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Item 3 — Quantitative and Qualitative Disclosures About Market Risk
Erock, Inc. · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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In the normal course of business, we are exposed to various risks, including changes in interest rates. The following information summarizes our financial instruments at June 30, 2026, which may result in future gains or losses due to interest rate or commodity price fluctuations.
Interest Rate Risk
On June 4, 2026, the Company entered into the 2026 ABL Credit Facility and concurrently repaid in full and terminated the 2025 Credit Agreement (comprising the 2025 Term Loan and 2025 Revolver). As of June 30, 2026, there were no amounts outstanding under the 2025 Credit Agreement.
We are exposed to interest rate risk on borrowings under the 2026 ABL Credit Facility. Borrowings under the 2026 ABL Credit Facility bears interest, at the Borrower’s election, at either (A) the Alternate Base Rate (“ABR”) plus 1.00%, subject to a 1.00% ABR floor (B) Adjusted Term SOFR plus 2.00%, subject to a 0.00% SOFR floor. At June 30, 2026, the 2026 ABL Credit Facility was undrawn with the full $250.0 million commitment available, subject to Borrowing Base availability.
Because the 2026 ABL Credit Facility was undrawn at June 30, 2026, a hypothetical increase or decrease of 100 basis points in the applicable reference rate would have no impact on annual cash interest expense. To the extent the Company draws on the 2026 ABL Credit Facility in the future, borrowings would be subject to floating interest rate risk.
Commodity Price Risk
Volatility in the prices of raw materials and components, and our reliance on third-party suppliers, exposes us to indirect commodity price risk and could adversely affect our profit margins. We currently rely on third-party suppliers for a significant portion of the components used in our manufacturing, installation, and on-going services of our power systems. We are currently seeing an industry-wide price fluctuation of key commodities used in our products, such as steel, copper and aluminum. The costs of these raw materials and parts are subject to substantial volatility driven by shifting supply and demand, and fluctuations in currency exchange rates. Additionally, our procurement costs may be impacted by factors beyond our control, including changes in transportation expenses, government regulations, tariffs, and broader economic conditions. Currently, we do not enter into hedging arrangements to mitigate commodity risk. Significant price changes for these raw materials and components could reduce our operating margins if we are unable to recover such increases from our customers and could harm our business, financial condition and results of operations.