What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-08-08 · 287 added, 257 removed, 408 unchanged (57% of the section changed)

3 unchanged sentences

(Unaudited, in thousands, except share and per share data)

June 30, 2024

December 31, 2023

September 30,

Current assets:

23 unchanged sentences

Common stock, par value $ 0.01 per share, 80,000,000 shares authorized:

43,610,883 shares issued and outstanding at June 30, 2024;

43,616,621 shares issued and outstanding at September 30, 2024;

43,394,509 shares issued and outstanding at December 31, 2023

8 unchanged sentences

(Unaudited, in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenues

8 unchanged sentences

Interest expense

Loss on equity securities - Note 6

Loss on pension settlement - Note 16

Gain (loss) on equity securities - Note 6

Other (expense) income, net

Total other expense

Total other (expense) income

Loss before income taxes

Income tax benefit

Income tax expense

Loss per share:

4 unchanged sentences

HARVARD BIOSCIENCE, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive income (loss):

Three Months Ended September 30,

Nine Months Ended September 30,

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

Derivative instruments qualifying as cash flow hedges, net of tax

Other comprehensive (loss) income

Comprehensive (loss) income

Defined benefit pension plans

Derivative instruments

Other comprehensive income (loss)

Comprehensive loss

See accompanying notes to condensed consolidated financial statements.

4 unchanged sentences

Stockholders’

Balance at March 31, 2024

Stock option exercises

Stock purchase plan

Vesting of restricted stock units

Shares withheld for taxes

Stock-based compensation expense

Other comprehensive loss

Balance at June 30, 2024

Comprehensive

Stockholders’

Balance at March 31, 2023

Stock option exercises

Stock purchase plan

Vesting of restricted stock units

Shares withheld for taxes

Stock-based compensation expense

Stock-based compensation

Other comprehensive income

Balance at September 30, 2024

Comprehensive

Stockholders’

Balance at June 30, 2023

Stock-based compensation

Other comprehensive loss

Balance at September 30, 2023

Comprehensive

5 unchanged sentences

Shares withheld for taxes

Stock-based compensation expense

Other comprehensive loss

Balance at June 30, 2024

Stock-based compensation

Other comprehensive income

Balance at September 30, 2024

Comprehensive

5 unchanged sentences

Shares withheld for taxes

Stock-based compensation expense

Other comprehensive income

Balance at June 30, 2023

Stock-based compensation

Other comprehensive loss

Balance at September 30, 2023

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(Unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Amortization of intangible assets

Amortization of deferred financing costs

Stock-based compensation expense

Stock-based compensation

Deferred income taxes and other

Loss on equity securities - Note 6

Loss on pension settlement - Note 16

Gain on sale of product line - Note 14

1 unchanged sentence

Accounts receivable

Accounts payable and other current liabilities

Accounts payable and other liabilities

Contract liabilities

Other liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

3 unchanged sentences

Proceeds from sale of marketable equity securities

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities:

2 unchanged sentences

Repayment of term debt

Payment of debt issuance costs

Proceeds from exercise of stock options and employee stock purchase plan

Taxes paid related to net share settlement of equity awards

Net cash used in financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Decrease in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

8 unchanged sentences

The unaudited consolidated financial statements of Harvard Bioscience, Inc.

and its wholly-owned subsidiaries (collectively, the “Company”) as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

and its wholly-owned subsidiaries (collectively, the “Company”) as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

4 unchanged sentences

These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of June 30, 2024, results of operations and comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023, as applicable, have been made.

The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the operating results for the full fiscal year or any future periods.

In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of September 30, 2024, results of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023, as applicable, have been made.

The results of operations for the three and nine months ended September 30, 2024, are not necessarily indicative of the anticipated operating results for the full year ending December 31, 2024, or any future periods.

The accounting policies underlying the accompanying unaudited consolidated financial statements are set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

There have been no material changes in the Company’s significant accounting policies during the six months ended June 30, 2024.

There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2024.

Primarily due to a decline in revenues, the Company experienced a net cash outflow from operations during the nine months ended September 30, 2024.

The Company has substantial debt and other financial obligations.

Any failure to meet these obligations or maintain compliance with the debt covenants contained in its credit agreement could have a material adverse effect on its business, financial condition and results of operations.

As of the date of this report, the Company is unable to make additional borrowings under its revolving credit facility due to net leverage ratio requirements set forth in the Company’s credit agreement and will be unable to make any such borrowings until it delivers to the lenders its financial statements for the year ending December 31, 2024 (see note 8).

The Company continues to take actions intended to improve liquidity, including actions related to cost containment and inventory reduction.

Based on its current operating plans, the Company expects that its available cash and cash generated from operations will be sufficient to finance operations and capital expenditures and service its debt for at least the next 12 months.

The Company’s ongoing cash flows and ability to meet its debt covenants are dependent on its revenues and operating performance.

If the Company is unable to successfully carry out its operating plans or increase its revenues, its ability to maintain compliance with its debt covenants could be adversely affected.

Use of Estimates

The preparation of financial statements in conformity with generally U.S.

The preparation of financial statements in conformity with U.S.

GAAP requires the use of management estimates.

Such estimates include the determination and establishment of certain accruals and provisions, including those for income taxes, credit losses on receivables, and defined benefit pension obligations.

Estimates are also required to evaluate the value for inventories reported at lower of cost or net realizable value, stock-based compensation expense, and the recoverability of long-lived and intangible assets, including goodwill.

On an ongoing basis, the Company reviews its estimates based upon currently available information.

Estimates are also required to assess the value for inventories reported at lower of cost or net realizable value, stock-based compensation expense, and the recoverability of long-lived and intangible assets, including goodwill.

On an ongoing basis, the Company assesses its previous estimates based upon currently available information.

Actual results could differ materially from those estimates.

Other Operating Expenses

The components of other operating expenses for the three and six months ended June 30, 2024 were as follows:

The components of other operating expenses for the three and nine months ended September 30, 2024 were as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

June 30, 2024

September 30, 2024

Restructuring expenses (see Note 15)

Unclaimed property audits (credit) expense (see Note 13)

Unclaimed property audits expense (see Note 13)

Employee retention credit fees (see Note 5)

1 unchanged sentence

Recently Issued Accounting Pronouncements Yet to Be Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an annual and interim basis.

Entities with a single reportable segment must provide all the disclosures required by this ASU and all existing segment disclosures in Topic 280.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

The adoption of this standard only impacts footnote disclosures and is not expected to have a material impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax , which enhances disclosures related to the effective tax rate reconciliation, income taxes paid, as well as other disclosures.

The new standard impacts footnote disclosures and is effective for the Company’s annual financial statements for the year ended December 31, 2025.

The Company is currently evaluating the potential impact of adopting ASU No.

2023-09 will have on the disclosures in its consolidated financial statements.

Improvements to Income Tax , which is intended to enhance disclosures related to the effective tax rate reconciliation, income taxes paid, and other disclosures.

This new standard impacts footnote disclosures and will be effective for the Company’s annual consolidated financial statements for the year ending December 31, 2025.

The Company is currently evaluating the impact that adoption of ASU No.

2023-09 will have on the footnote disclosures in its consolidated financial statements.

Earnings (Loss) per Share

2 unchanged sentences

The following table summarizes the calculation of basic and diluted net loss per share of common stock:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except per share data)

4 unchanged sentences

Diluted loss per share

Shares excluded from diluted loss per share

due to their anti-dilutive effect

The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2024 and 2023:

Shares excluded from diluted loss per share due to their anti-dilutive effect

The following tables represent a disaggregation of revenues from contracts with customers for the three and nine months ended September 30, 2024 and 2023:

Revenues by type were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Revenues by timing of recognition were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Total revenues

Revenue by geographic destination were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Revenues by geographic destination were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

6 unchanged sentences

(dollars in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

3 unchanged sentences

Changes in the Company’s contract liabilities are primarily due to the timing of receipt of payments under service, maintenance and warranty contracts and lower sales volumes.

During the three months ended June 30, 2024 and 2023, the Company recognized revenue of $ 1.0 million and $ 0.6 million from contract liabilities existing at December 31, 2023 and 2022, respectively.

During the six months ended June 30, 2024 and 2023, the Company recognized revenue of $ 2.6 million and $ 1.6 million from contract liabilities existing at December 31, 2023 and 2022, respectively.

During the three months ended September 30, 2024 and 2023, the Company recognized revenues of $ 0.4 million and $ 1.0 million from contract liabilities existing at December 31, 2023 and 2022, respectively.

During the nine months ended September 30, 2024 and 2023, the Company recognized revenues of $ 3.0 million and $ 2.3 million from contract liabilities existing at December 31, 2023 and 2022, respectively.

Provision for Expected Credit Losses on Receivables

Activity in the provision for expected losses on receivables was as follows:

Six Months Ended June 30,

Activity in the provision for expected credit losses on receivables was as follows:

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Concentrations

No customer accounted for more than 10% of revenues for the three and six months ended June 30, 2024 and 2023.

At June 30, 2024 and December 31, 2023, no customer accounted for more than 10% of net accounts receivable.

No customer accounted for more than 10% of revenues for the three and nine months ended September 30, 2024 and 2023.

At September 30, 2024 and December 31, 2023, no customer accounted for more than 10% of net accounts receivable.

Activity in the product warranties accrual was as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Goodwill and Intangible Assets

The change in the carrying amount of goodwill for the six months ended June 30, 2024 was as follows:

The change in the carrying amount of goodwill for the nine months ended September 30, 2024 was as follows:

(in thousands)

1 unchanged sentence

Effect of change in currency translation

Carrying amount at June 30, 2024

Intangible assets at June 30, 2024 and December 31, 2023 consisted of the following:

June 30, 2024

Carrying amount at September 30, 2024

Intangible assets, net at September 30, 2024 and December 31, 2023 consisted of the following:

September 30, 2024

December 31, 2023

7 unchanged sentences

Total intangible assets

Intangible asset amortization expense for the three and six months ended June 30, 2024 and 2023 was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Intangible asset amortization expense for the three and nine months ended September 30, 2024 and 2023 was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Total amortization of intangible assets

As of June 30, 2024, estimated future amortization expense of amortizable intangible assets is as follows:

As of September 30, 2024, estimated future amortization expense of amortizable intangible assets is as follows:

(in thousands)

2 unchanged sentences

The following tables provide details of selected balance sheet items as of the periods indicated:

September 30,

(in thousands)

June 30, 2024

December 31, 2023

Finished goods

2 unchanged sentences

Other Current Liabilities:

September 30,

(in thousands)

June 30, 2024

December 31, 2023

Customer credits

Current portion of operating lease liabilities

Employee retention credit funds

Employee retention tax credit funds

Professional fees

Warranty costs

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) provided an employee retention credit (“ERC”) that was a refundable tax credit against certain employer taxes.

The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) provided an employee retention tax credit (“ERTC”) that was a refundable tax credit against certain employer taxes.

The Company elected to account for the credit as a government grant.

2 unchanged sentences

Under IAS 20, government grants are recognized when there is reasonable assurance that the grant will be received and that all conditions related to the grant will be met.

The Company received ERC refunds of $ 3.2 million during the six months ended June 30, 2024.

Due to the subjectivity of the credit, the Company has included the refunds received in other current liabilities in the consolidated balance sheet as of June 30, 2024, subject to a determination that the refunds are recognizable.

The Company engaged a professional services firm under a commission fee arrangement to assist with determining the Company’s eligibility to claim the ERC refunds and accumulating the necessary support that was used as a basis in the filing.

During the six months ended June 30, 2024, the Company paid fees of $ 0.5 million for these services, which are included in other operating expenses in the consolidated statement of operations.

The Company received ERTC refunds of $ 3.2 million during the nine months ended September 30, 2024.

Due to the subjectivity of the credit, the Company has included the refunds received in other current liabilities in the consolidated balance sheet as of September 30, 2024, subject to a determination that the refunds are recognizable.

The Company engaged a professional services firm under a commission fee arrangement to assist with determining the Company’s eligibility to claim the ERTC refunds and accumulating the necessary support that was used as a basis in the filing.

During the nine months ended September 30, 2024, the Company paid fees of $ 0.5 million for these services, which are included in other operating expenses in the consolidated statement of operations.

Marketable Equity Securities

1 unchanged sentence

(“HRGN”, formerly known as Biostage, Inc.) in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022.

These shares had an estimated fair value $ 3.5 million and are included in the consolidated balance sheet as a component of other long-term assets as of December 31, 2023.

During the six months ended June 30, 2024, the Company sold all of its remaining HRGN shares.

The Company received cash proceeds of $ 1.4 million and $ 1.9 million from HRGN shares sold during the three and six months ended June 30, 2024, respectively.

The Company recorded losses on equity securities of $ 0.3 million and $ 1.6 million during the three and six months ended June 30, 2024, respectively.

As of December 31, 2023, these shares had an estimated fair value $ 3.5 million and are included in the consolidated balance sheet as a component of other long-term assets.

During the nine months ended September 30, 2024, the Company sold its HRGN shares for $ 1.9 million and recorded a loss on equity securities of $ 1.6 million.

The Company recorded unrealized gains (losses) of $ 1.2 million and $( 0.4 ) million during the three and nine months ended September 30, 2023, respectively.

The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2030.

The components of lease expense for the three and six months ended June 30, 2024 and 2023, were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

The components of lease expense for the three and nine months ended September 30, 2024 and 2023, were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

Supplemental cash flow information related to the Company's operating leases is as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Supplemental balance sheet information related to the Company’s operating leases is as follows:

September 30,

(in thousands)

June 30, 2024

December 31, 2023

Operating lease right-of-use assets

4 unchanged sentences

Weighted average discount rate

Future minimum lease payments for operating leases, with initial terms in excess of one year at June 30, 2024, are as follows:

Future minimum lease payments for operating leases, with initial terms in excess of one year at September 30, 2024, are as follows:

(in thousands)

4 unchanged sentences

Long-Term Debt

As of June 30, 2024 and December 31, 2023, the Company’s borrowings were as follows:

As of September 30, 2024 and December 31, 2023, the Company’s long-term debt was as follows:

(in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

6 unchanged sentences

The Company maintains a Credit Agreement (as amended, the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and First Citizens Bank & Trust Company (together, the “Lenders”).

The Credit Agreement provides for a term loan of $ 40.0 million and a $ 25.0 million senior revolving credit facility (including a $ 10.0 million sub-facility for the issuance of letters of credit and a $ 10.0 million swingline loan sub facility) (collectively, the “Credit Facility”).

The Credit Agreement provides for a term loan of $ 40.0 million and a $ 25.0 million revolving credit facility (including a $ 10.0 million sub-facility for the issuance of letters of credit and a $ 10.0 million swingline loan sub facility) (collectively, the “Credit Facility”).

The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc., including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries.

The Company’s obligations under the Credit Agreement are guaranteed by certain of the Company’s direct, domestic wholly-owned subsidiaries; none of the Company’s direct or indirect foreign subsidiaries has guaranteed the Credit Facility.

The Company’s obligations under the Credit Agreement are secured by substantially all of the assets of Harvard Bioscience, Inc., and each guarantor (including all or a portion of the equity interests in certain of the Company’s domestic and foreign subsidiaries).

Issuance costs of $ 1.6 million are amortized over the contractual term to maturity date on a straight-line basis, which approximates the effective interest method.

Available and unused borrowing capacity under the revolving line of credit was $ 5.4 million as of June 30, 2024, based on the Credit Agreement, as amended on August 6, 2024 (the “August 2024 Amendment”), as described below.

Total revolver borrowing capacity is limited by the consolidated net leverage ratio as defined under the amended Credit Agreement.

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “SOFR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”).

SOFR interest under the Credit Agreement is subject to applicable market rates and a floor of 0.50 %.

As of the date of this report, the Company is unable to make additional borrowings under its revolving credit facility and will be unable to make any such borrowings until it delivers to the lenders its financial statements for the year ending December 31, 2024, due to net leverage ratio requirements set forth in the August 6, 2024 amendment to the Credit Agreement (the “August 2024 Amendment”), as described below.

Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement (a “SOFR Loan”), subject to a floor of 0.50 %, or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”).

The alternative base rate is based on the Citizens Bank prime rate or the federal funds effective rate of the Federal Reserve Bank of New York and is subject to a floor of 1.0 %.

Pursuant to the August 2024 Amendment, the applicable interest rate margin varies from 2.0 % per annum to 3.75 % per annum for SOFR Loans, and from 1.5 % per annum to 3.5 % per annum for ABR Loans, in each case depending on the Company’s consolidated net leverage ratio, and is determined in accordance with a pricing grid set forth in the Credit Agreement.

There are no prepayment penalties in the event the Company elects to prepay and terminate the Credit Facility prior to its scheduled maturity date, subject to SOFR Loan breakage and redeployment costs in certain circumstances.

The effective interest rate on the Company borrowings for the three months ended June 30, 2024 and 2023, was 7.9 % and 8.3 %, respectively, and for the six months ended June 30, 2024 and 2023, was 7.8 % and 8.1 %, respectively.

The weighted average interest rate as of June 30, 2024, net of the effect of the Company’s interest rate swaps, was 7.7 %.

The effective interest rate on the Company’s borrowings for the three months ended September 30, 2024 and 2023, was 8.7 % and 8.3 %, respectively, and for the nine months ended September 30, 2024 and 2023, was 8.1 % and 8.2 %, respectively.

The weighted average interest rate as of September 30, 2024, net of the effect of the Company’s interest rate swap agreement, was 8.6 %.

The carrying value of the debt approximates fair value because the interest rate under the obligation approximates market rates of interest available to the Company for similar instruments.

As of June 30, 2024, the term loan requires quarterly installment payments of $ 1.0 million with a balloon payment at maturity on December 22, 2025.

As of September 30, 2024, the term loan requires quarterly installment payments of $ 1.0 million with a balloon payment at maturity on December 22, 2025.

Furthermore, within ninety days after the end of the Company’s fiscal year, the term loan may be permanently reduced pursuant to certain mandatory prepayment events including an annual “excess cash flow sweep”, as defined in the Credit Agreement, provided that, in any fiscal year, any voluntary prepayments of the term loan shall be credited against the Company’s “excess cash flow” prepayment obligations on a dollar-for-dollar basis for such fiscal year.

1 unchanged sentence

Amounts outstanding under the revolving credit facility can be repaid at any time but are due in full at maturity.

The Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company.

The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on its capital stock.

The Credit Agreement includes various customary financial covenants and other affirmative and negative covenants binding on the Company.

The negative covenants limit the ability of the Company, among other things, to incur debt, permit liens, make investments, sell assets, or pay dividends on its capital stock.

The financial covenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio.

The Credit Agreement also includes customary events of default.

In March 2024, the Company entered into an amendment to the Credit Agreement pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to an abandoned property audit (see Note 13) and commission fees expected to be paid in connection with the ERC filings (see Note 5).

On August 6, 2024, the Company entered into an amendment to the Credit Agreement that, among other things, modifies the financial covenants relating to the consolidated net leverage ratio and consolidated fixed charge coverage ratio through the period ended December 31, 2024.

The amendment also adds a net leverage ratio requirement with respect to additional borrowing under the Company’s revolving credit facility and restrictions on certain additional indebtedness and investments, in each case until the Company delivers to the Lenders the Company’s financial statements for the fiscal year ending December 31, 2024.

In addition, until delivery of the financial statements, the applicable interest rate margin will be increased by 50 bps during such time as the Company’s consolidated net leverage ratio is greater than 3.0 .

In August 2024, the Company entered into an amendment to the Credit Agreement that, among other things, modified the financial covenants relating to the consolidated net leverage ratio and consolidated fixed charge coverage ratio through the period ended December 31, 2024.

The amendment also added a net leverage ratio requirement with respect to additional borrowing under the Company’s revolving credit facility and restrictions on certain additional indebtedness and investments, in each case until the Company delivers to the Lenders the Company’s financial statements for the fiscal year ending December 31, 2024.

In addition, until delivery of such financial statements, the applicable interest rate margin is increased by 50 bps during such time as the Company’s consolidated net leverage ratio is greater than 3.0 .

The Company paid fees of $ 0.2 million to the Lenders in connection with the amendment.

As a result of the August 2024 Amendment, the Company is in compliance with the financial covenants of the Credit Agreement.

As of September 30, 2024, the Company was in compliance with the financial covenants of the Credit Agreement.

In February 2023, the Company entered into an interest rate swap contract to improve the predictability of cash flows from interest payments related to its variable, SOFR-based debt.

The swap contract had a notional amount of $24.5 million as of June 30, 2024 and matures on December 22, 2025.

The swap contract had a notional amount of $ 23.1 million as of September 30, 2024 and matures on December 22, 2025.

This swap contract effectively converts the SOFR-based variable portion of the interest payable under the Credit Agreement into fixed-rate debt at an annual rate of 4.75 %.

2 unchanged sentences

An assessment is performed quarterly to evaluate the ongoing hedge effectiveness.

The following table presents the notional amount and fair value of the Company’s derivative instruments as of June 30, 2024 and December 31, 2023:

The following table presents the notional amount and fair value of the Company’s derivative instruments as of September 30, 2024 and December 31, 2023:

(in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

6 unchanged sentences

Interest rate swap

Other long-term assets (liabilities)

Other long-term liabilities

(a) See Note 10 for the fair value measurements related to these financial instruments.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Derivatives Qualifying as Hedges, net of tax (in thousands)

June 30, 2024

June 30, 2023

June 30, 2024

June 30, 2023

Gain recognized in OCI on derivatives (effective portion)

September 30, 2024

September 30, 2023

September 30, 2024

September 30, 2023

(Loss) gain recognized in OCI on derivatives (effective portion)

Gain reclassified from accumulated OCI to interest expense

1 unchanged sentence

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:

Fair Value as of June 30, 2024

Fair Value as of September 30, 2024

Assets (Liabilities) (in thousands)

5 unchanged sentences

The Company’s financial assets and liabilities carried at fair value include, when applicable, investments in common stock and derivative instruments used to hedge the Company’s interest rate risks.

The fair value of the Company’s investment in HRGN common stock (see Note 6) was based on the closing price per the OTCQB Marketplace at the reporting date.

The fair value of the Company’s interest rate swap agreement was based on SOFR yield curves at the reporting date.

The fair value of the Company’s investment in HRGN common stock (see Note 6) was based on the closing price per the OTCQB Marketplace at the reporting date.

Stock-Based Compensation

Stock-based compensation expense for the three and six months ended June 30, 2024 and 2023 was allocated as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023 was allocated as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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Research and development expenses

Total stock-based compensation expense

As of June 30, 2024, the total compensation costs related to unvested awards not yet recognized was $ 7.8 million and the weighted average period over which it is expected to be recognized is approximately 2.0 years.

Total stock-based compensation

As of September 30, 2024, the total compensation costs related to unvested awards not yet recognized was $ 5.7 million and the weighted average period over which it is expected to be recognized is approximately 1.8 years.

The Company did not capitalize any stock-based compensation.

Restricted stock unit (“RSU”) activity for the six months ended June 30, 2024 was as follows:

Restricted stock unit (“RSU”) activity for the nine months ended September 30, 2024 was as follows:

Balance at December 31, 2023

Balance at June 30, 2024

Balance at September 30, 2024

Unvested shares related to market-based and performance-based vesting conditions are reflected at 100 % of their target vesting amount in the table above.

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If the estimated number of shares to be earned is revised in the future, then stock-based compensation expense will be adjusted accordingly.

Stock option activity for the six months ended June 30, 2024 was as follows:

Number of Options

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Term

Aggregate Intrinsic Value (in thousands)

Stock option activity for the nine months ended September 30, 2024 was as follows:

Contractual Term

Intrinsic Value

(in thousands)

Outstanding and exercisable at December 31, 2023

Cancelled/Forfeited

Outstanding and exercisable at June 30, 2024

Outstanding and exercisable at September 30, 2024

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $ 2.69 as of the last trading day of the reporting period, which would have been received by the option holders had all option holders exercised their options as of that date.

The aggregate intrinsic value of options exercised during the six months ended June 30, 2024, was not significant.

The aggregate intrinsic value of options exercised during the nine months ended September 30, 2024, was not significant.

The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the year.

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As such, there can be significant volatility in interim tax provisions.

The income tax benefit was $ 0.4 million and $ 1.1 million for the three months ended June 30, 2024 and 2023, respectively, and was $ 0.1 million and $ 0.5 million for the six months ended June 30, 2024 and 2023, respectively.

The Company’s effective tax rates of 10.8 % and 1.8 % for the three and six months ended June 30, 2024, respectively, were lower than the U.S.

Income tax expense was $ 0.3 million and $ 0.7 million for the three months ended September 30, 2024 and 2023, respectively, and was $ 0.2 million and $ 0.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company’s effective tax rates of ( 6.9 )% and ( 1.4 )% for the three and nine months ended September 30, 2024, respectively, were different than the U.S.

statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets.

The Company’s effective tax rates of 53.3 % and 59.8 % for the three and six months ended June 30, 2023 were higher than the U.S.

statutory rate primarily due to a Global Intangible Low-Taxed Income (“GILTI”) inclusion to taxable income and changes in valuation allowances.

The Company has valuation allowances against substantially all of its tax credit carryforwards.

The Company’s effective tax rates of ( 120.5 )% and ( 9.9 )% for the three and nine months ended September 30, 2023, respectively, were different than the U.S.

statutory rate primarily due to the mix of forecasted income or losses in the U.S.

and foreign tax jurisdictions and a Global Intangible Low-Taxed Income (“GILTI”) inclusion to taxable income.

The effective tax rates in both the three and nine months ended September 30, 2023, were also impacted by changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets.

Commitments and Contingent Liabilities

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It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement.

The Company has not recorded any liability for costs related to contingent indemnification obligations as of June 30, 2024.

The Company has not recorded any liability for costs related to contingent indemnification obligations as of September 30, 2024.

The Company is subject to unclaimed property laws in the ordinary course of its business.

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Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself.

The Company recorded a credit of $( 0.1 ) million and an expense of $ 0.3 million during the three and six months ended June 30, 2024, respectively, related to unclaimed property audits which have been included in other operating expenses in the consolidated statement of operations.

The Company recorded an expense of $ 0.3 million during the nine months ended September 30, 2024 related to unclaimed property audits which have been included in other operating expenses in the consolidated statement of operations.

Product Line Disposition

In February 2023, the Company sold its Hoefer product line for $ 0.5 million.

The carrying value of assets sold was $ 0.1 million resulting in a gain on disposition of $ 0.4 million which was recorded in other income, net in the consolidated statement of operations for the six months ended June 30, 2023.

Revenue and gross profit of this disposed product line included in the condensed consolidated statement of operations for the six months ended June 30, 2023 were not significant.

The carrying value of assets sold was $ 0.1 million resulting in a gain on disposition of $ 0.4 million which was recorded in other income (expense), net in the consolidated statement of operations for the nine months ended September 30, 2023.

Revenues and gross profit of this disposed product line included in the condensed consolidated statement of operations for the nine months ended September 30, 2023 were not significant.

Restructuring and Other Exit Costs

On an ongoing basis, the Company reviews the global economy, the healthcare industry, and the markets in which it competes to identify operational efficiencies, enhance commercial capabilities and align its cost base and infrastructure with customer needs and its strategic plans.

On an ongoing basis, the Company reviews the global economy, the life sciences industry, and the markets in which it competes to identify operational efficiencies, enhance commercial capabilities and align its cost base and infrastructure with customer needs and its strategic plans.

In order to realize these opportunities, the Company undertakes activities from time to time to transform its business.

A portion of these transformation activities are considered restructuring costs under ASC 420, Exit or Disposal Cost Obligations , and are discussed below.

During the three and six months ended June 30, 2024, the Company completed a restructuring and incurred expenses of $ 0.4 million, primarily consisting of severance incurred in connection with headcount reductions in Europe and North America.

The changes in the accrued liability for restructuring and other charges for the six months ended June 30, 2024 were as follows:

During the nine months ended September 30, 2024, the Company completed restructurings and incurred expenses of $ 0.6 million, primarily consisting of severance incurred in connection with headcount reductions in Europe and North America.

The changes in the accrued liability for restructuring and other charges for the nine months ended September 30, 2024 were as follows:

(in thousands)

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Cash payments

Balance at June 30, 2024

Balance at September 30, 2024

The inventory-related costs are included in cost of revenues and the severance costs have been included as a component of other operating expenses (see Note 1).

Subsequent Event

On August 6, 2024, the Company entered into the August 2024 Amendment to the Credit Agreement as described in Note 8 – Long-Term Debt.

Defined Benefit Plan Settlement

During the three months ended September 30, 2024, the Company terminated its obligations under a defined benefit plan that was maintained by its subsidiary in the United Kingdom.

This plan had been closed to new employees, as well as closed to the future accrual of benefits for existing employees since 2014 and represented approximately 11 % percent of the Company's total pension liabilities as of December 31, 2023.

The Company used $ 2.3 million of plan assets to purchase non-participating annuity contracts resulting in the full settlement of the benefit obligations.

The Company recorded a non-cash charge of $ 1.2 million, including the immediate recognition of the portion of the accumulated OCI balances related to this plan.

This charge has been presented as a component of other income (expense), net, for the three and nine months ended September 30, 2024.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.

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Trends and Developments

Our business is affected by global and regional economic trends and uncertainties.

The global economy has recently experienced increasing uncertainty as a result of developments including inflationary pressure, higher interest rates, fluctuations in exchange rates, economic conditions in China, and the events in Ukraine and the Middle East.

Our business, results of operations, and cash flows have been impacted by macroeconomic trends affecting the life sciences industry and the global economy.

These trends include inflationary and interest rate pressures, fluctuations in exchange rates, economic conditions in China, and the events in Ukraine and the Middle East.

Our business has also been affected by the softening of certain international markets, especially in China and the Asia-Pacific region, as well as by delays in government funding for certain customers.

Our business has been affected by a reduced demand from our biotechnology and pharmaceutical company customers, due principally to the increased cost of capital and a reduction in spending following the COVID-19 pandemic.

If these trends are prolonged or are more severe, or if the recovery is less robust or takes longer than anticipated, our business, results of operations, and cash flow may be materially impacted.

Our business has also been affected by reduced demand from our biotechnology and pharmaceutical company customers, principally due to the increased cost of capital and a reduction in spending following the COVID-19 pandemic.

We expect that any continuation of these trends, or any further delay in market recovery, would continue to impact our business, results of operations, and cash flows.

Selected Results of Operations

Three months ended June 30, 2024, compared to three months ended June 30, 2023

Three Months Ended June 30,

Three months ended September 30, 2024, compared to three months ended September 30, 2023

Three Months Ended September 30,

(dollars in thousands)

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Interest expense

Loss on equity securities

Income tax benefit

Revenues decreased $5.7 million, or 19.7%, to $23.1 million for the three months ended June 30, 2024, compared to $28.8 million for the three months ended June 30, 2023.

The decrease in revenue was primarily due to softening of worldwide demand compared to a strong second quarter in 2023 as well as decreased sales of preclinical products from contract research organizations (CRO’s).

Gross profit decreased $3.5 million, or 20.7%, to $13.2 million for the three months ended June 30, 2024, compared with $16.7 million for the three months ended June 30, 2023, primarily due to the decrease in revenues.

Gross margin decreased to 57.2% for the three months ended June 30, 2024, compared with 58.0% for the three months ended June 30, 2023.

The decrease in gross margin was primarily the result of under-absorption of fixed manufacturing overhead costs due to the decrease in revenues and lower mix of high margin products.

Loss on pension settlement

Gain on equity securities

Income tax expense

Revenues decreased $3.4 million, or 13.4%, to $22.0 million for the three months ended September 30, 2024, compared to $25.4 million for the three months ended September 30, 2023.

The decrease in revenues was primarily due to continued softening of worldwide demand primarily from CRO’s and academic medical research institutions.

Gross profit decreased $1.9 million, or 13.3%, to $12.8 million for the three months ended September 30, 2024, compared with $14.7 million for the three months ended September 30, 2023, primarily due to the decrease in revenues.

Gross margin was 58.1% for both the three months ended September 30, 2024, and September 30, 2023.

Gross margin was unfavorably impacted by the under-absorption of fixed manufacturing overhead costs due to the decrease in revenues which was offset by a better mix of high margin products and lower labor costs.

Sales and marketing expenses

Sales and marketing expenses decreased $0.8 million, or 12.7%, to $5.4 million for the three months ended June 30, 2024, compared with $6.2 million for the three months ended June 30, 2023.

The decrease was primarily due to lower compensation and travel costs.

Sales and marketing expenses decreased $0.2 million, or 3.7%, to $5.5 million for the three months ended September 30, 2024, compared with $5.7 million for the three months ended September 30, 2023.

General and administrative expenses

General and administrative expenses increased $0.3 million, or 6.2%, to $5.7 million for the three months ended June 30, 2024, compared with $5.4 million for the three months ended June 30, 2023.

The increase was primarily due to higher stock-based compensation expense as a result of forfeitures during the prior year period.

General and administrative expenses decreased $0.8 million, or 13.2%, to $5.0 million for the three months ended September 30, 2024, compared with $5.8 million for the three months ended September 30, 2023.

The decrease was primarily due to lower compensation costs and increased capitalization of costs for internal-use software.

Research and development expenses

Research and development expenses decreased $0.4 million, or 11.2%, to $2.6 million for the three months ended June 30, 2024, compared with $3.0 million for the three months ended June 30, 2023.

The decrease was primarily due to lower compensation costs.

Research and development expenses remained relatively unchanged and decreased $0.2 million, or 7.0%, to $2.6 million for the three months ended September 30, 2024, compared with $2.8 million for the three months ended September 30, 2023.

Amortization of intangible assets

Amortization of intangible assets included in operating expenses was $1.3 million for the three months ended June 30, 2024, compared with $1.4 million for the three months ended June 30, 2023.

Amortization of intangible assets included in operating expenses was $1.3 million for the three months ended September 30, 2024, compared with $1.4 million for the three months ended September 30, 2023.

Other operating expenses

Other operating expenses for the three months ended June 30, 2024 was $0.2 million and included $0.4 million of restructuring costs in connection with headcount reductions in Europe and North America, which was partially offset by a credit of $0.1 million related to closure of an unclaimed property audit.

Other operating expenses for the three months ended September 30, 2024 were $0.2 million and included restructuring costs in connection with headcount reductions in North America and Europe.

Interest expense

Interest expense decreased $0.2 million, or 20.4%, to $0.7 million for the three months ended June 30, 2024, compared with $0.9 million for the three months ended June 30, 2023.

The decrease was primarily due to lower average borrowings during the period.

Loss on equity securities

As of March 31, 2024, we held shares of common stock of HRGN with an estimated fair value of $1.7 million.

These shares were received in April 2023 in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022.

During the three months ended June 30, 2024, we sold all of our remaining HRGN shares for $1.4 million and recorded a loss of $0.3 million.

Income tax benefit

The income tax benefit was $0.4 million and $1.1 million for the three months ended June 30, 2024 and 2023, respectively.

The effective tax rates for the three months ended June 30, 2024 and 2023 were 10.8% and 53.3%, respectively.

The lower effective tax rate during the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was related to a decrease in the Global Intangible Low Tax Income (“GILTI”) inclusion.

The effective tax rate for both the second quarters of 2024 and 2023 differed from the U.S.

statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with our assessment of the likelihood of the recoverability of deferred tax assets.

Six months ended June 30, 2024, compared to six months ended June 30, 2023

Six Months Ended June 30,

Interest expense was $0.9 million for both the three months ended September 30, 2024 and September 30, 2023.

During the three months ended September 30, 2024, lower average borrowings were offset by increased interest rates under our Credit Facility.

Loss on pension settlement

During the three months ended September 30, 2024, we settled our obligations under one of our defined benefit plans by using plan assets to purchase non-participating annuity contracts.

The settlement resulted in the recognition of a non-cash charge of $1.2 million, which has been presented as a component of other income (expense), net.

This amount includes the immediate recognition of the portion of the accumulated other comprehensive income (“AOCI”) balance related to this plan.

Gain on equity securities

During the three months ended September 30, 2023 we recorded an unrealized gain of $1.2 million related to shares of common stock of Harvard Apparatus Regenerative Technology Inc.

These shares were received in connection with settlement of indemnification obligations related to litigation and were all sold during the six months ended June 30, 2024.

Income tax expense (benefit)

The income tax expense was $0.3 million and $0.7 million for the three months ended September 30, 2024 and 2023, respectively.

The effective tax rates for the three months ended September 30, 2024 and 2023 were (6.9)% and (120.5)%, respectively.

The higher effective tax rate during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was related to a change in the mix of forecasted income and losses in the U.S.

and foreign tax jurisdictions.

The Company’s effective tax rate for the three months ended September 30, 2024, was different than the U.S.

The Company’s effective tax rate for the three months ended September 30, 2023, was different than the U.S.

statutory rate primarily due to the mix of forecasted income or losses in the U.S.

and foreign tax jurisdictions and a Global Intangible Low-Taxed Income (“GILTI”) inclusion to taxable income.

The effective tax rate for the three months ended September 30, 2023, was also impacted by changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets.

Nine months ended September 30, 2024, compared to nine months ended September 30, 2023

Nine Months Ended September 30,

(dollars in thousands)

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Interest expense

Loss on pension settlement

Loss on equity securities

Income tax benefit

Revenues decreased $11.1 million, or 18.9%, to $47.6 million for the six months ended June 30, 2024, compared to $58.7 million for the six months ended June 30, 2023.

The decrease in revenue was primarily due to softening worldwide demand compared to a strong first half in 2023 as well as decreased sales of preclinical products from CRO’s.

Gross profit decreased $7.0 million, or 20.1%, to $28.0 million for the six months ended June 30, 2024 compared with $35.0 million for the six months ended June 30, 2023, primarily due to the decrease in revenues.

Gross margin decreased to 58.8% for the six months ended June 30, 2024, compared with 59.6% for the six months ended June 30, 2023.

The decrease in gross margin was primarily the result of under-absorption of manufacturing overhead costs due to the decrease in revenues.

Income tax expense

Revenues decreased $14.5 million, or 17.3%, to $69.6 million for the nine months ended September 30, 2024, compared to $84.1 million for the nine months ended September 30, 2023.

The decrease in revenues was primarily due to continued softening of worldwide demand primarily from distributors, CRO’s and academic medical research institutions.

Gross profit decreased $8.9 million, or 18.1%, to $40.8 million for the nine months ended September 30, 2024 compared with $49.7 million for the nine months ended September 30, 2023, primarily due to the decrease in revenues.

Gross margin decreased to 58.6% for the nine months ended September 30, 2024, compared with 59.2% for the nine months ended September 30, 2023.

Gross margin was unfavorably impacted by a lower mix of high margin products and the under-absorption of fixed manufacturing overhead costs due to the decrease in revenues, which was partially offset by lower labor costs.

Sales and marketing expenses

Sales and marketing expenses decreased $0.9 million, or 7.1%, to $11.3 million for the six months ended June 30, 2024, compared with $12.2 million for the six months ended June 30, 2023.

Sales and marketing expenses decreased $1.1 million, or 6.0%, to $16.8 million for the nine months ended September 30, 2024, compared with $17.9 million for the nine months ended September 30, 2023.

The decrease was primarily due to lower compensation and travel costs.

General and administrative expenses

General and administrative expenses remained relatively unchanged and were $11.6 million for the six months ended June 30, 2024, compared with $11.7 million for the six months ended June 30, 2023.

Decreases in compensation during the period were partially offset by increases in professional fees.

General and administrative expenses decreased $0.8 million, or 4.6%, to $16.7 million for the nine months ended September 30, 2024, compared with $17.5 million for the nine months ended September 30, 2023.

The decrease was primarily due to lower compensation costs and increased capitalization of costs for internal-use software.

Research and development expenses

Research and development expenses decreased $0.4 million, or 5.9%, to $5.5 million for the six months ended June 30, 2024, compared with $5.9 million for the six months ended June 30, 2023.

The decrease was primarily due to lower compensation costs.

Research and development expenses decreased $0.5 million, or 6.2%, to $8.1 million for the nine months ended September 30, 2024, compared with $8.6 million for the nine months ended September 30, 2023.

The decrease was primarily due to lower compensation costs and higher capitalized software development costs.

Amortization of intangible assets

Amortization of intangible assets included in operating expenses remained relatively unchanged and were $2.7 million for the six months ended June 30, 2024, compared with $2.8 million for the six months ended June 30, 2023.

Amortization of intangible assets included in operating expenses remained relatively unchanged and was $4.0 million for the nine months ended September 30, 2024, compared with $4.1 million for the nine months ended September 30, 2023.

Other operating expenses

Other operating expenses for the six months ended June 30, 2024, were $1.2 million and included a fee of $0.5 million in connection with the receipt of employee retention credits, $0.3 million related to settlement of an unclaimed property audit, and restructuring costs of $0.4 million in connection with headcount reductions in Europe and North America.

Other operating expenses for the nine months ended September 30, 2024, were $1.4 million and included restructuring costs of $0.6 million in connection with headcount reductions, a fee of $0.5 million in connection with the receipt of employee retention tax credits, and $0.3 million related to settlement of an unclaimed property audit.

Interest expense

Interest expense decreased $0.4 million, or 21.7%, to $1.5 million for the six months ended June 30, 2024, compared with $1.9 million for the six months ended June 30, 2023.

Interest expense decreased $0.4 million, or 15.8%, to $2.4 million for the nine months ended September 30, 2024, compared with $2.8 million for the nine months ended September 30, 2023.

The decrease was primarily due to lower average borrowings during the period.

Loss on pension settlement

During the nine months ended September 30, 2024, we settled our obligations under one of our defined benefit plans by using plan assets to purchase non-participating annuity contracts.

The settlement resulted in the recognition of a non-cash charge of $1.2 million which has been presented as a component of other income (expense), net.

This amount included the immediate recognition of the portion of the AOCI balances related to this plan.

Loss on equity securities

As of December 31, 2023, we held shares of common stock of HRGN with an estimated fair value of $3.5 million.

These shares were received in April 2023 in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022.

During the six months ended June 30, 2024, we sold all of our remaining HRGN shares for $1.9 million and recorded a loss of $1.6 million.

These shares were received in connection with settlement of indemnification obligations related to litigation which was resolved during the year ended December 31, 2022.

During the nine months ended September 30, 2024, we sold all of our HRGN shares for $1.9 million and recorded a loss on sale of $1.6 million.

During the nine months ended September 30, 2023, we recorded unrealized losses $0.4 million related to these shares.

Income tax benefit

The income tax benefit was $0.1 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively.

The effective tax rates for the six months ended June 30, 2024 and 2023 were 1.8% and 59.8%, respectively.

The lower effective tax rate during the six months ended June 30, 2024, compared to the six months ended June 30, 2023 related to a decrease in the GILTI inclusion and changes to reserves for uncertain tax positions.

The effective tax rate for both the second quarters of 2024 and 2023 differed from the U.S.

The income tax expense was $0.2 million and $0.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The effective tax rates for the nine months ended September 30, 2024 and 2023 were (1.4)% and (9.9)%, respectively.

The higher effective tax rate during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was related to a change in the mix of forecasted income and losses in the U.S.

and foreign tax jurisdictions and changes to uncertain tax positions.

The Company’s effective tax rate for the nine months ended September 30, 2024, was different than the U.S.

The Company’s effective tax rate for the nine months ended September 30, 2023, was different than the U.S.

statutory rate primarily due to the mix of forecasted income or losses in the U.S.

and foreign tax jurisdictions and a GILTI inclusion to taxable income.

The effective tax rate for the nine months ended September 30, 2023, was also impacted by changes in valuation allowances associated with the Company’s assessment of the likelihood of the recoverability of deferred tax assets.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations and our revolving credit facility.

Our expected cash outlays relate primarily to cash payments due under our Credit Agreement described below as well salaries, inventory, and capital expenditures.

We held cash and cash equivalents of $4.0 million and $4.3 million as of June 30, 2024 and December 31, 2023, respectively.

Borrowings outstanding were $36.1 million and $37.1 million as of June 30, 2024 and December 31, 2023, respectively.

We maintain a Credit Agreement which provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility both maturing on December 22, 2025.

On March 28, 2024, we entered into an amendment to the Credit Agreement pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to the ongoing abandoned property audit and commission fees expected to be paid in connection with our employee retention credit filings.

On August 6, 2024, we entered into an amendment to the Credit Agreement that, among other things, modifies the financial covenants relating to the consolidated net leverage ratio and consolidated fixed charge coverage ratio through the period ended December 31, 2024.

The amendment also adds a net leverage ratio requirement with respect to additional borrowing under our revolving credit facility and restrictions on certain additional indebtedness and investments, in each case until we deliver to the Lenders our financial statements for the fiscal year ending December 31, 2024.

In addition, until delivery of the financial statements, the applicable interest rate margin will be increased by 50bps during such time as the consolidated net leverage ratio is greater than 3.0.

Our expected cash outlays relate primarily to cash payments due under our Credit Agreement described below as well as salaries, inventory, and capital expenditures.

We held cash and cash equivalents of $4.6 million and $4.3 million as of September 30, 2024 and December 31, 2023, respectively.

Borrowings outstanding were $38.3 million and $37.1 million as of September 30, 2024 and December 31, 2023, respectively.

We maintain a Credit Agreement that provides for a term loan of $40.0 million and a $25.0 million revolving credit facility both maturing on December 22, 2025.

On March 28, 2024, we entered into an amendment to the Credit Agreement pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to an abandoned property audit and commission fees in connection with our employee retention tax credit filings.

On August 6, 2024, we entered into an amendment to the Credit Agreement that, among other things, modified the financial covenants relating to the consolidated net leverage ratio and consolidated fixed charge coverage ratio through the period ended December 31, 2024.

The amendment also added a net leverage ratio requirement with respect to additional borrowing under our revolving credit facility and restrictions on certain additional indebtedness and investments, which remains in effect until we deliver to the Lenders our financial statements for the fiscal year ending December 31, 2024.

In addition, until delivery of such financial statements, the applicable interest rate margin is increased by 50bps during such time as the consolidated net leverage ratio is greater than 3.0.

We paid fees of $0.2 million to the Lenders in connection with the amendment.

As a result of the August 2024 Amendment, we are in compliance with the financial covenants of the Credit Agreement (see Note 8 to the Consolidated Condensed Financial Statements included in Part I, Item 1.

As of September 30, 2024, we were in compliance with the financial covenants of the Credit Agreement (see Note 8 to the Consolidated Condensed Financial Statements included in Part I, Item 1.

of this report).

As of June 30, 2024, the weighted average interest rate on our borrowings, net of the effect of the interest rate swaps, was 7.7%, and the available and unused borrowing capacity was $5.4 million.

Total revolver borrowing capacity is limited by our consolidated net leverage ratio as defined under the Credit Agreement, as amended on August 6, 2024.

Based on our current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations and capital expenditures for at least the next 12 months.

This assessment includes consideration of our best estimates of the impact of macroeconomic conditions on our financial results described above.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors.

As of September 30, 2024, the weighted average interest rate on our borrowings, net of the effect of the interest rate swap, was 8.6%.

Total revolver borrowing capacity is limited by our consolidated net leverage ratio as defined under the Credit Agreement.

As of September 30, 2024, there was no available and unused borrowing capacity under our revolving line of credit, as amended on August 6, 2024 (see Note 8 to the Consolidated Condensed Financial Statements included in Part I, Item 1.

of this report).

Primarily due to a decline in revenues, we experienced a net cash outflow from operations during the nine months ended September 30, 2024.

We have substantial debt and other financial obligations.

Any failure to meet these obligations or maintain compliance with the debt covenants contained in our Credit Agreement could have a material adverse effect on our business, financial condition and results of operations.

As of the date of this report, we are unable to make additional borrowings under our revolving credit facility and will be unable to make any such borrowings until we deliver to the lenders our financial statements for the year ending December 31, 2024, due to net leverage ratio requirements set forth in the August 2024 Amendment.

We continue to take actions intended to improve liquidity, including actions related to cost containment and inventory reduction.

Based on our current operating plans, we expect that our available cash and cash generated from operations will be sufficient to finance operations and capital expenditures and service our debt for at least the next 12 months.

Our ongoing cash flows and ability to meet our debt covenants are dependent on our revenues and operating performance.

If we are unable to successfully carry out our operating plans or increase our revenues, our ability to maintain compliance with our debt covenants could be adversely affected.

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Cash provided by operating activities

Cash provided by (used in) investing activities

Cash used in financing activities

Cash (used in) provided by operating activities

Cash used in investing activities

Cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Decrease in cash and cash equivalents

Cash provided by operating activities was $0.6 million and $5.4 million for the six months ended June 30, 2024 and 2023, respectively.

Cash flow from operations for the six months ended June 31, 2024 was negatively impacted as a result of the decline in net income for the period adjusted for non-cash items and was positively impacted by the receipt of $3.2 million of employee retention credits.

Cash provided by investing activities was $0.2 million for the six months ended June 30, 2024, and consisted of $1.9 million in proceeds from the sale of marketable equity securities, offset by $1.7 million of capital expenditures in manufacturing and information technology infrastructure, and software development.

Cash used in investing activities was $0.3 million for the six months ended June 30, 2023, and consisted of $0.8 million of capital expenditures in manufacturing, information technology infrastructure, and software development, partially offset by $0.5 million from proceeds of the sale our Hoefer product line.

Cash used in financing activities was $0.9 million and $5.3 million for the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024, debt outstanding under our credit facility decreased by $1.0 million, consisting of net borrowings under our revolver of $3.0 million, and payments of $4.0 million against the term loan.

We also received proceeds of $0.2 million from the exercise of stock options and employee stock purchases and paid $0.1 million for taxes related to net share settlement of equity awards.

During the six months ended June 30, 2023, debt outstanding under our credit facility decreased by $5.5 million, consisting of net payments against our revolver of $2.9 million and payments of $2.6 million against the term loan.

During the six months ended June 30, 2023, we also received proceeds of $0.7 million from the exercise of stock options and employee stock purchases and paid $0.5 million for taxes related to net share settlement of equity awards.

Increase in cash and cash equivalents

Cash (used in) provided by operating activities was $(0.3) million and $9.7 million for the nine months ended September 30, 2024 and 2023, respectively.

Cash flow from operations for the nine months ended September 30, 2024 was negatively impacted as a result of the decline in net income for the period adjusted for non-cash items and was positively impacted by the receipt of $3.2 million of employee retention tax credits.

Cash used in investing activities was $0.9 million for the nine months ended September 30, 2024, and consisted of $2.8 million of capital expenditures for manufacturing and information technology infrastructure and software development, offset by $1.9 million in proceeds from the sale of marketable equity securities.

Cash used in investing activities was $0.7 million for the nine months ended September 30, 2023, and consisted of $1.2 million of capital expenditures in manufacturing, information technology infrastructure, and software development, partially offset by $0.5 million from proceeds of the sale of our Hoefer product line.

Cash provided by (used in) financing activities was $1.2 million and $(8.0) million for the nine months ended September 30, 2024 and 2023, respectively.

During the nine months ended September 30, 2024, debt outstanding under our credit facility increased by $1.2 million, due to net borrowings under our revolver of $6.2 million and payments of $5.0 million against the term loan.

During the nine months ended September 30, 2023, debt outstanding under our credit facility decreased by $8.3 million, due to net payments against our revolver of $5.0 million and payments of $3.3 million against the term loan.

Impact of Foreign Currencies

Our international operations in some instances operate in a natural hedge, as we sell our products in many countries and a substantial portion of our revenues, costs and expenses are denominated in foreign currencies, primarily the euro and British pound.

During the three months ended June 30, 2024 changes in foreign currency exchange rates had an insignificant effect on our revenues and expenses.

During the six months ended June 30, 2024, changes in foreign currency exchange rates resulted in an unfavorable effect on our revenue of approximately $0.1 million and a favorable effect on expenses of approximately $0.1 million.

During the three and nine months ended September 30, 2024, changes in foreign currency exchange rates had an insignificant effect on our revenues and expenses.

The gain (loss) associated with the translation of our foreign equity into U.S.

dollars included as a component of other comprehensive income (loss) was $(0.1) million and $0.2 million for the three months ended June 30, 2024 and June 30, 2023, respectively, and $(0.9) million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

Currency exchange rate fluctuations included as a component of net loss resulted in currency losses of $(0.1) million for both the three months ended June 30, 2024 and 2023, respectively, and $(0.1) million for both the six months ended June 30, 2024 and 2023, respectively.

dollars included as a component of other comprehensive loss was $1.6 million and $(1.3) million for the three months ended September 30, 2024 and 2023, respectively, and $0.7 million and $(0.4) million for the nine months ended September 30, 2024 and 2023, respectively.

Currency exchange rate fluctuations included as a component of net loss resulted in losses of $(0.4) million and gains of $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and losses of $(0.5) million and gains of $0.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Critical Accounting Policies

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What changed 10-Q

Item 1. Financial Statements