COGNEX CORP 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” “potential,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense. These statements are based on our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given. These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, the expected impact of the fire at our primary contract manufacturer's plant on our assets, business, and results of operations and related recoveries, customer demand and order rates and timing of related revenue, managing supply shortages, delivery lead times, future product mix, research and development activities, sales and marketing activities, new product offerings and product development activities, cost management, capital expenditures, investments, liquidity, dividends and stock repurchases, strategic and growth plans and opportunities (including our "Emerging Customer" sales initiative, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) the reliance on key suppliers, such as our primary contract manufacturer, to manufacture and deliver products; (2) delays in the delivery of our products, the failure to meet delivery schedules, and resulting customer dissatisfaction or loss of sales; (3) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices; (4) the failure to effectively manage product transitions or accurately forecast customer demand; (5) the inability to manage disruptions to our distribution centers or to our key suppliers; (6) the expected impact of the fire at our primary contract manufacturer's plant and related recoveries; (7) the inability to design and manufacture high-quality products; (8) the loss of, or curtailment of purchases by, large customers in the logistics, consumer electronics, or automotive industries; (9) information security breaches; (10) the failure to comply with laws or regulations relating to data privacy or data protection; (11) the inability to protect our proprietary technology and intellectual property; (12) the inability to attract and retain skilled employees and maintain our unique corporate culture; (13) the technological obsolescence of current products and the inability to develop new products; (14) the failure to properly manage the distribution of products and services, including the management of lead times and delivery dates; (15) the impact of competitive pressures; (16) the challenges in integrating and achieving expected results from acquired businesses; (17) potential disruptions in our business systems; (18) potential impairment charges with respect to our investments or acquired intangible assets; (19) exposure to additional tax liabilities, increases and fluctuations in our effective tax rate, and other tax matters; (20) fluctuations in foreign currency exchange rates and the use of derivative instruments; (21) unfavorable global economic conditions, including increases in interest rates and high inflation rates; (22) business disruptions from natural or man-made disasters, such as fire, or public health issues; (23) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes with China and the war in Ukraine; (24) exposure to potential liabilities, increased costs, reputational harm, and other adverse effects associated with expectations relating to environmental, social, and governance considerations; (25) stock price volatility; and (26) our involvement in time-consuming and costly litigation or activist shareholder activities. The foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by Part II - Item 1A of this Quarterly Report on Form 10-Q. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation to subsequently revise forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date such statements are made. Executive Overview Cognex Corporation (the “Company”) invents and commercializes technologies that address some of the most critical manufacturing and distribution challenges. We are a leading global provider of machine vision products and solutions that improve efficiency and quality in high-growth potential businesses across attractive industrial end markets. In addition to product revenue derived from the sale of machine vision products, the Company also generates revenue by providing maintenance and support, consulting, and training services to its customers; however, service revenue accounted for less than 10% of total revenue for all periods presented. Machine vision is used in a variety of industries where technology is widely recognized as an important component of automated production, distribution, and quality assurance. Virtually every manufacturer or distributor can achieve 24 better quality and efficiency by using machine vision; thus, our applications have a broad base of customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, and food and beverage. Revenue for the second quarter of 2023 totaled $242,512,000, representing a decrease of 12% from the second quarter of 2022. The decrease was driven by three main factors: (i) lower revenue from the logistics industry primarily as a result of the continued pause in investments by a few large e-commerce customers; (ii) slower spending trends across our broader factory automation business, most notably in the consumer electronics and semiconductor industries; and (iii) the unfavorable impact of foreign currency exchange rate changes on revenue. Gross margin as a percentage of revenue was 74% for the second quarter of 2023 as compared to 72% for the second quarter of 2022. The increase in gross margin as a percent of revenue was due to lower inventory costs resulting from a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints. Operating expenses for the second quarter of 2023 totaled $114,508,000, representing a decrease of 13% from the second quarter of 2022. On June 7, 2022, our primary contract manufacturer suffered a fire at its Indonesian plant destroying a large portion of the Company's component inventories (refer to Note 17 of the consolidated financial statements). In the second quarter of 2022, the Company recorded a net loss related to the fire of $17,403,000, consisting primarily of losses from inventories and other assets of $44,903,000, partially offset by an estimated insurance recovery of $27,500,000. In the second quarter of 2023, the Company recorded a recovery related to the fire of $2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim. Excluding the impact of losses and recoveries related to the fire, operating expenses for the second quarter of 2023 increased 3% from the second quarter of 2022, primarily due to headcount to support our "Emerging Customer" sales initiative, annual merit increases provided to employees, and increased travel expenses. These higher expenses were partially offset by lower incentive compensation and the favorable impact of foreign currency exchange rate changes on expenses. Operating income increased to 27% of revenue for the second quarter of 2023 as compared to 24% of revenue for the second quarter of 2022. Excluding the impact of losses and recoveries related to the fire, operating income decreased to 26% of revenue for the second quarter of 2023 as compared to 30% of revenue for the second quarter of 2022 primarily as a result of the lower revenue levels. Tax expense increased from the second quarter of 2022 primarily due to less favorable discrete tax adjustments. Net income as percentage of revenue was 24%, or $0.33 per diluted share, for the second quarter of 2023 and 21% of revenue, or $0.34 per diluted share, for the second quarter of 2022. Results of Operations As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. We also use results on a constant-currency basis as one measure to evaluate our performance. Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes. Results on a constant-currency basis are not in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and should be considered in addition to, and not as a substitute for, results prepared in accordance with U.S. GAAP. Revenue Revenue decreased by $32,116,000, or 12%, for the three-month period and decreased by $113,399,000, or 20%, for the six-month period as compared to the same periods in 2022. Changes in foreign currency exchange rates resulted in a lower level of reported revenue for both the three-month and six-month periods in 2023 as compared to the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue decreased by 10% for the three-month period and decreased by 18% for the six-month period as compared to the same periods in 2022. The largest factor contributing to the decreases in total revenue for both the three-month and six-month periods was a decline in logistics revenue primarily as a result of the continued pause in investments by a few large e-commerce customers. Slower spending trends across our broader factory automation business further contributed to the decrease in revenue. 25 The following table sets forth our disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue. Three-months Ended Six-months Ended July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change (unaudited) (unaudited) Americas $ 82,297 $ 91,551 $ (9,254) (10) % $ 162,911 $ 218,210 $ (55,299) (25) % Percentage of total revenue 34 % 33 % 37 % 39 % Europe $ 56,860 $ 61,840 $ (4,980) (8) % $ 116,702 $ 124,631 $ (7,929) (6) % Percentage of total revenue 23 % 23 % 26 % 22 % Greater China $ 72,351 $ 78,616 $ (6,265) (8) % $ 105,351 $ 127,021 $ (21,670) (17) % Percentage of total revenue 30 % 29 % 24 % 23 % Other Asia $ 31,004 $ 42,621 $ (11,617) (27) % $ 58,672 $ 87,173 $ (28,501) (33) % Percentage of total revenue 13 % 16 % 13 % 16 % Total revenue $ 242,512 $ 274,628 $ (32,116) (12) % $ 443,636 $ 557,035 $ (113,399) (20) % Changes in revenue from a geographic perspective were as follows: • Revenue from customers based in the Americas decreased by 10% for the three-month period and decreased by 25% for the six-month period as compared to the same periods in 2022. The decreases were primarily driven by lower revenue from customers in the logistics industry. • Revenue from customers based in Europe decreased by 8% for the three-month period and decreased by 6% for the six-month period as compared to the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe decreased by 9% for the three-month period and decreased by 5% for the six-month period as compared to the same periods in 2022. On both a U.S. GAAP and constant-currency basis, the decreases were primarily driven by lower revenue from customers in the logistics and consumer electronics industries. • Revenue from customers based in Greater China decreased by 8% for the three-month period and decreased by 17% for the six-month period as compared to the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China decreased by 4% for the three-month period and decreased by 12% for the six-month period as compared to the same periods in 2022. On both a U.S. GAAP and constant-currency basis, the decreases resulted from broad-based declines in revenue from customers across multiple industries, partially offset by increases in revenue from large projects in the consumer products industry. • Revenue from customers based in other countries in Asia decreased by 27% for the three-month period and decreased by 33% for the six-month period as compared to the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in other countries in Asia decreased by 23% for the three-month period and 28% for the six-month period as compared to the same periods in 2022. On both a U.S. GAAP and constant-currency basis, the decreases resulted from broad-based declines in revenue from customers across multiple industries, most notably the semiconductor industry. 26 Gross Margin The following table sets forth our gross margin (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue. Three-months Ended Six-months Ended July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change (unaudited) (unaudited) Gross margin $ 179,683 $ 196,485 $ (16,802) (9) % $ 323,423 $ 400,102 $ (76,679) (19) % Percentage of total revenue 74 % 72 % 73 % 72 % Gross margin as a percentage of revenue was 74% and 73% for the three-month and six-month periods in 2023, respectively, as compared to 72% and 72% for the same periods in 2022, respectively. The increases in gross margin as a percent of revenue were primarily due to lower inventory costs resulting from a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints. These increases were partially offset by the unfavorable impact of foreign currency exchange rates on revenue, and reduced cost efficiencies from the lower sales volume. Operating Expenses The following table sets forth our operating expenses (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue. Three-months Ended Six-months Ended July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change (unaudited) (unaudited) Research, development, and engineering expenses $ 33,585 $ 33,991 $ (406) (1) % $ 72,127 $ 70,045 $ 2,082 3 % Percentage of total revenue 14 % 12 % 16 % 13 % Selling, general, and administrative expenses $ 83,423 $ 79,950 $ 3,473 4 % $ 166,460 $ 160,785 $ 5,675 4 % Percentage of total revenue 34 % 29 % 38 % 29 % Loss (recovery) from fire $ (2,500) $ 17,403 $ (19,903) (114) % $ (2,500) $ 17,403 $ (19,903) (114) % Percentage of total revenue (1) % 6 % (1) % 3 % Total operating expenses $ 114,508 $ 131,344 $ (16,836) (13) % $ 236,087 $ 248,233 $ (12,146) (5) % Percentage of total revenue 47 % 48 % 53 % 45 % Research, Development, and Engineering Expenses Research, development, and engineering (RD&E) expenses decreased by $406,000, or 1%, for the three-month period and increased by $2,082,000, or 3%, for the six-month period as compared to the same periods in 2022. For both the three-month and six-month periods, personnel-related costs increased as a result of headcount additions to support new product initiatives and compensation increases provided to employees as part of our annual merit process. Incentive compensation expenses for both the three-month and six-month periods in 2023 were lower than the prior year comparable periods in 2022 based on the Company's expected performance against relevant full-year goals. Foreign currency exchange rate changes further offset the increases to personnel-related costs, as costs denominated in foreign currencies were translated into U.S. Dollars at a lower rate. For the three-month period in 2023, increases in personnel-related costs did not offset the decreases in incentive compensation and foreign currency exchange rate changes which drove the slight overall decrease to total RD&E expenses. RD&E expenses as a percentage of revenue were 14% and 16% for the three-month and six-month periods in 2023, respectively, as compared to 12% and 13% for the same periods in 2022, respectively. We believe that a continued commitment to RD&E activities is essential in order to maintain product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers. In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue growth and competitive position. These percentages are impacted by revenue levels and investing cycles. 27 Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses increased by $3,473,000, or 4%, for the three-month period and increased by $5,675,000, or 4%, for the six-month period as compared to the same periods in 2022. SG&A expenses increased due to costs related to our “Emerging Customer” sales initiative, including primarily compensation for additional headcount, travel expenses, and sales demonstration equipment. We launched this initiative towards the end of 2022 to broaden the reach of our sales force to customers who are relatively new to factory automation and have not fully realized the advantages of machine vision. Unrelated to our "Emerging Customer" sales initiative, for both the three-month and six-month periods in 2023, we also had higher personnel-related costs resulting primarily from compensation increases provided to employees as part of our annual merit process. Travel expenses also increased due primarily to a higher level of travel activity now that restrictions related to the COVID-19 pandemic have eased or been eliminated. These increases to total SG&A expenses were partially offset by lower incentive compensation expenses than the prior year, which included sales commissions and incentive bonuses, due to lower revenue levels and based on the Company's expected performance against relevant full-year goals. Foreign currency exchange rate changes further offset increases to total SG&A expenses, as costs denominated in foreign currencies were translated into U.S. Dollars at a lower rate. Loss (Recovery) from Fire On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia. The fire destroyed a significant amount of Cognex-owned consigned inventories, as well as component inventories owned by the contract manufacturer that were designated for Cognex products. There was no significant damage to the Company's production equipment. Since the date of the fire, the Company has worked with the contract manufacturer to resume production, maintain standards of product quality, and replenish inventories destroyed by the fire. The Company has also been working to ramp up an additional contract manufacturer to further mitigate risk, diversify the supply chain, and expand production capacity. In the second quarter of 2022, the Company recorded a net loss related to the fire of $17,403,000, consisting primarily of losses from inventories and other assets of $44,903,000, partially offset by an estimated insurance recovery of $27,500,000. In the second quarter of 2023, the Company recorded a recovery related to the fire of $2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim. As of July 2, 2023 and through the date of financial statement issuance, management cannot yet estimate additional recoveries that could be available from the contract manufacturer. Any future, additional recoveries in excess of recognized losses will be treated as gain contingencies and will be recognized when the gain is realized or realizable. There can be no assurance, however, that additional insurance coverage and/or recoveries from the contract manufacturer will be available to cover the net loss from the fire. Non-operating Income (Expense) The following table sets forth our non-operating income (expense) (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods. Three-months Ended Six-months Ended July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change (unaudited) (unaudited) Foreign currency gain (loss) $ (1,605) $ (2,043) $ 438 (21) % $ (1,211) $ (2,487) $ 1,276 (51) % Investment income $ 4,095 $ 1,505 $ 2,590 172 % $ 7,682 $ 2,973 $ 4,709 158 % Other income (expense) $ 112 $ (188) $ 300 (160) % $ 185 $ (236) $ 421 (178) % Total non-operating income (expense) $ 2,602 $ (726) $ 3,328 (458) % $ 6,656 $ 250 $ 6,406 2,562 % 28 The Company recorded foreign currency losses of $1,605,000 and $1,211,000 for the three-month and six-month periods in 2023, respectively, and $2,043,000 and $2,487,000 for the three-month and six-month periods in 2022, respectively. Foreign currency gains and losses result primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currency of the Company, which is the U.S. Dollar, or its subsidiaries. Investment income for the three-month and six-month periods in 2023 was $4,095,000 and $7,682,000, respectively, representing increases of $2,590,000 and $4,709,000, respectively, from the prior comparable periods in 2022. The increases were primarily due to higher yields on the Company's portfolio of debt securities, and to a lesser extent, higher investment balances. The Company recorded other income of $112,000 and $185,000 for the three-month and six-month periods in 2023, respectively, compared to other expense of $188,000 and $236,000 for the three-month and six-month periods in 2022, respectively. Income Tax Expense The following table sets forth our effective income tax rate reconciliation (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods. Three-months Ended Six-months Ended July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change (unaudited) (unaudited) Income before income tax expense $ 67,777 $ 64,415 $ 3,362 5 % $ 93,992 $ 152,119 $ (58,127) (38) % Income tax expense $ 10,303 $ 5,514 $ 4,789 87 % $ 10,903 $ 25,885 $ (14,982) (58) % Effective income tax rate 15 % 9 % 12 % 17 % The Company’s effective tax rate was 15% and 12% for the three-month and six-month periods ended July 2, 2023, respectively, and 9% and 17% for the same periods in 2022, respectively. The increase in the effective tax rate from 9% to 15% for the three-month period primarily resulted from the impact of discrete tax items. Compared to a net discrete tax expense recorded for the three-month period in 2023, the Company recorded a net discrete tax benefit for the three-month period in 2022 primarily driven by audit settlements which decreased income tax expense. The decrease in the effective tax rate from 17% to 12% for the six-month period primarily resulted from the impact of discrete tax items. The Company recorded a net discrete tax benefit for the six-month period in 2023 due primarily to the release of tax reserves on state tax credits, foreign audit settlements, and adjustments to certain deferred tax assets. The Company recorded a net discrete tax expense for the six-month period in 2022 primarily driven by an increase in valuation allowance as well as transfer pricing and return-to-provision adjustments which were partially offset by a decrease in tax expense from audit settlements. Liquidity and Capital Resources The Company has historically been able to generate positive cash flow from operations, which has funded its operating activities and other cash requirements and has resulted in an accumulated cash and investment balance of $832,453,000 as of July 2, 2023. The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments to maintain the liquidity and safety of the investment portfolio. As of July 2, 2023, the Company's portfolio of debt securities was in a net unrealized loss position of $21,823,000. The Company currently does not intend to sell debt securities in an unrealized loss position to meet current liquidity needs as it has the ability and intention to hold these investments until full value recovery at maturity. However, if the Company is required to sell these debt securities to meet future liquidity needs, for example, to acquire new businesses or technologies, it is prepared to sell these investments at a loss. 29 Six-months Ended July 2, 2023 July 3, 2022 $ Change % Change (unaudited) Net cash provided by (used in) operating activities $ 57,402 $ 93,629 $ (36,227) (39) % Net cash provided by (used in) investing activities $ 11,494 $ 75,597 $ (64,103) (85) % Net cash provided by (used in) financing activities $ (70,668) $ (172,476) $ 101,808 (59) % Operating activities Net cash provided by operating activities decreased by $36,227,000 during the six-month period ended 2023 as compared to the same period in 2022. This decrease was driven by a decline in net income of $43,145,000 resulting primarily from lower revenue year-over-year. Cash outlays from operating activities in both the six-month periods ended July 2, 2023 and July 3, 2022 consisted of incentive compensation payments that were earned and accrued in 2022 and 2021, respectively. Investing activities Net cash provided by investing activities decreased by $64,103,000 during the six-month period ended 2023 as compared to the same period in 2022. This decrease was driven by a $48,849,000 decline in cash provided by the maturities and sales of investments and a $16,300,000 increase in cash used in the purchases of investments. Capital expenditures for the six-month period in 2023 totaled $10,207,000 and consisted primarily of continued investments in business systems related to the Company's sales process, manufacturing test equipment related to new product introductions, and leasehold improvements related to one of the Company's offices in Shanghai, China. Financing activities Net cash used in financing activities decreased by $101,808,000 during the six-month period ended 2023 as compared to the same period in 2022. This decrease was driven by a $105,154,000 decline in cash used to repurchase common stock. On March 12, 2020, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. Under this March 2020 program, in addition to repurchases made in prior years, the Company repurchased 1,677,000 shares at a cost of $117,000,000 during the six-month period ended July 3, 2022, which completed purchases under this program. On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock. Under this March 2022 program, the Company repurchased 590,000 shares at a cost of $37,317,000 during the six-month period ended July 3, 2022. Under this same March 2022 program, in addition to repurchases made in the prior year, the Company repurchased 966,000 shares at a total cost of $49,163,000 during the six-month period ended July 2, 2023 leaving a remaining balance of $363,523,000 as of July 2, 2023. The Company may repurchase shares under this program in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee stock awards, stock price, share availability, and cash requirements. The Company is authorized to make repurchases of its common stock through open market purchases, pursuant to Rule 10b5-1 trading plans, or in privately negotiated transactions. The Company’s Board of Directors declared and paid cash dividends of $0.070 per share for the first and second quarters of 2023, totaling $24,160,000. Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations. Future Cash Requirements The Company's future material cash requirements include contractual obligations related to inventory purchase commitments and leases. As of July 2, 2023, the Company had inventory purchase commitments of $40,388,000, with the majority payable during 2023, and lease payment obligations of $116,253,000, with $4,863,000 payable during 2023. During 2023, we also expect significant cash outlays related to the Company's "Emerging Customer" sales initiative as we continue to grow our sales force in order to reach customers who may not be utilizing machine vision to its full potential. We believe that the Company's existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. In addition, the Company has no long-term debt. We believe that our balance sheet condition has put us in a strong position with respect to anticipated longer-term liquidity needs. 30 New Pronouncements Refer to Part I - Note 2 within this Form 10-Q, for a full description of recently issued accounting pronouncements including the expected dates of adoption and the expected impact on the financial position and results of operations of the Company. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes to the Company’s exposures to market risk since December 31, 2022.