[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Financial statements for June 30, 2025, show total assets at $146.3 million, Q2 2025 net income of $1.0 million, and operating cash flow of $2.4 million for the first six months [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $15,403 | $18,847 | | Total assets | $146,279 | $149,989 | | Total liabilities | $23,921 | $27,657 | | Total stockholders' equity | $122,358 | $122,332 | - Total assets decreased slightly from **$150.0 million** at year-end 2024 to **$146.3 million** as of June 30, 2025, driven by a decrease in cash and investments[9](index=9&type=chunk) - Total liabilities decreased to **$23.9 million** from **$27.7 million**, primarily due to the settlement of contingent consideration and a reduction in compensation and benefits payable[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Key Operating Results (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $23,120 | $22,688 | $46,372 | $45,420 | | Net Operating Income (Loss) | $868 | $(4,178) | $800 | $(1,237) | | Net Income (Loss) | $1,031 | $(2,213) | $1,508 | $(47) | | Diluted EPS | $0.12 | $(0.27) | $0.17 | $0.01 | - The company returned to profitability in Q2 2025 with a **net income of $1.0 million**, compared to a **net loss of $2.2 million** in Q2 2024. This improvement was largely due to the absence of a **$4.8 million loss** from the change in fair value of contingent consideration recorded in the prior-year period[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - For the six months ended June 30, 2025, total equity remained stable at **$122.4 million**. Key changes included **net income of $1.5 million**, offset by **dividends declared of $2.8 million** and the **cost of restricted stock returned for tax payments of $1.3 million**[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,403 | $11,685 | | Net cash used in investing activities | $(1,455) | $(1,524) | | Net cash used in financing activities | $(4,392) | $(6,813) | | **Net change in cash and cash equivalents** | **$(3,444)** | **$3,348** | - Net cash from operating activities decreased significantly to **$2.4 million** in the first half of 2025 from **$11.7 million** in the prior year, mainly due to payments for contingent consideration (**$4.4 million**) and a larger decrease in compensation payable[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Revenue by Account Type (Six Months Ended June 30, in thousands) | Account Type | 2025 | 2024 | | :--- | :--- | :--- | | Institutional | $20,880 | $19,189 | | Mutual Funds | $13,576 | $13,767 | | Wealth Management | $1,230 | $1,000 | | Trust Fees | $10,498 | $10,340 | | Other, net | $188 | $1,124 | | **Total revenues** | **$46,372** | **$45,420** | - The company operates two segments: Advisory and Trust. For the three months ended June 30, 2025, the Advisory segment generated **$18.0 million** in external revenues, while the Trust segment generated **$5.1 million**[37](index=37&type=chunk)[42](index=42&type=chunk) - Goodwill remained unchanged at **$39.5 million** as of June 30, 2025, with **$23.1 million** allocated to the Advisory segment and **$16.4 million** to the Trust segment. No impairment was recorded[58](index=58&type=chunk)[59](index=59&type=chunk) - On August 8, 2025, the Board of Directors declared a quarterly cash dividend of **$0.15 per share**[72](index=72&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 discusses a **10% YoY AUM increase to $17.3 billion**, Q2 2025 revenue growth, and a solid liquidity position of $33.1 million Assets Under Management (AUM) by Category (in millions) | Category | June 30, 2025 | June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Institutional | $9,241 | $7,649 | 21% | | Wealth Management | $4,176 | $4,184 | 0% | | Mutual Funds | $3,924 | $3,943 | 0% | | **Total AUM** | **$17,341** | **$15,776** | **10%** | - For the six months ended June 30, 2025, total AUM increased by **$0.7 billion**, resulting from **$0.4 billion** in net inflows and **$0.3 billion** in market appreciation. Net inflows were primarily driven by the SmallCap Value strategy[96](index=96&type=chunk) Non-GAAP Economic Earnings Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) Attributable to WHG | $1,019 | $(2,243) | $1,497 | $53 | | Adjustments (Stock comp, amortization, etc.) | $1,773 | $2,085 | $3,809 | $2,451 | | **Economic Earnings (Loss)** | **$2,792** | **$(508)** | **$5,306** | **$2,504** | - The company's liquidity position as of June 30, 2025, included cash and liquid investments of **$33.1 million**, down from **$44.6 million** at the end of 2024[112](index=112&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No significant changes in quantitative and qualitative market risk disclosures were reported since the prior annual report - There have been no significant changes in market risk disclosures since the last annual report (Form 10-K for the year ended December 31, 2024)[121](index=121&type=chunk) [Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and procedures with no material changes to internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[122](index=122&type=chunk) - There were no changes in internal controls over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, these controls[123](index=123&type=chunk) [PART II OTHER INFORMATION](index=26&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=26&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - The company reports that there are no legal proceedings[124](index=124&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were reported since the last annual report - There have been no material changes to the risk factors previously disclosed in the company's Form 10-K[126](index=126&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No common stock repurchases were made during the three months ended June 30, 2025, under the existing program - The company did not repurchase any of its common stock during the three months ended June 30, 2025[127](index=127&type=chunk) [Exhibits](index=27&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and iXBRL financial data - Exhibits filed with the report include an office lease modification, CEO/CFO certifications (Rule 13a-14(a) and Section 906), and financial statements in iXBRL format[132](index=132&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934 For the month of August, 2025. _____________________ Commission File Number: 001-38763 MILLICOM INTERNATIONAL CELLULAR S.A. (Exact Name of Registrant as Specified in Its Charter) 8400 NW 36 Street, Suite 530 Doral, FL 33166 United States (Address of principal executive of ice) Indicate by check mark whether the registrant f ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________________________ FORM 10-Q ______________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-39011 _____________________________________ ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20FINANCIAL%20STATEMENTS) Presents unaudited consolidated financial statements and notes for Q2 2025, including impact from Territorial Bancorp acquisition [Consolidated Statements of Financial Condition (Unaudited)](index=4&type=section&id=Consolidated%20Statements%20of%20Financial%20Condition%20(Unaudited)) Consolidated Financial Condition Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | Change (Thousands) | % Change | | :----------------------------------- | :-------------------------- | :---------------------------- | :----------------- | :------- | | Total assets | $18,547,017 | $17,054,008 | $1,493,009 | 8.75% | | Total liabilities | $16,322,900 | $14,919,503 | $1,403,397 | 9.41% | | Total stockholders' equity | $2,224,117 | $2,134,505 | $89,612 | 4.20% | | Loans receivable, net | $14,285,282 | $13,467,745 | $817,537 | 6.07% | | Total deposits | $15,943,355 | $14,327,489 | $1,615,866 | 11.28% | - The increase in total assets was primarily due to the acquisition of Territorial Bancorp Inc., which contributed **$1.93 billion** in identifiable assets[142](index=142&type=chunk)[279](index=279&type=chunk) [Consolidated Statements of (Loss) Income (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20(Loss)%20Income%20(Unaudited)) Consolidated Income Statement Summary | Metric | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Total interest income | $239,170 | $232,601 | $456,336 | $492,275 | | Total interest expense | $121,637 | $126,741 | $237,986 | $271,368 | | Net interest income before provision for credit losses | $117,533 | $105,860 | $218,350 | $220,907 | | Provision for credit losses | $15,000 | $1,400 | $19,800 | $4,000 | | Total noninterest income | $(22,956) | $11,071 | $(7,268) | $19,357 | | Total noninterest expense | $109,473 | $80,987 | $193,334 | $165,826 | | Net (loss) income | $(27,881) | $25,270 | $(6,785) | $51,134 | | Basic (Losses) Earnings Per Common Share | $(0.22) | $0.21 | $(0.05) | $0.42 | | Diluted (Losses) Earnings Per Common Share | $(0.22) | $0.21 | $(0.05) | $0.42 | - The Company reported a net loss for Q2 2025 and YTD 2025, primarily due to **$38.9 million** in net losses on sales of investment securities AFS as part of a strategic repositioning and **$17.3 million** in merger and restructuring-related costs from the Territorial acquisition[15](index=15&type=chunk)[231](index=231&type=chunk)[260](index=260&type=chunk)[262](index=262&type=chunk) [Consolidated Statements of Comprehensive Income (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Unaudited)) Consolidated Comprehensive Income Summary | Metric | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Net (loss) income | $(27,881) | $25,270 | $(6,785) | $51,134 | | Other comprehensive income (loss), net of tax | $34,908 | $(10,852) | $56,468 | $(28,392) | | Total comprehensive income | $7,027 | $14,418 | $49,683 | $22,742 | - Other comprehensive income (loss) significantly improved in 2025, primarily due to a **$43.2 million** change in unrealized net holding gains on AFS securities for the six months ended June 30, 2025, compared to a **$23.1 million** loss in the prior year[17](index=17&type=chunk)[114](index=114&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Unaudited)) Consolidated Stockholders' Equity Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | Change (Thousands) | | :--------------------------------- | :-------------------------- | :---------------------------- | :----------------- | | Total stockholders' equity | $2,224,117 | $2,134,505 | $89,612 | | Common stock | $146 | $138 | $8 | | Additional paid-in capital | $1,520,129 | $1,445,373 | $74,756 | | Retained earnings | $1,139,913 | $1,181,533 | $(41,620) | | Accumulated other comprehensive loss, net | $(171,404) | $(227,872) | $56,468 | - Stockholders' equity increased by **$89.6 million**, driven by the issuance of **6,976,754** common shares (**$73.3 million**) for the Territorial acquisition and a **$56.5 million** decrease in accumulated other comprehensive loss, partially offset by a net loss and cash dividends[18](index=18&type=chunk)[19](index=19&type=chunk)[112](index=112&type=chunk)[323](index=323&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)) Consolidated Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $36,048 | $4,045 | | Net cash provided by investing activities | $656,016 | $426,167 | | Net cash used in financing activities | $(460,529) | $(1,705,135) | | Net change in cash and cash equivalents | $231,535 | $(1,274,923) | | Cash and cash equivalents, beginning of period | $458,199 | $1,928,967 | | Cash and cash equivalents, end of period | $689,734 | $654,044 | - Net cash provided by operating activities increased significantly to **$36.0 million** for the six months ended June 30, 2025, from **$4.0 million** in the prior year, while net cash used in financing activities decreased substantially, reflecting reduced repayments of FRB borrowings[21](index=21&type=chunk) - Non-cash activities for the six months ended June 30, 2025, included the merger with Territorial, acquiring **$1.84 billion** in identifiable assets (net of cash) and assuming **$1.87 billion** in liabilities, with **$73.3 million** in common stock issued as consideration[21](index=21&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) [1. Basis of Presentation](index=13&type=section&id=1.%20Basis%20of%20Presentation) - Hope Bancorp, Inc. (the 'Company') is the holding company for Bank of Hope, operating 46 full-service branches and nine loan production offices across multiple states, and 29 branches in Hawaii under the trade name Territorial Savings following the acquisition of Territorial Bancorp Inc. on April 2, 2025[23](index=23&type=chunk)[30](index=30&type=chunk) - The consolidated financial statements are unaudited, prepared in accordance with SEC rules, and include all necessary adjustments for fair presentation, with certain reclassifications made to prior period amounts[24](index=24&type=chunk)[25](index=25&type=chunk) [2. Investment Securities](index=14&type=section&id=2.%20Investment%20Securities) Investment Securities Portfolio Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Investment securities AFS, at fair value | $2,021,643 | $1,823,243 | | Investment securities HTM, at amortized cost | $247,246 | $252,385 | | Total investment securities | $2,268,889 | $2,075,628 | | Gross unrealized losses on AFS securities | $(221,043) | $(299,774) | | Net (losses) gain on sales of AFS securities (3 months) | $(38,856) | $425 | | Net (losses) gain on sales of AFS securities (6 months) | $(38,856) | $425 | - In June 2025, the Company sold **$417.9 million** of lower-yielding AFS securities, resulting in **$38.9 million** in realized losses, to redeploy proceeds into higher-yielding investments[34](index=34&type=chunk)[260](index=260&type=chunk) - The Company acquired **$18.5 million** in AFS and **$516.7 million** in HTM investment securities as part of the Territorial Merger, which were immediately categorized as AFS and sold for **$535.2 million** with no gain or loss impact[33](index=33&type=chunk)[283](index=283&type=chunk) - No allowance for credit losses was required for investment securities AFS or HTM at June 30, 2025, as the majority are U.S. Government agency securities with zero loss expectation, and other securities are expected to be paid in full[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk)[285](index=285&type=chunk) [3. Equity Investments](index=18&type=section&id=3.%20Equity%20Investments) Equity Investments Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------------- | :-------------------------- | :---------------------------- | | Total equity investments | $88,152 | $39,946 | | Equity investments with readily determinable fair values | $50,500 | $4,300 | | Equity investments without readily determinable fair values | $37,600 | $35,600 | | Net gains from changes in fair value (6 months) | $743 | $(65) | - Equity investments increased by **120.7%** to **$88.2 million** at June 30, 2025, primarily due to **$45.5 million** in purchases of Community Reinvestment Act (CRA) mutual funds[47](index=47&type=chunk)[286](index=286&type=chunk) [4. Loans Receivable and Allowance for Credit Losses](index=19&type=section&id=4.%20Loans%20Receivable%20and%20Allowance%20for%20Credit%20Losses) Loan Portfolio Composition | Loan Portfolio Composition | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | % of Total (June 30, 2025) | | :------------------------- | :-------------------------- | :---------------------------- | :------------------------- | | Commercial real estate (CRE) loans | $8,385,764 | $8,527,008 | 58% | | Commercial and industrial (C&I) loans | $3,725,295 | $3,967,596 | 26% | | Residential mortgage loans | $2,273,427 | $1,082,459 | 16% | | Consumer and other loans | $50,301 | $41,209 | 0% | | Total loans receivable, net of deferred costs and fees | $14,434,787 | $13,618,272 | 100% | | Allowance for credit losses (ACL) | $(149,505) | $(150,527) | N/A | - Loans receivable increased by **6.0%** to **$14.43 billion**, primarily due to **$1.07 billion** in loans acquired from the Territorial Merger, significantly increasing residential mortgage loans' share of the portfolio[54](index=54&type=chunk)[290](index=290&type=chunk) ACL Activity | ACL Activity | Three Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | | :--------------------------------- | :--------------------------------------- | :--------------------------------------- | | Balance, beginning of period | $147,412 | $150,527 | | Provision for credit loss on loans | $14,000 | $19,200 | | Net loan charge-offs | $(11,970) | $(20,285) | | Balance, end of period | $149,505 | $149,505 | | ACL to loans receivable | 1.04% | 1.04% | | Nonaccrual loans | $110,739 | $110,739 | | Nonperforming assets | $112,888 | $112,888 | | ACL to nonaccrual loans | 135.01% | 135.01% | - The provision for credit losses increased to **$15.0 million** for Q2 2025 (from **$1.4 million** in Q2 2024), including **$4.5 million** of merger-related provision expenses, driven by increases in C&I and residential mortgage loan provisions[74](index=74&type=chunk)[252](index=252&type=chunk)[253](index=253&type=chunk) - Nonperforming assets increased by **24.3%** to **$112.9 million** at June 30, 2025, primarily due to the migration of a well-secured CRE loan[296](index=296&type=chunk) [5. Goodwill, Intangible Assets, and Servicing Assets](index=30&type=section&id=5.%20Goodwill,%20Intangible%20Assets,%20and%20Servicing%20Assets) Goodwill, Intangible Assets, and Servicing Assets Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | Goodwill | $478,104 | $464,450 | | Core deposit intangible assets, net | $47,324 | $2,331 | | Servicing assets, net | $11,822 | $10,051 | - Goodwill increased by **$13.7 million** due to the Territorial Merger, with no impairment recorded. A core deposit intangible asset of **$46.5 million** was also recorded from the merger, amortizing over 15 years[83](index=83&type=chunk)[86](index=86&type=chunk) - Servicing assets, primarily SBA and mortgage-related, increased to **$11.8 million** at June 30, 2025, from **$10.1 million** at December 31, 2024, with no valuation allowance for impairment[88](index=88&type=chunk)[89](index=89&type=chunk) [6. Deposits](index=32&type=section&id=6.%20Deposits) Deposit Composition | Deposit Type | June 30, 2025 (Thousands) | % of Total | December 31, 2024 (Thousands) | % of Total | | :-------------------------- | :-------------------------- | :--------- | :---------------------------- | :--------- | | Noninterest bearing | $3,485,502 | 22% | $3,377,950 | 24% | | Money market and NOW accounts | $4,910,645 | 31% | $4,515,251 | 31% | | Savings deposits | $1,192,354 | 7% | $660,484 | 5% | | Time deposits | $6,354,854 | 40% | $5,773,804 | 40% | | Total deposits | $15,943,355 | 100% | $14,327,489 | 100% | - Total deposits increased by **11.3%** to **$15.94 billion**, primarily due to **$1.67 billion** in deposits assumed from the Territorial Merger[93](index=93&type=chunk)[307](index=307&type=chunk) - Brokered deposits decreased to **$797.1 million** at June 30, 2025, from **$1.06 billion** at December 31, 2024, reflecting planned reductions[95](index=95&type=chunk)[307](index=307&type=chunk)[308](index=308&type=chunk) - Estimated insured deposits were approximately **62%** of total deposits at June 30, 2025, with uninsured deposits totaling **$6.15 billion (38%)**[309](index=309&type=chunk) [7. Borrowings](index=33&type=section&id=7.%20Borrowings) Borrowings Summary | Borrowing Type | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | FHLB and FRB borrowings | $29,752 | $239,000 | | Total borrowing capacity | $5,826,036 | $6,200,266 | | Available borrowing capacity | $5,796,036 | $5,961,266 | | Weighted average effective rate (June 30, 2025) | 1.72% | N/A | | Weighted average effective rate (Dec 31, 2024) | N/A | 4.66% | - Total borrowings significantly decreased to **$29.8 million** at June 30, 2025, from **$239.0 million** at December 31, 2024, consisting entirely of FHLB borrowings[97](index=97&type=chunk)[311](index=311&type=chunk) - The Company assumed **$160.0 million** in FHLB advances from the Territorial acquisition, of which **$125.0 million** was paid off immediately[98](index=98&type=chunk)[312](index=312&type=chunk) [8. Convertible Notes and Subordinated Debentures](index=34&type=section&id=8.%20Convertible%20Notes%20and%20Subordinated%20Debentures) Convertible Notes and Subordinated Debentures Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | Convertible notes, net | $444 | $444 | | Subordinated debentures, net | $109,819 | $109,140 | | Total | $110,263 | $109,584 | - The Company had **$444 thousand** in convertible senior notes outstanding at June 30, 2025, with an initial conversion price of **$22.18** per share, which was anti-dilutive for EPS calculations[101](index=101&type=chunk)[103](index=103&type=chunk)[119](index=119&type=chunk) - Subordinated debentures totaled **$109.8 million** at June 30, 2025, with variable interest rates tied to the three-month SOFR rate, and are treated as capital for regulatory purposes[104](index=104&type=chunk)[105](index=105&type=chunk)[107](index=107&type=chunk)[244](index=244&type=chunk)[315](index=315&type=chunk) [9. Commitments and Contingencies](index=36&type=section&id=9.%20Commitments%20and%20Contingencies) Commitments and Contingencies Summary | Commitment Type | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :------------------------------------------------- | :-------------------------- | :---------------------------- | | Commitments to extend credit | $2,239,010 | $2,255,785 | | Standby letters of credit | $129,138 | $134,548 | | Other letters of credit | $36,791 | $22,874 | | Commitments to fund affordable housing partnerships and CRA investments | $29,902 | $18,845 | | Reserve for unfunded loan commitments | $3,300 | $2,700 | - Loss contingencies for all legal claims totaled **$302 thousand** at June 30, 2025, with management believing no material adverse effect on financial condition[110](index=110&type=chunk)[348](index=348&type=chunk) [10. Stockholders' Equity](index=37&type=section&id=10.%20Stockholders'%20Equity) Stockholders' Equity Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | Total stockholders' equity | $2,224,117 | $2,134,505 | | Accumulated other comprehensive loss, net | $(171,404) | $(227,872) | | Cash dividends declared per common share (Q2) | $0.14 | $0.14 | | Cash dividends declared per common share (YTD) | $0.28 | $0.28 | - Stockholders' equity increased by **$89.6 million**, primarily due to the issuance of **6,976,754** common shares (**$73.3 million**) for the Territorial acquisition and a **$56.5 million** decrease in accumulated other comprehensive loss[111](index=111&type=chunk)[112](index=112&type=chunk)[323](index=323&type=chunk) - The Company has **$35.3 million** remaining under its **$50.0 million** share repurchase program approved in January 2022[113](index=113&type=chunk)[324](index=324&type=chunk)[352](index=352&type=chunk) [11. (Losses) Earnings Per Share ("EPS")](index=38&type=section&id=11.%20(Losses)%20Earnings%20Per%20Share%20(%22EPS%22)) Earnings Per Share Summary | 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 (Losses) EPS | $(0.22) | $0.21 | $(0.05) | $0.42 | | Diluted (Losses) EPS | $(0.22) | $0.21 | $(0.05) | $0.42 | | Weighted-Average Shares – Basic | 128,001,605 | 120,664,472 | 124,426,400 | 120,425,886 | | Weighted-Average Shares – Diluted | 128,223,991 | 120,939,429 | 124,859,880 | 120,964,149 | - Diluted EPS for Q2 2025 was **$(0.22)**, down from **$0.21** in Q2 2024, reflecting the net loss. Stock options and restricted share awards were anti-dilutive and excluded from diluted EPS calculations for both periods[15](index=15&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk) - Shares related to convertible notes were not included in diluted EPS as the conversion price exceeded the market price of the Company's stock[119](index=119&type=chunk) [12. Segment Reporting](index=39&type=section&id=12.%20Segment%20Reporting) - The Company operates as a single reportable segment, primarily banking operations, with the CEO as the chief operating decision maker (CODM) evaluating performance based on revenue streams, comparative product pricing, and significant expenses[122](index=122&type=chunk)[123](index=123&type=chunk) - The Territorial Merger did not result in additional operating segments, as Territorial branches integrated into the Company's existing single segment[123](index=123&type=chunk) [13. Revenue Recognition](index=40&type=section&id=13.%20Revenue%20Recognition) - Revenue recognition primarily follows ASC 606 for noninterest revenue streams like deposit-related fees and wire transfer fees, with performance obligations satisfied over time for service charges and at a point in time for transaction-based fees[125](index=125&type=chunk)[126](index=126&type=chunk) Revenue Streams Summary | Revenue Stream | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Total service fees on deposit accounts | $3,106 | $2,681 | $6,027 | $5,268 | | Total wire transfer and foreign currency fees | $1,058 | $974 | $2,044 | $1,786 | [14. Stock-Based Compensation](index=41&type=section&id=14.%20Stock-Based%20Compensation) - The 2024 Equity Incentive Plan, approved in May 2024, reserved **4,500,000 shares** for grants, with **2,555,341 shares** remaining available at June 30, 2025[128](index=128&type=chunk)[129](index=129&type=chunk) Stock-Based Compensation Summary | Metric | Six Months Ended June 30, 2025 (Thousands) | | :----------------------------------------- | :--------------------------------------- | | Total charged against income | $3,600 | | Income tax benefit recognized | $1,100 | | Unrecognized compensation expense (restricted stock/performance units) | $16,800 | | Weighted average vesting period (restricted stock/performance units) | 2.38 years | [15. Income Taxes](index=43&type=section&id=15.%20Income%20Taxes) Income Tax Summary | Metric | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Pretax (loss) income | $(29,896) | $34,544 | $(2,052) | $70,438 | | Income tax (benefit) provision | $(2,015) | $9,274 | $4,733 | $19,304 | | Effective tax rate | 6.74% | 26.85% | (230.65)% | 27.41% | - The effective tax rate changes were significantly impacted by merger-related expenses, securities portfolio sales, and a **$4.9 million** incremental tax expense due to a change in California's state tax apportionment law, effective January 1, 2025[137](index=137&type=chunk)[272](index=272&type=chunk)[275](index=275&type=chunk) - The Company recorded an income tax provision of **$4.7 million** on a pretax loss of **$2.1 million** for the six months ended June 30, 2025, resulting in a negative effective tax rate[136](index=136&type=chunk) [16. Business Combinations](index=42&type=section&id=16.%20Business%20Combinations) - On April 2, 2025, the Company completed the acquisition of Territorial Bancorp Inc. in an all-stock transaction, issuing **6,976,754 shares** of common stock valued at **$73.3 million**[30](index=30&type=chunk)[112](index=112&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk) - The acquisition expanded the Company's domestic presence to Hawaii, increased its low-cost deposit base, and diversified its loan portfolio, adding **$1.07 billion** in loans and assuming **$1.67 billion** in deposits[142](index=142&type=chunk)[145](index=145&type=chunk) Territorial Acquisition Financial Impact | Acquired Assets / Assumed Liabilities (April 2, 2025) | Amount (Thousands) | | :---------------------------------------------------- | :----------------- | | Total consideration paid | $73,331 | | Cash and cash equivalents acquired | $86,701 | | Investment securities acquired | $535,195 | | Loans receivable acquired | $1,067,238 | | Deposits assumed | $(1,670,633) | | Borrowings assumed | $(160,770) | | Goodwill recognized | $13,654 | | Core deposit intangible recognized | $46,520 | - Merger-related provision for credit losses was **$4.46 million** and merger-related expenses were **$17.14 million** for the three months ended June 30, 2025[162](index=162&type=chunk) [17. Derivative Financial Instruments](index=48&type=section&id=17.%20Derivative%20Financial%20Instruments) Derivative Financial Instruments Summary | Derivative Type | Notional Amount (June 30, 2025, Thousands) | Fair Value (Other Assets, Thousands) | Fair Value (Other Liabilities, Thousands) | | :----------------------------------- | :--------------------------------------- | :----------------------------------- | :-------------------------------------- | | Derivatives designated as cash flow hedges | $1,125,000 | $291 | $0 | | Derivatives not designated as hedges | $2,728,493 | $38,226 | $(39,401) | - The Company uses interest rate swaps, collars, caps, floors, foreign exchange contracts, and risk participation agreements for interest rate risk management and customer services[164](index=164&type=chunk) - During the six months ended June 30, 2025, the Company terminated **$600.0 million** in notional value of receive fixed swaps to reduce exposure to higher interest rates, resulting in **$6.5 million** in pre-tax losses in AOCI to be amortized[169](index=169&type=chunk) [18. Fair Value Measurements](index=51&type=section&id=18.%20Fair%20Value%20Measurements) - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs requiring significant management judgment)[177](index=177&type=chunk)[183](index=183&type=chunk) Fair Value Measurements by Level | Asset/Liability | June 30, 2025 (Thousands) | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | | :----------------------------------------- | :-------------------------- | :------------------ | :------------------ | :------------------ | | Investment securities AFS | $2,021,643 | $0 | $2,020,836 | $807 | | Equity investments with readily determinable fair value | $50,538 | $50,538 | $0 | $0 | | Interest rate contracts (assets) | $38,198 | $0 | $38,198 | $0 | | Interest rate contracts (liabilities) | $38,872 | $0 | $38,872 | $0 | | Collateral-dependent loans receivable at fair value | $49,818 | $0 | $0 | $49,818 | | Loans held for sale, net | $6,329 | $0 | $0 | $6,329 | - Loans receivable, net, and subordinated debentures are primarily classified as Level 3 fair value measurements due to the use of unobservable inputs like discounted cash flow analysis and credit risk assessments[194](index=194&type=chunk)[195](index=195&type=chunk) [19. Leases](index=59&type=section&id=19.%20Leases) - The Company's operating leases primarily consist of real estate for bank branches and offices, with terms ranging from 1 to 13 years. No finance leases were held at June 30, 2025[197](index=197&type=chunk) Lease Metrics Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Operating lease ROU assets | $58,372 | $39,432 | | Long-term lease liabilities | $44,217 | $30,113 | | Net lease cost (6 months) | $10,403 | $8,789 | | Weighted-average remaining lease term | 5.3 years | 3.8 years | | Weighted-average discount rate | 3.87% | 2.91% | - The Territorial acquisition added **$22.7 million** in ROU assets and **$21.1 million** in related lease liabilities, including 26 real estate and 1 equipment leases[198](index=198&type=chunk) [20. Investments in Tax Credit Structures](index=61&type=section&id=20.%20Investments%20in%20Tax%20Credit%20Structures) - The Company invests in affordable housing partnerships and renewable solar energy projects, generating low-income housing tax credits (LIHTC) and other tax benefits[203](index=203&type=chunk) Tax Credit Investments Summary | Investment Type | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------------- | :-------------------------- | :---------------------------- | | Investments in solar tax credit (PAM) | $2,787 | $3,425 | | Investments in affordable housing partnerships (Equity method) | $30,848 | $32,354 | | Unfunded commitments (solar tax credit) | $2,758 | $2,758 | | Unfunded commitments (affordable housing) | $23,726 | $11,283 | | Total tax credits and benefits (6 months) | $6,397 | $5,534 | | Total amortization (6 months) | $5,029 | $4,417 | [21. Regulatory Matters](index=62&type=section&id=21.%20Regulatory%20Matters) - Both Hope Bancorp, Inc. and Bank of Hope exceeded all regulatory minimum capital ratios, including the conservation buffer, at June 30, 2025[209](index=209&type=chunk)[212](index=212&type=chunk) - The Bank was categorized as 'well-capitalized' under regulatory frameworks at June 30, 2025, and December 31, 2024[210](index=210&type=chunk)[325](index=325&type=chunk) Regulatory Capital Ratios | Capital Ratio (Company) | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :------------ | :---------------- | | Common equity Tier 1 capital ratio | 12.06% | 13.06% | | Tier 1 capital ratio | 12.76% | 13.79% | | Total capital ratio | 13.76% | 14.78% | | Leverage capital ratio | 10.57% | 11.83% | | Capital Conservation Buffer (Required) | 7.00% (CET1), 8.50% (Tier 1), 10.50% (Total) | 7.00% (CET1), 8.50% (Tier 1), 10.50% (Total) | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Analyzes Q2 2025 financial condition and results, including Territorial acquisition and non-GAAP reconciliation [GENERAL](index=64&type=section&id=GENERAL) - Hope Bancorp, Inc. is the holding company of Bank of Hope, with **$18.55 billion** in total assets at June 30, 2025. The acquisition of Territorial Savings expanded its presence to Hawaii, making it the largest regional bank serving multicultural customers across the U.S. and Hawaii[215](index=215&type=chunk) - The Bank's principal business involves earning interest on loans and investment securities, funded by deposits and borrowings, and generating income from fee-based products and loan sales. Major expenses include interest on deposits/borrowings, credit loss provisions, and operating expenses[216](index=216&type=chunk) [Selected Financial Data](index=65&type=section&id=Selected%20Financial%20Data) Selected Financial Performance Data | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :----------------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Net (loss) income (GAAP) | $(27,881) | $25,270 | $(6,785) | $51,134 | | Net income, excluding notable items (Non-GAAP) | $24,531 | $26,579 | $47,405 | $54,170 | | Diluted EPS (GAAP) | $(0.22) | $0.21 | $(0.05) | $0.42 | | Diluted EPS, excluding notable items (Non-GAAP) | $0.19 | $0.22 | $0.38 | $0.45 | | ROA (GAAP) | (0.60)% | 0.59% | (0.08)% | 0.56% | | ROA, excluding notable items (Non-GAAP) | 0.52% | 0.62% | 0.53% | 0.60% | | Efficiency ratio (GAAP) | 115.75% | 69.26% | 91.59% | 69.02% | | Efficiency ratio, excluding notable items (Non-GAAP) | 69.09% | 67.67% | 69.43% | 67.23% | - Notable items for Q2 2025 totaled **$52.4 million** after tax, including **$30.5 million** from investment securities repositioning losses, **$17.1 million** in merger-related costs, and a **$4.9 million** impact from a California state tax apportionment law change[231](index=231&type=chunk)[225](index=225&type=chunk) Selected Balance Sheet Data | Balance Sheet Data | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Total assets | $18,547,017 | $17,054,008 | | Total loans receivable | $14,434,787 | $13,618,272 | | Total deposits | $15,943,355 | $14,327,489 | | Stockholders' equity | $2,224,117 | $2,134,505 | | Tangible Common Equity (TCE) | $1,698,689 | $1,643,699 | | TCE ratio | 9.43% | 9.72% | [Results of Operations](index=69&type=section&id=Results%20of%20Operations) [Overview](index=69&type=section&id=Overview) - Net loss for Q2 2025 was **$27.9 million**, or **$(0.22)** per diluted share, a **$53.2 million** decrease YoY, primarily due to **$52.4 million** in notable items including investment securities losses and merger-related costs[230](index=230&type=chunk)[231](index=231&type=chunk) - Excluding notable items, Q2 2025 net income was **$24.5 million**, or **$0.19** per diluted share, down from **$26.6 million**, or **$0.22** per diluted share, in Q2 2024, mainly due to lower noninterest income and higher noninterest expense and provision for loan losses[232](index=232&type=chunk) [Net Interest Income and Net Interest Margin](index=69&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Net Interest Income and Margin Trends | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :----------------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Net interest income before provision for credit losses | $117,533 | $105,860 | $218,350 | $220,907 | | Net interest margin | 2.69% | 2.62% | 2.62% | 2.58% | | Weighted average yield on loans | 5.88% | 6.20% | 5.88% | 6.23% | | Weighted average cost of deposits | 2.96% | 3.39% | 3.07% | 3.37% | - Q2 2025 net interest income increased by **11.0%** YoY to **$117.5 million**, driven by lower cost of deposits and increased average interest-earning assets, despite lower loan yields[235](index=235&type=chunk) - The net interest margin for Q2 2025 increased to **2.69%** (from **2.62%** in Q2 2024), primarily due to lower weighted average costs of interest-bearing deposits and increased average loan balances[238](index=238&type=chunk) - Accretion of discount on acquired loans from the Territorial Merger contributed **$4.1 million** to net interest income for the three and six months ended June 30, 2025[237](index=237&type=chunk) [Provision for Credit Losses](index=74&type=section&id=Provision%20for%20Credit%20Losses) Provision for Credit Losses Summary | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :----------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Provision for credit losses | $15,000 | $1,400 | $19,800 | $4,000 | | Merger-related provision for credit losses | $4,461 | $0 | $4,461 | $0 | | Provision for unfunded loan commitments | $1,000 | $(300) | $600 | $(1,300) | - The Q2 2025 provision for credit losses increased by **$13.6 million** YoY to **$15.0 million**, including **$4.5 million** from merger-related expenses, driven by higher provisions for C&I and residential mortgage loans[252](index=252&type=chunk)[253](index=253&type=chunk) - Net loan charge-offs as a percentage of average loans (annualized) increased to **0.33%** in Q2 2025 from **0.13%** in Q2 2024, primarily due to C&I loan charge-offs[301](index=301&type=chunk) [Noninterest Income](index=75&type=section&id=Noninterest%20Income) Noninterest Income Summary | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :----------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Total noninterest income | $(22,956) | $11,071 | $(7,268) | $19,357 | | Net losses on sales of investment securities AFS | $(38,856) | $425 | $(38,856) | $425 | | Net gains on sales of SBA loans | $3,998 | $1,980 | $7,129 | $1,980 | | Swap fees | $1,662 | $25 | $2,307 | $168 | | Other income and fees | $5,544 | $4,290 | $12,582 | $8,000 | - Total noninterest income decreased by **$34.0 million** YoY to **$(23.0) million** in Q2 2025, primarily due to **$38.9 million** in net losses from the strategic repositioning of AFS investment securities[256](index=256&type=chunk)[260](index=260&type=chunk) - Offsetting the decline, net gains on SBA loan sales increased by **101.9%** YoY to **$4.0 million** in Q2 2025, and swap fees surged by **6,548%** due to increased loan originations[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk) [Noninterest Expense](index=77&type=section&id=Noninterest%20Expense) Noninterest Expense Summary | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :----------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Total noninterest expense | $109,473 | $80,987 | $193,334 | $165,826 | | Merger and restructuring-related costs | $17,281 | $2,165 | $19,800 | $3,611 | | Salaries and employee benefits | $52,834 | $44,107 | $101,294 | $91,684 | | Occupancy expense | $8,884 | $6,906 | $16,050 | $13,692 | | Furniture and equipment | $7,817 | $5,475 | $13,530 | $10,815 | | Earned interest credit expense | $3,310 | $6,139 | $6,397 | $11,973 | - Total noninterest expense increased by **35.2%** YoY to **$109.5 million** in Q2 2025, primarily driven by **$17.3 million** in merger and restructuring-related costs from the Territorial acquisition[262](index=262&type=chunk)[268](index=268&type=chunk) - Salaries and employee benefits increased by **19.8%** YoY due to higher headcount from the Territorial acquisition, while occupancy and furniture/equipment expenses also rose due to increased Bank locations and depreciation[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) - Earned interest credit expense decreased by **46.1%** YoY due to reductions in the Federal Funds rate[267](index=267&type=chunk) [Provision for Income Taxes](index=78&type=section&id=Provision%20for%20Income%20Taxes) Income Tax Provision Summary | Metric | Q2 2025 (Thousands) | Q2 2024 (Thousands) | YTD 2025 (Thousands) | YTD 2024 (Thousands) | | :----------------------------------- | :------------------ | :------------------ | :------------------- | :------------------- | | Income tax (benefit) provision | $(2,015) | $9,274 | $4,733 | $19,304 | | Effective tax rate | 6.74% | 26.85% | (230.65)% | 27.41% | | Total tax credits (6 months) | $6,397 | $5,534 | | Amortization on renewable energy investment (6 months) | $638 | $0 | - The effective tax rate for Q2 2025 was **6.74%** (on a pretax loss), significantly lower than **26.85%** in Q2 2024, influenced by merger-related expenses, securities sales, and a California state tax apportionment law change[270](index=270&type=chunk)[272](index=272&type=chunk)[275](index=275&type=chunk) - The Company recorded an incremental tax expense of **$4.9 million** in Q2 2025 due to the change in California's state tax apportionment law[275](index=275&type=chunk) [Financial Condition](index=80&type=section&id=Financial%20Condition) [Cash and Cash Equivalents](index=80&type=section&id=Cash%20and%20Cash%20Equivalents) Cash and Cash Equivalents Balances | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | Cash and cash equivalents | $689,734 | $458,199 | - Cash and cash equivalents increased to **$689.7 million** at June 30, 2025, from **$458.2 million** at December 31, 2024, partly due to **$86.7 million** acquired in the Territorial acquisition[280](index=280&type=chunk) [Investment Securities Portfolio](index=80&type=section&id=Investment%20Securities%20Portfolio) Investment Securities Portfolio Balances | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Investment securities AFS, at fair value | $2,021,643 | $1,823,243 | | Investment securities HTM, at amortized cost | $247,246 | $252,385 | | Net unrealized loss on AFS securities | $(217,400) | $(299,400) | - The net unrealized loss on AFS securities decreased to **$217.4 million** at June 30, 2025, from **$299.4 million** at December 31, 2024, reflecting market interest rate movements and Q2 sales[281](index=281&type=chunk) - The Company purchased **$686.7 million**, sold **$953.1 million**, and had **$84.3 million** in pay-downs and **$35.1 million** in calls of investment securities during the six months ended June 30, 2025[282](index=282&type=chunk) [Equity Investments](index=80&type=section&id=Equity%20Investments) Equity Investments Balances | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------------- | :-------------------------- | :---------------------------- | | Total equity investments | $88,152 | $39,946 | | Equity investments with readily determinable fair values | $50,500 | $4,300 | | Equity investments without readily determinable fair values | $37,600 | $35,600 | - Equity investments increased by **120.7%** to **$88.2 million**, primarily driven by **$45.5 million** in purchases of CRA mutual funds[286](index=286&type=chunk) [Loans Held For Sale](index=81&type=section&id=Loans%20Held%20For%20Sale) Loans Held For Sale Balances | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | Loans held for sale | $12,051 | $14,491 | | SBA loans sold (YTD) | $117,300 | N/A | | Residential mortgage loans sold (YTD) | $7,900 | N/A | | C&I loans sold (YTD) | $60,000 | N/A | - Loans held for sale decreased by **16.8%** to **$12.1 million**, consisting of C&I, residential mortgage, and consumer credit card loans[289](index=289&type=chunk) [Loans Receivable](index=81&type=section&id=Loans%20Receivable) Loans Receivable Composition | Loan Portfolio Composition | June 30, 2025 (Thousands) | % of Total | December 31, 2024 (Thousands) | % of Total | | :------------------------- | :-------------------------- | :--------- | :---------------------------- | :--------- | | CRE loans | $8,385,764 | 58% | $8,527,008 | 63% | | C&I loans | $3,725,295 | 26% | $3,967,596 | 29% | | Residential mortgage loans | $2,273,427 | 16% | $1,082,459 | 8% | | Consumer and other loans | $50,301 | 0% | $41,209 | 0% | | Total loans receivable | $14,434,787 | 100% | $13,618,272 | 100% | - Loans receivable increased by **6.0%** to **$14.43 billion**, primarily due to **$1.07 billion** in loans acquired from the Territorial Merger, which significantly increased residential mortgage loans' share of the portfolio to **16%**[290](index=290&type=chunk) CRE Loan Portfolio Breakdown | CRE Loan Type (June 30, 2025) | Amount (Thousands) | % | Weighted Average LTV | | :---------------------------- | :----------------- | :- | :------------------- | | Multi-tenant retail | $1,589,994 | 19% | 41% | | Industrial warehouses | $1,260,991 | 15% | 40% | | Multifamily | $1,211,785 | 14% | 59% | | Gas stations and car washes | $1,106,007 | 13% | 49% | | Hotels/motels | $754,449 | 9% | 41% | | Office | $340,329 | 4% | 56% | | Total CRE loans | $8,385,764 | 100% | 46% | [Nonperforming Assets](index=83&type=section&id=Nonperforming%20Assets) Nonperforming Assets Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Nonaccrual loans | $110,739 | $90,564 | | Accruing delinquent loans past due 90 days or more | $2,149 | $229 | | Total nonperforming loans | $112,888 | $90,793 | | Total nonperforming assets | $112,888 | $90,793 | | Nonperforming assets to total assets | 0.61% | 0.53% | | Nonaccrual loans to loans receivable | 0.77% | 0.67% | - Nonperforming assets increased by **24.3%** to **$112.9 million** at June 30, 2025, primarily due to the migration of a well-secured CRE loan[296](index=296&type=chunk) [Allowance for Credit Losses](index=83&type=section&id=Allowance%20for%20Credit%20Losses) Allowance for Credit Losses by Loan Segment | Loan Segment | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :-------------------------- | :-------------------------- | :---------------------------- | | CRE loans | $77,300 | $88,374 | | C&I loans | $62,547 | $57,243 | | Residential mortgage loans | $9,113 | $4,438 | | Consumer and other loans | $545 | $472 | | Total ACL | $149,505 | $150,527 | | ACL to loans receivable | 1.04% | 1.11% | - The ACL decreased slightly to **$149.5 million** at June 30, 2025, from **$150.5 million** at December 31, 2024, with the coverage ratio decreasing to **1.04%** from **1.11%**[298](index=298&type=chunk) - The decrease in ACL was primarily due to a decline in CRE loan ACL, offset by increases in C&I and residential mortgage loan ACLs, the latter driven by the Territorial acquisition[300](index=300&type=chunk) [Investments in Tax Credit Structures](index=85&type=section&id=Investments%20in%20Tax%20Credit%20Structures) Tax Credit Investments and Commitments | Investment Type | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------------- | :-------------------------- | :---------------------------- | | Investments in affordable housing partnerships | $30,800 | $32,400 | | Investments in solar tax credits | $2,800 | $3,400 | | Unfunded commitments (affordable housing) | $23,700 | $11,300 | | Unfunded commitments (solar tax credits) | $2,800 | $2,800 | - Investments in affordable housing partnerships decreased to **$30.8 million** due to amortization, while unfunded commitments for these partnerships more than doubled to **$23.7 million**[305](index=305&type=chunk) [Deposits, Borrowings, Convertible Notes, and Subordinated Debentures](index=85&type=section&id=Deposits,%20Borrowings,%20Convertible%20Notes,%20and%20Subordinated%20Debentures) Deposits, Borrowings, and Debentures Summary | Deposit Type | June 30, 2025 (Thousands) | % of Total | December 31, 2024 (Thousands) | % of Total | | :-------------------------- | :-------------------------- | :--------- | :---------------------------- | :--------- | | Demand, noninterest bearing | $3,485,502 | 22% | $3,377,950 | 24% | | Money market, interest bearing demand and savings | $6,102,999 | 38% | $5,175,735 | 36% | | Time deposits | $6,354,854 | 40% | $5,773,804 | 40% | | Total deposits | $15,943,355 | 100% | $14,327,489 | 100% | | Brokered deposits | $797,100 | N/A | $1,060,000 | N/A | | FHLB and FRB borrowings | $29,800 | N/A | $239,000 | N/A | | Convertible notes, net | $444 | N/A | $444 | N/A | | Subordinated debentures | $109,800 | N/A | $109,100 | N/A | - Total deposits increased by **11.3%** to **$15.94 billion**, primarily due to **$1.67 billion** from the Territorial acquisition, while brokered deposits decreased due to planned reductions[307](index=307&type=chunk)[308](index=308&type=chunk) - Borrowings significantly decreased to **$29.8 million** (all FHLB) from **$239.0 million**, with **$125.0 million** of assumed FHLB advances from Territorial paid off immediately[311](index=311&type=chunk)[312](index=312&type=chunk) [Off-Balance-Sheet Activities and Contractual Obligations](index=86&type=section&id=Off-Balance-Sheet%20Activities%20and%20Contractual%20Obligations) - The Company engages in traditional off-balance-sheet credit-related financial instruments (commitments to extend credit, standby letters of credit), interest rate swap contracts, foreign exchange contracts, and commitments related to affordable housing partnership investments[316](index=316&type=chunk)[317](index=317&type=chunk)[318](index=318&type=chunk)[319](index=319&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk) - These activities are part of normal business to meet customer financing needs and manage risk, with no anticipated material impact on future operations or financial condition[317](index=317&type=chunk)[322](index=322&type=chunk) [Stockholders' Equity and Regulatory Capital](index=87&type=section&id=Stockholders'%20Equity%20and%20Regulatory%20Capital) Stockholders' Equity and Capital Summary | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | | :----------------------------------- | :-------------------------- | :---------------------------- | | Total stockholders' equity | $2,224,117 | $2,134,505 | | Common stock issued (Territorial acquisition) | $73,300 | N/A | | Decrease in AOCI | $56,500 | N/A | | Cash dividends paid | $(34,800) | N/A | | Net loss | $(6,800) | N/A | - Stockholders' equity increased by **$89.6 million**, driven by **$73.3 million** in common stock issued for the Territorial acquisition and a **$56.5 million** decrease in accumulated other comprehensive loss, partially offset by net loss and dividends[323](index=323&type=chunk) - The Bank was categorized as 'well-capitalized' at June 30, 2025, exceeding all regulatory minimum capital ratios[325](index=325&type=chunk)[326](index=326&type=chunk) [Liquidity Management](index=89&type=section&id=Liquidity%20Management) - The Company manages liquidity risk to meet obligations without unacceptable losses, considering deposit stability, marketability of investments, alternative funding sources, and credit demand[327](index=327&type=chunk) - Primary liquidity sources include deposits, federal funds facilities, and FHLB/FRB borrowings, augmented by loan/securities payments and sales[328](index=328&type=chunk) - At June 30, 2025, total borrowing capacity, cash, and unpledged securities amounted to **$8.44 billion**, including **$5.80 billion** in available borrowing capacity from FHLB and FRB, and **$1.95 billion** in unpledged AFS securities[329](index=329&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=88&type=section&id=Item%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Details market risk, primarily interest rate risk, and management strategies, including NII and EVE sensitivity [Interest Rate Risk](index=90&type=section&id=Interest%20Rate%20Risk) - Interest rate risk is the most significant market risk, measured by potential changes in Net Interest Income (NII) and Economic Value of Equity (EVE), encompassing repricing, basis, yield curve, and options risk[332](index=332&type=chunk)[336](index=336&type=chunk) - The Asset and Liability Management Committee (ALM) manages interest rate risk, aiming to reduce earnings sensitivity to rate fluctuations while maintaining liquidity and capital[333](index=333&type=chunk)[334](index=334&type=chunk) [Net Interest Income Sensitivity Simulation](index=91&type=section&id=Net%20Interest%20Income%20Sensitivity%20Simulation) Net Interest Income Sensitivity Analysis | Interest Rate Change (basis points) | June 30, 2025 NII Sensitivity | June 30, 2024 NII Sensitivity | | :---------------------------------- | :---------------------------- | :---------------------------- | | (300) | (5.7)% | (5.5)% | | (200) | (4.0)% | (3.3)% | | (100) | (2.0)% | (1.0)% | | +100 | 1.9% | (0.2)% | | +200 | 4.0% | (2.3)% | | +300 | 5.8% | (4.3)% | - The NII sensitivity profile shows increased positive sensitivity to rising rates and reduced negative sensitivity to falling rates at June 30, 2025, compared to June 30, 2024[339](index=339&type=chunk) - This change is attributed to the termination of the receive fixed swap portfolio and growth in time deposit balances, partially offset by increased fixed-rate mortgage balances from the Territorial acquisition[339](index=339&type=chunk) [Economic Value of Equity Sensitivity](index=91&type=section&id=Economic%20Value%20of%20Equity%20Sensitivity) Economic Value of Equity Sensitivity Analysis | Interest Rate Change (basis points) | June 30, 2025 EVE Sensitivity | June 30, 2024 EVE Sensitivity | | :---------------------------------- | :---------------------------- | :---------------------------- | | (300) | 6.7% | 3.2% | | (200) | 6.6% | 3.9% | | (100) | 4.2% | 2.7% | | +100 | (5.0)% | (5.5)% | | +200 | (10.6)% | (12.0)% | | +300 | (16.6)% | (19.0)% | - The EVE profile at June 30, 2025, shows increased positive sensitivity to falling rates and reduced negative sensitivity to rising rates compared to the prior year[341](index=341&type=chunk) - These changes are due to the active reduction of the investment portfolio duration, termination of receive fixed swaps, and an increase in low-beta, long-duration retail deposits, partially offset by fixed-rate residential mortgage loans from the Territorial acquisition[341](index=341&type=chunk) [Item 4. Controls and Procedures](index=91&type=section&id=Item%204.%20CONTROLS%20AND%20PROCEDURES) Confirms effective disclosure controls and procedures, with no material changes to internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=92&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, and determined they were effective[344](index=344&type=chunk) [Changes in Internal Control over Financial Reporting](index=92&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There have been no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[345](index=345&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=93&type=section&id=Item%201.%20LEGAL%20PROCEEDINGS) Details legal claims and accrued loss contingencies, with management expecting no material adverse financial impact - Accrued loss contingencies for all legal claims totaled approximately **$302 thousand** at June 30, 2025[348](index=348&type=chunk) - Management believes that none of these legal claims, individually or in the aggregate, will have a material adverse effect on the results of operations or financial condition of the Company[348](index=348&type=chunk) [Item 1A. Risk Factors](index=93&type=section&id=Item%201A.%20RISK%20FACTORS) No material changes to risk factors from the prior Annual Report on Form 10-K were identified - No material changes to risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2024, were identified[349](index=349&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) No unregistered equity sales occurred; **$35.3 million** remains in the **$50.0 million** share repurchase program - No unregistered sales of equity securities occurred during the three months ended June 30, 2025[351](index=351&type=chunk) - The Company's **$50.0 million** stock repurchase program had **$35.3 million** remaining as of June 30, 2025, with no shares repurchased during the quarter[352](index=352&type=chunk)[353](index=353&type=chunk) [Item 3. Defaults Upon Senior Securities](index=94&type=section&id=Item%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The Company reported no defaults upon senior securities during the period - None[354](index=354&type=chunk) [Item 4. Mine Safety Disclosures](index=94&type=section&id=Item%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Not Applicable[355](index=355&type=chunk) [Item 5. Other Information](index=94&type=section&id=Item%205.%20OTHER%20INFORMATION) No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[356](index=356&type=chunk) [Item 6. Exhibits](index=94&type=section&id=Item%206.%20EXHIBITS) Lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data - The exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2), corporate governance documents (3.1, 3.2), and Inline XBRL Taxonomy Extension documents (101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[360](index=360&type=chunk)

[Financial and Business Highlights](index=1&type=section&id=Financial%20and%20Business%20Highlights) Phunware's Q2 2025 saw a 16% software revenue decline, improved gross margin, increased net loss, and key AI product and leadership changes Key Financial Metrics | Financial Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Software Subscriptions & Services Revenue | $0.4 million | - | -16% YoY | | Software Subscriptions & Services Gross Margin | 43.9% | 26.9% | +1,694 bps | | Net Loss | $3.1 million | $2.6 million | Increased Loss | | Net Loss Per Share | ($0.16) | ($0.32) | Improved | | Net Cash Used in Operations (H1) | $6.8 million | $8.2 million | Decreased | - Key operational achievements include debuting new hospitality AI features and appointing Jeremy Krol as Interim CEO[4](index=4&type=chunk) - The company secured **$0.6 million** in software and subscription bookings in Q2 2025[4](index=4&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) Interim CEO Jeremy Krol highlighted AI innovation, Map Editor 3.0 launch, new customer bookings, and strategic capital deployment for growth - The company is advancing AI investments, planning pilot testing for AI Personal Concierge and developing Guest Services Agent features[7](index=7&type=chunk) - A major platform update, **Map Editor 3.0**, was released, representing the largest update to the Multiscreen-as-a-Service platform[5](index=5&type=chunk) - Q2 software bookings of **$0.6 million** were entirely from new customer logos, with four new customers expected to launch next quarter[6](index=6&type=chunk) - The company maintains ample liquidity, with the Interim CEO planning capital deployment for organic and inorganic growth[7](index=7&type=chunk) [Non-GAAP Financial Measures](index=3&type=section&id=Non-GAAP%20Financial%20Measures) This section presents Adjusted EBITDA, a non-GAAP measure, showing a Q2 2025 loss of **$4.1 million** and an H1 2025 loss of **$8.9 million** - Adjusted EBITDA is a non-GAAP measure derived from net loss, adjusted for interest, taxes, depreciation, and non-cash items like stock-based compensation[9](index=9&type=chunk) Reconciliation to Adjusted EBITDA (in thousands) | Reconciliation to Adjusted EBITDA (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(3,144) | $(2,631) | $(6,867) | $(4,923) | | Adjusted EBITDA | $(4,111) | $(2,198) | $(8,854) | $(4,423) | [About Phunware & Forward-Looking Statements](index=3&type=section&id=About%20Phunware%20%26%20Forward-Looking%20Statements) Phunware, an enterprise mobile app solutions provider, focuses on AI expansion and IP monetization, with forward-looking statements subject to inherent risks - Phunware specializes in enterprise mobile app solutions, strategically expanding software with new generative AI and monetizing its patent portfolio[12](index=12&type=chunk)[13](index=13&type=chunk) - Forward-looking statements regarding future financial position and business strategy are subject to risks and uncertainties that could cause actual results to differ materially[15](index=15&type=chunk)[16](index=16&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents Phunware's consolidated financial statements, detailing balance sheet, income statement, and cash flow performance for Q2 and H1 2025 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, Phunware reported **$108.1 million** in total assets, **$106.3 million** in cash, and **$100.6 million** in stockholders' equity Condensed Consolidated Balance Sheet (in thousands) | Balance Sheet Items (in thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $106,264 | $112,974 | | Total current assets | $107,207 | $113,759 | | Total assets | $108,080 | $114,781 | | Total liabilities | $7,480 | $7,598 | | Total stockholders' equity | $100,600 | $107,183 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 net revenues decreased to **$0.46 million**, operating loss widened to **$4.26 million**, and net loss was **$3.1 million**, or **($0.16)** per share Condensed Consolidated Statements of Operations (in thousands) | Income Statement (in thousands) | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $455 | $1,011 | $1,143 | $1,932 | | Gross profit | $190 | $470 | $549 | $994 | | Operating loss | $(4,260) | $(2,934) | $(9,074) | $(5,808) | | Net loss | $(3,144) | $(2,631) | $(6,867) | $(4,923) | | Net loss per share | $(0.16) | $(0.32) | $(0.34) | $(0.65) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) H1 2025 saw net cash used in operations improve to **$6.8 million**, with minimal financing cash flow and a strong ending cash balance of **$106.3 million** Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,790) | $(8,205) | | Net cash provided by financing activities | $80 | $24,640 | | Net (decrease) increase in cash | $(6,710) | $16,435 | | Cash at end of period | $106,264 | $20,369 |

PART I [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's Q2 2025 financial statements show strong asset growth, record sales, and increased net income, with notable merger-related costs [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to **$9.28 billion** by June 30, 2025, driven by cash, with liabilities at **$3.90 billion** and equity at **$5.27 billion** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $4,851,711 | $4,449,423 | | Cash and cash equivalents | $1,377,152 | $1,116,516 | | Inventory | $1,871,805 | $1,919,386 | | **Total Assets** | **$9,278,116** | **$8,455,758** | | **Total Current Liabilities** | $2,315,937 | $2,256,484 | | **Total Liabilities** | **$3,902,607** | **$3,635,494** | | **Total Stockholders' Equity** | **$5,273,135** | **$4,730,165** | [Condensed Consolidated Statements of Earnings](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) Q2 2025 sales grew 13.1% to **$2.44 billion**, with net earnings at **$170.5 million** and diluted EPS at **$1.13**, reflecting strong performance Q2 2025 vs Q2 2024 Earnings (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $2,440,024 | $2,157,643 | 13.1% | | Gross Profit | $1,301,303 | $1,184,437 | 9.9% | | Earnings from Operations | $173,082 | $206,531 | (16.2)% | | Net Earnings Attributable to Skechers | $170,498 | $140,302 | 21.5% | | Diluted EPS | $1.13 | $0.91 | 24.2% | Six Months 2025 vs 2024 Earnings (in thousands, except per share data) | Metric | Six Months 2025 | Six Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $4,851,595 | $4,409,230 | 10.0% | | Gross Profit | $2,555,677 | $2,366,071 | 8.0% | | Earnings from Operations | $438,207 | $505,329 | (13.3)% | | Net Earnings Attributable to Skechers | $372,934 | $346,924 | 7.5% | | Diluted EPS | $2.46 | $2.24 | 9.8% | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Six-month operating cash flow was **$448.2 million**, with **$315.0 million** used in investing and **$100.1 million** provided by financing, a shift from prior year Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $448,178 | $494,432 | | Net cash used in investing activities | ($314,958) | ($240,436) | | Net cash provided by (used in) financing activities | $100,132 | ($163,718) | | **Net change in cash and cash equivalents** | **$260,636** | **$90,520** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key disclosures include a proposed merger with **$9.3 million** in Q2 transaction costs, growth across all segments, no share repurchases, and a reduced effective tax rate of **16.4%** - On May 4, 2025, the Company entered into a Merger Agreement with Beach Acquisition Co Parent, LLC. The company recognized **$9.3 million** in transaction costs related to the merger in Q2 2025[25](index=25&type=chunk)[29](index=29&type=chunk) - The company's joint ventures in China, Israel, South Korea, Mexico, and Southeast Asia are considered variable interest entities (VIEs) and are consolidated in the financial statements[31](index=31&type=chunk) - As of June 30, 2025, the company had **$584.3 million** in outstanding borrowings, including amounts under its corporate revolving credit facility and various loans for distribution centers[121](index=121&type=chunk) - No shares were repurchased during the six months ended June 30, 2025. The company had **$789.9 million** remaining under its share repurchase program as of June 30, 2025[55](index=55&type=chunk)[56](index=56&type=chunk) - The effective tax rate for Q2 2025 was **16.4%**, a decrease from **19.7%** in Q2 2024, primarily due to lower earnings in higher tax jurisdictions[64](index=64&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported record Q2 sales of **$2.44 billion**, up 13.1%, driven by international growth, despite gross margin decline and increased operating expenses [Overview](index=25&type=section&id=Overview) The company achieved record Q2 2025 sales of **$2.44 billion**, up 13.1%, with broad-based growth, targeting **$10 billion** annual sales by 2026 Q2 2025 Key Highlights | Metric | Value | Note | | :--- | :--- | :--- | | Sales | $2.44 billion | Record quarterly sales, +13.1% YoY | | Gross Margin | 53.3% | - | | Segment Growth | Positive | Increased sales in both Wholesale and DTC | | Regional Growth | Positive | Increased sales in EMEA, APAC, and Americas | | Diluted EPS | $1.13 | - | - The company is focused on building efficiencies to scale for profitable growth and is confident in its goal of reaching **$10 billion** in annual sales by 2026[87](index=87&type=chunk) [Results of Operations – Second Quarter](index=25&type=section&id=Results%20of%20Operations%20%E2%80%93%20Second%20Quarter) Q2 2025 sales grew 13.1% to **$2.44 billion**, driven by international business, though gross margin declined to **53.3%** and operating expenses increased 15.4% - Sales increased **13.1%** due to a **22.0%** increase internationally, with Wholesale up **15.0%** and Direct-to-Consumer up **11.0%**[91](index=91&type=chunk) - Gross margin declined **160 bps** to **53.3%** due to higher costs per unit, driven by higher domestic duties from increased tariff rates[92](index=92&type=chunk) - Operating expenses increased **15.4%**, driven by higher labor costs (**$53.4 million**), facility costs (**$28.3 million**), and distribution costs (**$24.9 million**)[93](index=93&type=chunk) - The effective tax rate decreased to **16.4%** from **19.7%** in the prior year, due to lower earnings in higher tax jurisdictions[95](index=95&type=chunk) [Results of Segment Operations – Second Quarter](index=26&type=section&id=Results%20of%20Segment%20Operations%20%E2%80%93%20Second%20Quarter) Q2 2025 Wholesale sales grew 15.0% to **$1.3 billion**, with gross margin at **41.4%**, while Direct-to-Consumer sales rose 11.0% to **$1.1 billion** with stable gross margin Q2 2025 Wholesale Segment Performance | Metric | Value | Change vs Q2 2024 | | :--- | :--- | :--- | | Sales | $1.30 billion | +15.0% | | Gross Profit | $538.4 million | +8.3% | | Gross Margin | 41.4% | -250 bps | - Wholesale growth was driven by increases in EMEA (**+58.7%**) and APAC (**+4.0%**), partially offset by a decrease in the Americas (**-5.9%**)[99](index=99&type=chunk) Q2 2025 Direct-to-Consumer Segment Performance | Metric | Value | Change vs Q2 2024 | | :--- | :--- | :--- | | Sales | $1.14 billion | +11.0% | | Gross Profit | $762.9 million | +11.0% | | Gross Margin | 67.0% | 0 bps | - Direct-to-Consumer growth was driven by increases in the Americas (**+8.6%**), EMEA (**+27.8%**), and APAC (**+6.6%**)[100](index=100&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with **$1.38 billion** cash and **$614.1 million** unused credit, with working capital at **$2.5 billion**, and **$330.7 million** in capital expenditures - As of June 30, 2025, the company had cash and cash equivalents of **$1,377.2 million**, with **95.0%** held outside the U.S[113](index=113&type=chunk) - Working capital was **$2.5 billion**, an increase of **$342.8 million** from December 31, 2024[115](index=115&type=chunk) - Capital expenditures for the first six months of 2025 were **$330.7 million**, primarily for global distribution expansion and retail investments[118](index=118&type=chunk) - Financing activities provided **$100.1 million** in cash, a **$263.9 million** positive swing from the prior year, mainly due to increased borrowings and no share repurchases[119](index=119&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk exposures were reported from the information previously disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes from the market risk information previously reported in the 2024 Annual Report on Form 10-K[123](index=123&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of Q2 2025, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[124](index=124&type=chunk) - There were no material changes in internal control over financial reporting during the second quarter of 2025[125](index=125&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company faces new patent infringement lawsuits from Kizik and shareholder litigation regarding the proposed merger, alongside ongoing patent disputes with Nike - On July 24, 2025, Kizik filed a patent infringement lawsuit against the company concerning Skechers Slip-ins shoes[126](index=126&type=chunk) - A shareholder lawsuit (Key West Action) was filed on May 29, 2025, related to the proposed merger, seeking to enjoin the transaction pending further disclosures. A motion for a preliminary injunction was denied[127](index=127&type=chunk) - Litigation with Nike, Inc. regarding alleged infringement of six utility patents is resuming after a stay was lifted by the District Court[128](index=128&type=chunk)[129](index=129&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) New risks from the pending merger include potential adverse effects on business, stock price, and relationships, with uncertainty regarding timely completion and interim restrictive covenants - The announcement and pendency of the merger with Beach Acquisition Co Parent, LLC may adversely affect business, operating results, stock price, and relationships with employees, customers, and suppliers[132](index=132&type=chunk) - Completion of the merger is subject to conditions, including regulatory approvals, and may not be completed on a timely basis or at all. Failure to complete the merger could negatively affect the company's stock price and business[133](index=133&type=chunk)[136](index=136&type=chunk) - The company will incur substantial direct and indirect costs related to the merger, regardless of whether it is consummated[138](index=138&type=chunk) - During the pending merger, the company is subject to contractual restrictions that could limit its ability to respond to competitive pressures and business opportunities[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any Class A Common Stock in Q2 2025, with **$789.9 million** remaining available under the share repurchase program expiring July 2027 Share Repurchase Activity (Q2 2025) | Month Ended | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 30, 2025 | — | $ — | | May 31, 2025 | — | $ — | | June 30, 2025 | — | $ — | | **Total** | **—** | **$ —** | - As of June 30, 2025, **$789.9 million** remained available for repurchase under the company's share repurchase program[147](index=147&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) The Board adopted a U.S. Employee Change in Control Severance Plan on August 7, 2025, providing benefits to eligible employees terminated post-merger - On August 7, 2025, the company's Board of Directors adopted a U.S. Employee Change in Control Severance Plan[150](index=150&type=chunk) - The plan provides severance benefits to eligible U.S. employees whose employment is terminated without 'cause' or for 'good reason' within 12 months following the closing of the merger[150](index=150&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Merger Agreement, corporate governance documents, and CEO/CFO certifications [Signatures](index=42&type=section&id=Signatures) The report is duly signed on August 8, 2025, by John Vandemore, Chief Financial Officer of Skechers U.S.A., Inc

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Unaudited financial statements for Q2 2025 show total assets at **$4.51 billion**, equity at **$2.46 billion**, and net income attributable to controlling interest at **$9.9 million** [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased slightly to **$4.51 billion** from **$4.49 billion** at year-end 2024, primarily due to a rise in cash and cash equivalents, while total liabilities decreased to **$2.04 billion**, leading to total equity growth to **$2.46 billion** | Financial Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | **Assets** | | | | Real estate investments, net | $3,346,121 | $3,366,648 | | Cash and cash equivalents | $133,494 | $76,702 | | **Total assets** | **$4,506,650** | **$4,488,057** | | **Liabilities** | | | | Mortgage loans payable, net | $983,510 | $982,071 | | Lines of credit and term loan, net | $549,632 | $688,534 | | **Total liabilities** | **$2,044,006** | **$2,183,895** | | **Equity** | | | | Total stockholders' equity | $2,420,997 | $2,261,231 | | **Total equity** | **$2,462,644** | **$2,303,942** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) For Q2 2025, total revenues increased to **$542.5 million**, driving net income attributable to controlling interest to **$9.9 million**, and for the six-month period, the company reported net income of **$3.1 million** | Metric (in thousands, except EPS) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $542,503 | $504,581 | $1,083,106 | $1,004,114 | | Net income (loss) | $10,079 | $2,926 | $3,239 | $(78) | | Net income (loss) attributable to controlling interest | $9,908 | $1,979 | $3,104 | $(1,913) | | Diluted EPS | $0.06 | $0.01 | $0.02 | $(0.02) | [Condensed Consolidated Statements of Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total equity grew from **$2.30 billion** at year-end 2024 to **$2.46 billion** by June 30, 2025, primarily due to **$236.3 million** from common stock issuance and **$3.1 million** in net income, partially offset by **$81.3 million** in distributions - For the six months ended June 30, 2025, the company issued 7,028,690 shares of common stock in an offering, raising gross proceeds of **$236.3 million**[18](index=18&type=chunk) - Distributions declared for the first six months of 2025 amounted to **$81.3 million**, or **$0.50 per share**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly increased to **$132.1 million** for H1 2025, while net cash used in investing activities rose to **$94.9 million**, and net cash from financing activities decreased to **$9.3 million** | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $132,091 | $53,448 | | Net cash used in investing activities | $(94,862) | $(65,534) | | Net cash provided by financing activities | $9,348 | $18,935 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business segments, real estate transactions, debt structure, and equity offerings, highlighting the ISHC segment as a key contributor - The company operates through four reportable business segments: Integrated Senior Health Campuses (ISHC), Outpatient Medical (OM), Senior Housing Operating Properties (SHOP), and triple-net leased properties[32](index=32&type=chunk) - In the first six months of 2025, the company acquired properties for an aggregate price of **$81.1 million** and disposed of six properties for **$43.4 million**, recognizing a net loss of **$3.0 million**[60](index=60&type=chunk)[61](index=61&type=chunk) - An impairment charge of **$34.4 million** was recognized for six OM buildings in the first half of 2025[62](index=62&type=chunk) - The company terminated its **$400 million** Trilogy Credit Facility on March 3, 2025[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes improved H1 2025 results to increased occupancy and billing rates, maintaining strong liquidity, and reporting significant year-over-year growth in FFO and Normalized FFO [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Revenue growth in Q2 and H1 2025 was driven by ISHC and SHOP segments due to higher occupancy and acquisitions, partially offset by property dispositions and increased operating expenses, while interest expense decreased - ISHC segment revenue increased by **$30.1 million** in Q2 2025 and **$60.3 million** in H1 2025 year-over-year, driven by higher resident occupancy and billing rates[193](index=193&type=chunk) - SHOP segment revenue increased by **$13.2 million** in Q2 2025 and **$28.0 million** in H1 2025, boosted by acquisitions and organic growth[194](index=194&type=chunk) - Total interest expense decreased in H1 2025 compared to H1 2024, primarily due to debt paydowns using net proceeds from equity offerings[201](index=201&type=chunk) - An aggregate impairment charge of **$34.4 million** was recognized in H1 2025 for six OM buildings[204](index=204&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity through cash from operations, equity issuances, and a **$600 million** available credit facility, sufficient to meet future cash requirements - As of June 30, 2025, the company had **$600 million** available for borrowing under its 2024 Credit Facility[211](index=211&type=chunk) - The board has authorized a quarterly distribution of **$0.25 per share**[216](index=216&type=chunk) | Contractual Obligations as of June 30, 2025 (in thousands) | Total (in thousands) | | :--- | :--- | | Principal payments — fixed-rate debt | $1,004,016 | | Interest payments — fixed-rate debt | $452,669 | | Principal payments — variable-rate debt | $550,000 | | Interest payments — variable-rate debt | $48,857 | | Operating lease obligations | $227,111 | | Financing and other obligations | $45,927 | | **Total** | **$2,328,580** | [Funds from Operations (FFO) and Normalized Funds from Operations](index=49&type=section&id=Funds%20from%20Operations%20%28FFO%29%20and%20Normalized%20Funds%20from%20Operations) The company reported significant year-over-year growth in Q2 2025, with NAREIT FFO increasing to **$66.8 million** and Normalized FFO rising to **$68.4 million**, driven by higher net income and adjustments | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $10,079 | $2,926 | $3,239 | $(78) | | NAREIT FFO attributable to controlling interest | $66,796 | $41,746 | $122,677 | $73,044 | | Normalized FFO attributable to controlling interest | $68,377 | $43,740 | $128,119 | $74,838 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure on long-term debt, managed through interest rate swaps, resulting in a **4.33%** weighted average effective interest rate and no impact from a hypothetical 0.50% rate increase - The primary market risk is interest rate risk associated with long-term debt[234](index=234&type=chunk)[235](index=235&type=chunk) - As of June 30, 2025, the weighted average effective interest rate on outstanding debt, factoring in interest rate swaps, was **4.33%** per annum[240](index=240&type=chunk) - A **0.50%** increase in market interest rates would have no impact on annualized interest expense as of June 30, 2025, because all variable-rate loan balances have interest rate swap arrangements in place[240](index=240&type=chunk) [Item 4. Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[243](index=243&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[244](index=244&type=chunk) [PART II — OTHER INFORMATION](index=54&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=54&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material litigation that would significantly adversely affect its financial condition or results of operations - The company is not presently subject to any material litigation[91](index=91&type=chunk)[247](index=247&type=chunk) [Item 1A. Risk Factors](index=54&type=section&id=Item%201A.%20Risk%20Factors) New and updated risk factors include challenges from Artificial Intelligence (AI) use, cybersecurity threats, and potential adverse impacts from federal law changes like the 'One Big Beautiful Bill Act' (OBBBA) - A new risk factor has been identified concerning the use of Artificial Intelligence (AI), which presents challenges such as potential inaccuracies, data privacy risks, and increased sophistication of cybersecurity attacks[249](index=249&type=chunk)[250](index=250&type=chunk) - The newly enacted 'One Big Beautiful Bill Act' (OBBBA) increases the REIT asset test limit for taxable REIT subsidiaries (TRSs) from **20%** to **25%** and includes an estimated **$1 trillion** in cuts to Medicaid spending, which could adversely impact financial performance[254](index=254&type=chunk)[255](index=255&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=55&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In April 2025, the company repurchased **16,708** shares of Common Stock for **$513,000** to satisfy employee tax withholding obligations related to restricted stock awards - In April 2025, the company acquired **16,708** shares of its Common Stock for **$513,000** to satisfy employee tax withholding requirements on vested restricted stock awards[256](index=256&type=chunk) [Item 3. Defaults Upon Senior Securities](index=55&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[257](index=257&type=chunk) [Item 4. Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[258](index=258&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the reporting period[259](index=259&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents and required certifications - The report includes a list of filed exhibits, such as the 2025 Manager Equity Plan and certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[260](index=260&type=chunk)[262](index=262&type=chunk)

Part I - Financial Information [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=36&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for The Charles Schwab Corporation [Condensed Consolidated Statements of Income](index=36&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The company reported significant year-over-year growth in net income for both the second quarter and first six months of 2025 Key Income Statement Figures (Unaudited) | 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 net revenues** | $5,851 million | $4,690 million | $11,450 million | $9,430 million | | **Net interest revenue** | $2,822 million | $2,158 million | $5,528 million | $4,391 million | | **Total expenses excluding interest** | $3,048 million | $2,943 million | $6,192 million | $5,885 million | | **Net Income** | $2,126 million | $1,332 million | $4,035 million | $2,694 million | | **Diluted Earnings Per Share** | $1.08 | $0.66 | $2.07 | $1.34 | [Condensed Consolidated Statements of Comprehensive Income](index=37&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q2 2025 increased significantly due to higher net income and positive changes in other comprehensive income Comprehensive Income Summary (Unaudited) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | **Net Income** | $2,126 million | $4,035 million | | **Other comprehensive income (loss), net of tax** | $1,030 million | $2,257 million | | **Comprehensive Income** | $3,156 million | $6,292 million | [Condensed Consolidated Balance Sheets](index=38&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased due to reduced bank deposits and borrowings, while stockholders' equity increased from retained earnings and improved AOCI Key Balance Sheet Figures (Unaudited) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total assets** | $458,936 million | $479,843 million | | **Available for sale securities** | $67,612 million | $82,994 million | | **Held to maturity securities** | $139,684 million | $146,453 million | | **Bank loans — net** | $50,405 million | $45,215 million | | **Total liabilities** | $409,485 million | $431,468 million | | **Bank deposits** | $233,058 million | $259,121 million | | **Total stockholders' equity** | $49,451 million | $48,375 million | [Condensed Consolidated Statements of Stockholders' Equity](index=39&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased due to net income and AOCI, partially offset by dividends, stock repurchases, and preferred stock redemption - Key equity changes in the first six months of 2025 include the repurchase of all remaining nonvoting common stock from TD Bank for **$1.5 billion** and an additional **$351 million** in common stock repurchases[120](index=120&type=chunk)[142](index=142&type=chunk) - The company redeemed its Series G preferred stock for **$2.5 billion** on June 2, 2025[108](index=108&type=chunk)[142](index=142&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=40&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating and investing activities was offset by significant cash used in financing activities, leading to a net decrease in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (Unaudited) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | **Net cash provided by (used for) operating activities** | $9,536 million | ($5,601) million | | **Net cash provided by (used for) investing activities** | $19,546 million | $19,181 million | | **Net cash provided by (used for) financing activities** | ($39,027) million | ($40,938) million | | **Increase (Decrease) in Cash and Cash Equivalents** | ($9,945) million | ($27,358) million | [Notes to Condensed Consolidated Financial Statements](index=43&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed disclosures cover accounting policies, financial instruments, debt, and regulatory capital, highlighting preferred stock redemption and share repurchases - On June 2, 2025, the company redeemed all outstanding Series G preferred stock for **$2.5 billion**[108](index=108&type=chunk)[244](index=244&type=chunk) - In February 2025, the company repurchased all remaining **19.2 million** shares of nonvoting common stock from TD Group US Holdings LLC for **$1.5 billion**. An additional **3.9 million** common shares were repurchased for **$351 million** in Q2 2025[239](index=239&type=chunk)[241](index=241&type=chunk) - As of June 30, 2025, the company and its banking subsidiaries met all respective capital requirements and were considered **well capitalized**[254](index=254&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=3&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance for Q2 and H1 2025, highlighting strong revenue and net income growth [Introduction](index=3&type=section&id=Introduction) The Charles Schwab Corporation provides wealth management, brokerage, banking, and asset management services through its subsidiaries - Schwab's principal business subsidiaries include Charles Schwab & Co., Inc. (broker-dealer), Charles Schwab Bank, SSB (banking), and Charles Schwab Investment Management, Inc. (asset management)[14](index=14&type=chunk) - The company serves clients through **two primary segments**: Investor Services and Advisor Services[9](index=9&type=chunk) - With **$10.76 trillion** in client assets, management sees substantial growth opportunity in the estimated **$70+ trillion** U.S. investable wealth market[11](index=11&type=chunk) [Overview](index=7&type=section&id=Overview) Schwab's strong H1 2025 performance saw significant revenue and net income growth, driven by asset gathering and reduced funding costs Q2 2025 Financial Highlights (vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | **Total net revenues** | $5,851 M | $4,690 M | 25% | | **Net income** | $2,126 M | $1,332 M | 60% | | **Diluted EPS** | $1.08 | $0.66 | 64% | | **Core net new client assets** | $80.3 B | $61.2 B | 31% | H1 2025 Financial Highlights (vs. H1 2024) | Metric | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | | **Total net revenues** | $11,450 M | $9,430 M | 21% | | **Net income** | $4,035 M | $2,694 M | 50% | | **Diluted EPS** | $2.07 | $1.34 | 54% | | **Core net new client assets** | $218.0 B | $156.8 B | 39% | - The company reduced total bank supplemental funding by **$22.2 billion (44%)** in the first six months of 2025, with **$27.7 billion** remaining at June 30[25](index=25&type=chunk) - Significant capital actions in H1 2025 included repurchasing **$1.5 billion** of nonvoting common stock from TD Bank, increasing the common dividend by **8%**, redeeming **$2.5 billion** of Series G preferred stock, and repurchasing an additional **$351 million** of common stock[27](index=27&type=chunk) [Current Regulatory and Other Developments](index=10&type=section&id=Current%20Regulatory%20and%20Other%20Developments) Recent regulatory developments include SEC and FDIC rule withdrawals, with ongoing monitoring of other pending matters - The SEC withdrew its December 2022 equity market structure rule proposals, 'Order Competition Rule' and 'Regulation Best Execution', on June 12, 2025[28](index=28&type=chunk) - The FDIC withdrew its July 2024 proposal related to the brokered deposits framework on March 3, 2025[29](index=29&type=chunk) - The company continues to monitor pending regulatory matters, including the DOL's final rule on the definition of 'fiduciary', FDIC special assessments, and proposed rulemaking on long-term debt and regulatory capital (Basel III endgame)[30](index=30&type=chunk) [Results of Operations](index=11&type=section&id=Results%20of%20Operations) The company's operations showed strong year-over-year revenue growth, primarily from net interest revenue and asset management fees Revenue Breakdown - Q2 2025 vs Q2 2024 | Revenue Category | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | **Net interest revenue** | $2,822 M | $2,158 M | 31% | | **Asset management & admin fees** | $1,570 M | $1,383 M | 14% | | **Trading revenue** | $952 M | $777 M | 23% | | **Bank deposit account fees** | $247 M | $153 M | 61% | | **Total net revenues** | $5,851 M | $4,690 M | 25% | Expense Breakdown - Q2 2025 vs Q2 2024 | Expense Category | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | **Compensation and benefits** | $1,536 M | $1,450 M | 6% | | **Professional services** | $291 M | $259 M | 12% | | **Depreciation and amortization** | $215 M | $233 M | (8)% | | **Total expenses excluding interest** | $3,048 M | $2,943 M | 4% | [Risk Management](index=22&type=section&id=Risk%20Management) Schwab manages market, liquidity, and credit risks through policies on interest rate sensitivity, maintaining strong funding, and robust regulatory liquidity ratios - A hypothetical gradual **100 basis point** increase in interest rates is simulated to increase net interest revenue by **4.1%** over the next 12 months, while a **100 basis point** decrease would lower it by **4.0%**[79](index=79&type=chunk) - The company's primary source of funds is cash from client activity (bank deposits and brokerage cash). Supplemental funding includes FHLB borrowings, repurchase agreements, and commercial paper[89](index=89&type=chunk) Regulatory Liquidity Ratios (Average for Q2 2025) | Ratio | Q2 2025 Average | | :--- | :--- | | **Liquidity Coverage Ratio (LCR)** | 143% | | **Net Stable Funding Ratio (NSFR)** | 132% | [Capital Management](index=30&type=section&id=Capital%20Management) Schwab manages capital to support strategy, meet regulatory requirements, and return excess capital, maintaining a well-capitalized status Key Capital Ratios (Consolidated) | Ratio | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Common Equity Tier 1 Capital Ratio** | 33.0% | 31.7% | | **Tier 1 Capital Ratio** | 38.9% | 39.8% | | **Tier 1 Leverage Ratio** | 9.8% | 9.9% | | **Adjusted Tier 1 Leverage Ratio (Non-GAAP)** | 7.2% | 6.8% | - The Board of Directors increased the quarterly cash dividend by **8%** to **$0.27** per common share, effective January 29, 2025[117](index=117&type=chunk) - In Q1 2025, the company repurchased **$1.5 billion** of nonvoting common stock from TD Bank. In Q2 2025, it repurchased an additional **$351 million** of common stock. In July 2025, a new **$20.0 billion** share repurchase authorization was approved, replacing the previous one[120](index=120&type=chunk)[122](index=122&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) This section defines and reconciles non-GAAP financial measures used by management for clearer operational performance insights Reconciliation of GAAP to Non-GAAP EPS (Diluted) | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | **Diluted EPS (GAAP)** | $1.08 | $2.07 | | **Adjustments (Amortization, etc.)** | $0.06 | $0.10 | | **Adjusted Diluted EPS (Non-GAAP)** | $1.14 | $2.17 | Reconciliation of GAAP to Non-GAAP Capital Ratio (Consolidated) | Metric | June 30, 2025 | | :--- | :--- | | **Tier 1 Leverage Ratio (GAAP)** | 9.8% | | **AOCI Adjustment** | (2.6)% | | **Adjusted Tier 1 Leverage Ratio (Non-GAAP)** | 7.2% | - Management uses non-GAAP measures like Adjusted Diluted EPS and ROTCE as components for employee and executive incentive compensation[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Disclosures about market risk are located in the Risk Management section of the MD&A - The disclosures about market risk are located in the Risk Management section of the MD&A[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=77&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the quarter[264](index=264&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[265](index=265&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=77&type=section&id=Item%201.%20Legal%20Proceedings) Information on legal proceedings, including a pending settlement for the Corrente Antitrust Litigation, is detailed in Note 10 - For details on legal proceedings, the report refers to Note 10 of the Condensed Consolidated Financial Statements[266](index=266&type=chunk) - The Corrente Antitrust Litigation has a proposed settlement pending court approval, which involves non-monetary undertakings and an **immaterial payment** for plaintiffs' attorneys' fees[206](index=206&type=chunk) [Item 1A. Risk Factors](index=77&type=section&id=Item%201A.%20Risk%20Factors) There were no material changes to the company's risk factors during the first six months of 2025 - There were **no material changes** to the company's risk factors during the first six months of 2025[267](index=267&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=77&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details on stock repurchase activities, including Q2 2025 repurchases and a new $20 billion authorization approved in July 2025 - On July 24, 2025, the Board of Directors approved a new share repurchase authorization of up to **$20.0 billion**, replacing the previous program[268](index=268&type=chunk) Issuer Purchases of Equity Securities (Q2 2025) | Month | Shares Purchased (thousands) | Average Price Paid per Share | | :--- | :--- | :--- | | **April** | — | — | | **May** | — | — | | **June** | 3,950 | $88.75 | [Item 3. Defaults Upon Senior Securities](index=78&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[271](index=271&type=chunk) [Item 4. Mine Safety Disclosures](index=78&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to The Charles Schwab Corporation - Not applicable[272](index=272&type=chunk) [Item 5. Other Information](index=78&type=section&id=Item%205.%20Other%20Information) Jonathan S. Beatty adopted a Rule 10b5-1 trading plan in May 2025 for the potential sale of common stock - Jonathan S. Beatty, Managing Director and Head of Advisor Services, adopted a Rule 10b5-1 trading plan on May 28, 2025, for the potential sale of up to **13,216 shares**[273](index=273&type=chunk) [Item 6. Exhibits](index=79&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including SOX certifications and Inline XBRL data files - Exhibits filed include certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL data files[276](index=276&type=chunk) Signature - The report was signed on August 8, 2025, by Michael Verdeschi, Managing Director and Chief Financial Officer[280](index=280&type=chunk)

PART I—FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents MP Materials Corp.'s unaudited condensed consolidated financial statements as of June 30, 2025, detailing financial performance, a strategic shift in sales, and the material impact of subsequent transformative partnerships and capital raises [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $2.34 billion, a slight increase from $2.33 billion at year-end 2024, while total liabilities increased to $1.33 billion from $1.28 billion, primarily due to a rise in current liabilities Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total cash, cash equivalents and short-term investments** | **$753,657** | **$850,868** | | Total current assets | $960,395 | $1,031,322 | | Total assets | $2,336,187 | $2,333,558 | | Total current liabilities | $266,867 | $164,019 | | Total liabilities | $1,325,637 | $1,278,678 | | Total stockholders' equity | $1,010,550 | $1,054,880 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q2 2025, revenue significantly increased to $57.4 million from $31.3 million in Q2 2024, driven by new magnetic precursor and higher NdPr sales, resulting in a net loss of $30.9 million, an improvement from $34.1 million in the prior-year quarter Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | **$57,393** | **$31,258** | **$118,203** | **$79,942** | | Operating loss | $(43,882) | $(53,492) | $(78,660) | $(85,924) | | **Net loss** | **$(30,872)** | **$(34,055)** | **$(53,520)** | **$(17,566)** | | Diluted loss per share | $(0.19) | $(0.21) | $(0.33) | $(0.28) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, net cash used in operating activities significantly increased to $66.9 million, while net cash provided by investing activities was $54.0 million, and net cash used in financing activities was $7.7 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(66,853) | $(10,284) | | Net cash provided by investing activities | $53,977 | $10,970 | | Net cash provided by (used in) financing activities | $(7,734) | $31,366 | | **Net change in cash, cash equivalents and restricted cash** | **$(20,610)** | **$32,052** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide critical details on accounting policies and financial results, highlighting segment reporting, the strategic pivot from China sales, new Magnetics segment revenue, and transformative subsequent events including major partnerships with the DoD and Apple, and a significant public stock offering - The company is organized into two reportable segments: **Materials** (upstream/midstream operations at Mountain Pass) and **Magnetics** (downstream manufacturing at the Independence Facility)[29](index=29&type=chunk) - In July 2025, the company agreed to cease all future sales of its products to China and will not extend the Shenghe Offtake Agreement, aligning with its domestic supply chain objectives and DoD partnership terms[30](index=30&type=chunk)[40](index=40&type=chunk)[128](index=128&type=chunk) - The Magnetics segment began generating revenue in Q1 2025 from sales of magnetic precursor products to General Motors[31](index=31&type=chunk)[95](index=95&type=chunk) - Subsequent to the quarter end, the company entered into a transformative public-private partnership with the U.S. Department of Defense (DoD), securing a **$400 million equity investment**, a **10-year NdPr price floor**, and a **10-year magnet offtake agreement** for a new facility[151](index=151&type=chunk) - The company entered a long-term supply agreement with Apple in July 2025, which includes a commitment for **$200 million in prepayments** from Apple for the purchase of magnets[150](index=150&type=chunk) - In July 2025, the company completed a public stock offering, raising net proceeds of approximately **$724 million** to fund expansion and growth initiatives[149](index=149&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=42&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details the company's operational and financial performance, emphasizing a strategic pivot driven by major agreements with the DoD and Apple, a significant capital raise, and the expansion of its domestic, vertically integrated supply chain [Results of Operations](index=49&type=section&id=Results%20of%20Operations) For Q2 2025, total revenue rose 84% to $57.4 million, driven by new Magnetics segment sales and a 283% increase in NdPr oxide and metal revenue, offsetting a 51% decline in rare earth concentrate revenue due to the halt in China shipments Consolidated Results Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $57,393 | $31,258 | $26,135 | 84% | | Cost of sales | $50,431 | $41,463 | $8,968 | 22% | | SG&A | $27,429 | $21,434 | $5,995 | 28% | | Net loss | $(30,872) | $(34,055) | $3,183 | 9% | Revenue by Product (in thousands) | Product | Q2 2025 | Q2 2024 | Change $ | Change % | | :--- | :--- | :--- | :--- | :--- | | Rare earth concentrate | $11,877 | $24,426 | $(12,549) | (51)% | | NdPr oxide and metal | $25,045 | $6,531 | $18,514 | 283% | | Magnetic precursor products | $19,861 | $— | $19,861 | N/M | [Segment Results](index=55&type=section&id=Segment%20Results) The Materials segment's Q2 2025 revenue increased 20% year-over-year to $37.5 million, driven by a surge in NdPr sales, while the new Magnetics segment generated $19.9 million in revenue and $8.1 million in Segment Adjusted EBITDA Materials Segment KPIs (Q2 2025 vs Q2 2024) | KPI | Q2 2025 | Q2 2024 | Change % | | :--- | :--- | :--- | :--- | | REO Production Volume (MTs) | 13,145 | 9,084 | 45% | | REO Sales Volume (MTs) | 2,658 | 5,839 | (54)% | | NdPr Production Volume (MTs) | 597 | 272 | 119% | | NdPr Sales Volume (MTs) | 443 | 136 | 226% | | NdPr Realized Price per KG | $57 | $48 | 19% | Segment Adjusted EBITDA (in thousands) | Segment | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Materials | $(12,678) | $(17,602) | | Magnetics | $8,089 | $(2,824) | [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company held $753.7 million in cash, cash equivalents, and short-term investments, with its liquidity position substantially bolstered by subsequent events in July 2025, including a significant stock offering and major agreements with the DoD and Apple - As of June 30, 2025, the company had **$753.7 million** of cash, cash equivalents and short-term investments[253](index=253&type=chunk) - The cessation of shipments to China had a material negative impact on short-term results and cash flows, but this is expected to be significantly reduced by the DoD's NdPr price protection beginning in Q4 2025[258](index=258&type=chunk) - In July 2025, liquidity was substantially strengthened by **~$724 million** from a stock offering, a **$400 million DoD equity investment**, a **$150 million DoD loan**, and a **$200 million prepayment commitment** from Apple[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - Planned capital expenditures for 2025 are estimated to be between **$150 million** and **$175 million**, net of government awards[261](index=261&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=70&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include commodity price and foreign currency fluctuations, though the new DoD partnership significantly mitigates these through a 10-year NdPr price floor and magnet offtake agreement - The company is exposed to **commodity price risk**, as its results depend on the market prices of rare earth products, particularly NdPr[297](index=297&type=chunk)[298](index=298&type=chunk) - The DoD partnership significantly mitigates NdPr price risk through a **10-year price floor commitment of $110/kg**, commencing in Q4 2025[299](index=299&type=chunk) - Foreign currency risk exists as market transactions are mainly denominated in Chinese Yuan. The DoD partnership, with its U.S. dollar-based commitments, helps mitigate this exposure[301](index=301&type=chunk)[302](index=302&type=chunk) [Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2025[304](index=304&type=chunk) - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[305](index=305&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=71&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings, though it is engaged in a dispute with a general contractor scheduled for binding arbitration - The company is currently in a dispute with a general contractor for a construction project, which is scheduled to go to binding arbitration[92](index=92&type=chunk) - The company states it is not currently a party to any material legal or governmental proceedings[307](index=307&type=chunk) [Risk Factors](index=71&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new material risks related to the DoD partnership, including potential modifications to the deal, restrictive covenants, shareholder dilution from preferred stock conversion, and challenges in fulfilling obligations under new long-term supply agreements - A new primary risk is that the authorization of and continued support for the DoD Transaction Agreements could be modified, challenged, or impaired in the future, which would have a **material adverse effect** on the business[309](index=309&type=chunk) - The DoD agreements contain affirmative and negative covenants that restrict the company's ability to take certain actions, potentially limiting strategic moves such as sales of assets or equity to certain foreign entities[315](index=315&type=chunk) - The conversion of the Series A Preferred Stock and exercise of the Warrant held by the DoD would **dilute the ownership of common stockholders**[317](index=317&type=chunk) - The company faces risks in fulfilling its obligations under major supply agreements with the DoD, Apple, and GM, as it involves constructing and scaling new, complex manufacturing facilities[322](index=322&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=74&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No equity securities were repurchased during the three months ended June 30, 2025, and the company's share repurchase program was terminated in July 2025 - No shares were repurchased during the three months ended June 30, 2025[325](index=325&type=chunk) - The company terminated its share repurchase program on **July 11, 2025**[325](index=325&type=chunk)[107](index=107&type=chunk) [Mine Safety Disclosures](index=74&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures, as required by the Dodd-Frank Act, are provided in Exhibit 95.1 of this Form 10-Q - Mine safety disclosures required by Regulation S-K are provided in Exhibit 95.1[326](index=326&type=chunk) [Other Information](index=75&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025 - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading plan during the quarter[327](index=327&type=chunk) [Exhibits](index=75&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications, mine safety disclosures, and XBRL data files - Lists exhibits filed with the report, including CEO/CFO certifications and XBRL data[328](index=328&type=chunk)

FORM 10-Q [Registrant Information](index=1&type=section&id=Registrant%20Information) This report is the quarterly report for Sotera Health Company as of June 30, 2025, with the company incorporated in Delaware and listed on The Nasdaq Stock Market under ticker SHC - Company Name: **SOTERA HEALTH COMPANY**[2](index=2&type=chunk) - Place of Incorporation: **Delaware**[5](index=5&type=chunk) Securities Registered Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Common Stock, $0.01 par value per share | SHC | The Nasdaq Stock Market LLC | [Filing Status](index=1&type=section&id=Filing%20Status) The company has filed all required reports in the past 12 months, complied with filing requirements for the past 90 days, and is designated as a "large accelerated filer" - All required reports filed: **Yes**[3](index=3&type=chunk) - All interactive data files submitted: **Yes**[3](index=3&type=chunk) - Filer Category: **Large Accelerated Filer**[4](index=4&type=chunk) [Shares Outstanding](index=1&type=section&id=Shares%20Outstanding) As of July 29, 2025, the number of common shares outstanding was 284,046,606 - Common shares outstanding as of July 29, 2025: **284,046,606 shares**[4](index=4&type=chunk) [TABLE OF CONTENTS](index=3&type=section&id=TABLE%20OF%20CONTENTS) [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements involving known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from historical results or forward-looking statements, including risks related to EO and Co-60 supply disruptions, foreign currency fluctuations, environmental health and safety regulations, legal proceedings, regulatory compliance, market competition, inflation, supply chain disruptions, international business, cybersecurity incidents, M&A integration, internal controls, intellectual property, data privacy, profitability, goodwill impairment, unionization, and debt leverage - Forward-looking statements involve known and unknown risks that could cause actual results to differ materially from expectations[8](index=8&type=chunk) - Key risk factors include EO and Co-60 supply disruptions or price increases, foreign currency fluctuations, changes in environmental health and safety regulations, EO-related legal proceedings and claims, regulatory compliance, market competition, inflation, supply chain disruptions, international business risks, cybersecurity incidents, M&A integration capabilities, internal control effectiveness, intellectual property protection, data privacy regulation compliance, future profitability, goodwill impairment, unionization, and high leverage[8](index=8&type=chunk) - The company does not undertake any obligation to publicly update forward-looking statements unless required by law[9](index=9&type=chunk) [Part I—FINANCIAL INFORMATION](index=6&type=section&id=Part%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents Sotera Health Company's unaudited consolidated financial statements as of June 30, 2025, including the Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income (Loss), Consolidated Statements of Cash Flows, and Consolidated Statements of Equity, along with related notes, detailing the company's financial position, operating results, and cash flows [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were **$3,216,729 thousand**, a 4.7% increase from December 31, 2024, driven by a significant rise in cash and cash equivalents, while total liabilities slightly increased and total equity grew by 26.3% Consolidated Balance Sheets Key Data (thousands of U.S. dollars) | Indicator | June 30, 2025 | December 31, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :------------- | :-------------- | :------------- | :----- | | **Assets** | | | | | | Cash and cash equivalents | 332,437 | 277,242 | 55,195 | 19.9% | | Total current assets | 608,175 | 526,037 | 82,138 | 15.6% | | Property, plant and equipment, net | 1,080,399 | 1,036,892 | 43,507 | 4.2% | | Goodwill | 1,104,502 | 1,081,073 | 23,429 | 2.2% | | **Total assets** | **3,216,729** | **3,071,648** | **145,081** | **4.7%** | | **Liabilities** | | | | | | Total current liabilities | 246,320 | 191,002 | 55,318 | 29.0% | | Long-term debt | 2,202,651 | 2,208,100 | (5,449) | (0.2%) | | **Total liabilities** | **2,705,446** | **2,666,737** | **38,709** | **1.5%** | | **Equity** | | | | | | **Total equity** | **511,283** | **404,911** | **106,372** | **26.3%** | [Consolidated Statements of Operations and Comprehensive Income (Loss)](index=8&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) For the three months ended June 30, 2025, net revenues increased by 6.4%, but net income decreased by 9.0% year-over-year; for the six months ended June 30, 2025, net revenues grew by 4.6%, but the company reported a net loss of **$5.3 million** compared to a net income of **$15.1 million** in the prior year period Consolidated Statements of Operations and Comprehensive Income (Loss) Key Data (thousands of U.S. dollars) | Indicator | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 294,341 | 276,594 | 17,747 | 6.4% | | Selling, general and administrative expenses | 68,893 | 60,575 | 8,318 | 13.7% | | Illinois EO litigation settlements | 34,000 | — | 34,000 | N/A | | Net income (loss) | 7,962 | 8,754 | (792) | (9.0%) | | Basic earnings per share | 0.03 | 0.03 | 0.00 | 0.0% | | Diluted earnings per share | 0.03 | 0.03 | 0.00 | 0.0% | | Indicator | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 548,864 | 524,770 | 24,094 | 4.6% | | Selling, general and administrative expenses | 131,954 | 118,784 | 13,170 | 11.1% | | Illinois EO litigation settlements | 64,943 | — | 64,943 | N/A | | Net income (loss) | (5,298) | 15,077 | (20,375) | (135.1%) | | Basic earnings per share | (0.02) | 0.05 | (0.07) | (140.0%) | | Diluted earnings per share | (0.02) | 0.05 | (0.07) | (140.0%) | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, cash flow from operating activities significantly increased to **$112.9 million**, primarily due to the Georgia EO litigation settlement payment in the prior year, while cash outflows from investing and financing activities also substantially decreased, resulting in a net increase of **$55.4 million** in cash and cash equivalents Consolidated Statements of Cash Flows Key Data (thousands of U.S. dollars) | Indicator | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | | :------------------------------------------ | :--------------------- | :--------------------- | :------------- | | Net cash provided by (used in) operating activities | 112,937 | 70,994 | 41,943 | | Net cash used in investing activities | (51,110) | (76,774) | 25,664 | | Net cash used in financing activities | (15,020) | (41,362) | 26,342 | | Effect of exchange rate changes on cash and cash equivalents | 8,600 | (6,754) | 15,354 | | Net increase (decrease) in cash and cash equivalents | 55,407 | (53,896) | 109,303 | | Cash and cash equivalents at end of period (including restricted cash) | 334,272 | 247,758 | 86,514 | - The increase in cash flow from operating activities was primarily due to the **$35.0 million** Georgia EO litigation settlement payment made in January 2024[239](index=239&type=chunk) - The decrease in cash outflow from investing activities was mainly due to a **$25.7 million** reduction in capital expenditures[240](index=240&type=chunk) - The decrease in cash outflow from financing activities was primarily due to a **$27.9 million** reduction in debt issuance costs, partially offset by a **$6.3 million** increase in term loan principal repayments[241](index=241&type=chunk) [Consolidated Statements of Equity](index=10&type=section&id=Consolidated%20Statements%20of%20Equity) As of June 30, 2025, total equity was **$511.3 million**, an increase of **$106.4 million** from December 31, 2024, primarily driven by significant foreign currency translation gains in accumulated other comprehensive income (loss) Consolidated Statements of Equity Key Data (thousands of U.S. dollars) | Indicator | June 30, 2025 | December 31, 2024 | Change (thousands of U.S. dollars) | | :-------------------------- | :------------- | :-------------- | :------------- | | Common stock | 2,860 | 2,860 | 0 | | Treasury stock | (19,038) | (23,434) | 4,396 | | Additional paid-in capital | 1,251,089 | 1,243,778 | 7,311 | | Retained deficit | (615,340) | (610,042) | (5,298) | | Accumulated other comprehensive income (loss) | (108,288) | (208,251) | 99,963 | | **Total equity** | **511,283** | **404,911** | **106,372** | - For the six months ended June 30, 2025, foreign currency translation gains of **$101.8 million** significantly impacted accumulated other comprehensive income[23](index=23&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering key areas such as accounting policies, recent accounting standards, revenue recognition, inventories, prepaid expenses, goodwill and intangible assets, accrued liabilities, long-term debt, income taxes, employee benefits, other comprehensive income, share-based compensation, earnings per share, commitments and contingencies, financial instruments and financial risk, and segment information [1. Basis of Presentation](index=12&type=section&id=1.%20Basis%20of%20Presentation) Sotera Health Company is a global leader in sterilization solutions, laboratory testing, and consulting services for the healthcare industry, operating primarily in the Americas, Europe, and Asia, with financial statements prepared under U.S. GAAP involving management estimates and assumptions across its Sterigenics, Nordion, and Nelson Labs segments - The company is a global leader in sterilization solutions, laboratory testing, and consulting services for the healthcare industry[28](index=28&type=chunk) - The company operates and reports through three segments: Sterigenics, Nordion, and Nelson Labs[29](index=29&type=chunk) - Financial statements are prepared in accordance with U.S. GAAP and involve management's estimates and assumptions[30](index=30&type=chunk)[31](index=31&type=chunk) [2. Recent Accounting Standards](index=12&type=section&id=2.%20Recent%20Accounting%20Standards) The company adopted ASU 2023-07 (Segment Reporting) in fiscal year 2024 with no material impact, while ASU 2023-09 (Income Taxes) effective in fiscal year 2025 will increase tax disclosures without affecting income tax expense, and ASU 2024-03 (Income Statement—Reporting Comprehensive Income—Disaggregation of Expenses) effective in fiscal year 2026 is expected to increase disclosures - ASU 2023-07 (Segment Reporting) has been adopted with no material impact on the consolidated financial statements and disclosures[32](index=32&type=chunk) - ASU 2023-09 (Income Taxes) will be effective for annual periods beginning after December 15, 2024, increasing tax disclosures without affecting reported income tax expense or related tax assets and liabilities[33](index=33&type=chunk) - The effective date for ASU 2024-03 (Income Statement—Reporting Comprehensive Income—Disaggregation of Expenses) has been revised to annual reporting periods beginning after December 15, 2026, and is expected to increase disclosures[34](index=34&type=chunk) [3. Revenue Recognition](index=13&type=section&id=3.%20Revenue%20Recognition) The company disclosed net revenues by timing of recognition and segment; for the three months ended June 30, 2025, total net revenues were **$294.3 million**, with **$236.2 million** recognized at a point in time and **$58.1 million** over time, while for the six months, total net revenues were **$548.9 million**, with **$438.2 million** recognized at a point in time and **$110.7 million** over time, and deferred revenue decreased to **$11.5 million** from **$15.1 million** at December 31, 2024 Net Revenues by Timing of Recognition and Segment (thousands of U.S. dollars) | (thousands of U.S. dollars) | Sterigenics | Nordion | Nelson Labs | Consolidated | | :-------------------------- | :---------- | :------ | :---------- | :----------- | | **Three Months Ended June 30, 2025** | | | | | | Point in time | 194,839 | 41,371 | — | 236,210 | | Over time | — | 1,060 | 57,071 | 58,131 | | **Total** | **194,839** | **42,431** | **57,071** | **294,341** | | **Six Months Ended June 30, 2025** | | | | | | Point in time | 364,523 | 73,671 | — | 438,194 | | Over time | — | 1,317 | 109,353 | 110,670 | | **Total** | **364,523** | **74,988** | **109,353** | **548,864** | - Deferred revenue decreased from **$15.1 million** as of December 31, 2024, to **$11.5 million** as of June 30, 2025[36](index=36&type=chunk) [4. Inventories](index=13&type=section&id=4.%20Inventories) As of June 30, 2025, the company's net inventories were **$59.9 million**, a 21.9% increase from **$49.2 million** at December 31, 2024, primarily driven by increases in raw materials and work-in-process Inventories Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Raw materials and supplies | 48,911 | 42,408 | 6,503 | 15.3% | | Work-in-process | 3,209 | 929 | 2,280 | 245.4% | | Finished goods | 8,058 | 6,039 | 2,019 | 33.4% | | Reserve for excess and obsolete inventory | (229) | (218) | (11) | 5.0% | | **Inventories, net** | **59,949** | **49,158** | **10,791** | **21.9%** | [5. Prepaid Expenses and Other Current Assets](index=15&type=section&id=5.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) As of June 30, 2025, total prepaid expenses and other current assets were **$66.0 million**, a 29.4% increase from **$51.0 million** at December 31, 2024, primarily influenced by significant increases in customer contract assets and prepaid rent Prepaid Expenses and Other Current Assets Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Prepaid taxes | 4,690 | 4,993 | (303) | (6.1%) | | Prepaid business insurance | 3,602 | 6,993 | (3,391) | (48.5%) | | Prepaid rent | 5,599 | 1,223 | 4,376 | 357.8% | | Customer contract assets | 28,570 | 15,213 | 13,357 | 87.8% | | Embedded derivatives | 1,339 | 2,689 | (1,350) | (50.2%) | | **Prepaid expenses and other current assets** | **66,024** | **51,031** | **14,993** | **29.4%** | [6. Goodwill and Other Intangible Assets](index=15&type=section&id=6.%20Goodwill%20and%20Other%20Intangible%20Assets) As of June 30, 2025, total goodwill was **$1,104.5 million**, an increase of **$23.4 million** from December 31, 2024, primarily due to foreign currency exchange rate changes, while amortization expense for finite-lived intangible assets decreased in both the second quarter and first half of 2025, mainly because some intangible assets were fully amortized in May 2025 Goodwill Changes (thousands of U.S. dollars) | (thousands of U.S. dollars) | Sterigenics | Nordion | Nelson Labs | Total | | :-------------------------- | :---------- | :------ | :---------- | :------ | | Goodwill at December 31, 2024 | 653,222 | 255,485 | 172,366 | 1,081,073 | | Changes due to foreign currency exchange rates | 5,884 | 13,361 | 4,184 | 23,429 | | **Goodwill at June 30, 2025** | **659,106** | **268,846** | **176,550** | **1,104,502** | Amortization Expense for Finite-Lived Intangible Assets (thousands of U.S. dollars) | Period | 2025 | 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :----- | :----- | :------------- | :----- | | Three Months Ended June 30 | 11,900 | 19,800 | (7,900) | (39.9%) | | Six Months Ended June 30 | 30,600 | 39,900 | (9,300) | (23.3%) | - The decrease in amortization expense was primarily due to certain intangible assets being fully amortized in May 2025[45](index=45&type=chunk) [7. Accrued Liabilities](index=19&type=section&id=7.%20Accrued%20Liabilities) As of June 30, 2025, total accrued liabilities were **$143.5 million**, a 58.7% increase from **$90.5 million** at December 31, 2024, primarily due to the establishment of a reserve for Illinois EO litigation settlements and an increase in professional fees Accrued Liabilities Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Accrued employee compensation | 33,305 | 37,018 | (3,713) | (10.0%) | | Reserve for Illinois EO litigation settlements | 64,943 | — | 64,943 | N/A | | Accrued interest expense | 5,363 | 25,321 | (19,958) | (78.8%) | | Embedded derivatives | 905 | 4,098 | (3,193) | (77.9%) | | Professional fees | 27,147 | 12,572 | 14,575 | 115.9% | | **Accrued liabilities** | **143,542** | **90,463** | **53,079** | **58.7%** | [8. Long-Term Debt](index=19&type=section&id=8.%20Long-Term%20Debt) As of June 30, 2025, the company's net long-term debt was **$2,202.7 million**, a slight decrease from December 31, 2024; the company amended its revolving credit facility on April 30, 2025, increasing total borrowing capacity to **$600.0 million** and extending the maturity to April 30, 2030, and refinanced its capital structure on May 30, 2024, through a refinanced term loan and 7.375% Senior Secured Notes due 2031, while remaining in compliance with all debt covenants as of June 30, 2025 Long-Term Debt Composition (thousands of U.S. dollars) | (thousands of U.S. dollars) | June 30, 2025 | December 31, 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :------------ | :---------------- | :--------- | :--------- | | Secured notes due 2031 | 746,582 | 746,293 | 289 | 0.0% | | Term loan due 2031 | 1,470,889 | 1,476,610 | (5,721) | (0.4%) | | **Long-term debt (net)** | **2,202,651** | **2,208,100** | **(5,449)** | **(0.2%)** | - On April 30, 2025, the company amended its revolving credit facility, increasing total borrowing capacity to **$600.0 million** and extending the maturity date to April 30, 2030[55](index=55&type=chunk)[243](index=243&type=chunk) - On May 30, 2024, the company refinanced its capital structure through a **$1,509.4 million** refinanced term loan and **$750.0 million** of 7.375% Senior Secured Notes due 2031[56](index=56&type=chunk)[57](index=57&type=chunk)[61](index=61&type=chunk)[245](index=245&type=chunk) - As of June 30, 2025, the company was in compliance with all covenants in its senior secured credit agreement and indentures[63](index=63&type=chunk) [9. Income Taxes](index=23&type=section&id=9.%20Income%20Taxes) The company estimates quarterly income tax expense based on the annual effective income tax rate; for the three and six months ended June 30, 2025, the difference between income tax expense and the statutory rate was primarily due to valuation allowances for interest expense deductibility limitations, foreign rate differences, and current period permanent tax differences, partially offset by state income tax benefits - Income tax expense is estimated based on the annual effective income tax rate[69](index=69&type=chunk) - The difference between income tax expense and the statutory rate is primarily influenced by valuation allowances for interest expense deductibility limitations, foreign rate differences, and current period permanent tax differences, partially offset by state income tax benefits[70](index=70&type=chunk) [10. Employee Benefits](index=23&type=section&id=10.%20Employee%20Benefits) The company offers various post-retirement benefit plans in certain non-U.S. countries, including Nordion's defined benefit and defined contribution pension plans, retirement compensation arrangements, and extended healthcare plans for retirees; for the three and six months ended June 30, 2025, net periodic benefits for defined benefit pension plans were negative, primarily due to expected returns on plan assets, while other benefit plans had lower net periodic benefit costs - The company provides defined benefit and defined contribution pension plans, along with other post-retirement benefit plans, in certain non-U.S. countries, primarily Nordion[71](index=71&type=chunk) Net Periodic Benefit for Defined Benefit Pension Plans (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Service cost | 125 | 142 | 245 | 287 | | Interest cost | 2,393 | 2,612 | 4,701 | 5,263 | | Expected return on plan assets | (3,996) | (3,961) | (7,848) | (7,980) | | **Net periodic benefit** | **(1,478)** | **(1,207)** | **(2,902)** | **(2,430)** | - The Nordion pension plan currently has no funding requirements as it has an ongoing solvency surplus under Canadian federal regulations[74](index=74&type=chunk) [11. Other Comprehensive Income (Loss)](index=24&type=section&id=11.%20Other%20Comprehensive%20Income%20(Loss)) As of June 30, 2025, the accumulated other comprehensive income (loss) balance was **($108.3) million**, a significant improvement from **($208.3) million** at December 31, 2024, primarily benefiting from **$101.8 million** in foreign currency translation gains, partially offset by losses on interest rate derivatives Changes in Accumulated Other Comprehensive Income (Loss) (thousands of U.S. dollars) | (thousands of U.S. dollars) | Defined Benefit Plans | Foreign Currency Translation | Interest Rate Derivatives | Total | | :-------------------------- | :-------------------- | :--------------------------- | :------------------------ | :------ | | **Beginning balance – January 1, 2025** | **1,165** | **(209,666)** | **250** | **(208,251)** | | Net current-period other comprehensive income (loss) | 81 | 101,777 | (1,895) | 99,963 | | **Ending balance – June 30, 2025** | **1,246** | **(107,889)** | **(1,645)** | **(108,288)** | - Foreign currency translation generated a net gain of **$101.8 million** in the first half of 2025, which was the primary driver for the improvement in accumulated other comprehensive income (loss)[78](index=78&type=chunk) [12. Share-Based Compensation](index=26&type=section&id=12.%20Share-Based%20Compensation) The company provides share-based compensation to employees and directors through pre-IPO awards and the 2020 Omnibus Incentive Plan; for the three months ended June 30, 2025, share-based compensation expense was **$8.0 million**, and for six months, it was **$14.9 million**, a decrease from the prior year, with stock options, restricted stock units (RSUs), and performance stock units (PSUs) being the primary forms of incentive Share-Based Compensation Expense (thousands of U.S. dollars) | Period | 2025 | 2024 | Change ($ thousands) | Change (%) | | :-------------------------- | :----- | :----- | :------------- | :----- | | Three Months Ended June 30 | 8,000 | 9,800 | (1,800) | (18.4%) | | Six Months Ended June 30 | 14,900 | 18,100 | (3,200) | (17.7%) | - As of June 30, 2025, unvested pre-IPO Class B-1 restricted shares totaled **1,895 shares**[85](index=85&type=chunk) - As of June 30, 2025, **8,278,249 stock options** were outstanding, with **6.9 million** vested and exercisable[88](index=88&type=chunk) - As of June 30, 2025, unvested RSUs totaled **2,933,436** and unvested PSUs totaled **865,256**[89](index=89&type=chunk)[91](index=91&type=chunk) [13. Earnings (Loss) Per Share](index=29&type=section&id=13.%20Earnings%20(Loss)%20Per%20Share) For the three months ended June 30, 2025, basic and diluted earnings per share were both **$0.03**, consistent with the prior year; however, for the six months ended June 30, 2025, the company reported a basic and diluted loss per share of **$0.02**, compared to earnings per share of **$0.05** in the prior year, primarily due to the current period's net loss Earnings (Loss) Per Share Data | (in thousands of U.S. dollars and share amounts (except per share amounts)) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income (loss) | 7,962 | 8,754 | (5,298) | 15,077 | | Net income (loss) attributable to Sotera Health Company common shareholders | 7,961 | 8,747 | (5,298) | 15,044 | | Weighted-average common shares outstanding - basic | 283,933 | 282,894 | 283,747 | 282,403 | | Weighted-average common shares outstanding - diluted | 285,756 | 284,541 | 283,747 | 284,264 | | Net income (loss) per common share attributable to Sotera Health Company common shareholders - basic | 0.03 | 0.03 | (0.02) | 0.05 | | Net income (loss) per common share attributable to Sotera Health Company common shareholders - diluted | 0.03 | 0.03 | (0.02) | 0.05 | - Due to the company's net loss for the six months ended June 30, 2025, the dilutive effect of potential common shares was excluded from diluted earnings per share calculations as they were anti-dilutive[97](index=97&type=chunk) [14. Commitments and Contingencies](index=30&type=section&id=14.%20Commitments%20and%20Contingencies) The company faces multiple legal proceedings and contingencies, primarily involving ethylene oxide (EO) tort litigation, environmental liability insurance coverage, and securities litigation; the company has reached two settlement agreements for Illinois EO litigation totaling **$64.9 million**, while EO litigation in Georgia and New Mexico remains ongoing, and the company is actively seeking additional insurance coverage and vigorously defending securities litigation - The company faces multiple EO tort litigations involving facilities in California, Georgia, Illinois, and New Mexico[101](index=101&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk)[108](index=108&type=chunk)[113](index=113&type=chunk) - The company has reached two settlement agreements for EO litigation related to its Willowbrook, Illinois facility: an agreement on April 3, 2025, to pay **$30.9 million** to resolve 97 claims, and an agreement on July 23, 2025, to pay **$34.0 million** to resolve 129 claims[109](index=109&type=chunk)[110](index=110&type=chunk)[112](index=112&type=chunk) - EO litigation in Georgia and New Mexico remains ongoing, and the company believes it is unlikely to incur losses through trial and any necessary appeals in the remaining or future EO cases[105](index=105&type=chunk)[107](index=107&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) - The company is seeking additional insurance coverage for legal fees and settlement amounts related to EO tort litigation, but the outcome is uncertain[117](index=117&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - The company faces securities litigation and shareholder derivative lawsuits, but the Ohio District Court has dismissed the securities class action, and the company plans to vigorously defend all related litigation[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) [15. Financial Instruments and Financial Risk](index=33&type=section&id=15.%20Financial%20Instruments%20and%20Financial%20Risk) The company uses interest rate derivatives to manage interest rate risk on floating-rate debt and forward foreign currency contracts to manage foreign currency exchange rate risk; as of June 30, 2025, interest rate swaps had a notional amount of **$800.0 million**, and foreign currency forward contracts had a notional amount of **$42.5 million**, while the company also faces customer credit risk and regularly assesses the collectibility of accounts receivable, with fair values of financial assets and liabilities primarily determined through observable market inputs (Level 2) - The company uses interest rate derivatives, such as interest rate swaps, to manage interest rate risk on floating-rate debt and forward foreign currency contracts to manage foreign currency exchange rate risk[127](index=127&type=chunk)[131](index=131&type=chunk) Notional Amounts and Fair Values of Derivative Instruments (thousands of U.S. dollars) | (in U.S. Dollars; notional in millions, fair value in thousands) | Notional Amount | Fair Value Derivative Assets | Fair Value Derivative Liabilities | | :------------------------------------------------------------- | :-------------- | :--------------------------- | :------------------------------ | | **As of June 30, 2025** | | | | | Interest rate swaps | 800.0 | 200 | 2,289 | | Foreign currency forward contracts | 42.5 | 595 | — | | Embedded derivatives | 211.7 | 1,339 | 905 | | **Total** | **1,054.2** | **2,134** | **3,194** | - The company faces customer credit risk, with net accounts receivable of **$136.6 million** and an allowance for doubtful accounts of **$2.3 million** as of June 30, 2025[15](index=15&type=chunk)[138](index=138&type=chunk) - The fair values of financial instruments are primarily determined using Level 2 observable market inputs, such as interest rate and yield curves and foreign currency forward curves[143](index=143&type=chunk)[146](index=146&type=chunk) [16. Segment Information](index=38&type=section&id=16.%20Segment%20Information) The company has three reportable segments: Sterigenics (sterilization services), Nordion (cobalt-60 supply), and Nelson Labs (laboratory testing and consulting services); for the three months ended June 30, 2025, Sterigenics net revenues grew by 10.5%, Nordion by 2.9%, and Nelson Labs decreased by 3.3%, while for the six months, Sterigenics net revenues grew by 6.3%, Nordion by 14.9%, and Nelson Labs decreased by 6.3%, with all segment revenues and income influenced by pricing, volume/mix, and foreign currency exchange rate changes - The company has three reportable segments: Sterigenics, which provides terminal sterilization and irradiation services; Nordion, which supplies cobalt-60 and gamma irradiation systems; and Nelson Labs, which offers microbiology and analytical chemistry testing and consulting services[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) Segment Net Revenues (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 194,839 | 176,354 | 18,485 | 10.5% | | Nordion | 42,431 | 41,244 | 1,187 | 2.9% | | Nelson Labs | 57,071 | 58,996 | (1,925) | (3.3%) | | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 364,523 | 342,851 | 21,672 | 6.3% | | Nordion | 74,988 | 65,251 | 9,737 | 14.9% | | Nelson Labs | 109,353 | 116,668 | (7,315) | (6.3%) | Segment Income (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 107,745 | 96,778 | 10,967 | 11.3% | | Nordion | 23,477 | 23,420 | 57 | 0.2% | | Nelson Labs | 19,513 | 17,137 | 2,376 | 13.9% | | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 195,749 | 182,596 | 13,153 | 7.2% | | Nordion | 40,899 | 34,205 | 6,694 | 19.6% | | Nelson Labs | 35,926 | 32,478 | 3,448 | 10.6% | Segment Capital Expenditures (thousands of U.S. dollars) | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Sterigenics | 36,501 | 53,798 | (17,297) | (32.2%) | | Nordion | 10,058 | 19,463 | (9,405) | (48.3%) | | Nelson Labs | 4,588 | 3,550 | 1,038 | 29.2% | | **Total capital expenditures** | **51,147** | **76,811** | **(25,664)** | **(33.4%)** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's detailed discussion and analysis of the company's financial condition and operating results, covering consolidated performance, non-GAAP financial measures, segment results, and liquidity and capital resources for the three and six months ended June 30, 2025; overall net revenues increased, but net income (net loss for six months) was impacted by factors such as Illinois EO litigation settlements, with the company emphasizing its leadership in healthcare sterilization and laboratory services [OVERVIEW](index=43&type=section&id=OVERVIEW) Sotera Health Company is a global leader in healthcare sterilization solutions, laboratory testing, and consulting services, committed to "Safeguarding Global Health," providing end-to-end sterilization and microbiology and analytical laboratory testing services to ensure the safety of medical, pharmaceutical, and food products, operating through its Sterigenics, Nordion, and Nelson Labs segments, with the combination of Sterigenics and Nordion making it the only vertically integrated global gamma sterilization provider - The company is a global leader in healthcare sterilization solutions, laboratory testing, and consulting services, with a mission to "Safeguard Global Health"[164](index=164&type=chunk) - The company provides end-to-end sterilization and microbiology and analytical laboratory testing services to ensure the safety of medical, pharmaceutical, and food products[164](index=164&type=chunk) - The combination of Sterigenics and Nordion makes the company the only vertically integrated global gamma sterilization provider[164](index=164&type=chunk) [CONSOLIDATED RESULTS OF OPERATIONS](index=43&type=section&id=CONSOLIDATED%20RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's consolidated operating results for the three and six months ended June 30, 2025; for the three months, total net revenues increased by 6.4%, but net income decreased by 9.0%, while for the six months, total net revenues increased by 4.6%, but the company reported a net loss, primarily impacted by Illinois EO litigation settlements and foreign exchange losses [Three Months Ended June 30, 2025 as compared to Three Months Ended June 30, 2024](index=43&type=section&id=Three%20Months%20Ended%20June%2030%2C%202025%20as%20compared%20to%20Three%20Months%20Ended%20June%2030%2C%202024) For the three months ended June 30, 2025, total net revenues increased by 6.4% to **$294.3 million**, with service revenues up 8.2% and product revenues down 4.5%; total cost of revenues increased by 3.2%, and selling, general and administrative expenses rose by 13.7%, mainly due to increased professional service fees related to EO litigation, resulting in a 9.0% decrease in net income to **$8.0 million**, though Adjusted Net Income and Adjusted EBITDA both increased Consolidated Results of Operations Summary (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 294,341 | 276,594 | 17,747 | 6.4% | | Total cost of revenues | 127,720 | 123,803 | 3,917 | 3.2% | | Net income | 7,962 | 8,754 | (792) | (9.0%) | | Adjusted Net Income | 56,062 | 55,187 | 875 | 1.6% | | Adjusted EBITDA | 150,735 | 137,335 | 13,400 | 9.8% | - Service revenues increased by **8.2%** to **$257.2 million**, primarily driven by improved volume/mix at Sterigenics and Nordion, and volume/mix in Nelson Labs' core laboratory testing services[170](index=170&type=chunk) - Product revenues decreased by **4.5%** to **$37.1 million**, primarily due to lower cobalt-60 revenues in the Nordion segment, impacted by reactor harvest schedules[171](index=171&type=chunk) - Selling, general and administrative expenses increased by **13.7%**, primarily due to a **$6.2 million** increase in litigation and other professional service fees related to EO sterilization facilities[176](index=176&type=chunk) - Amortization expense for intangible assets decreased by **39.7%**, primarily because certain intangible assets were fully amortized in May 2025[177](index=177&type=chunk) - Illinois EO litigation settlement expenses amounted to **$34.0 million**[178](index=178&type=chunk) [Six Months Ended June 30, 2025 as compared to Six Months Ended June 30, 2024](index=47&type=section&id=Six%20Months%20Ended%20June%2030%2C%202025%20as%20compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024) For the six months ended June 30, 2025, total net revenues increased by 4.6% to **$548.9 million**, with service revenues up 3.7% and product revenues up 11.8%; total cost of revenues increased by 0.8%, and selling, general and administrative expenses rose by 11.1%, mainly due to increased professional service fees related to EO litigation, resulting in a net loss of **$5.3 million** compared to a net income of **$15.1 million** in the prior year, primarily due to **$64.9 million** in Illinois EO litigation settlements Consolidated Results of Operations Summary (thousands of U.S. dollars) | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | Total net revenues | 548,864 | 524,770 | 24,094 | 4.6% | | Total cost of revenues | 246,811 | 244,864 | 1,947 | 0.8% | | Net (loss) income | (5,298) | 15,077 | (20,375) | (135.1%) | | Adjusted Net Income | 95,106 | 90,816 | 4,290 | 4.7% | | Adjusted EBITDA | 272,574 | 249,279 | 23,295 | 9.3% | - Service revenues increased by **3.7%** to **$481.2 million**, primarily driven by favorable pricing at Sterigenics and Nelson Labs, favorable volume/mix at Sterigenics and Nordion, and volume/mix in Nelson Labs' core laboratory testing services[191](index=191&type=chunk) - Product revenues increased by **11.8%** to **$67.7 million**, primarily driven by favorable volume/mix and pricing in the Nordion segment[194](index=194&type=chunk) - Selling, general and administrative expenses increased by **11.1%**, primarily due to a **$14.3 million** increase in litigation and other professional service fees related to EO sterilization facilities[199](index=199&type=chunk) - Illinois EO litigation settlement expenses totaled **$64.9 million**, comprising **$30.9 million** from the April 3 agreement and **$34.0 million** from the July 23 agreement[201](index=201&type=chunk)[202](index=202&type=chunk) [NON-GAAP FINANCIAL MEASURES](index=50&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) The company uses Adjusted Net Income and Adjusted EBITDA as primary non-GAAP financial measures to assess operating performance, excluding non-cash and non-recurring items such as amortization, share-based compensation, loss on debt refinancing, foreign currency fluctuations, business optimization expenses, EO litigation-related expenses, asset retirement obligation accretion, and income tax impacts, to better evaluate core operational performance; for the three months ended June 30, 2025, Adjusted Net Income was **$56.1 million** and Adjusted EBITDA was **$150.7 million**, while for the six months, Adjusted Net Income was **$95.1 million** and Adjusted EBITDA was **$272.6 million** - Adjusted Net Income is defined as net income excluding amortization and certain other adjustments[211](index=211&type=chunk) - Adjusted EBITDA is defined as Adjusted Net Income excluding interest expense, depreciation, and the income tax provision applicable to Adjusted Net Income[211](index=211&type=chunk) - These non-GAAP measures are used to evaluate operating performance by excluding non-cash and non-recurring items, providing a more complete understanding of the business[212](index=212&type=chunk) Reconciliation of Non-GAAP Financial Measures to GAAP Net Income (Loss) (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income (loss) | 7,962 | 8,754 | (5,298) | 15,077 | | Amortization of intangible assets | 11,924 | 19,755 | 30,598 | 39,879 | | Share-based compensation | 8,149 | 10,206 | 15,418 | 18,863 | | Loss on refinancing of debt | 80 | 23,400 | 80 | 24,090 | | Illinois EO litigation settlements | 34,000 | — | 64,943 | — | | **Adjusted Net Income** | **56,062** | **55,187** | **95,106** | **90,816** | | Interest expense, net | 40,651 | 40,388 | 81,527 | 82,159 | | Depreciation | 23,024 | 20,075 | 45,084 | 40,381 | | Income tax provision applicable to Adjusted Net Income | 30,998 | 21,685 | 50,857 | 35,923 | | **Adjusted EBITDA** | **150,735** | **137,335** | **272,574** | **249,279** | [SEGMENT RESULTS OF OPERATIONS](index=53&type=section&id=SEGMENT%20RESULTS%20OF%20OPERATIONS) This section details the operating results of the company's three reportable segments (Sterigenics, Nordion, and Nelson Labs); for the three months ended June 30, 2025, Sterigenics achieved double-digit growth in both net revenues and segment income, and Nelson Labs also saw significant segment income growth, while for the six months, Nordion showed the most significant growth in net revenues and segment income, with Sterigenics and Nelson Labs also growing, though Nelson Labs' net revenues decreased [Our Segments](index=53&type=section&id=Our%20Segments) The company operates through three segments: Sterigenics, providing terminal sterilization and irradiation services; Nordion, supplying cobalt-60 and gamma irradiation systems; and Nelson Labs, offering microbiology and analytical chemistry testing and consulting services, with Nordion's sales model potentially fluctuating quarterly due to regulatory and logistical requirements and cobalt-60 harvest schedules - Sterigenics provides terminal sterilization and irradiation services, including gamma irradiation, EO processing, and E-beam irradiation[217](index=217&type=chunk) - Nordion is a global leading supplier of cobalt-60 and gamma irradiation systems, with its sales model potentially experiencing quarterly fluctuations due to regulatory, logistical, and cobalt-60 harvest schedules[218](index=218&type=chunk)[219](index=219&type=chunk) - Nelson Labs provides microbiology and analytical chemistry testing and consulting services[220](index=220&type=chunk) [Segment Results for the Three Months Ended June 30, 2025 and 2024](index=53&type=section&id=Segment%20Results%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) For the three months ended June 30, 2025, Sterigenics net revenues increased by 10.5% to **$194.8 million**, and segment income grew by 11.3% to **$107.7 million**, primarily driven by volume/mix and pricing; Nordion net revenues increased by 2.9% to **$42.4 million**, and segment income grew by 0.2% to **$23.5 million**; Nelson Labs net revenues decreased by 3.3% to **$57.1 million**, but segment income increased by 13.9% to **$19.5 million**, mainly due to improved volume/mix, laboratory optimization, and favorable pricing Segment Net Revenues and Segment Income (thousands of U.S. dollars) | (thousands of U.S. dollars) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | **Net Revenues** | | | | | | Sterigenics | 194,839 | 176,354 | 18,485 | 10.5% | | Nordion | 42,431 | 41,244 | 1,187 | 2.9% | | Nelson Labs | 57,071 | 58,996 | (1,925) | (3.3%) | | **Segment Income** | | | | | | Sterigenics | 107,745 | 96,778 | 10,967 | 11.3% | | Nordion | 23,477 | 23,420 | 57 | 0.2% | | Nelson Labs | 19,513 | 17,137 | 2,376 | 13.9% | - Sterigenics' revenue growth reflects a **6.0%** improvement in volume and mix, along with favorable impacts from pricing and foreign currency exchange rates[222](index=222&type=chunk) - Nelson Labs' net revenue decrease was due to lower expert advisory services revenue, partially offset by growth in core laboratory testing services, favorable pricing, and foreign currency exchange rate changes[224](index=224&type=chunk) [Segment Results for the Six Months Ended June 30, 2025 and 2024](index=55&type=section&id=Segment%20Results%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) For the six months ended June 30, 2025, Sterigenics net revenues increased by 6.3% to **$364.5 million**, and segment income grew by 7.2% to **$195.7 million**; Nordion net revenues increased by 14.9% to **$75.0 million**, and segment income grew by 19.6% to **$40.9 million**, primarily driven by cobalt-60 volume/mix and pricing; Nelson Labs net revenues decreased by 6.3% to **$109.4 million**, but segment income increased by 10.6% to **$35.9 million**, mainly due to improved volume/mix, laboratory optimization, and favorable pricing Segment Net Revenues and Segment Income (thousands of U.S. dollars) | (thousands of U.S. dollars) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :-------------------------- | :--------------------- | :--------------------- | :------------- | :----- | | **Net Revenues** | | | | | | Sterigenics | 364,523 | 342,851 | 21,672 | 6.3% | | Nordion | 74,988 | 65,251 | 9,737 | 14.9% | | Nelson Labs | 109,353 | 116,668 | (7,315) | (6.3%) | | **Segment Income** | | | | | | Sterigenics | 195,749 | 182,596 | 13,153 | 7.2% | | Nordion | 40,899 | 34,205 | 6,694 | 19.6% | | Nelson Labs | 35,926 | 32,478 | 3,448 | 10.6% | - Nordion's revenue growth was primarily driven by a **15.0%** increase in volume and mix, and a **1.8%** favorable impact from pricing[230](index=230&type=chunk) - Nelson Labs' net revenue decrease was due to lower expert advisory services revenue, partially offset by growth in core laboratory testing services and favorable pricing[231](index=231&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=56&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company primarily obtains liquidity through cash flow from operating activities and credit financing; as of June 30, 2025, cash and cash equivalents were **$332.4 million**, an increase of **$55.2 million** from year-end 2024, and the company expects existing liquidity to be sufficient to meet operations, debt service, capital expenditures, and litigation costs for the next 12 months, with no outstanding borrowings under the revolving credit facility and **$585.8 million** available as of June 30, 2025, while capital expenditures decreased in the first half of 2025 - The company's primary sources of liquidity are cash flow from operating activities and credit financing[235](index=235&type=chunk) - As of June 30, 2025, cash and cash equivalents were **$332.4 million**, an increase of **$55.2 million** from December 31, 2024[235](index=235&type=chunk) - The company expects existing liquidity to be sufficient to meet operations, debt service, capital expenditures, and litigation costs for the next 12 months[236](index=236&type=chunk) - As of June 30, 2025, there were no outstanding borrowings under the revolving credit facility, with **$585.8 million** available[247](index=247&type=chunk) Capital Expenditures (thousands of U.S. dollars) | Period | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (thousands of U.S. dollars) | Change (%) | | :--- | :--------------------- | :--------------------- | :------------- | :----- | | Capital expenditures | 51,100 | 76,800 | (25,700) | (33.5%) | [CRITICAL ACCOUNTING POLICIES AND ESTIMATES](index=58&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) The preparation of consolidated financial statements requires management to make judgments, estimates, and assumptions; there have been no material changes in critical accounting policies, management estimates, or accounting policies since the year ended December 31, 2024 - The preparation of consolidated financial statements involves management's judgments, estimates, and assumptions about future uncertainties[248](index=248&type=chunk) - There have been no material changes in critical accounting policies, management estimates, or accounting policies since the year ended December 31, 2024[249](index=249&type=chunk) [NEW ACCOUNTING PRONOUNCEMENTS](index=58&type=section&id=NEW%20ACCOUNTING%20PRONOUNCEMENTS) This section refers to the description of recent accounting standards applicable to the company's business as detailed in Note 2 to the consolidated financial statements - For detailed information on new accounting pronouncements, please refer to Note 2 to the consolidated financial statements[250](index=250&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) For the three and six months ended June 30, 2025, there have been no material changes in the market risks faced by the company compared to those described in the 2024 Form 10-K - As of June 30, 2025, for the three and six months then ended, there have been no material changes in market risks[251](index=251&type=chunk) [Item 4. Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management assessed the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2025, with no material changes in internal control during the quarter [Evaluation of Disclosure Controls and Procedures](index=58&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2025 - As of June 30, 2025, the company's disclosure controls and procedures were effective, providing reasonable assurance that required information is recorded, processed, summarized, and reported on a timely basis[252](index=252&type=chunk) [Changes in Internal Control](index=59&type=section&id=Changes%20in%20Internal%20Control) For the three months ended June 30, 2025, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control - For the three months ended June 30, 2025, there were no material changes in internal control[253](index=253&type=chunk) [Part II—OTHER INFORMATION](index=60&type=section&id=Part%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings.) The company faces various legal proceedings, including ethylene oxide (EO) related tort litigation, environmental liability insurance coverage, and securities litigation, with detailed information disclosed and incorporated by reference in Note 14 to the consolidated financial statements - The legal proceedings faced by the company include ethylene oxide tort litigation (California, Georgia, Illinois, and New Mexico), environmental liability insurance coverage, and Sotera Health Company securities litigation and related matters[256](index=256&type=chunk)[260](index=260&type=chunk) - Detailed information on these legal proceedings is disclosed in Note 14 to the consolidated financial statements[256](index=256&type=chunk) [Item 1A. Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors.) There have been no material changes in the risk factors described in the 2024 Form 10-K - There have been no material changes in the risk factors described in the 2024 Form 10-K[258](index=258&type=chunk) [Item 5. Other Information](index=60&type=section&id=Item%205.%20Other%20Information) For the three months ended June 30, 2025, no trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were adopted or terminated by the company's directors or officers - For the three months ended June 30, 2025, no Rule 10b5-1 trading plans were adopted or terminated by the company's directors or officers[259](index=259&type=chunk) [Item 6. Exhibits](index=61&type=section&id=Item%206.%20Exhibits.) This report lists the exhibits filed, furnished, or incorporated by reference as part of the quarterly report, including credit agreement amendments, executive certifications, and XBRL files - Exhibits include credit agreement amendments, CEO and CFO certifications, and Inline XBRL files[262](index=262&type=chunk) [SIGNATURES](index=62&type=section&id=SIGNATURES)