Commercial Vehicle Group, Inc. 10-Q

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis below describes material changes in financial condition and results of operations as reflected in our condensed consolidated financial statements for the three and nine months ended September 30, 2022 and 2021. This discussion and analysis should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Form 10-K. Business Overview At CVG, we deliver real solutions to complex design, engineering and manufacturing problems across a range of global industries by innovating, constantly adding value, and treating our customer's bottom line as if it were our own. We have manufacturing operations in the United States, Mexico, China, United Kingdom, Belgium, Czech Republic, Ukraine, Thailand, India and Australia. Our products are primarily sold in North America, Europe, and the Asia-Pacific region. We primarily manufacture customized products to meet the requirements of our customer. We believe our products are used by a majority of the North American Commercial Truck markets, many construction vehicle OEMs and top e-commerce retailers. Key Developments In the first quarter of 2022, Russian military forces invaded Ukraine. We have approximately 1,200 employees in the Ukraine located in our facility near L'viv. While the facility was temporarily shut-down, we have resumed operations in L'viv and also set up additional capacity in the Czech Republic. During both the nine months ended September 30, 2022 and the twelve months ended December 31, 2021, our Ukraine facility represented approximately 1% of the Company's long-lived assets. 22 Table of Contents The invasion of Ukraine by Russia and the retaliatory measures taken by the U.S., NATO and other countries have created global security concerns and economic uncertainty that could have a lasting impact on regional and global economies. We cannot be certain that international tensions will not affect our facility in the Ukraine, including due to the Russian invasion, electrical outages, cyber-attacks and periodic battles with separatists closer to our facility. In addition, certain of our employees in Ukraine may be conscripted into the military and/or sent to fight in the ongoing conflict. Furthermore, most of our products manufactured in Ukraine are shipped across the border from Ukraine to the Czech Republic for further delivery to our customers. If that border crossing were to be closed or restricted for any reason, or if our customers decide to stop ordering from us or shift orders to our competitors, we would experience a loss of the use of our Ukrainian facility, which could have an adverse effect on our results of operations and financial condition. During the nine months ended September 30, 2022, we experienced shutdowns at our plant in Shanghai, China due to the COVID-19 pandemic. The COVID-19 pandemic has caused and continues to cause, significant volatility, uncertainty and economic disruptions to our business. While we continue to operate our facilities, we may experience production slowdowns and/or shutdowns at our manufacturing facilities in North America, Europe and Asia Pacific as a result of government orders, our inability to obtain component parts from suppliers and/or inconsistent customer demand. In addition, many of our suppliers and customers may experience production slowdowns and/or shutdowns, which may further impact our business, sales and results of operation. The extent of the adverse effect of the COVID-19 pandemic on our business results depends on a number of factors beyond our control. While backlog continues to be strong in the truck markets, all markets we operate in were impacted by supply chain constraints which caused volatility on our customers' production schedules and had a negative impact on our results. Overall, we continued to experience global supply chain disruptions and significant inflation, including longer lead-times to procure parts from China and due to port backups, labor inflation, chip shortages, steel and other raw material inflation, and freight cost increases. The impact of the pandemic, the related economic recovery and global inflationary pressures continue to be uneven from period to period and across our global footprint based on local and regional outbreaks. We continue to proactively monitor, assess and minimize to the extent reasonably possible disruptions and delays in production due to labor shortages or customer schedules, focus on cost control and recovery through pricing adjustments, and take reasonable measures to protect our workforce. Consolidated Results of Operations Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 The table below sets forth certain consolidated operating data for the three months ended September 30 (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 251,412 $ 239,610 $ 11,802 4.9% Gross profit 26,842 30,144 (3,302) (11.0)% Selling, general and administrative expenses 17,304 18,772 (1,468) (7.8)% Other (income) expense 1,924 (186) 2,110 NM 1 Interest expense 2,813 1,630 1,183 72.6% Provision for income taxes 1,250 2,417 (1,167) (48.3)% Net income 3,551 7,511 (3,960) (52.7)% 1. Not meaningful Revenues . The increase in consolidated revenues resulted from: • a $39.1 million, or 28.5%, increase in OEM; • a $37.6 million, or 72.7%, decrease in warehouse automation revenues; • a $1.8 million, or 3.9%, increase in aftermarket and OES revenues; and • a $8.5 million, or 172.4% increase in other revenues. Third quarter 2022 revenues were unfavorably impacted by foreign currency exchange translation of $6.5 million, which is reflected in the change in revenues above. The increase in revenues is primarily driven by increased pricing to offset material cost increases and volume, offset by volume decrease in Warehouse Automation. 23 Table of Contents Gross Profit . The $3.3 million decrease in gross profit is primarily attributable to the decrease in warehouse automation revenues and the cost of revenues, which increased $15.1 million, or 7.2%, as a result of an increase in raw material and purchased component costs of $12.1 million, or 8.7%, and an increase in labor and overhead expenses of $3.0 million, or 4.3%. As a percentage of revenues, gross profit margin was 10.7% for the three months ended September 30, 2022 compared to 12.6% for the three months ended September 30, 2021. The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. The three months ended September 30, 2022 results include charges of $0.6 million associated with the restructuring program. Selling, General and Administrative Expenses . Selling, general and administrative expenses ("SG&A”) consist primarily of wages and benefits and other expenses such as Contingent Consideration, marketing, travel, legal, audit, rent and utility costs which are not directly associated with the manufacturing of our products. SG&A expenses decreased $1.5 million compared to the three months ended September 30, 2021, primarily due to lower incentive compensation and health care expense. As a percentage of revenues, SG&A expense was 6.9% for the three months ended September 30, 2022 compared to 7.8% for the three months ended September 30, 2021. Other (Income) Expense. Other expenses increased $2.1 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021 due primarily to partial settlement of the Company's U.S. Pension Plan liabilities of $1.1 million as well as an unfavorable change in foreign currency of $0.4 million. Interest Expense . Interest associated with our debt was $2.8 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively. The increase in interest expense primarily related to higher base interest rates on our variable rate debt and a higher average debt balance during the respective comparative period. Provision (Benefit) for Income Taxes. An income tax provision of $1.3 million and $2.4 million were recorded for the three months ended September 30, 2022 and 2021, respectively. The period over period change in income tax was primarily attributable to a $5.1 million decrease in pre-tax income versus the prior year period. Net Income (loss). Net income was $3.6 million for the three months ended September 30, 2022 compared to $7.5 million for the three months ended September 30, 2021. The decrease in net income is attributable to the factors noted above. Segment Results Vehicle Solutions Segment Results Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 The table below sets forth certain Vehicle Solutions Segment operating data for the three months ended September 30 (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 154,024 $ 117,914 $ 36,110 30.6% Gross profit 13,839 10,143 3,696 36.4% Selling, general & administrative expenses 4,279 7,222 (2,943) (40.8)% Operating income 9,560 2,921 6,639 227.3% Revenues. The increase in Vehicle Solutions Segment revenues primarily resulted from increased pricing to offset material cost pass-through and favorable volume. Gross Profit. The increase in gross profit was primarily attributable to volume leverage, increased pricing and lower health care expense. Included in gross profit is cost of revenues, which increased $32.4 million, or 30.1%, as a result of an increase in raw material and purchased component costs of $28.7 million, or 40.5%, and an increase in labor and overhead expenses of $3.7 million, or 10.1%. As a percentage of revenues, gross profit margin was 9.0% for the three months ended September 30, 2022 compared to 8.6% for the three months ended September 30, 2021. 24 Table of Contents Selling, General and Administrative Expenses . SG&A expenses decreased $2.9 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, primarily due to lower incentive compensation and health care expense. Warehouse Automation Segment Results Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 The table below sets forth certain Warehouse Automation Segment operating data for the three months ended September 30 (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 14,116 $ 51,681 $ (37,565) (72.7)% Gross profit 404 9,486 (9,082) (95.7)% Selling, general & administrative expenses 1,371 1,461 (90) (6.2)% Operating income (loss) (967) 8,025 (8,992) (112.0)% Revenues. The decrease in Warehouse Automation Segment revenues primarily resulted from lower sales volume due to decreased customer demand. Gross Profit. The decrease in gross profit is primarily attributable to lower sales volume. Included in gross profit is cost of revenues, which decreased $28.5 million, or 67.5%, as a result of a decrease in raw material and purchased component costs of $23.9 million, or 70.5%, and a decrease in labor and overhead expenses of $4.6 million, or 55.2%. As a percentage of revenues, gross profit margin was 2.9% for the three months ended September 30, 2022 compared to 18.4% for the three months ended September 30, 2021. The decrease is due to loss of volume leverage. Selling, General and Administrative Expenses . SG&A expenses decreased $0.1 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Electrical Systems Segment Results Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 The table below sets forth certain Electric Systems Segment operating data for the three months ended September 30 (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 46,129 $ 40,085 $ 6,044 15.1% Gross profit 6,210 6,633 (423) (6.4) Selling, general & administrative expenses 1,055 1,718 (663) (38.6) Operating income 5,155 4,915 240 4.9 Revenues. The increase in Electric Systems Segment revenues primarily resulted from increased pricing to offset material cost pass-through and new business wins. Gross Profit. The decrease in gross profit is primarily attributable to cost of revenues, which increased $6.5 million, or 19.3%, as a result of an increase in raw material and purchased component costs of $5.3 million, or 29.7%, and an increase in labor and overhead expenses of $1.2 million, or 7.4%. As a percentage of revenues, gross profit margin was 13.5% for the three months ended September 30, 2022 compared to 16.5% for the three months ended September 30, 2021. The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. Selling, General and Administrative Expenses . SG&A expenses decreased $0.7 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. 25 Table of Contents Aftermarket & Accessories Segment Results Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 The table below sets forth certain Aftermarket & Accessories Segment operating data for the three months ended September 30 (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 37,143 $ 29,930 $ 7,213 24.1% Gross profit 6,389 3,885 2,504 64.5 Selling, general & administrative expenses 1,436 1,536 (100) (6.5) Operating income 4,953 2,349 2,604 110.9 Revenues. The increase in Aftermarket & Accessories Segment revenues resulted from increased sales volume and pricing to offset material cost pass-through. Gross Profit. The increase in gross profit is primarily attributable to the increase in sales volume and pricing. Included in gross profit is cost of revenues, which increased $4.7 million, or 18.1%, as a result of an increase in raw material and purchased component costs of $2.0 million, or 11.7%, and an increase in labor and overhead expenses of $2.7 million, or 29.7%. As a percentage of revenues, gross profit margin was 17.2% for the three months ended September 30, 2022 compared to 13.0% for the three months ended September 30, 2021. The increase in gross profit margin is primarily due to increased pricing to offset material cost pass-through. The three months ended September 30, 2022 results include charges of $0.4 million associated with the restructuring program. Selling, General and Administrative Expenses . SG&A expenses decreased $0.1 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Consolidated Results of Operations Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 The table below sets forth certain consolidated operating data for the nine months ended September 30, (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 746,635 $ 742,673 $ 3,962 0.5% Gross profit 74,104 95,633 (21,529) (22.5)% Selling, general and administrative expenses 49,955 52,529 (2,574) (4.9)% Other (income) expense 2,798 (1,127) 3,925 NM 1 Interest expense 6,892 9,489 (2,597) (27.4)% Loss on extinguishment of debt 921 7,155 (6,234) (87.1)% Provision for income taxes 3,520 6,491 (2,971) (45.8)% Net income 10,018 21,096 (11,078) (52.5)% 1. Not meaningful Revenues . The increase in consolidated revenues resulted from: • a $43.1 million, or 9.6%, increase in OEM; • a $73.6 million, or 48.9%, decrease in warehouse automation revenues; • a $14.1 million, or 10.4%, increase in aftermarket and OES revenues; and • a $20.3 million, or 288.2% increase in other revenues. 26 Table of Contents Nine months ended 2022 revenues were unfavorably impacted by foreign currency exchange translation of $12.4 million, which is reflected in the change in revenues above. The increase in revenues is primarily driven by increased pricing to offset material cost increases and volume, offset by volume decreases in Warehouse Automation. Gross Profit . The $21.5 million decrease in gross profit is primarily attributable to the decrease in warehouse automation revenues and the cost of revenues, which increased $25.5 million, or 3.9%, as a result of an increase in raw material and purchased component costs of $13.9 million, or 3.2%, and an increase in labor and overhead expenses of $11.6 million, or 5.4%. As a percentage of revenues, gross profit margin was 9.9% for the nine months ended September 30, 2022 compared to 12.9% for the nine months ended September 30, 2021. The nine months ended September 30, 2022 results include charges of $3.0 million associated with the restructuring program. Selling, General and Administrative Expenses . SG&A expenses decreased $2.6 million compared to the nine months ended September 30, 2021, primarily due to lower incentive compensation and health care expense. As a percentage of revenues, SG&A expense was 6.7% for the nine months ended September 30, 2022 compared to 7.1% for the nine months ended September 30, 2021. Other (Income) Expense. Other expenses increased $3.9 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021 due primarily to partial settlement of the Company's U.S. Pension Plan liabilities of $1.1 million as well as an unfavorable change in foreign currency of $1.3 million. Interest Expense . Interest associated with our debt was $6.9 million and $9.5 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease in interest expense primarily related to lower rates, partially offset by a higher average debt balance during the respective comparative periods. Loss on extinguishment of debt. On May 12, 2022, the Company refinanced its long-term debt, which resulted in a loss of $0.9 million, including a $0.6 million non-cash write off relating to deferred financing costs of the Term loan facility due 2026 and $0.3 million of other associated fees. During the nine months ended September 30, 2021 the Company refinanced its long-term debt, which resulted in a loss of $7.2 million, including a $3.7 million non-cash write off relating to deferred financing costs and unamortized discount of the 2023 Term Loan Facility, a voluntary repayment premium of $3.0 million and $0.5 million of other associated fees. Provision (Benefit) for Income Taxes. An income tax provision of $3.5 million and $6.5 million were recorded for the nine months ended September 30, 2022 and 2021, respectively. The period over period change in income tax was primarily attributable to the $14.0 million decrease in pre-tax income versus the prior year period. Net Income (loss). Net income was $10.0 million for the nine months ended September 30, 2022 compared to $21.1 million for the nine months ended September 30, 2021. The decrease in net income is attributable to the factors noted above. Segment Results Vehicle Solutions Segment Results Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 The table below sets forth certain Vehicle Solutions Segment operating data for the nine months ended September 30, (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 436,966 $ 372,487 $ 64,479 17.3% Gross profit 35,657 38,914 (3,257) (8.4)% Selling, general & administrative expenses 18,269 20,269 (2,000) (9.9)% Operating income 17,388 18,645 (1,257) (6.7)% 27 Table of Contents Revenues. The increase in Vehicle Solutions Segment revenues primarily resulted from increased pricing to offset material cost pass-through and new business wins offset by lower shipments caused by the COVID shutdown in China. Gross Profit. The decrease in gross profit was primarily attributable to cost of revenues, which increased $67.7 million, or 20.3%, as a result of an increase in raw material and purchased component costs of $55.4 million, or 25.1%, and an increase in labor and overhead expenses of $12.3 million, or 10.9%. As a percentage of revenues, gross profit margin was 8.2% for the nine months ended September 30, 2022 compared to 10.4% for the nine months ended September 30, 2021. The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. The nine months ended September 30, 2022 results include charges of $0.2 million associated with the restructuring program. Selling, General and Administrative Expenses . SG&A expenses decreased $2.0 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, primarily due to lower incentive compensation and healthcare expense. Warehouse Automation Segment Results Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 The table below sets forth certain Warehouse Automation Segment operating data for the nine months ended September 30, (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 76,789 $ 150,378 $ (73,589) (48.9)% Gross profit 8,249 24,612 (16,363) (66.5)% Selling, general & administrative expenses 4,242 4,199 43 1.0% Operating income 4,007 20,413 (16,406) (80.4)% Revenues. The decrease in Warehouse Automation Segment revenues resulted from lower sales volume due to decreased customer demand. Gross Profit. The decrease in gross profit is primarily attributable to the decrease in sales volume. Included in gross profit is cost of revenues, which decreased $57.2 million, or 45.5%, as a result of a decrease in raw material and purchased component costs of $47.9 million, or 47.4%, and a decrease in labor and overhead expenses of $9.3 million, or 37.6%. As a percentage of revenues, gross profit margin was 10.7% for the nine months ended September 30, 2022 compared to 16.4% for the nine months ended September 30, 2021. The nine months ended September 30, 2022 results include charges of $0.8 million associated with the restructuring program. Selling, General and Administrative Expenses . SG&A expenses were flat year over year. Electrical Systems Segment Results Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 The table below sets forth certain Electric Systems Segment operating data for the nine months ended September 30, (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 133,350 $ 130,742 $ 2,608 2.0% Gross profit 16,857 17,545 (688) (3.9)% Selling, general & administrative expenses 3,998 4,646 (648) (13.9)% Operating income 12,859 12,899 (40) (0.3)% Revenues. The increase in Electrical Systems Segment revenues resulted from increased pricing to offset material cost pass-through, and new business wins. 28 Table of Contents Gross Profit. The decrease in gross profit is primarily attributable to the cost of revenues, which increased $3.3 million, or 2.9%, as a result of an increase in raw material and purchased component costs of $0.9 million, or 1.4%, and an increase in labor and overhead expenses of $2.4 million, or 4.8%. As a percentage of revenues, gross profit margin was 12.6% for the nine months ended September 30, 2022 compared to 13.4% for the nine months ended September 30, 2021. The decrease is primarily due to supply chain and semi-conductor chip shortages at our customer plants, and the disruption caused by the war in the Ukraine. The nine months ended September 30, 2022 results include charges of $0.6 million associated with the restructuring program. Selling, General and Administrative Expenses . SG&A expenses decreased $0.7 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, consistent with the prior year amount on a percent of sales basis. Aftermarket & Accessories Segment Results Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 The table below sets forth certain Aftermarket & Accessories Segment operating data for the nine months ended September 30, (dollars are in thousands): 2022 2021 $ Change % Change Revenues $ 99,530 $ 89,066 $ 10,464 11.7% Gross profit 13,341 14,605 (1,264) (8.7)% Selling, general & administrative expenses 4,636 4,407 229 5.2% Operating income (loss) 8,705 10,198 (1,493) (14.6)% Revenues. The increase in Aftermarket & Accessories Segment revenues resulted from increased sales volume and pricing to offset material cost pass-through. Gross Profit. The decrease in gross profit is primarily attributable to cost of revenues, which increased $11.7 million, or 15.8%, as a result of an increase in raw material and purchased component costs of $5.5 million, or 11.5%, and an increase in labor and overhead expenses of $6.2 million, or 23.4%. As a percentage of revenues, gross profit margin was 13.4% for the nine months ended September 30, 2022 compared to 16.4% for the nine months ended September 30, 2021. The decrease in gross profit margin is primarily due to global supply chain and market disruptions which have resulted in increased labor costs, raw material inflation, and freight cost increases. The nine months ended September 30, 2022 results include charges of $1.4 million associated with the restructuring program. Selling, General and Administrative Expenses . SG&A expenses increased $0.2 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, consistent with the prior year amount on a percent of sales basis. Liquidity and Capital Resources As of September 30, 2022, the Company had $11.6 million of outstanding borrowings under its revolving credit facility, $38.7 million of cash and $137.2 million of availability under the revolving credit facility, resulting in total liquidity of $175.9 million. Our primary sources of liquidity as of September 30, 2022 were cash reserves and availability under our revolving credit facility. We believe that these sources of liquidity will provide adequate funds for our working capital needs, capital expenditures and debt service throughout the next twelve months. However, no assurance can be given that this will be the case. As of September 30, 2022, cash of $35.0 million was held by foreign subsidiaries. The Company had a $0.5 million deferred tax liability as of September 30, 2022 for the expected future income tax implications of repatriating cash from the foreign subsidiaries for which no indefinite reinvestment assertion has been made. 29 Table of Contents Covenants and Liquidity On May 12, 2022, the Company entered into an amendment to increase its existing senior secured credit facilities to $325 million from $275 million consisting of a $175 million Term Loan A and a $150 million Revolving Credit Facility. The amendment provides the Company with additional capital flexibility to execute upon its transformation and growth initiatives. As part of the amended terms of the agreement, the maturity date of the Senior Secured Credit Facilities has been extended by twelve months to May 12, 2027, the interest rate decreased by 50 bps at various leverage ratios based on SOFR, and the maximum consolidated total leverage ratio increased from 3.25x to 3.75x until December 31, 2022 with a quarterly step down of 25 bps to 3.00x leverage by September 30, 2023 and remain at this level thereafter. Further, separate from the Company’s annual $35 million capital spending cap, a one-time $45 million capital project basket was included in the amendment. All other key provisions, including the $75 million accordion, acquisition holiday, and other baskets remain unchanged. Our ability to comply with the covenants in the Credit Agreement, as discussed in Note 4, Debt, of our Condensed Consolidated Financial Statements may be affected by economic or business conditions beyond our control. Based on our current forecast, we believe that we will be able to maintain compliance with the financial maintenance covenants and the fixed charge coverage ratio covenant and other covenants in the Credit Agreement for the next twelve months; however, no assurances can be given that we will be able to comply. We base our forecasts on historical experience, industry forecasts and other assumptions that we believe are reasonable under the circumstances. If actual results are substantially different than our current forecast, we may not be able to comply with our financial covenants. Sources and Uses of Cash September 30, 2022 September 30, 2021 (In thousands) Net cash provided by (used in) operating activities $ 33,794 $ (20,889) Net cash used in investing activities (12,525) (11,399) Net cash provided by (used in) financing activities (13,031) 16,073 Effect of currency exchange rate changes on cash (4,483) (685) Net increase (decrease) in cash $ 3,755 $ (16,900) Operating activities. For the nine months ended September 30, 2022, net cash provided by operating activities was $33.8 million compared to net cash used in operating activities of $20.9 million for the nine months ended September 30, 2021. Net cash provided by operating activities is primarily attributable to a decrease in working capital for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Investing activities. For the nine months ended September 30, 2022, net cash used in investing activities was $12.5 million compared to $11.4 million for the nine months ended September 30, 2021. In 2022, we expect capital expenditures to be approximately $22 million. Financing activities. For the nine months ended September 30, 2022, net cash used in financing activities was $13.0 million compared to net cash provided by financing activities of $16.1 million for the nine months ended September 30, 2021. Net cash used in financing activities for the nine months ended September 30, 2022 is primarily attributable to $11.3 million of net repayments under our credit facilities. Net cash provided by financing activities for the nine months ended September 30, 2021 is attributable to $26.8 million of borrowings, offset by $5.4 million of costs attributed to debt amendment and extinguishment completed during the nine months ended September 30, 2021 and a $5.0 million Contingent Consideration payment. Debt and Credit Facilities The debt and credit facilities descriptions in Note 4, Debt of our Condensed Consolidated Financial Statements are incorporated in this section by reference. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). For a comprehensive discussion of our significant accounting policies, see "Note 1. Significant Accounting Policies", to our consolidated financial statements in Item 8 in our 2021 Form 10-K. 30 Table of Contents Critical accounting estimates are those that are most important to the portrayal of our financial condition and results. These estimates require management's most difficult, subjective, or complex judgments, often as a result of the need to estimate matters that are inherently uncertain. We review the development, selection, and disclosure of our critical accounting estimates with the Audit Com mittee of our board of directors. For information about critical accounting estimates, see Critical Accounting Estimates in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2021 Form 10-K. At September 30, 2022, there have been no material changes to our critical accounting estimates from those disclosed in our 2021 Form 10-K.