NovoCure Ltd 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. We encourage you to read this MD&A in conjunction with our unaudited consolidated financial statements and the notes thereto for the period ended March 31, 2024 included in Part I, Item 1 of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. Please refer to the information under the heading “Cautionary Note Regarding Forward-Looking Statements” elsewhere in this report. References to the words “we,” “our,” “us,” and the “Company” in this report refer to NovoCure Limited, including its consolidated subsidiaries. Critical Accounting Policies and Estimates In accordance with U.S. generally accepted accounting principles (“GAAP”), in preparing our financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of net revenues and expenses during the reporting period. We develop and periodically change these estimates and assumptions based on historical experience and on various other factors that we believe are reasonable under the circumstances. Actual results may differ from these estimates. The critical accounting policies requiring estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "2023 10-K"). For additional information, see Note 1 to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report. There were no other material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our 2023 10-K. Overview We are a global oncology company with a proprietary platform technology called Tumor Treating Fields ("TTFields"), which are electric fields that exert physical forces to kill cancer cells via a variety of mechanisms. Our key priorities are to drive commercial adoption of Optune Gio ® and Optune Lua ® , our commercial TTFields therapy devices, and to advance clinical and product development programs intended to extend overall survival in some of the most aggressive forms of cancer. Optune Gio is approved by the U.S. Food and Drug Administration ("FDA") under the Premarket Approval ("PMA") pathway for the treatment of adult patients with newly diagnosed glioblastoma ("GBM") together with temozolomide, a chemotherapy drug, and for adult patients with GBM following confirmed recurrence after chemotherapy as monotherapy treatment. We also have a CE certificate to market Optune Gio for the treatment of GBM in the European Union ("EU"), as well as approval or local registration in the United Kingdom ("UK"), Japan, Canada and certain other countries. Optune Lua is approved by the FDA under the Humanitarian Device Exemption ("HDE") pathway to treat malignant pleural mesothelioma and pleural mesothelioma (together, "MPM") together with standard chemotherapies. We have also received CE certification in the EU and approval or local registration to market Optune Lua in certain other countries. We market Optune Gio and Optune Lua in multiple countries around the globe with the majority of our revenues coming from the use of Optune Gio in the U.S., Germany and Japan. We are actively evaluating opportunities to expand our international footprint. We believe the physical mechanisms of action behind TTFields therapy may be broadly applicable to solid tumor cancers. We are focusing our research and development activities in areas of greatest anticipated value creation. This includes non-small cell lung cancer, brain cancers, and pancreatic cancer. In 2023, we announced results from our phase 3 LUNAR study evaluating the use of TTFields together with standard therapies following platinum-based treatment failure in the treatment of patients with metastatic non-small cell lung cancer ("NSCLC"). Patients treated with TTFields therapy and standard therapies demonstrated a statistically significant and clinically meaningful improvement in overall survival over standard therapies alone. The LUNAR study also showed a statistically significant and clinically meaningful improvement in overall survival when patients were treated with TTFields therapy and immune checkpoint inhibitors, as compared to those treated with immune checkpoint inhibitors alone, and a positive trend in overall survival when patients were treated with TTFields therapy and docetaxel versus docetaxel alone. In December 2023, we filed a PMA application with the FDA seeking approval for the use of TTFields therapy together with standard systemic therapies for the treatment of NSCLC following progression on or after platinum-based therapy. In January 2024, we announced the FDA had accepted this submission for filing. We completed the Day 100 meeting with the U.S. FDA regarding the PMA 18 Table of Contents application submission for Optune Lua in NSCLC based off of the LUNAR phase 3 clinical study. The FDA Day 100 meeting conversation was productive with no indication that the LUNAR PMA is tracking for an advisory panel. We anticipate the PMA decision in the second half of 2024. We have also filed applications for use to the necessary regulatory bodies in Europe and Japan. In March 2024, we announced the topline results of the phase 3 METIS trial, evaluating the use of TTFields therapy and supportive care for the treatment of patients with 1-10 brain metastases from NSCLC following stereotactic radiosurgery (“METIS”). The METIS trial met its primary endpoint, demonstrating a statistically significant improvement in time to intracranial progression for adult patients treated with Tumor Treating Fields (TTFields) therapy and supportive care compared to patients treated with supportive care alone. Patients treated with TTFields therapy and supportive care exhibited a median time to intracranial progression of 21.9 months compared to 11.3 months in patients treated with supportive care alone for brain metastasis (n=298; hazard ratio=0.67; P=0.016). Consistent with previous studies, TTFields therapy was well-tolerated with sustained quality of life and neurocognitive function. Baseline characteristics were well balanced between arms. Preliminary analyses of key secondary endpoints (time to neurocognitive failure, overall survival, and radiological response rate) did not demonstrate statistical significance. We plan to share the full analysis of the METIS trial data at the upcoming American Society of Clinical Oncology scientific congress in June. In March 2024, an exploratory subgroup analysis of the phase 3 INNOVATE-3 clinical trial was presented at the European Society of Gynaecological Oncology 2024 Congress. The randomized, phase 3 INNOVATE-3 trial evaluated the use of TTFields therapy together with paclitaxel in platinum-resistant ovarian cancer in patients with a maximum of five total prior lines of systemic therapy. While the INNOVATE-3 trial did not meet its primary overall survival endpoint in the intent-to-treat population, the exploratory subgroup analysis found that pegylated liposomal doxorubicin (PLD) -naïve patients randomized to receive TTFields therapy and paclitaxel demonstrated significant improvement in median overall survival compared to PLD-naïve patients treated with paclitaxel alone. These data provide valuable insights into the use of TTFields therapy in the treatment of solid tumors and will be informative in the design of future clinical trials. Novocure and investigators will continue to analyze the data from the INNOVATE-3 trial. We have several ongoing or planned trials which will further explore the use of TTFields therapy in the treatment of NSCLC, including the phase 3 LUNAR-2 trial, as well as the phase 2 KEYNOTE B36 and LUNAR-4 trials. In addition to our trials in NSCLC, we have multiple ongoing trials in our brain and pancreatic cancer programs, including the phase 3 TRIDENT, and PANOVA-3 trials, and the phase 2 PANOVA-4 trial. In March 2024, the FDA approved the Investigational New Drug application for the randomized, phase 3 KEYNOTE D58 clinical trial. This trial will evaluate the use of TTFields therapy together with temozolomide and pembrolizumab for the treatment of newly diagnosed GBM. We anticipate launching this trial in 2024. We anticipate expanding our clinical pipeline over time to study the safety and efficacy of TTFields therapy for additional solid tumor indications and combinations with other cancer treatment modalities. The table below presents the current status of the ongoing clinical trials in our pipeline and anticipated timing of data. 19 Table of Contents Our therapy is delivered through a medical device and we continue to advance our Products with the intention to extend survival and maintain quality of life for patients. We have several product development programs underway that are designed to optimize TTFields delivery to the target tumor and enhance patient ease of use. One of these initiatives is the launch of new arrays, which are thinner, lighter and more flexible. We have obtained a CE Mark and have begun rolling out our new arrays in multiple European countries. We submitted the new arrays for regulatory approval in the U.S. via a PMA supplement in 2023 and are awaiting a regulatory decision. In 2018, we granted Zai Lab (Shanghai) Co., Ltd. ("Zai") a license to commercialize our Products in China, Hong Kong, Macau and Taiwan ("Greater China") under a License and Collaboration Agreement (the "Zai Agreement"). The Zai Agreement also establishes a development partnership intended to accelerate the development of TTFields therapy in multiple solid tumor cancer indications. For additional information, see Note 13 to the 2023 10-K. We view our operations and manage our business in one operating segment. For the three months ended March 31, 2024, our net revenues were $138.5 million. Our net loss for the three months ended March 31, 2024 was $38.8 million. As of March 31, 2024, we had an accumulated deficit of $1,024.3 million. Impact of Current Events On October 7, 2023, the State of Israel was attacked by and subsequently declared war on Hamas. As of the date of this filing, we believe that there is no immediate risk to our business facilities or operations. Our supply chain teams are working to increase stock levels to mitigate distribution and service risks from our suppliers in Israel. Commentary on Results of Operations Net revenues . Our revenues are primarily derived from patients using our Products in our active markets. We charge for treatment with our Products on a monthly basis. Our potential net revenues per patient are determined by our ability to secure payment, the monthly fee we collect and the number of months that the patient remains on therapy. We also receive revenues pursuant to the Zai Agreement. For additional information regarding the Zai Agreement, see Note 13 to the Consolidated Financial Statements in our 2023 10-K. Cost of revenues. We contract with third parties to manufacture our Products. Our cost of revenues is primarily comprised of the following: • disposable arrays; • depreciation expense for the field equipment, including the electric field generator used by patients; • patient support and other personnel costs; and • overhead costs, such as facilities, freight and depreciation of property, plant and equipment associated with managing our inventory, warehousing and order fulfillment functions. Operating expenses. Our operating expenses consist of research, development and clinical studies, sales and marketing and general and administrative expenses. Personnel costs are a significant component for each category of operating expenses and consist of wages, benefits and bonuses. Personnel costs also include share-based compensation. Financial income (expenses), net . Financial income (expenses), net primarily consists of interest income from cash balances and short-term investments, credit facility interest expense and related debt issuance costs, and gains (losses) from foreign currency transactions. Our reporting currency is the U.S. dollar. We have historically held substantially all of our cash balances in U.S. dollar denominated accounts to minimize the risk of translational currency exposure. Results of Operations The following discussion provides an analysis of our results of operations and reasons for material changes therein for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The tables contained in this section report U.S. dollars in thousands (except share, patient, and prescription data). The following table sets forth our consolidated statements of operations data: 20 Table of Contents Three months ended March 31, 2024 2023 Unaudited Net revenues $ 138,503 $ 122,182 Cost of revenues 33,689 29,614 Gross profit 104,814 92,568 Operating costs and expenses: Research, development and clinical studies 51,598 59,704 Sales and marketing 55,206 51,169 General and administrative 39,530 41,944 Total operating costs and expenses 146,334 152,817 Operating income (loss) (41,520) (60,249) Financial income (expenses), net 9,878 9,169 Income (loss) before income taxes (31,642) (51,080) Income taxes 7,118 1,981 Net income (loss) $ (38,760) $ (53,061) Basic and diluted net income (loss) per ordinary share $ (0.36) $ (0.50) Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per share 107,266,198 105,667,072 The following table details the share-based compensation expense included in costs and expenses: Three months ended March 31, 2024 2023 Unaudited Cost of revenues $ 1,747 $ 2,006 Research, development and clinical studies 8,610 11,779 Sales and marketing 11,048 11,644 General and administrative 12,679 13,655 Total share-based compensation expense $ 34,084 $ 39,084 Key performance indicators We believe certain commercial operating statistics are useful to investors in evaluating our commercial business as they help our management team and investors evaluate and compare the adoption of our Products from period to period. The number of active patients on therapy is our principal revenue driver. An "active patient" is a patient who is receiving treatment under a commercial prescription order as of the measurement date, including patients who may be on a temporary break from treatment and who plan to resume treatment in less than 60 days. Prescriptions are a leading indicator of demand. A "prescription received" is a commercial order for Optune Gio or Optune Lua that is received from a physician certified to treat patients with our Products for a patient not previously on Optune Gio or Optune Lua. Orders to renew or extend treatment are not included in this total. 21 Table of Contents The following table includes certain commercial operating statistics for and as of the end of the periods presented. March 31, Operating statistics 2024 2023 Active patients at period end United States 2,137 2,168 International markets: Germany 540 477 Japan 379 382 Other international 789 440 International markets - Total 1,708 1,299 Total 3,845 3,467 Three months ended March 31, 2024 2023 Prescriptions received in period United States 990 1,051 International markets: Germany 206 208 Japan 91 72 Other international 356 165 International markets - Total 653 445 Total 1,643 1,496 Three months ended March 31, 2024 compared to three months ended March 31, 2023 Three months ended March 31, 2024 2023 % Change Net revenues $ 138,503 $ 122,182 13 % Net revenues. Net revenues increased 13% to $138.5 million for the three months ending March 31, 2024 from $122.2 million for the same period in 2023. For the three months ended March 31, 2024, the increase primarily resulted from $10.5 million of revenues from the successful launch in France and $5.3 million of revenues in the US due to improved approval rates. The improved approval rates in the U.S. resulted in $4.2 million of increased revenue from prior period claims, primarily from 2023. Three months ended March 31, 2024 2023 % Change Cost of revenues $ 33,689 $ 29,614 14 % Cost of revenues. Our cost of revenues for the three months ended March 31, 2024 was $33.7 million, an increase of 14% from $29.6 million for the same period in 2023. For the three months ended March 31, 2024, the increase in cost of revenues was primarily due to 11% growth in active patients and increased costs related to the ongoing launch of our next generation array. Excluding sales to Zai, cost of revenues per active patient per month was $2,715 for the three months ended March 31, 2024, an increase of 4% from $2,608 for the same period in 2023, primarily due to the ongoing launch of next generation arrays. Cost of revenues per active patient is calculated by dividing the cost of revenues for the quarter less equipment sales to Zai for the quarter by the average of the active patients at the end of the prior quarter and the ending active patients in the current quarter. This quarterly figure is then divided by three to estimate the monthly cost of revenues per active patient. Sales to Zai are deducted because they are sold at cost 22 Table of Contents and in anticipation of future royalties from Zai, and Zai patient counts are not included in our active patient population. Product sales to Zai totaled $2.7 million for the three months ended March 31, 2024 compared to $2.6 million million for the three months ended March 31, 2023. Gross margin was 76% for the three months ended March 31, 2024 compared to 76% for the three months ended March 31, 2023. We expect that our gross margins will continue to be impacted by current and future product enhancements, such as the ongoing launch of next generation arrays in the U.S. and our potential launch in NSCLC. We continue to focus on opportunities to increase efficiencies and scale within our supply chain. This includes evaluating new materials, manufacturers, and processes that could lead to lower costs. Operating Expenses. Three months ended March 31, 2024 2023 % Change Research, development and clinical studies $ 51,598 $ 59,704 (14) % Sales and marketing 55,206 51,169 8 % General and administrative 39,530 41,944 (6) % Total operating expenses $ 146,334 $ 152,817 (4) % Research, development and clinical study expenses. Research, development and clinical study expenses decreased 14% to $51.6 million for the three months ended March 31, 2024 from $59.7 million for the same period in 2023. For the three months ended March 31, 2024, the change resulted primarily from $5.5 million in decreased personnel expenses and $1.0 million in reduced direct clinical trial expenses driven by the timing of activities within the ongoing clinical trial portfolio. Total research and development expenses can fluctuate quarter-to-quarter dependent upon the amount of clinical research organization services delivered, clinical materials procured and the number of trials actively underway within a given quarter. Sales and marketing expenses. Sales and marketing expenses increased 8% to $55.2 million for the three months ended March 31, 2024 from $51.2 million for the same period in 2023. For the three months ended March 31, 2024, these changes were primarily driven by $1.7 million in sales force expansion and $1.7 million in increased marketing activities in anticipation of a potential launch in NSCLC. General and administrative expenses. General and administrative expenses decreased 6% to $39.5 million for the three-month period ended March 31, 2024 from $41.9 million for the same period in 2023. For the three months ended March 31, 2024, these changes were primarily due to lower personnel expenses. Three months ended March 31, 2024 2023 % Change Financial income (expenses), net $ 9,878 $ 9,169 8 % Financial income (expenses), net. Financial income increased $0.7 million or 8%, to $9.9 million for the three months ended March 31, 2024 from $9.2 million in income for the same period in 2023. For the three-month period ending March 31, 2024, the change from 2023 was primarily due to $2.1 million in increased interest income offset by a $1.3 million negative impact from foreign exchange. Three months ended March 31, 2024 2023 % Change Income taxes $ 7,118 $ 1,981 259 % Income taxes . Income taxes increased 259% to $7.1 million for the three months ended March 31, 2024 from $2.0 million for the same period in 2023. The change is driven by a decrease in tax benefits from share-based compensation and the utilization of tax credits in 2023 related to prior years. The increase also reflects a change in the mix of applicable statutory tax rates in active jurisdictions. 23 Table of Contents Non-GAAP financial measures We also measure our performance using a non-GAAP measurement of earnings before interest, taxes, depreciation, amortization and shared-based compensation (“Adjusted EBITDA”). We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because it helps investors evaluate and compare the results of our operations from period to period by removing the impact of earnings attributable to our capital structure, tax rate and material non-cash items, specifically share-based compensation. We calculate Adjusted EBITDA as operating income before financial expenses and income taxes, net of depreciation, amortization and share-based compensation. The following table reconciles net income (loss), which is the most directly comparable GAAP operating performance measure, to Adjusted EBITDA. Three months ended March 31, 2024 2023 % Change Net income (loss) $ (38,760) $ (53,061) (27) % Add: Income tax 7,118 1,981 259 % Add: Financial expenses (income), net (9,878) (9,169) 8 % Add: Depreciation and amortization 2,815 2,722 3 % EBITDA $ (38,705) $ (57,527) (33) % Add: Share-based compensation 34,084 39,084 (13) % Adjusted EBITDA $ (4,621) $ (18,443) (75) % Adjusted EBITDA increased by $13.8 million to $(4.6) million for the three months ended March 31, 2024 from $(18.4) million for the same period in 2023. This increase was primarily driven by revenue growth and an associated $12.2 million increase in gross margin. Actions taken during the November 2023 restructuring and a heightened focus on driving operational efficiencies reduced total operating expenses, excluding share-based compensation, by $2.1 million year-over-year. We intend to take actions that prioritize growth and maintain financial health and flexibility as we position our company for future profitability. Liquidity and Capital Resources We have incurred significant losses and cumulative negative cash flows from operations since our founding in 2000. As of March 31, 2024, we had an accumulated deficit of $1,024.3 million. To date, we have primarily financed our operations through the issuance and sale of equity and the proceeds from long-term loans. At March 31, 2024, we had $870.1 million in cash, cash equivalents and short-term investments, a decrease of $40.5 million compared to $910.6 million at December 31, 2023. We believe our cash, cash equivalents and short-term investments as of March 31, 2024 are sufficient for our operations for at least the next 12 months based on our existing business plan and our ability to control the timing of significant expense commitments. We expect that our operating expenses will continue to increase over the next several years and may outpace our gross profit as we prepare to expand into additional indications beyond GBM. As a result, we may need to raise additional capital to fund our operations. 24 Table of Contents The following summary of our cash flows for the periods indicated has been derived from our unaudited consolidated financial statements, which are included elsewhere in this Quarterly Report: Three months ended March 31, 2024 2023 Change % Change Net cash provided by (used in) operating activities $ (31,574) $ (16,727) $ (14,847) 89 % Net cash provided by (used in) investing activities 246,216 82,287 163,929 199 % Net cash provided by financing activities 213 5,204 (4,991) (96) % Effect of exchange rate changes on cash and cash equivalents (56) 41 (97) (237) % Net increase (decrease) in cash, cash equivalents and restricted cash $ 214,799 $ 70,805 $ 143,994 203 % Operating activities. Net cash used in or provided by operating activities represents our net income (loss) for the periods presented, share-based compensation and depreciation and amortization. Operating cash flows are also impacted by changes in working capital. Net cash used in operating activities increased by $14.8 million from $16.7 million net cash used in operating activities for the three months ended March 31, 2023 to $31.6 million net cash used in operating activities for the three months ended March 31, 2024. This increase was a result of net loss decreasing by $14.3 million, offset by a $27.5 million increase in working capital, a decrease of $2.7 million in cash to non-cash based expenses primarily consisting of shared-based compensation, and an increase of $1.1 million in other long term assets and liabilities. The $27.5 million increase in working capital includes a $17.8 million increase in accounts receivable, a decrease of $7.8 million in accounts payable and accrued expenses as well as an increase of $ 1.9 million in inventories. Investing activities. Our investing activities consist primarily of investments in and redemptions of our short-term investments as well as investments in property and equipment. Net cash provided by investing activities was $246.2 million for the three months ended March 31, 2024, compared to $82.3 million used in investing activities for the three months ended March 31, 2023. The $246.2 million net cash provided by investing activities for the three months ended March 31, 2024 was primarily attributable to $258.0 million of net proceeds from the maturity of short-term investments and the purchase of $11.8 million of property and equipment. The $82.3 million net cash provided by investing activities for the three months ended March 31, 2023 was primarily attributable to $88.4 million of net proceeds in short-term investments and by the purchase of $6.1 million of property and equipment. Financing activities. To date, our primary financing activities have been the sale of equity and the proceeds from long-term loans. Net cash provided by financing activities was $0.2 million for the three months ended March 31, 2024, as compared to $5.2 million provided by financing activities for the three months ended March 31, 2023. The net cash provided by financing activities for the three months ended March 31, 2024 and March 31, 2023 included proceeds from the exercise of options under the Company's stock option plan. Convertible Notes On November 5, 2020, we issued $575.0 million aggregate principal amount of 0% Convertible Senior Notes due 2025 (the “Notes”). The Notes are senior unsecured obligations. The Notes do not bear regular interest, and the principal amount of the Notes will not accrete. The Notes are convertible at an initial conversion rate of 5.9439 ordinary shares per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of approximately $168.24 per ordinary share. The Notes are convertible at the option of the holders upon the satisfaction of certain other conditions and during certain periods, and if the Company exercises its right to redeem the Notes as permitted or required by the indenture. On or after August 1, 2025 until the close of the business on the business day immediately preceding the maturity date, holders may convert all or any portion of their Notes at the conversion rate at any time irrespective of the foregoing conditions. In January 2021, we irrevocably elected to settle all conversions of Notes by a combination of cash and our ordinary shares and that the cash portion per $1,000 principal amount of Notes for all conversion settlements shall be $1,000. Accordingly, from and after the date of the election, upon conversion of any Notes, holders of Notes will 25 Table of Contents receive, with respect to each $1,000 principal amount of Notes converted, cash in an amount up to $1,000 and the balance of the conversion value, if any, in our ordinary shares. For more information, see Note 10a. to the Consolidated Financial Statements in the 2023 10-K. Term loan credit facility On May 1, 2024 Novocure Luxembourg S.a.r.l. ("Borrower"), our wholly-owned subsidiary, entered into a new five-year senior secured credit facility of up to $400.0 million (the "Facility") with BPCR Limited Partnership and BioPharma Credit Investments V (Master) LP (collectively, the "Lenders"), BioPharma Credit PLC, as collateral agent for the Lenders, and the guarantors party to such agreement (the "Loan Agreement"). The Facility may be drawn in up to four drawings. The Loan Agreement provides for an initial term loan in the principal amount of $100.0 million (the "Tranche A Loan"), which was funded to the Borrower on May 1, 2024 (the "Tranche A Funding Date"). Under the Loan Agreement, the Borrower is required to draw $100.0 million on the Facility on or before June 30, 2025 (the "Tranche B Loan"), subject to customary conditions precedent as set forth in the Loan Agreement. Not later than December 31, 2025, the Borrower has the option to draw an additional $100.0 million of the Facility (the "Tranche C Loan") if (i) (A) we have received positive results from our PANOVA-3 phase 3 clinical trial or (B) our trailing net revenues for the most recently completed four quarters as reported in our financial statements filed with the U.S. Securities and Exchange Commission ("Trailing Four Quarters of Net Revenue") are greater than $575.0 million and (ii) our Convertible Notes due 2025 are extinguished in full and are no longer outstanding. Not later than March 31, 2026, the Borrower has the option to draw an additional $100.0 million of the Facility (the "Tranche D Loan") if (i) we receive an approval or clearance from the U.S. Food and Drug Administration for our Tumor Treating Fields device for a pancreatic cancer indication or (ii) Trailing Four Quarters of Net Revenue is greater than $625.0 million. The obligations under the Loan Agreement are guaranteed by certain of our subsidiaries and secured by a first lien on the Borrower's and certain of our other subsidiaries’ assets. Outstanding term loans under the Loan Agreement will bear interest at an annual rate equal to 6.25% plus the three-month SOFR (subject to a 3.25% floor), payable quarterly in arrears and calculated on the basis of actual days elapsed in a 360-day year. The Borrower must pay 2.5% of additional consideration on each principal draw, with payment for the Tranche A Loan and the Tranche B Loan paid on the Tranche A Funding Date, and payments for the Tranche C Loan and the Tranche D Loan on their respective funding dates. Principal under the Facility will be repaid in eight equal quarterly repayments commencing with the third quarter of 2027 and continuing each quarter thereafter, with the final payment of outstanding principal due on the fifth anniversary of the Tranche A Funding Date. Voluntary prepayment of all, but not less than all, of the term loans outstanding is permitted at any time, subject to make-whole and prepayment premiums as set forth in the Loan Agreement. Prepayment of all term loans outstanding, subject to make-whole and prepayment premiums, is due and payable upon a change-in-control as defined in the Loan Agreement. Make-whole and prepayment premiums are due and payable for the Tranche B Loans for any voluntary prepayment of the term loans outstanding, upon a change-in-control (as defined in the Loan Agreement), and upon any acceleration of the maturity date, in each case regardless of whether the Tranche B Loan is drawn. The Loan Agreement contains a financial covenant only if the Tranche C Loan and/or Tranche D Loan are funded, in which case we are required to maintain at least Trailing Four Quarters of Net Revenue of at least $500.0 million, calculated on a trailing twelve-month basis as of the end of each fiscal quarter, beginning with the first quarter of 2027 based on year-end 2026 audited financial statements. Contractual Obligations and Commitments There have been no material changes from the information disclosed in our 2023 10-K. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under U.S. Securities and Exchange Commission (“SEC”) rules. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes from the information disclosed in our 2023 10-K.