What changed in this filing

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Item 1. Financial Statements

2023-05-05 compared with 2022-11-02 · 164 added, 414 removed, 305 unchanged (65% of the section changed)

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except per share data) 2023 2022

3 unchanged sentences

Depreciation and amortization 11,516 11,429

Other operating expense (income), net ( 17 ) ( 572 ) 1,862 ( 901 )

Other operating expense, net 1,061 2,026

Loss from operations ( 7,075 ) ( 3,420 )

Interest expense 4,288 3,439

Loss on extinguishment of debt and write-off of debt issuance costs — — — 2,390

Derivative payments on interest rate swap — — — 1,717

Loss on interest rate swap — — — 2,033

Other income, net ( 2,208 ) ( 2,996 )

Loss before benefit (provision) for income taxes and share of net income from joint venture ( 4,707 ) ( 3,844 ) ( 16,505 ) ( 17,749 )

Benefit (provision) for income taxes 1,068 ( 375 ) ( 1,514 ) 612

Loss before provision for income taxes and share of net income from joint venture ( 9,155 ) ( 3,863 )

Provision for income taxes ( 1,301 ) ( 1,531 )

Share of net income from joint venture 281 2,092

Net loss $ ( 10,175 ) $ ( 3,302 )

Other comprehensive income (loss):

Foreign currency translation loss $ ( 7,653 ) $ ( 2,612 ) $ ( 13,543 ) $ ( 1,550 )

Other comprehensive income:

Foreign currency translation gain $ 1,840 $ 2,600

Interest rate swap:

1 unchanged sentence

Reclassification adjustment for losses (gains) included in net loss, net of tax ( 468 ) 34

Other comprehensive income (loss) $ ( 6,865 ) $ ( 2,766 ) $ ( 11,130 ) $ 1,147

Comprehensive loss $ ( 9,080 ) $ ( 6,143 ) $ ( 25,214 ) $ ( 12,534 )

Basic net loss per common share:

Net loss per common share $ ( 0.11 ) $ ( 0.13 ) $ ( 0.49 ) $ ( 0.75 )

Weighted average common shares outstanding 44,711 44,455 44,670 43,862

Diluted net loss per common share:

Net loss per common share $ ( 0.11 ) $ ( 0.13 ) $ ( 0.49 ) $ ( 0.75 )

Other comprehensive income $ 1,142 $ 3,821

Comprehensive income (loss) $ ( 9,033 ) $ 519

Basic and diluted net loss per common share $ ( 0.29 ) $ ( 0.13 )

Weighted average common shares outstanding 45,309 44,594

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Condensed Consolidated Balance Sheets

(in thousands, except per share data) September 30,

(in thousands, except per share data) March 31,

2023 December 31,

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Cash and cash equivalents $ 10,545 $ 12,808

Accounts receivable, net of allowances of $ 1,476 and $ 1,352 at September 30, 2022 and December 31, 2021, respectively

Accounts receivable, net of allowances of $ 1,572 and $ 1,469 at March 31, 2023 and December 31, 2022

80,003 74,129

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Income tax receivable 12,087 12,164

Prepaid assets 7,076 2,794

Other current assets 9,016 9,123

Total current assets 200,505 191,700

Property, plant and equipment, net of accumulated depreciation of $ 214,254 and $ 197,936 at September 30, 2022 and December 31, 2021, respectively

Property, plant and equipment, net of accumulated depreciation of $ 232,086 and $ 225,046 at March 31, 2023 and December 31, 2022

194,513 197,637

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Commitments and contingencies (Note 9)

Series D perpetual preferred stock - $ 0.01 par value per share, 65 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Series D perpetual preferred stock - $ 0.01 par value per share, 65 shares authorized, issued and outstanding at March 31, 2023 and December 31, 2022

67,752 64,701

Stockholders' equity:

Common stock - $ 0.01 par value per share, 90,000 shares authorized, 43,882 and 43,027 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Common stock - $ 0.01 par value per share, 90,000 shares authorized, 43,772 and 43,856 shares issued and outstanding at March 31, 2023 and December 31, 2022

Additional paid-in capital 465,377 468,143

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Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended September 30, 2022 and 2021

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)

(in thousands) Number

value Additional

capital Total

Balance as of June 30, 2022 43,884 $ 439 $ 473,019 $ ( 230,969 ) $ ( 36,167 ) $ 206,322

Net loss — — — ( 2,215 ) — ( 2,215 )

Dividends accrued for preferred stock — — ( 2,783 ) — — ( 2,783 )

Share-based compensation expense ( 2 ) — 991 — — 991

Change in estimate of share-based award vesting — — ( 684 ) — — ( 684 )

Change in fair value of interest rate swap, net of tax of $ 241

— — — — 904 904

Reclassification of interest rate swap settlement to net loss, net of tax of $( 30 )

— — — — ( 116 ) ( 116 )

Foreign currency translation loss — — — — ( 7,653 ) ( 7,653 )

Balance as of September 30, 2022 43,882 $ 439 $ 470,543 $ ( 233,184 ) $ ( 43,032 ) $ 194,766

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)

(in thousands) Number

value Additional

capital Total

Balance as of June 30, 2021 43,034 $ 430 $ 477,923 $ ( 216,179 ) $ ( 29,819 ) $ 232,355

Net loss — — — ( 3,377 ) — ( 3,377 )

Dividends accrued for preferred stock — — ( 2,314 ) — — ( 2,314 )

Share-based compensation expense — — 931 — — 931

Change in fair value of interest rate swap, net of tax of $ 53

— — — — ( 176 ) ( 176 )

Reclassification of interest rate swap settlement to net loss, net of tax of $ 7

— — — — 22 22

Foreign currency translation loss — — — — ( 2,612 ) ( 2,612 )

Balance as of September 30, 2021 43,034 $ 430 $ 476,540 $ ( 219,556 ) $ ( 32,585 ) $ 224,829

See notes to condensed consolidated financial statements (unaudited).

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Nine Months Ended September 30, 2022 and 2021

Three Months Ended March 31, 2023 and 2022

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)

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Restricted shares forgiven for taxes ( 84 ) ( 1 ) ( 96 ) — — ( 97 )

Change in estimate of share-based award vesting — — ( 684 ) — — ( 684 )

Change in fair value of interest rate swap, net of tax of $ 655

— — — — 2,464 2,464

Reclassification of interest rate swap settlement to net loss, net of tax of $( 13 )

— — — — ( 51 ) ( 51 )

Foreign currency translation loss — — — — ( 13,543 ) ( 13,543 )

Balance as of September 30, 2022 43,882 $ 439 $ 470,543 $ ( 233,184 ) $ ( 43,032 ) $ 194,766

Other comprehensive income — — — — 1,142 1,142

Balance as of March 31, 2023 43,772 $ 438 $ 465,377 $ ( 255,373 ) $ ( 35,978 ) $ 174,464

Common Stock Accumulated deficit Accumulated other comprehensive income (loss)

5 unchanged sentences

Dividends accrued for preferred stock — — ( 2,538 ) — — ( 2,538 )

Shares issued for option exercises 6 — 48 — — 48

Shares issued under stock incentive plans 893 9 ( 9 ) — — —

Share-based compensation expense — — 949 — — 949

Restricted shares forgiven for taxes ( 30 ) — ( 87 ) — — ( 87 )

Change in estimate of share-based award vesting — — ( 337 ) — — ( 337 )

Change in fair value of interest rate swap, net of tax of $ 53

— — — — ( 176 ) ( 176 )

Reclassification of interest rate swap settlement to net loss, net of tax of $ 868

— — — — 2,873 2,873

Foreign currency translation loss — — — — ( 1,550 ) ( 1,550 )

Balance as of September 30, 2021 43,034 $ 430 $ 476,540 $ ( 219,556 ) $ ( 32,585 ) $ 224,829

Other comprehensive income — — — — 3,821 3,821

Balance as of March 31, 2022 43,890 $ 439 $ 473,072 $ ( 222,402 ) $ ( 28,081 ) $ 223,028

See notes to condensed consolidated financial statements (unaudited).

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2023 2022

4 unchanged sentences

Amortization of debt issuance costs and discount 353 332

Loss on extinguishment of debt and write-off of debt issuance costs — 2,390

Total derivative gain, net of cash settlements ( 4,858 ) ( 856 )

Impairments of property, plant and equipment — 233

Total derivative loss (gain), net of cash settlements 386 ( 2,543 )

Share of net income from joint venture, net of cash dividends received ( 281 ) 1,934

Compensation expense from issuance of share-based awards 3,862 2,580

Share-based compensation expense 381 949

Deferred income taxes 480 ( 42 )

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Proceeds from sale of property, plant, and equipment 1,035 36

Cash paid for post-closing adjustments on sale of business — ( 3,880 )

Cash settlements of interest rate swap — ( 15,420 )

Net cash used in investing activities ( 3,962 ) ( 4,226 )

Cash flows from financing activities

Cash paid for debt issuance costs ( 136 ) ( 7,360 )

Proceeds from issuance of preferred stock — 61,793

Redemption of preferred stock — ( 122,434 )

Proceeds from long-term debt 17,000 8,000

Repayments of long-term debt ( 17,832 ) ( 8,729 )

Repayments of short-term debt, net — ( 1,563 )

Cash paid for debt issuance costs ( 55 ) —

Proceeds from short-term debt, net 2,923 —

Other ( 785 ) ( 787 )

Net cash provided by financing activities 1,441 4,519

Net cash provided by (used in) financing activities 1,251 ( 1,516 )

Effect of exchange rate changes on cash flows 222 2,936

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Notes to Condensed Consolidated Financial Statements

September 30, 2022

March 31, 2023

Interim Financial Statements

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Securities and Exchange Commission (the “SEC”) on March 10, 2023.

In management’s opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary to fairly state our results of operations for the three and nine months ended September 30, 2022 and 2021;

financial position as of September 30, 2022 and December 31, 2021;

and cash flows for the nine months ended September 30, 2022 and 2021, on a basis consistent with our audited consolidated financial statements.

financial position as of March 31, 2023 and December 31, 2022;

and cash flows for the three months ended March 31, 2023 and 2022, on a basis consistent with our audited consolidated financial statements.

These adjustments are of a normal recurring nature and are, in the opinion of management, necessary to state fairly the Company’s financial position and operating results for the interim periods.

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These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes included in the 2022 Annual Report.

The results for the three and nine months ended September 30, 2022, are not necessarily indicative of results for the year ending December 31, 2022, or any other future periods.

The results for the three months ended March 31, 2023, are not necessarily indicative of results for the year ending December 31, 2023, or any other future periods.

Except for per share data or as otherwise indicated, all U.S.

dollar amounts and share counts presented in the tables in these Notes to Condensed Consolidated Financial Statements are in thousands.

Accounting Standards Recently Adopted

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity.

Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models required under current U.S.

In addition, ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception.

Further, for the diluted earnings-per-share calculation, the new guidance requires entities to use the if-converted method for all convertible instruments and generally requires entities to include the effect of share settlement for instruments that may be settled in cash or shares, among other things.

The adoption of ASU 2020-06 effective January 1, 2022 did not have a material impact on our consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange.

Specifically, ASU 2021-04 requires the issuer to treat a modification of an equity-classified warrant as an exchange of the original warrant.

The difference between the fair value of the modified warrant and the fair value of the warrant immediately before modification is then recognized as an issuance cost or discount of the related transaction.

Since we do not have any equity-classified written call options that would be subject to this guidance, the adoption of ASU 2021-04 did not have any impact on our consolidated financial statements and related disclosures during the nine months ended September 30, 2022.

Accounting Standards Not Yet Adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which requires business entities to provide certain annual disclosures when

they have received government assistance and use a grant or contribution accounting model by analogy to other accounting guidance.

Such disclosures include the nature of the transactions, significant terms and conditions, accounting policies, and affected financial statement line items.

ASU 2021-10 may be applied either prospectively or retrospectively.

We are in the process of assessing the impact ASU 2021-10 may have on our annual disclosures for the year ending December 31, 2022.

Accounts Receivable Sales Programs

We participate in programs established by our customers which allows us to sell certain receivables from that customer on a non-recourse basis to a third-party financial institution.

During the three months ended March 31, 2023, we incurred fees of $ 0.2 million related to the sale of receivables which is recorded in the Other income, net line item on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Assets Held For Sale

Due to a strategic shift to focus on growth opportunities and ongoing efforts to optimize the Company’s manufacturing footprint, we plan to cease manufacturing operations at several facilities during 2023, including our Irvine and Taunton locations.

We are in the process of selling machinery and equipment from these locations, which are a part of our Power Solutions segment, and recognized a $ 0.5 million loss on sales during the three months ended March 31, 2023, which is included in the Other operating expense, net line item on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

In addition, there is machinery and equipment with a net book value of $ 0.8 million which we sold in the second quarter of 2023 that is classified as held for sale as of March 31, 2023 and is included in the Other current assets line item on the Condensed Consolidated Balance Sheets.

Segment Information

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• Mobile Solutions, which is focused on growth in the automotive and general industrial end markets;

• Power Solutions, which is focused on growth in the electrical, general industrial, automotive, aerospace, defense, and medical end markets.

• Power Solutions, which is focused on growth in the electrical, general industrial, automotive, and medical end markets.

These divisions are considered our two operating segments as each engages in business activities for which it earns revenues and incurs expenses, discrete financial information is available for each, and this is the level at which the chief operating decision maker reviews discrete financial information for purposes of allocating resources and assessing performance.

The following tables present results of operations by reportable segment.

Solutions Power

Solutions Corporate

Consolidations Total

Three Months Ended September 30, 2022

Net sales $ 76,122 $ 51,124 $ 51 (a) $ 127,297

Income (loss) from operations ( 474 ) 2,582 ( 4,225 ) ( 2,117 )

Interest expense ( 3,746 )

Loss from operations before income taxes and share of net income from joint venture $ ( 4,707 )

Three Months Ended September 30, 2021

Net sales $ 68,586 $ 48,680 $ ( 22 ) (a) $ 117,244

Income (loss) from operations ( 257 ) 1,252 ( 5,607 ) ( 4,612 )

Interest expense ( 3,578 )

Loss from operations before income taxes and share of net income from joint venture $ ( 3,844 )

Solutions Power

Solutions Corporate

Consolidations Total

Nine Months Ended September 30, 2022

Net sales $ 225,542 $ 155,184 $ — $ 380,726

Income (loss) from operations 3,224 4,376 ( 17,651 ) ( 10,051 )

Interest expense ( 10,673 )

Loss from operations before income taxes and share of net income from joint venture $ ( 16,505 )

Nine Months Ended September 30, 2021

Net sales $ 220,248 $ 147,026 $ ( 69 ) (a) $ 367,205

The following table presents our financial performance by reportable segment.

Three Months Ended

Mobile Solutions $ 78,018 $ 76,070

Power Solutions 49,072 52,011

Intersegment sales eliminations ( 2 ) ( 14 )

Total $ 127,088 $ 128,067

Income (loss) from operations:

Interest expense ( 9,175 )

Other ( 3,352 )

Loss from operations before income taxes and share of net income from joint venture $ ( 17,749 )

_______________________________

(a) Includes elimination of intersegment transactions occurring during the ordinary course of business.

Mobile Solutions $ ( 3,319 ) $ 1,969

Power Solutions 1,747 364

Corporate ( 5,503 ) ( 5,753 )

Total $ ( 7,075 ) $ ( 3,420 )

Inventories are comprised of the following amounts:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Raw materials $ 31,462 $ 32,146

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Total inventories $ 81,778 $ 80,682

Intangible Assets, Net

Intangible Assets

The following table shows changes in the carrying amount of intangible assets, net, by reportable segment.

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Amortization ( 839 ) ( 2,725 ) ( 3,564 )

Balance as of September 30, 2022 $ 23,194 $ 54,764 $ 77,958

Balance as of March 31, 2023 $ 21,517 $ 47,810 $ 69,327

Intangible assets are reviewed for impairment when changes in circumstances indicate the carrying value of those assets may not be recoverable.

As of September 30, 2022, our market capitalization remained at a level that was less than the net book value of our stockholders’ equity.

The decline in our market capitalization during the nine months ended September 30, 2022 was a triggering event that caused us to perform impairment analyses on our long-lived assets.

Based on our analyses, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the nine months ended September 30, 2022.

As of March 31, 2023, our market capitalization was at a level that was less than the net book value of our stockholders’ equity, which was deemed a triggering event that caused us to perform impairment analyses on our long-lived assets.

Based on our analyses, the carrying values of the long-lived assets were recoverable and no impairment charge was recorded during the three months ended March 31, 2023.

Investment in Joint Venture

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Share of earnings 281

Dividends paid by joint venture ( 6,245 )

Foreign currency translation loss ( 3,542 )

Balance as of September 30, 2022 $ 28,193

Our effective tax rate was 22.7 % and ( 9.2 )% for the three and nine months ended September 30, 2022, respectively, and ( 9.8 )% and 3.5 % for the three and nine months ended September 30, 2021, respectively.

The effective tax rates for the three and nine months ended September 30, 2022 differ from the U.S.

federal statutory tax rate of 21 % primarily due to the accrual of tax on non-permanently reinvested unremitted earnings of foreign subsidiaries and by limitation on the amount of tax benefit recorded for loss carryforwards in certain jurisdictions where we believe it is more likely than not that a portion of the future tax benefit may not be realized.

In addition, the effective tax rate was favorably impacted by the recording of interest income on the Company’s federal income tax refund requested as a result of the CARES act.

On March 22, 2021, we entered into a new $ 150.0 million term loan facility (the “Term Loan Facility”) and a new $ 50.0 million asset backed credit facility (the “ABL Facility”).

The following table presents debt balances as of September 30, 2022 and December 31, 2021.

September 30, 2022 December 31, 2021

Foreign currency translation gain 129

Balance as of March 31, 2023 $ 32,212

Our effective tax rate was ( 14.2 )% and ( 39.6 )% for the three months ended March 31, 2023 and 2022, respectively.

The effective tax rates for the three months ended March 31, 2023 differ from the U.S.

portion of the future tax benefit may not be realized.

In addition, the effective tax rate was unfavorably impacted by the U.S.

tax on the earnings of foreign subsidiaries under the global intangible low-taxed income regime.

On March 22, 2021, we entered into a new $ 150.0 million term loan facility (as amended from time to time, the “Term Loan Facility”) and a new $ 50.0 million asset backed credit facility (as amended from time to time, the “ABL Facility”).

On March 3, 2023, we amended the Term Loan Facility (the “Term Loan Amendment”) and ABL Facility to adjust certain covenants under the agreements, as well as to replace references to LIBOR with secured overnight finance rate (“SOFR”) for interest rate calculations.

The following table presents the outstanding debt balances.

March 31, 2023 December 31, 2022

Term Loan Facility $ 147,000 $ 147,375

ABL Facility 1,000 1,000

International lines of credit and other loans 8,436 10,930

International loans 11,290 8,729

Total principal 159,290 157,104

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_______________________________

(1) In addition to this amount, costs of $ 0.7 million and $ 0.7 million related to the ABL Facility were recorded in other non-current assets as of September 30, 2022 and December 31, 2021, respectively.

(1) In addition to this amount, costs of $ 0.6 million and $ 0.6 million related to the ABL Facility were recorded in other non-current assets as of March 31, 2023 and December 31, 2022, respectively.

Term Loan Facility

Outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month LIBOR (subject to a 1.000 % floor) plus an applicable margin of 6.875 % or 2) the greater of various benchmark rates plus an applicable margin of 5.875 %.

At September 30, 2022, the Term Loan Facility bore interest, based on one-month LIBOR, at 9.990 %.

We have an interest rate swap, which expires in July 2024, that changes the one-month LIBOR to a fixed rate of 1.291 % on $ 60.0 million of the outstanding balance of the Term Loan Facility.

The Term Loan Facility requires quarterly principal payments of $ 0.4 million with the remaining unpaid principal amount due on the final maturity date of September 22, 2026.

Effective March 31, 2023, outstanding borrowings under the Term Loan Facility bear interest at either 1) one-month, three-month, or six-month SOFR with a duration adjustment (“Adjusted SOFR”), subject to a 1.000 % floor, plus an applicable margin of 6.875 %, or 2) the greater of various benchmark rates plus an applicable margin of 5.875 %.

At March 31, 2023, the Term Loan Facility bore interest, based on one-month Adjusted SOFR, at 11.782 %.

Beginning with the second quarter of 2023, interest is increased on a paid-in-kind basis at a rate between 0.50 % and 2.00 % (“PIK interest”), dependent on the Company’s leverage ratio and whether the Company completes a qualifying junior equity raise by June 30, 2023.

The PIK interest is payable on the loan maturity date of September 22, 2026.

The Term Loan Facility requires quarterly principal payments of $ 0.4 million with the remaining unpaid principal amount due at the loan maturity date.

We may be required to make additional principal payments annually that are calculated as a percentage of our excess cash flow, as defined by the lender, based on our net leverage ratio.

The Term Loan Facility is collateralized by all of our assets.

The Term Loan Facility has a first lien on all assets other than accounts receivable and inventory and has a second lien on accounts receivable and inventory.

On March 3, 2022, we amended our Term Loan Facility, which increased the quarterly maximum consolidated net leverage ratio.

We were in compliance with all requirements under the Term Loan Facility as of September 30, 2022.

The Term Loan Facility was issued at a $ 3.8 million discount and we capitalized an additional $ 2.8 million in new debt issuance costs.

The Term Loan Facility has a first lien on all domestic assets other than accounts receivable and inventory and has a second lien on domestic accounts receivable and inventory.

We were in compliance with all requirements under the Term Loan Facility as of March 31, 2023.

The Term Loan Facility was issued at a $ 3.8 million discount and we have capitalized an additional $ 5.3 million in debt issuance costs.

These costs are recorded as a direct reduction to the carrying amount of the associated long-term debt and amortized over the term of the debt.

We had an interest rate swap that changed the one-month LIBOR to a fixed rate of 1.291 % on $ 60.0 million of the outstanding balance of the Term Loan Facility.

During the first quarter of 2023, we terminated the interest rate swap and received cash proceeds of $ 2.5 million which was equal to its fair value.

The ABL Facility provides for a senior secured revolving credit facility in the amount of $ 50.0 million, of which $ 30.0 million is available in the form of letters of credit and $ 5.0 million is available for the issuance of short-term swingline loans.

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Outstanding borrowings under the ABL Facility bear interest on a variable rate structure plus an interest rate spread that is based on the average amount of aggregate revolving commitment available.

The variable borrowing rate is either 1) LIBOR plus an applicable margin of 1.75 % or 2.00 %, depending on availability, or 2) the greater of the federal funds rate or prime, plus an applicable margin of 0.75 % or 1.00 %, depending on availability.

We may elect whether to use one-month, three-month, or six-month LIBOR, subject to a 0.50 % floor.

Interest payments are due monthly on borrowings that utilize one-month LIBOR and quarterly on borrowings that utilize three-month or six-month LIBOR.

At September 30, 2022, using one-month LIBOR plus a 1.75 % spread, the weighted average interest rate on outstanding borrowings under the ABL Facility was 4.56 %.

Effective March 3, 2023, the variable borrowing rate is either 1) Adjusted SOFR plus an applicable margin of 1.75 % or 2.00 %, depending on availability, or 2) the greater of the federal funds rate or prime, plus an applicable margin of 0.75 % or 1.00 %, depending on availability.

We may elect whether to use one-month, three-month, or six-month Adjusted SOFR.

At March 31, 2023, using one-month Adjusted SOFR plus a 2.00 % margin, the weighted average interest rate on outstanding borrowings under the ABL

Facility was 6.89 %.

We pay a commitment fee of 0.375 % for unused capacity under the ABL Facility and a 2.125 % fee on the amount of letters of credit outstanding.

The final maturity date of the ABL Facility is March 22, 2026.

As of September 30, 2022, we had $ 6.0 million of outstanding borrowings under the ABL Facility, $ 11.1 million of outstanding letters of credit, and $ 32.1 million available for future borrowings under the ABL Facility.

The ABL Facility has a first lien on accounts receivable and inventory.

We were in compliance with all requirements under the ABL Facility as of September 30, 2022.

As of March 31, 2023, we had $ 1.0 million of outstanding borrowings under the ABL Facility, $ 10.9 million of outstanding letters of credit, and $ 32.5 million available for future borrowings under the ABL Facility.

The ABL Facility has a first lien on domestic accounts receivable and inventory.

We were in compliance with all requirements under the ABL Facility as of March 31, 2023.

The following table contains supplemental cash flow information related to leases.

Nine Months Ended

September 30,

Three Months Ended

Cash paid for amounts included in the measurement of lease liabilities:

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Management believes the indemnification would include amounts owed for the tax, interest, and penalties related to this matter.

Accordingly, we do not expect to incur a loss related to this matter even in the event of an unfavorable decision and, therefore, have not accrued an amount for the remaining matters as of September 30, 2022.

Securities Offering Matter

On November 1, 2019, Erie County Employees’ Retirement System, on behalf of a purported class of plaintiffs, filed a complaint in the Supreme Court of the State of New York, County of New York against us, certain of our current and former officers and directors, and each of the underwriters involved in our public offering and sale of 14.4 million shares of our common stock pursuant to a preliminary prospectus supplement, dated September 10, 2018, a final prospectus supplement, dated September 13, 2018, and a base prospectus, dated April 19, 2017, relating to our effective shelf registration statement on Form S-3 (File No.

333-216737) (the “Offering”).

The amended complaint alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 in connection with the Offering.

On July 25, 2022, the parties filed a Stipulation of Settlement, which is subject to court approval, to settle the securities offering action.

Under the terms of the Stipulation of Settlement, the Company and/or its insurance carrier will make a cash payment to the plaintiff in the amount of $ 9.5 million (the “Settlement Amount”), in exchange for which the Company and the other named defendants will be released from all claims related to the securities offering action.

As of September 30, 2022, we have

previously paid covered expenses totaling $ 1.0 million meeting our directors' and officers' retention requirement and therefore the Settlement Amount will be covered and paid by our directors' and officers' insurance carrier.

Other Legal Matters

On April 25, 2022, we reached an agreement to settle breach of contract claims brought by a former customer regarding the sale of products by us in 2016.

Under the agreement, we are paying $ 1.8 million to the customer in specified installments through July 2023.

The $ 1.8 million settlement is included in the Other operating expense (income), net line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

All other legal proceedings are of an ordinary and routine nature and are incidental to our operations.

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Series D Perpetual Preferred Stock

On March 22, 2021, we completed a private placement of 65 thousand shares of newly designated Series D Perpetual Preferred Stock, with a par value of $ 0.01 per share (the “Series D Preferred Stock”), at a price of $ 1,000 per share, together with detachable warrants (the “2021 Warrants”) to purchase up to 1.9 million shares of our common stock at an exercise price of $ 0.01 per share.

On March 22, 2021, we completed a private placement of 65,000 shares of newly designated Series D Perpetual Preferred Stock, with a par value of $ 0.01 per share (the “Series D Preferred Stock”), at a price of $ 1,000 per share, together with detachable warrants (the “2021 Warrants”) to purchase up to 1.9 million shares of our common stock at an exercise price of $ 0.01 per share.

The Series D Preferred Stock has an initial liquidation preference of $ 1,000 per share and is redeemable at our option in cash at a redemption price equal to the liquidation preference then in effect.

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Note 15 discusses the accounting for these features.

As of September 30, 2022, the carrying value of the Series D Preferred Stock shares was $ 61.8 million, which included $ 15.1 million of accumulated unpaid and deemed dividends.

The following table presents the change in the Series D Preferred Stock carrying value during the nine months ended September 30, 2022.

As of March 31, 2023, the carrying value of the Series D Preferred Stock shares was $ 67.8 million, which included $ 21.1 million of accumulated unpaid and deemed dividends.

The following table presents the change in the Series D Preferred Stock carrying value during the three months ended March 31, 2023.

Balance as of December 31, 2022 $ 64,701

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Amortization 641

Balance as of September 30, 2022 $ 61,786

Balance as of March 31, 2023 $ 67,752

Revenue from Contracts with Customers

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Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or services.

During the nine months ended September 30, 2022, we received equipment from a customer as part of the selling price of goods transferred.

This noncash consideration was recognized as revenue equal to the fair value of the equipment received.

The following tables summarize revenue by customer geographical region.

Three Months Ended September 30, 2022 Mobile

Solutions Power

Solutions Intersegment

Eliminations Total

United States and Puerto Rico $ 35,419 $ 39,579 $ 51 $ 75,049

China 12,839 1,378 — 14,217

Brazil 14,109 137 — 14,246

Mexico 5,185 4,769 — 9,954

Germany 1,432 84 — 1,516

Poland 1,100 2 — 1,102

Other 6,038 5,175 — 11,213

Total net sales $ 76,122 $ 51,124 $ 51 $ 127,297

Three Months Ended September 30, 2021 Mobile

Solutions Power

Solutions Intersegment

Eliminations Total

United States and Puerto Rico $ 35,812 $ 38,313 $ ( 22 ) $ 74,103

China 10,849 749 — 11,598

Brazil 8,951 192 — 9,143

Mexico 4,981 4,627 — 9,608

Germany 1,080 159 — 1,239

Poland 698 3 — 701

Other 6,215 4,637 — 10,852

Total net sales $ 68,586 $ 48,680 $ ( 22 ) $ 117,244

Nine Months Ended September 30, 2022 Mobile

Three Months Ended March 31, 2023 Mobile

Solutions Power

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Total net sales $ 78,018 $ 49,072 $ ( 2 ) $ 127,088

Nine Months Ended September 30, 2021 Mobile

Three Months Ended March 31, 2022 Mobile

Solutions Power

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Our products in the automotive industry include high-precision components and assemblies for electric power steering systems, electric braking, electric motors, fuel systems, emissions control, transmissions, moldings, stampings, sensors, and electrical contacts.

Our products in the general industrial industry

include high-precision metal and plastic components for a variety of industrial applications including diesel industrial motors, heating and cooling systems, fluid power systems, power tools, and more.

Our products in the general industrial industry include high-precision metal and plastic components for a variety of industrial applications including diesel industrial motors, heating and cooling systems, fluid power systems, power tools, and more.

While many of the industries we serve include electrical components, our products in the residential/commercial electrical industry category in the following tables include components used in smart meters, charging stations, circuit breakers, transformers, electrical contact assemblies, precision stampings, welded contact assemblies, and specification plating and surface finishing.

Three Months Ended September 30, 2022 Mobile

Solutions Power

Solutions Intersegment

Eliminations Total

Automotive $ 51,388 $ 10,822 $ — $ 62,210

General Industrial 19,546 14,751 — 34,297

Residential/Commercial Electrical — 17,025 — 17,025

Other 5,188 8,526 51 13,765

Total net sales $ 76,122 $ 51,124 $ 51 $ 127,297

Three Months Ended September 30, 2021 Mobile

Solutions Power

Solutions Intersegment

Eliminations Total

Automotive $ 43,486 $ 9,892 $ — $ 53,378

General Industrial 21,396 15,186 — 36,582

Residential/Commercial Electrical — 16,078 — 16,078

Other 3,704 7,524 ( 22 ) 11,206

Total net sales $ 68,586 $ 48,680 $ ( 22 ) $ 117,244

Nine Months Ended September 30, 2022 Mobile

Three Months Ended March 31, 2023 Mobile

Solutions Power

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Total net sales $ 78,018 $ 49,072 $ ( 2 ) $ 127,088

Nine Months Ended September 30, 2021 Mobile

Three Months Ended March 31, 2022 Mobile

Solutions Power

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Deferred revenue relates to payments received in advance of performance under the contract and recognized as revenue as (or when) we perform under the contract.

The balance of deferred revenue was $ 0.6 million and $ 0.5 million as of September 30, 2022 and December 31, 2021, respectively.

Revenue recognized for performance obligations satisfied or partially satisfied during the nine months ended September 30, 2022 included $ 0.5 million that was included in deferred revenue as of December 31, 2021.

The balance of deferred revenue was $ 1.2 million and $ 0.7 million as of March 31, 2023 and December 31, 2022, respectively.

Revenue recognized for performance obligations satisfied or partially satisfied during the three months ended March 31, 2023 included $ 0.3 million that was included in deferred revenue as of December 31, 2022.

Transaction Price Allocated to Future Performance Obligations

We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of September 30, 2022, unless our contracts meet one of the practical expedients.

We are required to disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of March 31, 2023, unless our contracts meet one of the practical expedients.

Our contracts met the practical expedient for a performance obligation that is part of a contract that has an original expected duration of one year or less.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Stock options $ 37 $ 59 $ 124 $ 207

Restricted stock $ 167 604

Performance share units 200 289

Change in estimate of share-based award vesting (1)

( 684 ) — ( 684 ) ( 337 )

Stock options 14 $ 56

Share-based compensation expense $ 381 $ 949

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(1) Amounts reflect the decrease in share-based compensation expense based on the change in estimate of the probability of vesting of share-based awards.

S tock Options

The following table presents stock option activity for the nine months ended September 30, 2022.

Number of Options

(in thousands) Weighted-

(per share) Weighted-

Term Aggregate

Outstanding at January 1, 2022 621 $ 12.24

Expired ( 79 ) 9.71

Outstanding at September 30, 2022 542 $ 12.61 3.6 years $ — (1)

Exercisable at September 30, 2022 515 $ 12.77 3.4 years $ — (1)

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(1) The aggregate intrinsic value is the sum of intrinsic values for each exercisable individual option grant.

The intrinsic value is the amount by which the closing market price of our stock at September 30, 2022 was greater than the exercise price of any individual option grant.

Restricted Stock

During the nine months ended September 30, 2022, we granted 897 thousand shares of restricted stock to non-executive directors, officers and certain other key employees under the NN, Inc.

2019 Omnibus Incentive Plan (“2019 Omnibus Plan”).

The shares of restricted stock granted during the nine months ended September 30, 2022, vest pro-rata generally over three years for employees and over one year for non-executive directors.

We determined the fair value of the shares awarded by using the closing price of our common stock as of the date of grant.

The weighted average grant date fair value of restricted stock granted in the nine months ended September 30, 2022, was $ 3.31 per share.

Total grant date fair value of restricted stock that vested in the nine months ended September 30, 2022, was $ 2.1 million.

The following table presents the status of unvested restricted stock awards as of September 30, 2022 and changes during the nine months then ended.

(in thousands) Weighted

The following table presents the status of unvested restricted stock awards as of March 31, 2023 and changes during the three months then ended.

Shares Weighted Average Grant-Date

Unvested at January 1, 2023 1,038 $ 4.03

Granted 897 3.31

Vested ( 642 ) 4.33

Forfeited ( 11 ) 4.37

Unvested at September 30, 2022 1,064 $ 4.02

Performance Share Units

Performance Share Units (“PSUs”) are a form of long-term incentive compensation awarded to executive officers and certain other key employees designed to directly align the interests of employees to the interests of our stockholders, and to create long-term stockholder value.

Some PSUs are based on total shareholder return (“TSR Awards”), and other PSUs are based on return on invested capital (“ROIC Awards”).

TSR Awards granted in 2022 were made pursuant to the 2019 Omnibus Plan and a Performance Share Unit Agreement (the “2019 Omnibus Agreement”).

ROIC Awards granted in 2022 were made pursuant to the NN, Inc.

2022 Omnibus Incentive Plan and a Performance Share Unit Agreement.

The TSR Awards vest, if at all, upon our achieving a specified relative total shareholder return, which will be measured against the total shareholder return of a specified index during specified performance periods as defined in the 2019 Omnibus Agreement.

The ROIC Awards vest, if at all, upon our achieving a specified average return on invested capital during the performance periods.

Each performance period generally begins on January 1 of the year of grant and ends 3 years later on December 31.

We recognize compensation expense over the performance period in which the performance and market conditions are measured.

If the PSUs do not vest at the end of the performance periods, then the PSUs will expire automatically.

Upon vesting, the PSUs will be settled by the issuance of shares of our common stock, subject to the award recipient’s continued employment.

The actual number of shares of common stock to be issued to each award recipient at the end of the performance periods will be interpolated between a threshold and maximum payout amount based on actual performance results.

No dividends will be paid on outstanding PSUs during the performance period;

however, dividend equivalents will be paid based on dividends declared and the number of shares of common stock that are ultimately earned at the end of the performance periods.

The following table presents the goals with respect to PSUs granted in 2022.

(25% of Shares) Target Performance

(100% of Shares) Maximum Performance

(150% of Shares)

TSR Awards 25 th Percentile 55 th Percentile 75 th Percentile

(50% of Shares) Target Performance

(100% of Shares) Maximum Performance

(150% of Shares)

ROIC Awards 6.4 % 8.6 % 10.0 %

We estimate the grant date fair value of TSR Awards using the Monte Carlo simulation model, as the total shareholder return metric is considered a market condition under ASC Topic 718, Compensation – stock compensation .

The grant date fair value of ROIC Awards is based on the closing price of a share of our common stock on the date of grant.

The following table presents the status of unvested PSUs as of September 30, 2022 and changes during the nine months then ended.

Nonvested TSR Awards Nonvested ROIC Awards

(in thousands) Weighted

(per share) Shares

(in thousands) Weighted

Nonvested at January 1, 2022 194 $ 9.59 228 $ 8.14

Granted 382 2.53 408 2.62

Nonvested at September 30, 2022 576 $ 4.90 636 $ 4.60

Unvested at March 31, 2023 396 $ 3.55

Total grant date fair value of restricted stock that vested in the three months ended March 31, 2023, was $ 2.8 million.

Accumulated Other Comprehensive Income

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Foreign Currency Translation Interest rate swap Income taxes (1) Total

Balance as of June 30, 2022 $ ( 37,906 ) $ 2,207 $ ( 468 ) $ ( 36,167 )

Other comprehensive income (loss) before reclassifications ( 7,653 ) 1,145 ( 241 ) ( 6,749 )

Amounts reclassified from AOCI to interest expense (2) — ( 146 ) 30 ( 116 )

Net other comprehensive income (loss) ( 7,653 ) 999 ( 211 ) ( 6,865 )

Balance as of September 30, 2022 $ ( 45,559 ) $ 3,206 $ ( 679 ) $ ( 43,032 )

Balance as of June 30, 2021 $ ( 29,819 ) $ — $ — $ ( 29,819 )

Other comprehensive income (loss) before reclassifications ( 2,612 ) ( 229 ) 53 ( 2,788 )

Amounts reclassified from AOCI to interest expense (2) — 29 ( 7 ) 22

Net other comprehensive income (loss) ( 2,612 ) ( 200 ) 46 ( 2,766 )

Balance as of September 30, 2021 $ ( 32,431 ) $ ( 200 ) $ 46 $ ( 32,585 )

Foreign Currency Translation Interest rate swap Income taxes (1) Total

Balance as of December 31, 2022 $ ( 40,172 ) $ 3,149 $ ( 97 ) $ ( 37,120 )

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Net other comprehensive income (loss) 1,840 ( 795 ) 97 1,142

Balance as of September 30, 2022 $ ( 45,559 ) $ 3,206 $ ( 679 ) $ ( 43,032 )

Balance as of March 31, 2023 $ ( 38,332 ) $ 2,354 $ — $ ( 35,978 )

Balance as of December 31, 2021 $ ( 32,016 ) $ 151 $ ( 37 ) $ ( 31,902 )

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Amounts reclassified from AOCI to interest expense (2) — 44 ( 10 ) 34

Amounts reclassified from AOCI to loss on interest rate swap (3) — 3,712 ( 861 ) 2,851

Net other comprehensive income (loss) 2,600 1,547 ( 326 ) 3,821

Balance as of September 30, 2021 $ ( 32,431 ) $ ( 200 ) $ 46 $ ( 32,585 )

Balance as of March 31, 2022 $ ( 29,416 ) $ 1,698 $ ( 363 ) $ ( 28,081 )

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(2) Represents interest rate swap settlements of effective hedge.

(3) Represents reclassification of derivative loss and settlements after discontinuation of hedge accounting.

Net Income (Loss) Per Common Share

In accordance with ASC 260, Earnings Per Share, a company that has participating securities is required to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS.

The two-class method is an allocation of earnings between the holders of common stock and a company’s participating securities.

Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

To calculate diluted EPS, basic EPS is further adjusted to include the effect of potentially dilutive stock options, warrants, and convertible preferred stock.

Net Loss Per Common Share

The following table summarizes the computation of basic and diluted net loss per common share.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net loss $ ( 10,175 ) $ ( 3,302 )

Preferred stock cumulative dividends and deemed dividends ( 2,783 ) ( 2,314 ) ( 7,979 ) ( 19,054 )

Numerator for basic and diluted undistributed net loss per common share (1) $ ( 4,998 ) $ ( 5,691 ) $ ( 22,063 ) $ ( 32,735 )

Adjustment for preferred stock cumulative dividends and deemed dividends ( 3,051 ) ( 2,538 )

Numerator for basic and diluted net loss per common share $ ( 13,226 ) $ ( 5,840 )

Weighted average common shares outstanding 43,847 43,308

Adjustment for unvested restricted common stock ( 1,065 ) ( 476 ) ( 918 ) ( 459 )

Adjustment for participating securities ( 742 ) ( 608 )

Adjustment for warrants outstanding (1) 2,204 1,894

Shares used to calculate net loss per share, basic and diluted 44,711 44,455 44,670 43,862

Per common share net loss:

Shares used to calculate basic and diluted net loss per share 45,309 44,594

Basic and diluted net loss per common share $ ( 0.29 ) $ ( 0.13 )

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(1) Preferred Stock does not participate in losses.

(2) Weighted average 2021 Warrants outstanding are included in shares outstanding for calculation of basic earnings per share because they are exercisable at an exercise price of $ 0.01 per share, subject to certain adjustments (see Note 15).

(1) Outstanding warrants that are exercisable at an exercise price of $ 0.01 per share, are included in shares outstanding for calculation of basic earnings per share (see Note 15).

The following table presents securities that could be potentially dilutive in the future that were excluded from the calculation of diluted net loss per common share because they had an anti-dilutive effect.

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Options 516 600

2019 Warrants 1,500 1,500

2,042 2,252 2,063 2,312

We have elected to allocate undistributed income to participating securities based on year-to-date results.

As there was no undistributed income for the nine months ended September 30, 2022, no such allocation was necessary.

In addition, given the undistributed loss in the three and nine months ended September 30, 2022 and 2021, options and the 2019 Warrants are considered anti-dilutive and were excluded from the calculation of diluted net loss per share.

Stock options excluded from the calculations of diluted net loss per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the three months ended

September 30, 2022, and $ 7.93 to $ 25.16 for the three months ended September 30, 2021.

Stock options excluded from the calculations of diluted net loss per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the nine months ended September 30, 2022, and $ 7.93 to $ 25.16 for nine months ended September 30, 2021.

The 2019 Warrants excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2022 and 2021, had a per share exercise price of $ 11.49 .

Stock options excluded from the calculations of diluted net loss per share had a per share exercise price ranging from $ 7.93 to $ 25.16 for the three and three months ended March 31, 2023.

The 2019 Warrants excluded from the calculation of diluted net loss per share had a per share exercise price of $ 11.49 .

Fair Value Measurements

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We followed consistent methods and assumptions to estimate fair values as more fully described in the 2022 Annual Report.

Fair value principles prioritize valuation inputs across three broad levels.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value.

An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement.

Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives, and long-term debt.

As of September 30, 2022, the carrying values of these financial instruments approximated fair value.

Derivative Financial Instruments

Certain features were bifurcated and accounted for separately from the Series B Preferred Stock, which was redeemed in March 2021.

The following feature was recorded as a derivative.

In conjunction with our placement of the Series B Preferred Stock in December 2019, we issued detachable warrants to purchase up to 1.5 million shares of our common stock (the “2019 Warrants”), which are exercisable, in full or in part, at any time prior to December 11, 2026, at an exercise price of $ 11.49 per share.

Certain features were bifurcated and accounted for separately from the Series D Preferred Stock that was issued on March 22, 2021.

The following features were recorded as derivatives.

• Change-in-control put feature.

Embedded Derivatives

In accordance with ASC 815-15, Derivatives and Hedging - Embedded Derivatives , certain features of our preferred stock and long term debt were bifurcated and accounted for as derivatives separately.

In conjunction with the Term Loan Amendment, we issued detachable warrants to purchase up to 1.0 million shares of our comment stock at an exercise price of $ 0.01 per share (the “2023 Warrants”).

The 2023 Warrants are exercisable, in full or in part, at any time prior to March 3, 2033.

The 2023 Warrants include anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events.

In addition, we are obligated to issue 1.0 million warrants in the second quarter of 2023, subject to a contingency that expires June 30, 2023.

The contingently issuable warrants would have the same terms and conditions as the 2023 Warrants.

In conjunction with our placement of the Series D Preferred Stock, we issued the 2021 Warrants to purchase up to 1.9 million shares of our common stock.

The 2021 Warrants are exercisable, in full or in part, at any time prior to March 22, 2027, at an

exercise price of $ 0.01 per share, subject to anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events.

The Series D Preferred Stock includes a put feature that allows the holder to redeem the Series D Preferred Stock upon a change in control at the greater of 1) the liquidation preference plus accrued dividends or 2) 140 % of the liquidation preference.

The put feature is considered a redemption right at a premium and is not clearly and closely related to the debt host.

In conjunction with our placement of the Series D Preferred Stock, we issued detachable warrants to purchase up to 1.9 million shares of our common stock.

The 2021 Warrants are exercisable, in full or in part, at any time prior to March 22, 2027, at an exercise price of $ 0.01 per share, subject to anti-dilution adjustments in the event of certain future equity issuances, stock splits, stock dividends, combinations or similar events.

The following tables show the liabilities measured at fair value for the Preferred Stock derivatives as of September 30, 2022 and December 31, 2021.

Fair Value Measurements as of September 30, 2022

Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs

Derivative liability - other non-current liabilities 3,230 — 136

Fair Value Measurements as of December 31, 2021

Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs

Derivative liability - other non-current liabilities 7,771 — 453

The following table presents the change in the Preferred Stock derivatives during the nine months ended September 30, 2022.

In conjunction with our placement of the Series B Preferred Stock, we issued detachable warrants to purchase up to 1.5 million shares of our common stock at an exercise price of $ 11.49 per share (the “2019 Warrants”).

The 2019 Warrants, are exercisable, in full or in part, at any time prior to December 11, 2026 and are subject to anti-dilution adjustments in the event of future below market issuances, stock splits, stock dividends, combinations or similar events.

The following table presents the change in the liability balance of the embedded derivatives during the three months ended March 31, 2023.

Balance as of December 31, 2022 $ 2,959

Issuances 2,712

Change in fair value (1) ( 2,009 )

Balance as of September 30, 2022 $ 3,366

Balance as of March 31, 2023 $ 3,662

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(1) Changes in the fair value are recognized in the “Other expense (income), net” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The fair value of the change-in-control put feature utilizes unobservable inputs based on the Company’s assessment of the probability of a change-in-control event occurring in a future period.

The probability of a change-in-control event ranged from 3 % to 10 % as of September 30, 2022.

(1) Changes in the fair value are recognized in the “Other income, net” line in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The following tables show the fair values of the embedded derivatives within the fair value hierarchy.

March 31, 2023 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Derivative liability - other non-current liabilities 3,055 — 607

December 31, 2022 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Derivative liability - other non-current liabilities 2,831 — 128

The fair value of the 2019 Warrants is determined using a valuation model that utilizes unobservable inputs to determine the probability that the 2019 Warrants will remain outstanding for future periods.

The probabilities resulted in a weighted average term of 2.9 years as of September 30, 2022, and 3.6 years as of December 31, 2021.

The fair value of the 2021 Warrants is determined using the observable market price of a share of our common stock, less the $ 0.01 per share exercise price.

Interest Rate Swaps

We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt.

We utilize fixed-rate interest rate swap agreements to change the variable interest rate to a fixed rate on a portion of our variable rate debt.

The probabilities resulted in a weighted average term of 2.9 years as of March 31, 2023 and December 31, 2022.

The fair value of the 2021 Warrants and 2023 Warrants is determined using the observable market price of a share of our common stock, less the $ 0.01 per share exercise price.

The fair value of the change-in-control put feature utilizes unobservable inputs based on the Company’s assessment of the probability of a change-in-control event occurring in a future period.

The probability of a change-in-control event ranged from 3 % to 10 % as of March 31, 2023 and December 31, 2022.

Interest Rate Swap

On July 22, 2021, we entered into a fixed-rate interest rate swap agreement to change the LIBOR-based component of the interest rate on a portion of our variable rate debt to a fixed rate of 1.291 % (the “2021 Swap”).

The 2021 Swap has a notional amount of $ 60.0 million and a maturity date of July 31, 2024.

The objective of the 2021 Swap is to eliminate the variability of cash flows in interest payments on the first $ 60.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates.

The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term.

The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt.

We designated the 2021 Swap as a cash flow hedge at inception.

Cash settlements of the 2021 Swap are recognized in interest expense.

On February 8, 2019, we entered into a $ 700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575 % (the “2019 Swap”).

On March 22, 2021, we terminated the 2019 Swap with a $ 13.7 million cash payment in connection with the extinguishment of our previously outstanding long-term variable-rate debt.

The 2019 Swap was designated as a cash flow hedge at inception.

However, in the fourth quarter of 2020, the 2019 Swap no longer qualified as an effective hedge, and subsequent changes in fair value of the 2019 Swap were recognized in earnings.

Amounts recognized in earnings related to the 2019 Swap are recorded in the “Loss on interest rate swap” line on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) except that cash settlements prior to termination are recognized in “Derivative payments on interest rate swap.” Cash settlements during 2021 are presented in investing activities on the Condensed Consolidated Statements of Cash Flows.

The following table presents the effect of the interest rate swaps on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The 2021 Swap had a notional amount of $ 60.0 million and a maturity date of July 31, 2024.

We designated the 2021 Swap as a cash flow hedge at inception with cash settlements recognized in interest expense.

During the first quarter of 2023, we terminated the 2021 Swap and received cash proceeds of $ 2.5 million which was the fair value of the 2021 Swap.

Since the 2021 Swap was an effective cash flow hedge and the forecasted interest payments remaining probable of occurring, the gain will be recognized as a reduction to interest expense through the original maturity date of July 31, 2024.

The following table presents the effects of the interest rate swap on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Interest expense (1) $ ( 146 ) $ 29 $ ( 64 ) $ 29

Derivative payments on interest rate swap (2) — — — 1,717

Loss on interest rate swap (2) — — — 2,033

Interest expense (benefit) (1) $ ( 468 ) $ 44

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(1) Represents settlements on the interest rate swaps while the hedges are effective.

(2) Represents settlements and changes in fair value on the 2019 Swap.

The following tables present the assets and liabilities measured at fair value on a recurring basis for the interest rate swaps as of September 30, 2022 and December 31, 2021.

Fair Value Measurements as of September 30, 2022

Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs

(1) Represents settlements on the interest rate swap.

The following table shows the fair value of the interest rate swap within the fair value hierarchy.

December 31, 2022 Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

Derivative asset - other current assets $ — $ 2,130 $ —

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Total $ — $ 3,153 $ —

Fair Value Measurements as of December 31, 2021

Description Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs

Derivative asset - other non-current assets $ — $ 284 $ —

Derivative liability - other current liabilities — ( 129 ) —

Total $ — $ 155 $ —

The inputs for determining fair value of the interest rate swaps are classified as Level 2 inputs.

Level 2 fair value is based on estimates using standard pricing models.

These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces.

Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance.

Fixed Rate Debt

The fair value of our outstanding fixed-rate debt included in the “International lines of credit and other loans” line item within Note 7 to these Notes to Condensed Consolidated Financial Statements approximated carrying value as of September 30, 2022 and December 31, 2021, respectively.

These fair values represent Level 2 under the three-tier hierarchy described above.

The carrying value of this fixed-rate debt was $ 8.4 million and $ 10.9 million as of September 30, 2022 and December 31, 2021, respectively.

The fair value of the interest rate swap is calculated through standard pricing models which use inputs derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces.

The counterparty to these derivative contracts is a highly rated financial institution which we believe carries only a minimal risk of nonperformance.

Fair Value Disclosures

Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, and debt.

As of March 31, 2023 and December 31, 2022, the carrying values of these financial instruments, except for debt, approximated fair value.

The fair value of our debt was $ 156.0 million and $ 155.2 million, with a carrying amount of $ 152.5 million and $ 152.7 million, as of March 31, 2023 and December 31, 2022, respectively.

The fair value of debt was calculated by discounting the future cash flows to its present value using prevailing market interest rates for debt with similar creditworthiness, terms and maturities and is considered a Level 3 fair value measurement.

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-Q

Item 1. Financial Statements