Anika Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2024

You should read the following discussion in conjunction with our financial statements and related notes appearing elsewhere in this report and our audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023, or our 2023 Form 10-K. In addition to historical information, this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our business, consolidated financial condition, and results of operations. The Securities and Exchange Commission, or the SEC, encourages companies to disclose forward-looking statements so that investors can better understand a company’s future prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as "will," "likely," "may," "believe," "expect," "anticipate," "intend," "seek," "designed," "develop," "would," "future," "can," "could," and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans, and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements regarding expected future operating results, expectations regarding the timing and receipt of regulatory results, anticipated levels of capital expenditures, and expectations of the effect on our financial condition of claims, litigation, and governmental and regulatory proceedings.

Please also refer to “Item 1A. Risk Factors” of our 2023 Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Management Overview

We are a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care. Based on our collaborations with clinicians to understand what they need most to treat their patients, we develop minimally invasive products that restore active living for people around the world. We are committed to leading in high opportunity spaces within orthopedics, including OA pain management, regenerative solutions, sports medicine and Arthrosurface joint solutions.

We have over thirty years of global expertise developing, manufacturing and commercializing products on our hyaluronic acid, or HA, technology platform. HA is a naturally occurring polymer found throughout the body that is vital for proper joint health and tissue function. Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to multiple uses, including enabling longer residence time to support OA pain management and creating a solid form of HA called Hyaff, which is a platform utilized in our regenerative solutions portfolio.

In early 2020, we expanded our overall technology platform, product portfolio, and significantly expanded our commercial infrastructure, especially in the United States, through our acquisitions of Parcus Medical, LLC, or Parcus Medical, a sports medicine and instrumentation solutions provider, and Arthrosurface, Inc, or Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions. These acquisitions augmented our HA-based OA pain management and regenerative products with a broad suite of products and capabilities focused on early intervention joint preservation primarily in upper and lower extremities such as shoulder, foot/ankle, knee and hand/wrist.

As we look forward, our business is positioned to capture value within our target market of joint preservation. We believe our future success will be driven by our:

• Over 30 years of experience in HA and HA-based regenerative solutions and early intervention orthopedics combined with seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our customers and their patients;
• Utilizing proprietary HA technology and manufacturing expertise to provide new and differentiated solutions in next generation OA Pain Management (eg. Cingal) and regenerative (eg. Integrity Implant System and Hyalofast) markets;
• Introducing key HA products into the US market upon FDA approval/clearance, such as Cingal, Hyalofast and Integrity, our arthroscopic patch system for rotator cuff and other tendon repairs, and additional products in development that leverage our proprietary Hyaff regenerative platform;
• Robust network of stakeholders in our target markets to identify evolving unmet patient treatment needs;
• Global commercial expertise, which we will leverage to drive growth across our product portfolio, including continued international expansion;
• Opportunity to pursue strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions and technology licensing, and leveraging our strong financial foundation and operational capabilities; and
• Energized and experienced team focused on strong values, talent, and culture.

On October 31, 2024 (the “Closing Date”), we completed the sale of all of the outstanding equity interests (the “Transaction”) of Arthrosurface Incorporated, a Delaware corporation and former wholly-owned subsidiary of the Company (“Arthrosurface”), which held our Arthrosurface business, to Phoenix Brio, Incorporated, a Delaware corporation (“Buyer”), pursuant to the terms and conditions of a Share Purchase Agreement, dated as of the Closing Date (the “Purchase Agreement”), by and amongst us, Arthrosurface and Buyer (the “Transaction”).

As consideration for the Transaction, at the closing Buyer delivered to us a ten-year non-interest bearing promissory note in the principal amount of $7.0 million. Under the terms of the Purchase Agreement, we are also eligible to receive: (i) for each calendar quarter, an amount equal to a percentage of the net sales (the “Revenue Payments”) for the sale of certain commercial and pipeline products during the period commencing on the Closing Date and ending on the earlier of the fifth (5th) anniversary of the Closing Date or the date on which the Buy-Out Payment (as defined below) is paid to us; and (ii) a percentage of the gross proceeds with respect to the sale of certain commercial and pipeline products in a bona-fide arm’s length transaction with a third party that is not an affiliate of Buyer or us occurring within the first twenty four (24) months following the Closing Date. The Buyer can also elect to make a payment in an amount equal to the greater of (A) $14.0 milllion or (B) ten (10) times the Revenue Payments ((A) and (B) together, the “Buy-Out Payment”) paid to us during the last full calendar year prior to the consummation of a change of control transaction or Buyer’s written notice to us that it is electing to make the Buy-Out Payment. Pursuant to the Purchase Agreement, the aggregate consideration is subject to customary post-closing adjustments.

We also announced on October 31, 2024 our intention to divest of the Parcus Medical business. These decisions were a result of a strategic review to focus on our core HA technology and our regenerative solutions products to maximize shareholder value.

Products

OA Pain Management

Our OA Pain Management product family consists of Monovisc and Orthovisc, our injectable, HA, OA Pain Management offerings that are indicated to provide pain relief from osteoarthritis conditions; and Cingal, our novel, next generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a steroid. Cingal is our next generation fast-acting, long-lasting, non-opioid, clinically proven osteoarthritis pain product which is designed to provide both short- and long-term pain relief through at least six months. It is currently sold outside the United States in approximately 40 countries. In 2022, we completed a third Phase III clinical trial for Cingal, which achieved its primary endpoint. Cingal is not currently approved for commercial use in the United States. We have been actively engaging with the U.S. Food and Drug Administration, or the FDA, on next steps for U.S. regulatory approval. We acquired the Aristospan NDA regulatory approval in the U.S. in September 2024 to assist with our Cingal regulatory filing with the FDA.

Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of: (a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Integrity, our new hyaluronic acid-based scaffold for rotator cuff and other tendon repairs, Tactoset, our HA-enhanced injectable bone substitute, and Hyalofast, our HA, biodegradable scaffold used for cartilage regeneration currently available outside the United States in over 35 countries; (b) our line of sports medicine solutions used to repair and reconstruct damaged ligaments and tendons due to sports injuries, trauma and disease; and (c) our Arthrosurface portfolio of bone preserving joint technologies, including partial joint replacement, joint resurfacing, and minimally invasive and bone sparing implants, designed to treat upper and lower extremity orthopedic conditions caused by trauma, injury and arthritic disease.

Non-Orthopedic

Our Non-Orthopedic product family consists of legacy HA products that are marketed principally for non-orthopedic applications, including our anti-adhesion barrier product, advanced wound care products, our ear, nose and throat products, and our ophthalmic products. Our Non-Orthopedic product family also includes Hyvisc, our high molecular weight injectable HA veterinary product approved for the treatment of joint dysfunction in horses due to non-infectious synovitis associated with equine OA.

Results of Operations

Three and Nine Months Ended September 30, 2024 Compared to Three and Nine Months Ended September 30, 2023

(in thousands, except percentages)

(in thousands, except percentages)

20

Revenue

The following table presents revenue by product family for the three and nine-month periods ended September 30, 2024 and 2023:

(in thousands, except percentages)

(in thousands, except percentages)

Revenue from our OA Pain Management product family decreased 2% for each of the three- and nine-month periods ended September 30, 2024, as compared to the same periods in 2023, due primarily to unfavorable timing of strategic partner orders as distributor ordering patterns can vary significantly on a quarterly basis.

Revenue from our Joint Preservation and Restoration product family decreased 11% and 1% for the three- and nine-month periods ended September 30, 2024, respectively, as compared to the same periods in 2023, primarily due to lower sales of certain legacy Arthrosurface and sports medicine products, offset somewhat from growing commercial adoption of our newest products, particularly Integrity.

Revenue from our Non-Orthopedic product family decreased 24% and 11% for the three- and nine-month periods ended September 30, 2024, as compared to the same periods in 2023, primarily due to unfavorable timing of distributor ordering patterns as well as due to the end of life of certain legacy non-orthopedic products.

Gross Profit and Margin

Gross profit for the three-month period ended September 30, 2024 decreased by $23.5 million and decreased $23.3 million for the nine-month period ended September 30, 2024 to $1.4 million and $53.4 million, respectively. Gross profit for the three- and nine-month periods ended September 30, 2023 was $24.9 million and $76.8 million, respectively. The decrease in gross profit for the three-month and nine-month periods ended September 30, 2024 was due primarily to the write down of inventories and related raw material deposits with the Arthrosurface business in the amount of $23.4 million during the three-month period ended September 30, 2024.

Gross margin for the three- and nine-month periods ended September 30, 2024 was 4% and 44%, respectively. Gross margin for the three- and nine-month period ended September 30, 2023 was 60% and 62%, respectively. The increase in gross margin for the three- and nine-month periods ended September 30, 2024, as compared to the same periods in 2023 was primarily due to the write-down of Arthrosurface inventories.

Research and Development

Research and development expenses for the three- and nine-month periods ended September 30, 2024 were $7.2 million and $22.8 million, respectively. Research and development expenses for the three- and nine-month periods ended September 30, 2023 were $7.8 million and $25.1 million, respectively. The decrease for the three-month and nine-month periods ended September 30, 2024 was primarily related to lower product development and regulatory costs.

Selling, General and Administrative

Selling, general and administrative expenses for the three- and nine-month periods ended September 30, 2024 were $19.1 million and $60.4 million, respectively. Selling, general and administrative expenses for the three- and nine-month periods ended September 30, 2023 were $24.8 million and $75.5 million, respectively. This decrease for the three- and nine-month periods ended September 30, 2024 was primarily due to a $3.3 million payment on the Parcus Medical unitholder arbitration settlement in 2023, a $1.4 million benefit on the settlement of a contract obligation related to a discontinuation of a software project, cost savings as a result of recent headcount reductions taken in first quarter of 2024, and lower shareholder activism costs in 2024.

Impairment of Long-Lived Assets

We assess our long-lived assets for impairment under certain circumstances, such as when events or changes in circumstances indicate there may be impairment. On October 31, 2024, we sold our equity interest in Arthrosurface Incorporated. in which the expected consideration will be less than carrying value of the net assets of the Arthrosurface reporting unit at September 30, 2024. As a result, we performed an assessment of long-lived assets for impairment related to Arthrosurface reporting unit. The results of these impairment tests indicated that the estimated fair value of this reporting unit was less than its carrying value. Consequently, a non-cash impairment of long-lived assets charge of $3.1 million was recorded in the three-month period ended September 30, 2024. The decline in fair value was primarily due to expectation of lower cash flows related the Arthrosurface reporting unit.

Income Taxes

Income tax expense was $2.3 million and $3.2 million for the three- and nine-month periods ended September 30, 2024, resulting in effective tax rates of (8.4%) and (10.2%), respectively. The income tax benefit was $0.5 million and $2.5 million for the three- and nine-month periods ended September 30, 2023, resulting in an effective tax rate of 6.6% and 11.1%, respectively. The net change in the effective tax rate for the three- and nine-month periods ended September 30, 2024, as compared to the same periods in 2023, was primarily due to the impact of the valuation allowance in the U.S. in both the current and prior periods and the impact of recording of $1.5 million of discrete items during the nine-month period ended September 30, 2024. The Company’s effective tax rate for the three- and nine-month periods ended September 30, 2024 was primarily driven by the full valuation on the Company's deferred tax assets in the US and the projected taxable income for the Company, and resulting current tax payable, for the three- and nine-month periods ended September 30, 2024.

Net Loss

For the three- and nine-month periods ended September 30, 2024, net loss was $29.9 million and $34.5 million, or $2.03 loss per diluted share and $2.34 loss per diluted share, respectively, compared to a net loss of $6.6 million and $19.7 million, or $0.45 loss per diluted share and $1.34 loss per diluted share, for the same periods in the prior year. The decrease in net loss and diluted net loss per share was primarily due to impairment charges and write-down of assets related to the Arthrosurface business.

Non-GAAP Financial Measures

We present certain information with respect to adjusted gross profit and adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and Amortization, or EBITDA, adjusted net income, adjusted diluted earnings per share or adjusted EPS, which are financial measures not based on any standardized methodology prescribed by accounting principles generally accepted in the United States, or GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

We have presented adjusted gross profit and adjusted gross margin, adjusted EBITDA, adjusted net income, adjusted EPS, because they are key measures used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe these financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. In particular, we believe that the exclusion of these items in calculating these measures can provide a useful tool for period-to-period comparisons of our core operating performance. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making.

Adjusted Gross Profit and Adjusted Gross Margin

We define adjusted gross profit as our gross profit excluding amortization of certain acquired intangible assets, the impact of inventory fair-value step up associated with our recent acquisitions, certain writedowns of inventories to realizable value and certain product rationalization charges. The amortized assets contribute to revenue generation, and the amortization of such assets will likely continue in future periods until such assets are fully amortized. These assets include the fair value of certain identified assets acquired in acquisitions, including developed technology and acquired tradenames. We define adjusted gross margin as adjusted gross profit divided by total revenue.

The following is a reconciliation of adjusted gross profit and gross margin, both non-GAAP metrics, to gross profit, the most directly comparable GAAP financial measure for the three and nine-month periods ended September 30, 2024 and 2023, respectively:

23

Adjusted gross profit for the three- and nine-month periods ended September 30, 2024 decreased $2.3 million and $4.4 million to $25.0 million and $77.8 million, respectively, representing adjusted gross margin of 65% and 64%, respectively. Adjusted gross profit for the three- and nine-month periods ended September 30, 2023 was $27.3 million and $82.2 million, respectively, or adjusted gross margin of 66% and 66%, respectively. The decrease in adjusted gross margin for the three- and nine-month periods ended September 30, 2024 as compared to 2023 was due to lower revenue largely due to a higher proportion of international revenues which have lower margins.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net income (loss) excluding interest and other expense, net, income tax benefit, depreciation and amortization, stock-based compensation, and acquisition-related expenses.

Adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net (loss) income, which is the nearest GAAP equivalent. Some of these limitations are:

• adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;
• we exclude share-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary expense included in operating expenses would be higher, which would affect our cash position;
• we exclude acquisition related expenses, including, amortization and depreciation of acquired assets in recent acquisitions, impairments or writedowns on acquired assets, and the impact of inventory fair-value step up on cost of revenue;
• the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

The following is a reconciliation of adjusted EBITDA, a non-GAAP metric, to net loss, the most directly comparable GAAP financial measure, for the three and nine-month periods ended September 30, 2024 and 2023, respectively:

Adjusted EBITDA in the three-month period ended September 30, 2024 increased $0.7 million as compared with the same period in 2023. Adjusted EBITDA for the period was primarily driven by lower operating expenses offset by the reduced volume of higher margin US OA Pain Management revenue.

Adjusted EBITDA in the nine-month period ended September 30, 2024, increased $4.5 million as compared with the same period in 2023. The increase in adjusted EBITDA for the period was due to lower operating expenses, growth in new product sales, offset partially by lower OA Pain Management revenue in the US.

Adjusted Net Income (Loss) and Adjusted EPS

We present information below with respect to adjusted net (loss) income and adjusted EPS. We define adjusted net (loss) income as our net (loss) income excluding amortization and depreciation of acquired assets, share-based compensation, and other non-recurring items, such as product rationalization charges, severance costs and costs of shareholder activism. We define adjusted EPS as GAAP diluted earnings per share excluding the above adjustments to net (loss) income used in calculating adjusted net (loss) income, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net loss, a non-GAAP metric, to net income (loss), the most directly comparable GAAP financial measure, for the three and nine-month periods ended September 30, 2024 and 2023, respectively:

The following is a reconciliation of adjusted diluted EPS, a non-GAAP metric, to diluted EPS, the most directly comparable GAAP financial measure, for the three and nine-month periods ended September 30, 2024 and 2023, respectively:

Adjusted net income and adjusted diluted earnings per share in the three-month period ended September 30, 2024 decreased $7.1 million and $0.48, respectively, as compared with the same period in 2023. The decrease for the period was primarily due to lower revenues due to timing of strategic ordering patterns with OA Pain Management customers that have higher margins.

Adjusted net income and adjusted diluted earnings per share in the nine-month period ended September 30, 2024 decreased $5.7 million and $0.38, respectively, as compared with the same period in 2023. The increase for the period was primarily due to lower operating expenses in 2024 partially offset by lower revenues on timing of strategic ordering patterns with higher margin OA Pain Management customers.

Liquidity and Capital Resources

We require cash to fund our operating activities and to make capital expenditures and other investments in the business. We expect that our requirements for cash to fund these uses will increase as our operations expand. We continue to generate cash from operating activities and believe that our operating cash flows, cash currently on our balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs. Cash and cash equivalents were $62.4 million and $72.9 million, and working capital totaled $110.6 million and $132.2 million, at September 30, 2024 and December 31, 2023, respectively.

On November 12, 2021, we entered into a Third Amendment to Credit Agreement with Bank of America N.A. as administrative agent, which amended our existing revolving line of credit agreement dated October 24, 2017 which provides up to $75.0 million in the form of a senior revolving line of credit. Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million. As of September 30, 2024, and December 31, 2023, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Summary of Cash Flows (in thousands):

The following changes contributed to the net change in cash and cash equivalents in the nine-month period ended September 30, 2024 as compared to the same period in 2023.

Operating Activities

Cash provided by operating activities was $3.8 million for the nine-month period ended September 30, 2024, as compared to cash used in operating activities of $5.4 million for the same period in 2023. The increase in cash provided by operating activities for the nine-months ended September 30, 2024, compared to the same period in prior year, was primarily due to a lower net loss during the nine-month period ended September 30, 2024 and higher non-recurring costs in 2023 for the Parcus Medical arbitration settlement and shareholder activism expenses.

Investing Activities

Cash used in investing activities was $7.0 million for the nine-month period ended September 30, 2024, as compared to cash used in investing activities of $3.6 million for the same period in 2023. The change was primarily due to an increase in capital expenditures in 2024 to support the expansion of manufacturing capacity at our Bedford facility and a purchase of developed technology for $0.6 million.

Financing Activities

Cash used in financing activities was $7.4 million for the nine-month period ended September 30, 2024, as compared to cash used in financing activities of $6.7 million for the same period in 2023. In both periods, the cash used in financing activities was primarily attributable to utilization of cash for share repurchases and employee tax withholding in exchange for shares surrendered by equity award holders. We paid $5.3 million and $5.0 million in share repurchases for the nine-month periods ended September 2024 and 2023, respectively.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We believe that our accounting policies for revenue recognition, accounts receivable and allowance for credit losses, goodwill, acquired in-process research and development, inventory and contingencies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our 2023 Form 10-K for the year ended December 31, 2023. We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our 2023 Form 10-K for the fiscal year ended December 31, 2023 and is updated in the Notes to the condensed consolidated financial statements included in this report.

Contractual Obligations and Other Commercial Commitments

Our contractual obligations and other commercial commitments are summarized in the section captioned “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Contractual Obligations and Other Commercial Commitments” in our 2023 Form 10-K for the year ended December 31, 2023. There were no material changes to our contractual obligations reported in our 2023 Form 10-K during the nine months ended September 30, 2024. For additional discussion, see Note 9 to the condensed consolidated financial statements included in this report.

To the extent that funds generated from our operations, together with our existing capital resources, are insufficient to meet future requirements, we will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate partners and others, or through other sources. No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should such a need arise.

Our market risks and the ways we manage them are summarized in the section captioned “Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes in the first six months of 2024 to our market risks or to our management of such risks.

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer have concluded as of September 30, 2024 that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. On an on-going basis, we review and document our disclosure controls and procedures, and our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

(b) Changes in internal controls over financial reporting.

There were no material changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to the risk factors described in the section captioned “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 as amended and supplemented by the information in “Part II, Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2024 and June 30, 2024. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section captioned “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in “Part II, Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2024 and June 30, 2024, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K and such subsequently filed Quarterly Report on Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition, and/or operating results.

The impact of the Russian invasion of Ukraine and the conflict in the Middle East on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.

The short and long-term implications of Russia’s invasion of Ukraine and the conflict in the Middle East are difficult to predict at this time. We continue to monitor any adverse impact that the outbreak of war in Ukraine, the subsequent institution of sanctions against Russia by the United States and several European and Asian countries, and the conflict in the Middle East may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and other third parties with which we conduct business. For example, a prolonged conflict in Ukraine or the Middle East may result in increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials. We also have suppliers and customers in and around those areas that we periodically do business with that could be disrupted by these events. We will continue to monitor this fluid situation and develop contingency plans as necessary to address any disruptions to our business operations as they develop. To the extent these conflicts may adversely affect our business as discussed above, it may also have the effect of heightening many of the other risks described herein. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; disruptions in global supply chains; and constraints, volatility, or disruption in the capital markets, any of which could negatively affect our business and financial condition.