STANDARD BIOTOOLS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of Standard BioTools Inc. MD&A is provided as a supplement to, and should be read together with, our condensed consolidated financial statements and the notes to those statements included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the section titled “Risk Factors” and this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Forward-looking statements include information concerning our possible or assumed future cash flow, revenue, sources of revenue and results of operations, cost of product revenue and product margin, operating and other income and expenses, unit sales and the selling prices of our products, business strategies and strategic priorities, changes in commercial and strategic focus, restructuring plan, reduction-in-force and real estate footprint reduction plans, microfluidics research and development and marketing investment reduction plans, other cost reduction initiatives, portfolio rationalization initiatives, operating discipline improvement plans, implementation of Standard BioTools Business Systems, expected costs and cost savings associated with such plans and initiatives, future product offerings, financing plans, capital allocation plans, expansion of our business, merger and acquisition opportunities, competitive position, industry environment, potential growth opportunities and drivers, market growth expectations, and the effects of competition and public health crises on our business, the global supply chain, and our customers, suppliers, and other business partners. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. We discuss these risks in greater detail in Part II, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC). Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. You should read this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Standard BioTools, the Standard BioTools logo, Fluidigm®, the Fluidigm logo, 48.Atlas™, Access Array™, Advanta™, Advanta EASE™, Atlas™, Biomark™, “Bringing new insights to life”™, C1™, Callisto™, Cell-ID™, CyTOF®, CyTOF XT™, the CyTOF XT logo, D3™, Delta Gene™, Direct™, Digital Array™, Dynamic Array™, EP1™, EQ™, FC1™, Flex Six™, Flow Conductor™, FluiDesign™, Helios™, High-Precision 96.96 Genotyping™, HTI™, Hyperion™, Hyperion+™, IMC™, Imaging Mass Cytometry™, Immune Profiling Assay™, Juno™, Maxpar®, Maxpar® OnDemand™, MCD™, MSL®, Nanoflex™, Open App™, Pathsetter™, Polaris™, qdPCR 37K™, Script Builder™, Script Hub™, Singular™, SNP Trace™, SNP Type™, “Unleashing tools to accelerate breakthroughs in human health”™, X9™ High-Thoughput Genomics System, X9™ Real Time PCR System, and Xgrade™ are trademarks or registered trademarks of Standard BioTools Inc. or its affiliates in the United States and/or other countries. Other service marks, trademarks and trade names referred to in this Form 10-Q are the property of their respective owners. ___________________________ Unless the context requires otherwise, references in this Form 10-Q to “Standard BioTools” the “Company,” “we,” “us,” and “our” refer to Standard BioTools Inc. and its subsidiaries. Our MD&A is organized in the following sections: • Overview • Recent Developments • Results of Operations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates • Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements 26 Overview Standard BioTools Inc. is driven by a bold purpose – unleashing tools to accelerate breakthroughs in human health. We have an established portfolio of essential, standardized next-generation high resolution technologies that help biomedical researchers develop medicines faster and better. Our tools are designed to provide reliable and repeatable insights in health and disease using our proprietary mass cytometry and microfluidics technologies, which serve applications in proteomics and genomics that help transform scientific discoveries into better patient outcomes. We work with leading academic, government, pharmaceutical, biotechnology, plant and animal research, and clinical laboratories worldwide, focusing on the most pressing needs in translational and clinical research, including oncology, immunology, and immunotherapy. We distribute our systems through our direct sales force and support organizations located in North America, Europe, and Asia-Pacific, and through distributors or sales agents in several European, Latin American, Middle Eastern, and Asia-Pacific countries. Our manufacturing operations are located in Singapore and Canada. Recent Developments Following the Private Placement, our new leadership team identified three strategic priorities: revenue growth, improving operating discipline and strategic capital allocation, as more fully discussed in Part I Item 1 “Business” in our Annual Report on Form 10-K. We took additional actions in the first quarter of 2023 under our strategic initiative to improve operating discipline, including reductions to our headcount in Europe and additional reductions to our real estate footprint in the U.S. On February 28, 2023, we signed an agreement to sublease an additional 25% of our corporate headquarters for a period of 77 months. The agreement resulted in 50% of the space at our headquarters being subleased as of March 31, 2023. We expect to recognize $9.1 million of sublease income over the term of this new agreement, with payments expected to commence on December 1, 2023. Results of Operations The following table presents our condensed consolidated statements of operations and as a percentage of total revenue for the three months ended March 31, 2023 and 2022 ($ in thousands): Three Months Ended March 31, 2023 2022 Revenue $ 25,119 100% $ 26,504 100% Costs and expenses: Cost of product revenue 10,203 41 12,339 47 Cost of service revenue 2,792 11 1,928 7 Research and development 6,409 26 8,865 33 Selling, general and administrative 22,308 89 30,875 117 Total costs and expenses 41,712 167 54,007 204 Loss from operations (16,593) (67) (27,503) (104) Interest expense (1,117) (5) (1,030) (4) Loss on forward sale of Series B Preferred Stock — — (37,792) (143) Loss on Bridge Loans — — (10,655) (40) Other income, net 1,130 4 118 — Loss before income taxes (16,580) (68) (76,862) (290) Income tax benefit (expense) (263) (1) 574 2 Net loss $ (16,843) (69)% $ (76,288) (288)% Strategic Financing and Business Improvement Actions Our operating results include costs related to the strategic financing transaction and the subsequent business improvement actions taken by the new leadership team, including the ongoing rationalization of our product portfolio and the phased restructuring plan announced in August 2022. These items increased our operating loss by $0.6 million and $4.8 million for the three months ended March 31, 2023 and 2022, respectively, as shown below ($ in thousands): 27 Three Months Ended March 31, Year-over-Year Change 2023 2022 Cost of product and service revenue: Restructuring (see Note 14 ) $ 213 $ — NA Research and development: Restructuring (see Note 14 ) (76) — NA Selling, general and administrative: Restructuring and other related costs (see Note 14 ) 220 — NA Strategic financing support 1 — 3,400 (100) % Severance costs 2 — 1,390 (100) % Enterprise resource planning (ERP) upgrade 262 — NA Total selling, general and administrative items 482 4,790 (90) % Total $ 619 $ 4,790 (87) % (1) Costs to prepare the Private Placement, including legal and consulting expenses (2) Termination benefits for members of the former management team, including the former CEO Revenue We generate revenue primarily from sales of our products and service s. Other revenue consists of revenue from product development and license agreements. Our product revenue consists of sales of instruments and consumables. Consumables revenue is largely driven by the size of our active installed base of instruments and the level of usage per instrument. Service revenue is linked to the sales and active installed base of our instruments as our service revenue primarily consists of post-warranty service contracts, preventive maintenance plans, instrument parts, installation and training for our instruments. We expect the average selling prices of our products and services to fluctuate over time based on market conditions, product mix, and currency fluctuations. No single customer represented more than 10% of our total revenue for the three months ended March 31, 2023, and 2022, respectively. Revenue from our five largest customers represented 22% and 21% of total revenue for the three months ended March 31, 2023, and 2022, respectively. Revenues by product type and as a percentage of total revenue were as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Revenue: Instruments $ 5,923 24 % $ 7,523 28 % (21)% Consumables 11,515 46 12,481 47 (8)% Product revenue 17,438 70 20,004 75 (13)% Service revenue 6,881 27 6,144 23 12% Product and service revenue 24,319 97 26,148 98 (7)% Other revenue 800 3 356 2 125% Total revenue $ 25,119 100 % $ 26,504 100 % (5)% Total revenue decreased by $1.4 million, or 5%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven by a $1.6 million, or 21%, decline in instruments revenue and a $1.0 million, or 8%, decline in consumables revenue, offset in part by a $0.7 million, or 12%, increase in service revenue and a $0.4 million increase in other revenue. Year-over-year changes in foreign exchange rates negatively impacted the Company’s total revenue by approximately 1.9%, or $0.5 million. Changes in revenue are more fully discussed in the following sections. 28 Revenue by Geographic Area Revenue by geographic region of our customers’ facilities and as a percentage of total revenue were as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Americas $ 11,662 46 % $ 12,930 49 % (10)% Europe, Middle East and Africa (EMEA) 7,837 32 8,609 32 (9)% Asia-Pacific 5,620 22 4,965 19 13% Total revenue $ 25,119 100 % $ 26,504 100 % (5)% Americas revenue decreased by $1.3 million, or 10%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year decline was primarily attributable to a $1.2 million, or 45%, decrease in instruments revenue and a $0.7 million, or 11%, decline in consumables revenue, partially offset by a $0.4 million increase in other revenue. Lower consumables revenue reflects a $2.3 million decrease in sales of COVID 19 test products revenue, partially offset by higher sales of other consumables. EMEA region revenue decreased by $0.8 million, or 9%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year decline was due to a $0.6 million, or 20%, reduction in instruments revenue and a $0.4 million, or 9%, decrease in consumables revenue, partially offset by a $0.2 million, or 9%, increase in service revenue. A stronger dollar negatively impacted EMEA revenues by approximately $0.3 million or 3.3%. In Asia-Pacific, revenue increased by $0.7 million, or 13%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, driven primarily by a $0.3 million, or 8%, increase in product revenue, and a $0.3 million, or 33%, increase in service revenue. A stronger dollar negatively impacted Asia-Pacific revenues by approximately $0.2 million or 4.5% percent. Segment Revenue - Product and Service Segment product and service revenue and as a percentage of the respective segment’s total revenue was as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Proteomics: Instruments $ 4,499 30% $ 4,370 32% 3% Consumables 5,548 37 4,766 35 16% Product revenue 10,047 67 9,136 67 10% Service revenue 5,153 33 4,394 33 17% Product and service revenue $ 15,200 100% $ 13,530 100% 12% Genomics: Instruments $ 1,424 16% $ 3,153 25% (55)% Consumables 5,967 65 7,715 61 (23)% Total product revenue 7,391 81 10,868 86 (32)% Service revenue 1,728 19 1,750 14 (1)% Product and service revenue $ 9,119 100% $ 12,618 100% (28)% Proteomics product and service revenue increased by $1.7 million, or 12%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year increase was primarily attributable to a $0.8 million, or 16%, increase in consumables revenue and a $0.8 million, or 17%, increase in service revenue. 29 Genomics product and service revenue declined by $3.5 million, or 28%, during the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year decline was due in part to a $1.7 million, or 55%, reduction in instruments revenue, driven by lower unit sales, and a $1.7 million, or 23%, decline in consumables revenue. Lower revenue from consumable products reflects a $2.3 million decrease in sales of COVID-19 test products, partially offset by growth in other consumables revenue. Segment Revenue - Other Segment other revenue and as a percentage of total other revenue was as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Proteomics $ — —% $ 250 70% (100)% Genomics 800 100 106 30 NA Total other revenue $ 800 100% $ 356 100% 125% Other revenue is principally comprised of sales from product development and license agreements. Other revenue increased by $0.4 million due to a $0.7 million increase in genomics product development revenue, partially offset by a decline in proteomics licensing revenue. Product and Service Cost, Product and Service Gross Profit, and Product and Service Margin Cost of product revenue includes manufacturing costs incurred in the production process, including component materials, labor and overhead, installation, packaging, and delivery costs. In addition, cost of product revenue includes amortization of developed technology and intangibles, royalty costs for licensed technologies included in our products, warranty costs, provisions for slow-moving excess and obsolete inventory, and stock-based compensation expense. Our cost of product revenue and related product margin may fluctuate depending on the capacity utilization of our manufacturing facilities in response to market conditions and the demand for our products. Cost of service revenue includes direct labor hours, overhead and instrument parts. Our cost of service revenue and related service margin may fluctuate depending on the variability in material and labor costs of servicing. Product and service cost, product and service gross profit, and product and service m argin were as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Cost of product revenue $ 10,203 $ 12,339 (17)% Cost of service revenue 2,792 1,928 45% Cost of product and service revenue $ 12,995 $ 14,267 (9)% Product and service gross profit $ 11,324 $ 11,881 (5)% Product and service margin 46.6 % 45.4 % 1.2 ppt Product and service gross profit declined by $0.6 million, or 5%, for the three months ended March 31, 2023, compared to the three months ended March 31, 2022. The year-over-year reduction in gross profit was primarily attributable to lower revenue. The year-over-year increase in product and service margin reflects an improved mix of higher-margin revenue and better pricing, partially offset by lower manufacturing capacity utilization, and increases in warranty expense and service cost. 30 Operating Expenses Operating expenses were as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Research and development $ 6,409 $ 8,865 (28)% Selling, general and administrative 22,308 30,875 (28)% Total operating expenses $ 28,717 $ 39,740 (28)% Research and Development (R&D) R&D expense consists primarily of compensation-related costs, product development and material expenses, and other allocated facilities and information technology expenses. Our R&D efforts have focused primarily on enhancing our technologies and supporting development and commercialization of new and existing products and services. R&D expense also includes costs incurred in conjunction with research grants and product development arrangements. R&D expense decreased by $2.5 million, or 28%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to lower compensation and consulting costs and reduced spending on laboratory supplies. These reductions were related to our strategic initiatives to reduce headcount and improve operating efficiencies by engaging in lower-cost and more focused R&D projects and activities. Selling, General and Administrative (SG&A) SG&A expense consists primarily of personnel costs for our sales and marketing, business development, finance, legal, human resources, information technology and general management, as well as professional services, including legal and accounting. SG&A expense decreased by $8.6 million, or 28%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The year-over-year decline was primarily attributable to expenses incurred in the first quarter of last year, including $3.4 million in legal and other professional fees related to the Private Placement and $1.2 million in severance costs for our former CEO. Salaries and benefits expense and stock-based compensation expense were also lower by $2.2 million and $0.8 million, respectively, as a result of the restructuring plan initiated in August 2022 that downsized our global workforce. Segment Loss from Operations Segment losses from operations were as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Loss from operations: Proteomics $ (5,673) $ (5,350) 6% Genomics (230) (5,482) (96)% Corporate expenses (10,690) (16,671) (36)% Total loss from operations $ (16,593) $ (27,503) (40)% Proteomics loss from operations for the three months ended March 31, 2023 increased by $0.3 million, or 6%, over the three months ended March 31, 2022, due primarily to lower product and service margin, driven by lower manufacturing capacity utilization, and increases in warranty expense and service cost. Genomics loss from operations for the three months ended March 31, 2023 decreased by $5.3 million, or 96%, from the three months ended March 31, 2022, due primarily to a $4.9 million reduction in operating expenses, including a $2.5 million decline in salaries and benefits expense and a $0.6 million decrease in share-based compensation expense. The year-over-year reduction in operating loss also reflects improvement in product and service margin, partially offset by a $2.8 million decline in revenue. 31 Corporate expenses include general and administrative expenses for functions shared by both operating segments, such as executive management, human resources and finance. Corporate expenses in the three months ended March 31, 2023, declined by $6.0 million, or 36%, from the same period in 2022, due primarily to the prior-year SG&A expenses related to the Private Placement and severance costs, as more fully discussed above. Interest Expense and Other Non-Operating Income (Expense) Interest expense and other non-operating income (expense) were as follows ($ in thousands): Three Months Ended March 31, Year-over-Year Change 2023 2022 Interest expense $ (1,117) $ (1,030) 8% Loss on forward sale of Series B Preferred Stock — (37,792) NA Loss on Bridge Loans — (10,655) NA Other income, net 1,130 118 NA Total $ 13 $ (49,359) (100)% The improvement in non-operating income (expense) in the first quarter of 2023 compared to the first quarter of 2022 primarily reflects 2022 losses related to the Private Placement. The Purchase Agreements for the Series B Preferred Stock were accounted for as forward sales contracts and recorded at fair value. T he Bridge Loans were also recorded at fair value. In the three months ended March 31, 2022, the $37.8 million loss on the forward sales of Series B Preferred Stock and the loss on the Bridge Loans of $10.7 million reflected the increase in the price of our common stock from January 23, 2022 (the date of the Purchase Agreements and the Bridge Loan agreements) to March 31, 2022. The increase in other income, net of $1.0 million for the three months ending March 31, 2023 compared to March 31, 2022 was primarily due to the interest earned on money market funds and short-term investments. We had no such investments until after the closing date of the Private Placement on April 4, 2022. Income Tax Benefit (Expense) We recorded an income tax expense of $0.3 million in the three months ended March 31, 2023 and an income tax benefit of $0.6 million for the three months ended March 31, 2022 . The increase in our tax provision reflects the effect of our foreign operations, which reported pre-tax income in the first quarter of 2023 and pre-tax loss in the first quarter of 2022. The effective tax rate (benefit) was 1.6% in the three months ended March 31, 2023 compared to (0.7%) in the three months ended March 31, 2022. The Company’s effective tax rates for both periods differ from the 21% U.S. Federal statutory tax rate primarily due to valuation allowances recorded against deferred tax assets on domestic losses and the tax rate differences between the U.S. and foreign countries. Liquidity and Capital Resources Our liquidity and capital requirements depend upon many factors, including market acceptance of our products and services; effectiveness of our business improvement initiatives and restructuring programs; costs of supporting sales growth, product quality, R&D, and capital expenditures, including our ERP upgrade; and costs and timing of acquiring other businesses, assets or technologies. We continually evaluate our liquidity requirements considering our operating needs, growth initiatives, and capital resources. We expect that our existing liquidity and sources of capital will be sufficient to support our operations over the next 12 months f rom the filing date of this Form 10-Q. Sources of Liquidity Our principal sources of liquidity are cash and cash equivalents, short-term investments, and to a lesser extent, borrowings available under our Revolving Credit Facility that matures August 2, 2023. Our collective balances of cash, cash equivalents and short-term investments were $154.5 million at March 31, 2023 and $165.8 million at December 31, 2022. Under our Revolving Credit Facility, borrowings of up to $15.0 million are limited to the amount of our eligible accounts receivable and inventory collateral. As of March 31, 2023, we had no borrowings outstanding under the Revolving Credit Facility and the total availability was $7.1 million. 32 Capital Resources and Commitments We enter into arrangements that serve as sources of capital and the associated contractual agreements may result in firm or contingent obligations of the Company. In addition to our common stockholders’ equity, our sources of capital primarily include debt, mezzanine equity, and operating leases. Our Series B Preferred Stock, which is classified as mezzanine equity, contains rights that may result in their conversion to our common stock or their redemption in cash. Our term loan and operating lease arrangements require cash repayment and our convertible debt that matures on December 1, 2024 contains rights that may result in their conversion to our common stock prior to maturity. We also enter into contractual and legally binding commitments to purchase goods. Most of these contracts are cancellable with little or no notice or penalty. However, once a vendor has incurred costs to fulfill a contract with us, and which costs cannot be otherwise deployed, we are liable for those costs upon cancellation. In the first three months of 2023, there have been no material changes to the cash commitments and contingent obligations associated with the arrangements described above, as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The terms and provisions of our debt, leases and mezzanine equity are more fully discussed in Notes 6 , 7 and 9 , respectively, in the unaudited condensed consolidated financial statements. Cash Flow Activity Our cash flow summary was as follows ($ in thousands): Three Months Ended March 31, 2023 2022 Cash flow summary: Net cash used in operating activities $ (8,485) $ (15,590) Net cash provided by (used in) investing activities 43,154 (868) Net cash provided by (used in) financing activities (2,558) 18,075 Effect of foreign exchange rate fluctuations on cash and cash equivalents 23 (85) Net increase in cash, cash equivalents and restricted cash $ 32,134 $ 1,532 We derive cash flows from operations primarily by collecting amounts due from sales of our products and services, and fees earned under our product development and license agreements. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses and working capital to support the business. We have historically experienced negative cash flows from operating activities as we have expanded our business and built our infrastructure, domestically and internationally. In the three months ended March 31, 2023, we used $44.2 million of net proceeds from the sales and maturities of short-term investments to help fund $8.5 million of net cash used in operating activities, $2.5 million of common stock repurchases, and a $32.1 million increase in cash and cash equivalents. In the three months ended March 31, 2022 , we used $18.2 million of net debt proceeds in part to fund $15.6 million used in operating activities. Operating Activities Net cash used in operating activities for the three months ended March 31, 2023 declined by $7.1 million compared to the same period in 2022. The improvement reflects a lower net loss and adjustments for non-cash items, which collectively used $9.8 million in the first three months of 2023 compared to $18.7 million used in the same period of 2022. This improvement was partially offset by unfavorable changes in net operating assets and liabilities, which provided $1.3 million and $3.1 million in the three months ended March 31, 2023 and 2022. Investing Activities Net cash provided by investing activities for the three months ended March 31, 2023 was $43.2 million compared to $0.9 million used in the three months ended March 31, 2022. The first quarter of 2023 primarily reflects $44.2 million of proceeds from sales and maturities of short-term investments, net of purchases. 33 Financing Activities Financing activities used cash of $2.6 million in the first three months of 2023 and provided cash of $18.1 million in the same period of 2022. These first-quarter changes in cash from financing activities primarily reflect $2.5 million of common stock share repurchases in 2023 and $18.2 million of net debt proceeds in 2022, reflecting $25.0 million of borrowings under the Bridge Loans and the repayment of $6.8 million borrowed under our Revolving Credit Facility. Repurchases of common stock are expected to be funded by cash on hand. The timing and amount of any future common stock repurchases will depend on several factors, including stock price, market and business conditions, the daily trading volume of our stock and applicable SEC regulations. Repurchases may be suspended or discontinued at any time. Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements and related notes, which have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). The preparation of these financial statements requires the use of estimates and assumptions to determine the value of the assets, liabilities, revenues and expenses reported on the condensed consolidated balance sheets and statements of operations. We develop these estimates after considering historical transactions, the current economic environment and various other assumptions considered reasonable under the circumstances. Actual results may differ materially from these estimates and judgments. Accounts that rely heavily on estimated information to determine their values include revenue, trade receivables, inventories, right-of-use assets, goodwill, long-lived intangible assets, lease liabilities, income tax liabilities (assets), and preferred equity. Refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding our critical accounting policies and estimates. There have been no significant changes to the Company's significant accounting policies described in Note 2 in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. Recent Accounting Changes, Recently Adopted Accounting Guidance, and New Accounting Pronouncements None. Item 3 Quantitative and Qualitative Disclosures About Market Risk Not applicable.