Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the historical results of operations and liquidity and capital resources of Arxis, Inc. The Arxis Businesses were not historically consolidated. This should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited combined financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our final prospectus filed with the SEC pursuant to Rule 424(b) (the "Prospectus") on April 16, 2026, for the year ended December 31, 2025. This discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the "Risk Factors," and "Cautionary Statement Regarding Forward-Looking Statements" sections. Unless the context otherwise requires, references in this section to "we," "our," "us" and the "Company" refer to Arxis, Inc. Certain columns and rows may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in thousands.

Overview

We are a leading designer and manufacturer of proprietary, mission-critical electronic and mechanical components engineered for cutting-edge performance in extreme environments. Leveraging significant IP and world-class engineering capabilities, we design and deliver innovative solutions that address some of our customers' most complex performance needs. Our business is highly diversified across end markets, customers and platforms. While we primarily serve the broader aerospace and defense industries, we also have a significant presence across medical technology and other specialized industrial technology end markets. We operate in two reportable segments: Electronic Components and Mechanical Components. For a complete description of our business and segments, refer to Part I, Item 1. Business of our Prospectus.

We generated revenue of $500.7 million for the three months ended June 30, 2026, representing an increase of 25.0% compared to $400.4 million for the 2025 period. Net loss for the for the three months ended June 30, 2026 was $4.9 million compared to $29.3 million for the 2025 period. Adjusted EBITDA was $211.5 million, or 42.2% of revenue, for the three months ended June 30, 2026, compared to $153.7 million, or 38.4% of revenue, for the 2025 period. Refer to"Non-GAAP Financial Measures" in this discussion and analysis for additional information and limitations regarding these non-GAAP financial measures, including a reconciliation to the comparable GAAP financial measure.

Demand across our end markets remained strong during the second quarter of 2026, driven by continued growth in defense and space programs from increasing U.S. and allied budgets, sustained growth in commercial aerospace from robust production rates and aftermarket activity, and solid demand across our industrial technology end markets driven by continued investment in automation and electrification. Our results are supported by disciplined execution, productivity initiatives, and cost management, underscoring the strength and scalability of our proprietary business system - Arxis EDGE (Empower Data-Driven Growth and Execution) - through which we drive team-based selling and accountability, increase cross-selling opportunities across our business units and support our commercial strategy. Additionally, we continue to pursue strategic acquisitions that complement our existing portfolio.

Recent Developments

The following significant events occurred during or subsequent to the six months ended June 30, 2026.

Reorganization and Initial Public Offering

In April 2026, the Company completed its Reorganization and IPO of shares of Class A common stock. The Company's Class A common stock began trading on the Nasdaq under the ticker symbol "ARXS" on April 16, 2026. Net proceeds from the IPO were $1,220.6 million, after deducting underwriting discounts, commissions and offering costs. A portion of the net proceeds was used to repay $946.0 million of outstanding indebtedness under the Company's Term Loan Credit Facility, with the remainder to be used for working capital and general corporate purposes.

In connection with the IPO, the Company completed the Reorganization, pursuant to which the Arxis Businesses were reorganized into a corporate structure. Prior to the Reorganization, the Arxis Businesses operated as limited partnerships and limited liability companies. As a result of the Reorganization, the Company is subject to U.S. federal and state corporate income taxes on a consolidated basis. Refer to the Company's Prospectus filed with the SEC on April 16, 2026 for additional details regarding the Reorganization.

Other Developments

We continue to monitor geopolitical developments in the Middle East and the potential effects on global markets and our business. Our direct exposure to the region is limited, and we have no material operations or assets in the Middle East. Based on information currently available, we do not expect these developments to have a material impact on our results of operations, cash flows, or financial condition; however, the scope, duration, and broader economic effects remain uncertain.

Acquisitions

On June 1, 2026, the Company acquired 100% equity interest in MagCanica, LLC ("MagCanica"), a designer and manufacturer of non-contact, high-precision torque sensors that are used in high-performance rotating systems. The acquisition complements the Company's existing military flexible driveshaft capabilities and addresses a growing need for real-time monitoring of mission-critical rotating systems.

On January 5, 2026, the Company acquired 100% of the equity interest of Micro-Tronics, LLC ("Micro-Tronics"), a leading provider of engineered, mission-critical elastomeric and metallic components for commercial aerospace and defense applications. The acquisition expands the Company's product line into adjacent and overlapping capabilities, including elastomeric diaphragm seals and assemblies to high-precision electrical discharge machined components.

On June 27, 2025, the Company acquired 100% equity interest in Oldham Seals Group Limited ("Oldham"), a Chichester, England based company that designs and manufactures highly engineered elastomeric and polymer products for the naval and civilian shipping industry, oil and gas and traction industries.

For additional information regarding our acquisitions, refer to "Note 3. Business Combinations," in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Results of Operations

The following tables set forth a summary of our results of operations for the three and six months ended June 30, 2026 and 2025.

Three and Six Months Ended June 30, 2026 as compared to the Three and Six Months Ended June 30, 2025

Revenue

Revenue increased by $100.3 million, or 25.0%, for the three months ended June 30, 2026 as compared to the three months ended June 30, 2025.

Revenue increased by $179.1 million, or 22.9%, for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.

Organic Revenue

Organic revenue represents revenue from our existing businesses for comparable periods and excludes revenue from acquisitions. We include revenue from new acquisitions in organic revenue from the 13th month after the acquisition on a comparative basis with the prior period. As a result, revenue originally classified as acquisition revenue in the immediately preceding comparative period is reclassified as organic revenue in all the periods presented from the 13th month after acquisition onwards. Organic revenue therefore reflects the period-over-period change in revenue attributable to underlying performance factors, such as customer demand, pricing, and volume, and excludes the impact of businesses that contributed revenue for only a portion of one of the comparative periods due to acquisition timing.

For the three months ended June 30, 2026 as compared to the 2025 period, organic revenue increased by $83.9 million, or 21.0%, which was driven by broad-based growth across all of our end markets, led by Industrial Technology, and supported by continued strength in Commercial Aerospace and Defense and Space.

For the three months ended June 30, 2026 as compared to the 2025 period, growth across all of our end markets reflected the combined benefit of higher sales volume and favorable pricing actions. Volume growth reflected increased customer demand across key programs and applications, as well as contributions from new business wins, contributing mid-teens growth led by Industrial Technology and Commercial Aerospace end markets. Pricing contributed a mid-single-digit increase across each of our end markets, reflecting contractual price escalations and price realization actions.

For the six months ended June 30, 2026 as compared to the 2025 period, organic revenue increased by $149.0 million, or 19.1%, including a 1% favorable foreign currency impact. Growth remained broad-based across all of our end markets throughout the first half of 2026.

For the six months ended June 30, 2026 as compared to the 2025 period, growth across all end markets reflected the combined benefit of higher sales volume and favorable pricing actions. Volume growth reflected increased customer demand across key programs and applications, as well as contributions from new business wins, contributing low-teens growth across all our end markets. Pricing contributed a mid-single-digit increase across each of our end markets, reflecting contractual price escalations and price realization actions.

The favorable demand environment remained consistent throughout the first half of 2026, supported by increased U.S. and allied defense spending, higher commercial aerospace production rates and aftermarket activity, and continued investment in automation and electrification across industrial technology applications.

Acquisition Revenue

Acquisition revenue represents revenue from businesses acquired either during the fiscal year of the acquisition, or revenue from acquisitions that were completed in the prior period for which there is no comparable revenue during the prior period. Revenue originally classified as acquisition revenue is reclassified as organic revenue when the acquired business is included in both the current reporting period and the immediately preceding comparative period, such that directly comparable prior period amounts exist. As the Company's organic revenue and acquisition revenue classification is applied on a comparison-period basis, acquisition revenue for a respective period may be classified differently depending on the period-over-period comparison being presented.

For the three and six months ended June 30, 2026 acquisition revenue was $16.4 million and $30.1 million, respectively, which represents revenue from businesses acquired after June 30, 2025 that was not included in the comparable organic revenue base for the period, and is attributable to the acquisitions of Oldham, Micro-Tronics, and MagCanica.

Gross Profit

For the three months ended June 30, 2026 as compared to the 2025 period, gross profit increased by $65.0 million, or 32.9%, which was primarily due to improved operating leverage on higher volumes, and partially attributable to favorable price realization, reflecting continued operational execution across the business, and incremental gross profit from the acquisitions of Oldham, Micro-Tronics, and MagCanica.

For the six months ended June 30, 2026 as compared to the 2025 period, gross profit increased by $136.9 million, or 38.0%, which was primarily due to improved operating leverage on higher volumes, and partially attributable to favorable price realization, reflecting continued operational execution across the business. The increase was also partially attributable to a $16.8 million favorable change in amortization of inventory step-up from acquisitions, and incremental gross profit from the acquisitions of Oldham, Micro-Tronics, and MagCanica.

For both the three and six months ended June 30, 2026 as compared to the 2025 period, gross margin increased primarily due to operational leverage on increased volumes and partially attributable to favorable price realization. Continued operational execution initiatives also supported margin expansion.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $113.1 million, or 140.3%, for the three months ended June 30, 2026 as compared to the 2025 period. Selling, general and administrative expenses increased by $132.7 million, or 89.0%, for the six months ended June 30, 2026 as compared to the 2025 period. These increases were primarily driven by share-based compensation expense and transaction expenses recognized in connection with our IPO.

Amortization of Intangible Assets

Amortization of intangible assets increased by $2.1 million, or 6.1%, for the three months ended June 30, 2026 as compared to the 2025 period. Amortization of intangible assets increased by $4.0 million, or 5.9%, for the six months ended June 30, 2026 as compared to the 2025 period. These increases were due to amortization related to acquired intangible assets.

Interest Expense, Net

Interest expense, net decreased by $17.9 million, or 31.3%, for the three months ended June 30, 2026 as compared to the 2025 period, which was primarily due to the repayment of $946.0 million aggregate principal amount of debt in April 2026 using a portion of the proceeds from the IPO, partially offset by an $11.4 million loss on extinguishment of debt.

Interest expense, net decreased by $42.2 million, or 33.6%, for the six months ended June 30, 2026 as compared to the 2025 period, which was primarily due to the repayment of $946.0 million aggregate principal amount of debt in April 2026 using a portion of the proceeds from the IPO.

Other Income, Net

Other income, net increased by $1.7 million for the three months ended June 30, 2026 as compared to the 2025 period. Other income, net increased by $3.0 million for the six months ended June 30, 2026 as compared to the 2025 period. These increases were primarily due to interest income.

Income Tax Expense

Income tax expense decreased by $54.8 million for the three months ended June 30, 2026 as compared to the 2025 period. The Company's effective income tax rate was (247.2)% for the three months ended June 30, 2026, compared to 200.6% for the three months ended June 30, 2025. The change in the effective tax rate was primarily due to IPO-related items, including share-based compensation expense, which resulted in a near break-even pre-tax book loss.

Income tax expense decreased by $36.6 million for the six months ended June 30, 2026 as compared to the 2025 period. The Company's effective income tax rate was 28.4% for the six months ended June 30, 2026, compared to 250.9% for the six months ended June 30, 2025. The change in the effective tax rate was primarily due to higher pre-tax book income across the Company's business entities, as well as changes in the jurisdictional mix of earnings and losses in 2026.

Segment Results

The following table presents revenue by segment, Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin for the three and six months ended June 30, 2026 and 2025.

Electronic Components

Electronic Components segment revenue increased by $36.7 million, or 20.6%, for the three months ended June 30, 2026 as compared to the 2025 period. Electronic Components segment revenue increased by $68.2 million, or 19.6%, for the six months ended June 30, 2026 as compared to the 2025 period. These increases were primarily due to higher revenue across our Industrial Technology and Defense and Space end markets driven by strong customer demand.

Electronic Components Segment Adjusted EBITDA increased by $20.2 million for the three months ended June 30, 2026 as compared to the 2025 period. Electronic Components Segment Adjusted EBITDA increased by $36.6 million for the six months ended June 30,

2026 as compared to the 2025 period. These increases were primarily driven by increased operating leverage resulting from higher sales volumes, together with continued operational efficiencies.

Mechanical Components

Mechanical Components segment revenue increased by $63.6 million or 28.6% for the three months ended June 30, 2026 as compared to the 2025 period. Mechanical Components segment revenue increased by $110.9 million or 25.6% for the six months ended June 30, 2026 as compared to the 2025 period. These increases were primarily due to higher revenue across all of our end markets driven by strong customer demand, and partially attributable to the acquisitions of Oldham and Micro-Tronics.

Mechanical Components Segment Adjusted EBITDA increased by $42.3 million for the three months ended June 30, 2026 as compared to the 2025 period. Mechanical Components Segment Adjusted EBITDA increased by $74.7 million for the six months ended June 30, 2026 as compared to the 2025 period. These increases were primarily driven by higher sales volumes, which increased operating leverage, together with continued execution of our operational strategy, including operational efficiencies and cost optimization initiatives. These increases were also partially attributable to the acquisitions of Oldham and Micro-Tronics.

For more information regarding our segments please refer to "Note 5. Segment Information" in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Non-GAAP Financial Information

We report our financial results in accordance with GAAP. However, management believes that certain financial measures that are not presented in accordance with GAAP provide management and users of our financial information with useful supplemental information that provides a meaningful view of our performance across periods. We believe Adjusted EBITDA and Adjusted EBITDA Margin provide visibility to the underlying operating performance. Management uses Adjusted EBITDA and Adjusted EBITDA Margin to review and assess the performance of the management team in connection with employee incentive programs and to prepare its annual budget and financial projections. Moreover, our management uses Adjusted EBITDA of target companies to evaluate acquisitions. In addition to Adjusted EBITDA and Adjusted EBITDA Margin, we believe Free Cash Flow and Free Cash Flow Conversion provide useful information regarding how Net cash provided by (used in) operating activities compares to the capital expenditures required to maintain and grow our business, and our available liquidity, after funding such capital expenditures, to service our debt, fund strategic initiatives and strengthen our balance sheet, as well as our ability to convert our earnings to cash. Additionally, we believe such metrics are widely used by investors, securities analysts, ratings agencies and other parties in evaluating liquidity and debt-service capabilities.

Our non-GAAP financial measures may not be comparable to similarly titled measures used by other companies, have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our operating results as reported under GAAP. Additionally, we do not consider our non-GAAP financial measures as superior to, or a substitute for, the equivalent measures calculated and presented in accordance with GAAP. Some of the limitations are:

Management compensates for these limitations by not viewing Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion in isolation and specifically by using other GAAP measures, such as Revenue, Net income (loss) and Net cash provided by (used in) operating activities, to measure our operating performance and liquidity. Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Free Cash Flow Conversion are not measurements of financial performance or liquidity under GAAP, and they should not be considered as alternatives to Net income (loss) or Net cash flows provided by (used in) operating activities determined in accordance with GAAP.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is defined as Net income (loss), adjusted for: (i) interest expense, net; (ii) income tax expense (benefit); (iii) depreciation and amortization; (iv) acquisition and integration costs; (v) restructuring costs; (vi) transaction and other deal related expenses; (vii) share-based compensation expense, and (viii) other non-recurring adjustments. Management defines Adjusted EBITDA Margin as Adjusted EBITDA divided by Revenue.

The following table sets forth a reconciliation of Net income (loss) to Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented:

Free Cash Flow and Free Cash Flow Conversion

We measure Free Cash Flow as Net cash provided by operating activities less Capital expenditures. Free Cash Flow Conversion is calculated as Free Cash Flow divided by Net income (loss). The following table sets forth a reconciliation of Net cash provided by operating activities, the most comparable GAAP financial measure, to Free Cash Flow for the periods presented:

Liquidity and Capital Resources

Historically, our primary sources of liquidity have been cash and cash equivalents, cash flows from our operating activities and borrowings under our credit agreements, including revolving credit facilities. In April 2026, the Company completed its IPO of shares of Class A common stock. Net proceeds from the IPO were $1,220.6 million, after deducting underwriting discounts, commissions and offering costs. A portion of the net proceeds was used to repay $946.0 million of outstanding indebtedness under the Company's Term Loan Credit Facility, with the remainder to be used for working capital and general corporate purposes. Our principal historical liquidity requirements have been for acquisitions, capital expenditures, servicing indebtedness and working capital needs. As we continue to expand our business, we may require additional working capital in the future for increased costs, and although we believe that we will be able to fully fund our ongoing capital expenditures, working capital requirements and other capital needs for the foreseeable future through cash on hand and cash flows from our operating activities, we may choose to use borrowings under our credit facilities to finance our operating and investing activities. Based on our current outlook, we believe that net cash provided by operating activities and available borrowings under our credit agreements will be sufficient to fund our cash requirements for at least the next twelve months.

As of June 30, 2026, we had $1,732.9 million of borrowings outstanding under the Term Loan Credit Facility, and a $201.0 million commitment under our delayed draw term loan ("DDTL"), all of which was undrawn as of June 30, 2026. We had no outstanding balance under our senior secured revolving credit facility (the "Revolving Credit Facility", and together with the Term Loan Credit Facility and DDTL, the "Credit Facilities") and $3.7 million letters of credit outstanding, resulting in an available borrowing capacity of $396.3 million on the Revolving Credit Facility.

Cash Flows

The following table sets forth the major components of our unaudited condensed consolidated statements of cash flows for the periods presented:

Operating Activities

Cash provided by operating activities increased by $105.7 million for the six months ended June 30, 2026 as compared to the 2025 period, primarily due to an increase in Net income, adjusted for non-cash items, of $144.2 million, partially offset by an increase in cash outflow from the cash impacts of changes in working capital of $23.8 million. Our overall decrease in working capital performance was primarily attributable to a decrease of $28.4 million in Accounts payable and Accrued expenses and other current liabilities for the timing and amount of vendor payments, an increase of $24.7 million in Accounts receivable primarily due to higher revenue, partially offset by a decrease of $15.1 million in Inventory primarily due to lower purchasing activity and a decrease of $14.2 million in Prepaid expenses and other current assets primarily due to income tax receivables. In addition to the decrease in overall working capital, cash outflow from net contract liabilities increased by $14.2 million, which was primarily due to the timing of progress billings.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2026 was $208.0 million, and related to $185.8 million cash consideration paid for acquisitions and $22.3 million of capital expenditures.

Net cash used in investing activities for the six months ended June 30, 2025 was $171.8 million, and related to $152.6 million cash consideration paid for acquisitions and $21.4 million of capital expenditures.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2026 was $279.2 million, and primarily related to proceeds from the Company's IPO of $1,227.8 million, $25.0 million of proceeds from the issuance of debt, $11.3 million in contributions, and $5.4 million of proceeds from the settlement of related party notes receivable, partially offset by $952.8 million of debt repayments.

Net cash provided by financing activities for the six months ended June 30, 2025 was $171.3 million, and primarily related to $146.7 million of proceeds from the issuance of debt, net of debt repayments and debt financing fees, and $385.0 million in contributions, partially offset by $351.1 million in distributions and $7.0 million of repayments of related party payables.

2025 Credit Agreement

On February 26, 2025, wholly-owned subsidiaries of the Arxis Businesses entered into the Credit Agreement with a consortium of banks, led by Citibank, N.A. Borrowings under the Term Loan Credit Facility mature on, and remaining commitments under the DDTL thereunder terminate on, February 26, 2032. In June 2026, the Company amended the 2025 Credit Agreement to reduce the applicable interest rate margin by 25 basis points, reduce the available commitments on the 2025 DDTL from $250.0 million to $201.0 million, and amend the prepayment schedule such that the outstanding principal amounts are due in full at maturity.

We may draw on the DDTL until February 26, 2027. Borrowings under the Revolving Credit Facility mature on, and remaining commitments under the Revolving Credit Facility terminate on, February 26, 2030. The Credit Agreement contains customary conditions on the availability of commitments thereunder, including that our consolidated first-lien net leverage ratio is below specified thresholds. The interest rates on borrowings under the Revolving Credit Facility, DDTL, and Term Loan Credit Facility are calculated in accordance with the Credit Agreement and based on our consolidated first-lien net leverage ratio. We have the right to prepay borrowings at any time, subject to certain prepayment premiums applicable in connection with prepayments resulting from certain repricing events. We are obligated to prepay borrowings under certain circumstances, including using excess cash flows and proceeds from certain asset sales, casualty events and from issuances or incurrences of certain indebtedness. The obligations under the Credit Agreement are guaranteed by the restricted subsidiaries of the borrowers and, pursuant to the related holdings guarantee, which is filed as an exhibit to the registration statement of which our Prospectus forms a part, by the holding companies of the borrowers, which holding companies are also our wholly-owned subsidiaries. The obligations under the Credit Agreement are secured by substantially all of our assets, which security interests are granted pursuant to the related security agreement, which is filed as an exhibit to the registration statement of our Prospectus.

The Credit Agreement contains customary negative covenants, including limitations on indebtedness, liens, fundamental changes, asset sales, investments, dividends and other restricted payments, affiliate transactions and other matters customarily restricted in such agreements. In addition, the Credit Agreement includes a financial covenant that requires us to maintain a first-lien net leverage ratio of less than 10.15x when the Revolving Credit Facility is more than 40% utilized. The Credit Agreement also contains customary events of default, after which indebtedness under the Credit Facilities may become due and payable immediately and commitments under the Credit Facilities would terminate, including payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us and our subsidiaries and change in control.

The foregoing summary and description of certain provisions of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which is filed as an exhibit of the Prospectus.

Other Obligations and Commitments

We have future obligations under various contracts, including finance and operating leases. During the six months ended June 30, 2026, there were no material changes to these obligations as described in our December 31, 2025 audited annual financial statements included in the Prospectus.

In connection with the Reorganization and the issuance of convertible common stock, the Company entered into the Convertible-Related Tax Receivable Agreement ("TRA"), pursuant to which the Company is contractually obligated to pay 85% of the cash tax savings, if any, realized from compensation deductions related to the convertible common stock award and the related Section 83(b) election. As of June 30, 2026, the Company had accrued $13.3 million related to its obligations under the TRA within Other long-term liabilities.

Off-Balance Sheet Arrangements

As of June 30, 2026, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material impact on our financial condition or liquidity.

Critical Accounting Estimates

Management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements and the related notes thereto, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In preparing the unaudited condensed consolidated financial statements, we apply accounting policies and estimates that affect the reported amounts and related disclosures. Inherent in such policies are certain key assumptions and estimates made by management, which we believe best reflect our underlying business and economic conditions. Our estimates are based on historical experience and various other factors and assumptions that we believe are reasonable under the circumstances. We regularly re-evaluate our estimates used in the preparation of the condensed consolidated financial statements based on our latest assessment of the current and projected business and economic environment. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates. Other than as described below, there have been no material changes to our critical accounting policies and estimates as described in our Prospectus.

Convertible-Related Tax Receivable Agreement

The Company accounts for its obligations under the TRA as a contingent liability under ASC 450, which requires management to exercise significant judgment in assessing whether a payment obligation is probable and reasonably estimable, in estimating the amount of any such obligation. These judgments include estimates of the Company's future taxable income, the impact of the compensation deduction on tax attribute utilization, the applicable U.S. federal income tax rate and an assumed weighted-average state and local income tax rate. These estimates are inherently uncertain and depend on factors outside the Company's control, including future operating results and changes in tax law. Because the amount and timing of future payments depend on facts that will not be known until future periods, actual amounts paid under the TRA may differ from amounts currently accrued, and any changes in estimate could have an effect on the Company's results of operations in the period identified. See "Note 14. Equity" to the condensed consolidated financial statements herein for further information.

Recently Adopted Accounting Pronouncements

Refer to "Note 2. Summary of Significant Accounting Policies-Recent Adopted Accounting Pronouncements" in our December 31, 2025 annual financial statements reported in the Prospectus for additional information.