EVI INDUSTRIES, INC.

Previous wording

Beginning in 2015, the Company implemented a “buy-and-build” growth strategy which includes (i) the consideration and pursuit of acquisitions and other strategic transactions which management believes may complement the Company’s existing business or otherwise offer growth opportunities for, or benefit, the Company and (ii) the implementation of a growth culture at acquired businesses based on the exchange of ideas and business concepts among the management teams of the Company and the acquired businesses as well as through certain additional initiatives, which may include investments in additional sales and service personnel, new product lines, enhanced service operations and capabilities, new and improved facilities, and advanced technologies. See “Buy-and-Build Growth Strategy” below for information regarding business acquisitions consummated during the fiscal year ended June 30, 2023 (“fiscal 2023”) and the fiscal year ended June 30, 2024 (“fiscal 2024”).

Current wording

The Company’s growth strategy includes the pursuit of organic growth initiatives and a “buy-and-build” growth strategy. The Company’s “buy-and-build” growth strategy includes (i) the consideration and pursuit of acquisitions and other strategic transactions which management believes may complement the Company’s existing business or otherwise offer growth opportunities for, or benefit, the Company and (ii) the implementation of a growth culture at acquired businesses based on the exchange of ideas and business concepts among the management teams of the Company and the acquired businesses as well as through certain additional initiatives, which may include investments in additional sales and service personnel, new product lines, enhanced service operations and capabilities, new and improved facilities, and advanced technologies. See “Buy-and-Build Growth Strategy” below for information regarding business acquisitions consummated during the fiscal year ended June 30, 2024 (“fiscal 2024”) and the fiscal year ended June 30, 2025 (“fiscal 2025”), as well as an acquisition consummated subsequent to fiscal 2025 year-end.

Previous wording

Total revenues for fiscal 2024 decreased by less than 1% compared to fiscal 2023. The decrease in revenues during fiscal 2024 is due primarily to the timing of receipt and delivery of products to customers due to construction or other delays which impacted the ability of certain customers to receive products. Additionally, there were large industrial jobs completed during fiscal 2023 which generated significant revenues. These decreases were offset in part by price increases established throughout the Company’s product lines and service offerings aimed at maintaining or increasing margins to cover incremental product and operating cost increases, and revenues generated by businesses acquired by the Company during fiscal 2024 as well as businesses acquired by the Company during fiscal 2023 whose results were consolidated in the Company’s financial statements for all of fiscal 2024 as compared to just the period of fiscal 2023 from the respective closing date of the acquisition through the end of fiscal 2023.

Current wording

Total revenues for fiscal 2025 increased by 10% compared to fiscal 2024. The increase was attributable to revenues generated by businesses acquired by the Company during fiscal 2025 as well as price increases established throughout the Company’s product lines and service offerings aimed at maintaining or increasing margins to cover incremental product and operating cost increases.

Previous wording

Net income for fiscal 2024 decreased by 42% from fiscal 2023. The decrease in net income was attributable primarily to increases in selling, general, and administrative expenses.

Current wording

Net income for fiscal 2025 increased by 33% from fiscal 2024. The increase in net income was primarily attributable to increases in revenue (as described above) and gross margin, partially offset by increases in selling, general, and administrative expenses.

Previous wording

The Company’s operating expenses consist primarily of (a) selling, general and administrative expenses, primarily salaries, and commissions and marketing expenses that are variable and correlate to changes in sales, (b) expenses related to the operation of warehouse facilities, including a fleet of installation and service vehicles, and facility rent, which are payable mostly under non-cancelable operating leases, and (c) operating expenses at the parent company, including compensation expenses, fees for professional services, expenses associated with being a public company, including increased expenses attributable to the Company’s investments for future growth, and expenses in furtherance of the Company’s “buy-and-build” growth strategy.

Current wording

The Company’s operating expenses consist primarily of (a) selling, general and administrative expenses, primarily salaries, and commissions and marketing expenses that are variable and correlate to changes in sales, (b) expenses related to the operation of warehouse facilities, including a fleet of installation and service vehicles, and facility rent, which are payable mostly under non-cancelable operating leases, and (c) operating expenses at the parent company, including compensation expenses, fees for professional services, expenses associated with being a public company and investments and other expenses in furtherance of the Company’s “buy-and-build” growth strategy and other growth and optimization initiatives.

Previous wording

During fiscal 2024, the Company acquired Pennsylvania-based ALVF, Inc. (d/b/a ALCO Washer Center) and Texas-based Signature Services Corporation (d/b/a Ed Brown Distributors). The total consideration for these transactions consisted of $1.9 million in cash and the issuance of 8,621 shares of the Company’s common stock.

Current wording

During fiscal 2024, the Company acquired Pennsylvania-based ALVF, Inc. (d/b/a ALCO Washer Center) and Texas-based Signature Services Corporation (d/b/a Ed Brown Distributors). The total consideration for these transactions consisted of $2.0 million in cash and the issuance of 8,621 shares of the Company’s common stock.

Previous wording

The acquired companies generally distribute commercial, industrial, and vended laundry products and provide installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. Acquisitions are generally effected by the Company through a separate wholly-owned subsidiary formed by the Company for the purpose of effecting the transaction, whether by an asset purchase or merger, and operating the acquired business following the transaction. The Company, indirectly through its applicable wholly-owned subsidiary, also assumes certain of the liabilities of the acquired business. The financial position, including assets and liabilities, and results of operations of the acquired businesses following the respective closing dates of the acquisitions are included in the Company’s consolidated financial statements.

Current wording

The acquired companies generally distribute commercial, industrial, and vended laundry products and provide installation and maintenance services to the new and replacement segments of the commercial, industrial and vended laundry industry. Acquisitions are generally effected by the Company through an existing or newly-formed subsidiary which acquires (whether by an asset purchase, stock purchase or merger) and operates the acquired business following the transaction. The Company, indirectly through its subsidiary, also assumes certain of the liabilities of the acquired business. The financial position, including assets and liabilities, and results of operations of the acquired businesses following the respective closing dates of the acquisitions are included in the Company’s consolidated financial statements.

Previous wording

In addition to the foregoing, on July 1, 2024, the Company acquired Florida-based Laundry Pro of Florida, Inc. for total consideration of $5.9 million in cash. The financial position, including assets and liabilities, and results of operations of Laundry Pro of Florida, Inc. following the July 1, 2024 closing date of the acquisition will be included in the Company’s consolidated financial statements commencing in the quarter ending September 30, 2024.

Current wording

In addition to the foregoing, on August 1, 2025, the Company acquired New York-based ASN Laundry Group for total consideration of $0.6 million in cash. The financial position, including assets and liabilities, and results of operations of ASN Laundry Group following the August 1, 2025 closing date of

Previous wording

See Note 3 to the Consolidated Financial Statements included in Item 8 of this Report for additional information about the acquisitions completed by the Company during fiscal 2023 and fiscal 2024, as well as the subsequent acquisition of Laundry Pro of Florida, Inc.

Current wording

See Note 3 to the Consolidated Financial Statements included in Item 8 of this Report for additional information about the acquisitions described above.

Previous wording

The Company’s total assets decreased from $253.8 million at June 30, 2023 to $230.7 million at June 30, 2024. The decrease in total assets was primarily attributable to a decrease in current assets, as

Current wording

The Company’s total assets increased from $230.7 million at June 30, 2024 to $307.0 million at June 30, 2025. The increase in total assets was primarily attributable to the assets of the businesses acquired during fiscal 2025, including accounts receivable, inventory, intangible assets, and goodwill. The Company’s total liabilities increased from $94.1 million at June 30, 2024 to $163.6 million at June 30, 2025, primarily due to increases in payables related to acquired businesses and long-term debt used to acquire such businesses.

Previous wording

The Company had approximately $4.6 million of cash at June 30, 2024 compared to $5.9 million of cash at June 30, 2023. The decrease in cash was primarily due to optional debt repayments in excess of borrowings under the Company’s credit facility, cash consideration paid in connection with the Company’s business acquisitions during fiscal 2024 and capital expenditures, offset in part by increases to cash generated from operations. The Company’s primary sources of cash are sales of products and services, and borrowings under its credit facility. The Company’s primary uses of cash are purchases of the products sold by the Company, employee related costs, and the cash consideration paid in connection with business acquisitions.

Current wording

The Company had approximately $8.9 million of cash at June 30, 2025 compared to $4.6 million of cash at June 30, 2024. The increase in cash was primarily due to cash generated from operations and borrowings on the Company’s credit facility, offset in part by cash consideration paid in connection with the Company’s business acquisitions during fiscal 2025 and capital expenditures, as well the timing of optional payments on the Company’s credit facility. The Company’s primary sources of cash are sales of products and services, and borrowings under its credit facility. The Company’s primary uses of cash are purchases of the products sold by the Company, employee related costs, and the cash consideration paid in connection with business acquisitions.

Previous wording

For fiscal 2024, operating activities provided cash of approximately $32.7 million compared to cash provided by operating activities of approximately $0.9 million in fiscal 2023. The $31.8 million increase in cash provided by operating activities was primarily attributable to decreases in accounts receivable as a result of improved collections and decreases in inventory as result of a tightening supply chain and reduced lead times, offset by decreases in net income and operating liabilities.

Current wording

For fiscal 2025, operating activities provided cash of approximately $21.3 million compared to cash provided by operating activities of approximately $32.7 million in fiscal 2024. The $11.4 million decrease in cash provided by operating activities was primarily attributable to an increase in accounts receivable, offset in part by increases in accounts payable, accrued expenses, and net income.

Previous wording

Investing activities used cash of approximately $6.8 million during fiscal 2024 compared to approximately $6.0 million in fiscal 2023. The $0.8 million increase in cash used by investing activities is due primarily to a greater amount of cash consideration paid for capital expenditures in fiscal 2024 as compared to fiscal 2023.

Current wording

Investing activities used cash of approximately $51.8 million during fiscal 2025 compared to approximately $6.8 million in fiscal 2024. The $45.0 million increase in cash used by investing activities is due primarily to a greater amount of cash consideration paid in connection with business acquisitions in fiscal 2025 as compared to fiscal 2024.

Previous wording

Financing activities used cash of approximately $27.2 million in fiscal 2024 compared to cash provided by financing activities of approximately $7.0 million in fiscal 2023. The $34.2 million increase in cash used by financing activities was attributable primarily to optional repayments of borrowings under the Company’s credit facility and a cash dividend paid during fiscal 2024.

Current wording

Financing activities provided cash of approximately $34.8 million in fiscal 2025 compared to cash used by financing activities of approximately $27.2 million in fiscal 2024. The $62.0 million increase in

Previous wording

The Company is a party, as borrower, to a syndicated credit agreement (the “Credit Agreement”) in the maximum aggregate principal amount of up to $100 million, with an accordion feature to increase the revolving credit facility by up to $40 million for a total of $140 million. A portion of the revolving credit facility is available for swingline loans of up to a sublimit of $5 million and for the issuance of standby letters of credit of up to a sublimit of $10 million. As of June 30, 2024, $66.0 million was available to borrow under the revolving credit facility.

Current wording

The Company is party, as borrower, to a syndicated credit agreement (the “Credit Agreement”). Prior to the amendment described below, the agreement allowed for borrowings in the maximum aggregate principal amount of up to $100 million, with an accordion feature to increase the revolving credit facility by up to $40 million for a total of $140 million. On March 26, 2025, the Company amended the Credit Agreement to increase the maximum aggregate principal amount from $100 million to $150 million and increase the accordion feature from $40 million to $50 million, for a total of $200 million. A portion of the revolving credit facility is available for swingline loans and for the issuance of standby letters of credit. The amendment increased the sublimit for swingline loans from $5 million to $7.5 million and the sublimit for standby letters of credit from $10 million to $15 million. In addition, as part of the amendment, the maturity date of the Credit Agreement was extended from May 6, 2027 to March 26, 2030. As of June 30, 2025, $56.1 million was available to borrow under the revolving credit facility.

Previous wording

Borrowings (other than swingline loans) under the Credit Agreement bear interest at a rate, at the Company’s election at the time of borrowing, equal to (a) the Bloomberg Short-Term Bank Yield Index rate (the “BSBY rate”) plus a margin that ranges from 1.25% to 1.75% depending on the Company’s consolidated leverage ratio, which is a ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the “Consolidated Leverage Ratio”) or (b) the highest of (i) prime, (ii) the federal funds rate plus 50 basis points, and (iii) the BSBY rate plus 100 basis points (such highest rate, the “Base Rate”), plus a margin that ranges from 0.25% to 0.75% depending on the Consolidated Leverage Ratio. Swingline loans bear interest calculated at the Base Rate plus a margin that ranges from 0.25% to 0.75% depending on the Consolidated Leverage Ratio. During November 2023, Bloomberg Index Services Limited announced it will discontinue the BSBY rate on November 15, 2024. Pursuant to the terms of the Credit Agreement, in connection with the discontinuation of the BSBY rate, when determined by the administrative agent under the Credit Agreement, the BSBY rate will be replaced with the Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment ranging from a minimum of 0.11% to a maximum of 0.43%.

Current wording

Pursuant to the terms of the Credit Agreement, in connection with the discontinuation of the Bloomberg Short-Term Bank Yield Index rate (the “BSBY rate”), during October 2024, the BSBY rate was replaced as the reference rate under the Credit Agreement by the Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment ranging from a minimum of 0.11% to a maximum of 0.43%. As a result, borrowings (other than swingline loans) under the Credit Agreement bear interest, at a rate, at the Company’s election at the time of borrowing, equal to (a) SOFR plus 0.11% to 0.43%, plus an additional adjustment margin that ranges between 1.25% and 1.75% depending on the Company’s consolidated leverage ratio, which is a ratio of consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (the “Consolidated Leverage Ratio”) or (b) the highest of (i) prime, (ii) the federal funds rate plus 50 basis points, and (iii) SOFR plus 100 basis points (such highest rate, the “Base Rate”), plus a margin that ranges between 0.25% and 0.75% depending on the Consolidated Leverage Ratio. Swingline loans generally bear interest at the Base Rate plus a margin that ranges between 0.25% and 0.75% depending on the Consolidated Leverage Ratio.

Previous wording

The Company believes that its existing cash, anticipated cash from operations and funds available under the Company’s Credit Agreement will be sufficient to fund its operations and anticipated capital expenditures for at least the next twelve months from the filing of this Report, and thereafter. The Company may also seek to raise funds through the issuance of equity and/or debt securities or the incurrence of additional secured or unsecured indebtedness, including in connection with acquisitions or other transactions pursued by the Company as part of its “buy-and-build” growth strategy.

Current wording

The Company believes that its existing cash, anticipated cash from operations and funds available under the Company’s Credit Agreement will be sufficient to fund its operations and anticipated capital expenditures for at least the next twelve months from the filing of this Report, and the foreseeable future thereafter. The Company may also seek to raise funds through the issuance of equity and/or debt securities or the incurrence of additional secured or unsecured indebtedness, including in connection with acquisitions or other transactions pursued by the Company as part of its “buy-and-build” growth strategy.

Previous wording

Cost of sales, expressed as a percentage of revenues, decreased to 70.2% in fiscal 2024 from 70.7% in fiscal 2023, representing gross margins of 29.8% in fiscal 2024 and 29.3% in fiscal 2023. The decrease in cost of sales, as a percentage of revenues, and increase in gross margin were primarily attributable to favorable changes in product and customer mix. The increase in gross margin is also attributable to the Company’s efforts to drive higher quality sales opportunities from promoting solution selling as a value-added distributor. Longer-term federal government contracts entered into during fiscal 2024 lowered gross margins by 30 basis points.

Current wording

Cost of sales, expressed as a percentage of revenues, decreased to 69.6% in fiscal 2025 from 70.2% in fiscal 2024, representing gross margins of 30.4% in fiscal 2025 and 29.8% in fiscal 2024. The decrease in cost of sales as a percentage of revenues and increase in gross margin were primarily attributable to favorable changes in product and customer mix. The increase in gross margin is also attributable to the Company’s efforts to drive higher quality sales opportunities from promoting solution selling as a value-added distributor.

Previous wording

Selling, general and administrative expenses increased by approximately $6.4 million (7%) in fiscal 2024 compared to fiscal 2023, primarily due to (a) operating expenses of acquired businesses, including additional operating expenses at the acquired businesses in pursuit of future growth and in connection with the Company’s optimization initiatives, (b) increases in salary, rent, technology costs, professional fees, and insurance costs to support the Company’s growth, and (c) stock compensation, including an increase from the acceleration of the vesting of certain restricted stock awards and restricted stock units in accordance with their terms during fiscal 2024. As a percentage of revenues, selling, general and administrative expenses increased to 26.5% in fiscal 2024 from 24.6% in fiscal 2023.

Current wording

Selling, general and administrative expenses increased by approximately $11.0 million (12%) in fiscal 2025 compared to fiscal 2024, primarily due to (a) operating expenses of acquired businesses, including additional operating expenses at the acquired businesses in pursuit of future growth and in connection with the Company’s optimization initiatives, (b) increases in salary, stock compensation, rent, technology costs, professional fees, and insurance costs to support the Company’s growth, and (c) depreciation and amortization. As a percentage of revenues, selling, general and administrative expenses increased to 26.8% in fiscal 2025 from 26.5% in fiscal 2024.

Previous wording

The Company’s effective income tax rate was 36.4% for fiscal 2024 compared to 30.6% in fiscal 2023. The increase in the effective income tax rate in fiscal 2024 is attributable to an increase in the net impact of permanent book-tax differences resulting primarily from nondeductible compensation and lower net income.

Current wording

The Company’s effective income tax rate was 32.0% for fiscal 2025 compared to 36.4% in fiscal 2024. The decrease in the effective income tax rate in fiscal 2025 is attributable to a decrease in the net impact of permanent book-tax differences resulting primarily from nondeductible compensation and higher net income.

Previous wording

which may have an adverse impact on the market for the Company’s products and services, including that there is no assurance that the Company will be able to effectively increase the price of its products and services to offset increased costs.

Current wording

Inflation did not have a significant effect on the Company’s results during fiscal 2025 or fiscal 2024. However, the Company faces risks relating to inflation, including the current inflationary trend, and other price increases (including due to the imposition of tariffs), which may have an adverse impact on the market for the Company’s products and services, including that there is no assurance that the Company will be able to effectively increase the price of its products and services to offset increased costs.

Previous wording

On October 10, 2016, the Company’s wholly-owned subsidiary, Western State Design, entered into a lease agreement pursuant to which it leases 17,600 square feet of warehouse and office space from an affiliate of Dennis Mack, a director and employee of the Company, and Tom Marks, Executive Vice President, Business Development and President of the West Region of the Company. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. Monthly base rental payments were $12,000 during the initial term of the lease. The Company exercised its option to renew the lease for the first three-year renewal term, which commenced in October 2021. Base rent for the first renewal term is $19,000 per month. In addition to base rent, Western State Design is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under this lease totaled approximately $252,000 and $228,000 during fiscal 2024 and fiscal 2023, respectively.

Current wording

On October 10, 2016, the Company’s wholly-owned subsidiary, Western State Design, entered into a lease agreement pursuant to which it leases 17,600 square feet of warehouse and office space from an affiliate of Dennis Mack, a director and employee of the Company, and Tom Marks, Executive Vice President, Business Development and President of the West Region of the Company. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the lease for the first three-year renewal term, which commenced in October 2021, and the second three-year renewal term, which commenced in October 2024. Base rent for the first renewal term was $19,000 per month. Base rent for the second renewal term is $21,000 per month. In addition to base rent, Western State Design is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under this lease totaled approximately $244,000 and $252,000 during fiscal 2025 and fiscal 2024, respectively.

Previous wording

On November 1, 2018, the Company’s wholly-owned subsidiary, AAdvantage Laundry Systems, entered into a lease agreement pursuant to which it leases warehouse and office space from an affiliate of Mike Zuffinetti, former Chief Executive Officer of AAdvantage. Monthly base rental payments under this lease were $26,000 initially. Pursuant to the lease agreement, on January 1, 2019, the lease expanded to cover additional warehouse space and, in connection therewith, monthly base rental payments under this lease increased to $36,000. In addition to base rent, AAdvantage is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the lease for the first three-year renewal term. Base rent for the first renewal term is $40,000 per month. Payments under this lease totaled approximately $464,000 and $432,000 during fiscal 2024 and fiscal 2023, respectively.

Current wording

On November 1, 2018, the Company’s wholly-owned subsidiary, AAdvantage Laundry Systems, entered into a lease agreement pursuant to which it leases warehouse and office space from an affiliate of Mike Zuffinetti, former Chief Executive Officer of AAdvantage. Pursuant to the lease agreement, on January 1, 2019, the lease expanded to cover additional warehouse space. The lease had an initial term of five years and provides for two successive three-year renewal terms at the option of the Company. The Company exercised its option to renew the lease for the first three-year renewal term, which commenced in November 2023. Base rent for the initial term was $36,000 per month. Base rent for the first renewal term is $40,000 per month. In addition to base rent, AAdvantage is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. Payments under this lease totaled approximately $480,000 and $464,000 during fiscal 2025 and fiscal 2024, respectively.

Previous wording

rental payments were $11,000 during the initial term of the lease. In addition to base rent, Yankee Equipment Systems is responsible under the lease for costs related to real estate taxes, utilities, maintenance, repairs and insurance. The lease had an initial term of three years and provides for three successive three-year renewal terms at the option of the Company. The Company exercised its option to renew this lease for the first three-year renewal term. Base rent for the first year of the renewal term is $12,500 per month. Payments under this lease totaled approximately $150,000 and $146,000 during fiscal 2024 and fiscal 2023, respectively.

Current wording

On November 3, 2020, the Company’s wholly-owned subsidiary, Yankee Equipment Systems, entered into a lease agreement pursuant to which it leases a total of 12,500 square feet of warehouse and office space from an affiliate of Peter Limoncelli, President of Yankee Equipment Systems. The lease had an initial term of three years and provides for three successive three-year renewal terms at the option of the Company. The Company exercised its option to renew this lease for the first three-year renewal term, which commenced in November 2023. Base rent for the initial term was $11,000 per month. Base rent for the first year of the renewal term was $12,500 per month. Base rent for the second year of the renewal term is $12,750 per month. In addition to base rent, Yankee Equipment Systems is responsible under the lease for

Previous wording

Revenue primarily consists of revenues from the sale or leasing of commercial and industrial laundry and dry cleaning equipment and steam and hot water boilers manufactured by others; the sale of related replacement parts and accessories; and the provision of installation and maintenance services. The Company generates revenue primarily from the sale of equipment and parts to customers. Therefore, the majority of the Company’s contracts are short-term in nature and have a single performance obligation (to deliver products), and the Company’s performance obligation is satisfied when control of the product is transferred to the customer. Other contracts contain a combination of equipment sales and services expected to be performed in the near-term, which services are distinct and accounted for as separate performance obligations. Judgment may be required by management to identify the distinct performance obligations within each contract. Revenue is recognized on these contracts when control transfers to the Company’s customers via shipment of products or provision of services and the Company has the right to receive consideration for these products and services. Additionally, from time to time, the Company enters into longer-termed contracts which provide for the sale of equipment by the Company and the provision by the Company of related installation and construction services. The installation on these types of contracts is usually completed within six to twelve months. The Company recognizes a portion of its revenue over time using the cost-to-cost measure of progress, which measures a contract’s progress toward completion based on the ratio of actual contract costs incurred to date to the Company’s estimated costs at completion adjusted for uninstalled materials, as necessary. Significant judgment may be required by management in the cost estimation process for these contracts, which is based on the knowledge and experience of the Company’s

Current wording

Revenue primarily consists of revenues from the sale or leasing of commercial and industrial laundry and dry cleaning equipment and steam and hot water boilers manufactured by others; the sale of related replacement parts and accessories; and the provision of installation and maintenance services. The Company generates revenue primarily from the sale of equipment and parts to customers. Therefore, the majority of the Company’s contracts are short-term in nature and have a single performance obligation (to deliver products), and the Company’s performance obligation is satisfied when control of the product is transferred to the customer. Other contracts contain a combination of equipment sales and services expected to be performed in the near-term, which services are distinct and accounted for as separate performance obligations. Judgment may be required by management to identify the distinct performance obligations within each contract. Revenue is recognized on these contracts when control transfers to the Company’s customers via shipment of products or provision of services and the Company has the right to receive consideration for these products and services. Additionally, from time to time, the Company enters into longer-termed contracts which provide for the sale of equipment by the Company and the provision by the Company of related installation and construction services. The installation on these types of contracts is usually completed within six to twelve months. The Company recognizes a portion of its revenue over time using the cost-to-cost measure of progress, which measures a contract’s progress toward completion based on the ratio of actual contract costs incurred to date to the Company’s estimated costs at completion adjusted for uninstalled materials, as necessary. Significant judgment may be required by management in the cost estimation process for these contracts, which is based on the knowledge and experience of the Company’s project managers, subcontractors and financial professionals. Changes in job performance and job conditions are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s revenue recognition. The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions. Total estimated costs to complete projects include various costs such as direct labor, material and subcontract

Previous wording

project managers, subcontractors and financial professionals. Changes in job performance and job conditions are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and the Company’s revenue recognition. The determination of the total estimated cost and progress toward completion requires management to make significant estimates and assumptions. Total estimated costs to complete projects include various costs such as direct labor, material and subcontract costs. Changes in these estimates can have a significant impact on the revenue recognized each period. From time to time, the Company also enters into maintenance and service contracts. These longer-term contracts, maintenance and service contracts have a single performance obligation where revenue is recognized over time using the cost-to-cost measure of progress, which best depicts the continuous transfer of control of goods or services to the customer.

Current wording

costs. Changes in these estimates can have a significant impact on the revenue recognized each period. From time to time, the Company also enters into maintenance and service contracts. These longer-term contracts, maintenance and service contracts have a single performance obligation where revenue is recognized over time using the cost-to-cost measure of progress, which best depicts the continuous transfer of control of goods or services to the customer.

Previous wording

Contract assets and liabilities are presented in the Company’s condensed consolidated balance sheets. Contract assets consist of unbilled amounts resulting from sales under longer-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. As noted above, the cost estimation process for these contracts may require significant judgment by management. The Company typically receives progress payments on sales under longer-term contracts as work progresses, although for some contracts the Company may be entitled to receive an advance payment. Contract assets also include retainage. Retainage represents a portion of the contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount (generally, from 5% to 20% of contract billings) until final contract settlement. Retainage amounts are generally classified as current assets within the Company’s consolidated balance sheets. Retainage that has been billed, but is not due until completion of performance and acceptance by customers, is generally expected to be collected within one year. Contract liabilities consist of advanced payments, billings in excess of costs incurred and deferred revenue.

Current wording

Contract assets and liabilities are presented in the Company’s consolidated balance sheets. Contract assets consist of unbilled amounts resulting from sales under longer-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. As noted above, the cost estimation process for these contracts may require significant judgment by management. The Company typically receives progress payments on sales under longer-term contracts as work progresses, although for some contracts the Company may be entitled to receive an advance payment. Contract assets also include retainage. Retainage represents a portion of the contract amount that has been billed, but for which the contract allows the customer to retain a portion of the billed amount (generally, from 5% to 20% of contract billings) until final contract settlement. Retainage amounts are generally classified as current assets within the Company’s consolidated balance sheets. Retainage that has been billed, but is not due until completion of performance and acceptance by customers, is generally expected to be collected within one year. Contract liabilities consist of advanced payments, billings in excess of costs incurred and deferred revenue.

Previous wording

reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. If the fair value is determined to be less than the carrying value, a second step is performed to measure the amount of impairment loss. This step compares the current implied goodwill in the reporting unit to its carrying amount. If the carrying amount of the goodwill exceeds the implied goodwill, an impairment is recorded for the excess. The identification and measurement of goodwill impairment involves the estimation of the fair value of the reporting unit and involves uncertainty because management must use judgment in determining appropriate assumptions to be used in the measurement of fair value. The Company performed its annual impairment test on April 1, 2024 and determined there was no impairment.

Current wording

The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value. If the reporting unit does not pass the qualitative assessment, then the reporting unit's carrying value is compared to its fair value. If the fair value is determined to be less than the carrying value, a second step is performed to measure the amount of impairment loss. This step compares the current implied goodwill in the reporting unit to its carrying amount. If the carrying amount of the goodwill exceeds the implied goodwill, an impairment is recorded for the excess. The identification and measurement of goodwill impairment