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Item 2. Management’s Discussion and Analysis

2021-01-05 compared with 2020-07-07 · 53 added, 98 removed, 75 unchanged (67% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for our fiscal year ended August 30, 2019 (our “Annual Report”).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q, and with the consolidated financial statements and management’s discussion and analysis of our financial condition and results of operations in our Annual Report on Form 10-K for our fiscal year ended August 28, 2020 (our “Annual Report”).

This discussion contains forward looking statements that involve risks and uncertainties.

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See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report.

The SMART lines of business are leading designers and manufacturers of electronic products focused on memory and computing technology areas.

The company specializes in application specific product development and support for customers in enterprise, government and OEM sales channels.

Customers rely on SMART as a strategic supplier with top tier customer service, product quality, and technical support with engineering, sales, manufacturing, supply chain and logistics capabilities worldwide.

The company targets customers in markets such as communications, storage, networking, mobile, industrial automation, industrial internet of things, government, military, edge computing and high performance computing.

SMART is comprised of business units that are leading designers and manufacturers of electronic products focused on computing and memory technology.

The company specializes in application-specific product development and support for customers in enterprise, government and original equipment manufacturer, or OEM, sales channels.

Customers rely on SMART businesses as their strategic suppliers with top tier customer service, product quality, and technical support with engineering, sales, manufacturing, supply chain and logistics capabilities worldwide.

The company supports customers in markets such as communications, storage, networking, mobile, industrial automation, industrial internet of things, government, military, and computing including edge and high performance computing.

SMART operates in three segments:

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Recent Developments – COVID 19

The outbreak of coronavirus disease 2019 (“COVID-19”) has resulted in millions of infections and hundreds of thousands of deaths worldwide, as of the date of filing of this Quarterly Report, and continues to spread in the United States, Asia, Europe and Brazil, the major markets in which we operate.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, among others, restrictions on travel and the imposition of stay-at-home or work remote or from home conditions and has otherwise caused consumers and businesses to reduce their activities and their spending.

These restrictions and reductions in activities have caused a slowdown in the economy and may have a negative impact on our sales and marketing, and our product development activities.

While we have not yet experienced a significant disruption of our operations as a result of the COVID-19 pandemic, the pandemic has resulted in reduced sales volumes of certain product lines within our SCSS business during the three months ended May 29, 2020 and if these conditions continue for an extended period of time, or if we have an outbreak in any of our facilities, such reduced sales volumes may continue or worsen and we may, among other issues, experience, in any or all product lines, delays in product development, a decreased ability to support our customers, disruptions in sales and manufacturing activities and an overall lack of productivity.

Similarly, while we have not yet experienced a major disruption in our supply chain as a result of the COVID-19 pandemic, if there is a significant outbreak or if travel restrictions or stay-at-home or work remote or from home conditions or other governmental or voluntary restrictions relating to the COVID-19 pandemic significantly impact our suppliers’ ability to manufacture or deliver raw materials or provide key components or services, we could experience delays or reductions in our ability to manufacture and ship products to our customers.

The pandemic may also impact the demand for our customers’ products or our customers’ ability to manufacture their products, which could reduce their demand for our products or services.

While we do not know and cannot quantify specific impacts, we expect we may be negatively affected if we encounter manufacturing or supply chain problems, reductions in demand due to disruptions in the operations of our customers or their end customers, disruptions in local and global economies, volatility in the global financial markets, overall reductions in demand, restrictions on the export or shipment of our products or other COVID-19 ramifications.

For a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in this Quarterly Report.

The outbreak of coronavirus disease 2019 (“COVID-19”) has resulted in several millions of infections and over one and a half million deaths worldwide, as of the date of filing of this Quarterly Report, and continues to spread in the United States, Asia, Europe and Brazil, the major markets in which we operate.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, and our operations as well as the operations of our suppliers, customers and third-party sales representatives and distributors have been and will continue to be disrupted by varying individual and governmental responses to COVID-19 around the world such as business shutdowns, stay-at-home directives, travel restrictions, border closures, and other travel or health-related restrictions as well as by absenteeism, quarantines, self-isolations, office and factory closures, delays on deliveries, and disruptions to ports and other freight infrastructure.

These restrictions have caused consumers and businesses to reduce their activities and their spending, have caused a slowdown in the global economy and have had, and may continue to have, a negative impact on our sales and marketing, and our product development activities.

While we have not yet experienced a significant disruption of our operations as a result of the COVID-19 pandemic, the pandemic has resulted in reduced sales volumes of certain product lines within our SCSS business in the second half of fiscal 2020 as well as in the first quarter of fiscal 2021, and if these conditions continue, or if we have an outbreak in any of our facilities, such reduced sales volumes may continue or worsen and we may, among other issues, experience, in any or all product lines, delays in product development, a decreased ability to support our customers, disruptions in sales and manufacturing activities and overall reduced productivity each of which could have a negative impact on our ability to meet customer commitments and on our revenue and profitability.

Results of Operations

The following is a summary of our results of operations for the three and nine months ended May 29, 2020 and May 31, 2019:

The following is a summary of our results of operations for the three months ended November 27, 2020 and November 29, 2019:

Three Months Ended

Nine Months Ended

(in thousands, other than percentages and per share data)

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Interest expense, net

Other expense, net

Other income (expense), net

Total other expense

Income (loss) before income taxes

Income before income taxes

Provision for income taxes

Net income (loss)

Earnings per share:

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Selling, general and administrative

Three and Nine Months Ended May 29, 2020 as Compared to the Three and Nine Months Ended May 31, 2019

Net sales increased by $45.6 million, or 19.4%, during the three months ended May 29, 2020 compared to the same period in the prior year, and decreased by $108.3 million, or 11.6% during the nine months ended May 29, 2020 compared to the same period in the prior year.

Net sales were positively impacted by higher overall revenue from SCSS of $25.0 million, or an increase of 69.5%, and $66.3 million, or an increase of 50.3%, for the three and nine-month periods, respectively, primarily driven by our two acquisitions in July 2019 which contributed $19.9 million and $67.0 million of revenue for the three and nine-month periods, respectively.

In addition, our sales of Specialty products had an increase of $28.9 million, or 29.3%, for the three-month period, primarily due to higher revenue from Specialty Flash and DRAM products resulting from 80% higher Flash average selling prices due to a change in product mix, as well as sales of new products and increased customer penetration.

In both the three and nine-month periods, net sales were negatively impacted by a decrease in Brazil product sales of $8.3 million, or a decline of 8.2%, and $163.0 million, or a decline of 36.4%, respectively.

The Brazil product sales decrease was primarily due to lower average selling prices for both DRAM products, having declines of 13% and 57%, respectively, and mobile memory having declines of 7% and 50%, respectively, for the three and nine-month periods.

Three Months Ended November 27, 2020 as Compared to the Three Months Ended November 29, 2019

Net sales increased by $19.7 million, or 7.2%, during the three months ended November 27, 2020 compared to the same period in the prior year.

Net sales were positively impacted by higher Specialty Memory product sales of $17.1 million, or 16.5%, primarily due to higher Flash and DRAM revenue resulting from higher average selling prices of 32% and 31%, respectively, mainly due to increased OEM sales as well as a change in product mix.

In addition, our sales of Brazil products increased by $11.2 million, or 11.9%, primarily due to 98% higher average selling prices for mobile memory.

The increases in Specialty and Brazil were partially offset by lower revenue from SCSS of $8.6 million, or 11.6%, primarily attributable to lower Penguin revenue, which was in turn primarily due to lower federal spending as a result of the global COVID-19 pandemic .

Cost of Sales

Cost of sales increased by $34.4 million, or 17.9%, during the three months ended May 29, 2020 compared to the same period in the prior year, and decreased by $83.1 million, or 11.1%, during the nine months ended May 29, 2020.

The increase for the three-month period was primarily due to higher cost of materials of $28.1 million (or 16.9%) due to the higher level of sales of Specialty and SCSS products, as well as additional production costs in Brazil and from our SCSS acquisitions.

The decrease for the nine-month period was primarily due to lower cost of materials of $90.8 million (or 13.8%) due to the lower level of sales, partially offset by higher production costs related to the increased revenue and additional costs from the SCSS acquisitions.

Included in the cost of sales changes were favorable foreign exchange impacts of $2.0 million and $3.4 million for the three and nine-month periods, respectively, due to locally sourced cost of sales in Brazil.

Gross margin increased to 19.3% in the three months ended May 29, 2020 compared to 18.3% in the same period in the prior year, and was relatively flat for both nine-month periods.

The increase in the three-month periods was primarily due to higher gross margin on the products from our SCSS acquisitions and lower manufacturing costs in Brazil due to favorable foreign exchange impact.

Cost of sales increased by $21.4 million, or 9.8%, during the three months ended November 27, 2020 compared to the same period in the prior year, primarily due to higher cost of materials of $20.4 million or 11.1%, due to the higher level of sales, as well as higher production costs related to the increased revenue.

Included in the cost of sales changes was a favorable foreign exchange impact of $2.5 million due to locally sourced cost of sales in Brazil .

Gross margin decreased to 18.0% during the three months ended November 27, 2020 compared to 20.0% for the same period in the prior year, primarily due to higher material costs for our Specialty Memory and Brazil products.

Research and Development Expense

Research and development (“R&D”) expense increased by $3.1 million, or 27.4%, during the three months ended May 29, 2020 compared to the same period in the prior year, and by $9.6 million, or 28.0%, during the nine months ended May 29, 2020 compared to the same period in the prior year.

The increase was primarily due to $3.4 million and $8.7 million in the three and nine-month periods, respectively, of higher costs from the addition of our SCSS acquisitions.

Included in the R&D expense increases were favorable foreign exchange impacts of $0.8 million and $1.2 million for the three and nine-month periods, respectively.

Research and development (“R&D”) expense decreased $7.9 million, or 53.2%, during the three months ended November 27, 2020 compared to the same period in the prior year, due to $7.9 million of Brazil financial credits resulting from amendments to the IT law implemented in April 2020.

For additional information, see Note 1(i) in our Notes to Unaudited Condensed Consolidated Financial Statements.

Included in the R&D expense increase was an unfavorable foreign exchange impact of $2.0 million.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense increased by $5.4 million, or 22.3%, during the three months ended May 29, 2020 compared to the same period in the prior year, and by $18.6 million, or 25.4%, during the nine months ended May 29, 2020 compared to the same period in the prior year.

The increases were primarily due to $6.0 million and $17.6 million in the three and nine-month periods, respectively, of higher costs from the addition of our SCSS acquisitions, as well as integration expenses associated with the acquisitions and additional facilities expense.

Included in the SG&A expense increase were favorable foreign exchange impacts of $0.5 million and $0.8 million for the three and nine-month periods, respectively.

Selling, general and administrative (“SG&A”) expense increased by $4.5 million, or 13.4%, during the three months ended November 27, 2020 compared to the same period in the prior year, primarily due to $5.0 million higher share-based compensation expense resulting from awards acceleration.

For additional information, see Note 9 in our Notes to Unaudited Condensed Consolidated Financial Statements.

Included in the SG&A expense increase was a favorable foreign exchange impact of $0.6 million.

Other Income (Expense)

Interest expense, net decreased $1.9 million, or 38.1%, during the three months ended May 29, 2020 compared to the same period in the prior year, and by $4.4 million, or 27.3%, during the nine months ended May 29, 2020 compared to the same period in the prior year, primarily due to lower interest expense resulting from the issuance of our convertible Notes and the extinguishment of the term loans in the second quarter of fiscal 2020.

See Note 7 for additional information .

Other expense, net increased by $3.5 million during the three months ended May 29, 2020 compared to the same period in the prior year primarily due to $2.9 million mark-to-market losses on the capped calls, and increased by $13.7 million during the nine months ended May 29, 2020 compared to the same period in the prior year, primarily due to $7.7 million mark-to-market losses on the capped calls and $6.8 million extinguishment loss of long-term debt, as well as foreign currency losses.

Interest expense, net decreased $1.3 million, or 29.8%, during the three months ended November 27, 2020 compared to the same period in the prior year, primarily due to lower interest expense resulting from the issuance of our convertible senior notes and the extinguishment of our term loans in the second quarter of fiscal 2020.

For additional information, see Note 7 in our Notes to Unaudited Condensed Consolidated Financial Statements.

Other income (expense), net increased by $1.7 million primarily due to foreign currency gains .

Provision for Income Taxes

Income tax expense includes a provision for federal, state and foreign taxes based on the annual estimated effective tax rate applicable to SMART, adjusted for certain discrete items which are fully recognized in the period they occur.

Provision for income taxes increased by $2.2 million and decreased by $8.4 million for the three and nine months ended May 29, 2020, respectively, as compared to the same periods in the prior year, primarily due to the profits and related taxes in non-U.S.

Provision for income taxes increased by $3.0 million for the three months ended November 27, 2020 compared to the same period in the prior year, primarily due to the profits and related taxes in non-U.S.

jurisdictions .

As of May 29, 2020, SMART has a full valuation allowance for our net deferred tax assets associated with our U.S.

As of November 27, 2020, SMART has a full valuation allowance for our net deferred tax assets associated with our U.S.

The amount of the deferred tax asset considered realizable could be adjusted if significant positive evidence increases.

Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment.

SMART calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which inv olves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction.

The estimates used could differ from actual results, which may have a significant impact on operating results in fu ture periods.

SMART calculates and provides for income taxes in each of the tax jurisdictions in which it operates, which involves estimating current tax exposures as well as making judgments regarding the recoverability of deferred tax assets in each jurisdiction.

The estimates used could differ from actual results, which may have a significant impact on operating results in future periods.

Liquidity and Capital Resources

Nine Months Ended

Three Months Ended

(in thousands)

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Cash used in investing activities

Cash provided by financing activities

Cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

At May 29, 2020, we had cash and cash equivalents of $131.8 million, of which approximately $106.6 million was held outside of the United States.

At November 27, 2020, we had cash and cash equivalents of $164.1 million, of which approximately $119.3 million was held outside of the United States.

In February 2020, we issued $250.0 million in aggregate principal amount of 2.25% convertible senior notes due 2026 for which we received proceeds of $243.1 million, net of issuance costs.

We used $204.9 million for extinguishment of long-term debt and $21.8 million for purchasing privately-negotiated capped calls.

See Note 7 for additional information.

In July 2019, we acquired SMART EC and SMART Wireless for purchase prices of approximately $78 million and $15 million, respectively.

We financed these acquisitions using cash from operations, as well as approximately $11 million in SGH ordinary shares issued in connection with the SMART Wireless acquisition.

See Note 2 for additional information.

In June 2018, we acquired Penguin for a purchase price of approximately $45 million and assumed approximately $32.3 million of Penguin’s outstanding indebtedness.

We financed the acquisition with net proceeds from the $60 million Incremental Amendment.

See Notes 2 and 7 for additional information.

We expect that our existing cash and cash equivalents, revolving line of credit and cash generated by operating activities will be sufficient to fund our operations for at least the next twelve months.

For additional information, see Note 7 in our Notes to Unaudited Condensed Consolidated Financial Statements.

We expect that our existing cash and cash equivalents, line of credit and cash generated by operating activities will be sufficient to fund our operations for at least the next twelve months.

Our principal uses of cash and capital resources are acquisitions, debt service requirements as described below, capital expenditures, R&D expenditures and working capital requirements.

We expect that future capital expenditures will focus on expanding capacity of our operations , expanding our R&D activities, manufacturing equipment upgrades, acquisitions and IT infrastructure and software upgrades.

We expect that future capital expenditures will focus on expanding capacity of our operations , expanding our R&D activities, manufacturing

equipment upgrades, acquisitions and IT infrastructure and software upgrades.

Cash and cash equivalents consist of funds held in demand deposit accounts and money market funds.

We do not enter into investments for trading or speculative purposes .

During the nine months ended May 29, 2020, cash provided by operating activities was $62.2 million.

The primary factors affecting our cash flows during this period were $65.3 million of non-cash related expenses and $5.6 million change in our net operating assets and liabilities, partially offset by $8.7 million of net loss.

The $5.6 million change in net operating assets and liabilities consisted of increases of $17.9 million in accounts receivable, $72.5 million in inventory and $1.1 million in prepaid expenses and other assets, and a decrease of $3.5 million of operating lease liabilities, offset by increases of $95.7 million of accounts payable and $4.9 million in accrued expense and other liabilities.

The increase in accounts receivable was primarily due to timing of sales, while the increases in inventory and accounts payable were primarily due to the transition of inventory from contract manufacturers to the company due to our recent acquisitions, as well as higher purchases for certain programs.

During the nine months ended May 31, 2019, cash provided by operating activities was $120.7 million.

During the three months ended November 27, 2020, cash provided by operating activities was $35.6 million.

The primary factors affecting our cash flows during this period were $23.3 million of non-cash related expenses, $10.3 million change in our net operating assets and liabilities, and $2.0 million of net income.

The $10.3 million change in net operating assets and liabilities consisted of increases of $1.9 million in accounts receivable and $9.3 million in prepaid expenses and other assets, and decreases of $1.5 million of operating lease liabilities and $7.9 million in accrued expense and other liabilities, offset by decreases of $12.9 million in inventory and an increase of $18.0 million of accounts payable.

The increase in accounts receivable was primarily due to timing of sales, and the increase in accounts payable was primarily due to timing of payments.

The decrease in inventory was primarily due to better efficiencies in managing our inventory along all business areas .

During the three months ended November 29, 2019, cash provided by operating activities was $25.3 million.

The primary factors affecting our cash flows during this period were $0.2 million of net income, $16.4 million of non-cash related expenses and a $8.6 million change in our net operating assets and liabilities.

The $38.8 million change in net operating assets and liabilities consisted of decreases of $7.7 million in accounts receivable, $82.8 million inventory and $1.8 million in prepaid expenses and other assets, offset by decreases of $44.9 million in accounts payable, $7.6 million in accrued expense and other liabilities.

The decreases in inventory and accounts payable were primarily due to the reduction of inventory along all business areas as product lead times and average selling prices reduced.

Net cash used in investing activities during the nine months ended May 29, 2020 was $16.7 million consisting primarily of purchases of property and equipment.

Net cash used in investing activities during the nine months ended May 31, 2019 was $30.2 million consisting primarily of purchases of property and equipment.

Net cash provided by financing activities during the nine months ended May 29, 2020 was $ 1 2 .8 million, consisting primarily of $243.1 million proceeds from issuance of convertible notes a nd $4.9 million proceeds from issuance of ordinary shares from share option exercises and employee share purchase plans, partially offset by $204.9 million payment for extinguishment of long-term debt, $21.8 million purchase of capped calls, $7.9 million l ong-term debt payments for both the Amended Credit Agreement and the BNDES Credit Agreement and $0.6 million for withholding tax on restricted stock units.

Net cash provided by financing activities during the nine months ended May 31, 2019 was $0.8 million , consisting primarily of $6.1 million proceeds from issuance of ordinary shares from share option exercises and employee share purchase plans, partially offset by $5.1 million long-term debt payments for the BNDES Credit Agreements and $0.2 million for wi thholding tax on restricted stock units .

The $8.6 million change in net operating assets and liabilities consisted of increases of $13.7 million in accounts receivable and $42.2 million in inventory, and a decrease of $1.1 million of operating lease liabilities, offset by a decrease of $5.1 million in prepaid expenses and other assets and increases of $60.4 million of accounts payable and $0.1 million in accrued expense and other liabilities.

Net cash used in investing activities during the three months ended November 27, 2020 was $14.6 million consisting primarily of purchases of property and equipment and deposits.

Net cash used in investing activities during the three months ended November 29, 2019 was $5.1 million consisting primarily of purchases of property and equipment and deposits .

Net cash provided by financing activities during the three months ended November 27, 2020 was $0.4 million, consisting primarily of $3.5 million for withholding tax on restricted stock units, partially offset by $3.1 million proceeds from issuance of ordinary shares from share option exercises and employee share purchase plans.

Net cash used in financing activities during the three months ended November 29, 2019 was $4.0 million, consisting prim arily of $6.4 million long-term debt payments for both the Amended Credit Agreement and the BNDES Credit Agreement, partially offset by $2.4 million proceeds from issuance of ordinary shares from share option exercises and employee share purchase plans.

There have been no material changes to contractual obligations previously disclosed in our Annual Report.

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Income taxes;

Goodwill valuation;

Impairment of long-lived assets and long-lived assets to be disposed;

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Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” and Note 1, Overview, Basis of Presentation and Significant Accounting Policies, in each case in our Annual Report.

Quantitative and Qualitati ve Disclosures About Market Risk

Our exposure to market rate risk includes risk of foreign currency exchange rate fluctuations, changes in interest rates and translation risk.

Foreign Exchange Risks

We are subject to inherent risks attributed to operating in a global economy.

Our international sales and our operations in foreign countries subject us to risks associated with fluctuating currency values and exchange rates.

Because a portion of our sales are denominated in U.S.

dollars, increases in the value of the U.S.

dollar could increase the price of our products so that they become relatively more expensive to customers in a particular country, possibly leading to a reduction in sales and profitability in that country.

A significant portion of the sales of our products are denominated in Brazil reais.

In addition, we have certain costs that are denominated in foreign currencies, and increases in the value of the U.S.

dollar could result in increases in such costs that could have a material adverse effect on our results of operations.

Beginning in the first quarter of fiscal 2019, we entered into forward contracts to hedge a portion of our foreign exchange risk in Brazil.

As a result of our international operations, we generate a portion of our net sales and incur a portion of our expenses in currencies other than the U.S.

dollar, particularly the Brazil reais.

Approximately 35% and 48% of our net sales during the nine months ended May 29, 2020 and May 31, 2019, respectively, originated in reais.

We present our combined financial statements in U.S.

dollars, and we must translate the assets, liabilities, net sales and expenses of a substantial portion of our foreign operations into U.S.

dollars at applicable exchange rates.

Consequently, increases or decreases in the value of the U.S.

dollar may affect the value of these items with respect to our non-U.S.

dollar businesses in our consolidated financial statements, even if their value has not changed in their local currency.

Our customer pricing and material cost of sales are based on U.S.

dollars, as is the global market for memory products.

Accordingly, the impact of currency fluctuations to our consolidated income statements is primarily to our other costs of sales (i.e., non-material components) and our operating expenses as those items are typically denominated in local currency.

Our consolidated income statements are also impacted by foreign currency gains and losses recorded in Other Expense arising from transactions denominated in a currency other than the functional currency of the respective subsidiary.

These translations could significantly affect the comparability of our results between financial periods or result in significant changes to the carrying value of our assets, liabilities and equity.

As a result, changes in foreign currency exchange rates impact our reported results.

During the nine months ended May 29, 2020 and May 31, 2019, we recorded $2.6 million and $3.5 million, respectively, of foreign exchange losses.

Interest Rate Risk

We are subject to interest rate risk in connection with our short-term debt under the Amended Credit Agreement as of May 29, 2020.

Although we did not have any revolving balances outstanding as of May 29, 2020, the revolving facility under the Amended Credit Agreement provides for borrowings of up to $50 million that would also bear interest at variable rates.

Assuming that we will satisfy the financial covenants required to borrow and that the revolving loans under the Amended Credit Agreement were fully drawn and other variables are held constant, each 1.0% increase in interest rates on our variable rate borrowings would result in an increase in annual interest expense and a decrease in our cash flow and income before taxes of $0.5 million per year.

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 2. Management’s Discussion and Analysis