Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _______________________ Commission File Number 0-20797 incorporation or organization) Texas 74-1733016 (State or oth ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The unaudited interim consolidated financial statements for Q2 and H1 2025 reflect a decrease in total revenues and net income compared to the prior year [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$4,715,774** | **$4,617,547** | | Total Current Assets | $2,395,703 | $2,389,715 | | Inventories, net | $1,842,311 | $1,787,744 | | **Total Liabilities** | **$2,540,743** | **$2,455,644** | | Total Current Liabilities | $1,718,449 | $1,650,119 | | Floor plan notes payable | $1,088,779 | $1,081,199 | | **Total Shareholders' Equity** | **$2,175,031** | **$2,161,903** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Q2 2025 vs Q2 2024 Performance (in thousands, except per share) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,930,707 | $2,027,028 | -4.8% | | Gross Profit | $379,671 | $392,389 | -3.2% | | Operating Income | $110,206 | $124,481 | -11.5% | | Net Income | $72,989 | $78,783 | -7.4% | | Diluted EPS | $0.90 | $0.97 | -7.2% | H1 2025 vs H1 2024 Performance (in thousands, except per share) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $3,781,537 | $3,899,027 | -3.0% | | Gross Profit | $737,431 | $782,264 | -5.7% | | Operating Income | $202,075 | $235,091 | -14.0% | | Net Income | $133,606 | $150,272 | -11.1% | | Diluted EPS | $1.63 | $1.84 | -11.4% | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $381,162 | $115,525 | | Net cash used in investing activities | ($232,220) | ($161,128) | | Net cash provided by (used in) financing activities | ($166,254) | $29,180 | | **Net decrease in cash** | **($17,312)** | **($16,423)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - The company operates with **one reportable business segment**, the Truck Segment, which includes a network of commercial vehicle dealerships[36](index=36&type=chunk) - On June 16, 2025, the company acquired 100% of the shares of Leeds Transit, Inc for approximately **$25.6 million**, expanding its dealership locations[54](index=54&type=chunk) - A subsequent event note discusses the enactment of the "One Big Beautiful Bill Act" ("OBBBA") on July 4, 2025, which will require the company to **re-evaluate its deferred tax balances**[55](index=55&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes decreased revenues and profits to weaker Class 8 truck demand from a freight recession, a lower backlog, and discusses liquidity and capital allocation [Outlook](index=19&type=section&id=Outlook) - A.C.T. Research forecasts a **10.5% decrease** in U.S. Class 8 retail truck sales and a **10.2% decrease** in Class 4-7 sales for 2025[63](index=63&type=chunk)[64](index=64&type=chunk) - The company expects continued weak demand from over-the-road customers but anticipates **strong demand from vocational customers** will persist[63](index=63&type=chunk) - Aftermarket Products and Services revenues are expected to **remain flat in Q3** with potential for modest growth[66](index=66&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Q2 2025 vs Q2 2024 Revenue and Unit Sales Changes | Metric | Q2 2025 vs Q2 2024 Change | | :--- | :--- | | Total Revenues | -4.8% | | New & Used Vehicle Revenues | -8.4% | | Aftermarket Products & Services Revenues | +1.4% | | New Heavy-Duty (Class 8) Unit Sales | -21.1% | | New Medium-Duty (Class 4-7) Unit Sales | +3.0% | - The dealership absorption ratio, a key performance indicator, **improved to 135.5%** in Q2 2025 from 134.0% in Q2 2024[71](index=71&type=chunk)[72](index=72&type=chunk) - Gross profit as a percentage of sales **increased to 19.7%** in Q2 2025, driven by a favorable sales mix with more higher-margin Aftermarket revenues[81](index=81&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2025, the company had working capital of approximately **$694.8 million**, including **$211.1 million in cash**, deemed sufficient for at least the next twelve months[106](index=106&type=chunk) - The stock repurchase program was increased to **$200 million**, with **$121.4 million** repurchased as of June 30, 2025[112](index=112&type=chunk) - The company declared a cash dividend of **$0.19 per share** on July 30, 2025, a **5.6% increase** from the Q1 2025 dividend[111](index=111&type=chunk) [Backlog](index=29&type=section&id=Backlog) - The backlog of commercial vehicle orders **decreased significantly to approximately $967.0 million** as of June 30, 2025, from $1,812.1 million a year prior[130](index=130&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is interest rate fluctuation on its variable-rate debt, with a 100 basis point change impacting annual interest expense by $13.3 million - The company is exposed to interest rate risk through its floor plan financing and credit agreements based on **variable rates like SOFR and CORRA**[142](index=142&type=chunk) - As of June 30, 2025, a 100 basis point change in rates would impact annual interest expense by approximately **$13.3 million** on its **$1,335.1 million** in variable-rate borrowings[142](index=142&type=chunk) [Controls and Procedures](index=31&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 controls during the quarter - The principal executive officer and chief financial officer concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2025[143](index=143&type=chunk) - There were **no changes** in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[144](index=144&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Management believes no pending litigation arising from the ordinary course of business is likely to have a material adverse effect on the company's financial position - The company is subject to litigation in the ordinary course of business and management does not expect any pending claims to have a **material adverse effect** on its financial condition[145](index=145&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There has been **no material change** in the company's risk factors as disclosed in its 2024 Annual Report on Form 10-K[147](index=147&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1,636,638 shares during Q2 2025 under its publicly announced plan and made no unregistered sales of equity securities Q2 2025 Stock Repurchase Activity | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 1,482,555 | $51.40 | | May 2025 | 148,477 | $50.07 | | June 2025 | 5,606 | $48.96 | | **Total** | **1,636,638** | | - On May 29, 2025, the company increased its stock repurchase program authorization by **$50.0 million**, bringing the total to **$200.0 million**[150](index=150&type=chunk) [Other Information](index=33&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading arrangement during the second quarter of 2025 - **No directors or officers** adopted, terminated, or modified a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2025[151](index=151&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and required CEO/CFO certifications - The report includes a list of filed exhibits, such as amendments to financing agreements and required **CEO/CFO certifications** under Sarbanes-Oxley Sections 302 and 906[152](index=152&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of i3 Verticals, Inc. for the periods ended June 30, 2025 and 2024 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents i3 Verticals, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, with detailed notes for periods ended June 30, 2025 and 2024 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets show a decrease in total assets and liabilities from September 30, 2024, to June 30, 2025, primarily driven by changes in current assets and liabilities, and the reclassification of assets and liabilities held for sale | Metric | June 30, 2025 (in thousands) | September 30, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :-------------------------------- | | Total Assets | $623,274 | $730,675 | | Total Liabilities | $112,153 | $215,316 | | Total Equity | $511,121 | $515,359 | | Cash and cash equivalents | $55,544 | $86,525 | | Current assets held for sale | $— | $5,484 | | Long-term assets held for sale | $— | $67,409 | | Current liabilities held for sale | $— | $4,072 | - Total assets decreased by **$107.4 million**, and total liabilities decreased by **$103.2 million** from September 30, 2024, to June 30, 2025[12](index=12&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The Condensed Consolidated Statements of Operations show a significant improvement in net income for the three and nine months ended June 30, 2025, compared to the prior year, largely due to net income from discontinued operations and a substantial decrease in interest expense | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $51,901 | $46,183 | $158,257 | $139,909 | | Total operating expenses | $56,714 | $47,493 | $155,956 | $138,964 | | (Loss) income from operations | $(4,813) | $(1,310) | $2,301 | $945 | | Interest expense | $806 | $7,906 | $1,932 | $22,307 | | Net income from discontinued operations | $19,421 | $6,109 | $18,185 | $18,951 | | Net income (loss) | $18,425 | $(8,298) | $22,302 | $(3,414) | | Net (loss) income attributable to i3 Verticals, Inc. | $12,882 | $(7,545) | $14,784 | $(4,569) | | Basic EPS (continuing operations) | $(0.02) | $(0.50) | $0.10 | $(0.76) | | Diluted EPS (continuing operations) | $(0.03) | $(0.50) | $0.10 | $(0.76) | | Basic EPS (discontinued operations) | $0.55 | $0.18 | $0.52 | $0.56 | | Diluted EPS (discontinued operations) | $0.55 | $0.18 | $0.49 | $0.56 | - Revenue from continuing operations increased by **12.4%** for the three months and **13.1%** for the nine months ended June 30, 2025, compared to the same periods in 2024[15](index=15&type=chunk) - Interest expense significantly decreased by **89.8%** for the three months and **91.3%** for the nine months ended June 30, 2025, primarily due to a lower average outstanding debt balance[15](index=15&type=chunk) [Condensed Consolidated Statement of Change in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statement%20of%20Change%20in%20Equity) The Condensed Consolidated Statement of Changes in Equity reflects various transactions impacting stockholders' equity and non-controlling interest, including equity-based compensation, net income/loss, redemptions of common units, and repurchases of Class A common stock | Metric (in thousands) | Balance at Sep 30, 2024 | Balance at Jun 30, 2025 | | :-------------------------------------- | :---------------------- | :---------------------- | | Total Equity | $515,359 | $511,121 | | Additional Paid-In Capital | $279,335 | $268,111 | | Accumulated Earnings | $100,397 | $115,181 | | Non-Controlling Interest | $135,624 | $127,826 | - Repurchases of Class A common stock amounted to **$11,190 thousand** by December 31, 2024, and an additional **$26,366 thousand** by June 30, 2025[19](index=19&type=chunk) - Equity-based compensation recognized was **$3,814 thousand** by December 31, 2024, and an additional **$11,328 thousand** by June 30, 2025[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Condensed Consolidated Statements of Cash Flows show a shift from cash provided by operating activities in 2024 to cash used in 2025, primarily due to income tax payments related to the Merchant Services Business sale. Investing activities significantly increased cash due to the sale of the Healthcare RCM Business, while financing activities used more cash for debt repayment and share repurchases | Cash Flow Activity (in thousands) | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash (used in) provided by operating activities | $(8,276) | $33,266 | | Net cash provided by (used in) investing activities | $78,774 | $(16,755) | | Net cash used in financing activities | $(104,283) | $(15,215) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(33,785) | $1,296 | | Cash, cash equivalents and restricted cash at end of period | $55,812 | $13,696 | - Cash paid for income taxes increased significantly to **$35,112 thousand** for the nine months ended June 30, 2025, from **$6,984 thousand** in the prior year[28](index=28&type=chunk) - Proceeds from the sale of the Healthcare RCM Business, net of cash sold, amounted to **$96,102 thousand** in 2025[25](index=25&type=chunk) [Notes to the Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering the Company's organization, significant accounting policies, discontinued operations, acquisitions, debt, equity, and other material financial information - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information[59](index=59&type=chunk) - Following the disposal of the Merchant Services Business, the Company reclassified certain personnel and hosting costs from 'selling, general and administrative' to 'other costs of services' to reflect its core software solutions business model[67](index=67&type=chunk) - The Company operates as a single reportable segment as of June 30, 2025, after the disposition of the Healthcare RCM Business[109](index=109&type=chunk) [1. ORGANIZATION AND OPERATIONS](index=11&type=section&id=1.%20ORGANIZATION%20AND%20OPERATIONS) i3 Verticals, Inc. was formed in 2018 as a Delaware corporation to conduct the business of i3 Verticals, LLC, which delivers software solutions integrated with a proprietary payment facilitator platform to strategic vertical markets. The Company operates as a holding company, consolidating i3 Verticals, LLC's financial results and reporting a non-controlling interest - i3 Verticals, Inc. was formed on January 17, 2018, for an IPO and to carry on the business of i3 Verticals, LLC[34](index=34&type=chunk) - i3 Verticals, LLC, founded in 2012, provides software solutions integrated with a proprietary payment facilitator platform[34](index=34&type=chunk) - The Company operates as a holding company, consolidating i3 Verticals, LLC's financial results and reporting a non-controlling interest for units held by other owners[35](index=35&type=chunk) [2. DISCONTINUED OPERATIONS](index=11&type=section&id=2.%20DISCONTINUED%20OPERATIONS) This section details the divestitures of the Healthcare RCM Business and the Merchant Services Business, reclassifying their financial results as discontinued operations. The Healthcare RCM Business was sold for $96.4 million in cash, while the Merchant Services Business was sold for approximately $439.5 million in cash [Healthcare RCM Business Divestiture](index=11&type=section&id=Healthcare%20RCM%20Business%20Divestiture) The Company completed the sale of its Healthcare Revenue Cycle Management (RCM) Business to Infinx, Inc. for $96.4 million in cash. The financial results of this business are now reported as discontinued operations, with associated transition services agreements generating additional income - The Healthcare RCM Business was sold to Infinx, Inc. for **$96,443 thousand** in cash on May 5, 2025[36](index=36&type=chunk) - Financial results of the Healthcare RCM Business are included in income from discontinued operations, net of income taxes[42](index=42&type=chunk) | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $3,601 | $9,993 | $22,463 | $29,426 | | Net income from discontinued operations | $19,425 | $561 | $18,729 | $2,001 | [Merchant Services Business Divestiture](index=15&type=section&id=Merchant%20Services%20Business%20Divestiture) The Company completed the sale of its Merchant Services Business to Payroc Buyer, LLC for approximately $439.5 million in cash on September 20, 2024. This business's financial results are also reclassified as discontinued operations, with ongoing transition and processing services agreements - The Merchant Services Business was sold to Payroc Buyer, LLC for approximately **$439,516 thousand** in cash on September 20, 2024[48](index=48&type=chunk) - The Merchant Services Business comprised the Company's entire former Merchant Services segment and a small portion of the Software and Services segment[48](index=48&type=chunk) | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenue | $— | $38,383 | $— | $111,893 | | Net (loss) income from discontinued operations | $(4) | $5,548 | $(544) | $16,950 | [3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=18&type=section&id=3.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the significant accounting policies applied in preparing the condensed consolidated financial statements, including basis of presentation, principles of consolidation, revenue recognition, and recent accounting pronouncements. Notably, the Company reclassified certain expenses to 'other costs of services' following the Merchant Services Business divestiture to better align with its software solutions business model [Basis of Presentation](index=18&type=section&id=Basis%20of%20Presentation) The financial statements are unaudited and prepared in accordance with GAAP for interim financial information, including all necessary adjustments for fair presentation. They should be read in conjunction with the Company's Annual Report on Form 10-K - Statements are unaudited and prepared under GAAP for interim financial information, including normal recurring adjustments[59](index=59&type=chunk) - Recommended to be read with the Annual Report on Form 10-K for the year ended September 30, 2024[60](index=60&type=chunk) [Principles of Consolidation](index=18&type=section&id=Principles%20of%20Consolidation) The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, with all intercompany accounts and transactions eliminated - Consolidated financial statements include the Company and its subsidiaries, with intercompany accounts and transactions eliminated[61](index=61&type=chunk) [Restricted Cash](index=19&type=section&id=Restricted%20Cash) Restricted cash, held in escrow or on deposit with processing banks, is presented as long-term assets and included with cash and cash equivalents in the consolidated statements of cash flows - Restricted cash represents funds held in escrow or on deposit with processing banks to cover potential merchant losses[63](index=63&type=chunk) - Presented as long-term assets and included with cash and cash equivalents in cash flow statements[63](index=63&type=chunk) [Settlement Assets and Obligations](index=19&type=section&id=Settlement%20Assets%20and%20Obligations) Settlement assets and obligations arise from temporary holding or owing of funds on behalf of counterparties due to timing differences and other items in the settlement process, generally collected and paid within one to four days - Settlement assets and obligations arise from funds temporarily held or owed on behalf of merchants, consumers, schools, and other institutions[64](index=64&type=chunk) - Balances are generally collected and paid within one to four days[64](index=64&type=chunk) | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Settlement assets | $18 | $632 | | Settlement obligations | $18 | $632 | [Reclassifications](index=19&type=section&id=Reclassifications) Certain prior period amounts have been reclassified to conform with the current period presentation, with no impact on previously reported consolidated net income (loss) - Prior period amounts reclassified to conform with current period presentation, with no impact on consolidated net income (loss)[65](index=65&type=chunk) [Discontinued operations](index=19&type=section&id=Discontinued%20operations) The financial results of the Merchant Services Business and Healthcare RCM Business have been reclassified as discontinued operations for all periods presented in the condensed consolidated statements of operations - Results of Merchant Services Business and Healthcare RCM Business reclassified as discontinued operations for all periods presented[66](index=66&type=chunk) [Change in presentation of certain costs to other costs of services](index=19&type=section&id=Change%20in%20presentation%20of%20certain%20costs%20to%20other%20costs%20of%20services) Following the Merchant Services Business disposal, the Company reclassified personnel and hosting costs related to customer support and software services from 'selling, general and administrative' to 'other costs of services' to better reflect its software solutions business model. This change has no impact on total operating expenses or earnings per share - Reclassified personnel costs for software installation, data conversion, training, and customer support from SG&A to other costs of services[67](index=67&type=chunk) - Reclassified certain hosting and related software costs for customer support from SG&A to other costs of services[67](index=67&type=chunk) - This change has no impact on total operating expenses or earnings per share[70](index=70&type=chunk)[71](index=71&type=chunk) [Inventories](index=20&type=section&id=Inventories) Inventories, consisting of point-of-sale equipment, are valued at the lower of cost or net realizable value and included in prepaid expenses and other current assets - Inventories consist of point-of-sale equipment for sale to customers[72](index=72&type=chunk) - Valued at the lower of cost (weighted average or specific basis) or net realizable value[72](index=72&type=chunk) | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Inventories | $2,380 | $2,423 | [Acquisitions](index=20&type=section&id=Acquisitions) Business acquisitions are accounted for using the acquisition method, allocating purchase price to acquired assets and assumed liabilities at fair value, with goodwill recorded for any excess consideration. Acquisition costs are expensed as incurred - Business acquisitions are recorded using the acquisition method of accounting (ASC 805)[73](index=73&type=chunk) - Purchase price is allocated to assets acquired and liabilities assumed based on estimated fair value[73](index=73&type=chunk) - Goodwill is recorded when total consideration exceeds the fair values of separately identifiable assets and liabilities[73](index=73&type=chunk) [Lease Expense](index=21&type=section&id=Lease%20Expense) Leases are recorded under ASC 842, recognizing right-of-use assets and obligations at the present value of fixed lease payments. The Company combines lease and non-lease components and excludes short-term leases from balance sheet recognition - Leases are recorded in accordance with ASC 842, Leases[77](index=77&type=chunk) - Company combines associated lease and non-lease components and excludes short-term leases from balance sheet recognition[77](index=77&type=chunk) - Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments[78](index=78&type=chunk) [Revenue Recognition and Deferred Revenue](index=21&type=section&id=Revenue%20Recognition%20and%20Deferred%20Revenue) Revenue is recognized as performance obligations are satisfied, categorized into software and related services, proprietary payments, and other sources. The Company acts as an agent for payment authorization services, presenting revenue net of interchange and network fees. Deferred revenue represents amounts billed in advance and recognized over the contract term - Revenue is recognized as each performance obligation is satisfied, in accordance with ASC 606[80](index=80&type=chunk) - Revenue from continuing operations is derived from software and related services, proprietary payments, and other sources[85](index=85&type=chunk) | Revenue Source (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Software and related services | $36,245 | $31,963 | $110,528 | $95,428 | | Proprietary payments | $13,100 | $11,797 | $40,594 | $37,923 | | Other revenue | $2,556 | $2,423 | $7,135 | $6,558 | | Total revenue | $51,901 | $46,183 | $158,257 | $139,909 | [Contract Assets](index=24&type=section&id=Contract%20Assets) Contract assets represent unbilled amounts for partially completed performance obligations, such as consulting services or software licenses sold under a non-cancellable subscription model where revenue is recognized upfront - Contract assets include unbilled amounts for partially completed performance obligations, like consulting services[96](index=96&type=chunk) - Also includes software licenses sold as a right-to-use license but paid for under a non-cancellable subscription model[96](index=96&type=chunk) | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Contract assets | $9,417 | $8,680 | [Contract Liabilities](index=25&type=section&id=Contract%20Liabilities) Deferred revenue, a contract liability, represents amounts billed to customers for services contracts where payment is collected upfront and recognized over the contract term, typically one year - Deferred revenue represents amounts billed to customers for services contracts, with payment typically collected at the start of the contract term[101](index=101&type=chunk) - The balance is recognized as services are provided over the contract term, with most deferred revenue recognized within the next year[101](index=101&type=chunk) | Metric (in thousands) | Balance at Sep 30, 2024 | Balance at Jun 30, 2025 | | :-------------------- | :---------------------- | :---------------------- | | Deferred revenue | $39,156 | $30,577 | [Costs to Obtain and Fulfill a Contract](index=25&type=section&id=Costs%20to%20Obtain%20and%20Fulfill%20a%20Contract) Incremental costs to obtain new contracts and renewals, such as commissions and incentives, are capitalized and amortized over the expected customer life. Sales commissions for recurring revenues or existing customer portfolios are expensed as incurred - Incremental costs to obtain new contracts and renewals are capitalized and amortized over the expected customer life[103](index=103&type=chunk) - Capitalized contract costs were **$1,140 thousand** as of June 30, 2025, and **$857 thousand** as of September 30, 2024[103](index=103&type=chunk) - Sales commissions for recurring monthly revenues or existing customer portfolios are expensed as incurred[105](index=105&type=chunk) [Other Cost of Services](index=26&type=section&id=Other%20Cost%20of%20Services) Other costs of services include direct costs related to software and payment processing, such as personnel, processing fees, bank sponsorship, chargeback losses, and equipment costs. Following the Merchant Services Business divestiture, certain expenses were reclassified to this category - Other costs of services include direct costs for software and related services, payment processing, chargebacks, and equipment sold[106](index=106&type=chunk) - Personnel costs for software installation, client data conversion, training, and customer support were reclassified to this category[106](index=106&type=chunk) - Certain hosting and related software costs for customer support were also reclassified[106](index=106&type=chunk) [Use of Estimates](index=26&type=section&id=Use%20of%20Estimates) The preparation of financial statements requires management to make estimates and assumptions, including those for acquisitions, goodwill, intangible assets, revenue recognition, loss reserves, equity-based compensation, and income taxes. Actual results may differ from these estimates - Management makes estimates and assumptions for financial statement preparation, affecting reported amounts of assets, liabilities, revenues, and expenses[108](index=108&type=chunk) - Estimates include acquisition valuations, goodwill impairment, revenue recognition, loss reserves, equity-based compensation, and income taxes[108](index=108&type=chunk) [Segment Information](index=26&type=section&id=Segment%20Information) As of June 30, 2025, the Company operates as a single reportable segment, with the Chief Executive Officer reviewing discrete financial information on a consolidated basis for resource allocation and performance evaluation - The Company has determined it operates as a single reportable segment as of June 30, 2025[109](index=109&type=chunk) - The Chief Executive Officer, as CODM, reviews discrete financial information on a consolidated basis[109](index=109&type=chunk) [Recent Accounting Pronouncements](index=26&type=section&id=Recent%20Accounting%20Pronouncements) The Company is evaluating the impact of recently issued accounting pronouncements, including ASU 2023-09 (Income Tax Disclosures), ASU 2023-07 (Segment Reporting), and ASU 2024-03 (Expense Disaggregation Disclosures), which will become effective in future fiscal years - ASU 2023-09 (Income Taxes) improves income tax disclosures, effective for annual periods beginning after December 15, 2024[110](index=110&type=chunk)[112](index=112&type=chunk) - ASU 2023-07 (Segment Reporting) enhances interim disclosure requirements for segment reporting, effective for fiscal years beginning after December 15, 2023[113](index=113&type=chunk) - ASU 2024-03 (Expense Disaggregation Disclosures) requires disaggregation of certain expenses in financial statement notes, effective for fiscal years beginning after December 15, 2026[114](index=114&type=chunk) [4. ACQUISITIONS](index=27&type=section&id=4.%20ACQUISITIONS) During the nine months ended June 30, 2025, the Company completed two business acquisitions, including a Utility Billing Software Company for $10.3 million, expanding its public sector offerings. In the prior year, it acquired Eduloka, Ltd. for $27.5 million and another business for $1.3 million, all aimed at expanding software offerings and customer footprint [Business Combinations during nine months ended June 30, 2025](index=27&type=section&id=Business%20Combinations%20during%20nine%20months%20ended%20June%2030,%202025) On April 1, 2025, the Company acquired a Utility Billing Software Company for $10.26 million, comprising $9.0 million in cash and $1.26 million in contingent consideration, to expand its public sector utility billing software offerings - Acquired Utility Billing Software Company on April 1, 2025, for **$10,260 thousand**[115](index=115&type=chunk) - Purchase consideration included **$9,000 thousand** in cash and **$1,260 thousand** in estimated fair value of contingent cash consideration[115](index=115&type=chunk) - The acquisition expands the Company's public sector utility billing software offerings[115](index=115&type=chunk) [Other Business Combinations nine months ended June 30, 2025](index=28&type=section&id=Other%20Business%20Combinations%20nine%20months%20ended%20June%2030,%202025) During the nine months ended June 30, 2025, the Company purchased assets of another business for $2.0 million in cash to expand its customer footprint, allocating the purchase price to property, customer relationships, non-compete agreements, and goodwill - Purchased certain assets of a business for **$2,000 thousand** in cash to expand customer footprint[121](index=121&type=chunk) - Allocated **$1,700 thousand** to customer relationships and **$211 thousand** to goodwill[121](index=121&type=chunk) [Pro Forma Results of Operations for 2025 Business Combinations](index=29&type=section&id=Pro%20Forma%20Results%20of%20Operations%20for%202025%20Business%20Combinations) Unaudited pro forma results for 2025 acquisitions, assuming they occurred on October 1, 2023, show pro forma revenue of $1,437 thousand and net income of $131 thousand for the nine months ended June 30, 2025 | Metric (in thousands) | Nine Months Ended June 30, 2025 | | :-------------------- | :------------------------------ | | Revenue | $1,437 | | Net income (loss) | $131 | - Pro forma results assume acquisitions occurred on October 1, 2023, and include adjustments for depreciation, amortization, executive compensation, and debt[123](index=123&type=chunk) [Business Combinations during the year ended September 30, 2024](index=29&type=section&id=Business%20Combinations%20during%20the%20year%20ended%20September%2030,%202024) On August 1, 2024, the Company acquired Eduloka Ltd. ('inLumon') for $27.477 million, including cash, Class A common stock, and contingent consideration, to expand its permitting and licensing software offerings - Acquired Eduloka Ltd. ('inLumon') on August 1, 2024, for **$27,477 thousand**[125](index=125&type=chunk) - Consideration included **$18,000 thousand** in cash, **311,634 shares** of Class A common stock (**$7,517 thousand**), and **$1,960 thousand** in contingent cash consideration[125](index=125&type=chunk) - The acquisition expands the Company's permitting and licensing software offerings[125](index=125&type=chunk) [Other Business Combinations during the year ended September 30, 2024](index=31&type=section&id=Other%20Business%20Combinations%20during%20the%20year%20ended%20September%2030,%202024) During the three months ended December 31, 2023, the Company acquired assets of another business for $1.27 million, including cash and contingent consideration, to expand its software offerings - Acquired assets of a business for **$1,270 thousand** during the three months ended December 31, 2023[133](index=133&type=chunk) - Consideration included **$1,100 thousand** in cash and **$170 thousand** in estimated fair value of contingent cash consideration[133](index=133&type=chunk) - Allocated **$1,005 thousand** to goodwill, which is deductible for tax purposes[135](index=135&type=chunk) [5. PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=31&type=section&id=5.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) Prepaid expenses and other current assets increased to $12.77 million as of June 30, 2025, from $9.973 million as of September 30, 2024, primarily due to increases in prepaid licenses and other current assets | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------- | :------------ | :----------------- | | Inventory | $2,380 | $2,423 | | Prepaid licenses | $6,714 | $5,013 | | Prepaid insurance | $517 | $129 | | Other current assets | $2,964 | $2,213 | | Total | $12,770 | $9,973 | - Prepaid licenses increased by **$1,701 thousand** from September 30, 2024, to June 30, 2025[137](index=137&type=chunk) [6. GOODWILL AND INTANGIBLE ASSETS](index=31&type=section&id=6.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill increased to $248.195 million as of June 30, 2025, due to preliminary purchase price adjustments from acquisitions. Finite-lived intangible assets, primarily customer relationships, totaled $138.692 million, with an estimated future amortization expense of $138.692 million | Metric (in thousands) | June 30, 2025 | | :-------------------- | :------------ | | Goodwill | $248,195 | | Customer relationships | $137,746 | | Trade names | $831 | | Non-compete agreements and other intangible assets | $115 | | Trademarks | $16 | | Total identifiable intangible assets | $138,708 | - Goodwill increased by **$5,207 thousand** due to preliminary purchase price adjustments during the nine months ended June 30, 2025[138](index=138&type=chunk) - Amortization expense for intangible assets from continuing operations was **$2,882 thousand** for the three months and **$8,467 thousand** for the nine months ended June 30, 2025[141](index=141&type=chunk) [7. ACCRUED EXPENSES AND OTHER LIABILITIES](index=33&type=section&id=7.%20ACCRUED%20EXPENSES%20AND%20OTHER%20LIABILITIES) Accrued expenses and other current liabilities significantly decreased to $21.915 million as of June 30, 2025, from $88.252 million as of September 30, 2024, primarily due to reductions in accrued tax distributions, income tax expense, and tax receivable agreement liabilities. Long-term liabilities saw an increase in accrued contingent consideration | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------------------------- | :------------ | :----------------- | | Accrued wages, bonuses, commissions and vacation | $9,380 | $4,673 | | Accrued tax distributions | $— | $24,276 | | Accrued income tax expense | $2,004 | $30,528 | | Tax receivable agreement liability – current portion | $— | $9,850 | | Other accrued liabilities related to the Sale of the Merchant Services Business | $— | $7,887 | | Accrued expenses and other current liabilities | $21,915 | $88,252 | | Metric (in thousands) | June 30, 2025 | September 30, 2024 | | :-------------------------------------- | :------------ | :----------------- | | Accrued contingent consideration – long-term portion | $3,778 | $1,636 | | Deferred tax liability – long-term | $9,380 | $11,402 | | Other long-term liabilities | $2,300 | $1,883 | | Total other long-term liabilities | $15,458 | $14,921 | - Accrued tax distributions and accrued income tax expense significantly decreased to zero or minimal amounts by June 30, 2025[144](index=144&type=chunk) [8. LONG-TERM DEBT, NET](index=34&type=section&id=8.%20LONG-TERM%20DEBT,%20NET) The Company's long-term debt decreased to zero as of June 30, 2025, primarily due to the full repayment of the 1% Exchangeable Senior Notes due 2025. The 2023 Senior Secured Credit Facility, with a $400 million revolving credit facility, had no outstanding borrowings as of June 30, 2025 [2020 Exchangeable Notes Offering](index=34&type=section&id=2020%20Exchangeable%20Notes%20Offering) i3 Verticals, LLC issued $138 million of 1.0% Exchangeable Senior Notes due 2025 in February 2020. The remaining principal balance of $26.223 million was fully repaid upon maturity on February 15, 2025 - Issued **$138,000 thousand** aggregate principal amount of 1.0% Exchangeable Senior Notes due 2025 on February 18, 2020[149](index=149&type=chunk) - Repurchased **$90,777 thousand** in aggregate principal amount of Exchangeable Notes in January 2024[152](index=152&type=chunk) - The remaining principal balance of **$26,223 thousand** was repaid in full on February 15, 2025[151](index=151&type=chunk)[154](index=154&type=chunk) [Exchangeable Note Hedge Transactions](index=35&type=section&id=Exchangeable%20Note%20Hedge%20Transactions) The Company entered into Note Hedge Transactions concurrently with the Exchangeable Notes offering to reduce potential dilution. These transactions expired in February 2025 upon the maturity of the Exchangeable Notes - Note Hedge Transactions were entered into to reduce potential dilution to Class A common stock upon exchange of Exchangeable Notes[155](index=155&type=chunk) - The Note Hedge Transactions expired in February 2025 upon the maturity and payment in full of the Exchangeable Notes[158](index=158&type=chunk) [Warrant Transactions](index=35&type=section&id=Warrant%20Transactions) The Company sold Warrants to acquire Class A common stock, which expire over a ninety-trading-day period starting May 15, 2025. These warrants do not require separate derivative accounting - Sold Warrants to acquire up to **3,376,391 shares** of Class A common stock at an initial exercise price of **$62.88** per share[159](index=159&type=chunk) - The Warrants expire over a ninety trading day period that began on May 15, 2025[159](index=159&type=chunk) - The Warrants do not require separate accounting as a derivative[160](index=160&type=chunk) [2023 Senior Secured Credit Facility](index=36&type=section&id=2023%20Senior%20Secured%20Credit%20Facility) The 2023 Senior Secured Credit Facility provides a $400 million senior secured revolving credit facility, amended in May 2025 to permit the Healthcare RCM Transactions and reduce commitments. As of June 30, 2025, there were no outstanding borrowings, and the Company was in compliance with all financial covenants - The 2023 Senior Secured Credit Facility provides for aggregate commitments of **$400,000 thousand** in a senior secured revolving credit facility[163](index=163&type=chunk)[177](index=177&type=chunk) - The facility was amended on May 5, 2025, to permit Healthcare RCM Transactions and reduce commitments from **$450,000 thousand** to **$400,000 thousand**[177](index=177&type=chunk) - As of June 30, 2025, the Borrower's consolidated interest coverage ratio was **87.1x** and total leverage ratio was **0.0x**, indicating compliance with covenants[164](index=164&type=chunk) [Debt issuance costs](index=38&type=section&id=Debt%20issuance%20costs) Debt issuance costs of $249 thousand were incurred during the three and nine months ended June 30, 2025, and are amortized over the debt term. An additional $295 thousand was recorded for the write-off of debt issuance costs in connection with the Second Amendment to the Credit Agreement - Incurred **$249 thousand** in debt issuance costs during the three and nine months ended June 30, 2025[179](index=179&type=chunk) - Amortization of deferred debt issuance costs amounted to **$216 thousand** for three months and **$746 thousand** for nine months ended June 30, 2025[179](index=179&type=chunk) - Recorded **$295 thousand** for the write-off of debt issuance costs due to the Second Amendment to the Credit Agreement[179](index=179&type=chunk) [9. STOCKHOLDERS' EQUITY](index=38&type=section&id=9.%20STOCKHOLDERS'%20EQUITY) This section details changes in stockholders' equity, primarily focusing on the Company's share repurchase program. The Company repurchased 1,573,881 shares of Class A Common Stock for $37.979 million under the Prior Share Repurchase Program, which terminated on August 8, 2025 [Share Repurchase Program](index=38&type=section&id=Share%20Repurchase%20Program) The Company repurchased 1,573,881 shares of Class A Common Stock for $37.979 million under the Prior Share Repurchase Program during the nine months ended June 30, 2025. This program, which authorized up to $50 million in repurchases, terminated on August 8, 2025, and was replaced by a new program - Repurchased **1,573,881 shares** of Class A Common Stock for **$37,979 thousand** under the Prior Share Repurchase Program during the nine months ended June 30, 2025[181](index=181&type=chunk) - The Prior Share Repurchase Program, authorizing up to **$50,000 thousand**, terminated on August 8, 2025[180](index=180&type=chunk) - As of June 30, 2025, **$12,445 thousand** remained available under the Prior Share Repurchase Program[183](index=183&type=chunk) [10. INCOME TAXES](index=38&type=section&id=10.%20INCOME%20TAXES) The Company's income tax provision for continuing operations was a benefit of $22 thousand for the three months and a provision of $3,272 thousand for the nine months ended June 30, 2025. The effective tax rate differs from the federal statutory rate due to the Company's Up-C tax structure, where i3 Verticals, LLC is a pass-through entity - The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items[188](index=188&type=chunk) | Metric (in thousands) | Three months ended June 30, 2025 | Nine months ended June 30, 2025 | Three months ended June 30, 2024 | Nine months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | Income tax (benefit) provision | $(22) | $3,272 | $5,191 | $3,153 | - The effective tax rate differs from the federal statutory rate of **21%** primarily due to the Company's Up-C tax structure, where i3 Verticals, LLC is not taxed at the entity-level[188](index=188&type=chunk) [Tax Receivable Agreement](index=39&type=section&id=Tax%20Receivable%20Agreement) The Tax Receivable Agreement (TRA) obligates the Company to pay Continuing Equity Owners 85% of certain tax benefits realized from future redemptions or exchanges of Common Units. During the nine months ended June 30, 2025, the Company recognized an increase of $6,907 thousand in net deferred tax assets and a corresponding $5,871 thousand in TRA liabilities - The TRA provides for payments to Continuing Equity Owners of **85%** of certain tax benefits realized from future redemptions or exchanges of Common Units[189](index=189&type=chunk) - During the nine months ended June 30, 2025, the Company recognized a **$6,907 thousand** increase in net deferred tax assets and **$5,871 thousand** in TRA liabilities[190](index=190&type=chunk) - The total amount due under the TRA was **$35,117 thousand** as of June 30, 2025, with payments expected over the next **26 years**[191](index=191&type=chunk)[192](index=192&type=chunk) [11. LEASES](index=40&type=section&id=11.%20LEASES) The Company's leases, primarily for real estate, are classified as operating leases under ASC 842. The weighted-average remaining lease term was 2 years, and the weighted-average discount rate was 7.4% as of June 30, 2025. Operating lease costs from continuing operations were $640 thousand for the three months and $1,447 thousand for the nine months ended June 30, 2025 - The Company's leases consist primarily of real estate leases and are classified as operating leases[194](index=194&type=chunk) - Weighted-average remaining lease term was **2 years**, and the weighted-average discount rate was **7.4%** as of June 30, 2025[194](index=194&type=chunk)[195](index=195&type=chunk) | Metric (in thousands) | Three months ended June 30, 2025 | Nine months ended June 30, 2025 | | :-------------------- | :------------------------------- | :------------------------------ | | Operating lease costs | $640 | $1,447 | [12. FAIR VALUE MEASUREMENTS](index=41&type=section&id=12.%20FAIR%20VALUE%20MEASUREMENTS) The Company applies ASC 820 for fair value measurements, primarily for Level 3 financial instruments like accrued contingent consideration. The fair value of contingent consideration obligations, which includes unobservable inputs, is calculated using Monte Carlo simulations and discounted cash flow analyses, and is revalued each period - The Company applies ASC 820, Fair Value Measurement, using a three-tier hierarchy[201](index=201&type=chunk) - The Company has no Level 1 or Level 2 financial instruments measured at fair value on a recurring basis[204](index=204&type=chunk) - Fair value of contingent consideration obligations, a Level 3 measurement, is calculated using Monte Carlo simulations and discounted cash flow analyses[209](index=209&type=chunk) [13. EQUITY-BASED COMPENSATION](index=42&type=section&id=13.%20EQUITY-BASED%20COMPENSATION) Equity-based compensation expense for continuing operations was $4,879 thousand for the three months and $12,030 thousand for the nine months ended June 30, 2025. The Company grants stock options under the 2018 Equity Incentive Plan and the 2020 Acquisition Equity Incentive Plan, and Restricted Stock Units (RSUs) under the 2018 Plan | Metric (in thousands) | Three Months Ended June 30, 2025 | Nine Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------ | :------------------------------- | :------------------------------ | | Stock options | $1,610 | $5,435 | $2,819 | $9,953 | | Restricted stock units | $3,269 | $6,595 | $951 | $2,724 | | Total | $4,879 | $12,030 | $3,770 | $12,677 | - The 2018 Equity Incentive Plan allows for grants of up to **3,500,000** stock options and other equity-based awards[213](index=213&type=chunk) - The 2020 Acquisition Equity Incentive Plan allows for grants of up to **3,000,000** stock options and other equity-based awards for new employees from acquisitions[215](index=215&type=chunk) [Stock Options](index=42&type=section&id=Stock%20Options) As of June 30, 2025, 8,512,121 stock options were outstanding with a weighted-average exercise price of $24.55. Total unrecognized compensation expense for unvested options was $11,154 thousand, expected to be recognized over 2.4 years | Metric | Stock Options | Weighted Average Exercise Price | | :-------------------------- | :------------ | :------------------------------ | | Outstanding at Sep 30, 2024 | 9,120,944 | $24.48 | | Granted | 120,000 | $24.54 | | Exercised | (556,458) | $22.22 | | Forfeited | (172,365) | $28.06 | | Outstanding at Jun 30, 2025 | 8,512,121 | $24.55 | - Total unrecognized compensation expense for unvested stock options was **$11,154 thousand**, expected to be recognized over a weighted-average period of **2.4 years**[218](index=218&type=chunk) - The Company fully accelerated vesting for **40,853 options** held by Healthcare RCM Business employees prior to divestiture[219](index=219&type=chunk) [Restricted Stock Units](index=43&type=section&id=Restricted%20Stock%20Units) As of June 30, 2025, 1,163,209 Restricted Stock Units (RSUs) were outstanding with a weighted-average grant date fair value of $24.61. Total unrecognized compensation expense for unvested RSUs was $18,812 thousand, expected to be recognized over 2.9 years | Metric | Restricted Stock Units | Weighted Average Grant Date Fair Value | | :-------------------------- | :--------------------- | :------------------------------------- | | Outstanding at Sep 30, 2024 | 771,214 | $22.71 | | Granted | 722,649 | $26.33 | | Vested | (284,257) | $23.65 | | Forfeited | (46,397) | $23.08 | | Outstanding at Jun 30, 2025 | 1,163,209 | $24.61 | - Total unrecognized compensation expense for unvested RSUs was **$18,812 thousand**, expected to be recognized over a weighted average period of **2.9 years**[222](index=222&type=chunk) - The Company fully accelerated vesting for **96,613 RSUs** held by Healthcare RCM Business employees prior to divestiture[223](index=223&type=chunk) [14. COMMITMENTS AND CONTINGENCIES](index=44&type=section&id=14.%20COMMITMENTS%20AND%20CONTINGENCIES) This section details the Company's commitments, primarily operating leases, and ongoing litigation, including the PaySchools Litigation regarding alleged unlawful fees and the S&S Litigation concerning alleged cybersecurity inadequacies. The Company believes these matters will not have a material adverse effect on its financial condition [Leases](index=44&type=section&id=Leases) Rent expense from continuing operations under operating leases for office space and equipment amounted to $700 thousand for the three months and $1,557 thousand for the nine months ended June 30, 2025 - Rent expense from continuing operations was **$700 thousand** for the three months and **$1,557 thousand** for the nine months ended June 30, 2025[224](index=224&type=chunk) [Litigation](index=44&type=section&id=Litigation) The Company is involved in ordinary course legal proceedings, including the PaySchools and S&S litigations. While outcomes are unpredictable, management believes these matters will not have a material adverse effect on the Company's consolidated financial statements - The Company is involved in ordinary course legal proceedings, including claims, lawsuits, investigations, and unasserted claims[226](index=226&type=chunk) - Management believes these matters will not have a material impact on the Company's consolidated balance sheet, results of operations, or cash flows[226](index=226&type=chunk) [PaySchools Litigation](index=45&type=section&id=PaySchools%20Litigation) A class action complaint was filed against PaySchools, a subsidiary, alleging unlawful fees for school lunch services in New York. The plaintiff seeks unspecified monetary damages and injunctive relief. The case is pending in federal court - Class action complaint filed against PaySchools on May 16, 2025, alleging unlawful fees for school lunch services[228](index=228&type=chunk) - Plaintiff seeks unspecified monetary damages, restitution, disgorgement, attorneys' fees, and injunctive relief[228](index=228&type=chunk) - The matter was removed to the United States District Court for the Eastern District of New York and remains pending[229](index=229&type=chunk) [S&S Litigation](index=45&type=section&id=S%26S%20Litigation) A petition was filed against S&S, a subsidiary, and others, seeking monetary damages for network remediation and other expenses related to alleged cybersecurity inadequacies. The case was remanded to state court and is in the discovery phase - Petition filed on June 2, 2021, against S&S and others, seeking monetary damages for network remediation (**$15,000 thousand** for the State, **$7,000 thousand** for Sheriffs/Districts)[230](index=230&type=chunk) - Claims relate to a third-party remote access software product and alleged inadequacies in cybersecurity practices[230](index=230&type=chunk) - The case was remanded to the 19th Judicial District Court for the Parish of East Baton Rouge and is in the discovery phase[230](index=230&type=chunk)[231](index=231&type=chunk) [15. RELATED PARTY TRANSACTIONS](index=46&type=section&id=15.%20RELATED%20PARTY%20TRANSACTIONS) Related party transactions primarily involve the Tax Receivable Agreement (TRA) with Continuing Equity Owners, totaling $35.117 million as of June 30, 2025. Additionally, recapitalization actions were effected in January 2025 to reduce excess cash held by the Company, resulting in an increase in the Company's ownership interest in i3 Verticals, LLC to 70.83% - The Tax Receivable Agreement (TRA) with Continuing Equity Owners requires payments of **85%** of certain tax benefits[235](index=235&type=chunk) - Total amount due under the TRA was **$35,117 thousand** as of June 30, 2025[235](index=235&type=chunk) - Recapitalization actions in January 2025, including a **$21,396 thousand** cash contribution, increased the Company's ownership in i3 Verticals, LLC to **70.83%**[235](index=235&type=chunk)[236](index=236&type=chunk) [16. SEGMENTS](index=47&type=section&id=16.%20SEGMENTS) Following the divestitures of the Merchant Services Business and the Healthcare RCM Business, the Company now operates as a single operating and reportable segment as of June 30, 2025, focusing on mission-critical enterprise software solutions for public sector customers - After the sale of the Merchant Services Business and Healthcare RCM Business, the Company has one operating and reportable segment as of June 30, 2025[241](index=241&type=chunk) - The core business for continuing operations is providing mission-critical enterprise software solutions to public sector customers[241](index=241&type=chunk) - Consolidated net income is the measure of segment profit or loss used by the CODM to allocate resources and assess performance[243](index=243&type=chunk) [17. NON-CONTROLLING INTEREST](index=48&type=section&id=17.%20NON-CONTROLLING%20INTEREST) i3 Verticals, Inc. consolidates i3 Verticals, LLC's financial results and reports a non-controlling interest for Common Units held by Continuing Equity Owners. As of June 30, 2025, i3 Verticals, Inc. owned a 73.8% economic interest in i3 Verticals, LLC, an increase from 70.0% in the prior year - i3 Verticals, Inc. consolidates i3 Verticals, LLC's financial results and reports a non-controlling interest[245](index=245&type=chunk) - As of June 30, 2025, i3 Verticals, Inc. owned a **73.8%** economic ownership interest in i3 Verticals, LLC, up from **70.0%** in 2024[246](index=246&type=chunk) | Metric (in thousands) | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------ | :------------------------------ | | Net income attributable to non-controlling interest | $7,518 | $1,155 | | Net transfers (from) to non-controlling interests | $(15,316) | $3,545 | [18. EARNINGS PER SHARE](index=48&type=section&id=18.%20EARNINGS%20PER%20SHARE) This section provides reconciliations for basic and diluted earnings per share (EPS) for both continuing and discontinued operations. For continuing operations, basic EPS was $(0.02) for the three months and $0.10 for the nine months ended June 30, 2025. For discontinued operations, basic EPS was $0.55 for the three months and $0.52 for the nine months ended June 30, 2025 - Basic EPS for continuing operations was **$(0.02)** for the three months and **$0.10** for the nine months ended June 30, 2025[249](index=249&type=chunk) - Basic EPS for discontinued operations was **$0.55** for the three months and **$0.52** for the nine months ended June 30, 2025[254](index=254&type=chunk) - Diluted EPS for consolidated operations was **$0.50** for the three months and **$0.60** for the nine months ended June 30, 2025[261](index=261&type=chunk) [19. SIGNIFICANT NON-CASH TRANSACTIONS](index=54&type=section&id=19.%20SIGNIFICANT%20NON-CASH%20TRANSACTIONS) Significant non-cash investing activities for continuing operations during the nine months ended June 30, 2025, included $1,260 thousand in acquisition date fair value of contingent consideration and $22 thousand in right-of-use assets obtained for operating lease obligations | Non-Cash Transaction (in thousands) | Nine months ended June 30, 2025 | Nine months ended June 30, 2024 | | :---------------------------------- | :------------------------------ | :------------------------------ | | Acquisition date fair value of contingent consideration | $1,260 | $170 | | Right-of-use assets obtained in exchange for operating lease obligations | $22 | $538 | [20. SUBSEQUENT EVENTS](index=54&type=section&id=20.%20SUBSEQUENT%20EVENTS) On August 7, 2025, the Company's Board of Directors approved a new share repurchase program for up to $50 million of Class A common stock, replacing the prior program that terminated on August 8, 2025. The new program will terminate on September 30, 2026, or when the maximum amount is expended [New Share Repurchase Program](index=54&type=section&id=New%20Share%20Repurchase%20Program) A new share repurchase program for up to $50 million of Class A common stock was approved on August 7, 2025, replacing the prior program. It will terminate on September 30, 2026, or upon full expenditure, and allows repurchases in the open market or privately - New share repurchase program approved on August 7, 2025, for up to **$50,000 thousand** of Class A common stock[269](index=269&type=chunk) - Replaced the Prior Share Repurchase Program, which terminated on August 8, 2025[271](index=271&type=chunk) - The new program terminates on the earlier of September 30, 2026, or when the maximum dollar amount is expended[272](index=272&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=56&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting the strategic shift to a public sector software solutions focus following divestitures, recent acquisitions, and key financial performance indicators. It also discusses liquidity, cash flows, debt, and critical accounting estimates [Note Regarding Forward-looking Statements](index=56&type=section&id=Note%20Regarding%20Forward-looking%20Statements) This section contains forward-looking statements about future events and results, which involve risks and uncertainties. Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially due to various factors, including cybersecurity risks, economic conditions, and the ability to execute growth strategies - The report includes forward-looking statements about future events or results, identifiable by terms like 'believes,' 'estimates,' 'anticipates,' 'expects,' etc[275](index=275&type=chunk) - Forward-looking statements involve risks and uncertainties, including cybersecurity, economic conditions, and the ability to execute strategy post-divestitures[276](index=276&type=chunk) - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially[277](index=277&type=chunk)[278](index=278&type=chunk) [Executive Overview](index=57&type=section&id=Executive%20Overview) Following the sale of its Healthcare RCM Business, i3 Verticals now focuses on providing mission-critical enterprise software solutions to public sector customers across all 50 states and Canada. The Company has transitioned to a single operating segment - After the sale of the Healthcare RCM Business, i3 Verticals provides mission-critical enterprise software solutions to public sector customers[279](index=279&type=chunk) - The Company's solutions address government functions including courts, transportation, utilities, revenue, and schools[279](index=279&type=chunk) - The Company has updated its segment presentation and now operates as a single operating and reportable segment as of June 30, 2025[281](index=281&type=chunk) [Recent Developments](index=58&type=section&id=Recent%20Developments) Recent developments include ongoing economic uncertainty due to inflationary pressures, elevated interest rates, and geopolitical situations. These conditions could impact the Company's financial results, particularly given its operations in Canada and reliance on government spending - Ongoing economic uncertainty from inflation, elevated interest rates, and geopolitical situations (Middle East, Ukraine, India-Pakistan tensions) could impact the Company[282](index=282&type=chunk) - Canadian governmental actions to reduce business with U.S. companies due to trade tensions could adversely affect financial results[282](index=282&type=chunk) [Liquidity](index=58&type=section&id=Liquidity) As of June 30, 2025, the Company had $55.5 million in cash and cash equivalents and $400.0 million in available capacity under its 2023 Senior Secured Credit Facility, with compliance in financial covenants (interest coverage ratio of 87.1x and total leverage ratio of 0.0x) - As of June 30, 2025, cash and cash equivalents were **$55.5 million**[283](index=283&type=chunk) - Available capacity under the 2023 Senior Secured Credit Facility was **$400.0 million**[283](index=283&type=chunk) - The Company was in compliance with financial covenants, with a consolidated interest coverage ratio of **87.1x** and total leverage ratio of **0.0x**[283](index=283&type=chunk) [Sale of Healthcare RCM Business](index=58&type=section&id=Sale%20of%20Healthcare%20RCM%20Business) On May 5, 2025, the Company completed the sale of its Healthcare RCM Business to Infinx, Inc. for $96.4 million in cash. The financial results of this business have been reclassified as discontinued operations - Sale of Healthcare RCM Business completed on May 5, 2025, for **$96.4 million** in cash[284](index=284&type=chunk) - The Healthcare RCM Business contributed **$3.6 million** and **$22.5 million** of revenue for the three and nine months ended June 30, 2025, respectively[284](index=284&type=chunk) - Results of operations for the Healthcare RCM Business have been reclassified as discontinued operations[285](index=285&type=chunk) [Sale of Merchant Services Business](index=58&type=section&id=Sale%20of%20Merchant%20Services%20Business) On September 20, 2024, the Company sold its Merchant Services Business to Payroc Buyer, LLC for approximately $439.5 million in cash. The financial results of this business have been reclassified as discontinued operations - Sale of Merchant Services Business completed on September 20, 2024, for approximately **$439.5 million** in cash[287](index=287&type=chunk) - The Merchant Services Business comprised the Company's entire former Merchant Services segment and a small portion of the Software and Services segment[287](index=287&type=chunk) - Results of operations for the Merchant Services Business have been reclassified as discontinued operations[288](index=288&type=chunk) [Acquisitions](index=59&type=section&id=Acquisitions) Acquisitions are a core growth strategy, with the Company completing two acquisitions during the nine months ended June 30, 2025, totaling $12.3 million, and two acquisitions during the nine months ended June 30, 2024, totaling $28.77 million, to expand software offerings and customer footprint - Acquisitions are a core component of the Company's growth strategy[289](index=289&type=chunk) [Acquisitions during the nine months ended June 30, 2025](index=59&type=section&id=Acquisitions%20during%20the%20nine%20months%20ended%20June%2030,%202025) The Company acquired a Utility Billing Software Company for $10.3 million (cash and contingent consideration) and assets of another business for $2.0 million in cash, both aimed at expanding public sector software offerings and customer footprint - Acquired a Utility Billing Software Company for **$10.3 million** (including **$9.0 million** cash and **$1.3 million** contingent consideration) on April 1, 2025[290](index=290&type=chunk) - Acquired certain assets of another business for **$2.0 million** in cash to expand customer footprint[291](index=291&type=chunk) [Acquisitions during the nine months ended June 30, 2024](index=59&type=section&id=Acquisitions%20during%20the%20nine%20months%20ended%20June%2030,%202024) During the nine months ended June 30, 2024, the Company acquired one business for $1.3 million (cash and contingent consideration) to expand its software offerings - Acquired one business for **$1.3 million** (including **$1.1 million** cash and **$0.2 million** contingent consideration) during the nine months ended June 30, 2024[292](index=292&type=chunk) [Our Revenue and Expenses](index=59&type=section&id=Our%20Revenue%20and%20Expenses) The Company generates revenue from software and related services, proprietary payments (volume-based and fixed fees), and other sources. Expenses include other costs of services (reclassified to align with the software business model), selling, general and administrative, depreciation and amortization, and interest expense [Revenues](index=59&type=section&id=Revenues) Revenue is generated from software and related services (subscriptions, support, licenses), volume-based payment processing fees (discount fees), and other fixed transaction or service fees. Interchange and network fees are presented net of revenue - Revenue sources include software and related services (subscriptions, recurring services, support, licenses, installation)[293](index=293&type=chunk) - Also generates revenue from volume-based payment processing fees ('discount fees') and fixed transaction/service fees[293](index=293&type=chunk) - Interchange and network fees are presented net of revenue[294](index=294&type=chunk) [Expenses](index=60&type=section&id=Expenses) Expenses include other costs of services (direct software/payment processing costs, reclassified personnel/hosting costs), selling, general and administrative (salaries, professional services, internal technology), depreciation and amortization (property, equipment, software, intangibles), and interest expense (debt, amortization of issuance costs) - Other costs of services include direct software and payment processing costs, reclassified personnel costs for software services, and hosting costs[295](index=295&type=chunk) - Selling, general and administrative expenses include salaries, professional services, internal technology, rent, and utilities[296](index=296&type=chunk) - Depreciation and amortization cover property, equipment, computer hardware/software, acquired intangible assets, and internally developed software[297](index=297&type=chunk) [How We Assess Our Business](index=61&type=section&id=How%20We%20Assess%20Our%20Business) Following the divestitures of the Merchant Services and Healthcare RCM Businesses, the Company now operates as a single segment focused on public sector software and services. Key performance indicators include Annualized Recurring Revenue (ARR) and Adjusted EBITDA margin - After divestitures, the Company has one operating and reportable segment focused on public sector software and services[301](index=301&type=chunk)[302](index=302&type=chunk) - Key performance indicators are Annualized Recurring Revenue (ARR) and Adjusted EBITDA margin[303](index=303&type=chunk)[307](index=307&type=chunk) - ARR from continuing operations for the three months ended June 30, 2025, was **$160.8 million**, representing a **12%** growth rate year-over-year[305](index=305&type=chunk) [Key Performance Indicators](index=61&type=section&id=Key%20Performance%20Indicators) The Company uses Annualized Recurring Revenue (ARR) to measure ongoing revenue potential and Adjusted EBITDA margin to assess operating performance. ARR for continuing operations grew 12% to $160.8 million for the three months ended June 30, 2025 - Annualized Recurring Revenue (ARR) is annualized revenue from recurring sources with ongoing contracts, including SaaS, transaction-based software, maintenance, and payments[303](index=303&type=chunk) - ARR from continuing operations for the three months ended June 30, 2025, was **$160.8 million**, a **12%** growth rate from **$143.6 million** in 2024[305](index=305&type=chunk) - Adjusted EBITDA margin is a non-GAAP measure used to assess operating performance, excluding interest, tax, depreciation, amortization, stock-compensation, and M&A-related expenses[306](index=306&type=chunk) [Results of Operations](index=62&type=section&id=Results%20of%20Operations) The Company's results of operations for continuing operations show increased revenue and improved net income for the three and nine months ended June 30, 2025, compared to the prior year, driven by organic growth, acquisitions, and significantly lower interest expense. Discontinued operations also contributed positively to net income - Revenue increased by

PART I – FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Tenable Holdings, Inc.'s unaudited consolidated financial statements for Q2 2025, showing increased revenue but a wider net loss [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets reflect a decrease in total assets driven by lower cash, offset by increases in goodwill and acquired intangible assets Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $175,025 | $328,647 | | Goodwill | $697,769 | $541,292 | | Acquired intangible assets, net | $128,860 | $94,461 | | Total assets | $1,656,572 | $1,742,119 | | **Liabilities & Equity** | | | | Deferred revenue (Current) | $624,548 | $650,372 | | Term loan, net | $355,439 | $356,705 | | Total liabilities | $1,305,873 | $1,342,165 | | Total stockholders' equity | $350,699 | $399,954 | - Total assets decreased from **$1.74 billion** at year-end 2024 to **$1.66 billion** at June 30, 2025, primarily due to a significant decrease in cash and cash equivalents. Goodwill and acquired intangible assets increased, reflecting recent business acquisitions[11](index=11&type=chunk) [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) The statements of operations show increased revenue for the quarter and six-month periods, but a widening net loss due to higher operating expenses 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 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $247,295 | $221,241 | $486,432 | $437,202 | | Gross Profit | $192,861 | $172,443 | $379,538 | $339,472 | | Loss from operations | $(7,448) | $(8,818) | $(25,159) | $(17,748) | | Net loss | $(14,706) | $(14,572) | $(37,641) | $(28,958) | | Net loss per share | $(0.12) | $(0.12) | $(0.31) | $(0.25) | - Revenue increased by **11.8%** YoY for the second quarter and **11.3%** for the first six months of 2025. However, the net loss for the six-month period widened from **$(29.0) million** in 2024 to **$(37.6) million** in 2025, driven by higher operating expenses, particularly in Research and Development and General and Administrative[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash from operations significantly increased, but overall cash decreased due to substantial outflows for acquisitions and treasury stock purchases Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $129,870 | $81,750 | | Net cash used in investing activities | $(168,766) | $(44,485) | | Net cash used in financing activities | $(116,304) | $(37,853) | | Net decrease in cash | $(153,622) | $(3,665) | - Cash from operations increased significantly in the first half of 2025 compared to 2024. However, cash used in investing activities rose sharply due to **$196.2 million** spent on business combinations. Financing activities also saw increased cash usage, primarily from **$125.0 million** in treasury stock purchases[21](index=21&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the accounting policies and specific line items within the consolidated financial statements [Note 2: Revenue](index=10&type=section&id=2.%20Revenue) This note details revenue composition, highlighting significant reliance on channel partners and strong growth in remaining performance obligations Revenue by Type (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Subscription revenue | $228,031 | $448,474 | | Perpetual license and maintenance | $11,411 | $22,963 | | Professional services and other | $7,853 | $14,995 | | **Total Revenue** | **$247,295** | **$486,432** | - The company has a significant concentration of revenue from its channel network, which accounted for **94%** of revenue in the first six months of 2025. One distributor represented **32%** of revenue during this period[33](index=33&type=chunk) - Total remaining performance obligations (RPO) grew to **$889.1 million** as of June 30, 2025, up from **$747.5 million** a year prior, indicating a strong backlog of future revenue[35](index=35&type=chunk) [Note 6: Acquisitions, Goodwill and Intangible Assets](index=14&type=section&id=6.%20Acquisitions%2C%20Goodwill%20and%20Intangible%20Assets) This note details recent acquisitions, including Vulcan Cyber and Apex Security, and their impact on goodwill and intangible assets - In the first half of 2025, Tenable completed two acquisitions: Vulcan Cyber Ltd. for **$148.5 million** in cash and Apex Security, Inc. for **$47.8 million**[46](index=46&type=chunk)[47](index=47&type=chunk) - As a result of the acquisitions, goodwill increased by **$156.5 million** during the first six months of 2025, reaching a total of **$697.8 million**[51](index=51&type=chunk) [Note 10: Stock-Based Compensation](index=18&type=section&id=10.%20Stock-Based%20Compensation) This note details stock-based compensation expenses across departments, including a significant one-time expense for the former CEO's equity awards Stock-Based Compensation Expense (in thousands) | Department | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Cost of revenue | $6,775 | $6,270 | | Sales and marketing | $34,448 | $31,576 | | Research and development | $28,267 | $22,960 | | General and administrative | $32,939 | $20,311 | | **Total** | **$102,429** | **$81,117** | - Stock-based compensation for the first six months of 2025 included **$14.6 million** of expense related to the accelerated vesting of equity awards for the company's late CEO[66](index=66&type=chunk) [Note 13: Segment and Geographic Information](index=21&type=section&id=13.%20Segment%20and%20Geographic%20Information) This note confirms the company operates as a single segment and provides revenue breakdown by region, highlighting US revenue concentration - The company operates as a single operating segment[79](index=79&type=chunk) Revenue by Region for Six Months Ended June 30 (in thousands) | Region | 2025 | 2024 | | :--- | :--- | :--- | | The Americas | $299,944 | $271,237 | | Europe, Middle East and Africa | $131,031 | $116,358 | | Asia Pacific | $55,457 | $49,607 | | **Total** | **$486,432** | **$437,202** | - Customers in the United States accounted for **53%** of total revenue in the first six months of 2025[80](index=80&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting an 11% revenue increase, GAAP operating loss, non-GAAP operating income, rising expenses, and strong liquidity Key Operating and Financial Metrics | 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 | | :--- | :--- | :--- | :--- | :--- | | Calculated Current Billings (in thousands) | $238,585 | $221,145 | $453,945 | $418,902 | | Free Cash Flow (in thousands) | $37,416 | $28,663 | $117,646 | $75,792 | | Dollar-Based Net Expansion Rate | 107% | 109% | N/A | N/A | - Revenue for Q2 2025 increased by **$26.1 million** (**12%**) year-over-year, with **$24.1 million** of the increase coming from existing customers[133](index=133&type=chunk) - Research and Development expenses rose **31%** in Q2 2025 compared to Q2 2024, primarily due to a **$12.0 million** increase in personnel costs[137](index=137&type=chunk) - General and Administrative expenses for the first six months of 2025 included **$15.5 million** in termination benefits related to the passing of the company's Chairman and CEO[127](index=127&type=chunk)[149](index=149&type=chunk) - The company's stock repurchase program has purchased a total of **6.3 million shares** for **$239.9 million** since its inception. The Board increased the authorization by an additional **$250 million** in July 2025[159](index=159&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include interest rate, foreign currency, and inflation, with interest rate risk potentially increasing 2025 expense by $1.2 million - The company is exposed to interest rate risk through its **$375.0 million** Term Loan, which has a variable interest rate based on SOFR. A one percentage point increase in the rate would increase 2025 interest expense by **$1.2 million**[172](index=172&type=chunk) - Foreign currency exchange risk is mainly from operating expenses incurred in currencies like the Euro, British Pound, and Israeli New Shekel, as most sales contracts are denominated in U.S. dollars[173](index=173&type=chunk) - While inflation has not had a material effect so far, the company acknowledges that rising costs for employees and third-party cloud infrastructure could become a significant pressure[174](index=174&type=chunk) [Controls and Procedures](index=41&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 - Based on an evaluation, the Co-Chief Executive Officers concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[176](index=176&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[178](index=178&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - Tenable is not presently a party to any legal proceedings that would be expected to have a material adverse effect on the company[181](index=181&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new and updated material risks, including generative AI integration, channel partner reliance, government sales uncertainties, and macroeconomic instability - The use of generative AI in products like ExposureAI introduces risks of inaccurate output, data privacy concerns, and navigating an emerging and uncertain legal and regulatory landscape, such as the EU's Artificial Intelligence Act[183](index=183&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk) - The company has a high concentration of revenue from its channel partners, with **94%** of revenue in H1 2025 derived from this network. A single distributor, Ingram Micro, accounted for **32%** of revenue, posing a significant dependency risk[189](index=189&type=chunk) - Sales to government entities are subject to risks from budgetary cycles, funding authorizations, and potential spending reductions, such as those proposed by the Department of Government Efficiency (DOGE), which could elongate sales cycles in the second half of 2025[191](index=191&type=chunk) - Unstable market conditions, including inflation, high interest rates, and trade tensions, may cause customers to defer or reduce spending, which could adversely impact business[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered equity sales and details Q2 2025 stock repurchases, with the Board increasing authorization by $250 million in July 2025 Issuer Purchases of Equity Securities (Q2 2025) | Period | Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 40 (thousands) | $33.17 | | May 2025 | 1,203 (thousands) | $32.43 | | June 2025 | 800 (thousands) | $32.48 | | **Total** | **2,043 (thousands)** | **$32.47** | - In July 2025, the Board of Directors increased the stock repurchase authorization by **$250 million**[206](index=206&type=chunk) [Other Information](index=50&type=section&id=Item%205.%20Other%20Information) The company amended Co-CEO employment agreements in August 2025, enhancing severance benefits from 12 to 18 months of base salary upon certain terminations - Employment agreements for Co-CEOs Stephen Vintz and Mark Thurmond were amended following their permanent appointment in April 2025[207](index=207&type=chunk) - Severance benefits for termination without cause or resignation for good reason were enhanced, increasing continued base salary payments from **12 months** to **18 months**[210](index=210&type=chunk) [Exhibits](index=53&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including amended executive employment agreements and SOX certifications - The report includes a list of filed exhibits, such as the Amended and Restated Certificate of Incorporation, amendments to executive employment agreements, and certifications by the Principal Executive Officer[214](index=214&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _______________ Commission file number: 001-37862 PHUNWARE, INC. (Exact name of registrant as specified in its charter) | Delaware | 30-1205798 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer | | incorporation or organization) | Identification Number) ...

[PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) The unaudited condensed consolidated financial statements for Owlet, Inc. as of June 30, 2025, show a significant increase in total liabilities, primarily due to a rise in common stock warrant liabilities and line of credit borrowings, resulting in a net loss of $34.6 million for the first six months of 2025, and raising substantial doubt about the company's ability to continue as a going concern [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Summary (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$63,543** | **$49,515** | | Total Current Assets | $60,743 | $46,113 | | **Total Liabilities** | **$108,024** | **$66,329** | | Common stock warrant liabilities | $51,652 | $25,343 | | Line of credit | $14,876 | $6,263 | | **Total Stockholders' Deficit** | **($59,156)** | **($29,751)** | - Total liabilities increased significantly from **$66.3 million** at year-end 2024 to **$108.0 million** as of June 30, 2025, widening the total stockholders' deficit to **$59.2 million**[21](index=21&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | **Revenues** | **$47,167** | **$35,449** | | Gross Profit | $24,706 | $16,799 | | Operating Loss | ($4,590) | ($7,990) | | Common stock warrant liability adjustment | ($28,066) | $10,207 | | **Net Income (Loss)** | **($34,622)** | **$2,127** | | Net Loss Per Share | ($2.26) | ($0.08) | - Revenue grew **33%** year-over-year for the six months ended June 30, 2025, but a significant non-cash loss of **$28.1 million** from the common stock warrant liability adjustment resulted in a substantial net loss of **$34.6 million**[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,170) | ($6,721) | | Net cash used in investing activities | ($199) | ($74) | | Net cash provided by financing activities | $9,865 | $5,601 | | **Net change in cash** | **$1,496** | **($1,194)** | - Cash used in operations increased to **$8.2 million** in the first half of 2025, with the company's cash position bolstered by **$9.9 million** in net cash from financing activities, primarily from short-term borrowings and warrant exercises[32](index=32&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company has experienced recurring operating losses and negative cash flows, resulting in an accumulated deficit of **$302.8 million**, which raises substantial doubt about its ability to continue as a going concern[41](index=41&type=chunk)[44](index=44&type=chunk) - Customer concentration risk is high, with one customer accounting for **52%** of net revenues and **68%** of net accounts receivable for the six months ended June 30, 2025[49](index=49&type=chunk) - The company has secured a term loan facility for up to **$15.0 million** and an asset-based revolving credit facility for up to **$15.0 million** (increasing to **$20.0 million** in September 2025) to provide liquidity[76](index=76&type=chunk)[88](index=88&type=chunk) - Agreements in principle have been reached to settle class action lawsuits, recognizing expenses of **$5.25 million** in 2024 and an additional **$675 thousand** in Q1 2025 related to these matters[101](index=101&type=chunk)[104](index=104&type=chunk) - Subsequent to the quarter end, on August 7, 2025, the company entered into an agreement to exchange certain outstanding warrants for an aggregate of **5,426,429** newly issued shares of common stock, subject to stockholder approval[147](index=147&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=39&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported a **33.1%** increase in revenue for the first six months of 2025, driven by higher sales of Dream Sock products and the new Owlet360 subscription service, with gross margin improving from **47.4%** to **52.4%**, despite rising operating expenses and ongoing liquidity concerns that raise substantial doubt about the company's ability to continue as a going concern [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Revenue Performance (in thousands) | Period | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Three Months Ended June 30** | $26,063 | $20,699 | $5,364 | 25.9% | | **Six Months Ended June 30** | $47,167 | $35,449 | $11,718 | 33.1% | - Revenue growth was primarily driven by higher sales of Dream Sock and Dream Duo products and the launch of the Owlet360 subscription service in January 2025[162](index=162&type=chunk) Gross Margin Performance | Period | 2025 | 2024 | | :--- | :--- | :--- | | **Three Months Ended June 30** | 51.3% | 49.5% | | **Six Months Ended June 30** | 52.4% | 47.4% | - Operating expenses increased for the six months ended June 30, 2025, compared to the prior year: General & Administrative rose **16.0%** to **$14.3 million**, Sales & Marketing rose **7.4%** to **$8.3 million**, and Research & Development rose **41.6%** to **$6.7 million**[166](index=166&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk) - Non-GAAP Adjusted EBITDA turned positive, reaching **$320 thousand** for the first six months of 2025, compared to a loss of **$3.0 million** in the same period of 2024[177](index=177&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) - As of June 30, 2025, the company had cash and cash equivalents of **$21.8 million**[178](index=178&type=chunk) - The company has experienced recurring operating losses and negative cash flows from operations, resulting in an accumulated deficit of **$302.8 million** as of June 30, 2025, raising substantial doubt about its ability to continue as a going concern[205](index=205&type=chunk)[206](index=206&type=chunk) - Recent financing activities include a September 2024 common stock offering with net proceeds of **$10.6 million**, a **$15.0 million** term loan facility (of which **$7.5 million** was drawn), and a **$15.0 million** ABL line of credit (of which **$14.9 million** was outstanding)[183](index=183&type=chunk)[189](index=189&type=chunk)[200](index=200&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,170) | ($6,721) | | Net cash provided by financing activities | $9,865 | $5,601 | [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Owlet, Inc. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company defined by Rule 12b-2 of the Exchange Act, Owlet, Inc. is not required to provide quantitative and qualitative disclosures about market risk[217](index=217&type=chunk) [Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to several ongoing material weaknesses in internal control over financial reporting, despite the remediation of one previously identified material weakness related to accrued sales tax, with a remediation plan currently in progress - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses in internal control over financial reporting[220](index=220&type=chunk) - The company successfully remediated a previously identified material weakness related to the completeness and accuracy of accrued sales tax as of June 30, 2025[221](index=221&type=chunk)[223](index=223&type=chunk) - Multiple material weaknesses persist, including issues with the overall control environment, segregation of duties for journal entries, controls over inventory and accrued liabilities, accounting for complex debt and equity arrangements, and review of the statement of cash flows[224](index=224&type=chunk)[229](index=229&type=chunk) - A remediation plan is underway, which includes hiring additional accounting personnel and implementing enhanced policies, procedures, and controls[226](index=226&type=chunk) [PART II. OTHER INFORMATION](index=58&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in putative class action and derivative lawsuits alleging violations of the Securities Exchange Act of 1934, with agreements in principle to settle these claims having been reached and motions for preliminary approval currently pending - The company is involved in legal proceedings, including class action complaints filed in November 2021 alleging violations of the Securities Exchange Act related to misleading statements about the FDA's classification of its Smart Sock product[97](index=97&type=chunk)[99](index=99&type=chunk) - Following mediation, the company reached agreements in principle to settle the claims for a total of **$5.25 million**, with motions for preliminary approval of the settlements pending as of January 31, 2025[101](index=101&type=chunk) [Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) The company highlights new and updated risks, including potential adverse impacts from changes in U.S. and international tax laws, such as the One Big Beautiful Bill Act of 2025 (OBBBA), and significant risk from increases in tariffs and trade restrictions on products sourced from Thailand and Vietnam - Changes in tax laws, such as the recently enacted One Big Beautiful Bill Act of 2025 (OBBBA), could adversely affect the company's financial performance[238](index=238&type=chunk) - The company faces risks from increased tariffs on its products sourced from Thailand (**19%** tariff) and Vietnam (**20%** tariff), which could increase costs, reduce profitability, and make products less competitive[240](index=240&type=chunk)[241](index=241&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities for the three months ended June 30, 2025 - There were no unregistered sales of equity securities during the three-month period ending June 30, 2025[244](index=244&type=chunk) [Other Information](index=59&type=section&id=Item%205.%20Other%20Information) The company announced that because its 2025 annual meeting will be more than 30 days after the anniversary of the 2024 meeting, the new deadline for submitting stockholder proposals under Rule 14a-8 is August 18, 2025 - The deadline for submitting stockholder proposals for the 2025 annual meeting pursuant to Rule 14a-8 has been changed to August 18, 2025[247](index=247&type=chunk)

[Core Scientific Fiscal Second Quarter 2025 Results](index=1&type=section&id=Core%20Scientific%20Fiscal%20Second%20Quarter%202025%20Results) [Financial and Corporate Highlights](index=1&type=section&id=Financial%20and%20Corporate%20Highlights) Core Scientific reported Q2 2025 results, featuring a pending CoreWeave acquisition, revenue decline, and a significant net loss driven by non-cash adjustments - Core Scientific entered an all-stock merger agreement with CoreWeave, converting each share into **0.1235 shares of CoreWeave Class A common stock**[3](index=3&type=chunk) - Total revenue declined due to decreased **digital asset self-mining revenue ($62.4 million)** and **hosted mining revenue ($5.6 million)**, partially offset by **colocation revenue growth to $10.6 million**[4](index=4&type=chunk) - Net loss was primarily driven by a **$910.0 million non-cash fair value adjustment** for warrants and contingent value rights[4](index=4&type=chunk) - The company maintained a strong liquidity position of **$754.1 million**, comprising **$581.3 million in cash** and **$172.8 million in digital assets**[4](index=4&type=chunk) Q2 2025 Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 ($) | Q2 2024 ($) | | :--- | :--- | :--- | | **Total Revenue** | $78.6M | $141.1M | | **Gross Profit** | $5.0M | $38.8M | | **Net Loss** | $(936.8)M | $(804.9)M | | **Adjusted EBITDA** | $21.5M | $46.0M | | **Capital Expenditures** | $121.3M | N/A | [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents unaudited condensed consolidated financial statements, detailing balance sheet changes, revenue decline, and cash flow usage [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$1.98 billion** and total liabilities to **$3.04 billion**, leading to a **$1.06 billion** stockholders' deficit Balance Sheet Summary | Account | June 30, 2025 (in thousands $) | December 31, 2024 (in thousands $) | | :--- | :--- | :--- | | **Total Current Assets** | $1,004,760 | $903,962 | | **Property, plant and equipment, net** | $828,603 | $556,342 | | **Total Assets** | **$1,978,052** | **$1,598,815** | | **Total Current Liabilities** | $562,722 | $134,562 | | **Warrant liabilities** | $1,316,690 | $1,097,285 | | **Total Liabilities** | **$3,042,728** | **$2,418,995** | | **Total Stockholders' Deficit** | **$(1,064,676)** | **$(820,180)** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 saw total revenue decline to **$78.6 million** and gross profit to **$5.0 million**, resulting in a **$936.8 million** net loss Q2 Statement of Operations Summary | Metric | Q2 2025 (in thousands $) | Q2 2024 (in thousands $) | | :--- | :--- | :--- | | **Total Revenue** | $78,628 | $141,102 | | **Gross Profit** | $5,025 | $38,817 | | **Operating (Loss) Income** | $(26,284) | $6,579 | | **Change in fair value of warrants** | $909,958 | $796,035 | | **Net Loss** | **$(936,799)** | **$(804,896)** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Six-month cash flow showed **$6.6 million** used in operations and **$213.1 million** in investing, leading to a **$255.6 million** net cash decrease Six-Month Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands $) | Six Months Ended June 30, 2024 (in thousands $) | | :--- | :--- | :--- | | **Net cash (used in) provided by operating activities** | $(6,599) | $23,378 | | **Net cash used in investing activities** | $(213,066) | $(35,154) | | **Net cash (used in) provided by financing activities** | $(35,970) | $39,172 | | **Net (decrease) increase in cash** | **$(255,635)** | **$27,396** | | **Cash, cash equivalents and restricted cash—end of period** | **$581,345** | **$97,105** | [Segment Results](index=8&type=section&id=Segment%20Results) Q2 2025 saw significant gross margin compression in digital asset mining segments, while the colocation segment demonstrated strong revenue growth Q2 2025 Segment Performance (vs. Q2 2024) | Segment | Revenue (in thousands $) | Gross Profit (in thousands $) | Gross Margin | | :--- | :--- | :--- | :--- | | **Digital Asset Self-Mining** | | | | | Q2 2025 | $62,424 | $2,835 | 5% | | Q2 2024 | $110,743 | $30,742 | 28% | | **Digital Asset Hosted Mining** | | | | | Q2 2025 | $5,644 | $1,060 | 19% | | Q2 2024 | $24,840 | $7,447 | 30% | | **Colocation** | | | | | Q2 2025 | $10,560 | $1,130 | 11% | | Q2 2024 | $5,519 | $628 | 11% | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA, a key non-GAAP measure, decreased to **$21.5 million** in Q2 2025, with a detailed reconciliation provided - Management uses Adjusted EBITDA to assess operating performance by excluding non-cash items and charges unrelated to core business operations[27](index=27&type=chunk)[28](index=28&type=chunk) Reconciliation of Net Loss to Adjusted EBITDA | Metric | Three Months Ended June 30, 2025 (in thousands $) | Three Months Ended June 30, 2024 (in thousands $) | | :--- | :--- | :--- | | **Net loss** | $(936,799) | $(804,896) | | **Change in fair value of warrants and CVRs** | $909,958 | $796,035 | | **Depreciation and amortization** | $18,756 | $29,477 | | **Stock-based compensation expense** | $24,170 | $8,494 | | **Other Adjustments** | $6,418 | $6,926 | | **Adjusted EBITDA** | **$21,503** | **$46,036** | [Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to significant risks, including the CoreWeave acquisition, regulatory changes, and market volatility - Statements on projections, growth, and business scaling are forward-looking and subject to significant risks that could cause material differences in actual results[7](index=7&type=chunk)[8](index=8&type=chunk) - Key risks include the CoreWeave acquisition, regulatory approvals, litigation, digital asset price volatility, power availability, and facility conversion challenges[9](index=9&type=chunk)[10](index=10&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and detailed notes 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 statement provides a snapshot of the company's financial position, including assets, liabilities, and equity, at specific dates **Condensed Consolidated Balance Sheets (Dollars in thousands):** | Metric | June 30, 2025 (Unaudited) | December 31, 2024 (Audited) | Change ($ thousands) | Change (%) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :------------------- | :--------- | | Total Assets | 999,127 | 932,933 | 66,194 | 7.1% | | Total Cash and Cash Equivalents | 181,754 | 93,630 | 88,124 | 94.1% | | Loans, net of allowance for credit losses | 774,548 | 794,985 | (20,437) | (2.6)% | | Total Deposits | 878,865 | 772,195 | 106,670 | 13.8% | | Total Stockholders' Equity | 111,348 | 103,184 | 8,164 | 7.9% | [Condensed Consolidated Statements of Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) This statement details the company's revenues, expenses, and net earnings over specific reporting periods **Condensed Consolidated Statements of Earnings (Dollars 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 Interest Income | 15,588 | 15,188 | 30,595 | 28,654 | | Total Interest Expense | 5,346 | 6,446 | 10,927 | 12,161 | | Net Interest Income | 10,242 | 8,742 | 19,668 | 16,493 | | Credit Loss Expense | 1,040 | 195 | 875 | 1,253 | | Net Earnings | 3,602 | 3,496 | 7,472 | 5,873 | | Net Earnings per share - Basic | 0.31 | 0.36 | 0.64 | 0.68 | | Net Earnings per share - Diluted | 0.29 | 0.34 | 0.61 | 0.66 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net earnings and other comprehensive income components, reflecting total changes in equity from non-owner sources **Condensed Consolidated Statements of Comprehensive Income (Dollars 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 earnings | 3,602 | 3,496 | 7,472 | 5,873 | | Total other comprehensive (loss) income | (252) | 246 | 165 | (136) | | Comprehensive income | 3,350 | 3,742 | 7,637 | 5,737 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement outlines changes in equity accounts, including net earnings, stock issuance, and other comprehensive income, over the period - Total stockholders' equity increased to **$111,348 thousand** at June 30, 2025, from **$103,184 thousand** at December 31, 2024. This increase was primarily driven by **net earnings of $7,472 thousand**, proceeds from common stock sales of **$231 thousand**, and stock-based compensation of **$296 thousand** during the six months ended June 30, 2025[7](index=7&type=chunk)[14](index=14&type=chunk)[17](index=17&type=chunk) - The net change in unrealized gain on debt securities available for sale contributed **$166 thousand** to equity for the six months ended June 30, 2025, compared to a loss of **$137 thousand** in the prior year period[14](index=14&type=chunk)[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash inflows and outflows from operating, investing, and financing activities for the reporting period **Condensed Consolidated Statements of Cash Flows (Dollars in thousands):** | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | 9,292 | 5,640 | | Net cash provided by (used in) investing activities | 21,931 | (81,447) | | Net cash provided by financing activities | 56,901 | 103,200 | | Net increase in cash and cash equivalents | 88,124 | 27,393 | | Cash and cash equivalents at end of the period | 181,754 | 104,056 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [(1) General](index=11&type=section&id=%281%29%20General) This note describes the company's business operations and the basis of presentation for the financial statements - OptimumBank Holdings, Inc. is a one-bank holding company operating OptimumBank, a Florida-chartered community bank. The Bank provides community banking services in Broward and Miami-Dade Counties, Florida, and offers national deposit and electronic funds transfer services to merchant cash advance providers[22](index=22&type=chunk) - The company is evaluating the impact of ASU 2024-03, "Expense Disaggregation Disclosures," effective for fiscal years beginning after December 15, 2026[27](index=27&type=chunk) [(2) Debt Securities](index=12&type=section&id=%282%29%20Debt%20Securities) This note provides details on the company's debt securities, including their fair value and unrealized gains or losses **Debt Securities Available for Sale (Dollars in thousands, at June 30, 2025):** | Category | Amortized Cost | Gross Unrealized Losses | Fair Value | | :----------------------------- | :------------- | :---------------------- | :--------- | | SBA Pool Securities | 512 | (12) | 500 | | Collateralized mortgage obligations | 121 | (14) | 107 | | Taxable municipal securities | 16,635 | (4,654) | 11,981 | | Mortgage-backed securities | 12,360 | (2,570) | 9,790 | | **Total** | **29,628** | **(7,250)** | **22,378** | - Unrealized losses on debt securities are primarily due to interest-rate changes, and the Company does not intend to sell these investments, nor does it believe a credit loss expense is necessary[33](index=33&type=chunk)[34](index=34&type=chunk) - No sales of debt securities occurred during the six-month periods ended June 30, 2025, and 2024[30](index=30&type=chunk) [(3) Loans](index=13&type=section&id=%283%29%20Loans) This note details the composition of the loan portfolio, allowance for credit losses, and credit quality classifications **Loan Segments (Dollars in thousands):** | Loan Type | June 30, 2025 | December 31, 2024 | | :---------------------- | :-------------- | :---------------- | | Residential real estate | 66,602 | 74,064 | | Multi-family real estate | 68,321 | 64,001 | | Commercial real estate | 478,224 | 485,671 | | Land and construction | 61,126 | 77,295 | | Commercial | 50,351 | 52,810 | | Consumer | 59,940 | 50,399 | | **Total loans** | **784,564** | **804,240** | - The allowance for credit losses increased to **$9,338 thousand** (**1.19%** of loans outstanding) at June 30, 2025, from **$8,660 thousand** (**1.08%**) at December 31, 2024[36](index=36&type=chunk)[120](index=120&type=chunk) **Nonaccrual Loans (Dollars in thousands):** | Loan Type | June 30, 2025 | December 31, 2024 | | :---------------------- | :-------------- | :---------------- | | Commercial | 2,614 | 1,374 | | Consumer | 605 | 605 | | Land and construction | - | 5,597 | | **Total Nonaccrual** | **3,219** | **7,576** | - The Company defines internal loan grades as Pass, OLEM (Other Loan Especially Mentioned), Substandard, Doubtful, and Loss, reflecting increasing levels of credit risk[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk) [(4) Earnings Per Share](index=23&type=section&id=%284%29%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share, including the impact of convertible securities **Earnings Per Share (Dollars 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 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.31 | $0.36 | $0.64 | $0.68 | | Diluted EPS | $0.29 | $0.34 | $0.61 | $0.66 | | Weighted Average Shares (Basic) | 11,751,082 | 9,639,503 | 11,727,974 | 8,627,904 | | Weighted Average Shares (Diluted) | 12,276,723 | 10,165,144 | 12,253,615 | 8,902,247 | - The dilutive effect on EPS is primarily due to **525,641** outstanding Series C Convertible Preferred shares, calculated using the if-converted method[64](index=64&type=chunk)[65](index=65&type=chunk) [(5) Stock-Based Compensation](index=23&type=section&id=%285%29%20Stock-Based%20Compensation) This note outlines the company's stock-based compensation plans, related expenses, and shares available for grant - The Company issued **62,171 shares** to employees for services, recording **$296,000** in compensation expense during the six months ended June 30, 2025[67](index=67&type=chunk) - As of June 30, 2025, **861,488 shares** remain available for grant under the 2018 Equity Incentive Plan[66](index=66&type=chunk) [(6) Fair Value Measurements](index=24&type=section&id=%286%29%20Fair%20Value%20Measurements) This note describes the methodologies and inputs used to determine the fair value of financial instruments **Fair Value Measurements Using Significant Other Observable Inputs (Level 2) for Debt Securities Available for Sale (Dollars in thousands, at June 30, 2025):** | Category | Fair Value | Level 2 Inputs | | :----------------------------- | :--------- | :------------- | | SBA Pool Securities | 500 | 500 | | Collateralized mortgage obligations | 107 | 107 | | Taxable municipal securities | 11,981 | 11,981 | | Mortgage-backed securities | 9,790 | 9,790 | | **Total** | **22,378** | **22,378** | [(7) Financial Instruments](index=24&type=section&id=%287%29%20Financial%20Instruments) This note provides information on the carrying amounts and fair values of various financial instruments **Fair Value of Financial Instruments (Dollars in thousands, at June 30, 2025):** | Financial Instrument | Carrying Amount | Fair Value | Level | | :-------------------------------- | :-------------- | :--------- | :---- | | Cash and cash equivalents | 181,754 | 181,754 | 1 | | Debt securities available for sale | 22,378 | 22,378 | 2 | | Debt securities held-to-maturity | 260 | 232 | 2 | | Loans | 774,548 | 691,943 | 3 | | Federal Home Loan Bank stock | 658 | 658 | 3 | | Accrued interest receivable | 3,138 | 3,138 | 3 | | Deposit liabilities | 878,865 | 866,058 | 3 | | Federal Home Loan Bank advances | - | - | 3 | [(8) Off-Balance Sheet Financial Instruments](index=25&type=section&id=%288%29%20Off-Balance%20Sheet%20Financial%20Instruments) This note details the company's commitments to extend credit and other off-balance sheet arrangements **Off-Balance Sheet Financial Instruments (Dollars in thousands, at June 30, 2025):** | Instrument | Contractual Amount | | :----------------------------- | :----------------- | | Commitments to extend credit | 13,450 | | Unused lines of credit | 52,777 | | Standby letters of credit | 3,779 | - The Company manages credit risk for off-balance sheet instruments using the same credit policies as for on-balance sheet instruments and generally holds collateral[74](index=74&type=chunk)[76](index=76&type=chunk) [(9) Regulatory Matters](index=25&type=section&id=%289%29%20Regulatory%20Matters) This note discusses the company's compliance with regulatory capital requirements and its capital adequacy status **Bank Capital Adequacy (Dollars in thousands, at June 30, 2025):** | Metric | Actual Amount | Actual % | To Be Well Capitalized (CBLR Framework) Amount | To Be Well Capitalized (CBLR Framework) % | | :----------------------------- | :------------ | :------- | :--------------------------------------------- | :---------------------------------------- | | Tier 1 Capital to Total Assets | 116,277 | 11.89% | 88,011 | 9.00% | - The Bank meets all capital adequacy requirements and is considered **well-capitalized** under regulatory guidelines[78](index=78&type=chunk) [(10) Series B and C Preferred Stock and ATM offering program](index=26&type=section&id=%2810%29%20Series%20B%20and%20C%20Preferred%20Stock%20and%20ATM%20offering%20program) This note describes the terms of preferred stock, conversion rights, and the at-the-market equity offering program - Series B Preferred Stock is convertible into **11,113,889 common shares**, subject to shareholder and regulatory approvals, and has preferential liquidation rights[80](index=80&type=chunk)[82](index=82&type=chunk) - **525,641 shares** of Series C Preferred Stock are outstanding, each convertible into one common share, subject to a **9.9%** ownership limit[83](index=83&type=chunk) - The ATM Program generated **$231,000** in net proceeds from the sale of **52,819 common shares** during the six months ended June 30, 2025, intended to facilitate growth[84](index=84&type=chunk) [(11) Contingencies](index=27&type=section&id=%2811%29%20Contingencies) This note addresses potential future obligations arising from legal claims or other uncertain events - Management believes no current legal claims will have a material effect on the Company's condensed consolidated financial statements[87](index=87&type=chunk) [(12) Borrowings](index=27&type=section&id=%2812%29%20Borrowings) This note details the company's borrowing arrangements, including FHLB advances and lines of credit - As of June 30, 2025, the Company had no outstanding FHLB advances, having repaid **$10 million** borrowed during the period[88](index=88&type=chunk) - The Company maintains **$244.3 million** in FHLB borrowing capacity, collateralized by **$458 million** in first mortgage loans, and has **$49.5 million** in lines of credit with correspondent banks[89](index=89&type=chunk)[90](index=90&type=chunk) - A line of credit with the Federal Reserve Bank is secured by investment securities with a fair value of **$1.7 million**[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, operational results, strategic initiatives, and liquidity for the reporting periods [Strategic Plan](index=28&type=section&id=Strategic%20Plan) This section outlines the company's strategic objectives for growth, efficiency, and market expansion - The strategic plan focuses on generating growth in earning assets, core transaction deposits, and treasury management fee income, while maintaining an efficient cost structure[94](index=94&type=chunk) - Key initiatives include expanding the South Florida footprint, exploring niche lines of business (Skilled Nursing Facilities, Merchant Cash Advance, SBA lending), investing in talent, and modernizing technology, including a core banking system upgrade in 2025[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - The Company achieved Preferred Lender status under the SBA's PLP in Q1 2025, enhancing its SBA-guaranteed 7A loan offerings[97](index=97&type=chunk) [Financial Condition at June 30, 2025 and December 31, 2024](index=29&type=section&id=Financial%20Condition%20at%20June%2030%2C%202025%20and%20December%2031%2C%202024) This section analyzes the company's financial position, including assets, liabilities, and equity, at the specified dates [Capital Levels](index=29&type=section&id=Capital%20Levels) This subsection reviews the company's regulatory capital adequacy and overall capital strength - The Bank remained **well-capitalized** under regulatory guidelines as of June 30, 2025, and December 31, 2024[100](index=100&type=chunk) [Overview](index=29&type=section&id=Overview) This subsection provides a high-level summary of changes in total assets, deposits, and loans - Total assets increased by approximately **$66.2 million** to **$999.1 million** at June 30, 2025, primarily due to increases in cash and cash equivalents[102](index=102&type=chunk) - Deposits grew by approximately **$106.7 million** to **$878.9 million**, while net loans decreased by **$20.4 million**[102](index=102&type=chunk) **Selected Financial Information:** | Metric | Six Months Ended June 30, 2025 | Year Ended December 31, 2024 | | :-------------------------------- | :----------------------------- | :--------------------------- | | Average equity as a percentage of average assets | 11.2% | 9.3% | | Equity to total assets at end of period | 11.1% | 11.1% | | Return on average assets (annualized) | 1.6% | 1.4% | | Return on average equity (annualized) | 13.9% | 7.3% | | Noninterest expenses to average assets (annualized) | 2.5% | 2.1% | [Liquidity and Sources of Funds](index=29&type=section&id=Liquidity%20and%20Sources%20of%20Funds) This subsection discusses the company's liquidity position and its primary funding sources - Liquidity is primarily derived from customer deposits, loan repayments, earnings, and access to borrowing arrangements, including **$244.3 million** in FHLB capacity and **$49.5 million** in correspondent bank lines of credit[104](index=104&type=chunk)[105](index=105&type=chunk)[108](index=108&type=chunk) - Deposits increased by approximately **$106.7 million** during the six-month period ended June 30, 2025, providing funding for new loan originations and repayment of FHLB advances[106](index=106&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) This subsection refers to disclosures regarding the company's off-balance sheet commitments and contingencies - Details on off-balance sheet arrangements are provided in Note 8 to the condensed consolidated financial statements[109](index=109&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net earnings, interest income, and expenses, for the reporting periods [Comparison of the three-month periods ended June 30, 2025, and 2024](index=33&type=section&id=Comparison%20of%20the%20three-month%20periods%20ended%20June%2030%2C%202025%2C%20and%202024) This subsection compares key financial performance metrics for the three-month periods, highlighting changes and drivers - Net earnings increased by **3%** to **$3.6 million**, driven by a **17%** increase in net interest income and a **53%** increase in noninterest income[117](index=117&type=chunk) - Credit loss expense significantly increased by **433%** to **$1.0 million**, primarily due to estimated collectability on individually analyzed loans[117](index=117&type=chunk)[120](index=120&type=chunk) - Total noninterest expenses rose by **22%** to **$6.2 million**, mainly due to employee compensation and benefits, and professional fees[117](index=117&type=chunk)[122](index=122&type=chunk) - Interest expense decreased by **17%** to **$5.3 million**, attributed to reduced deposit rates and repayment of borrowings[117](index=117&type=chunk)[119](index=119&type=chunk) [Comparison of the six-month periods ended June 30, 2025, and 2024](index=34&type=section&id=Comparison%20of%20the%20six-month%20periods%20ended%20June%2030%2C%202025%2C%20and%202024) This subsection compares key financial performance metrics for the six-month periods, highlighting changes and drivers - Net earnings increased by **27%** to **$7.5 million**, primarily due to a **19%** increase in net interest income and a **26%** increase in noninterest income[124](index=124&type=chunk) - Credit loss expense decreased by **30%** to **$875,000**, reflecting improvements in loan portfolio quality and reassessment of collectability factors[124](index=124&type=chunk)[126](index=126&type=chunk) - Total noninterest expenses increased by **21%** to **$11.8 million**, mainly driven by employee compensation and benefits[124](index=124&type=chunk)[128](index=128&type=chunk) - Interest expense decreased by **10%** to **$10.9 million**, due to a reduction in deposit rates and changes in deposit composition[124](index=124&type=chunk)[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable to the current report, indicating no material market risk disclosures are required - Not applicable[129](index=129&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management assessed the effectiveness of disclosure controls and internal control over financial reporting as of June 30, 2025 - The Principal Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were **effective** as of June 30, 2025[130](index=130&type=chunk) - There have been no **significant changes** in the Company's internal control over financial reporting during the quarter ended June 30, 2025[131](index=131&type=chunk) [PART II. OTHER INFORMATION](index=35&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes disclosures on legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material legal proceedings that would significantly impact its financial statements - The Company is not currently a party to any **material legal proceedings**[134](index=134&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) This section is not applicable to the current report, indicating no new material risk factors are disclosed - Not applicable[135](index=135&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section is not applicable to the current report, indicating no unregistered equity sales or proceeds to disclose - Not applicable[136](index=136&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section is not applicable to the current report, indicating no defaults on senior securities - Not applicable[137](index=137&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the current report, as the company is not involved in mining operations - Not applicable[138](index=138&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) This section is not applicable to the current report, indicating no other material information to disclose - Not applicable[139](index=139&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including corporate documents and officer certifications - The exhibit index includes Amended and Restated Articles of Incorporation, Bylaws, Description of Securities, Form of Stock Certificate, Certifications of Principal Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 32), and various Inline XBRL documents[147](index=147&type=chunk) [SIGNATURES](index=36&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive and financial officers - The report was signed on August 8, 2025, by Timothy Terry, Principal Executive Officer, and Elliot Nunez, Chief Financial Officer[144](index=144&type=chunk) [EXHIBIT INDEX](index=37&type=section&id=EXHIBIT%20INDEX) This section provides a comprehensive list and description of all exhibits accompanying the report - A comprehensive list of exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL files[147](index=147&type=chunk)

Glossary and Defined Terms This section defines key abbreviations and terms for consistent understanding of the financial and operational context - The report defines numerous abbreviations and terms, such as AOCI, FFO, REIT, Annualized Rent, and Occupancy Rate, to ensure consistent understanding of financial and operational context[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk) Forward Looking Statements Forward-looking statements are subject to various risks and uncertainties, potentially causing actual outcomes to differ materially - The report contains forward-looking statements based on beliefs and assumptions, subject to known and unknown risks, trends, uncertainties, and factors beyond the company's control, with actual outcomes potentially differing materially from expectations[12](index=12&type=chunk) - Key risks include adverse economic, political, or real estate developments; competition; decreasing rental rates or increasing vacancy rates; reduced demand for office space due to remote work; tenant defaults; increases in interest rates, operating, and construction costs; insufficient cash flows; difficulties in raising capital; inability to liquidate investments; adverse changes to rent control laws; environmental uncertainties; natural disasters; property damage; insufficient insurance; inability to expand into new markets or successfully operate acquired properties; risks associated with JVs; conflicts of interest; changes in zoning laws; adverse litigation results; non-compliance with laws; potential terrorist attacks or cyber attacks; adverse changes to accounting or tax laws; and weaknesses in internal controls[14](index=14&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=9&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and equity, with notes on accounting policies, investments, debt, and segment performance [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (YoY) | | :--------------------------------- | :----------------------------- | :------------------------------- | :----------- | | Investment in real estate, net | $8,793,399 | $8,578,627 | +2.5% | | Cash and cash equivalents | $426,889 | $444,623 | -4.0% | | Total Assets | $9,433,532 | $9,403,700 | +0.3% | | Secured notes payable, net | $5,562,721 | $5,498,022 | +1.2% | | Total Liabilities | $5,842,104 | $5,745,460 | +1.7% | | Total Equity | $3,591,428 | $3,658,240 | -1.8% | [Consolidated Statements of Operations](index=10&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income or loss over specific periods | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Total revenues | $503,969 | $490,746 | +2.7% | | Total operating expenses | $405,697 | $380,498 | +6.6% | | Interest expense | $(125,413) | $(110,287) | -13.7% | | Net (loss) income | $29,516 | $15,362 | +92.1% | | Net (loss) income attributable to common stockholders | $33,965 | $19,787 | +71.6% | | Net (loss) income per common share – basic and diluted | $0.20 | $0.11 | +81.8% | [Consolidated Statements of Comprehensive (Loss) Income](index=11&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20(Loss)%20Income) This section presents the company's comprehensive income or loss, including net income and other comprehensive income items | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Net (loss) income | $29,516 | $15,362 | +92.1% | | Other comprehensive loss: cash flow hedges | $(50,368) | $(22,630) | -122.6% | | Comprehensive loss | $(20,852) | $(7,268) | -186.9% | | Comprehensive (loss) income attributable to common stockholders | $3,990 | $4,497 | -11.4% | [Consolidated Statements of Equity](index=12&type=section&id=Consolidated%20Statements%20of%20Equity) This section outlines changes in the company's equity over time, including net income, dividends, and other adjustments | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :----------- | | Total Equity - Beginning balance | $3,658,240 | $3,845,397 | -4.9% | | Net (loss) income | $29,516 | $15,362 | +92.1% | | Cash flow hedge adjustments | $(50,368) | $(22,630) | -122.6% | | Dividends | $(63,630) | $(63,606) | -0.04% | | Total Equity - Ending balance | $3,591,428 | $3,762,995 | -4.5% | | Dividends declared per common share | $0.38 | $0.38 | 0% | [Consolidated Statements of Cash Flows](index=15&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (Six Months Ended June 30) | 2025 (in thousands) | 2024 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $213,927 | $230,888 | -7.3% | | Net cash used in investing activities | $(105,175) | $(110,230) | +4.6% | | Net cash used in financing activities | $(126,486) | $(82,674) | -53.0% | | (Decrease) increase in cash and cash equivalents and restricted cash | $(17,734) | $37,984 | -146.7% | | Cash and cash equivalents and restricted cash - ending balance | $426,918 | $561,167 | -23.9% | [Notes to Consolidated Financial Statements](index=17&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Overview](index=17&type=section&id=Overview) This section provides a brief introduction to Douglas Emmett, Inc., its business focus, and portfolio composition - Douglas Emmett, Inc. is a fully integrated REIT specializing in high-quality office and multifamily properties in Los Angeles County, California, and Honolulu, Hawaii[35](index=35&type=chunk) - As of June 30, 2025, the Total Portfolio included an **18.0 million square foot office portfolio**, **5,442 multifamily apartment units**, and fee interests in two ground lease parcels[36](index=36&type=chunk) - The company consolidates its Operating Partnership and six JVs, including Partnership X, which was consolidated on January 1, 2025, after becoming a Variable Interest Entity (VIE) where the company is the primary beneficiary[39](index=39&type=chunk) [Summary of Significant Accounting Policies](index=18&type=section&id=Summary%20of%20Significant%20Accounting%20Policies) This section outlines the key accounting principles and methods used in preparing the financial statements - No changes have been made to the significant accounting policies disclosed in the 2024 Annual Report on Form 10-K[42](index=42&type=chunk) - Rental revenues, tenant recoveries, and certain parking revenues are accounted for on a combined basis in accordance with Topic 842, with tenant recoveries increasing to **$25.1 million** for the six months ended June 30, 2025, from **$20.5 million** in the prior year[44](index=44&type=chunk) - The company has elected to be taxed as a REIT, generally exempting it from corporate-level income tax on qualifying earnings, but earnings from Taxable REIT Subsidiaries (TRS) are subject to corporate income tax[49](index=49&type=chunk) [Investment in Real Estate](index=19&type=section&id=Investment%20in%20Real%20Estate) This section details the composition and changes in the company's real estate investments | (In thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Land | $1,199,291 | $1,185,977 | | Buildings and improvements | $10,448,766

[Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) [Forward-Looking Statements Overview](index=4&type=section&id=Forward-Looking%20Statements%20Overview) Outlines inherent risks and uncertainties for forward-looking statements, detailing factors that could cause actual results to differ and official disclosure channels - Forward-looking statements are based on current expectations and projections about future events and are subject to **known and unknown risks, uncertainties, and assumptions**[12](index=12&type=chunk)[13](index=13&type=chunk) - Key factors that might cause actual results to differ include **business strategy, financial performance, market acceptance of games, financing ability, competitive and regulatory changes, platform relationships, accounting for warrants, internal controls, intellectual property rights, litigation, acquisitions, personnel, geopolitical conditions, and legal/regulatory factors**[13](index=13&type=chunk)[14](index=14&type=chunk) - The company uses its **Investor Relations website, SEC filings, press releases, public conference calls, public webcasts, and social media** to announce material information[16](index=16&type=chunk) [Part I - Financial Information](index=7&type=section&id=Part%20I%20-%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=7&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents unaudited condensed consolidated financial statements, including balance sheets, operations, comprehensive loss, equity, cash flows, and detailed accounting notes [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030,%202025%20and%20December%2031,%202024) Condensed Consolidated Balance Sheets Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total assets | $316,233 | $322,955 | | Total liabilities | $70,942 | $78,240 | | Total stockholders' equity | $245,291 | $244,715 | | Cash and cash equivalents | $112,860 | $109,179 | | Total current assets | $151,104 | $147,102 | | Total current liabilities | $41,436 | $49,418 | [Condensed Consolidated Statements of Operations](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202025%20and%20June%2030,%202024) Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change | % Change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net revenue | $59,338 | $72,590 | $(13,252) | (18.3)% | $122,047 | $150,418 | $(28,371) | (18.9)% | | Total operating costs and expenses | $62,825 | $76,553 | $(13,728) | (17.9)% | $128,275 | $156,084 | $(27,809) | (17.8)% | | Loss from operations | $(3,487) | $(3,963) | $476 | (12.0)% | $(6,228) | $(5,666) | $(562) | 9.9% | | Net loss | $(2,948) | $(2,611) | $(337) | 12.9% | $(5,828) | $(3,178) | $(2,650) | 83.4% | | Basic net loss per share | $(0.02) | $(0.02) | $0.00 | 0.0% | $(0.05) | $(0.02) | $(0.03) | 150.0% | | Diluted net loss per share | $(0.02) | $(0.02) | $0.00 | 0.0% | $(0.05) | $(0.02) | $(0.03) | 150.0% | [Condensed Consolidated Statements of Comprehensive Loss](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202025%20and%20June%2030,%202024) Condensed Consolidated Statements of Comprehensive Loss (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 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss | $(2,948) | $(2,611) | $(5,828) | $(3,178) | | Total other comprehensive income (loss) | $2,134 | $(570) | $2,180 | $(1,678) | | Comprehensive loss | $(814) | $(3,181) | $(3,648) | $(4,856) | - Other comprehensive income in Q2 2025 was positively impacted by a **$1,611k change in foreign currency translation adjustment** and a **$758k unrealized gain from derivative financial instruments**[25](index=25&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202025%20and%20June%2030,%202024) Stockholders' Equity Changes (in thousands) | Metric | Balance as of Dec 31, 2024 | Net loss (6M 2025) | Stock-based compensation (6M 2025) | Repurchase of common stock (6M 2025) | Other comprehensive income (6M 2025) | Balance as of June 30, 2025 | | :------------------------- | :------------------------- | :------------------ | :--------------------------------- | :----------------------------------- | :----------------------------------- | :-------------------------- | | Total Stockholders' Equity | $244,715 | $(5,828) | $9,152 | $(3,499) | $2,180 | $245,291 | - Treasury stock increased from **$51,293k (19,450 shares) at December 31, 2024, to $54,792k (21,739 shares) at June 30, 2025**, primarily due to common stock repurchases[28](index=28&type=chunk)[122](index=122&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20Ended%20June%2030,%202025%20and%20June%2030,%202024) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | | Net cash provided by operating activities | $16,942 | $19,531 | $(2,589) | (13.3)% | | Net cash used in investing activities | $(8,030) | $(13,060) | $5,030 | (38.5)% | | Net cash used in financing activities | $(6,961) | $(32,444) | $25,483 | (78.5)% | | Net change in cash, cash equivalents, and restricted cash | $3,087 | $(26,585) | $29,672 | nm | | Cash, cash equivalents, and restricted cash at end of period | $113,473 | $106,304 | $7,169 | 6.7% | [Notes to Unaudited Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures for financial statements, covering background, accounting policies, segment reporting, acquisitions, related-party transactions, and account specifics [NOTE 1—BACKGROUND AND BASIS OF PRESENTATION](index=14&type=section&id=NOTE%201%E2%80%94BACKGROUND%20AND%20BASIS%20OF%20PRESENTATION) - **PLAYSTUDIOS, Inc.** was incorporated on **August 14, 2020**, and domesticated into a **Delaware corporation on June