Perimeter Solutions, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form 10‑Q for the quarter ended September 30, 2024 (this “Quarterly Report”). This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, such statements are subject to the “safe harbor” created by those sections and involve risks and uncertainties. Forward-looking statements are based on our management’s beliefs and assumptions and on information available to our management as of the date hereof. As a result of many factors, such as those set forth under “Item 1A. Risk Factors” included in our 2023 Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements, accordingly, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Overview Perimeter Solutions, SA (“PSSA”), a public company limited by shares ( société anonyme ) was incorporated on June 21, 2021 under the laws of the Grand Duchy of Luxembourg. PSSA is headquartered in the Grand Duchy of Luxembourg with business operations across the globe. PSSA's ordinary shares, nominal value, $1.00 per share (the “Ordinary Shares”), are listed on New York Stock Exchange ("NYSE") and trade under the symbol "PRM". On July 31, 2024, the Company filed a registration statement on Form S-4 with a preliminary proxy statement seeking shareholder approval to convert PSSA into a corporation incorporated under the laws of the State of Delaware (the “Redomiciliation Transaction”), after which, PSSA will continue as an entity under the name “Perimeter Solutions, Inc.” and the existing PSSA shareholders would hold shares of common stock in Perimeter Solutions, Inc. rather than in PSSA. On October 25, 2024, the Company filed Amendment No. 1 to the registration statement on Form S-4 to amend certain information on the registration statement on Form S-4 filed on July 31, 2024. The Company expects to complete the Redomiciliation Transaction by December 31, 2024, subject to shareholder approval at a special meeting of shareholders on November 20, 2024. The Company is currently evaluating the potential impact on deferred taxes, resulting from and subject to the completion of the Redomiciliation Transaction. We are a global solutions provider, producing high-quality firefighting products and high quality specialty chemicals. Approximately 65% of our 2023 annual revenues were derived in the United States, approximately 15% in Europe and approximately 14% in Canada with the remaining approximately 6% spread across various other countries. Our business is organized and managed in two reporting segments: Fire Safety and Specialty Products. The Fire Safety business is a formulator and manufacturer of fire management products that help our customers combat various types of fires, including wildland, structural, flammable liquids and other types of fires. Our Fire Safety business also offers specialized equipment and services, typically in conjunction with our fire management products to support firefighting operations. Our specialized equipment includes air base retardant storage, mixing, and delivery equipment; mobile retardant bases; retardant ground application units; mobile foam equipment; and equipment that we custom design and manufacture to meet specific customer needs. Our service network can meet the emergency resupply needs of over 150 air tanker bases in North America, as well as many other customer locations globally. The segment is built on the premise of superior technology, exceptional responsiveness to our customers’ needs, and a “never-fail” service network. Significant end markets include primarily government-related entities and are dependent on approvals, qualifications, and permits granted by the respective governments and commercial customers around the world. Th e Specialty Products segment produces and sells P 2 S 5 used in several end markets and applications, including high quality specialty chemicals, various agricultural applications, various mining applications, and emerging electric battery technologies. Within the high quality specialty chemicals end market, currently the Company’s largest end market application, P 2 S 5, is primarily used in the production of a family of compounds called ZDDP, which is considered an essential component in the formulation of lubricating oils with its main function to provide anti-wear protection to engine components. In addition, ZDDP inhibits oxidation of lubricating oil by scavenging free radicals that initiate oil breakdown and sludge formation, resulting in better and longer engine function. P 2 S 5 is also used in pesticide and mining chemicals applications. We offer several grades of P 2 S 5 with varying degrees of phosphorus content, particle size, distribution, and reactivity to our global customers. 26 Table of Contents We operat e four busi ness units within our two reporting segments. The business unit structure is meant to promote the decentralized execution and accountability and maintain the geography and product-specific focus and granularity necessary to drive continued improvement in our key operational value drivers. Our key operational value drivers are profitable new business, pricing our products and services to the value they provide, and continued productivity improvements. Each business unit has a business unit manager, who is responsible for achieving targeted financial and operational results. In 2024, the Company changed the presentation of freight expense from selling, general and administrative expense to cost of goods sold, to better match freight expense with freight income. The change has been applied retrospectively to the condensed consolidated financial statements for the prior periods presented in this Quarterly Report. The impact to the accompanying condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 is presented in the following table (in thousands). There was no impact on previously reported balances in the accompanying condensed consolidated balance sheet or statement of cash flows. Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023 As Previously Reported As Adjusted Effect of Change As Previously Reported As Adjusted Effect of Change Cost of goods sold $ 69,357 $ 72,825 $ 3,468 $ 144,509 $ 153,096 $ 8,587 Gross profit 73,301 69,833 (3,468) 118,144 109,557 (8,587) Selling, general and administrative expense 16,161 12,693 (3,468) 41,523 32,936 (8,587) Total operating expenses 46,133 42,665 (3,468) 14,777 6,190 (8,587) Operating income 27,168 27,168 — 103,367 103,367 — Net income 19,282 19,282 — 80,727 80,727 — Known Trends and Uncertainties Growth in Fire Safety We believe that our Fire Safety segment benefits from several secular growth drivers, including increasing fire severity, as measured by higher acres burned, longer fire seasons and a growing wildland urban interface resulting in a need for higher quantity of retardant use per acre and thereby necessitating an increase of the airtanker capacity. We believe that these trends are prevalent in North America, as well as globally and we expect these trends to continue and to drive growth in demand for fire retardant products. We are also working to grow our fire prevention and protection business, which is primarily focused on expanding use of ground-applications for long-term fire retardant. This includes use of ground assets in response to active fires (protection), as well as proactive treatments around critical infrastructure and known high-risk areas (prevention). The protection business expands on our existing aerial support to enhance the ability of customers to effectively fight active fires. Fire prevention products can be used to prevent fire ignitions and protect property from potential fire danger by providing proactive retardant treatment in high-risk areas such as roadways and near critical infrastructure like electrical utilities and railroads. Treating these areas ahead of the fire season can potentially stop ignitions from equipment failures or sparks. We have invested and intend to continue investing in the expansion of our fire safety business through acquisitions to further grow our global customer base. Weather Conditions and Climate Trends Our business is highly dependent on the needs of government agencies to suppress fires. As such, our financial condition and results of operations are significantly impacted by weather as well as environmental and other factors affecting climate change, which impact the number and severity of fires in any given year. Historically, sales of our products have been higher in the summer season of each fiscal year due to weather patterns which we believe are generally correlated to a higher prevalence of wildfires. This is in part offset by the disbursement of our operations in both the northern and southern hemispheres, where the summer seasons alternate. 27 Table of Contents Global Economic Environment In recent years, the global economy and labor markets have experienced significant inflationary pressures attributable to ongoing economic recovery and supply chain issues, in part due to the impacts of the conflicts in Ukraine and the Middle East. While the Company has limited exposure in regions with active conflicts, it continues to monitor and take actions with its customers and suppliers to mitigate the impact of these inflationary pressures in the future. Actions to mitigate inflationary pressures with suppliers include aggregation of purchase requirements to achieve optimal volume benefits, negotiation of cost-reductions and identification of more cost competitive suppliers. While these actions are designed to offset the impact of inflationary pressures, the Company cannot provide assurance that they will be successful in fully offsetting increased costs resulting from inflationary pressure. In addition, interest payments for borrowings under the Company’s revolving credit facility are based on variable rates, and any continued increase in interest rates may reduce the Company’s cash flow available for other corporate purposes. Results of Operations Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023 Total Company The following table sets forth our results of operations for each of the periods indicated (in thousands): Three Months Ended September 30, Change 2024 2023 $ % Net sales $ 288,417 $ 142,658 $ 145,759 102 % Cost of goods sold 107,195 72,825 34,370 47 % Gross profit 181,222 69,833 111,389 160 % Operating expenses Selling, general and administrative expense 18,520 12,693 5,827 46 % Amortization expense 13,765 13,778 (13) — % Founders advisory fees - related party 184,176 (24,544) 208,720 (850 %) Intangible impairment — 40,738 (40,738) (100 %) Total operating expenses 216,461 42,665 173,796 407 % Operating (loss) income (35,239) 27,168 (62,407) (230 %) Other expense (income): Interest expense, net 10,054 10,448 (394) (4 %) Gain on contingent earn-out — (7,665) 7,665 (100 %) Foreign currency (gain) loss (1,354) 1,384 (2,738) (198 %) Other expense (income), net 151 (60) 211 (352 %) Total other expense, net 8,851 4,107 4,744 116 % (Loss) income before income taxes (44,090) 23,061 (67,151) (291 %) Income tax expense (45,077) (3,779) (41,298) 1093 % Net (loss) income $ (89,167) $ 19,282 $ (108,449) (562 %) Net Sales. Net product and services sales increased by $145.8 million for the three months ended September 30, 2024, compared to the same period in 202 3. Net sales in the Fire Safety segment increased by $133.6 million, representing a $132.9 million increase in fire retardant sales and a $0.7 million increase in fire suppressant sales. Fire retardant sales increased $131.5 million in the Americas and $1.7 million in Europe, partially offset by a decrease of $0.3 million in Asia Pacific. Retardant strength was driven by increasingly proactive use of air attack, and by extension of fire retardant, by our customers, as they combat the growing threat of wildfires, and by continued successful implementation of the Company’s strategies on profitable new business, as well as pricing our products and services to the value they provide. Fire suppressant sales increased by $0.7 million, primarily due to sales of fluorine-free foam concentrates. Net sales in the Specialty Products segment increased by $12.2 million, of which $8.0 million was an increase in Americas and $4.2 million was an increase in Europe. The growth in Specialty Products sales reflects an increase in purchases by our high-quality specialty chemicals customers. 28 Table of Contents Cost of Goods Sold. Cost of goods sold increased by $34.4 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase in the Fire Safety segment of $30.2 million was primarily due to a $29.5 million increase in labor, material and freight costs as a result of the increase in revenue and a $0.7 million increase in other costs. The $4.2 million increase in the Specialty Products segment was due to a $4.5 million increase in raw material, manufacturing and freight, offset by a $0.3 million decrease in other costs. Selling, General and Administrative Expense. Selling, general and administrative expense increased by $5.8 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase was primarily due to a $3.3 million increase in personnel related and share-based compensation expenses, a $1.0 million increase in professional fees, and a $1.5 million increase in other costs. Founder Advisory Fees - related party. Founder advisory fees - related party represents the change in the fair value of the liability-classified Fixed Annual Advisory Amount and Variable Annual Advisory Amount (collectively, the “Annual Advisory Amounts”). The increase in the fair value of the Annual Advisory Amounts for the three months ended September 30, 2024 of $184.2 million was primarily due to an increase in the average price per Ordinary Share from $7.75 as of June 30, 2024 to $12.85 as of September 30, 2024. The decrease in the fair value of the Annual Advisory Amount for the three months ended September 30, 2023 of $24.5 million was primarily due to a reduction in the average price per Ordinary Share from $5.89 as of June 30, 2023, to $5.02 September 30, 2023. Intangible Impairment. Intangible impairment decreased by $40.7 million for the three months ended September 30, 2024 compared to the same period in 2023. The decrease was due to the prior year impairment on the carrying value of the technology underlying the contingent earn-out eligible fire retardant product acquired by the Company during the purchase of LaderaTech in May 2020. Foreign Currency (Gain) Loss. Foreign currency gain of $1.4 million for the three months ended September 30, 2024 reflects weakening of the U.S. dollar, primarily against the Euro. Foreign currency loss of $1.4 million for the three months ended September 30, 2023 reflects strengthening U.S. dollar, primarily against the Euro. Income Tax Expense. Income tax expense increased by $41.3 million for the three months ended September 30, 2024 compared to the same period in 2023. The increase is due primarily to changes in earnings in jurisdictions that were not covered by a valuation allowance and the impact of non-deductible compensation and accrued withholding taxes on the annualized effective tax rate. 29 Table of Contents Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023 Nine Months Ended September 30, Change 2024 2023 $ % Net sales $ 474,737 $ 262,653 $ 212,084 81 % Cost of goods sold 199,546 153,096 46,450 30 % Gross profit 275,191 109,557 165,634 151 % Operating expenses Selling, general and administrative expense 45,888 32,936 12,952 39 % Amortization expense 41,291 41,312 (21) — % Founders advisory fees - related party 253,097 (108,806) 361,903 (333 %) Intangible impairment — 40,738 (40,738) (100 %) Other operating expense — 10 (10) (100 %) Total operating expenses 340,276 6,190 334,086 5397 % Operating (loss) income (65,085) 103,367 (168,452) (163 %) Other expense (income): Interest expense, net 31,292 30,938 354 1 % Gain on contingent earn-out — (7,273) 7,273 (100 %) Foreign currency loss 163 756 (593) (78 %) Other expense, net 252 29 223 769 % Total other expense, net 31,707 24,450 7,257 30 % (Loss) income before income taxes (96,792) 78,917 (175,709) (223 %) Income tax (expense) benefit (53,283) 1,810 (55,093) (3044 %) Net (loss) income $ (150,075) $ 80,727 $ (230,802) (286 %) Net Sales. Net product and services sales for the nine months ended September 30, 2024 increased by $212.1 million compared to the same period in 202 3. Net sales in the Fire Safety segment increased by $185.4 million, representing a $173.6 million increase in fire retardant sales and $11.8 million increase in fire suppressant sales. Fire retardant sales increased $174.4 million in the Americas, offset by decreases of $0.3 million in Asia Pacific and $0.5 million in Europe. Retardant strength was driven by increasingly proactive use of air attack, and by extension of fire retardant, by our customers, as they combat the growing threat of wildfires, and by continued successful implementation of the Company’s strategies on profitable new business, as well as pricing our products and services to the value they provide. Fire suppressant sales increased by $11.8 million, primarily due to sales of fluorine-free foam concentrates . Net sales in the Specialty Products segment increased by $26.7 million, of which $21.8 million was in the Americas and $4.9 million was in Europe. The growth in Specialty Products sales reflects an increase in purchases by our high-quality specialty chemicals customers. Cost of Goods Sold. Cost of goods sold increased by $46.5 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase in the Fire Safety segment of $38.9 million was primarily due to a $37.9 million increase in labor, material and freight costs as a result of the increase in revenue and a $1.0 million increase in other costs. The $7.6 million increase in the Specialty Products segment was due to a $9.4 million increase in raw material, manufacturing and freight, offset by a $1.8 million decrease in other costs. Selling, General and Administrative Expense. Selling, general and administrative expense increased by $13.0 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase was primarily due to a $9.5 million increase in personnel related and share-based compensation expenses and a $6.5 million increase in other costs, partially offset by $3.0 million decrease in professional fees. Founder Advisory Fees - related party. Founder advisory fees - related party represents the change in the fair value of the liability-classified Fixed Annual Advisory Amount and Variable Annual Advisory Amount. The increase in the fair value of the Annual Advisory Amounts for the nine months ended September 30, 2024 of $253.1 million was primarily due to a increase in the average price per Ordinary Share from $4.51 as of December 31, 2023 to $12.85 as of September 30, 2024. The decrease in the fair value of the Annual Advisory Amount for the nine months ended September 30, 2023 of 30 Table of Contents $108.8 million was primarily due to a reduction in the average price per Ordinary Share from $8.86 as of December 31, 2022 to $5.02 as of September 30, 2023. Intangible Impairment. Intangible impairment decreased by $40.7 million for the nine months ended September 30, 2023 compared to the same period in 2023. The decrease was due to the prior year impairment on the carrying value of the technology underlying the contingent earn-out eligible fire retardant product acquired by the Company during the purchase of LaderaTech in May 2020. Income Tax (Expense) Benefit. Income tax expense increased by $55.1 million for the nine months ended September 30, 2024 compared to the same period in 2023. The increase is due primarily to changes in earnings in jurisdictions that were not covered by a valuation allowance and the impact of non-deductible compensation and accrued withholding taxes on the annualized effective tax rate. Business Segments We use segment net sales and segment adjusted earnings before interest, taxes, depreciation and amortization (“Segment Adjusted EBITDA”) to evaluate operating performance by segment, for business planning purposes and to allocate resources. The following tables provide information for our net sales and Segment Adjusted EBITDA (in thousands) for the three and nine months ended September 30, 2024 compared to the same periods in 2023: Three Months Ended September 30, 2024 Three Months Ended September 30, 2023 Fire Safety Specialty Products Fire Safety Specialty Products Net sales $ 251,845 $ 36,572 $ 118,280 $ 24,378 Segment Adjusted EBITDA $ 157,479 $ 12,897 $ 56,038 $ 5,431 Adjusted EBITDA for our Fire Safety segment increased by $101.4 million during the three months ended September 30, 2024 compared with the same period in 2023 . The increase was primarily due to higher net sales. Adjusted EBITDA for our Specialty Products segment increased by $7.5 million during the three months ended September 30, 2024 compared with the same period in 2023. The increase was primarily due to higher net sales. Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023 Fire Safety Specialty Products Fire Safety Specialty Products Net sales $ 375,538 $ 99,199 $ 190,164 $ 72,489 Segment Adjusted EBITDA $ 212,877 $ 34,543 $ 69,209 $ 16,366 Adjusted EBITDA for our Fire Safety segment increased by $143.7 million during the nine months ended September 30, 2024 compared with the same period in 2023. The increase was primarily due to higher net sales. Adjusted EBITDA for our Specialty Products segment increased by $18.2 million during the nine months ended September 30, 2024 compared with the same period in 2023. The increase was primarily due to higher net sales. Liquidity and Capital Resources We have historically funded our operations primarily through cash flows from operations, borrowings under our revolving credit facility, and the issuance of debt and equity securities. However, future operating cash flows are subject to a number of variables, including the length and severity of the fire season, growth of the wildland urban interface and the availability of air tanker capacity, all of which could negatively impact revenues, earnings and cash flows, and potentially our liquidity if we do not moderate our expenditures accordingly. O ur cash requirements, cash flows, indebtedness and available credit as of September 30, 2024 is discussed below. We believe that our existing cash and cash equivalents of approximately $223.1 million, net cash flows generated from operations and availability under the Revolving Credit Facility as of September 30, 2024 will be sufficient to meet our current capital expenditures, working capital, and debt service requirements for at least 12 months from the filing date of this Quarterly Report. As of September 30, 2024, we expect our remaining fiscal year 2024 capital expenditure budget to cover both our maintenance and growth capital expenditures. We may also utilize borrowings under other various financing 31 Table of Contents sources available to us, including the issuance of equity and/or debt securities through public offerings or private placements, to fund our acquisitions, the Annual Advisory Amounts and long-term liquidity needs. Our ability to complete future offerings of equity or debt securities and the timing of these offerings will depend upon various factors including prevailing market conditions and our financial condition. Warrants On September 27, 2024, the Company executed a supplement (the “Supplement”) to the Warrant Instrument with Computershare Trust Company, N.A. and Computershare Inc. dated as of November 8, 2021 (the “Warrant Instrument”) permitting holders of all outstanding warrants of the Company issued to investors in connection with its initial public offering, which expired on November 11, 2024, to exercise their warrants on a cashless exercise basis. A copy of the Supplement, the notice provided to holders of warrants of the Company and the related press release can be found on our Form 8-K filed with the SEC on October 1, 2024. Revolving Credit Facility SK Invictus Intermediate II S.à r.l.’s, a private limited liability company governed by the laws of the Grand Duchy of Luxembourg (“ SK Intermediate II”), five-year revolving credit facility (the “ Revolving Credit Facility ”) provides for a senior secured revolving credit facility in an aggregate principal amount of up to $100.0 million. The Revolving Credit Facility matures on November 9, 2026. The Revolving Credit Facility includes a $20.0 million swingline sub-facility and a $25.0 million letter of credit sub-facility. All borrowings under the Revolving Credit Facility are subject to the satisfaction of customary conditions, including the absence of a default and the accuracy of representations and warranties, subject to certain exceptions. Borrowings under the Revolving Credit Facility bear interest at a rate equal to (i) an applicable margin, plus (ii) at SK Intermediate II’s option, either (x) Secured Overnight Financing Rate for the applicable corresponding tenor (“Term SOFR”) as published by CME Group Benchmark Administration, adjusted for certain additional costs or (y) a base rate determined by reference to the highest of (a) the prime commercial lending rate published by the Wall Street Journal, (b) the federal funds rate plus 0.50%, (c) the one-month Term SOFR rate plus 1.00% and (d) a minimum floor of 1.00%. The applicable margin is 3.25% in the case of Term SOFR-based loans and 2.25% in the case of base rate-based loans, with two step downs of 0.25% each based upon the achievement of certain leverage ratios. As of September 30, 2024, the Company did not have any outstanding borrowings under the Revolving Credit Facility and was in compliance with all covenants. Senior Notes SK Intermediate II has $675.0 million principal amount of 5.00% senior secured notes due October 30, 2029 ("Senior Notes"). The Senior Notes bear interest at an annual rate of 5.00%. Interest on the Senior Notes is payable in cash semi-annually in arrears on April 30 and October 30 of each year. The Senior Notes are general, secured, senior obligations of SK Intermediate II; rank equally in right of payment with all existing and future senior indebtedness of SK Intermediate II (including, without limitation, the Revolving Credit Facility); and together with the Revolving Credit Facility, are effectively senior to all existing and future indebtedness of SK Intermediate II that is not secured by the collateral. For additional information about our long-term debt, refer to Note 6, “Long-Term Debt and Redeemable Preferred Shares,” in the notes to the condensed consolidated financial statements included in this Quarterly Report . Share Repurchase Plan On May 23, 2024, subject to certain limits, the shareholders of the Company approved a proposal authorizing the Board to repurchase up to 25% of the Company’s Ordinary Shares outstanding as of the date of the shareholders’ approval, being 36,310,028 Ordinary Shares, at any time during the next five years. The Board had re-established the limit for Ordinary Share repurchases at $100.0 million on February 21, 2024, which is within the repurchase limit approved by the Company’s shareholders’ on May 23, 2024. 32 Table of Contents We repurchase d 399 and 2,988,291 Or dinary Shares during the three and nine months ended September 30, 2024, respectively . The repurchased Ordinary Shares were recorded at cost and are being held in treasury. Founder Advisory Agreement The advisory agreement entered into on December 12, 2019 by EverArc ("Founder Advisory Agreement") with EverArc Founders, LLC, a Delaware limited liability company (the "EverArc Founder Entity"), which is owned and operated by William N. Thorndike, Jr., W. Nicholas Howley, Tracy Britt Cool, Vivek Raj and Haitham Khouri (the "EverArc Founders"), pursuant to which the EverArc Founder Entity, for the services provided to the Company, including strategic and capital allocation advice, is entitled to receive both a fixed amount (the “Fixed Annual Advisory Amount”) and a variable amount (the “Variable Annual Advisory Amount,” each an “Advisory Amount” and collectively, the “Advisory Amounts”) until the years ending December 31, 2027 and 2031, respectively. Under the Founder Advisory Agreement, at the election of the EverArc Founder Entity, at least 50% of the Advisory Amounts will be paid in Ordinary Shares and the remainder in cash. For 2023, the EverArc Founder Entity was entitled to receive the Fixed Annual Advisory Amount of 2,357,061 Ordinary Shares or a value of $10.6 million, based on average price of $4.51 per Ordinary Share (the “2023 Fixed Amount”). The EverArc Founder Entity did not qualify to receive the Variable Annual Advisory Amount as the average price of $4.51 per Ordinary Share for 2023 was lower than the average price of $13.63 per Ordinary Share established in 2021 (the “2023 Variable Amount” and together with the 2023 Fixed Amount, the “2023 Advisory Amount”). The EverArc Founder Entity elected to receive approximately 74.6% of the 2023 Advisory Amount in Ordinary Shares 1,758,464 Ordinary Shares) and approximately 25.4% of the 2023 Fixed Amount in cash $2.7 million). On February 15, 2023, the Company issued 1,758,464 Ordinary Shares and paid $2.7 million in cash in satisfaction of the 2023 Advisory Amount. For additional information about the Founder Advisory Agreement, refer to Note 10, “Share-Based Compensation” and Note 12, “Related Parties,” in the notes to the condensed consolidated financial statements included in this Quarterly Report . Cash Flows: The summary of our cash flows is as follows (in thousands): Nine Months Ended September 30, 2024 2023 Cash provided by (used in): Operating activities $ 194,375 $ (10,234) Investing activities (3,688) (6,630) Financing activities (14,964) (37,498) Effect of foreign currency on cash and cash equivalents 54 (627) Net change in cash and cash equivalents $ 175,777 $ (54,989) Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2024 was $194.4 million compared to net cash used in operating activities of $10.2 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, the primary components of operating cash flows were net loss of $150.1 million, non-cash charges of $321.7 million and net operating asset reductions of $22.8 million. For the nine months ended September 30, 2023, the primary components of operating cash flows were net income of $80.7 million, non-cash benefits of $27.8 million and net operating asset investments of $63.1 million. The net operating asset reduction for the nine months ended September 30, 2024 was primarily related to inventories. Investing Activities Cash used in investing activities was $3.7 million and $6.6 million for the nine months ended September 30, 2024 and 2023 respectively. During the nine months ended September 30, 2024, the Company purchased property and equipment of $9.1 million offset by proceeds from short-term investments of $5.4 million upon settlement of a Euro denominated 33 Table of Contents certificate of deposit. During the nine months ended September 30, 2023, the Company purchased property and equipment of $6.6 million. Financing Activities Cash used in financing activities was $14.9 million and $37.5 million for the nine months ended September 30, 2024 and 2023 respectively. During the nine months ended September 30, 2024, we repurchased outstanding Ordinary Shares for $14.4 million and made $0.5 million in principal payments on finance lease obligations. During the nine months ended September 30, 2023, we repurchased outstanding Ordinary Shares for $37.2 million and made principal payments on finance lease obligations of $0.3 million. Critical Accounting Estimates and Policies The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared in accordance with U.S. GAAP . The Company’s significant accounting policies and estimates are consistent with those discussed in Note 2, “Summary of Significant Accounting Policies and Recent Accounting Pronouncements” of its consolidated financial statements included in the Company’s 2023 Annual Report filed on Form 10-K with the SEC on February 22, 2024 . Significant estimates made by management in connection with the preparation of the accompanying condensed consolidated financial statements include the useful lives of long-lived and intangible assets, the fair value of financial assets and liabilities, stock options, founder advisory fees and realizability of deferred tax assets. We are not presently aware of any events or circumstances that would require us to update our estimates, assumptions or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements. For information on the impact of recently issued accounting pronouncements, see Note 2, “Summary of Significant Accounting Policies and Recent Accounting Pronouncements” in the notes to the condensed consolidated financial statements included in this Quarterly Report.