What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 111 added, 69 removed, 142 unchanged (56% of the section changed)

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Business Overview

On October 1, 2022, Adeia Inc.

(formerly known as Xperi Holding Corporation) (“Adeia”, “we”) completed the previously announced separation (“the Separation”) of its product business into an independent, publicly-traded company, Xperi Inc.

(formerly known as Xperi Holding Corporation) (“Adeia”, “we”) is a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and over 11,500 patents and patent applications worldwide.

In order to serve an increasingly connected world, we invent, develop, and license fundamental innovations that enhance billions of devices and shape the way millions of people explore and experience entertainment.

Through our IP licensing business, we help enable extraordinary experiences at home and on the go for millions of consumers around the world, with IP that helps elevate content and improves how audiences connect with it in a way that is more intelligent, immersive and personal.

Through providing the IP that helps to power smart devices, entertainment experiences and more, we have created a unified ecosystem that reaches highly-engaged consumers and uncovered new business opportunities.

On October 1, 2022, we completed the previously announced separation (“the Separation”) of its product business into an independent, publicly-traded company, Xperi Inc.

(“Xperi Inc.”).

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Effective at the open of business on October 3, 2022, Adeia’s shares of common stock, par value $0.001 per share, began trading on the Nasdaq Global Select Market under the new ticker symbol “ADEA”.

Following the Separation, we are a leading IP licensing platform in the consumer and entertainment space, with a diverse portfolio of media and semiconductor intellectual property and over 11,000 patents and patent applications worldwide.

Headquartered in Silicon Valley with more than 35 years of operating experience, we have approximately 140 employees, with substantially all of our employees located in the U.S.

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In evaluating our financial condition and operating performance, we primarily focus on revenue and cash flows from operations.

For the three months ended March 31, 2024, as compared to the same period in 2023:

For the three and six months ended June 30, 2024, as compared to the same periods in 2023:

Three months ended June 30, 2024:

• Revenue increased by $4.2 million, or 5.0%, from $83.2 million in 2023 to $87.4 million in 2024.

• Recurring revenues increased by $0.7 million, or 0.9% from $81.6 million in 2023 to $82.3 million in 2024.

• Non-recurring revenues increased by $3.5 million, or 218.7% from $1.6 million in 2023 to $5.1 million in 2024.

• Cash provided by operating activities decreased by $5.2 million, or 18.1% from $28.7 million in 2023 to $23.5 million in 2024.

• Repriced our term loan which lowered our interest rate by 61 basis points and made $12.0 million in principal payments, bringing the outstanding balance to $549.1 million as of June 30, 2024.

Six months ended June 30, 2024:

• Revenue decreased by $29.7 million, or 14.8%, from $200.5 million in 2023 to $170.8 million in 2024.

The decrease was due to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, for which a portion of revenue was recognized up-front in such quarter.

• Recurring revenues decreased by $1.6 million, or 1.9% from $84.4 million in 2023 to $82.8 million in 2024, driven primarily by a decline in royalty revenue from certain Pay-TV customers in Canada.

• Non-recurring revenues decreased by $32.3 million, or 98.2% from $32.9 million in 2023 to $0.6 million in 2024, driven primarily by the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023.

• Cash provided by operating activities increased by $3.8 million, or 6.0%, from $63.4 million to $67.2 million.

The increase was primarily due to a decrease in accounts receivable and an increase in unbilled contracts receivable, which resulted from collection efforts and multi-year and long-term license agreements executed during the period.

• Recurring revenues decreased by $1.0 million, or 0.6% from $166.0 million in 2023 to $165.0 million in 2024.

• Non-recurring revenues decreased by $28.9 million, or 83.5% from $34.6 million in 2023 to $5.7 million in 2024.

• Cash provided by operating activities decreased by $1.4 million, or 1.5%, from $92.1 million in 2023 to $90.7 million in 2024.

• Repriced our term loan which lowered our interest rate by 61 basis points and made $52.1 million in principal payments, bringing the outstanding balance to $549.1 million as of June 30, 2024.

Results of Operations

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Three Months Ended

Six Months Ended

Operating expenses:

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Other income and expense, net

Loss on debt extinguishment

Income before income taxes

Provision for income taxes

The following table sets forth our revenue for the three months ended March 31, 2024 and 2023 (in thousands, except for percentages):

For The Three Months Ended

The decrease in revenue during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, for which a portion of revenue was recognized up-front in such quarter.

Recurring revenue for the three months ended March 31, 2024 and 2023 were $82.8 million and $84.4 million, respectively.

The decrease of $1.6 million was primarily attributable to a decline in royalty revenue from certain Pay-TV customers in Canada.

Non-recurring revenues for the three months ended March 31, 2024 and 2023 were $0.6 million and $32.9 million, respectively.

The decreased was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023.

The following table sets forth our revenue for the three and six months ended June 30, 2024 and 2023 (in thousands, except for percentages):

Three Months Ended

Six Months Ended

The increase in revenue during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily attributable to the execution of the settlement agreement and multi-year renewal with X Corp.

for access to our media portfolio in the second quarter of 2024, partially offset by a decline in royalty revenue from certain Pay-TV customers.

Recurring revenues increased slightly to $82.3 million during the three months ended June 30, 2024 from $81.6 million in the same period in 2023.

Non-recurring revenues for the three months ended June 30, 2024 and 2023 were $5.1 million and $1.6 million, respectively.

The increase of $3.5 million was primarily attributable to the execution of the settlement agreement and multi-year renewal with X Corp.

for access to our media portfolio in the second quarter of 2024.

The decrease in revenue during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily attributable to the execution of two long-term license agreements with Kioxia and Western Digital in the first quarter of 2023 and a decline in royalty revenue from certain Pay-TV customers, partially offset by a multi-year agreement with X Corp.

for access to our media portfolio in the second quarter of 2024 and recurring revenue from long-term renewals with Samsung for access to our media portfolio in the second half of 2023.

Recurring revenue decreased slightly to $165.0 million during the six months ended June 30, 2024 from $166.0 in the same period in 2023.

Non-recurring revenues for the six months ended June 30, 2024 and 2023 were $5.7 million and $34.6 million, respectively.

The decrease of $28.8 million was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023, partially offset by a settlement agreement and multi-year renewal with X Corp.

for access to our media portfolio in the second quarter of 2024.

Research and Development (in thousands, except for percentages):

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We intend to make a continued investment in our R&D efforts because we believe they are essential to grow our patent portfolios to maintain and improve our competitiveness.

For The Three Months Ended

Three Months Ended

Six Months Ended

Research and development

The increase in R&D expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel costs as a result of increased headcount.

The increase in R&D expense during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due an increase in patent prosecution, defense and assertion costs.

The increase in R&D expense during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due an increase in personnel costs as a result of increased headcount and patent prosecution, defense and assertion costs, partially offset by a decrease in professional services costs.

Selling, General and Administrative (in thousands, except for percentages):

Selling, general and administrative (“SG&A”) expenses consist primarily of personnel costs, sales commission, advertising, branding activities, stock-based compensation, professional services, facilities costs, and expenses related to our executive finance, human resource, legal, and information technology organizations.

For The Three Months Ended

Three Months Ended

Six Months Ended

Selling, general and administrative

The increase in SG&A expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to an increase in professional services costs and personnel cost as a result of increased headcount.

The increase was partially offset by decreases in advertising expense, credit losses and D&O insurance premiums.

The decrease in SG&A expense during the three months ended June 30, 2024, as compared to the same period in 2023, was primarily due to decreases in advertising expense and the recovery of certain bad debt expenses.

The decreases were partially offset by increases in certain administrative costs associated with our debt repricing and personnel costs as a result of increased headcount.

The decrease in SG&A expense during the six months ended June 30, 2024, as compared to the same period in 2023, was primarily due to decreases in advertising expense, separation costs that were incurred in 2023 but did not recur in 2024, certain insurance costs and bad debt expenses;

partially offset by increases in certain administrative costs associated with the repricing of our credit facility discussed below and personnel costs as a result of increased headcount.

Amortization Expense (in thousands, except for percentages):

For The Three Months Ended

Three Months Ended

Six Months Ended

Amortization expense

The decrease in amortization expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to certain intangible assets becoming fully amortized during 2023.

The decrease was partially offset by an increase in amortization expense as a result of patents acquired during the period.

The decrease in amortization expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to certain intangible assets becoming fully amortized during 2024.

The decrease was partially offset by an increase in amortization expense as a result of patents acquired in 2024.

Litigation Expense (in thousands, except for percentages):

For The Three Months Ended

Three Months Ended

Six Months Ended

Litigation expense

The increase in litigation expense during the three months ended March 31, 2024, as compared to the same period in 2023, was primarily due to increased case activity in current litigation matters.

The increase in litigation expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to increased case activity in current litigation matters.

We expect that litigation expense will continue to be a significant portion of our operating expenses, as it is used to enforce and protect our IP and contract rights.

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Interest Expense (in thousands, except for percentages):

For The Three Months Ended

Three Months Ended

Six Months Ended

Interest expense

The decrease in interest expense during the three months ended March 31, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and amortization of debt discount and issuance costs, partially offset by increased interest rates on our variable interest rate debt due to the rising interest rate environment.

We anticipate interest expense will continue to decrease in 2024, when compared to 2023, as a result of a full year of a lower debt balance and amortization of debt discount and issuance costs.

The decrease in interest expense during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and amortization of debt discount and issuance costs, partially offset by increased interest rates on our variable interest rate debt due to the rising interest rate environment.

We anticipate interest expense will continue to decrease in 2024, when compared to 2023, as a result of a full year of a lower debt balance, amortization of debt discount and issuance costs and the reduction of the interest rate margin due to the repricing of our Term Loan B during the second quarter of 2024.

Other Income and Expense, Net (in thousands, except for percentages):

For The Three Months Ended

Three Months Ended

Six Months Ended

Other income and expense, net

The decrease in other income and expense, net during the three months ended March 31, 2024, as compared to the same periods in 2023, was primarily due to a decrease in realized gains on our investments in marketable securities, partially offset by an increase in interest income from significant financing components from certain revenue contracts.

The decrease in other income and expense, net during the three and six months ended June 30, 2024, as compared to the same periods in 2023, was primarily due to a decrease in realized gains on our investments in marketable securities, partially offset by an increase in interest income from significant financing components from certain revenue contracts.

Loss on Debt Extinguishment

During the three and six months ended June 30, 2024, we recognized $0.5 million associated with the repricing of our Term Loan B and there were no such costs in 2023.

Refer to discussion below for further detail on the repricing of our Term Loan B.

Provision for Income Taxes

For The Three Months Ended

Three Months Ended

Six Months Ended

Provision for income taxes

Our income tax provision for interim periods is based on the estimated annual effective tax rate adjusted for discrete items during the period.

For the three months ended March 31, 2024, and March 31, 2023, we recorded income tax expense of $5.7 million and $11.8 million, respectively, on pretax income of $6.6 million and $40.8 million, respectively.

The decrease in income tax expense for the three months ended March 31, 2024, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

For the three months ended June 30, 2024, we recorded income tax expense of $2.9 million on pretax income of $11.3 million, and for the six months ended June 30, 2024, we recorded an income tax expense of $8.6 million on pretax income of $17.9 million, which resulted in effective tax rates of 26.0% and 48.2%, respectively, for the three and six months ended June 30, 2024.

The increase in income tax expense for the three months ended June 30, 2024, as compared to the same period in the prior year was primarily due to a quarter to date increase in pretax income.

The decrease in income tax expense for the six months ended June 30, 2024, as compared to the same period in the prior year was primarily due to a year to date decrease in pretax income.

For the three months ended June 30, 2023, we recorded an income tax expense of $2.4 million on pretax income of $3.8 million, and for the six months ended June 30, 2023, we recorded an income tax expense of $14.2 million on pretax income of $44.6 million, which resulted in effective tax rates of 61.9% and 31.8%, respectively, for the three and six months ended June 30, 2023.

The decrease in income tax expense for the three and six months ended June 30, 2023, as compared to the same period in the prior year was primarily due to a decrease in pretax income.

The effective tax rate varies from the 21% U.S.

federal tax rate due to foreign withholding taxes, state income taxes, and unrealized foreign exchange gain or loss from prior year South Korea withholding tax refund claims.

federal tax rate primarily due to unrealized foreign exchange gain or loss on prior year South Korea withholding tax refund claims.

We periodically evaluate the realizability of our net deferred tax assets based on all available evidence, both positive and negative.

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Liquidity and Capital Resources

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the three months ended March 31, 2024 and 2023.

The following table presents selected financial information related to our liquidity and significant sources and uses of cash and cash equivalents for the six months ended June 30, 2024 and 2023.

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

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Total cash, cash equivalents and marketable securities

Three Months Ended March 31,

Six Months Ended June 30,

Net cash from operating activities

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Our primary sources of liquidity and capital resources are our operating cash flows and our short-term investments in marketable securities.

Cash, cash equivalents and marketable securities were $89.0 million at March 31, 2024, an increase of $5.4 million from $83.6 million at December 31, 2023.

This increase primarily resulted from $67.2 million of cash generated from operations, partially offset by $40.1 million in repayment of our long-term debt, $7.7 million in repurchases of common stock associated with tax withholdings on equity awards, $5.4 million in dividends paid, $0.8 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

Cash, cash equivalents and marketable securities were $94.5 million at June 30, 2024, an increase of $10.9 million from $83.6 million at December 31, 2023.

This increase primarily resulted from $90.7 million of cash generated from operations, and $1.6 million in proceeds from purchases through our employee stock purchase program and exercise of stock options, partially offset by $52.1 million in repayment of our long-term debt, $9.1 million in repurchases of common stock associated with tax withholdings on equity awards, $10.9 million in dividends paid, $1.2 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

The primary objectives of our investment activities are to preserve principal and to maintain liquidity, while at the same time capturing a market rate of return.

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For information about our material cash requirements, see “Liquidity and Capital Resources” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023.

Other than the principal payments of $40.1 million made by us under the Refinanced Term B Loans during the three months ended March 31, 2024, our cash requirements have not materially changed since December 31, 2023.

Other than the principal payments of $52.1 million made by us under the existing Term Loan B during the six months ended June 30, 2024, our cash requirements have not materially changed since December 31, 2023.

We expect to continue to make additional payments on our existing debt from cash generated from operations.

Our material cash requirements include the following contractual and other obligations.

In addition to the cash requirements outlined above, we have returned cash to stockholders through both quarterly dividend payments and repurchases of our common stock under our stock repurchase plan.

Quarterly Dividends

In March 2024, we paid quarterly cash dividends of $0.05 per share of common stock.

In April 2024, our board of directors (the “Board”) authorized payment of a quarterly cash dividend of $0.05 per share, to be paid in June 2024.

In June 2024, we paid quarterly cash dividends of $0.05 per share of common stock.

In July 2024, our board of directors (the “Board”) authorized payment of a quarterly cash dividend of $0.05 per share, to be paid in September 2024.

Stock Repurchase Plan

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The stock repurchases may be made from time to time, through solicited or unsolicited transactions in the open market, in privately negotiated transactions, or pursuant to a Rule 10b5-1 plan.

Since the inception of the Plan, and through March 31, 2024, we have repurchased an aggregate of approximately 10.0 million shares of common stock at a total cost of $172.2 million at an average price of $17.24.

As of March 31, 2024, the total remaining amount available for repurchase under the Plan was $77.8 million.

Since the inception of the Plan, and through June 30, 2024, we have repurchased an aggregate of approximately 10.0 million shares of common stock at a total cost of $172.2 million at an average price of $17.24.

As of June 30, 2024, the total remaining amount available for repurchase under the Plan was $77.8 million.

We may continue to execute authorized repurchases from time to time under the Plan.

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Cash Flows from Operating Activities

Cash flows provided by operations were $67.2 million for the three months ended March 31, 2024, were primarily due to our net income of $0.9 million being adjusted for non-cash items of amortization of intangible assets of $23.2 million, amortization of debt issuance costs of $0.8 million, stock-based compensation expense of $5.1 million and $34.8 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2023.

Cash flows provided by operations were $63.4 million for the three months ended March 31, 2023, primarily due to our net income of $29.0 million being adjusted for non-cash items of amortization of intangible assets of $23.7 million, deferred income taxes of $2.4 million, amortization of debt issuance costs of $1.2 million and stock-based compensation expense of $3.6 million.

These increases were partially offset by $2.5 million in changes in operating assets and liabilities including payment during the quarter of employee bonuses earned in 2022.

Cash flows provided by operations were $90.7 million for the six months ended June 30, 2024, were primarily due to our net income of $9.3 million being adjusted for non-cash items of amortization of intangible assets of $43.2 million, amortization of debt issuance costs of $1.6 million, stock-based compensation expense of $11.7 million, depreciation of property and equipment of $1.0 million and $24.5 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2023.

Cash flows provided by operations were $92.1 million for the six months ended June 30, 2023, primarily due to our net income of $30.4 million being adjusted for non-cash items of amortization of intangible assets of $47.3 million, deferred income taxes of $1.5 million, amortization of debt issuance costs of $2.2 million and stock-based compensation expense of $8.2 million.

These increases were partially offset by $1.7 million in changes in operating assets and liabilities including payment during the period of employee bonuses earned in 2022.

Cash Flows from Investing Activities

Net cash used in investing activities was $11.0 million for the three months ended March 31, 2024, primarily related to purchases of short-term investments of $11.2 million, purchases of property and equipment of $0.8 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $9.5 million.

Net cash used in investing activities was $0.4 million for the three months ended March 31, 2023, primarily related to capital expenditures.

Net cash used in investing activities was $8.2 million for the six months ended June 30, 2024, primarily related to purchases of short-term investments of $18.7 million, purchases of property and equipment of $1.2 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $20.2 million.

Net cash used in investing activities was $25.4 million for the six months ended June 30, 2023, primarily related to purchases of short-term investments of $23.8 million and capital expenditures of $1.5 million.

Capital Expenditures

Our capital expenditures for property and equipment consist primarily of leasehold improvements, purchases of computer hardware and software, information systems, and semiconductor production and test equipment.

During the three months ended March 31, 2024 and 2023, we spent $0.8 million and $0.4 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2024 to be approximately $2.0 million.

During the six months ended June 30, 2024 and 2023, we spent $1.2 million and $1.5 million on capital expenditures, respectively, and we expect capital expenditures in the remainder of 2024 to be approximately $1.0 million.

Our capital expenditures for intangible assets consists primarily of acquired patents.

During the three months ended March 31, 2024, we spent $8.5 million on purchases of intangible assets.

During the six months ended June 30, 2024, we spent $8.5 million on purchases of intangible assets.

These expenditures are expected to be financed with cash from operations, existing cash and cash equivalents and short-term investments.

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Cash Flows from Financing Activities

Net cash used in financing activities was $52.8 million for the three months ended March 31, 2024 due to $40.1 million in repayment of indebtedness, $5.4 million in dividends paid, $7.7 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $0.5 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $95.1 million for the three months ended March 31, 2023 due to $83.6 million in repayment of indebtedness, $5.3 million in dividends paid, $6.6 million in repurchases of common stock, partially offset by $0.4 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Net cash used in financing activities was $70.5 million for the six months ended June 30, 2024 due to $52.1 million in repayment of indebtedness, $10.9 million in dividends paid, $9.1 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.6 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Net cash used in financing activities was $120.7 million for the six months ended June 30, 2023 due to $103.8 million in repayment of indebtedness, $10.6 million in dividends paid, $7.5 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.1 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Long-term Debt

On June 8, 2021, we amended (the “Amendment”) that certain Credit Agreement dated June 1, 2020 by and among us, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”).

The 2020 Credit Agreement initially provided for a five-year senior secured term B loan facility in an aggregate principal amount of $1,050 million (the “2020 Term B Loan Facility”).

The Amendment provided for, among other things, (i) a new tranche of term loans (the “Refinanced Term B Loans”) in an aggregate principal amount of $810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50% per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50% per annum, (iii) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the Refinanced Term B Loans within six months of the closing date of the Amendment, (iv) an extension of the maturity to June 8, 2028, and (v) certain additional amendments, including amendments to provide us with additional flexibility under the covenant governing restricted payments.

We commenced repaying quarterly installments under the Refinanced Term B Loans in the third quarter of 2021.

On May 30, 2023, we amended the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR” as administered by the Federal Reserve Bank of New York.

At March 31, 2024, $561.1 million was outstanding under the Refinanced Term B Loans with an interest rate, including unamortized debt discount and issuance costs of $14.8 million.

On June 8, 2021, we entered into Amendment No.

1 (“Amendment No.

1”) to that certain Credit Agreement dated June 1, 2020 by and among us, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “2020 Credit Agreement”).

The 2020 Credit Agreement initially provided for a five-year senior secured term loan B facility in an aggregate principal amount of $1,050 million (the “2020 Term Loan B Facility”).

Amendment No.

1 provided for, among other things, (i) a new tranche of term loans (the “2021 Refinanced Term Loan B”) in an aggregate principal amount of $810.0 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of base rate loans, 2.50% per annum and (y) in the case of Eurodollar loans, LIBOR plus a margin of 3.50% per annum, (iii) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the 2021 Refinanced Term Loan B within six months of the closing date of Amendment No.

1, (iv) an extension of the maturity to June 8, 2028, and (v) certain additional amendments, including amendments to provide us with additional flexibility under the covenant governing restricted payments.

On May 30, 2023, we entered into Amendment No.

3 (“Amendment No.

3”) to the 2020 Credit Agreement to replace the reference to LIBOR as the base rate with the reference to the Secured Overnight Financing Rate “SOFR” as administered by the Federal Reserve Bank of New York.

On May 20, 2024, we entered into Amendment No.

3 (“Amendment No.

3”) to the 2020 Credit Agreement, which provided for, among other things, (i) a repricing of the 2020 Term Loan B Facility through a refinancing of the entire amount of the 2021 Refinanced Term Loan B with a new tranche of term loans (the “2024 Term Loan B”) in an aggregate principal amount of $561.1 million, (ii) a reduction of the interest rate margin applicable to such loans to (x) in the case of SOFR loans, SOFR plus a margin of 3.00% per annum and (y) in the case of base rate loans, 2.00% per annum, (iii) a reduction in the excess cash flow mandatory payment thresholds and (iv) a prepayment premium of 1.00% in connection with any repricing transaction with respect to the 2024 Term Loan B within six months of the closing date of Amendment No.

The 2024 Term Loan B will mature on June 8, 2028, the same date upon which the 2021 Refinanced Term Loan B matured prior to giving effect to Amendment No.

At June 30, 2024, $549.1 million was outstanding under the term loan B facility with an interest rate, including unamortized debt discount and issuance costs of $13.5 million.

Interest is payable monthly.

Under the existing loan agreements, we have future minimum principal payments for our debt of $30.4 million in the remainder of 2024, $40.5 million each year from 2025 through 2027, with the remaining principal balance of $409.3 million due in 2028.

After the Separation, we own the debt under the Refinanced B Term Loans.

Additionally, we paid $29.1 million during the three months ended March 31, 2024, based on certain leverage ratios and our excess cash flow generated for the year ended December 31, 2023.

Under the existing loan agreement, we have future minimum principal payments for our debt of $14.0 million in the remainder of 2024, $28.1 million each year from 2025 through 2027, with the remaining principal balance of $450.9 million due in 2028.

After the Separation, we own the debt under the term loan B facility.

Additionally, we paid $29.1 million during the six months ended June 30, 2024, based on certain leverage ratios and our excess cash flow generated for the year ended December 31, 2023.

We are obligated to continue to pay a portion of excess cash flows on an annual basis.

The Refinanced Term B Loans contain customary covenants, and as of March 31, 2024, we were in full compliance with such covenants.

The term loan B facility contains customary covenants, and as of June 30, 2024, we were in full compliance with such covenants.

The 2020 Credit Agreement, as amended, also requires that we continue to make cash payments on an annual basis based on certain leverage ratios and excess cash flow generated for the immediately preceding fiscal year.

The cash payments are applied to the remaining principal balance due at final maturity.

Critical Accounting Policies and Estimates

During the three months ended March 31, 2024, there were no significant changes in our critical accounting policies and estimates.

During the three and six months ended June 30, 2024, there were no significant changes in our critical accounting policies and estimates.

See “Note 2 – Summary of Significant Accounting Policies ” of Notes to Condensed Consolidated Financial Statements for additional detail.

5 unchanged sentences

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