What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-07 · 88 added, 78 removed, 175 unchanged (49% of the section changed)

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Business Overview

(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.

(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 more than 11,750 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.

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Macroeconomic Conditions

The current macroeconomic environment, which has arisen in part from the effects of the COVID-19 pandemic, has had, and may continue to have, an adverse impact on our business.

The impact to date has included periods of significant volatility in the markets we serve, in particular the broad consumer electronics market.

The current macroeconomic environment has also caused challenges and delays in acquiring new customers and executing license renewals.

These factors have negatively impacted our financial condition and results of operations, which may result in an impairment of our long-lived assets, including goodwill, and increased credit losses.

Further, our operations and those of our customers have also been negatively impacted by certain trends arising out of the COVID-19 pandemic and macroeconomic conditions including labor market constraints, shortages of semiconductor components, decreased manufacturing capacities and delays in shipments, product development and product launches.

Moreover, United States federal, state and foreign government policies have contributed to a rise of inflation that has increased, and may continue to increase, the cost of our operations and have had, and may continue to have, an adverse effect on demand for our customers’ products and services and in turn our licensing revenues, which has had and may continue to have an adverse effect on our financial performance.

Although a significant portion of our revenue is derived from fixed-fee and minimum-guarantee arrangements from large, well-capitalized customers, our per-unit and variable-fee based revenue will continue to be susceptible to global health concerns, outbreaks, pandemics, armed conflict, market volatility, labor shortages, supply chain disruptions, microchip shortages and market downturns.

Macroeconomic conditions due to inflation, geopolitical instability and global health events may have an adverse impact on our business.

For example, such conditions may continue to cause volatility in the markets we serve, particularly the broad consumer electronics market.

Impacts from adverse macroeconomic conditions may negatively impact our financial condition and results of operations, which could result in an impairment of our long-lived assets, including goodwill, and increased credit losses.

Reportable Segments

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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 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.

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

Three months ended September 30, 2024:

• Revenue decreased by $15.3 million, or 15.1%, from $101.4 million in 2023 to $86.1 million in 2024.

• Recurring revenues decreased by $0.9 million, or 1.1% from $83.6 million in 2023 to $82.7 million in 2024.

• Non-recurring revenues decreased by $14.4 million, or 80.9% from $17.8 million in 2023 to $3.4 million in 2024.

• Cash provided by operating activities decreased by $6.9 million, or 32.6% from $21.2 million in 2023 to $14.3 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:

• Made $12.0 million in principal payments on our term loan, bringing the outstanding balance to $537.1 million as of September 30, 2024.

Nine months ended September 30, 2024:

• Revenue decreased by $45.1 million, or 14.9%, from $301.9 million in 2023 to $256.9 million in 2024.

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• Cash provided by operating activities decreased by $8.3 million, or 7.3%, from $113.3 million in 2023 to $105.0 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.

• Repriced our term loan which lowered our interest rate by 61 basis points and made $64.2 million in principal payments, bringing the outstanding balance to $537.1 million as of September 30, 2024.

Results of Operations

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

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Income before income taxes

Provision for income taxes

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

Provision for (benefit from) income taxes

The following table sets forth our revenue for the three and nine months ended September 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.

September 30,

Nine Months Ended

September 30,

The decrease in revenue during the three months ended September 30, 2024, as compared to the same period in 2023, was primarily attributable to the execution of the long-term renewal of a license agreement with Samsung, revenue from the settlement of litigation and revenue from updated royalty audit recovery from an existing customer relating to prior periods, each of which occurred in the third quarter of 2023.

Recurring revenues decreased slightly to $82.7 million during the three months ended September 30, 2024 from $83.6 million in the same period in 2023.

Non-recurring revenues for the three months ended September 30, 2024 and 2023 were $3.4 million and $17.8 million, respectively.

The decrease of $14.4 million was primarily attributable to the recognition of revenue from periods prior to the execution of the long-term renewal of a license agreement with Samsung, revenue from the settlement of litigation and revenue from updated royalty audit recovery from an existing customer relating to prior periods, each of which occurred in the third quarter of 2023.

The decrease in revenue during the nine months ended September 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, recognition of revenue from periods prior to the execution of the long-term renewal of a license agreement with Samsung in the third 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 that occurred in the second quarter of 2024.

Recurring revenue for the nine months ended September 30, 2024 and 2023 were $249.8 million and $255.1 million, respectively.

The decrease of $5.2 million was primarily attributable to a decrease in royalty revenue from certain Pay-TV customers.

Non-recurring revenues for the nine months ended September 30, 2024 and 2023 were $7.0 million and $46.8 million, respectively.

The decrease of $39.8 million was primarily attributable to the execution of long-term license agreements with Kioxia and Western Digital in the first quarter of 2023 and revenue from periods prior to the execution of the long-term renewal of a license agreement with Samsung in the third quarter of 2023, partially offset by a settlement agreement and multi-year renewal with X Corp.

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

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

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Research and development

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.

The increase in R&D expense during the three months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in patent prosecution, patent portfolio development costs and an increase in personnel related costs as a result of increased headcount.

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

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

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Selling, general and administrative

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.

The increase in SG&A expense during the three months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel related costs as a result of increased headcount and an increase in professional services costs.

The increase in SG&A expense during the nine months ended September 30, 2024, as compared to the same period in 2023, was primarily due to an increase in personnel related costs as a result of increased headcount, an increase in professional services costs, an increase in certain administrative costs associated with the repricing of our credit facility in the second quarter of 2024, partially offset by decreases in separation costs that were incurred in 2023 but did not recur in 2024, lower insurance costs and recovery of certain bad debt expenses.

Amortization Expense (in thousands, except for percentages):

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Amortization expense

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 in amortization expense during the three and nine months ended September 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.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Litigation expense

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.

The increase in litigation expense during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to increased 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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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Interest expense

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.

The decrease in interest expense during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to lower debt balance and lower interest rates on our variable interest rate debt due to the repricing of our Term Loan B during the second quarter of 2024.

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, the reduction of the interest rate margin benefited from the repricing of our Term Loan B during the second quarter of 2024, and the Federal Reserve interest rate cut during the third quarter of 2024.

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

Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Other income and expense, net

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.

The decrease in other income and expense, net during the three and nine months ended September 30, 2024, as compared to the same periods in 2023, was primarily due to a decrease 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.

During the nine months ended September 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.

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Three Months Ended

Six Months Ended

Provision for income taxes

September 30,

Nine Months Ended

September 30,

Provision for (benefit from) 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 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.

For the three months ended September 30, 2024, we recorded income tax benefit of $2.5 million on pretax income of $16.8 million, and for the nine months ended September 30, 2024, we recorded an income tax expense of $6.1 million on pretax income of $34.7 million, which resulted in effective tax rates of (14.9)% and 17.6%, respectively, for the three and nine months ended September 30, 2024.

The decrease in income tax expense for the three months ended September 30, 2024, as compared to the same period in the prior year was primarily due to certain unrealized foreign exchange benefits associated with South Korea withholding tax refund claims.

The decrease in income tax expense for the nine months ended September 30, 2024, as compared to the same period in the prior year was primarily due to certain unrealized foreign exchange benefits associated with South Korea withholding tax refund claims.

For the three months ended September 30, 2023, we recorded an income tax expense of $1.7 million on pretax income of $25.9 million, and for nine months ended September 30, 2023, we recorded an income tax expense of $15.9 million on pretax income of $70.5 million, which resulted in effective tax rates of 6.6% and 22.5%, respectively, for the three and nine months ended September 30, 2023.

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

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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 six months ended June 30, 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 nine months ended September 30, 2024 and 2023.

(in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

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Total cash, cash equivalents and marketable securities

Six Months Ended June 30,

Nine Months Ended September 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 $94.5 million at June 30, 2024, an increase of $10.9 million from $83.6 million at December 31, 2023.

Cash, cash equivalents and marketable securities were $89.2 million at September 30, 2024, an increase of $5.6 million from $83.6 million at December 31, 2023.

This increase primarily resulted from $105.0 million of cash generated from operations, and $1.5 million in proceeds from purchases through our employee stock purchase program and exercise of stock options, partially offset by $64.2 million in repayment of our long-term debt, $11.6 million in repurchases of common stock associated with tax withholdings on equity awards, $16.3 million in dividends paid, $1.3 million in purchases of property and equipment, and $8.5 million in purchases of intangible assets.

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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 $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.

Other than the principal payments of $64.2 million made by us under the existing Term Loan B during the nine months ended September 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.

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Quarterly Dividends

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.

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

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

Since the inception of the Plan, and through September 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 September 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 $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.

Cash flows provided by operations were $105.0 million for the nine months ended September 30, 2024, were primarily due to our net income of $28.6 million being adjusted for non-cash items of amortization of intangible assets of $56.8 million, amortization of debt issuance costs of $2.4 million, stock-based compensation expense of $19.2 million, depreciation of property and equipment of $1.5 million and $(0.7) 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 $113.3 million for the nine months ended September 30, 2023, primarily due to our net income of $54.7 million being adjusted for non-cash items of amortization of intangible assets of $70.7 million, amortization of debt issuance costs of $3.3 million and stock-based compensation expense of $13.1 million.

These increases were partially offset by $29.6 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 $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.

Net cash used in investing activities was $8.4 million for the nine months ended September 30, 2024, primarily related to purchases of short-term investments of $25.1 million, purchases of property and equipment of $1.3 million, purchases of intangible assets of $8.5 million, and proceeds from maturities of investments of $26.5 million.

Net cash used in investing activities was $31.8 million for the nine months ended September 30, 2023, primarily related to purchases of short-term investments of $33.6 million, capital expenditures of $1.9 million and proceeds from maturities of investments of $3.8 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 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.

During the nine months ended September 30, 2024 and 2023, we spent $1.3 million and $1.9 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 six months ended June 30, 2024, we spent $8.5 million on purchases of intangible assets.

During the nine months ended September 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 $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.

Net cash used in financing activities was $90.5 million for the nine months ended September 30, 2024 due to $64.2 million in repayment of indebtedness, $16.3 million in dividends paid, $11.6 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.5 million in proceeds from purchases through our employee stock purchase program and exercise of stock options.

Net cash used in financing activities was $144.2 million for the nine months ended September 30, 2023 due to $118.9 million in repayment of indebtedness, $16.0 million in dividends paid, $10.5 million in repurchases of common stock for tax withholdings on equity awards, partially offset by $1.1 million in proceeds from the issuance of common stock under our employee stock grant programs and employee stock purchase plans.

Long-term Debt

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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.

At September 30, 2024, $537.1 million was outstanding under the term loan B facility with an interest rate, including unamortized debt discount and issuance costs of $12.7 million.

Interest is payable monthly.

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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.

Additionally, we paid $29.1 million during the nine months ended September 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 term loan B facility contains customary covenants, and as of June 30, 2024, we were in full compliance with such covenants.

The term loan B facility contains customary covenants, and as of September 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.

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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.

During the three and nine months ended September 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.

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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