33&type=section&id=3.%20Business%20Combinations%20and%20Contingent%20Consideration%20Liabilities) This note details the contingent consideration liabilities arising from the acquisitions of Insight Genetics, Inc. (IGI) and Chronix Biomedical, Inc., which are measured at fair value using Level 3 inputs. The fair value of these liabilities is reassessed periodically, leading to changes recorded in the consolidated statements of operations - Contingent consideration for the IGI Merger includes Milestone Contingent Consideration (Milestone 1, 2, 3) and Royalty Contingent Consideration, with contractual values up to **$6.0 million** for milestones[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - The fair value of IGI contingent consideration decreased by approximately **$73 thousand** for the six months ended June 30, 2025, primarily due to revised estimates of future payouts[111](index=111&type=chunk) - Chronix contingent consideration involves earnout payments of **10%** of net collections for specified tests and products, and **5%** of gross proceeds from patent sales[114](index=114&type=chunk) - The fair value of Chronix contingent consideration increased by approximately **$3.8 million** for the six months ended June 30, 2025, due to revised estimates of future payouts[115](index=115&type=chunk) Contingent Consideration Fair Value (In thousands) | Acquisition | Balance at Dec 31, 2024 | Change in Estimated Fair Value (6M 2025) | Balance at June 30, 2025 | | :---------- | :---------------------- | :--------------------------------------- | :----------------------- | | IGI | $2,593 | $(73) | $2,520 | | Chronix | $35,346 | $3,756 | $39,102 | | Total | $37,939 | $3,683 | $41,622 | [4. Property and Equipment, Net](index=37&type=section&id=4.%20Property%20and%20Equipment%2C%20Net) This note provides a breakdown of the company's property and equipment, net, which includes right-of-use and financing lease assets, machinery, equipment, and construction in progress. The total value increased slightly from December 2024 to June 2025, with associated depreciation and amortization expenses Property and Equipment, Net (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------- | :------------ | :---------------- | | Right-of-use and financing lease assets | $4,703 | $5,323 | | Machinery, equipment and leasehold improvements | $9,860 | $8,366 | | Accumulated depreciation and amortization | $(8,153) | $(7,705) | | Right-of-use and financing lease assets and machinery and equipment, net | $6,410 | $5,984 | | Construction in progress | $263 | $340 | | Total | $6,673 | $6,324 | - Property and equipment depreciation and amortization expense was **$1.0 million** for the six months ended June 30, 2025, up from **$617 thousand** in the prior year[120](index=120&type=chunk) [5. Intangible Assets, Net](index=37&type=section&id=5.%20Intangible%20Assets%2C%20Net) This note details the company's intangible assets, primarily acquired In-Process Research and Development (IPR&D) related to **DetermaIO** and **DetermaCNI**, and customer relationships. Significant impairment losses were recorded in 2024 for oncology-related IPR&D, but no new impairments occurred in 2025 Intangible Assets, Net (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Acquired IPR&D - **DetermaIO** | $2,900 | $2,900 | | Acquired IPR&D - **DetermaCNI** | $11,700 | $11,700 | | Acquired intangible assets - customer relationship | $440 | $440 | | Total intangible assets | $15,040 | $15,040 | | Accumulated amortization - customer relationship | $(440) | $(433) | | Intangible assets, net | $14,600 | $14,607 | - The company recorded total impairment losses of **$41.9 million** related to **DetermaIO** and **DetermaCNI** IPR&D in 2024, but no such impairments in 2025[121](index=121&type=chunk)[274](index=274&type=chunk) - Amortization of customer relationship intangible assets, included in cost of revenues, became fully amortized in the first quarter of 2025[123](index=123&type=chunk)[231](index=231&type=chunk) [6. Commitments and Contingencies](index=38&type=section&id=6.%20Commitments%20and%20Contingencies) This note outlines the company's various commitments and contingencies, including office and facilities leases in Irvine (subleased) and Nashville, financing leases for equipment, and potential liabilities from litigation, tax filings, employment contracts, and indemnification agreements - The Irvine office lease, which served as the principal executive office until **June 2025**, is subleased, and a **$1.7 million** letter of credit (backed by restricted cash) will be reduced monthly starting **July 2025**[124](index=124&type=chunk)[125](index=125&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk) - The Nashville CLIA-certified laboratory and office space leases were renewed and expanded in **January 2024**, with an aggregate of **10,681 square feet** and increasing base monthly rent[135](index=135&type=chunk)[136](index=136&type=chunk) Future Minimum Lease Commitments (In thousands) | Year Ending December 31, | Operating Leases | Financing Leases | | :----------------------- | :--------------- | :--------------- | | 2025 | $577 | $275 | | 2026 | $1,182 | $507 | | 2027 | $696 | $299 | | 2028 | — | $31 | | Total minimum lease payments | $2,455 | $1,112 | - The company is involved in a dispute regarding a claimed milestone payment obligation related to its **DetermaIO** immuno-oncology assay for breast cancer, which it strongly disputes[143](index=143&type=chunk) - Accrued severance obligations of approximately **$2.3 million** related to the Chronix acquisition are classified as current and noncurrent contingent consideration[145](index=145&type=chunk) [7. Series A Redeemable Convertible Preferred Stock and Shareholders' Equity](index=45&type=section&id=7.%20Series%20A%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Shareholders%27%20Equity) This note details the company's equity structure, including the full redemption of Series A Preferred Stock in April 2024, and significant common stock issuances through various offerings in April 2024, October 2024, and February 2025, which raised substantial capital. It also covers outstanding common stock purchase warrants - All **5,882** shares of Series A Redeemable Convertible Preferred Stock were redeemed by **April 15, 2024**, for approximately **$5.4 million**[152](index=152&type=chunk) - The **April 2024** Offering generated approximately **$15.8 million** in gross proceeds from the sale of common stock and pre-funded warrants[156](index=156&type=chunk)[158](index=158&type=chunk) - The **October 2024** Offering generated approximately **$10.2 million** in gross proceeds from the sale of **3,461,138** shares of common stock[163](index=163&type=chunk)[164](index=164&type=chunk) - The **February 2025** Offering generated approximately **$29.1 million** in aggregate gross proceeds from the sale of common stock and pre-funded warrants[165](index=165&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk) - As of **June 30, 2025**, the company had **760,866** common stock purchase warrants outstanding, with exercise prices ranging from **$30.60** to **$109.20** per share and a weighted average remaining life of **1.82 years**[171](index=171&type=chunk) [8. Stock-Based Compensation](index=51&type=section&id=8.%20Stock-Based%20Compensation) This note details the company's equity incentive plans, including the 2018 Incentive Plan, and the stock-based compensation expense recognized for options and restricted stock units (RSUs). It also outlines the valuation methodologies and assumptions used - As of **June 30, 2025**, **4,060,000** aggregate shares of common stock were reserved for issuance under equity incentive plans, with **1,822,912** shares available for grant[176](index=176&type=chunk) - Total stock-based compensation expense was **$977 thousand** for the six months ended June 30, 2025, compared to **$804 thousand** in the prior year[183](index=183&type=chunk) Stock-Based Compensation Expense by Category (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 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $173 | $202 | $368 | $409 | | Sales and marketing | $42 | $41 | $80 | $83 | | General and administrative | $289 | $147 | $529 | $314 | | Total | $504 | $386 | $977 | $804 | - The weighted average grant date fair value of RSUs granted during the six months ended June 30, 2025, was **$3.16** per unit[180](index=180&type=chunk) - Unrecognized stock-based compensation expense as of **June 30, 2025**, was **$3.4 million**, to be amortized over a weighted average remaining recognition period of **2.84 years**[183](index=183&type=chunk) [9. Related Party Transactions](index=54&type=section&id=9.%20Related%20Party%20Transactions) This note discloses various financing transactions with related parties, including Broadwood, AWM, and **Bio-Rad**, through common stock and warrant offerings. It also details operational transactions with **Bio-Rad**, highlighting the company's dependence on this strategic partner for development and commercialization of transplant products - Broadwood, AWM, and **Bio-Rad** participated in multiple common stock and pre-funded warrant offerings, including the **April 2024**, **October 2024**, and **February 2025** offerings, contributing significantly to capital raises[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) - During the six months ended June 30, 2025, the company purchased **$1.1 million** in laboratory equipment and incurred **$215 thousand** in laboratory-related costs from **Bio-Rad**[192](index=192&type=chunk) - As of **June 30, 2025**, the company had accounts payable due to **Bio-Rad** of **$757 thousand**[194](index=194&type=chunk) - The company entered into a global strategic partnership with **Bio-Rad** in **April 2024** for the development and commercialization of RUO and IVD kitted transplant products, making the company dependent on **Bio-Rad** for ongoing operations and future performance[195](index=195&type=chunk)[254](index=254&type=chunk) [10. Collaborative Arrangement](index=58&type=section&id=10.%20Collaborative%20Arrangement) This note details the **10-year** Collaboration Agreement with **Bio-Rad** for the development and commercialization of RUO and IVD kitted transplant products. The agreement outlines shared responsibilities for development, marketing, and sales, including royalty payments to **Bio-Rad** and the establishment of pilot study sites - The Collaboration Agreement with **Bio-Rad**, effective **April 5, 2024**, is for a **10-year** term, focusing on developing **GraftAssureIQ™** RUO Assays and **GraftAssureDx™** IVD Kits[196](index=196&type=chunk)[197](index=197&type=chunk) - **iMDx** is responsible for manufacturing and supplying RUO Assays, while **Bio-Rad** supplies ddPCR instruments and reagents. They co-promote in the US and Germany, with **Bio-Rad** having exclusive sales rights outside the Territory[198](index=198&type=chunk) - **Bio-Rad** has a **90-day** exclusive negotiating period post-regulatory clearance for worldwide IVD Kit promotion, marketing, and sales, with an option to purchase additional common stock[199](index=199&type=chunk) - A Memorandum of Understanding in **November 2024** established additional activities for pilot study sites outside the Territory for RUO Assays, with **iMDx** selling and supporting sites and paying royalties to **Bio-Rad**[200](index=200&type=chunk)[201](index=201&type=chunk) [11. Segment Reporting](index=60&type=section&id=11.%20Segment%20Reporting) The company operates as a single reportable segment focused on the research, development, and commercialization of diagnostic tests. This note provides disaggregated revenue and long-lived tangible asset information by geographic area, highlighting the concentration of revenues in the United States - The company operates and reports its results in one reportable segment, which includes the research, development, and commercialization of diagnostic tests[203](index=203&type=chunk) Revenues by Geographic Area (In thousands) | Geographic Area | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $494 | $67 | $2,632 | $89 | | Europe | $24 | — | $24 | — | | United Kingdom | — | — | — | $45 | | Asia-Pacific | — | $37 | — | $146 | | Total net revenues | $518 | $104 | $2,656 | $280 | Long-Lived Tangible Assets by Geographic Area (In thousands) | Geographic Area | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | United States | $4,716 | $5,543 | | Europe | $1,356 | $611 | | United Kingdom | $485 | — | | Asia-Pacific | $116 | $170 | | Total | $6,673 | $6,324 | [12. Subsequent Events](index=63&type=section&id=12.%20Subsequent%20Events) Management has evaluated subsequent events through the financial statement issuance date and determined that no events or transactions require disclosure - No events or transactions requiring disclosure occurred after the reporting period through the date the consolidated financial statements were issued[209](index=209&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=64&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, liquidity, and capital resources, including an overview of the business, recent developments, detailed analysis of operating results, and critical accounting estimates. It highlights significant revenue growth, increased operating expenses, and ongoing capital needs [Overview](index=64&type=section&id=Overview) **Insight Molecular Diagnostics Inc.** (**iMDx**) is a pioneering diagnostics technology company focused on democratizing access to molecular diagnostic testing, primarily through developing test kits for organ transplant and oncology. The company has achieved commercial milestones for its **GraftAssureCore** (Kidney) and **GraftAssureIQ** products and is advancing its oncology pipeline, including **DetermaIO** - **iMDx**'s mission is to democratize access to novel molecular diagnostic testing to improve patient outcomes, focusing on developing molecular diagnostic test kits for customers like hospitals and transplant centers[212](index=212&type=chunk)[213](index=213&type=chunk)[215](index=215&type=chunk) - The company's intellectual property portfolio spans organ transplant, oncology therapy selection, and oncology therapy monitoring, developing both laboratory developed tests (LDTs) and kitted research-use-only (RUO) and clinical tests[218](index=218&type=chunk) - **GraftAssureCore** (Kidney) is commercially available and received a boosted Medicare reimbursement rate of **$2,753** per result in **May 2025**. **GraftAssureIQ** (RUO) began commercialization in **July 2024**, with first kits sold in **May 2025**[219](index=219&type=chunk)[220](index=220&type=chunk) - **DetermaIO**, an oncology test for checkpoint inhibitor response, is in development, with commercialization of the oncology product line expected over the next **9 months**[223](index=223&type=chunk) [Recent Developments](index=66&type=section&id=Recent%20Developments) Recent developments include the successful **February 2025** Offering, which raised approximately **$28.7 million** in net proceeds, and the company's rebranding to **Insight Molecular Diagnostics Inc.** (**IMDX**) along with the relocation of its headquarters to Nashville, Tennessee - The **February 2025** Offering generated approximately **$29.1 million** in gross proceeds and **$28.7 million** in net proceeds from the sale of common stock and pre-funded warrants[227](index=227&type=chunk) - In **June 2025**, the company changed its name from 'Oncocyte Corporation' to '**Insight Molecular Diagnostics Inc.**' and its Nasdaq trading symbol to '**IMDX**'[228](index=228&type=chunk) - The company relocated its headquarters from Irvine, California, to Nashville, Tennessee, in **June 2025**[228](index=228&type=chunk) [Results of Operations](index=68&type=section&id=Results%20of%20Operations) The company experienced significant revenue growth for both the three and six months ended June 30, 2025, primarily from Laboratory Services and Kitted Products. However, this was offset by substantial increases in operating expenses, particularly in research and development, sales and marketing, and a significant loss from the change in fair value of contingent consideration, leading to an increased net loss [Summary Results of Operations](index=68&type=section&id=Summary%20Results%20of%20Operations) A high-level comparison of key financial metrics shows substantial revenue growth but also increased net loss due to rising operating expenses and contingent consideration adjustments Summary Results of Operations (In thousands, except percentage change values) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Net revenue | $518 | $104 | 398% | $2,656 | $280 | 849% | | Loss from operations | $(9,842) | $(4,632) | 112% | $(16,641) | $(13,899) | 20% | | Net loss | $(9,742) | $(4,530) | 115% | $(16,413) | $(13,659) | 20% | [Results of Operations – Three Months Ended June 30, 2025 Compared with the Three Months Ended June 30, 2024](index=68&type=section&id=Results%20of%20Operations%20%E2%80%93%20Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20with%20the%20Three%20Months%20Ended%20June%2030%2C%202024) For the three months ended June 30, 2025, net revenue increased significantly by **$414 thousand**, driven by Laboratory Services and Kitted Products. However, net loss increased by **$5.2 million**, primarily due to a **$3.8 million** change in fair value of contingent consideration (from a gain to a loss) and higher operating expenses, particularly in R&D and S&M - Net revenue increased to **$518 thousand** (**398%** increase) for the three months ended June 30, 2025, primarily from Laboratory Services (**$493 thousand**) and first Kitted Products revenue (**$24 thousand**)[230](index=230&type=chunk)[231](index=231&type=chunk) - Net loss increased by **$5.2 million** to **$9.7 million**, mainly due to a **$3.8 million** negative change in fair value of contingent consideration (from a **$1.0 million** gain in 2024 to a **$2.8 million** loss in 2025) and increased operating expenses[231](index=231&type=chunk)[233](index=233&type=chunk) - Research and development expenses increased by **$828 thousand** (**34%**), driven by higher facilities and insurance costs, and professional fees[231](index=231&type=chunk) - Sales and marketing expenses increased by **$607 thousand** (**71%**), attributable to ramp-up in transplant business activities and oncology commercialization efforts[233](index=233&type=chunk) [Results of Operations – Six Months Ended June 30, 2025 Compared with the Six Months Ended June 30, 2024](index=70&type=section&id=Results%20of%20Operations%20%E2%80%93%20Six%20Months%20Ended%20June%2030%2C%202025%20Compared%20with%20the%20Six%20Months%20Ended%20June%2030%2C%202024) For the six months ended June 30, 2025, total net revenue surged to **$2.7 million**, primarily from Laboratory Services. However, net loss increased by **$2.8 million** to **$16.4 million**, driven by higher operating expenses across R&D, S&M, and G&A, and a larger loss from the change in fair value of contingent consideration - Total net revenue increased to **$2.7 million** (**849%** increase) for the six months ended June 30, 2025, primarily from Laboratory Services (**$2.6 million**) and Kitted Products (**$24 thousand**)[232](index=232&type=chunk)[234](index=234&type=chunk) - Net loss increased by **$2.8 million** to **$16.4 million**, mainly due to increased operating expenses and a **$3.7 million** loss from the change in fair value of contingent consideration[233](index=233&type=chunk)[234](index=234&type=chunk) - Research and development expenses increased by **$1.4 million** (**30%**), driven by facilities and insurance costs, professional fees, and laboratory costs[234](index=234&type=chunk) - Sales and marketing expenses increased by **$967 thousand** (**57%**), due to ramp-up in transplant business activities, marketing, advertising, and travel[234](index=234&type=chunk) - General and administrative expenses increased by **$682 thousand** (**13%**), primarily from personnel-related expenses and stock-based compensation[234](index=234&type=chunk) [Revenues](index=72&type=section&id=Revenues) Revenue growth was primarily driven by Laboratory Services, which saw a substantial increase, and the introduction of Kitted Products revenue in 2025, while Laboratory Developed Test Services revenue declined Revenues by Type (In thousands, except percentage change values) | Revenue Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :-------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Laboratory Services | $494 | $104 | 375% | $2,632 | $258 | 920% | | Laboratory Developed Test Services | — | — | — | — | $22 | (100)% | | Kitted Products | $24 | — | 100% | $24 | — | 100% | | Total | $518 | $104 | 398% | $2,656 | $280 | 849% | - Laboratory Services revenue increased by **$2.374 million** (**920%**) for the six months ended June 30, 2025, primarily from one existing customer[235](index=235&type=chunk) - Kitted Products revenue of **$24 thousand** was recognized for the first time in 2025 from **GraftAssureIQ** RUO kitted tests[235](index=235&type=chunk)[237](index=237&type=chunk) [Cost of Revenues](index=72&type=section&id=Cost%20of%20Revenues) Cost of revenues increased due to higher labor and allocated overhead associated with performing Laboratory Services, reflecting the growth in revenue-generating activities - Cost of revenues increased by **$136 thousand** for the three months and **$833 thousand** for the six months ended June 30, 2025, primarily due to labor and allocated overhead for Laboratory Services[231](index=231&type=chunk)[234](index=234&type=chunk) - Components of cost of revenues include materials, direct labor, equipment and infrastructure expenses, clinical sample costs, and amortization of acquired intangible assets[238](index=238&type=chunk) [Research and Development Expenses](index=73&type=section&id=Research%20and%20Development%20Expenses) Research and development expenses increased significantly, driven by higher facilities and insurance costs, professional fees, and laboratory supplies, as the company continues to develop its **GraftAssure** and **DetermaIO** product lines Research and Development Expenses (In thousands, except percentage change values) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Facilities and insurance | $685 | $194 | 253% | $1,345 | $380 | 254% | | Professional fees, legal, and outside services | $368 | $35 | 951% | $575 | $269 | 114% | | Laboratory supplies and expenses | $557 | $555 | 0% | $1,013 | $802 | 26% | | Total | $3,281 | $2,453 | 34% | $6,205 | $4,765 | 30% | - R&D expenses increased by **$828 thousand** (**34%**) for the three months and **$1.4 million** (**30%**) for the six months ended June 30, 2025, as development continues for **GraftAssureCore**, **GraftAssureIQ**, **GraftAssureDx**, **DetermaIO**, and **DetermaCNI**[239](index=239&type=chunk) - The company expects to continue incurring significant R&D expenses, including for a clinical trial in conjunction with its IVD submission in 2025 for transplant products[240](index=240&type=chunk) [Sales and Marketing Expenses](index=73&type=section&id=Sales%20and%20Marketing%20Expenses) Sales and marketing expenses increased substantially, driven by higher personnel-related costs, depreciation, marketing, and travel, reflecting intensified commercialization efforts for transplant and oncology products Sales and Marketing Expenses (In thousands, except percentage change values) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :-------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Personnel-related expenses | $770 | $600 | 28% | $1,534 | $1,215 | 26% | | Depreciation and amortization | $145 | $1 | 100% | $255 | $1 | 100% | | Marketing and advertising | $159 | $44 | 261% | $224 | $82 | 173% | | Travel and entertainment | $168 | $100 | 68% | $284 | $142 | 100% | | Total | $1,460 | $853 | 71% | $2,666 | $1,699 | 57% | - S&M expenses increased by **$607 thousand** (**71%**) for the three months and **$967 thousand** (**57%**) for the six months ended June 30, 2025, due to ramp-up in sales, marketing, and advertising for the transplant business and oncology commercialization[241](index=241&type=chunk) - Future S&M expenses are expected to increase as product development completes and commercialization efforts for **DetermaIO**, **GraftAssureIQ**, **GraftAssureCore**, **GraftAssureDx**, and **DetermaCNI** intensify, contingent on capital and reimbursement approvals[242](index=242&type=chunk) [General and Administrative Expenses](index=74&type=section&id=General%20and%20Administrative%20Expenses) General and administrative expenses increased, primarily driven by higher personnel-related expenses, board fees, and stock-based compensation, partially offset by decreases in professional fees and facilities costs General and Administrative Expenses (In thousands, except percentage change values) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Personnel-related expenses and board fees | $1,227 | $901 | 36% | $2,468 | $1,917 | 29% | | Stock-based compensation | $289 | $147 | 97% | $529 | $314 | 68% | | Professional fees, legal, and outside services | $657 | $880 | (25)% | $1,702 | $1,738 | (2)% | | Total | $2,647 | $2,407 | 10% | $5,762 | $5,080 | 13% | [Change in Fair Value of Contingent Consideration](index=74&type=section&id=Change%20in%20Fair%20Value%20of%20Contingent%20Consideration) The change in fair value of contingent consideration resulted in a significant loss for both the three and six months ended June 30, 2025, compared to the prior year, reflecting reassessments of key assumptions and future payout estimates related to business acquisitions - The change in fair value of contingent consideration resulted in a loss of **$2.8 million** for the three months ended June 30, 2025 (compared to a **$1.0 million** gain in 2024), and a loss of **$3.7 million** for the six months ended June 30, 2025 (compared to a **$2.3 million** loss in 2024)[229](index=229&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - These changes are based on reassessments of key assumptions and revised estimates on the timing and likelihood of future payouts under the IGI and Chronix merger agreements[244](index=244&type=chunk) [Other Income and Expenses](index=74&type=section&id=Other%20Income%20and%20Expenses) Other income and expenses primarily consist of interest income from money market funds and interest expense from financing lease obligations and insurance financing activity - Total other income, net, decreased by **$2 thousand** for the three months and **$12 thousand** for the six months ended June 30, 2025, primarily due to additional interest expense related to financing leases[229](index=229&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) - Interest income is earned from money market funds, while interest expense arises from financing lease obligations and insurance financing[245](index=245&type=chunk) [Income Taxes](index=74&type=section&id=Income%20Taxes) The company did not record any income tax provision or benefit for the periods presented due to a full valuation allowance against its deferred tax assets, reflecting the uncertainty of realizing future tax benefits from net operating loss carry-forwards - No provision or benefit for income taxes was recorded for the three and six months ended June 30, 2025 and 2024, due to a full valuation allowance[246](index=246&type=chunk)[247](index=247&type=chunk) - A full valuation allowance was established due to the uncertainty of realizing future tax benefits from net operating loss carry-forwards and other deferred tax assets[247](index=247&type=chunk) [Inflation](index=75&type=section&id=Inflation) The company acknowledges potential inflationary pressures on personnel, laboratory supplies, inventory, and vendor costs, which could diminish purchasing power, increase expenses, and impact capital resources, especially if reimbursement rates do not keep pace - The company may experience inflationary pressures on personnel costs, laboratory supplies, raw materials, and essential vendor fees[248](index=248&type=chunk) - Elevated inflation could diminish the purchasing power of cash, increase expenses faster than anticipated, and lead to earlier utilization of capital resources[248](index=248&type=chunk) - Payers may be unwilling or unable to increase reimbursement rates to compensate for inflationary impacts, potentially adversely affecting results of operations, financial condition, and cash flows[248](index=248&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Liquidity%20and%20Capital%20Resources) The company has historically financed operations through equity sales and continues to incur operating losses and negative cash flows, resulting in an accumulated deficit. Despite this, management believes recent financing, including the **February 2025** Offering, provides sufficient cash for the next twelve months. However, ongoing capital raises will be necessary to fund development and commercialization efforts, with risks of dilution and dependence on strategic partnerships like **Bio-Rad** - **iMDx** had an accumulated deficit of **$367.0 million** and **$24.3 million** in cash and cash equivalents as of **June 30, 2025**[250](index=250&type=chunk) - The **February 2025** Offering generated approximately **$28.7 million** in net proceeds, which management believes provides sufficient cash for at least the next twelve months[251](index=251&type=chunk)[250](index=250&type=chunk) - The remaining **$1.7 million** restricted cash balance, related to the Irvine office lease, will be reduced monthly starting **July 2025**[252](index=252&type=chunk) - The company relies on its global strategic partnership with **Bio-Rad** for the development and commercialization of RUO and IVD kitted transplant products[254](index=254&type=chunk) - Future capital raises will be necessary to finance operations, including development and commercialization of diagnostic tests, and to meet contingent payment obligations, with potential risks of shareholder dilution and financing availability[257](index=257&type=chunk)[258](index=258&type=chunk) [Cash Flow from Operating Activities](index=77&type=section&id=Cash%20Flow%20from%20Operating%20Activities) Net cash used in operating activities increased for the six months ended June 30, 2025, primarily due to higher operating expenses and a larger net loss, partially offset by non-cash adjustments like depreciation, stock-based compensation, and the change in fair value of contingent consideration - Net cash used in operating activities was **$12.1 million** for the six months ended June 30, 2025, compared to **$9.8 million** in the prior year[260](index=260&type=chunk)[261](index=261&type=chunk) - Key non-cash items for the six months ended June 30, 2025, included **$1.1 million** in depreciation and amortization, **$977 thousand** in stock-based compensation, and a **$3.7 million** loss from the change in fair value of contingent consideration[260](index=260&type=chunk) [Cash Flow from Investing Activities](index=79&type=section&id=Cash%20Flow%20from%20Investing%20Activities) Net cash used in investing activities increased for the six months ended June 30, 2025, primarily due to increased purchases of machinery, equipment, and construction in progress - Net cash used in investing activities was **$656 thousand** for the six months ended June 30, 2025, up from **$215 thousand** in the prior year[263](index=263&type=chunk) - This increase was driven by cash paid for construction in progress and purchases of machinery and equipment[263](index=263&type=chunk) [Cash Flow from Financing Activities](index=79&type=section&id=Cash%20Flow%20from%20Financing%20Activities) Net cash provided by financing activities significantly increased for the six months ended June 30, 2025, primarily due to substantial net proceeds from the **February 2025** Offering, partially offset by financing lease repayments - Net cash provided by financing activities was **$28.4 million** for the six months ended June 30, 2025, a substantial increase from **$9.8 million** in the prior year[264](index=264&type=chunk)[265](index=265&type=chunk) - The primary driver was **$28.7 million** in net cash proceeds from the **February 2025** Offering, partially offset by **$212 thousand** in repayments of financing lease obligations[264](index=264&type=chunk) [Critical Accounting Estimates](index=79&type=section&id=Critical%20Accounting%20Estimates) This section identifies and explains the critical accounting estimates that involve significant judgment and estimation uncertainty, including going concern assessment, contingent consideration liabilities, intangible assets, impairment of long-lived assets, revenue recognition, stock-based compensation, and income taxes - Critical accounting estimates include Going Concern Assessment, Contingent Consideration Liabilities, Intangible Assets, Impairment of Long-Lived Assets, Revenue Recognition and Allowance for Credit Losses, Stock-Based Compensation, and Income Taxes[268](index=268&type=chunk) [Going Concern Assessment](index=79&type=section&id=Going%20Concern%20Assessment) The company assesses its ability to continue as a going concern for at least one year from the financial statement issuance date, considering various scenarios and potential expenditure curtailments. Management believes it has sufficient cash for the next twelve months - Management evaluates going concern uncertainty by assessing cash, working capital, and ability to operate for at least one year, considering scenarios, forecasts, and potential expenditure curtailments[267](index=267&type=chunk) - Based on this assessment, management believes it will have sufficient cash to meet projected operating requirements for at least the next twelve months[250](index=250&type=chunk)[267](index=267&type=chunk) [Contingent Consideration Liabilities](index=81&type=section&id=Contingent%20Consideration%20Liabilities) Contingent consideration liabilities, arising from business acquisitions, are recorded at fair value using scenario analysis for milestone-based payments and single scenario analysis for royalty/revenue share-based payments. Changes in fair value are recognized in the consolidated statements of operations - Contingent consideration is estimated and recorded at fair value as of the acquisition date, representing obligations for future payments based on milestones or revenue achievements[269](index=269&type=chunk) - Milestone-based contingent consideration is valued using a scenario analysis, while royalty/revenue share-based consideration uses a single scenario analysis, both incorporating significant management judgment and assumptions[270](index=270&type=chunk)[271](index=271&type=chunk) - Changes in the fair value of contingent consideration resulted in losses of **$3.7 million** and **$2.3 million** for the six months ended June 30, 2025 and 2024, respectively[272](index=272&type=chunk) [Intangible Assets](index=81&type=section&id=Intangible%20Assets) In-Process Research and Development (IPR&D) intangible assets are capitalized and tested for impairment annually or when circumstances indicate a reduction in fair value. Significant impairment losses were recorded in 2024 for oncology-related IPR&D - IPR&D projects acquired in business combinations are capitalized as indefinite-lived intangible assets and tested for impairment annually or when indicators exist[273](index=273&type=chunk) - Factors for potential impairment include adverse clinical trial results, delays in regulatory approvals or reimbursement, and competitive advancements[273](index=273&type=chunk) - A total impairment of **$41.9 million** was recorded in 2024 for oncology-related IPR&D (**DetermaIO** and **DetermaCNI**), with no impairments in 2025[274](index=274&type=chunk) [Impairment of Long-Lived Assets](index=81&type=section&id=Impairment%20of%20Long-Lived%20Assets) The company assesses long-lived assets for impairment when events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss of **$169 thousand** was recognized in 2024 for held-for-sale assets - Impairment of long-lived assets (right-of-use assets, machinery, equipment, finite-lived intangibles) is assessed when events indicate carrying value may not be recoverable[275](index=275&type=chunk) - An impairment loss of **$169 thousand** on held-for-sale assets was recognized during the six months ended June 30, 2024, with no such impairments in 2025[275](index=275&type=chunk) [Revenue Recognition and Allowance for Credit Losses](index=83&type=section&id=Revenue%20Recognition%20and%20Allowance%20for%20Credit%20Losses) Revenue from Laboratory Services is recognized upon completion of service, either on a time and materials or per test basis. Kitted Products revenue is recognized from RUO tests. An allowance for credit losses is established based on collectability factors and historical experience - Laboratory Services revenue is recognized upon completion of service, either on a time and materials basis or per test completed, with performance obligations satisfied by delivery of reports or tests[276](index=276&type=chunk) - Kitted Products revenue is recognized from **GraftAssureIQ** RUO kitted tests sold to research laboratory customers[79](index=79&type=chunk) - An allowance for credit losses is established for Laboratory Services accounts receivables, considering factors like past due status, customer's ability to pay, and historical experience[277](index=277&type=chunk) - As of **June 30, 2025**, the allowance for credit losses related to Laboratory Services was **$5 thousand**[277](index=277&type=chunk) [Stock-Based Compensation](index=83&type=section&id=Stock-Based%20Compensation) Stock-based compensation expense is recognized based on estimated fair values of awards, using the Black-Scholes model for time-based options and Monte Carlo simulation for market/performance-based awards. These valuations rely on complex and subjective variables - Compensation expense for share-based payment awards is recognized based on estimated fair values over the requisite service period[278](index=278&type=chunk) - The Black-Scholes model is used for time-based options, while the Monte Carlo simulation model is used for market-based and time-based vesting conditions, incorporating variables like expected volatility and term[278](index=278&type=chunk) - Total stock-based compensation recognized was **$977 thousand** for the six months ended June 30, 2025, and **$804 thousand** for the same period in 2024[278](index=278&type=chunk) [Income Taxes](index=84&type=section&id=Income%20Taxes) Income taxes are accounted for using the asset and liability method, with deferred tax assets reduced by a full valuation allowance due to uncertainty of realization. No income tax provision or benefit was recorded for the periods presented - Income taxes are accounted for using the asset and liability method, with deferred tax asset/liability balances calculated using current tax laws and rates[279](index=279&type=chunk) - A full valuation allowance is established to reduce deferred tax assets when their realization is not more-likely-than-not, leading to no income tax provision or benefit for the periods presented[279](index=279&type=chunk)[280](index=280&type=chunk) - The company is currently unaware of any uncertain tax positions that could result in significant additional payments or accruals[280](index=280&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=84&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, **Insight Molecular Diagnostics Inc.** is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company under SEC rules[281](index=281&type=chunk) [Item 4. Controls and Procedures](index=84&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms management's evaluation of the effectiveness of the company's disclosure controls and procedures and states that there were no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=84&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, reviewed and concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - Management, including the principal executive officer and principal financial officer, determined that the company's disclosure controls and procedures are effective as of **June 30, 2025**[282](index=282&type=chunk) [Changes in Internal Controls](index=84&type=section&id=Changes%20in%20Internal%20Controls) There were no changes in the company's internal control over financial reporting during the quarterly period that materially affected or are reasonably likely to materially affect it - No changes in internal control over financial reporting occurred during the quarterly period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[283](index=283&type=chunk) [PART II - OTHER INFORMATION](index=85&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=85&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any material pending litigation, though it is disputing a claim regarding a milestone payment obligation related to its **DetermaIO** assay - The company is not presently involved in any material pending litigation or proceedings[285](index=285&type=chunk) - A letter was received on **March 3, 2025**, claiming a milestone payment obligation for the **DetermaIO** immuno-oncology assay, which the company strongly disputes[143](index=143&type=chunk) [Item 1A. Risk Factors](index=85&type=section&id=Item%201A.%20Risk%20Factors) This section highlights key risks, including the need for FDA and other regulatory approvals for IVDs, the potential reclassification of LDTs as IVDs, and the critical dependence on Medicare reimbursement for products like **GraftAssureCore** (Kidney), with a new draft LCD proposing caps on surveillance tests - The company will need to obtain FDA and other regulatory approvals for any IVDs developed, or if currently marketed products are reclassified as IVDs, which could lead to withdrawal from the market[287](index=287&type=chunk) - Commercialization is dependent on increasing Medicare reimbursement for tests, and any loss or significant reduction in reimbursement would materially impact the business[290](index=290&type=chunk) - A new '**MolDX**: Molecular Testing for Solid Organ Allograft Rejection' draft LCD (L38671) published on **July 17, 2025**, proposes capping surveillance tests for kidney, heart, and lung, which could impact future reimbursement[295](index=295&type=chunk) - Any decision by CMS or its local contractors to reduce or deny coverage for tests would significantly adversely affect revenue, results of operations, and ability to raise capital[298](index=298&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued unregistered common stock to consulting firms, PCG Advisory, Inc. and LifeSci Advisors, LLC, in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act - On **April 24, 2025**, **10,620** shares of common stock were issued to PCG Advisory, Inc[299](index=299&type=chunk) - On **April 24**, **May 27**, **June 24**, and **July 24, 2025**, a total of **9,844** shares were granted to LifeSci Advisors, LLC[299](index=299&type=chunk) - These shares were issued without registration under the Securities Act in reliance on the exemption from registration under Section **4(a)(2)**[299](index=299&type=chunk) [Item 3. Defaults Upon Senior Securities](index=89&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities[301](index=301&type=chunk) [Item 4. Mine Safety Disclosures](index=89&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[302](index=302&type=chunk) [Item 5. Other Information](index=89&type=section&id=Item%205.%20Other%20Information) The company reported no other information requiring disclosure under this item - No other information is reported under this item[303](index=303&type=chunk) [Item 6. Exhibits](index=90&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, warrant forms, securities purchase agreements, and certifications - Key exhibits include the Certificate of Ownership and Third Amended and Restated Bylaws (filed **June 17, 2025**), Form of Pre-Funded Warrant (filed **February 10, 2025**), and Securities Purchase Agreements (dated **February 7, 2025**)[304](index=304&type=chunk) - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Rule **13a-14** and **18 U.S.C. Section 1350** are filed herewith[304](index=304&type=chunk)[305](index=305&type=chunk) [SIGNATURES](index=91&type=section&id=SIGNATURES) [Report Signatures](index=91&type=section&id=Report%20Signatures) The report is duly signed on behalf of **Insight Molecular Diagnostics Inc.** by its President and Chief Executive Officer, Joshua Riggs, and Chief Financial Officer, Andrea James, on **August 11, 2025** - The report was signed by Joshua Riggs, President and Chief Executive Officer (Principal Executive Officer), and Andrea James, Chief Financial Officer (Principal Financial Officer), on **August 11, 2025**[309](index=309&type=chunk)