What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2022-08-08 · 102 added, 90 removed, 261 unchanged (42% of the section changed)

8 unchanged sentences

We market our products to all 50 states in the United States and certain provinces in Canada.

Foreign sales were approximately $10.2 million of our total net sales for the six months ended June 30, 2022 and $5.8 million of our sales during the same period of 2021.

Foreign sales were approximately $18.0 million of our total net sales for the nine months ended September 30, 2022 and $11.0 million of our sales during the same period of 2021.

Our business can be affected by a number of economic factors, including the level of economic activity in the markets in which we operate.

The uncertainty of the economy has negatively impacted the commercial and industrial new construction markets in recent years.

However, architectural billings and nonresidential construction starts began rebounding in 2021, signaling a 2022 recovery in nonresidential construction.

Furthermore, general economic growth combined with pent-up demand from customers that delayed replacing old equipment in 2020 and 2021 has been driving accelerated replacement demand.

The uncertainty of the economy negatively impacted the commercial and industrial new construction markets in 2020 and the first half of 2021.

Since August 2021, however, nonresidential construction has been recovering.

In the third quarter of 2022, the market returned to pre-pandemic levels.

Currently, architectural billings and nonresidential construction starts are at historically high levels, signaling the nonresidential construction market will continue to be strong over the next nine to 12 months.

Furthermore, although some economic indicators are suggesting the general economy is slowing, the replacement market remains strong.

Nevertheless, both the new construction and replacement markets are cyclical.

If the domestic economy were to slow or enter a recession, this could result in a decrease in our sales volume and profitability.

Sales in the commercial and industrial new construction markets correlate closely to the number of new homes and buildings that are built, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control.

Sales in the commercial and industrial new construction markets generally lag the housing market, which in turn is influenced by cyclical factors such as interest rates, inflation, consumer spending habits, employment rates, and other macroeconomic factors over which we have no control.

Sales in the replacement markets are driven by various factors, including general economic growth, the Company’s new product introductions, fluctuations in the average age of existing equipment in the market, government regulations and stimulus, changes in market demand between more customized higher performing HVAC equipment and lower priced standard equipment, as well as many other factors.

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We also have a small internal sales force that supports the relationships between the Company and our sales channel partners.

BasX sells highly customized products for unique applications for a more concentrated customer base and an internal sales force is more effective for such products.

The principal components of cost of goods sold are labor, raw materials, component costs, factory overhead, freight and engineering expense.

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economy and global economy.

At June 30, 2022, the price (twelve month trailing average) for copper, galvanized steel, stainless steel and aluminum increased 33.1%, 35.5%, 69.2%, and 8.1%, respectively, as compared to the price (twelve month trailing average) at June 30, 2021.

At September 30, 2022, the price (year to date average) for copper, galvanized steel, stainless steel and aluminum increased 16.6%, 36.6%, 91.0%, and 14.8%, respectively, as compared to the price (year to date average) at September 30, 2021.

We attempt to limit the impact of price fluctuations on these materials by entering into cancellable and non-cancellable fixed price contracts with our major suppliers for periods of six to 18 months.

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In 2021, we implemented three price increases.

In 2022, we implemented three additional price increases effective January 1, 2022, March 29, 2022, and June 1, 2022.

In 2022, we implemented additional price increases effective January 1, 2022;

March 29, 2022;

June 1, 2022;

July 1, 2022;

August 1, 2022;

and September 1, 2022.

The following table shows our historical backlog levels:

September 30,

2022 December 31,

2021 June 30,

2021 September 30,

(in thousands)

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The Company has increased our backlog both through the acquisition of BasX and organic growth.

Excluding BasX's backlog at June 30, 2022, organic backlog increased 163.6% compared to June 30, 2021, due in part to price increases implemented throughout 2021 and 2022 and our favorable lead times.

Excluding BasX's backlog at September 30, 2022, organic backlog increased 109.6% compared to September 30, 2021, due primarily to our favorable lead times.

Results of Operations

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

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The following are recent highlights and items that impacted our results of operations, cash flows and financial condition:

• Our backlog is at a record level due primarily to strong end-market demand along with our ability to produce and meet customer lead times.

• Sales for the three and six months ended June 30, 2022 grew due to organic growth, the addition of BasX revenues, and price increases realized during the periods.

• Gross profit as a percentage of sales decreased for the three and six months ended June 30, 2022 due to increased material costs and the adverse effect of supply chain issues on operations.

• In 2022, we continue to invest in projects that will improve our production capabilities and efficiencies evidenced by our $27.2 million in capital expenditures.

• We continue to have a record backlog.

New bookings for BasX in the quarter were by far a record for the business as it benefited from a strong pipeline of projects in the data center and semiconductor markets.

Revenue synergies from the BasX acquisition has also increased bookings for AAON Coil Products.

• Sales for the three and nine months ended September 30, 2022 grew due to organic growth, the addition of BasX revenues, and price increases realized during the periods.

• Our gross profit margin for the quarter increased 430 basis points since the quarter ended June 30, 2022 as a result of better pricing from the legacy business and increased production from BasX.

• Our cashflows from operations returned to normal levels experienced prior to the BasX acquisition, allowing us to make net payments of $30.0 million on our Revolver during the three months ended September 30, 2022.

We report our financial results based on three reportable segments:

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The CODM does not evaluate operating segments using asset or liability information.

Segment Operating Results for Three Months Ended June 30, 2022 and Three Months Ended June 30, 2021

Segment Operating Results for Three Months Ended September 30, 2022 and Three Months Ended September 30, 2021

Three Months Ended

June 30, 2022 Percent of Sales 2

June 30, 2021 Percent of Sales 2

September 30, 2022 Percent of Sales 2

September 30, 2021 Percent of Sales 2

$ Change % Change

15 unchanged sentences

1 BasX was acquired on December 10, 2021.

We have included the results of BasX's operations in our consolidated financial statements for the three months ended June 30, 2022.

We have included the results of BasX's operations in our consolidated financial statements for the three months ended September 30, 2022.

2 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales.

1 unchanged sentence

3 Presented after intercompany eliminations.

Total net sales increased $64.9 million or 45.1%, with the addition of BasX sales being the largest contributing factor to our growth.

Excluding BasX sales of $24.6 million, net sales grew through price increases of $22.5 million and organic volume of $14.8 million.

AAON Coil Products had an increase of 43.3% in organic unit sales, or $4.7 million, during the three months ended June 30, 2022 due to the increase in capacity with the completion of the new manufacturing building at our Longview, Texas facility in early 2021.

As shown in the table below, we've experienced year over year increases in the cost of our raw materials.

Total net sales increased $104.0 million or 75.1%, with the addition of BasX sales contributing to 31.7% of our growth.

Excluding BasX sales of $32.9 million, net sales grew through price increases of $33.9 million and organic volume, product mix and other of $37.2 million.

As shown in the table below, we've experienced year over year increases in the cost of several raw materials.

We implemented multiple price increases during 2021 and 2022 to counteract the increased cost of material.

Some of the 2022 price increases have yet to be realized.

Additionally, in order to attract new employees, we increased starting wages for our production workforce by 7.0% in July 2021;

and to retain our existing employees, we also put a cost of living increase of 3.5% in place in October 2021 for all employees below the Director level.

Additionally, in order to retain our existing employees, we put a cost of living increase of 3.5% in place in October 2021 for all employees below the Director level.

In March 2022, we awarded annual merit raises for an overall 3.0% increase to wages.

While our gross profit has declined, we did see sequential improvement in our margin during the second quarter of 2022.

We have seen continued improvement in our overall margin since the second quarter of 2022.

The backlog for AAON Coil Products had better pricing which shows in their improved gross margin of 34.6% for the quarter as they are able to realize price increases faster than AAON Oklahoma.

BasX has been able to reprice their backlog in order to maintain a healthy gross profit of 28.5% for the quarter.

AAON Oklahoma continued to work through its remaining lower

priced backlog and as a result had costs increases in excess of realized price increases during the quarter that impacted its gross profit.

AAON Oklahoma continued to work through its remaining lower priced backlog at the beginning of the third quarter of 2022, increasing its gross profit margin from 20.2% in the second quarter of 2022 to 25.5% for the third quarter of 2022.

Raw Material Costs

Twelve-month average raw material cost per pound as of June 30:

Three-month average raw material cost per pound as of September 30:

2022 2021 % Change

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Three Months Ended Percent of Sales

2022 June 30,

September 30,

2022 September 30,

(in thousands)

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Professional fees 1,304 851 0.5 % 0.6 %

Subscriptions as a service 974 514 0.5 % 0.4 %

Other 4,324 2,366 1.8 % 1.7 %

Total SG&A $ 28,891 $ 15,897 11.9 % 11.5 %

Selling, general and administrative expenses at BasX for the three months ended September 30, 2022 totaled $6.4 million.

Excluding salaries and benefits at BasX of $3.8 million, salaries and benefits increased $1.8 million due to pay increases that went into effect during the third and fourth quarters of 2021 and first quarter of 2022.

Advertising increased $1.0 million due various sponsorships and customer promotions, which were still mostly on hold during early 2021 due to COVID-19 restrictions.

Depreciation and amortization expense at BasX was $1.2 million, accounting for the majority of the change from period to period.

Excluding $1.0 million of Other SG&A at BasX, Other SG&A increased $1.2 million attributable mostly to consulting services and increased travel expenses due to decreased COVID-19 restrictions during 2022.

Excluding $0.7 million of Other SG&A at BasX, Other SG&A increased $1.2 million attributable mostly to increased travel and meeting expenses due to lighter COVID-19 restrictions during 2022 and increased charitable contributions.

Three Months Ended Effective Tax Rate

2022 June 30,

September 30,

2022 September 30,

(in thousands)

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The Company’s estimated annual 2022 effective tax rate, excluding discrete events, is expected to be approximately 25%.

During the three months ended June 30, 2022, the Company recorded an excess tax benefit of $0.2 million as compared to $0.5 million during the same period in 2021, a decrease of 56.8%.

The decrease was primarily due to timing of stock awards as a result of our high stock price during the three months ended June 30, 2021.

Segment Operating Results for Six Months Ended June 30, 2022 and Six Months Ended June 30, 2021

Six Months Ended

June 30, 2022 Percent of Sales 2

June 30, 2021 Percent of Sales 2

During the three months ended September 30, 2022, the Company recorded an excess tax benefit of $0.5 million as compared to $0.4 million during the same period in 2021.

Segment Operating Results for Nine Months Ended September 30, 2022 and Nine Months Ended September 30, 2021

Nine Months Ended

September 30, 2022 Percent of Sales 2

September 30, 2021 Percent of Sales 2

$ Change % Change

15 unchanged sentences

1 BasX was acquired on December 10, 2021.

We have included the results of BasX's operations in our consolidated financial statements for the six months ended June 30, 2022.

We have included the results of BasX's operations in our consolidated financial statements for the nine months ended September 30, 2022.

2 Cost of sales and gross profit for each segment are calculated as a percentage of the respective segment's net sales.

1 unchanged sentence

3 Presented after intercompany eliminations.

Total net sales increased $131.9 million or 50.8%, due in part to increased organic volumes of $39.5 million.

AAON Coil Products saw a 41.9% increase in units sold, or approximately $7.9 million, during the six months ended June 30, 2022 due to the increase in capacity with the completion of the new manufacturing building at our Longview, Texas facility in early 2021.

The quarter also benefited from $39.0 million of price increases put in place throughout 2021 and early 2022 which began being realized at end of the six months ended June 30, 2021.

The acquisition of BasX in December 2021 added $45.5 million to net sales for the six months ended June 30, 2022.

During the six months ended June 30, 2021, several production days were lost due to planned maintenance and due to impacts of bad weather at both AAON Oklahoma and AAON Coil Products, resulting in lower volumes.

Additionally, the expansion at our Longview facility was completed and production began during the first quarter of 2021.

Total net sales increased $236.0 million or 59.3%, due in part to increased organic volumes, product mix and other of $84.6 million.

AAON Coil Products saw a 52.7% increase in units sold, or approximately $16.1 million, during the nine months ended September 30, 2022 due to the increase in capacity with the completion of the new manufacturing building at our Longview, Texas facility in early 2021.

The nine months ended September 30, 2022 also benefited from $72.9 million of price increases put in place throughout 2021 and early 2022 which began being realized at the end of the second quarter of 2022.

The acquisition of BasX in December 2021 added $78.5 million to net sales for the nine months ended September 30, 2022.

As shown in the table below, we've experienced increases in the cost of our raw materials.

We implemented multiple price increases during 2021 and 2022 to counteract the increased cost of material;

however, it has taken longer than expected for our price increases to roll out of the backlog into production causing erosion of our gross profit.

however, it has taken longer than expected for our price increases to roll out of the backlog into production causing erosion of our gross profit during the nine months ended September 30, 2022, especially during the first two quarters of 2022.

As already mentioned, we also have put multiple wage increases in place in late 2021 and early 2022 that have increased our labor costs.

Additionally, during the first quarter of 2022, a review of the Company’s useful lives for certain sheet metal manufacturing equipment at AAON Coil Products resulted in a change in estimate (Note 1) that increased the useful lives from between ten and twelve years to fifteen years.

The change was made prospectively and resulted in a decrease to depreciation expense within cost of sales on our consolidated statements of income of $1.8 million during the three months ended March 31, 2022.

The change was made prospectively and resulted in a decrease to depreciation expense within cost of sales on our consolidated statements of income of $1.8 million during the nine months ended September 30, 2022.

Raw Material Costs

Twelve-month average raw material cost per pound as of June 30:

Nine-month average raw material cost per pound as of September 30:

2022 2021 % Change

4 unchanged sentences

Selling, General and Administrative Expenses

Six Months Ended Percent of Sales

2022 June 30,

Nine Months Ended Percent of Sales

September 30,

2022 September 30,

(in thousands)

7 unchanged sentences

Professional fees 3,686 2,258 0.6 % 0.6 %

Subscriptions as a service 1,773 1,093 0.5 % 0.4 %

Other 13,189 7,024 2.1 % 1.8 %

Total SG&A $ 78,880 $ 47,488 12.4 % 11.9 %

Selling, general and administrative expenses at BasX totaled $17.4 million for the nine months ended September 30, 2022.

Warranty expense increased consistent with our increase in net sales but decreased as a percentage of sales, as we continue to focus on our commitment to reliability and quality.

Excluding salaries and benefits at BasX of $9.5 million, salaries and benefits increased $4.8 million due to pay increases that went into effect during the third and fourth quarters of 2021 and the first quarter of 2022.

Advertising increased $1.1 million due various sponsorships and customer promotions, which were still mostly on hold during early 2021 due to COVID-19 restrictions.

Advertising increased $1.3 million due to various sponsorships and customer promotions, which were still mostly on hold during early 2021 due to COVID-19 restrictions.

Depreciation and amortization expense at BasX was $3.2 million, accounting for the majority of the change from period to period.

Professional fees increased mostly due to continued transaction costs and audit fees.

Excluding $2.0 million of Other SG&A at BasX, Other SG&A increased $1.5 million attributable mostly to consulting services and increased travel expenses due to decreased COVID-19 restrictions.

Six Months Ended Effective Tax Rate

2022 June 30,

Excluding $2.7 million of Other SG&A at BasX, Other SG&A increased $3.5 million attributable mostly to consulting services and increased travel expenses due to lighter COVID-19 restrictions.

Nine Months Ended Effective Tax Rate

September 30,

2022 September 30,

(in thousands)

1 unchanged sentence

The Company’s estimated annual 2022 effective tax rate, excluding discrete events, is expected to be approximately 25%.

During the six months ended June 30, 2022, the Company recorded an excess tax benefit of $0.7 million as compared to $3.4 million during the same period in 2021, a decrease of 78.8%.

The decrease was primarily due to timing of stock awards as a result of our high stock price during the six months ended June 30, 2021.

During the nine months ended September 30, 2022, the Company recorded an excess tax benefit of $1.3 million as compared to $3.8 million during the same period in 2021, a decrease of 67.3%.

The decrease was primarily due to timing of stock awards as a result of our high stock price during the nine months ended September 30, 2021.

Liquidity and Capital Resources

Our working capital and capital expenditure requirements are generally met through net cash provided by operations and the use of the revolving bank line of credit based on our current liquidity at the time.

Working Capital - Our unrestricted cash increased $14.8 million from December 31, 2021 to June 30, 2022 and totaled $17.6 million at June 30, 2022.

Working Capital - Our unrestricted cash increased $7.9 million from December 31, 2021 to September 30, 2022 and totaled $10.7 million at September 30, 2022.

Revolving Line of Credit - Our revolving credit facility ("Revolver"), as amended and restated, provides for maximum borrowings of $200.0 million.

As of June 30, 2022 and December 31, 2021, we had $106.2 million and $40.0 million, respectively, outstanding under the Revolver.

We had one standby letter of credit totaling $0.8 million as of June 30, 2022.

At June 30, 2022, we have $92.9 million of borrowings available under the Revolver.

As of September 30, 2022 and December 31, 2021, we had $76.3 million and $40.0 million, respectively, outstanding under the Revolver.

We had one standby letter of credit totaling $0.8 million as of September 30, 2022.

At September 30, 2022, we have $122.9 million of borrowings available under the Revolver.

The Revolver expires May 27, 2027.

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The applicable fee percentage is determined quarterly based on the Company's leverage ratio.

The weighted average interest rate on borrowings outstanding on our the Revolver was 1.9% and 1.7% for the three and six months ended June 30, 2022.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three and six months ended June 30, 2022.

The weighted average interest rate on borrowings outstanding on the Revolver was 3.5% and 2.5% for the three and nine months ended September 30, 2022.

Fees associated with the unused portion of the committed amount are included in interest expense on our consolidated statements of income and were not material for the three and nine months ended September 30, 2022.

If SOFR cannot be determined pursuant to the definition, as defined by the Revolver agreement, any outstanding effected loans will be deemed to have been converted into alternative base rate ("ABR") loans.

ABR loans would bear interest at a rate per annum equal to the highest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Rate in effect on such day plus 0.50%, or (c) daily simple SOFR for a one-month tenor in effect on such day plus 1.00%.

At June 30, 2022, we were in compliance with our financial covenants, as defined by the Revolver.

At September 30, 2022, we were in compliance with our financial covenants, as defined by the Revolver.

These covenants require that we meet certain parameters related to our leverage ratio.

At June 30, 2022, our leverage ratio was 1.06 to 1.0, which meets the requirement of not being above 3 to 1.

As of August 4, 2022, we had $102.5 million of outstanding borrowings under our Revolver.

At September 30, 2022, our leverage ratio was 0.65 to 1.0, which meets the requirement of not being above 3 to 1.

As of November 3, 2022, we had $73.0 million of outstanding borrowings under our Revolver.

New Market Tax Credit Obligation - On October 24, 2019, the Company entered into a transaction with a subsidiary of an unrelated third-party financial institution (the “Investor”) and a certified Community Development Entity under a qualified New Markets Tax Credit (“NMTC”) program pursuant to Section 45D of the Internal Revenue Code of 1986, as amended, related to an investment in plant and equipment to facilitate the expansion of our Longview, Texas manufacturing operations (the “Project”).

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Stock Repurchases - The Board has authorized three stock repurchase programs for the Company.

The Company may purchase shares on the open market from time to time, up to a total of 5.7 million shares.

The Board must authorize the timing and amount of these purchases and all repurchases are in accordance with the rules and regulations of the SEC allowing the Company to repurchase shares from the open market.

On November 3, 2022, the Board of Directors approved an updated stock repurchase plan with repurchases under the plan not to exceed $50 million.

The current repurchase plan will expire at the Board of Directors discretion.

Our open market repurchase programs are as follows:

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$20 million March 4, 2020

March 13, 2020 $20 million ** 2

March 13, 2020 $20 million November 9, 2022

November 3, 2022 $50 million ** 2

1 The 2018 and 2019 purchase authorizations were executed under 10b5-1 programs.

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Our repurchase activity is as follows:

Six Months Ended

June 30, 2022 June 30, 2021

Nine Months Ended

September 30, 2022 September 30, 2021

(in thousands, except share and per share data)

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Our repurchase activity since Company inception, including our current authorized stock repurchase programs, are as follows:

Inception to June 30, 2022

Inception to September 30, 2022

(in thousands, except share and per share data)

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Statement of Cash Flows

The following table reflects the major categories of cash flows for the six months ended June 30, 2022 and 2021.

The following table reflects the major categories of cash flows for the nine months ended September 30, 2022 and 2021.

For additional details, see the consolidated financial statements.

Six Months Ended

2022 June 30,

Nine Months Ended

September 30,

2022 September 30,

(in thousands)

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Deferred revenue 730 316

Accrued liabilities & other long-term assets 7,123 300

Net cash (used in) provided by operating activities (1,580) 62,912

Accrued liabilities & other long-term liabilities 12,857 1,525

Net cash provided by operating activities 43,414 74,703

Investing Activities

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Employee taxes paid by withholding shares (978) (1,537)

Net cash provided by financing activities $ 65,740 $ 45

Cash dividends paid to stockholders (10,096) (9,964)

Net cash provided by (used in) financing activities $ 28,149 $ (11,942)

Cash Flows Provided by Operating Activities

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Collections and payments cycles are on a normal pattern and fluctuate due to timing of receipts and payments.

The decrease in cash flows from receivables was a result of increased sales, both as a result of 2021 and 2022 price increases realized during the period and volumes, in the six months ended June 30, 2022 that have not been collected.

The decrease in cash flows from receivables was a result of increased sales, both as a result of 2021 and 2022 price increases realized during the period and volumes, in the nine months ended September 30, 2022 that have not been collected.

The Company has also increased the purchase of inventory to take advantage of favorable pricing opportunities and also to mitigate the impact of future supply chain disruptions on our operations.

1 unchanged sentence

Cash Flows Used in Investing Activities

The capital expenditures for the six months ended June 30, 2022 relate to our continued investment in our production capabilities.

The cash paid for building during the six months ended June 30, 2022 related to the purchase of the BasX office

and manufacturing facility related to the December 2021 acquisition (see Note 3).

The capital expenditures for the six months ended June 30, 2021 related to the completion of the expansion at our Longview, Texas facility, which became operational during early 2021.

The capital expenditures for the nine months ended September 30, 2022 relate to our continued investment in our production capabilities.

The cash paid for building during the nine months ended September 30, 2022 related to the purchase of the BasX office and manufacturing facility related to the December 2021 acquisition (see Note 3).

The capital expenditures for the nine months ended September 30, 2021 related to the completion of the expansion at our Longview, Texas facility, which became operational during early 2021.

The capital expenditure program for 2022 is estimated to be approximately $73.3 million.

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Cash flows from financing activities is historically affected by the timing of stock options exercised by our employees and repurchases of the Company's stock.

However, for the six months ended June 30, 2022 the increase in cash from financing activities is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid future supply chain delays, and the funding for the purchase of the BasX building in the second quarter.

Stock options exercised decreased due to the decrease in the number of employee options exercised and decrease in our average stock price during the six months ended June 30, 2022 compared to the six months ended six months ended June 30, 2021.

However, for the nine months ended September 30, 2022 the increase in cash from financing activities is primarily related to borrowings under our revolving credit facility to manage our working capital needs, especially strategic purchases of inventory to avoid future supply chain delays, and the funding for the purchase of the BasX building in the second quarter.

Stock options exercised decreased due to the decrease in the number of employee options exercised and decrease in our average stock price during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Repurchases of stock decreased due to the discontinuance of our 401(k) stock buyback activity in June 2022.

Off-Balance Sheet Arrangements

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Contractual Obligations

We had no material contractual purchase obligations as of June 30, 2022 except as described below.

On April 27, 2022, the Company entered into a purchase sales agreement with a third party manufacturer to purchase the intellectual property rights to design and manufacture fan wheels for the purchase price of approximately $6.5 million.

We had no material contractual purchase obligations as of September 30, 2022 except as described below.

On April 27, 2022, the Company entered into a purchase and sale agreement with a third party manufacturer to purchase the intellectual property rights to design and manufacture fan wheels for the purchase price of approximately $6.5 million.

The purchase price will be paid in three installments over the next 18 months.

As of August 4, 2022 we have paid approximately $1.0 million related to this agreement.

As of November 3, 2022 we have paid approximately $3.5 million related to this agreement.

Critical Accounting Policies

There have been no material changes in the Company’s critical accounting policies during the six months ended June 30, 2022.

There have been no material changes in the Company’s critical accounting policies during the nine months ended September 30, 2022.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis