Item 7. Management’s Discussion and Analysis
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Napco Security Technologies, Inc (“NAPCO”, “the Company”, “we”) is one of the leading manufacturers and designers of high-tech electronic security devices, wireless communication services for intrusion and fire alarm systems as well as a leading provider of school safety solutions. We offer a diversified array of security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. These products are used for commercial, residential, institutional, industrial and governmental applications, and are sold worldwide principally to independent distributors, dealers and installers of security equipment. We have experienced significant growth in recent years, primarily driven by fast growing recurring service revenues generated from wireless communication services for intrusion and fire alarm systems, as well as our school security products that are designed to meet the increasing needs to enhance school security as a result of on-campus shooting and violence in the U.S..
Since 1969, NAPCO has established a heritage and proven record in the professional security community for reliably delivering both advanced technology and high-quality security solutions, building many of the industry’s widely recognized brands, such as NAPCO Security Systems, Alarm Lock, Continental Access, Marks USA, and other popular product lines: including Gemini and F64-Series hardwire/wireless intrusion systems and iSee Video internet video solutions. We are also dedicated to developing innovative technology and producing the next generation of reliable security solutions that utilize remote communications and wireless networks, including our StarLink, iBridge, and more recently the iSecure product lines. Today, millions of businesses, institutions, homes, and people around the globe are protected by products from the NAPCO Group of Companies.
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Our net sales were $170.0 million, $143.6 million and $114.0 million for the fiscal years ended June 30, 2023, 2022 and 2021, respectively. The change in our net sales was driven primarily by increased sales of our recurring services ($14.0 million) and sales of equipment ($12.5 million) as compared to the same period a year ago. The increase in equipment sales was due primarily to the increased demand for the Company’s door-locking products. Our net income was $27.1 million, $19.6 million and $15.4 million for the fiscal years ended June 30, 2022, 2021 and 2020, respectively. The increases in net income during this period were due primarily to the growth of our cellular products and the associated recurring revenue business.
Economic and Other Factors
We are subject to the effects of general economic and market conditions. If the U.S. or international economic conditions deteriorate, our revenue, profit and cash-flow levels could be materially adversely affected in future periods. In the event of such deterioration, many of our current or potential future customers may experience serious cash flow problems and as a result may modify, delay or cancel purchases of our products. Additionally, customers may not be able to pay, or may delay payment of, accounts receivable that are owed to us. If such events do occur, they may result in our fixed and semi-variable expenses becoming too high in relation to our revenues and cash flows.
Seasonality
The Company's fiscal year begins on July 1 and ends on June 30. Historically, the end users of the Company’s hardware products want to install these products prior to the summer; therefore, sales of these products historically peak in the period April 1 through June 30, the Company's fiscal fourth quarter, and are reduced in the period July 1 through September 30, the Company's fiscal first quarter. In addition, demand for all of our products may be affected by the housing and construction markets. Deterioration of the current economic conditions may also affect this trend.
Critical Accounting Policies and Estimates
The Company’s significant accounting policies are fully described in Note 1 to the Company’s consolidated financial statements included in its 2023 Annual Report on Form 10-K. Management believes these critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.
For product sales, the Company typically transfers control at a point in time upon shipment or delivery of the product. For monthly communication services, the Company satisfies its performance obligation as the services are rendered over the course of the month and therefore recognizes revenue over the monthly period.
Typically timing of revenue recognition coincides with the timing of invoicing to the customers, at which time the Company has an unconditional right to consideration. As such, the Company typically records a receivable when revenue is recognized.
The contract with the customer states the final terms of the sale, including the description, quantity, and price of each product purchased. Payment for product sales is typically due within 30 and 180 days of the delivery date. Payment for monthly communication services is billed on a monthly basis and is typically due at the beginning of the month of service or in 30 days for customers with an open account.
The Company provides limited standard warranty for defective products, usually for a period of 24 to 36 months. The Company accepts returns for such defective products as well as for other limited circumstances. The Company also provides rebates to customers for meeting specified purchasing targets and other coupons or credits in limited circumstances. The Company establishes reserves for the estimated returns, rebates and credits and measures such variable consideration based on the expected value method using an analysis of historical data. Changes to the estimated variable consideration in subsequent periods are not material.
The Company analyzes equipment sales returns and is able to make reasonable and reliable estimates of product returns based on the Company’s past history. Estimates for sales returns are based on several factors including actual returns and based on
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expected return data communicated to it by its customers. Accordingly, the Company believes that its historical returns analysis is an accurate basis for its allowance for sales returns. Actual results could differ from those estimates. As a percentage of gross sales, sales returns, rebates and allowances were 7%, 10% and 10% for the fiscal years ended June 30, 2023, 2022 and 2021, respectively.
Reserve for Credit Losses
An entity is more vulnerable to concentrations of credit risk if it is exposed to risk of loss greater than it would have had if it mitigated its risk through diversification of customers. The Company had one customer with an accounts receivable balance that comprised 19%, 22% and 19% of the Company’s accounts receivable at June 30, 2023, 2022 and 2021, respectively. Sales to this customer did not exceed 10% of net sales during fiscal years ended June 30, 2023, 2022 and 2021. The Company had another customer with an accounts receivable balance that comprised 14% and 11% of the Company’s accounts receivable at June 30, 2023 and 2021, respectively. The customer accounts receivable balance did not exceed 10% at June 30, 2022. Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2023, 2022 and 2021, respectively. The Company had a third customer with an accounts receivable balance that comprised 16% and 12% of the Company’s accounts receivable at June 30, 2022 and 2021. The customer accounts receivable balance did not exceed 10% at June 30, 2023. Sales to this customer did not exceed 10% of net sales in any of the fiscal years ended June 30, 2023, 2022 and 2021.
In the ordinary course of business, we have established a reserve for credit losses and customer deductions in the amount of $131,000 and $243,000 as of June 30, 2023 and 2022, respectively. Our reserve for credit losses is a subjective critical estimate that has a direct impact on reported net earnings. This reserve is based upon the evaluation of accounts receivable agings, specific exposures and historical or anticipated events.
Inventories
Inventories are valued at the lower of cost or net realizable value, with cost being determined on the first-in, first-out (FIFO) method. The reported net value of inventory includes finished saleable products, work-in-process and raw materials that will be sold or used in future periods. Inventory costs include raw materials, direct labor and overhead. The Company’s overhead expenses are applied based, in part, upon estimates of the proportion of those expenses that are related to procuring and storing raw materials as compared to the manufacture and assembly of finished products. These proportions, the method of their application, and the resulting overhead included in ending inventory, are based in part on subjective estimates and actual results could differ from those estimates.
The Company records an inventory obsolescence reserve, which represents the difference between the cost of the inventory and its estimated realizable value. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, product life cycle, requirements to support forecasted sales, and the ability to find alternate applications of its raw materials and to convert finished product into alternate versions of the same product to better match customer demand. There is inherent professional judgment and subjectivity made by both production and engineering members of management in determining the estimated obsolescence percentage. In addition, and as necessary, the Company may establish specific reserves for future known or anticipated events. The Company also regularly reviews the period over which its inventories will be converted to sales. Any inventories expected to convert to sales beyond 12 months from the balance sheet date are classified as non-current.
Long-Lived and Intangible Assets
Long-lived assets are amortized over their useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets in question may not be recoverable. Impairment would be recorded in circumstances where undiscounted cash flows expected to be generated by an asset are less than the carrying value of that asset. Intangible assets determined to have indefinite lives were not amortized but were tested for impairment at least annually.
Income Taxes
The Company has identified the United States and New York State as its major tax jurisdictions. Fiscal year 2018 and forward years are still open for examination. In December 2022, the Company received a letter from the Internal Revenue Service (“IRS”) notifying the Company that the IRS has closed its examination of the Company’s income tax return for fiscal year ended June 30,
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2020. There has been no changes proposed in relation to this examination. In addition, the Company has a wholly-owned subsidiary which operates in a Free Zone in the Dominican Republic (“DR”) and is exempt from DR income tax.
For the year ended June 30, 2023, the Company recognized a net income tax expense of $4,101,000. During the year ending June 30, 2023, the Company increased its reserve for uncertain income tax positions by $22,000. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense and accrued income taxes. As of June 30, 2023, the Company had accrued interest totaling $139,000 and $700,000 of unrecognized net tax benefits that, if recognized, would favorably affect the Company’s effective income tax rate in any future period. The Company claims research and development (“R&D”) tax credits on eligible research and development expenditures. The R&D tax credits are recognized as a reduction to income tax expense.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company measures and recognizes the tax implications of positions taken or expected to be taken in its tax returns on an ongoing basis.
Leases
The Company records lease assets and corresponding lease liabilities for the operating lease on our Consolidated Balance Sheets, excluding short-term leases (leases with terms of 12 months or less). Lease payments are discounted using a third-party secured incremental borrowing rate based on information available at lease commencement. The Company analyzes whether or not amendments to existing leases classify as a Lease Modification or a full or partial termination of the existing lease. See Note 13 – Commitments and Contingencies; Leases for additional accounting policies and disclosures.
Liquidity and Capital Resources
During the year ended June 30, 2023, the Company utilized a portion of its cash as of June 30, 2022 ($30,598,000 of $41,730,000) to purchase property, plant and equipment ($2,963,000), marketable securities ($148,000) and other investments ($25,190,000) and to pay a cash dividend ($2,298,000). The Company believes its current working capital, cash flows from operations and its revolving credit agreement will be sufficient to fund the Company’s operations through the next twelve months.
As of June 30, 2023 and 2022, debt consisted of a revolving line of credit of $11,000,000 (“Revolver Agreement”), with no amounts outstanding, which expires in June 2024. As of June 30, 2021, the Company had term loans from the U.S. Small Business Administration totaling $3,904,000 through its Payroll Protection Program (“PPP”). The PPP Loans were entirely forgiven during first quarter of the fiscal year ending June 30, 2022. The revolving credit facility contains various restrictions and covenants including, among others, restrictions on borrowings and compliance with certain financial ratios, as defined in the agreement. The Company’s debt is described more fully in Note 8 to the condensed consolidated financial statements.
The Company believes its current working capital, anticipated cash flows from operations and its Revolving Credit Agreement will be sufficient to fund the Company’s operations through at least the next twelve months.
The Company takes into consideration several factors in measuring its liquidity, including the ratios set forth below:
As of June 30,
2023
2022
2021
Current Ratio
6.7 to 1
4.5 to 1
4.7 to 1
Sales to Receivables
6.5 to 1
4.9 to 1
4.1 to 1
Total debt to equity
0.0 to 1
0.0 to 1
0.0 to 1
As of June 30, 2022, the Company had no material commitments for capital expenditures or inventory purchases other than purchase orders issued in the normal course of business. On April 26, 1993, the Company's foreign subsidiary entered into a 99-year land lease
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of approximately 4 acres of land in the Dominican Republic, on which the Company’s principle manufacturing facility is located, at an annual base rent of approximately $235,000 and $105,000 in annual service charges. The service charges increase 2% annually over the remaining life of the lease.
Working Capital. Working capital increased by $18,531,000 to $111,673,000 at June 30, 2023 from $93,142,000 at June 30, 2022. Working Capital increased by $17,751,000 to $93,142,000 at June 30, 2022 from $75,391,000 at June 30, 2021.Working capital is calculated by deducting Current Liabilities from Current Assets.
Accounts Receivable. Accounts Receivable decreased by $3,149,000 to $26,069,000 at June 30, 2023 as compared to $29,218,000 at June 30, 2022. The decrease in Accounts Receivable was due primarily to a decrease in net sales of hardware for the quarter ended June 30, 2023 as compared to the same period a year ago. Accounts Receivable increased by $1,137,000 to $29,218,000 at June 30, 2022 as compared to $28,081,000 at June 30, 2021. The increase in Accounts Receivable was due primarily to an increase in net sales for the quarter ended June 30, 2022 as compared to the same period a year ago.
Inventories. Inventories, which include both current and non-current portions, decreased by $1,437,000 to $48,349,000 at June 30, 2023 as compared to $49,786,000 at June 30, 2022. The decrease was due primarily to lower costs of certain component part as well as lower freight costs in fiscal 2023, both of which had increased in price due to the supply chain shortages in fiscal 2022. Inventories increased by $18,086,000 to $49,786,000 at June 30, 2022 as compared to $31,700,000 at June 30, 2021. The increase was due primarily to higher costs of component parts and freight-in. The increase was also due to the ongoing shortages of certain component parts and the Company purchasing large quantities of these hard to source component parts when they become available.
Accounts Payable and Accrued Expenses. Accounts payable and accrued expenses, not including income taxes payable, decreased by $4,939,000 to $19,686,000 as of June 30, 2023 as compared to $24,625,000 at June 30, 2022. This decrease was primarily due to decreased purchases of component parts during the quarter ended June 30, 2023 as compared to the same period a year ago. Accounts payable and accrued expenses, not including income taxes payable, increased by $8,470,000 to $24,625,000 as of June 30, 2022 as compared to $16,155,000 at June 30, 2021. This increase was primarily due to increased purchases of component parts during the quarter ended June 30, 2022 as compared to the same period a year ago as well as an increase in the Company’s accrued refund liability, which is explained in Note 2 to the Notes to the Company’s Consolidated Financial Statements.
Off-Balance Sheet Arrangements
The Company does not maintain any off-balance sheet arrangements.
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Results of Operations
Fiscal 2023 Compared to Fiscal 2022
Fiscal year ended June 30, (dollars in thousands)
% Increase/
2023
2022
(decrease)
Net sales: equipment revenues
$
110,062
$
97,612
12.8
%
service revenues
59,935
45,981
30.3
%
169,997
143,593
18.4
%
Gross Profit: equipment
19,865
19,141
3.8
%
services
53,368
40,015
33.4
%
73,233
59,156
23.8
%
Gross profit as a % of net sales
43.1
%
41.2
%
4.6
%
equipment
18.0
%
19.6
%
(8.2)
%
services
89.0
%
87.0
%
2.3
%
Research and development
9,328
8,024
16.3
%
Selling, general and administrative
33,580
32,907
2.0
%
Selling, general and administrative as a % of net sales
19.8
%
22.9
%
(13.5)
%
Operating Income
30,325
18,225
66.4
%
Interest Income (expense), net
822
(16)
(5,237.5)
%
Other Income (expense), net
81
(266)
(130.8)
%
Gain on extinguishment of debt
—
3,904
100.0
%
Provision for income taxes
4,101
2,247
82.5
%
Net income
27,127
19,599
38.4
%
Net sales in fiscal 2023 increased by $26,404,000 to $169,997,000 as compared to $143,593,000 in fiscal 2022. The increase in net sales was primarily due to increased sales of the Company’s recurring alarm communication services ($13,954,000), Alarm Lock brand door-locking products ($12,067,000), Marks brand door-locking products ($2,644,000) and Continental brand access control products ($916,000) as partially offset by a decrease in sales of Napco brand intrusion products ($3,178,000). The Company’s increase in equipment sales was primarily due to increased demand for door locking and access control products in the new construction and retrofit building markets. In addition, fiscal 2022 net sales of the Company’s cellular radio products benefited from dealers needing to replace their existing 3G radios with 4G or 5G models as the major cellular providers sunset their 3G networks. Fiscal 2023 returned to more normal sales levels.
The Company's gross profit increased by $14,077,000 to $73,233,000 or 43.1% of net sales in fiscal 2023 as compared to $59,156,000 or 41.2% of net sales in fiscal 2022. Gross profit on equipment sales was $19,865,000 or 18.0% of net equipment sales in fiscal 2023 and $19,141,000 or 19.6% of net equipment sales, in fiscal 2022. Gross profit on service revenues was $53,368,000 or 89.0% of net service revenues in fiscal 2023 and $40,015,000 or 87.0% of net service revenues, in fiscal 2022. The increase in Gross profit on equipment sales was primarily the result of the higher equipment sales, which increased overhead absorption, as partially offset by increased labor costs in both the U.S. and Dominican Republic as well as higher prices of certain component parts. The Company purchased these higher-priced components at a significant premium during the supply chain interruptions during the latter part of fiscal 2022 in order to continue to supply the Company’s communication devices that led to the creation of recurring service revenues for the Company. The prices of these components began decreasing during fiscal 2023.
Research and Development expenses increased by $1,304,000 to $9,328,000 in fiscal 2023 as compared to $8,024,000 in fiscal 2022. This increase was due primarily to salary increases and additional staff.
Selling, general and administrative expenses for fiscal 2023 increased by $673,000 to $33,580,000 as compared to $32,907,000 in fiscal 2022. Selling, general and administrative expenses as a percentage of net sales increased to 19.8% in fiscal 2023 from 22.9% in fiscal 2022. The increases in dollars resulted primarily from costs associated with the Company’s Form S-3 filing as well as increased credit card processing fees, as partially offset by lower legal and employee compensation costs.
Interest and other income/(expense), net for fiscal 2023 increased by $1,186,000 to income of $903,000 as compared to an expense of $283,000 for the same period a year ago. This increase was due primarily to the Company investing more of its cash into short term investments as described more fully in Note 1 and Note 4 to the consolidated financial statements.
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Gain on extinguishment of debt resulted from a one-time gain in fiscal 2022 which resulted from the forgiveness of the Company’s PPP loans as described in the Liquidity and Capital Resources section and Note 8 to the condensed consolidated financial statements.
The Company’s provision for income taxes for fiscal 2023 increased by $1,854,000 to $4,101,000 as compared to $2,247,000 for the same period a year ago. The Company’s effective tax rate for fiscal 2023 increased to 13% as compared to 10% for fiscal 2022. The increase in the Company’s fiscal 2023 effective tax rate is primarily due to the $3,904,000 in non-taxable income from a one-time extinguishment of debt included in fiscal 2022.
Net income for fiscal 2023 increased by $7,528,000 to $27,127,000 as compared to $19,599,000 in fiscal 2022. This resulted primarily from the items discussed above.
Results of Operations
Fiscal 2022 Compared to Fiscal 2021
Fiscal year ended June 30, (dollars in thousands)
% Increase/
2022
2021
(decrease)
Net sales: equipment revenues
$
97,612
80,131
21.8
%
service revenues
45,981
33,904
35.6
%
143,593
$
114,035
25.9
%
Gross Profit: equipment
19,141
21,730
(11.9)
%
services
40,015
29,018
37.9
%
59,156
50,748
16.6
%
Gross profit as a % of net sales
41.2
%
44.5
%
(7.4)
%
equipment
19.6
%
27.1
%
(27.7)
%
services
87.0
%
85.6
%
1.7
%
Research and development
8,024
7,620
5.3
%
Selling, general and administrative
32,907
25,196
30.6
%
Selling, general and administrative as a % of net sales
22.9
%
22.1
%
3.7
%
Operating Income
18,225
17,932
1.6
%
Interest expense, net
(16)
(18)
(11.1)
%
Other Income (expense), net
(266)
13
(2,146.2)
%
Gain on extinguishment of debt
3,904
—
—
%
Provision for income taxes
2,247
2,514
(10.6)
%
Net income
19,599
15,413
27.2
%
Net sales in fiscal 2022 increased by $29,558,000 to $143,593,000 as compared to $114,035,000 in fiscal 2021. The increase in net sales was primarily due to increased sales of the Company’s recurring alarm communication services ($12,077,000), Napco brand intrusion products ($11,699,000), Alarm Lock brand door-locking products ($3,136,000), Marks brand door-locking products ($1,533,000) and Continental brand access control products ($1,113,000). The Company’s increase in equipment sales was primarily due to customer demand returning after the decline during the COVID-19 pandemic and the related closures throughout the United States. In addition, fiscal 2022 net sales increased due, in part, to an increase in sales of the Company’s cellular radio products as the major cellular providers sunset their 3G networks.
The Company's gross profit increased by $8,408,000 to $59,156,000 or 41.2% of net sales in fiscal 2022 as compared to $50,748,000 or 44.5% of net sales in fiscal 2021. Gross profit on equipment sales was $19,141,000 or 19.6% of net equipment sales in fiscal 2022 and $21,730,000 or 27.1% of net equipment sales, in fiscal 2021. Gross profit on service revenues was $40,015,000 or 87.0% of net service revenues in fiscal 2022 and $29,018,000 or 85.6% of net service revenues, in fiscal 2021. Gross profit on equipment sales was primarily affected by increased costs of component parts and freight as well as the shift in sales to the Company’s Starlink radio products, which typically have lower margins but result in recurring service revenues.
Research and Development expenses increased by $404,000 to $8,024,000 in fiscal 2022 as compared to $7,620,000 in fiscal 2021. This increase was due primarily to salary increases and additional staff.
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Selling, general and administrative expenses for fiscal 2022 increased by $7,711,000 to $32,907,000 as compared to $25,196,000 in fiscal 2021. Selling, general and administrative expenses as a percentage of net sales increased to 22.9% in fiscal 2022 from 22.1% in fiscal 2021. The increases in dollars and as a percentage of net sales resulted primarily from increases in sales commissions, tradeshow, stock option and legal expenses.
Interest and other expense, net for fiscal 2022 remained relatively constant at $16,000 as compared to $5,000 for the same period a year ago.
Gain on extinguishment of debt resulted from a one-time gain in fiscal 2022 which resulted from the forgiveness of the Company’s PPP loans as described in the Liquidity and Capital Resources section and Note 8 to the condensed consolidated financial statements.
The Company’s provision for income taxes for fiscal 2022 decreased by $267,000 to $2,247,000 as compared to $2,514,000 for the same period a year ago. The Company’s effective tax rate decreased to 10% for fiscal 2022 as compared to 14% for fiscal 2021. The decrease in the Company’s fiscal 2022 effective tax rate is primarily due to the $3,904,000 in non-taxable income from extinguishment of debt.
Net income for fiscal 2022 increased by $4,186,000 to $19,599,000 as compared to $15,413,000 in fiscal 2021. This resulted primarily from the items discussed above.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the documents we incorporate by reference contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, included or incorporated in this prospectus regarding our strategy, future operations, clinical trials, collaborations, intellectual property, cash resources, financial position, future revenues, projected costs, prospects, plans, and objectives of management are forward-looking statements. The words “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “could,” “should,” “potential,” “likely,” “projects,” “continue,” “will,” “schedule,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. See “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2022 for more information. These factors and the other cautionary statements made in this prospectus and the documents we incorporate by reference should be read as being applicable to all related forward-looking statements whenever they appear in this prospectus and the documents we incorporate by reference. In addition, any forward-looking statements represent our estimates only as of the date that this prospectus is filed with the SEC and should not be relied upon as representing our estimates as of any subsequent date. We do not assume any obligation to update any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by law.