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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-02-22 · 101 added, 230 removed, 306 unchanged (52% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information pertaining to fiscal years 2022 and 2021 was included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2022, on pages 37 through 53 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the Securities and Exchange Commission on February 22, 2023.

Information pertaining to fiscal years 2023 and 2022 was included in the Company’s Annual Report on Form 10-K/A (“Form 10-K/A”) for the year ended December 31, 2023, on pages 36 through 50 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the Securities and Exchange Commission on November 18, 2024 and Form 10-K for the year ended December 31, 2022, on pages 37 through 53 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the Securities and Exchange Commission on February 22, 2023, respectively.

Repligen and its subsidiaries, collectively doing business as Repligen Corporation (“Repligen”, “we”, “our”, or “the Company”) is a global life sciences company that develops and commercializes highly innovated bioprocessing technology and systems that increase efficiencies and flexibility in the process of manufacturing biological drugs.

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We generate revenue from the sale of bioprocessing products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries.

Under Accounting Standards Codification No.

(“ASC”) 606, “ Revenue from Contracts with Customers,” revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers.

Under Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers,” revenue is recognized when, or as, obligations under the terms of a contract are

satisfied, which occurs when control of the promised products or services is transferred to customers.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer (“transaction price”).

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the

transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract.

To the extent the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract.

Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.

Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.

Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component.

Applying the practical expedient in paragraph 606-10-32-18, we do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less.

We do not assess whether a significant financing component exists if the period between when we perform our obligations under the contract and when the customer pays is one year or less.

None of our contracts contained a significant financing component as of December 31, 2024.

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We recognize product revenue under the terms of each customer agreement upon transfer of control to the customer, which occurs at a point in time.

Shipping and handling fees are recorded as a component of product revenue, with the associated costs recorded as a component of cost of product revenue in our consolidated statements of comprehensive income.

Allowance for credit losses

We evaluate our global accounts receivable through a continuous process of assessing our portfolio on an individual customer and overall basis.

This process consists of a thorough review of historical collection experience, current aging status of the customer accounts, financial condition of our customers, and whether the receivables involve retainages.

We also consider the economic environment of our customers, both from a marketplace and geographic perspective, in evaluating the need for an allowance.

Based on our review of these factors, we establish or adjust allowances for specific customers.

Credit losses can vary substantially over time and the process involves judgment and estimation that require a number of assumptions about matters that are uncertain.

Accordingly, our results of operations can be affected by adjustments to the allowance due to actual write-offs that differ from estimated amounts.

See Note 8, “Credit Losses,” to our consolidated financial statements included in this report for more information.

Shipping and handling fees are recorded as a component of product revenue, with the associated costs recorded as a component of cost of goods sold in our consolidated statements of comprehensive income.

We value inventory at cost or, if lower, net realizable value, using the first-in, first-out method.

We review our inventory at least quarterly and record a provision for excess and obsolete inventory based on our estimates of expected sales volume, production capacity and expiration dates of raw materials, work-in-process and finished products.

We write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements to cost of product revenue in our consolidated statements of comprehensive income.

We write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements to cost of goods sold in our consolidated statements of comprehensive income.

Manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment.

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Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results.

In 2023, we recorded a $23.6 million in inventory adjustments, which included the impact of the Company discontinuing the sale of certain product SKUs and the impact of having proactively secured materials during the 2020-2022 COVID-19 pandemic period (the “COVID-19 Period”) to meet accelerated demand during a challenging supply chain environment in the industry.

Where demand has reduced, finished goods and raw materials, whose value exceeded the projected requirements to be used before reaching their expiration date, were adjusted down to their net realizable value.

In addition, these

adjustments include inventory that could not be repurposed as a result of the closing of manufacturing facilities and production lines as part of the Company's restructuring activities during 2023.

In 2024, we recorded $36.0 million in inventory adjustments, which includes the impact of the Company discontinuing the sale of certain product SKUs and the impact of having proactively secured materials during the pandemic to meet accelerated demand during a challenging supply chain environment in the industry.

Where demand has reduced, finished goods and raw materials, whose value exceeded the projected requirements to be used before reaching their expiration date, or in a reasonable time horizon, were written down to their realizable value.

The Restructuring Plan described in Note 7, “ Restructuring Activities and Other Inventory-Related Charges ,” to our consolidated financial statements, also includes the closing of manufacturing facilities and excess production lines, which included inventory that could not be repurposed.

Business combinations

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The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management.

Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.

Any excess of

purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.

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Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of comprehensive income.

The Company estimates the fair value of the contingent consideration earnouts using the Monte Carlo Simulation and updates the fair value of the contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments.

The Company estimates the fair value of the contingent consideration earnouts using a Monte Carlo Simulation and updates the fair value of the contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments.

To the extent that our estimates change in the future regarding the likelihood of achieving these targets, we may need to record material adjustments to our accrued contingent consideration.

Such changes in the fair value of contingent consideration are recorded as contingent consideration in our consolidated statements of comprehensive income.

We recorded a net decrease to the fair value of the contingent consideration obligations for the twelve months ended December 31, 2023 of ($30.6) million primarily related to the change in estimated contingent consideration obligations from the acquisition of Avitide, Inc.

The fair value of contingent consideration obligations for the year ended December 31, 2024 had a net change of $3.2 million primarily related to the change in the contingent consideration obligations from the acquisition of Avitide, Inc.

(“Avitide”) in September 2021.

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Intangible assets

Intangible assets with a definite life are amortized over their useful lives using the straight-line method and the amortization expense is recorded within cost of product revenue, R&D and selling, general and administrative expense in the consolidated statements of comprehensive income.

Intangible assets with a definite life are amortized over their useful lives using the straight-line method and the amortization expense is recorded within cost of goods sold, research and development, and selling, general and administrative expense in the consolidated statements of comprehensive income.

Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist, that would indicate the carrying value of these assets may not be recoverable.

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Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to, macroeconomic conditions, industry and market conditions, entity specific factors such as strategies and financial performance, a significant adverse change in legal factors and an adverse action or assessment by a regulator.

Goodwill is tested for impairment as of December 31 st of each year, or more frequently as warranted by events or changes in circumstances mentioned above.

Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value.

Goodwill is tested for impairment as of October 1 of each year, or more frequently as warranted by events or changes in circumstances mentioned above.

Accounting guidance also permits an optional qualitative assessment for goodwill to

determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value.

If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary.

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We operate as one reporting unit.

We performed a qualitative assessment for our reporting unit as of December 31, 2023, 2022 and 2021.

We performed a qualitative assessment for our reporting unit as of October 1, 2024, December 31, 2023 and December 31, 2022.

Based on the assessment, we concluded that it was more likely than not that the estimated fair value of our reporting unit for 2024, 2023 and 2022 was higher than its carrying value for such years, and that the performance of the quantitative impairment test was not required.

Therefore, no impairment was required for any of the periods presented.

We have historically tested for impairment on our goodwill annually as of our measurement date of December 31st pursuant to Company policy.

Prior to fiscal year 2024, testing of impairment on our goodwill occurred annually as of our measurement date of December 31st, pursuant to Company policy.

Subsequent to the 2023 annual impairment test, which was completed on December 31, 2023, we voluntarily changed our annual impairment assessment date from December 31st to October 1st, the first day of our fourth quarter, beginning on October 1, 2024.

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Therefore, the change will be applied prospectively.

Accrued liabilities

We estimate accrued liabilities by identifying services performed on our behalf, estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date.

For example, we would accrue for professional and consulting fees incurred with law firms, audit and accounting service providers and other third-party consultants.

These expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements.

We have processes in place to estimate the appropriate amounts to record for accrued liabilities, which principally involve the applicable personnel reviewing the services provided.

In the event that we do not identify certain costs that have begun to be incurred or we under or over-estimate the level of services performed or the costs of such services, the reported expenses for that period may be too low or too high.

The date on which certain services commence, the level of services performed on or before a given date, and the cost of such services often require the exercise of judgment.

We make these judgments based upon the facts and circumstances known at the date of the financial statements.

A change in the estimated cost or volume of services provided could result in additional accrued liabilities.

Any significant unanticipated changes in such estimates could have a significant impact on our accrued liabilities and reported operating results.

There have been no material adjustments to our accrued liabilities in any of the periods presented in the accompanying consolidated financial statements.

Debt accounting

Subscription Agreements”) with a limited number of holders of our outstanding 0.375% Convertible Senior Notes due 2024 (“2019 Notes”) and certain other qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

In December 2023, we issued $600.0 million aggregate principal amount of 1.00% Convertible Senior Notes due 2028 (“2023 Notes”) in a private placement pursuant to separate, privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with a limited number of holders of our outstanding 0.375% Convertible Senior Notes due 2024 (“2019 Notes”) and certain other qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

Pursuant to the Exchange and Subscription Agreements, we exchanged $217.7 million of our 2019 Notes for $309.9 million aggregate principal amount of the 2023 Notes (the “Exchange Transaction”) and issued $290.1 million aggregate principal amount of the 2023 Notes in a private placement to accredited institutional buyers (the “Subscription Transactions”) for cash.

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The exchange resulted in $6.2 million of the debt issuance costs related to the modified notes to be recorded to amortization of debt issuance costs in our 2023 consolidated statement of comprehensive income under the rules of modification accounting.

The remaining debt issuance costs of $7.8 million as well as $0.7 million of unamortized costs carried over from the 2019 Notes at the exchange date, were capitalized within long-term debt (as a contra-liability) in our consolidated balance sheets as of December 31, 2023 and will be amortized as an adjustment to amortization of debt issuance costs over the five-year term of the 2023 Notes in our consolidated statement of comprehensive income.

The remaining debt issuance costs of $7.8 million as well as $0.7 million of unamortized costs carried over from the 2019 Notes at the exchange date, were capitalized within long-term debt (as a contra-liability) in our consolidated balance sheets and will be amortized as an adjustment to amortization of debt issuance costs over the five-year term of the 2023 Notes in our consolidated statement of comprehensive income.

The carrying value of the 2023 Notes of $525.6 million is included in long-term debt on our consolidated balance sheets as of December 31, 2024.

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The Company may redeem for cash, all or a portion of the 2023 Notes, at its option, on or after December 18, 2026 and prior to the 21st scheduled trading day immediately preceding the maturity date at a redemption price of 100% of the principal amount of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but excluding the redemption date, if certain conditions are met in accordance to the indenture.

Our short-term debt balance is related to our 2019 Notes, which were issued in July 2019.

Prior to the adoption of Accounting Standards Update No.

(“ASU”) 2020-06, “ Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40)”, the 2019 Notes were carried at their principal amount less unamortized debt discount and unamortized debt issuance costs.

We had accounted for our convertible notes as separate liability and equity components prior to the adoption of 2020-06.

We estimated the carrying amount of the liability component by estimating the fair value of a similar liability that did not have an associated conversion feature.

The Company allocated transaction costs related to the issuance of convertible notes to the liability and equity components using the same proportions as the initial carrying value of the convertible notes.

The carrying value of the equity component was calculated by deducting the carrying value of the liability component from the principal amount of the convertible notes as a whole.

The difference represented a debt discount that, prior to the adoption of ASU 2020-06, was amortized to interest expense in our consolidated statements of comprehensive income over the term of the convertible notes using the effective interest rate method.

We assessed the equity classification of the cash conversion feature quarterly.

We allocated transaction costs related to the issuance of the 2019 Notes to the liability and equity components using the same proportions as the initial carrying value of the 2019 Notes.

Effective January 1, 2022, the Company adopted ASU 2020-06.

After adoption, the Company now accounts for the 2019 Notes as a single liability measured at amortized cost.

See Note 14, “Convertible Senior Notes,” to our consolidated financial statements included in this report for more information on our adoption of ASU 2020-06.

During the fourth quarter of 2023, the closing price of the Company’s common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter.

As a result, the remaining $69.7 million aggregate principal amount of 2019 Notes are convertible at the option of the holders of the 2019 Notes during the first quarter of 2024, the quarter immediately following the quarter when conditions are met, as stated in the terms of the 2019 Notes.

These conditions have been met since the third quarter of 2020.

Since the 2019 Notes mature within one year of the report date, we classify the carrying value of the 2019 Notes of $69.5 million as current liabilities on our consolidated balance sheets as of December 31, 2023.

As a result, the remaining $69.7 million aggregate principal amount of 2019 Notes were convertible at the option of the holders of the 2019 Notes during the first quarter of 2024.

During 2024, $0.2 million aggregate principal amount of the 2019 Notes converted, bringing the remaining outstanding 2019 Notes to $69.5 million in aggregate principal amount.

The remaining 2019 Notes matured and were paid off in full on July 15, 2024.

The Company irrevocably elected to settle the conversion of the 2019 Notes using a combination of cash and the Company’s common stock, settling the par value of the 2019 Notes in cash and any excess conversion premium in shares.

In connection with the conversion, the Company paid $69.6 million in cash, which included principal and accrued interest, and issued 100,944 shares of the Company’s common stock representing the conversion premium.

Stock-based compensation

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We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.

We are subject to a territorial tax system under the Tax Cuts and Jobs Act enacted in December 2017, in which we are required to provide for tax on

Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries.

We are subject to a territorial tax system under the Tax Cuts and Jobs Act enacted in December 2017, in which we are required to provide for tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries.

We adopted an accounting policy to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense.

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Total product revenue

(1) 2023 revenue for filtration products includes revenue related to FlexBiosys, Inc.

(“FlexBiosys”) from April 17, 2023, as well as Metenova Holding AB (“Metenova”) from October 2, 2023.

(2) 2021 revenue for filtration products includes revenue related to Polymem S.A.

(“Polymem”) from July 1, 2021, as well as BioFlex Solutions LLC (“BioFlex”) and Newton T&M Corp (“NTM”) from December 16, 2021 through December 31, 2021.

2021 revenue for proteins products includes revenue related to Avitide from September 20, 2021 through December 31, 2021.

Revenue from the sale of our products which make up our filtration, chromatography, process analytics and proteins franchises comes from the sale of a number of products as described in Part I, Item 1.

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Other revenue primarily consists of revenue from the sale of our operating room products to hospitals as well as freight revenue.

For 2023, product revenue decreased by $162.8 million, or 20.3%, as compared to 2022.

This is mainly due to a decrease in revenue from programs related to COVID-19 as customers’ inventory has reduced at a slower pace than initially expected, which has primarily affected revenue from sales of our filtration products.

Partially offsetting these revenue declines in 2023, as compared to 2022, were price increases and strong performances within our chromatography and process analytics franchises, specifically from chromatography systems and flowpaths, as well as slope spectroscopy, consumables and service.

The impact of our acquisitions of FlexBiosys and Metenova also increased revenue in 2023, as compared to 2022.

Sales of our bioprocessing products are impacted by the timing of orders, development efforts at our customers or end-users and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations.

Such quarterly fluctuations are expected, but they may not be predictive of future revenue or otherwise indicate a trend.

In 2024, product revenue increased by $2.2 million, or 0.3%, as compared to 2023.

The change is primarily driven by an increase of $31.6 million in our Filtration product revenue led by the success our of XCell ATF business.

This increase was primarily offset by a decrease in our Proteins product revenue of $29.0 million, caused by headwinds in demand as Cytiva (a standalone operating company owned by Danaher Corporation) has moved certain ligand production in-house.

Royalty revenues

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(Amounts in thousands, except for percentage data)

Cost of product revenue

Cost of goods sold

Research and development

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Total costs and operating expenses

Cost of product revenue

In 2023, cost of product revenue increased $8.1 million, or 2.3%, compared to 2022, primarily due to restructuring charges, including $23.6 million in inventory adjustments to reflect inventory at net realizable value, a $3.8 million charge for accelerated depreciation on equipment related to manufacturing facilities closed and $3.0 million in severance and other charges during 2023 as a result of our restructuring activities, which commenced in July 2023.

See Note 5, “ Restructuring Plan” of this report for more information on the restructuring activities to simplify and streamline our organization and strengthen our overall effectiveness of our operations (“Restructuring Plan”).

Our restructuring activities include consolidating a portion of our manufacturing facilities between certain U.S.

locations, discontinuing the sale of certain product SKUs, and evaluating the fair value of finished goods and raw materials secured during the COVID-19 Period to meet increasing demand during a challenging supply chain environment in the industry.

Where demand has reduced, finished goods and raw materials, whose value exceeded the projected requirements to be used before reaching their expiration date, were written down to their net realizable value.

The inventory adjustments include reserved values which may be recoverable in future periods, if salvageable.

Also contributing to the increase in cost of product revenue is cost inflation, primarily in raw materials as well as freight charges due to fuel costs and carrier market conditions in 2023, compared to 2022.

Also, our occupancy costs and depreciation expense increased during 2023, as compared to 2022, due to expanded facilities and manufacturing equipment being placed into service towards the end of 2022 and throughout 2023.

These increases were partially offset by a decrease in costs associated with lower revenue as well as a decrease in employee-related costs not related to the restructuring activities in 2023, as compared to 2022.

Cost of goods sold

In 2024, cost of goods sold increased $5.9 million, or 1.7%, compared to 2023, including an incremental $12.5 million of inventory adjustments compared to the prior year to reflect inventory at net realizable value, and an incremental $6.1 million charge compared to the prior year related to manufacturing facilities closed and equipment abandoned.

These increases were partially offset by a decrease in accelerated depreciation of $3.8 million and a decrease in severance and employee related costs from restructuring of $1.2 million.

See Note 6, “ Restructuring Activities and Other Inventory-Related Charges” of this report for more information on the restructuring activities to simplify and streamline our organization and strengthen our overall effectiveness of our operations (“Restructuring Plan”).

Our restructuring and other inventory-related activities include consolidating a portion of our manufacturing facilities between certain U.S.

locations, writing-off abandoned equipment with the rationalization of excess production line capacity, discontinuing the sale of certain product SKUs, and evaluating the net realizable value of finished goods and raw materials.

The non-cash inventory write-off in 2024 is the result of the Company discontinuing the sale of certain product SKUs and is also the result of the further evaluation of inventory positions in unusually turbulent market supply conditions.

Where the value of finished goods and raw materials exceeded

the projected requirements to be used before reaching their expiration date, or in a reasonable time horizon, they were written down to their realizable value.

The increase in restructuring changes was partially offset by a decrease in employee-related costs unrelated to the restructuring activities in 2024, as compared to 2023.

Gross margin was 43.3% in 2024, compared to 44.0% in 2023.

The reduction in gross margin in 2023 as compared to 2022, is primarily due to restructuring activities as noted above during 2023 to simplify and streamline our organization and strengthen the

overall effectiveness of our operations for which there were no comparable costs in 2022.

In addition, lower margins were a result of lower overall sales and production volumes, and a change in product mix, where we saw a significant decline in revenue associated with higher-margin consumable products due to the decrease in COVID-19 vaccine demand.

We also experienced an increase in manufacturing costs from an increase in occupancy costs due to added capacity and an increase in depreciation expense.

The reduction in gross margin in 2024 as compared to 2023, is primarily due to restructuring activities as noted above during 2024 to simplify and streamline our organization and strengthen the overall effectiveness of our operations, which were $13.6 million higher in 2024 than 2023.

Partially offsetting this increase in costs, margins increased as a result of a change in product mix.

Research and development expenses

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Due to the fact that these various programs share personnel and fixed costs, we do not track all of our expenses or allocate any fixed costs by program, and therefore, have not provided historical costs incurred by project.

R&D expenses decreased $1.2 million, or 2.8%, during 2023, compared to 2022.

The decrease during the periods is primarily due to a decrease in occupancy costs for facilities where R&D work is performed, which more than offset the increase in employee-related costs, depreciation expense and spending on new product development during 2023, as compared to 2022.

R&D expenses increased $0.5 million, or 1.1%, during 2024, compared to 2023.

The increase during the periods is primarily due to a $1.8 million increase in employee-related costs, partially offset by a decrease in product development costs of $1.4 million.

R&D expense also includes payments made to expand our proteins product offering through our development agreement with Navigo Proteins GmbH (“Navigo”).

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Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our commercial products and costs required to support our marketing efforts, including legal, accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.

SG&A costs increased by $2.3 million, or 1.1%, in 2023, as compared to 2022 primarily due to an increase in SG&A costs related to the operations of FlexBiosys and Metenova, which have been included in our results of operations since their acquisition dates in April 2023 and October 2023, respectively.

In addition, there were $1.7 million in one-time costs incurred from restructuring activities during 2023, for which there were no comparable costs in 2022.

Partially offsetting this increase was a decrease in the amount of commissions paid out resulting from lower revenue and a decrease in employee-related costs.

SG&A costs increased by $44.8 million, or 20.5%, in 2024, as compared to 2023 primarily due to $22.4 million in costs associated with the modification of our former Chief Executive Officer’s (“CEO”) unvested equity awards resulting from the announcement of his transition from CEO to Executive Chair of our Board, which was announced on June 12, 2024 and effective September 1, 2024.

For more information on the former CEO’s transition to Executive Chair of our Board, see Note 13, “ Stockholders’ Equity - Chief Executive Officer Accounting Modifications ” included in this report.

In addition, employee-related costs increased $15.9 million, and rent increased $5.9 million primarily related to the expansion of our Waltham headquarters.

Contingent consideration

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Investment income includes income earned on invested cash balances.

Our investment income increased by $17.2 million in 2023, as compared to 2022 due to an increase in interest rates on higher average invested cash balances since December 31, 2022, as well as interest earned on U.S.

treasury bills purchased at the end of 2022.

Our investment income increased by $11.7 million in 2024, as compared to 2023 due to having higher average invested cash balances since December 31, 2023.

We expect investment income to vary based on changes in the amount of funds invested and fluctuation of interest rates.

Interest expense

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As a result, we recorded a $12.7 million loss on extinguishment of debt in our consolidated statements of comprehensive income in 2023, which includes a $12.6 million write-off for the increase in principal of the converted notes being extinguished and a $0.1 million write-off of unamortized debt issuance costs related to the converted notes being extinguished.

No such transactions occurred in 2024.

Amortization of debt issuance costs

Amortization of debt issuance costs decreased during 2024, as compared to 2023.

Transaction costs related to the issuance of the 2019 Notes and the 2023 Notes are amortized to amortization of debt issuance costs on the consolidated statements of comprehensive income.

Amortization of debt issuance costs increased during 2023, as compared to 2022.

Under ASC 470, “ Debt”, any third-party costs directly related to the modification or exchange are expensed as incurred.

Therefore, in 2023, we recorded $6.4 million to amortization of debt issuance costs in accordance to this guidance, which included $6.2 million of debt issuance costs directly related to the modified notes and $0.2 million of amortization of the capitalized debt issuance costs.

Any third-party costs directly related to the modification or exchange are expensed as incurred.

Therefore, in 2023, we recorded $6.4 million to amortization of debt issuance costs, which included $6.2 million of debt issuance costs directly related to the modified notes and $0.2 million of amortization of the capitalized debt issuance costs.

Other income (expenses), net

The changes in other expenses, net in 2024, as compared to 2023, is primarily attributable to realized and unrealized foreign currency gains and losses related to transactions with customers and vendors, as well as the revaluation impact of intercompany loans with subsidiaries.

Income tax provision

Income tax provision for the years ended December 31, 2023 and 2022 was as follows:

Income tax (benefit) provision

Income tax (benefit) provision for the years ended December 31, 2024 and 2023 was as follows:

For the Years Ended December 31,

(Amounts in thousands, except for percentage data)

Income tax provision

Income tax (benefit) provision

Effective tax rate

For 2023, we recorded an income tax provision of $22.6 million.

The effective tax rate was 35.2% for 2023 and is based upon the income for the year ended December 31, 2023 and the composition of income in different jurisdictions.

The difference in effective tax rates between 2023 and 2022 was primarily due to a loss on extinguishment of debt and a debt discount basis difference, partially offset by increased benefits from business tax credits and nontaxable contingent consideration.

Our effective tax rate for 2023 was

higher than the U.S.

statutory rate of 21% primarily due to a debt discount basis difference partially offset by business tax credits and nontaxable contingent consideration.

Non-GAAP Financial Measures

In addition to our key financial metrics presented above, we provide non-GAAP adjusted income from operations, adjusted net income and adjusted EBITDA as supplemental measures to accounting principles generally accepted in the United States (“GAAP”) measures regarding our operating performance.

These financial measures exclude the items detailed below and, therefore, have not been calculated in accordance with GAAP.

A detailed explanation and a reconciliation of each non-GAAP financial measures to its most comparable GAAP financial measure are provided below.

We include this financial information because we believe these measures provide a more accurate comparison of our financial results between periods that more accurately reflects how management reviews its financial results and measures the performance of our ongoing operations for the periods in which such changes incurred.

We excluded the impact of certain acquisition-related items and items related to the issuance of our 2023 Notes and 2019 Notes because we believe that the resulting charges do not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.

Non-GAAP adjusted income from operations

Non-GAAP adjusted income from operations is measured by taking income from operations as reported in accordance with GAAP and excluding inventory step-up charges, acquisition and integration costs, restructuring costs, contingent consideration fair value adjustments and intangible amortization booked through our consolidated statements of comprehensive income.

The following is a reconciliation of income from operations in accordance with GAAP to non-GAAP adjusted income from operations for the years ended December 31, 2023 and 2022:

For the Years Ended December 31,

(Amounts in thousands)

GAAP income from operations

Non-GAAP adjustments to income from operations:

Inventory step-up charges

Acquisition and integration costs

Restructuring costs (1)

Contingent consideration

Intangible amortization

Non-GAAP adjusted income from operations

Non-GAAP adjusted net income and adjusted earnings per share

Non-GAAP adjusted net income and adjusted earnings per share is measured by taking net income as reported in accordance with GAAP and excluding inventory step-up charges, acquisition and integration costs, restructuring costs, contingent consideration fair value adjustments, intangible amortization, loss on extinguishment of debt, non-cash interest expense, amortization of debt issuance costs, foreign currency impact of certain intercompany loans and the tax effects on these items.

The following are reconciliations of

net income and fully diluted earnings per share in accordance with GAAP to non-GAAP adjusted net income and adjusted fully diluted earnings per share for the years ended December 31, 2023 and 2022:

For the Years Ended December 31,

(Amounts in thousands, except per share data)

GAAP net income

Non-GAAP adjustments to net income:

Inventory step-up charges

Acquisition and integration costs

Restructuring costs (1)

Contingent consideration

Intangible amortization

Loss on extinguishment of debt

Non-cash interest expense

Amortization of debt issuance costs (2)

Foreign currency impact of certain intercompany loans (4)

Tax effect of non-GAAP charges

Non-GAAP adjusted net income

* Note that earnings per share amounts may not add due to rounding.

Adjusted EBITDA

Adjusted EBITDA is measured by taking net income as reported in accordance with GAAP, excluding investment income, interest expense, amortization of debt issuance costs, income tax provision, depreciation and amortization, inventory step-up charges, acquisition and integration costs, restructuring costs, contingent consideration fair value adjustments booked through our consolidated statements of comprehensive income, loss on extinguishment of debt and foreign currency impact of certain intercompany loans.

The following is a reconciliation of net income in accordance with GAAP to adjusted EBITDA for years ended December 31, 2023 and 2022:

For the Years Ended December 31,

(Amounts in thousands)

GAAP net income

Non-GAAP EBITDA adjustments to net income:

Investment income

Interest expense

Amortization of debt issuance costs

Income tax provision

Intangible amortization

Other non-GAAP adjustments:

Inventory step-up charges

Acquisition and integration costs

Restructuring costs (1)(3)

Contingent consideration

Loss on extinguishment of debt

Foreign currency impact of certain intercompany loans (4)

Adjusted EBITDA

(1) See Note 5, “ Restructuring Plan,” in this report, for more information on the restructuring activities in 2023.

(2) See Note 2, “ Summary of Significant Accounting Policies - Earnings Per Share,” in this report, for more information on the effects of adopting ASU 2020-06, “ Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40),” which we adopted effective January 1, 2022, to these financial statement line items.

(3) Excludes $3.8 million of accelerated depreciation related to the Restructuring Plan.

This amount is included in the depreciation line item of this table.

(4) In 2023 we recorded foreign currency gains on certain intercompany loans.

The impact was recorded to other income (expenses), net in our consolidated statements of comprehensive income.

For year ended December 31, 2024, we recorded an income tax benefit of $1.5 million.

The effective tax rate was 5.6% for 2024 and is based upon the net loss for the year ended December 31, 2024 and the composition of income in different jurisdictions.

The difference in effective tax rates between 2024 and 2023 was primarily due to a loss before income taxes and nonrecurring nondeductible loss on extinguishment of debt and debt discount that occurred in 2023.

Liquidity and Capital Resources

We have financed our operations primarily through revenues derived from product sales, the issuance of the 2016 Notes in May 2016, our 2019 Notes in July 2019, the 2023 Notes in December 2023 and the issuance of common stock in our December 2020, July 2019 and May 2019 public offerings.

We have financed our operations primarily through revenues derived from product sales, and the issuance of the Notes and public offerings.

Most recently, the 2023 Notes issued in in December 2023.

Our revenue for the foreseeable future will primarily be limited to our bioprocessing product revenue.

At December 31, 2024, we had cash and cash equivalents of $757.4 million compared to cash and cash equivalents of $751.3 million at December 31, 2023.

There were no restrictions on cash as of December 31, 2023.

On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver.

Subsequently, the U.S.

Treasury, Federal Reserve and FDIC announced that SVB depositors would have access to all of their money.

We have a banking relationship with SVB and hold cash, cash equivalents and marketable securities of $0.1 million as of December 31, 2023 in SVB depository accounts to cover short-term operational payments.

While we have not experienced any losses in such accounts, the recent failure of SVB caused us to utilize our accounts at other financial institutions in order to mitigate potential operational risks stemming from the temporary inability to access funds in our SVB operating accounts.

As a result of bank failures, such as SVB, our access to funding sources in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired and could negatively impact the financial institutions with which we have direct arrangements, or the financial services industry or economy in general.

In 2023, we acquired two companies for an aggregate of $186.6 million in cash, net of cash acquired.

In connection with the acquisitions, the Company has an obligation to pay up to $52.0 million (undiscounted) in contingent consideration earnout payments in cash over a two-year earnout period beginning January 1, 2023 and ending December 31, 2024).

There were no restrictions on cash as of December 31, 2024 and 2023.

In 2024, we acquired Tantti for $54.8 million in cash, net of cash acquired.

In connection with the acquisitions, the Company has an obligation to pay up to $54.5 million (undiscounted) in contingent consideration earnout payments in cash over a three-year earnout period beginning January 1, 2025 and ending December 31, 2027.

See Note 3, “ Fair Value Measurements,” and Note 5, “ Acquisitions,” for additional information.

On December 14, 2023, we issued $600.0 million aggregate principal amount of our 2023 Notes in Exchange and Subscription Agreements with a limited number of holders of our outstanding 2019 Notes and certain other investors.

Pursuant to the Exchange and Subscription Agreements, we exchanged $217.7 million aggregate principal amount of the 2019 Notes for $309.9 million in aggregate principal amount of the 2023 Notes (the "Exchange Transaction") and issued $290.1 million aggregate principal amount of the 2023 Notes (the "Subscription Transactions") for $290.1 million in cash.

Immediately following the closing of the aforementioned transactions, the exchanged 2019 Notes were cancelled and $69.7 million in aggregate principal amount of the 2019 Notes remained outstanding.

We evaluated all exchanges and determined approximately $29.6 million of the exchanged notes were accounted for as extinguishment of debt and approximately $188.1 million were accounted for as modification of debt.

As a result, we recognized a $12.7 million loss on extinguishment of debt on our consolidated statement of comprehensive income in 2023.

On December 14, 2023, the Company issued $600.0 million aggregate principal amount of its 2023 Notes in a private placement pursuant to separate, privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with a limited number of holders of its outstanding 2019 Notes and certain other qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”).

Pursuant to the Exchange and Subscription Agreements, the Company exchanged $217.7 million of its 2019 Notes for $309.9 million aggregate principal amount of the 2023 Notes (the “Exchange Transaction”) and issued $290.1 million aggregate principal amount of the 2023 Notes (the “Subscription Transactions”) for $290.1 million in cash.

Proceeds from the Subscription Transactions amounted to $276.1 million after debt issuance costs of $13.9 million.

The 2023 Notes are senior, unsecured obligations of the Company, and bear interest at a rate of 1.00% per year.

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The 2023 Notes will mature on December 15, 2028, unless earlier redeemed, repurchased or converted.

Prior to the close of business on the business day immediately preceding September 15, 2028, the 2023 Notes will be convertible at the option of the holders of 2023 Notes only upon the satisfaction of specified conditions and during certain periods into cash up to their principal amount, and into cash, shares of the Company's common stock or a combination of cash and the Company's common stock, at the Company's election, for the conversion value above the principal amount, if any.

Thereafter until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2023 Notes will be convertible at the options of the holders of 2023 Notes at any time regardless of these conditions.

During the fourth quarter of 2023, the closing price of our common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter.

As a result, the 2019 Notes are convertible at the option of the holders of the 2019 Notes during the first quarter of 2024, the quarter immediately following the quarter when the conditions are met, as stated in the terms of the 2019 Notes.

These conditions have been met each quarter since the third quarter of 2020.

As a result, as of the date of this filing and prior to the Exchange Transaction, we received requests to convert $0.2 million aggregate principal amount of the 2019 Notes and all but $0.1 million of the requests have been settled as of December 31, 2023.

The remaining conversions will settle in the first quarter of 2024.

The conversions resulted in the issuance of a nominal number of shares of our common stock to the note holders.

Because the 2019 Notes mature within one year of the report date, we classify the carrying value of the 2019 Notes of $69.5 million as current liabilities on our consolidated balance sheets at December 31, 2023.

In 2023, our Board authorized the repurchase of up to $25.0 million of our common stock concurrent with the issuance of the 2023 Notes.

The authorization does not obligate us to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of our Board.

In December 2023, we used $14.4 million of cash of the proceeds from the issuance of the 2023 Notes to repurchase and retire 92,090 shares of our common stock at an average price of $156.22 per share, including $0.02 per share commission.

During the fourth quarter of 2024, the closing price of the Company's common stock did not exceed 130% of the conversion price of the 2023 Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter.

As a result, the 2023 Notes are not convertible at the option of the holders of the 2023 Notes during the fourth quarter of 2024, the quarter immediately following the quarter when the conditions are met, as stated in the indenture governing the 2023 Notes.

For more information on the 2023 Notes, see Note 15, Convertible Senior Notes , to this report.

In 2024, we had lease arrangements for certain equipment and facilities including corporate and manufacturing sites.

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Operating activities

For 2023, our operating activities provided cash of $113.9 million reflecting net income of $41.6 million and non-cash charges totaling $81.0 million primarily related to amortization of inventory step-up charges, depreciation, intangible amortization, amortization of debt discount and issuance costs, contingent consideration fair value adjustments, deferred income taxes, stock-based compensation charges and loss on extinguishment of debt.

For 2024, our operating activities provided cash of $175.4 million reflecting net loss of $25.5 million and non-cash charges totaling $140.0 million primarily related to depreciation, intangible amortization, amortization of debt discount and issuance costs, contingent consideration fair value adjustments, deferred income taxes, stock-based compensation charges, loss on disposal of fixed assets, and right of use asset amortization.

A decrease in inventory contributed $56.9 million to the change in working capital, of which $36.1 million was related to the Restructuring Plan and other inventory-related charges.

Accounts payable and accrued expenses provided $19.0 million due to the timing of payments to vendors.

Partially offsetting these favorable changes, accounts receivable increased $14.0 million due to timing of sales and receipts from customers.

For 2023, our operating activities provided cash of $113.9 million reflecting net income of $35.6 million and non-cash charges totaling $98.4 million primarily related to amortization of inventory step-up charges, depreciation expense, intangible amortization expense, amortization of debt discount and issuance costs, contingent consideration fair value adjustments, deferred income taxes, stock-based compensation charges, loss on extinguishment of debt and operating lease right of use asset amortization.

A decrease in inventory provided $41.0 million of which $23.6 million was related to the Restructuring Plan.

An increase in prepaid expenses, primarily related to prepaid taxes and insurance as well as subscriptions, consumed $13.3 million.

A decrease in accounts payable and accrued expenses consumed $37.7 million and was due to

the timing of payments to vendors as well as the payment of employee bonuses related to 2022 during 2023.

A decrease in accounts payable and accrued expenses consumed $31.3 million and was due to the timing of payments to vendors as well as the payment of employee bonuses related to 2022 during 2023.

The remaining cash provided by operating activities resulted from favorable changes in various other working capital accounts.

For 2022, our operating activities provided cash of $172.1 million reflecting net income of $186.0 million and non-cash charges totaling $49.9 million primarily related to depreciation, amortization, contingent consideration adjustments, amortization of debt issuance costs, deferred income taxes and stock-based compensation charges.

An increase in accounts receivable consumed $3.6 million of cash and was primarily driven by the 19.5% year-to-date increase in revenue in 2022, as compared to 2021.

Additionally, we had an increase in inventory of $57.2 million to support expected increases in future revenue.

Accounts payable decreased $8.2 million due to the timing of payments to vendors and accrued expenses decreased $2.0 million due to corporate income taxes paid.

Offsetting these uses of cash was a $4.1 million net increase in operating lease liabilities due to new operating leases entered into during 2022 and a $2.4 million decrease in prepaid expenses, including corporate income taxes.

The remaining cash used in operating activities resulted from unfavorable changes in various other working capital accounts.

Investing activities

Our investing activities consumed $86.4 million of cash in 2024, primarily due to $54.8 million in cash (net of cash received) used for the 2024 acquisition of Tantti Laboratory Inc.

Capital expenditures consumed $29.9 million in 2024, including $4.2 million of capitalized costs related to our internal-use software for 2024.

In addition, in November 2024, the Company amended the License Agreement (the “Daylight Agreement”) with DRS Daylight Solutions, Inc.

(“Daylight”) to extend the License Agreement one additional year for a one-time payment of $3.0 million.

Our investing activities consumed $123.3 million of cash in 2023, primarily due to $186.6 million in cash (net of cash received) used for the 2023 acquisitions of Metenova and FlexBiosys, in the aggregate.

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treasury securities in June 2023, which provided cash of $102.3 million.

Our investing activities consumed $233.2 million of cash during 2022, mainly due to $88.3 million of capital expenditures in 2022 as we continued to increase our manufacturing capacity worldwide.

Of these expenditures, $3.5 million represented capitalized costs related to our internal-use software for 2022.

In addition, in September 2022, the Company paid a one-time, non-refundable, non-creditable upfront payment to Daylight as required under the Daylight Agreement for the commercialization and sale of Culpeo ® QCL-IR Liquid Analyzer.

In December 2022, the Company invested $100.0 million in short-term U.S.

treasury securities.

Financing activities

In 2024, cash consumed by financing activities was $82.9 million, driven primarily by the repayment of the 2019 Notes of $69.9 million, $9.9 million in cash disbursed for shares withheld to cover employee income tax due upon the vesting and release of restricted stock units, and $7.3 million paid to settle the cash portion of the contingent earnout obligation related to our acquisition of Avitide in September 2021.

These payments were partially offset by proceeds received from stock option exercises during the period.

In 2023, cash provided by financing activities of $249.0 million included $290.1 million of proceeds from the issuance of the 2023 Notes in December 2023 and proceeds from stock option exercises during 2023 were $1.1 million.

Offsetting these activities was $14.4 million for the buyback of 92,090 shares of our common stock, $13.2 million in cash disbursed for shares withheld to cover employee income tax due upon the vesting and release of restricted stock units, $7.3 million paid for debt issuance costs related to the 2023 Notes and the payment of $7.3 million to settle the cash portion of the First Earnout Year contingent earnout obligation related to our acquisition of Avitide in September 2021.

Our financing activities consumed $13.3 million of cash in 2022, which included cash disbursed in relation to shares withheld to cover employee income tax due upon the vesting and release of restricted stock units of $17.0 million.

This was partially offset by proceeds received from stock option exercises during the period of $3.7 million.

Working capital increased by $359.0 million to $952.9 million at December 31, 2023 from $593.9 million at December 31, 2022 due to various changes noted above, primarily the exchange of $217.7 million in aggregate principal of the 2019 Notes in December 2023.

Offsetting these activities was

$14.4 million for the buyback of 92,090 shares of our common stock, $13.2 million in cash disbursed for shares withheld to cover employee income tax due upon the vesting and release of restricted stock units, $7.3 million paid for debt issuance costs related to the 2023 Notes and the payment of $7.3 million to settle the cash portion of the First Earnout Year contingent earnout obligation related to our acquisition of Avitide in September 2021.

Effect of exchange rate changes on cash, cash equivalents and restricted cash

The effect of exchange rate changes on cash during 2023 is a result of the strengthening of the Swedish krona against the U.S.

dollar by 3%, the strengthening of the Euro against the U.S.

dollar by 3% and the strengthening of the British pound against the U.S.

dollar by 5%.

Off-Balance Sheet Arrangements

We do not have any special purpose entities or off-balance sheet financing arrangements.

The effect of exchange rate changes on cash during 2024 is a result of the strengthening of the U.S.

dollar against the Swedish krona by 9%, the strengthening of the U.S.

dollar against the Euro by 6% and the strengthening of the U.S.

dollar against the British pound by 2%.

Capital Requirements

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• costs associated with our ability to comply with emerging environmental, social and governance standards.

Absent acquisitions of additional products, product candidates or intellectual property, we believe our current cash balances are adequate to meet our cash needs for at least the next 24 months.

Absent acquisitions of additional products, product candidates or intellectual property, we believe our current cash balances and future cash flow from operations are adequate to meet our cash needs for at least the next 24 months.

We expect operating expenses in 2025 to increase as we continue to expand our bioprocessing business.

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The sale of equity and convertible debt securities may result in dilution to our shareholders, and those securities may have rights senior to those of our common shares.

If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations.

If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or

other debt could contain covenants that would restrict our operations.

Any other third-party funding arrangement could require us to relinquish valuable rights.

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At December 31, 2024, we had federal net operating loss carryforwards of $19.3 million, state net operating loss carryforwards of $11.9 million, and foreign net operating loss carryforwards of $26.0 million.

The state net operating loss carryforwards will expire at various dates through 2043, while the federal and foreign net operating loss carryforwards have unlimited carryforward periods and do not expire.

We had federal and state business tax credits carryforwards of $5.0 million available to reduce future federal and state income taxes.

The business tax credits carryforwards will expire at various dates through December 2043.

The federal net operating loss carryforwards have unlimited carryforward periods and do not expire.

The state net operating loss carryforwards will expire at various dates through 2044.

Approximately $4.8 million of the foreign net operating loss carryforwards have unlimited carryforward periods and do not expire, while $21.2 million of the foreign net operating loss carryforwards will expire at various dates through 2034.

We had federal and state business tax credit carryforwards of $6.6 million available to reduce future federal and state income taxes.

The business tax credit carryforwards will expire at various dates through 2044.

Net operating loss carryforwards and available tax credits are subject to review and possible adjustment by the Internal Revenue Service, state and foreign jurisdictions and may be limited in the event of certain changes in the ownership interest of significant stockholders.

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Fluctuations in exchange rates may adversely affect our results of operations, financial position and cash flows.

We currently do not seek to hedge this exposure to fluctuations in exchange rates.

Although a majority of our contracts are denominated in U.S.

dollars, 37.0% and 37.9% of total revenues were denominated in foreign currencies during 2024 and 2023, respectively.

We use foreign exchange forward contracts to hedge a portion of our exposures to changes in currency exchange rates which result from an intercompany loan with a subsidiary.

We do not use derivative financial instruments for trading or speculative purposes.

A hypothetical 10% change in currency exchange rates would not have a material impact on our consolidated financial statements.

FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA

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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-K

Item 7. Management’s Discussion and Analysis