Spruce Power Holding Corp: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion and analysis should be read together with our results of operations and financial condition and the unaudited condensed consolidated financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2025 (the “Annual Report”). In addition to historical financial information, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or elsewhere in this Quarterly Report on Form 10-Q and under “Risk Factors” in Item 1A of the Annual Report.

Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

As used in this discussion and analysis, references to “SPRU,” “the Company,” “we,” “us” or “our” refer only to Spruce Power Holding Corporation and its consolidated subsidiaries.

Company Overview

We are a leading owner and operator of distributed solar energy assets across the U.S., offering subscription-based services to approximately 85,000 home solar assets and customer contracts, making renewable energy more accessible to everyone. We offer asset management and operating and maintenance services and are contracted to service approximately 60,000 systems owned by third parties, as well as to our Portfolio, through our Spruce Pro servicing platform.

Corporate Strategy

We believe the combination of our existing customer base and proven servicing platform related to our Customer Agreements, together with our capital resources and relationships, gives us the ability to take advantage of growth in distributed solar and battery storage services, while creating a path to more predictable revenues, profits and cash flow for our shareholders. Our corporate strategy has three key elements:

Leveraging the Spruce Power platform to become a leading provider of subscription-based solutions for distributed energy resources

We have more than a decade of experience owning and operating rooftop solar systems, as well as energy efficiency upgrades. We believe our proven platform for managing home solar can be extended to other categories of distributed energy resources, and by leveraging our platform, we intend to grow our revenues by providing subscription-based solutions for rooftop solar and energy storage and other future energy-related products to homeowners and businesses. We are focused on delivering best-in-class customer service, with investment into process and platform improvement for on-site monitoring, customer billing and working with qualified partners for field services.

Profitably growing return on assets by focusing on channels with the lowest customer acquisition cost

We seek to grow our customer revenues by focusing on those channels that have lowest customer acquisition costs and the ability to increase return on assets, including acquiring existing systems from other companies or investment funds, selling additional services to existing customers, selling services to new customers online and partnering with selected independent installers to provide a subscription-based solution for their customers. Historically, we have grown our number of residential customers through acquisitions, while also organically developing our Spruce Pro servicing platform.

Increasing shareholder value by delivering predictable revenues, profits and cash flow

By focusing on subscription-based solutions with long-term customer contracts, we seek to generate consistent revenues, profits and cash flow from our residential customers and by leveraging our Spruce Pro servicing platform for portfolio managed services.

Operating Highlights

For the three months ended September 30, 2025 and 2024, our revenues totaled $30.7 million and $21.4 million, respectively, while our net loss attributable to stockholders was $0.9 million and $53.5 million, respectively. For the nine months ended September 30, 2025 and 2024, our revenues totaled $87.8 million and $61.9 million, respectively, while our net loss attributable to stockholders was $19.2 million and $64.6 million, respectively. Our financial performance during the three and nine months ended September 30, 2025 was impacted by fluctuations in the value of our interest rate swaps, variations in our operations and maintenance costs, and the incremental impact of the NJR Acquisitions. The three and nine months ended September 30, 2024 was impacted by goodwill impairment of $28.8 million and settlement costs associated with various Legacy XL Legal proceedings. See the section below titled “Results of Operations” in this Quarterly Report on Form 10-Q for more information on our operating results for the three and nine months ended September 30, 2025 and 2024. We focus on the following core pillars in our operations:

• Deliver operational excellence in our clean energy portfolio for customers and communities. Combined portfolio generation was approximately 190 thousand MWh of power for the three months ended September 30, 2025, compared to 123 thousand MWh of power for the three months ended September 30, 2024, respectively.
• Execute on our growth and capital strategies. As of September 30, 2025, we owned cash flows from approximately 85,000 home solar assets and customer contracts across 18 U.S. states with an average remaining contract life of approximately 10 years compared to approximately 75,000 home solar assets and customer contracts with an average remaining contract life of approximately 11 years as of September 30, 2024 due to the impact of the NJR Acquisitions.

Certain information above constitutes key operating metrics that we use to evaluate our operations, measure our performance and identify trends in our business. Some of our key operating metrics are estimates that are based on our management’s beliefs and assumptions and on information currently available to management. Although we believe we have a reasonable basis for each of these estimates, we caution that these estimates are based on a combination of assumptions that may prove to be inaccurate over time, and any inaccuracies could be material to our actual results when compared to our calculations. See the section titled “Risk Factors” in this Quarterly Report on Form 10-Q and under “Risk Factors” in Item 1A of our Annual Report for more information. Furthermore, other companies may calculate these operating metrics differently than we do now or in the future, which would reduce their usefulness as a comparative measure.

Acquisitions

In November 2024, we completed the Initial NJR Acquisition acquiring 9,800 solar energy systems for approximately $132.5 million, pursuant to an asset purchase agreement (the “APA”). The Initial NJR Acquisition was funded by proceeds from the concurrent issuance of the SP5 Facility (defined below) and $22.7 million of our cash. Under the APA, we were obligated to acquire approximately 200 additional solar energy systems, subject to those systems having achieved operational milestones, and assuming those milestones are achieved, the aggregate purchase consideration payable with respect to these additional solar energy systems would be approximately $5.0 million pursuant to the APA.

During each of the three months ended March 31, 2025, June 30, 2025, and September 30, 2025, we acquired 83, 109, and 7, respectively, of the Additional NJR Systems, resulting in 199 systems in the aggregate for approximately $4.8 million in cash, inclusive of transaction costs of $0.1 million. Subsequent to September 30, 2025 and upon achieving operational milestone, we purchased one final Additional NJR System for $0.04 million.

SP5 Facility

In November 2024, we entered into a non-recourse credit agreement with Banco Santander, S.A., New York (the “SP5 Facility”), which provided a term loan of approximately $109.8 million, of which proceeds were used to partially fund the Initial NJR Acquisition described above. In addition, we entered into an interest rate swap agreement to hedge the floating rate of the SP5 Facility, which included a notional amount of $87.9 million, a swap rate of 3.98%, and a maturity date of November 22, 2027.

Common Share Repurchase Program

During the nine months ended September 30, 2025, the Company repurchased 0.8 million shares of common stock under the Repurchase Program in open market transactions at a weighted-average price of $2.33 per share for an aggregate purchase price of $1.8 million, inclusive of transaction costs. The Company repurchased no shares of common stock under the Repurchase Program during the three months ended September 30, 2025.

Operating Segments

For information about our operating segments, see “Segment reporting” in Note 2. Summary of Significant Accounting Policies and Note 15. Segment Information.

Key Factors Affecting Operating Results

We are a leading owner and operator of distributed solar energy assets across the U.S., offering subscription-based services to owners of home solar assets and customer contracts. Additionally, we provide servicing functions for our assets and customers, as well as for other institutional owners of home solar energy systems. Our operating results and ability to grow our business over time could be impacted by certain factors and trends that affect our industry, as well as elements of our strategy, including the following factors, as well as the risk factors disclosed in Part I, Item 1A, “Risk Factors,” in our Annual Report and other risk factors set forth elsewhere in this Quarterly Report on Form 10-Q:

Development of Distributed Energy Assets

Our future growth depends significantly on our ability to acquire operating home solar energy systems “in-bulk” from other companies. Industry data suggests there is a substantial existing base of operating home solar energy systems, providing us the opportunity to pursue acquisitions. Over the long-term, our continued ability to pursue acquisitions will be dependent on development of distributed energy assets, namely home solar energy systems, by third parties. This development may be impacted by numerous factors that influence homeowner demand for home solar energy systems including but not limited to macroeconomic dynamics, utility rates, climate change impacts and government policy and incentives.

Availability of Financing

Our ability to raise capital from third parties at reasonable terms is a critical element in supporting ownership of our existing home solar energy assets as well as enabling our future growth. We have historically utilized non-recourse, project-level debt as a primary source of capital for acquisitions. Our ability to raise debt either as a means to refinance existing indebtedness or for future acquisitions may be impacted by general macroeconomic conditions, the health of debt capital markets, the interest rate environment and general concerns over its industry or specific concerns over our business.

Results of Operations

Comparison of the Three Months Ended September 30, 2025 and 2024

The results of operations related to our Drivetrain business are presented as net loss from discontinued operations in our unaudited condensed consolidated statements of operations.

Information with respect to the unaudited condensed consolidated statements of operations for the three months ended September 30, 2025 and 2024 is presented below:

(in thousands)

Revenues

Revenues increased by $9.3 million, or 44%, to $30.7 million in the three months ended September 30, 2025 as compared to the same period in 2024. The increase was primarily due to (i) approximately $3.0 million of incremental SLA revenues related to the NJR Acquisitions, (ii) $5.3 million increase in SREC revenues, of which approximately $5.2 million related to the NJR Acquisitions, and (iii) $0.8 million increase due to incremental servicing revenues related to contracted services on third-party owned solar energy systems in 2025. Cost of Revenues — Solar Energy Systems Depreciation

Cost of revenues - solar energy systems depreciation increased by $1.8 million, or 31%, to $7.5 million in the three months ended September 30, 2025 as compared to the same period in 2024 primarily due to incremental depreciation related to the NJR Acquisitions.

Cost of Revenues — Operations and Maintenance

Cost of revenues - operations and maintenance (“O&M”) decreased by $2.1 million, or 53%, to $1.8 million in the three months ended September 30, 2025 as compared to the same period in 2024 primarily due to cost reductions resulting from certain O&M efficiencies implemented in early 2025, including greater leverage of our asset management platform to streamline third-party vendor management and return material authorization (RMA) processing. We also experienced a reduction in our meter upgrade program cost as the program is nearing completion.

Selling, General and Administrative

Selling, general and administrative (“SG&A”) expenses decreased by $0.6 million, or 4%, to $12.9 million in the three months ended September 30, 2025 as compared to the same period in 2024 primarily due to lower professional fees partially offset by an increase in compensation and related costs, including severance related to reduction in workforce during the current period.

Litigation Settlements

Litigation settlements decreased by $6.8 million in the three months ended September 30, 2025 as compared to the same period in 2024 primarily related to settlement costs associated with various Legacy XL Legal proceedings.

Impairment of Goodwill

Impairment of goodwill of $28.8 million recognized during the three months ended September 30, 2024 was due to a continuous decline in our stock price and market capitalization.

Interest Income

Interest income of $5.2 million in the three months ended September 30, 2025 related to $4.5 million of interest income from the SEMTH Master Lease and $0.7 million of interest earned on investments in money market funds. In comparison, interest income of $6.3 million for the three months ended September 30, 2024 related to $4.8 million of interest income from the SEMTH Master Lease and $1.5 million of interest earned on investments in money market funds and U.S. Treasury securities.

Interest Expense, Net

Interest expense, net in the three months ended September 30, 2025 of $12.8 million consisted of (i) $11.2 million of interest expense, net of realized gains from settlements of our interest rate swaps of $2.0 million, and (ii) $1.6 million related to the amortization of debt discount and deferred financing costs. In comparison, interest expense, net in the three months ended September 30, 2024 of $11.4 million consisted of (i) $9.9 million of interest expense, net of realized gains from settlements of our interest rate swaps of $3.0 million, and (ii) $1.5 million related to the amortization of debt discount and deferred financing costs. Interest expense, net increased in the 2025 period due to the effect of the SP5 Facility entered into as part of the Initial NJR Acquisition in November 2024.

Other Expense, net

Other expense, net of $1.5 million and $11.3 million, respectively, for the three months ended September 30, 2025 and 2024 primarily related to the change in the fair value of our interest rate swaps due to changes in forecasted market interest rates.

Comparison of the Nine Months Ended September 30, 2025 and 2024

The results of operations related to our Drivetrain business are presented as net loss from discontinued operations in our unaudited condensed consolidated statements of operations.

Information with respect to the unaudited condensed consolidated statements of operations for the nine months ended September 30, 2025 and 2024 is presented below:

(in thousands)

Revenues

Revenues increased by $25.9 million, or 42%, to $87.8 million in the nine months ended September 30, 2025 as compared to the same period in 2024. The increase was due to (i) approximately $9.1 million of incremental SLA revenues primarily related to the NJR Acquisitions, (ii) $13.2 million net increase in SREC revenues, of which the majority related to the NJR Acquisitions, (iii) $1.6 million increase due to government incentive PBIs, and (iv) $1.8 million of incremental servicing revenues related to contracted services on third-party owned solar energy systems in 2025.

Cost of Revenues — Solar Energy Systems Depreciation

Cost of revenues - solar energy systems depreciation increased by $4.9 million, or 28%, to $22.1 million in the nine months ended September 30, 2025 as compared to the same period in 2024 primarily due to incremental depreciation related to the NJR Acquisitions.

Cost of Revenues — Operations and Maintenance

Cost of revenues - operations and maintenance decreased by $3.4 million, or 30%, to $7.9 million in the nine months ended September 30, 2025 as compared to the same period in 2024 primarily due to cost reductions resulting from certain O&M efficiencies implemented in early 2025 (discussed above) and nearing completion of the meter upgrade efforts on our solar energy systems, both slightly offset by incremental O&M third-party service costs in 2025 related to the NJR Acquisitions.

Selling, General and Administrative

SG&A expenses decreased by $1.3 million, or 3%, to $42.1 million in the nine months ended September 30, 2025 as compared to the same period in 2024 primarily due to one-time severance cost of $1.9 million recognized upon termination of the Former CEO from the Company in April 2024 and decrease in professional fees, partially offset by an increase in compensation costs, including severance related to reduction in workforce during the current period.

Litigation Settlements

Litigation settlements of $1.1 million in the nine months ended September 30, 2025 primarily related to a $0.6 million settlement in the first quarter of 2025 associated with the termination of a Legacy XL lease, while $7.2 million in the comparable period related to settlement costs associated with various Legacy XL Legal proceedings.

Impairment of Goodwill

Impairment of goodwill of $28.8 million recognized during the nine months ended September 30, 2024 was due to a continuous decline in our stock price and market capitalization.

Interest Income

Interest income of $15.6 million in the nine months ended September 30, 2025 related to $13.5 million of interest income from the SEMTH Master Lease and $2.1 million of interest earned on investments in U.S. Treasury securities. In comparison, interest income of $16.9 million for the nine months ended September 30, 2024 related to $12.3 million of interest income from the SEMTH Master Lease and $4.6 million of interest earned on investments in U.S. Treasury securities.

Interest Expense, Net

Interest expense, net in the nine months ended September 30, 2025 of $38.3 million consisted of (i) $33.4 million of interest expense, net of realized gains from settlements of our interest rate swaps of $6.2 million, and (ii) $4.9 million related to the amortization of debt discount and deferred financing costs. In comparison, interest expense, net in the nine months ended September 30, 2024 of $29.9 million consisted of (i) $25.5 million of interest expense, net of realized gains from settlements of our interest rate swaps of $13.8 million, which included a one-time gain of approximately $3.6 million in the second quarter of 2024 associated with the settlement of interest rate swaps related to the SP4 Facility which was fully repaid in June 2024, and (ii) $4.4 million related to the amortization of debt discount and deferred financing costs.

Interest expense, net increased year over year due to the effect of the SP5 Facility effective in November 2024 and the impact of the $3.6 million gain associated with the full settlement of interest rate swaps related to the SP4 Facility in June 2024. See Note 7. Non-Recourse Debt for further information on our debt and Note 8. Interest Rate Swaps for further information on our interest rate swaps.

Other Expense, net

Other expense, net of $11.9 million for the nine months ended September 30, 2025 primarily related to the change in fair value of interest rate swaps due to changes in forecasted market interest rates, while other expense, net of $7.7 million for the nine months ended September 30, 2024 primarily related to the change in fair value of interest rate swaps of $8.2 million and other income, net of $0.5 million.

Liquidity and Capital Resources

As of September 30, 2025, we had negative working capital of $121.7 million resulting from the presentation of the principal amounts outstanding under the SP1 Facility as current debt as of that date. Our negative working capital included cash and cash equivalents and restricted cash of $98.8 million. We had net losses attributable to stockholders of $19.2 million and $64.6 million for the nine months ended September 30, 2025 and 2024, respectively.

Our principal sources of liquidity include cash and cash equivalents and cash inflows from daily operations. We receive cash from certain of our wholly-owned subsidiaries specifically related to the portfolio servicing fees provided for under the relevant servicing agreements between us and the subsidiaries, as well as reimbursement for any expenses we pay on behalf of those subsidiaries, which are allowed under certain agreements related to those subsidiaries. Our cash requirements depend on many factors, including the execution of our business strategy. We may be required to utilize our cash to support certain current and future operations of our wholly owned subsidiaries. We remain focused on managing costs, including capital expenditures, maintaining a strong balance sheet, and ensuring adequate liquidity. Our primary cash needs are debt servicing, acquisition of solar energy portfolios, operating expenses, and working capital to support the growth in our business. Working capital is impacted by the timing and extent of our business needs. See below discussions under “Cash Flows Summary” for the impact of our operations on our cash balances during the nine months ended September 30, 2025 and 2024.

As of September 30, 2025, our aggregate debt balance was $685.2 million, net of $17.8 million of unamortized fair value adjustment and $2.5 million of unamortized deferred financing costs, all of which is non-recourse project-level debt. Our debt consists of five senior debt facilities and one subordinated debt facility, of which the earliest maturity date is April 30, 2026 and has been classified as current at September 30, 2025. For additional information on our debt, refer to Note 7. Non-Recourse Debt included within the accompanying unaudited condensed consolidated financial statements.

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern.

The Company’s debt obligations under the SP1 Facility are non-recourse to the Company (see Note 7. Non-Recourse Debt) and have a maturity date of April 30, 2026 (the “SP1 Maturity Date”). Because (i) the SP1 Maturity Date is within twelve months from the date these unaudited condensed consolidated financial statements are issued, (ii) the Company has not yet entered into a commitment to refinance the SP1 Facility although the maturity date is in April 2026, (iii) the Company has determined that it is unlikely to have sufficient cash on hand or proceeds from currently available liquidity sources to satisfy the SP1 Facility at the SP1 Maturity Date, (iv) the Company had negative working capital of $121.7 million as of September 30, 2025 solely due to the current maturity of the SP1 Facility at that date, and (v) the Company has experienced recurring net losses and negative cash flows from operations for the nine months ended September 30, 2025, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company plans to refinance the SP1 facility prior to the SP1 Maturity Date consistent with the Company’s historical financing strategy for investing in solar assets on a leveraged basis. The Company has obtained term sheets from potential lenders and placement agents, which are currently being reviewed by management and the board of directors. The Company’s management believes that such refinancing will be completed prior to the SP1 Maturity Date and that any such substantial doubt is alleviated by managements plans. Should the Company be unsuccessful in refinancing the SP1 facility, this could result in a foreclosure of collateral and negatively impact operations. Further, an event of default on the SP1 facility, if not cured in the permittable time allowed under the agreement, would result in a cross default on the Second KeyBank Credit Agreement, which is non-recourse.

Cash Flows Summary

Presented below is a summary of our operating, investing and financing cash flows:

(Amounts in thousands)

Cash Flows Used in Operating Activities

Operating cash inflows include cash from the sale of solar energy power generated by our home solar energy systems and the servicing of long-term agreements for other institutional owners of home solar energy systems. These operating cash inflows are primarily offset by operating expenses, operating lease payments and interest payments on our outstanding debt. The related cash flows for our discontinued operating activities for the years presented relate to ongoing operating and maintenance costs. The net cash used in continuing operating activities consists of our corporate costs and certain other costs that were not allocated to our discontinued operations.

Net cash used in continuing operating activities improved by $28.1 million in the nine months ended September 30, 2025 compared to the same period in 2024 primarily due to $16.0 million aggregate net settlement amounts paid in 2024 compared to $5.3 million aggregate settlements paid in early 2025, both related to settled legal proceedings (see Note 12. Commitments and Contingencies), increased revenue, and decreased operating expenses primarily related to O&M efficiencies during the nine months ended September 30, 2025 discussed above.

Cash Flows Provided by Investing Activities

The net cash provided by continuing investing activities in the nine months ended September 30, 2025 was $16.9 million, which primarily related to $17.9 million of proceeds from our investments under the SEMTH Master Lease and $4.1 million of proceeds from the sale of solar energy systems, partially offset by $4.8 million of net payments related to the acquisition of the Additional NJR Systems in 2025.

The net cash provided by continuing investing activities in the nine months ended September 30, 2024 primarily related to $18.9 million of proceeds from the SEMTH investment and $4.7 million of proceeds from the sale of solar energy systems.

Cash Flows Used in Financing Activities

The net cash used in continuing financing activities in the nine months ended September 30, 2025 was $27.1 million, which primarily related to $25.0 million for repayments of our non-recourse debt, and $1.8 million related to shares repurchased under our Repurchase Program.

The net cash used in continuing financing activities in the nine months ended September 30, 2024 primarily related to $145.8 million for repayments of our non-recourse debt which included the full repayment of the SP4 Facility of $125.0 million in June 2024 and $2.0 million payment of deferred financing costs, partially offset by $130.0 million proceeds from the issuance of the SET Facility also in June 2024.

Critical Accounting Estimates

Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. Preparation of these unaudited condensed financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our most critical accounting estimates are those most important to the portrayal of its financial condition and results of operations and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain. Although management believes that its estimates and assumptions are reasonable, they are based on information available when they are made and, therefore, may differ from estimates made under different assumptions or conditions. Our critical accounting estimates are discussed within Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Other than the valuation models used in determining future principal debt amortization on certain of our credit facilities, there have been no other material changes to our critical accounting estimates during the nine months ended September 30, 2025.

Our significant accounting policies are consistent with those discussed in Note 2. Summary of Significant Accounting Policies of our audited consolidated financial statements in our Annual Report and Note 2. Summary of Significant Accounting Policies of our unaudited condensed consolidated financial statements in this Form 10-Q, and should be reviewed in connection with our critical accounting policies that require difficult, subjective and complex judgments.

New and Recently Adopted Accounting Pronouncements

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our unaudited condensed consolidated financial statements, see Note 2. Summary of Significant Accounting Policies of our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as “controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms.” The Company’s disclosure controls and procedures are designed to ensure that material information relating to the Company and its consolidated subsidiaries is accumulated and communicated to its management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of its disclosure controls and procedures as of September 30, 2025. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of that date, due to a material weakness in internal control over financial reporting identified within the Annual Report and described below.

Notwithstanding, after giving full consideration to this material weakness, and the additional analyses and other procedures that were performed to ensure that the Company’s unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared in accordance with GAAP, management has concluded that our unaudited condensed consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP.

Material Weakness in Internal Control over Financial Reporting

As previously disclosed in Part II, Item 9A. “Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as of that date, the Company did not design and maintain effective controls and identified a material weakness in the control environment and a material weakness resulting from the aggregation of deficiencies in control activities.

Control Environment

As of September 30, 2025, Management has concluded that the Company did not maintain an effective control environment based on the criteria established in the Committee of Sponsoring Organizations (“COSO”) Framework, and its relevant components, which resulted in deficiencies that constituted a material weakness. The Company determined that it did not maintain a sufficient complement of qualified personnel to perform control activities. This contributed to the Company’s failure to: (i) design and implement certain risk-mitigating internal controls; and (ii) consistently operate the Company’s internal controls. The control environment material weakness contributed to a material weakness within our system of internal control over financial reporting in the Control Activities component of the COSO Framework.

Control Activities

The Company did not maintain effective control activities based on the criteria established in the COSO Framework. The Company identified control deficiencies as of September 30, 2025 that constitute a material weakness from the lack of effectively designed and implemented controls related to revenue recognition, including the review of contracts upon inception and/or acquisition and the accounting for revenue recognition under ASC 606, Revenue from Contracts with Customers.

Remediation Actions and Status

A material weakness cannot be considered remediated until the applicable internal controls have been designed, implemented, have operated for a sufficient period of time and management has concluded, through testing, that those controls are operating effectively over a sustained period of financial reporting cycles.

2025 Remediation Plan

The Company is committed to supporting a strong culture of internal controls and designing, implementing and maintaining internal controls over financial reporting to maintain a strong internal control environment. In order to strengthen our culture of internal controls and remediate the material weakness related to revenue accounting, management, with the oversight of the Audit Committee, has taken the following action steps and continues to implement a comprehensive remediation plan.

The Company’s comprehensive remediation plan includes the following:

• The Company developed and presented a training program educating control owners concerning financial statement risk and principles of the Internal Control - Integrated Framework issued by COSO, and continues to invest in additional training opportunities related to the COSO Framework;
• The Company created an internal control department specifically focused on oversight of the Company’s internal control over financial reporting through the establishment of structures, reporting lines, and appropriate authorities and responsibilities for professionals within the Company;
• The Company is designing and implementing controls related to billing and revenue recognition of its revenue contracts, in accordance with ASC 606, Revenue from Contracts with Customers. This includes a combination of manual and automated controls as the Company has increased and is continuing to increase the use of automated controls to help mitigate the risk associated with manual intervention and human error.

During the nine months ended September 30, 2025, the Company continues to make significant progress hiring qualified personnel with specialized skill sets to further bolster the Company’s ability to provide an appropriate level of oversight activities related to internal control over financial reporting. These personnel have significantly contributed to the remediation efforts related to previously disclosed material weaknesses in control activities.

Management believes that the Company is making significant progress toward achieving effectiveness of its internal controls and disclosure controls and that, in many cases, the Company is making significant progress regarding the testing and evaluation of the operating effectiveness of controls related to the identified, unremediated material weakness. However, as the Company continues to evaluate and work to remediate the control deficiencies that resulted in a material weakness related to revenue recognition, the Company may determine that additional measures or time are required to address the issues fully, or that the Company will need to modify or otherwise adjust the remedial actions described above.

The actions that Management is taking are subject to ongoing Management review, as well as Audit Committee oversight. Management will continue to assess the effectiveness of the Company’s internal control over financial reporting and take steps to remediate the known material weakness expeditiously.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties relating to the Company’s business disclosed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Except as described below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K. Additional risks that we are not yet aware of or that we currently believe are immaterial may also impair our business operations.

The loss or transition of key members of senior management or key employees, or our inability to attract and retain qualified personnel, could adversely affect our business

Our success depends in part, on our ability to retain our key personnel. The loss of any of our key personnel could have an adverse effect on our business. There have been, and from time to time, there may continue to be, changes in our management team resulting from the hiring or departure of executive and key employees, or the transition of executives within our business, which could disrupt our business. For example, during 2024 and thus far in 2025, we had turnover in key positions, including our Former CEO and former Chief Financial Officer (“Former CFO”). In April 2024, we completed a CEO transition, and effective May 14, 2025, our Former CFO resigned and the Company initiated a search process of internal and external candidates with the assistance of an executive search firm to identify the Company’s next CFO. Effective June 5, 2025, the Company appointed Thomas James Cimino as the Company’s Interim CFO. We may not be able to identify, hire, and transition to a new CFO or be unable to extend the tenure of Mr. Cimino’s term as Interim CFO beyond his current term.

Management transitions may create uncertainty and involve a diversion of resources and management attention, be disruptive to our daily operations or impact public or market perception, any of which could negatively impact our ability to operate effectively or execute our strategies and result in a material adverse impact on our business, financial condition, results of operations or cash flows. Additionally, if we do not successfully manage transitions in our executive team, including our need to transition to a new CFO, it could be viewed negatively by our customers, employees or investors and negatively affect our business, financial condition and operating results, as well as our ability to execute our business strategies. With the recent changes in leadership, there also is a risk to retention of other members of senior management, as well as to continuity of business initiatives, plans, and strategies through the transition period and if we are unable to execute an orderly transition, our business may be adversely affected.

Our success also depends, in part, on our continuing ability to identify, hire, attract, train, develop and retain other highly qualified personnel. Experienced and highly skilled employees are in high demand and competition for these employees can be intense, and our ability to hire, attract and retain them depends on our ability to provide competitive compensation. We may not be able to attract, assimilate, develop or retain qualified personnel in the future, and our failure to do so could adversely affect our business, including the execution of our global business strategy. Any failure by management and our employees to perform as expected may have a material adverse effect on our business, prospects, financial condition and operating results.