Item 2. Management’s Discussion and Analysis
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for HF Foods Group Inc. (“HF Foods”, the “Company,” “we,” “us,” or “our”) contains forward-looking statements. Forward-looking statements include statements about our expectations, beliefs, plans, objectives, intentions, assumptions and other statements that are not historical facts. Words or phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “will” or similar words or phrases, or the negatives of those words or phrases, may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected. Factors that could cause or contribute to such differences include those discussed in this Quarterly Report on Form 10-Q, and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”). We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Except as otherwise required by law, we undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise.
Overview
We market and distribute Asian specialty food products, seafood, fresh produce, frozen and dry food, and non-food products primarily to Asian restaurants and other foodservice customers throughout the United States. HF Foods was formed through a merger between two complementary market leaders, HF Foods Group Inc. and B&R Global. In 2022, HF Foods acquired two frozen seafood suppliers, expanding its distribution network in Illinois, Texas and along the eastern seaboard, from Massachusetts to Florida, as well as Pennsylvania, West Virginia, Ohio, Kentucky, and Tennessee.
We aim to supply the increasing demand for Asian American restaurant cuisine, leveraging our nationwide network of distribution centers and our strong relations with growers and suppliers of fresh, high-quality specialty restaurant food products and supplies primarily in North America, South America and Asia. Capitalizing on our deep understanding of the Asian culture, we have become a trusted partner serving Asian restaurants and other foodservice customers throughout the United States. We are dedicated to serving the vast array of Asian restaurants in need of high-quality and specialized food ingredients at competitive prices.
Transformation Plan
To position the business for long-term success, starting in 2024, we initiated a comprehensive, operational transformation plan in an effort to drive growth and cost savings. Our transformation is focused on four key areas, each of which we expect will positively impact future growth or cost savings. The components of our transformation are as follows:
• Centralized Purchasing: Now that we’ve rolled out our centralized purchasing program with seafood and poultry products and have yielded positive results with respect to margin expansion for the product categories, we are now focusing on expanding the program to other categories such as commodities.
• Fleet and Transportation: We have established a national fleet maintenance program that standardizes truck specifications across the organization. As part of this initiative, nearly 50% of our fleet is enrolled in national third-party fleet maintenance provider programs, ensuring consistent preventive maintenance, improved vehicle reliability, and reduced downtime. We have also launched a fleet replacement program for 50% of our current vehicles, implemented a national fuel savings initiative to maximize operating efficiency, and plan to outsource domestic inbound freight logistics to a third-party provider to create a more cohesive national supply chain. Collectively, these initiatives are expected to deliver significant improvements in the efficiency, reliability, and overall performance of our transportation network.
• Digital Transformation: We have completed the implementation of a modern ERP solution across all of our distribution centers. The Company expects this solution to deliver enhanced operational efficiency and responsiveness, streamlined processes, and greater data driven decision-making.
• Facility Upgrades: We continue reorganizing and upgrading some of our facilities and distribution centers to efficiently streamline costs, and to capitalize on cross-selling opportunities with both new and existing customers.
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Financial Overview
Three Months Ended June 30,
($ in thousands) 2026 2025 Change
Net revenue $ 323,781 $ 314,853 $ 8,928
Income from operations $ 2,817 $ 4,119 $ (1,302)
Net income $ 2,621 $ 510 $ 2,111
Adjusted EBITDA $ 13,569 $ 13,846 $ (277)
For additional information on our non-GAAP financial measures, EBITDA and Adjusted EBITDA, see the section entitled “EBITDA and Adjusted EBITDA” below.
How to Assess HF Foods’ Performance
In assessing our performance, we consider a variety of performance and financial measures, including principal growth in net revenue, gross profit, distribution, selling and administrative expenses, as well as certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA. The key measures that we use to evaluate the performance of our business are set forth below:
Net Revenue
Net revenue is equal to gross sales minus sales returns, sales incentives that we offer to our customers, such as rebates and discounts that are offsets to gross sales; and certain other adjustments. Our net revenue is driven by changes in number of customers and average customer order amount, product inflation that is reflected in the pricing of our products and mix of products sold.
Gross Profit
Gross profit is equal to net revenue minus cost of revenue. Cost of revenue primarily includes inventory costs (net of supplier consideration), inbound freight, customs clearance fees and other miscellaneous expenses. Cost of revenue generally changes as we incur higher or lower costs from suppliers and as the customer and product mix changes.
Distribution, Selling and Administrative Expenses
Distribution, selling and administrative expenses consist primarily of salaries, stock-based compensation and benefits for employees and contract laborers, trucking and fuel expenses, utilities, maintenance and repair expenses, insurance expenses, depreciation and amortization expenses, selling and marketing expenses, professional fees and other operating expenses.
EBITDA and Adjusted EBITDA
Discussion of our results includes certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA, that we believe provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial performance with other companies in the same industry, many of which present similar non-GAAP financial measures to investors. We present EBITDA and Adjusted EBITDA in order to provide supplemental information that we consider relevant for the readers of our condensed consolidated financial statements included elsewhere in this report, and such information is not meant to replace or supersede GAAP measures.
Management uses EBITDA to measure operating performance, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization. In addition, management uses Adjusted EBITDA, defined as net income before interest expense, interest income, income taxes, and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, or non-recurring expenses. Management believes that Adjusted EBITDA is less susceptible to variances in actual performance resulting from non-recurring expenses, and other non-cash charges and is more reflective of other factors that affect our operating performance.
The definition of EBITDA and Adjusted EBITDA may not be the same as similarly titled measures used by other companies in the industry. EBITDA and Adjusted EBITDA are not defined under GAAP and are subject to important limitations as analytical tools and should not be considered in isolation or as substitutes for analysis of HF Foods’ results as reported under GAAP. For example, Adjusted EBITDA:
• excludes certain tax payments that may represent a reduction in cash available;
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• does not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;
• does not reflect changes in, or cash requirements for, our working capital needs; and
• does not reflect the significant interest expense, or the cash requirements, necessary to service our debt.
For additional information on EBITDA and Adjusted EBITDA and a reconciliation to their most directly comparable U.S. GAAP financial measures, see “ Results of Operations — EBITDA and Adjusted EBITDA ” below.
Results of Operations
Comparison of Three Months Ended June 30, 2026 to Three Months Ended June 30, 2025
The following table sets forth a summary of our consolidated results of operations for the three months ended June 30, 2026 and 2025 . The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
Three Months Ended June 30,
($ in thousands) 2026 2025 Change
Net revenue $ 323,781 $ 314,853 $ 8,928
Cost of revenue 268,733 259,721 9,012
Gross profit 55,048 55,132 (84)
Distribution, selling and administrative expenses 52,231 51,013 1,218
Income from operations
2,817 4,119 (1,302)
Interest expense 2,916 2,817 99
Other income, net
(2,209) (414) (1,795)
Change in fair value of interest rate swap contracts (729) 685 (1,414)
Income before income taxes 2,839 1,031 1,808
Income tax expense 218 521 (303)
Net income and comprehensive income 2,621 510 2,111
Less: net income (loss) attributable to noncontrolling interests 41 (706) 747
Net income and comprehensive income attributable to HF Foods Group Inc. $ 2,580 $ 1,216 $ 1,364
The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:
Three Months Ended June 30,
2026 2025
Net revenue 100.0 % 100.0 %
Cost of revenue 83.0 % 82.5 %
Gross profit 17.0 % 17.5 %
Distribution, selling and administrative expenses 16.1 % 16.2 %
Income from operations
0.9 % 1.3 %
Interest expense 0.9 % 0.9 %
Other income, net
(0.7) % (0.1) %
Change in fair value of interest rate swap contracts (0.2) % 0.2 %
Income before income taxes 0.9 % 0.3 %
Income tax expense 0.1 % 0.2 %
Net income and comprehensive income 0.8 % 0.1 %
Less: net income (loss) attributable to noncontrolling interests — % (0.2) %
Net income and comprehensive income attributable to HF Foods Group Inc. 0.8 % 0.3 %
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Net Revenue
Net revenue for the three months ended June 30, 2026 increased by $8.9 million, or 2.8%, compared to the same period in 2025. The increase was primarily due to volume growth and pricing improvement in Seafood followed by volume growth in Commodity, partially offset by price decreases in Meat & Poultry.
Gross Profit
Gross profit was $55.0 million for the three months ended June 30, 2026 compared to $55.1 million in the same period in 2025, a decrease of $0.1 million, or 0.2%. The gross profit decreased across most categories due to additional tariffs effective beginning in the third quarter of 2025. The decrease was partially offset by the IEEPA tariff refund received during the quarter. Gross profit margin for the three months ended June 30, 2026 of 17.0% declined compared to 17.5% in the same period in 2025.
Distribution, Selling and Administrative Expenses
Distribution, selling and administrative expenses increased by $1.2 million, or 2.4%, to $52.2 million, for the three months ended June 30, 2026. The increase is primarily due to an increase in auto & truck expense due to higher fuel cost, insurance, and professional services expenses. The increase is partially offset by lower personnel expenses. Distribution, selling and administrative expenses as a percentage of net revenue decreased to 16.1% for the three months ended June 30, 2026 from 16.2% in the same period in 2025.
Interest Expense
Interest expense for the three months ended June 30, 2026 of $2.9 million increased slightly compared to $2.8 million for the three months ended June 30, 2025. Average floating interest rates on our floating-rate debt for the three months ended June 30, 2026 decreased by approximately 0.3% on our line of credit and 0.7% on the JPMorgan Chase mortgage-secured term loan, compared to the same period in 2025. Our average daily line of credit balance increased by $12.1 million, or 22.6%, to $65.7 million for the three months ended June 30, 2026 from $53.6 million for the three months ended June 30, 2025, and our average daily JPMorgan Chase mortgage-secured term loan balance decreased by $8.2 million, or 8.3%, to $91.0 million for the three months ended June 30, 2026 from $99.2 million for the three months ended June 30, 2025.
Income Tax Expense
Income tax expense was $0.2 million for the three months ended June 30, 2026, compared to an income tax expense of $0.5 million for the three months ended June 30, 2025. The decrease in income tax expense was primarily due to investment tax credits recognized during the period, partially offset by higher income before income taxes.
Net Income Attributable to HF Foods Group, Inc.
Net income attributable to HF Foods Group, Inc. was $2.6 million for the three months ended June 30, 2026, compared to net income of $1.2 million for the three months ended June 30, 2025. The improvement was primarily driven by recognition of $1.8 million employee retention credit including interest, the IEEPA tariff refund of $1.1 million, and a positive change in fair value of
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interest rate swap contracts by $1.4 million compared to 2025. These favorable variances were partially offset by $1.3 million decrease in income from operations and $0.7 million year-over-year change in net income attributable to noncontrolling interests.
EBITDA and Adjusted EBITDA
The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:
Three Months Ended June 30,
($ in thousands) 2026 2025 Change
Net income $ 2,621 $ 510 $ 2,111
Interest expense, net
2,216 2,775 (559)
Income tax expense 218 521 (303)
Depreciation and amortization 7,460 7,262 198
EBITDA 12,515 11,068 1,447
Change in fair value of interest rate swap contracts (729) 685 (1,414)
Stock-based compensation expense 587 625 (38)
Business transformation costs (1)
110 629 (519)
Other non-routine expense (2)
775 10 765
Executive transition and organizational redesign (3)
311 829 (518)
Adjusted EBITDA $ 13,569 $ 13,846 $ (277)
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(1) Represents costs associated with the launch and continued implementation of strategic projects including supply chain management improvements and technology infrastructure initiatives.
(2) Includes legal and consulting expenses incurred in connection with various corporate projects and other strategic initiatives.
(3) Includes severance and related expenses for the Company’s transition of executive officers and organizational redesign.
Results of Operations
Comparison of Six Months Ended June 30, 2026 to Six Months Ended June 30, 2025
The following table sets forth a summary of our consolidated results of operations for the six months ended June 30, 2026 and 2025. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.
Six Months Ended June 30,
($ in thousands) 2026 2025 Change
Net revenue $ 635,783 $ 613,281 $ 22,502
Cost of revenue 530,209 507,190 23,019
Gross profit 105,574 106,091 (517)
Distribution, selling and administrative expenses 101,720 100,818 902
Income from operations 3,854 5,273 (1,419)
Interest expense 5,728 5,426 302
Other income, net (4,100) (591) (3,509)
Change in fair value of interest rate swap contracts (1,572) 1,869 (3,441)
Income (loss) before income taxes 3,798 (1,431) 5,229
Income tax benefit (179) (411) 232
Net income (loss) and comprehensive income (loss) 3,977 (1,020) 4,997
Less: net income (loss) attributable to noncontrolling interests 172 (591) 763
Net income (loss) and comprehensive income (loss) attributable to HF Foods Group Inc. $ 3,805 $ (429) $ 4,234
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The following table sets forth the components of our consolidated results of operations expressed as a percentage of net revenue for the periods indicated:
Six Months Ended June 30,
2026 2025
Net revenue 100.0 % 100.0 %
Cost of revenue 83.4 % 82.7 %
Gross profit 16.6 % 17.3 %
Distribution, selling and administrative expenses 16.0 % 16.4 %
Income from operations 0.6 % 0.9 %
Interest expense 0.9 % 0.8 %
Other income, net (0.6) % (0.1) %
Change in fair value of interest rate swap contracts (0.2) % 0.3 %
Income (loss) before income taxes 0.5 % (0.1) %
Income tax benefit — % (0.1) %
Net income (loss) and comprehensive income (loss) 0.5 % — %
Less: net income (loss) attributable to noncontrolling interests — % (0.1) %
Net income (loss) and comprehensive income (loss) attributable to HF Foods Group Inc. 0.5 % 0.1 %
Net Revenue
Net revenue for the six months ended June 30, 2026 increased by $22.5 million, or 3.7%, compared to the same period in 2025. T he increase was primarily attributable to volume growth and improved pricing in Seafood and Commodity, partially offset by price decrease in Meat & Poultry and volume decreases in Asian Specialty.
Gross Profit
Gross profit was $105.6 million for the six months ended June 30, 2026 compared to $106.1 million in the same period in 2025 , an decrease of $0.5 million, or 0.5% . The gross profit decreased across most categories primarily due to additional tariff effective beginning the third quarter 2025. The decrease was offset by the IEEPA tariff refund received during the current quarter. Gross profit margin for the six months ended June 30, 2026 decreased slightly to 16.6% compared to 17.3% in the same period in 2025.
Distribution, Selling and Administrative Expenses
Distribution, selling and administrative expenses of $101.7 million for the six months ended June 30, 2026 increased by $0.9 million, or 0.9%, in 2026 compared to $100.8 million in 2025, mainly due to increases in auto & truck expenses of $2.0 million and insurance expense of $0.4 million partially offset by a reduction in personnel expense of $0.8 million and professional expenses of $0.6 million. Distribution, selling and administrative expenses as a percentage of net revenue decreased slightly to 16.0% in 2026 compared to 16.4% in 2025.
Interest Expense
Interest expense for the six months ended June 30, 2026 increased slightly to $5.73 million, compared to $5.43 million for the six months ended June 30, 2025, an increase of $0.30 million or 5.6%. The increase was driven by an increase in our average daily line of credit balance of $10.1 million, partially offset by a decrease in our average daily JPMorgan Chase mortgage-secured term loan balance of $7.5 million combined with a slightly lower interest-rate environment. Average floating interest rates on our floating-rate debt for the six months ended June 30, 2026 decreased by approximately 0.5% on the line of credit and 0.7% on the JPMorgan Chase mortgage-secured term loan, compared to 2025. Our average daily line of credit balance was $61.3 million for the six months ended June 30, 2026, up from $51.2 million for the six months ended June 30, 2025, while our average daily JPMorgan Chase mortgage-secured term loan balance decreased to $92.3 million for the six months ended June 30, 2026 from $99.8 million for the six months ended June 30, 2025.
Income Tax Benefit
Income tax benefit was $0.2 million for the six months ended June 30, 2026, compared to an income tax benefit of $0.4 million for the six months ended June 30, 2025. The change was primarily due to higher income before income taxes and discrete tax expense items related to stock-based compensation shortfalls and the remeasurement of deferred tax assets associated with executive compensation, partially offset by investment tax credits recognized during the period.
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Net Income (Loss) Attributable to HF Foods Group, Inc.
Net income attributable to HF Foods Group Inc. was $3.8 million for the six months ended June 30, 2026, compared to a net loss of $0.4 million for the six months ended June 30, 2025. The $4.2 million improvement was primarily attributable to a $1.4 million gain on the Utah building sale, recognition of employee retention credit of $1.8 million including interest, the IEEPA tariff refund of $1.1 million, and a $3.4 million favorable year-over-year change in fair value of interest rate swap. These favorable variances were partially offset by a $1.4 million decrease in operating income, a $0.2 million unfavorable change in income taxes, and a $0.8 million year-over-year change in net income attributable to noncontrolling interests.
EBITDA and Adjusted EBITDA
The following table reconciles EBITDA and Adjusted EBITDA to the most directly comparable GAAP measure:
Six Months Ended June 30,
($ in thousands) 2026 2025 Change
Net income (loss) $ 3,977 $ (1,020) $ 4,997
Interest expense, net
5,028 5,384 (356)
Income tax benefit (179) (411) 232
Depreciation and amortization 14,981 14,019 962
EBITDA 23,807 17,972 5,835
Change in fair value of interest rate swap contracts (1,572) 1,869 (3,441)
Stock-based compensation expense 892 999 (107)
Business transformation costs (1)
503 866 (363)
Other non-routine (income) expense (2)
(443) 110 (553)
Executive transition and organizational redesign (3)
528 1,802 (1,274)
Adjusted EBITDA $ 23,715 $ 23,618 $ 97
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(1) Represents costs associated with the launch and continued implementation of strategic projects including supply chain management improvements and technology infrastructure initiatives.
(2) Includes legal and consulting costs related to various corporate projects and other strategic initiatives, for the six months ended June 30, 2026 it includes the gain on the sale of the Utah facility.
(3) Includes severance and related expenses for the Company’s transition of executive officers and organizational redesign.
Liquidity and Capital Resources
As of June 30, 2026, we had cash of approximately $18.1 million, checks issued not presented for payment of $5.6 million and access to approximately $39.7 million in additional funds through our $125.0 million line of credit, subject to a borrowing base calculation. We have funded working capital and other capital requirements primarily by cash flow from operations and bank loans. Cash is required to pay purchase costs for inventory, salaries, fuel and trucking expenses, selling expenses, rental expenses, income taxes, other operating expenses and to service debts.
We believe that our cash flow generated from operations is sufficient to meet our normal working capital needs for at least the next twelve months. However, our ability to repay our current obligations will depend on the future realization of our current assets. Management has considered the historical experience, the economy, the trends in the foodservice distribution industry to determine the expected collectability of accounts receivable and the realization of inventories as of June 30, 2026.
We are party to an amortizing interest rate swap contract with JPMorgan Chase for an initial notional amount of $120.0 million, expiring in March 2028, as a means to partially hedge our existing floating rate loans exposure. Pursuant to the agreement, we will pay the swap counterparty a fixed rate of 4.11% in exchange for floating payments based on CME Term SOFR.
Management believes we have sufficient access to funds to meet our working capital requirements and debt obligations in the next twelve months. However, there are a number of factors that could potentially arise which might result in shortfalls in anticipated cash flow, such as the demand for our products, economic conditions, competitive pricing in the foodservice distribution industry, and our bank and suppliers being able to provide continued support. If the future cash flow from operations and other capital resources is insufficient to fund our liquidity needs, we may have to resort to reducing or delaying our expected capital investment plans, liquidating assets, obtaining additional debt or equity capital, or refinancing all or a portion of our debt.
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As of June 30, 2026, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial position, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.
The following table summarizes cash flow data for the six months ended June 30, 2026 and 2025:
Six Months Ended June 30,
(In thousands) 2026 2025 Change
Net cash provided by operating activities $ 14,031 $ 10,468 $ 3,563
Net cash used in investing activities (16,071) (6,592) (9,479)
Net cash provided by (used in) financing activities 11,503 (2,693) 14,196
Net increase in cash and cash equivalents $ 9,463 $ 1,183 $ 8,280
Operating Activities
Net cash provided by operating activities consists primarily of net income (loss) adjusted for non-cash items, including depreciation and amortization, changes in deferred income taxes and others, and includes the effect of working capital changes. Net cash provided by operating activities increased by $3.6 million primarily due to higher income, driven by an increase in other income, and favorable changes in accrued expenses. These favorable impacts were partially offset by lower non-cash expense add-backs, which reduced the adjustments added back to net income in the determination of operating cash flows.
Investing Activities
Net cash used in investing activities increased by $9.5 million primarily due to increased capital project spending including the purchases of warehouse buildings which were previously leased in the six months ended June 30, 2026, partially offset by proceeds from the sale of the Utah property (see Note 4 - Balance Sheet Components for additional information).
Financing Activities
Net cash provided by financing activities of $11.5 million during the six months ended June 30, 2026 as compared to $2.7 million net cash used in financing activities for the six months ended June 30, 2025 was primarily due to the higher overall net proceeds from line of credit activity, offset by overall lower interest rates.
Critical Accounting Policies and Estimates
We have prepared the financial information in this Quarterly Report in accordance with GAAP. Preparing our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during these reporting periods. We base our estimates and judgments on historical experience and other factors we believe are reasonable under the circumstances. These assumptions form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Part II, Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the 2025 Annual Report includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenue, or expenses during the six months ended June 30, 2026.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
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