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)

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and notes for the periods ended June 30, 2025, and December 31, 2024 [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) Total assets, liabilities, and stockholders' equity decreased, driven by reduced mortgage-backed securities and repurchase agreements Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change | Change (%) | | :----------------------------------- | :------------ | :---------------- | :----- | :--------- | | Total assets | $5,400,370 | $5,688,034 | $(287,664) | -5.06% | | Mortgage-backed securities, at fair value | $5,185,559 | $5,445,508 | $(259,949) | -4.77% | | Repurchase agreements | $4,635,881 | $4,893,958 | $(258,077) | -5.27% | | Total liabilities | $4,690,994 | $4,957,305 | $(266,311) | -5.37% | | Total stockholders' equity | $709,376 | $730,729 | $(21,353) | -2.92% | [Unaudited Condensed Consolidated Statements of Operations](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations) The company reported a net loss for both periods, primarily due to significant losses on derivative instruments, despite increased net interest income Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $70,624 | $68,028 | $144,470 | $136,611 | | Interest expense | $52,895 | $59,393 | $107,920 | $120,973 | | Net interest income | $17,729 | $8,635 | $36,550 | $15,638 | | Gain (loss) on investments, net | $(5,268) | $(45,212) | $76,890 | $(111,365) | | Gain (loss) on derivative instruments, net | $(30,916) | $28,262 | $(107,595) | $121,423 | | Total other income (loss) | $(36,184) | $(17,213) | $(30,705) | $9,563 | | Total expenses | $4,872 | $4,888 | $9,531 | $9,545 | | Net income (loss) | $(23,327) | $(13,466) | $(3,686) | $15,656 | | Net income (loss) attributable to common stockholders | $(26,567) | $(18,766) | $(10,278) | $4,964 | | Basic EPS | $(0.40) | $(0.38) | $(0.16) | $0.10 | | Diluted EPS | $(0.40) | $(0.38) | $(0.16) | $0.10 | [Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The company reported a comprehensive loss for both periods, worsening year-over-year due to net loss and other comprehensive losses on MBS Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(23,327) | $(13,466) | $(3,686) | $15,656 | | Total other comprehensive income (loss) | $(789) | $113 | $(173) | $(50) | | Comprehensive income (loss) | $(24,116) | $(13,353) | $(3,859) | $15,606 | | Comprehensive income (loss) attributable to common stockholders | $(27,356) | $(18,653) | $(10,451) | $4,914 | [Unaudited Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased due to net losses and dividends, partially offset by common stock issuance proceeds - Total stockholders' equity decreased from **$730,729 thousand** as of December 31, 2024, to **$709,376 thousand** as of June 30, 2025, a decline of **$21,353 thousand**[17](index=17&type=chunk) - The company issued 4,212,057 common shares in Q1 2025 and 282,750 in Q2 2025, generating **$35,956 thousand** and **$2,279 thousand** in proceeds, respectively[17](index=17&type=chunk) - Repurchased and retired 90,146 Series C Preferred Stock shares in Q1 2025 and 96,803 shares in Q2 2025[17](index=17&type=chunk) [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased, investing cash flow increased from MBS sales, and financing activities used more cash for debt and dividends Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $59,980 | $90,476 | | Net cash provided by (used in) investing activities | $191,514 | $133,048 | | Net cash provided by (used in) financing activities | $(271,833) | $(238,719) | | Net change in cash, cash equivalents and restricted cash | $(20,339) | $(15,195) | | Cash, cash equivalents and restricted cash, end of period | $190,542 | $183,442 | - Purchases of mortgage-backed securities increased to **$1,073,240 thousand** in 2025 from **$624,425 thousand** in 2024[21](index=21&type=chunk) - Proceeds from sale of mortgage-backed securities significantly increased to **$1,179,303 thousand** in 2025 from **$568,331 thousand** in 2024[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context and detailed breakdowns for the financial statements, covering business, accounting policies, financial instruments, related party transactions, equity, and subsequent events [Note 1 – Organization and Business Operations](index=9&type=section&id=Note%201%20%E2%80%93%20Organization%20and%20Business%20Operations) Invesco Mortgage Capital Inc. invests in and manages MBS, primarily Agency RMBS and CMBS, operates as a REIT, and is externally managed - The Company primarily invests in Agency RMBS and Agency CMBS[24](index=24&type=chunk)[33](index=33&type=chunk) - The Company is externally managed and advised by Invesco Advisers, Inc[26](index=26&type=chunk) - The Company elected to be taxed as a REIT, requiring distribution of at least **90%** of REIT taxable income annually[27](index=27&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=9&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements are prepared under U.S. GAAP, consolidating subsidiaries, with management estimates for fair values and credit losses, and no significant policy changes - Condensed consolidated financial statements are prepared in accordance with U.S. GAAP and consolidate the Company and its controlled subsidiaries[29](index=29&type=chunk) - Management's estimates include fair values of financial instruments, interest income on MBS, and allowances for credit losses[31](index=31&type=chunk) - There have been no changes to the Company's accounting policies since December 31, 2024[32](index=32&type=chunk) [Note 3 – Mortgage-Backed Securities](index=10&type=section&id=Note%203%20%E2%80%93%20Mortgage-Backed%20Securities) The MBS portfolio, primarily Agency RMBS and CMBS, is accounted for at fair value, showing decreased fair value and net unrealized gains in 2025, with non-Agency securities sold - All MBS held as of June 30, 2025, are accounted for under the fair value option[41](index=41&type=chunk) MBS Portfolio Fair Value (in thousands) | Asset Type | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Agency RMBS | $4,222,203 | $4,541,525 | | Agency-CMO | $71,835 | $70,776 | | Agency CMBS | $891,521 | $816,147 | | Non-Agency CMBS | — | $9,836 | | Non-Agency RMBS | — | $7,224 | | Total | $5,185,559 | $5,445,508 | Total Gain (Loss) on Investments, Net (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net unrealized gains (losses) on MBS (fair value option) | $(7,095) | $(38,683) | $80,529 | $(101,156) | | Total gain (loss) on investments, net | $(5,268) | $(45,212) | $76,890 | $(111,365) | - The company sold its remaining available-for-sale MBS during the three and six months ended June 30, 2025, recognizing net gains of **$518 thousand** and **$402 thousand**, respectively[50](index=50&type=chunk) [Note 4 – Borrowings](index=14&type=section&id=Note%204%20%E2%80%93%20Borrowings) The company primarily finances its portfolio through secured repurchase agreements, with total borrowings and weighted average interest rates decreasing - The majority of the investment portfolio is financed through repurchase agreements, which are accounted for as secured borrowings[58](index=58&type=chunk) Repurchase Agreements Characteristics (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Amount Outstanding | $4,635,881 | $4,893,958 | | Weighted Average Interest Rate | 4.48% | 4.80% | | Weighted Average Remaining Maturity (days) | 24 | 29 | [Note 5 – Collateral Positions](index=15&type=section&id=Note%205%20%E2%80%93%20Collateral%20Positions) MBS and cash are pledged as collateral for repurchase agreements and derivatives, maintaining a 105% collateral-to-outstanding repurchase agreement ratio Total Collateral Pledged (in thousands) | Collateral Type | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Mortgage-backed securities | $4,882,659 | $5,129,486 | | Cash | — | $580 | | Restricted cash | $131,146 | $137,478 | | Total Collateral Pledged | $5,013,805 | $5,267,544 | - The ratio of total repurchase agreements collateral pledged to total repurchase agreements outstanding was **105%** as of June 30, 2025, and December 31, 2024[65](index=65&type=chunk) [Note 6 – Derivatives and Hedging Activities](index=16&type=section&id=Note%206%20%E2%80%93%20Derivatives%20and%20Hedging%20Activities) The company uses interest rate swaps, futures, and TBAs to manage interest rate risk, with swaps increasing and futures/TBAs decreasing or eliminated - The company uses interest rate swaps and futures contracts to manage interest rate risk and add stability to interest expense[72](index=72&type=chunk) Changes in Notional Amount of Derivative Instruments (in thousands) | Instrument | Notional Amount as of Dec 31, 2024 | Additions | Settlement, Termination, or Exercise | Notional Amount as of Jun 30, 2025 | | :-------------------- | :--------------------------------- | :-------- | :----------------------------------- | :--------------------------------- | | Interest Rate Swaps | $3,265,000 | $725,000 | $(485,000) | $3,505,000 | | Futures Contracts | $1,402,000 | $2,927,000 | $(3,499,000) | $830,000 | | TBA Purchase Contracts | $100,000 | $2,556,700 | $(2,656,700) | — | | TBA Sale Contracts | $(100,000) | $(2,556,700) | $2,656,700 | — | | Total | $4,667,000 | $3,652,000 | $(3,984,000) | $4,335,000 | - The company had no TBAs outstanding as of June 30, 2025[79](index=79&type=chunk) [Note 7 – Offsetting Assets and Liabilities](index=19&type=section&id=Note%207%20%E2%80%93%20Offsetting%20Assets%20and%20Liabilities) Repurchase agreements and derivatives are subject to master netting, but assets and liabilities are presented gross on the balance sheets - Repurchase agreements and derivative transactions are governed by master netting arrangements, but assets and liabilities are presented gross on the condensed consolidated balance sheets[85](index=85&type=chunk) - Centrally cleared interest rate swaps and futures contracts are excluded from offsetting tables due to daily variation margin being characterized as settlement rather than collateral[86](index=86&type=chunk) [Note 8 – Fair Value of Financial Instruments](index=20&type=section&id=Note%208%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) Fair value measurements are categorized into a three-level hierarchy, with all MBS and derivative liabilities measured at fair value, primarily using Level 2 inputs - 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)[95](index=95&type=chunk) Fair Value Measurements (in thousands) | Instrument | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | Total at Fair Value (June 30, 2025) | | :-------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------------------- | | Mortgage-backed securities | — | $5,185,559 | — | $5,185,559 | | Derivative liabilities | $4,381 | $6,394 | — | $10,775 | - The estimated fair value of repurchase agreements is a Level 3 fair value measurement[94](index=94&type=chunk) [Note 9 – Related Party Transactions](index=21&type=section&id=Note%209%20%E2%80%93%20Related%20Party%20Transactions) The company is externally managed by Invesco Advisers, Inc., paying a management fee and reimbursing operating expenses, with reimbursed costs decreasing in 2025 - The Company pays its Manager a fee equal to **1.50%** of its stockholders' equity per annum[98](index=98&type=chunk) - The Company reimburses its Manager for operating expenses, including directors and officers insurance, accounting, auditing, tax, and legal services[100](index=100&type=chunk) Costs Incurred by Manager (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Management fee – related party | $2,831 | $2,945 | $5,827 | $5,806 | | Total incurred costs, originally paid by our Manager | $1,051 | $1,409 | $2,691 | $2,888 | [Note 10 – Stockholders' Equity](index=21&type=section&id=Note%2010%20%E2%80%93%20Stockholders'%20Equity) The company repurchased Series C Preferred Stock, redeemed Series B Preferred Stock, sold common stock, and declared dividends for both preferred and common stock - During the three and six months ended June 30, 2025, the company repurchased and retired 96,803 and 186,949 shares of Series C Preferred Stock, respectively[102](index=102&type=chunk) - All outstanding shares of Series B Preferred Stock were redeemed in December 2024[102](index=102&type=chunk) Common Stock Sales under Equity Distribution Agreements (in thousands, except shares) | 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 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Shares sold | 282,750 | 1,761,155 | 4,494,807 | 2,126,993 | | Cash proceeds, net of fees | $2,163 | $16,059 | $38,231 | $19,378 | Dividends Declared (in thousands, except per share amounts) | Stock Type | Per Share (2025) | In Aggregate (2025) | Per Share (2024) | In Aggregate (2024) | | :------------------- | :--------------- | :------------------ | :--------------- | :------------------ | | Series C Preferred | $0.46875 | $3,297 (May), $3,341 (Feb) | $0.46875 | $3,450 (May), $3,499 (Feb) | | Common Stock | $0.34 | $22,545 (June), $22,420 (March) | $0.40 | $20,255 (June), $19,530 (March) | [Note 11 – Earnings (Loss) per Common Share](index=23&type=section&id=Note%2011%20%E2%80%93%20Earnings%20(Loss)%20per%20Common%20Share) Basic and diluted EPS show a net loss for common stockholders for both periods, with an increase in weighted average shares outstanding Earnings (Loss) per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) available to common stockholders | $(26,567) | $(18,766) | $(10,278) | $4,964 | | Basic EPS | $(0.40) | $(0.38) | $(0.16) | $0.10 | | Diluted EPS | $(0.40) | $(0.38) | $(0.16) | $0.10 | | Basic weighted average shares | 66,006 | 49,365 | 64,434 | 48,949 | [Note 12 – Commitments and Contingencies](index=23&type=section&id=Note%2012%20%E2%80%93%20Commitments%20and%20Contingencies) As of June 30, 2025, the company was not aware of any reported or unreported commitments or contingencies - As of June 30, 2025, the company was not aware of any reported or unreported contingencies[112](index=112&type=chunk) [Note 13 – Subsequent Events](index=23&type=section&id=Note%2013%20%E2%80%93%20Subsequent%20Events) On August 7, 2025, a Series C Preferred Stock dividend of $0.46875 per share was declared, payable on September 29, 2025 - On August 7, 2025, a Series C Preferred Stock dividend of **$0.46875** per share was declared, payable on September 29, 2025[113](index=113&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition, operations, market outlook, investment strategies, financing, hedging, capital, and non-GAAP reconciliations [Executive Summary](index=25&type=section&id=Executive%20Summary) The company aims for attractive risk-adjusted returns through Agency RMBS and CMBS investments, operating as a REIT and externally managed - The company's objective is to provide attractive risk-adjusted returns to stockholders, primarily through dividends and secondarily through capital appreciation[117](index=117&type=chunk) - Investments primarily include Agency RMBS and Agency CMBS, with continuous evaluation of new opportunities[117](index=117&type=chunk)[120](index=120&type=chunk) - The company maintains REIT qualification, requiring distribution of at least **90%** of REIT taxable income annually, and is externally managed by Invesco Advisers, Inc[118](index=118&type=chunk)[119](index=119&type=chunk) [Market Conditions and Impacts](index=26&type=section&id=Market%20Conditions%20and%20Impacts) Q2 2025 saw volatile financial conditions, inflation above target, stable employment, and mixed Treasury yield curve movements impacting Agency RMBS and CMBS - Financial conditions were volatile in Q2 2025, tightening sharply in early April before ending modestly accommodative[122](index=122&type=chunk) - Headline CPI rose to **2.7%** (from **2.4%**) and Core CPI to **2.9%** (from **2.8%**) year-over-year, exceeding the Federal Reserve's **2%** target[122](index=122&type=chunk) Key Interest Rate Changes (Basis Points) | Metric | June 30, 2025 | March 31, 2025 | One Quarter Change (bps) | | :------------------ | :------------ | :------------- | :----------------------- | | 2 Year Treasury | 3.72% | 3.91% | (19) | | 5 Year Treasury | 3.79% | 3.98% | (19) | | 10 Year Treasury | 4.23% | 4.24% | (1) | | 30 Year Treasury | 4.77% | 4.61% | 16 | - Agency RMBS underperformed Treasuries in early April due to interest rate volatility but benefited from a 90-day pause in tariff implementation[124](index=124&type=chunk) [Outlook](index=27&type=section&id=Outlook) The company holds a cautious near-term but favorable long-term outlook for Agency RMBS, while Agency CMBS outlook remains positive due to limited issuance and strong fundamentals - Cautious near-term outlook for Agency RMBS due to elevated uncertainty regarding trade, fiscal, and monetary policy[128](index=128&type=chunk) - Favorable long-term outlook for Agency RMBS, expecting improved demand in higher coupons, stabilization in interest rate volatility, and a steeper yield curve[128](index=128&type=chunk) - Positive outlook for Agency CMBS, supported by limited issuance, strong fundamental performance, and stable cash flow profiles[128](index=128&type=chunk) [Investment Activities](index=28&type=section&id=Investment%20Activities) The investment portfolio's fair value decreased, with 30-year fixed-rate Agency RMBS as the largest component, and non-Agency securities were sold in 2025 Investment Portfolio Composition (in thousands) | Asset Type | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :------------------------------------ | :------------ | :---------------- | :------------ | | 30 year fixed-rate pass-through Agency RMBS | $4,222,203 | $4,541,525 | $4,359,796 | | Agency CMBS | $891,521 | $816,147 | $384,593 | | Total investment portfolio | $5,185,559 | $5,445,508 | $5,035,247 | - 30-year fixed-rate Agency RMBS represented approximately **81%** of the total investment portfolio as of June 30, 2025, down from **83%** at December 31, 2024[131](index=131&type=chunk) - The company sold its remaining non-Agency securities during 2025[135](index=135&type=chunk) [Financing and Other Liabilities](index=29&type=section&id=Financing%20and%20Other%20Liabilities) The company primarily uses short-term repurchase agreements for financing, with collateralized borrowings decreasing to $4.6 billion as of June 30, 2025 - The majority of the investment portfolio is financed through repurchase agreements, typically with maturities ranging from one to six months[136](index=136&type=chunk) Collateralized Borrowings Under Repurchase Agreements (in thousands) | Quarter Ended | Quarter-end balance | | :------------------ | :------------------ | | December 31, 2024 | $4,893,958 | | March 31, 2025 | $5,354,561 | | June 30, 2025 | $4,635,881 | [Hedging Instruments](index=29&type=section&id=Hedging%20Instruments) The company uses interest rate swaps and futures to mitigate interest rate risk, with swaps increasing and futures experiencing significant additions and terminations - Interest rate swap agreements are used to mitigate the effects of interest rate changes and generally involve paying fixed rates and receiving floating rates indexed to SOFR[140](index=140&type=chunk) - During the six months ended June 30, 2025, the company entered into **$725.0 million** in new interest rate swaps and terminated **$485.0 million**[141](index=141&type=chunk) - Futures contracts are also used to mitigate interest rate impact, with **$2.9 billion** in additions and **$3.5 billion** in terminations during the six months ended June 30, 2025[142](index=142&type=chunk) [Capital Activities](index=30&type=section&id=Capital%20Activities) The company sold common stock, repurchased Series C Preferred Stock, and redeemed all Series B Preferred Stock in December 2024 Common Stock Sales (in thousands, except shares) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Shares sold | 4,494,807 | 2,126,993 | | Cash proceeds, net of fees | $38,231 | $19,378 | - During the six months ended June 30, 2025, the company repurchased and retired 186,949 shares of Series C Preferred Stock[147](index=147&type=chunk) - The company redeemed all outstanding shares of Series B Preferred Stock in December 2024[147](index=147&type=chunk) [Book Value per Common Share](index=30&type=section&id=Book%20Value%20per%20Common%20Share) Book value per common share decreased by 9.8% due to derivative losses, dividends, and expenses, partially offset by net interest income and investment gains Book Value per Common Share | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Total equity (in thousands) | $709,376 | $730,729 | | Common stock outstanding (in thousands) | 66,307 | 61,730 | | Book value per common share | $8.05 | $8.92 | - Book value per common share decreased **9.8%** from December 31, 2024, to June 30, 2025[149](index=149&type=chunk) - The decrease was primarily due to losses on derivative instruments, dividends declared, and expenses, partially offset by net interest income and gains on investments[149](index=149&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) No significant changes occurred in critical accounting policies and estimates since the most recent Form 10-K - No significant changes to critical accounting policies and estimates since the Annual Report on Form 10-K for the year ended December 31, 2024[150](index=150&type=chunk) [Recent Accounting Standards](index=31&type=section&id=Recent%20Accounting%20Standards) No recent accounting standards require reporting - No recent accounting standards to report[151](index=151&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) The company experienced a net loss for both periods, primarily due to significant derivative losses, despite increased net interest income - Net interest income increased significantly for both the three and six months ended June 30, 2025, compared to the same periods in 2024[153](index=153&type=chunk) - Significant losses on derivative instruments were recorded for the three and six months ended June 30, 2025, contrasting with gains in the prior year[153](index=153&type=chunk) Net Income (Loss) Summary (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(23,327) | $(13,466) | $(3,686) | $15,656 | | Net income (loss) attributable to common stockholders | $(26,567) | $(18,766) | $(10,278) | $4,964 | [Interest Income and Average Earning Asset Yields](index=32&type=section&id=Interest%20Income%20and%20Average%20Earning%20Asset%20Yields) Total average earning assets and interest income increased, but average earning asset yields slightly decreased due to investment composition and prepayment rates Interest Income and Average Earning Asset Yields (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Average earning assets | $5,078,921 | $4,847,125 | $5,249,787 | $4,909,684 | | Average earning asset yields | 5.56% | 5.61% | 5.50% | 5.56% | | Total interest income | $70,624 | $68,028 | $144,470 | $136,611 | - Average earning asset yields decreased by **5 basis points** for the three months and **6 basis points** for the six months ended June 30, 2025, compared to the same periods in 2024[156](index=156&type=chunk) [Prepayment Speeds](index=32&type=section&id=Prepayment%20Speeds) Net premium amortization was recognized in 2025, contrasting with prior year discount accretion, due to repositioning into higher coupon securities - Net premium amortization was **$356 thousand** for the three months ended June 30, 2025, compared to net discount accretion of **$1.8 million** for the same period in 2024[160](index=160&type=chunk) - The change is primarily a result of repositioning the investment portfolio into higher coupon securities that have higher amortized costs relative to principal value[160](index=160&type=chunk) [Interest Expense and Cost of Funds](index=33&type=section&id=Interest%20Expense%20and%20Cost%20of%20Funds) Total average borrowings increased, but the average cost of funds and total interest expense decreased significantly due to a lower Federal Funds target rate Borrowings and Cost of Funds (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total average borrowings | $4,577,566 | $4,251,953 | $4,752,927 | $4,335,855 | | Cost of funds | 4.62% | 5.59% | 4.54% | 5.58% | | Total interest expense | $52,895 | $59,393 | $107,920 | $120,973 | - Average cost of funds decreased by **97 basis points** for the three months and **104 basis points** for the six months ended June 30, 2025, primarily due to a lower Federal Funds target rate[165](index=165&type=chunk) [Net Interest Income](index=34&type=section&id=Net%20Interest%20Income) Net interest income and net interest rate margin increased for both periods, primarily driven by a lower cost of funds Net Interest Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $17,729 | $8,635 | $36,550 | $15,638 | | Net interest rate margin | 0.94% | 0.02% | 0.96% | (0.02)% | - The increase in net interest income and net interest rate margin was due to a lower cost of funds, which is more sensitive to interest rate changes than the yield on the investment portfolio[168](index=168&type=chunk) [Gain (Loss) on Investments, net](index=34&type=section&id=Gain%20(Loss)%20on%20Investments,%20net) The company recorded net unrealized losses on MBS for three months but gains for six months, reflecting market volatility, with net realized gains in Q2 2025 Gain (Loss) on Investments, Net (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net realized gains (losses) on sale of MBS | $1,827 | $(6,529) | $(3,639) | $(9,751) | | Net unrealized gains (losses) on MBS (fair value option) | $(7,095) | $(38,683) | $80,529 | $(101,156) | | Total gain (loss) on investments, net | $(5,268) | $(45,212) | $76,890 | $(111,365) | - Net realized gains in Q2 2025 reflect sales of Agency RMBS during heightened market volatility, while six-month net losses reflect sales of lower coupon Agency RMBS in Q1[170](index=170&type=chunk) - Net unrealized gains for the six months ended June 30, 2025, were primarily due to a sharp decline in interest rates during Q1, increasing valuations on fixed-rate securities[172](index=172&type=chunk) [(Increase) Decrease in Provision for Credit Losses](index=34&type=section&id=(Increase)%20Decrease%20in%20Provision%20for%20Credit%20Losses) No provision for credit losses was recorded in 2025 due to the sale of available-for-sale securities, contrasting with prior year increases - No provision for credit losses was recorded for the three and six months ended June 30, 2025, as the company sold its remaining available-for-sale MBS[175](index=175&type=chunk) - In contrast, the company recorded increases of **$263 thousand** and **$302 thousand** in the provision for credit losses for the three and six months ended June 30, 2024, respectively[174](index=174&type=chunk) [Equity in Earnings (Losses) of Unconsolidated Ventures](index=35&type=section&id=Equity%20in%20Earnings%20(Losses)%20of%20Unconsolidated%20Ventures) No equity in earnings or losses from unconsolidated ventures was recorded, as the sole remaining venture was dissolved in April 2024 - No equity in earnings (losses) of unconsolidated ventures was recorded for the three and six months ended June 30, 2025[13](index=13&type=chunk) - The sole remaining unconsolidated venture was dissolved in April 2024, after a final distribution in Q1 2024[176](index=176&type=chunk) [Gain (Loss) on Derivative Instruments, net](index=35&type=section&id=Gain%20(Loss)%20on%20Derivative%20Instruments,%20net) Significant net losses on derivative instruments were recognized due to tighter swap spreads and declining interest rates, contrasting with prior year gains Gain (Loss) on Derivative Instruments, Net (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gain (loss) on derivative instruments, net | $(30,916) | $28,262 | $(107,595) | $121,423 | | Net losses on interest rate swaps | $(16,170) | $29,260 | $(63,808) | $122,421 | | Net losses on futures contracts | $(13,506) | — | $(46,360) | — | - Net losses on interest rate swaps in 2025 were due to notably tighter swap spreads and a sharp decline in interest rates[181](index=181&type=chunk) - Net losses on futures contracts in 2025 were due to changes in interest rate expectations[183](index=183&type=chunk) [Expenses](index=36&type=section&id=Expenses) Management fees slightly decreased for three months but remained stable for six months, with consistent general and administrative expenses Expenses (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Management fee – related party | $2,831 | $2,945 | $5,827 | $5,806 | | General and administrative | $2,041 | $1,943 | $3,704 | $3,739 | | Total expenses | $4,872 | $4,888 | $9,531 | $9,545 | - Management fees are determined by the company's average stockholders' equity[185](index=185&type=chunk) [Gain (Loss) on Repurchase and Retirement of Preferred Stock](index=36&type=section&id=Gain%20(Loss)%20on%20Repurchase%20and%20Retirement%20of%20Preferred%20Stock) The company recognized a gain on Series C Preferred Stock repurchase and retirement for both periods, following prior year repurchases of Series B and C Gain (Loss) on Repurchase and Retirement of Preferred Stock (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gain (loss) on repurchase and retirement of preferred stock | $57 | $208 | $46 | $401 | - During the three and six months ended June 30, 2025, the company repurchased and retired 96,803 and 186,949 shares of Series C Preferred Stock, respectively[187](index=187&type=chunk) [Net Income (Loss) Attributable to Common Stockholders](index=37&type=section&id=Net%20Income%20(Loss)%20Attributable%20to%20Common%20Stockholders) Net loss attributable to common stockholders increased for three months and shifted to loss for six months, driven by derivative losses, partially offset by investment performance and net interest income Net Income (Loss) Attributable to Common Stockholders (in thousands, except per share) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(26,567) | $(18,766) | $(10,278) | $4,964 | | Basic EPS | $(0.40) | $(0.38) | $(0.16) | $0.10 | - The change in net loss for the three months was primarily due to net losses on derivative instruments (**$30.9 million** vs **$28.3 million** gain in 2024) and a **$9.1 million** increase in net interest income, partially offset by improved investment performance[189](index=189&type=chunk) - For the six months, the shift to net loss was driven by net losses on derivative instruments (**$107.6 million** vs **$121.4 million** gain in 2024), offset by net gains on investments (**$76.9 million** vs **$111.4 million** loss in 2024) and a **$20.9 million** increase in net interest income[190](index=190&type=chunk) [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) This section presents non-GAAP financial measures, including Earnings Available for Distribution and various effective interest metrics, used by management to analyze operating results and assess performance - Non-GAAP measures are used to analyze operating results and assess performance, providing additional detail of the investment portfolio's earnings capacity[192](index=192&type=chunk)[195](index=195&type=chunk) - These measures should be analyzed in conjunction with U.S. GAAP financial measures and are not substitutes[193](index=193&type=chunk) [Earnings Available for Distribution](index=37&type=section&id=Earnings%20Available%20for%20Distribution) Earnings available for distribution decreased for both periods, primarily due to lower effective net interest income, partially offset by reduced preferred dividends - Earnings available for distribution is calculated as U.S. GAAP net income (loss) attributable to common stockholders adjusted for certain gains and losses on investments and derivatives, TBA dollar roll income, and preferred stock repurchase gains/losses[194](index=194&type=chunk) Earnings Available for Distribution (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders | $(26,567) | $(18,766) | $(10,278) | $4,964 | | Earnings available for distribution | $38,191 | $42,325 | $78,238 | $84,141 | | Earnings available for distribution per common share | $0.58 | $0.86 | $1.21 | $1.72 | - The decrease in earnings available for distribution was due to lower effective net interest income, partially offset by lower preferred dividends[204](index=204&type=chunk) [Effective Interest Expense / Effective Cost of Funds / Effective Net Interest Income / Effective Interest Rate Margin](index=40&type=section&id=Effective%20Interest%20Expense%20%2F%20Effective%20Cost%20of%20Funds%20%2F%20Effective%20Net%20Interest%20Income%20%2F%20Effective%20Interest%20Rate%20Margin) Effective interest expense and cost of funds increased due to decreased contractual net interest income on interest rate swaps, leading to decreased effective net interest income and margin - Effective interest expense and cost of funds adjust U.S. GAAP total interest expense for contractual net interest income (expense) on interest rate swaps, which are viewed as economic hedges[205](index=205&type=chunk) Effective Interest Expense and Cost of Funds (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest expense | $52,895 | $59,393 | $107,920 | $120,973 | | Effective interest expense | $24,264 | $16,122 | $51,210 | $32,415 | | Effective cost of funds | 2.12% | 1.52% | 2.15% | 1.50% | Effective Net Interest Income and Margin (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $17,729 | $8,635 | $36,550 | $15,638 | | Effective net interest income | $46,360 | $51,906 | $93,260 | $104,196 | | Effective interest rate margin | 3.44% | 4.09% | 3.35% | 4.06% | [Economic Debt-to-Equity Ratio](index=41&type=section&id=Economic%20Debt-to-Equity%20Ratio) The economic debt-to-equity ratio, including off-balance sheet TBA financing, remained consistent with GAAP at 6.5x, reflecting no TBAs at implied cost basis - The economic debt-to-equity ratio is a non-GAAP measure that includes the impact of off-balance sheet financing of TBAs accounted for as derivative instruments[214](index=214&type=chunk) Debt-to-Equity Ratios | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Debt-to-equity ratio | 6.5 | 6.7 | | Economic debt-to-equity ratio | 6.5 | 6.7 | - As of June 30, 2025, there were no TBAs at implied cost basis, making the economic debt-to-equity ratio equal to the GAAP debt-to-equity ratio[216](index=216&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity and capital from equity offerings, operating cash flows, and repurchase agreements to meet obligations and fund investments - Primary sources of funds include net cash proceeds from common equity offerings, net cash from operating activities, and proceeds from repurchase agreements[217](index=217&type=chunk) - Cash, cash equivalents, and restricted cash totaled **$190.5 million** as of June 30, 2025, up from **$183.4 million** at June 30, 2024[219](index=219&type=chunk) - Operating activities provided **$60.0 million** in net cash for the six months ended June 30, 2025, a decrease from **$90.5 million** in the prior year[219](index=219&type=chunk) [Effects of Margin Requirements, Leverage and Spreads](index=42&type=section&id=Effects%20of%20Margin%20Requirements,%20Leverage%20and%20Spreads) The company manages liquidity to meet margin calls, triggered by collateral value declines, with average margin requirements of 4.5% for Agency RMBS and 4.9% for Agency CMBS - Declines in the value of securities pledged as collateral can trigger margin calls, requiring additional cash or collateral[223](index=223&type=chunk) - The average margin requirement (haircut) under repurchase agreements was **4.5%** for Agency RMBS and **4.9%** for Agency CMBS as of June 30, 2025[222](index=222&type=chunk) - The company maintains a level of liquidity (cash and unpledged securities) to meet reasonably anticipated margin calls and increased collateral requirements[224](index=224&type=chunk)[226](index=226&type=chunk) [Forward-Looking Statements Regarding Liquidity](index=43&type=section&id=Forward-Looking%20Statements%20Regarding%20Liquidity) The company anticipates sufficient short-term liquidity from operations and borrowing capacity, with long-term liquidity dependent on debt financing and potential equity/debt issuances - Cash flow from operations and available borrowing capacity are expected to be sufficient for anticipated short-term liquidity requirements[229](index=229&type=chunk) - Long-term liquidity and capital resource requirements are subject to obtaining ongoing debt financing and potential public or private offerings of equity or debt securities[230](index=230&type=chunk) [Exposure to Financial Counterparties](index=43&type=section&id=Exposure%20to%20Financial%20Counterparties) The company faces counterparty default risk from repurchase agreements, with one counterparty holding collateral exceeding borrowed amounts by over 5% of stockholders' equity - The company is exposed to potential losses if a counterparty defaults on repurchase agreements, to the extent collateral pledged exceeds the amount loaned[231](index=231&type=chunk) - As of June 30, 2025, one counterparty held collateral that exceeded the amounts borrowed under related repurchase agreements by more than **5%** of the company's stockholders' equity[231](index=231&type=chunk) Exposure to Counterparties by Geographic Concentration (in thousands) | Geographic Concentration | Number of Counterparties | Repurchase Agreement Financing | Exposure | | :------------------------------- | :----------------------- | :----------------------------- | :------- | | North America | 14 | $2,890,203 | $(151,644) | | Asia | 3 | $623,472 | $(33,673) | | Europe (excluding United Kingdom) | 2 | $675,757 | $(33,805) | | United Kingdom | 1 | $446,449 | $(18,465) | | Total | 20 | $4,635,881 | $(237,587) | [Dividends](index=44&type=section&id=Dividends) To maintain REIT qualification, the company must distribute at least 90% of REIT taxable income, with differences from GAAP net income impacting distribution requirements - To maintain REIT qualification, the company is generally required to distribute at least **90%** of its REIT taxable income annually[234](index=234&type=chunk) - Key differences between REIT taxable income and U.S. GAAP net income include unrealized gains/losses on investments and derivatives, and temporary differences related to amortization of premiums and discounts[235](index=235&type=chunk) [Unrelated Business Taxable Income](index=44&type=section&id=Unrelated%20Business%20Taxable%20Income) The company has not engaged in transactions resulting in unrelated business taxable income - The company has not engaged in transactions that would result in a portion of its income being treated as unrelated business taxable income[236](index=236&type=chunk) [Other Matters](index=44&type=section&id=Other%20Matters) The company believes it satisfied REIT asset tests and intends to maintain REIT qualification while avoiding 1940 Act investment company registration - The company believes it satisfied REIT asset tests for the period ended June 30, 2025, and expects to satisfy all REIT requirements for the taxable year ending December 31, 2025[237](index=237&type=chunk) - The company intends to conduct its business to avoid registration as an investment company under the 1940 Act, relying on exclusions like Section 3(c)(5)(C)[238](index=238&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, including interest rate, prepayment, and market value risks, and outlines management strategies using derivatives and active portfolio management [Interest Rate Risk](index=45&type=section&id=Interest%20Rate%20Risk) The company is highly sensitive to interest rate risk, which is primarily mitigated through derivative contracts like interest rate swaps and futures - Interest rate risk is highly sensitive to governmental, monetary, and tax policies, and other macroeconomic factors[241](index=241&type=chunk) - The company mitigates interest rate risk primarily by utilizing derivative contracts, such as interest rate swap agreements and futures contracts[241](index=241&type=chunk) [Interest Rate Effect on Net Interest Income](index=45&type=section&id=Interest%20Rate%20Effect%20on%20Net%20Interest%20Income) Operating results are affected by the spread between investment yields and borrowing costs, with rising rates potentially narrowing the spread and impacting hedging effectiveness - Operating results depend on the difference between yields earned on investments and the cost of borrowing and hedging activities[242](index=242&type=chunk) - Rising interest rates can increase borrowing costs, narrowing the net interest spread and potentially leading to losses[242](index=242&type=chunk) - Inaccurate prepayment assumptions for RMBS can reduce the effectiveness of hedging strategies and cause losses[243](index=243&type=chunk) [Interest Rate Effects on Fair Value](index=45&type=section&id=Interest%20Rate%20Effects%20on%20Fair%20Value) Changes in interest rates directly impact the fair value of assets and liabilities, with risk assessed by duration, and volatility increasing with material rate changes - Changes in interest rates affect the market value of acquired assets, with the risk that asset and liability values change at different rates[244](index=244&type=chunk) - Interest rate risk is assessed by estimating the duration of assets and liabilities, which measures market price volatility[245](index=245&type=chunk) - Volatility in fair value can increase significantly with material changes in interest rates, impacting operating results[246](index=246&type=chunk) [Spread Risk](index=45&type=section&id=Spread%20Risk) Spread risk, the difference between investment and risk-free rates, is managed through asset selection, allocation, value-at-risk, and liquidity, with changes impacting book value and strategy - Spread risk is the difference between interest rates on investments and risk-free instruments[247](index=247&type=chunk) - Management techniques include careful asset selection, sector allocation, regulating portfolio value-at-risk, and maintaining adequate liquidity[247](index=247&type=chunk) - Changes in spreads impact book value and liquidity, potentially forcing asset sales or changes in investment strategy[247](index=247&type=chunk) [Prepayment Risk](index=46&type=section&id=Prepayment%20Risk) Prepayment risk affects premium amortization and discount accretion, with increased rates accelerating both, and predicting levels is challenging due to inflation and interest rate volatility - An increase in prepayment rates accelerates the amortization of purchase premiums, reducing interest income[248](index=248&type=chunk) - An increase in prepayment rates accelerates the accretion of purchase discounts, increasing interest income[248](index=248&type=chunk) - Uncertainty regarding inflation, fiscal/monetary policy, and interest rate volatility makes predicting prepayment levels difficult[249](index=249&type=chunk) [Extension Risk](index=46&type=section&id=Extension%20Risk) Extension risk occurs if decreasing prepayment rates in a rising interest rate environment extend fixed-rate asset lives beyond hedging terms, negatively impacting operating results and potentially forcing asset sales - If prepayment rates decrease in a rising interest rate environment, the life of fixed-rate assets can extend beyond the term of hedging instruments[251](index=251&type=chunk) - This situation can negatively impact operating results as borrowing costs become unfixed while asset income remains fixed[251](index=251&type=chunk) - In extreme situations, the company may be forced to sell assets to maintain liquidity, incurring losses[251](index=251&type=chunk) [Market Value Risk](index=46&type=section&id=Market%20Value%20Risk) The fair value of securities fluctuates with interest rates and market factors, with crises causing volatility and margin call risk, and a sensitivity analysis showing yield curve shift impacts - The estimated fair value of securities fluctuates primarily due to changes in interest rates and other factors[252](index=252&type=chunk) - Pandemics and widespread crises can cause extreme volatility and illiquidity in fixed income markets, elevating margin call risk[253](index=253&type=chunk) Interest Rate Sensitivity Analysis (June 30, 2025) | Change in Interest Rates | Percentage Change in Projected Net Interest Income | Percentage Change in Projected Portfolio Value | | :----------------------- | :----------------------------------------------- | :--------------------------------------------- | | +1.00% | (3.72)% | (0.60)% | | +0.50% | (1.55)% | (0.16)% | | -0.50% | 1.02% | (0.19)% | | -1.00% | 1.87% | (0.88)% | [Other Risks](index=47&type=section&id=Other%20Risks) This section introduces additional risks related to credit investments in commercial and residential real estate markets, including real estate and credit risk [Real Estate Risk](index=47&type=section&id=Real%20Estate%20Risk) Residential and commercial property values are volatile, affected by economic and local factors, with decreases reducing collateral value and repayment capacity, potentially leading to losses - Property values are subject to volatility due to national, regional, and local economic conditions, local real estate conditions, and demographic factors[259](index=259&type=chunk) - Decreases in property values reduce collateral value and potential proceeds for loan repayment, which could cause losses[259](index=259&type=chunk) [Credit Risk](index=47&type=section&id=Credit%20Risk) The company retains credit loss risk on mortgage investments, managed through due diligence and re-evaluation, with deteriorating fundamentals potentially leading to delinquencies and defaults - The company retains the risk of potential credit losses on all commercial and residential mortgage investments[260](index=260&type=chunk) - Credit risk is managed through pre-acquisition due diligence and regular re-evaluation of fundamental factors like GDP, unemployment, and interest rates[260](index=260&type=chunk) - Deteriorating fundamentals and tightening lending conditions can lead to increasing delinquency levels and eventual defaults, impacting MBS performance[261](index=261&type=chunk) [Risk Management](index=47&type=section&id=Risk%20Management) The company manages interest rate risk by monitoring reset indices, structuring diverse financing, exploring non-marked-to-market financing, and using hedging instruments - Risk management strategies include monitoring and adjusting reset indices and interest rates for assets and financings[264](index=264&type=chunk) - The company attempts to structure financing agreements with a range of different maturities, terms, amortizations, and interest rate adjustment periods[264](index=264&type=chunk) - Hedging instruments, primarily interest rate swap agreements and financial futures, are used to adjust the interest rate sensitivity of target assets and borrowings[264](index=264&type=chunk) [Item 4. Controls and Procedures](index=47&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 in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025, providing reasonable assurance for timely and accurate reporting[263](index=263&type=chunk)[265](index=265&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[267](index=267&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) As of June 30, 2025, the company was not involved in any legal proceedings - As of June 30, 2025, the company was not involved in any legal proceedings[270](index=270&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[271](index=271&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased and retired 96,803 shares of Series C Preferred Stock during Q2 2025 under its existing share repurchase program Series C Preferred Stock Repurchases (Three Months Ended June 30, 2025) | Month | Total Number of Shares Purchased | Average Price Paid Per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | April 1, 2025 to April 30, 2025 | 47,232 | $22.98 | | May 1, 2025 to May 31, 2025 | 29,557 | $24.51 | | June 1, 2025 to June 30, 2025 | 20,014 | $23.63 | | Total | 96,803 | $23.59 | - As of June 30, 2025, 519,710 additional shares of Series C Preferred Stock remained authorized for repurchase under the program[273](index=273&type=chunk) [Item 3. Defaults Upon Senior Securities](index=50&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported during the period - No defaults upon senior securities were reported[274](index=274&type=chunk) [Item 4. Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[275](index=275&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information) This section includes information on Rule 10b5-1 trading plans and subsequent Series C Preferred Stock dividend declarations [Rule 10b5-1 Trading Plans](index=50&type=section&id=Rule%2010b5-1%20Trading%20Plans) No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended June 30, 2025[276](index=276&type=chunk) [Series C Preferred Stock Dividends](index=50&type=section&id=Series%20C%20Preferred%20Stock%20Dividends) A Series C Preferred Stock dividend of $0.46875 per share was declared on August 7, 2025, payable on September 29, 2025 - A Series C Preferred Stock dividend of **$0.46875** per share was declared on August 7, 2025, payable on September 29, 2025[277](index=277&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including articles, bylaws, certifications, and XBRL data files - The exhibit index includes Articles of Amendment and Restatement, Articles Supplementary for Preferred Stock, Amended and Restated Bylaws, Certifications (31.1, 31.2, 32.1, 32.2), and XBRL Interactive Data Files[284](index=284&type=chunk)

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited consolidated financial statements for Q2 2025 show a net loss and a decrease in total assets to $9.3 billion [Consolidated Balance Sheets](index=3&type=section&id=UNAUDITED%20CONSOLIDATED%20BALANCE%20SHEETS) Total assets decreased to $9.31 billion by June 30, 2025, primarily due to reduced VIE assets, while liabilities also declined Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$9,308,797** | **$10,141,921** | | Cash and cash equivalents | $162,935 | $143,803 | | Loans, net | $5,066,694 | $3,378,149 | | Assets of consolidated VIEs | $2,395,398 | $5,175,295 | | **Total Liabilities** | **$7,374,774** | **$8,197,818** | | Secured borrowings | $3,506,670 | $2,035,176 | | Securitized debt obligations of consolidated VIEs, net | $1,513,297 | $3,580,513 | | **Total Stockholders' Equity** | **$1,925,662** | **$1,935,742** | [Consolidated Statements of Operations](index=3&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) The company reported a Q2 2025 net loss of $53.7 million, but a six-month net income of $28.3 million due to loan loss recovery Key Operating Results (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $16,898 | $50,952 | $31,399 | $99,501 | | (Provision for) recovery of loan losses | ($8,640) | $18,871 | $100,928 | $45,415 | | Net income (loss) from continuing operations | ($48,751) | ($31,427) | $33,659 | ($107,009) | | **Net income (loss)** | **($53,677)** | **($34,201)** | **$28,288** | **($108,368)** | | **Total earnings per common share - diluted** | **($0.34)** | **($0.23)** | **$0.12** | **($0.68)** | | Dividends declared per share of common stock | $0.125 | $0.30 | $0.25 | $0.60 | [Consolidated Statements of Cash Flows](index=6&type=section&id=UNAUDITED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities was $8.2 million for the six months ended June 30, 2025, with a net increase in cash of $9.9 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,202 | $24,507 | | Net cash provided by investing activities | $789,020 | $624,996 | | Net cash used for financing activities | ($787,307) | ($626,874) | | **Net increase in cash, cash equivalents, and restricted cash** | **$9,915** | **$22,629** | [Notes to the Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20THE%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) The notes detail the company's organization, accounting policies, recent acquisitions, loan portfolio performance, and discontinued operations - The company is a **multi-strategy real estate finance company** focused on originating, acquiring, financing, and servicing **lower-to-middle-market (LMM) commercial real estate loans, SBA loans**, and other related investments, externally managed by **Waterfall Asset Management, LLC**[23](index=23&type=chunk)[24](index=24&type=chunk) - On March 13, 2025, the company **acquired United Development Funding IV (UDF IV)**, a real estate investment trust, resulting in an updated bargain purchase gain of **$88.1 million**[26](index=26&type=chunk)[27](index=27&type=chunk)[132](index=132&type=chunk) - The company completed the **disposition of its Residential Mortgage Banking segment** effective June 30, 2025, with its results now presented as **discontinued operations** for all periods[221](index=221&type=chunk) Loan Portfolio Carrying Value (in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Loans, net** | **$5,066,694** | **$3,378,149** | | Bridge | $2,769,324 | $1,246,725 | | SBA - 7(a) | $1,073,576 | $1,043,120 | | Construction | $885,016 | $733,276 | | **Loans, held for sale** | **$632,784** | **$241,626** | Loan Delinquency Status (Carrying Value, in thousands) | Delinquency Status | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Current | $6,111,778 | $7,787,647 | | 30 - 59 days past due | $292,232 | $131,288 | | 60+ days past due | $780,902 | $389,275 | | **Total Loans, net** | **$7,184,912** | **$8,308,210** | | Non-Accrual Loans | $824,915 | $526,761 | Allowance for Loan Losses Activity (in thousands) | Period | Beginning Balance | Provision for (Recoveries of) Loan Losses | Charge-offs and Sales | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | **Six Months Ended June 30, 2025** | **$339,939** | **($105,648)** | **($11,510)** | **$232,579** | | Six Months Ended June 30, 2024 | $101,605 | ($45,278) | ($11,699) | $44,832 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses business strategy, recent acquisitions, and the Q2 2025 distributable loss of $19.8 million, noting macroeconomic impacts - The company's core focus is on **LMM commercial real estate lending** and **small business loans**, operating through two segments: **LMM Commercial Real Estate** and **Small Business Lending**[389](index=389&type=chunk) - **Macroeconomic concerns**, including global market volatility, **inflation**, and **elevated interest rates**, persist and may adversely impact financial condition and results[401](index=401&type=chunk) Key Financial Metrics | ($ in thousands, except per share data) | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Income (loss) from continuing operations | $(48,751) | $(31,427) | $33,659 | $(107,009) | | Distributable earnings | $(19,792) | $16,631 | $(31,176) | $70,607 | | Distributable earnings per common share - diluted | $(0.14) | $0.07 | $(0.23) | $0.37 | | Dividends declared per common share | $0.125 | $0.30 | $0.25 | $0.60 | | Book value per common share | $10.44 | $12.97 | $10.44 | $12.97 | Loan Originations (in thousands) | Loan Type | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | LMM loans | $173,356 | $256,485 | $252,013 | $516,161 | | SBL loans | $358,751 | $217,258 | $746,139 | $414,417 | | **Total loan investment activity** | **$532,107** | **$473,743** | **$998,152** | **$930,578** | - As of June 30, 2025, the company had a **total leverage ratio of 3.5x** and a **recourse leverage ratio of 1.5x**[447](index=447&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market, credit, interest rate, liquidity, and counterparty risks, with a 100 basis point rate increase potentially boosting net interest income by $7.5 million - The company is exposed to **market, credit, interest rate, liquidity, prepayment, real estate, fair value, and counterparty risks**, which are **heightened by current economic conditions**[503](index=503&type=chunk)[504](index=504&type=chunk)[505](index=505&type=chunk) 12-Month Pretax Net Interest Income Sensitivity to Interest Rate Changes (in thousands) | Instantaneous Change in Rates | Total Net Impact to Net Interest Income | | :--- | :--- | | +100 basis points | $7,457 | | +50 basis points | $3,567 | | -50 basis points | ($2,544) | | -100 basis points | ($3,440) | - The company has **significant counterparty risk** with **JPMorgan Chase Bank, N.A.**, representing an exposure of **$1.1 billion**, or **56.8% of stockholders' equity**, as of June 30, 2025[521](index=521&type=chunk) [Controls and Procedures](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2025[524](index=524&type=chunk) - **No material changes** were made to the company's internal control over financial reporting during the quarter ended June 30, 2025[525](index=525&type=chunk) [PART II. OTHER INFORMATION](index=66&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in multiple legal proceedings, including class action lawsuits related to mergers and securities disclosures - The company is subject to **class action lawsuits** related to its **mergers with Broadmark and UDF IV**, alleging **breaches of fiduciary duty** by the former boards of those companies[528](index=528&type=chunk)[530](index=530&type=chunk) - The company and certain executives are defendants in putative **stockholder class action and derivative lawsuits** alleging **violations of the Exchange Act** related to disclosures about its commercial real estate loan portfolio[531](index=531&type=chunk)[532](index=532&type=chunk) - As a result of the UDF IV Merger, the company **assumed outstanding litigation against UDF IV**, including the "Megatel Action" which alleges **RICO violations and fraud**[538](index=538&type=chunk)[539](index=539&type=chunk) [Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported for the period, referencing prior disclosures in the Form 10-K - **No material changes** to risk factors were reported for the period, referencing the disclosures in the company's Form 10-K[542](index=542&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company has a $150.0 million share repurchase program, with 8.5 million shares repurchased in Q2 2025 and $95.2 million remaining - On January 16, 2025, the Board approved a new share repurchase program authorizing up to **$150.0 million** of common stock[543](index=543&type=chunk) Share Repurchases for Q2 2025 | Month | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April | 2,000,000 | $4.65 | | May | 6,515,274 | $4.33 | | June | 3,190 | $4.41 | | **Total** | **8,518,464** | **$4.41** | - As of the end of Q2 2025, approximately **$95.2 million** remained available for purchase under the share repurchase program[545](index=545&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) JFrog Ltd.'s unaudited financial statements detail its financial position, performance, and cash flows for the three and six months ended June 30, 2025 [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) JFrog Ltd.'s balance sheets reflect growth in total assets, liabilities, and shareholders' equity as of June 30, 2025 Condensed Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total assets | $1,208,185 | $1,129,906 | | Total liabilities | $381,731 | $356,380 | | Total shareholders' equity | $826,454 | $773,526 | | Cash and cash equivalents | $51,277 | $49,869 | | Short-term investments | $560,423 | $472,138 | | Deferred revenue (current) | $260,066 | $247,187 | - Total assets increased by **$78,300 thousand**, or **6.9%**, from December 31, 2024, to June 30, 2025, primarily due to growth in short-term investments[18](index=18&type=chunk) - Total shareholders' equity increased by **$52,900 thousand**, or **6.8%**, from December 31, 2024, to June 30, 2025[18](index=18&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) JFrog Ltd. reported increased subscription revenue but a wider net loss for the three and six months ended June 30, 2025 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | 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 subscription revenue | $127,220 | $103,043 | $249,627 | $203,354 | | Gross profit | $97,018 | $81,150 | $189,244 | $160,857 | | Operating loss | $(25,971) | $(19,127) | $(48,941) | $(35,763) | | Net loss | $(21,675) | $(14,303) | $(40,178) | $(23,093) | | Net loss per share, basic and diluted | $(0.19) | $(0.13) | $(0.35) | $(0.21) | - Total subscription revenue increased by **23%** for both the three and six months ended June 30, 2025, compared to the corresponding periods in 2024[20](index=20&type=chunk) - Net loss increased by **51.5%** for the three months ended June 30, 2025, and by **74.0%** for the six months ended June 30, 2025, year-over-year[20](index=20&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) Comprehensive loss improved for the three months ended June 30, 2025, driven by positive changes in derivative instruments Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(21,675) | $(14,303) | $(40,178) | $(23,093) | | Other comprehensive income (loss), net of tax | $6,962 | $(1,583) | $5,084 | $(2,740) | | Comprehensive loss | $(14,713) | $(15,886) | $(35,094) | $(25,833) | - Other comprehensive income (loss) improved significantly, primarily driven by a net change in derivative instruments, which moved from a loss of **$1,400 thousand** in Q2 2024 to a gain of **$7,000 thousand** in Q2 2025[22](index=22&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders%27%20Equity) Shareholders' equity grew to $826,500 thousand by June 30, 2025, primarily from share-based compensation and comprehensive income Condensed Consolidated Statements of Shareholders' Equity Highlights (in thousands) | Item | Balance as of December 31, 2024 | Six Months Ended June 30, 2025 Changes | Balance as of June 30, 2025 | | :----------------------------------- | :------------------------------ | :------------------------------------ | :-------------------------- | | Ordinary Shares Amount | $315 | $11 | $326 | | Additional Paid-in Capital | $1,132,224 | $88,011 | $1,220,235 | | Accumulated Other Comprehensive Income | $655 | $5,084 | $5,739 | | Accumulated Deficit | $(359,668) | $(40,178) | $(399,846) | | Total Shareholders' Equity | $773,526 | $52,928 | $826,454 | - Share-based compensation expense contributed **$74,900 thousand** to additional paid-in capital for the six months ended June 30, 2025[26](index=26&type=chunk) - Issuance of ordinary shares from share options, restricted share units, and employee share purchase plan contributed to the increase in ordinary shares and additional paid-in capital[26](index=26&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased for the six months ended June 30, 2025, with investing activities shifting to a net outflow Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $64,877 | $34,166 | | Net cash provided by (used in) investing activities | $(85,330) | $88,267 | | Net cash provided by financing activities | $21,097 | $11,922 | | Net increase in cash, cash equivalents, and restricted cash | $1,408 | $133,538 | | Cash, cash equivalents, and restricted cash—end of period | $52,035 | $218,315 | - Net cash provided by operating activities increased by **89.9%** year-over-year for the six months ended June 30, 2025[29](index=29&type=chunk) - Investing activities shifted from a net inflow of **$88,300 thousand** in 2024 to a net outflow of **$85,300 thousand** in 2025, primarily due to increased purchases of short-term investments[29](index=29&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover JFrog's accounting policies, revenue, investments, and share-based compensation, highlighting SaaS growth - JFrog provides a hybrid, universal, end-to-end software supply chain platform for delivering trusted, secure software updates, aiming to be the single source of truth for an organization's software footprint[31](index=31&type=chunk) Revenue Disaggregation by Category (in thousands, except percentages) | Category | Three Months Ended June 30, 2025 (Amount / % of Revenue) | Three Months Ended June 30, 2024 (Amount / % of Revenue) | | :-------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Self-managed subscription | $70,118 / 55% | $63,765 / 62% | | SaaS | $57,102 / 45% | $39,278 / 38% | | Total subscription revenue | $127,220 / 100% | $103,043 / 100% | - Remaining performance obligations totaled **$476,700 thousand** as of June 30, 2025, with **67%** expected to be recognized as revenue over the next **12** months[44](index=44&type=chunk) - Amortization of deferred contract acquisition costs increased by **42.4%** to **$4,700 thousand** for the three months ended June 30, 2025, from **$3,300 thousand** in the prior year[45](index=45&type=chunk) - Marketable securities increased to **$427,400 thousand** as of June 30, 2025, from **$366,600 thousand** at December 31, 2024[47](index=47&type=chunk) - Total share-based compensation expense increased by **33%** to **$38,000 thousand** for the three months ended June 30, 2025, and by **34%** to **$74,900 thousand** for the six months ended June 30, 2025, primarily due to grants to new and existing employees[73](index=73&type=chunk) - Unrecognized share-based compensation cost related to unvested awards was **$287,100 thousand** as of June 30, 2025, expected to be recognized over a weighted-average period of **2.5** years[73](index=73&type=chunk) - JFrog operates in one operating and reportable segment. Long-lived assets are primarily located in Israel (**$9,000 thousand**) and the United States (**$4,700 thousand**) as of June 30, 2025[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses JFrog's 23% revenue growth, increased net loss from investments, and substantial free cash flow growth for H1 2025 - JFrog's total revenue grew by **23%** for both the three and six months ended June 30, 2025, compared to the corresponding periods in 2024[90](index=90&type=chunk) - Revenue from SaaS subscriptions increased its contribution to total revenue, reaching **45%** for the three months and **44%** for the six months ended June 30, 2025, up from **38%** and **37%** respectively in 2024[87](index=87&type=chunk) - The company's net dollar retention rate was **118%** as of June 30, 2025 and 2024, indicating strong expansion within existing customers[97](index=97&type=chunk) Customer Growth with Annual Recurring Revenue (ARR) (in thousands) | Customer Segment | As of June 30, 2025 | As of December 31, 2024 | | :-------------------------------- | :------------------ | :---------------------- | | Customers with ARR of $100,000 or more | 1,076 | 1,018 | | Customers with ARR of $1.0 million or more | 61 | 52 | Free Cash Flow (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $64,877 | $34,166 | | Less: purchases of property and equipment | $(1,274) | $(1,573) | | Free cash flow | $63,603 | $32,593 | - Free cash flow increased by **95.1%** for the six months ended June 30, 2025, compared to the same period in 2024[104](index=104&type=chunk) - Gross margin decreased from **79%** in Q2 2024 to **76%** in Q2 2025, primarily due to the shift in revenue mix towards SaaS subscriptions, which incur higher hosting costs, and increased intangible amortization[120](index=120&type=chunk)[129](index=129&type=chunk) - Operating expenses, including Research and Development, Sales and Marketing, and General and Administrative, increased across the board, driven by increased headcount and share-based compensation expenses[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - As of June 30, 2025, JFrog had **$611,700 thousand** in cash, cash equivalents, and short-term investments, which management believes will be sufficient to meet liquidity needs for the next **12** months and long-term[137](index=137&type=chunk) Contractual Obligations as of June 30, 2025 (in thousands) | Obligation Type | Total | 2025 (Remainder) | 2026 and Thereafter | | :------------------------ | :------ | :--------------- | :------------------ | | Operating lease obligations | $14,865 | $4,369 | $10,496 | | Purchase obligations | $80,148 | $12,327 | $67,821 | | Total | $95,013 | $16,696 | $78,317 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) JFrog faces foreign currency and interest rate risks, partially mitigated by hedging, with inflation not yet material - JFrog's primary foreign currency exposure is to the exchange rate movements of the U.S. dollar against the New Israeli Shekel (NIS), as a significant portion of operating costs in Israel are NIS-denominated[150](index=150&type=chunk) - The company utilizes foreign currency forward and option contracts to hedge against foreign exchange risks, with a hypothetical **10%** change in exchange rates not materially impacting results for the reported periods after considering hedging programs[151](index=151&type=chunk) - As of June 30, 2025, cash, cash equivalents, and short-term investments totaled **$611,700 thousand**, primarily denominated in U.S. dollars, and a hypothetical **1%** increase in interest rates would not materially affect their fair value[154](index=154&type=chunk) - Inflation has not had a material effect on the business, but sustained inflationary pressures on costs could harm financial condition if not offset by price increases[155](index=155&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded JFrog's disclosure controls were effective as of June 30, 2025, with no material changes in internal control - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[157](index=157&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the period[158](index=158&type=chunk) - The effectiveness of any internal control system is subject to inherent limitations, providing reasonable, not absolute, assurance[159](index=159&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) JFrog is unaware of any legal proceedings that would materially adversely affect its business or financial position - JFrog is not currently aware of any legal proceedings that would have a material adverse effect on its business, financial position, results of operations, or cash flows[66](index=66&type=chunk)[161](index=161&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) JFrog faces risks from growth, competition, customer/personnel reliance, product defects, geopolitical tensions, and AI regulations - JFrog has experienced significant growth, with total revenues growing **23%** for both the three and six months ended June 30, 2025, and employee headcount increasing from approximately **1,400** to **1,600** employees from December 31, 2023, to December 31, 2024[165](index=165&type=chunk) - The company has a history of losses, with net losses of **$69,200 thousand**, **$61,300 thousand**, and **$90,200 thousand** in 2024, 2023, and 2022, respectively, and may not achieve consistent profitability due to substantial increases in operating expenses[174](index=174&type=chunk) - JFrog faces intense competition in a highly fragmented and rapidly evolving market, with competitors often possessing greater financial and technical resources[179](index=179&type=chunk)[182](index=182&type=chunk) - The business is highly dependent on customer renewals and the ability to expand sales to existing customers, which can fluctuate due to various factors including satisfaction, pricing, and economic conditions[185](index=185&type=chunk)[188](index=188&type=chunk) - Reliance on key executive officers and highly skilled employees, particularly in engineering and sales, poses a risk due to intense competition for talent and high attrition rates[191](index=191&type=chunk)[193](index=193&type=chunk) - The company depends on strategic relationships with third parties, including public cloud providers (AWS, Microsoft Azure, Google Cloud) and channel partners, and any failure to maintain or expand these relationships could harm results[196](index=196&type=chunk)[200](index=200&type=chunk) - A limited-functionality version of JFrog Artifactory is available under an open source license (AGPL), which could negatively affect monetization and intellectual property protection[202](index=202&type=chunk)[204](index=204&type=chunk) - Products are complex and may contain defects or security vulnerabilities, leading to potential liability, revenue loss, and reputational damage, especially as use expands to more sensitive applications[209](index=209&type=chunk) - Unfavorable economic conditions, such as inflation and recession, may adversely affect business by reducing enterprise IT spending and demand for products[229](index=229&type=chunk)[230](index=230&type=chunk) - Issues in the development and use of AI technologies, combined with an uncertain regulatory environment (e.g., EU AI Act), may result in reputational harm, liability, or increased operating costs[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - Failure to protect proprietary technology and intellectual property rights, including challenges from open source software use and potential litigation, could substantially harm the business[247](index=247&type=chunk)[253](index=253&type=chunk)[259](index=259&type=chunk) - The company is subject to stringent and changing laws and regulations related to privacy, data protection, and cybersecurity, with actual or perceived failures to comply potentially leading to significant liabilities and reputational harm[269](index=269&type=chunk)[271](index=271&type=chunk) - International operations and expansion expose JFrog to risks including managing a distributed workforce, differing labor regulations, and compliance with various global laws, particularly in Israel, the EU, India, and China[278](index=278&type=chunk)[283](index=283&type=chunk) - Geopolitical tensions, including the conflicts in the Middle East (Israel, Hamas, Hezbollah, Iran) and the Russia-Ukraine war, pose risks to operations, economic stability, and employee availability, particularly given JFrog's significant R&D presence in Israel[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) - The market price of JFrog's ordinary shares may be volatile due to various factors, including operating performance, competition, and geopolitical events, and the concentration of insider ownership (**21%** as of June 30, 2025) may limit other shareholders' influence[302](index=302&type=chunk)[304](index=304&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=95&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds were reported for the period[343](index=343&type=chunk) [Item 3. Default Upon Senior Securities](index=95&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) This item is not applicable for the reporting period, indicating no defaults upon senior securities - This item is not applicable[344](index=344&type=chunk) [Item 4. Mine Safety Disclosures](index=95&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period, indicating no mine safety disclosures - This item is not applicable[345](index=345&type=chunk) [Item 5. Other Information](index=95&type=section&id=Item%205.%20Other%20Information) CFO and a board member adopted Rule 10b5-1 trading arrangements for ordinary share sales during Q2 2025 - On May 16, 2025, CFO Eduard Grabscheid adopted a Rule 10b5-1 trading arrangement for the sale of up to **98,842** ordinary shares, terminating by June 30, 2026[346](index=346&type=chunk) - On May 29, 2025, board member Yvonne Wassenaar adopted a Rule 10b5-1 trading arrangement for the sale of up to **10,172** ordinary shares, terminating by June 5, 2026[347](index=347&type=chunk) - No other officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[348](index=348&type=chunk) [Item 6. Exhibits](index=96&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL documents - Includes certifications of the Principal Executive Officer (Exhibit **31.1**, **32.1**) and Principal Financial Officer (Exhibit **31.2**, **32.2**) as required by the Securities Exchange Act and Sarbanes-Oxley Act[352](index=352&type=chunk)[353](index=353&type=chunk) - Contains Inline XBRL Instance Document, Taxonomy Extension Schema Document, and Cover Page Interactive Data File[352](index=352&type=chunk) [Signatures](index=97&type=section&id=Signatures) The report was duly signed on August 8, 2025, by the Chief Executive Officer and Chief Financial Officer - The report was signed by Shlomi Ben Haim, Chief Executive Officer, on August 8, 2025[357](index=357&type=chunk) - The report was signed by Eduard Grabscheid, Chief Financial Officer, on August 8, 2025[357](index=357&type=chunk)

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: 001-13695 (Exact name of registrant as specified in its charter) | Delaware | 16-1213679 | | --- | --- | | (State or other ju ...

```markdown [Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents Yelp's unaudited condensed consolidated financial statements and detailed notes for Q2 and H1 2025 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total assets | $980,175 | $983,567 | | Total liabilities | $233,771 | $239,598 | | Total stockholders' equity | $746,404 | $743,969 | - Total assets slightly decreased from **$983.6 million** at December 31, 2024, to **$980.2 million** at June 30, 2025. Total liabilities also decreased from **$239.6 million** to **$233.8 million**, while total stockholders' equity saw a slight increase from **$744.0 million** to **$746.4 million**[26](index=26&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net revenue | $370,394 | $357,016 | $728,928 | $689,768 | | Total costs and expenses | $317,104 | $317,269 | $646,178 | $638,804 | | Income from operations | $53,290 | $39,747 | $82,750 | $50,964 | | Net income attributable to common stockholders | $44,089 | $38,036 | $68,480 | $52,190 | | Basic EPS | $0.69 | $0.56 | $1.06 | $0.77 | | Diluted EPS | $0.67 | $0.54 | $1.03 | $0.73 | - Net revenue increased by **4% YoY** for the three months ended June 30, 2025, and by **6% YoY** for the six months ended June 30, 2025. Net income attributable to common stockholders increased by **16% YoY** for the quarter and **31% YoY** for the six-month period[28](index=28&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income attributable to common stockholders | $44,089 | $38,036 | $68,480 | $52,190 | | Other comprehensive income (loss) | $5,725 | $(184) | $8,292 | $(1,932) | | Comprehensive income | $49,814 | $37,852 | $76,772 | $50,258 | - Comprehensive income significantly increased, driven by positive foreign currency translation adjustments in 2025, contrasting with losses in the prior year[31](index=31&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | Balance as of December 31, 2024 (in thousands) | Balance as of June 30, 2025 (in thousands) | | :----------------------------------- | :------------------------------------------- | :----------------------------------------- | | Additional paid-in capital | $1,903,598 | $1,958,370 | | Treasury stock | $(3,909) | $(1,044) | | Accumulated other comprehensive loss | $(15,431) | $(7,139) | | Accumulated deficit | $(1,140,289) | $(1,203,783) | | Total stockholders' equity | $743,969 | $746,404 | - Stockholders' equity increased slightly, primarily due to net income and stock-based compensation, partially offset by common stock repurchases and an increase in accumulated deficit[34](index=34&type=chunk)[36](index=36&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by operating activities | $156,029 | $112,544 | | Net cash used in investing activities | $(26,620) | $(23,046) | | Net cash used in financing activities | $(151,582) | $(150,411) | | Change in cash, cash equivalents and restricted cash | $(19,522) | $(61,208) | - Net cash provided by operating activities increased significantly by **$43.5 million** YoY, primarily due to increased cash collection from customers and the non-recurrence of a **$15.0 million** CIPA Action settlement payment from the prior year. Net cash used in investing activities increased due to higher capitalized software development costs, while net cash used in financing activities increased due to higher stock repurchases[38](index=38&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Description of Business and Basis for Presentation](index=11&type=section&id=1.%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20FOR%20PRESENTATION) - Yelp Inc. operates as a trusted local resource for consumers and a partner for businesses, generating revenue primarily from performance-based advertising. The company has operations in the United States, United Kingdom, Canada, Ireland, and Germany[41](index=41&type=chunk) - The interim financial statements are unaudited and prepared in accordance with GAAP and SEC regulations, with certain disclosures condensed or omitted[42](index=42&type=chunk) - The company adopted ASU 2023-07 retrospectively in 2024, expanding segment disclosure requirements. It is currently evaluating the impact of ASU 2023-09 (Income Tax Disclosures), ASU 2024-03 (Expense Disaggregation), and ASU 2025-05 (Credit Losses for Accounts Receivable) for future periods[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) [2. Cash, Cash Equivalents and Restricted Cash](index=12&type=section&id=2.%20CASH,%20CASH%20EQUIVALENTS%20AND%20RESTRICTED%20CASH) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Cash | $85,785 | $87,056 | | Cash equivalents | $111,902 | $130,269 | | Total cash and cash equivalents | $197,687 | $217,325 | | Restricted cash | $473 | $357 | | Total cash, cash equivalents and restricted cash | $198,160 | $217,682 | - Total cash, cash equivalents, and restricted cash decreased by **$19.5 million** from December 31, 2024, to June 30, 2025[52](index=52&type=chunk) [3. Marketable Securities](index=13&type=section&id=3.%20MARKETABLE%20SECURITIES) | Security Type | Amortized Cost (June 30, 2025, in thousands) | Fair Value (June 30, 2025, in thousands) | Amortized Cost (December 31, 2024, in thousands) | Fair Value (December 31, 2024, in thousands) | | :-------------- | :------------------------------------------- | :--------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | | Certificates of deposit | $2,983 | $2,983 | $1,282 | $1,282 | | Commercial paper | $882 | $882 | $8,867 | $8,867 | | Corporate bonds | $41,110 | $41,193 | $38,505 | $38,483 | | Agency bonds | $932 | $932 | $1,237 | $1,238 | | U.S. government securities | $57,378 | $57,446 | $50,554 | $50,711 | | Total short-term marketable securities | $103,285 | $103,436 | $100,445 | $100,581 | - The fair value of short-term marketable securities increased from **$100.6 million** at December 31, 2024, to **$103.4 million** at June 30, 2025. The company did not recognize any credit loss related to available-for-sale marketable securities for the six months ended June 30, 2025 and 2024[54](index=54&type=chunk) [4. Fair Value Measurements](index=14&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) | Instrument Type | Level 1 (June 30, 2025, in thousands) | Level 2 (June 30, 2025, in thousands) | Total (June 30, 2025, in thousands) | | :---------------- | :------------------------------------ | :------------------------------------ | :---------------------------------- | | Money market funds | $83,818 | $— | $83,818 | | Marketable securities | $— | $103,436 | $103,436 | | Other investments (CDs) | $— | $10,000 | $10,000 | | Total | $83,818 | $113,436 | $197,254 | - The company's financial instruments are primarily classified within Level 1 (money market funds) and Level 2 (debt securities) of the fair value hierarchy, indicating valuation based on observable market data[57](index=57&type=chunk)[58](index=58&type=chunk) [5. Prepaid Expenses and Other Current Assets](index=15&type=section&id=5.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Prepaid expenses | $20,822 | $18,615 | | Certificates of deposit | $10,000 | $10,000 | | Other current assets | $21,470 | $15,033 | | Total prepaid expenses and other current assets | $52,292 | $43,648 | - Total prepaid expenses and other current assets increased by **$8.6 million**, primarily driven by an increase in 'Other current assets,' which mainly consisted of income taxes receivable as of June 30, 2025[59](index=59&type=chunk) [6. Property, Equipment and Software, Net](index=15&type=section&id=6.%20PROPERTY,%20EQUIPMENT%20AND%20SOFTWARE,%20NET) | Asset Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Capitalized website and internal-use software development costs | $324,900 | $299,177 | | Leasehold improvements | $37,242 | $55,875 | | Computer equipment | $28,611 | $27,272 | | Total Property, equipment and software, net | $84,234 | $75,669 | - Net property, equipment, and software increased by **$8.6 million**, primarily due to an increase in capitalized website and internal-use software development costs, partially offset by a decrease in leasehold improvements[60](index=60&type=chunk) [7. Acquisition](index=15&type=section&id=7.%20ACQUISITION) - On November 26, 2024, Yelp acquired RepairPal, an auto services platform, for a total preliminary purchase consideration of **$80.0 million**, aiming to expand its offerings in the auto services advertising vertical[61](index=61&type=chunk)[62](index=62&type=chunk) | Intangible Asset Type | Amount Assigned (in thousands) | Useful Life | | :-------------------- | :----------------------------- | :---------- | | Business relationships | $36,000 | 8.8 years | | Developed technology | $14,600 | 4.5 years | | Trademarks | $3,000 | 11.0 years | - The acquisition resulted in **$29.7 million** in goodwill, reflecting expected synergies. Measurement period adjustments during the six months ended June 30, 2025, led to a net decrease in goodwill of **$0.1 million**[64](index=64&type=chunk)[65](index=65&type=chunk) [8. Goodwill and Intangible Assets](index=17&type=section&id=8.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) | Metric | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :----------------------------------- | :----------------------------- | :--------------------------- | | Goodwill | $130,980 | $136,525 | | Net Carrying Amount of Intangibles | $58,787 | $53,944 | - Goodwill increased by **$5.5 million**, primarily due to the effect of currency translation, while net intangible assets decreased due to amortization. Amortization expense for intangible assets significantly increased to **$4.9 million** for the six months ended June 30, 2025, from **$0.7 million** in the prior-year period, mainly due to the RepairPal acquisition[68](index=68&type=chunk)[70](index=70&type=chunk) [9. Leases](index=18&type=section&id=9.%20LEASES) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total lease cost, net | $(799) | $3,077 | | Operating cash flows from operating leases | $16,314 | $21,460 | - Total lease cost, net, decreased significantly, turning negative due to a **$1.2 million** rent abatement received in Q2 2025. Operating cash flows from operating leases also decreased[72](index=72&type=chunk)[73](index=73&type=chunk) - As of June 30, 2025, the weighted-average remaining lease term for operating leases was **3.9 years**, with a weighted-average discount rate of **4.8%**[74](index=74&type=chunk) [10. Other Non-Current Assets](index=19&type=section&id=10.%20OTHER%20NON-CURRENT%20ASSETS) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Deferred tax assets | $142,675 | $139,588 | | Deferred contract costs | $23,870 | $24,156 | | Other non-current assets | $9,651 | $13,396 | | Total other non-current assets | $176,196 | $177,140 | - Total other non-current assets slightly decreased, with deferred tax assets increasing and other non-current assets decreasing[75](index=75&type=chunk) [11. Contract Balances](index=19&type=section&id=11.%20CONTRACT%20BALANCES) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Provision for credit losses | $22,562 | $23,957 | | Write-offs, net of recoveries | $(23,485) | $(21,601) | | Allowance for credit losses, end of period | $14,378 | $16,124 | - The provision for credit losses decreased due to lower customer delinquencies, while write-offs, net of recoveries, increased in the ordinary course of business, reflecting increased net revenue[76](index=76&type=chunk) - Short-term deferred revenue increased to **$3.865 million** as of June 30, 2025, with the majority expected to be recognized in the subsequent three-month period[77](index=77&type=chunk) [12. Accounts Payable and Accrued Liabilities](index=20&type=section&id=12.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20LIABILITIES) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Accounts payable | $11,881 | $11,904 | | Employee-related liabilities | $90,309 | $85,396 | | Taxes payable | $2,491 | $9,528 | | Accrued cost of revenue | $8,956 | $8,559 | | Other accrued liabilities | $28,399 | $15,935 | | Total accounts payable and accrued liabilities | $142,036 | $131,322 | - Total accounts payable and accrued liabilities increased by **$10.7 million**, primarily driven by increases in employee-related liabilities and other accrued liabilities, which include current holdback consideration from the RepairPal acquisition[79](index=79&type=chunk) [13. Commitments and Contingencies](index=20&type=section&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) - The CIPA Action, a class action lawsuit, was settled for **$15.0 million**, with the accrual released in Q2 2024 upon payment. The company does not expect other ongoing legal proceedings to materially affect its financial position[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Yelp has a **$125.0 million** senior secured revolving credit facility, with **$12.3 million** in letters of credit outstanding and **$112.7 million** available as of June 30, 2025. The company was in compliance with all covenants[86](index=86&type=chunk)[89](index=89&type=chunk) [14. Stockholders' Equity](index=21&type=section&id=14.%20STOCKHOLDERS'%20EQUITY) - As of June 30, 2025, **63,841 thousand** shares of common stock were issued and outstanding, down from **65,792 thousand** at December 31, 2024[90](index=90&type=chunk) - The company repurchased **3,542,330** shares for **$128.4 million** during the six months ended June 30, 2025, with **$202.3 million** remaining available under the **$1.95 billion** stock repurchase program as of June 30, 2025[91](index=91&type=chunk)[92](index=92&type=chunk) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Stock-based compensation expense | $72,244 | $83,924 | - Unrecognized stock-based compensation expense related to RSUs and PRSUs was approximately **$226.1 million** as of June 30, 2025, expected to be recognized over a weighted-average vesting period of **2.1 years**[96](index=96&type=chunk) [15. Other Income, Net](index=23&type=section&id=15.%20OTHER%20INCOME,%20NET) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Interest income, net | $3,451 | $5,424 | $6,963 | $11,088 | | Release of nonrecurring tax reserve | $— | $3,102 | $— | $3,102 | | Other income, net | $5,695 | $10,322 | $11,466 | $18,046 | - Other income, net, decreased significantly due to the non-recurrence of a **$3.1 million** payroll tax credit release from the prior year and lower interest income resulting from reduced cash balances and federal interest rates[99](index=99&type=chunk)[156](index=156&type=chunk) [16. Income Taxes](index=24&type=section&id=16.%20INCOME%20TAXES) | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Provision for income taxes | $25,736 | $16,820 | - The provision for income taxes increased due to higher profit before tax and increased discrete tax expense related to stock-based compensation and uncertain tax positions[100](index=100&type=chunk)[158](index=158&type=chunk) - As of June 30, 2025, the company had **$47.4 million** in unrecognized tax benefits and estimated **$50.7 million** in accumulated undistributed foreign earnings, which it intends to indefinitely reinvest[102](index=102&type=chunk)[103](index=103&type=chunk) [17. Net Income Per Share Attributable to Common Stockholders](index=24&type=section&id=17.%20NET%20INCOME%20PER%20SHARE%20ATTRIBUTABLE%20TO%20COMMON%20STOCKHOLDERS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic net income per share | $0.69 | $0.56 | $1.06 | $0.77 | | Diluted net income per share | $0.67 | $0.54 | $1.03 | $0.73 | | Weighted-average common shares outstanding (basic, in thousands) | 64,145 | 67,815 | 64,700 | 68,187 | | Number of shares used in diluted calculation (in thousands) | 65,683 | 70,444 | 66,610 | 71,574 | - Both basic and diluted EPS increased significantly year-over-year for both the three and six-month periods, reflecting higher net income and a reduction in weighted-average shares outstanding[106](index=106&type=chunk)[107](index=107&type=chunk) [18. Information About Segment, Revenue and Geographic Areas](index=25&type=section&id=18.%20INFORMATION%20ABOUT%20SEGMENT,%20REVENUE%20AND%20GEOGRAPHIC%20AREAS) - Yelp operates as a single operating and reporting segment, generating substantially all revenue from performance-based advertising products[108](index=108&type=chunk) | Revenue Category | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Services | $240,802 | $222,955 | $472,378 | $426,243 | | Restaurants, Retail & Other | $112,895 | $118,383 | $223,320 | $232,733 | | Total Advertising Revenue | $353,697 | $341,338 | $695,698 | $658,976 | | Other | $16,697 | $15,678 | $33,230 | $30,792 | | Total Net Revenue | $370,394 | $357,016 | $728,928 | $689,768 | - Services advertising revenue increased by **8%** and **11% YoY** for the three and six months, respectively, driven by Home and Auto Services (including RepairPal). Restaurants, Retail & Other (RR&O) advertising revenue decreased by **5%** and **4% YoY**, respectively[111](index=111&type=chunk) - The United States accounted for the vast majority of net revenue (**$367.9 million** for Q2 2025) and long-lived assets (**$80.6 million** as of June 30, 2025)[112](index=112&type=chunk)[113](index=113&type=chunk) [19. Subsequent Events](index=27&type=section&id=19.%20SUBSEQUENT%20EVENTS) - In July 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, which is expected to reduce the company's cash tax payments for the remainder of 2025 by approximately **$25 million** to **$35 million**, primarily by restoring full expensing of domestic R&D expenses[114](index=114&type=chunk)[161](index=161&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes Yelp's financial condition, operations, key metrics, liquidity, and accounting policies, highlighting revenue growth [Overview](index=28&type=section&id=Overview) - Yelp is a trusted local resource connecting consumers with businesses through ratings and reviews, generating most revenue from performance-based advertising[116](index=116&type=chunk)[117](index=117&type=chunk) | Metric | Three Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2025 (in millions) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net revenue | $370.4 | $728.9 | | Net income | $44.1 | $68.5 | | Adjusted EBITDA | $100.5 | $185.4 | - Strategic investments in product and marketing drove revenue growth, particularly in Services categories (up **8% YoY** in Q2), while Restaurants, Retail & Other (RR&O) faced challenges. Yelp Assistant project submissions increased by over **400% YoY**[118](index=118&type=chunk)[119](index=119&type=chunk) - The company anticipates flat net revenue and a sequential decrease in adjusted EBITDA for Q3 due to persistent macroeconomic uncertainties and increased expenses in H2 2025[118](index=118&type=chunk) [Key Metrics](index=29&type=section&id=Key%20Metrics) | 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 | | :------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Ad Clicks (YoY % Change) | (7)% | 9% | (5)% | 9% | | Average CPC (YoY % Change) | 11% | (1)% | 10% | (1)% | - Ad clicks decreased by **(7)% YoY** for the quarter and **(5)% YoY** for the six months, primarily due to macroeconomic and competitive pressures in RR&O categories and reduced paid search spend for Services projects. Average CPC increased by **11%** and **10% YoY**, respectively, reflecting strong advertiser demand in Services categories and a focus on higher-quality ad clicks[126](index=126&type=chunk) | Category | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :--------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Services Paying Advertising Locations | 260 | 254 | 260 | 253 | | RR&O Paying Advertising Locations | 255 | 277 | 256 | 277 | | Total Paying Advertising Locations | 515 | 531 | 516 | 530 | - Total paying advertising locations decreased by **3% YoY** for both periods, as growth in Services paying advertising locations (**2-3% YoY**, partly due to RepairPal) was offset by an **8% YoY** decrease in RR&O locations due to challenging operating environments and competition[131](index=131&type=chunk)[133](index=133&type=chunk) [Results of Operations](index=31&type=section&id=Results%20of%20Operations) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net revenue | $370,394 | $357,016 | $728,928 | $689,768 | | Cost of revenue | $35,447 (16% YoY) | $30,677 | $70,275 (21% YoY) | $58,032 | | Sales and marketing | $144,612 (-4% YoY) | $150,293 | $290,896 (-2% YoY) | $298,084 | | Product development | $78,362 (-5% YoY) | $82,080 | $162,267 (-6% YoY) | $173,307 | | General and administrative | $46,318 (4% YoY) | $44,634 | $98,025 (9% YoY) | $89,866 | | Depreciation and amortization | $12,365 (29% YoY) | $9,585 | $24,715 (27% YoY) | $19,515 | | Income from operations | $53,290 (34% YoY) | $39,747 | $82,750 (62% YoY) | $50,964 | - Net revenue growth was driven by Services businesses, with RepairPal contributing approximately two percentage points to total advertising revenue growth. Other revenue increased due to Yelp Guest Manager, Yelp Fusion Insights, and Yelp Fusion programs[137](index=137&type=chunk)[139](index=139&type=chunk) - Cost of revenue increased due to website infrastructure, RepairPal revenue share payments, credit card processing fees, and advertising fulfillment costs. Sales and marketing expenses decreased due to reduced marketing spend on paid search and lower workplace operating costs, partially offset by higher employee-related costs. Product development expenses decreased due to lower headcount and increased capitalization of employee-related costs. General and administrative expenses increased due to higher employee-related costs and RepairPal indemnification obligations, partially offset by lower credit loss provision. Depreciation and amortization increased significantly due to intangible assets from the RepairPal acquisition[142](index=142&type=chunk)[144](index=144&type=chunk)[147](index=147&type=chunk)[149](index=149&type=chunk)[152](index=152&type=chunk)[154](index=154&type=chunk) [Non-GAAP Financial Measures](index=34&type=section&id=Non-GAAP%20Financial%20Measures) - Yelp uses non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin, and Free Cash Flow, to evaluate business performance, noting their limitations as analytical tools[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Adjusted EBITDA | $100,485 | $91,115 | $185,429 | $155,571 | | Adjusted EBITDA margin | 27% | 26% | 25% | 23% | | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Free cash flow | $132,474 | $95,970 | - Adjusted EBITDA increased by **10% YoY** for the quarter and **19% YoY** for the six months, with Adjusted EBITDA margin improving to **27%** and **25%**, respectively. Free cash flow increased by **38% YoY** for the six months, driven by higher operating cash flows[168](index=168&type=chunk)[169](index=169&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) | Metric | June 30, 2025 (in millions) | | :----------------------------------- | :-------------------------- | | Cash and cash equivalents | $197.7 | | Marketable securities | $103.4 | | Available under credit facility | $112.7 | - The company believes its existing cash, cash equivalents, marketable securities, and cash from operations will be sufficient to meet material cash requirements for the next 12 months and beyond, including working capital, stock repurchases, and lease obligations[175](index=175&type=chunk) - Future cash requirements include **$33.4 million** for operating lease agreements (**$11.0 million** within 12 months) and approximately **$151.9 million** for purchase obligations (**$62.4 million** within 12 months), primarily for website hosting services[176](index=176&type=chunk)[177](index=177&type=chunk) - The stock repurchase program had **$176.2 million** remaining available as of August 1, 2025, with **$128.4 million** repurchased during the six months ended June 30, 2025[183](index=183&type=chunk)[185](index=185&type=chunk) [Critical Accounting Policies and Estimates](index=37&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The company's critical accounting policies and estimates, which have not materially changed from the Annual Report, include revenue recognition, website and internal-use software development costs, business combinations, and income taxes. These areas require significant judgment and are subject to variability due to macroeconomic conditions[186](index=186&type=chunk)[187](index=187&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Yelp's market risks (interest rate, foreign exchange, inflation) remain consistent with the prior fiscal year - The company's primary market risks are interest rate, foreign exchange, and inflation, which have remained consistent with the risks disclosed in the Annual Report for the year ended December 31, 2024[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and no material changes in internal control as of June 30, 2025 - As of June 30, 2025, Yelp's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level by management, including the CEO and CFO[190](index=190&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[191](index=191&type=chunk) - Management acknowledges the inherent limitations of control systems, which can only provide reasonable, not absolute, assurance against errors and fraud[192](index=192&type=chunk) [Part II. Other Information](index=39&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) Refers to legal proceedings in Note 13, with no anticipated material adverse effects from ongoing litigation - The company does not believe that the final outcome of its legal proceedings, including those arising in the ordinary course of business, will have a material effect on its business, financial position, results of operations, or cash flows[194](index=194&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for 2024 - No material changes have occurred to the risk factors outlined in the Annual Report on Form 10-K for the year ended December 31, 2024[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details stock repurchase activity for Q2 2025 and remaining authorization under the repurchase program | Period | Total Number of Shares Purchased (in thousands) | Average Price Paid per Share | | :----------------------- | :-------------------------------------------- | :--------------------------- | | April 1 - April 30, 2025 | 812 | $34.38 | | May 1 - May 31, 2025 | 301 | $37.78 | | June 1 - June 30, 2025 | 740 | $36.00 | - As of August 1, 2025, **$176.2 million** remained available under the **$1.95 billion** stock repurchase program[196](index=196&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities[197](index=197&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This disclosure item is not applicable to the company[198](index=198&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) Discloses Rule 10b5-1 trading plans by CPO and CEO in May 2025 for common stock sales - Craig Saldanha, Chief Product Officer, entered a 10b5-1 trading plan on May 14, 2025, for the sale of up to approximately **10,800** shares of common stock[199](index=199&type=chunk) - Jeremy Stoppelman, Chief Executive Officer, entered a 10b5-1 trading plan on May 19, 2025, for the sale of up to **726,200** shares of common stock held by his revocable trust[200](index=200&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including certifications, articles, bylaws, and XBRL documents - The report includes certifications pursuant to Rule 13a-14(a)/15d-14(a) (Exhibits 31.1, 31.2, 32.1†) and Inline XBRL documents (Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[202](index=202&type=chunk) ```