Xperi Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis is intended to promote understanding of our results of operations and financial condition and should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto, and with our audited financial statements and notes thereto for the fiscal year ended December 31, 2024 found in our Form 10-K filed by Xperi Inc. (“Xperi,” the “Company” “we,” “us,” “our,” and similar references) on February 27, 2025 (our “Form 10-K”). Business Overview We are a leading consumer and entertainment technology company. We believe we create extraordinary experiences at home and on the go for millions of consumers around the world, enabling our unique audiences to connect with content in a more intelligent, immersive, and personal way. Powering smart devices, connected cars, entertainment experiences and more, we bring together ecosystems designed to reach highly-engaged consumers, allowing us and our ecosystem partners to uncover significant new business opportunities, now and in the future. Our technologies are integrated into consumer devices and a variety of media platforms worldwide, driving increased value for our partners, customers, and consumers. We operate in one reportable business segment and group our revenue into four categories: Pay-TV, Consumer Electronics, Connected Car and Media Platform. Headquartered in Silicon Valley with operations around the world, we have approximately 1,630 employees and more than 35 years of operating experience. Divestitures In December 2023, we entered into a definitive agreement with Tobii AB, an eye tracking and attention computing company, pursuant to which we agreed to sell our AutoSense in-cabin safety business and related imaging solutions (the “AutoSense Divestiture”). The AutoSense Divestiture was completed in January 2024 and has streamlined our business and further enhanced our focus on entertainment markets. In August 2024, we entered into an Asset Purchase Agreement with Amazon.com Services LLC to sell substantially all of the assets and certain liabilities of Perceive Corporation (“Perceive”, later known as Xperi Pylon Corporation and subsequently dissolved in December 2024), a subsidiary focused on edge inference hardware and software technologies, for a gross amount of $80.0 million in cash, including a holdback of $12.0 million to be held for 18 months after the closing of the transaction (the “Perceive Transaction”) to secure our and Perceive’s indemnification obligations. The Perceive Transaction was completed in October 2024, allowing us to be fully focused on entertainment-based solutions to grow our independent media platform and licensing businesses. Macroeconomic Conditions Macroeconomic conditions—including rising inflation and interest rates, recessionary concerns, financial and credit market volatility, shifts in economic policy, reduced discretionary spending by consumers and businesses, tariffs, and global supply chain disruptions—have adversely affected, and may continue to affect, our business and that of our customers. While we remain committed to closely monitoring these macroeconomic developments and intend to adapt our business strategies as needed, the ultimate impact on our business, operating results, and financial condition remains uncertain. Restructuring Activities On November 1, 2025, we approved a restructuring plan to improve cost efficiency and better align our operating structure with our long-term strategies and current market conditions. This plan involves reducing our global workforce by approximately 250 employees and impacts all business and functional areas. In connection with this plan, we estimate that we will incur between $16.0 million and $18.0 million of restructuring and related charges, substantially all of which consists of employee severance and related costs. This plan became effective immediately upon approval and we expect substantially all the restructuring activities to be completed by the end of the first half of 2026. We estimate that these reductions, once completed, will generate cost savings of $30.0 million to $35.0 million on an annualized basis. 32 Results of Operations The following table presents our operating results for the periods indicated as a percentage of revenue: Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Revenue 100 % 100 % 100 % 100 % Operating expenses: Cost of revenue, excluding depreciation and amortization of intangible assets 26 21 28 23 Research and development 27 40 30 40 Selling, general and administrative 38 43 40 45 Depreciation expense 3 2 3 3 Amortization expense 7 8 8 9 Total operating expenses 101 114 109 120 Operating loss (1 ) (14 ) (9 ) (20 ) Interest and other income, net 1 2 2 2 Interest expense - debt (1 ) (1 ) (1 ) (1 ) Gain on divestiture — — — 6 Loss before taxes (1 ) (13 ) (8 ) (13 ) Provision for income taxes 4 2 4 4 Net loss (5 )% (15 )% (12 )% (17 )% Comparison of the Three and Nine Months Ended September 30, 2025 and 2024 Revenue We derive the majority of our revenue from licensing our technologies and solutions to customers. For our revenue recognition policy including descriptions of revenue-generating activities, refer to Note 2— Revenue of the Notes to the Condensed Consolidated Financial Statements (Unaudited). Three Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Revenue $ 111,632 $ 132,891 $ (21,259 ) (16 )% Revenue decreased by $21.3 million, or 16%, for the three months ended September 30, 2025 compared to the same period in the prior year. The decrease was primarily driven by a decrease of $31.9 million in Pay-TV revenue, partially offset by a combined increase of $11.0 million in Connected Car and Consumer Electronics revenue. The decline in Pay-TV revenue reflects lower revenue in core guide products and consumer hardware and subscription services, largely due to higher minimum guarantee (“MG”) revenue recognized in the third quarter of 2024. This was partially offset by continued growth in TiVo video-over-broadband (“IPTV”) solutions revenue. Connected Car revenue increased by $9.1 million, primarily due to higher MG revenue from HD Radio. Consumer Electronics revenue rose by $1.9 million, driven by stronger licensing and MG revenue, partially offset by the impact of the Perceive Transaction. Nine Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Revenue $ 331,598 $ 371,326 $ (39,728 ) (11 )% Revenue declined by $39.7 million, or 11%, for the nine months ended September 30, 2025 compared to the same period in the prior year, primarily due to the divestitures of AutoSense and Perceive, and a decrease of $49.7 million in Pay-TV revenue. The Pay-TV decline was driven by lower revenue in core guide products, consumer hardware, and subscription services, partially 33 due to higher MG revenue recognized in the prior year. These impacts were partially offset by continued growth in IPTV solutions. The overall decrease was partially mitigated by an increase of $11.7 million in Connected Car revenue, primarily from higher MG and licensing revenue related to HD Radio. This was offset in part by a decline in Audio Solutions revenue, reflecting the absence of certain MG revenue recognized in the prior year. Operating Expenses Three Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Cost of revenue, excluding depreciation and amortization of intangible assets $ 29,078 $ 27,484 $ 1,594 6 % Research and development 29,923 53,627 (23,704 ) (44 )% Selling, general and administrative 42,536 56,483 (13,947 ) (25 )% Depreciation expense 3,470 2,918 552 19 % Amortization expense 7,987 10,934 (2,947 ) (27 )% Total operating expenses $ 112,994 $ 151,446 $ (38,452 ) (25 )% Nine Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Cost of revenue, excluding depreciation and amortization of intangible assets $ 92,226 $ 86,193 $ 6,033 7 % Research and development 99,255 149,189 (49,934 ) (33 )% Selling, general and administrative 132,376 165,938 (33,562 ) (20 )% Depreciation expense 9,823 9,780 43 0 % Amortization expense 26,853 33,015 (6,162 ) (19 )% Total operating expenses $ 360,533 $ 444,115 $ (83,582 ) (19 )% Cost of Revenue, Excluding Depreciation and Amortization of Intangible Assets Cost of revenue, excluding depreciation and amortization of intangible assets, consists primarily of employee-related costs, royalties paid to third parties, hardware product-related costs, content and data costs, hosting fees, maintenance costs and an allocation of facilities costs, as well as service center and other expenses related to providing our offerings and non-recurring engineering services. Cost of revenue, excluding depreciation and amortization of intangible assets, for the three months ended September 30, 2025 was $29.1 million, as compared to $27.5 million in the same period of the prior year, an increase of $1.6 million, or 6%. The increase was primarily driven by higher third-party royalty expenses and increased personnel-related costs. Cost of revenue, excluding depreciation and amortization of intangible assets, for the nine months ended September 30, 2025 was $92.2 million, as compared to $86.2 million in the same period of the prior year, an increase of $6.0 million, or 7%. The increase was primarily driven by higher costs associated with advertising revenue, third-party royalties, and personnel-related expenses, partially offset by cost reductions resulting from the AutoSense Divestiture and the Perceive Transaction. Research and Development Research and development (“R&D”) costs consist primarily of employee-related costs, stock-based compensation (“SBC”) expense, engineering consulting expenses associated with new product and technology development, product commercialization, quality assurance and testing costs, as well as other costs related to patent applications and examinations, materials, supplies, and an allocation of facilities costs. Other than certain software development costs that are capitalized, all research and development costs are expensed as incurred. 34 Research and development expense for the three months ended September 30, 2025 was $29.9 million, as compared to $53.6 million in the same period of the prior year, a decrease of $23.7 million, or 44%. The decrease was primarily driven by lower R&D spend resulting from the Perceive Transaction, lower SBC expense, and reductions in R&D employee headcount. Research and development expense for the nine months ended September 30, 2025 was $99.3 million, as compared to $149.2 million in the same period of the prior year, a decrease of $49.9 million, or 33%. The decrease was primarily driven by lower R&D spend in the AutoSense in-cabin safety business and related imaging solutions following the AutoSense Divestiture, lower expenses resulting from the Perceive Transaction, lower SBC and bonus expenses, and reductions in R&D employee headcount. Selling, General and Administrative Selling expenses consist primarily of compensation and related costs (including SBC expense) for sales and marketing personnel engaged in sales and licensee support, marketing programs, public relations, promotional materials, travel, and trade shows. General and administrative expenses consist primarily of compensation and related costs (including SBC expense) for management, information technology, finance and legal personnel, legal fees and related expenses, facilities costs, and professional services. Our general and administrative expenses, other than facilities-related expenses and fringe benefits, are not allocated to other expense line items. Selling, general and administrative expenses for the three months ended September 30, 2025 were $42.5 million, as compared to $56.5 million in the same period of the prior year, a decrease of $14.0 million, or 25%. The decrease was primarily attributable to reduced employee headcount, lower SBC expense, and a decrease in certain one-time transaction costs. Selling, general and administrative expenses for the nine months ended September 30, 2025 were $132.4 million, as compared to $165.9 million in the same period of the prior year, a decrease of $33.5 million, or 20%. The decrease was primarily attributable to reduced employee headcount, lower SBC and bonus expenses, and a decrease in certain one-time transaction costs. Stock-based Compensation The following table sets forth our SBC expense for the three and nine months ended September 30, 2025 and 2024 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Cost of revenue, excluding depreciation and amortization of intangible assets $ 883 $ 822 $ 2,771 $ 2,424 Research and development 2,783 5,225 10,397 15,389 Selling, general and administrative 5,974 9,202 18,901 27,496 Total stock-based compensation expense $ 9,640 $ 15,249 $ 32,069 $ 45,309 We recognized SBC expense from restricted stock units (“RSUs”) and purchases made under our employee stock purchase plan (“ESPP”). The decreases of $5.6 million and $13.2 million in SBC expense for the three and nine months ended September 30, 2025, respectively, when compared to the same periods of the prior year, was primarily driven by RSUs granted over time at lower valuations, lower expense for performance-based restricted stock units and reduced employee headcount. Depreciation Expense We recognized depreciation expense for certain equipment, capitalized internal-use software, leasehold improvements, and buildings and improvements. Depreciation expense for the three months ended September 30, 2025 was $3.5 million, as compared to $2.9 million in the same period of the prior year, an increase of $0.6 million, or 19%. The increase was primarily driven by increased capitalized internal-use software costs over the past 12 months. Depreciation expense for the nine months ended September 30, 2025 was $9.8 million, which was consistent with the $9.8 million recorded in the same period of the prior year. 35 Amortization Expense We recognized amortization expense for certain intangible assets we acquired in business combinations that are recognized separately from goodwill. For the three and nine months ended September 30, 2025, amortization expense decreased by $2.9 million and $6.2 million, or 27% and 19%, respectively, as compared to the same periods of the prior year. The decreases were primarily due to certain intangible assets becoming fully amortized over the past 12 months. As a result of intangible assets we acquired in previous mergers and acquisitions, we anticipate that amortization expenses will continue to be a significant expense over the next several years. See Note 7— Intangible Assets, Net of the Notes to Condensed Consolidated Financial Statements (Unaudited) for additional detail. Interest and Other Income, Net Three Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Interest and other income, net $ 821 $ 2,379 $ (1,558 ) (65 )% Interest and other income, net, was lower in the three months ended September 30, 2025, as compared to the same period in the prior year, principally due to foreign currency transaction losses recognized in the third quarter of 2025. Nine Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Interest and other income, net $ 4,863 $ 4,711 $ 152 3 % The change in interest and other income, net, in the nine months ended September 30, 2025, as compared to the same period in the prior year, was not material. Interest Expense—Debt Three Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Interest expense - debt $ (761 ) $ (756 ) $ (5 ) 1 % Nine Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Interest expense - debt $ (2,252 ) $ (2,252 ) $ — — The interest expense on our debt remained constant in the three and nine months ended September 30, 2025, when compared to the same periods in the prior year. Gain on Divestiture Nine Months Ended September 30, 2025 2024 $ Change % Change (dollars in thousands) Gain on divestiture $ — $ 22,934 $ (22,934 ) (100 )% As disclosed in Note 6— Divestitures of the Notes to the Condensed Consolidated Financial Statements (Unaudited), we completed the AutoSense Divestiture on January 31, 2024 and streamlined our business, further enhancing our focus on 36 entertainment markets. Upon the completion of the AutoSense Divestiture, we recognized a pre-tax gain of $22.9 million during the nine months ended September 30, 2024. We did not have any divestitures during the three and nine months ended September 30, 2025. Provision for Income Taxes For the three and nine months ended September 30, 2025, we recorded an income tax expense of $4.8 million and $12.9 million on a pretax loss of $1.3 million and $26.3 million, respectively; which resulted in an effective tax rate of (369.0)% and (49.1)%, respectively. The income tax expense for the three and nine months ended September 30, 2025 was primarily related to foreign withholding taxes and foreign income taxes. For the three and nine months ended September 30, 2024, we recorded an income tax expense of $2.9 million and $16.4 million on a pretax loss of $16.9 million and $47.4 million, respectively, which resulted in an effective tax rate of (17.1)% and (34.7)%, respectively. The income tax expense for the three and nine months ended September 30, 2024 was primarily related to foreign withholding taxes, foreign income taxes, U.S. federal income taxes, and state income taxes. The need for a valuation allowance requires an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. In making such assessment, significant weight is given to evidence that can be objectively verified. After considering both positive and negative evidence to assess the recoverability of our net deferred tax assets, we determined that it was unlikely that our federal, certain state, and certain foreign deferred tax assets with valuation allowances will be realized. For jurisdictions that currently have valuation allowances, we intend to maintain valuation allowances until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. The exact timing and amount of the valuation allowance release depends on the level of profitability that we are able to achieve. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the U.S. The OBBBA did not materially impact our effective tax rate or cash flows in the three and nine months ended September 30, 2025. 37 Liquidity and Capital Resources The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents as of and for the periods presented: As of September 30, 2025 December 31, 2024 (dollars in thousands) Cash and cash equivalents $ 96,784 $ 130,564 Current ratio (1) 2.4 1.6 (1) The current ratio is a liquidity ratio that measures our ability to pay short-term obligations or those due within one year. The ratio is calculated by dividing current assets by current liabilities. Nine Months Ended September 30, 2025 2024 (in thousands) Net cash used in operating activities $ (4,615 ) $ (56,569 ) Net cash used in investing activities $ (14,607 ) $ (12,863 ) Net cash used in financing activities $ (14,558 ) $ (12,316 ) Our primary liquidity and capital resources are our cash and cash equivalents and borrowings available under an accounts receivable securitization program (the “AR Facility”) with PNC Bank, National Association (“PNC”). Cash and cash equivalents were $96.8 million at September 30, 2025, a decrease of $33.8 million from $130.6 million at December 31, 2024. This decrease resulted primarily from cash used in operations of $4.6 million, $50.0 million in repayment of the Vewd Software Holdings Limited (“Vewd”) senior unsecured promissory note, $14.6 million of capital expenditures, including capitalized internal-use software costs, and $6.6 million in payments of withholding taxes on net share settlement of equity awards, partially offset by $3.3 million in proceeds from the issuance of common stock under our ESPP, and $40.0 million in loan proceeds borrowed under the AR Facility with PNC. For detailed information regarding the repayment of the Vewd debt and the AR Facility, refer to “ Long-Term Debt Financing ” below. For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Form 10-K. Our cash requirements have not changed materially since December 31, 2024. Stock Repurchase Program In April 2024, our Board of Directors (the “Board”) authorized the repurchase of up to $100.0 million of our common stock (the “Program”). Under the Program, we may make repurchases, from time to time, through open market purchases, block trades, privately negotiated transactions, accelerated share repurchase transactions, or other means. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases under the Program. As of September 30, 2025, we have repurchased a total of approximately 2.2 million shares of common stock, since inception of the Program, at an average price of $9.23 per share for a total cost of approximately $20.0 million. We did not repurchase any common stock during the nine months ended September 30, 2025. As of September 30, 2025, the total remaining amount available for repurchase was $80.0 million. We may continue to execute authorized repurchases from time to time under the Program. There is no guarantee that such repurchases under the Program will enhance the value of our common stock. Cash Flows Cash Flows from Operating Activities Net cash used in operating activities was $4.6 million for the nine months ended September 30, 2025, primarily due to our net loss of $39.3 million being further adjusted by $32.8 million of changes in operating assets and liabilities, including payment of employee annual bonuses for 2024 performance, partially offset by non-cash items such as SBC expense of $32.1 million, amortization of intangible assets of $26.9 million, and depreciation expense of $9.8 million. Net cash used in operating activities was $56.6 million for nine months ended September 30, 2024, primarily due to our net loss of $63.8 million being further adjusted by $55.6 million of changes in operating assets and liabilities, including payment of employee annual bonuses for 2023 performance, an increase of $43.5 million in unbilled contracts receivable, and $22.9 38 million of a non-cash gain recognized from the AutoSense Divestiture, partially offset by non-cash items such as SBC expense of $45.3 million, amortization of intangible assets of $33.0 million, and depreciation expense of $9.8 million. Cash Flows from Investing Activities Net cash used in investing activities was $14.6 million and $12.9 million for the nine months ended September 30, 2025 and 2024, respectively, which was primarily related to capital expenditures, including capitalized internal-use software. Capital Expenditures Our capital expenditures for property and equipment consist primarily of capitalized internal-use software, purchases of computer hardware and software, information systems, and production and test equipment. We expect capital expenditures in 2025 to be approximately $20.0 million. These expenditures are expected to be paid with existing cash and cash equivalents. Current expectations may not be realized, and plans may be revised following a reevaluation of our capital expenditure requirements. Cash Flows from Financing Activities Net cash used in financing activities was $14.6 million for the nine months ended September 30, 2025, primarily due to the $50.0 million voluntary repayment of the Vewd senior unsecured promissory note, and $6.6 million in payment of withholding taxes related to net share settlement of equity awards, partially offset by $40.0 million in loan proceeds borrowed under the AR Facility with PNC and $3.3 million in proceeds from the issuance of common stock under our ESPP. Net cash used in financing activities was $12.3 million for the nine months ended September 30, 2024, due to $10.0 million in repurchases of common stock under the Program and $6.6 million in payment of withholding taxes related to net share settlement of equity awards, partially offset by $4.3 million in proceeds from the issuance of common stock under our ESPP. Long-Term Debt Financing In connection with the acquisition of Vewd on July 1, 2022, we issued a senior unsecured promissory note (the “Promissory Note”) to the sellers of Vewd in the principal amount of $50.0 million, all of which was outstanding at December 31, 2024. Indebtedness outstanding under the Promissory Note bore an interest rate of 6.00% per annum, subject to certain potential adjustments. The Promissory Note was scheduled to mature on July 1, 2025. We were permitted, at any time and on any one or more occasions, to prepay all or any portion of the outstanding principal amount, plus accrued and unpaid interest, if any, under the Promissory Note without premium or penalty. On February 21, 2025, we voluntarily made a full principal payment of $50.0 million plus accrued interest by using a combination of cash on hand and a new long-term financing facility through the securitization of our accounts receivable as described below. On February 21, 2025, we and Xperi SPV LLC (“Xperi SPV”), a special purpose subsidiary, entered into a Receivables Financing Agreement (the “RFA”) with PNC, and PNC Capital Markets LLC, and a Sale and Contribution Agreement (together with the RFA, the “RF Agreements”) among us, Xperi SPV and certain of our other wholly-owned subsidiaries to establish the AR Facility. Interest is payable on a monthly basis. The AR Facility is scheduled to terminate on February 21, 2028, unless terminated earlier pursuant to its terms. For a detailed description of the AR Facility, refer to Note 8— Debt and Receivables Securitization . Upon entering into the RF Agreements on February 21, 2025, we borrowed $40.0 million under the AR Facility and selected the monthly Term SOFR Rate (as defined in the RFA). The RF Agreements contain various covenants that we believe are usual and customary. The interest payments on the AR Facility debt, exclusive of the debt issuance costs and related amortization, are expected to be approximately $2.6 million for the next 12 months and may vary with changes in interest rates. As of September 30, 2025, we were in compliance with the covenants under the RF Agreements. For more information on our AR Facility, see Note 8— Debt and Receivables Securitization . Restructuring Activities On November 1, 2025, we approved a restructuring plan to reduce our global workforce by approximately 250 employees. We estimate to incur between $16.0 million and $18.0 million of restructuring and related charges, substantially all of which consists of employee severance and related costs. We anticipate to complete the payout of substantially all the restructuring and related charges by the end of the first half of 2026. 39 Liquidity We believe our current cash and cash equivalents, together with borrowings or availability under our AR Facility, will be sufficient to meet our needs for at least the next 12 months from the issuance date of the Condensed Consolidated Financial Statements included in this Quarterly Report. As we assess growth strategies, we may need to supplement our cash and cash equivalents with additional outside sources. As part of our liquidity strategy, we will continue to monitor our earnings and cash flow as well as our ability to access the capital markets as needed. Poor financial results, unanticipated expenses, unanticipated acquisitions of technologies or businesses or unanticipated strategic investments could give rise to additional financing requirements sooner than we expect. Equity or additional debt financing may not be available when needed or, if available, equity or debt financing may not be on terms satisfactory to us. Additionally, disruption and volatility in the global capital markets and economic uncertainties, including those driven by tariffs, have impacted corporate and consumer confidence and could continue to impact our capital resources and liquidity in the future. We may supplement our short-term liquidity needs with access to capital markets, if necessary, and strategic cost savings initiatives. Our access to capital markets may be constrained and our cost of borrowing may increase under certain business and market conditions, and our liquidity is subject to various risks including the risks identified in “Risk Factors” included in Part I, Item 1A of our Form 10-K and Part II, Item 1A of this Quarterly Report. Critical Accounting Estimates During the nine months ended September 30, 2025, there were no significant changes in our critical accounting estimates. For a discussion of our critical accounting estimates, see Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K. Recent Accounting Pronouncements See Note 1— Description of Business and Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements (Unaudited) included in this Quarterly Report for more information. 40 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Except as set forth below, there were no material changes to our exposure to market risk since December 31, 2024. For a discussion of our market risk, see Part II, Item 7A—Quantitative and Qualitative Disclosures About Market Risk in our Form 10-K. Interest Rate Risk We are exposed to changes in interest rates related to our RFA. As of September 30, 2025, we had outstanding indebtedness in the amount of $40.0 million under the AR Facility that was subject to variable interest rates, based on the secured overnight financing rate (“SOFR”). Changes in economic conditions outside of our control could result in higher interest rates, thereby increasing our interest expense and reducing the funds available for capital investment, operations or other purposes. Assuming no change in our outstanding indebtedness, we estimate that a 1% increase in the applicable SOFR interest rate would result in an annual increase in our interest expense of approximately $0.4 million. Any significant increase in our interest expense could negatively impact our results of operations and cash flows. If the U.S. Federal Reserve raises its benchmark interest rate, any increases would likely impact the borrowing rate on our outstanding indebtedness, and increase our interest expense, comparably.