ContextLogic Holdings Inc.: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2025 included in our Annual Report on Form 10-K for the year ended December 31, 2025 (the "2025 Form 10-K"). Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, with GAAP. Additionally, unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period. Our discussion and analysis may contain forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q, and elsewhere in this Quarterly Report on Form 10-Q. All references to "we," "us," "our," or "ContextLogic" or the "Company" refer to ContextLogic Holdings Inc.

The US Salt Acquisition

Purchase Agreement

We entered into a Purchase Agreement on December 8, 2025 (as amended, the "Purchase Agreement") with ContextLogic LLC, a Delaware limited liability company and wholly owned subsidiary ("CLI LLC"), ContextLogic Holdings, LLC ("Holdings"), a Delaware limited liability company for which the Company is the majority owner, (and together with ContextLogic and CLI LLC, the "Buyer Parties"), Salt Management Aggregator, LLC, a Delaware limited liability company (the "Management Aggregator"), Emerald Lake Pearl Acquisition GP, L.P., a Delaware limited partnership ("Emerald GP"), Emerald Lake Pearl Acquisition-A, L.P., a Delaware limited partnership ("Blocker Seller"), Emerald Lake Pearl Acquisition Blocker, LLC, a Delaware limited liability company ("Blocker"), Emerald Lake Pearl Acquisition, L.P., a Delaware limited partnership (solely in its capacity as a Seller Party, "Emerald Fund" and, together with Emerald GP and Blocker Seller, the "Emerald Investors"), Abrams Capital Partners I, L.P., a Delaware limited partnership ("ACP I") and Abrams Capital Partners II, a Delaware limited partnership ("ACP II", together with ACP I, "Abrams Capital"), Riva Capital Partners V, L.P., a Delaware limited partnership ("Riva V"), and Riva Capital Partners VI, L.P., a Delaware limited partnership ("Riva VI," and together with ACP I, ACP II and Riva V, collectively, the "Abrams Investors"), the investors set forth on Schedule II to the Purchase Agreement (the "Management Investors" and, together with the Emerald Investors and the Abrams Investors, collectively, the "Seller Parties"), US Salt Parent Holdings, LLC and subsidiaries (such entities taken together, comprising the salt production, manufacturing and distribution business of US Salt and its subsidiaries, "US Salt"), Emerald Lake Pearl Acquisition, L.P., a Delaware limited partnership, solely in its capacity as the Sellers Representative pursuant to the Purchase Agreement (the "Sellers Representative"), and, solely for the purposes of Section 7.16 to the Purchase Agreement and, as it relates thereto, Article XV of the Purchase Agreement, BCP Special Opportunities Fund III Originations LP, a Delaware limited partnership ("BCP") (such acquisition, the "US Salt Acquisition"). Capitalized terms used in this section discussing the Purchase Agreement, but not herein defined shall have the respective meanings set forth in the Purchase Agreement.

Holdings acquired US Salt for an aggregate purchase price of approximately $921.7 million subject to customary adjustments, including for cash and net working capital, which was comprised of approximately $596.5 million in cash consideration (including, among other sources, the use of approximately $211.4 million in net borrowing proceeds from the Initial Term Loans and approximately $115.0 million in proceeds from the Rights Offering and Backstop Agreements) and approximately $325.2 million in equity rollover consideration. At the closing, $2.8 million was placed into the Escrow Fund to satisfy the escrow obligations set forth under the Purchase Agreement and the Escrow Agreement. Refer to Note 1 of the Financial Statements for further details.

Overview

ContextLogic is a business ownership platform designed from first principles to combine the structural advantages of permanent public capital with the operating discipline, alignment, and long-term orientation typically associated with private ownership. Our mission is to build a portfolio of high-quality, niche, and competitively advantaged businesses that generate sustainable, growing free cash flow that can be reinvested over long time horizons.

Our origins trace to the former Wish.com business, which was divested following a multi-year decline driven by structural challenges in its underlying business model, leaving us with balance sheet liquidity of $161.6 million. Prior to the divestiture, the Company preserved approximately $2.9 billion of federal net operating losses ("NOLs") and other tax attributes.

In 2025, investment funds advised by BC Partners Advisors LP ("BC Partners") and Abrams Capital partnered to recapitalize ContextLogic and Holdings to acquire US Salt and architect a new platform based on aligned ownership, decentralized operations, and disciplined capital deployment. Following the closing of the US Salt Acquisition on February 26, 2026, we are in the process of implementing the new governance and operating models described herein to foster long-duration value creation and to avoid the constraints and exit pressures common in traditional private equity structures.

Following the US Salt Acquisition, all of our revenue and the majority of our expenses are derived from our indirectly owned subsidiary US Salt.

US Salt is a leading producer, packager, and distributor of evaporated and specialty salt products originally founded in 1893. US Salt produces evaporated salt by injecting water into underground salt deposits to create saturated brine (~8× the salinity of seawater), then pumping the brine into MEE systems where steam-driven heat under reduced pressure crystallizes high-purity salt into consistent granule sizes. Evaporated salt, as distinct from rock salt and solar salt, operates in a niche of the salt market that requires demanding purity levels (often over 99.6% sodium chloride) for use in such applications as food and pharmaceutical products. As a result, evaporated salt generally commands higher prices than rock salt and solar salt.

US Salt’s vertically integrated Watkins Glen, New York facility is one of only 16 evaporated salt facilities in the United States. US Salt believes that the majority of currently operational facilities date back to the 19th century. Industry-wide domestic production of evaporated salt exhibited a 0.1% annualized growth rate between 1998 and 2023, according to USGS data.

US Salt’s products primarily include private-label and branded round-can table salts, pharmaceutical-grade salts used in saline and dialysis solutions, food-processing salts used in manufacturing and preservation, and pool and water-softening salts for household and commercial use. US Salt’s fully integrated operating model provides end-to-end control over quality, reliability, and cost, resulting in consistent cash generation and long-term customer retention in a stable, non-cyclical industry.

The US salt market represents approximately $3 billion in annual sales and has remained structurally stable for more than a decade, with evaporated salt accounting for roughly one-third of total demand. Domestic capacity has been largely unchanged for twenty years, and no new large-scale evaporation facilities have been constructed since 1999. This constrained supply base, combined with essential end-market demand in food, pharmaceuticals, and utilities, has supported favorable pricing and high barriers to entry.

As a specialized producer of high purity evaporated salt products, one of the largest private label round can salt producers, US Salt believes that it is one of only two domestic suppliers with scaled capability to produce U.S. Pharmacopeia ("USP")-compliant salt for pharmaceutical applications. US Salt believes it is well positioned to deliver its low-cost but high-value products to its customers. US Salt is strategically focused on highest value segments of the salt market. US Salt’s key competitive strengths support its ability to consistently offer a range of solutions to its customers in a supply-constrained market with high barriers to entry. US Salt also serves a diversified customer base within these end markets where it maintains long-standing customer relationships. US Salt believes that its salt caverns, unique round-can packaging line, regulatory certifications and expensive construction process for new entrants, coupled with its 130-year continuous operating history, has provided it with leading market positions and created significant barriers to entry for potential competitors.

As a result of US Salt’s vertically integrated operation, US Salt solution mines, manufactures, processes, packages, markets, distributes and sells salt, allowing it to go directly to the market with the following products:

• Private label and branded round can salt: 26-ounce canisters marketed under customer (private label) and US Salt-owned brands, sold through wholesale and retail channels.
• Pharmaceutical salt: High-purity, USP-compliant salt used to manufacture medical saline and dialysis solutions, sold through wholesale and commercial channels.
• Food-grade salt: Bagged and bulk salt used as an ingredient by food manufacturers, sold through wholesale and commercial channels.
• Pool salt: Bagged salt used to generate chlorine in saltwater swimming pools, sold through wholesale, commercial, and retail channels.
• Water softening salt: Bagged salt pellets used in residential water treatment systems, sold through wholesale, commercial, and retail channels.
• Kosher / sea salt / other specialty: Specialty salts, including kosher, sea, and pink varieties, sold through wholesale and retail channels. US Salt supplies its products according to customer specifications and regulatory requirements, and it supplements in-house production with limited third-party sourcing to broaden assortment where appropriate.

US Salt serves a diverse mix of end markets where salt is an essential input with limited substitution risk such as retail grocery, food processing, pharmaceuticals, water softening, and other industrial applications. US Salt sells to a diversified customer base where it maintains long-standing customer relationships, including national and regional retailers, food manufacturers, distributors, and healthcare companies. US Salt believes that the demanding, extensive and costly qualification process for new entrants, coupled with its history of consistently delivering exceptional solutions for its customers, has provided it with leading market positions and created significant barriers to entry for potential competitors.

Diversification across channels and end markets provides resilience through economic cycles. Over the five- and ten-year periods ended March 31, 2025 (Predecessor), US Salt’s revenues grew at compound annual growth rates of approximately 7.6% and 7.6%, respectively, primarily driven by favorable product mix, new business wins, and disciplined pricing.

For more information about how the Company uses non-GAAP financial measures in its business, the limitations of these measures, and a reconciliation of these measures to the most directly comparable GAAP measures, please see the section titled "Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures." With US Salt as our initial operating business, we focus on building intrinsic value by growing EBITDA and by improving asset quality in a way that optimizes cash flows. We can employ Free Cash Flow and other sources of liquidity to re-invest in the ContextLogic platform, pay down debt and potentially make acquisitions. Our capital expenditures were $0.4 million, $2.1 million, and $3.1 million for the period from February 27, 2026 to March 31, 2026 (Successor), the period from January 1, 2026 to February 26, 2026 (Predecessor), and the three months ended March 31, 2025 (Predecessor), respectively (including one-time investments of $0.0 million, $0.7 million, and $1.2 million, respectively), highlighting the low capital requirements of our business model. See "Liquidity and Capital Resources—Capital Expenditures."

Key Performance Drivers

Our operating results are influenced by several key factors, including pricing dynamics, plant reliability and operational efficiency, product-mix shifts, labor costs, energy generation and consumption, and inflationary trends. Management continuously monitors these variables to sustain profitability and cash flow while maintaining reliable supply to US Salt’s customers.

Product and Channel Mix

Profitability varies by product category. Pharmaceutical and food-grade salts generally carry higher average selling prices and margins, while bulk industrial and water-softening salts tend to be lower-margin. Period-to-period variations in mix—driven by customer demand, limited seasonality, and production scheduling—can influence reported gross margins. US Salt’s strategy to increase exposure to higher-value and specialty grades is expected to further improve blended profitability over time.

Pricing and Market Dynamics

The majority of our sales are not subject to fixed-price or long-term contracts. Prices are established through frequent negotiations with retail, food, and industrial customers and generally reflect prevailing market conditions. Over the past three years, wholesale prices have increased meaningfully as US Salt captured value through disciplined pricing and closed historical gaps between private-label and branded products. Continued attention to pricing strategy, particularly in consumer and food channels, remains a key driver of revenue growth and gross-margin performance.

Plant Reliability and Operational Efficiency

Because we operate a single integrated production facility, operational reliability and throughput materially affect unit costs and margins. Over the past several years, US Salt has executed a multi-year reliability and efficiency program focused on automation, predictive maintenance, and process-control optimization. These initiatives have increased packaging-line utilization, reduced downtime, and improved energy efficiency, contributing to strong margin expansion and consistent output.

Labor Costs and Workforce Productivity

Labor is a significant component of our cost structure, primarily associated with production, packaging, and maintenance. Wage inflation, overtime, and incentive programs can impact results in the near term. Management’s focus on retention, cross-training, and process automation has improved workforce productivity and mitigated the effects of a tight regional labor market.

Energy Generation and Natural-Gas Costs

Our operations are energy intensive, and natural gas is our largest variable input cost. While future market pricing cannot be predicted with certainty, natural-gas cost variability may affect our production costs. We consider and implement hedging strategies from time to time to mitigate potential price volatility.

Inflation and Input Costs

General inflation and cost pressures on packaging materials, transportation, and maintenance services can affect our results of operations. While pricing actions and cost-control measures have mitigated much of this impact, sustained inflation may influence customer purchasing behavior and margin performance. We continue to emphasize supply-chain optimization, vendor consolidation, and productivity initiatives to offset inflationary trends.

Known Trends and Uncertainties

We monitor several trends and uncertainties that could materially affect our future results of operations, liquidity, and cash flows.

Natural Gas and Energy Inputs

Our operations are energy intensive, and natural gas is our largest variable input cost. While future market pricing cannot be predicted with certainty, natural-gas cost variability may affect our production costs in the future if market rates materially differ from the terms of the existing contract. We consider hedging strategies and operational efficiency initiatives to mitigate potential price volatility.

Labor Costs and Workforce Availability

Wage inflation and a tight regional labor market have contributed to higher labor and benefit costs in recent periods. We expect continued upward pressure on wages, which may increase our cost of sales, selling expense, and general and administrative expenses. Productivity initiatives, cross-training, and automation are expected to partially offset inflationary impacts; however, labor availability and cost trends remain a uncertainty.

Product Mix and Customer Demand.

A meaningful portion of our margins is influenced by the mix of pharmaceutical, food-grade, consumer, and industrial salt volumes. Our strategy to increase exposure to higher-value categories is expected to support margin stability; however, the timing of large customer orders, competitive dynamics in private label programs, and broader economic conditions may contribute to period-to-period variability.

Maintenance and Production Reliability.

We operate a single, vertically integrated facility. While its multi-year reliability program has improved uptime and operating efficiency, unplanned outages, major equipment failures, or extended maintenance projects could temporarily affect production volumes or increase costs. We plan maintenance activities carefully to minimize operational disruptions, but variability in maintenance requirements is an ongoing uncertainty.

Inflationary Pressures and Supply Chain Costs

Increases in the cost of packaging materials, freight, spare parts, and external maintenance services have affected cost trends in recent years. Although we have generally been able to offset inflation through price increases and cost efficiency initiatives, sustained or accelerated inflation could impact Our margins and working capital needs.

Seasonality

Pool salt and ice melt are the only products that exhibit consistent seasonal demand patterns—pool salt shipments typically increase in late spring and summer, while ice melt demand occurs in winter months. These products represent a limited portion of its overall sales, and seasonality has not had a material impact on our consolidated results.

Results of Operations

Results after the date of the US Salt Acquisition, the period from February 27, 2026 through March 31, 2026 (Successor) include the Company’s consolidation of US Salt into ContextLogic, reflecting US Salt on a new basis in accordance with application of acquisition accounting. The Company is presenting US Salt as the predecessor to the post-acquisition consolidated ContextLogic entity and as a result has presented activity of stand-alone US Salt in periods prior to February 26, 2026 (Predecessor Periods). To provide meaningful and comparable information, the Company is also presenting Combined results—a non-GAAP measure that adds the period from January 1, 2026 through February 26, 2026 (Predecessor) and the period from February 27 through March 31, 2026 (Successor)—to compare against the three months ended March 31, 2025 (Predecessor).

To provide comparable period-over-period information, the Company also presents "Combined" results below, a non-GAAP measure that aggregates the Predecessor and Successor periods, and the "Three Months' Change" results, a non-GAAP measure that calculates the difference between the Combined results and the results of the three months ended March 31, 2025 (Predecessor).

The following table shows our results of operations for the periods presented.

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(1) Calculated as a percentage of revenue.

(2) EBITDA and Adjusted EBITDA are non-GAAP financial measures. For definitions of EBITDA and Adjusted EBITDA and a reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP, see "Management’s Discussion and Analysis of Financial Condition and Result of Operations — Non-GAAP Financial Measures."

(3) CLHI expense included as adjustments from EBITDA to Adjusted EBITDA include Transaction Expenses of $20.5 million, estimated contingent loss related to a legal matter of $3.5 million and stock-based compensation of $0.1 million.

Comparison of the Period from February 27, 2026 to March 31, 2026 (Successor) and Period from January 1, 2026 to February 26, 2026 (Predecessor) Compared with the Three Months Ended March 31, 2025 (Predecessor)

Net Sales

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Revenue for the period from February 27, 2026 to March 31, 2026 (Successor) was $12.1 million. Revenue for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor) were $20.3 million and $32.3 million, respectively.

Revenue increased $0.1 million for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor). This increase was primarily attributable to higher average sales prices and a favorable product mix, partially offset by lower sales volumes, which were negatively impacted by trucking disruption related to winter storms and temporary operational interruptions at our Watkins Glen facility.

Cost of Sales and Gross Margin

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Cost of sales for the period from February 27, 2026 to March 31, 2026 (Successor) was $8.3 million. Cost of sales for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor) were $13.2 million and $20.4 million, respectively.

Cost of sales increased $1.1 million for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor). This increase was primarily driven by $1.1 million of amortization of inventory step-up related to acquisition accounting. The increases were partially offset by lower sales volumes.

Selling Expense

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52

Selling expenses for the period from February 27, 2026 to March 31, 2026 (Successor) was $0.4 million. Selling expenses for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor) were $0.7 million and $1.0 million, respectively.

Selling expenses remained consistent for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor).

General and Administrative

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General and administrative expenses for the period from February 27, 2026 to March 31, 2026 (Successor) was $7.5 million. General and administrative expenses for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor) were $1.6 million and $2.6 million, respectively.

General and administrative expenses increased $6.5 million for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor). This increase was primarily due to $4.6 million of expenses attributable to ContextLogic, impacted by a $3.5 million contingent loss accrual, external legal expenses, employee costs, and other professional services and $2.4 million higher intangible asset amortization related to US Salt acquisition accounting.

Transaction Expenses

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Transaction expenses for the period from February 27, 2026 to March 31, 2026 (Successor) was $20.7 million. Transaction expenses for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor) were $0.1 million and zero, respectively.

Transaction expenses increased $20.8 million for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor). This increase was due to ContextLogic's transaction expenses attributable to its acquisition of US Salt.

Interest and Other Expense, net

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Interest and other expense, net for the period from February 27, 2026 to March 31, 2026 (Successor) was $1.8 million. Interest and other expense, net for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor) were $3.0 million and $5.4 million, respectively.

Interest and other expense, net decreased $0.6 million for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor). This decrease was driven by a $0.8 million reduction in interest expense on term loans resulting from lower interest rates on the new debt facility, offset by a $0.2 million increase in commitment fees incurred related to the Revolving Loans.

Provision for Income Taxes

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Benefit from income taxes for the period from February 27, 2026 to March 31, 2026 (Successor) was $41.9 million. There was no provision for or benefit from income taxes for the period from January 1, 2026 to February 26, 2026 (Predecessor) and the three months ended March 31, 2025 (Predecessor).

Benefit from income taxes increased $41.9 million for the Combined three months ended March 31, 2026 compared to the three months ended March 31, 2025 (Predecessor). This increase was primarily due to the tax benefit recognized as a result of a release of our deferred tax asset valuation allowance triggered by recognition of deferred tax liabilities in the application of acquisition accounting related to the US Salt Acquisition.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

Earnings before interest, taxes, depreciation and amortization, or EBITDA, and Adjusted EBITDA are supplemental non-GAAP financial measures used by management. The Company defines EBITDA as net income before (i) interest expense, (ii) depreciation, amortization and depletion, and (iii) taxes. The Company defines Adjusted EBITDA as EBITDA before (i) transaction and integration costs, (ii) stock and unit-based compensation, (iii) restructuring and severance costs, (iv) asset impairments and write-offs, (v) legal contingency accrual, (vi) asset retirement obligation accretion, (vii) foreign currency (gain) loss, and (viii) other non-recurring adjustments. The most directly comparable GAAP financial measure to EBITDA and Adjusted EBITDA is net income. The Company believes EBITDA and Adjusted EBITDA offer useful views of the overall operation of the business because they allow comparison of its results of operations from period to period without regard to its financing methods or capital structure or other items that impact comparability of financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation, amortization, and depletion, or significant unusual items. Users should consider the limitations of EBITDA and Adjusted EBITDA, including that (i) EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest payments on the Company’s indebtedness, (ii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and the cash requirements for such replacements are not reflected in EBITDA and Adjusted EBITDA, (iii) Adjusted EBITDA exclude the cash expense the Company has incurred to integrate acquired businesses into its operations, which is a necessary element of certain of its acquisitions, (iv) the omission of the substantial amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA and (v) EBITDA and Adjusted EBITDA do not include the payment of taxes, which is a necessary element of the Company’s operations. EBITDA and Adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. The Company's computations of EBITDA and Adjusted EBITDA may not be comparable to EBITDA or Adjusted EBITDA of other companies. The Company presents EBITDA and Adjusted EBITDA because it believes they provide useful information to investors regarding the factors and trends affecting its business.

The following table presents a reconciliation of the Company's EBITDA and Adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated:

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(1) Increase in inventory to fair value as a result of the US Salt Acquisition.

(2) Expenses incurred by US Salt and ContextLogic related to the US Salt Acquisition.

(3) Stock-based and unit-based compensation incurred, excluding $0.4 of stock-based compensation included within transaction and integration costs.

(4) Severance, transition, and retention costs associated with executive leadership changes.

(5) Estimated contingent loss related to a legal matter. Refer to Note 13, Commitments and Contingencies, for further information.

(6) Costs associated with the decommissioning and removal of certain manufacturing equipment and expenses unique to US Salt's prior parent.

Free Cash Flow

Free Cash Flows are driven primarily by increasing operating income and efficiently managing accounts receivable, inventory, accounts payable, and capital expenditures. Increases in operating income primarily result from increases in revenue and efficiently managing cost of sales, selling expenses, and general and administrative expenses, partially offset by investing in property, plant and equipment. We make longer-term strategic capital investment, including capital expenditures focused on expansion of production capacity and efficiency of production. We provide multiple measures of Free Cash Flow because we believe these measures provide additional perspective to investors on the impact of acquiring property, plant and equipment with cash and through finance leases and financing obligations. The Company believes EBITDA and Adjusted EBITDA offer useful views of the overall operation of the business because they allow comparison of its results of operations from period to period without regard to its financing methods or capital structure or other items that impact comparability of financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation, amortization, and depletion, or significant unusual items.

Users should consider the limitations of Free Cash Flow, including that (i) Free Cash Flow do not reflect the significant interest expense, or the cash requirements necessary to service interest payments on our indebtedness and (ii) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and the cash requirements for such replacements are not reflected in Free Cash Flow.

Free Cash Flow is cash flow from operations reduced by "Purchases of property, plant and equipment" ("Free Cash Flow"). The following is a reconciliation of Free Cash Flow to the most comparable GAAP cash flow measure, "Net cash provided by (used in) operating activities" for each of the periods indicated:

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Free Cash Flow less Principal Repayments of Finance Leases Obligations and Repayment on Term Loan

Free Cash Flow less principal repayments of finance leases and repayment on term loan is Free Cash Flow reduced by "Principal repayments of finance leases" and "Principal repayments on term loan." Principal repayments of finance leases and term loan approximate the actual payments of cash for our finance leases and financing obligations. The following is a reconciliation of Free Cash Flow less principal repayments of finance leases and term loan to the most comparable GAAP cash flow measure, "Net cash provided by (used in) operating activities" for each of the periods indicated:

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Liquidity and Capital Resources

As of March 31, 2026, we had cash and cash equivalents of $12.0 million, which were entirely held in cash deposits and money market funds and were held for working capital purposes. We believe that our existing cash, cash equivalents, and cash generation from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months.

We had no material cash requirements outside our normal operating costs.

While we maintain our cash with large national financial institutions, there can be no assurance that any of our other deposits in excess of the Federal Deposit Insurance Corporation or other comparable insurance limits will be backstopped by the U.S. or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.

Sources of Liquidity

As of March 31, 2026, we had cash and cash equivalents of $12.0 million.

Liquidity is provided through cash flow from operations and availability under the revolving credit facility. As of March 31, 2026 and 2025, we remained in full compliance with our financial covenants, with sufficient headroom under the maximum leverage and fixed-charge coverage ratios. Management believes current liquidity is adequate to fund operations, planned capital expenditures, and working capital needs.

Capital Expenditures

Capital expenditures totaled approximately $0.4 million, $2.1 million, and $3.1 million for the period from February 27, 2026 to March 31, 2026 (Successor), the period from January 1, 2026 to February 26, 2026 (Predecessor), and the three months ended March 31, 2025 (Predecessor), respectively (including one-time investments of $0.0 million, $0.7 million, and $1.2 million, respectively). These amounts include expenditures related to several large, non-recurring maintenance and growth projects, including generator rebuilds, flood-mitigation initiatives, installation of a black-start backup generator to enhance power redundancy, and the new pool salt line project. As discussed elsewhere in this 10-Q filing, we also present capital expenditures excluding certain one-time investments in order to provide a more meaningful view of our ongoing maintenance and recurring capital requirements.

Wilmington Trust Credit Facility

As discussed earlier in "The US Salt Acquisition -- The Financing Arrangements," in February 2026, Holdings entered into the Credit Agreement with Wilmington Trust, National Association, as administrative agent, and the Lenders thereto (the "Wilmington Trust Credit Facility"), which consists of a $215.0 million term loan and up to $25.0 million revolving line of credit.

The interest rate for the term loan and revolving line of credit as of March 31, 2026 was 7.92%, which was SOFR plus 4.25%. The interest rate for the revolving line of credit is at a base rate or a term SOFR rate plus an applicable margin between 4.00% and 4.50%, depending on the Borrower's Consolidated First Lien Net Leverage Ratio.

The term loan requires quarterly principal payments of $0.5 million commencing on September 30, 2026 through maturity on February 26, 2033, at which time the remaining principal balance is due. The term loan is subject to mandatory excess cash flow payments commencing for the year ended December 31, 2027 as defined in the Credit Agreement. As of March 31, 2026 (Successor), no excess cash flow prepayment was required for the period from February 27, 2026 to March 31, 2026 (Successor).

The revolving line of credit expires on February 26, 2033 and is subject to a commitment fee on the unused available commitment between 0.375% and 0.50% per annum, determined by the Borrower’s Consolidated First Lien Net Leverage Ratio. We had no borrowings outstanding on the revolving line of credit at March 31, 2026 (Successor).

The term loan and revolving line of credit are secured by substantially all of the assets of US Salt and subject to certain financial covenants. The Credit Agreement contains customary affirmative and negative covenants, conditions to borrowing and events of default. We were in compliance with all financial covenants as of March 31, 2026 (Successor).

In relation to the Wilmington Trust Credit Agreement, we incurred initial discount and issuance costs of $3.6 million, which is amortized over the life of the credit agreement using an effective interest rate of 8.27%. Amortization of debt issuance cost for the period from February 27, 2026 to March 31, 2026 (Successor) was an insignificant amount and was reported in interest expense in the Condensed Consolidated Statements of Operations.

Material Cash Requirements

We expect to continue to fund its operations, working capital needs, and capital investments primarily through cash generated from operations and available capacity under its revolving credit facility.

Capital Expenditures

We expect capital expenditures of approximately $10.4 million in 2026 (Successor) due to the addition of two new wells with an estimated cost of $4 million. The Company expects average annual capital expenditures of approximately $6–$8 million over the next several years, consisting primarily of maintenance, reliability projects, and select growth initiatives.

Debt Service Obligations

As of March 31, 2026 (Successor), we are obligated to make quarterly principal payments of $0.5 million on its term loan starting September 30, 2026 through its February 2033 maturity, with the remaining principal due at maturity. Interest payments will vary based on SOFR-linked rates applicable to its credit facility. We do not anticipate material excess-cash-flow payments under its credit agreement based on current forecasts.

Lease Commitments

We have non-cancelable operating lease commitments for warehouses, offices, equipment, railcars, and finance leases for equipment. As of March 31, 2026 (Successor), remaining contractual lease payments were approximately $1.7 million, with approximately $0.8 million due within 12 months.

Environmental and Maintenance Requirements

We incur ongoing maintenance and periodic refurbishment costs associated with its production assets. These expenditures vary by year based on reliability requirements, but we expect them to remain within the anticipated annual capital-expenditure range described above.

Management believes that cash flows from operations, together with availability under its revolving credit facility, will be sufficient to meet our material cash requirements for at least the next 12 months.

Cash Flows

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Net Cash Used in Operating Activities

Net cash used in our operating activities for the period from February 27, 2026 to March 31, 2026 (Successor) was $20.4 million. This cash use for the period was primarily driven by cash expenses related to the our acquisition of US Salt, reflected as transaction expenses on our Condensed Consolidated Statements of Operations.

Net cash provided by our operating activities for the period from January 1, 2026 to February 26, 2026 (Predecessor) was $1.8 million, driven by our net income of $1.7 million.

Net cash provided by our operating activities for the three months ended March 31, 2025 (Predecessor) was $3.9 million. This was driven by our net income of $2.9 million and depreciation, depletion and amortization of $3.7 million, which was partially offset by a $3.2 million of outflow related to operating assets and liabilities.

Net Cash Used in Investing Activities

Net cash used in our investing activities for the period from February 27, 2026 to March 31, 2026 (Successor) was $585.9 million. This was driven by $585.2 million spent acquiring US Salt, net of cash acquired.

Net cash used in our investing activities for the period from January 1, 2026 to February 26, 2026 (Predecessor) was $1.3 million. This was primarily due to $1.3 million in purchases of property, plant, and equipment.

Net cash used in our investing activities for the three months ended March 31, 2025 (Predecessor) was $2.6 million. This was primarily due to $2.6 million spent on purchases of plant, property, and equipment.

Net Cash Provided By (Used in) Financing Activities

Net cash provided by our financing activities for the period from February 27, 2026 to March 31, 2026 (Successor) was $401.0 million primarily due to $215 million proceeds from issuance of debt, $114.8 million from the rights offering and related backstops associated with the US Salt Acquisition, and $75 million from issuance of noncontrolling interests.

Net cash used in our financing activities for the period from January 1, 2026 to February 26, 2026 (Predecessor) was immaterial due to the period only having immaterial payments of the finance leases' principal amounts.

Net cash used in our financing activities for the three months ended March 31, 2025 (Predecessor) was $2.2 million primarily due to $1.4 million of member distributions and $0.6M of payments on the term loan.

Contractual and Other Obligations

Debt obligations

Under the Wilmington Trust Credit Agreement, our debt obligations consist of a $215.0 million term loan and an up to $25.0 million revolving line of credit. Refer to discussions under the "Credit Facility" section above for more information.

Leases

We lease warehouses, office space, and equipment under long-term lease agreements. The leases consist of operating leases expiring in various years through 2030, as well as standard operating leases for railcars, vehicles, and office space. As of March 31, 2026 (Successor), the future minimum lease payments required under these leases totaled $1.7 million, with $0.8 million payable within 12 months.

Off Balance Sheet Arrangements

We do not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

With the acquisition of US Salt, we have disclosed updated critical accounting policies and estimates. However, we do not view these updated policies and estimates as in conflict with those described in our 2025 Form 10-K, filed with the SEC on March 5, 2026.

Recent Accounting Pronouncements

See Note 1 of Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of recent accounting pronouncements.

As a "smaller reporting company," as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission ("SEC") and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding required disclosure.

Our President and Chief Financial Officer, with assistance from other members of management, have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2026. Based on that evaluation, and as a result of the material weakness in internal control over financial reporting described below, our President and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2026.

Material Weakness in Internal Control over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

In connection with our acquisition of US Salt on February 26, 2026, we, together with management of US Salt, identified a material weakness in US Salt’s internal control over financial reporting as of the acquisition date. The material weakness resulted from US Salt’s lack of a formalized internal control framework based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Specifically, the deficiencies that aggregate to this material weakness include the following:

• An insufficient complement of personnel with an appropriate degree of internal controls knowledge, GAAP technical accounting expertise, and SEC reporting experience, which caused management to be unable to appropriately define responsibilities to create an effective control environment;
• The lack of a formalized risk assessment process to identify, analyze, and respond to risks of material misstatement to financial reporting, including risks arising from changes in the business or the operating environment; and
• Inadequate selection, design, development, and operation of control activities, including general information technology controls over user access, segregation of duties, change management, and program development relevant to financial reporting.

We have concluded that this material weakness is due to the fact that US Salt was a private company with limited resources and did not have the necessary business processes and related internal controls formally designed and implemented, coupled with the lack of appropriate resources with the appropriate level of experience and technical expertise to oversee its business processes and controls.

Notwithstanding the material weakness described above, our management, including our President and Chief Financial Officer, has concluded that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with GAAP.

This material weakness did not result in a material misstatement to our unaudited condensed consolidated financial statements for the periods presented. However, this material weakness could result in a misstatement of one or more account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

Management’s Plan to Remediate the Material Weakness

Our remediation efforts are ongoing and are expected to include:

With oversight from our Audit Committee, management has begun, and will continue to undertake, measures designed to remediate the material weakness described above. As part of our integration of US Salt, our remediation efforts include extending our existing internal control framework, policies, and procedures to US Salt’s operations. The actions implemented or planned to be implemented include:

• Adoption of the COSO framework by US Salt operations, including formal documentation of policies, procedures, and process narratives;
• Performance of a formal risk assessment over US Salt’s financial reporting processes to identify risks of material misstatement and to design responsive control activities;
• Development, documentation, and implementation of control activities at US Salt, including controls over journal entries, account reconciliations, period-end close procedures, and significant accounting estimates;
• Assessment of the effectiveness of internal controls over financial reporting through monitoring activities, including management review controls and periodic testing, with results reported to executive management and the Audit Committee;
• Recruitment of additional qualified personnel and engagement of external consultants and specialists with the requisite knowledge of GAAP, SEC reporting, and internal control over financial reporting to supplement existing US Salt resources, and the provision of ongoing internal control training to US Salt personnel;
• Review and enhancement of IT general controls over information systems relevant to financial reporting, including controls over user access, segregation of duties, change management, and program development; and
• Realignment of existing personnel and the addition of both internal and external personnel to strengthen processes and controls at US Salt and at the corporate level.

The material weakness will not be considered remediated until management completes the design and implementation of the measures described above, such measures are tested by management, and the controls operate for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. We expect remediation activities to continue throughout fiscal year 2026 and into subsequent periods. We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls; however, we cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts.

Changes in Internal Control Over Financial Reporting

Other than the integration of US Salt and the related ongoing changes in internal control over financial reporting being implemented as part of the remediation measures described above, there were no changes in our internal control over financial reporting during the period from February 27, 2026 to March 31, 2026 (Successor) or the period from January 1, 2026 to February 26, 2026 (Predecessor) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, 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 designed 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 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 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. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties set forth below, together with all of the other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes, and in our Annual Report on Form 10-K for the year ended December 31, 2025, before making a decision to invest in our common stock. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect our business. These risk factors could materially and adversely affect our business, financial condition and results of operations, and the market price of our common stock could decline. These risk factors do not identify all risks that we face – our financial condition and/or operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our financial conditions and/or operations. Other than as described below, there have been no additional material changes from the risk factors previously disclosed under the heading "Risk Factors" in Part I, Item 1A of our 2025 Form 10-K.

Risks Related to the US Salt Acquisition, Backstop Agreements, and Financings

Impairment of US Salt’s intangible assets could result in significant charges that could adversely impact our future operating results.

As a result of the US Salt, we have significant intangible assets, including goodwill resulting from acquisition accounting and revaluation of US Salt's assets and liabilities, which are susceptible to impairment charges as a result of changes in various factors or conditions. We will assess the potential impairment of goodwill and indefinite-lived intangible assets on an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may exceed fair value. We will assess finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value may exceed fair value. Adverse changes in the operations of our businesses or other unforeseeable factors could result in an impairment charge in future periods that could adversely impact our results of operations and financial position in that period.