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Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-23 · 82 added, 96 removed, 533 unchanged (25% of the section changed)

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Notes to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Internal Control Over Financial Reporting

We have audited Medifast, Inc.’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have audited Medifast, Inc.’s and its subsidiaries (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

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February 21, 2023

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Auditing the matter required significant auditor judgment and use of our tax specialists, in evaluating the recorded results of management’s tax positions and their assessment of the sustainability of these tax positions.

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Our audit procedures related to the Company’s provision for income taxes included the following, among others:

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February 21, 2023

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MEDIFAST, INC.

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Interest (expense) income ( 701 ) ( 231 ) 246

Other income (expense) 119 ( 140 ) 29

Other (expense) income ( 46 ) 119 ( 140 )

( 747 ) ( 112 ) 106

Income from operations before income taxes 216,129 134,265 92,363

Income before provision for income taxes 184,059 216,129 134,265

Provision for income taxes 40,491 52,098 31,406

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The accompanying notes are an integral part of these consolidated financial statements.

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MEDIFAST, INC.

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Net income $ 143,568 $ 164,031 $ 102,859

Other comprehensive income, net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency translation ( 67 ) 112 ( 21 )

Unrealized (losses) gains on investment securities ( 20 ) ( 42 ) 37

Other comprehensive income 70 16 198

Other comprehensive (loss) income ( 87 ) 70 16

Comprehensive income $ 143,481 $ 164,101 $ 102,875

The accompanying notes are an integral part of these consolidated financial statements.

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MEDIFAST, INC.

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As of December 31, 2022 and 2021

dollars in thousands, except per share amounts)

dollars in thousands, except par value)

Current Assets

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Accounts payable and accrued expenses $ 134,690 $ 163,309

Income taxes payable 428 —

Current lease obligations 5,776 6,523

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The accompanying notes are an integral part of these consolidated financial statements.

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MEDIFAST, INC.

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Share-based compensation 11,053 9,903 6,796

Loss on sale of disposal of property, plant and equipment 2 212 17

Loss on sale or disposal of property, plant and equipment 2,130 2 212

Amortization of premium on investment securities 14 89 320

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Inventories 61,187 ( 126,651 ) ( 4,621 )

Income taxes, prepaid ( 945 ) 5,169 ( 5,169 )

Income taxes 1,373 ( 945 ) 5,169

Prepaid expenses and other current assets 97 ( 9,887 ) 1,086

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The accompanying notes are an integral part of these consolidated financial statements.

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MEDIFAST, INC.

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Treasury stock from stock repurchases — — — — — ( 5,000 ) ( 5,000 )

Treasury stock retired from stock repurchases ( 489 ) — — — ( 63,993 ) 63,993 —

Other comprehensive income — — — 16 — — 16

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Share-based compensation 20 — 11,053 — — — 11,053

Options exercised by executives and directors 29 — 811 — — — 811

Net shares repurchased for taxes ( 9 ) — ( 1,516 ) — — — ( 1,516 )

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The accompanying notes are an integral part of these consolidated financial statements.

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MEDIFAST, INC.

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(the “Company” or “Medifast”) is a Delaware corporation, incorporated in 1989.

The Company’s operations are primarily conducted through its wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTA VIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Medifast Franchise Systems, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTA VIA (Hong Kong) Limited, OPTA VIA (Singapore) PTE.

The Company’s operations are primarily conducted through its wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTA VIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Seven Crondall Associates, LLC, Corporate Events, Inc., OPTA VIA (Hong Kong) Limited, OPTA VIA (Singapore) PTE.

LTD and OPTA VIA Health Consultation (Shanghai) Co., Ltd.

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The Company’s fiscal year ends on December 31.

Reclassification - Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation.

No reclassification in the consolidated financial statements had a material impact on the presentation.

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period.

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Cash and Cash Equivalents - Cash and cash equivalents consist of cash on deposit in financial institutions, institutional money funds and other short-term investments with a maturity of 90 days or less at the time of purchase.

All credit card and debit card transactions that process in less than seven days are classified as cash and cash equivalents.

The amounts due from banks for these transactions classified as cash and cash equivalents totaled $ 7.4 million as of December 31, 2022, and $ 12.2 million as of December 31, 2021.

Concentration of Credit Risk - Our cash and cash equivalents and available-for-sale securities are maintained at several financial institutions and the balances with these financial institutions often exceed the amount of insurance provided on such accounts by the Federal Deposit Insurance Corporation.

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On a quarterly basis, management reviews inventories for unsalable or obsolete inventories.

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The Company donated inventory with an aggregate cost of $ 19.0 million to Ukrainian refugees and those in need in Ukraine, which is included in selling, general and administrative expenses during the year ended December 31, 2022.

The donations were made to two 501(c)(3) organizations that are coordinating the distribution throughout refugee camps in Europe and in Ukraine.

The Company incurred approximately $ 12.2 million of costs in connection with the restructuring of certain external manufacturing agreements to optimize its supply chain, which is included in cost of sales during the year ended December 31, 2022.

Investment Securities - The Company’s investments consist of debt securities classified as available-for-sale securities.

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Equipment and fixtures 3 - 15 years

Software 5 years

Vehicles 5 years

(1) The depreciation life for leasehold improvements is the lesser of the estimated useful life of the addition or the term of the related lease.

(2) Capitalized costs of cloud software are reported in Other assets on the balance sheet and are amortized over an estimated useful life of 3 to 5 years.

Long-lived Asset Impairment - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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Revenue is recognized upon receipt by customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns.

Revenue is recognized when control of the promised products is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products.

Revenue is recognized when control of the promised products is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products.

When determining whether the customer has obtained control of the products, we consider any future performance obligations.

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Our performance obligations are satisfied at a point in time.

Revenue from products transferred to clients at a point in time accounted for substantially all of our revenue for the years ended December 31, 2021, 2020 and 2019.

Revenue from products transferred to customers at a point in time accounted for substantially all of our revenue for the years ended December 31, 2022, 2021 and 2020.

Revenue on these contracts is recognized when obligations under the terms of the contract with our customer are satisfied.

Generally, this occurs with the transfer of control upon receipt of products by our clients.

Generally, this occurs with the transfer of control upon receipt of products by our customers.

Any consideration received prior to the fulfillment of the Company’s performance obligation is deferred and recognized as a liability.

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Our return policy allows for customer returns of consumable products within 30 days of purchase and upon our authorization.

We adjust revenues for the products expected to be returned and a liability is recognized for expected refunds to clients.

We adjust revenues for the products expected to be returned and a liability is recognized for expected refunds to customers.

We estimate expected returns based on historical levels and project this experience into the future.

Customer reward programs and sales incentives

Our sales contracts may give clients the option to purchase additional products priced at a discount.

Our sales contracts may give customers the option to purchase additional products priced at a discount.

Options to acquire additional products at a discount can come in many forms, such as customer reward programs and incentive offerings including pricing arrangements and promotions.

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We reduce the transaction price for certain customer reward programs and incentive offerings including pricing arrangements, promotions, and incentives that represent variable consideration and separate performance obligations.

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Shipping and handling costs

Amounts billed to clients for shipping and handling activities are treated as a promised service performance obligation and are recorded in revenue in the accompanying Consolidated Statements of Income upon fulfillment of the performance obligation.

Shipping and handling costs incurred by the Company for the delivery of products to clients are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Consolidated Statements of Income.

Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and are recorded in revenue in the accompanying Consolidated Statements of Income upon fulfillment of the performance obligation.

Shipping and handling costs incurred by the Company for the delivery of products to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Consolidated Statements of Income.

Contract costs

We expense OPTA VIA Coach compensation and credit card fees during the period in which the corresponding revenue is earned.

These costs are deferred along with the revenues for goods that are in transit and not received by clients by period end.

These costs are deferred along with the revenues for goods that are in transit and not received by customers by period end.

These costs are recorded in selling, general and administrative expense in the accompanying Consolidated Statements of Income.

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Performance-based share awards are measured based on the grant-date market price of the Company's common stock adjusted by expected level of achievement over the performance period.

The fair value of the incentive stock options and non-qualified stock options is calculated using the Black-Scholes option pricing model as of the grant date and recognized over the service period.

The fair value of the incentive stock options and non-qualified

stock options is calculated using the Black-Scholes option pricing model as of the grant date and recognized over the service period.

The Company issues new shares upon the exercise of stock options, the granting of restricted stock awards, and the achieved performance against pre-determined performance goals over the performance period for performance-based share awards.

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Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

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The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

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Accounting Pronouncements - Adopted in 2022

On January 1, 2021, the beginning of the Company’s fiscal year, the Company adopted Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740.

There was no material impact on the Company’s consolidated financial statements upon adoption of this ASU.

Recently Issued Accounting Pronouncements - Pending Adoption

We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that have the potential for a material impact on our results of operations, financial condition, or cash flows, based on current information, except for:

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

In March 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform.

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These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

We are currently evaluating our contracts and the optional expedients provided by the new standard as it pertains to the credit agreement disclosed in Note 13.

We adopted Topic 848 beginning in the first quarter of fiscal 2022 without any material impact on the Company's financial position and results of operations.

Recently Issued Accounting Pronouncements - Pending Adoption

Inventories consisted of the following (in thousands):

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Total $ 118,856 $ 180,043

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PROPERTY, PLANT AND EQUIPMENT

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Earnings per share - diluted $ 12.73 $ 13.89 $ 8.68

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The calculation of diluted earnings per share excluded 0 , 358 and 984 antidilutive options outstanding for the years ended December 31, 2021, 2020 and 2019, respectively.

The calculation of diluted earnings per share for the years ended December 31, 2021, 2020 and 2019 also excluded 368 , 2,658 and 718 antidilutive restricted stock awards, respectively.

The calculation of diluted earnings per share excluded 0 , 0 and less than 1 thousand antidilutive options outstanding for the years ended December 31, 2022, 2021 and 2020, respectively.

The calculation of diluted earnings per share for the years ended December 31, 2022, 2021 and 2020 also excluded 5 thousand, less than 1 thousand and 3 thousand antidilutive restricted stock awards, respectively.

Authorized Shares

Pursuant to the Company’s Restated and Amended Certificate of Incorporation, the Company has the authority to issue 21,500,000 capital shares consisting of:

(i) 20,000,000 shares of common stock having a par value of $ 0.001 per share and (ii) 1,500,000 shares of preferred stock having a par value $ 0.001 per share.

As of December 31, 2021, there were approximately 11,594,000 and 0 shares of common stock and preferred stock issued, respectively.

Pursuant to the Company’s Restated and Amended Certificate of Incorporation, the Company has the authority to issue 21.5 million capital shares consisting of:

(i) 20.0 million shares of common stock having a par value of $ 0.001 per share and (ii) 1.5 million shares of preferred stock having a par value $ 0.001 per share.

As of December 31, 2022, there were approximately 10.9 million and 0 shares of common stock and preferred stock issued, respectively.

Issuance of Additional Common Stock

On May 18, 2017, the stockholders of the Company approved the Medifast, Inc.

Amended and Restated 2012 Share Incentive Plan (the “Amended and Restated 2012 Plan”) that increased the number of shares of the Company’s common stock that may be awarded under the Amended and Restated 2012 Plan by 600,000 , to an aggregate of 1,600,000 .

Stock Repurchase Plan

The Company implemented a stock repurchase plan on September 16, 2014 (the “Stock Repurchase Plan”).

On September 12, 2019, the Company's Board of Directors authorized an additional 2,000,000 shares for repurchase under the Stock Repurchase Plan.

The Company repurchased approximately 238,000 and 46,000 shares during the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, there were approximately 2,084,000 shares of common stock remaining under the Company’s Stock Repurchase Plan.

On September 12, 2019, the Company's Board of Directors authorized an additional 2.0 million shares for repurchase under the Stock Repurchase Plan.

The Company repurchased approximately 739 thousand and 238 thousand shares during the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, there were approximately 1.4 million shares of common stock remaining under the Company’s Stock Repurchase Plan.

There is no guarantee as to the exact number of shares of the Company’s common stock, if any, that will be repurchased under the Stock Repurchase Plan.

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Stock Options:

The Company has issued non-qualified and incentive stock options to employees and nonemployee directors.

The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield.

The Company has issued non-qualified and incentive stock options to employees and non-employee directors.

dividend yield.

Options outstanding as of December 31, 2022 generally vest over a period of three years and expire ten years from the date of grant.

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Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option.

The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected

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term for each award.

The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award.

The dividend yield is computed as the annualized dividend rate at the grant date divided by the strike price of the stock option.

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Exercisable at end of the period 28 $ 52.76 23 $ 49.50

As of December 31, 2021, the weighted-average remaining contractual life was 5.3 years with an aggregate intrinsic value of $ 5.1 million for outstanding stock options and the weighted-average remaining contractual life was 4.9 years with an aggregate intrinsic value of $ 3.6 million for exercisable options.

The unrecognized compensation expense calculated under the fair value method for shares expected to vest as of December 31, 2021 was $ 0.1 million and is expected to be recognized over a weighted average period of 1.1 years.

The Company received $ 0.8 million, $ 1.6 million and $ 0.3 million in cash proceeds from the exercise of stock options during the years ended December 31, 2021, 2020 and 2019, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 5.9 million, $ 1.5 million and $ 1.0 million, respectively.

As of December 31, 2022, the weighted-average remaining contractual life was 51 months with an aggregate intrinsic value of $ 2.0 million for outstanding stock options and the weighted-average remaining contractual life was 51 months with an aggregate intrinsic value of $ 1.7 million for exercisable options.

The unrecognized compensation expense calculated under the fair value method for shares expected to vest as of December 31, 2022 was less than $ 0.1 million and is expected to be recognized over a weighted average period of 1 month.

No stock options were exercised in 2022.

The Company received $ 0.8 million and $ 1.6 million in cash proceeds from the exercise of stock options during the years ended December 31, 2021 and 2020, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 5.9 million and $ 1.5 million, respectively.

Restricted Stock:

The Company has issued restricted stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant.

The Company has issued restricted stock to employees and non-employee directors generally with vesting terms up to five years after the date of grant.

The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant.

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Outstanding at end of the period 60 $ 187.94 43 $ 183.51

The Company withheld approximately 22,000 , 6,000 and 128,000 shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the years ended December 31, 2021, 2020 and 2019, respectively.

The Company withheld approximately 9 thousand, 22 thousand and 6 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the years ended December 31, 2022, 2021 and 2020, respectively.

The total fair value of restricted stock awards vested during the years ended December 31, 2022, 2021 and 2020 was $ 3.5 million, $ 7.0 million and $ 3.7 million, respectively.

Performance-based Share Awards:

The Company has issued performance-based share awards to certain key executives who were granted a target number of deferred shares and may earn between 0% and 200% of the target number depending upon achieved performance against pre-determined performance goals over a three-year performance period after the date of grant.

The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by expected level

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of achievement over the performance period.

Market and Performance-based Share Awards:

The Company has issued market and performance-based share awards to certain key executives who were granted deferred shares and may earn between 0 % and 250 % of the target number depending upon both the Company's total stockholder return ("TSR") and the Company's performance against predetermined performance goals over a three-year performance period after the date of grant.

Market and performance-based share awards that are tied to the Company's TSR are valued using the Monte Carlo method and recognized ratably as expense over the award's performance period.

The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by expected level of achievement over the performance period.

Expense for performance-based share awards is amortized ratably over the performance period.

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Options and restricted stock 92 $ 5,167 75 $ 4,302 111 $ 3,493

Market and performance-based share awards granted in 2022 25 1,389 — — — —

Performance-based share awards granted in 2021 15 2,595 15 1,986 — —

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The total income tax benefit recognized in the accompanying Consolidated Statements of Income for restricted stock awards was $ 1.2 million, $ 2.4 million and $ 1.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.

There was $ 4.8 million of total unrecognized compensation cost related to restricted stock awards as of December 31, 2021, which is expected to be recognized over a weighted-average period of 1.7 years.

There was $ 7.3 million of unrecognized compensation cost related to the 40,610 performance-based shares discussed above as of December 31, 2021, which is expected to be recognized over 1.8 years .

There was $ 6.2 million of total unrecognized compensation cost related to restricted stock awards as of December 31, 2022, which is expected to be recognized over a weighted-average period of 20 months.

There was $ 6.3 million of unrecognized compensation cost related to the 92 thousand performance-based shares discussed above as of December 31, 2022, which is expected to be recognized over 21 months .

ACCUMULATED OTHER COMPREHENSIVE INCOME

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These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant.

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The following tables present the Company’s cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels (in thousands):

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Cash and cash equivalents $ 87,691 $ — $ — $ 87,691 $ 87,691 $ —

Money market accounts 9,359 — — 9,359 9,359 —

Government & agency securities 1,401 12 — 1,413 — 1,413

10,760 12 — 10,772 9,359 1,413

Municipal bonds 3,880 9 59 3,948 — 3,948

Total $ 87,691 $ — $ — $ 87,691 $ 87,691 $ —

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Total $ 109,464 $ 21 $ 59 $ 109,544 $ 104,183 $ 5,361

The Company had no realized losses or gains for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021, the maturities of the Company’s investment securities were less than 1 year for all the municipal bonds, government and agency securities.

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The Company had no realized losses or gains for the years ended December 31, 2022, 2021 and 2020.

Income tax expense for the years ended December 31, 2022, 2021 and 2020 consisted of the following (in thousands):

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2022 2021 2020

Income from operations $ 52,098 $ 31,406 $ 14,447

Stockholders' equity, unrealized gains on investment securities & foreign currency 66 14 75

Income before provision for income taxes $ 40,491 $ 52,098 $ 31,406

Stockholders' equity, unrealized (losses) gains on investment securities & foreign currency ( 27 ) 66 14

Total provision for income taxes $ 40,464 $ 52,164 $ 31,420

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Executive compensation 1,470 0.8 % 2,652 1.2 % 966 0.7 %

Charitable donations ( 4,316 ) ( 2.3 ) % — 0.0 % — 0.0 %

Valuation allowance 396 0.2 % 468 0.2 % 1,342 1.0 %

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Provision for income taxes $ 40,491 22.0 % $ 52,098 24.1 % $ 31,406 23.4 %

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Significant components of the Company’s deferred tax assets (liabilities) consisted of the following (in thousands):

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Lease obligations 5,773 7,191

Capitalized research costs 2,502 —

Charitable donations 1,862 —

Valuation allowance ( 2,523 ) ( 1,904 )

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The Company's income tax provision provided under the CARES Act did not have a material impact on the year ended December 31, 2022, 2021 and 2020.

The impact to the Company’s 2021 earnings per common share was immaterial.

On August 12, 2022, the President of the United States signed into law the Inflation Reduction Act.

The two primary tax implications for corporations are a 15% alternative minimum tax (“AMT”) that applies to corporations with at least one billion of pretax income and a one percent surtax on share buybacks.

The AMT will not apply to the Company since the Company’s pretax income does not exceed the threshold.

The one percent surtax on share repurchases will apply to the Company when it comes into force in 2023.

The Company's income tax provision provided under the Inflation Reduction Act did not have a material impact on the year ended December 31, 2022.

The Company has separate state and foreign net operating loss carry forwards totaling $ 31.6 million that start expiring in 2029.

The company continues to utilize the net operating loss carry forwards in 2022.

The Company has recorded a valuation allowance for the portion of the net operating loss carry forwards which is not expected to be realized.

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Such amounts are not included in the measurement of the lease liability but will be recognized as expense when they are incurred.

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The operating lease expense was $ 6.7 million, $ 5.6 million and $ 3.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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Operating leases $ 101 $ 18,872

As of December 31, 2021, the weighted average remaining lease term was 5.4 years and the weighted average discount rate was 2.1 %.

As of December 31, 2022, the weighted average remaining lease term was 58 months and the weighted average discount rate was 2.1 %.

The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2022 (in thousands):

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On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement (the “Credit Agreement”) among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as administrative agent.

The Credit Agreement provides for a $ 125.0 million senior secured revolving credit facility with a $ 20.0 million letter of credit sublimit.

The Credit Agreement also provides for an uncommitted incremental facility that permits the Company, subject to certain conditions, to increase the senior secured revolving credit facility by up to $ 100.0 million.

On May 31, 2022, the Credit Agreement was amended to increase the borrowing capacity and convert the interest rate to be based on Secured Overnight Financing Rate ("SOFR"), from London Inter-Bank Offered Rate (LIBOR) ("the "Amended Credit Agreement").

The Amended Credit Agreement provides for a $ 225.0 million senior secured revolving credit facility with a $ 20.0 million letter of credit sublimit.

The Amended Credit Agreement also provides for an uncommitted incremental facility that permits the Company, subject to certain conditions, to increase the senior secured revolving credit facility by up to $ 100.0 million.

The Credit Agreement matures on April 13, 2026.

The Company’s obligations under the Credit Agreement are guaranteed by the Guarantors.

The Company’s obligations under the Amended Credit Agreement are guaranteed by the Guarantors.

The obligations of the Company and the Guarantors are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.

Under the Credit Agreement, the Company will pay to the administrative agent for the account of each revolving lender a commitment fee on a quarterly basis based on amounts committed but unused under the revolving facility from 0.20 to 0.40 % per annum depending on the Company’s Total Net Leverage Ratio (as defined in the Credit Agreement).

Under the Amended Credit Agreement, the Company will pay to the administrative agent for the account of each revolving lender a commitment fee on a quarterly basis based on amounts committed but unused under the revolving facility from 0.20 to 0.40 % per annum depending on the Company’s Total Net Leverage Ratio (as defined in the Amended Credit Agreement).

The Company is also obligated to pay the administrative agent customary fees for credit facilities of this size and type.

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Revolving borrowings under the Credit Agreement bear interest at a rate per annum equal to (i) the Adjusted LIBOR Rate for the interest period plus the Applicable Rate (as defined in the Credit Agreement) based on the Company’s Total Net Leverage Ratio (with customary provisions under the Credit Agreement providing for the replacement of LIBOR with a successor rate) or (ii) the Alternate Base Rate (as defined in the Credit Agreement) as in effect from time to time plus the Applicable Rate based on the Company’s Total Net Leverage Ratio.

As of December 31, 2021, the Applicable Rate for Eurodollar Loans is 1.25 % per annum and the Applicable Rate for ABR Loans is 0.25 % per annum.

The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments and change the nature of their businesses.

The Credit Agreement also contains customary events of default, subject to thresholds and grace periods, including, among others, payment default, covenant default, cross default to other material indebtedness and judgment default.

In addition, the Credit Agreement requires the Company to maintain a Total Net Leverage Ratio of no more than 3.00 to 1.00 and an Interest Coverage Ratio of at least 3.50 to 1.00.

The Company has no borrowings under the Credit Agreement as of the date of this report.

Revolving borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to (i) the Term SOFR Rate for the interest period plus the Applicable Rate (as defined in the Amended Credit Agreement) based on the Company’s Total Net Leverage Ratio or (ii) the Alternate Base Rate (as defined in the Amended Credit Agreement) as in effect from time to time plus the Applicable Rate based on the Company’s Total Net Leverage Ratio.

As of December 31, 2022, the Applicable Rate for SOFR Loans is 1.25 % per annum and the Applicable Rate for ABR Loans is 0.25 % per annum.

SOFR based loans also include a Credit Spread Adjustment based on the duration of the borrowing.

The Amended Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments and change the nature of their businesses.

The Amended Credit Agreement also contains customary events of default, subject to thresholds and grace periods, including, among others, payment default, covenant default, cross default to other material indebtedness and judgment default.

In addition, the Amended Credit Agreement requires the Company to maintain a Total Net Leverage Ratio of no more than 2.75 to 1.00 and an Interest Coverage Ratio of at least 3.50 to 1.00.

The Company had no borrowings under the Amended Credit Agreement as of December 31, 2022 and December 31, 2021.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data