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☒			Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:			Trading symbol:			Name of each exchange on which registered:
Common Stock, par value $0.001 per share			LGND			The Nasdaq Global Market

________________________________________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”

and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 4, 2025, the registrant had 19,681,720 shares of common stock outstanding.

Cautionary Note Regarding Forward-Looking Statements:

*Interim equity balances reflect the impact of ASU 2025-07 adoption in Q3 2025 effective January 1, 2025.

We are a biopharmaceutical company enabling scientific advancement through supporting the clinical development of high-value medicines. We do this by providing financing, licensing our technologies or both.

Our unaudited condensed consolidated financial statements include the financial statements of Ligand and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. We have included all adjustments, consisting only of normal recurring adjustments, which we considered necessary for a fair presentation of our financial results. These unaudited condensed consolidated financial statements and accompanying notes should be read together with the audited consolidated financial statements included in our 2024 Annual Report. Interim financial results are not necessarily indicative of the results that may be expected for the full year.

The Company has one operating and one reportable segment: development and licensing of biopharmaceutical assets. The Company’s Chief Operating Decision Maker (“CODM”) is Todd Davis, our Chief Executive Officer. The CODM uses net income (loss) as a single segment profit or loss measure to evaluate our single segment performance, and in deciding whether to reinvest into the existing assets, or to new potential opportunities. Our CODM relies on internal management reporting processes that provide information on segment operating income (loss) for making financial decisions and allocating resources. The CODM does not evaluate, manage or measure performance of segments using asset information.

The information on significant segment expenses that are regularly provided to the CODM, and other segment items included within the reported segment profit or loss measure, is presented in a table below:

* Other items for the three months ended September 30, 2025 and 2024 include the amount of other general, administrative, research and development expenses of $34.5 million and $14.2 million (net of share-based compensation and depreciation expenses), respectively, cost of Captisol and other non-operating income and expenses.

Certain reclassification has been made to the previously issued audited consolidated financial statement to conform with the current period presentation. Specifically, within the condensed consolidated balance sheet as of December 31, 2024, a portion of other current assets has been reclassified to short-term portion of financial royalty assets, net.

In addition, within the unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2024, a portion of the other non-operating expense, net has been reclassified to gain (loss) from change in fair value of equity-method investments and other investments.

We have described our significant accounting policies in Note 1, Basis of Presentation and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in our 2024 Annual Report.

The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates.

Our revenue and other income is generated primarily from royalties on sales of products commercialized by our partners, Captisol material sales, income from financial royalty assets, contract revenue for license fees, technical, regulatory and sales-based milestone payments, and other income resulting from other royalty transactions.

For all revenue transactions, we apply the following five-step model in accordance with ASC 606, Revenue from Contracts with Customers, in order to determine the revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

We receive royalty revenue from intangible royalty assets on sales by our partners of products covered by patents that we or our partners own under contractual agreements. We do not have future performance obligations under these license arrangements. We generally satisfy our obligation to grant intellectual property rights on the effective date of the contract. However, we apply the royalty recognition constraint required under the guidance for sales-based royalties which requires a royalty to be recorded no sooner than when the underlying sale occurs. Therefore, royalties on sales of products commercialized by our partners are recognized in the quarter the product is sold. Our partners generally report sales information to us on a one quarter lag. Thus, we estimate the expected royalty proceeds based on an analysis of historical experience and interim data provided by our partners including their publicly announced sales. Differences between actual and estimated royalty revenues, which have not been material, are adjusted in the period in which they become known, typically the following quarter.

We recognize income from financial royalty assets when there is a reasonable expectation about the timing and amount of cash flows expected to be collected. Income is calculated by multiplying the carrying value of the financial royalty asset by the periodic effective interest rate.

We account for financial royalty assets related to developmental pipeline or recently commercialized products on a non-accrual basis. Developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. Newly commercialized products typically do not have an established reliable sales pattern, and thus have uncertain cash flows.

Revenue from Captisol sales is recognized when control of Captisol material is transferred or intellectual property license rights are granted to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or rights. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. For Captisol material or intellectual property license rights, we consider our performance obligation satisfied once we have transferred control of the product or granted the intellectual property rights, meaning the customer has the ability to use and obtain the benefit of the Captisol material or intellectual property license right.

We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control. Sales tax and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We have elected to recognize the cost of freight and shipping when control over Captisol material has transferred to the customer as an expense in cost of Captisol. We expense incremental costs of obtaining a contract when incurred if the expected amortization period of the asset that we would have recognized is one year or less or the amount is immaterial. We did not incur any incremental costs of obtaining a contract during the periods reported.

Our contracts with customers often include variable consideration in the form of contingent milestone payments. We include contingent milestone payments in the estimated transaction price when it is probable a significant reversal in the amount of cumulative revenue recognized will not occur. These estimates are based on historical experience, anticipated results and our best judgment at the time. If the contingent milestone payment is based on sales, we apply the royalty recognition constraint and record revenue when the underlying sale has taken place. Significant judgments must be made in determining the transaction price for our sales of intellectual property. Because of the risk that products in development with our partners will not reach development milestones or receive regulatory approval, we generally recognize any contingent payments that would be due to us upon the development milestone or regulatory approval.

Some customer contracts are sublicenses which require that we make payments to an upstream licensor related to license fees, milestones and royalties which we receive from customers. In such cases, we evaluate the determination of gross revenue as a principal versus net revenue as an agent reporting based on each individual agreement.

Other operating income includes milestone and royalty income received from other royalty transactions and transaction involving our intellectual property including, R&D funding arrangements, dispositions and the related contingent consideration.

Other income for the three and nine months ended September 30, 2025 is primarily related to the $53.1 million income from the disposition of Ligand's wholly owned subsidiary, LNHC, Inc. in connection with the Pelthos Transaction (as defined below). For additional information on the Pelthos Transaction, see Note 2, Pelthos Transaction.

Depending on the terms of the arrangement, we may also defer a portion of the consideration received because we have to satisfy a future obligation. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the condensed consolidated balance sheets. Except for royalty revenue and certain service revenue, we generally receive payment at the point we satisfy our obligation or soon after. Any fees billed in advance of being earned are recorded as deferred revenue. During the three months ended September 30, 2025 and 2024, the amount recognized as revenue that was previously deferred was zero and $0.2 million, respectively. During the nine months ended September 30, 2025 and 2024, the amount recognized as revenue that was previously deferred was $0.6 million and $1.2 million, respectively.

The following table represents disaggregation of royalties, Captisol, and contract revenue and other income (in thousands):

Our short-term investments consist of the following at September 30, 2025 and December 31, 2024 (in thousands):

During the three and nine months ended September 30, 2025, we did not sell any shares of Viking common stock. During the nine months ended September 30, 2024, we sold 0.7 million shares of Viking common stock and recognized a realized gain of $60.0 million in total. We did not sell any shares of Viking common stock during the three months ended September 30, 2024.

Gain (loss) from short-term investments in our condensed consolidated statements of operations includes both realized and unrealized gain (loss) from our short-term investments in public equity and warrant securities.

Allowances are recorded for available-for-sale debt securities with unrealized losses. This limits the amount of credit losses that can be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. The provisions of the credit losses standard did not have a material impact on our available-for-sale debt securities during the three and nine months ended September 30, 2025 and 2024.

The following table summarizes our available-for-sale debt securities by contractual maturity (in thousands):

Our investment policy is capital preservation and we only invest in U.S.-dollar denominated investments. We held a total of 73 investments which were in an unrealized loss position with a total of $0.17 million unrealized losses as of September 30, 2025. We believe that we will collect the principal and interest due on our debt securities that have an amortized cost in excess of fair value. The unrealized losses are largely due to changes in interest rates and not to unfavorable changes in the credit quality associated with these securities that impacted our assessment on collectability of principal and interest. We do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of the amortized cost basis as of September 30, 2025. Accordingly, there was no credit loss recognized for the three and nine months ended September 30, 2025. In July 2024, we sold certain securities before the recovery of the amortized cost basis to fund the Apeiron Acquisition. Accordingly, we wrote down the amortized cost of $0.05 million during the nine months ended September 30, 2024. There was no credit loss recognized for the three months ended September 30, 2024.

Our accounts receivable arise primarily from sales on credit to customers. We establish an allowance for credit losses to present the net amount of accounts receivable expected to be collected. The allowance is determined by using the loss-rate method, which requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the expected collectability of accounts receivable. Some of these factors include macroeconomic conditions that correlate with historical loss experience, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers. During the three months ended September 30, 2025 and 2024, we considered the current and expected future economic and market conditions and concluded an increase of $0.3 million and a decrease of $0.2 million in the aggregate of general and specific allowance for credit losses, respectively. During the nine months ended September 30, 2025 and 2024, we considered the current and expected future economic and market conditions and concluded an increase of $0.4 million and a decrease of $0.3 million in the aggregate of general and specific allowance for credit losses, respectively.

Inventory, which consists of finished goods (Captisol), is stated at the lower of cost or net realizable value. We determine cost using the specific identification method. We analyze our inventory levels periodically and write down inventory to net realizable value if it has become obsolete, has a cost basis in excess of its expected net realizable value or is in excess of expected requirements. There was no obsolete inventory charge recorded during the three and nine months ended September 30, 2025. There was a $0.1 million and $0.2 million obsolete inventory charge recorded during the three and nine months ended September 30, 2024, respectively. In addition to finished goods, as of September 30, 2025 and December 31, 2024, inventory included prepayments of $2.3 million and $3.1 million, respectively, to our supplier for Captisol.

Goodwill and other identifiable intangible assets consist of the following (in thousands):

Financial royalty assets represent a portfolio of future milestone and royalty payment rights acquired that are passive in nature (i.e., we do not own the intellectual property or have the right to commercialize the underlying products).

Although a financial royalty asset does not have the contractual terms typical of a loan (such as contractual principal and interest), we account for financial royalty assets under ASC 310, Receivables. Our financial royalty assets are classified similar to loans receivable and are measured at amortized cost using the prospective effective interest method described in ASC 835-30, Imputation of Interest.

The effective interest rate is calculated by forecasting the expected cash flows to be received over the life of the asset relative to the initial invested amount. The effective interest rate is recalculated in each reporting period as the difference between expected cash flows and actual cash flows are realized and as there are changes to expected future cash flows.

The gross carrying value of a financial royalty asset is made up of the opening balance, or net purchase price for a new financial royalty asset, which is increased by accrued interest income (except for assets under the non-accrual method) and decreased by cash receipts in the period to arrive at the ending balance.

We evaluate financial royalty assets for recoverability on an individual basis by comparing the effective interest rate at each reporting date to that of the prior period. If the effective interest rate is lower for the current period than the prior period, and if the gross cash flows have declined (expected and collected), we record provision expense for the change in expected cash flows. The provision is measured as the difference between the financial royalty asset’s amortized cost basis and the net present value of the expected future cash flows, calculated using the prior period’s effective interest rate.

In addition to the above allowance, we recognize an allowance for current expected credit losses under ASC 326, Financial Instruments – Credit Losses on our financial royalty assets. The credit rating, which is primarily based on publicly available data and updated quarterly, is the primary credit quality indicator used to determine the credit loss provision.

The carrying value of financial royalty assets is presented net of the cumulative allowance for changes in expected future cash flows and expected credit losses. The initial amount and subsequent revisions in allowances for changes in expected future cash flows and expected credit losses are recorded as part of general and administrative expenses on the condensed consolidated statements of operations.

When we are reasonably certain that a part of a financial royalty asset’s net carrying value (or all of it) is not recoverable, we recognize a permanent impairment which is recorded in financial royalty assets impairment on the condensed consolidated statements of operations. To the extent there was an allowance previously recorded for this asset, the amount of such impairment is written off against the allowance at the time that such a determination is made. Any future recoveries from such impairment are recognized when cash is collected in a respective period earnings.

The current portion of financial royalty assets represents an estimation for current quarter royalty receipts which are collected during the subsequent quarter, net of the allowance for expected credit losses.

For additional information, see Note 5, Financial Royalty Assets, net.

We enter into transactions where we agree to fund a portion of the research and development (“R&D”) performed by our partners for products undergoing late-stage clinical trials in exchange for future royalties or milestones if the products are successfully developed and commercialized. In accordance with ASC 730, Research and Development, we account for the funded amounts as R&D expense when we have the ability to obtain the results of the R&D, the transfer of financial risk is genuine and substantive and, at the time of entering into the transaction, it is not yet probable that the product will receive regulatory approval. If these conditions are not met, we may record the funded amounts as a financial royalty asset. We may fund R&D upfront or over time as the underlying products undergo clinical trials.

Royalties earned on successfully commercialized products generated from R&D arrangements are recognized as revenue from intangible royalty assets in the same period in which the sale of the commercialized product occurs. Fixed or milestone payments receivable based on the achievement of contractual criteria for products arising out of our R&D arrangements are recognized as contract revenue and other income in the period that the milestone threshold is met.

As of September 30, 2025, all our derivative assets are warrants which are not used for risk management purposes. See Note 3, Investment Transactions.

As a result of our early adoption of ASU 2025-07, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606), certain assets previously accounted as derivatives have qualified for a new derivative scope exception introduced by ASU 2025-07, and are now accounted for as financial royalty assets with January 1, 2025, being the effective date of ASU 2025-07 adoption. Such assets include (1) our rights in future milestone and royalty payments from Agenus Partnered Programs (see Note 3, Investment Transactions), (2) rights to receive from Primrose Bio 50% of milestone payments on two contracts previously entered into by Primordial Genetics (“Primrose mRNA”), and (3) Castle Creek Milestone (as defined in Note 3, Investment Transactions).

All derivatives are measured at fair value on the condensed consolidated balance sheets. Derivative assets consist of the following (in thousands):

A change in the fair value of warrants that amounted to $(0.7) million and $(0.1) million, respectively, for the three and nine months ended September 30, 2025, was included in other non-operating expense, net in the condensed consolidated statements of operations. Due to the adoption of ASU 2025-07, a change in the fair value of Agenus Partner Programs, Primrose mRNA and Castle Creek Milestone derivatives that amounted to $(0.5) million, $(0.6) million and $0.3 million, respectively, which was previously included in fair value adjustments to partner program derivatives in the condensed consolidated statement of operations for the six months ended June 30, 2025, was reversed during the three months ended September 30, 2025.

In May 2024, we entered into a collar arrangement to hedge against the fluctuation risk in Viking’s share price (the “Viking Share Collar”), which was fully exercised in October 2024. A change in the fair value of Viking Share Collar that amounted to $(7.9) million and $7.3 million, respectively, for the three and nine months ended September 30, 2024, was included in gain (loss) from short-term investments in the condensed consolidated statements of operations. A change in the fair value of Agenus Partner Programs and Primrose mRNA derivative that amounted to $(7.2) million and $(0.6) million, respectively, for the three and nine months ended September 30, 2024, was included in fair value adjustments to partner program derivatives in the condensed consolidated statement of operations. A change in the fair value of other derivatives including Agenus Upsize Option (expired on June 30, 2025) and Agenus Warrant that amounted to $(8.0) million and $(6.8) million, respectively, for the three and nine months ended September 30, 2024, was included in other non-operating expense, net in the condensed consolidated statements of operations.

The Company accounts for investments in entities over which it has significant influence (generally defined as ownership interest of 20% or more) using the equity method of accounting. Under this method the investment is initially recorded at cost and subsequently adjusted for the Company’s share of the investee’s earnings or losses and any dividends received, unless the fair value option under ASC 825-10 is elected. Such selection is made on an instrument-by-instrument basis and is irrevocable.

The Company did not elect a fair value option for Primrose equity method investment. As such, Primrose equity method investment is adjusted for the Company’s share of the investee’s earnings or losses and any dividends received. Any income or loss from our share of Primrose earnings or losses is presented in other non-operating expense, net in our consolidated statement of operations.

Ligand owned 31.5% and 31.4%, respectively, of the equity of Primrose Bio as of September 30, 2025 and December 31, 2024. Our proportionate share of net loss of Primrose Bio for the three and nine months ended September 30, 2024 was $1.2 million and $5.8 million, respectively, which was presented in other non-operating expense, net in our condensed consolidated statements of operations.

The Company does not record its share of the investee’s losses beyond the zero basis. The Company resumes recognition of its share of earnings only after the cumulative unrecognized losses have been recovered. As of December 31, 2024, equity method investment in Primrose Bio had been written down to zero, and we are not required to fund further losses from Primrose Bio. We have no outstanding advances, guarantees, or commitment to fund Primrose Bio’s losses; therefore, our proportionate share of net loss of Primrose Bio for the three and nine months ended September 30, 2025 was not recorded.

Equity method investments the Company did not elect a fair value option for are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment of equity method investments is presented in gain (loss) from change in fair value of equity-method investments and other investments in our consolidated statements of operations. Our equity method investments are reviewed for indicators of impairment at each reporting period and are written down to fair value if there is evidence of a loss in value that is other-than-temporary. In June 2024, Primrose Bio entered into an equity investment from an equity firm. In July 2024, Primrose Bio raised additional funds from another equity firm. As a result, we recognized an impairment loss on our equity method investments in the amount of $5.8 million during the nine months ended September 30, 2024, which was presented in gain (loss) from change in fair value of equity-method investments and other investments in our condensed consolidated statements of operations. There was no impairment to our equity method investments during the three months ended September 30, 2024 or during the three and nine months ended September 30, 2025.

The Company has elected the fair value option for Pelthos equity method investment. Under the fair value option, the investment is measured at fair value with changes in fair value recognized in earnings each reporting period. The election was made to simplify the accounting and reporting process, as Pelthos is a publicly traded entity with readily available market price. A change in fair value of Pelthos equity method investment is presented in gain (loss) from change in fair value of equity-method investments and other investments in our consolidated statements of operations.

Other investments represent our investments in equity securities of third parties that do not result in us having a control or significant influence over such investments.

Other investments consist of the following (in thousands):

Our investment in Pelthos Series A preferred shares is measured at fair value with changes in fair value recognized in earnings each reporting period. For additional information, see Note 2, Pelthos Transaction.

Our other equity securities investments that do not have a readily determinable or estimable fair value, and therefore we elected the measurement alternative in ASC 321 to subsequently record the investment at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. When fair value becomes determinable, from observable price changes in orderly transactions, our investment will be marked to fair value. In June 2024, Primrose Bio entered into an equity investment from an equity firm. In July 2024, Primrose Bio raised additional funds from another equity firm.

As a result, our investment in Series A preferred stock and reserve stock was reduced by $0.03 million and $25.79 million, respectively, during the three and nine months ended September 30, 2024. There were no observable price changes or impairments identified for the three and nine months ended September 30, 2025.

The change in fair value for other investments (including those due to impairment) recognized during the period is presented in gain (loss) from change in fair value of equity-method investments and other investments in our condensed consolidated statements of operations.

Accrued liabilities consist of the following (in thousands):

			September 30, 2025						December 31, 2024
Royalties owed to third parties			$	12,321					$	6,500
Compensation			3,696						5,522
Professional fees			2,063						4,858
Subcontractor			1,756						1,756
Acquisition related liabilities			1,000						—
Value-added tax			882						5,159
Customer deposit			621						621
Other			1,745						3,490
Total accrued liabilities			$	24,084					$	27,906

In connection with the acquisition of CyDex® in January 2011, we recorded a contingent liability for amounts potentially due to holders of the CyDex CVRs and former license holders. The liability is periodically assessed based on events and circumstances related to the underlying milestones, royalties and material sales.

In connection with the acquisition of Metabasis in January 2010, we issued Metabasis stockholders four tradable CVRs for each Metabasis share. The fair values of the CVRs are remeasured at each reporting date through the term of the related agreement.

Any change in fair value is recorded in other non-operating expense, net in our condensed consolidated statements of operations. For additional information, see Note 6, Fair Value Measurements.

Other long-term liabilities consist of the following (in thousands):

Share-based compensation expense for awards to employees and non-employee directors is a non-cash expense and is recognized on a straight-line basis over the vesting period. The following table summarizes share-based compensation expense recorded as components of research and development expenses and general and administrative expenses for the periods indicated (in thousands):

The fair value for options that were awarded to employees and directors was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

A limited amount of performance-based restricted stock units (“PSUs”) contain a market condition based on our relative total shareholder return ranked on a percentile basis against the Nasdaq Biotechnology Index over a three-year performance period, with a range of 0% to 200% of the target amount granted to be issued under the award. Share-based compensation cost for these PSUs is measured using the Monte-Carlo simulation valuation model and is not adjusted for the achievement, or lack thereof, of the performance conditions.

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Diluted net loss per share is computed based on the sum of the weighted average number of common shares outstanding during the period.

Potentially dilutive common shares consist of shares issuable under the 2030 Notes, warrants in connection with the 2030 Notes, stock options and restricted stock. The 2030 Notes are considered to be Instrument C where, upon conversion, the Company must satisfy the accreted value of the debt instrument in cash and may choose to satisfy the conversion spread in cash, shares, or a combination of cash and shares. The dilutive effect of Instrument C is limited to the conversion premium, which is reflected in the calculation of diluted earnings per share as if it were a freestanding written call option on the issuer’s shares. The warrants will have a dilutive effect to the extent the market price per share of common stock exceeds the applicable exercise price of the warrants.

Potentially dilutive common shares from stock options and restricted stock are determined using the average share price for each period under the treasury stock method. In addition, the following amounts are assumed to be used to repurchase shares: proceeds from exercise of stock options and the average amount of unrecognized compensation expense for the awards. For additional information, see Note 9, Stockholders’ Equity.

The following table presents the calculation of weighted average shares used to calculate basic and diluted earnings per share (in thousands):

			Three months ended												Nine months ended
			September 30,												September 30,
			2025						2024						2025						2024
Weighted average shares outstanding:			19,578						18,419						19,367						18,061
Dilutive potential common shares:
Restricted stock			337						—						260						173
Stock options			714						—						543						340
Shares used to compute diluted income (loss) per share			20,629						18,419						20,170						18,574
Potentially dilutive shares excluded from calculation due to anti-dilutive effect			3,541						1,099						1,898						1,815