1stdibs.com, Inc.: Form 10-Q for the period ended Mar 31, 2025

You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Company Overview

We are one of the world’s leading online marketplaces for connecting design lovers with many of the best sellers and makers of vintage, antique, and contemporary furniture, home décor, jewelry, watches, art, and fashion. We believe we are a leading online marketplace for these luxury design items based on the aggregate number of listings on our online marketplace and our Gross Merchandise Value (“GMV”). Our sellers, who undergo an evaluation by our in-house experts to vet the integrity of their listings, in-depth marketing content, and custom-built technology platform create trust in our brand and facilitate high-consideration purchases of luxury design items online. By disrupting the way these items are bought and sold, we are both expanding access to, and growing the market for, luxury design.

1stDibs began over two decades ago with the vision of bringing the magic of the Paris flea market online by creating a listings site for top vintage and antique furniture sellers. The quality of our initial seller base enabled us to build a reputation in the design industry as a trusted source for unique luxury design. Since then, we have strengthened our brand as well as deepened and broadened our seller relationships. We launched our e-commerce platform in 2013 and transitioned to a full e-commerce marketplace model in 2016.

Key Operating and Financial Metrics

We use the following key metrics and non-GAAP measures to evaluate our performance, identify trends affecting our business, and make strategic decisions:

• GMV;
• Number of Orders;
• Active Buyers; and
• Adjusted EBITDA (see “Non-GAAP Financial Measures” for a discussion of Adjusted EBITDA and a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA).

For GMV, Number of Orders, and Active Buyers, these metrics are based on internal company data, assumptions, and estimates and are used in managing our business. We believe that these figures are reasonable estimates, and we actively take measures to improve their accuracy, such as eliminating known fictitious or duplicate accounts. There are, however, inherent challenges in gathering accurate data across large online and mobile populations. For example, individuals may have multiple email accounts in violation of our terms of service, which would result in an Active Buyer being counted more than once, thus impacting the accuracy of our number of Active Buyers. In addition, certain metrics, such as the number of Active Buyers, Number of Orders, and GMV are measured based on such numbers as reported in a given month, minus cancellations within that month. As we do not retroactively adjust such numbers for cancellations occurring after the month, the metrics presented do not reflect subsequent order cancellations. We regularly review and may adjust our processes for calculating these metrics to improve their accuracy. These key operating and financial metrics may vary from period to period and should not be viewed as indicative of other metrics.

(dollars in thousands)

24

Gross Merchandise Value

We define GMV as the total dollar value from items sold by our sellers through 1stDibs in a given month, minus cancellations within that month, and excluding shipping and U.S. sales taxes. GMV includes all sales reported to us by our sellers, whether transacted through the 1stDibs online marketplace or reported as an offline sale. We view GMV as a measure of the total economic activity generated by our online marketplace and as an indicator of the scale, growth, and health of our online marketplace. Our historical performance for GMV may not be indicative of future performance in GMV.

Number of Orders

We define Number of Orders as the total number of orders placed or reported through the 1stDibs online marketplace in a given month, minus cancellations within that month. Our historical performance for Number of Orders may not be indicative of future performance in Number of Orders.

Active Buyers

We define Active Buyers as buyers who have made at least one purchase through our online marketplace during the 12 months ended on the last day of the period presented, net of cancellations. A buyer is identified by a unique email address; thus an Active Buyer could have more than one account if they were to use a separate unique email address to set up each account. We believe this metric reflects scale, engagement and brand awareness, and our ability to convert user activity on our online marketplace into transactions. Our historical performance for Active Buyers may not be indicative of future performance in new Active Buyers.

Adjusted EBITDA

We define Adjusted EBITDA as net loss excluding depreciation and amortization, stock-based compensation expense, other income, net, provision for income taxes, gain on sale of business, and strategic alternative expenses. Adjusted EBITDA is a key performance measure used by our management and board of directors to assess our operating performance and the operating leverage of our business. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the income and expenses that we exclude from Adjusted EBITDA. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making. See “Non-GAAP Financial Measures” for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.

Components of Results of Operations

Net Revenue

Our net revenue consists principally of seller marketplace services. Seller marketplace services primarily consist of marketplace transactions, subscriptions, and listing fees. Marketplace transaction fees are collected when sellers pay us commissions ranging from 5% to 50% of GMV and processing fees, which are approximately 3% of the buyer’s total payment, net of expected refunds. If a seller accepts a return or refund for an on-platform purchase, the related commission and processing fees are refunded. Subscriptions provide access to our online marketplace, allowing sellers, who are our customers, to execute successful purchase transactions with buyers. We offer our sellers various subscription pricing tiers which allows them to choose the plan that best fits their business, with choices of a higher monthly subscription fee and lower commission rates or lower monthly subscription fee and higher commission rates. Listing fee revenue is collected when sellers pay us for promoting certain products on their behalf and at their discretion through our online marketplace. Advertisements consist of impression-based ads displayed on our online marketplace on the seller’s behalf.

Cost of Revenue

Cost of revenue includes payment processor fees and hosting expenses. Cost of revenue also includes expenses associated with payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with personnel supporting revenue-related operations and logistics, consulting costs, and amortization expense related to our capitalized internal-use software.

In certain transactions where our shipping services are elected by sellers, we facilitate shipping of items purchased from the seller to the buyer. The difference between the amount collected for shipping and the amount charged by the shipping carrier is included in cost of revenue in our condensed consolidated statements of operations. We facilitate fulfillment and shipping, but do not take ownership of or manage inventory.

Gross Profit and Gross Margin

Gross profit is net revenue less cost of revenue, and gross margin is gross profit as a percentage of net revenue. Gross profit has been, and will continue to be, affected by various factors, including leveraging economies of scale, the costs associated with hosting our platform, the level of amortization of our internal-use software, the fluctuations in shipping costs including our ability to pass these costs on to buyers, and the extent to which we expand our operations. We expect that our gross margin will fluctuate from period to period depending on the interplay of these various factors.

Sales and Marketing

Sales and marketing expenses include payroll, employee benefits, stock-based compensation, other headcount-related expenses associated with sales and marketing personnel, advertising expense, consulting costs, and promotional discounts offered to new and existing buyers. Advertising expenses consist primarily of costs incurred promoting and marketing our services, such as costs associated with acquiring new users through performance-based marketing, social media programs, email, and events. Promotional discounts and incentives represent incentives solely to end buyers and, therefore, are not considered payments made to our customers. Buyers are not our customers because access to the 1stDibs online marketplace is free for buyers, and we have no performance obligations with respect to buyers.

Technology Development

Technology development expenses include payroll, employee benefits, stock-based compensation, and other headcount-related expenses associated with engineering and product development personnel and consulting costs related to technology development. We expense all technology development expenses as incurred, except for those expenses that meet the criteria for capitalization as internal-use software.

General and Administrative

General and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related expenses associated with finance, legal, facility and human resources related personnel, lease expense, net of sublease income, business liability insurance, accounting, professional fees, and depreciation of property and equipment. We expense all general and administrative expenses as incurred.

Provision for Transaction Losses

Provision for transaction losses primarily consists of transaction loss expense associated with our buyer protection program, including damages to products caused by shipping and transit, items that were not received or not as represented by the seller, and reimbursements to buyers at our discretion if they are dissatisfied with their experience. The provision for transaction losses also includes bad debt expense associated with our accounts receivable balance.

Results of Operations

The following table summarizes our results of operations for the periods indicated:

(in thousands)

The following table summarizes our results of operations as a percentage of net revenue for the periods indicated:

Comparison of the Three Months Ended March 31, 2025 and 2024

Net Revenue

(in thousands)

27

Net revenue was $22.5 million for the three months ended March 31, 2025, as compared to $22.1 million for the three months ended March 31, 2024. The increase of $0.5 million, or 2%, was primarily driven by increase in GMV which was due to the increase in average order value, as number of orders was consistent period over period.

Our marketplace transaction fees represent the majority of our net revenue and accounted for 75% and 74% of our net revenue for the three months ended March 31, 2025 and 2024, respectively. Subscription fees accounted for 21% and 22% of our net revenue for the three months ended March 31, 2025 and 2024, respectively.

Cost of Revenue

(in thousands)

Cost of revenue was generally consistent with $6.2 million for the three months ended March 31, 2025, as compared to $6.1 million for the three months ended March 31, 2024.

Gross Profit and Gross Margin

Gross profit was $16.3 million and gross margin was 72.4% for the three months ended March 31, 2025, as compared to gross profit of $16.0 million and gross margin of 72.5% for the three months ended March 31, 2024. Gross profit and gross margin for the three months ended March 31, 2025 was generally consistent due to the 2% increases in both net revenue and cost of revenue as outlined above.

Operating Expenses

Sales and Marketing

(in thousands)

Sales and marketing expense was generally consistent with $9.1 million for the three months ended March 31, 2025, as compared to $9.2 million for the three months ended March 31, 2024.

Technology Development

(in thousands)

Technology development expense was $5.6 million for the three months ended March 31, 2025, as compared to $4.7 million for the three months ended March 31, 2024. The increase of $0.9 million, or 18%, was primarily driven by a $0.7 million increase in salaries and benefits and a $0.3 million increase in stock-based compensation expense resulting from our annual compensation increases and equity grants in March as well as an increase in headcount.

General and Administrative

(in thousands)

General and administrative expense was generally flat with $7.0 million for the three months ended March 31, 2025, as compared to $7.0 million for the three months ended March 31, 2024. The decrease of $0.1 million, or 1%, was primarily driven by a $0.4 million decrease in non-income taxes expense primarily related to a settlement of a sales tax audit in the prior year and a $0.1 million decrease in salaries and benefits, due to lower headcount, and a $0.1 million decrease in professional services, due to lower consultant usage. These were partially offset by a $0.6 million increase in stock-based compensation expense resulting from our annual equity grants.

Provision for Transaction Losses

(in thousands)

28

Provision for transaction losses was $0.9 million for the three months ended March 31, 2025, as compared to $0.4 million for the three months ended March 31, 2024. The increase of $0.5 million, or 117%, was primarily driven by a provision adjustment for a change in estimate based upon historical trends in the prior year as well as timing and volume of claims and an increase in GMV.

Other Income, Net

(in thousands)

Other income, net was $1.5 million for the three months ended March 31, 2025, as compared to $2.0 million for the three months ended March 31, 2024. The decrease of $0.6 million, or 29%, was primarily due to lower interest income driven by lower cash, cash equivalents, and short-term investments for the three months ended March 31, 2025 coupled with interest rate drops throughout 2024.

Non-GAAP Financial Measures

We have included Adjusted EBITDA, which is a non-GAAP financial measure, because it is a key measure used by our management team to help us to assess our operating performance and the operating leverage in our business. We also use this measure to analyze our financial results, establish budgets and operational goals for managing our business, and make strategic decisions. We believe that Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the income and expenses that we exclude from Adjusted EBITDA. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making. We also believe that the presentation of this non-GAAP financial measure provides an additional tool for investors to use in comparing our core business and results of operations over multiple periods with other companies in our industry, many of which present similar non-GAAP financial measures to investors, and to analyze our operating performance.

The non-GAAP financial measures presented may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated. The non-GAAP financial measures presented should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, comparable financial measures calculated in accordance with GAAP. Further, these non-GAAP financial measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations. Accordingly, these non-GAAP financial measures should be considered as supplemental in nature, and are not intended, and should not be construed, as a substitute for the related financial information calculated in accordance with GAAP. These limitations of Adjusted EBITDA include the following:

• The exclusion of certain recurring, non-cash charges, such as depreciation and amortization of property and equipment. While these are non-cash charges, we may need to replace the assets being depreciated in the future and Adjusted EBITDA does not reflect cash requirements for these replacements or new capital expenditure requirements;
• The exclusion of stock-based compensation expense, which has been a significant recurring expense and will continue to constitute a significant recurring expense for the foreseeable future, as equity awards are expected to continue to be an important component of our compensation strategy;
• The exclusion of other income, net, which includes interest income related to our cash, cash equivalents and short-term investments and realized and unrealized gains and losses on foreign currency exchange; and
• The exclusion of strategic alternative expenses in connection with capital return strategies, buy- and sell-side mergers, acquisitions and partnerships which include integration costs, sale of a business or subsidiary, business optimization costs related to revisions of operational objectives and priorities which include restructuring charges, in all cases outside the ordinary course.

Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net loss and our other GAAP results.

We define Adjusted EBITDA as our net loss, excluding: (1) depreciation and amortization; (2) stock-based compensation expense; (3) other income, net; (4) provision for income taxes; and (5) strategic alternative expenses. The following table provides a reconciliation of net loss, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

(in thousands)

Liquidity and Capital Resources

As of March 31, 2025, we had cash, cash equivalents and short-term investments of $101.0 million and an accumulated deficit of $337.2 million. Net cash used in operating activities was $0.1 million in the three months ended March 31, 2025. We expect operating losses and negative cash flows from operations to continue in the foreseeable future as we continue to strategically invest in growth activities. Our principal use of cash is to fund our operations including platform development to support our strategic initiatives and anticipated share repurchases under the 2024 Stock Repurchase Program.

Based on our current plans, we believe our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations and capital expenditure requirements through at least the next 12 months. We expect to continue to incur substantial expenditures in the near term to support our ongoing activities. While management believes that our current cash, cash equivalents and short-term investments are sufficient to fund our operating expenses, capital expenditure requirements, and any anticipated share repurchases under the 2024 Stock Repurchase Program for at least the next 12 months, we may need to borrow funds or raise additional equity to achieve our longer-term business objectives.

Our future capital requirements will depend on many factors, including:

• the emergence of competing online marketplaces and other adverse market developments;
• the timing and extent of our sales and marketing and technology development expenditures; and
• any investments, acquisitions or other similar strategic endeavors we may choose to pursue in the future.

A change in the outcome of any of these or other variables could significantly impact our operating plans, and we may need additional funds to meet operational needs and capital requirements associated with such plans. In addition, any future borrowings may result in additional restrictions on our business and any issuance of additional equity would result in dilution to investors. If we are unable to raise additional capital when we need it, it could harm our business, results of operations, and financial condition.

Stock Repurchase Program

In August 2023, the Board of Directors authorized the 2023 Stock Repurchase Program to repurchase up to an aggregate of $20.0 million of our common stock. In June 2024, the Board of Directors authorized an increase to our 2023 Stock Repurchase Program to an aggregate authorized repurchase amount of $25.5 million. On June 10, 2024, we announced the completion of our 2023 Stock Repurchase Program.

In August 2024, the Board of Directors authorized the 2024 Stock Repurchase Program to repurchase up to an aggregate of $10.0 million of our common stock.

During the three months ended March 31, 2025, 477,992 shares of our common stock were purchased for a total cost of $1.8 million and approximately $2.0 million remains available for future purchases. The following table summarizes total treasury stock purchased under each of the Company's programs as of the periods presented:

(in thousands except share amounts)

30

Cash Flows

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

(in thousands)

Cash Flows from Operating Activities

Net cash used in operating activities was $0.1 million for the three months ended March 31, 2025 and was driven primarily by offsetting increases and decreases in operating assets and liabilities, including a $1.2 million increase in receivables from payment processors due to an increase in GMV and the timing of cash receipts from the payment processers, a $1.0 million decrease in operating lease liabilities due to our monthly operating lease payments, partially offset by a $1.2 million increase in payables due to sellers due to an increase in GMV and the timing of the payments we make to our sellers.

Net cash used in operating activities was $3.1 million for the three months ended March 31, 2024, and was driven primarily by a $2.9 million change in accounts payable and accrued expenses due to timing of payments and invoices, including our annual bonuses which were paid in March 2024.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.3 million for the three months ended March 31, 2025, and was driven primarily by $24.0 million in purchases of short-term investments, partially offset by $21.0 million in maturities and sales of short-term investments.

Net cash provided by investing activities was $1.4 million for the three months ended March 31, 2024, and was driven primarily by $31.6 million maturities of short-term investments partially offset by $29.5 million purchases of short-term investments.

Cash Flows from Financing Activities

Net cash used in financing activities was $2.4 million for the three months ended March 31, 2025, and was driven primarily by $1.8 million in purchases of our common stock as part of our 2024 Stock Repurchase Program and $0.6 million of payments for taxes related to net share settlements of stock-based compensation awards.

Net cash used in financing activities was $2.0 million for the three months ended March 31, 2024, and was driven primarily by $2.7 million of purchases of our common stock as part of our 2023 Stock Repurchase Program partially offset by $0.7 million in proceeds from the exercise of stock options.

Contractual Obligations

As of March 31, 2025, there were no material changes in commitments under contractual obligations compared to the contractual obligations disclosed in our Form 10-K.

Recent Accounting Pronouncements

See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” to our condensed consolidated financial statements for a description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows.

Emerging Growth Company

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

There have been no significant changes to our critical accounting policies and estimates included in our Form 10-K.

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business, including the effects of interest rate changes and foreign currency fluctuations. Information relating to quantitative and qualitative disclosures about these market risks are described below. At times, our cash balances with individual banking institutions are in excess of federally insured limits. We have not experienced any credit losses related to our cash, cash equivalents, and short-term investments balances.

Interest Rate Sensitivity

Interest rate risk relates to the loss we could incur in our cash portfolios due to a change in interest rates. As of March 31, 2025, we had cash, cash equivalents and short-term investments of $101.0 million. Our cash and cash equivalents consist primarily of demand and money market accounts, as well as available-for-sale debt securities with an original maturity of 90 days or less. Our short-term investments consist primarily of U.S. Government agency and Treasury securities, as well as commercial paper and corporate notes which have an original maturity greater than 90 days and are highly liquid in nature. Due to the nature of our cash, cash equivalents and short-term investments, we would expect a hypothetical 100 basis point increase or decrease in interest rates to result in an approximate increase or decrease of $0.7 million in our cash, cash equivalents and short-term investments. While these are our best estimates of the impact of the specified interest rate scenario, actual results could differ from those projected. The sensitivity analysis presented assumes interest rate changes are instantaneous, parallel shifts in the yield curve. In reality, interest rate changes of this magnitude are rarely instantaneous or parallel.

Our principal use of cash, cash equivalents and short-term investments is to fund our operations including platform development to support our strategic initiatives and anticipated share repurchases under the 2024 Stock Repurchase Program. The remainder of cash, cash equivalents and short-term investments are held for working capital purposes. We do not enter into investments for trading or speculative purposes.

Foreign Currency Risk

Our net revenue is primarily denominated in U.S. dollars, Euros, and British pounds, depending on the currency selection of the seller. Our cost of revenue and operating expenses are primarily denominated in U.S. dollars. As our online marketplace continues to grow globally, our results of operations and cash flows may be subject to fluctuations due to the change in foreign exchange rates. To date, fluctuations due to changes in the Euro and British pound have not been significant, but we may experience material foreign exchange gains and losses in our statement of operations in the future. As of March 31, 2025, we would expect an adverse 10% change in current exchange rates to result in no more than a $0.8 million decrease in net revenue for the three months ended March 31, 2025.

Credit Risk

We are exposed to credit risk on accounts receivable balances. This risk is mitigated by requiring upfront payment for many of our services and due to our diverse customer base, dispersed over various geographic regions and industrial sectors. For the three months ended March 31, 2025 and 2024, no single customer accounted for more than 10% of our net revenue. We maintain provisions for potential credit losses and such losses to date have been within our expectations. We evaluate the solvency of our customers on an ongoing basis to determine if additional allowances for doubtful accounts need to be recorded.

Inflation Risk

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe certain metrics have been impacted, both directly and indirectly, by macroeconomic factors, including inflation and as a result significant capital market and housing market volatility. Additionally, if our costs were to become subject to inflationary pressures, we might not be able to fully offset such higher costs through net revenue and GMV increases. Our inability or failure to do so could harm our business, financial condition, and results of operations. We cannot assure you our business will not be affected in the future by inflation.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2025. “Disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025 at the reasonable assurance level.

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified during the three months ended March 31, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and our Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by the collusion of two or more people or by management override of controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We operate in a rapidly changing environment that involves a number of risks that could materially and adversely affect our business, financial condition, prospects, operating results or cash flows. For a detailed discussion of certain risks that affect our business, refer to the section entitled “Risk Factors” in our 2024 Annual Report on Form 10-K. There have been no material changes to the risk factors disclosed in our 2024 Form 10-K.

The risks described in our 2024 Form 10-K are not the only risks we face. We describe in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I of this Quarterly Report on Form 10-Q certain known trends and uncertainties that affect our business. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business, operating results and financial condition.