Onterris, Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our historical audited and unaudited consolidated financial statements and related notes and other information included elsewhere in this filing and our other filings with the SEC, including our unaudited condensed consolidated financial statements and the accompanying notes as of and for the three months ended March 31, 2025 and March 31, 2024 included in Part I, Item 1. “Financial Statements” in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section entitled “Forward-Looking Statements”, and elsewhere in this filing and our other filings with the SEC, including in Item 1A. Risk Factors in the 2024 Form 10-K.

Overview

Since our inception in 2012, our mission has been to help clients and communities meet their environmental goals and needs. According to data derived from a 2024 Environmental Industry Study prepared by Environmental Business International, Inc., or EBI, which we commissioned, the global environmental industry is estimated to be approximately $1.6 trillion, with $540.0 billion concentrated in the United States.

Our Segments

We provide environmental services to our clients through three business segments—Assessment, Permitting and Response, Measurement and Analysis and Remediation and Reuse. For more information on each of our operating segments, see Item 1. “Business” in the 2024 Form 10-K.

Assessment, Permitting and Response

Assessment, Permitting and Response segment provides scientific advisory and consulting services to support environmental assessments, environmental emergency response and recovery, toxicology consulting and environmental audits and permits for current operations, facility upgrades, new projects, decommissioning projects and development projects. We work closely with clients to navigate the regulatory process at the local, state, provincial and federal levels, identify the potential environmental and political impacts of their decisions and develop practical mitigation approaches, as needed. In addition to environmental toxicology, and given our expertise in helping businesses plan for and respond to disruptions, our scientists and response teams have helped clients navigate their preparation for and response to emergency response situations.

Measurement and Analysis

Measurement and Analysis segment is one of the largest providers of environmental testing and laboratory services in North America. Our highly credentialed teams test and analyze air, water and soil to determine concentrations of contaminants, as well as the toxicological impact of contaminants on flora, fauna and human health. Our offerings include source and ambient air testing and monitoring, leak detection, and advanced multi-media laboratory services, including air, soil, stormwater, wastewater and drinking water analysis.

Remediation and Reuse

Remediation and Reuse segment provides clients with engineering, design, and implementation services, primarily (i) treatment technologies which treat contaminated water or create renewable energy from waste, or (ii) soil remediation. Our employees, including engineers, scientists and consultants, provide these services to assist our clients in designing solutions, managing products and mitigating environmental risks and liabilities at their locations. We do not own the properties or facilities at which we implement these projects or the underlying liabilities, nor do we own material amounts of the equipment used in projects.

These operating segments have been structured and organized to align with how we view and manage the business with the full lifecycle of our clients’ targeted environmental concerns and needs in mind. Within each segment, we cover similar service offerings, regulatory frameworks, internal operating structures and client types. Corporate activities not directly related to segment performance, including general corporate expenses, interest and taxes, are reported separately.

Key Factors that Affect Our Business and Our Results

Our operating results and financial performance are influenced by a variety of internal and external trends and other factors. Some of the more important factors are discussed briefly below.

Acquisitions

Although we have temporary paused acquisitions, we have been, and expect to continue to be, an acquisitive company. Acquisitions have expanded our environmental service capabilities across all three segments, our access to technology, as well as our geographic reach in the United States, Canada, Europe and Australia. The table below sets forth the number of acquisitions completed, revenues generated by and the percentage of total revenues attributable to those acquisitions completed during the three months ended March 31, 2025 and March 31, 2024:

(Revenues in thousands)

Revenues from acquired companies exclude intercompany revenues from revenue synergies realized between business lines within operating segments, as these are eliminated at the consolidated segment and Company level. We expect our revenue growth to continue to be driven in significant part by acquisitions. See Note 7 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

As a result of our acquisitions, goodwill and other intangible assets represent a significant proportion of our total assets, and amortization of intangible assets has historically been a significant expense. Our historical financial statements also include other acquisition-related costs, including costs relating to external legal support, diligence and valuation services and other transaction and integration-related matters. In addition, in any year gains and losses from changes in the fair value of business acquisition contingencies such as earn-outs could be significant. The amount of each for the three months ended March 31, 2025 and March 31, 2024, was as follows:

(in thousands)

We expect that amortization of identifiable intangible assets and other acquisition-related costs, assuming we continue to acquire, will continue to be significant.

During the three months ended March 31, 2025, we made contingent consideration payments of $6.6 million in the Company's common stock, of which $4.8 million related to deferred consideration payments for the acquisition of Epic Environmental Pty Ltd (Epic) and $1.8 million related to earn-out payments for SensibleIoT, LLC (Sensible). During the three months ended March 31, 2024, we made earn-out payments of $1.5 million in connection with our acquisition of Huco Consulting, Inc. (Huco), of which, $0.4 million was paid in cash, and the remaining $1.1 million in the Company's common stock.

In connection with certain of our acquisitions, we may make up to $26.7 million in aggregate earn-out payments between the years 2025 and 2027, of which up to $12.0 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $11.9 million may be paid, at our option, in cash or common stock. See Note 7 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Organic Growth

We define organic growth as the change in revenues excluding revenues from (i) our environmental emergency response business, (ii) acquisitions for the first twelve months following the date of acquisition, and (iii) businesses held for sale, disposed of or discontinued. Management uses organic growth as one of the means by which it assesses our results of operations. Organic growth is not, however, a measure of revenue growth calculated in accordance with U.S. generally accepted accounting principles, or GAAP, and should be considered in conjunction with revenue growth calculated in accordance with GAAP. We have grown organically over the long term and expect to continue to do so.

Revenue Mix

Our segments and our business lines within each segment generate different levels of profitability and, accordingly, shifts in the mix of revenues between segments can impact our consolidated reported net income, net loss margin, Segment Adjusted EBITDA and Segment Adjusted EBITDA margin from quarter to quarter and year to year. Inter-company revenues between business lines within segments have been eliminated. See Note 19 to our unaudited condensed consolidated financial statements included in Part 1, Item 1 “Financial Statements.”

Our revenues and certain expenses, including selling, general and administrative expense, vary from period to period due primarily to changes in organic growth, the incremental contribution from recent acquisitions and strategic decisions we may make from time to time. When we refer to changes driven by organic growth, we are referring to the contribution from businesses that have been part of Montrose for more than 12 months, with certain limited exclusions as discussed in greater detail above. In a given reporting period, when we refer to revenue changes driven by acquisitions, we are referring to the revenue contribution from any acquisition from its closing date through the first 12 months of that acquisition, at which point any subsequent contribution therefrom would be organic.

Financing Costs

Total debt at March 31, 2025 was $241.8 million net of deferred debt issuance costs, which was an increase of $19.1 million compared to December 31, 2024. The increase is primarily driven by the refinanced term loan in connection with the 2025 Credit Facility, which increased the aggregate amount outstanding by approximately $10.8 million, and additional usage of our revolving line of credit, under which borrowings increased by $9.7 million. This increase was partially offset by repayments and amortization of the various debt noted.

Interest expense, net was $5.1 million in the three months ended March 31, 2025 and $3.3 million in the three months ended March 31, 2024. We expect interest expense to remain a significant cost as we continue to leverage our credit facility to support our operations and future acquisitions.

In February 2025, we refinanced our 2021 Credit Facility and replaced it with a new 2025 Credit Facility. See Note 12 to our unaudited condensed consolidated financial statements included in Part 1, Item 1 “Financial Statements” and “Liquidity and Capital Resources.”

Corporate and Operational Infrastructure Investments

Our historical operating results reflect the impact of our ongoing investments in our corporate infrastructure to support our growth. We have made and expect to continue to make investments in our business platform that we believe have laid the foundation for continued growth. Investments in logistics, quality, risk management, sales and marketing, safety, human resources, research and development, finance and information technology and other areas enable us to support continued growth. These investments should allow us to improve our margins over time.

Seasonality

Because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on annual results. Additionally, due to the field-based nature of certain of our services, weather patterns generally impact our field-based teams’ ability to operate in the winter months. As a result, our operating results in our Measurement and Analysis segment and our Remediation and Reuse segment, experience some quarterly variability with generally lower revenues and lower earnings in the first and fourth quarters and typically we experience higher overall revenues and earnings in the second and third quarters. As we continue to grow and expand into new geographies and service lines, quarterly variability in our Measurement and Analysis and Remediation and Reuse segments may deviate from historical trends.

Earnings Volatility

In addition to the impact of seasonality on earnings, our emergency response business exposes us to potentially significant revenue and earnings fluctuations tied to large environmental emergency response projects following an incident or natural disaster or more broad scale events. Total revenue from emergency response related services was $13.9 million and $15.7 million for the three months ended March 31, 2025 and 2024, respectively. Demand for environmental emergency response services remains difficult to predict and as a result, we may have experienced revenues and earnings in prior years that are not indicative of future results, making those periods particularly difficult comparisons for future periods. Earnings volatility is also driven by the timing of large projects, particularly in our Remediation and Reuse segment, and the impact of acquisitions. As a result of these factors, and because demand for environmental services is not driven by specific or predictable patterns in one or more fiscal quarters, our business is better assessed based on annual results.

Results of Operations

The Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

(in thousands, except per share data)

Revenues

(in thousands, except %)

Revenue for the three months ended March 31, 2025 increased $22.5 million or 14.5% as compared to the three months ended March 31, 2024. The increase was primarily comprised of organic growth in the Remediation and Reuse and Measurement and Analysis segments of $17.8 million, and contribution from acquisitions of $13.5 million, partially offset by $5.8 million reduction in the Assessment, Permitting and Response segment revenue, due to several larger projects that were performed in the prior year quarter that did not repeat in the current year, and a $1.8 million reduction in environmental emergency response service revenues. Environmental emergency response revenues were $13.9 million and $15.7 million in the three months ended March 31, 2025 and 2024, respectively.

See “—Segment Results of Operations” below for revenue by segment analysis.

Cost of Revenues

(in thousands, except %)

Cost of revenues consists of all direct costs required to provide services, including fixed and variable direct labor costs, equipment purchases and rental, and other outside services, field and lab supplies, vehicle costs and travel-related expenses. Variable costs of revenues generally follow the same trends as revenue, while fixed costs tend to change primarily as a result of acquisitions.

Cost of revenues for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 increased primarily due to the increase in revenues. Cost of revenues as a percentage of revenue for the three months ended March 31, 2025 was 61.0%, compared to 62.2% for the three months ended March 31, 2024. This percentage decrease was driven primarily by operating leverage across all business lines within our Measurement and Analysis businesses, and improved margins in our treatment technology business.

Selling, General and Administrative Expense

(in thousands, except %)

Selling, general and administrative expense consists of general corporate overhead, including executive, legal, finance, safety, risk management, human resource, marketing and information technology related costs, as well as indirect operational costs of labor, rent, insurance and stock-based compensation.

Selling, general and administrative expense for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 increased $9.2 million or 16.0%. Acquisitions contributed $2.6 million to this increase with the balance primarily attributable to higher labor costs of $5.7 million, higher bad debt expense of $1.3 million and higher stock-based compensation of $1.1 million.

See Part I, Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for additional information regarding the impact of inflation on our business.

Depreciation and Amortization

(in thousands, except %)

The increase in depreciation of property and equipment and the amortization of intangible assets and finance leases were primarily driven by an increase of $1.0 million in amortization of intangible assets during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. See Note 8 to our unaudited condensed consolidated financial statements included in Part 1, Item 1. “Financial Statements.”

Other Income (Expense), Net

(in thousands, except %)

Other (expense) income, net for the three months ended March 31, 2025 was comprised of losses of $0.9 million related to a fair value adjustment on our interest rate swaps and a $0.3 million charge related to a fair value adjustment on the Series A-2 Preferred Stock conversion option, partially offset by $0.4 million of other income. Other (expense) income, net for the three months ended March 31, 2024 was mainly comprised of income of $0.3 million related to a fair value adjustment on our interest rate swaps and $0.2 million of other income.

See Notes 13 and 15 to our unaudited condensed consolidated financial statements included in Part 1, Item 1. “Financial Statements.”

Interest Expense, Net

(in thousands, except %)

Interest expense, net for the three months ended March 31, 2025 increased primarily as a result of higher average debt balances and a loss of $0.9 million related to the write-off of unamortized debt issuance costs upon repayment of the 2021 Credit Facility in February 2025.

Weighted average interest rates as of March 31, 2025 and March 31, 2024 were 6.3% and 7.3%, respectively. See “—Key Factors that Affect Our Business and Our Results—Financing Costs” and Notes 12 and 13 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Income Tax Expense

(in thousands, except %)

The income tax expense for the three months ended March 31, 2025 increased compared to the three months ended March 31, 2024 primarily as a result of certain tax inclusions from foreign acquisitions in 2024 and an increase in U.S. current federal tax expense as a result of the Company having previously utilized all pre-2018 net operating loss carryforwards that were available to offset 100% of taxable income, and therefore currently utilizing post-2017 net operating loss carryforwards which are limited to offsetting 80% of taxable income in any given year. The income tax expense is primarily related to operations in the United States, Canada and Australia.

Segment Results of Operations

The Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

(in thousands, except %)

(1) For purposes of evaluating segment profit, the Company’s Chief Operating Decision Maker reviews Segment Adjusted EBITDA as a basis for making the decisions to allocate resources and assess performance. See Note 19 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

(2) Represents Segment Adjusted EBITDA as a percentage of segment revenues.

Revenues

(in thousands, except %)

Assessment, Permitting and Response segment revenues for the three months ended March 31, 2025 decreased compared to the three months ended March 31, 2024 due to a decline in revenues from environmental emergency responses of $1.8 million and a decrease of $6.6 million due to several larger projects in the prior year quarter that did not repeat in the current year, partially offset by the impact of an acquisition, which contributed $3.0 million to the increase in the three months ended March 31, 2025 .

Measurement and Analysis segment revenues for the three months ended March 31, 2025 increased compared to the three months ended March 31, 2024 as a result of strong organic growth of $8.5 million, and the impact of an acquisition, which contributed $5.4 million.

Remediation and Reuse segment revenues for the three months ended March 31, 2025 increased compared to the three months ended March 31, 2024, primarily driven by strong demand for our treatment technologies solutions, and contributions from acquisitions. Specifically, organic growth contributed $9.3 million, and acquisitions contributed $5.1 million to the increase in revenues in the three months ended March 31, 2025.

Segment Adjusted EBITDA

(in thousands, except %)

Assessment, Permitting and Response Segment Adjusted EBITDA and Segment Adjusted EBITDA margin for the three months ended March 31, 2025 decreased compared to the three months ended March 31, 2024 primarily due to a reduction in higher margin emergency response revenues, lower revenues from several high margin projects in the prior year quarter that did not repeat in the current year, and project mix.

Measurement and Analysis Segment Adjusted EBITDA and Segment Adjusted EBITDA margin for the three months ended March 31, 2025 increased compared the three months ended March 31, 2024 primarily due to the operating leverage across all business lines driven by significantly higher revenue, as well as the benefit from acquisitions.

Remediation and Reuse Segment Adjusted EBITDA for the three months ended March 31, 2025 increased compared to the three months ended March 31, 2024 primarily due to higher revenues. Segment Adjusted EBITDA margin decreased in the three months ended March 31, 2025 compared to the three months ended March 31, 2024, driven primarily by business line mix.

Corporate and other costs for the three months ended March 31, 2025 increased $0.4 million primarily due to higher labor costs to support the increase in revenues. Corporate and other costs fell to 6.3% of revenue from 7.0% of revenue as a result of operating leverage and the timing of certain expenses.

Liquidity and Capital Resources

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and other sources, including availability under our credit facility, and their sufficiency to fund our operating and investing activities.

Our principal sources of liquidity have been borrowings under our credit facilities, other borrowing arrangements, proceeds from the issuance of common and preferred stock and cash generated by operating activities. Historically, we have financed our operations and acquisitions from a combination of cash generated from operations, periodic borrowings under senior secured credit facilities, and proceeds from the issuance of common and preferred stock. Our primary cash needs are for day to day operations, to fund working capital requirements, to fund our acquisition strategy and any related cash earn-out obligations, to pay interest and principal on our indebtedness and dividends on our Series A-2 Preferred Stock, and to make capital expenditures. Additionally, in connection with certain acquisitions, we agree to earn-out provisions and other purchase price adjustments that may require future payments. We may make up to $26.7 million in aggregate earn-out payments between the years 2025 and 2027 in connection with the acquisitions of Sensible, Vandrensning, Epic, 2DOT, Spirit and Origins, of which up to $12.0 million may be paid only in cash, up to $2.8 million may be paid only in common stock and up to $11.9 million may be paid in cash or, at our option, in common stock. See Note 7 to our unaudited condensed consolidated financial statements included in Part 1, Item 1. “Financial Statements.” As of March 31, 2025, we had $263.9 million available under the 2025 Credit Facility (without giving effect to any outstanding letters of credit, and subject to borrowing base limitations), and $30.3 million of cash on hand. In April 2025, we redeemed $60.0 million in aggregate stated value of the outstanding Series A-2 Preferred Stock using cash and borrowings under our revolving line of credit.

We expect to continue to fund our liquidity requirements, including any cash earn-out payments that may be required in connection with acquisitions, through cash generated from operations and borrowings under our credit facility. We believe these sources will be sufficient to fund our cash needs for the short- and long-term.

Cash Flows

The following table summarizes our cash flows for the periods presented:

(in thousands)

Operating Activities

Cash flows from operating activities can fluctuate from period-to-period as earnings, working capital needs and the timing of payments for contingent consideration, taxes, bonus payments and other operating items impact reported cash flows.

For the three months ended March 31, 2025, net cash provided by operating activities was $5.5 million compared to net cash used in operating activities of $22.0 million for the three months ended March 31, 2024. The period-over-period increase of $27.5 million was primarily due to a lower increase in working capital in the current period of $9.1 million versus $30.0 million in the prior year period.

Working capital (which excludes contingent consideration payments and changes in right-of-use assets) increased by $9.4 million in the three months ended March 31, 2025, primarily due to a decrease in accrued payroll and other benefits of $8.6 million, primarily due to the payment of annual bonuses, and a seasonal decrease in accounts payable and other accrued liabilities of $5.5 million. This increase was partially offset by an decrease in accounts receivable of $10.4 million, driven by seasonally lower quarterly revenues, as well as $5.5 million higher prepaids primarily due to the timing of insurance payments.

Working capital increased by $30.0 million in the three months ended March 31, 2024, primarily due to a decrease in accrued payroll and benefits of $10.0 million, due primarily to the payment of bonuses in the first quarter, an increase in accounts receivable and contract assets of $9.1 million, due in part to integration-related invoicing delays and collection delays on a single large government project, a seasonal decrease in accounts payable and other accrued liabilities of $7.8 million, and an increase in prepaid expenses and other current assets of $2.5 million.

Investing Activities

For the three months ended March 31, 2025, net cash used in investing activities was $3.7 million, driven by cash paid for property and equipment and proprietary software development costs.

For the three months ended March 31, 2024, net cash used in investing activities was $65.0 million, driven by cash paid for the acquisitions of EPIC and 2DOT, net of cash acquired, of $58.1 million, as well as $6.0 million in cash consideration for purchases of property and equipment, and $1.3 million in proprietary software development costs, partially offset by proceeds of assumed purchase price obligations of $0.3 million.

Financing Activities

For the three months ended March 31, 2025, net cash provided by financing activities was $16.0 million. Cash provided by financing activities was driven by borrowing under our credit facility of $306.9 million, partially offset by repayments of borrowing of $286.7 million, dividends on the Series A-2 Preferred Stock of $2.8 million and payment of financing cost of $2.2 million.

For the three months ended March 31, 2024, net cash provided by financing activities was $73.3 million. Cash provided by financing activities was driven by borrowing under our credit facility of $216.9 million, partially offset by repayments of borrowing of $82.3 million, and by the repayment on the Series A-2 preferred stock of $60.0 million.

Credit Facilities

See Note 12 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Series A-2 Preferred Stock

See Notes 15 and 22 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Critical Accounting Policies and Estimates

Our 2024 Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results. There have been no material changes to those critical accounting policies and estimates as disclosed therein, other than as described in Note 2 to our unaudited condensed consolidated financial statements included in Part I, Item 1. “Financial Statements.”

Interest Rate Risk

We have market risk exposure arising from changes in interest rates on our credit facility, which bears interest at rates that are benchmarked subject to the Company’s leverage ratio and SOFR. Based on our overall interest rate exposure to variable rate debt outstanding as of March 31, 2025, which factors in our interest rate swaps on $150.0 million of debt, a 1.0% increase or decrease in interest rates on the term loan, aircraft loan, and revolving line of credit would impact our annual income (loss) before income taxes by approximately $0.9 million.

Inflation Risk

We experienced, and continue to experience, higher labor and significantly higher travel and other direct costs in the fiscal year ended December 31, 2023 and December 31, 2024 as a result of inflation, particularly in our Measurement and Analysis and Remediation and Reuse segments. In the three months ended March 31, 2025, we also experienced, and continue to experience, higher labor costs as a result of inflation. We believe we have successfully raised prices in businesses with short term contracts to offset these inflationary effects. We also have and are continuing to raise prices on medium term (one to four quarter) contracts as these contracts are renewed or new contracts are won, and as a result have been able to offset much of the impact of inflation to date. We expect to continue to raise prices if direct costs continue to increase, and although inflation has increased our Selling, general and administrative expense in the three months ended March 31, 2025, we do not believe over a longer period of time that inflation will have a material effect on our business, financial condition or results of operations. If our costs were to become subject to additional and unanticipated significant sustained inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

Foreign Exchange Risk

Foreign exchange risk exposure arises because we conduct a portion of our business in currencies not denominated in U.S. dollars, most notably in, Canada, Australia and Europe. Our exposure to this risk has increased significantly due to our acquisitions of Paragon and Matrix in Canada, EPIC in Australia, and to a lesser extent, Vandrensning in Europe. As such, our future operating results are exposed to changes in exchange rates. When the U.S. dollar weakens against foreign currencies, the dollar value of revenues denominated in foreign currencies increases. When the U.S. dollar strengthens, the opposite situation occurs. Additionally, the translation of certain foreign denominated assets and liabilities into U.S. dollars, and the collection or payment of previously recognized assets and liabilities can be positively or negatively affected by changes in exchange rates. A 1.0% increase or decrease in the U.S. dollar exchange rate would impact revenues by approximately $0.3 million and would have a negligible impact on annual net (loss) income.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), as of March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our system of internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed or operated, can provide only reasonable, but not absolute, assurance that the objectives of the system of internal control are met. The design of our control system reflects the fact that there are resource constraints, and that the benefits of such control system must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control failures and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the intentional acts of individuals, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part on certain assumptions about the likelihood of future events, and there can be no assurance that the design of any particular control will always succeed in achieving its objective under all potential future conditions.

Except as set forth below, there have been no material changes to our risk factors from the risk factors disclosed in our 2024 Form 10-K. The risks described in our 2024 Form 10-K, in addition to the other information set forth in this Quarterly Report on Form 10-Q, are not the only risks facing we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Enhanced U.S. tariffs, import/export restrictions or other trade barriers may have a negative effect on global economic conditions, financial markets and our business.

The U.S. government has made significant changes in U.S. trade policy, including the imposition on April 2, 2025, of a baseline tariff of 10% on product imports from almost all countries and individualized higher tariffs on certain other countries. The announcement of the tariffs has been followed by announcements of limited exceptions and temporary pauses. In response, some of these countries threatened or announced tariffs on imports from the U.S. As a result, there is currently significant uncertainty about the future relationship between the U.S. and various other countries with respect to trade policies, treaties, tariffs and taxes, which may lead to continuing uncertainty and volatility in U.S. and global financial and economic conditions, declining consumer confidence, inflation or an economic slowdown, which could negatively impact demand for our services and products and adversely affect our results of operations. Changes in U.S. trade policy and the impact of these recently announced tariffs may negatively impact our customers’ businesses, thereby causing an indirect negative impact on our sales. These factors could also increase the cost to us of goods and materials used in our business. Additionally, foreign sentiments toward American owned companies could impact demand for our services outside of the U.S. Individually or in the aggregate, these impacts could have a material adverse effect on our financial condition, results of operation, liquidity and cash flow.