Quarterly Report for Quarter Ending 2025-09-30 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

For purposes of this discussion, the use of the words "we," "us," "Company," or "our" refers to 5&2 Studios, Inc. (f/k/a The Chosen, Inc.) and its subsidiaries, except where the context otherwise requires.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company's Annual Report for the year ended December 31, 2024 on Form 10-K filed with the U.S. Securities and Exchange Commission (the "SEC") on March 31, 2025, including the audited consolidated financial statements and the related notes included therein and the consolidated interim financial statements and related notes included elsewhere in this Quarterly Report. Our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year.

In addition to our unaudited consolidated interim financial statements, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See "Cautionary Statement Concerning Forward-Looking Statements" and the "Risk Factors" set forth in Part II, Item 1A herein for a discussion of the uncertainties, risks and assumptions associated with these statements.

Results of Operations

Overview

The Company is an entertainment company, which develops, produces, and licenses for distribution, domestically and internationally, an episodic television series entitled The Chosen (or "the Series") and other production projects. The Company collaborates with partners to market, source, curate and distribute the Series to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Prime Video, and other streaming platforms, as well as (ii) physical media, including DVD and Blu-ray Discs, (iii) linear television, (iv) theatrical distribution of certain episodes or other content, (v) books, and (vi) merchandise. In September 2024, the Company announced a number of new productions, including a series based on the life of Moses, a series based on the life of Joseph called Joseph of Egypt ("Joseph"), a series based on the book of Acts, an animated series based on The Chosen called The Chosen Adventures, and an unscripted show featuring The Chosen cast and adventure enthusiast Bear Grylls called The Chosen in the Wild.

The Company's revenue model primarily includes production services related to the Series and Joseph, royalties received from the licensing of The Chosen, as well as online store and wholesale sales of The Chosen and Company branded physical media products, and merchandise. Our marketing efforts include limited and strategically focused distribution and marketing campaigns through targeted TV, streaming, and social media campaigns.

The Company operates in five business segments: Theatrical, Television and Streaming, Merchandise, Events/Other, and Production Services. Business Segments are organized based on the nature of the products and services offered.

Theatrical

The Theatrical segment focuses on the periodic theatrical exhibition of the Series as well as other original content. The Company theatrically released Season 5 in three parts, with part one (episodes 1 and 2) released in March 2025, and parts two (episodes 3, 4, 5) and three (episodes 6, 7, 8) released in April 2025. The Company also released, theatrically, the 2021 film "Christmas with the Chosen: The Messengers" and the 2023 film "Christmas with the Chosen: Holy Night." In 2023, with the release of Season 3, The Chosen became one of the only episodic television series to release episodes theatrically. The Company debuted Season 3 with a theatrical release of episodes 1 and 2 and later concluded the season with a theatrical release of episodes 7 and 8. In 2024, with the release of Season 4, The Chosen again set precedent by being one of the only episodic television shows to release all eight episodes theatrically. The Theatrical segment includes activities such as managing relationships with distribution partners and exhibitors, marketing theatrical events, and ensuring broad distribution of content to as many theaters as possible. Theatrical releases are not only viewed as revenue generating activities, but also as marketing opportunities and brand awareness events.

Television & Streaming

The Television & Streaming segment engages primarily in the distribution, licensing, exhibition, and marketing of the Series, The Chosen in the Wild, and other content to television networks and streaming platforms. Activities for this segment include negotiating and approving domestic and international licensing deals with various television networks and streaming platforms and managing the delivery of content assets to those licensees.

Merchandise

The Merchandise segment specializes in the design, manufacture, and sale of branded merchandise. This includes products such as clothing, toys, collectibles, and other consumer goods related to the Company's entertainment properties. Also included in the Merchandise segment is the physical production, distribution, and sale of DVDs and Blu-Ray discs. Merchandise, or "gifts" as the Company refers to them with its audience, are critical to its strategy of engaging with its audience and providing fans a way to share the Series and other content with those around them.

Events/Other

The Events/Other segment organizes and manages live events, exhibitions, and other entertainment-related activities. For example, in 2023 and 2024, the Company hosted thousands of fans at a live event branded as "ChosenCon," and the Company has announced ChosenCon 2026. This segment also includes other ancillary revenue streams not attributable to one of the other identified segments, such as sponsorships and Pay-it-Forward ("PIF") revenues.

Production Services

The Production Services segment provides television and film production services for third-party customers. This includes offering expertise to produce films, TV shows, commercials, and other media content.

Comparison of the Three and Nine Months Ended September 30, 2025 and September 30, 2024

The following summary of our condensed consolidated results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements, and related notes, included herein.

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Licensed Content and Merchandise Revenues

Licensed content and merchandise revenues include payments received, principally via royalties, from licensing agreements and sales of merchandise. Licensed content and merchandise revenues for the three months ended September 30, 2025 decreased $2,190 thousand, or 21%, as compared to the three months ended September 30, 2024, primarily due to a decrease of other revenue of $2,261 thousand due to ChosenCon being hosted in September 2024 but not in 2025.

Licensed content and merchandise revenues for the nine months ended September 30, 2025 increased $29,454 thousand, or 55%, as compared to the nine months ended September 30, 2024, primarily due to an increase of program licensing revenue of $37,837 thousand relating to a new exclusive distribution deal entered into by the Company in February 2025, as well as the release of Season 5 of the Series and The Chosen in the Wild being made available during the nine months ended September 30, 2025, offset by a decrease of merchandise revenue of $6,222 thousand relating to lower 5&2 Day sales in May 2025 and lower Season 5 DVD sales compared to Season 4.

Production Services Revenues

Production services revenues are generated by providing production services on a work-for-hire basis to third-party customers, primarily for the development, production, and delivery of the remaining seasons of the Series and for Joseph. Production services revenues for the three months ended September 30, 2025 increased $73,060 thousand, or 295%, as compared to the three months ended September 30, 2024, primarily due to an increase of film production revenue of $47,786 thousand relating to the timing of film production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025, in addition to an increase of $25,274 thousand relating to a higher transaction price allocated to Season 6 compared to Season 5.

Production services revenue for the nine months ended September 30, 2025 increased $80,310, or 86%, as compared to the nine months ended September 30, 2024, primarily due to an increase of $41,285 thousand relating to the timing of film production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025, in addition to an increase of $39,022 thousand relating to a higher transaction price allocated to Season 6 compared to Season 5.

Cost of Licensed Content and Merchandise Revenues

Cost of licensed content and merchandise revenues primarily includes the costs of royalties due to third parties, cost of products, third-party expenses to fulfill third-party merchandise sales orders, costs associated with events related to The Chosen and the Company, and participation and residual costs owed to writers, producers, actors and other film participants. Cost of licensed content and merchandise revenues for the three months ended September 30, 2025 decreased $4,726 thousand, or 43%, as compared to the three months ended September 30, 2024, primarily due to a decrease in other costs of revenues of $3,691 thousand related to ChosenCon, which occurred in September 2024 but not 2025, and a decrease of residual costs of $827 thousand due to a timing difference in theatrical residuals between Seasons 4 and 5.

Cost of licensed content and merchandise revenues for the nine months ended September 30, 2025 increased $40,660 thousand, or 142%, as compared to the nine months ended September 30, 2024, primarily due to an increase of royalties of $45,999 thousand relating to increased license revenues during the nine months ended September 30, 2025. This was partially offset by a decrease in other costs of revenues of $3,691 thousand due to ChosenCon occurring in September 2024 but not 2025.

Cost of Production Services Revenues

Cost of production services revenues is associated with providing production services on a work-for-hire basis, focusing on the development, production, and delivery of the remaining seasons of the Series and Joseph.

For the three months ended September 30, 2025, the costs of production services revenue increased $46,167 thousand, or 341%, as compared to the three months ended September 30, 2024, primarily due to the timing of film production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025.

Cost of production services revenues for the nine months ended September 30, 2025 increased $42,731 thousand, or 80%, as compared to the nine months ended September 30, 2024, primarily due to the timing of film production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025.

Distribution and Marketing

Distribution and marketing include costs to promote content and primarily includes marketing on social and digital platforms as well as costs for producing marketing and managing the exploitation of the licensed content for both domestic and international audiences. This primarily includes marketing on social and digital platforms as well as creative costs for producing marketing.

Distribution and marketing expense for the three months ended September 30, 2025 decreased $842 thousand, or 33%, as compared to the three months ended September 30, 2024. The decrease is primarily attributable to a decrease in non-reimbursable marketing expenses, primarily related to marketing for ChosenCon, which occurred in September 2024 but not 2025.

Distribution and marketing expense for the nine months ended September 30, 2025 decreased $18,949 thousand, or 75%, as compared to the nine months ended September 30, 2024, primarily due to an increase in marketing reimbursement of $9,809 thousand

from CAS for qualifying marketing costs incurred by the Company, related to the Series. The remaining decrease of $7,422 thousand relates to a decrease in media spend in 2025.

Amortization of Film Costs

Costs of producing owned content are amortized using the individual-film-forecast method, based on the ratio of the current period's revenues to the Company's estimated ultimate revenue.

There was no amortization of film costs for the three months ended September 30, 2025, and 2024.

Amortization of film costs for the nine months ended September 30, 2025 decreased $12,652 thousand, or 87%, as compared to the nine months ended September 30, 2024, primarily as a result of the Company's sale of the commercial right to the Series pursuant to the CAS Transaction, offset by the full amortization of the remaining capitalized costs associated with Jonathan and Jesus of $1,901 thousand during the three months ended March 31, 2025.

Impairment of Film Costs

There was no impairment of film costs for three months ended September 30, 2025, and 2024.

Impairment of film costs for the nine months ended September 30, 2025 increased $10,496 thousand, as compared to the nine months ended September 30, 2024, due to the recognition of an impairment loss during the nine months ended September 30, 2025, as a result of revised ultimate revenue forecasts and a change in distribution strategy for a not yet released film project.

Depreciation and Amortization

Depreciation and amortization for the three months ended September 30, 2025 decreased $2,087 thousand, or 59%, as compared to the three months ended September 30, 2024, primarily due to the extension of leasehold improvement asset lives in conjunction with the amended film campus property lease.

Depreciation and amortization for the nine months ended September 30, 2025 decreased $3,517 thousand, or 35%, as compared to the nine months ended September 30, 2024, primarily due to the extension of leasehold improvement estimated useful lives in conjunction with the amended film campus property lease.

General and Administrative

General and administrative expenses for the three months ended September 30, 2025 increased $3,029 thousand, or 41%, as compared to the three months ended September 30, 2024, primarily due to an increase of legal, accounting, and professional fees of $2,011 thousand, and an increase in payroll spend of $1,192 thousand due to an increase in headcount.

General and administrative expenses for the nine months ended September 30, 2025 increased $736 thousand, or 3%, as compared to the nine months ended September 30, 2024, primarily due to $3,975 thousand of increased payroll spend, primarily associated with an increase in headcount and one-time costs in 2025 of the contract renewal for the Company's Chief Creative Officer. This was partially offset by a $2,792 thousand decrease in technology spend resulting from non-recurring application maintenance spend in 2024 related to the Chosen App, which was sold in September 2024, and a $409 thousand decrease in legal expenses resulting from higher 2024 legal, accounting, and professional services fees attributed to the Angel Studios, Inc. ("Angel") arbitration and other corporate matters.

Gain on Sale of Assets

There was no gain on the sale of assets for the three and nine months ended September 30, 2025. Gain on sale of assets for the three and nine months ended September 30, 2024 was related to the sale of The Chosen IP as a result of the CAS Transaction.

Other Operating Income, Net

There was no other operating income for the three and nine months ended September 30, 2024. Other operating income for the three and nine months ended September 30, 2025 reflects net proceeds from the settlement agreement with Angel.

Income Taxes

Income tax provision (benefit) for the three months ended September 30, 2025 increased $8,251 thousand or 2,298%, as compared to three months ended September 30, 2024, primarily due to the increase in the Company's net income before income taxes.

Income tax provision (benefit) for the nine months ended September 30, 2025 increased $9,123 thousand, or 529% as compared to the nine months ended September 30, 2024, primarily due to the increase in the Company's net income before income taxes.

The effective tax rate for the three months ended September 30, 2025 increased 14%, as compared to the three months ended September 30, 2024, primarily due to the impact of the non-controlling interest loss in the prior period.

The effective tax rate for the nine months ended September 30, 2025 increased 59%, as compared to the nine months ended September 30, 2024, primarily due to the impact of the increase in the net income before income taxes in the current period.

Liquidity and Capital Resource

Comparison of September 30, 2025 and December 31, 2024

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The Company's primary sources of liquidity are from cash flows generated from operations.

The Company's primary uses of cash generally relate to film costs associated with the production of content. Primary sources of cash are related to production services and licensed content revenues. The increase in cash and cash equivalents was primarily due to a $22,250 thousand milestone payment received by the Company from CAS upon completion and delivery of Season 5 of the Series and milestone payments received for the sale of the Chosen App, primarily offset by the net funding of production related to Joseph of $17,958 thousand.

The Company believes its existing cash and expected cash flows from operations will be sufficient to meet its working capital, capital expenditures, and expected cash requirements from known contractual obligations for the next twelve months and beyond.

Comparison of the Nine Months Ended September 30, 2025 and, September 30, 2024

Cash flow activities were as follows for the periods presented:

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Operating activities

Net cash flows provided by and used in operating activities was $7,129 thousand and $47,207 thousand for the nine months ended September 30, 2025, and 2024, respectively. The increase of net cash flows provided by operating activities of $54,336 thousand was primarily driven by an increase of $36,174 thousand in net income and an increase of $14,274 thousand relating to accrued expenses and other accrued liabilities.

Investing activities

Net cash flows used in investing activities was $3,089 thousand and $7,462 thousand for the nine months ended September 30, 2025, and 2024, respectively. The decrease of net cash flows used in investing activities of $4,373 thousand was primarily driven by the decrease in acquisition of property and equipment.

Financing activities

There was no financing activity for the nine months ended September 30, 2025. The financing activities of $11,684 thousand for the nine months ended September 30, 2024 included proceeds from the issuance of debt of $11,684 thousand.

Segment Reporting

The Company operates in five operating and reportable segments: Theatrical, Television & Streaming, Merchandise, Events/Other, and Production Services. The segments are based on the nature of products and services offered, as well as how the chief operating decision maker ("CODM"), who is the Company's President and Chief Financial Officer together, reviews financial results for evaluating segment performance and allocating resources. The CODM uses segment adjusted operating income / (loss) to assess financial performance and allocate resources. Segment information is based on the "management" approach, which designates the internal reporting used by management for making decisions and assessing performance of the segments.

Segment adjusted operating income / (loss) results include the revenues and cost of revenues, distribution and marketing, and general and administrative expenses which are directly attributable to each segment. Segment adjusted operating income / (loss) excludes income and expenses which are not directly related to the operations of the segment or management believes are not relevant to management's assessment of the operating performance of the segments to make resource allocations. These excluded costs include amortization of film costs, depreciation and amortization, unallocated indirect distribution and marketing and general and administrative costs, which costs are corporate or company-wide in nature, as well as nonrecurring items and non-operating income and expenses.

See Note 10 - Information on Business Segments in the accompanying unaudited interim condensed consolidated financial statements for further detail, including a reconciliation of segment adjusted operating income / (loss) to consolidated net income / (loss).

Comparison of the Three and Nine Months Ended September 30, 2025 and September 30, 2024

Segment revenues were as follows for the periods presented:

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Segment adjusted operating incomes were as follows for the periods presented:

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Theatrical

Theatrical revenues for the three months ended September 30, 2025, and 2024 were $956 thousand and $(406) thousand, respectively. Theatrical revenue increased $1,362 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to the timing of the Season 5 theatrical release as compared to the timing of the Season 4 theatrical release in the prior year. Season 5 released on March 28, 2025, and extended into the second and third quarter of 2025 whereas the Season 4 theatrical release was primarily in the first quarter of 2024.

Theatrical segment adjusted operating income and (loss) for the three months ended September 30, 2025, and 2024 were $177 thousand and $(1,262) thousand, respectively. Theatrical segment adjusted operating income increased $1,439 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to increased theatrical revenues because of the timing of the Season 5 theatrical release as compared to the timing of the Season 4 theatrical release in the prior year. This was partially offset by an associated increase in royalties and residuals associated with the theatrical release of Season 5 compared to Season 4 owed following the Company's sale of the commercial right to the Series pursuant to the CAS Transaction in June 2024.

Theatrical revenues for the nine months ended September 30, 2025, and 2024 were $25,589 thousand and $15,363 thousand, respectively. Theatrical revenue increased $10,226 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to the growth of the theatrical release of Season 5 compared to Season 4.

Theatrical segment adjusted operating income and (loss) for the nine months ended September 30, 2025, and 2024 were $2,375 thousand and $(169) thousand, respectively. Theatrical segment adjusted operating income increased $2,544 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to increased revenues of $10,226 of the theatrical release of Season 5 compared to Season 4 as well as a decrease in direct distribution and marketing expenses of $7,438 thousand due to marketing reimbursements from CAS for qualifying marketing costs related to the Series. This was partially offset by an associated increase in royalties and residuals of $15,120 thousand from the theatrical release of Season 5 compared to Season 4, payable following the Company's sale of the commercial right to the Series pursuant to the CAS Transaction in June 2024.

Television & Streaming

Television & Streaming revenues for the three months ended September 30, 2025, and 2024 were $1,705 thousand and $3,775 thousand, respectively. Television & Streaming revenues decreased $2,070 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to a higher volume of licensing deals entered in the three months ended September 30, 2024, as compared to the three months ended September 30, 2025, as a result of new exclusive distribution deal entered into by the Company in February 2025, with The Chosen in the Wild being made available during the three months ended September 30, 2025.

Television & Streaming segment adjusted operating income for the three months ended September 30, 2025 and 2024 were $386 thousand and $1,161 thousand, respectively. Television & Streaming segment adjusted operating income decreased $775 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024. The decrease was primarily driven by lower revenues, reflecting the absence of distribution arrangements entered in the three months ended September 30, 2025, as

compared to those entered during the same period in 2024. This was partially offset by an associated decrease in royalties and residuals of $1,295 thousand from September 30, 2025, compared to September 30, 2024, due to the decrease in revenue.

Television & Streaming revenues for the nine months ended September 30, 2025, and 2024 were $41,336 thousand and $12,066 thousand, respectively. Television & Streaming revenues increased $29,270 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to a new exclusive distribution deal entered into by the Company in February 2025, as well as the release of Season 5 and The Chosen in the Wild being made available during the nine months ended September 30, 2025.

Television & Streaming segment adjusted operating income for the nine months ended September 30, 2025, and 2024 were $8,548 thousand and $9,325 thousand, respectively. Television & Streaming segment adjusted operating income decreased $777 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to an increase of $30,047 thousand in royalties and residuals owed following the Company's sale of the commercial right to the Series and IP pursuant to the CAS Transaction in June 2024. This was partially offset by the increase in Television & Streaming revenues of $29,270 thousand for the nine months ended September 30, 2025 and 2024, primarily due to a new exclusive distribution deal entered into by the Company in February 2025, as well as the release of Season 5 and The Chosen in the Wild being made available during the nine months ended September 30, 2025.

Merchandise

Merchandise revenues for the three months ended September 30, 2025, and 2024 were $5,663 thousand and $4,884 thousand, respectively. Merchandise revenue increased $779 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to the wholesale DVD release of Season 5 in the three months ended September 30, 2025 compared to Season 4's wholesale DVD release, which was in the second quarter of 2024.

Merchandise segment adjusted operating income and (loss) for the three months ended September 30, 2025, and 2024, were $339 thousand and $(106) thousand, respectively. Merchandise segment adjusted operating income increased $445 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to the wholesale DVD release of Season 5 in the three months ended September 30, 2025 compared to Season 4 in the three months ended September 30, 2024. This was partially offset by a $398 thousand increase in royalties and residuals for the three months ended September 30, 2025, compared to September 30, 2024, due to the increase in revenue.

Merchandise revenues for the nine months ended September 30, 2025, and 2024 were $15,548 thousand and $21,770 thousand, respectively. Merchandise revenue decreased $6,222 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to lower 5&2 Day sales in May 2025 and a decrease of Season 5 DVD sales compared to Season 4 DVD sales.

Merchandise segment adjusted operating (loss) and income for the nine months ended September 30, 2025 and 2024 were $(2,000) thousand and $3,524 thousand, respectively. Merchandise segment adjusted operating income decreased $5,524 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to lower 5&2 Day sales in May 2025 and a decrease of Season 5 DVD sales compared to Season 4 DVD sales. This was partially offset by $2,016 thousand in lower costs of merchandise revenues for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024.

Events/Other

Events/Other revenues for the three months ended September 30, 2025, and 2024 were $- thousand and $2,261 thousand, respectively. Events/Other revenue decreased $2,261 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, due to ChosenCon being hosted in September 2024 but not in 2025.

Events/Other segment adjusted operating income and (loss) for the three months ended September 30, 2025, and 2024 were $- thousand and $(1,430) thousand, respectively. Events/Other segment adjusted operating income increased $1,430 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to the absence of

ChosenCon in 2025. ChosenCon, which was held in September 2024, was a loss-generating event and therefore its exclusion in 2025 resulted in higher segment adjusted operating income.

Events/Other revenues for the nine months ended September 30, 2025, and 2024 were $100 thousand and $3,920 thousand, respectively. Events/Other revenue decreased $3,820 thousand for the three months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The decrease was primarily driven by the absence of ChosenCon in 2025 as compared to 2024 and the conclusion of PIF revenue in September 2024.

Events/Other segment adjusted operating income for the nine months ended September 30, 2025, and 2024 were $100 thousand and $229 thousand, respectively. Events/Other segment adjusted operating income decreased $129 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024. The decrease was primarily driven by the absence of ChosenCon in 2025 as compared to 2024, resulting in both lower revenue and related cost of revenues due to the absence of event-related costs, as well as the conclusion of PIF revenue in September 2024.

Production Services

Production Services revenues for the three months ended September 30, 2025, and 2024 were $97,803 thousand and $24,743 thousand, respectively. Production Services revenue increased $73,060 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to an increase of $47,786 thousand relating to the timing of film production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025, in addition to an increase of $25,274 thousand relating to a higher transaction price allocated to Season 6 compared to Season 5.

Production Services adjusted operating income for the three months ended September 30, 2025, and 2024 were $37,313 thousand and $10,412 thousand, respectively. Production Services segment adjusted operating income increased $26,901 thousand for the three months ended September 30, 2025, as compared to the three months ended September 30, 2024, primarily due to the timing of filming production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025.

Production Services revenues for the nine months ended September 30, 2025, and 2024 were $173,925 thousand and $93,615 thousand, respectively. Production Services revenue increased $80,310 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to an increase of film production revenue of $41,285 thousand relating to the timing of film production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025, in addition to an increase of $39,022 thousand relating to a higher transaction price allocated to Season 6 compared to Season 5.

Production Services segment adjusted operating income for the nine months ended September 30, 2025, and 2024 were $75,272 thousand and $38,063 thousand, respectively. Production Services segment adjusted operating income increased $37,209 thousand for the nine months ended September 30, 2025, as compared to the nine months ended September 30, 2024, primarily due to the timing of filming production for Season 6 compared to Season 5 and the commencement of film production of Joseph in 2025.

Critical Accounting Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and results of operations, and which require a company to make its most difficult and subjective judgments. Based on this definition, the Company has identified the critical accounting policies and judgments addressed below. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following is provided to update the Company's critical accounting estimates previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

Impairment Assessment for Film Costs

Each film project is evaluated for impairment when an event or change in circumstances indicates that the fair value of a film may be less than its unamortized costs. The estimated fair value is determined based on a discounted cash flow analysis of the cash flows directly attributable to the film. If the result of the impairment test indicates that the unamortized film costs exceed the estimated fair value, an impairment charge will then be recorded for the amount of the difference.

Revenue Recognition

Licensed Content Revenue

For licensed content arrangements that include the right to exploit multiple titles with various seasons with a fixed upfront payment, the availability of each title's season is considered a separate performance obligation, and the fixed payment is allocated to each season on a relative standalone selling price basis. Estimation of standalone selling prices requires judgment, which can impact the timing of recognizing revenues. Revenue is recognized when the season is available for use by the licensee.

Off-Balance Sheet Arrangements

As of September 30, 2025, and 2024, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company's financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

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