Teradyne, Inc: Form 10-Q for the period ended Jul 2, 2023

Statements in this Quarterly Report on Form 10-Q which are not historical facts, so called “forward-looking statements,” are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in our filings with the Securities and Exchange Commission. See also Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements, except as may be required by law.

Overview

We are a leading global supplier of automated test equipment and robotics solutions. We design, develop, manufacture and sell automatic test systems and robotics products. Our automatic test systems are used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our robotics products include collaborative robotic arms and autonomous mobile robots (“AMRs”) used by global manufacturing, logistics and industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and robotics products and services include:

• semiconductor test (“Semiconductor Test”) systems;
• storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);
• wireless test (“Wireless Test”) systems; and
• robotics (“Robotics”) products.

The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our test products both through direct sales and sales to the customers’ supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future.

In the second quarter of 2023, the demand in our Semiconductor Test business continued to be impacted by a correction cycle driven by excess semiconductor inventory, primarily in the mobility segment of the market. The depth of this slowdown and the timing of the recovery are uncertain, however, strong automotive demand and in Memory test, the growth of DDR5 and High Bandwidth Memory (“HBM”) devices for data center applications are partially offsetting these declines. Over the midterm we expect the ramp of 3 nanometer and gate-all-around process technology, increasing multichip packaging, additional device complexity and unit growth will drive additional demand for test.

Our Robotics segment consists of Universal Robots A/S (“UR”), a leading supplier of collaborative robotic arms and Mobile Industrial Robots A/S (“MiR”), a leading maker of AMRs for industrial automation. The market for our Robotics segment products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (“SMEs”) throughout the world. In the second quarter of 2023, Robotics demand has softened significantly due to slowing global industrial activity and macro-economic headwinds.

In the second quarter of 2023, we met customer demand, in part, through faster than expected recoveries from supply chain constraints, while inflation had minimal effects on our results. Both our test and robotics businesses may still be influenced by supply constraints during the remainder of 2023, which could impact our revenue and costs. For example, our third quarter 2023 forecast excludes approximately $35 million of revenue, primarily in our test businesses, due to these continued supply chain constraints.

Our financial statements are denominated in U.S. dollars. While the majority of our revenues are in U.S. dollars, approximately 70 percent of our Robotics revenue is denominated in foreign currencies. In 2022, the strengthening of the U.S. dollar was a factor in lower than forecasted revenues in our Robotics segment. Strengthening of the U.S. dollar would negatively affect Robotics revenue growth in 2023.

Our corporate strategy continues to focus on profitably gaining market share in our test businesses through the introduction of differentiated products that target expanding segments and accelerating growth through continued investment in our Robotics businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through stock repurchases and dividends and using capital for opportunistic acquisitions.

Impact of the COVID-19 Pandemic on our Business

The novel coronavirus (COVID-19) pandemic resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines, shelter-in-place orders, vaccination and testing mandates, and business limitations and shutdowns. These measures impacted our day-to-day operations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. In the second quarter of 2023 the COVID-19 pandemic had significantly less impact on our business than in prior quarters since the start of the pandemic in 2020. However, we are unable to accurately predict the future impact of COVID-19, which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges or new strains or variants of the virus in areas where we do business.

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of August 4, 2023, the date of issuance of this Quarterly Report on Form 10-Q.

We believe the COVID-19 pandemic and the numerous measures implemented by authorities in response, adversely impacted our results of operations, including by increasing costs, but we cannot accurately estimate the amount of the impact to our financial results. In addition, the pandemic disrupted our contract manufacturers and suppliers, and resulted in supply constraints and in short-term cost increases to meet customer demand.

Supply Chain Constraints and Inflationary Pressures

The global supply shortage of electrical components, including semiconductor chips, continued to impact our supply chain in the second quarter of 2023. We are seeing improvements related to supply constraints however, we experienced, and expect to continue to experience through the remainder of 2023, increases in our lead times and costs for certain components for certain of our products. In addition, while not material, inflationary pressures contributed to increased costs for product components and wage inflation, impacting our cost of products, gross margin and profit for the quarter. Our supply chain team, and our suppliers, continue to manage numerous supply, production, and logistics obstacles. While not material through the second quarter of 2023, in an effort to mitigate these risks, in some cases, we have incurred higher costs due to investment in supply chain resiliency and to secure available inventory or have extended or placed non-cancellable purchase commitments with semiconductor suppliers, which introduces inventory risk if our forecasts and assumptions prove inaccurate. We have also sourced components from additional suppliers and multi-sourced and pre-ordered components and finished goods inventory in some cases in an effort to reduce the impact of the adverse supply chain conditions we have experienced. There is no assurance that these efforts will be successful. Our third quarter 2023 forecast excludes approximately $35 million of revenue, primarily in our test businesses, due to these continued supply chain constraints.

See Part II—Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for our risk factors regarding risks associated with both the COVID-19 pandemic and international conflicts.

Critical Accounting Policies and Estimates

We have identified the policies which are critical to understanding our business and our results of operations. There have been no significant changes during the six months ended July 2, 2023, to the items disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except as noted below.

Critical accounting estimates are complex and may require significant judgment by management. Changes to the underlying assumptions may have a material impact on our financial condition and results of operations. These estimates may change, as new events occur and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions.

Preparation of Financial Statements and Use of Estimates

The preparation of consolidated financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements. Actual results may differ significantly from these estimates under different assumptions or conditions.

SELECTED RELATIONSHIPS WITHIN THE CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

Results of Operations

Second Quarter 2023 Compared to Second Quarter 2022

Revenues

Revenues by our reportable segments were as follows:

(in millions)

The decrease in Semiconductor Test revenues of $66.6 million, or 12.3%, was driven primarily by lower tester sales for Mobility applications, partially offset by higher Memory test sales in Flash Final Test. The decrease in System Test revenues of $40.4 million, or 30.0%, was primarily due to lower sales in Storage Test of system level and hard disk drive testers, partially offset by higher sales in Defense/Aerospace. The decrease in Robotics revenues of $29.5 million, or 29.2%, was driven primarily by softening demand due to slowing global industrial activity and macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The decrease in Wireless Test revenues of $20.1 million, or 31.5%, was primarily due to a decrease in connectivity test products.

Revenues by country as a percentage of total revenues were as follows (1):

(1) Revenues attributable to a country are based on location of customer site.

Gross Profit

Our gross profit was as follows:

(in millions)

Gross profit as a percent of revenue decreased by 1.4 points, primarily due to lower volume.

Selling and Administrative

Selling and administrative expenses were as follows:

(in millions)

The increase of $6.2 million in selling and administrative expenses was primarily due to higher variable compensation.

Engineering and Development

Engineering and development expenses were as follows:

(in millions)

The decrease of $6.3 million in engineering and development expenses was primarily due to lower spending in Semiconductor Test, partially offset by higher spending in Robotics.

Restructuring and Other

During the three months ended July 2, 2023, we recorded $5.1 million of severance charges related to headcount reductions of 112 people primarily in Semiconductor Test and Robotics which included charges related to a voluntary early retirement program for employees meeting certain conditions and a charge of $1.1 million for an increase in environmental liability.

During the three months ended July 3, 2022, we recorded a charge of $1.5 million for an increase in environmental and legal liabilities.

Interest and Other

(in millions)

Interest income increased by $5.4 million primarily due to higher interest rates in 2023. Other (income) expense, net decreased by $8.6 million primarily due to changes in unrealized gains/losses on equity securities, from a $6.6 million loss in 2022 to a $2.6 million gain in 2023.

Income (Loss) Before Income Taxes

(in millions)

(1) Included in Corporate and Eliminations are interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations, legal and environmental fees, and severance charges.

The decrease in income before income taxes in Semiconductor Test was driven primarily by lower tester sales for Mobility applications, partially offset by higher Memory test sales in Flash Final Test. The decrease in income before income taxes in System Test was primarily due to lower sales in Storage Test of system level and hard disk drive testers. The decrease in income before income taxes in Wireless Test was driven primarily by a decrease in sales of connectivity test products. The decrease in income before income taxes in Robotics was driven primarily by softening demand due to slowing global industrial activity and macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The income before income taxes in Corporate and Eliminations was primarily due to changes in unrealized gains/losses on equity securities.

Income Taxes

The effective tax rate for the three months ended July 2, 2023 and July 3, 2022, was 16.9% and 17.1%, respectively. The decrease in the effective tax rate from the three months ended July 3, 2022, to the three months ended July 2, 2023, resulted from an increase in benefit from the international provisions of the U.S. Tax Cuts and Jobs Act of 2017, a reduction in non-deductible officers’ compensation and an increase in benefit related to tax credits. These reductions in expense were partially offset by a projected shift in the geographic distribution of income, which increases the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions and an increase in discrete expense related to foreign currency gain or loss.

Six Months 2023 Compared to Six Months 2022

Revenues

Revenues by our reportable segments were as follows:

(in millions)

The decrease in Semiconductor Test revenues of $134.0 million, or 13.1%, was driven primarily by lower tester sales for Mobility and Compute applications, partially offset by higher Memory test sales in Flash Final Test. The decrease in System Test revenues of $84.5 million, or 33.3%, was primarily due to lower sales in Storage Test of system level and hard disk drive testers. The decrease in Robotics revenues of $43.4 million, or 21.3%, was driven primarily by softening demand due to slowing global industrial activity and macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The decrease in Wireless Test revenues of $32.9 million, or 28.5%, was primarily due to a decrease in sales of connectivity test products.

Revenues by country as a percentage of total revenues were as follows (1):

(1) Revenues attributable to a country are based on location of customer site.

Gross Profit

Our gross profit was as follows:

(in millions)

Gross profit as a percent of revenue decreased by 1.9 points, primarily due to a lower volume.

Selling and Administrative

Selling and administrative expenses were as follows:

(in millions)

The increase of $17.0 million in selling and administrative expenses was primarily due to the charge of $5.9 million recorded in the six months ended July 2, 2023, related to the modification of Teradyne’s chief executive officer’s outstanding equity awards in connection with his retirement and higher spending in System Test, Semiconductor Test and Robotics.

Engineering and Development

Engineering and development expenses were as follows:

(in millions)

The decrease of $8.6 million in engineering and development expenses was due to lower variable compensation and lower spending in Semiconductor Test, partially offset by higher spending in Robotics.

Restructuring and Other

During the six months ended July 2, 2023, we recorded $7.2 million of severance charges related to headcount reductions of 179 people primarily in Semiconductor Test and Robotics which included charges related to a voluntary early retirement program for employees meeting certain conditions and a charge of $1.1 million for an increase in environmental liability.

During the six months ended July 3, 2022, we recorded a charge of $14.7 million related to the arbitration claim filed against Teradyne and AutoGuide related to an earn-out dispute, which was settled on March 25, 2022 for $26.7 million, and a charge of $2.0 million for an increase in environmental and legal liabilities.

Interest and Other

(in millions)

Interest income increased by $9.9 million primarily due to higher interest rates in 2023. Other (income) expense, net decreased by $13.7 million primarily due to changes in unrealized gains/losses on equity securities, from an $8.8 million loss in 2022 to a $4.6 million gain in 2023.

Income (Loss) Before Income Taxes

(in millions)

(1) Included in Corporate and Eliminations are interest income, interest expense, net foreign exchange gains (losses), intercompany eliminations, legal and environmental fees, severance charges, pension, and an expense for the modification of Teradyne’s former chief executive officer’s outstanding equity awards.

The decrease in income before income taxes in Semiconductor Test was driven primarily by lower tester sales for Mobility and Compute applications, partially offset by higher Memory test sales in Flash Final Test. The decrease in income before income taxes in System Test was primarily due to lower sales in Storage Test of system level and hard disk drive testers. The decrease in income before income taxes in Wireless Test was driven primarily by a decrease in sales of connectivity test products. The decrease in income before income taxes in Robotics was driven primarily by softening demand due to slowing global industrial activity and macro-economic headwinds and the impact of the transformation of Universal Robots distribution channel. The decrease in loss before income taxes in Corporate and Eliminations was primarily due to legal settlement charges in 2022 related to litigation for the earn-out dispute in connection with the AutoGuide acquisition, changes in unrealized gains/losses on equity securities and higher interest income.

Income Taxes

The effective tax rate for the six months ended July 2, 2023 and July 3, 2022, was 15.7% and 14.1%, respectively. The increase in the effective tax rate from the six months ended July 3, 2022, to the six months ended July 2, 2023, was primarily attributable to a projected shift in the geographic distribution of income, which increases the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions and a reduction in discrete benefit from equity compensation. These increases were partially offset by an increase in benefit from the international provisions of the U.S. Tax Cuts and Jobs Act of 2017.

Contractual Obligations

There have been no changes outside of the ordinary course of business to our contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Liquidity and Capital Resources

Our cash, cash equivalents and marketable securities balances decreased by $192.1 million in the six months ended July 2, 2023, to $813.1 million.

Operating activities during the six months ended July 2, 2023, provided cash of $162.1 million. Changes in operating assets and liabilities used cash of $121.7 million due to a $46.1 million increase in operating assets and a $75.5 million decrease in operating liabilities.

The increase in operating assets was primarily due to a $29.6 million increase in prepayments and other assets due to prepayments to our contract manufacturers, a $13.8 million increase in inventories and a $2.7 million increase in accounts receivable.

The decrease in operating liabilities was due to a $48.9 million decrease in accrued employee compensation, a $34.9 million decrease in deferred revenue and customer advance payments, a $13.6 million decrease in income taxes, and $2.5 million of retirement plan contributions, partially offset by a $13.0 million increase in accounts payable, and an $11.4 million increase in other accrued liabilities.

Investing activities during the six months ended July 2, 2023, used cash of $121.7 million due to $99.0 million used for purchases of marketable securities, and $80.7 million used for purchases of property, plant and equipment, partially offset by $35.6 million and $22.0 million in proceeds from sales and maturities of marketable securities, respectively, and $0.5 million in proceeds from the cancellation of Teradyne owned life insurance policies related to the cash surrender value.

Financing activities during the six months ended July 2, 2023, used cash of $283.2 million due to $227.8 million used for the repurchase of 2.2 million shares of common stock at an average price of $102.35 per share, $20.3 million used for payment related to net settlements of employee stock compensation awards, $34.2 million used for dividend payments, and $17.5 million used for payments of convertible debt principal, partially offset by $16.6 million from the issuance of common stock under employee stock purchase and stock option plans.

Operating activities during the six months ended July 3, 2022, provided cash of $122.9 million. Changes in operating assets and liabilities used cash of $309.1 million. This was due to a $287.8 million increase in operating assets and a $21.3 million decrease in operating liabilities.

The increase in operating assets was due to a $146.4 million increase in accounts receivable, a $94.8 million prepayments and other assets due to prepayments to our contract manufacturers, and a $46.7 million increase in inventories.

The decrease in operating liabilities was due to a $61.7 million decrease in accrued employee compensation, a $6.9 million decrease in other accrued liabilities, and $2.6 million of retirement plan contributions, partially offset by a $25.0 million increase in accounts payable, a $14.2 million increase in deferred revenue and customer advance payments, and a $10.8 million increase in income taxes.

Investing activities during the six months ended July 3, 2022, used cash of $54.3 million due to $247.9 million used for purchases of marketable securities, and $89.7 million used for purchases of property, plant and equipment, partially offset by $139.7 million and $143.6 million in proceeds from maturities and sales of marketable securities, respectively.

Financing activities during the six months ended July 3, 2022, used cash of $626.8 million due to $532.8 million used for the repurchase of 5.0 million shares of common stock at an average price of $107.5 per share, $42.3 million used for payments of convertible debt principal, $35.4 million used for dividend payments, and $32.8 million used for payment related to net settlements of employee stock compensation awards, partially offset by $16.5 million from the issuance of common stock under employee stock purchase and stock option plans.

In January 2023 and May 2023, Teradyne’s Board of Directors declared a quarterly cash dividend of $0.11 per share. Dividend payments for the three and six months ended July 2, 2023, were $17.0 million and $34.2 million, respectively.

In January 2022 and May 2022, Teradyne’s Board of Directors declared a quarterly cash dividend to $0.11 per share. Dividend payments for the three and six months ended July 3, 2022, were $17.5 million and $35.4 million, respectively.

In January 2023, our Board of Directors cancelled the 2021 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. We intend to repurchase up to $500.0 million of common stock in 2023 subject to market conditions.

During the six months ended July 2, 2023, we repurchased 2.2 million shares of common stock for $227.8 million, which excludes related excise tax, at an average price of $102.35 per share. During the six months ended July 3, 2022, we repurchased 5.0 million shares of common stock for $532.8 million at an average price of $107.50 per share.

While we declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of our Board of Directors, which will consider, among other things, our earnings, capital requirements and financial condition.

On May 1, 2020, we entered into a credit agreement providing a three-year, senior secured revolving credit facility of $400 million. On December 10, 2021, the credit agreement was amended to extend the senior secured revolving credit facility to December 10, 2026. On October 5, 2022, the credit agreement was amended to increase the amount of the credit facility to $750.0 million from $400.0 million. As of August 4, 2023, we have not borrowed any funds under the credit facility.

We believe our cash, cash equivalents, marketable securities and senior secured revolving credit facility will be sufficient to pay our quarterly dividend and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings. At this time, the COVID-19 pandemic has not had an impact on our liquidity, but there is no assurance that continued impacts resulting from the pandemic will not have an adverse effect in the future.

Equity Compensation Plans

In addition to our 1996 Employee Stock Purchase Program as discussed in Note Q: “Stock-Based Compensation” in our 2022 Annual Report on Form 10-K, we have a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”).

The purpose of the 1996 Employee Stock Purchase Plan is to encourage stock ownership by all eligible employees of Teradyne. The purpose of the 2006 Equity Plan is to provide equity ownership and compensation opportunities in Teradyne to our employees, officers and directors. Both plans were approved by our shareholders.

Recently Issued Accounting Pronouncements

For the six months ended July 2, 2023, there were no recently issued accounting pronouncements that had, or are expected to have, a material impact to our consolidated financial statements.

For “Quantitative and Qualitative Disclosures about Market Risk” affecting Teradyne, see Part 2 Item 7A, “Quantitative and Qualitative Disclosures about Market Risks,” in our Annual Report on Form 10-K filed with the SEC on February 22, 2023. There were no material changes in our exposure to market risk from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

In addition to market risks described in our Annual Report on Form 10-K, we have an equity price risk related to the fair value of our convertible senior unsecured notes issued in December 2016. In December 2016, Teradyne issued $460 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023. As of July 2, 2023, $32.8 million of principal remained outstanding and the Notes had a fair value of $115.8 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of the second quarter of 2023 and the estimated impact on the fair value of the Notes. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. The fair value of the Notes is subject to equity price risk due to the convertible feature. The fair value of the Notes will generally increase as Teradyne’s common stock price increases and will generally decrease as the common stock price declines in value. The change in stock price affects the fair value of the Notes, but does not impact Teradyne’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. In connection with the offering of the Notes we also sold warrants to the option counterparties. These transactions have been accounted for as an adjustment to our shareholders’ equity. The convertible note hedge transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants along with any shares issuable upon conversion of the Notes will have a dilutive effect on our earnings per share to the extent that the average market price of our common stock for a given reporting period exceeds the applicable strike price or conversion price of the warrants or Notes, respectively.

As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) or Rule 15d-15(f) promulgated under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information 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.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended July 2, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to other information set forth in this Form 10-Q, including the risk discussed below, you should carefully consider the factors discussed in Part I, “Item 1A: Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect our business, financial condition or future results. The risk factors described in our Annual Report on Form 10-K remain applicable to our business and many of these risks could be further increased due to the COVID-19 pandemic.

The risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Adverse developments affecting the financial services industry, including events or risks involving liquidity, defaults or non-performance by financial institutions, could have a material adverse effect on our business, financial condition or results of operations.

On March 10, 2023, Silicon Valley Bank (SVB), who is a lender in our revolving credit facility and where we maintain certain accounts and cash deposits, was placed into receivership with the Federal Deposit Insurance Corporation (FDIC), which resulted in all funds held at SVB being temporarily inaccessible by SVB’s customers. As of March 13, 2023, access to our cash and cash equivalents at SVB was fully restored. Although our cash balances at SVB are insignificant and we do not expect further developments at SVB to have a material impact on our cash and cash equivalents, we do hold cash balances in several large financial institutions significantly in excess of FDIC and global insurance limits. If other banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.