Second Quarter 2025 Results Overview MeridianLink reported strong Q2 2025 financial results and announced its acquisition by Centerbridge Partners for $2.0 billion, leading to the cancellation of its earnings call and suspension of guidance [Financial Highlights](index=1&type=section&id=Quarterly%20Financial%20Highlights) MeridianLink reported strong Q2 2025 financial results with 8% revenue growth to $84.6 million, adjusted EBITDA of $38.4 million (45% margin), and free cash flow of $17.1 million Q2 2025 Key Financial Metrics | Metric | Q2 2025 Value | YoY Growth / Margin | | :--- | :--- | :--- | | **Total Revenue** | $84.6 million | 8% | | **Lending Software Solutions Revenue** | $68.7 million | 12% | | **Operating Income** | $5.2 million | 6% of revenue | | **Non-GAAP Operating Income** | $23.0 million | 27% of revenue | | **Net Loss** | $(3.0) million | (4)% of revenue | | **Adjusted EBITDA** | $38.4 million | 45% of revenue | | **Cash Flow from Operations** | $19.2 million | 23% of revenue | | **Free Cash Flow** | $17.1 million | 20% of revenue | [Acquisition Announcement](index=1&type=section&id=Acquisition%20Announcement) MeridianLink announced it has entered into a definitive agreement to be acquired by Centerbridge Partners, L.P. in an all-cash transaction, valuing the company at approximately $2.0 billion, or $20.00 per share - MeridianLink to be acquired by global investment firm Centerbridge Partners, L.P.[3](index=3&type=chunk) Transaction Details | Metric | Value | | :--- | :--- | | **Transaction Type** | All-cash | | **Enterprise Value** | Approx. $2.0 billion | | **Price Per Share** | $20.00 | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management highlighted strong execution and the Centerbridge acquisition's potential to maximize shareholder value and accelerate strategic initiatives, including AI and data innovation - Outgoing CEO Nicolaas Vlok noted strong execution in an uncertain environment and expressed confidence in the management team under incoming CEO Larry Katz, who is set to take over in October[4](index=4&type=chunk) - CEO designate Larry Katz stated the transaction with Centerbridge will advance the company's strategy by accelerating product innovation, leveraging AI and data, and enhancing customer experiences[4](index=4&type=chunk) [Investor Communications Update](index=1&type=section&id=Cancellation%20of%20Earnings%20Conference%20Call%20and%20Suspension%20of%20Guidance) Due to the pending acquisition, MeridianLink canceled its Q2 earnings conference call and suspended its full-year 2025 financial guidance - The earnings conference call scheduled for August 11, 2025, has been canceled[6](index=6&type=chunk) - Financial guidance for the full year 2025 has been suspended pending the completion of the acquisition[6](index=6&type=chunk) Financial Statements This section details MeridianLink's Q2 2025 financial statements, covering balance sheets, statements of operations, revenue analysis, and cash flow [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets decreased to $936.9 million, total liabilities increased to $544.3 million, and stockholders' equity decreased to $392.6 million Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$936,933** | **$961,333** | | Cash | $91,088 | $92,765 | | Intangible assets, net | $177,067 | $201,522 | | Goodwill | $610,063 | $610,063 | | **Total Liabilities** | **$544,292** | **$533,840** | | Long-term debt, net | $463,125 | $464,922 | | **Total Stockholders' Equity** | **$392,641** | **$427,493** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 saw improved profitability, with operating income of $5.2 million (vs. loss of $1.1 million in Q2 2024) and net loss narrowing to $3.0 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | **Revenues, net** | **$84,597** | **$78,676** | | Gross profit | $57,072 | $50,500 | | **Operating income (loss)** | **$5,206** | **$(1,097)** | | **Net loss** | **$(3,013)** | **$(9,670)** | | Net loss per share, basic & diluted | $(0.04) | $(0.13) | [Revenue Analysis](index=7&type=section&id=Revenue%20Analysis) Q2 2025 revenue growth was driven by a 12% increase in Lending software solutions to $68.7 million, with subscription fees as the primary source and mortgage market exposure at 18% [Net Revenues by Major Source](index=7&type=section&id=Net%20Revenues%20by%20Major%20Source) Subscription fees remained the largest revenue source, growing to $71.1 million in Q2 2025 Q2 Net Revenues by Source (in thousands) | Source | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Subscription fees | $71,147 | $65,946 | | Professional services | $9,499 | $9,559 | | Other | $3,951 | $3,171 | | **Total** | **$84,597** | **$78,676** | [Net Revenues by Solution Type](index=7&type=section&id=Net%20Revenues%20by%20Solution%20Type) Lending software solutions drove Q2 2025 revenue growth, contributing 9% to total growth, while data verification solutions declined Q2 Net Revenues by Solution (in thousands) | Solution Type | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Lending software solutions | $68,737 | $61,644 | | Data verification software solutions | $15,860 | $17,032 | | **Total** | **$84,597** | **$78,676** | - For Q2 2025, Lending software solutions contributed **9%** to total growth, while Data verification software solutions had a negative impact of **(1)%**, resulting in a total growth of **8%**[25](index=25&type=chunk) [Percent Revenue Related to the Mortgage Loan Market](index=7&type=section&id=Percent%20Revenue%20Related%20to%20the%20Mortgage%20Loan%20Market) Revenue exposure to the mortgage loan market decreased to 18% in Q2 2025 from 20% in the prior year - The total percentage of revenue related to the mortgage loan market was **18%** in Q2 2025, down from **20%** in Q2 2024[27](index=27&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities increased to $61.5 million for H1 2025, while financing activities used $59.4 million, primarily for common stock repurchases Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$61,547** | **$43,394** | | Net cash used in investing activities | $(3,818) | $(3,836) | | **Net cash used in financing activities** | **$(59,406)** | **$(26,990)** | | Net (decrease) increase in cash | $(1,677) | $12,568 | | Cash and cash equivalents, end of period | $91,088 | $93,009 | - The primary use of cash in financing activities for the first six months of 2025 was **$52.8 million** for repurchases of common stock[29](index=29&type=chunk) Reconciliation from GAAP to Non-GAAP Results This section reconciles MeridianLink's GAAP financial results to non-GAAP measures, including operating income, net income, adjusted EBITDA, expenses, and free cash flow [Reconciliation of Operating Income, Net Income, and Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Operating%20Income%2C%20Net%20Income%2C%20and%20Adjusted%20EBITDA) Q2 2025 non-GAAP results significantly exceeded GAAP, with non-GAAP operating income of $23.0 million (27% margin) and adjusted EBITDA of $38.4 million (45% margin) Q2 2025 GAAP vs. Non-GAAP Profitability (in thousands) | Metric | GAAP | Non-GAAP / Adjusted | | :--- | :--- | :--- | | **Operating Income** | $5,206 | $22,966 | | Operating Margin | 6% | 27% | | **Net Income (Loss)** | $(3,013) | $10,296 | | Net Margin | (4)% | 12% | | **Adjusted EBITDA** | N/A | $38,435 | | Adjusted EBITDA Margin | N/A | 45% | - The largest adjustments reconciling GAAP net loss to Adjusted EBITDA for Q2 2025 were share-based compensation expense (**$17.1 million**) and depreciation and amortization (**$14.2 million**)[31](index=31&type=chunk) [Reconciliation of Cost of Revenue and Operating Expenses](index=10&type=section&id=Reconciliation%20of%20Cost%20of%20Revenue%20and%20Operating%20Expenses) Non-GAAP cost of revenue improved to 25% of total revenue in Q2 2025, with operating expenses well-managed across categories after key adjustments Q2 2025 GAAP vs. Non-GAAP Expenses as a % of Revenue | Expense Category | GAAP % of Revenue | Non-GAAP % of Revenue | | :--- | :--- | :--- | | Cost of revenue | 33% | 25% | | General and administrative | 34% | 11% | | Research and development | 13% | 9% | | Sales and marketing | 14% | 11% | [Reconciliation of Free Cash Flow](index=10&type=section&id=Reconciliation%20of%20Free%20Cash%20Flow) Q2 2025 free cash flow increased to $17.1 million, representing 20% of revenue, up from $12.4 million (16% of revenue) in Q2 2024 Free Cash Flow Reconciliation - Q2 (in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $19,197 | $14,356 | | Less: Capitalized software | (1,948) | (1,847) | | Less: Capital expenditures | (154) | (60) | | **Free cash flow** | **$17,095** | **$12,449** | | Free cash flow as a % of revenue | 20% | 16% | Supplementary Information This section provides definitions for key operational measures and details the company's non-GAAP financial metrics and their reconciliation [Operational Measures Definitions](index=2&type=section&id=Operational%20Measures%20Definitions) This section defines key operational measures used to assess business performance, including Bookings, Annual Contracted Value (ACV), and ACV release - **Bookings:** Defined as the minimum annual contracted value (ACV) of newly sold SaaS products and professional services[11](index=11&type=chunk) - **ACV (Annual Contracted Value):** Represents the minimum annualized SaaS revenue commitment from fully activated contracts at the end of a period[12](index=12&type=chunk) [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) MeridianLink uses non-GAAP measures like adjusted EBITDA and free cash flow to supplement GAAP, excluding items such as share-based compensation and amortization, applying a 24% tax rate - The company uses non-GAAP measures such as adjusted EBITDA, non-GAAP operating income, non-GAAP net income, and free cash flow to supplement GAAP reporting[13](index=13&type=chunk) - Key adjustments to derive non-GAAP figures include excluding share-based compensation, amortization of intangible assets, acquisition-related costs, and restructuring charges[15](index=15&type=chunk) - A structural long-term projected non-GAAP income tax rate of **24%** is applied for greater consistency across reporting periods[14](index=14&type=chunk)

[Part I. FINANCIAL INFORMATION](index=5&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Unaudited Condensed Consolidated Financial Statements](index=5&type=section&id=Item%201.%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The company reported a net loss of **$4.8 million** for the first half of 2025, with **$980,000** in cash and a **$164.9 million** accumulated deficit, raising substantial doubt about its going concern ability [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$2.1 million** by June 30, 2025, from **$3.7 million** at year-end 2024, while total liabilities increased to **$4.0 million**, resulting in a **$1.9 million** stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $980 | $2,371 | | Total current assets | $1,199 | $2,622 | | Total assets | $2,089 | $3,724 | | **Liabilities & Equity** | | | | Total current liabilities | $3,642 | $2,321 | | Total liabilities | $3,975 | $2,887 | | Total stockholders' equity (deficit) | $(1,886) | $837 | | Total liabilities and stockholders' equity (deficit) | $2,089 | $3,724 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net losses increased to **$2.0 million** for Q2 2025 and **$4.8 million** for the first half of 2025, primarily due to higher research and development expenses and zero collaboration revenue Statement of Operations Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Collaboration agreement revenue | $0 | $3 | $0 | $58 | | Research and development | $1,368 | $800 | $2,898 | $2,041 | | Selling, general and administrative | $683 | $852 | $1,879 | $1,941 | | Operating loss | $(2,051) | $(1,649) | $(4,777) | $(3,924) | | Net loss | $(2,049) | $(1,646) | $(4,761) | $(3,913) | | Net loss per share, basic and diluted | $(0.40) | $(0.88) | $(0.98) | $(2.20) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased to **$3.3 million** for the first half of 2025, while financing activities provided **$1.9 million**, resulting in a **$1.4 million** decrease in cash, ending at **$980,000** Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,267) | $(2,842) | | Net cash used in investing activities | $(1) | $(3) | | Net cash provided by financing activities | $1,877 | $3,163 | | **Net change in cash and cash equivalents** | **$(1,391)** | **$318** | | Cash and cash equivalents at end of period | $980 | $1,421 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes reveal substantial doubt about the company's going concern ability, with **$980,000** cash insufficient beyond October 2025, necessitating ongoing capital raises through private placements and ATM offerings - The company is a clinical-stage entity focused on cellular therapeutics for cardiovascular and pulmonary diseases, with its CardiAMP® and allogeneic MSC platforms in clinical trials[23](index=23&type=chunk) - Management states that cash and cash equivalents of **$980,000** as of June 30, 2025, are insufficient to fund planned expenditures beyond October 2025, raising substantial doubt about the company's ability to continue as a going concern[29](index=29&type=chunk) - In the first half of 2025, the company raised gross proceeds of **$775,000** in April and **$570,000** in June through private placements of common stock and warrants[51](index=51&type=chunk)[53](index=53&type=chunk) - Subsequent to the quarter end, between July 1 and August 8, 2025, the company sold 296,422 shares of common stock under its ATM offering for gross proceeds of **$769,000**[65](index=65&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses advancing clinical-stage cell therapy programs, noting increased R&D expenses and a higher net loss for H1 2025, with critically low liquidity and substantial doubt about going concern without further capital - The company is advancing its CardiAMP® autologous cell therapy platform in pivotal trials for ischemic heart failure (HFrEF) and chronic myocardial ischemia (CMI), and its allogeneic MSC therapy for HFrEF[68](index=68&type=chunk) - The company submitted two-year data from its CardiAMP HF trial to Japan's PMDA and plans to meet with the FDA to discuss the potential for approval based on existing data[74](index=74&type=chunk)[75](index=75&type=chunk) - The company's cash and cash equivalents of **$980,000** as of June 30, 2025, are not sufficient to fund operations beyond October 2025, raising substantial doubt about its ability to continue as a going concern[111](index=111&type=chunk)[115](index=115&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Collaboration revenue dropped to zero, while research and development expenses increased by approximately **$900,000** to **$2.9 million**, widening the operating loss to **$4.8 million** for the first half of 2025 Comparison of Operations for Six Months Ended June 30 (in thousands) | Item | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Collaboration agreement revenue | $0 | $58 | $(58) | | Research and development | $2,898 | $2,041 | $857 | | Selling, general and administrative | $1,879 | $1,941 | $(62) | | **Operating loss** | **$(4,777)** | **$(3,924)** | **$(853)** | [Liquidity and Capital Resources](index=23&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is severely constrained with **$980,000** cash and a **$164.9 million** accumulated deficit, as **$3.3 million** was used in operations while **$1.9 million** was raised through financing activities - As of June 30, 2025, the company had cash and cash equivalents of **$980,000** and an accumulated deficit of approximately **$164.9 million**[100](index=100&type=chunk) - Net cash used in operating activities increased to **$3.3 million** in the first six months of 2025, up from **$2.8 million** in the same period of 2024, due to increased trial activities[101](index=101&type=chunk) - Net cash from financing activities was **$1.9 million** in the first six months of 2025, sourced from the sale of common stock and warrants[102](index=102&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes in market risks, with primary exposure limited to short-term cash and cash equivalents, and insignificant foreign currency risk - The company's market risk is limited to its cash and cash equivalents, which have maturities of less than three months[121](index=121&type=chunk) - A hypothetical 100 basis point change in interest rates is expected to have an immaterial impact on financial results[122](index=122&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[124](index=124&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[125](index=125&type=chunk) [Part II. OTHER INFORMATION](index=30&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any pending legal proceedings expected to have a material adverse effect on its business or financial position - Management does not believe the Company is party to any current pending legal proceedings[127](index=127&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) A significant risk is non-compliance with Nasdaq's **$2.5 million** minimum stockholders' equity requirement, with an extension until September 29, 2025, to regain compliance and avoid delisting - The company is not in compliance with the Nasdaq's minimum stockholders' equity requirement of **$2.5 million** for continued listing[129](index=129&type=chunk) - Nasdaq has granted the company an extension until September 29, 2025, to regain compliance[129](index=129&type=chunk) - Failure to regain compliance will subject the company's common stock to delisting, which could materially affect operations and financial results[129](index=129&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the reporting period - None[130](index=130&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate documents, securities agreements, officer certifications, and XBRL data

[Recent Business Highlights](index=1&type=section&id=Recent%20Business%20Highlights) BioCardia reported significant Q2 2025 progress across its therapeutic pipeline, advancing CardiAMP HF, CardiAMP CMI, and CardiALLO programs [CardiAMP Autologous Cell Therapy in Ischemic Heart Failure (BCDA-01)](index=1&type=section&id=CardiAMP%20Autologous%20Cell%20Therapy%20in%20Ischemic%20Heart%20Failure%20%28BCDA-01%29) Two-year Phase 3 CardiAMP HF trial results showed positive trends, leading to regulatory discussions in Japan and the U.S - Two-year Phase 3 CardiAMP HF Trial results indicated a lower incidence of all-cause death and non-fatal MACCE in the treatment group over 24 months (p=0.17)[2](index=2&type=chunk) - The composite endpoint, including quality of life, was **statistically significant (p=0.02)** in the elevated NTproBNP patient subgroup[2](index=2&type=chunk) - Trial data submitted to Japan's PMDA, with Q4 2025 meetings planned for market entry discussions and similar FDA meetings regarding approvability[2](index=2&type=chunk) - The confirmatory CardiAMP HF II Phase 3 trial is actively enrolling U.S. patients, with **$17,500 Medicare reimbursement** per patient offsetting study costs[2](index=2&type=chunk) [CardiAMP Autologous Cell Therapy in Chronic Myocardial Ischemia (BCDA-02)](index=2&type=section&id=CardiAMP%20Autologous%20Cell%20Therapy%20in%20Chronic%20Myocardial%20Ischemia%20%28BCDA-02%29) The BCDA-02 roll-in cohort for chronic myocardial ischemia showed significant improvements in exercise tolerance and angina episodes - Patients in the roll-in cohort showed an average **107-second increase** in exercise tolerance at six months[3](index=3&type=chunk) - Patients experienced an average **82% reduction** in angina episodes compared to baseline[3](index=3&type=chunk) [CardiALLO Allogeneic Cell Therapy in Ischemic Heart Failure (BCDA-03)](index=2&type=section&id=CardiALLO%20Allogeneic%20Cell%20Therapy%20in%20Ischemic%20Heart%20Failure%20%28BCDA-03%29) The CardiALLO (BCDA-03) Phase 1/2 low-dose cohort completed safely, with no adverse events, and the study was recommended to proceed - The low-dose cohort (**20 million cells**) of the Phase 1/2 trial completed with no treatment-emergent adverse events, arrhythmias, rejection, or allergic responses[4](index=4&type=chunk) - The Data Safety Monitoring Board reviewed 30-day safety data and recommended the study proceed as designed in April 2025[4](index=4&type=chunk) [Helix Biotherapeutic Delivery and Intellectual Property](index=2&type=section&id=Helix%20Biotherapeutic%20Delivery%20and%20Intellectual%20Property) BioCardia plans a Q3 2025 DeNovo 510(k) submission for its Helix delivery system and secured a new patent for its catheter technology - The company intends to submit the Helix transendocardial system for DeNovo 510(k) approval in **Q3 2025**[5](index=5&type=chunk) - U.S. Patent No. **12,311,127** was granted, protecting the company's core delivery technology for radial and trans-endocardial catheters[6](index=6&type=chunk) [Second Quarter 2025 Financial Results](index=3&type=section&id=Second%20Quarter%202025%20Financial%20Results) BioCardia reported a net loss of **$2.05 million** in Q2 2025, an increase from **$1.65 million** in Q2 2024, driven by higher R&D expenses Q2 2025 vs Q2 2024 Financial Highlights (in thousands) | Financial Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | Change ($ thousands) | Reason for Change | | :--- | :--- | :--- | :--- | :--- | | Research & Development | $1,400 | $800 | +$600 | CardiAMP HF Trial closeout and CardiAMP HF II enrollment start | | Selling, General & Admin | $700 | $900 | -$200 | Lower professional fees and share-based compensation | | Net Loss | $2,000 | $1,600 | +$400 | Increased R&D expenses | | Net Cash Used in Ops | $1,600 | $1,300 | +$300 | Increased trial activities | - Cash balance was approximately **$980,000** as of June 30, 2025[7](index=7&type=chunk) - Post-quarter end, the company raised **$769,000** in gross proceeds from its ATM program, increasing the cash balance to approximately **$1.1 million**, providing a runway into October 2025[7](index=7&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss of **$2.05 million** for Q2 2025 and **$4.76 million** for the six months ended June 30, 2025 Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | :--- | :--- | | | **2025** | **2024** | **2025** | **2024** | | **Revenue** | $— | $3 | $— | $58 | | **Costs and expenses:** | | | | | | Research and development | 1,368 | 800 | 2,898 | 2,041 | | Selling, general and administrative | 683 | 852 | 1,879 | 1,941 | | **Total costs and expenses** | **2,051** | **1,652** | **4,777** | **3,982** | | **Operating loss** | **(2,051)** | **(1,649)** | **(4,777)** | **(3,924)** | | **Net loss** | **$(2,049)** | **$(1,646)** | **$(4,761)** | **$(3,913)** | | **Net loss per share, basic and diluted** | **$(0.40)** | **$(0.88)** | **$(0.98)** | **$(2.20)** | | Weighted-average shares | 5,059,736 | 1,877,069 | 4,848,922 | 1,776,305 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, BioCardia reported total assets of **$2.09 million**, total liabilities of **$3.98 million**, and a stockholders' deficit Condensed Consolidated Balance Sheet Data (in thousands) | | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $980 | $2,371 | | Total assets | $2,089 | $3,724 | | **Liabilities and Stockholders' Equity (Deficit)** | | | | Current liabilities | $3,642 | $2,321 | | Total stockholders' equity (deficit) | $(1,886) | $837 | | Total liabilities and stockholders' equity (deficit) | $2,089 | $3,724 | [Anticipated Upcoming Milestones and Events](index=4&type=section&id=Anticipated%20Upcoming%20Milestones%20and%20Events) BioCardia has outlined key upcoming milestones, including Helix FDA submission, CardiAMP HF regulatory meetings, and CardiALLO funding Upcoming Milestones | Program | Milestone | Anticipated Timing | | :--- | :--- | :--- | | Helix Delivery System | FDA Submission for Approval | Q3 2025 | | BCDA-01 (CardiAMP HF) | Manuscript Publication | Q4 2025 | | BCDA-01 (CardiAMP HF) | Japan PMDA Clinical Review | Q4 2025 | | BCDA-01 (CardiAMP HF) | FDA Meetings on Approvability | Q4 2025 | | BCDA-01 (CardiAMP HF) | CardiAMP HF II Enrollment | Ongoing | | BCDA-02 (CardiAMP CMI) | Top-line Data from Roll-in Cohort | Q4 2025 | | BCDA-03 (CardiALLO HF) | Nondilutive Funding | Q1 2026 |

[Company Announcement & Executive Summary](index=1&type=section&id=1.%20Company%20Announcement%20%26%20Executive%20Summary) This section provides an overview of Ceva, Inc.'s Q2 2025 financial performance, key operational achievements, and strategic highlights, including revenue figures, net loss, and significant business milestones [Announcement and Business Overview](index=1&type=section&id=1.1%20Announcement%20and%20Business%20Overview) Ceva, Inc. announced its second quarter financial results for the period ended June 30, 2025, highlighting its role as a leading silicon and software IP licensor enabling reliable, efficient smart edge devices - Ceva, Inc. (NASDAQ: CEVA) announced its second quarter financial results for the period ended June 30, 2025[1](index=1&type=chunk)[2](index=2&type=chunk) - The company is a leading silicon and software IP licensor, enabling smart edge devices to reliably, efficiently connect, sense, and infer data[2](index=2&type=chunk) [Second Quarter 2025 Financial Highlights](index=1&type=section&id=1.2%20Second%20Quarter%202025%20Financial%20Highlights) Ceva's Q2 2025 total revenue was $25.7 million, down 9.7% year-over-year but up 6% sequentially, with GAAP net loss widening to $3.7 million and non-GAAP net income decreasing by 57.1% | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | YoY Change | QoQ Change | | :------------------- | :------------------- | :------------------- | :--------- | :--------- | | **Total Revenue** | 25.7 | 28.4 | -9.7% | +6% | | Licensing and Related Revenue | 15.0 | 17.3 | -13.3% | - | | Royalty Revenue | 10.7 | 11.2 | -4.5% | Sequentially Increased | | **GAAP Net Loss** | (3.7) | (0.3) | Widened | - | | **GAAP Diluted Loss Per Share** | (0.15) | (0.01) | Widened | - | | **Non-GAAP Net Income** | 1.8 | 4.2 | -57.1% | - | | **Non-GAAP Diluted Earnings Per Share** | 0.07 | 0.17 | -58.8% | - | [Operational and Strategic Achievements](index=1&type=section&id=1.3%20Operational%20and%20Strategic%20Achievements) Ceva's AI business expanded with four new NPU agreements and 13 IP licensing deals, reaching 20 billion Ceva-powered device shipments and repurchasing 300,000 shares - AI business continued to expand, signing **four new NPU agreements** this quarter, marking a critical moment for customer adoption[4](index=4&type=chunk)[6](index=6&type=chunk) - A total of **13 IP licensing agreements** were concluded this quarter, covering a wide range of markets and applications including edge AI NPU, V2X communication, 4D radar, Bluetooth, and spatial audio[4](index=4&type=chunk) - **Five agreements** were signed with first-time customers, and **four** with OEM customers[4](index=4&type=chunk) - Ceva-powered device shipments surpassed the **20 billion unit milestone**, with **488 million units** shipped this quarter, including record cellular IoT and Wi-Fi 6 shipments[4](index=4&type=chunk)[6](index=6&type=chunk) - **300,000 shares** of Ceva stock were repurchased this quarter, valued at approximately **$6.2 million**[6](index=6&type=chunk)[8](index=8&type=chunk) [GAAP Financial Results](index=1&type=section&id=2.%20GAAP%20Financial%20Results) This section presents Ceva's GAAP financial performance, including interim condensed consolidated statements of loss and key GAAP metrics for Q2 and H1 2025, detailing revenue, gross profit, and net loss [Interim Condensed Consolidated Statements of Loss](index=5&type=section&id=2.1%20Interim%20Condensed%20Consolidated%20Statements%20of%20Loss) In Q2 2025, Ceva's total revenue was $25.7 million, a decrease year-over-year, resulting in a GAAP gross profit of $22.1 million, an operating loss of $4.5 million, a net loss of $3.7 million, and a diluted loss per share of $0.15 Ceva, Inc. Interim Condensed Consolidated Statements of Loss (GAAP) | Metric (Thousands USD) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--------------------------------- | :------- | :------- | :------- | :------- | | **Revenue:** | | | | | | Licensing and Related Revenue | 15,022 | 17,278 | 30,064 | 28,692 | | Royalty | 10,656 | 11,159 | 19,859 | 21,817 | | **Total Revenue** | **25,678** | **28,437** | **49,923** | **50,509** | | Cost of Revenue | 3,549 | 2,933 | 7,036 | 5,436 | | **Gross Profit** | **22,129** | **25,504** | **42,887** | **45,073** | | **Operating Expenses:** | | | | | | Research and Development, net | 18,758 | 18,758 | 36,367 | 36,749 | | Selling and Marketing | 3,322 | 3,095 | 6,771 | 5,911 | | General and Administrative | 4,381 | 3,537 | 8,314 | 7,109 | | Amortization of Intangible Assets | 150 | 149 | 299 | 299 | | **Total Operating Expenses** | **26,611** | **25,539** | **51,751** | **50,068** | | **Operating Loss** | **(4,482)** | **(35)** | **(8,864)** | **(4,995)** | | Net Financial Income | 2,121 | 1,406 | 4,221 | 2,663 | | Revaluation of Tradable Equity Securities | (208) | (58) | (262) | (118) | | **Loss (Income) Before Taxes** | **(2,569)** | **1,313** | **(4,905)** | **(2,450)** | | Income Tax Expense | 1,135 | 1,604 | 2,126 | 3,289 | | **Net Loss** | **(3,704)** | **(291)** | **(7,031)** | **(5,739)** | | **Basic and Diluted Net Loss Per Share** | **(0.15)** | **(0.01)** | **(0.30)** | **(0.24)** | | **Weighted Average Shares (Thousands):** | | | | | | Basic and Diluted | 23,898 | 23,628 | 23,832 | 23,568 | [Key GAAP Financial Metrics](index=1&type=section&id=2.2%20Key%20GAAP%20Financial%20Metrics) In Q2 2025, Ceva's total revenue decreased to $25.7 million from $28.4 million in Q2 2024, with both licensing and royalty revenues declining, GAAP gross margin falling to 86%, and GAAP operating and net losses significantly widening 2025年第二季度关键GAAP财务指标 (同比) | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | YoY Change | | :------------------- | :------------------- | :------------------- | :--------- | | **Total Revenue** | 25.7 | 28.4 | -9.7% | | Licensing and Related Revenue | 15.0 | 17.3 | -13.3% | | Royalty Revenue | 10.7 | 11.2 | -4.5% | | **GAAP Gross Margin** | 86% | 90% | -4% | | **GAAP Operating Loss** | (4.5) | (0.04) | Loss Widened | | **GAAP Net Loss** | (3.7) | (0.3) | Loss Widened | | **GAAP Diluted Loss Per Share** | (0.15) | (0.01) | Loss Widened | [Non-GAAP Financial Results](index=2&type=section&id=3.%20Non-GAAP%20Financial%20Results) This section outlines Ceva's non-GAAP financial performance, presenting key non-GAAP metrics for Q2 2025 and detailed reconciliations from GAAP measures, highlighting adjustments for stock-based compensation and other non-cash items [Key Non-GAAP Financial Metrics](index=2&type=section&id=3.1%20Key%20Non-GAAP%20Financial%20Metrics) In Q2 2025, Ceva's non-GAAP gross margin was 87%, non-GAAP operating income was $0.8 million, non-GAAP net income was $1.8 million, and non-GAAP diluted EPS was $0.07, all showing a decline year-over-year 2025年第二季度关键非GAAP财务指标 (同比) | Metric | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | YoY Change | | :------------------- | :------------------- | :------------------- | :--------- | | **Non-GAAP Gross Margin** | 87% | 91% | -4% | | **Non-GAAP Operating Income** | 0.8 | 4.4 | -81.8% | | **Non-GAAP Net Income** | 1.8 | 4.2 | -57.1% | | **Non-GAAP Diluted Earnings Per Share** | 0.07 | 0.17 | -58.8% | [Reconciliation of GAAP to Non-GAAP Measures](index=6&type=section&id=3.2%20Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) Ceva's non-GAAP metrics exclude stock-based compensation, acquisition-related intangible asset amortization, asset acquisition costs, and tradable equity securities revaluation losses to provide a clearer view of operating performance, significantly impacting net income, operating income, and gross profit Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Thousands USD) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------- | :------- | :------- | :------- | :------- | | **GAAP Net Loss** | **(3,704)** | **(291)** | **(7,031)** | **(5,739)** | | Stock-based compensation expense (cost of revenue) | 166 | 191 | 325 | 394 | | Stock-based compensation expense (R&D) | 2,673 | 2,438 | 5,139 | 4,445 | | Stock-based compensation expense (selling and marketing) | 598 | 451 | 1,164 | 816 | | Stock-based compensation expense (general and administrative) | 1,465 | 820 | 2,597 | 1,816 | | Amortization of acquired intangible assets | 209 | 278 | 417 | 556 | | Asset acquisition related costs | 144 | 252 | 288 | 532 | | Revaluation loss of tradable equity securities | 208 | 58 | 262 | 118 | | **Non-GAAP Net Income** | **1,759** | **4,197** | **3,161** | **2,938** | Reconciliation of GAAP Operating Loss to Non-GAAP Operating Income (Thousands USD) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------- | :------- | :------- | :------- | :------- | | **GAAP Operating Loss** | **(4,482)** | **(35)** | **(8,864)** | **(4,995)** | | Stock-based compensation expense (cost of revenue) | 166 | 191 | 325 | 394 | | Stock-based compensation expense (R&D) | 2,673 | 2,438 | 5,139 | 4,445 | | Stock-based compensation expense (selling and marketing) | 598 | 451 | 1,164 | 816 | | Stock-based compensation expense (general and administrative) | 1,465 | 820 | 2,597 | 1,816 | | Amortization of acquired intangible assets | 209 | 278 | 417 | 556 | | Asset acquisition related costs | 144 | 252 | 288 | 532 | | **Non-GAAP Operating Income** | **773** | **4,395** | **1,066** | **3,564** | Reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit (Thousands USD) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------- | :------- | :------- | :------- | :------- | | **GAAP Gross Profit** | **22,129** | **25,504** | **42,887** | **45,073** | | GAAP Gross Margin | 86% | 90% | 86% | 89% | | Stock-based compensation expense (cost of revenue) | 166 | 191 | 325 | 394 | | Amortization of acquired intangible assets | 59 | 129 | 118 | 257 | | **Non-GAAP Gross Profit** | **22,354** | **25,824** | **43,330** | **45,724** | | Non-GAAP Gross Margin | 87% | 91% | 87% | 91% | - Non-GAAP gross margin, operating income, net income, and diluted EPS calculations exclude stock-based compensation, amortization of acquired intangible assets, asset acquisition costs, and revaluation losses of tradable equity securities[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) [Management Insights](index=1&type=section&id=4.%20Management%20Insights) This section provides management's perspective on Ceva's Q2 2025 performance, with commentary from the CEO on strategic achievements and AI business scaling, and the CFO on financial drivers and capital allocation [CEO's Commentary](index=1&type=section&id=4.1%20CEO's%20Commentary) CEO Amir Panush expressed satisfaction with Q2 results, driven by expanded AI licensing deals, strong execution across connectivity, sensing, and inferring use cases, and sequential royalty revenue growth, anticipating continued AI business scaling and sequential and year-over-year growth in H2 - Satisfied with second-quarter performance, primarily driven by expanded AI licensing deals and strong execution across the three pillar use cases of connectivity, sensing, and inferring[4](index=4&type=chunk) - AI business continues to scale, with **four new NPU agreements** signed this quarter, highlighting the growing demand for industry-leading edge AI technology[4](index=4&type=chunk) - The company has reached the milestone of **20 billion Ceva-powered device shipments**, solidifying its leadership in wireless connectivity IP[4](index=4&type=chunk) - Anticipates the company's business will achieve sequential and year-over-year growth in the second half of the year[4](index=4&type=chunk) [CFO's Commentary](index=2&type=section&id=4.2%20CFO's%20Commentary) CFO Yaniv Arieli noted AI NPU demand supported licensing, with total licensing revenue exceeding $15 million for the fifth consecutive quarter, while royalty revenue saw continued growth in consumer IoT and record cellular IoT and Wi-Fi 6 shipments, affirming focus on expense management, profitability, and active share repurchase - AI NPU demand supported the quarter's licensing business, with total licensing revenue exceeding **$15 million** for the fifth consecutive quarter[8](index=8&type=chunk) - In terms of royalty revenue, consumer IoT shipments continued to grow, with cellular IoT and Wi-Fi 6 shipments reaching **record highs**[8](index=8&type=chunk) - The company will continue to focus on stringent expense management and improving profitability[8](index=8&type=chunk) - Actively executed the share repurchase program this quarter, repurchasing **300,000 shares** valued at approximately **$6.2 million**[8](index=8&type=chunk) [Financial Position](index=8&type=section&id=5.%20Financial%20Position) This section details Ceva's financial position as of June 30, 2025, through its interim condensed consolidated balance sheets, outlining assets, liabilities, and shareholders' equity [Interim Condensed Consolidated Balance Sheets](index=8&type=section&id=5.1%20Interim%20Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, Ceva's total assets were $302.8 million, a slight decrease from $308.9 million on December 31, 2024, with cash and cash equivalents increasing but tradable securities and short-term bank deposits decreasing, alongside a slight decline in total liabilities and total shareholders' equity Ceva, Inc. Interim Condensed Consolidated Balance Sheets (Thousands USD) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------- | :-------------- | | **Assets:** | | | | **Current Assets:** | | | | Cash and cash equivalents | 29,082 | 18,498 | | Tradable securities and short-term bank deposits | 128,422 | 145,146 | | Accounts receivable, net | 11,832 | 15,969 | | Unbilled accounts receivable | 24,851 | 21,240 | | Prepaid expenses and other current assets | 14,621 | 15,488 | | **Total Current Assets** | **208,808** | **216,341** | | **Long-Term Assets:** | | | | Severance pay fund | 7,864 | 7,161 | | Deferred tax assets, net | 1,630 | 1,456 | | Property and equipment, net | 6,484 | 6,877 | | Operating lease right-of-use assets | 4,645 | 5,811 | | Investment in tradable equity securities | 50 | 312 | | Goodwill | 58,308 | 58,308 | | Intangible assets, net | 1,460 | 1,877 | | Other long-term assets | 13,593 | 10,805 | | **Total Assets** | **302,842** | **308,948** | | **Liabilities and Shareholders' Equity:** | | | | **Current Liabilities:** | | | | Accounts payable | 1,771 | 1,125 | | Deferred revenue | 3,212 | 3,599 | | Accrued expenses and other payables | 17,749 | 23,207 | | Operating lease liabilities | 1,610 | 2,598 | | **Total Current Liabilities** | **24,342** | **30,529** | | **Long-Term Liabilities:** | | | | Accrued severance pay | 8,155 | 7,365 | | Operating lease liabilities | 2,755 | 2,963 | | Other accrued liabilities | 1,698 | 1,535 | | **Total Liabilities** | **36,950** | **42,392** | | **Shareholders' Equity:** | | | | Ordinary shares | 24 | 24 | | Additional paid-in capital | 267,743 | 259,891 | | Treasury stock | (5,874) | (3,222) | | Accumulated other comprehensive income (loss) | 344 | (1,330) | | Retained earnings | 3,655 | 11,193 | | **Total Shareholders' Equity** | **265,892** | **266,556** | | **Total Liabilities and Shareholders' Equity** | **302,842** | **308,948** | [Corporate Information](index=3&type=section&id=6.%20Corporate%20Information) This section provides essential corporate information about Ceva, Inc., including its business focus on smart edge devices, IP portfolio, global presence, and important forward-looking statements with associated risk factors [About Ceva, Inc.](index=3&type=section&id=6.1%20About%20Ceva,%20Inc.) Ceva, Inc. innovates smart edge devices through wireless communication, sensing, and edge AI technologies, offering a broad IP portfolio including Bluetooth, Wi-Fi, UWB, 5G, scalable edge AI NPU, and sensor fusion solutions to enable a smarter, safer, and more connected world, headquartered in Rockville, Maryland, with global operations and a commitment to corporate citizenship - Ceva is dedicated to bringing innovation to smart edge devices through its wireless communication, sensing, and edge AI technologies[17](index=17&type=chunk) - The company offers the broadest IP portfolio, including wireless connectivity IP (Bluetooth, Wi-Fi, UWB, and 5G platform IP), scalable edge AI NPU IP, and sensor fusion solutions[17](index=17&type=chunk) - Ceva's technology powers over **20 billion smart edge products**, including smartwatches, IoT devices, wearables, autonomous vehicles, and 5G mobile networks[17](index=17&type=chunk) - Headquartered in Rockville, Maryland, the company boasts a global customer base and operational network, committed to being a responsible global corporate citizen[18](index=18&type=chunk)[19](index=19&type=chunk) [Forward-Looking Statements](index=3&type=section&id=6.2%20Forward-Looking%20Statements) This press release contains forward-looking statements involving risks, uncertainties, and assumptions that could cause Ceva's actual results to differ materially from expectations, including industry competition, technology market acceptance, market demand changes, semiconductor industry cyclicality, revenue diversification, the Israel-Gaza conflict, and other SEC-filed risks, with Ceva disclaiming any obligation to update such statements - The press release contains forward-looking statements involving risks, uncertainties, and assumptions that could cause actual results to differ materially from expectations[13](index=13&type=chunk) - Forward-looking statements include the continued scaling of the AI business, Ceva's position as a leader in wireless connectivity IP, and expectations for sequential growth in the second half of the year[13](index=13&type=chunk) - Risk factors include industry competition, technology market acceptance, changes in market demand, semiconductor industry cyclicality, ability to diversify revenue streams, the Israel-Gaza conflict, and other risks described in SEC filings[13](index=13&type=chunk) - Ceva undertakes no obligation to update any forward-looking statements or information[13](index=13&type=chunk) [Investor Relations](index=2&type=section&id=7.%20Investor%20Relations) This section provides details for Ceva's Q2 2025 earnings conference call, including access information and replay options, along with key investor and public relations contact details [Conference Call Details](index=2&type=section&id=7.1%20Conference%20Call%20Details) Ceva management will host a conference call on August 11, 2025, at 8:30 AM ET to discuss quarterly operating results, with dial-in and webcast options available, and a replay service provided - Ceva management will host a conference call on **August 11, 2025, at 8:30 AM ET** to discuss the quarter's operating results[9](index=9&type=chunk) - The conference call can be accessed via designated dial-in numbers (US participants: **1-844-435-0316**, international participants: **+1-412-317-6365**, access code: **Ceva**) or through the webcast link: https://app.webinar.net/QYyg6d46Eeb[10](index=10&type=chunk)[12](index=12&type=chunk) - A replay will be available after the call by dialing **+1-877-344-7529** or **+1-412-317-0088** (access code: **1439858**), accessible until **9:00 AM ET on August 18, 2025**, and also on Ceva's website[11](index=11&type=chunk) [Contact Information](index=4&type=section&id=7.2%20Contact%20Information) Investors and public relations contacts include CFO Yaniv Arieli and VP of Market Intelligence, Investor & Public Relations Richard Kingston - Contacts include Ceva, Inc. CFO **Yaniv Arieli** (+972.9.961.3770, yaniv.arieli@ceva-ip.com) and VP of Market Intelligence, Investor & Public Relations **Richard Kingston** (+1.650.220.1948, richard.kingston@ceva-ip.com)[21](index=21&type=chunk)

PART I — FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents unaudited condensed consolidated financial statements for the periods ended June 30, 2025 [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reports a significant revenue increase driven by the Estrella Acquisition but continues to post a net loss Consolidated Statements of Operations 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 Revenues** | $31,245 | $26,202 | $59,275 | $32,908 | | **Operating Loss** | $(6,785) | $(13,326) | $(11,468) | $(16,793) | | **Net Loss** | $(8,800) | $(48,307) | $(17,406) | $(51,984) | | **Net Loss Attributable to Common Shareholders** | $(9,078) | $(49,263) | $(17,881) | $(53,663) | | **Net Loss Per Share (basic and diluted)** | $(0.11) | $(0.75) | $(0.23) | $(1.19) | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased while total equity increased, primarily due to warrant reclassification and lower liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $37,783 | $39,276 | | **Goodwill** | $28,338 | $28,338 | | **Other Intangible Assets, Net** | $177,322 | $178,889 | | **Total Assets** | $315,150 | $325,501 | | **Total Current Liabilities** | $70,055 | $57,291 | | **Long Term Debt, Net** | $66,698 | $70,172 | | **Total Liabilities** | $217,899 | $242,980 | | **Total Equity** | $97,251 | $82,521 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations decreased significantly, while financing activities shifted from a source to a use of cash Consolidated Cash Flow Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Net Cash Used in Operating Activities** | $(893) | $(24,711) | | **Net Cash Used in Investing Activities** | $(277) | $(6,986) | | **Net Cash (Used in) Provided by Financing Activities** | $(320) | $37,012 | | **Change in Cash, Cash Equivalents and Restricted Cash** | $(1,490) | $5,315 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the Estrella Acquisition, new debt facilities, and the establishment of new Audio and Video segments - On April 17, 2024, the company completed the **Estrella Acquisition**, purchasing substantially all assets of Estrella Broadcasting, Inc, including its network, content, digital, and commercial operations[22](index=22&type=chunk) - On May 1, 2025, a Put Right was exercised by Estrella Media, Inc, resulting in MediaCo acquiring **100% of the equity interests** of Estrella's broadcast assets in exchange for 7,051,538 shares of Class A common stock, making Estrella a wholly-owned subsidiary[29](index=29&type=chunk)[59](index=59&type=chunk) - The company now manages its operations through two business segments: **Audio** (radio stations in NYC, LA, Houston, Dallas) and **Video** (Estrella's television stations)[120](index=120&type=chunk) Disaggregated Revenue - Six Months Ended June 30, 2025 (in thousands) | Revenue Source | Audio | Video | Consolidated | | :--- | :--- | :--- | :--- | | Spot Radio & TV Advertising | $23,330 | $11,779 | $35,109 | | Digital | $1,255 | $17,731 | $18,986 | | Syndication | $1,314 | $— | $1,314 | | Events and Sponsorships | $637 | $50 | $687 | | Other | $2,392 | $787 | $3,179 | | **Total net revenues** | **$28,928** | **$30,347** | **$59,275** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant revenue growth and a narrower operating loss driven by the Estrella Acquisition - Net revenues **increased by $26.4 million (80%)** for the six months ended June 30, 2025, compared to the same period in 2024, primarily due to the Estrella Acquisition[142](index=142&type=chunk) - Operating loss for the six months ended June 30, 2025, **decreased by $5.3 million (32%) to $11.5 million**, reflecting revenue growth and a significant reduction in corporate expenses related to the prior year's acquisition[142](index=142&type=chunk)[147](index=147&type=chunk) - The company's **Audio segment revenue increased by $5.0 million**, and the **Video segment revenue increased by $21.4 million** for the six months ended June 30, 2025, compared to the prior year, driven by the acquisition[156](index=156&type=chunk)[158](index=158&type=chunk) - As of June 30, 2025, the company had **cash of $5.4 million** and **negative working capital of $32.3 million**, with management anticipating meeting liquidity needs for the next twelve months[162](index=162&type=chunk)[163](index=163&type=chunk) Reconciliation of Net Loss to Adjusted EBITDA (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** | $(8,521) | $(48,125) | $(17,406) | $(51,984) | | **EBITDA** | $(2,690) | $(42,730) | $(5,772) | $(46,236) | | **Adjusted EBITDA** | $1,791 | $(5,222) | $2,918 | $(4,499) | [Quantitative and Qualitative Disclosures about Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exempt from these disclosures as a smaller reporting company - As a smaller reporting company, MediaCo is **not required to provide** quantitative and qualitative disclosures about market risk[169](index=169&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to a material weakness related to the Estrella acquisition accounting - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of June 30, 2025[171](index=171&type=chunk) - A **material weakness** was identified related to the accounting for the Estrella business combination, including insufficient oversight of valuation specialists and lack of competent resources for complex accounting[174](index=174&type=chunk) - Remediation efforts include hiring additional qualified accounting personnel, enhancing training, implementing new controls for complex transactions, and engaging third-party experts[175](index=175&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) Management reports no pending legal proceedings expected to have a material adverse effect on the company - The company reports **no pending legal proceedings** that are expected to have a material adverse effect on the business[179](index=179&type=chunk) [Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have occurred since the last annual report - **No material changes** to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, have occurred[180](index=180&type=chunk) [Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company reports no unregistered sales, use of proceeds, or issuer purchases of equity securities - **None reported** for the quarter[181](index=181&type=chunk) [Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the quarter - No company directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[184](index=184&type=chunk) [Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including officer certifications and Inline XBRL data files - The report includes certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL documents[186](index=186&type=chunk)

Executive Summary & Highlights Telos Corporation delivered strong Q2 2025 results, exceeding revenue guidance with significant year-over-year growth in Security Solutions, improved operating leverage, robust cash flow, and resumed share repurchases, while forecasting continued growth [Second Quarter 2025 Performance Highlights](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Highlights) Telos Corporation reported strong Q2 2025 results, exceeding revenue guidance with substantial year-over-year growth, particularly in Security Solutions. The company also demonstrated improved operating leverage and robust cash flow, leading to the resumption of share repurchases - Revenue: Delivered **$36.0 million**, above guidance, with **90.3%** from Security Solutions[4](index=4&type=chunk) - Revenue Growth: Grew **26.2%** year-over-year, driven by **81.8%** growth in Security Solutions, primarily due to rapid scaling of the Defense Manpower Data Center (DMDC) program and significant rollout of additional TSA PreCheck enrollment locations (increased from **56 to 357** locations year-over-year)[4](index=4&type=chunk) - GAAP Gross Margin: Was **33.2%**, contracting **89 bps** year-over-year primarily due to revenue mix; Cash Gross Margin was **38.4%**[4](index=4&type=chunk) - Adjusted EBITDA: Increased **$3.3 million** year-over-year to **$0.4 million**, with Incremental Adjusted EBITDA Margin of **44.4%** in Q2 and **71.0%** in the first half[4](index=4&type=chunk) - Cash Flow: Cash Flow from Operations was **$7.0 million** (**19.3%** of Revenue) in Q2 and **$13.1 million** (**19.6%** of Revenue) in H1. Free Cash Flow was **$4.6 million** (**12.9%** of Revenue) in Q2 and **$8.4 million** (**12.6%** of Revenue) in H1[4](index=4&type=chunk) - Share Repurchases: Deployed **$4.0 million** to repurchase approximately **1.5 million shares** at a weighted average price of **$2.69** per share[4](index=4&type=chunk) [Financial Summary Table](index=2&type=section&id=Financial%20Summary%20Table) This table provides a snapshot of key GAAP and non-GAAP financial metrics for Q2 2025 and Q2 2024, highlighting significant improvements in revenue, gross profit, and cash flow, despite an increase in GAAP net loss Financial Summary Table (in millions, except percentages and EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Revenue | $36.0 million | $28.5 million | | Gross Profit | $11.9 million | $9.7 million | | Gross Margin | 33.2 % | 34.1 % | | Cash Gross Profit | $13.8 million | $12.0 million | | Cash Gross Margin | 38.4 % | 42.0 % | | GAAP Net Loss | $(9.5) million | $(7.8) million | | Adjusted EBITDA | $0.4 million | $(2.9) million | | Adjusted EBITDA Margin | 1.1 % | (10.3 %) | | GAAP EPS | $(0.13) | $(0.11) | | Adjusted EPS | $(0.03) | $(0.09) | | Cash Flow from Operations | $7.0 million | $(8.0) million | | Free Cash Flow | $4.6 million | $(11.3) million | | Free Cash Flow Margin | 12.9 % | (39.8 %) | [Outlook](index=1&type=section&id=Outlook) Telos forecasts accelerated growth for Q3 2025 and anticipates significant year-over-year improvements in revenue and Adjusted EBITDA, along with positive cash flow for the full year - Third Quarter Guidance: Forecasts **85% to 98%** year-over-year revenue growth, with Revenues of **$44 million - $47 million**, and Adjusted EBITDA of **$4.0 million to $5.7 million**[4](index=4&type=chunk) - Full Year Outlook: Forecasts significant year-over-year improvements in Revenue and Adjusted EBITDA, and positive cash flow[4](index=4&type=chunk) Forward-Looking Statements This section outlines the inherent uncertainties and risks associated with forward-looking statements, emphasizing that actual results may differ materially from projections and that the company undertakes no obligation to update them [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section contains forward-looking statements based on management's current beliefs and expectations, subject to risks and uncertainties detailed in SEC filings. The company cautions against undue reliance and undertakes no obligation to update these statements publicly - Statements are based on management's current beliefs, expectations, and assumptions about future events, conditions, and results[6](index=6&type=chunk) - Forward-looking statements involve risks and uncertainties, including those described in the Company's filings and reports with the U.S. SEC (e.g., Form 10-K, 10-Q)[6](index=6&type=chunk) - The Company cautions readers not to place undue reliance on these statements as actual results may differ materially, and undertakes no obligation to update them publicly, except as required by law[7](index=7&type=chunk) Non-GAAP Financial Measures This section details Telos's use of non-GAAP financial measures to provide enhanced insight into core operating and cash flow performance, defining each measure and acknowledging their inherent limitations as analytical tools [Purpose and Use of Non-GAAP Measures](index=3&type=section&id=Purpose%20and%20Use%20of%20Non-GAAP%20Measures) Telos uses non-GAAP financial measures like EBITDA, Adjusted EBITDA, and Free Cash Flow to supplement GAAP results, believing they offer better consistency, comparability, and insight into core operating and cash flow performance for management, investors, and the Board of Directors - Non-GAAP measures are used to evaluate operating and cash flow performance, providing consistency and comparability with past financial performance and assisting in comparisons with other companies[8](index=8&type=chunk) - These measures offer a clear representation of the Company's core operating performance and trends, greater visibility into long-term financial performance, and eliminate the impact of items not related to ongoing operations[9](index=9&type=chunk) - Adjusted EBITDA and Free Cash Flow are used by the Board of Directors and management for annual budgeting, evaluating performance, and determining incentive compensation[9](index=9&type=chunk) [Definitions of Non-GAAP Measures](index=3&type=section&id=Definitions%20of%20Non-GAAP%20Measures) This section provides specific definitions for various non-GAAP financial measures used by Telos, including EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Gross Profit, Cash Gross Profit, Adjusted Operating Expenses, Cash Operating Expenses, and Free Cash Flow, detailing the adjustments made to GAAP figures - **EBITDA:** Net (loss) income, adjusted for non-operating (income) expense, interest expense, provision for (benefit from) income taxes, and depreciation and amortization[11](index=11&type=chunk) - **Adjusted EBITDA:** EBITDA, adjusted for stock-based compensation expense, impairment loss on intangible assets, and restructuring expenses[11](index=11&type=chunk) - **Adjusted Net Loss:** Net (loss) income, adjusted for non-operating (income) expense, stock-based compensation expense, impairment loss on intangible assets, and restructuring expenses[11](index=11&type=chunk) - **Free Cash Flow:** Net cash (used in) provided by operating activities, less net purchases of property and equipment, and capitalized software development costs[11](index=11&type=chunk) [Limitations of Non-GAAP Measures](index=4&type=section&id=Limitations%20of%20Non-GAAP%20Measures) Telos acknowledges that non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as substitutes for GAAP results. They do not reflect cash expenditures, certain charges, or income tax, and may not be comparable to similarly titled measures used by other companies - Non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of results reported under GAAP[12](index=12&type=chunk) - They do not reflect cash expenditures for capital or contractual commitments, the impact of certain cash and non-cash charges not indicative of ongoing operations, or income tax expense or benefit[12](index=12&type=chunk) - Other companies may calculate similarly-titled non-GAAP measures differently, limiting their usefulness as a comparative measure. Telos primarily relies on GAAP results and uses non-GAAP measures only for supplemental purposes[12](index=12&type=chunk) About Telos Corporation Telos Corporation (NASDAQ: TLS) provides continuous security assurance solutions for individuals, systems, and information, serving a global clientele across commercial, regulated, and government sectors [About Telos Corporation](index=4&type=section&id=About%20Telos%20Corporation) Telos Corporation (NASDAQ: TLS) empowers and protects the world's most security-conscious organizations with solutions for continuous security assurance of individuals, systems, and information, serving commercial enterprises, regulated industries, and government customers globally - Telos Corporation (NASDAQ: TLS) provides solutions for continuous security assurance of individuals, systems, and information[13](index=13&type=chunk) - Offerings include cybersecurity solutions for IT risk management and information security, cloud security solutions for asset protection and compliance, and enterprise security solutions for identity and access management, secure mobility, and network management[13](index=13&type=chunk) - The Company serves commercial enterprises, regulated industries, and government customers around the world[13](index=13&type=chunk) Consolidated Financial Statements (GAAP) This section presents Telos Corporation's GAAP financial statements, including statements of operations, balance sheets, and cash flows, detailing the company's financial performance and position for the reported periods [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show Telos Corporation's financial performance for the three and six months ended June 30, 2025, and 2024. Key figures include total revenue, gross profit, operating expenses, and net loss Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Revenue – Security Solutions | $32,474 | $17,867 | $58,292 | $36,507 | | Revenue – Secure Networks | $3,494 | $10,631 | $8,292 | $21,610 | | Total revenue | $35,968 | $28,498 | $66,584 | $58,117 | | Gross profit | $11,932 | $9,707 | $24,114 | $20,668 | | Total operating expenses | $21,815 | $18,351 | $43,019 | $37,750 | | Operating loss | $(9,883) | $(8,644) | $(18,905) | $(17,082) | | Net loss | $(9,517) | $(7,757) | $(18,121) | $(15,135) | | Basic Net loss per share | $(0.13) | $(0.11) | $(0.25) | $(0.21) | - Total revenue increased by **26.2%** year-over-year in Q2 2025 (**$35.97 million** vs **$28.50 million**)[16](index=16&type=chunk) - Security Solutions revenue grew significantly by **81.8%** year-over-year in Q2 2025 (**$32.47 million** vs **$17.87 million**), while Secure Networks revenue decreased by **67.1%** year-over-year in Q2 2025 (**$3.49 million** vs **$10.63 million**)[16](index=16&type=chunk) - Net loss widened to **$(9.52) million** in Q2 2025 from **$(7.76) million** in Q2 2024[16](index=16&type=chunk) [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets present Telos Corporation's financial position as of June 30, 2025, and December 31, 2024. Total assets increased, driven by higher current assets, while total liabilities also rose significantly, primarily due to increases in accounts payable and contract liabilities Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Total assets | $165,042 | $158,235 | | Cash and cash equivalents | $56,998 | $54,578 | | Total current assets | $102,776 | $91,418 | | Total liabilities | $46,629 | $31,098 | | Total current liabilities | $38,733 | $22,135 | | Total stockholders' equity | $118,413 | $127,137 | - Total assets increased by **$6.8 million** from **$158.2 million** at December 31, 2024, to **$165.0 million** at June 30, 2025[18](index=18&type=chunk) - Total liabilities increased by **$15.5 million** from **$31.1 million** at December 31, 2024, to **$46.6 million** at June 30, 2025, primarily due to increases in accounts payable and contract liabilities[18](index=18&type=chunk) - Total stockholders' equity decreased by **$8.7 million** from **$127.1 million** at December 31, 2024, to **$118.4 million** at June 30, 2025[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The Consolidated Statements of Cash Flows detail the cash inflows and outflows for operating, investing, and financing activities for the three and six months ended June 30, 2025, and 2024. The company generated positive cash flow from operations in Q2 2025, a significant improvement from the prior year, but saw increased cash usage in financing activities due to share repurchases Consolidated Statements of Cash Flows (in thousands) | Metric | For the Three Months Ended June 30, 2025 | For the Three Months Ended June 30, 2024 | For the Six Months Ended June 30, 2025 | For the Six Months Ended June 30, 2024 | | :------------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash provided by (used in) operating activities | $6,950 | $(7,990) | $13,056 | $(8,340) | | Net cash used in investing activities | $(2,321) | $(5,498) | $(4,658) | $(9,647) | | Net cash used in financing activities | $(5,422) | $(322) | $(5,978) | $(1,168) | | Net change in cash, cash equivalents, and restricted cash | $(793) | $(13,810) | $2,420 | $(19,155) | | Cash, cash equivalents, and restricted cash, end of period | $57,137 | $80,241 | $57,137 | $80,241 | - Net cash provided by operating activities swung to a positive **$6.95 million** in Q2 2025 from a negative **$(7.99) million** in Q2 2024[20](index=20&type=chunk) - Net cash used in investing activities decreased to **$(2.32) million** in Q2 2025 from **$(5.50) million** in Q2 2024, primarily due to no purchase of investment in Q2 2025[20](index=20&type=chunk) - Net cash used in financing activities significantly increased to **$(5.42) million** in Q2 2025 from **$(0.32) million** in Q2 2024, largely due to **$4.00 million** in common stock repurchases[20](index=20&type=chunk) Non-GAAP Reconciliations This section provides detailed reconciliations of GAAP financial measures to their non-GAAP counterparts, including EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Gross Profit, Cash Gross Profit, Free Cash Flow, and Operating Expenses, to offer a clearer view of underlying performance [Reconciliation of Net Loss to EBITDA and Adjusted EBITDA](index=8&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20EBITDA%20and%20Adjusted%20EBITDA) This reconciliation details the adjustments made to GAAP Net Loss to arrive at EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2025, and 2024. Adjusted EBITDA showed a significant positive swing year-over-year, reflecting improved operational performance excluding non-cash and non-recurring items Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands) | Metric | Q2 2025 Amount | Q2 2025 Margin | Q2 2024 Amount | Q2 2024 Margin | YoY Change Amount | YoY Change Margin | | :------------------------------------ | :------------- | :------------- | :------------- | :------------- | :---------------- | :---------------- | | Net loss | $(9,517) | (26.5%) | $(7,757) | (27.2%) | $(1,760) | (23.6%) | | EBITDA (Non-GAAP) | $(7,374) | (20.5%) | $(5,153) | (18.1%) | $(2,221) | (29.7%) | | Stock-based compensation expense | $7,757 | 21.6% | $2,219 | 7.8% | $5,538 | 74.1% | | Adjusted EBITDA (Non-GAAP) | $383 | 1.1% | $(2,934) | (10.3%) | $3,317 | 44.4% | - Adjusted EBITDA improved by **$3.32 million**, moving from **$(2.93) million** in Q2 2024 to **$0.38 million** in Q2 2025[22](index=22&type=chunk) - Stock-based compensation expense significantly increased to **$7.76 million** in Q2 2025 from **$2.22 million** in Q2 2024[22](index=22&type=chunk) [Reconciliation of Net Loss to Adjusted Net Loss and EPS to Adjusted EPS](index=9&type=section&id=Reconciliation%20of%20Net%20Loss%20to%20Adjusted%20Net%20Loss%20and%20EPS%20to%20Adjusted%20EPS) This reconciliation adjusts GAAP Net Loss and EPS for non-operating income, stock-based compensation, and restructuring expenses to present Adjusted Net Loss and Adjusted EPS. The adjustments show a reduced net loss and improved EPS on an adjusted basis compared to GAAP Reconciliation of Net Loss to Adjusted Net Loss and EPS to Adjusted EPS (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net loss | $(9,517) | $(7,757) | $(18,121) | $(15,135) | | Stock-based compensation expense | $7,757 | $2,219 | $14,805 | $5,203 | | Adjusted net loss (Non-GAAP) | $(2,313) | $(6,602) | $(4,430) | $(12,258) | | Adjusted EPS (Non-GAAP) | $(0.03) | $(0.09) | $(0.06) | $(0.17) | - Adjusted net loss significantly narrowed to **$(2.31) million** in Q2 2025 from **$(6.60) million** in Q2 2024[25](index=25&type=chunk) - Adjusted EPS improved to **$(0.03)** in Q2 2025 from **$(0.09)** in Q2 2024[25](index=25&type=chunk) [Reconciliation of Gross Profit to Adjusted and Cash Gross Profit](index=9&type=section&id=Reconciliation%20of%20Gross%20Profit%20to%20Adjusted%20and%20Cash%20Gross%20Profit) This reconciliation shows the adjustments from GAAP Gross Profit to Adjusted Gross Profit and Cash Gross Profit, primarily by adding back stock-based compensation and depreciation/amortization. While GAAP Gross Margin slightly contracted, Cash Gross Margin remained healthy, indicating strong core profitability before non-cash items Reconciliation of Gross Profit to Adjusted and Cash Gross Profit (in thousands) | Metric | Q2 2025 Amount | Q2 2025 Margin | Q2 2024 Amount | Q2 2024 Margin | | :------------------------------------ | :------------- | :------------- | :------------- | :------------- | | Gross profit | $11,932 | 33.2% | $9,707 | 34.1% | | Stock-based compensation expense — cost of sales | $149 | 0.4% | $228 | 0.8% | | Adjusted gross profit (Non-GAAP) | $12,081 | 33.6% | $9,935 | 34.9% | | Depreciation and amortization — cost of sales | $1,715 | 4.8% | $2,039 | 7.1% | | Cash gross profit (Non-GAAP) | $13,796 | 38.4% | $11,974 | 42.0% | - Cash Gross Profit increased to **$13.80 million** in Q2 2025 from **$11.97 million** in Q2 2024[26](index=26&type=chunk) - Cash Gross Margin was **38.4%** in Q2 2025, a decrease from **42.0%** in Q2 2024[26](index=26&type=chunk) [Reconciliation of Cash Flow from Operations to Free Cash Flow](index=10&type=section&id=Reconciliation%20of%20Cash%20Flow%20from%20Operations%20to%20Free%20Cash%20Flow) This reconciliation shows the derivation of Free Cash Flow from Net Cash Provided by (Used in) Operating Activities by subtracting capitalized software development costs and purchases of property and equipment. The company achieved positive Free Cash Flow in Q2 2025, a significant turnaround from the prior year Reconciliation of Cash Flow from Operations to Free Cash Flow (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------------------ | :------ | :------ | :------ | :------ | | Net cash provided by (used in) operating activities | $6,950 | $(7,990) | $13,056 | $(8,340) | | Capitalized software development costs | $(2,187) | $(3,113) | $(4,401) | $(6,315) | | Purchases of property and equipment | $(134) | $(235) | $(257) | $(332) | | Free cash flow (Non-GAAP) | $4,629 | $(11,338) | $8,398 | $(14,987) | | Free cash flow margin (Non-GAAP) | 12.9% | (39.8%) | 12.6% | (25.8%) | - Free Cash Flow improved significantly to **$4.63 million** in Q2 2025 from **$(11.34) million** in Q2 2024[27](index=27&type=chunk) - Free Cash Flow Margin was **12.9%** in Q2 2025, a substantial improvement from **(39.8%)** in Q2 2024[27](index=27&type=chunk) [Reconciliation of Operating Expenses to Adjusted and Cash Operating Expenses](index=10&type=section&id=Reconciliation%20of%20Operating%20Expenses%20to%20Adjusted%20and%20Cash%20Operating%20Expenses) This reconciliation adjusts GAAP Operating Expenses to Adjusted Operating Expenses and Cash Operating Expenses by removing stock-based compensation, restructuring adjustments, depreciation/amortization, and adding back capitalized software R&D costs. Adjusted operating expenses decreased year-over-year, contributing to improved operating leverage Reconciliation of Operating Expenses to Adjusted and Cash Operating Expenses (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Operating expenses | $21,815 | $18,351 | $43,019 | $37,750 | | Stock-based compensation expense | $(7,608) | $(1,991) | $(14,466) | $(4,718) | | Adjusted operating expenses (Non-GAAP) | $14,207 | $16,360 | $28,553 | $33,042 | | Cash operating expenses (Non-GAAP) | $15,562 | $18,022 | $31,345 | $35,879 | - Adjusted operating expenses decreased to **$14.21 million** in Q2 2025 from **$16.36 million** in Q2 2024[28](index=28&type=chunk) - Cash operating expenses decreased to **$15.56 million** in Q2 2025 from **$18.02 million** in Q2 2024[28](index=28&type=chunk)

Part I. Financial Information [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Sonida Senior Living, Inc. as of June 30, 2025, and for the three and six-month periods then ended [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to $849.8 million from $841.9 million at year-end 2024, driven by an increase in property and equipment, while total liabilities rose to $736.0 million from $712.3 million, primarily due to higher long-term debt, and total equity decreased from $78.4 million to $62.5 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $63,451 | $64,089 | | **Property and equipment, net** | $750,261 | $739,884 | | **Total Assets** | **$849,772** | **$841,921** | | **Total Current Liabilities** | $74,583 | $75,615 | | **Long-term debt, net** | $660,163 | $635,904 | | **Total Liabilities** | **$736,006** | **$712,312** | | **Total Equity** | **$62,517** | **$78,360** | | **Total Liabilities, redeemable preferred stock and equity** | **$849,772** | **$841,921** | [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2025, total revenues increased to $93.5 million from $70.2 million year-over-year, resulting in a net loss of $2.0 million, a significant improvement from the $9.8 million net loss in the same period of 2024, while for the six-month period, revenues grew to $185.4 million from $137.6 million, with a net loss of $15.0 million compared to a net income of $17.2 million in the prior year due to a large gain on debt extinguishment Statement of Operations Summary (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 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $93,525 | $70,207 | $185,448 | $137,645 | | **Total Expenses** | $95,802 | $71,605 | $190,591 | $141,175 | | **Other income (expense), net** | $618 | ($8,359) | ($8,693) | $21,003 | | **Net Income (Loss)** | **($1,973)** | **($9,816)** | **($14,998)** | **$17,203** | | **Net Income (Loss) Attributable to Common Shareholders** | ($2,972) | ($11,188) | ($16,910) | $13,071 | | **Diluted Net Income (Loss) per Common Share** | **($0.16)** | **($0.86)** | **($0.94)** | **$1.08** | - The six months ended June 30, 2024 included a significant one-time gain on extinguishment of debt of **$38.1 million**, which was not present in 2025[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash provided by operating activities was $12.8 million, a reversal from $1.6 million used in the prior year period, while net cash used in investing activities was $37.5 million, mainly for community acquisitions and capital expenditures, and net cash provided by financing activities was $19.3 million, driven by proceeds from a credit facility and notes payable, partially offset by repayments and dividends, resulting in an overall decrease of $5.4 million in cash, cash equivalents, and restricted cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,755 | ($1,624) | | Net cash used in investing activities | ($37,471) | ($42,715) | | Net cash provided by financing activities | $19,326 | $50,372 | | **Increase (decrease) in cash, cash equivalents, and restricted cash** | **($5,390)** | **$6,033** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's accounting policies and financial activities, covering business overview, recent acquisitions and investments, debt structure and modifications, revenue sources, and details on contingencies and subsequent events, with the company owning, managing, or investing in 96 senior housing communities as of June 30, 2025 - As of June 30, 2025, the Company owned, managed or invested in **96 senior housing communities** in 20 states with a capacity of approximately **10,150 residents**[25](index=25&type=chunk) - During Q2 2025, the Company recognized **$8.8 million** in gross Employee Retention Credits (ERC) as other income, related to the CARES Act[54](index=54&type=chunk) - On May 30, 2025, the Company acquired a senior living community in Florida for **$11.0 million**, and on June 1, 2025, acquired another in Georgia for **$11.0 million**[69](index=69&type=chunk)[70](index=70&type=chunk) - Subsequent to the quarter end, on August 7, 2025, the Company entered into a new senior secured term loan of **$137.0 million** with Ally Bank to refinance existing debt and finance a recent acquisition[123](index=123&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's operational and financial performance, highlighting a 29.6% increase in resident revenue for Q2 2025 compared to Q2 2024, driven by acquisitions and higher rental rates, covering recent acquisitions, investments in joint ventures, and significant financing activities, including a new $137.0 million term loan with Ally Bank subsequent to the quarter's end, with liquidity supported by cash from operations, its credit facility, and an ATM sales agreement [Significant Financial and Operational Highlights](index=30&type=section&id=Significant%20Financial%20and%20Operational%20Highlights) For Q2 2025, resident revenue grew **29.6%** year-over-year to **$81.8 million**, primarily due to increased average rent rates and the addition of 18 communities acquired in 2024 and 2025, while for the same-store portfolio, weighted average occupancy increased to **86.5%** from **86.1%**, and the average monthly rental rate rose by **4.4%** compared to Q2 2024, with the company also active with acquisitions and investments, including two community purchases in May and June 2025 Q2 2025 vs Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Resident Revenue | $81.8 million | $63.1 million | +29.6% | | Same-Store Weighted Avg. Occupancy | 86.5% | 86.1% | +0.4 p.p. | | Same-Store Avg. Monthly Rental Rate | - | - | +4.4% | - The company acquired one community in Florida for **$11.0 million** in May 2025 and one in Georgia for **$11.0 million** in June 2025[135](index=135&type=chunk)[136](index=136&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Comparing Q2 2025 to Q2 2024, the **29.6%** increase in resident revenue was accompanied by a **33.5%** rise in operating expenses, largely due to the 18 newly acquired communities, with general and administrative expenses increasing by **$1.0 million**, and other income at **$9.1 million** in Q2 2025, boosted by **$8.8 million** in Employee Retention Credits (ERC), while for the six-month period, revenue grew **30.1%**, and operating expenses increased **32.0%**, noting the prior year's six-month results included a **$38.1 million** gain on debt extinguishment, which was absent in 2025 - For Q2 2025, resident revenue increased by **$18.7 million (29.6%)** YoY, primarily due to acquisitions and higher rent rates[149](index=149&type=chunk) - Operating expenses for Q2 2025 increased by **$15.4 million (33.5%)** YoY, with **$12.5 million** of the increase attributable to newly acquired communities[152](index=152&type=chunk) - Other income for Q2 2025 was **$9.1 million**, which included **$8.8 million** from ERC funds under the CARES Act[157](index=157&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company had **$14.1 million** in unrestricted cash, with principal sources of liquidity including cash flows from operations, a secured Credit Facility, and an ATM sales agreement, and had **$75.0 million** outstanding on its credit facility with an additional **$32.9 million** available, while for the first six months of 2025, operating activities provided **$12.8 million** in cash, a significant improvement from the **$1.6 million** used in the same period of 2024 - Principal sources of liquidity are cash flows from operations, a secured Credit Facility, an ATM sales agreement, debt refinancings, and asset sales[168](index=168&type=chunk) - As of June 30, 2025, the Company had **$14.1 million** of unrestricted cash and **$32.9 million** of additional borrowing capacity under its Credit Facility[168](index=168&type=chunk) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $12,755 | ($1,624) | $14,379 | | Net cash used in investing activities | ($37,471) | ($42,715) | $5,244 | | Net cash provided by financing activities | $19,326 | $50,372 | ($31,046) | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is marked as 'Not applicable' in the report - The company has indicated that this section is not applicable for this reporting period[176](index=176&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were ineffective as of June 30, 2025, due to a previously identified material weakness related to ineffective user access controls for certain financial systems, including the payroll system, which creates a lack of segregation of duties, with a remediation plan underway and testing expected to be completed in late 2025 - The CEO and CFO have concluded that the Company's disclosure controls and procedures are **ineffective** as of June 30, 2025[178](index=178&type=chunk) - A material weakness exists due to ineffective system user access controls for certain financial systems, particularly the payroll system, leading to a lack of segregation of duties[179](index=179&type=chunk) - A remediation plan has been implemented, including restricting user access, enhancing user access reviews, and retaining a third-party firm for validation; testing is anticipated to be completed in late 2025[181](index=181&type=chunk)[183](index=183&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in litigation and claims arising in the normal course of business, which management believes are comparable to others in the senior living industry, with most claims expected to be covered by insurance, and management does not believe they will have a material effect on the company's financial statements - The Company is subject to litigation and claims typical for the senior living and healthcare industries, most of which are believed to be covered by insurance and are not expected to have a material adverse effect[185](index=185&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors from the Annual Report on Form 10-K for the year ended December 31, 2024, have been reported[186](index=186&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a share repurchase program authorizing up to $10.0 million in common stock purchases, but no shares were repurchased under this program during the quarter ended June 30, 2025 Share Repurchases for Quarter Ended June 30, 2025 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased | | :--- | :--- | :--- | :--- | | April 1 – April 30, 2025 | — | — | $6,570,222 | | May 1 – May 31, 2025 | — | — | $6,570,222 | | June 1 – June 30, 2025 | — | — | $6,570,222 | [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the documents filed as part of the quarterly report, including corporate governance documents, certifications from the CEO and CFO, and financial data formatted in iXBRL

["SAFE HARBOR" STATEMENT](index=2&type=section&id=SAFE%20HARBOR%22%20STATEMENT) This statement clarifies that the report contains forward-looking statements subject to risks and disclaims obligation to update them - The report contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995, which are based on management's current plans and expectations and are subject to risks and uncertainties[11](index=11&type=chunk)[12](index=12&type=chunk) - The company expressly disclaims any obligation to publicly release updates or changes to its forward-looking statements[13](index=13&type=chunk) [PART I – FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%E2%80%93FINANCIAL%20INFORMATION) This part presents TSS, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Financial Statements](index=2&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents TSS, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, segment performance, and other financial details for the periods ended June 30, 2025, and December 31, 2024 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of TSS, Inc.'s financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :----------------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $36,836 | $23,222 | | Total current assets | $70,895 | $58,197 | | Property and equipment, net | $35,288 | $8,591 | | Total assets | $139,470 | $96,568 | | Accounts payable and accrued expenses | $82,020 | $53,340 | | Total current liabilities | $87,244 | $56,919 | | Long-term debt, non-current | $19,541 | $8,200 | | Total liabilities | $129,932 | $89,430 | | Total stockholders' equity | $9,538 | $7,138 | [Unaudited Consolidated Statements of Operations](index=3&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Operations) This section outlines TSS, Inc.'s revenues, costs, and profitability over specific reporting periods, including earnings per share Consolidated Statements of Operations Highlights (in thousands, except per-share amounts) | 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 revenues | $43,970 | $12,159 | $142,929 | $28,052 | | Cost of revenue | $36,155 | $7,623 | $125,904 | $20,802 | | Gross profit | $7,815 | $4,536 | $17,025 | $7,250 | | Income from operations | $2,236 | $1,700 | $6,349 | $1,954 | | Net income | $1,483 | $1,402 | $4,462 | $1,417 | | Earnings per common share - Basic | $0.06 | $0.06 | $0.19 | $0.06 | | Earnings per common share - Diluted | $0.06 | $0.06 | $0.17 | $0.06 | [Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) This section details the changes in TSS, Inc.'s equity components, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (in thousands) | Metric | Balance January 1, 2025 | Balance June 30, 2025 | | :-------------------------- | :---------------------- | :-------------------- | | Common Stock (Shares) | 25,250 | 25,975 | | Common Stock (Amount) | $3 | $3 | | Additional Paid-in Capital | $74,200 | $76,058 | | Treasury Stock (Shares) | (1,849) | (1,975) | | Treasury Stock (Amount) | $(6,730) | $(10,650) | | Accumulated Deficit | $(60,335) | $(55,873) | | Total Stockholders' Equity | $7,138 | $9,538 | - Net income contributed **$2,979 thousand** and **$1,483 thousand** to stockholders' equity for the three months ended March 31, 2025, and June 30, 2025, respectively[19](index=19&type=chunk) - Treasury shares repurchased amounted to **$(1,654) thousand** and **$(2,266) thousand** for the three months ended March 31, 2025, and June 30, 2025, respectively[19](index=19&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents TSS, Inc.'s cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :------------------------------------------ | :------- | :------- | | Net cash provided by (used in) operating activities | $36,973 | $(1,682) | | Net cash used in investing activities | $(25,779) | $(1,721) | | Net cash provided by (used in) financing activities | $7,420 | $(117) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $18,614 | $(3,520) | | Cash, cash equivalents and restricted cash, end of period | $41,836 | $8,311 | - Cash paid for interest, net of capitalized amounts, was **$2,327 thousand** in 2025, up from **$537 thousand** in 2024[21](index=21&type=chunk) - Capital expenditures financed with accounts payable amounted to **$1,881 thousand** in 2025[21](index=21&type=chunk) [Notes to Condensed Consolidated Statements](index=5&type=section&id=Notes%20to%20Condensed%20Consolidated%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and segment data [Note 1 – Significant Accounting Policies](index=6&type=section&id=Note%201%20%E2%80%93%20Significant%20Accounting%20Policies) This note details TSS, Inc.'s business operations, revenue recognition methods, and key accounting principles applied in financial reporting - TSS, Inc. provides comprehensive services for planning, design, deployment, maintenance, and refresh of end-user and enterprise systems, including AI-enabled data center server racks, and recently relocated its corporate offices to Georgetown, Texas[23](index=23&type=chunk) - The company recognizes revenue when control of goods or services is transferred to customers, with specific policies for maintenance, integration, equipment sales, deployment, and procurement services[33](index=33&type=chunk) Revenues Disaggregated by Segment and Service Type (Three Months Ended June 30, in thousands) | Segment/Service Type | 2025 | 2024 | | :--------------------------------- | :------- | :------- | | Facilities Management | $1,482 | $2,285 | | Systems Integration | $9,486 | $4,960 | | Procurement | $33,002 | $4,914 | | **Total Revenues** | **$43,970** | **$12,159** | Revenues Disaggregated by Segment and Service Type (Six Months Ended June 30, in thousands) | Segment/Service Type | 2025 | 2024 | | :--------------------------------- | :------- | :------- | | Facilities Management | $2,780 | $4,431 | | Systems Integration | $16,970 | $7,083 | | Procurement | $123,179 | $16,538 | | **Total Revenues** | **$142,929** | **$28,052** | - The company is economically dependent on a large US-based IT OEM, which accounted for **98% of revenues** in Q2 2025 and **99% year-to-date 2025**, and **98% of accounts receivable** at June 30, 2025[47](index=47&type=chunk)[48](index=48&type=chunk) Non-Recourse Factoring Program (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 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Aggregate gross amount factored | $72,391 | $28,835 | $193,484 | $50,978 | | Financing fees paid | $882 | $427 | $2,425 | $742 | - Non-cash stock-based compensation expense was approximately **$0.9 million** for Q2 2025 and **$1.9 million** for the six months ended June 30, 2025, significantly higher than prior year periods[53](index=53&type=chunk) - Cash and cash equivalents, including restricted cash, totaled **$41.8 million** at June 30, 2025, with **$5.0 million** restricted as collateral for bank debt[54](index=54&type=chunk) Allowance for Credit Losses (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $7 | $7 | | Additions charged to expense | $14 | $- | | Balance at end of period | $21 | $7 | - Goodwill carrying value remained at **$0.8 million** at June 30, 2025, with no impairment identified[65](index=65&type=chunk) - The company adopted ASU 2023-07 (Segment Reporting) effective December 31, 2024, resulting in three reportable segments and retrospective reclassification of prior period results[71](index=71&type=chunk) [Note 2 – Supplemental Balance Sheet Information](index=12&type=section&id=Note%202%20%E2%80%93%20Supplemental%20Balance%20Sheet%20Information) This note provides detailed breakdowns of specific balance sheet accounts, including receivables, inventories, and long-term debt Contract and Other Receivables, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :------------------------------ | :------------------------ | :------------------ | | Contract and other receivables | $14,018 | $16,210 | | Allowance for credit losses | $(21) | $(7) | | **Contracts and other receivables, net** | **$13,997** | **$16,203** | Inventories, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :---------------- | :------------------------ | :------------------ | | Raw Materials | $78 | $201 | | Work in Process | $155 | $120 | | Finished Goods | $14,377 | $17,373 | | Reserve | $(21) | $(21) | | **Inventories, net** | **$14,589** | **$17,673** | Goodwill and Intangible Assets (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :--------------------------------- | :------------------------ | :------------------ | | Goodwill | $780 | $780 | | Customer relationships (Gross Carrying Amount) | $906 | $906 | | Customer relationships (Accumulated Amortization) | $(906) | $(906) | | Acquired software (Gross Carrying Amount) | $234 | $234 | | Acquired software (Accumulated Amortization) | $(234) | $(234) | Property and Equipment, Net (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Trade equipment | $5,680 | $763 | | Leasehold improvements | $29,909 | $2,328 | | Construction in Process | $1,469 | $6,701 | | Less accumulated depreciation | $(2,601) | $(3,704) | | **Property and equipment, net** | **$35,288** | **$8,591** | Accounts Payable and Accrued Expenses (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :--------------------------------- | :------------------------ | :------------------ | | Accounts payable | $69,281 | $33,491 | | Accrued expenses | $9,674 | $17,802 | | **Total accounts payable and accrued expenses** | **$82,020** | **$53,340** | Long-Term Debt, Non-Current (in thousands) | Metric | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Borrowed funds (bank loan) | $20,000 | $8,667 | | Deferred debt issuance costs | $(459) | $(467) | | **Long-term debt, non-current** | **$19,541** | **$8,200** | [Note 3 – Long-Term Debt](index=14&type=section&id=Note%203%20%E2%80%93%20Long-Term%20Debt) This note describes TSS, Inc.'s new credit agreement, term loan details, interest rates, and compliance with financial covenants - On December 31, 2024, TSS entered a new Credit Agreement for a **$20.0 million** term loan facility to fund improvements at its new Georgetown, Texas facility[87](index=87&type=chunk) - The company borrowed **$8.7 million** initially and the remaining **$11.3 million** by June 30, 2025, bringing the total to **$20.0 million**[87](index=87&type=chunk) - The loan converted to a fully amortizing term loan on July 5, 2025, with monthly payments of approximately **$437,000** starting August 5, 2025, and a final due date of January 5, 2030[88](index=88&type=chunk) - The loan bears a floating interest rate (1-month SOFR plus 3.0%, with a 4.5% floor) and is secured by a **$5.0 million** cash deposit and certain equipment[88](index=88&type=chunk) - TSS was in compliance with all financial covenants (leverage ratio, debt service coverage ratio) at June 30, 2025[89](index=89&type=chunk) [Note 4 – Leasing Arrangements](index=15&type=section&id=Note%204%20%E2%80%93%20Leasing%20Arrangements) This note outlines TSS, Inc.'s operating lease commitments for facilities and equipment, including associated costs and future payment schedules - TSS has operating leases for its office and integration facilities in Round Rock and Georgetown, Texas, and for certain equipment, with remaining lease terms of 9 to 119 months[91](index=91&type=chunk) Operating Lease Costs (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 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $973 | $236 | $1,964 | $457 | | Variable lease cost | $202 | $114 | $324 | $227 | | **Total operating lease cost** | **$1,175** | **$350** | **$2,288** | **$684** | | Cash paid for operating leases | $420 | $136 | $656 | $265 | Future Minimum Lease Payments (as of June 30, 2025, in thousands) | Fiscal Year | Amount | | :---------- | :------- | | 2025 | $1,813 | | 2026 | $3,662 | | 2027 | $3,777 | | 2028 | $3,905 | | 2029 | $3,265 | | 2030 | $1,538 | | Thereafter | $16,678 | | **Total minimum future lease payments** | **$34,638** | | Less imputed interest | $(10,099) | | **Total** | **$24,539** | [Note 5 – Earnings Per-Share](index=16&type=section&id=Note%205%20%E2%80%93%20Earnings%20Per-Share) This note reconciles the calculation of basic and diluted earnings per share, detailing the components of the numerator and denominator Earnings Per Share Reconciliation (in thousands except per share amounts) | 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 income (Numerator) | $1,483 | $1,402 | $4,462 | $1,417 | | Weighted-average shares of common stock outstanding (Basic Denominator) | 23,581 | 22,077 | 23,871 | 21,988 | | **Basic Earnings per share** | **$0.06** | **$0.06** | **$0.19** | **$0.06** | | Dilutive options and warrants outstanding | 2,226 | 2,623 | 2,368 | 1,546 | | Number of shares used in diluted per-share computation | 25,807 | 24,700 | 26,239 | 23,534 | | **Diluted Earnings per share** | **$0.06** | **$0.06** | **$0.17** | **$0.06** | - 50,000 restricted shares and options were excluded from diluted EPS calculation for the three and six months ended June 30, 2025, due to their anti-dilutive effect[96](index=96&type=chunk) [Note 6 – Segment Reporting](index=16&type=section&id=Note%206%20%E2%80%93%20Segment%20Reporting) This note details TSS, Inc.'s three reportable segments, presenting their revenues, gross profits, and capital expenditures - TSS now operates with three reportable segments: Procurement, Systems Integration, and Facilities Management, a change from two segments prior to Q4 2024[97](index=97&type=chunk)[103](index=103&type=chunk) Segment Performance (Three Months Ended June 30, 2025, in thousands) | Metric | Procurement | Systems Integration | Facilities Management | Total Segments | | :------------------------------------------ | :---------- | :------------------ | :-------------------- | :------------- | | Total revenue | $33,002 | $9,486 | $1,482 | $43,970 | | Cost of revenue | $30,463 | $5,311 | $381 | $36,155 | | Segment gross profit | $2,539 | $4,175 | $1,101 | $7,815 | | Segment pre-tax income | $1,783 | $2,178 | $910 | $4,871 | | Capital expenditures | $- | $12,705 | $- | $12,705 | Segment Performance (Six Months Ended June 30, 2025, in thousands) | Metric | Procurement | Systems Integration | Facilities Management | Total Segments | | :------------------------------------------ | :---------- | :------------------ | :-------------------- | :------------- | | Total revenue | $123,179 | $16,970 | $2,780 | $142,929 | | Cost of revenue | $113,612 | $11,144 | $1,148 | $125,904 | | Segment gross profit | $9,567 | $5,826 | $1,632 | $17,025 | | Segment pre-tax income | $7,445 | $2,437 | $1,276 | $11,158 | | Capital expenditures | $- | $27,574 | $- | $27,574 | Reconciliation of Total Segment Pre-Tax Income to Consolidated Pre-Tax Income (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 segment pre-tax income (loss) | $4,871 | $3,112 | $11,158 | $4,691 | | Less: Unallocated SG&A, depreciation and other operating expenses | $3,494 | $1,790 | $7,136 | $3,443 | | Plus: Unallocated interest income, net | $175 | $106 | $558 | $205 | | **Consolidated pre-tax income** | **$1,552** | **$1,428** | **$4,580** | **$1,453** | Segment Total Assets (in thousands) | Segment | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Procurement | $28,452 | $19,319 | | Systems Integration | $38,789 | $25,855 | | Facilities Management | $2,773 | $932 | | **Total Segment Assets** | **$70,014** | **$46,106** | [Note 7 – Subsequent Events](index=18&type=section&id=Note%207%20%E2%80%93%20Subsequent%20Events) This note discloses significant events occurring after the balance sheet date, specifically the conversion of the construction loan to a term loan - On July 5, 2025, the **$20.0 million** principal balance on the Credit Agreement converted to a fully amortizing term loan, with monthly payments of approximately **$437,000** beginning August 5, 2025, and a final due date of January 5, 2030[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on TSS, Inc.'s financial performance and condition for the three and six months ended June 30, 2025. It highlights significant revenue growth driven by AI-enabled systems integration and procurement services, discusses changes in profitability, and outlines the company's liquidity and capital resources, including investments in a new facility [Overview](index=19&type=section&id=Overview) This overview describes TSS, Inc.'s core services, strategic investments in a new facility, and key customer agreements driving growth - TSS provides comprehensive services for data centers and mission-critical facilities, with systems integration services enhanced to include AI-enabled data center server racks since 2024[109](index=109&type=chunk) - The company has invested approximately **$31.6 million** in a new 213,000 square foot facility in Georgetown, Texas, to support increased production of AI-enabled computer racks, funded by a **$20 million** construction loan and cash on hand[113](index=113&type=chunk)[114](index=114&type=chunk)[158](index=158&type=chunk) - A multi-year agreement with its largest customer for AI-enabled rack integration provides expected minimum monthly volumes and payments to cover facility and debt service costs[113](index=113&type=chunk)[114](index=114&type=chunk) [Results of Operations - Three Months Ended June 30, 2025](index=20&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030%2C%202025) This section analyzes TSS, Inc.'s financial performance for the second quarter of 2025, detailing revenue, cost, and income changes [Revenues](index=20&type=section&id=Revenues_Q2) This subsection details the significant increase in Q2 2025 revenues, primarily driven by procurement and systems integration services - Total revenues increased by **262% to $44.0 million** in Q2 2025, driven by significant growth in procurement (**572% increase**) and systems integration (**91% increase**), partially offset by a **35% decrease** in facilities management revenue[122](index=122&type=chunk) - The increase in systems integration revenues was primarily due to continued growth in AI-enabled computer rack integration, supported by a multi-year agreement with minimum volume commitments[123](index=123&type=chunk) Procurement Activities - Three Months Ended June 30 (in thousands, except percentages) | Metric | 2025 | 2024 | Increase | Percentage Increase | | :------------------------------------------ | :------- | :------- | :------- | :------------------ | | Recognized value of all procurement deals (GAAP) | $33,002 | $4,914 | $28,088 | 572% | | Gross profit (GAAP) | $2,539 | $713 | $1,826 | 256% | | Gross margin based on recognized value (GAAP) | 7.7% | 14.5% | | | | Gross value of all procurement deals (Non-GAAP) | $65,731 | $20,988 | $44,743 | 213% | | Gross margin based on gross value (Non-GAAP) | 3.9% | 3.4% | | | [Cost of Revenue and Gross Margins](index=22&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margins_Q2) This subsection analyzes the changes in cost of revenue and gross margins across segments for Q2 2025, highlighting the impact of procurement growth - Consolidated gross margin decreased to **18%** in Q2 2025 from **37%** in Q2 2024, primarily due to the outsized increase in the lower-margin procurement business[131](index=131&type=chunk) Segment Gross Margins (Three Months Ended June 30) | Segment | 2025 | 2024 | | :------------------ | :----- | :----- | | Procurement | 8% | 15% | | Systems Integration | 44% | 43% | | Facilities Management | 74% | 74% | - Systems integration gross profit increased by **95% to $4.2 million**, despite including **$0.3 million** of rent expense for the new Georgetown facility and uncapitalizable costs related to readying the facility[131](index=131&type=chunk) [Selling, General and Administrative (SG&A) Expenses](index=23&type=section&id=Selling%2C%20General%20and%20Administrative%20%28SG%26A%29%20Expenses_Q2) This subsection details the increase in SG&A expenses for Q2 2025, attributed to higher headcount and compensation costs - SG&A expenses increased by **$2.0 million** in Q2 2025, primarily due to higher headcount, compensation costs, and increased accruals for incentive compensation[135](index=135&type=chunk) - Non-cash equity-based compensation included in SG&A was **$0.9 million** in Q2 2025, compared to **$0.2 million** in Q2 2024[135](index=135&type=chunk) [Depreciation and Amortization](index=23&type=section&id=Depreciation%20and%20Amortization_Q2) This subsection explains the increase in depreciation and amortization for Q2 2025, primarily due to the new factory - Depreciation and amortization increased from **$0.1 million** in Q2 2024 to **$0.8 million** in Q2 2025, due to two full months of depreciation on the new factory put into service in May 2025[136](index=136&type=chunk) [Operating Income](index=23&type=section&id=Operating%20Income_Q2) This subsection reports the growth in operating income for Q2 2025, reflecting improved operational efficiency despite increased expenses - Operating income increased by **32% to $2.2 million** in Q2 2025, up from **$1.7 million** in Q2 2024, despite a **97% increase** in operating expenses[137](index=137&type=chunk) [Interest Expense and Interest Income](index=23&type=section&id=Interest%20Expense%20and%20Interest%20Income_Q2) This subsection details the changes in interest expense and income for Q2 2025, influenced by increased debt and cash balances - Interest expense increased to **$0.9 million** in Q2 2025 from **$0.4 million** in Q2 2024, due to increased procurement transactions and interest on the **$20.0 million** construction loan[138](index=138&type=chunk)[139](index=139&type=chunk) - Interest income increased to **$0.2 million** in Q2 2025 from **$0.1 million** in Q2 2024, due to a higher average cash balance[140](index=140&type=chunk) [Net Income](index=24&type=section&id=Net%20Income_Q2) This subsection presents the net income and diluted earnings per share for Q2 2025, showing a modest increase Net Income and EPS (Three Months Ended June 30) | Metric | 2025 | 2024 | | :--------- | :------- | :------- | | Net income | $1,483 | $1,402 | | Diluted EPS | $0.06 | $0.06 | [Results of Operations - Six Months Ended June 30, 2025](index=24&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030%2C%202025) This section analyzes TSS, Inc.'s financial performance for the first half of 2025, detailing revenue, cost, and income changes [Revenues](index=24&type=section&id=Revenues_YTD) This subsection details the substantial increase in year-to-date revenues, driven by procurement and AI-enabled systems integration - Total revenues increased by **410% to $142.9 million** for the six months ended June 30, 2025, driven by procurement (**645% increase**) and systems integration (**140% increase**), partially offset by a **37% decrease** in facilities management[143](index=143&type=chunk) - The increase in systems integration revenues was primarily due to continued growth in AI-enabled computer rack integration[144](index=144&type=chunk) Procurement Activities - Six Months Ended June 30 (in thousands, except percentages) | Metric | 2025 | 2024 | Increase | Percentage Increase | | :------------------------------------------ | :------- | :------- | :------- | :------------------ | | Recognized value of all procurement deals (GAAP) | $123,179 | $16,538 | $106,641 | 645% | | Gross profit (GAAP) | $9,567 | $1,622 | $7,945 | 490% | | Gross margin based on recognized value (GAAP) | 7.8% | 9.8% | | | | Gross value of all procurement deals (Non-GAAP) | $171,712 | $40,944 | $130,768 | 319% | | Gross margin based on gross value (Non-GAAP) | 5.6% | 4.0% | | | [Cost of Revenue and Gross Margins](index=25&type=section&id=Cost%20of%20Revenue%20and%20Gross%20Margins_YTD) This subsection analyzes the changes in cost of revenue and gross margins for the first half of 2025, impacted by the growth of lower-margin procurement - Consolidated gross margin decreased to **12%** for the six months ended June 30, 2025, from **26%** in the prior year, primarily due to the increased proportion of lower-margin procurement business[149](index=149&type=chunk) Segment Gross Margins (Six Months Ended June 30) | Segment | 2025 | 2024 | | :------------------ | :----- | :----- | | Procurement | 8% | 10% | | Systems Integration | 34% | 39% | | Facilities Management | 59% | 65% | - Systems integration gross profit increased by **113% to $5.8 million**, despite approximately **$1.0 million** of non-cash rent expense for the new Georgetown facility prior to operations[149](index=149&type=chunk) [Selling, General and Administrative (SG&A) Expenses](index=26&type=section&id=Selling%2C%20General%20and%20Administrative%20%28SG%26A%29%20Expenses_YTD) This subsection details the increase in SG&A expenses for the first half of 2025, driven by higher headcount and compensation - SG&A expenses increased by **$4.5 million (88%)** for the six months ended June 30, 2025, due to higher headcount, compensation, and incentive compensation accruals[151](index=151&type=chunk) - Non-cash equity-based compensation included in SG&A was **$1.8 million** for the six months ended June 30, 2025, compared to **$0.3 million** in the prior year[151](index=151&type=chunk) [Depreciation and Amortization](index=26&type=section&id=Depreciation%20and%20Amortization_YTD) This subsection explains the increase in depreciation and amortization for the first half of 2025, due to the new factory - Depreciation and amortization increased from **$0.2 million** in the prior year to **$1.1 million** for the six months ended June 30, 2025, due to the new factory being put into service[152](index=152&type=chunk) [Operating Income](index=26&type=section&id=Operating%20Income_YTD) This subsection reports the significant growth in operating income for the first half of 2025, indicating improved operational leverage - Operating income grew by **225% to $6.3 million** for the six months ended June 30, 2025, compared to **$2.0 million** in the prior year, reflecting effective leveraging of the expense structure[153](index=153&type=chunk) [Interest Expense and Interest Income](index=26&type=section&id=Interest%20Expense%20and%20Interest%20Income_YTD) This subsection details the changes in interest expense and income for the first half of 2025, influenced by debt and cash balances - Interest expense increased to **$2.3 million** for the six months ended June 30, 2025, from **$0.7 million** in the prior year, due to increased procurement transactions and the construction loan[154](index=154&type=chunk) - Interest income increased to **$0.6 million** for the six months ended June 30, 2025, from **$0.2 million** in the prior year, due to higher average cash balances[155](index=155&type=chunk) [Net Income](index=26&type=section&id=Net%20Income_YTD) This subsection presents the net income and diluted earnings per share for the first half of 2025, showing substantial growth Net Income and EPS (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--------- | :------- | :------- | | Net income | $4,462 | $1,417 | | Diluted EPS | $0.17 | $0.06 | [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses TSS, Inc.'s sources and uses of cash, including operating cash flow, investments in facilities, and financing activities - Primary liquidity sources include cash and cash equivalents (**$41.8 million** at June 30, 2025), vendor trade-credit, projected cash flows from operations, and **$6.8 million** in tenant improvement funds[157](index=157&type=chunk)[161](index=161&type=chunk) - Cash provided by operating activities was **$37.0 million** for the six months ended June 30, 2025, a significant increase from a **$1.7 million** use in the prior year, driven by AI-rack integration and procurement services[162](index=162&type=chunk) - Investing activities used **$25.8 million** in cash for the six months ended June 30, 2025, primarily for the buildout of the new integration facility[164](index=164&type=chunk) - Financing activities provided **$7.4 million** in cash, mainly from **$11.3 million** in construction loan proceeds, partially offset by **$3.9 million** used to repurchase treasury stock[165](index=165&type=chunk) - The company uses a non-recourse factoring agreement for receivables from its largest customer to accelerate cash receipts, which is considered efficient due to a lower effective interest rate than borrowing funds[160](index=160&type=chunk) [Off-Balance Sheet Arrangements](index=28&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms that TSS, Inc. had no off-balance sheet arrangements as of the reporting dates - As of June 30, 2025, and December 31, 2024, the company had no off-balance sheet arrangements[168](index=168&type=chunk) [Critical Accounting Policies and Pronouncements](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Pronouncements) This section states that there have been no material changes to TSS, Inc.'s critical accounting policies since the last annual report - There have been no material changes to the company's critical accounting policies and estimates as set forth in the 2024 Annual Report on Form 10-K[169](index=169&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details TSS, Inc.'s exposure to market risks, primarily focusing on interest rate risk associated with its variable-rate debt and the costs incurred from its accounts receivable factoring program - The company's **$20.0 million** outstanding debt bears a variable interest rate tied to 1-month SOFR, exposing it to interest rate fluctuations[171](index=171&type=chunk) - A hypothetical **25 basis point** increase or decrease in annual SOFR rates would increase or decrease annual interest expense by approximately **$50,000** on the outstanding debt[171](index=171&type=chunk) - Factoring costs for accounts receivable are also based on prevailing SOFR; a hypothetical **25 basis point** change could alter annual interest expense by approximately **$107,000**, assuming **$200 million** in factored receivables[172](index=172&type=chunk) [Item 4. Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of TSS, Inc.'s disclosure controls and procedures, concluding they were ineffective as of June 30, 2025, due to an un-remediated material weakness in internal control over financial reporting identified in 2024 - Management concluded that disclosure controls and procedures were ineffective as of June 30, 2025, due to an un-remediated material weakness in internal control over financial reporting[175](index=175&type=chunk) - The material weakness, identified during the 2024 annual audit, relates to ineffective design of certain management review controls, leading to potential material adjustments to financial statements[176](index=176&type=chunk) - Root causes include manual processes, challenges in segregating duties, and a need for additional controls; remediation efforts are ongoing, including engaging external experts and enhancing documentation[176](index=176&type=chunk)[177](index=177&type=chunk) - Despite the material weakness, management believes the condensed consolidated financial statements for the periods ended June 30, 2025, fairly present the company's financial position, results of operations, and cash flows in conformity with GAAP[179](index=179&type=chunk) [PART II – OTHER INFORMATION](index=30&type=section&id=PART%20II%E2%80%93OTHER%20INFORMATION) This part includes information on unregistered sales of equity securities and a list of exhibits filed with the report [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides details on the company's purchases of its common stock during the quarter ended June 30, 2025, which were primarily for tax withholding requirements related to employee stock plans Purchases of Common Stock (Quarter Ended June 30, 2025) | Monthly Period | Total Shares Purchased | Average Price paid per Share | | :-------------------------------- | :--------------------- | :--------------------------- | | April 1, 2025 – April 30, 2025 | 5,930 | $6.55 | | May 1, 2025 – May 31, 2025 | 23,766 | $14.44 | | June 1, 2025 – June 30, 2025 | 69,407 | $27.14 | | **Total** | **99,103** | **$22.86** | - All shares were acquired from associates to satisfy tax withholding requirements upon restricted stock vesting or as exercise price for stock options; none were open market trades[182](index=182&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including various certifications and XBRL documents - Exhibits include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as well as Inline XBRL documents[183](index=183&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) This section provides the official signature and date of the report's filing by the principal financial officer - The report was signed on August 11, 2025, by Daniel M. Chism, Chief Financial Officer (Principal Financial Officer) of TSS, INC[185](index=185&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk)

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) Presents the company's unaudited condensed consolidated financial statements and management's analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%2C%20and%20December%2031%2C%202024%20%28unaudited%29) Presents the company's financial position, including assets, liabilities, and equity, at specific dates Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,892 | $13,450 | | Total current assets | $191,390 | $194,945 | | Total assets | $634,659 | $628,995 | | Total current liabilities | $69,195 | $76,295 | | Long-term debt, excl. current | $151,125 | $176,875 | | Total liabilities | $249,168 | $286,235 | | Total stockholders' equity | $385,491 | $342,760 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%2C%20and%20June%2030%2C%202024%20%28unaudited%29) Details the company's revenues, expenses, and net income over specific reporting periods Comprehensive Income Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $151,176 | $110,177 | $299,324 | $215,186 | | Gross profit | $43,543 | $33,031 | $85,695 | $63,114 | | Operating income | $24,329 | $17,951 | $47,455 | $33,876 | | Net income | $17,180 | $13,552 | $34,364 | $26,245 | | Basic EPS | $2.23 | $1.77 | $4.46 | $3.43 | | Diluted EPS | $2.21 | $1.75 | $4.42 | $3.38 | | Comprehensive income | $22,474 | $13,371 | $41,983 | $25,481 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%2C%20and%20June%2030%2C%202024%20%28unaudited%29) Outlines changes in equity components, including net income, share-based compensation, and other comprehensive income Stockholders' Equity Changes (in thousands) for Six Months Ended June 30, 2025 | Item | Amount | | :--- | :--- | | Balance at December 31, 2024 | $342,760 | | Share-based compensation | $4,497 | | Exercise of stock options net of shares presented for exercise | $165 | | Net share settlement of RSU's | $(3,914) | | Other comprehensive income | $7,619 | | Net income | $34,364 | | Balance at June 30, 2025 | $385,491 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%2C%20and%20June%2030%2C%202024%20%28unaudited%29) Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Cash Flow Highlights (in thousands) for Six Months Ended June 30 | Activity | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $39,141 | $22,368 | +$16,773 | | Net cash used in investing activities | $(8,467) | $(9,113) | +$646 | | Net cash used in financing activities | $(29,781) | $(1,673) | -$28,108 | | Net increase in cash and cash equivalents | $1,442 | $11,465 | -$10,023 | | Cash and cash equivalents at end of period | $14,892 | $16,728 | -$1,836 | [Notes to Interim Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Interim%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the interim condensed consolidated financial statements [(1) Basis of Presentation](index=10&type=section&id=%281%29%20Basis%20of%20Presentation) This note explains that the interim financial statements are prepared in accordance with SEC rules for Form 10-Q, are unaudited, and include all necessary adjustments for fair presentation. It also mentions the evaluation of a new accounting pronouncement (ASU 2023-09) related to income tax disclosures - Statements are unaudited but include all normal, recurring adjustments necessary for a fair presentation of results for these interim periods[23](index=23&type=chunk) - The Company is currently evaluating the impact of ASU 2023-09, which requires additional quantitative and qualitative income tax disclosures, effective for annual periods beginning after December 15, 2024[26](index=26&type=chunk) [(2) Acquisitions](index=10&type=section&id=%282%29%20Acquisitions) This note details several acquisitions made by the Company, including AJR Specialty Products, AJR Custom Foam Products, Marble Medical, AJR Enterprises, Welch Fluorocarbon, and AQF Medical, highlighting their strategic importance and financial impact - On April 25, 2025, the Company acquired AJR Specialty Products, LLC and AJR Custom Foam Products, LLC for **$2.8 million in cash**, enhancing capacity in single-use safe patient handling and expertise in specialty fabrics and foam fabrication[27](index=27&type=chunk)[28](index=28&type=chunk) - In 2024, the Company completed four acquisitions: Marble Medical (**$4.5 million cash** + **$0.5 million contingent**), AJR Enterprises (**$110 million cash**), Welch Fluorocarbon (**$34.6 million cash** + **$6.0 million contingent**), and AQF Medical (**€43 million cash**, approximately **$48.0 million**). These acquisitions collectively contributed approximately **$76.3 million in sales** during the first half of 2025[31](index=31&type=chunk)[35](index=35&type=chunk)[40](index=40&type=chunk)[45](index=45&type=chunk)[114](index=114&type=chunk) Unaudited Pro Forma Consolidated Statement of Comprehensive Income (in thousands) for Six Months Ended June 30, 2024 (as if 2024 acquisitions occurred at beginning of period) | Metric | Amount | | :--- | :--- | | Sales | $279,349 | | Operating Income | $43,016 | | Net Income | $29,515 | | Basic EPS | $3.85 | | Diluted EPS | $3.81 | [(3) Equity Method Investment](index=15&type=section&id=%283%29%20Equity%20Method%20Investment) This note describes the Company's 50% equity interest in AQF Asia PTE Ltd., accounted for using the equity method due to significant influence but lack of control - The Company holds a **50% equity interest** in AQF Asia PTE Ltd., accounted for using the equity method due to significant influence but not control[51](index=51&type=chunk) Equity Method Investment Roll-Forward (in thousands) for Six Months Ended June 30, 2025 | Item | Amount | | :--- | :--- | | Equity Method Investment - December 31, 2024 | $6,808 | | 50% share of AQF Asia net income | $157 | | Amortization of basis differences | $(59) | | Equity Method Investment - June 30, 2025 | $6,906 | [(4) Revenue Recognition](index=16&type=section&id=%284%29%20Revenue%20Recognition) This note explains the Company's revenue recognition policies, primarily recognizing product sales upon shipment and tooling/machinery sales upon customer acceptance. It also disaggregates revenue by product type and details contract balances Net Sales by Type (in thousands) | Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Products | $149,332 | $105,248 | $294,432 | $208,517 | | Tooling and Machinery | $302 | $3,292 | $1,800 | $4,557 | | Engineering services | $1,542 | $1,637 | $3,092 | $2,112 | | **Total net sales** | **$151,176** | **$110,177** | **$299,324** | **$215,186** | Contract Liabilities (Deferred Revenue) (in thousands) | Period | Beginning Balance | End Balance | | :--- | :--- | :--- | | Six Months Ended June 30, 2025 | $4,667 | $4,609 | | Six Months Ended June 30, 2024 | $6,616 | $4,552 | [(5) Supplemental Cash Flow Information](index=17&type=section&id=%285%29%20Supplemental%20Cash%20Flow%20Information) This note provides additional details on cash paid for interest and income taxes, and non-cash investing and financing activities Cash Paid (in thousands) for Six Months Ended June 30 | Item | 2025 | 2024 | | :--- | :--- | :--- | | Interest | $5,528 | $1,228 | | Income taxes, net of refunds | $881 | $5,735 | [(6) Receivables and Allowance for Credit Losses](index=17&type=section&id=%286%29%20Receivables%20and%20Allowance%20for%20Credit%20Losses) This note details the composition of receivables and the methodology for the allowance for credit losses, including a roll-forward of the allowance Receivables, Net (in thousands) | Date | Accounts receivable–trade | Less allowance for credit losses | Receivables, net | | :--- | :--- | :--- | :--- | | June 30, 2025 | $85,693 | $(762) | $84,931 | | December 31, 2024 | $85,562 | $(885) | $84,677 | Allowance for Credit Losses Roll-Forward (in thousands) for Six Months Ended June 30 | Item | 2025 | 2024 | | :--- | :--- | :--- | | Allowance - beginning of period | $885 | $727 | | Provision (adjustment) for expected credit losses | $(121) | $107 | | Amounts written off against the allowance, net of recoveries | $(2) | $(17) | | Allowance - end of period | $762 | $817 | [(7) Fair Value of Financial Instruments](index=18&type=section&id=%287%29%20Fair%20Value%20of%20Financial%20Instruments) This note categorizes financial instruments measured at fair value into Level 1, 2, or 3 based on input observability, focusing on contingent consideration and non-competition payments Level 3 Financial Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued contingent consideration (earn-out) | $5,515 | $10,239 | | Present value of non-competition payments | $5,076 | $6,871 | - The Company paid approximately **$5.3 million** related to contingent consideration and **$1.8 million** related to non-competition agreements for the six months ended June 30, 2025[67](index=67&type=chunk)[68](index=68&type=chunk) [(8) Share-Based Compensation](index=19&type=section&id=%288%29%20Share-Based%20Compensation) This note explains the accounting for share-based compensation, including common stock grants, stock option grants, and restricted stock unit (RSU) awards, and their impact on expenses Share-Based Compensation Expense (in thousands) | Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Common stock grants | $100 | $100 | $200 | $200 | | Stock option grants | $65 | $118 | $173 | $230 | | Restricted Stock Unit Awards ("RSUs") | $2,120 | $1,518 | $4,124 | $2,819 | | **Total share-based compensation** | **$2,285** | **$1,736** | **$4,497** | **$3,249** | - As of June 30, 2025, the Company had approximately **$13.2 million of unrecognized compensation expense**, expected to be recognized over a period of **2.8 years**[77](index=77&type=chunk) [(9) Inventories](index=21&type=section&id=%289%29%20Inventories) This note provides a breakdown of inventory components (raw materials, work in process, finished goods) and their valuation method Inventories (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Raw materials | $62,789 | $65,747 | | Work in process | $6,565 | $5,730 | | Finished goods | $15,846 | $16,059 | | **Total inventory** | **$85,200** | **$87,536** | [(10) Property, Plant and Equipment](index=21&type=section&id=%2810%29%20Property%2C%20Plant%20and%20Equipment) This note lists the categories of property, plant, and equipment, along with their gross amounts, accumulated depreciation, and net book value Property, Plant and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Property, plant and equipment (gross) | $142,948 | $134,934 | | Accumulated depreciation and amortization | $(69,031) | $(64,370) | | **Net property, plant and equipment** | **$73,917** | **$70,564** | [(11) Leases](index=21&type=section&id=%2811%29%20Leases) This note details the Company's operating and finance leases, including Right of Use (ROU) assets, lease liabilities, and lease costs, along with weighted-average remaining lease terms and discount rates ROU Assets and Lease Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total ROU assets | $17,011 | $16,148 | | Total lease liabilities - current | $4,715 | $4,226 | | Total lease liabilities - long-term | $12,749 | $12,432 | Total Lease Cost (in thousands) for Six Months Ended June 30 | Item | 2025 | 2024 | | :--- | :--- | :--- | | Total lease cost | $2,791 | $2,011 | | Operating cash flows from operating leases | $2,244 | $1,682 | | Financing cash flows from finance leases | $32 | $41 | | ROU assets obtained in exchange for lease liabilities | $2,711 | $- | [(12) Income Per Share](index=23&type=section&id=%2812%29%20Income%20Per%20Share) This note explains the calculation of basic and diluted income per share, including the weighted average common shares outstanding and dilutive common stock equivalents Weighted Average Common Shares Outstanding (in thousands) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic weighted average common shares outstanding | 7,709 | 7,672 | 7,698 | 7,662 | | Diluted weighted average common shares outstanding | 7,773 | 7,753 | 7,783 | 7,756 | - For the three and six months ended June 30, 2025, **2,958 stock awards** were excluded from the computation of diluted earnings per share because their effect would be antidilutive[84](index=84&type=chunk) [(13) Segment Data](index=24&type=section&id=%2813%29%20Segment%20Data) This note states that the Company operates as a single operating and reportable segment, with the CEO reviewing consolidated results. It disaggregates net sales by market (Medical and Non-medical) and geographic area, and identifies major customers Net Sales by Market (in thousands) | Market | 3 Months Ended June 30, 2025 | % | 3 Months Ended June 30, 2024 | % | 6 Months Ended June 30, 2025 | % | 6 Months Ended June 30, 2024 | % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Medical | $139,335 | 92.2% | $95,419 | 86.6% | $274,749 | 91.8% | $185,456 | 86.2% | | Non-medical | $11,841 | 7.8% | $14,758 | 13.4% | $24,575 | 8.2% | $29,730 | 13.8% | | **Net Sales** | **$151,176** | **100.0%** | **$110,177** | **100.0%** | **$299,324** | **100.0%** | **$215,186** | **100.0%** | - Net sales shipped to customers outside of the United States comprised approximately **17.1% of consolidated net sales** for the six months ended June 30, 2025, down from **18.6%** in the prior year period[86](index=86&type=chunk) - Two customers comprised approximately **24.4% and 22.1% of consolidated net sales** for the six months ended June 30, 2025[87](index=87&type=chunk) [(14) Goodwill and Other Intangible Assets](index=25&type=section&id=%2814%29%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides a roll-forward of goodwill and details the carrying values and amortization schedule for definite-lived intangible assets Goodwill Carrying Amount (in thousands) | Date | Amount | | :--- | :--- | | December 31, 2024 | $189,657 | | Foreign currency translation | $3,294 | | June 30, 2025 | $192,968 | Definite-Lived Intangible Assets, Net (in thousands) as of June 30, 2025 | Type | Net Balance | | :--- | :--- | | Customer List | $112,515 | | Intellectual Property | $24,446 | | Tradename & Brand | $780 | | Non Compete | $4,233 | | **Total** | **$141,974** | - Amortization expense related to intangible assets was approximately **$4.8 million** for the six months ended June 30, 2025, compared to **$2.0 million** for the same period in 2024[90](index=90&type=chunk) [(15) Other Long-Term Liabilities](index=26&type=section&id=%2815%29%20Other%20Long-Term%20Liabilities) This note lists the components of other long-term liabilities, including non-competition payments and accrued contingent consideration Other Long-Term Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Present value of non-competition payments | $3,127 | $4,989 | | Accrued contingent consideration | $791 | $4,938 | | Other | $250 | $1,217 | | **Total** | **$4,168** | **$11,144** | [(16) Income Taxes](index=26&type=section&id=%2816%29%20Income%20Taxes) This note discusses the Company's income tax expense and effective tax rates for the reporting periods, noting factors influencing the rate changes Income Tax Expense and Effective Rate | Period | Income Before Tax Expense (in thousands) | Income Tax Expense (in thousands) | Effective Tax Rate | | :--- | :--- | :--- | :--- | | 3 Months Ended June 30, 2025 | $21,626 | $4,446 | 20.6% | | 3 Months Ended June 30, 2024 | $17,372 | $3,820 | 22.0% | | 6 Months Ended June 30, 2025 | $41,907 | $7,543 | 18.0% | | 6 Months Ended June 30, 2024 | $32,707 | $6,462 | 19.8% | - The decrease in the effective tax rate for Q2 2025 is largely due to higher anticipated income from operations in the Dominican Republic where the Company pays lower taxes[128](index=128&type=chunk) - The decrease in the effective tax rate for H1 2025 is largely due to increased discrete tax benefits associated with vested equity and a state tax refund[129](index=129&type=chunk) [(17) Debt](index=26&type=section&id=%2817%29%20Debt) This note details the Company's $275 million Third Amended and Restated Credit Agreement, including a secured term loan and revolving credit facility, interest rates, covenants, and maturity - The Company has a **$275 million Third Amended and Restated Credit Agreement**, consisting of a **$125 million secured term loan** and a **$150 million secured revolving credit facility**, maturing on **June 27, 2029**[93](index=93&type=chunk)[94](index=94&type=chunk) - At June 30, 2025, outstanding borrowings were approximately **$163.6 million**, with a weighted average interest rate of approximately **5.7%**. The Company was in compliance with all covenants[96](index=96&type=chunk) Future Maturities of Long-Term Debt (in thousands) at June 30, 2025 | Year | Term Loan | Revolving credit facility | Total | | :--- | :--- | :--- | :--- | | Remainder of 2025 | $6,250 | $- | $6,250 | | 2026 | $12,500 | $- | $12,500 | | 2027 | $12,500 | $- | $12,500 | | 2028 | $12,500 | $- | $12,500 | | 2029 | $71,875 | $48,000 | $119,875 | | **Total** | **$115,625** | **$48,000** | **$163,625** | [(18) Subsequent Events](index=27&type=section&id=%2818%29%20Subsequent%20Events) This note reports on two acquisitions completed shortly after the reporting period: Universal Plastics & Engineering Company, Inc. (UNIPEC) and Techno Plastics Industries, Inc. (TPI), and the enactment of the "One Big Beautiful Bill Act" (OBBBA) - On July 2, 2025, the Company acquired Universal Plastics & Engineering Company, Inc. (UNIPEC) for **$7.5 million in cash**, specializing in precision thermoformed and heat-sealed polymer components for implantable medical devices[99](index=99&type=chunk)[100](index=100&type=chunk) - On July 7, 2025, the Company acquired Techno Plastics Industries, Inc. (TPI) for **$4.5 million in cash**, a specialty manufacturer of precision thermoplastic injection-molded components[103](index=103&type=chunk)[104](index=104&type=chunk) - On July 4, 2025, the "One Big Beautiful Bill Act" (OBBBA) was signed into law, including corporate tax provisions like **100% bonus depreciation**. The Company is evaluating its impact but does not expect a material effect on income tax expense[106](index=106&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, including an overview of the business, analysis of sales, profitability, expenses, liquidity, and capital resources, as well as forward-looking statements and the impact of recent legislative changes [Forward-looking Statements](index=28&type=section&id=Forward-looking%20Statements) This section provides a cautionary note regarding forward-looking statements, highlighting inherent risks and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from any future results expressed or implied[107](index=107&type=chunk) - Investors are cautioned not to place undue reliance on these statements due to the inherent uncertainty of estimates, forecasts, and projections[110](index=110&type=chunk) [Overview](index=30&type=section&id=Overview) This section describes UFP Technologies as a contract development and manufacturing organization specializing in single-use and single-patient medical devices, emphasizing its role in the medical device supply chain and its strategy for organic and acquisition-based growth - UFP Technologies is a contract development and manufacturing organization (CDMO) specializing in single-use and single-patient medical devices, serving as an outsourcing partner to medical device manufacturers[112](index=112&type=chunk) - The Company's strategy includes further organic growth and growth through strategic acquisitions[113](index=113&type=chunk) - Net sales for the six months ended June 30, 2025, increased **39.1% to $299.3 million**, primarily due to **48.2% growth in the medical market**, largely driven by 2024 acquisitions[114](index=114&type=chunk) [Impact of Tariffs](index=31&type=section&id=Impact%20of%20Tarif%20s) This section discusses the potential impact of increased U.S. tariffs on foreign imports, noting that while direct impact has not been material, raw material price increases are anticipated to be passed on to customers - Increased U.S. tariffs have not had a material direct impact on the Company's business, financial condition, or results of operations to date[116](index=116&type=chunk) - The Company estimates an increase of approximately **$9 million in annual price increases** due to tariffs being passed through by raw material suppliers, which it intends to pass on to customers[116](index=116&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the Company's financial performance for the three and six months ended June 30, 2025, compared to 2024, covering net sales, gross profit, SG&A, contingent consideration, interest expense, other expense/income, and income taxes [Net Sales](index=31&type=section&id=Net%20Sales) Net sales saw significant growth for both the three and six months ended June 30, 2025, primarily driven by acquisitions and strong organic growth in the medical market - Net sales for the three months ended June 30, 2025, increased **37.2% to $151.2 million**, with medical market sales growing **46.0%** primarily due to 2024 and 2025 acquisitions (**$35.7 million contribution**)[117](index=117&type=chunk) - Organic sales growth for the second quarter was **4.9%**, with organic growth in the medical market at approximately **10%**[117](index=117&type=chunk) - Net sales for the six months ended June 30, 2025, increased **39.1% to $299.3 million**, with medical market sales growing **48.2%** primarily due to 2024 and 2025 acquisitions (**$76.3 million contribution**)[118](index=118&type=chunk) [Gross Profit](index=31&type=section&id=Gross%20Profit) Gross margin slightly decreased for both the three and six months ended June 30, 2025, primarily due to increased material and labor costs and inefficiencies from newly acquired AJR operations - Gross margin decreased to **28.8%** for the three months ended June 30, 2025, from **30.0%** for the same period in 2024[119](index=119&type=chunk) - Gross margin decreased slightly to **28.6%** for the six months ended June 30, 2025, from **29.3%** for the same period in 2024[120](index=120&type=chunk) - Inefficiencies in newly acquired AJR operations added an estimated **$1.2 million** to cost-of-sales in the second quarter, with anticipated gradual improvement for the balance of the year[119](index=119&type=chunk) [Selling, General and Administrative Expenses](index=31&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) SG&A expenses increased in absolute terms for both periods due to 2024 acquisitions, but decreased as a percentage of sales, indicating improved operational leverage - SG&A increased **34.4% to $18.7 million** for the three months ended June 30, 2025, from **$13.9 million** in 2024, primarily due to 2024 acquisitions[121](index=121&type=chunk) - As a percentage of sales, SG&A decreased to **12.4%** for the three months ended June 30, 2025, from **12.6%** in 2024[121](index=121&type=chunk) - SG&A increased **34.5% to $37.4 million** for the six months ended June 30, 2025, from **$27.8 million** in 2024, decreasing as a percentage of sales to **12.5%** from **12.9%**[122](index=122&type=chunk) [Change in fair value of contingent consideration](index=32&type=section&id=Change%20in%20fair%20value%20of%20contingent%20consideration) The Company recognized an expense related to the change in fair value of contingent consideration for past acquisitions (Welch, Marble, DAS Medical), reflecting re-measurements based on performance thresholds - The change in fair value of contingent consideration resulted in an expense of approximately **$0.3 million** for the three months ended June 30, 2025, and **$0.5 million** for the six months ended June 30, 2025[123](index=123&type=chunk) - The fair value of the liability for contingent consideration payments recognized at June 30, 2025, totaled approximately **$5.5 million** out of remaining potential payments of **$9.3 million**[123](index=123&type=chunk) [Interest expense, net](index=32&type=section&id=Interest%20expense%2C%20net) Net interest expense significantly increased for both periods, primarily due to higher debt levels incurred for the 2024 acquisitions - Net interest expense was approximately **$2.7 million** for the three months ended June 30, 2025, up from **$0.6 million** in 2024[124](index=124&type=chunk) - Net interest expense was approximately **$5.5 million** for the six months ended June 30, 2025, up from **$1.2 million** in 2024, primarily due to higher debt related to borrowings for 2024 acquisitions[125](index=125&type=chunk) [Other expense (income)](index=32&type=section&id=Other%20expense%20%28income%29) Other expense increased for both periods, driven by foreign currency transaction losses in 2025, partially offset by equity method investment income - Other expenses were approximately **$32 thousand** for the three months ended June 30, 2025, compared to **$2 thousand** in 2024[126](index=126&type=chunk) - Other expense was approximately **$68 thousand** for the six months ended June 30, 2025, compared to other income of **$39 thousand** in 2024, primarily due to foreign currency transaction losses in 2025 and equity method investment income[127](index=127&type=chunk) [Income Taxes](index=32&type=section&id=Income%20Taxes) The effective tax rate decreased for both the three and six months ended June 30, 2025, influenced by higher income from lower-tax jurisdictions and discrete tax benefits - The effective tax rate for the three months ended June 30, 2025, was **20.6%**, down from **22.0%** in 2024, largely due to higher anticipated income from operations in the Dominican Republic[128](index=128&type=chunk) - The effective tax rate for the six months ended June 30, 2025, was **18.0%**, down from **19.8%** in 2024, due to increased discrete tax benefits associated with vested equity and a state tax refund[129](index=129&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses how the Company funds its operations and growth, including cash flows from operating activities, debt facilities, and future liquidity plans [Cash Flows](index=33&type=section&id=Cash%20Flows) Net cash provided by operating activities significantly increased, while net cash used in financing activities also rose substantially, primarily due to debt repayments - Net cash provided by operating activities for the six months ended June 30, 2025, was approximately **$39.1 million**, primarily from net income, depreciation, and share-based compensation[131](index=131&type=chunk) - Net cash used in investing activities was approximately **$8.5 million**, mainly for capital additions and acquisitions[133](index=133&type=chunk) - Net cash used for financing activities was approximately **$29.8 million**, primarily due to **$36.0 million in revolving line of credit payments** and **$6.3 million in long-term debt principal payments**[134](index=134&type=chunk) [Outstanding and Available Debt](index=33&type=section&id=Outstanding%20and%20Available%20Debt) This section details the Company's $275 million credit agreement, including outstanding borrowings, interest rates, and compliance with covenants - The Company has a **$275 million Third Amended and Restated Credit Agreement**, comprising a **$125 million secured term loan** and a **$150 million secured revolving credit facility**, maturing on **June 27, 2029**[135](index=135&type=chunk)[136](index=136&type=chunk) - At June 30, 2025, outstanding borrowings were approximately **$163.6 million**, with a weighted average interest rate of approximately **5.7%**. The Company was in compliance with all covenants[138](index=138&type=chunk) Future Maturities of Long-Term Debt (in thousands) at June 30, 2025 | Year | Term Loan | Revolving credit facility | Total | | :--- | :--- | :--- | :--- | | Remainder of 2025 | $6,250 | $- | $6,250 | | 2026 | $12,500 | $- | $12,500 | | 2027 | $12,500 | $- | $12,500 | | 2028 | $12,500 | $- | $12,500 | | 2029 | $71,875 | $48,000 | $119,875 | | **Total** | **$115,625** | **$48,000** | **$163,625** | [Future Liquidity](index=34&type=section&id=Future%20Liquidity) The Company expects existing resources, including its revolving credit facility and cash from operations, to be sufficient for the next twelve months, with plans for continued capacity expansion and potential future acquisitions - The Company believes its existing resources, including its revolving credit facility and cash expected from operations, will be sufficient to fund cash flow requirements through the next twelve months[141](index=141&type=chunk) - The Company plans to continue adding capacity, enhancing operating efficiencies, and considering additional acquisitions complementary to its business[141](index=141&type=chunk) [Enactment of the "One Big Beautiful Bill Act" (OBBBA)](index=35&type=section&id=Enactment%20of%20the%20%22One%20Big%20Beautiful%20Bill%20Act%22%20%28OBBBA%29) The "One Big Beautiful Bill Act" (OBBBA) was signed into law on July 4, 2025, introducing corporate tax provisions such as 100% bonus depreciation and immediate expensing for R&D. The Company is evaluating its impact but does not expect a material effect on income tax expense - The "One Big Beautiful Bill Act" (OBBBA) was signed into law on July 4, 2025, restoring **100% bonus depreciation** and allowing immediate expensing for domestic research and experimental expenditures[143](index=143&type=chunk) - The Company is currently evaluating the impact of OBBBA on its financial statements but does not expect it to have a material impact on income tax expense[143](index=143&type=chunk) [Critical Accounting Estimates](index=35&type=section&id=Critical%20Accounting%20Estimates) This section states that there have been no material changes to the Company's critical accounting estimates since the last annual report - There have been no material changes to the Company's Critical Accounting Estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024[144](index=144&type=chunk) [Commitments and Contractual Obligations](index=35&type=section&id=Commitments%20and%20Contractual%20Obligations) This section states that there have been no material changes to the Company's contractual obligations and commitments outside the ordinary course of business since the last annual report - There have been no material changes outside the ordinary course of business to the Company's contractual obligations and commitments as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes in the Company's market risks as previously disclosed in its Annual Report on Form 10-K - There have been no material changes in the Company's market risks as previously disclosed in Item 7A of its Annual Report on Form 10-K for the year ended December 31, 2024[146](index=146&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025. However, recently acquired businesses (2024 and 2025 acquisitions) were excluded from the scope of this assessment - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[147](index=147&type=chunk) - Acquisitions from 2024 and 2025, representing approximately **33.3% of consolidated total assets** and **24.3% of net sales**, were excluded from the assessment of the effectiveness of disclosure controls and procedures due to timing[148](index=148&type=chunk) [PART II - OTHER INFORMATION](index=31&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) Covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The Company is not a party to any material litigation or other material legal proceedings, and management believes any ordinary course claims will not have a material adverse effect - The Company is not a party to any material litigation or other material legal proceedings[149](index=149&type=chunk) - Management believes that any suits, claims, and complaints arising in the ordinary course of business should not result in final judgments or settlements that would have a material adverse effect on the Company's financial condition or results of operations[149](index=149&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the detailed discussion of risks and uncertainties in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and other public filings - For a detailed discussion of the risks that affect the business, readers should refer to Part I, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as well as other public filings with the SEC[150](index=150&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds during the reporting period - None[151](index=151&type=chunk) [Item 3. Defaults upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - None[152](index=152&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that the disclosure requirements for mine safety are not applicable to the Company - Not Applicable[153](index=153&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) This section reports that no directors or executive officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the second quarter of fiscal 2025 - During the second quarter of fiscal 2025, none of the Company's directors or executive officers adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements[154](index=154&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section provides a list of exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include Rule 13a-14(a)/15d-14(a) Certifications of the Chief Executive Officer and Chief Financial Officer, and Certifications pursuant to 18 U.S.C., Section 1350[155](index=155&type=chunk) - Inline XBRL Instance Document and related taxonomy extension documents are also filed[155](index=155&type=chunk) [Signatures](index=37&type=section&id=Signatures) Details the authorized signatories for the financial report, confirming its official submission - The report was signed on August 11, 2025, by R. Jeffrey Bailly, Chairman, Chief Executive Officer, and Director, and Ronald J. Lataille, Chief Financial Officer[161](index=161&type=chunk)

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) Sonida Senior Living reported strong Q2 2025 results, with resident revenue increasing 29.7% and net loss significantly reduced to $1.6 million, driven by rent growth and new community integration - CEO Brandon Ribar highlighted strong community NOI growth driven by rent increases and successful integration of recent acquisitions, positioning the company for future growth[3](index=3&type=chunk) Q2 2025 Key Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Resident Revenue | $81.8 | $63.1 | +$18.7 (+29.7%) | | Net Loss (attributable to Sonida) | $1.6 | $9.8 | -$8.2 | | Adjusted EBITDA | $14.1 | $11.4 | +$2.7 (+23.7%) | | Cash Flow from Operations (YTD) | $12.8 | -$1.6 | +$14.4 | - The company expanded its portfolio by acquiring two senior housing communities in May and June 2025, located in Florida (64 units) and Georgia (88 units)[5](index=5&type=chunk) [Financial Performance](index=3&type=section&id=Financial%20Performance) The company's Q2 2025 financial performance showed significant top-line growth to $93.5 million, driven by acquisitions and higher rent rates, with substantial 'Other income' narrowing the net loss and positive operating cash flow [Results of Operations](index=3&type=section&id=Results%20of%20Operations) Q2 2025 resident revenue increased 29.6% to $81.8 million due to new communities and higher rents, while operating expenses rose 33.5% to $61.4 million, with $9.1 million in 'Other income' significantly reducing net loss to $1.6 million - Resident revenue for Q2 2025 increased by **$18.7 million (29.6%)** year-over-year, primarily due to increased occupancy, higher average rent rates, and the addition of 18 operating communities acquired in 2024 and 2025[8](index=8&type=chunk) - Operating expenses for Q2 2025 rose by **$15.4 million (33.5%)** year-over-year, with **$12.5 million** attributable to newly acquired communities and **$2.9 million** from increased labor and other costs in the existing portfolio[9](index=9&type=chunk) - Other income for Q2 2025 was **$9.1 million**, which included **$8.8 million** from gross employee retention credits under the CARES Act, significantly impacting the bottom line[13](index=13&type=chunk) - The company reported a net loss attributable to Sonida shareholders of **$1.6 million** for Q2 2025, a substantial improvement from the **$9.8 million** loss in Q2 2024[14](index=14&type=chunk) [Liquidity and Capital Resources](index=3&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, Sonida held **$14.1 million** in cash and **$32.9 million** available on its credit facility, with year-to-date operating cash flow turning positive at **$12.8 million**, primarily sourced from operations, credit, and potential asset sales Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $12,755 | $(1,624) | $14,379 | | Net cash used in investing activities | $(37,471) | $(42,715) | $5,244 | | Net cash from financing activities | $19,326 | $50,372 | $(31,046) | - As of June 30, 2025, the Company had **$75.0 million** outstanding under its senior secured revolving credit facility, with an additional **$32.9 million** available for borrowing[15](index=15&type=chunk) - The company's principal sources of liquidity include cash flows from operations, its credit facility, and potential proceeds from equity offerings, debt refinancings, or asset sales[16](index=16&type=chunk) [Consolidated Financial Statements](index=6&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show Q2 2025 total revenues increased 33.2%, with total assets at **$849.8 million** and liabilities at **$736.0 million** as of June 30, 2025, reflecting a positive shift in operating cash flow Condensed Consolidated Statement of Operations (Three Months Ended June 30) | Metric (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Total revenues | $93,525 | $70,207 | | Total expenses | $95,802 | $71,605 | | Net income (loss) | $(1,973) | $(9,816) | | Net income (loss) attributable to Sonida shareholders | $(1,563) | $(9,816) | | Diluted net loss per common share | $(0.16) | $(0.86) | Condensed Consolidated Balance Sheet Highlights | Metric (in thousands) | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Total current assets | $63,451 | $64,089 | | Property and equipment, net | $750,261 | $739,884 | | Total assets | $849,772 | $841,921 | | Total current liabilities | $74,583 | $75,615 | | Long-term debt, net | $660,163 | $635,904 | | Total liabilities | $736,006 | $712,312 | | Total Sonida shareholders' equity | $56,693 | $71,785 | [Operational Metrics & Non-GAAP Measures](index=1&type=section&id=Operational%20Metrics%20%26%20Non-GAAP%20Measures) Sonida's same-store portfolio showed steady Q2 2025 growth, with weighted average occupancy increasing 40 basis points to **86.5%** and RevPAR/RevPOR rising 5.0% and 4.4% respectively, supported by non-GAAP measures like NOI and Adjusted EBITDA for core performance insights Same-Store Portfolio Performance (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Weighted Average Occupancy | 86.5% | 86.1% | +40 bps | | RevPAR (per unit) | $3,797 | - | +5.0% | | RevPOR (per unit) | $4,388 | - | +4.4% | | Community NOI (in millions) | $16.7 | $16.4 | +1.8% | | Community NOI Margin | 28.0% | 29.0% | -100 bps | Same-Store Portfolio Performance (Q2 2025 vs. Q1 2025) | Metric | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | RevPAR (per unit) | $3,797 | - | +2.3% | | RevPOR (per unit) | $4,388 | - | +2.7% | | Community NOI (in millions) | $16.7 | - | +$0.6 | | Community NOI Margin | 28.0% | 27.5% | +50 bps | - The company uses non-GAAP measures like Net Operating Income (NOI) and Adjusted EBITDA to help investors understand core operational performance by excluding items related to financing, capital structure, and non-recurring events[37](index=37&type=chunk)[38](index=38&type=chunk) [Non-GAAP Reconciliations](index=9&type=section&id=Non-GAAP%20Reconciliations) The company provides detailed non-GAAP reconciliations, showing Q2 2025 Same-Store Community Net Operating Income at **$16.7 million** and Adjusted EBITDA at **$14.1 million**, both reconciled from the net loss by excluding various adjustments Adjusted EBITDA Reconciliation (Q2 2025 vs Q2 2024) | Metric (in thousands) | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net loss | $(1,973) | $(9,816) | | Adjustments (Depreciation, Interest, etc.) | $16,066 | $21,166 | | **Adjusted EBITDA** | **$14,093** | **$11,350** | Same-Store Community NOI Reconciliation (Q2 2025) | Metric (in thousands) | Amount | | :--- | :--- | | Net loss | $(1,973) | | Adjustments (G&A, Interest, Depreciation, etc.) | $23,209 | | Consolidated community NOI | $21,236 | | Less: NOI for non same-store communities | $(4,516) | | **Same-store community NOI** | **$16,720** | [Business Updates & Outlook](index=2&type=section&id=Business%20Updates%20%26%20Outlook) Post-quarter, Sonida saw positive momentum with July same-store occupancy reaching **88.2%**, secured a new **$137.0 million** term loan for financial flexibility, and is expanding with a **$15.6 million** community acquisition in Texas - Same-store community occupancy for July 2025 reached **88.2%**, an increase of **60 basis points** from June, indicating positive operational momentum[6](index=6&type=chunk) - On August 7, 2025, the company entered into a new **$137.0 million** senior secured term loan with Ally Bank, with an initial draw of **$122.0 million**. The loan has a **36-month maturity** and a variable interest rate of **SOFR plus 2.65%**[6](index=6&type=chunk) - In July 2025, the company signed a purchase and sale agreement to acquire a community in Texas for **$15.6 million**, contingent upon customary closing conditions[6](index=6&type=chunk) [Appendix](index=4&type=section&id=Appendix) The appendix provides supplementary information, including investor conference call details, a corporate profile of Sonida Senior Living, and definitions for key operational metrics like RevPAR, RevPOR, and Same-Store Community Portfolio [Company Profile](index=5&type=section&id=Company%20Profile) Sonida Senior Living, based in Dallas, is a prominent owner, operator, and investor in senior housing, with a portfolio of **96 communities** across **20 states** and a capacity of approximately **10,150 residents** as of June 30, 2025 - As of June 30, 2025, Sonida owned, managed, or invested in **96 senior housing communities** across **20 states**, with an aggregate capacity of about **10,150 residents**[21](index=21&type=chunk) [Definitions](index=9&type=section&id=Definitions) This section defines key performance indicators such as RevPAR (Revenue Per Available Unit) and RevPOR (Revenue Per Occupied Unit), along with the 'Same-Store Community Portfolio' for consistent year-over-year comparisons - RevPAR is defined as resident revenue divided by the weighted average number of available units over the period[31](index=31&type=chunk) - RevPOR is defined as resident revenue divided by the weighted average number of occupied units over the period[32](index=32&type=chunk) - The Same-Store Community Portfolio consists of communities that have been consolidated and operational for the full year in both the current and prior comparison periods, excluding recent acquisitions and properties undergoing repositioning[33](index=33&type=chunk) [Conference Call Information](index=4&type=section&id=Conference%20Call%20Information) Sonida Senior Living will host a conference call on August 11, 2025, at 11:00 a.m. Eastern Time to discuss its Q2 2025 financial results, with a webcast and replay available - The conference call to discuss Q2 2025 financial results is scheduled for August 11, 2025, at 11:00 a.m. Eastern Time[19](index=19&type=chunk)